Mutual Funds 699

8/2/2019 Mutual Funds 699

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A REPORT

ON

MUTUAL FUND INVESTORS-THEIREXPECTATIONS & STRATEGIES IN

CHANGING SCENARIO

BY

Ankit Gupta

STANDARD CHARTERED BANK


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A REPORT

ONMUTUAL FUND INVESTORS-THEIR

EXPECTATIONS & STRATEGIES IN

CHANGING SCENARIO

BY

ANKIT GUPTA

A report submitted in partial fulfillment ofrequirements of MBA program of

JIMS Rohini


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TABLE OF CONTENTS

Topic Page No.

Acknowledgement 4

Abstract ... 5

Introduction

About the project... 6

Indian mutual fund industry.. 7

About the organization.. 10

Mutual funds

Concept.. 12,13

Characteristics 14

Advantages. 14

Disadvantages. 16

Types of mutual funds. 17

Constitution of mutual funds 23

Net asset value. 26

Nature of income distribution.. 27

Why an investor leaves a fund.. 29

Latest AUM .. 30

Study

Scope of the study. 38


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Objective of the study 38

Methodology used.. 39

Limitations . 40

Findings of the study.. 41

Comparative analysis of mutual funds... 57

Scope of SCB investment products 61

Recommendations made to SCB 65

References.. 68

Appendix 69

ACKNOWLEDGEMENT

I would like to express my sincere thanks to the management of Standard

Chartered Bank, M.I. Road, Jaipur Branch who gave me the opportunity to

work and study in a large organization.

My success at Standard Chartered Bank was because of the contribution and

guidance provided by the staff of Standard Chartered Bank, M.I. Road, Jaipur

Branch.

I express my sincere gratitude to Mrs. Nidhi Mathur (Relationship Manager -

Excel Banking) & (company guide) Standard Chartered Bank, Jaipur.

I would also express my Sincere thanks to Mr. Anurag Sharma (Branch Manager)

Standard Chartered Bank, M.I. Road Branch, Jaipur.

I also express my gratitude to Prof. Esha Sharma (Faculty guide) who guided me

from time to time in completion of my project.


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Last but not the least, I would like to thank all the respondents for giving their

precious time and relevant information and experience, I required, without which

the project would have not been completed.

ABSTRACT

Mutual funds have been one of the most preferred investment instruments. They

are looked upon by individual investors as financial intermediaries/ portfolio

managers who process information, identify investment opportunities, formulate

investment strategies, invest funds and monitor progress at a very low cost. Thus

the success of mutual funds is essentially the result of the combined efforts of

competent fund managers and alert investors. A competent fund manager should

analyze investor behavior and understand their needs and expectations, to gear up

the performance in order to meet investors requirements. The project Mutual

fund investors expectations & strategies in changing scenariois to understand

the changing sentiments, expectations & strategies of the investor.

The volatility of stock market has affected the mutual funds sales. There has been a

plunge in the sales of mutual funds. The expectations & strategies of the investors

have changed. This has become a challenge for fund houses. Investors preference

has changed. Now they are not sure about what the investors want. This project

aims at understanding their behavior & thus giving recommendations to SCB for


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meeting these challenges. Thus, to analyze the difference between investors

expectations & investment managers approach.

The project will seek to cover all the fundamental aspects related to mutual funds &investment in mutual funds. The project will also cover the various problems of theglobal scenario that has affected the Indian market. Then it will analyze the

behavior of investors in changing scenario.

There will also be a comparative analysis of some of the star ranked mutual fundsas per the expectations of the investors, so as to understand whether the star rankedmutual funds are catering to the requirements & expectations of the investors ornot.

Basically, the project is to understand the investors, behavior & to giverecommendations to Standard Chartered Bank on how to meet these changing

expectations of the investors & offer the product accordingly. There are many otherinvestment products offered by Standard Chartered. This project also covers thatwhat are the opportunities for such investment products.


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INTRODUCTION

The growth and maturation of mutual fund industry is the greatest investment storyof the twentieth century. With the introduction of innovative products, the world ofmutual funds nowadays has a lot to offer to its investors. With the introduction of

diverse options, investors need to choose a mutual fund that meets his riskacceptance, his risk capacity levels and has similar investment objectives as theinvestor. There are a large number of schemes available in the market to cater tothe different needs of the investor. As on 29th Feb, 2008, there were 5343 mutualfund schemes in the market.

The market has been bullish in past few months & has given huge returns. Even the

retail investors started investing in a big way expecting the rally to continue. But

with change in the global scenario, there has been a sudden & unexpected downfall

in the market which sunk the investors expectations, creating a negative sentimentin the market. This has also affected the mutual fund investments.

Since Indian economy is no more a closed market, and has started integrating with

the world markets, external factors which are complex in nature are also affecting

us. Factors such as Sub-prime problem, expected US recession, an increase in

short-term US interest rates, the hike in crude prices and many other factors

have made Indian market volatile. The market has shown a downfall of --% in past

3 months. There has been sharp fall in the sales of mutual funds in past 2 months,

since January. The average asset under management (AUM) of the mutual fund

industry has declined sharply by 6.62% in March 2008, according to data released

by Association of Mutual Funds in India (AMFI). This shows that there has been a

change in the investors sentiments & expectations.


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INDIAN MUTUAL FUND INDUSTRY

The Indian mutual fund industry is dominated by the Unit Trust of India which has

a total corpus of Rs700bn collected from more than 20 million investors. The UTI

has many funds/schemes in all categories i.e. equity, balanced, income etc with

some being open-ended and some being closed-ended. The Unit Scheme 1964

commonly referred to as US 64, which is a balanced fund, is the biggest scheme

with a corpus of about Rs200bn. UTI was floated by financial institutions and is

governed by a special act of Parliament. Most of its investors believe that the UTI

is government owned and controlled, which, while legally incorrect, is true for all

practical purposes.

