Distribution Channel Of Mutual Funds in India

Study on the Different Channels of Distribution of Mutual Funds And an Analysis of the Top Equity Schemes.

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A PROJECT REPORT ON

“Study on the Different Channels of Distribution of Mutual Funds and an Analysis of the Top Equity Schemes.”

A Project Report submitted in partial fulfillment of the requirement for the award of Post Graduate Diploma in Management (PGDM)

Submitted by:

George T Cherian PGDM, Batch 18,Roll No 58 Submitted on

3rd August, 2013 Under the guidance of Mr. Sandeep Chikalla Project Guide (Channel Head- Banking-SBI Funds Management Pvt Ltd Company) and Mr Kushal Shenoy (Lecturer, XIME)

Xavier Institute of Management & Entrepreneurship Electronics City, Phase – 2, Bangalore – 560100

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Declaration I hereby affirm that this project report titled ―Study on the Distribution Channels of Mutual Funds and an Analysis of the top Equity Schemes‖ being submitted to the Xavier Institute of Management and Entrepreneurship, Bangalore in partial fulfillment of the requirement for the award of the Post Graduate Diploma in Business Management is bonafide work carried out by me.

Bangalore

George T Cherian

03-08-2013

Forwarded by

Mr Kushal Shenoy Project Guide XIME

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ACKNOWLEDGEMENT

I would like to express my profound gratitude towards SBI Funds Management Pvt Ltd for giving me the opportunity to complete my Summer Internship Program with the company. I am highly obliged to them for the training and the immense knowledge that the company has shared with me in the past eight weeks of the program. The summer internship program completed at SBI Funds Management Pvt Ltd has helped me comprehend the finer details of how the marketing team works and has had an unexceptional impact on me

I am deeply indebted to Professor J. Philip, President, XIME, and Bangalore for providing me with an opportunity to work on this project. I also wish to thank Professor Tyagaraj , the Academic Dean of XIME and my faculty guide Mr. Kushal Shenoy for giving me direction and encouragement, which helped me in the execution of this project.

I would sincerely like to thank Ms. C Padmaja, the Deputy Manager of SBI Mutual Funds for giving me her precious time and guidance throughout the internship program, My Company guide, Mr. Sandeep Chikkala who took time out to help me understand the basics of Mutual Funds and how to market right mutual fund to the customer after understanding his financial habit.

I would also like to express my special thanks to Mr. Prashanth Rao, Vice-President SBI Mutual Fund who gave me this wonderful opportunity of doing internship with SBI MF and for being someone I could look up to.

Last but not the least I would like to thank my Parents and God almighty for being by my side all the time

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Table of Contents

Lists of Tables........................................................................................................................... 7 List of Figures ........................................................................................................................... 8 Executive Summary ................................................................................................................... 9 Conceptual Understanding ................................................................................................... 10 All about Mutual Funds....................................................................................................... .12 Organization of Mutual Fund............................................................................................... 14 Advantages of Mutual Funds……………………………………………..………………..18 Disadvantages of Mutual Funds……………………………………………………………20 Types of Mutual Funds…………………………………………………………..…………21 Criteria to Evaluate Mutual Munds………………………………...………………………26 Channels of Mutual Funds…………………………………………………………………30 Benefits of channels of Distribution to SBI………………………………………………..34 Methodology ………………………………………………………………………………...36 Comparative analysis of SBI’s EBF with its Competitors……………..……..…………. 37 Analysis of risk of selected Midcap Funds……………………………………...….……...45 Comparative Study of Sbi’s magnum Equity fund with its top competitors…..……….51 Analysis of risk of the selected large Cap Funds………………...………………………..61 Findings……………..……………………………………………………………………….65 Challenges……………………………...……………………………………………………66 Recommendations …………………………….……………………………………………68 Conclusion…………………………………………………………………………………...69 Appendices………………………...……………...…………………………………………70 References……………………………………………………………...……………………72

. .

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List of Tables: Table No

Contents

Page

3.1

Comparison of Midcap Funds

45

4.1

Comparison of Largecap Funds

60

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List of Figures: Figure No.

Contents

Page No

1.1

The working of Mutual Fund

11

1.2

Organization of Mutual Fund

12

2.1

Mutual Funds sold through different channels

33

3.1

Sector exposure of EBF

36

3.1.2

Performance of EBF

36

3.1.3

Sector Exposure of HDFC Midcap Opportunities

38

3.1.4

Performance of HDFC Midcap Opportunities

38

3.1.5

Sector Exposure of IDFC Premier Equity

40

3.1.6

Performance of IDFC Premier Equity

40

3.1.7

Sector Exposure of ICICI Prudential Discovery Fund

42

3.1.8

Performance of ICICI Prudential Discovery Fund

42

3.2

Standard Deviation of various funds

43

3.3

Beta of various funds

44

3.4

P/E ratio of various funds

45

3.5

Turnover ratio of various funds

46

4.1

Sector exposure of Magnum Equity Scheme

50

4.1.1

Performance of Magnum Equity Scheme

50

4.1.2

Sector Exposure of HDFC Top 200 Scheme

52

4.1.3

Performance HDFC Top 200 Scheme

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4.1.4

Sector Exposure of Franklin India Bluechip Fund

53

4.1.5

Performance of Franklin India Bluechip Fund

53

4.1.6

Sector Exposure of Birla Sunlife Equity Fund

56

4.1.7

Performance of Sunlife Equity Fund

56

4.2

Standard Deviation of the Large Cap Funds

57

4.3

Beta of the Large Cap Funds

58

4.4

P/E ratio of the Large Cap Funds

59

4.5

Turnover ratio of the Large Cap Funds

60

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Executive Summary Mutual Funds over the years have gained immensely in their popularity. Apart from the many advantages that investing in mutual funds provide like diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. With the introduction of diverse options, investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor.

With the plethora of schemes available in the Indian markets, an investors needs to evaluate and consider various factors before making an investment decision. Hence an investor must infer the fact sheets of the various scheme to assets the portfolio management style of the fund manager. Mutual funds provide risk diversification: diversification of a portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder. Mutual funds represent one such option. So it is always safe for investor to invest their hard earned money in those schemes which have invested in stock of divers sectors with potential to earn higher returns. So this project is carried to understand the science of portfolio management that mutual fund apply to trade off with risk and maximize return. It becomes very difficult for investor to make decision as where to invest his hard earned money and in which stream of investment will reap optimal appreciation of money invested for the period. By analyzing the fact sheets of the Asset Management Company we can auspicate the best fund scheme to invest. There are many research institutes, which provide updated information of all the schemes that are available and the trend in the Mutual Fund industry. All that we need is to read between the lines and make sense of befuddling information, and acquire knowledge related to investment and comprehend finance terminology. In this report I have studied about the various channels of distribution of mutual funds and have done an analysis of the two of the most popular schemes of SBI with that of its competitors. Objectives: 

To Study the various distribution channels of Mutual Funds and find out the channel that provides the maximum sales



To evaluate portfolio performances of two of SBI Mutual Funds‘ schemes with that of its competitors.

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Sub objectives 

Elaborate rationalism of investment.



Comprehensive study of Mutual Fund industry.



Criteria to be used while evaluating Mutual Funds.

Results: After concluding the project it was found that banks constitute almost half the sales of mutual funds in all the distribution channels and the investors who come to the mutual fund office has been gradually increasing.

It was also found that among the two schemes of SBI that the analysis is done on, the Emerging Business Fund is the best fund in its category as it has been consistently beating its benchmark and giving the highest returns in comparison to the other funds. The Magnum Equity Fund on the other hand also has been beating its benchmark and giving good returns but there are other funds too that has done better than it.

Conclusion: Almost 45% of the sale of SBI Mutual Funds arises from the various SBI branches across the country and the fact that the State Bank group has the most number of branches in the country plays to its advantage and the company should make the best use of this fact.

The customer awareness regarding mutual funds has increased manifold and hence the number of people to go the mutual fund office and the internet to invest in mutual funds has been steadily increasing and will continue to do so, especially people investing online.

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1 Conceptual Understanding: 1.1 All About Mutual Funds: Before we understand what is mutual fund, it‘s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.

Stocks: Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.

Bonds: Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What is a Mutual fund?: Mutual funds, as the name indicates is the fund where in numerous investors come together to invest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a crucial role in an economy by mobilizing savings and investing them in the capital market, thus establishing a link between savings and the capital market.

A mutual fund is an institution that invests the pooled funds of public to create a diversified portfolio of securities. Pooling is the key to mutual fund investing. Each mutual fund has a specific investment objective and tries to meet that objective through active portfolio management.

Mutual fund as an investment company combines or collects money of its shareholders and invests those funds in variety of stocks, bonds, and money market instruments. The latter include securities, commercial papers, certificates of deposits, etc. Mutual funds provide the investor with professional management of funds and diversification of investment.

