Final Project
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Transcript of Final Project
Study On Investment pattern of HNIs Reliance Money
A Study On The Investment Patterns Of High Networth Individuals In
Ahmedabad
(A Focus On Mutual Fund)
For The Organization
Reliance Capital Asset Management Limited
A PROJECT REPORT SUBMITTED
BY
HARSHA HARJANI (08075)
SAVITRI FUFAL (08073)
BATCH - 2
Submitted To: A J BHAMBHANI
in partial fulfillment of the requirements of
Tolani Institute of Management Studies, Adipur
for the award of the degree of
Post Graduate Diploma in Management
TOLANI INSTITUTE OF MANAGEMENT STUDIES
ADIPUR – 370 205
JULY 2009
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ACKNOWLEDGEMENT
We would like to thank Reliance Money for giving us this opportunity to be associated with an
esteemed organization as theirs.
We would also like to express our sincere thanks to Mr. Abhijeet sangani, Regional Head
Gujarat, Reliance Capital Asset Management Ltd and Mr. Faizal khan, Center Manager, Reliance
Capital Asset Management Ltd . who were our project mentors for providing us with valuable
mentoring and constant feedback on our progress made during the project. They were constant
support and had have helped us in successful completion of our project.
Our sincere appreciation for all the help, advice and warmth we received from all the employees
at Reliance money, Ahmedabad.
We would like to show our gratitude to Prof for allowing us this opportunity to take over this
project. We also thank Prof (Faculty guide and mentor) for being supportive at all the point of
time.
We would like to express our gratitude to all the respondents who took out time from their
schedules and discussed about their investment patterns and their views about Mutual Funds.
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EXECUTIVE SUMMARY
Reliance Mutual Fund (RMF) has been established as a trust with Reliance Capital Limited
(RCL), as the Settler / Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the
Trustee was established in June 30, 1995.
In an expansion drive to gain a greater share in Ahmedabad market, RMF has tried to explore the
opportunities of selling mutual fund to the High Networth Individuals, further segmented into
Hotel Owners, Doctors and Builders and wanted to know more about their investment patterns.
In our report, we have analyzed the investment patterns of these High Networth Individuals,
which investment tools they invested most in, the attributes they give most importance to while
investing, whether they invest for short or long periods both in corporate as well as individual
perspective. We also found out what proportion of the HNIs interviewed already invested in
mutual funds, which schemes they invested mostly in, whether debt, equity or balanced mutual
funds and their reasons for doing so. We have also incorporated in our report the reasons people
don’t invest in mutual funds.
During the course of our project, we interviewed 150 HNIs and learnt about their investment
patterns using which we have suggested recommendations as to how they can be pitched and
tapped for future investments in Reliance Mutual Fund. Our report also explains why the HNIs
are not regular investors in any investment tools, company wise. Towards the end of the report,
on the basis of the knowledge we gathered from interviewing the HNIs, we have suggested few
recommendations, which would be helpful in expanding the investor base of Reliance Mutual
Fund across these segments.
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Table of content
CHAPTER 1: THE MUTUAL FUND INDUSTRY
1.1 Overview of Mutual Fund……………………………………………..08
1.2 Mutual Funds ---Advantages…………………………………………..09
1.3 Mutual Funds----Drawbacks…………………………………………...11
1.4 Structure of Mutual Funds……………………………………………..13
1.5 Types of Schemes………………………………………………………14
1.6 Risk……………………………………………………………………..22
1.7 Setting up of Mutual Fund……………………………………………...25
1.8 Mutual Fund Industry…………………………………………………..25
CHAPTER 2: RELIANCE MUTUAL FUND
2.1 Sponsors: Reliance Capital Limited……………………………………30
2.2 Reliance Capital Asset Management Limited…………………………31
2.3 Reliance Mutual Fund………………………………………………….32
2.4 Management Team…………………………………………………….36
2.5 Different Schemes offered by Reliance Mutual Fund--NFO…………………38
2.6 Reliance Mutual Fund: Overview……………………………………...49
CHAPTER 3: DIFFERENT SEGMENTS OF HIGH NETWORTH INDIVIDUALS:-
3.1 Doctors………………………………………………………………….54
3.2 Builders………………………………………………………………....69
3.3 Hoteliers…………………………………………………………..…….82
CHAPTER 4: TESTS
4.1 Weighted Average Test……………………………………………….97
4.2 Chi-square Test…………………………………………………….…100
CHAPTER 5: CORRELATION……………………………………………………...104
CHAPTER 6: FINDINGS…………………………………………………………….106
CHAPTER 7: RECOMMENDATIONS……………………………………………..108
CHAPTER 8: REFERENCES….……………………………………………….……109
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OBJECTIVE OF THE RESEARCH
To gain an insight on the investment patterns of High Networth Individuals in
Ahmedabad.
To study their prefrence towards Mutual Fund.
RESEARCH DESIGN
Cross – Sectional Descriptive Research.
RESEARCH METHODOLOGY
Coverage
o Location: Ahmedabad
o Population: HNIs of Ahmedabad divided into three strata.
Doctors
Builders
Hoteliers
Data Collection
o Sources
Primary data was collected from the HNIs through interview and
questionnaire.
Secondary:
Books, Magazines and Journals and Websites.
Sample Unit: 1 HNI in Ahmedabad.
Sample Size: 150
Sampling Method: Stratified random sampling. 50 from each strata
Tools
Questionnaire administered personally.
Duration of the study
o 6 weeks
Limitations
o As some of the information may not be revealed, whatever analysis and findings
we present may not be accurate.
o Due to time constraints, the sample size of the population is small and hence
cannot be applied to all the HNIs
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CHAPTER 1: THE MUTUAL FUND INDUSTRY
1.1 Overview of Mutual Fund
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 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. 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.
A few frequently used terms are explained here below:
Net Asset Value ("NAV"): Net Asset Value is the market value of the assets of the scheme
minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number
of units outstanding on the Valuation Date.
Sale Price: It is the price you pay when you invest in a scheme. Also called Offer Price, It may
include a sales load.
Repurchase Price: It is the price at which a close-ended scheme repurchases its units and it may
include a back end load. This is also called Bid Price.
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Redemption Price: It is the price at which open-ended schemes repurchase their units and close-
ended schemes redeem their units on maturity. Such prices are NAV related.
Sales Load: It is a charge collected by a scheme when it sells the units. Also called, 'Front-end'
load. Schemes that do not charge a load are called 'No Load' schemes.
Repurchase or 'Back-end' Load: It is a charge collected by a scheme when it buys back the
units from the unit holders.
1.2 Mutual Funds - Advantages
There are numerous benefits of investing in mutual funds and one of the key reasons for its
phenomenal success in the developed markets like US and UK is the range of benefits they offer,
which are unmatched by most other investment avenues. We have explained the key benefits in
this section. The benefits have been broadly split into universal benefits, applicable to all
schemes and benefits applicable specifically to open-ended schemes. The advantages of
investing in Mutual Funds are:
Small investments: Mutual funds help you to reap the benefit of returns by a portfolio
spread across a wide spectrum of companies with small investments. Such a spread
would not have been possible without their assistance.
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Professional Fund Management: Professionals having considerable expertise,
experience and resources manage the pool of money collected by a mutual fund. They
thoroughly analyze the markets and economy to pick good investment opportunities.
Spreading Risk: An investor with a limited amount of fund might be able to invest in
only one or two stocks / bonds, thus increasing his or her risk. However, a mutual fund
will spread its risk by investing a number of sound stocks or bonds. A fund normally
invests in companies across a wide range of industries, so the risk is diversified at the
same time taking advantage of the position it holds. Also in cases of liquidity crisis where
stocks are sold at a distress, mutual funds have the advantage of the redemption option at
the NAVs.
Transparency and interactivity: Mutual Funds regularly provide investors with
information on the value of their investments. Mutual Funds also provide complete
portfolio disclosure of the investments made by various schemes and also the proportion
invested in each asset type. Mutual Funds clearly layout their investment strategy to the
investor.
Liquidity: Closed ended funds have their units listed at the stock exchange, thus they can
be bought and sold at their market value. Over and above this the units can be directly
redeemed to the Mutual Fund as and when they announce the repurchase.
Low Cost: Mutual Fund expenses are often not more than 1.5% of your investments.
Expenses for Index Funds are less than that, because index funds are not actively
managed. Instead, they automatically buy stock in companies that are listed on a specific
index.
Choice: The large amount of Mutual Funds offer the investor a wide variety to choose
from. An investor can pick up a scheme depending upon his risk / return profile.
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Regulations: All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the investor.
1.3 Mutual Funds – Drawbacks
Mutual Funds have their drawbacks and may not be for everyone
No Guarantees: No investment is risk free. If the entire stock market declines in value,
the value of mutual fund shares will go down as well, no matter how balanced the
portfolio. Investors encounter fewer risks when they invest in mutual funds than when
they buy and sell stocks on their own. However, anyone who invests through mutual
funds runs the risk of losing money.
Fees and commissions: All funds charge administrative fees to cover their day to day
expenses. Some funds also charge sales commissions or “loads” to compensate brokers,
financial consultants or financial planners. Even if you don’t use a broker or other
financial adviser, you will pay a sales commission if you buy shares in load fund.
Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20
to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales,
you will pay taxes on the income you receive, even if you reinvest the money you made.
Management risk: When you invest in a mutual fund, you depend on the fund’s
manager to make the right decisions regarding the fund’s portfolio. If the manager does
not perform as well as you had hoped, you might not make as much money on your
investment as you expected. Of course, if you invest in Index Funds, you forego
management risk, because these funds do not employ managers.
These were the few advantages and drawbacks of investing in Mutual Funds.
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1.4 Structure of Mutual Fund
The structure consists of
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the Securities and
Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or
liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund.