The second largest category of mutual funds is the ones floated by nationalized

banks. Canbank Asset Management floated by Canara Bank and SBI FundsManagement floated by the State Bank of India are the largest of these. GIC AMC

floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated

by the LIC are some of the other prominent ones. The aggregate corpus of funds

managed by this category of AMCs is about Rs150bn.

The third largest categories of mutual funds are the ones floated by the private

sector and by foreign asset management companies. The largest of these are

Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets

managed by this category of AMCs is in excess of Rs250bn

The growth and development of Indian Mutual Fund Industry can be broadly

divided into four phases:-

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-linkedfrom 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.


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Second Phase (1987-1993)

Highlight of phase was entry of Public Sector Funds. In 1987 marked the entry of

non- UTI, public sector mutual funds set up by public sector banks and Life

Insurance Corporation of India (LIC) in June 1989 and General Insurance

Corporation of India (GIC) In Dec. 1990.Public Sector Bank also established their own Mutual Funds:-

SBI Mutual Fund (June 1987)

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).

By the end of 1993, the mutual fund industry had assets under management of Rs.

47,004 crores.

Third Phase (1993 2003)

With the entry of private sector funds in 1993, a new era started in the Indian

mutual fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into

being, under which all mutual funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)

was the first private sector mutual fund registered in July 1993.

The 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


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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 andcertain 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

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 schemes


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ABOUT THE ORGANISATION

COMPANYS HISTORY

The Standard Chartered Group was formed in 1969 through a merger of two banks:

The Standard Bank of British South Africa founded in 1863 and the CharteredBank of India, Australia and China, founded in 1853.

The Chartered Bank

Founded by James Wilson following the grant of a Royal Charter by QueenVictoria in 1853.

Chartered opened its first branches in Mumbai (Bombay), Calcutta andShanghai in 1858, followed by Hong Kong and Singapore in 1859.

Traditional business was in cotton from Mumbai (Bombay), indigo and teafrom Calcutta, rice in Burma, sugar from Java, tobacco from Sumatra, hempin Manila and silk from Yokohama.

Played a major role in the development of trade with the East which followedthe opening of the Suez Canal in 1869 and the extension of the telegraph toChina in 1871.

In 1957 Chartered Bank bought the Eastern Bank together with the IonianBank's Cyprus Branches. This established a presence in the Gulf.

The Standard Bank

Founded in the Cape Province of South Africa in 1862 by John Paterson.Commenced business in Port Elizabeth, South Africa, in January 1863.

Was prominent in financing the development of the diamond fields ofKimberley from 1867 and later extended its network further north to the newtown of Johannesburg when gold was discovered there in 1885.

Expanded in Southern, Central and Eastern Africa and by 1953 had 600offices.

In 1965, it merged with the Bank of West Africa expanding its operationsinto Cameroon, Gambia, Ghana, Nigeria and Sierra Leone.

From the early 1990s, Standard Chartered has focused on developing its strongfranchises in Asia, the Middle East and Africa using its operations in the UnitedKingdom and North America to provide customers with a bridge between thesemarkets. Secondly, it would focus on consumer, corporate and institutional bankingand on the provision of treasury services - areas in which the Group had particularstrength and expertise.


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Through global network of over 1,700 branches and outlets, SCB offer personalfinancial solutions to meet the needs of more than 14 million customers acrossAsia, Africa and the Middle East.

The various services offered by SCB include:

1) Personal Banking2) SME Banking3) Wholesale Banking4) Islamic Banking5) Private Banking

Private Bank advisors and investment specialists provide customized solutions tomeet the unique needs and aspirations of investors. The various products offered byPrivate banking include:

Mutual funds

Capital protected products

Derivative Arbitrage Products

Equity Advisory Services

Fixed income products

Mutual funds have huge potential. Standard Chartered bank deals in more than

2000 mutual funds. They offer a huge range of funds for varied customers. Initiallythey make investors fill the customers so that they can understand the requirementsof the customers and thus provide services accordingly. This project basicallycovers the mutual funds investors sentiments, to understand them and makerecommendations to SCB.


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MUTUAL FUNDS

Concept

A mutual fund is a pool of money, collected from investors, & is invested

according to certain investment objectives.

A mutual fund is created when investors put their money together. It is therefore a

pool of the investors funds. The most important characteristic of a mutual fund is

that the contributors & the beneficiaries of the fund are the same class of people,

namely the investors. The term mutual means that investors contribute to the pool,

& also benefit from the pool. There are no other claimants to the funds. The pool of

funds held mutually by investors is the mutual fund.

A mutual funds business is to invest the funds thus collected, according to thewishes of the investors who created the pool. In many market these wishes are

articulated as investment mandates. Usually, the investors appoint professional

investment managers, to manage their funds. The same objective is achieved when

professional investment managers create a product, and offer it for investment to

the investors. This product represents a share in the pool, & pre-states investment

objectives.


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CONCEPT OF MUTUAL FUNDS


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Characteristics of Mutual Funds

A mutual fund actually belongs to the investors who have pooled their

funds. The ownership of the mutual fund is in the hands of the investors.

A mutual fund is managed by the investment professionals & other service

providers, who earn a fee for their services, from the fund.

The pool of funds is invested in a portfolio of marketable investments. The

value of the portfolio is updated every day.

The investors share in the fund is denominated by units the value of the

units change with the change in the portfolios value, everyday. The value of

one unit of investment is called as the Net Asset Value or NAV.

The investment portfolio of the mutual fund is created according to the stated

investment objective of the fund.

Advantages of Mutual Funds

Portfolio Diversification

By offering readymade diversified portfolios, mutual funds enable investors

to hold diversified portfolio. Though investors can create their own

diversified portfolios, the costs of creating and monitoring such portfolios

can be high, apart from the fact that investors may lack the professional

expertise to manage sucha portfolio.