Investors who invest in mutual funds are provided with units to participate in stock markets. These units are investment vehicle that provide a means of participation in the stock market for people who have neither the time, nor the money, nor perhaps the expertise to undertake the direct investment in

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equities. On the other hand they also provide a route into specialist markets where direct investment often demands both more time and more knowledge than an investor may possess. The price of units in any mutual fund is governed by the value of underlying securities. The value of an investor‘s holding in a unit can therefore, like an investment in share, can go down as well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund cannot guarantee a fixed rate of return. It depends on the market condition. If a particular scheme is performing well then more return can be expected. It also depends on the fund manager expertise knowledge. It is also seen that people invest in particular funds depending on who the fund manager is.

Figure 1.1- The working of mutual fund

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the schemes 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 person as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. Since small investors generally do not have adequate time, knowledge, experience & resources for directly accessing the capital market, they have to rely on an intermediary, which undertakes informed investment decisions & provides consequential benefits of professional expertise.

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The advantage of Mutual Funds to the investors is professionally managed, low transaction cost, liquidity, transparency, well regulated, diversified portfolios & tax benefits. By pooling their assets through mutual funds, investors achieve economies of scale. A collected corpus can be used to procure a diversified portfolio indicating greater returns has also create economies of scale through cost reduction. This principle has been effective worldwide as more & more investors are going the mutual fund way. This portfolio diversification ensures risk minimization. The criticality of such a measure comes in when you factor in the fluctuations that characterize stock markets. The interest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds are governed by SEBI (Mutual Funds) regulations, 1996.

1.2ORGANISATION OF A MUTUAL FUND:[2] There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Figure 1.2 – Organization of a Mutual Fund

Mutual funds have a unique structure not shared with other entities such as companies or firms. It is important for employees & agents to be aware of the special nature of this structure, because it determines the rights & responsibilities of the fund‘s constituents viz., sponsors, trustees, custodians, transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure also drives the inter-relationships between these constituents.

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The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also registered with SEBI, holds the securities of various schemes of the fund in its custody.

Sponsor: The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track record of business interest in the financial markets. Sponsor must have been profit making in at least three of the above five years. He must contribute at least 40% of the capital of the AMC.

Trustees: The Mutual Fund may be managed by a Board of trustees of individuals, or a trust company – a corporate body. Most of the funds in India are managed by board of trustees. While the board of trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body, it would also be required to comply with the provisions of the companies act, 1956. the board of trustee company, as an independent body, act as protector of the unit-holders interest. The trustees don‘t directly manage the portfolio of securities. For this specialist function, they appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives & in accordance with the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e., executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as registered under the provision of the Indian registration act & registered with SEBI. The trustees begin the primary guardians of the unit-holders funds & assets, a trustee has to be a person of high repute & integrity.

Asset Management Company (AMC): The role of an Asset management companies is to act as the investment manager of the trust. They are the ones who manage money of investors. An AMC takes decisions, compensates investors through dividends, maintains proper accounting & information for pricing of units, calculates the NAV, & provides information on listed schemes. It also exercises due diligence on investments & submits quarterly reports to the trustees. AMCs have been set up in various countries internationally as an answer to the global problem of bad loans. Page | 15

Bad loans are essentially of two types: bad loans generated out of the usual banking operations or bad lending, and bad loans which emanate out of a systematic banking crisis. It is in the latter case that banking regulators or governments try to bail out the banking system of a systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail out the banking system itself.

Types of AMCs in Indian Context: The following are the various types of AMCs we have in India: AMCs owned by banks. AMCs owned by financial institutions. AMCs owned by Indian private sector companies. AMCs owned by foreign institutional investors. AMCs owned by Indian & foreign sponsors.

Custodian: Often an independent organization, it takes custody all securities & other assets of mutual fund. Its responsibilities include receipt & delivery of securities collecting income-distributing dividends, safekeeping of the unit & segregating assets & settlements between schemes.

Mutual fund is managed either trust company board of trustees. Board of trustees & trust are governed by provisions of Indian trust act. If trustee is a company, it is also subject Indian Company Act. Trustees appoint AMC in consultation with the sponsors & according to SEBI regulation. All mutual fund schemes floated by AMC have to be approved by trustees. Trustees review & ensure that net worth of the company is according to stipulated norms, every quarter.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first functionary to be appointed, & is involved in appointment of all other functionaries. The AMC structures the mutual fund products, markets them & mobilizes fund, manages the funds & services to the investors. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre-specifies investment objectives of the fund, the risk associated, the cost involved in the process & the broad rules to enter & to exit from the fund & other areas of operation. In India as in most countries, these sponsors need approval from a regulator, SEBI in our case. SEBI looks at track records of the sponsor & its financial strength granting approval to the fund for commencing operations.

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A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund & perhaps the third one to handle registry work for the unit holder of the fund. Registrars & Transfer Agent(R & T Agent): The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investor applications; record details provide by the investors on application forms; send out to investors details regarding their investment in the mutual fund; send out periodical information on the performance of the mutual fund; process dividend payout to investor; incorporate changes in information as communicated by investors; & keep the investor record up-to-date, by recording new investors & removing investors who have withdrawn their funds. SEBI – Securities and Exchange Board of India: Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head office at Mumbai.

The Securities and Exchange Board of India is perhaps the most important regulatory body. Similar to the Securities Exchange Commission in the US, it is the authority that has to always be on its toes. More so, when the markets are doing well and there are a spate of IPOs (initial public offerings) or FPO‘s (follow-on public offerings) like now.

Its main mandate is to protect the interest of investors in the securities markets and to promote the development of and to regulate the securities markets so as to establish a dynamic and efficient securities market.

When investors have complaints against listed companies or registered intermediaries, and if they are not solved directly between the parties concerned, or if the investor is not happy with the response then SEBI acts as the nodal agency for addressing these complaints. SEBI has listed certain categories of grievances for which investors can file complaints with it.

These include: 

Non-receipt of refund order or allotment advice in case of investment in IPO's, FPO's and rights issues



Non-receipt of dividend from listed companies

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

Non-receipt of share certificates after transfer from listed companies



Non-receipt of debentures after transfer or non-receipt of interest or principal on redemption and non-receipt of interest on delayed repayment



Non-receipt of rights offer letter

1.3ADVANTAGES OF MUTUAL FUND :

Professional Management Mutual funds offer investors the opportunity to earn an income or build their wealth through professional management of their investible funds. There are several aspects to such professional management viz. investing in line with the investment objective, investing based on adequate research, and ensuring that prudent investment processes are followed.

Portfolio Diversification:

Units of a scheme give investors exposure to a range of securities held in the investment portfolio of the scheme. Thus, even a small investment of Rs 5,000 in a mutual fund scheme can give investors a diversified investment portfolio. With diversification, an investor ensures that all the egg is not in the same basket. Consequently, the investor is less likely to lose money on all the investments at the same time. Thus, diversification helps reduce the risk in investment. In order to achieve the same diversification as a mutual fund scheme, investors will need to set apart several lakh of rupees. Instead, they can achieve the diversification through an investment of a few thousand rupees in a mutual fund scheme. Economies of Scale The pooling of large sums of money from so many investors makes it possible for the mutual fund to engage professional managers to manage the investment. Individual investors with small amounts to invest cannot, by themselves, afford to engage such professional management. Large investment corpus leads to various other economies of scale. For instance, costs related to investment research and office space get spread across investors. Further, the higher transaction volume makes it possible to negotiate better terms with brokers, bankers and other service providers.

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Liquidity At times, investors in financial markets are stuck with a security for which they can‘t find a buyer – worse, at times they can‘t find the company they invested in! Such investments become illiquid investments, which can end in a complete loss for investors. Investors in a mutual fund scheme can recover the value of the moneys invested, from the mutual fund itself. Depending on the structure of the mutual fund scheme, this would be possible, either at any time, or during specific intervals, or only on closure of the scheme. Schemes where the money can be recovered from the mutual fund only on closure of the scheme, are listed in a stock exchange. In such schemes, the investor can sell the units in the stock exchange to recover the prevailing value of the investment.

Tax Deferral Mutual funds are not liable to pay tax on the income they earn. If the same income were to be earned by the investor directly, then tax may have to be paid in the same financial year. Mutual funds offer options, whereby the investor can let the moneys grow in the scheme for several years. By selecting such options, it is possible for the investor to defer the tax liability. This helps investors to legally build their wealth faster than would have been the case, if they were to pay tax on the income each year.

Tax benefits Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit of deduction of the amount invested, from their income that is liable to tax. This reduces their taxable income, and therefore the tax liability. Further, the dividend that the investor receives from the scheme, is tax-free in his hands.

Convenient Options The options offered under a scheme allow investors to structure their investments in line with their liquidity preference and tax position.

