Balanced & Diversified Mutual Funds

BALANCED & DIVERSIFIED

MUTUAL FUNDS

Submitted by:

Aparana Mittal

FORE School of

Management

Gross Savings (2000-2013)

Household Financial Assets (Last 3 years)(as a % of GDP at current market prices)

GDP Growth Rate (2000-2014)

India’s economic

performance

Overview of Indian MF Industry

Balanced Mutual

Fund

Performance of the Fund

Diversified Mutual

Fund


4.155.39

3.88

7.977.05

9.48 9.57 9.32

6.72

8.59 8.91

6.69

4.5 4.75.5

0

2

4

6

8

10

12

23.2 22.625.4

28.7

32.4133.4434.636.82

32.0233.6933.68

31.3530 30.5

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

1.6 1.6 1.6

8.6 8.8 8.9

0.1 0.1 0.12.9 2.9 31.7 1.7 1.70.8 0.8 0.81.2 1.3 1.3

11.5 11.7 11.9

0

5

10

15

20

25

30

35

2012 2013 2014

Physical Savings

Shares, debentures andMF

Claims on Government

Provident and pensionfund

Life Insurance Fund

Non-banking deposits

Source : http://planningcommission.nic.in/data/datatable/0814/comp_databook.pdf Source : http://planningcommission.nic.in/data/datatable/0814/comp_databook.pdf

Source : http://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=662#4

9.90%

46%

3.40%

11%

17.10%

12.50%

Currency

Deposits

Shares/Debentures/Mutual FundsClaims onGovernmentInsurance

Provident Fund

Decomposition of portfolio of Indian

household (1990-91 to 2010-11)

Source: RBI, Annual Report

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


74867037 6709

9051

10597

0

2000

4000

6000

8000

10000

12000

FY10 FY11 FY12 FY13 Sep-14

I

N

R

B

n

CAGR 4.86%

Growth in the AUM

Source: The Association of Mutual Funds in India (AMFI); Data as of September 2014Note: Figures from FY11 - FY13 corresponds to average AUM for the quarter Jan - Mar (Q4)

Growth in the Market – Sensex &

NIFTY

Source: BSE Sensex and NSE Nifty data as on December 2014

The Indian mutual fund industry has shownrelatively slow growth in the period FY 10-13growing at a CAGR of approximately 4.86%.Average AUM stood at INR 9051 billion in FY13.However, AUM increased to ~ INR 10,597 billion asof September 2014.

Lackluster stock market performance, risinginflation and anticipation of a rise in interestrates has led to a tapering of growth in theIndian mutual fund industry in the recent years.

0

5000

10000

15000

20000

25000

30000

0

2000

4000

6000

8000

10000

CAGR 19.48%

SENSEX

NIFTY

CAGR 17.69%

Penetration (as a % of GDP) vis-à-vis other

countries and world average

7.00%

70%

61%

37%

37%

India

US

France

Brazil

World Average

Despite the relatively low penetration of mutualfunds in India, the market is highly concentrated.Though, there are 46 AMCs operating in the sector,approximately 79 per cent of the AUM isconcentrated with 10 of the leading players in themarket.There have been recent instances of consolidation inthe market and market concentration is expected to

remain in the near-term.

Birla Sun Life Mutual Fund,

10%

DSP BlackRock Mutual Fund, 4%

Franklin Templeton

Mutual Fund, 5%

HDFC Mutual Fund, 13%

ICICI Prudential Mutual Fund,

12%

IDFC Mutual Fund, 4%

Kotak Mahindra Mutual Fund, 4%

Reliance Mutual Fund, 12%

SBI Mutual Fund, 7%

UTI Mutual Fund, 8%

Others, 21%

Market Share of leading Mutual

Funds (basis AUM)

Source : AMFI data (September 2014)

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


AUM Composition by Product Category

20% 16% 19%

0%1%

1%

49% 57%47%

26%22%

29%

2% 2% 2%3% 2% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014

Gold ETF

Balanced

Equity Oriented

Debt Oriented

Gilt

AUMs in debt and liquid money market funds have seenan increase in FY14. Reasons being : Anticipation of RBI rate cuts Desire for investors to seek a fixed return

Debt oriented products (investing in debt instrumentswith maturity > 3 months) have gained most traction.