Professional Management

Mutual fund are managed by investment managers(AMCs) who are

appointed by trustees & bound by the investment management

agreement, on the hows & whys of their investment management

functions.


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AMCs are also required to be adequately capitalized, & are closely

regulated by SEBI. AMCs competing for funds under management

therefore bring in significant professional expertise & are bound by

regulatory & trustee supervision.

Investment managers & funds are also bound by the AMFI code ofethics, which foster professional standards in the industry.

Reduction in risk

Mutual funds invest in a portfolio of securities. This means that all the funds

are not invested in the same investment avenue. It is well known that risk &

returns of various investment options do not move uniformly or in sympathy

with one another. Therefore, holding a portfolio that is diversified acrossinvestment avenues is a wise way to manage risk. When such a portfolio is

liquid & marked to market, it enables investors to continuously evaluate the

portfolio & manage their risks more efficiently.

Reduces Transaction cost

Mutual funds provide the investors the benefit of economies of scale, byvirtue of their size. Though the individual investors contribution may be

small, the mutual fund is large enough to be able to reduce costs. These

benefits are passed on to the investors.

Liquidity

Most of the funds being sold today are open-ended. That is, investors

can sell their existing units, or buy new units, at any point of time, at

prices that are related to the NAV of the fund on the date of the

transaction. This enables investors to enjoy a high level of liquidity on

their investments.

Since investors continuously enter & exit funds, funds are actually

able to provide liquidity to investors, even if the underlying markets,


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in which the portfolio is invested, may not have the liquidity that the

investor seeks.

Disadvantages

No control over cost

Since investors do not directly monitor the funds operations they cannot

control the costs effectively. Regulators therefore usually limit the expenses

of mutual funds.

No tailor-made portfolio

Mutual fund portfolios are created and marketed by AMCs, into which

investors invest. They cannot create tailor made portfolios.

Managing a portfolio of funds


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As the number of mutual fund increase, in order to tailor a portfolio for

himself, an investor may be holding a portfolio of funds, with the costs of

monitoring them & using them, being incurred by him.


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TYPES OF MUTUAL FUNDS

There are various types of mutual fund schemes available in the market. Currently there are

5373 mutual funds schemes available in the Indian market. Broadly the various types of mutual

funds are differentiated on the basis of:

On the basis ofSTRUCTURE, mutual funds can be divided into 3 types:

a) Open Ended Schemes

It is the pool of fund which is open for sales & repurchases. An open-end fund is one that

is available for subscription all through the year. These do not have a fixed maturity.

Investors can conveniently buy and sell units at NAV related prices. Therefore both the

amount of funds that the mutual fund manages & the number of units vary everyday. The

key feature of open-end schemes is liquidity.

Open-ended funds have to balance the interests of investors who come in, investors who

go out & investors who stay invested. Open-ended funds are offered for sale at a pre-

specified price, in the initial offer period. After a pre-specified period, the fund is declared

open for further sales & repurchases. These transactions happen at the computed NAV

related price.

b) Closed Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15

years. The fund is open for subscription only during a specified period. Investors can

invest in the scheme at the time of the initial public issue and thereafter they can buy or

sell the units of the scheme on the stock exchanges where they are listed. Therefore new

investors buy from the existing investors, & existing investors can liquidate their units by

selling them to other willing buyers. In a closed end funds, thus, the pool of funds can

technically be kept constant.

The price at which units can be sold or redeemed depends on the market prices, which isfundamentally linked to the NAV.

In order to provide an exit route to the investors, some close-ended funds give an option

of selling back the units to the Mutual Fund through periodic repurchase at NAV related

prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to

the investor.


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c) Interval schemes

Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV related prices.

On the basis ofINVESTMENT OBJECTIVE, mutual funds can be divided into 4 types:

a) Growth Option

Growth Schemes are also known as equity schemes. The aim of these schemes is to

provide capital appreciation over medium to long term. These schemes normally inves

a major part of their fund in equities and are willing to bear short-term decline in value

for possible future appreciation.

In it incomes earned are retained in the investment portfolio, & allowed to grow, rather

than being distributed to the investors.

The return to the investors is at the rate at which his initial investment has grown over

the period for which he was invested in fund. The NAV will vary with the value of the

investment portfolio while the number of unit held will remain constant.

b) Income Scheme

Income Schemes are also known as debt schemes. The aim of these schemes is to

provide regular and steady income to investors. These schemes generally invest in

fixed income securities such as bonds and corporate debentures. Capital appreciation

in such schemes may be limited.

c) Balanced Funds

Funds that invest both in debt & equity markets are called balanced funds. BalancedSchemes aim to provide both growth and income by periodically distributing a part of

the income and capital gains they earn. A typical balanced fund would be almost

equally invested in both the markets. A balanced fund also tends to provide investors

exposure to both equity & debt markets in one product. Therefore the benefits of

diversification get further enhanced, as equity & debt markets have different risk and

return profiles.


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d) Money Market Schemes

Money Market Schemes aim to provide easy liquidity, preservation of capital and

moderate income .These debt funds invest only in instruments with a maturity less

than a year. The investment portfolio is very liquid, & enables investors to hold their

investments for very short horizons of a day or more. These schemes generally investin safer, short-term instruments, such as treasury bills, certificates of deposit,

commercial paper and inter-bank call money.

On the basis ofNATURE, mutual funds can be of 3 types:

a) Equity Funds

These funds invest a maximum part of their corpus into equities holdings. The

structure of the fund may vary different for different schemes and the fund managers

outlook on different stocks. Equity funds can be further divided into 4 types:

Simple equity funds

These funds invest a pre-dominant portion of the funds mobilized in equity &

equity related products. In most cases about 80-90% of their investments are in

equity shares. These funds have the freedom to invest both in primary & secondary

markets for equity.