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Trust
The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts
Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The
main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia
ensure that the AMC functions in the interest of investors and in accordance with the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust
Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee
are independent directors who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC
is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an
asset management company of the Mutual Fund. At least 50% of the directors of the AMC are
independent directors who are not associated with the Sponsor in any manner. The AMC must
have a net worth of at least 10 crore at all times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the
Mutual Fund. The Registrar processes the application form, redemption requests and dispatches
account statements to the unit holders. The Registrar and Transfer agent also handles
communications with investors and updates investor records.
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1.5 Types of Schemes
Investment Objective
Schemes can be classified by way of their stated investment objective such as Growth Fund,
Balanced Fund and Income Fund etc.
Equity Oriented Schemes
These schemes, also commonly called Growth Schemes, seek to invest a majority of their funds
in equities and a small portion in money market instruments. Such schemes have the potential to
deliver superior returns over the long term. However, because they invest in equities, these
schemes are exposed to fluctuations in value especially in the short term.
Equity schemes are hence not suitable for investors seeking regular income or needing to use
their investments in the short-term. They are ideal for investors who have a long-term investment
horizon. The NAV prices of equity fund fluctuates with market value of the underlying stock
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which are influenced by external factors such as social, political as well as economic. HDFC
Growth Fund, HDFC Tax Plan 2000 and HDFC Index Fund are examples of equity schemes.
General Purpose
The investment objectives of general-purpose equity schemes do not restrict them to invest in
specific industries or sectors. They thus have a diversified portfolio of companies across a large
spectrum of industries. While they are exposed to equity price risks, diversified general-purpose
equity funds seek to reduce the sector or stock specific risks through diversification. They mainly
have market risk exposure. HDFC Growth Fund is a general-purpose equity scheme.
Sector Specific
These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector.
Since they depend upon the performance of select sectors only, these schemes are inherently
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more risky than general-purpose schemes. They are suited for informed investors who wish to
take a view and risk on the concerned sector.
Special Schemes
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. An example to such a fund is the HDFC Index Fund.
Tax Saving schemes
Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest
in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax
rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out
until completion of 3 years from the date of allotment of the respective Units.
The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations,
1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs),
Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,
1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from
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income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a
fund.
Real Estate Funds
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.
Debt Based Schemes
These schemes, also commonly called Income Schemes, invest in debt securities such as
corporate bonds, debentures and government securities. The prices of these schemes tend to be
more stable compared with equity schemes and most of the returns to the investors are generated
through dividends or steady capital appreciation. These schemes are ideal for conservative
investors or those not in a position to take higher equity risks, such as retired individuals.
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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.
Income Schemes
These schemes invest in money markets, bonds and debentures of corporate with medium and
long-term maturities. These schemes primarily target current income instead of capital
appreciation. They therefore distribute a substantial part of their distributable surplus to the
investor by way of dividend distribution. Such schemes usually declare quarterly dividends and
are suitable for conservative investors who have medium to long term investment horizon and
are looking for regular income through dividend or steady capital appreciation. HDFC Income
Fund, HDFC Short Term Plan and HDFC Fixed Investment Plans are examples of bond
schemes.
Liquid Income Schemes
Similar to the Income scheme but with a shorter maturity than Income schemes. An example of
this scheme is the HDFC Liquid Fund.
Money Market Schemes
These schemes invest in short term instruments such as commercial paper (“CP”), certificates of
deposit (“CD”), treasury bills (“T-Bill”) and overnight money (“Call”). The schemes are the least
volatile of all the types of schemes because of their investments in money market instrument
with short-term maturities. These schemes have become popular with institutional investors and
high net worth individuals having short-term surplus funds.
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Gilt Funds
This scheme primarily invests in Government Debt. Hence the investor usually does not have to
worry about credit risk since Government Debt is generally credit risk free. HDFC Gilt Fund is
an example of such a scheme.
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Hybrid Schemes
These schemes are commonly known as balanced 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. HDFC Balanced Fund and HDFC Children’s Gift Fund are
examples of hybrid schemes.
Constitution
Schemes can be classified as Closed-ended or Open-ended depending upon whether they give
the investor the option to redeem at any time (open-ended) or whether the investor has to wait till
maturity of the scheme.
Open ended Schemes
The units offered by these schemes are available for sale and repurchase on any business day at
NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such
schemes thus offer very high liquidity to investors and are becoming increasingly popular in
India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at
all times, and may stop issuing further subscription to new investors. On the other hand, an open-
ended fund rarely denies to its investor the facility to redeem existing units.
Benefits of Open-ended Schemes
Liquidity
In open-ended mutual funds, you can redeem all or part of your units any time you wish. Some
schemes do have a lock-in period where an investor cannot return the units until the completion
of such a lock-in period.
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Convenience
An investor can purchase or sell fund units directly from a fund, through a broker or a financial
planner. The investor may opt for a Systematic Investment Plan (“SIP”) or a Systematic
Withdrawal Advantage Plan (“SWAP”). In addition to this an investor receives account
statements and portfolios of the schemes.
Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily between various
schemes. This flexibility gives the investor a convenient way to change the mix of his portfolio
over time.
Transparency
Open-ended mutual funds disclose their Net Asset Value (“NAV”) daily and the entire portfolio
monthly. This level of transparency, where the investor himself sees the underlying assets bought
with his money, is unmatched by any other financial instrument. Thus the investor is in the know
of the quality of the portfolio and can invest further or redeem depending on the kind of the
portfolio that has been constructed by the investment manager.
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.
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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.
1.6 Risk
The Risk-Return Trade-off
The most important relationship to understand is the risk-return trade-off. Higher the risk greater
the returns/loss and lower the risk lesser the returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do
this you must first be aware of the different types of risks involved with your investment
decision.
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Market Risk
Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the
market in general lead to this. This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on
the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.
Credit Risk
The debt servicing ability (may it be interest payments or repayment of principal) of a company
through its cash flows determines the Credit Risk faced by you. This credit risk is measured by
independent rating agencies like CRISIL who rate companies and their paper. A ‘AAA’ rating is
considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified
portfolio might help mitigate this risk.
Inflation Risk
Things you hear people talk about:
“Rs. 100 today is worth more than Rs. 100 tomorrow.”
“Remember the time when a bus ride costed 50 paise?”
“Mehangai Ka Jamana Hai.”
The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times
people make conservative investment decisions to protect their capital but end up with a sum of
money that can buy less than what the principal could at the time of the investment. This happens
when inflation grows faster than the return on your investment. A well-diversified portfolio with
some investment in equities might help mitigate this risk.
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Interest Rate Risk
In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds
fall and vice versa. Equity might be negatively affected as well in a rising interest rate
environment. A well-diversified portfolio might help mitigate this risk.
Political/Government Policy Risk
Changes in government policy and political decision can change the investment environment.
They can create a favorable environment for investment or vice versa.
Liquidity Risk
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities.
You have been reading about diversification above, but what is it?
Diversification
The nuclear weapon in your arsenal for your fight against Risk. It simply means that you must
spread your investment across different securities (stocks, bonds, money market instruments, real
estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This
kind of a diversification may add to the stability of your returns, for example during one period
of time equities might underperforms but bonds and money market instruments might do well
enough to offset the effect of a slump in the equity markets. Similarly the information technology
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sector might be faring poorly but the auto and textile sectors might do well and may protect you
principal investment as well as help you meet your return objectives.
1.7 Setting Up of Mutual Fund
A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset Management
Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor
who is like promoter of a company. The trustees of the mutual fund hold its property for the
benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the
funds by making investments in various types of securities. Custodian, who is registered with
SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested
with the general power of superintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee company or board of
trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent. All mutual funds are required to be registered with
SEBI before they launch any scheme.
1.8 Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank the. The history of mutual funds in India
can be broadly divided into four distinct phases
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First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The
first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700
crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, under which all mutual funds, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July 1993.
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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting
up funds in India and also the industry has witnessed several mergers and acquisitions. As at the
end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The
Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other
mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of
Unit Trust of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered
with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the
erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management
and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
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The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT
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The mutual fund schemes are continuously increasing since 1989. We can see from the diagram
that in the year 1989 it was only 21 schemes available with the Asset Management Companies
(AMC).
From 1989 to 1994, the mutual fund schemes increased to eight times. Then in the next five
years from 1994 to 1999 it is increased by 110 schemes. After that we can see continuous
increase in the number of schemes of AMCs
These schemes are different from each other. The schemes are differing on the basis of risk, time
period, open ended and closed ended schemes. These schemes are also differing on the basis of
sectoral schemes, diversified schemes.
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CHAPTER 2: RELIANCE MUTUAL FUND
2.1 The Sponsors: Reliance Capital Limited
Reliance Capital Asset Management Ltd. is a wholly owned subsidiary of Reliance Capital
Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset
Management Ltd is held by Reliance Capital Ltd.
Reliance Mutual Fund (RMF) has been sponsored by Reliance Capital Ltd (RCL). Reliance
Capital is India’s fastest growing private sector financial services company. Ranking
among the top 3 private sector banking and finance companies in India, with a shareholder
base of over 1.3 million. Reliance Capital has interests in asset management and mutual
funds, life and general insurance, private equity and proprietary investments, stock
broking and other financial services with a net worth in excess of Rs. 5,262 crore (as of
March 31, 2007)
Particulars
(Rs.in crores)crores)
2005-06 2004-05 2003-04 2002-03
Total Income 652.02 295.69 356.79 458.78
Profit Before Tax 550.61 111.21 105.79 102.63
Profit After Tax 537.61 105.81 105.79 102.63
Reserves & Surplus 3849.58 1310.08 1271.84 1208.5
Net Worth 4122.46 1437.92 1399.81 1336.33
Earnings per Share
(Rs.)
29.74
(Basic + Diluted)
8.31
(Basic + Diluted)
8.31
(Basic + Diluted)
8.06
(Basic + Diluted)
Book Value per Share
(Rs.)
