project on mutual funds

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LOVELY PROFESSIONAL UNIVERSITY DEPARTMENT OF MANAGEMENT

Performance of mutual funds and its Awareness among the patrons in the present Market

Submitted to Lovely Professional University In partial fulfillment of the requirements for the award of degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by:

Supervisor:

Dinit Mahendru

Mrs. Deepika Dhall

Reg. No.: 10807727

Lect. of lovely professional university

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA

(2008-10)

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ACKNOWLEDGMENT

It is difficult to acknowledge precious a debt as that of learning as it is the only debt that is difficult to repay except through gratitude. First and foremost I wish to express my profound gratitude to the almighty, the merciful & compassionate with those grace & blessings. I have been able to complete this work. I convey my heart full thanks to the Relationship manager Mr.Vikas Kumar and the staff members of INDIA INFOLINE LTD, with their help and corporation. It is my profound privilege to express my sincere thanks to Dr. Sanjay Modi, Director LIM Phagwara, for giving me an opportunity to work on the project and giving me full support in completing this project. I am very thankful to my guide Mrs. Deepika Dhall (Lecturer in LIM, Phagwara) and my coordinator Ms. Sukhwinder kaur for his full support in completing this project work. Last but not least, I would like to thank my parents & my friends for their full cooperation & continuous support during the course of this assignment.

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TABLE OF CONTENTS Contents

page no.

Certificate

2

Acknowledgement

3

Table of content

4,5

Executive summary

6

Introduction to the Project

9

Introduction of mutual fund Advantages and disadvantages Types of mutual fund schemes Sebi registered mutual funds Pointers to measure mutual fund performance Tax rules for mutual fund investors History of mutual funds Procedure of registered mutual funds Evaluating portfolio performance Investors financial planning and its results  7 investment tips to improve your returns  How to reduce risk while investing          

Introduction to the company

     

Snapshot of India info line ltd. Introduction of company Unique approaches Pillars of the organization Milestone keys History of India info line ltd

35

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Objectives of the study and research methodology

45

Data Presentation, Analysis and Interpretation  Comparison of 4 major mutual funds

49

Conclusion & Suggestions

71

Annexure

73

 Questionnaire  Financial statements •

Balance sheet

•

Profit and loss a/c

 Glossary

Bibliography

82

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EXECUTIVE SUMMARY

Role of financial system is to enthusiast economic development. As investors are getting more educated, aware and prudent they look for innovative investment instruments so that they are able to reduce investment risk, minimize transaction costs, and maximize returns along with certain level of convenience as a result there has been as advent of numerous innovative financial instrument such as bonds, company deposits, insurance, and mutual finds. All of which could be matched with individual’s investment needs. Mutual funds score over all other investment options in terms of safety, liquidity, returns, and are as transparent, convenient as it can get. Goal of a mutual fund is to provide an efficient way to make money .In India there are 36 mutual funds with different Investment strategies and goals to choose from .different mutual funds have different risks, which differ because of fund’s goals, funds manager, and investment styles. A mutual fund is an investment company that collects money from many people and invests it in a variety of securities .the company then manages the money on an ongoing basis for individuals and businesses. Mutual funds are an efficient way to invest in stocks, bonds, and other securities for three reasons:

a) The securities purchased are managed by professional managers. b) Risk is spread out or diversified, because you have a collection of different stocks and bonds. c) Costs usually are lower than what you would pay on your own, since the funds buy in large quantities.

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OBJECTIVES OF THE STUDY

1.

The objective of the research is to study and analyze the awareness level of investors of mutual funds.

2.

To measure the satisfaction level of investors regarding mutual funds.

3.

An attempt has been made to measure various variable’s playing in the minds of investors in terms of safety, liquidity, service, returns, and tax saving.

4.

To get insight knowledge about mutual funds

5.

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

6.

To know the mutual funds performance levels in the present market

7.

To analyze the comparative study between other leading mutual funds in the present market.

8.

To know the awareness of mutual funds among different groups of investors.

9.

Finding out ways and means to improve on the services by INDIA INFOLINE LTD

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RECOMMENDATIONS AND SUGGESTIONS: 

Customer education of the salaried class individuals is far below standard. Thus Asset

Management Company’s need to create awareness so that the salaried class people become the prospective customer of the future. 

Early and mid earners bring most of the business for the Asset Management

Company’s. Asset Management Company’s thus needed to educate and develop schemes for the person’s who are at the late earning or retirement stage to gain the market share. 