Investment Comfort Once an investment is made with a mutual fund, they make it convenient for the investor to make further purchases with very little documentation. This simplifies subsequent investment activity.

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Regulatory Comfort The regulator, Securities & Exchange Board of India (SEBI) has mandated strict checks and balances in the structure of mutual funds and their activities. These are detailed in the subsequent units. Mutual fund investors benefit from such protection.

Systematic approach to investments Mutual funds also offer facilities that help investor invest amounts regularly through a Systematic Investment Plan (SIP); or withdraw amounts regularly through a Systematic Withdrawal Plan (SWP); or move moneys between different kinds of schemes through a Systematic Transfer Plan (STP). Such systematic approaches promote an investment discipline, which is useful in long term wealth creation and protection

1.4 Disadvantage of Investing Through Mutual Funds

Lack of portfolio customization: Some securities houses offer Portfolio Management Schemes (PMS) to large investors. In a PMS, the investor has better control over what securities are bought and sold on his behalf. On the other hand, a unit-holder is just one of several thousand investors in a scheme. Once a unit-holder has bought into the scheme, investment management is left to the fund manager (within the broad parameters of the investment objective). Thus, the unit-holder cannot influence what securities or investments the scheme would buy. Large sections of investors lack the time or the knowledge to be able to make portfolio choices. Therefore, lack of portfolio customization is not a serious limitation in most cases.

Choice overload: Over 800 mutual fund schemes offered by 38 mutual funds – and multiple options within those schemes – make it difficult for investors to choose between them. Greater dissemination of industry information through various media and availability of professional advisors in the market should help investors handle this overload.

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1.5 TYPES OF MUTUAL FUND SCHEMES: 





By Structure o

Open-ended schemes

o

Close-ended schemes

o

Interval schemes

By Investment Objective o

Growth schemes

o

Income schemes

o

Balance schemes

o

Money Market schemes

Other types of schemes o

Tax Saving schemes

o

Special schemes

o

Index schemes

o

Sector specific schemes

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Schemes according to maturity period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund / Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund / Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Interval scheme Interval funds combine the features of open-ended & closed ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Schemes The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time. Page | 22

Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Other Schemes Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

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Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Sector specific funds / schemes These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

R e t u r n s

Diversified Equity Funds Balanced Funds MIPs Gilt Funds Income Funds Floaters Money Market Funds

Risk

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1.6VARIOUS CRITERIA TO EVALUATE THE MUTUAL FUNDS The most important and widely used measures of performance are:Basic criterions to evaluate the mutual fund schemes  P/E ratio  Turnover ratio  Expense ratio  Standard deviation

P/E Ratio A valuation ratio of a company's current share price compared to its per-share earnings. (EPS). Calculated as:

EPS is the profit that a company makes on a per share basis. So, if EPS is one, the PE ratio will reflect the price that an investor will pay for this one rupee of the company's profits. Higher PE ratio signifies that investor expectation from these shares is higher. This is because the growth in share price is expected to follow earnings growth. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E.

Turnover Ratio The turnover ratio is the lower of the total sales or total purchases over the period divided by the average of the net assets. Higher the turnover ratio, greater is the volume of trading carried out by the fund. The turnover ratio is more important for equity and balanced funds where the trading cost of equities is substantial. So, each time a fund manager buys and sells, he has to keep in mind that the cost of buying and selling will eat into the fund's returns. Dynamic equity funds, which can move

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rapidly between sectors, will obviously have a higher turnover ratio. Here risk will not be just of the fund manager making a wrong call on a sector but also that of turnover risk. In comparison a passively managed fund, such as an index fund, will have a lower turnover rate compared to an active fund as it has to just mirror the index. The only trading here will be due to investments, redemptions and changes in the index. Also, it is not meaningful to use turnover ratio for new schemes, which are not fully invested. As the scheme is deploying its assets there will be more transactions, at least buy orders, as compared to a fund` which is fully invested. Turnover ratio is less relevant for income funds as brokerage costs are much lower, and hence they will have a lower potential to eat into returns. So, even though gilt funds may have equally high turnover as compared to equity funds, the impact of this turnover is much less. In Short, Turnover ratio is a measure of how a fund's portfolio changes in a year. This ratio indicates how much a fund is trading. Understanding turnover ratio helps in gaining insights into a fund's performance. Expense Ratio Expense ratio is the percentage of total assets that are spent to run a mutual fund. As returns from bond funds tend to be similar, expenses become an important factor while comparing bond funds.

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.

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TREYNOR RATIO Ty= Rp—Rf B WHERE Rp- Average return to portfolio Rf- Risk less rate of interest. B- Beta coeffecient

Treynor ratio is based on the concept of characteristic line. Characteristic line gives the relation between a given market return and fund‘s return. The fund‘s performance is measured in relation to market performance. The ideal fund‘s return rises at a faster rate than the market performance when the market is moving upwards and its rate of return declines slowly than the market return, in the decline. Treynor‘s risk premium of the portfolio is the difference between the aveage return and the risk less rate of return. The risk premium depends on the systematic risk assumed in a portfoilo. Standard Deviation Standard Deviation is the most common statistical measure of judging a fund's volatility and risk. It gives you a 'quality rating' of an average. A measure of the total volatility of a fund is based on the trailing three-year monthly returns. For debt and gilt funds it is based on average weekly return over the past one and a half years. The Standard Deviation of an average is the amount by which the numbers that go into an average deviate from that average. It tells us how closely an average represents the underlying numbers. A high Standard Deviation may be a measure of volatility, but it does not necessarily mean that such a fund is worse than one with a low Standard Deviation. If the first fund is a much higher performer than the second one, the deviation will not matter much. 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 very rare. 1)

Beta =+1.0

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

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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 NAV Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms. NAV = Net Assets of the scheme / Number of Units Outstanding Where Net Assets are calculated as:(Market value of investments + current assets and other assets + Accrued income – current liabilities and other liabilities – less accrued expenses) / No. of Units Outstanding as at the NAV date

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1.7 CHANNELS OF SELLING MUTUAL FUNDS Mutual funds are emerging as an important financial intermediary for the investing public in India. Conceptually and operationally they are different. The investors need to understand the working of a mutual fund and the increasingly diverse and complex investment options brought to them by a large number of mutual funds. The key channel in bringing the mutual funds to a large number of investors all over the country is the network of

INTERMEDIARIES / DISTRIBUTORS. In this industry we have five different channels through which mutual fund are sold: • Mutual Fund Company • National Distributors (NDs) & Intermediaries • Banks • Individual Financial Advisors (IFAs) • Internet Each one has its own customer base. Their way of dealing with them is totally different from other. Every one attracts in their own way. How they attract we will study. There are many industries here. The urgency to keep increasing in size has led mutual funds to use marketing hooks to draw investors. As we rely only on channel partners, our relation with them really is going to play a vital role. How different companies lure the partners, we‘ll study that. As to start with we will first study about the intermediaries in brief by describing who they are and how they help a direct investor.

Mutual Fund Office: Anyone can walk into a mutual fund‘s office, and buy/sell units of its schemes. It‘s a simple process, and there are employees of the fund house on hand to guide you through. If you are buying units, you will have to fill up an application form and hand over a cheque equivalent to your investment. The fund house will give you an acknowledgement of your investment in its scheme(s) and subject to your cheque being cleared, send you an account statement within three to seven days. Since a fund house market only its schemes and not those of its competitors, buying directly means knowing which fund house we want to invest in. If we are selling units, the relevant document is the redemption form, which sometimes forms Page | 30

part of your account statement and can be torn off it, or can be had from the fund house‘s office. The fund house mails the cheque within three days.

Intermediaries: Distributors such as agents, banks and stockbrokers are present in much greater numbers, which makes them the preferred option among investors. While dealing with the intermediaries, make sure they have the AMFI (Association of Mutual Fund in India) certification-a SEBI precondition; since September 2003, for selling mutual funds, intended t ensure that only qualified distributors dispense mutual fund advice. AMFI issues photo identity cards to registered intermediaries, which is proof of their having acquired the certification.