Sector Specific funds

These funds choose to invest in one or more chosen sectors of the equity markets.

These sectors could vary depending on the investor preference & the return-risk

attributes of the sector. Sector specific funds are not as well diversified as simple

equity funds, as they tend to focus on fewer sectors in the equity funds, as they tend

to focus on fewer sectors in the equity markets. They can exhibit very volatile

returns.


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Tax Saving Funds(ELSS)

One variation of the simple equity fund is the ELSS (Equity Linked Saving

Schemes). These funds, named variously in the mutual fund industry, are equity

funds formed under a special scheme notified by the Government of India in 1990.

According to the provisions of this notification, investment in a specially formed

mutual fund product, that invest at least 90% of its funds in equity & equity-linked

investments is eligible for a tax rebate, up to a maximum investment of Rs. 10,000,

under section88 of the Income Tax Act. Investors have to hold their units for a

minimum lock-in period of 3 years, in order to avail of the tax rebate.

Primary market funds

These funds invest in equity shares, but do so only when a primary market offering

is available. The focus is on capturing the opportunity to buy those companies

which issue their equity in primary markets, either through a public offer or

through private placements.

Index funds

It is an alternative approach to creating an equity portfolio for investors, is to avoid

taking views on the performance of companies, & instead focus on creating a

diversified portfolio, that simply replicates an existing market index. In order to

track the return performance of markets, market indices of a sub-set of trading

stocks is created.

This strategy is also called passive fund management. The costs of this strategy arelower, & the fund performance virtually tracks the market index. An index fund

provides an ideal exposure to equity markets, without the investors having to bear

the risks & costs arising from the market views that a fund manager may take.

Other equity funds


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Equity funds can also be created to invest in equity shares of companies with

specific attributes. For Example, there are small stock funds, which invest only in

equity shares of small companies; there are PSU funds which specialize in

investing only in PSU stocks; there is a top 200 fund, which invests in companies

within the universe of the top 200 equity stocks; there is a select equity fund, which

invests from the universe of stocks comprising the A group companies of theBombay Stock Exchange; & there is a 30-stock fund that limits the number of

stocks in its portfolio to 30 stocks. All these products try to define a subset of the

equity market, in terms of size &other attributes, & tend to focus on that segment.

b) Debt Funds

Debt funds are those that pre-dominantly invest in debt securities. Since most debt

securities pay periodic interest to investors, these funds are also known as income

funds. However, investing in debt products can also offer a growth option to their

investors. The universe of debt securities comprises of long term instruments such as

bond issues by central & state governments, public sector organizations, public

financial institutions & private sector companies; and short term instruments such as

call money lending, commercial papers, certificates of deposit; & treasury bills. Debt

funds tend to create a variety of options for investors by choosing one or more of these

segments of the debt markets in their investment portfolio. Debt funds can be further

divided into 5 types:

Gilt Funds

A gilt fund invests only in securities that are issued by the government, & therefore

does not carry any credit risk. These funds invest in short & long-term securities

issued by the government. These funds are preferred by institutional investors who

have to invest only in government paper. These funds also enable retail investors to

participate in the market for government securities, which is otherwise a large-

ticket wholesale market.


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Income Funds

These funds invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities

MIPs

These funds invest maximum of their total corpus in debt instruments while they

take minimum exposure in equities. It gets benefit of both equity and debt market.

These scheme ranks slightly high on the risk-return matrix when compared with

other debt schemes.

Short Term Plans(STPs)

These funds are meant for investment horizon for three to six months. These funds

primarily invest in short term papers like Certificate of Deposits (CDs) and

Commercial Papers (CPs). Some portion of the corpus is also invested in corporate

debentures.

Liquid funds

These funds are also known as Money Market Schemes, These funds provide easy

liquidity and preservation of capital. These schemes invest in short-term

instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These

funds are meant for short-term cash management of corporate houses and are meant

for an investment horizon of 1day to 3 months. These schemes rank low on risk-

return matrix and are considered to be the safest amongst all categories of mutual

funds.

c) Balanced Funds

As the name suggest they, are a mix of both equity and debt funds. They invest

in both equities and fixed income securities, which are in line with pre-defined

investment objective of the scheme. These schemes aim to provide investors

with the best of both the worlds. Equity part provides growth and the debt part

provides stability in returns. The benefits of diversification get further enhanced,

as equity & debt markets have different risk &return profiles.


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CONSTITUTION OF A MUTUAL FUND

The structure of mutual funds in India is governed by the SEBI (mutual fund)

Regulations, 1996. These regulations make it mandatory for mutual funds to have a

three-tier structure of Sponsor-Trustee-Asset Management Company (AMC). The

sponsor is the promoter of the mutual fund, & appoints the Trustees. The trustees

are responsible to the investors in the mutual fund, & appoint the AMC for

managing the investment portfolio. The AMC is the business face of the mutual

fund, as it manages all the affairs of the mutual fund. The mutual fund & the AMC

have to be registered with SEBI.

SEBI regulations also provide for who can be a sponsor, trustee & AMC, &

specify the format of agreements between these entities. These agreements provide

for the rights, duties & obligations of these three entities. These agreements provide

for the rights, duties & obligations of these three entities.


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Sponsor

The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund

& registers the same with SEBI.

Sponsor appoints the trustees, custodians & the AMC with prior approval of

SEBI, & in accordance with SEBI Regulations.

Sponsor must have at least 5-year track record of business interest in the

financial markets.

Sponsor must have been profit making in at least 3 of the above 5 years.

Sponsor must contribute at least 40% of the capital of the AMC.

Trustee

The mutual fund, which is a trust, is managed either by a Trust company or a board of

Trustees. It is the responsibility of the trustees to protect the interest of investors, whosefund is managed by the AMC. The AMC & other functionaries are functionally

accountable to the trustees.