Return’s record must be focused by the sales executives while explaining the schemes

to the customer. Pointing out the brand name of the company repeatedly may not too fruitful. 

The target market of salaried class individual has a lot of scope to gain business, as

they are more fascinated to Mutual Funds than the self employed. 

Schemes with high equity level need to be targeted towards self employed and

professionals as they require high returns and are ready to bear risk. 

Salary class individuals are risk averse and thus they must be assured of the

advantage of “risk – diversification” in Mutual Funds. 

There should be given more time & concentration on the Tier-3 distributors.



The resolution of the queries should be fast enough to satisfy the distributors



Time to time presentation/training classes about the products should be there.



There should be more number of Relationship Managers in different Regions because

one RM can handle a maximum of 125 distributors efficiently and also to cover untapped market. 

Regular activities like canopy should be done so as to get more interaction with the

distributors. 

Regular session should be organized on the handling of the india infoline software so

as to resolve the account statement problem. 

All the persons who have cleared the AMFI exam should be empanelled with Mutual

Fund so as to be largest distributor base.

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INTRODUCTION What is a Mutual fund? Mutual fund is an investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. Most open-end Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. Most open-end Mutual funds continuously offer new shares to investors. Also known as an open-end investment company, to differentiate it from a closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding.

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as unit

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holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. In India, A Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. In Short, a Mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

ADVANTAGES OF MUTUAL FUNDS

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•

Professional Management. The major advantage of investing in a mutual fund is that you get a professional money manager to manage your investments for a small fee. You can leave the investment decisions to him and only have to monitor the performance of the fund at regular intervals.

•

Diversification. Considered the essential tool in risk management, mutual funds make it possible for even small investors to diversify their portfolio. A mutual fund can effectively diversify its portfolio because of the large corpus. However, a small investor cannot have a welldiversified portfolio because it calls for large investment. For example, a modest portfolio of 10 bluechip stocks calls for a few a few thousands.

•

Convenient Administration. Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors, which is very convenient to investors. Investors also do not have to worry about investment decisions, they do not have to deal with brokerage or depository, etc. for buying or selling of securities. Mutual funds also offer specialized schemes like retirement plans, children’s plans, industry specific schemes, etc. to suit personal preference of investors. These schemes also help small investors with asset allocation of their corpus. It also saves a lot of paper work.

•

Costs Effectiveness A small investor will find that the mutual fund route is a cost-effective method (the AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get concession from brokerages. Also, the investor gets the service of a financial professional for a very small fee. If he were to seek a financial advisor's help directly, he will end up paying significantly more for investment advice. Also, he will need to have a sizeable corpus to offer for investment management to be eligible for an investment adviser’s services.

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•

Liquidity. You can liquidate your investments within 3 to 5 working days (mutual funds dispatch redemption cheques speedily and also offer direct credit facility into your bank account i.e. Electronic Clearing Services).

•

Transparency. Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis. They also send quarterly newsletters, which give details of the portfolio, performance of schemes against various benchmarks, etc. They are also well regulated and Sebi monitors their actions closely.

•

Tax benefits. You do not have to pay any taxes on dividends issued by mutual funds. You also have the advantage of capital gains taxation. Tax-saving schemes and pension schemes give you the added advantage of benefits under section 88.

•

Affordability Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus.

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DISADVANTAGES OF MUTUAL FUNDS:

•

Professional Management- Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll talk about this in detail in a later section.

•

Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a profit. The Mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.

•

Dilution - It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

•

Taxes - When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Equity funds, if selected in the right manner and in the right proportion, have the ability to play an important role in achieving most long-term objectives of investors in different segments. While the selection process becomes much easier if you get advice from professionals, it is equally important to know certain aspects of equity investing yourself to do justice to your hard earned money.

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TYPES OF MUTUAL FUND SCHEMES

1. BY STRUCTURE •

Open – Ended Schemes.

•

Close – Ended Schemes.

•

Interval Schemes.

2. BY INVESTMENT OBJECTIVE •

Growth Schemes.

•

Income Schemes.

•

Balanced Schemes.

3. OTHER SCHEMES

1.

•

Tax Saving Schemes.

•

Special Schemes. 

Index Schemes.



Sector Specific Schemes.

OPEN – ENDED SCHEMES

The units offered by these schemes are available for sale and repurchase on any business day at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units.