112.95 112.95 109.96 104.54
Dividend (%) 30% 30% 29% 29%
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Paid up Equity
Capital
223.40 127.84 127.84 127.83
Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the corpus for
the setting up of the Mutual Fund. Reliance Capital Ltd. is responsible for discharging its
functions and responsibilities towards the Fund in accordance with the Securities and Exchange
Board of India (SEBI) Regulations.
The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme
beyond the contribution of an amount of Rupees one Lac made by them towards the initial
corpus for setting up the Fund and such other accretions and additions to the corpus.
2.2 Reliance Capital Asset Management Limited
Reliance Capital Asset Management Limited (RCAM), a company registered under the
Companies Act, 1956 was appointed to act as the Investment Manager of Reliance Mutual Fund.
Reliance Capital Asset Management Limited is a wholly owned subsidiary of Reliance Capital
Limited, the sponsor. The entire paid-up capital (100%) of Reliance Capital Asset Management
Limited is held by Reliance Capital Limited.
Reliance Capital Asset Management Limited was approved as the Asset Management Company
for the Mutual Fund by SEBI vide their letter no IIMARP/1264/95 dated June 30, 1995.
The Mutual Fund has entered into an Investment Management Agreement (IMA) with RCAM
dated May 12, 1995 and was amended on August 12, 1997 in line with SEBI (Mutual Funds)
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Regulations, 1996. Pursuant to this IMA, RCAM is authorized to act as Investment Manager of
Reliance Mutual Fund.
The networth of the Asset Management Company including preference shares as on March 31,
2005 is Rs.30.13 crores.
2.3 Reliance Mutual Fund
Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Assets Under
Management (AUM) of Rs. 48,828 crore (AUM as on 30th Apr 2007) and an investor base of
over 3.1 million.
Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of the
fastest growing mutual funds in the country. RMF offers investors a well-rounded portfolio of
products to meet varying investor requirements and has presence in 115 cities across the country.
Reliance Mutual Fund constantly endeavors to launch innovative products and customer service
initiatives to increase value to investors.
Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Ltd., a
wholly owned subsidiary of Reliance Capital Ltd.
Reliance Capital Ltd. is one of India’s leading and fastest growing private sector financial
services companies, and ranks among the top 3 private sector financial services and banking
companies, in terms of net worth.
Reliance Capital Ltd. has interests in asset management, life and general insurance, private
equity and proprietary investments, stock broking and other financial services.
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Sponsor: Reliance Capital Limited.
Asset Management Company: Reliance Capital Asset Management Ltd.
Trustee: Reliance Capital Trustee Co. Limited.
Transfer Agent/Registrar: Karvy Computer Share Private Limited.
Custodian: Deutsche Bank AG
Auditors: Haribhakti & Co. (statutory auditors),
Price Waterhouse Coopers (internal auditors),
C.C.Chokshi & Co. (auditors to AMC),
M/s. Malpani & Associates (auditors to trustee)
Investment Manager: Reliance Capital Asset Management
Limited. The Sponsor, the Trustee and the
Investment Manager are incorporated under the
Companies Act 1956.
Vision
Reliance Capital Asset Management Ltd. has a vision of being a leading player in the Mutual
Fund business and has achieved significant success and visibility in the market.
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However, an imperative part of growth and visibility is adherence to Good Conduct in the
marketplace. At Reliance Capital Asset Management Ltd., the implementation and observance of
ethical processes and policies has helped us in standing up to the scrutiny of our domestic and
international investors.
Management
The management at Reliance Capital Asset Management Ltd. Is committed to good Corporate
Governance, which includes transparency and timely dissemination of information to its
investors and unit holders. The Reliance Capital Asset Management Limited Board is a
professional body, including well-experienced and knowledgeable Independent Directors.
Regular Audit Committee meetings are conducted to review the operations and performance of
the company.
Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the corpus for
the setting up of the Mutual Fund. Reliance Capital Ltd. is responsible for discharging its
functions and responsibilities towards the Fund in accordance with the Securities and Exchange
Board of India (SEBI) Regulations.
The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme
beyond the contribution of an amount of Rupees one Lac made by them towards the initial
corpus for setting up the Fund and such other accretions and additions to the corpus.
2.3(1) Trustees
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The trustees of Reliance Mutual Fund are:
Reliance Capital Trustee Co. Limited (RCTCL)
2.3(2) The Custodian
Deutsche Bank, AG .The Trustee has appointed Deutsche Bank, AG located at Kodak House,
Ground Floor, 222 Dr. D.N.Road, Mumbai-400 001, as the Custodian of the securities that are
bought and sold under the Scheme. A Custody Agreement has been entered with Deutsche Bank
in accordance with SEBI Regulations. The Custodian is approved by SEBI under registration no.
IN/CUS/003 to act as Custodian for the Fund.
Deutsche Bank AG, the Custodian shall, inter alia:
Provide post-trading and custodial services to the Mutual Fund.
Keep Securities and other instruments belonging to the Scheme in safe custody.
Ensure smooth inflow/outflow of securities and such other instruments as and when
necessary, in the best interests of the unit holders.
Ensure that the benefits due to the holdings of the Mutual Fund are recovered and
Be responsible for loss of or damage to the securities due to negligence on its part on the
part of its approved agents.
2.3(3) The Registrar
Reliance Capital Asset Management Limited has appointed M/s. Karvy Computershare Pvt.
Limited to act as the Registrar and Transfer Agent to the Schemes of Reliance Mutual Fund. M/s.
Karvy Computershare Pvt. Limited (KCL) having their office at No.21, Avenue 4, Street No.1,
Adjacent to Rainbow Hospital, Banjara Hills, Hyderabad - 500 034, is a Registrar and Transfer
Agent registered with SEBI under registration no. INR000000221.
Reliance Capital Asset Management Ltd. and the Trustee have satisfied themselves, after
undertaking appropriate due diligence measures, that they can provide the services required and
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have adequate facilities, including systems facilities and back up, to do so. The Trustee has also
laid down broad parameters for supervision of the Registrar. As Registrar to the Schemes, KCL
will accept and process investor's applications, handle communications with investors, perform
data entry services, dispatch Account Statements and also perform such other functions as
agreed, on an ongoing basis.
The Registrar is responsible for carrying out diligently the functions of a Registrar and Transfer
Agent and will be paid fees as set out in the agreement entered into with it and as per any
modification made thereof from time to time.
2.4 Management Team
Board of Directors
Amitabh Chaturvedi
Kanu Doshi
Manu Chadha
Sushil Tripathi
Management Team
President
Vikrant Gugnani
Chief Investment Officer
K.Rajagopal
Head Equity Investments
Madhusudan Kela
Equity Fund Managers
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Equity Fund Manager Sunil B. Singhania
Equity Fund Manager Ashwani Kumar
Equity Fund Manager Shailesh Raj Bhan
Debt Fund Managers
Head Fixed Income Amitabh Mohanty
Debt Fund Manager Amit Tripathi
Debt Fund Manager Prashant Pimple
Head Of Departments
Brand and Communication Abraham Alapatt
Finance and Accounts Amit Bapna
Human Resource Development Rajesh Derhgawen
Information Technology Vinay Nigudkar
Legal & Compliance Balkrishna Kini
Risk Management Lav Chaturvedi
Operations & Settlement Geeta Chandran
Infrastructure & Administration Pradeep Andrade
R&T operations Prashanth D Pereira
Sales and Distribution Sundeep Sikka
Zonal Heads
Northern Zone Head Aashwin Dugal
Western Zone Head Devendra Daga
Southern Zone Head Gurbir Chopra
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2.5 Different Schemes Offered By Reliance Mutual Fund
Debt Schemes
Reliance Income Fund
The primary objective of the scheme is to generate optimal returns consistent with
moderate levels of risk. This income may be complemented by capital appreciation of the
portfolio. Accordingly, investments shall predominantly be made in Debt & Money market
instruments. The benchmark for the scheme is Crisil Composite Bond Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 5.27 3.68
3 Years 4.36 2.83
5 Years 6.76 5.40
Since Inception 9.48 NA
Reliance Monthly Income Plan
The primary investment objective of the scheme is to generate regular income in order to
make regular dividend payments to unitholders and the secondary objective is growth of capital.
The benchmark for the scheme is Crisil MIP Blended Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 6.46 8.88
3 Years 10.74 8.19
Since Inception 9.51 6.38
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Reliance Medium Term Fund
The primary investment objective of the scheme is to generate regular income in
order ro make regular dividend payments to unitholders and the secondary objective is growth of
capital. The benchmark for the scheme is Crisil Short Term Bond Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 6.21 6.10
3 Years 3.73 4.67
5 Years 5.22 5.36
Since Inception 7.05 NA
Reliance Liquid Fund (Treasury Plan)
The primary investment objectiveof the scheme is to generate optimal returns consistent
with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be
made in Debt and Money market instruments. The benchmark for the scheme is Crisil Liquid
Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 7.15 7.18
3 Years 5.66 5.58
5 Years 5.71 5.32
Since Inception 6.78 NA
Reliance Liquid Fund (Cash Plan)
The primary investment objectiveof the scheme is to generate optimal returns consistent
with moderate levels of risk and high liquidity. Accordingly, investments shall predominantly be
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made in Debt and Money market instruments. The benchmark for the scheme is Crisil Liquid
Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 6.94 7.18
3 Years 5.49 5.58
5 Years 5.19 5.32
Since Inception 5.29 NA
Reliance Short Term Fund
The primary objective of the scheme is to generate stable returns for investors with a
short term investment horizon by investing in fixed income securities of a short term maturity.
The benchmark for the scheme is Crisil Liquid Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 8.01 7.18
3 Years 6.41 5.58
Since Inception 6.55 5.20
Reliance Gilt Securities Fund (Short Term Plan)
The primary objective of the scheme is to generate optimal credit risk-free returns by
investing in a portfolio of securities issued and guaranteed by the Central Government and State
Government. The benchmark for the scheme is I - Sec Si - Bex.