Asset Management Company (AMC)

The mutual fund is operated by a separately established asset management company

(AMC). It manages the funds of the various schemes. It is entrusted with the specific task

of mobilizing funds under the scheme.

The trustee, on the advice of the sponsor, usually appoints the AMC. The trust deed

authorizes the trustee to appoint the AMC. The AMC is usually a private limited

company, in which the sponsors & their associates or joint venture partners are

shareholders. The AMC has to be SBI registered entity, & should have a minimum net

worth of Rs. 10 crores.

Following are the various types of AMCs we have in India


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AMCs owned by banks

AMCs owned by financial institutions

AMCs owned by the Indian private sector company

AMCs owned by foreign institutional investors

AMCs owned jointly by Indian & foreign sponsors.

Custodian

Custodians are responsible for the securities held in mutual funds portfolio. They

discharge an important back-office function, by ensuring that securities that are bought,delivered & transferred to the books of the mutual funds, & those funds are paid out when

a mutual fund buys securities. They keep the investment account of the mutual fund, &

also collect the dividends and interest payments due on the mutual fund investments.

Custodians also track corporate actions like bonus issues, right offers, offer for sale, buy

back & open offers for acquisition.

Registrars & TransferAgents (R & T Agents)

The R & T agents are responsible for the investor servicing functions, as they maintain

the records of investors in mutual funds.

They process investor

applications.


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Record details provided

by the investors on application forms.

Send out to investor

details regarding their investments in mutual fund.

Send out periodicalinformation on the performance of mutual funds.

Process dividend payout

to investors

Incorporate changes in

information as communicated by investors.

Keep the investment

record up to date, by recording new investors & removing investors who have

withdrawn their money.

NET ASSET VALUE (NAV)

NAV represents the actual value of per unit of a fund. It is calculated as:

(Market value of all investments + Income + Profit Loss - Expenses)


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Number of units in the mutual fund

The above components stand for:

Market value of all the investments

Every security in the funds portfolio has a market value. The value of the entire portfoliois calculated to reach this figure. It is here that any capital appreciation or depreciation of

the portfolio is reflected.

Income

This is the interest income earned by debt securities or dividend income earned by stocks

in the portfolio.

Profit

This is the capital gain realized by selling a security (debt or equity) at a price higher than

its purchase price.

Loss

This is the capital loss suffered by selling a security (debt or Equity) at a lower price than

its purchase price.

Expenses

This is the actual expenses incurred by the fund. For example, fees paid to AMC,

custodians, registrars etc., SEBI restricts the expenses that can be paid by the fund.

2 facts emerge from the above:

All the income, expenses , profits & losses of a mutual fund are reflected in one

single number its value, i.e. its NAV


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Market Value of investments is a major determinant of NAV. Thus, a mutual

fund will reflect market conditions.

NATURE OF INCOME DISTRIBUTION TO INVESTORS

Mutual fund offers a variety of options to investors, in the manner in which the

returns from their investments are structured. At a broad level, the investors have 3

options which are:

Dividend Option

Investors, who choose a dividend option on their investments, will receive

dividends from the mutual funds, as & when dividends are declared.

Dividends are paid in the form of warrants, or are directly credited to

investors bank account.

Growth option

Investors who do not require periodic income distributions can choose the

growth option, where the income earned are retained in the investmentportfolio, & allowed to grow, rather than being distributed to the investors.

Investors with longer-term investment horizons, & limited requirements for

income, choose this option. The return to the investors is at the rate at which

his initial investment has grown over the period for which he was invested in

the fund. The NAV of the investor choosing this option will vary with the

value of the investment portfolio, while the number of units held will remain

constant.

Re-investment Option

Investors re-invest the dividends that are declared by the mutual fund, back

into the fund itself, at NAV that is prevalent at the time of re-investment. In

this option, the number of units held by the investor will change with every

re-investment. The value of the units will be similar to that under the

dividend option.


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SELECTION OF FUNDS

Following are the steps recommended by John Bogle, former chairman of

Vanguard Group of Funds in United States:

For Equity funds

Classify the equity funds into broad categories that signify their return

& risk characteristics.

Classify funds further on the basis of fund manager style. Investorsmay want to choose between value & growth styles, depending on their

risk & return preferences

Evaluate the performance of the schemes. This is done both within the

peer group, & comparison with the bench mark

Under the structural characteristics of the scheme like Size of the fund,

fund age, portfolio managers experience, and costs of investing.

Understanding the portfolio characteristics of the scheme likepercentage of cash in portfolio, market capitalization of the fund,

portfolio turnover, portfolio risk, and statistics-ex marks of the portfolio,

beta, and gross dividend yield.

The performing fund will have higher ex marks, lower beta, & higher

gross dividend yield.


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For Debt/Bond funds

Fund age & size Newer & smaller fund may not be risky to the

investors.

Relative Yield the total return on the fund may not be risky to the

investors.

Costs expenses ratio in a bond fund is very important, higher loads &

expenses could lead to a yield sacrifice.

Quality of the portfolio Better the rating of the bonds in the portfolio,

better the fund.

Average maturity the duration of the portfolio, and therefore is related

to the average maturity. Higher the average maturity means higher

interest rate risk in the fund.


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WHY AN INVESTOR LEAVES A FUND

Change in a Fund's Manager

When investors put their money into a fund, they are putting a certainamount of trust into the fund manager's expertise and knowledge, which

they hope will lead to an outstanding return on an investment that suits theirinvestment goals. Thus, fund manager plays an important role wheninvestors put in their money in mutual funds.

Change in Strategy

If investors research their fund before investing in it, they most likelyinvested in a fund that accurately reflects their financial goals. If their fundmanager suddenly starts to invest in financial instruments that do not reflectthe mutual fund's original goals, they may want to re-evaluate the fund youare holding. For example, if a small-cap fund starts investing in a few

medium orlarge-cap stocks, the riskand direction of the fund may change.