Clear shift in investor interest from equity. Gold ETF’s have grown at an extremely fast pace

(popularity of gold as an investment)

AUM Composition by Investor

Category

47%

2%

1%

28%

22%

Corporates

Banks/FIs

FIIs

High NetworthIndividuals

Retail


Industry composition of AUM is driven primarily bythe corporate segment

Corporate Investment focus on debt/money marketfunds to earn short term returns and liquiditymanagement

Retail share is expected to rise. Growth drivers : Increased investor awareness Product penetration Greater distribution reach

HNIs -> fastest growing investor segment

AUM growth restricted to top 5 cities of India (Mumbai, Delhi, Bangalore, Chennai and Kolkata) – 74% of AUM

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund



Key challenges

Limited incentives for distributors for MFproducts as compared to other financialproducts

Lack of product differentiation and abilityto communicate value to investors

Low MF penetration and relatively loweraddition of retail investors

Lack of investor awareness about MFindustry

Evolving nature of industry regulations

How to combat ?

Wider distribution reach Improve overall investor awareness Investor education drives

What lies ahead ?

Investorso Penetration and awareness

(through on-ground investorengagement campaigns by AMFI,AMCs and distributors) in Tier II,Tier III (B-15 cities) and ruralmarkets is expected to increase

Productso Traditional debt and equity

oriented products could continueto dominate the market.

Channelso Structural shift from “transaction-

led” pricing model to an “advisory-led” pricing model has beeninitiated by the regulator

Competitiono Wave of consolidationo Retain and strengthen asset base

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


Balanced Mutual Fund

Investment Objective

To generate long-term capital appreciationand current income by creating a portfolioinvested in equity-equity related securitiesas well as fixed income and money marketsecurities.

Suitable for investors seeking :

• Capital growth and income over a long-terminvestment horizon

• Investment primarily in equity/equity-relatedsecurities, with balance exposure in moneymarket and debt securities

• High Risk

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

• ICICIPrudentialBalancedFund

• HDFC BalancedFund

• HDFC PrudenceFund

• Tata BalancedFund

• Birla Sun Life 95 Fund• Canara Robeco Balance• ICICI Prudential Balanced

Advantage Fund• Reliance Regular Savings

Fund – Balanced• SBI Magnum Balanced

Fund

• DSP BlackRockBalanced Fund

• Franklin IndiaBalanced Fund

• UTI Balanced Fund

Kotak Balance

Top 5 Balanced Funds – Consistent

Performers (as per CRISIL, Sep-14)

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


Source : http://www.crisil.com/capital-markets/crisil-mf-ranking-list.html

CRISIL Rank

Mutual Fund Scheme AUM (Rs. Cr)

1-yr 2-yr 3-yr 5-yr Fund Managers

1 ICICI Pru Balanced Fund 968.82 16 3 3 2 Yogesh Bhatt (Equity) and AvnishJain (Debt)

2 HDFC Balanced Fund 1911.59 6 1 4 1 Chirag Setalvad and Rakesh Vyas(Overseas investments)

3 Reliance RSF - Balanced (G) 634.41 21 21 7 9 Sanjay Parekh, Amit Tripathi andJahnvee Shah

4 DSP BlackRock Balanced Fund 501.35 19 23 15 11 Vinit Sambre and Dhawal Dalal

5 Kotak Balance 178.84 39 36 17 17 Emmanuel Elango and AbhishekBisen

Source : Moneycontrol.com

Asset Allocation (average of above

schemes)

Equity70%

Debt30%

Top Sector Holdings

Banks Pharmaceuticals Automobiles Computers-softwares Construction Projects Consumer Durables/Non-

Durables NBFC

Some Facts : ICICI Fund had the best

performance in 2010 of 62.43%and worst performance in 2008 of-41.22%

HDFC Balanced Fund has thelowest expense ratio of 2.15%

STCG is charged at 15% (holdingperiod <=12 months) along withthe Securities Transaction Tax of0.001%

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


Diversified Mutual FundInvestment Objective

To generate long term capital appreciation andsecondary objective being income generation anddistribution of dividend from a portfolioconstituted of equity and equity related securities

Suitable for investors seeking :