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FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 4.31 6.84
3 Years 3.19 5.17
Since Inception 3.92 5.39
Reliance Gilt Securities Fund (Long Term Plan)
The primary objective of the scheme is to generate optimal credit risk-free returns by
investing in a portfolio of securities issued and guaranteed by the Central Government and State
Government. The benchmark for the scheme is I - Sec Li - Bex.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 6.64 6.64
3 Years 5.54 3.13
Since Inception 6.73 4.31
Reliance Floating Rate Fund
The primary objective of the scheme is to generate regular income through investments in
a portfolio comprising substantially of Floating Rate Debt Securities ( including floating rate
securitized debt and Money market instruments and Fixed Rate debt instruments swapped for
floating rate returns.) The scheme shall also invest in Fixed rate debt securities (including fixed
rate securitized debt, money market instruments and floating rate debt instruments swapped for
fixed returns). The benchmark for the scheme is Crisil Liquid Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 6.11 5.52
Since Inception 5.70 5.01
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Reliance NRI Income Fund
The primary investment objective of the scheme is to generate optimal returns consistent
with moderate levels of risks. This income may be complimented by capital appreciation of the
portfolio. Accordingly, investments shall predominantly be made in debt instruments. The
benchmark for the scheme is Cirsil Composite Bond Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 7.15 3.68
Since Inception 5.47 4.51
Reliance Regular Savings Fund (Debt Option)
The primary investment objective of this option is to generate optimal returns consistent
with moderate level of risk. This income may be complemented by the capital appreciation of the
portfolio. Accordingly investments shall predominantly be made in debt and money market
instruments. The benchmark for the scheme is Crisil Composite Bond Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 3.22 3.68
Since Inception 3.14 3.50
Reliance Regular Savings Fund (Equity Option)
The primary investment objective of this option is to seek capital appreciation and / or to
generate consistent returns by actively investing in equity / equity related instruments. The
benchmark for the scheme is BSE 100 Index.
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FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 40.90 38.69
Since Inception 29.86 43.27
Reliance Regular Savings Fund (Hybrid Option)
The primary investment objective of this option is to generate consistent return by
investing a major portion in debt and money market securities and a small portion in equity and
equity related instruments. The benchmark for the scheme is Crisil MIP Blended Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 14.40 9.14
Since Inception 9.57 10.20
Reliance Liquidity Fund
The primary investment objective of the scheme is to generate optimal returns consistent
with moderate levels of risks. Accordingly, investments shall predominantly be made in debt
instruments.
The benchmark for the scheme is Crisil Liquid Fund Index. The fund has given a
weighted average return of 4.57% since inception date 16/06/2005.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 7.96 7.18
Since Inception 6.98 6.27
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Reliance Liquid Plus Fund
The investment objective of the scheme is to generate optimal returns consistent with
moderate levels of risk and liquidity by investing in debt securities and money market securities.
The benchmark for the scheme is Crisil Liquid Fund Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
Since Inception 2.01 2.24
EQUITY FUNDS
Reliance Growth Fund
The primary investment objective of the scheme is to achieve long term growth of capital
by investing in equity and equity related securities through a research based investment
approach. The benchmark for the scheme is BSE 100 Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 33.48 38.69
3 Years 62.23 43.54
5 Years 61.33 36.12
Since Inception 33.68 13.90
Reliance Vision Fund
The primary investment objective of the scheme is to achieve long term growth of capital
by investing in equity and equity related securities through a research based investment
approach. The benchmark for the scheme is BSE 100 Index.
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FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 41.01 38.69
3 Years 54.30 43,54
5 Years 55.49 36.12
Since Inception 29.32 13.90
Reliance NRI Equity Fund
The primary investment objective of the scheme is to generate optimal returns by
investing in equity or equity related instruments primarily drawn from companies in the BSE 200
Index. The benchmark for the scheme is BSE 200 Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 46.49 36.92
Since Inception 44.88 37.71
Reliance Equity Opportunities Fund
The primary investment objective of the scheme is to seek to generate capital
appreciation and provide long term growth opportunities by investing in a portfolio constituted
of equity and equity related securities and the secondary objective is to generate consistent
returns by investing in debt and money market securities. The benchmark for the scheme is BSE
100 Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 33.81 38.69
Since Inception 46.52 42.21
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Reliance Index Fund (Nifty Plan)
The objective of this plan is to replicate the composition of the Nifty with a view to
endeavor to generate returns which could approximately be the same as that of the Nifty. The
benchmark of the scheme is S & P CNX Nifty Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 26.00 39.88
Since Inception 25.44 37.66
Reliance Index Fund (Sensex Plan)
The objective of this plan is to replicate the composition of the Sensex with a view to
endeavor to generate returns which could approximately be the same as that of the Sensex. The
benchmark of the scheme is BSE Sensex.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 34.84 39.87
Since Inception 39.14 41.36
Reliance Tax Saver Fund (ELSS)
The primary objective of the scheme is to generate long term capital appreciation from a
portfolio that is invested predominantly in equity and equity related instruments. The benchmark
for the scheme is BSE 100 Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 23.37 38.69
Since Inception 26.17 37.73
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Reliance Equity Fund
The primary objective of the scheme is to generate capital appreciation and provide long
term growth opportunities by investing in a portfolio constituted of equity and equity related
securities of top 100 companies by market capitalization and of companies which are available in
the derivatives segment from time to time and the secondary objective is to generate consistent
returns by investing in debt and money market securities. The benchmark for the scheme is S &
P CNX Nifty.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 30.21 39.88
Since Inception 18.42 21.55
Reliance Long Term Equity Fund
The primary investment objective of the scheme is to seek to generate long term capital
appreciation and provide long term growth opportunities by investing in a portfolio constituted
of equity and equity related securities and derivatives and the secondary objective is to generate
consistent returns by investing in debt and money market securities. The benchmark for the
scheme is BSE 200 Index.
SECTORAL FUNDS
Reliance Banking Fund
The primary investment objective of the scheme is to seek to generate continuous returns
by actively investing in equity and equity related instruments or fixed income securities of banks.
The benchmark for the scheme is S & P CNX Banks Index.
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FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 47.05 55.27
3 Years 35.95 40.94
Since Inception 43.80 41.75
Reliance Diversified Power Sector Funds
The primary investment objective of the scheme is to seek to generate continuous returns
by actively investing in equity and equity related instruments or fixed income securities of power
and other associated companies. The benchmark for the scheme is India Power Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 56.42 43.43
3 Years 63.28 49.43
Since Inception 58.72 32.99
Reliance Pharma Fund
The primary investment objective of the scheme is to seek to generate continuous returns
by actively investing in equity and equity related instruments or fixed income securities of
pharma and associated companies. The benchmark for the scheme is BSE Health Care Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 35.20 13.40
Since Inception 33.84 19.78
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RELIANCE INFRASTRUCTURE FUND:-.The new fund offers two plans — Retail and Institutional. The minimum investment in the fund would be Rs. 5,000 and in multiples of Re. 1 thereafter for the Retail Plan and Rs. 5 crore and in multiples of Re 1 thereafter for the Institutional Plan.
Reliance Infrastructure Fund will invest at least 65 per cent of its assets in engineering, cement and power stocks as well as banks, whereas the balance will be invested in debt and money markets.
Here is a list of sectors that the fund may invest in (from their prospectus): At first glance it may occur to you that the Reliance mutual fund will invest most of its assets in Airport, then Banks, then Cement and so on (which is what I felt), but this is not true. This is just a list of indicative sectors and is not in any particular order.
AirportsBanks, Financial Institutions and Term Lending institutions.CementCoalConstructionElectrical and Electric ComponentEngineeringEnergyIndustry Capital GoodsMetals and MineralsPortsPower and Power equipmentRoad and RailwaysTelecomTransportationUrban InfrastructureMiningAluminumReliance Infrastructure Fund Manager
Why to Consider Infrastructure Mutual Fund Now?• Stable and stronger government - easy policy makingo The earlier coalition government had limited scope to thrust infrastructure related reforms given its constitution. However stability of the new government should ease policy making.
• Sharp government focus on infrastructure - better implementationo The government has indicated that infrastructure is a crucial growth area and hence one can expect better project implementation than what was witnessed in the past. The UPA in its manifesto seeks to increase public investment into infrastructure and plans to increase
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power capacity by 12,000 - 15,000 MW per year.
• Key to reviving domestic growtho The government has recognized that infrastructure spend might aid the economy to ride overthe ongoing slowdown while even insulating the economy from the adverse impact of the financial meltdown.
Entry Load of Reliance Infrastructure Mutual FundSubscription below Rs. 2 Crores: 2.25%Between Rs. 2 and 5 Crores: 1.25%Above Rs. 5 Crores: NilExit Load of Reliance Infrastructure Mutual Fund
1% if redeemed within a year of allotmentNil if redeemed after a year of allotmentNil if subscription is more than Rs. 5 croresMinimum Application Amount for Retail Investors
The minimum investment needed is Rs.5000 and if you want to invest additional money then you must invest a minimum of Rs.1000.Plans offered by Reliance Infrastructure Mutual Fund
There are two types of plans in this fund:Growth Plan and Dividend PlanThe growth plan is meant for people who are not looking for regular dividend payouts from the mutual fund and the income from their funds will be reinvested in the fund. The Dividend plan on the other hand will give you dividend income (when the fund declares dividends). There is a dividend reinvestment plan also where the fund will reinvest your dividends to buy more units of the mutual fund.