Consistent Underperformance

This can be tricky since the definition of "underperformance" differs frominvestor to investor. If the mutual fund returns have been poor over a periodof less than a year, then investors may not liquidate, thinking thatliquidating their holdings in the portfolio may not be the best idea since themutual fund may simply be experiencing some short-term fluctuations.However, if they have noticed significantly poor performance over the last

two or more years, they may liquidate their holdings.

The Fund Becomes Too Big

In many cases a fund's quick growth can hinder performance. The bigger thefund, the harder it is for a portfolio to move assets effectively. Fund sizeusually becomes more of an issue forfocused funds or small-cap funds,which either deal with a smaller number of shares or invest in stock that haslow volume and liquidity.

Latest Asset under Management for all Mutual Fund Houses
http://www.investopedia.com/terms/s/small-cap.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/l/large-cap.asphttp://www.investopedia.com/terms/r/risk.asphttp://www.investopedia.com/terms/f/focusedfund.asphttp://www.investopedia.com/terms/v/volume.asphttp://www.investopedia.com/terms/s/small-cap.asp


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Amount in


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36MUTUAL FUND

NAME

NO. OF

SCHE-

MES

ASSET UNDER MANAGEMENT

As on Mar

31,2008

As on Feb

29,2008

Net Inc/Dec as

on Mar 31,2008

ABN AMRO MutualFunds

325 6675.73 6813.54 -137.81

AIG Global InvestmentGroup Mutual Fund

54 3,148.63 3,303.49 -154.86

Benchmark MutualFund

12 5611.00 4,954.72 656.28

BIRLA Mutual Funds 330 34750.00 36,391.00 -1641

BOB Mutual Funds 22 70.34 79.69 -9.35

Canara Robeco MutualFund

54 2484.28 3,146.58 -662.3

DBS Chola Mutual

Fund

80 1,963.92 2,953.32 -989.4

Deutsche Mutual Fund 176 11996.00 14,404.85 -2408.85

DSP Merrill LynchMutual Fund

207 19136.00 19,940.40 -804.4

Escorts Mutual Funds 26 175.8 146.93 28.87

Fidelity Mutual Funds 39 8294.05 9,487.17 -1193.12

Franklin TempletonInvestments

225 29604.33 29,424.58 179.75

HDFC Mutual Funds 351 43762.7 46,291.97 -2529.27

HSBC Mutual Funds 212 13953.08 15,530.08 -1577ICICI Prudential

Mutual Fund416 51810.85 62,008.95 -10198.1

ING Mutual Funds 251 9844.71 9,844.71 00.00

JM Financial MutualFund

171 11,032.93 12,559.79 -1526.853

JPMorgan MutualFunds

9 2081.42 2,481.12 -399.7

Kotak MahindraMutual Fund 178 16135.52 19,367.84 -3232.32

LIC Mutual Funds 112 13387.40 15,103.00 -1715.6

Lotus India MutualFunds

212 10057.10 9,763.88 293.22

Morgan Stanley MutualFunds

3 3172.00 3,599.49 -427.49

PRINCIPAL MutualFunds

151 11,780.02 13,318.69 -1538.67

Quantum Mutual Funds 6 64.22 65.38 -1.16

Reliance Mutual Funds 331 77210.04 93,531.68 -16321.64

-
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM042http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM019http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033


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http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM040http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036


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As per the graph, we can see there has been a sharp increase in the sales of mutual

funds in the month of January. The volatility of the market started in January.

When the market decreased in January, investors thought that it is correction and

they put in money so as to buy mutual funds at lower NAV. But after the market

crashed on 21st January, investors began to panic. In the month of February therehas been a sharp decrease in the sales of mutual funds. This is because of

downward motion of market in February. In March there has been a slight recovery

in the sales.


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Balanced funds sales showed the same trend. There had been a sudden increase in

the sales of balanced funds. As balanced funds is the combination of both equity &

debt. So investors who had less risk taking capacity invested in these funds. But

again in February there has been a sharp decline in the sales of balanced funds &

same continued in the month of March.


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Income funds basically invest in debts. There had been a sharp increase in the sales

in month of January. But a slight decrease in the month of February. There has

been increase in the sales of such funds in March. It is because of their returns are

assured & they are less risk averse.


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After the volatility of market, investors have developed a negative sentiment. And

it is visible from the sharp increase in the sales of gilt funds. They do not have

credit risk. And they invest in government securities only. Therefore, investors

invested more in the gilt funds. There has been a sharp increase in the month of

February, in spite of the decrease in the mutual funds sales. There has just been a

slight decrease in the month of March. But overall the sales of gilt funds have

increased to a very large extend.


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Sales of gold funds have increased many folds because people are moving

towards commodities to hedge against inflation or market fall & gold ETF offerthe advantage of not holding physical gold as well as flexibility to sell at anytime & turn to equity or debt because selling instrument is easier rather than

physical quantity & procuring gold is not an easy task plus flexibility is anotherreason why gold ETF is preferred against gold


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These funds basically aim at liquidity. They invest in short term bonds & securities.

These funds also followed the trend. There has been increase in the sales in the

month of January but a slight decrease in the month of February. Again these

funds sales increased in the month of March.


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SCOPE OF THE STUDY

The study is confined to the mutual fund investors of Jaipur city of Rajasthan state

of India. The stated investors of Jaipur are currently working here and they all are

investing in mutual funds for last at least two years and recently in Feb Mar

2008 .So the respondents are capable enough to understand the major investmenttechnicalities and react accordingly.

OBJECTIVE

To understand the concept of wealth management & various mutual funds

and what they offer to the investors.

To understand the effect of the changing conditions on the mutual funds

To understand the expectations & various strategies taken by mutual fund

investors under various conditions. How their investment strategies and

expectations changes with changing scenario.