National Distributors [7] The big agents are one-stop sellers of financial products. Agents score over mutual funds on convenience, choice and quality of service. They operate from multiple locations-for example, national distributors like Bajaj Capital has more outlets than most mutual funds-and are supported by an army of registered agents, some of whom are willing to come to our doorstop and sell schemes to you. Further, while a mutual fund offer its schemes, a big agent has the biggest stock among all mutual fund sellers, selling virtually all schemes of virtually every fund house, as well as other investment products. For us, this means more choice. If we know the scheme we want to invest in, go to an agent, fill up the scheme‘s form and give in a cheque. Even if we don‘t know which scheme we want to invest in, a good agent will understand our need and help you pick a scheme. The agent should understand our reasons for investing in a mutual fund and based on that offer us appropriate options, and let us make a choice. An agent is supposed to be impartial and not show a preference towards a particular fund house. The very nature of the relationship between an intermediary and fund houses opens up the possibility of bias. Fund houses pay intermediaries a commission linked to the business they bring in. If fund house X pays a higher commission than fund house Y, an intermediary might push scheme X, as it stands to earn more. How do we know that we are being misguided or not? The entry load charged by a scheme can offer us some clues. The entry load represents the upfront costs an investor pays to invest in a scheme, and the agent‘s commission tends to flow out of it. The higher the entry load, chances are, the higher the agent‘s commission. If the agent is pushing the higher load scheme, perhaps he is more interested in maximizing his commission than our returns. Hence always know the entry load being charged by a scheme. Till mid 2002, intermediaries passed on a part of their commission to investors, as an incentive to invest. The amount of cash paid depended largely on much they got from a fund house. Obviously the more they got form the fund house, the more they passed on to investors. This often created an unhealthy situation, where cash incentives, and not investment-worthiness, determined which scheme, an agent recommended. In June 2002, to stop Page | 31

such abuse, SEBI made it illegal for intermediaries to give money and gifts to investors. Although intermediaries can‘t lure you with money now (legally speaking that is), their commission-based earnings structure means a distributor could still be a partial to a fund house. Which is why, listen to what an intermediary to say but also do the homework, and use your judgment to make an informed decision. The benefits of investing through brokers for a customer are:

Banks A number of banks, especially the private and foreign ones, are into marketing the mutual fund schemes. Many of them market not only their own schemes, but also those of their rivals as a point of purchase; banks are a good option because of their fantastic reach-banks can be found in every neighborhood. This wide reach has enabled banks to emerge as a major distributor. In 1999, barely 10 percent of fresh mutual fund sales were made through banks; during 2003, various estimates put the share of banks in mutual fund sales at between 30 percent and 50 percent. In terms of scope of service, banks are a notch below agents. Whatever your profile or investment amount might be, an agent will offer you personalized service-he will listen to your investment needs, offer you information on various schemes as asked by you, and suggest investment options. The private sector Banks today like HDFC,ICICI and AXIS Bank are very aggressive in their approach and are willing to take that extra effort to satisfy their customers and hence are willing to sell the mutual funds of their competitors too. All the schemes in such banks are customer centric as they give a lot of importance to customer retention. It should also be noted that about 40% of SBI‘s funds are sold through the various Sbi branches around the country. It is one competitive advantage that SBI Mutual Funds enjoys as SBI has the most number of branches in the country and no other bank is yet to match that.

Individual Financial Advisors Big brokers combine the attributes of agents (one-stop shop, personalized service) and banks (a team of analyst who crack the mutual fund industry). This service, though usually comes at a cost, and is reserved for their clients. Small brokers, on the other hand, welcome retail investors, but most of them market schemes of select fund houses only. These are independent professionals trained to advice you on all personal finance matters. They all sell financial products, as agents currently do. Unlike agents, though, CFPs might charge you for their services.

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The Internet At present, around 3 percent of mutual fund transactions are done online. This figure is bound to increase, with better Net connectivity are also expected to tie up with more banks, which will bring more investors into the loop. The other move that will provide a fill up to online transactions to be supplemented by physical documentation. At present, some fund houses enable buying-and in some instances, selling on three platforms:

1. Own websites- Most of the mutual fund houses let you buy and sell the units of their schemes through their websites. All you need is a Net banking account with any of the banks the fund houses have tied up with. You log on to the fund‘s site, choose your scheme and investment amount. A link on the website takes you to the website of the designated bank, where you make your payment. Money is transferred from your Net banking account to the mutual fund and units are allotted to you instantaneously. The transaction is also documented in the physical form-the fund houses send you the application form to sign, and send back. Once you have done an online transaction with a fund house, you can open an online account with it. This will enable you to sell your holdings, switch between the schemes and purchase additional units-at the click of a mouse.

2. Financial Portals- You can also buy units of several mutual funds through financial portals as myiris.com, timesofmoney.com and indiainfoline.com among others. The process and requirements are similar to that of for buying through the fund‘s site. However, most portals enable only purchase.

3. Online trading portals- Share trading portals like ICICI Direct (icicidirect.com) and Sharekhan (sharekhan.com) too offer a fair number of mutual fund schemes on their platforms. Registered user can buy or sell their units on offer, just like a stock-at no extra cost

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1.8 The benefits that the channels of distribution provide SBI Mutual Funds are: 1. Reduce search and analysis costs. Finding and selecting a mutual fund from among the thousands of possible choices is neither simple nor anxiety-free. The search and evaluation costs for some types of funds (and customers) may be greater than for others. ―Harder to find funds‖ might include those that are younger and smaller. In addition, some types of funds are harder to analyze than others. Money market funds and index funds are probably easier to understand than would be international funds or more specialized funds. If consumers use brokers to help them find funds for which search and analysis costs are higher, then we should see brokers specializing in these types of funds.

2. Reduce non-distribution expenses. There is ample evidence that higher expenses systematically lead to lower performance. Many studies have tried to establish whether fund managers can earn enough pre-fee alpha to offset the drag caused by their fees. By definition, inserting a paid broker into the fund selection process will increase the costs to the consumer. Brokers cannot change the performance of a fund (they do not make portfolio decisions), but they could direct consumers to different types of funds. Perhaps brokers help the consumer find funds whose non-distribution costs (investment management, custody, legal, audit, etc.) are lower, offsetting some or all of the higher costs of distribution.

3. Help consumers identify funds with higher risk-adjusted returns. Just as consumers pay investment managers with the hope that they will select portfolios of securities that produce positive riskadjusted returns, perhaps they pay brokers to select mutual funds that produce positive risk-adjusted returns. While academic research has failed to find that investment managers can repeatedly outperform risk-adjusted indices, perhaps professional brokers might help their customers find superior performing funds. These funds may not be ―superior‖ in an absolute sense (have persistent positive alphas), but rather in a relative sense, i.e., compared with the alphas of direct sold funds, before or after the deduction of the various expenses of fund purchase and ownership

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2.1Graphical representation of the Percentage of the Mutual Funds sold through the different channels during Financial Year April 1st 2011- March 31st 2013

Sales 3.5 5 SBI 24.5

45

National Distributors IFA's Mutual Fund office Internet Other Banks

12 10

Figure 2.1- Mutual Funds sold through different channels

Interpretations: 

As of now banks play a major role in the distribution of SBI‘s Mutual Funds as 50% of it‘s funds are distributed through it.



However, it should also be noted that 45% of the 50% are sold through the various SBI Branches across the country and that the other banks like Axis, HDFC and ICICI that also sell Mutual Funds of other rival companies contribute a mere 5%.



It has been observed that the contribution of the Mutual Office and the Internet in the sales of the mutual office has been steadily increasing in the last couple of years as the customer awareness has increased manifold in these years.

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3.0 Methodology: The study involved collection of both primary as well as secondary data. After the collection of secondary data & interviews with the Finance and the Distribution team and other staff, the analysis was done with the help of excel. The results are depicted in the tables and graphs. The descriptive mode of research was followed throughout the study. It is a systematic and rigorous investigation of the distribution channels of SBI Mutual Funds and the best equity schemes it has to offer.

3.1 Primary Data Primary data was collected from facts and figures obtained through personal visits and discussions with staff of SBI Funds Management Pvt Ltd Company and also related parties.

3.2 Secondary Data For collecting secondary data various other sources were used like: 

Audited Annual Report of the company.



Information from journals and magazines.



Information from internet, intranet, and reference books.



Different accounting records of the company.

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3.1 Comparative analysis of SBIMF’s Emerging Business Fund with its Competitors in the Mid cap segment: SBI Emerging Business Fund: SBI Emerging Businesses Fund is a market capitalization agnostic fund; it may invest into large, mid and/or small cap stocks in any proportion based on the market conditions making the most of different market phases. This kind of strategy proves beneficial as: 

during times of volatility, large caps have comparatively been more consistent



whereas, when markets rally, mid & small caps have taken the lead, so seeing the market pattern and based on careful predictions investments are made

Investment Objective: •

This fund would predominantly invest in Mid Cap. & Small Cap. Companies which have tremendous growth potential.

•

Companies which have exporting orientation and outsourcing opportunities and are globally competitive are focused upon.

•

Companies which have growth potential and domestic focus are also evaluated by this fund.

Focussed Approach: High Conviction: The portfolio invests in 20-30 stocks based on return expectations Concentrated: The current top 10 holdings amount to 50.44% Flexibility: Since there are no sector holding limits, the portfolio is more flexible thereby allowing the fund manager to hold the sectors that the fund manager believes are the best suited for the portfolio For large cap stocks, a top-down approach is taken which is analysing the broader economic outlook, then identifying the sectors & eventually narrowing down to stock selection For mid & small caps, the bottom up approach in which micro factors (business specific) are taken into consideration which eventually lead to sector selection Page | 37

Sector Exposure Percentage:

Pharma

8.4

Energy

6

Services

8

Automobiles

10

Consumer Goods

17.5

Financial services

20 0

5

10

15

20

25

Figure 3.1-Sector exposure of EBF 

The Fund manager has put a lot of faith in the financial, consumer goods and the automobile sectors respectively as nearly 50% of the amount is invested in these sectors.