Tax RatesThe dividends are tax free in the hands of resident Indian investors. Similarly, there is no tax on long term capital gains. There is a 15% tax on short term capital gains of the scheme
Following the result of the 2009 general elections the stock market has gone up
substantially in India. Over the last three months the Sensex has jumped by 80%. Despite
this rally there are many opportunities that remain in the stock market. Billions of dollars
have been poured into the Indian markets by foreign institutional investors over the last few
weeks. Not surprisingly the dollar has dipped to around 47 rupees after hitting a high of 52+
earlier this year. Indications are that there is a lot of money waiting to be invested in Indian
stocks. The recent run-up is very difficult for many hedge funds, foreign investors and
mutual funds to buy stocks at reasonable price. Many mutual funds like Morgan Stanley
and investment stalwarts like Mark Mobius have talked of very high targets for the Sensex
over the next year or two. The targets spoken about by significantly from 19,500 to as high
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as 25,000. In this scenario mutual fund houses like reliance mutual fund are better
equipped as compared to the retail investor to make money from investing in stocks.
Until March this year most mutual funds had reported a poor performance. Since then
there have been increasing gains in the NAVs of most major mutual funds. From the signs
of it, then next year to two years will continue to see a lot of money flowing in the Indian
stock markets. So far only between 5 to 10% of the investment in the dust. Infrastructure
remains a key sector for investment.
Reliance infrastructure fund comes at an opportune time as the NFO will close barely a
week before the Indian budget is announced. Indications are that reliance will mop up
anywhere between 4000 and 6000 crores with this NFO. Most of the earliest mutual fund
schemes of reliance have outperformed many other mutual fund schemes. Reliance mutual
fund manages a corpus of 100,000 crores across all its mutual fund schemes. While many
investors invest in new fund offers because they are priced at 10 rupees instead of a higher
NAV, there are several other more rational reasons reliance infrastructure fund may be a
good pick. For one the infrastructure boom story is far from over. A lot of new money is
expected to come in over the next one year from FIIs, mutual funds, financial institutions
and even local HNIs who haven't been able to push in all their money yet. Given their track
record, financial clout and management, reliance mutual fund is well-equipped to manage
your money.
While the last month has seen the stock market go up substantially, it cannot go up all the
time and occasionally hiccups can be expected. If you would like to ride the infrastructure
boom and are willing to be patient with your investments, the reliance infrastructure fund
may be a good option to consider.
»
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Reliance Media and Entertainment Fund
The primary investment objective of the scheme is to seek to generate continuous returns
by actively investing in equity and equity related instruments or fixed income securities of media
and entertainment and other associated companies. The benchmark for the scheme is S & P CNX
Media and Entertainment Index.
FUND PERFORMANCE
Period % change in NAV % change in Index
1 Year 57.95 83.65
Since Inception 49.90 46.21
2.6 Reliance Mutual Fund: An Overview
Reliance Mutual Fund has been awarded as India’s Most Trusted Mutual Fund Brand by
Economic Times Brand Equity survey by AC Nielsen ORG-MARG – 2005
Reliance Mutual Fund is the of the Largest Private Sector AMC in the country
First Mutual Fund in the World to launch Online Redemption through ATMs/ PoS
o Investors can redeem their Mutual Fund Units using any VISA ATM/ PoS across
the Globe on 24 X 7 bases.
Healthy Debt Equity mix of 50:50 with largest Equity Fund corpus in the Industry as on
September ’06
Reliance Equity Fund NFO had created history for having the highest collection ever
among domestic mutual funds, by raising a record Rs 5723.26 crores & 9.24 lakh
applications- Surpassed UTI’s 14-year-old record
Some of our Funds have been awarded both by International as well as Domestic Rating
Agencies in terms of their Performance and Consistency
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Current Competitive Analysis
Amt. in Rs. Crs
Industry Players AUM as
on Mar
‘05
AUM as on
Mar’06
AUM as
on Jan’07
Growth
(Mar ‘05-
Mar ‘06)
YTD
Annualised
Growth
Reliance 9,543 24,669 39,020 159% 70%
UTI 20,740 29,519 37,535 55% 33%
Pru ICICI 15,201 23,502 34,746 42% 57%
HDFC 15,010 21,550 31,425 44% 55%
Franklin Templeton 15,354 17,827 23,907 16% 41%
Birla 10,373 15,018 21,190 45% 49%
Industry 1,49,600 2,31,715 3,39,663 55% 56%
0
5000
10000
15000
20000
25000
30000
35000
40000
Mar-06 Jun-06 Sep-06 Dec-06
0
50000
100000
150000
200000
250000
300000
350000
400000
Reliance Mutual Fund Industry
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Current Competitive Analysis…
RMF Vs Industry – QOQ Growth
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Q1 Q2 Q3Industry RMF
Asset Class Wise - QOQ Growth
0
5000
10000
15000
20000
25000
Mar 06 Jun-06 Sep-06 Dec-06Equity Debt
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Current Investor Base
0
100
200
300
400
500
600
700
Debt Liquid** Equity
* The base period is Mar 05 which is taken as 100
Asset
Class
# of Folios as
on Mar ‘05
# of Folios as
on Mar ’06
%
Growth
# of Folios as
on Jan ’07
YTD %
Growth
Debt 30,205 34,138 13% 54,519 59.7%
Liquid** 5,616 12,547 123% 12,841 2.3%
Equity 4,40,768 20,50,369 365% 30,08,254 46.7%
Total 4,76,840 20,96,952 340% 30,75,614 46.6%
**Liquid category Includes Reliance Floating Rate Fund
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Mar ‘06
Jan ‘07
Study On Investment pattern of HNIs Reliance Money
Footprint
Mar - 06 Jan - 07 FY 06-07
Branches 30 46 50
FPC 20 22 25
Sub Total (A) 49 67 75
RRs 08 14 20
BFs 24 29 30
Sub Total (B) 32 43 50
Total 82 110 125
Expansion plan into Tier-III & Tier IV cities
Expansion route
o Aggressively ramp up Resident Representatives (RR’s) platforms for
market expansion
o Convert RRs into Branches on achieving Rs. 20 crs of Equity AUMs per
location
o Branch breakeven target at 12 months & payback in 24 months.
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CHAPTER 3: ANALYSIS
ANALYSIS OF RESPONSES FROM DIFFERENT SEGMENTS OF HIGH NETWORTH
INDIVDUALS:
3.1 Doctors:
Do you invest in different instruments?
Objective:
The main objective for asking this question is to know whether Doctors have knowledge
about and invest in different financial instruments
Response In Figures In Percentages
Yes 47 (94)
No 3 (6)
Total 50 (100)
Analysis:
We can infer from the responses that most of them do invest in different instruments for
different purposes.
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Which are the investment tools you invest in?
Objective:
The reason for asking this question is to understand which type of investment tools are
more preferred by Doctors.
Instrument In figures In percentages
F.D. 30 (60)
RBI Bond 15 (30)
Mutual Fund 43 (86)
Equity 28 (56)
Others 24 (48)
CHART SHOWING PREFERENCE FOR DIFFERENT INSTRUMENTS
[Figures in Percentages]
Analysis:
From the feedback obtained, it is easy to identify that Mutual Funds are most preferred
by Doctors.
From the graph above we can infer that 86% Doctors invest in mutual fund.
Moreover there is an equal weightage between F.D and Equity.
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The least preferred by them is RBI Bonds. Our interaction revealed that the reason for
low preference in RBI bonds was the lock in period for investment in these bonds as well
as the fact that in a booming stock market, they could earn higher returns from
investment in equities and mutual funds.
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You primarily invest for:
Objective:
The reason for asking this question is to know the main purpose why these Doctors
invest.
Ranks 1 2 3 4
Tax Benefits 8(16.67) 12(25) 16(33.33) 12(25)
Returns 6(12.5) 22(45.83) 13(27.08) 7(14.58)
Liquidity 0 7(14.58) 17(35.42) 27(56.25)
Savings 34(70.83) 10(20.83) 2(4.17) 2(4.17)
CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 1st RANK TO
VARIOUS ATTRIBUTES
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CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 2ND RANK TO
VARIOUS ATTRIBUTES
Analysis
We can infer that the main purpose of investment for Doctors is Savings.
70.83% people gave Savings as their main purpose for investment whereas 12.5% and
16.67% gave returns and tax benefit as their main purpose.
The second most preferred reason for investing by Doctors is Returns. Moreover this
segment people don’t invest for tax benefit because all of them fall in high tax slab. They
take the full benefit of exemption.
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Rank the investment options:
Objective:
The purpose for this question is to know the preference of Doctors for investing in
different instrument
Ranks 1 2 3 4 5
FD 18 (37.5) 11(22.92) 5(10.42) 6(12.5) 8(16.67)
RBI Bond 0 8(16.67) 12(25) 23(47.92) 8(16.67)
Mutual Fund 14(29.17) 26(54.17) 8(16.67) 0 0
Equity 10(20.83) 5(10.42) 17(35.42) 14(29.17) 2(4.17)
Others 6(12.5) 1(2.07) 6(12.5) 5(10.42) 30(62.49)
Total 48 48 48 48 48
CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 1st RANK TO
VARIOUS INVESTMENT TOOLS
Rank 1
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CHART SHOWING PERCENTAGE OF DOCTORS WHO HAVE GIVEN 2nd RANK TO
VARIOUS INVESTMENT TOOLS
Analysis:
It can be inferred that most of the Doctors prefer Fixed Deposit. The main reason why
they prefer F.D is because it’s less risky as compared to other instruments.
37.5% Doctors preferred F.D and 29.17% preferred Mutual Fund as compared to other
instruments.
54.17% Doctors gave rank 2 to Mutual Fund. Thus we can see from the graph that
mutual fund is the most preferred instrument after F.D.
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What is the frequency with you invest?
Objective:
The main reason for asking this question is to know the frequency with which Doctors
invest.
Frequency In figures In
percentages
Once in 15 days 2 (4.17)
Once in a month 14 (29.17)
Once in 3 months 10 (20.83)
Once in 6 months 16 (33.33)
Once in a year 5 (10.42)
Weekend Parking 1 (2.08)
Total 48 100
Analysis:
We can infer that most of the Doctors invest once in 6 months. Moreover they don’t go in
for more frequency. Also as these people are too busy they don’t spend much time going for
frequent investment. Also most of the doctors visit different hospitals as visiting doctors,
thus they receive their fees at a fixed duration i.e.15 days or 1 month. Thus they don’t invest
at a great frequency.