To analysis some of the star ranked mutual funds in the market & compare

them with the Standard Chartereds mutual funds.

To make recommendations to SCB as to cope with changing sentiments of

the investors.


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METHODOLOGY USED

Primary data is collected through a questionnaire & collecting answers

from investors to understand the investors needs, choice & strategies under various

conditions. The questionnaire is aimed at gathering firsthand knowledge of

investors point of view.

Sample design

Random sampling method is used for collection of data and necessary information

for which sample size of 100 respondents in Jaipur city have been taken for study.

Analysis & Interpretation

The study mainly deals with changed strategies and expectations of IndividualInvestors towards Mutual funds in Jaipur city due to the volatility of the market.Respondents were screened and inclusion was purely on the basis of their

knowledge about Financial Markets, MFs in particular. This was necessary,because the questionnaire presumed awareness of some basic terminology aboutMutual Funds. The purpose of the survey was to understand mainly their fundselection behavior, various factors influencing this behavior, their investmentobjectives, changing strategies in changing scenario and also the conceptualawareness level among individual investors. The survey was conducted duringMar-Apr 2008, among 100 educated, geographically dispersed individual investorsof Jaipur city. Sample of the Questionnaire is given in Annex I 1. The unit ofobservation and analysis of survey is only among Individual Investors whosedefinition is An Individual who has currently invested in any Mutual Funds. Since

it is an exploratory study no specific hypothesis is formulated.

Since the study is entirely based on the personal opinion of the respondents, the

collected data is presented in tabular form .Pie charts and diagrams are also used as

a presenting tool for the effective presentation. Percentage and majority method has

been used to analyze the responses given by the respondents. For most important

questions the responses have been accepted according to the most frequently

similar responses given by the respondents of one similar group and after that the

whole responses of all respondents were compiled in order to get a clear snap shot


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of the investment behavior. So primarily the direct responses according to majority

of sample has been accepted

Secondary data will be collected through internet, magazines. Various

journals, books, various AMCs Fund Fact sheets and Standard Chartered Bank

study material so as to collect information about mutual fund market, stock

exchange and about wealth management.

LIMITATIONS OF THE STUDY

1) Geographical constraint - Sample size is limited to 100 educated individualinvestors in the city of Jaipur. The sample size may not adequately representthe national market.

2) Sampling constraints - Simple Random and judgment sampling techniquesis due to time and financial constraints.

3) Time constraint - This study has not been conducted over an extended

period of time having both ups and downs of stock market conditions which a

significant influence on investor s buying pattern and preferences.


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FINDINGS OF THE STUDY

1) PERSONAL INFORMATION ABOUT INVESTORS

Under this category investors were asked 5 questions:

(a) What is your age?

Basically this question is being asked to study a trend of investment

according to the age of an investor. Age plays an important role in the

investment pattern of a particular person. A person who is younger may

invest more in equity as he can have higher risk appetite. A person who

is in middle age may prefer to invest in balanced funds. A person who is

aged may prefer to invest in debt funds as his risk appetite will be the

lowest. He would not be looking towards long term investments but he

must be looking towards constant returns, so may want to invest in debt

funds.

CATEGORY NO. OF RESPONDENTS

20-30 YRS 30

31-40YRS 30

41-50 YRS 25

550 ABOVE 15


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(b) Which investment tool, generally you choose for your

investment purpose.

INVESTMENT TOOL NO. OF RESPONDENTS

Bonds 7

Equity 23

Fixed Deposits 4

Gold 25

Mutual funds 40

Others 1


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Analysis:

Around 11% investors want to invest in secured instruments like bonds

& FDs

Around 23% are high risk takers. They invest in equity.

Around 25% people invest in gold. It is the second most popular

investment tool. As it has given huge returns in past few months.

Around 40% invests in mutual funds, which shows that they want to

balance between risk and returns.

(c) What is your investment expenditure ratio?

INVESTMENT-EXPENDITURE RATIO NO. OF RESPONDENTS

Less than 20% 24

20-80% 36

30-70% 15

40-60% 25

50-50% 0


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Analysis:

Around 25% of the investors invest less than 20% of their income.

This is a huge potential base.

The major part lies in the bracket 20-80% ratio.

25% investors invest in the ratio of 40-60% which is less.

(d) How stable is your income source?


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STABILITY OF INCOME NO. OF RESPONDENTS

Stable 60

Unstable 5

Moderate 25

Fluctuating 10

Analysis:

As 60% investors have a stable income source. Earlier they had apsychology of investing in stable investment instruments like bonds &fixed deposits rather than investing in equity market where returns can

be much higher than present investments but they are showing riskaversion because of the equity markets volatility. Based on this it can

be said that they do not believe in the economical condition of thecountry and market stability. But no conditions have changed. Peoplewith stable income are also ready to take risk

25% has moderate income

10% has fluctuating. This basically comprises of business men

Only 5% state their income to be unstable


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d) Which bank/organization is providing you the investment

services?

Analysis:

Only 30% of the investors invest through banks/financial institutes


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Out of 100 investors, who invest in mutual funds, 70% do not take

investment services from the bank or any other institute.

There are still large part investors who invest on their own.

2) HOW INVESTORS TAKE INVESTMENT DECISION?

Under this there were 3 different questions asked to the respondents:

(a) Before making an investment decision, how do you conclude

that for which investment instrument you should go for?

REASON FOR INVESTMENT NO. OF RESPONDENTS

According to return analysis 50

According to esteemed group 5

After consultation with financial advisor 15

According to market trend 30

Analysis:


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As the data show that only 25% respondents of the totalpopulation choose their investment medium after consultation oraccording to their peer group. They are not anymore dependent onwhat others have to say. They decide for their own money. 75% of respondents follow the return analysis & market trendmethod for arriving at an investment decision. This shows that peoplehave become educated. They know where there money should go.What are their requirements?