• Long-term capital growth• Investment in equity and equity-related

securities to form a diversified portfolio• High Risk

Top 5 Diversified Funds – Consistent Performers (as per CRISIL, Sep-14)

Rank 1 Rank 2 Rank 3 Rank 4 Rank 5

Franklin India High Growth Companies FundICICI Prudential Exports and Other Services FundPrincipal Growth FundTata Ethical FundUTI MNC Fund

Birla Sun Life EquityFundBirla Sun Life LongTerm Advantage FundFranklin India Prima PlusHSBC India Opportunities FundKotak Classic Equity FundKotak Select Focus FundTata Equity PE Fund

Birla Sun Life Advantage FundBirla Sun Life India GenNextFundBirla Sun Life Special Situations FundDSP BlackRock Opportunities FundDWS Investment Opportunity FundFranklin India Flexi Cap FundHDFC Capital Builder FundHDFC Equity Fund

Birla Sun Life DividendYield PlusDSP BlackRock Equity FundDSP BlackRock Focus 25 FundHDFC Core and Satellite FundHDFC Premier MultiCapFundIDFC Classic Equity FundReliance Vision FundSBI Contra Fund

HDFC Growth FundHDFC Large Cap FundReligareInvesco PSU Equity FundSBI PSU FundSundaramSelect Thematic Funds PSU Opportunities

Source : http://www.crisil.com/capital-markets/crisil-mf-ranking-list.html

India’s economic

performance


Balanced Mutual

Fund


Diversified Mutual

Fund


CRISIL Rank

Mutual Fund Scheme AUM (Rs. Cr)

1-yr 2-yr 3-yr 5-yr Fund Managers

1 Franklin India High Growth Companies Fund

799.94 75.8 39 39.3 18.9 Neeraj Gaurh and Roshi Jain

2 Tata Equity P/E Fund 475.63 66.7 30.5 28.9 14.4 Atul Bhole

3 Reliance RSF – Equity (G) 2462.69 54.3 21.5 28.1 12.5 Om Prakash Kuckian and JahnveeShah

4 DSP-BR Equity Fund 1898.07 50.3 22.8 24.8 12.9 Apoorva Shah

5 HDFC Growth Fund 1140.48 41.4 18.2 20.1 12.3 Srinivas Rao Ravuri and RakeshVyas (Overseas Investments)

Equity96%

Debt4%

Asset Allocation (average of

above schemes)

Top Sector Holdings

Banks Automobiles Technology Healthcare Chemicals Diversified Energy Services Textiles Communication

Some Facts :• Franklin MF had the best

performance in 2010 of 154.27%and worst performance in 2009 of -61.91%

• Reliance RSF – Equity and DSP-BREquity Fund have the lowestexpense ratio of 2.3%

• STCG is charged at 15% (holdingperiod <=12 months) along withthe Securities Transaction Tax of0.001%

Source : Moneycontrol.com

Why invest in a Mutual Fund?

Diversification

• Diversification across sectors, stocks and asset classes (debt, equity, gold etc.)

• Reduced risk, higher return potential

Beat Inflation

• Generate inflation adjusted returns (when compared to bank deposits)

Tax efficient instruments

• Mutual fund investment in all asset class for a period of more than one year is considered as long term for the tax purpose.

Convenience and Economical

• Low investment amount (begins from Rs. 500)

• Ability to buy or sell on any business day

• Choice based on individual’s goal and investment needs

Expert Managers

• Dedicated research team

• Experienced fund manager

Liquidity

• Open-ended : Investors have the advantage of getting their money back promptly based on the NAV

• Close-ended : Can be traded on stock exchange

Safety and Transparency

• Regular information about current value of investment

• Well-regulated market by SEBI gives investors an assurance that their investment is in safe hands

What will

be the role

of an

Investment

Advisor?

Discover investor’s personal financial

objectives

Provide education and guidance to investors

Assess an investor’s

entire financial situation

Monitors the portfolio and recommends adjustments

Design a customized investment

plan

Screens industry best service provider to complement investor’s goals

Works with the

providers to

implement investment

plan

Monitors and tracks the providers

Source : http://www.bw-adv.com/Articles/Role-of-Investment-Advisor.pdf

Balanced & Diversified Mutual Funds

Economy & Finance

Transcript of Balanced & Diversified Mutual Funds