Performance: 80 65 60 40

30

Emerging Business Fund

35 25

25 22

25

20 20

20

BSE 500 Index (Scheme Benchmark)

0

BSE SENSEX (Additional Benchmark)

1 Year -20 -40

2 Year -10 -30

3 Year

4 Year

-25

Figure 3.1.2- Performance of EBF 

As shown in the above graph Sbi‘s Emerging Business Fund has consistently outperformed it‘s benchmark making it an must have fund.

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HDFC MIDCAP OPPURTUITIES:

This product is suitable for investors who are seeking:  capital appreciation over long term.  investment predominantly in equity and equity related instruments of Small and Mid Cap companies.  high risk.

Investment Objective: To generate long–term capital appreciation from a portfolio that is substantially constituted of equity and equity-related securities of small and mid–cap companies.

Investment Strategy: The investment objective of the Scheme is to generate long-term capital appreciation from a portfolio that is substantially constituted of equity and equity related securities of Small and Mid-Cap companies. The Investment Manager will also seek participation in other equity and equity related securities to achieve optimal portfolio construction. The Scheme may also invest a certain portion of its corpus in debt and money market securities.

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SECTOR PERCENTAGE EXPOSURE:

SERVICES

7.37

FMCG

7.56

TECHNOLOGY

8.36

ENGINEERING

8.77

CHEMICALS

10.37

HEALTHCARE

14.76

FINANCIAL

14.91 0

2

4

6

8

10

12

14

16

Figure 3.1.3- Sector exposure of HDFC Midcap Opportunities 

The fund manager has put a lot of faith in the Financial, Healthcare and the Chemicals industry and had put about 40% of his funds in these sectors.

Performance:

14.9

16 14 12 10

Fund Returns

8 6 4

5.3

5.3 3.9

3.2 1.4

2

BSE 500 Index

0.3

0 -2

1 Year

2 Year -0.5

3 Year

5 Year

Figure 3.1.4- Performance of HDFC MidCap Opportunities 

The fund as it shows in the above graph has outperformed it‘s benchmark consistently making it a good fund to invest in.

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IDFC Premier Equity: IDFC Premier Equity Fund was conceptualized to invest into ideas early into their lifecycle. A typical business cycle adopts a 3-5 year window through which it transitions. Thus the ideal holding period in each idea is spread out over 3-5 years. The focus remains on buying into emerging business & taking a call on the entrepreneur /organization to ride through successfully the growth curve of the business cycle. Here we polarize capital into strong business trends. The fund strives to create long term investor wealth by opening for lump sum subscriptions during periods when such trends are identifiable. By this the Endeavour is to prevent short term money from flowing into the fund which can prove detrimental to the interest of long term investors.

This product is suitable for investors who are seeking: 

Capital appreciation over long term.



Investment predominantly in equity and equity related instruments of Small and Mid Cap companies.



High risk.

Current Strategy: The current structure largely weights around a very balanced domestic opportunity of the investment economy and the consumer economy. During the course of the year the money will be allocated to the fastest growing part of the economy. The portfolio has attempted to identify emerging themes & segment leaders which have a strong correlation to the growth of the economy.

Page | 41

Sector Exposure:

Consumer Durables

7.45

Oil & gas

8.56

Chemicals

9.48

Manufacturing

11.38

Services

11.56

Banking & Financial Services

12.56 0

2

4

6

8

10

12

14

Figure 3.1.4- Sector Exposure of IDFC Premier Equity 

The fund manager has put a lot of faith in the Financial, Services and the Manufacturing industry and had put about 30% of his funds in these sectors.

Performance:

20 18 16 14 12 10 8 6 4 2 0

17.75 14.9

13.59

Fund Return 4.74

1 Year

6.33

5.78 3.58

2 Year

S&P BSE Sensex

3.47

3 Year

5 Year

Figure 3.1.5 Performance of IDFC Premier Equity 

The fund as it shows in the above graph has outperformed its benchmark consistently making it a good fund to invest in.

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ICICI Prudential Discovery Fund (G): ICICI Prudential Discovery Fund is an Open-ended Diversified Equity Fund, which aims to invest stocks available at a discount to their intrinsic value, through a process of ‗Discovery‘. The process involves identifying companies that are well managed, fundamentally strong, and are available at a price, which can be termed as a bargain.

Investment Philosophy: This fund adopts a "Bottom-up" strategy, to identify and pick its investments based on an evaluation of several parameters such as Price / Earning, Price / Book Value and Dividend Yield. The fund manager works towards building a portfolio that is well diversified across sectors and constructed based on indepth research.

Key Benefits: 

It follows a value strategy of bargain hunting for intrinsically good stocks



As the potential value of the stocks in which the fund invests has not yet been unlocked, the probability of growth is much higher.

This product is suitable for investors who are seeking: 

Long term wealth creation solution



A diversified equity fund that aims to generate returns through a combination of dividend income and capital appreciation by primarily investing in value stocks.



High risk

Page | 43

Sector Exposure:

Sector Exposure Healthcare

8.33

Metals

9.63

Engineering

9.72

Energy

10.02

Financial

15.02 0

2

4

6

8

10

12

14

16

Figure 3.1.6- Sector Exposure of ICICI Prudential Discovery Fund 

The fund manager has put a lot of faith in the Financial, Energy and the Engineering industry and had put about 45% of his funds in these sectors.

Fund Performance: 18

16.81

15.81

16 14 12

Fund Performance

10

7.567.04

8

6.2

6 4

2.98

2.65 3.2

CNX Nifty(Benchmark Return)

2 0 1 Year

2 Year

3 Year

5 Year

Figure 3.1.7- Performance of ICICI Prudential Discovery Fund 

The fund started off on a bad note but all those customers who kept their faith in the fund were rewarded nicely as it performed well as time passed.

Page | 44

3.2 Analysis of the Risk of the Selected Mid-Cap Funds:

Standard Deviation:

19 18.5 18 17.5 18.74

17 16.5

17.38

17.34 16.61

16 15.5 HDFC Mid-Cap Opportunities

ICICI Prudential Discovery

IDFC Premier Equity Regular

SBI Emerging Businesses

Figure 3.2- Standard Deviation of the various funds The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its average return of a fund over a period of time.

In other words, it is a measure of the consistency of a mutual fund's returns. A higher SD number indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a lower SD. Therefore from the above graph we can conclude that: 

IDFC Premier Equity Fund has the least risk



SBI Emerging Business Fund has the highest risk. We should also keep in mind that the returns one gets from a fund are in proportion to the risk of that fund.

Page | 45

Beta:

0.82 0.8 0.78 0.76 0.74 0.72

0.8

0.81 0.76

0.7

0.72

0.68 0.66 HDFC Mid-Cap Opportunities

ICICI Prudential Discovery

IDFC Premier Equity Regular

SBI Emerging Businesses

Figure 3.3- Beta of the Funds

1. A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index. The fund will move up and down in tandem with the movement of the markets (as indicated by the benchmark) 2. A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index. 3. A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index. It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper. For example, if the beta of ―ABC-Equity (G)‖ is 1.4 - then it‘s considered as 40% more volatile than the benchmark index (beta of benchmark index being 1).

Therefore from the above graph we can come to the conclusion that IDFC Premier Equity Fund is the least volatile fund among the four funds and that the ICICI Prudential Discovery Fund is the most volatile of the lot.

Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors can opt to invest in mutual fund schemes which have higher beta value for higher returns taking more risk.

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P/E Ratio: 35 30 25 20 30.65

15 10

24.08 16.51

5

13.14

0 HDFC Mid-Cap Opportunities

ICICI Prudential Discovery

IDFC Premier Equity Regular

SBI Emerging Businesses

Figure3.4-P/E Ratio of the Funds A high P/E usually indicates that the market will pay more to obtain the company's earnings because it believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of popularity (e.g.: telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth orientation. A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining, tend to have low P/E ratios, reflecting a value orientation. 

According to the graph the P/E ratio of IDFC’s PEF and SBI’s EBF are the two funds that the customers feel will grow.



It shows that the customers have tremendous confidence in those funds when compared to the other two funds.

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Turnover Ratio: 100 90 80 70 60 50 40 30 20 10 0

88

74 49 13.82

HDFC Mid-Cap Opportunities

ICICI Prudential Discovery

IDFC Premier Equity Regular

SBI Emerging Businesses

Figure-3.5 Turnover Ratio of the Funds A low turnover ratio indicates a buy and hold strategy for actively-managed mutual funds but it is naturally inherent to passively-managed funds, such as index funds and Exchange Traded Funds (ETFs). In general, and all other things being equal, a fund with higher relative turnover will have higher trading costs (Expense Ratio) and higher tax costs, than a fund with lower turnover. In summary, lower turnover generally translates into higher net returns. 