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Do you go for Short or Long term investment?
Objective:
The main objective for asking this question is to track the investment objective about the
Doctors and to find out whether they mostly invest for short term or for long term.
Response In figures In percentages
Short term investment 7 (14.58)
Long term investment 41 (85.42)
Total 48 100
Analysis:
We can easily infer from the responses that Doctors mostly invest for long term. A
whopping 85.42% respondent invests for long term. As the main reason for investment by
Doctors is savings, they prefer long term investment.
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On whose external advice do you invest?
Objective:
The reason for this question is to know on whose advice Doctors invest. Also to know
who has more influence on the investment patterns of Doctors.
Advisors In figures In percentages
Banks 4 (8)
Distributors 0 (0)
Agents 4 (8)
Direct Investment 19 (38)
C.A. 23 (46)
Total 50 100
Analysis:
From the responses obtained we can infer that mostly Doctors invest on advice of C.A. Also
they mostly are busy with their profession, so are not able to devote enough time for such
investment. Today although most of them are taking active participation by going for direct
investment, they still consult C.A for final decision.
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Which type of Mutual Fund do you invest in?
Objective:
The purpose of this question is to know the type of mutual fund Doctors invest in and to
find out whether they are risk taker or not. Moreover Balanced funds are those that invest in
equity as well as debt.
Type of MF In figures In percentages
Equity 0 _
Debt 17 (35.42)
Balanced 31 (64.58)
Total 48 100
Analysis:
From the responses we can infer that mostly Doctors invest in Balanced Funds. Also none of
the respondent invests in only Equity.64.58% respondents invest in Balanced Funds, which
have a balanced composure of equity and debt funds, whereas 35.42% respondents invest
only in debt fund. Thus none of them are risk takers who invest only in equity funds..
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You invest in Debt Mutual Fund because
Objective:
The reason for asking this question is know why do Doctors invest in Debt Fund so that
we can know what do they typically look for by investing in debt fund.
Reasons In figures In percentages
Steady Returns 28 (43.75)
Less Risk 14 (21.88)
Liquidity 4 (6.25)
Tax Benefit 18 (28.12)
Total 64 100
Analysis:
We can infer from the responses that mostly Doctors invest in Debt Fund because it
offers Steady returns. 58.33% of respondents invest in Debt fund as it offers Steady returns. Also
one of the reasons for investing in it is for tax benefit. Also it is preferred as it is less risky.
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You invest in Equity Mutual Fund because
Objective:
Here the objective is to know why doctors invest in equity fund. It deals with the
balanced funds i.e why in balanced funds. Balanced funds have composure of debt and
equity so why they invest in equity indirectly through balanced funds.
Reasons In figures In percentages
Higher Returns 43 (44.79)
Long Term Capital Gains 11 (11.46)
Tax Advantage 0 _
Wealth Creation 27 (28.12)
Returns > Inflation 15 (15.63)
Total 96 100
Analysis:
We can infer that mostly Doctors invest in Equity Fund as it offers Higher Returns.
A whopping 89.58% respondents invest in Equity Fund as it offers Higher Returns.
Moreover 56.25% respondents invest as it offers Wealth Creation. As Equity Fund is more
risky compared to Debt Fund, respondents wish for more returns compared to Debt Fund.
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Would you invest in Mutual Fund if it offered:
Objective:
The main reason for this question is to know the readiness of Doctors to invest in Mutual
Fund, if Mutual Fund offered the above parameters.
Analysis:
We can infer that Doctors would invest more in Mutual Fund if it offers Higher Returns
because 70% of respondents would invest if given Higher Return. Moreover they would
invest more if given more tax benefit, liquidity and less risk. Moreover they are least
concerned for short term duration fund and diversified portfolio.
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Reasons In figures In percentages
Greater Tax Benefit 23 (23)
Greater Liquidity 18 (18)
Short Duration Investment 0 --
Steady Returns 35 (35)
Returns > F.D. & Liquidity 6 (6)
Diversification of Portfolio 0 -
Minimization of Risks 18 (18)
Total 100 100
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Are you aware about FMP and Indexation Benefit?
Objective:
The reason for asking this question is to find out the level of knowledge these Doctors
have about the Fixed Maturity Plan schemes and the indexation benefit they offer
Responses In figures In percentages
Yes 20 (40)
No 30 (60)
Total 50 100
Analysis:
We could infer that more than half of the respondents were aware about Fixed Maturity
Plan schemes and their indexation benefit. Although they know about the benefit of FMP and tax
benefit they offer, they still opt for F.D. as it is less risky compared to Mutual Fund. As these
segment respondents are well educated they are aware about Mutual Fund benefit but are not risk
takers so don’t opt for Mutual Fund. Also they ask for a guarantee of returns as F.D give them
which is not possible in Mutual Fund as per guidelines of SEBI.
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3.2 BUILDERS:
Do you invest in different instruments?
Responses In figures In percentages
Yes 42 84
No 8 16
Total 50 100
Chart showing respondents who invest in different instruments
Analysis:
From the above responses, we conclude that 84% of builders do invest in different
instrument, while 16% of them does not prefer to invest in varied portfolio. They would rather
prefer to invest in real estate i.e. their business.
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Which are the investment tools you invest in?
Instrument In figures In percentages
F.D. 25 50
RBI Bond 2 4
Mutual Fund 26 52
Equity 35 70
Others 50 100
Chart showing the preference for different investment tools
Analysis:
As concluded earlier,100% of builders prefer to invest in real estate as investing in their
own business would give higher returns as well as it would be stock-in-trade for them. Equity
market is the 2nd most preferred at 70%. Bank FDs and Mutual Fund have the same preference of
nearly 50%.
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You primarily invest for:
Ranks 1 2 3 4
Tax Benefits 8 (16) 7 (14) 8 (16) 27 (54)
Returns 28 (56) 12 (24) 10(20) 0 (0)
Liquidity 7(14) 21(42) 8(16) 14 (28)
Savings 7(14) 10 (20) 24(48) 9 (18)
Chart showing % respondents preferring different motives as Rank 1
Chart showing % respondents preferring different motives as Rank 2
Analysis:
Liquidity is the crucial for the builders along with the returns, as their income inflow and
outflow isn’t certain. 56% preferred returns as the most important while 42% voted
liquidity as 2nd most preferred. Thus this explains their favouring equities for investment.
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Rank the investment options:
Ranks 1 2 3 4 5
FD 12 (24) 7 (15.90) 9 (23.07) 3 (6.25) 0 (0.00)
RBI Bond 3 (6) 8 (18.18) 0 (0.00) 8 (16.67) 31 (62.00)
Mutual Fund 2 (4) 2 (4.54) 17 (43.58) 18 (37.50) 11 (22.00)
Equity 2 (4) 23 (52.27) 10 (25.64) 15 (31.25) 0 (0.00)
Others 31 (62) 4 (9.11) 3 (7.71) 4 (8.33) 8 (16.00)
Total 50 (100) 44 (100) 39 (100) 48 (100) 50 (100)
Chart showing % respondents preferring different instruments as Rank 1
Chart showing % respondents preferring different instruments as Rank 2
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Analysis:
Real estate being the primary focus of the builders, they prefer to invest in it more than
any other instrument. Besides, higher returns it gives them a room to evade tax. Most
builders confessed that they set off gains from sale of one property by registering a loss or
lower profit on sale of another property, thereby, evading taxes. Equity is the 2 nd most
preferred instrument as they get sizeable returns.
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What is the frequency with which you invest ?
Frequency In figures In percentages
Once in 15 days 0 0
Once in a month 3 6
Once in 3 months 7 14
Once in 6 months 15 30
Once in a year 25 50
Weekend Parking 0 0
Total 50 100
Chart showing frequency of investment
Analysis:
As the income inflow for builders is only when a particular scheme is sold off, they find
it possible to invest only once in a year. 50% builders preferred to invest once in a year.
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Do you go for Short or Long term investment ?
Response In figures In percentages
Short term investment 19 38
Long term investment 31 62
Total 50 100
Analysis:
While 62% of builders opt for long-term investments, they prefer instruments without
any lock-in period, so that they can obtain liquidity whenever needed.
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On whose external advice do you invest ?
Advisors In figures In percentages
Banks 0 0.00
Distributors 0 0.00
Agents 17 40.47
Direct Investment 17 40.47
C.A. 8 19.06
Total 42 100
Chart showing % respondents investing on the advice of various agencies
Analysis:
Builders rely on their own intellect for investments. Also, the agents have the same
influence on them. They do not entertain the disturbutors as well as the banks. Only 16%
invest on the advice of the CAs
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Which type of Mutual Fund do you invest in?
Chart showing the types of mutual funds preferred
Analysis:
Equity mutual funds find most favour amongst the builders followed by balanced mutual
fund as equity funds give more returns as compared to debt funds.
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Type of MF In figures In percentages
Equity 25 50
Debt 8 16
Balanced 17 34
Total 50 100
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You invest in Debt Mutual Fund because
Reasons In figures In percentages
Steady Returns 13 50.00
Less Risk 2 7.69
Liquidity 2 7.69
Tax Benefit 9 34.62
Total 26 100
Chart showing as to why respondents prefer debt mutual funds
Analysis:
Debt fund provides secured returns which is a good enough reason for builders to invest
in it. Moreover, debt funds enable them to obtain finance from the banks to the extent of
85% of the holding in debt funds. This is a good incentive for builders to invest in debt
funds..