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2.

CLOSED – ENDED SCHEMES

The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units on the stock exchanges where they are listed. Unlike open-ended schemes, the unit capital in closed-ended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct repurchase facility to the investors. Closed-ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme.

3.

INTERVAL SCHEMES

These schemes combine the features of open-ended and closed-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices. 4.

GROWTH SCHEMES

These schemes, also commonly called Equity Schemes, seek to invest a majority of their funds in equities and a small portion in money market instruments. Such schemes have the potential to deliver superior returns over the long term. However, because they invest in equities, these schemes are exposed to fluctuations in value especially in the short term. 5.

INCOME SCHEMES

These schemes, also commonly called Debt Schemes, invest in debt securities such as corporate bonds, debentures and government securities. The prices of these schemes tend to be more stable compared with equity schemes and most of the returns to the investors are generated through dividends or steady capital appreciation. These schemes are ideal for conservative investors or those not in a position to take higher equity risks, such as retired individuals. However, as compared to the money market schemes they do have a higher price fluctuation risk and compared to a Gilt fund they have a higher credit risk.

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6.

BALANCED SCHEMES

These schemes are commonly known as Hybrid schemes. These schemes invest in both equities as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the objective of income and moderate capital appreciation and are ideal for investors with a conservative, long-term orientation.

7. TAX SAVING SCHEMES Investors are being encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961.

8.

INDEX SCHEMES

The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. An Index also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market in general rather than investing in any specific fund. Such investors are happy to receive the returns posted by the markets. As it is not practical to invest in each and every stock in the market in proportion to its size, these investors are comfortable investing in a fund that they believe is a good representative of the entire market. Index Funds are launched and managed for such investors.

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9.

SECTOR SPECIFIC SCHEMES.

Sector Specific Schemes generally invests money in some specified sectors for example: “Real Estate” Specialized real estate funds would invest in real estates directly, or may fund real estate developers or lend to them directly or buy shares of housing finance companies or may even buy their securitized assets.

SEBI REGISTERED MUTUAL FUNDS

1. FORTIS Mutual fund 2. Alliance Capital Mutual fund, 3. AIG Global Investment Group Mutual fund 4. Benchmark Mutual fund, 5. Baroda Pioneer Mutual fund 6. Birla Mutual fund 7. Bharti AXA Mutual fund 8. Canara Robeco Mutual fund 9. CRB Mutual fund (Suspended) 10. DBS Chola Mutual fund, 11. Deutsche Mutual fund 12. DSP Blackrock Mutual fund, 13. Edelweiss Mutual fund 14. Escorts Mutual fund,

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15. Franklin Templeton Mutual fund 16. Fidelity Mutual fund 17. Goldman Sachs Mutual fund 18. HDFC Mutual fund, 19. HSBC Mutual fund, 20. ICICI Securities Fund, 21. IL & FS Mutual fund, 22. ING Mutual fund, 23. ICICI Prudential Mutual fund 24. IDFC Mutual fund, 25. JM Financial Mutual fund 26. JP Morgan Mutual fund 27. Kotak Mahindra Mutual fund, 29. LIC Mutual fund 31. Morgan Stanley Mutual fund 32. Mirae Asset Mutual fund 33. Principal Mutual fund 34. Quantum Mutual fund, 35. Reliance Mutual fund 36. Religare AEGON Mutual fund 37. Sahara Mutual fund,

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38. SBI Mutual fund 39. Shriram Mutual fund 40. Sundaram BNP Paribas Mutual fund, 41. Taurus Mutual fund 42. Tata Mutual fund, 43. UTI Mutual fund

If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned Mutual fund and follows up with it regularly. Investors may send their complaints to:

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) OFFICE OF INVESTOR ASSISTANCE AND EDUCATION (OIAE) EXCHANGE PLAZA, “G” BLOCK, 4TH FLOOR, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI – 400 051. PHONE: 26598510-13

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Pointers to Measure Mutual Fund Performance

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MEASURES

DESCRIPTION

IDEAL RANGE

STANDARD

Standard Deviation allows to evaluate the volatility Should be near to it’s mean

DEVIATION

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

BETA

Beta is a fairly commonly used measure of risk. It

Beta > 1 = high risky

basically indicates the level of volatility associated Beta = 1 = Avg with the fund as compared to the benchmark. R-SQUARE

Beta