SBI‘s Emerging Business Fund has the lowest turnover ratio among the lot and hence incurs less of trading costs and less tax costs and therefore is the best fund among the lot.



HDFC‘s Mid Cap Opportunities has the highest turnover ratio and hence a lot of money will get deducted as tax and will also have a higher expense ratio.

Page | 48

Comparison of the the SmallCap Funds: Scheme

SBI Emerging Busi (G)

HDFC MidCap Opportunities (G)

IDFC Premier Equity - A (G)

ICICI Pru Discovery Fund (G)

Fund Class

Small & Mid Cap

Small & Mid Cap

Small & Mid Cap

Small & Mid Cap

Fund Type

Open-Ended

Open-Ended

Open-Ended

Open-Ended

Rank 1

Rank 2

Rank 2

Rank 2

1,214.96 Mar-30-2013 Sep 17, 2004

2,719.45 Mar-30-2013 May 07, 2007

3,381.06 Mar-30-2013 Sep 26, 2005

2,538.81 Mar-30-2013 Jul 23, 2004

N.A.

N.A.

N.A.

N.A.

BSE 500 Rs.2000

CNX Midcap Rs.5000

BSE 500 Rs.10000

CNX Midcap Rs.5000

AMC/Fund Family

SBI Funds Management Private Limited

HDFC Asset Management Co. Ltd.

ICICI Prudential Asset Mgmt.Co. Ltd

AMC Asset

54,905.44 Mar-31-2013

101,720.28 Mar-31-2013

IDFC Asset Management Company Private Limited 32,885.99 Mar-31-2013

Ranking Scheme Asset Rs in cr Inception Date Last Dividend Rs/Units Benchmark Minimum Investment Rs

87,835.07 Mar-31-2013

Rs in cr NAV Details Latest NAV Rs/Units 52 week high 52 week low

51.98550

16.88900

36.22030

49.95000

Jun-27-2013

Jun-27-2013

Jun-27-2013

Jun-27-2013

62.500

19.047

40.873

59.470

Jan 04, 13

Jan 15, 13

Jan 04, 13

Jan 15, 13

46.290

15.858

32.293

47.700

Jun 28, 12

Jun 28, 12

Jul 27, 12

Jun 28, 12

-2.0% -9.0% 6.5% 2.6% 5.8% 15.2%

-0.8% -9.3% 11.0% 6.6% 6.7% 14.9%

-6.8% -12.8% 4.7% 1.9% 3.1% 15.8%

Performance Returns as on Jun 27, 13 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years

-3.3% -13.6% 12.3% 10.8% 12.4% 15.2%

Page | 49

Management & Fees Fund Manager Entry Load Exit Load Load comment

R. Srinivasan 0% 1.00% Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment.

Chirag Setalvad ~ Rakesh Vyas 0% 1.00% Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment.

Kenneth Andrade

Mrinal Singh

0% 1.00% Exit Load 1% if redeemed within 365 days from date of allotment.

0% 1.00% Exit Load 1% if units are redeemed / switched-out for a period of up to 12 months from the date of allotment

Table 1 – Comparison of the various Funds

From the above table we can conclude that SBI‘s Emerging Business Fund is the best scheme in the segment as 

It has consistently given more than 10% returns and



According to the Crisil ratings it has received 5 stars



The minimum investment required is the least in comparison to the other funds.



The Fund Manager, Mr. R Srinivasan has been voted the best fund manager according the ―The Economic Times‖ for the 2nd year in a row.

A common feature that all these funds have in common is that the sector in which the fund managers have put their faith in is the banking\finance sector.

Page | 50

4.1 Comparative analysis of SBIMF’s Magnum Equity Growth with that of its Top competitors in the Large Caps segment. SBI Magnum Equity Fund: 

Large caps are generally more consistent & stable compared to mid & small cap.



While they may not generate aggressive returns, one may not see large declines in them either.



In a downward trending market, large caps tend to outperform mid and small caps



Large caps generally recover faster than small and mid cap stocks.

Fund Philosophy • Currently a focused large cap fund • A concentrated portfolio, investing in 25 to 40 stocks, yet offering adequate diversification benefit • Follows a top-down approach for investment, starting with analyzing the broader economic outlook, Then identifying the sectors & eventually narrowing down to stock selection

Page | 51

Sector Exposure:

Metals & Mining

6.97

Automotive

8.52

Tobacco

9.12

Technology

12.58

Oil & Gas

13.17

Banking/Finance

31.97 0

5

10

15

20

25

30

35

Figure 4.1- Sector Exposure of Magnum Equity 

The Fund manager has put a lot of faith in the financial, oil & gas and the automobile sectors respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance (Returns): 16 14

14.9 12.2

12 9

10 8

6.3

Fund Return S&P CNX Nifty Index

6 3.6

3.4

4 2

1.3

1.8

2 Year

3 Year

0 1 Year

5 Year

Figure 4.1.1- Performance of the Fund 

Initially the fund started of slowly but as the fund remained invested in the stocks it kept growing consistently and kept outperforming the benchmark.



All those investors who have kept faith in the funds have earned rich dividends. Page | 52

HDFC Top 200 Fund: This product is suitable for investors who are seeking: 

Capital appreciation over long term.



Investment in equity and equity linked instruments including equity derivatives primarily drawn from the companies in the S&P BSE 200 Index.



High risk.

Investment Objective: To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index.

Investment Strategy: The investment strategy of primarily restricting the equity portfolio to the BSE 200 Index scrips is intended to reduce risks while maintaining steady growth. Stock specific risk will be minimized by investing only in those companies / industries that have been thoroughly researched by the investment manager's research team. Risk will also be reduced through a diversification of the portfolio. The Trustee may from time to time at their absolute discretion review and modify the strategy, provided such modification is in accordance with the Regulations or in the event of a discontinuation of or change in the compilation or the constituents of the BSE 200 Index.

Page | 53

Sector Exposure: Healthcare

6

FMCG

9.48

Technology

10.81

Energy

19.16

Financial

30.79 0

5

10

15

20

25

30

35

Figure 4.1.2- Sector Exposure of HDFC Top 200 

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance:

15

12.9 10.8

10

8.8 6.1

5 0.2

1.4 0.8

Year 2 -0.7

Year 3

Fund Returns BSE 200

0 Year 1

Year 5

-5

Figure 4.1.3- Performance HDFC Top 200 

In the first year the fund started of slowly but as the fund remained invested in the stocks it kept growing consistently and kept outperforming the benchmark.



In the 2nd year the fund did very badly and even gave negative returns and fared even badly than the benchmark



The 3rd year the fund picked up and and started giving positive returns and outperformed the benchmark and kept doing so later on also



All those investors who have kept faith in the funds have earned rich dividends.

Page | 54

Franklin India Blue-chip : Scheme Objectives Is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation.

Key features: 

An open ended diversified equity fund with primary objective to provide medium to long term capital appreciation



The fund focuses investing in large-cap companies with strong financials, quality management and market leadership



The fund is suitable for Investors that prefer large cap oriented equity fund with an investment horizon of 3-5 years



The fund may be considered more suitable for investors who prefer funds with a long term track record as Franklin India Blue-chip Fund has tackled the bull and bear phases by focusing on long term opportunities rather than short term trends

Page | 55

Sector Exposure:

Communication

7.08

Healthcare

7.71

Technology

8.95

Energy

22.95

Financial

24.08 0

5

10

15

20

25

30

Figure 4.1.4- Sector Exposure of Franklin Templeton 

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance: 20 18 16 14 12 10 8 6 4 2 0

17.6

11.1

10.4

Fund Returns 6.8 2.5 2.4

Year 1

Year 2

BSE Sensitive Index

3.7 3.2

Year 3

Year 5

Figure 4.1.5- Performance of the fund 

In the first year the fund started of slowly but as the fund remained invested in the stocks it kept growing consistently and kept outperforming the benchmark.



In the 2nd year the fund just managed to outperform it‘s benchmark.



The 3rd year the fund picked up and outperformed the benchmark and kept doing so later on also.

Page | 56

Birla Sun Life Equity Fund: .

Highlights 1. Smart Choice 2. Flexible Stock Selection

Investment objective: BSL Equity Fund invests in the most promising companies across sectors and across sizes. Their investment team researches countless companies in detail, hand picking companies that seem to have a bright future, and in turn a large increase in share value.