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You invest in Equity Mutual Fund because
Reasons In figures In percentages
Higher Returns 34 36.95
Long Term Capital Gains 9 9.78
Tax Advantage 9 9.78
Wealth Creation 40 43.49
Returns > Inflation 0 0.00
Total 92 100
Chart showing reasons as to why respondents prefer equity mutual fund
Analysis:
Wealth creation and higher returns are the most attractive reasons for builders to invest in
equity mutual fund because 80% of them invest in equity fund due to wealth creation and
68% because of higher returns.
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Would you invest in Mutual Fund if it offered :
Chart showing % respondents who would prefer to invest in Mutual Fund
Analysis:
As returns are the primary investment objective for the builders, increased and steady
returns by mutual funds would attract them to invest more in mutual fund.
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Reasons In figures In percentages
Greater Tax Benefit 11 15.71
Greater Liquidity 0 0.00
Short Duration Investment 2 2.85
Steady Returns 35 50.00
Returns > F.D. & Liquidity 10 14.28
Diversification of Portfolio 0 0.00
Minimization of Risks 12 17.16
Total 70 100
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Are you aware about FMP and Indexation Benefit?
Responses In figures In percentages
Yes 27 54
No 23 46
Total 50 100
Analysis:
Although the builders had a fair idea about mutual funds, still more than 50% did not
have a complete idea about the different schemes and their benefits
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3.3 HOTELIERS
Do you invest in different instruments?
Response In Figures In Percentages
Yes 44 88
No 6 12
Total 50 100
Chart showing respondents who invest in different instruments
Analysis:
From the above responses, we conclude that a major portion of hoteliers do invest in
different instrumets. Whereas a minor portion of it does not prefer to invest in varied portfolio.
They have the old mentality of investing in bank FD’s only or in their business only. The main
reason for investing in bank FDs is to gain favour from the bank by way of granting Cash Credit
or Overdraft facilities.
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Which are the investment tools you invest in?
Instrument In figures In percentages
F.D. 29 58
RBI Bond 4 8
Mutual Fund 21 42
Equity 23 46
Others 18 36
Chart showing the preference for different investment tools
Analysis:
As concluded earlier, here we can see that a major 58% of the hoteliers are investing in
bank FDs. Also, a major portion hoteliers(36%) does invest in other areas like their own
business, realty for expanding their facilities and also in renovating their interiors. According to
one hotelier, renovation work goes on round the year in his hotel to meet expectations of regular
customers who demand newer interiors every time they stay.
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You primarily invest for :
Ranks 1 2 3 4
Tax Benefits 9 (18) 18 (36) 12 (24) 5 (10)
Returns 26 (52) 7 (14) 5 (10) 6 (12)
Liquidity 4 (8) 13 (26) 19 (38) 8 (16)
Savings 5 (10) 8 (16) 6 (12) 25 (50)
Figures in bracket show percentages
Chart showing % respondents preferring different motives as Rank 1
Chart showing % respondents preferring different motives as Rank 2
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Analysis:
Here, as we can see that hoteliers, being HNIs, they mainly invest for returns. 52% of the
respondents ranked “Returns” as the most important for them. Also, as we can see that on the 2nd
place is “Tax Benefits”. This is quite natural because as HNIs fall into the highest tax bracket,
they prefer these instruments based on the tax benefits associated with it.
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Different instruments preferred
Instrument In figures In percentages
Bank F.D. 29 58
RBI Bonds 4 8
Mutual Funds 21 42
Equities 23 46
Others 18 36
Chart showing the preference for different instruements
Analysis:
A whopping 58% hoteliers prefer to invest in bank FDs over direct equities and
mutual fund which give comparatively better return on investment as compared to the bank
FD. This finding may also seem contradicting to the earlier one, which reflected that
hoteliers prefer to invest for the returns associated with the instruments. But as we concluded
earlier, banks support their business by way of CC and overdraft facilities, they invest in FD
for the same. The 2nd most preferred instrument is direct equity as it gives them better returns
as compared to Mutual Fund. Also, they being HNIs, get tips from the stock brokers and
their friends which helps them speculate and earn higher returns as compared to Mutual
Funds.
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Rank the investment options
Ranks 1 2 3 4 5
FD 18 (40.00) 17 (37.77) 8 (17.77) 2 (4.46) 0 (0.00)
RBI Bond 3 (6.67) 0 (0.00) 7 (15.55) 22 (48.89) 13 (28.90)
Mutual Fund 3 (6.67) 12 (26.67) 18 (40.00) 7 (15.55) 0 (0.00)
Equity 8 (17.77) 0 (0.00) 5 (11.11) 14 (31.10) 7 (15.55)
Others 13 (28.89) 16 (35.56) 7 (15.57) 0 (0.00) 25 (55.55)
Total 45 (100) 45 (100) 45 (100) 45 (100) 45 (100)
Figures in bracket show percentages
Chart showing % respondents preferring different instruments as Rank 1
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Chart showing % respondents preferring different instruments as Rank 2
Analysis
Hoteliers prefer FD most in the 1st place followed by equity and mutual funds. They have
a working capital requirement, which is financed by these banks by way of Cash Credit or
overdraft against the FDs.
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What is the frequency with you invest ?
Frequency In figures In percentages
Once in 15 days 6 13.33
Once in a month 8 17.77
Once in 3 months 10 22.22
Once in 6 months 12 26.67
Once in a year 9 20.01
Weekend Parking 0 0.00
Total 45 100
Chart showing frequency of investment
Analysis:
Here as we can see that most hoteliers go in for investment once in every six months. The
responses are quite close to each other. Hence, it is difficult to conclude anything from this
question.
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Do you go for Short or Long term investment ?
Response In figures In percentages
Short term investment 12 26
Long term investment 34 34
Total 46 100
Analysis:
Most of the hoteliers prefer to invest for long term i.e. duration exceeding one year. As
they have more or less regular inflow, they can plan their long term finance needs.
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On whose external advice do you invest ?
Advisors In figures In percentages
Banks 0 0.00
Distributors 11 23.40
Agents 0 0.00
Direct Investment 16 34.04
C.A. 20 42.56
Total 47 100
Chart showing % respondents investing on the advice of various agencies
Analysis:
CAs have direct influence on the investment decisions of the hoteliers. Also, distributors
do influence the investment decisions considerably.
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Which type of Mutual Fund do you invest in?
Type of MF In figures In percentages
Equity 26 57.77
Debt 2 4.44
Balanced 17 37.79
Total 45 100
Chart showing the types of mutual funds preferred
Analysis:
Hoteliers prefer equity mutual funds as it gives them better returns. Also balanced
funds are the hedge funds that generally contain an option of investing debt instruments
upto the extent of 30% or even more in some cases. So, they prefer these instruments as
well.
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You invest in Debt Mutual Fund because
Reasons In figures In percentages
Steady Returns 19 27.94
Less Risk 8 11.76
Liquidity 12 17.65
Tax Benefit 29 42.65
Total 68 100
Chart showing reasons as to why respondents prefer debt mutual fund
Analysis:
As, debt funds come with the option of Indexation, they are usually preferred by the
hoteliers as a part of their tax planning measures which is directly reflected in the above
graph. Also, steady returns being one of the characteristics of debt funds, helps them plan
their future income that ultimately helps their expansion plans.
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You invest in Equity Mutual Fund because
Reasons In figures In percentages
Higher Returns 36 46.75
Long Term Capital Gains 2 2.60
Tax Advantage 6 7.79
Wealth Creation 27 35.06
Returns > Inflation 6 7.80
Total 77 100
Chart showing reasons as to why respondents prefer equity mutual fund
Analysis:
We can infer that mostly hoteliers invest in Equity Fund as it offers Higher Returns. A
whopping 47% respondents invest in Equity Fund as it offers Higher Returns. Moreover
35% respondents invest as it offers Wealth Creation. As Equity Fund is more risky
compared to Debt Fund, respondents wish for more returns compared to Debt Fund.
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Would you invest in Mutual Fund if it offered :
Reasons In figures In percentages
Greater Tax Benefit 20 25.00
Greater Liquidity 19 23.75
Short Duration Investment 0 0.00
Steady Returns 25 31.25
Returns > F.D. & Liquidity 3 3.75
Diversification of Portfolio 0 0.00
Minimization of Risks 13 16.25
Total 80 100
Chart showing % respondents who would prefer to invest in Mutual Fund
Analysis:
50% of the hoteliers would start investing or would invest more as the case may be, if
they offered steady returns, greater tax benefits and higher liquidity as compared to other
instruments. Only 26% respondents said, they would invest more in mutual fund if there is
minimization of risks. Hence, we can infer that hoteliers are risk takers. But they are don’t
play blind games. Instead, they are more cautious and take calculated risks.
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Are you aware about FMP and Indexation Benefit ?
Responses In figures In percentages
Yes 31 62
No 19 38
Total 50 100
Analysis:
63% of the hoteliers were aware about the FMP and their benefits while 38% had no or
little idea about them.
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CHAPTER 4 TEST FOR ANALYSIS
In order to test the data for the consistency, we had performed various tests combining
the responses of all the segments that we had questioned.
4.1 Weighted Average Test
Rank the different investment instruments:
Combined ranks of all segments
Rank FD RBI BOND MF EQUITY OTHERS
1 48 6 19 20 50
2 35 13 40 44 5
3 22 19 43 32 16
4 11 53 25 43 9
5 8 52 11 9 63
Weight 5 4 3 2 1
Rank 1 2 3 4 5 Total WS
FD 48 35 22 11 8 124 476 3.84
RBI 6 13 19 53 52 143 297 2.08
Mutual
Fund 19 40 43 25 11 138 445 3.22
Equity 20 44 32 43 9 148 467 3.16
others 50 5 16 9 63 143 399 2.79
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Analysis:
So can say that HNI’s prefer more Fixed Deposit and Equity and less RBI bond.
Thus AMC should make people aware about the benefits of mutual fund in respect to Fixed
Deposit. The company should pitch to the customers that they can avail an overdraft upto 85%
against the fund invested by them.