Flexible Stock Selection – Always In Sync With The Market: The market changes at a furious pace. To be on top of the game, you need to aggressively follow the action. The fund manager of BSL Equity Fund continuously revaluates the fund portfolio, and revises it whenever needed, thus increasing the probability of attractive returns. This flexibility of BSL Equity Fund helps generate consistent returns for you.

Page | 57

Sector Exposure: Healthcare

7.22

FMCG

11

Technology

10.91

Energy

13.44

Financial

24.31 0

5

10

15

20

25

30

Figure 4.1.6- Sector Exposure of Birla Sunlife Equity Fund 

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors respectively as nearly 50% of the amount is invested in these sectors.

Fund Performance: 14 12

12.9 10.7

10 8

6.1 6.1

6

Fund Returns

4

BSE 200

2

0.2

0.8

Year 2 -0.5

Year 3 -1.6

0 -2

Year 1

-4

Year 5

Figure 4.1.7-Fund Performance 

In the first year the fund started of well and gave decent returns but couldn‘t outperform the benchmark.



In the 2nd year and 3rd year the fund tanked in the stock market and it gave negative returns and didn‘t even outperform it‘s benchmark.



The 5th year the fund picked up and fared as well as the benchmark. Page | 58

Analysis of the Risk of the Sbi’s Magnum Equity Scheme with the other Selected LargeCap Funds: Standard deviation: 25 20 15 10

19.4 16.06

16.98

SBI Magnum Equity

UTI Leadership Equity

15.7 5 0 Franklin India Bluechip

HDFC Top 200

Figure 4.2- Standard Deviation of the various funds

The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its average return of a fund over a period of time.

In other words, it is a measure of the consistency of a mutual fund's returns. A higher SD number indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a lower SD. Therefore from the above graph we can conclude that: 

Franklin India Bluechip Fund and SBI emerging Business Fund has the least risk.



HDFC Top 200 Fund has the highest risk.

Page | 59

Beta: 1.2 1 0.8 0.6 0.4

0.99

0.81

0.82

0.88

SBI Magnum Equity

UTI Leadership Equity

0.2 0 Franklin India Bluechip

HDFC Top 200

Figure 4.3- Beta of the various funds 1. A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index. The fund will move up and down in tandem with the movement of the markets (as indicated by the benchmark) 2. A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index. 3. A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index. It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper. For example, if the beta of ―ABC-Equity (G)‖ is 1.4 - then it‘s considered as 40% more volatile than the benchmark index (beta of benchmark index being 1).

Therefore from the above graph we can come to the conclusion that SBI EBF and Franklin India Bluechip is the least volatile fund among the four funds and that the HDFC Top 200 is the most volatile of the lot as the beta is almost close to 1.

Note: Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors can opt to invest in mutual fund schemes which have higher beta value for higher returns taking more risk.

Page | 60

P/E Ratio: 30 25 20 15 10

28.28 17.47

17.43

18.81

Franklin India Bluechip

HDFC Top 200

SBI Magnum Equity

5 0 UTI Leadership Equity

Figure 4.4- P/E Ratio of the various schemes A high P/E usually indicates that the market will pay more to obtain the company's earnings because it believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of popularity (e.g.: telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth orientation. A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining, tend to have low P/E ratios, reflecting a value orientation. 

According to the graph the P/E ratio of UTI Leadership equity Fund is the fund that the customers feel will grow.



It shows that the customers have tremendous confidence in that fund when compared to the other funds.



The graph shows that if the UTI Leadership Fund of Rs 1 is sold at Rs 28 also the customers are willing to purchase it .

Page | 61

Turnover ratio:

70 60 50 40 30

58

20 10

25.09

22.09

17.18

0 Franklin India Bluechip

HDFC Top 200

SBI Magnum Equity

UTI Leadership Equity

Figure 4.5- Turnover Ratio of the various funds

A low turnover ratio indicates a buy and hold strategy for actively-managed mutual funds but it is naturally inherent to passively-managed funds, such as index funds and Exchange Traded Funds (ETFs). In general, and all other things being equal, a fund with higher relative turnover will have higher trading costs (Expense Ratio) and higher tax costs, than a fund with lower turnover. In summary, lower turnover generally translates into higher net returns. 

SBI Magnum Equity has the Highest turnover ratio among the lot and hence incurs a lot of trading costs and High Tax costs



HDFC‘s Top 200 has the least turnover ratio and hence very little money will get deducted as tax and will also have a lesser expense ratio.

Page | 62

Tabular comparison of the Large Cap Funds Scheme

Fund Class

SBI Magnum Equity Fund (G) Large Cap

Fund Type Ranking Scheme Asset Rs in cr Inception Date Last Dividend Rs/Units Benchmark Minimum Investment Rs AMC/Fund Family AMC Asset Rs in cr NAV Details Latest NAV Rs/Units 52 week high

52 week low

HDFC Top 200 Fund (G)

Franklin India Bluechip (G)

Large Cap

Large Cap

Birla Sun Life Equity Fund (G) Diversified Equity

Open-Ended

Open-Ended

Open-Ended

Open-Ended

Rank 2

Rank 3

Rank 3

Rank 4

1,073.25 Mar-30-2013 Jan 01, 1991

11,958.80 Mar-30-2013 Aug 19, 1996

4,312.21 Mar-30-2013 Nov 30, 1993

712.16 Mar-30-2013 Aug 27, 1998

N.A.

2.500

2.000

N.A.

BSE 100

BSE 200

BSE Sensitive Index

BSE 200

Rs.1000

Rs.5000

Rs.5000

Rs.5000

SBI Funds Management Private Limited 54,905.44 Mar-31-2013

HDFC Asset Management Co. Ltd. 101,720.28 Mar-31-2013

Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. 41,564.26 Mar-31-2013

Birla Sun Life Asset Management Company Ltd. 77,046.43 Mar-31-2013

45.70770

205.32100

221.97090

247.01000

Jun-27-2013

Jun-27-2013

Jun-27-2013

Jun-27-2013

49.843

234.759

244.046

283.340

May 16, 13

Jan 21, 13

Jan 15, 13

Jan 15, 13

41.620

190.951

204.347

228.020

Jul 26, 12

Jul 26, 12

Jul 26, 12

Jul 26, 12

-2.5% -9.2% 5.2% -1.1% 1.8% 12.2%

-1.5% -6.0% 8.4% 1.8% 4.0% 12.1%

-2.2% -10.2% 7.9% -0.8% -1.5% 6.7%

Performance Returns as on Jun 27, 13 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years

-1.6% -4.6% 9.5% 2.9% 3.2% 10.6%

Page | 63

Management & Fees R. Srinivasan

Prashant Jain ~ Rakesh Vyas

Anand Radhakrishnan ~ Anand Vasudevan

Anil Shah

0%

0%

0%

0%

1.00%

1.00%

1.00%

1.00%

Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment.

Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment.

Exit Load 1% if units are redeemed / switched-out within 1 year from the date of allotment.

Exit Load of 1% if redeemed within 365 Days from the date of allotment

Fund Manager Entry Load Exit Load Load comment

Table 2- Comparison of the large cap equity schemes

From the above table we can infer that in comparison to the above stated schemes SBIMF‘s Magnum is the best of the lot because: 

It has consistently given good returns beating it‘s benchmark the BSE 100.



The minimum investment required is the less when compared to the other schemes.



It is managed by Mr. Srinivasan who has been awarded the ―The Best Fund Manager‖ 2 years in a row.



It has received 4 stars according to the the latest Crisil ratings which is very good.

Page | 64

Findings: After concluding the project it was found that banks constitute almost half the sales of mutual funds in all the distribution channels. Of the 50 % share that the banks occupy in the distribution of SBI Mutual Funds almost 45% share is occupied by the State Bank and its subsidiaries. SBI Funds Management Pvt Ltd has taken advantage of the fact that the State Bank and its subsidiaries have the most number of branches in the country, even extending to tier 3 cities. The Relationship Managers in each of these branches play a major role in the sale of SBI Mutual Funds as they are the ones who advice the customers on various investment options .The number walk-in customers that have been coming to the Mutual Fund office and those who invest online has also been steadily increasing over the last few years as the general awareness on mutual funds has increased manifold.

It was also found that among the two schemes of SBI that the analysis is done on, the Emerging Business Fund is the best fund in its category as it has been consistently beating its benchmark and giving the highest returns in comparison to the other funds. It‘s Fund Manager, Mr. Srinivasan been voted as the best fund manager in India for 3 years in a row now which also adds to the credibility of the fund making it a ― must have‖ fund in it‘s category. The Magnum Equity Fund on the other hand also has been beating its benchmark and giving good returns but there are other funds too that has done better than it.

Page | 65

Challenges “Mutual funds are still sold, not bought.” - A large national distribution.