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You primarily invest for
Rank Tax Benefit Returns Liquidity Savings
1 25 60 11 46
2 37 41 38 28
3 36 28 44 32
4 44 13 49 36
Rank 1 2 3 4
Weight 4 3 2 1 Weighted score Total Score
Tax
benefit 25 37 36 44 327 142 2.30
Return 60 41 28 13 432 142 3.04
Liquidity 11 38 44 49 295 142 2.08
Saving 46 28 32 36 368 142 2.59
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Analysis:
We can conclude from the test that HNIs invest mainly because of Return on their
investment. They show least interest in Liquidity. They have lot of surplus funds with them. As
they fall into highest tax bracket they are less concerned with anything else except the returns.
4.2 Chi square test
Frequency of investment
P1= 15 days
P2= 1 month
P3= 3 months
P4= 6 months
P5= 1 year
P6= weekend parking
H0: P1=P2=P3=P4=P5=P6
H1: P1#P2#P3#P4#P5#P6
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fo fe fo-fe (fo-fe)^2
(fo-
fe)^2/fe
15 days 8 23.83 -15.83 250.5889 10.52
1 month 25 23.83 1.17 1.3689 0.06
3 months 27 23.83 3.17 10.0489 0.42
6 months 43 23.83 19.17 367.4889 15.42
1 year 39 23.83 15.17 230.1289 9.66
Weekend
Parking 1 23.83 -22.83 521.2089 21.87
57.95
At 5% significance level and 5 degree of freedom, in the chi square table the value is
11.07. And the calculated value is 57.95
Thus our value does not fall in acceptance region. Thus H0 is rejected.
Thus we can conclude that there is no equal proportion between investors in different
periods. As the segments that we had chosen has different frequency of cash inflows and
outflows their investment frequency is also not decided. Besides, their business are also of
different nature ranging from self employed to business requiring high capital expenditure.
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On whose advice do you invest
P1= Banks
P2= Distributors
P3= Agents
P4= Direct Investment
P5= Others
Ho: P1=P2=P3=P4=P5
H1: P1#P2#P3#P4#P5
fo fe fo-fe (fo-fe)^2 (fo-fe)^2/fe
Banks 4 27.8 -23.8 566.44 20.38
Distributors 11 27.8 -16.8 282.24 10.15
Agents 21 27.8 -6.8 46.24 1.66
Direct
Investmet 52 27.8 24.2 585.64 21.07
Others 51 27.8 23.2 538.24 19.36
Total 72.62
At 5% significance level and 4 degree of freedom, in the chi square table the value is
9.488. And the calculated value is 72.62.
Thus our value does not fall in acceptance region. Thus H0 is rejected.
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Analysis
Thus there is no proportion on whose advice HNIs invest. HNIs claim that they are
intelligent enough and have enough experience to guide them. Hence they rely on their own
intellect for managing their funds.
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CHAPTER 5 CORRELATION
Q.1 Correlation between Rank 1 given to “Returns” and preference given to equity and mf
Total no.of Rank 1 received by Returns: 60
Investment in equity preferred: 86
Investment in MF preferred: 90
Investment in equity 86
Investment in MF 90
Correlation Quotient MF 0.698
Correlation Quotient Equity 0.667
We can conclude that investment in equity and investment in mutual funds go hand in
hand. There is not much difference in their likings for both the instruments. The reason is that the
HNIs invest in varied portfolio. So, there is not much difference.
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Q.2 Direct Investment and preference for MF
Investment in MF preferred: 90
Direct Investment Preferred: 52
Consulting a CA: 39
Invest in MF 90
Direct Investment 52
Consult CA 39
Correlation co-efficient (DI) 0.577
Correlation co-efficient (CA) 0.433
It can be seen that most HNIs prefer to rely on their own intellect for the investment
decisions rather than on the CAs.
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CHAPTER 6 FINDINGS OF THE PROJECT
During the course of our study, we had met 150 HNIs. Based on the responses given by
them and after analyzing them, we have discovered the following things. The findings are
listed as under:
1. HNIs prefer to invest in bank FDs more than they do in direct equities or mutual
funds. The reason for the same is that the banks support the working capital
requirements of these people by way of Cash Credit and / or overdraft facilities.
2. The 2nd most preferred destination for investing the funds by these HNIs is direct
equities and at the 3rd place is the mutual funds. The reason for the same is that they
get tips regarding the ups and downs of the market regularly which helps them to
speculate and thereby earn better returns as compared to direct equities.
3. When asked why not mutual funds in place of direct equities, the response given by
them was that they have direct access to the stock market information which helps
them earn better returns. Also, they argued that investing in their own businesses
gives them a better return as compared to mutual funds. Further more, they even
argue that when they are capable of earning greater returns on their own, why should
they rely on the asset management companies to manage their funds which charges
an administration fees for the same.
4. Returns matter the most to these HNIs as compared to any other thing. Tax benefits
come at the second spot. Being in the highest tax bracket, they are continuously in
search of certain tax planning measures that helps them to pay lower taxes against
their incomes and gains. This is the reason they prefer to invest in mutual funds.
They have a unique modus operandi for the same. HNIs claim to have access to
information regarding the dividends to be declared by the different asset management
companies well in advance. On getting this information, they invest in a particular
fund before the dividend is declared. Later on, on declaring the dividends the NAV
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of the fund falls. When it so happens, they sell off their units. While filing for IT
returns, they show these fall in the NAV as their short term capital loss which is set
off against their short term capital gains earned by speculating in stock market. Thus,
the net income for paying the tax under the head “Capital gains and losses”
decreases, which ultimately results in lower taxation. Also, the dividend that they
received from the asset management company goes as their tax free income because
since December, 2004 onwards, the central government has declared the dividends to
be treated as tax free under the hands of the receiver. This is how they make dual
gains from investing in mutual funds.
5. The reason the HNIs prefer to invest in debt mutual funds is that they offer steady
returns and higher tax benefits. This is possible because the asset management
companies pay the investor in form of dividends which are tax free. If they had
invested in bank FD instead of the debt funds, they would be liable to pay a tax of
33.99% on their interest income.
6. The other reason for investing in debt mutual funds is that, these HNIs use them as a
source of financing their future expansion and development plans because these
mutual funds offer them a steady income.
7. The indexation benefits associated with the fixed maturity plans is also one of the
reason for investment in this instrument.
8. The doctors specifically invest in mutual fund as 86% of them invest in it. Also they
invest mainly on advice of C.A. Also they go mainly for long term investment as
compared to small term investment.
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CHAPTER 7 RECOMMENDATIONS
Based on our analysis and findings and the interpretations done then onwards, we suggest
the following recommendations:
Offer PMS Products
During our research, we found that most HNIs avoided investing in mutual funds, as they
feel that they have a very little or infact no role in managing the funds. What we found was that
they were interested in actively managing their funds. So, we recommend to the company that it
should offer PMS products to this segment as it is the product which allows them a say in
managing their funds.
Create awareness
During our study, we found that mutual fund is used by these HNIs as a means of tax
evasion rather than as an investment tool. The company should make them aware that it offers a
overdraft to the extent of 85% against the funds invested by them. It should pitch them that it is
the only company offering such a facility.
QUESTIONANARIE REGARDING INVESTMENT PREFERENCE OF THE HNI
NAME:-
AGE:-
CONTACT NO:-
PROFESSION AND DESIGNATION:-
FAMILY MEMBER:-
1. Do you invest in different instruments?
( )YES ( )NO
2. Which are the investment tools you invest in?
( )F.D.
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( )RBI BOND
( )MUTUAL FUND
( )EQUTIY
( )OTHERS
3. You primarily invest for:
Ranks
Tax Benefits
Returns
Liquidity
Savings
4. Rank the investment options:
Ranks
FD
RBI Bond
Mutual Fund
Equity
Others
Total
5. What is the frequency with you invest?
Frequency In figures
Once in 15 days
Once in a month
Once in 3 months
Once in 6 months
Once in a year
Weekend Parking
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Total
6. Do you go for Short or Long term investment?
( )YES ( )NO
7. On whose external advice do you invest?
Advisors In figures
Banks
Distributors
Agents
Direct Investment
C.A.
Total
8. Which type of Mutual Fund do you invest in?
Type of MF In figures
Equity
Debt
Balanced
Total
9. You invest in Debt Mutual Fund because
Reasons In figures
Steady Returns
Less Risk
Liquidity
Tax Benefit
Total
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10. You invest in Equity Mutual Fund because
Reasons In figures
Higher Returns
Long Term Capital Gains
Tax Advantage
Wealth Creation
Returns > Inflation
Total
11. Would you invest in Mutual Fund if it offered:
12. Are you aware about FMP and Indexation Benefit?
Responses In figures
Yes
No
Total
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Reasons In figures
Greater Tax Benefit
Greater Liquidity
Short Duration Investment
Steady Returns
Returns > F.D. & Liquidity
Diversification of Portfolio
Minimization of Risks
Total
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CHAPTER 8: REFERENCES
Books:
Goetz man W N, “Cognitive Dissonance and Mutual Fund Investors”, Working Paper,
Columbia Business School, 1993.
Gupta L C, Mutual Funds and Asset Preference, Society for Capital Market Research and
Development, Delhi, 1994.
Madhusudan V Jambodekar, Marketing Strategies of Mutual Funds- Current Practices
and Future Directions, Working Paper UTI- IIMB Center for Capital Markets Education
and Research, Bangalore, 1996.
SEBI- NCAER, Survey of Indian Investors, SEBI ,Mumbai 2000.
Journals and Periodicals
Shankar V, “Retailing Mutual Funds: A consumer product model”, The Hindu, July
24,1996,26.
Websites:
www.reliancemutual.com
www.capitalmarket.com
www.valueresearchonline.com
www.mutualfundsindia.com
www.amfiindia.com
www.moneycontrol.com
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