Low Levels of Customer Awareness: Low customer awareness levels and financial literacy pose the biggest challenge to channelizing household savings into mutual funds. The general lack of understanding of mutual fund products amongst Indian investors is pervasive in metros and Tier 2 cities alike and majority of them draw little distinction in their approach to investing in mutual funds and direct stock market investments. A large majority of retail investors lack an understanding of risk-return, asset allocation and portfolio diversification concepts. Low awareness of SIPs in India has resulted in a majority of the customers investing in a lump sum manner.

Limited Focus beyond the Top 20 Cities: The mutual fund industry has continues to have limited penetration beyond the top 20 cities. Cities beyond Top 20 only comprise approximately 10 percent of the industry AUM as per industry practitioners. The retail population residing in Tier 2 and Tier 3 towns even if aware and willing, are unable to invest in mutual funds owing to limited access to suitable distribution channels and investor servicing. The distribution network of the fund houses is largely focused on the Top 20 cities given the high cost associated with deeper penetration into Tier 2 and Tier 3 towns. However, SBI Mutual Funds have begun focusing on cities beyond the Top 20 by building their branch presence and strengthening distribution reach through non-branch channels.

Limited Innovation in Product Offerings: The Indian mutual fund industry has largely been product-led and not sufficiently customer focused. The popularity of NFOs triggered a proliferation of schemes with a large number of non-differentiated products. The industry has had a limited focus on innovation and new product development, thereby catering to the limited needs of the customer. Products that cater specifically to customer life stage needs such as education, marriage, and housing are yet to find their way in the Indian market.

Page | 66

Sbi Mutual Funds offers limited investment options viz. capital guarantee products for the Indian investors, a large majority of whom are risk averse. The Indian market is still to witness the launch of green funds, socially responsible investments, fund of hedge funds, enhanced money market funds, renewable and energy/ climate change funds.

Limited Flexibility in Fees and Pricing Structures: The fee structure in the Indian mutual fund industry enjoys little flexibility unlike developed markets where the level of management fees depend on a variety of factors such as the investment objective of the fund, fund assets, fund performance, the nature and number of services that a fund offers. While the expenses have continuously risen, the management fee levels have remained stagnant. Distributors are compensated for their services through a fixed charge in the form of entry load and additional fees as considered appropriate by the AMC. Regardless of the quality of advice and service provided, the Commission payable by the mutual fund customer to the distributors is fixed.

Limited Customer Engagement: Mutual fund distributors have been facing questions on their competence, degree of engagement with customer and the value provided to the customer. In the absence of a framework to regulate distributors, both the distributors and the mutual fund houses have exhibited limited interest in continuously engaging with customers post closure of sale as the commissions and incentives had been largely in the form of upfront fees from product sales (although trail commissions have also been paid in limited instances regardless of the service rendered). As a result of the limited engagement, there have been rising instances of mis-selling to customers.

Limited Focus of the Public Sector Network on Distribution of Mutual Funds: Public sector banks with a large captive customer base, significant reach beyond the Top 20 cities in semi-urban and rural areas, and the potential to build the retail investor base, have so far played a very limited role in mutual funds distribution.

Further the credibility enjoyed by the State Bank of Bank, in the rural hinterland has not been fully leveraged to target the retail segment.

Page | 67

Recommendations: In addition to the PAN card requirement, in mutual funds, the customers are required to procure KYC acknowledgement. This requires submission of several documents and extensive paperwork. The respondent‘s complex terminology and the paperwork involved in mutual fund investing. Further, this regulatory directive is viewed negatively by potential customers as investments in insurance products can be undertaken without the requirement for a PAN card. Hence, there is urgent need for the Government to facilitate harmonization of policies and processes across different verticals in the financial services sector and to simplify documentation that could thereby ease the process of mutual fund investments for retail customers.

Spreading awareness about Mutual fund is required, there is a large customer base of SBI who have no idea about mutual funds, and they need to be tapped. This can be done through advertisements, road shows etc People who come to SBI bank for investment in FDs, TDS etc should be convinced to invest in mutual funds as they give more returns comparatively. Young customers having account with SBI should be convinced to invest in MF as they are less risk averse. Schemes which have performed well in past should be advertised and promoted as it gives a confidence to investors. Online trading should be encouraged in the metros as it will save a lot of time and money. Schemes should be suggested to a customer in accordance to his needs and not just because it is doing well at that point in time. There should be a regular communication with existing clients as they will help us generate business through word of mouth. Should regularly meet up with the channel partners who help in promoting our various schemes to their clients.

Page | 68

Conclusion: Mutual fund is very good for people who have less knowledge of stock market or who don‘t have enough time to keep a regular check on the market. Mutual Funds are managed by professionals, so investor doesn‘t need to take any tension about his/her money. Selling MF is a tough task as the product is intangible and the investor doesn‘t get anything tangible for the money he pays except an acknowledgement. Though Mutual Funds are popular but still there is a large number market who have no idea of mutual funds because awareness of mutual fund is less compared to life insurance and FDs. Mutual Fund is a service industry so it is very important for the company to provide good service and make sure it is at par with its competitors. Eg. – Easy process of investment and redemption, keeping investors updated with NAVs through email or statements etc. The 8 weeks at spent at SBI mutual fund was an eye opener into the world of marketing financial instruments. One could learn a lot about the practical difficulties in marketing financial products in the real world environment. The customer perception about our product could be understood and how to adjust or modify our marketing plan accordingly. It is of utmost importance to study the market in which we are going to sell our product and the importance of understanding customer behavior. Mutual fund Industry is a highly regulated Industry and the competition is very intense. The way to differentiate our product from the competitor is by comparing our schemes performance with that our competition. Also post sales service plays a vital role in customer satisfaction, thereby helping in retaining our existing customers. Also marketers need to keep themselves updated about the broad economic perspective. The mutual fund industry is very much affected by the changes in economic policies and the performance of the economy in general. Also it is wise to be patient when it comes to marketing of mutual funds. It is a slow process and first we need to earn the trust of the customers. Only after proper initiation, we can convert these interactions and pitches into business. Finally I would like to say that my summer Internship program with SBI funds management Pvt. Ltd. has been a very fruitful experience for me as an intern and will go a long way in shaping my career.

Page | 69

Appendices

Company profile: STATE BANK OF INDIA - MUTUAL FUND - A partner for life 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. Exploiting expertise, compounding growth: In twenty years of operation, the fund has launched 38 schemes and successfully redeemed fifteen of them. In the process it has rewarded it‘s investors handsomely with consistently high returns. A total of over 60 lakh investors have reposed their faith in the wealth generation expertise of the Mutual Fund. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI‘s. Today, the fund manages over Rs. 51,461 crores of assets and has a diverse profile of investors actively parking their investments across 37 active schemes.SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund. Growth through innovation and stable investment policies is the SBI MF moto.

Page | 70

Fund house expertise: The investment environment is becoming increasingly complex. Innumerable parameters need to be factored in to generate a clear understanding of market movement and performance in the near and long term future. At SBIMF, they devote considerable resources to gain, maintain and sustain our profitable insights into market movements. They consistently push the envelope to ensure our investors get the maximum benefits year after year. Research - the backbone of our Performance Their expert team of experienced and market savvy researchers prepare comprehensive analytical and informative reports on diverse sectors and identify stocks that promise high performance in the future. \ This team works in tandem with a compliance and riskmonitoring department, which ensures minimization of operational risks while protecting the interests of the investors. Quite naturally many of their equity funds have delivered consistent returns to investors and have repeatedly out performed benchmark indices by wide margins.

Page | 71

References Bergstresser, D., Chalmers, J.M.R., Tufano, P., 2004. Assessing the costs and benefits of brokers in the mutual fund industry. Working paper, Harvard Business School and University of Oregon.

Carhart, M.M., 1997. On persistence in mutual fund performance. Journal of Finance 52: 56-82

Del Guercio, D., Tkac, P., 2005. Star power: Assessing the effect of an information intermediary on mutual fund flows. Working Paper, Federal Reserve Bank of Atlanta/ University of Oregon Department of Finance.

Del Guercio, D., Tkac, P., 2002. The determinants of the flows of funds of managed portfolios: mutual funds vs. pension funds. Journal of Financial and Quantitative Analysis 37, 523-58.

Donald E Fischer (2012). Security Analysis & Portfolio Management. 12th ed. .: Donald E Fischer. p3033.

Goetzmann, W., Peles, N., 1997. Cognitive dissonance and mutual fund investors. Journal of Financial Research 20, 145-158.

H. Sadhak (2011). Mutual Funds in India. 13th ed. India: H. Sadhak. p101-105. Shefrin, H., Statman, M., 1985. The disposition to sell winners too early and ride losers too long: theory and evidence. Journal of Finance 40, 777-790. Sawicki, J., 2000. Investors‘ response to performance of professional fund managers: evidence from Australian funds wholesale market. Australian Journal of Management 25, 47-67. Sawicki, J., 2001. Investors‘ differential response to managed fund performance. Journal of Financial Research 24, 367-384.

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