(b)Do you generally invest in popular mutual funds or analyze the funds& performance before investment decisions?

REASON FOR CHOOSING MUTUAL

FUND

NO. OF RESPONDENTS

Follow the popularity 5

Follow the esteemed group 15

Careful analysis of the fund 50

After consultation with financial advisor 30


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Analysis

Around 50% of people still choose mutual funds after

consultation. These shows that people believe more on what other

advisors has to say rather than making their own decisions

Another 50% do the return analysis & other analysis of the

funds to decide on which fund to invest in

(c)What factors do you keep in mind before investing in mutual

funds?

FACTOR NO. OF RESPONDENTS

Brand Name 20

Product features 5

Quality of service 5

Transparency 5

Past performance 65


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Analysis:

While choosing a fund the most important thing that matters toinvestors is past performance of the mutual funds

Next is the brand name. This shows the brand name inculcates trust

and investors want to invest where they feel that their money is safe.

Other factors like product features & quality services & transparency

are not that important to investors

3) INVESTMENT OBJECTIVE

Simply as the topic may seem, but the investment objective of an

investor forms the base for his investment foray. Investment objective

refers to the expectations & requirements that an investor desires his

investment to live up to. Every investment is followed by an investors

attempt to attain some gain out of it. But the GAIN is just not the

capital appreciation that satisfies an investor, its timely attainment is

as mandatory as the realization of gain itself.

The various schemes in the mutual fund industry are designed to suit

the particular investment purpose of the investors. The idea ofcustomization has penetrated into this industry as well & with the

growing diversified needs of the investors, several schemes are

formulated that help the customer achieving his goal & making his

investment valuable.

This customization is the key reason for the spurt in the investment

avenue. Other than this, at times it may be identified that investors

may hold more than one expectation. In such a case he tries to create a


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portfolio for himself that lives up to all his expectations. There are

many counselors who provide counseling in the same avenue basing &

researching their decisions on certain parameters which are small

things but could have the biggest of impact on ones investments.

Age also plays an important role in the investment objective. The

model portfolio that has been recommended for investors by Jacobs

for investors according to their life cycle stages is

INVESTORS RECOMMENDED MODEL PORTFOLIO

Young

unmarried

professional

50% in aggressive equity funds

25% in high yield bond funds, growth & income funds

25% in conservative money market funds


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Young couple

with 2 income

& 2 children

10% in money market funds

30% in aggressive equity funds

25% in high yield bond funds & long term growth funds

35% in municipal bond funds

Older couple

single income

30% in short term municipal funds

35% in long term municipal funds

25% in moderately aggressive equity

10% emerging growth equityRecently

retired couple

35% in conservative equity funds for capitalpreservation/income

25% in moderately aggressive equity for modest capitalgrowth

40% in money market funds

Under this category there were 4 questions asked:


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(a) If you have to invest Rs. 100, how will you divide it in the

following categories?

INVESTMENT OBJECTIVE NO. OF RESPONDENTS

Long term(5-6years)/ Capital appreciation

Mid -term(2-3years)/growth appreciation

Short term(monthly)/ Liquidity

Analysis:

Around 64% investors are interested in long term investments.

They look at both growth & capital appreciation


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Around 25% interested in mid- term returns within the span of 2

to 3 years

Most of the investors look for growth so there are less people

who invests in short term funds

(b) What is your investment objective, while investing in mutualfunds?

INVESTMENT OBJECTIVE NO. OF RESPONDENTS

Growth 45

Liquidity 5

Income 25Balanced 25

Others

Analysis:

As the data show that 45% investors have opted for growth, 25% income or the liquidity & 30 % for balanced. Here the liquidity and

balanced can be taken as same because they both show short termobject instead of long term object. We can conclude that a majority ofinvestors show a short term object nearly about 80 % means they arenot investing in the market with a broader horizon of stability of theeconomy or the market. The result also describes that they are not


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investing in stock market; they are going for the debt market as theyopt for the liquidity or the balanced returns. A lower proportionate ofthe growth option show that they do not want to invest for long termmeans they may have a view that the stock market will not be able to

perform well in long time. The bull ride of the economy is short innature according to their response. Because for obtaining growth infuture they need to invest for long term in stock market. So a lowerresponse regarding investment in favor of the growth shows that theystill seek security for their savings & they are risk averse.

(c) What is your investment strategy?

INVESTMENT STRATEGY NO. OF RESPONDENTS

Low risk, low return 15Mid risk, mid return 55

High risk, high return 30


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Analysis:

Around 30% investors can take high risk. That shows that they

want high returns

Most of the investors are risk averse i.e. they want medium risk.

They want to strike a balance between risk and return

This category is of low risk appetite people who basically

invests in gilts & bonds and have lowest returns

4) CURRENT SENTIMENTS

Under this category there are 3 questions asked to the customers:

(a) What is your view about stock market?

VIEW ABOUT STOCK MARKET NO. OF RESPONDENTS

It will decrease further 25

This is the bottom 5

Will decrease further but then recover 40Will recover now 30


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Analysis:

Majority of investors think that market will recover. They thinkthat it will recover back to its bullish walk

Only 5% thinks that market will stagnate here.

There is another major part of investors that thinks that market

will decrease further. This shows a negative sentiment of the investors

& thus impacts the sale of mutual funds

Another 30% thinks that market will now recover, it will not fall

further.

(b) With current scenario, how risky do you find investing in mutualfunds?

RISK IN INVESTING IN MUTUAL FUND NO. OF RESPONDENTS

Low risk 20

Medium risk 45

High risk 30

Very high risk 5


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Analysis:

5% investors think that investing in mutual funds is of high risk

20% investors think that investing in mutual funds is of low risk

30% think that it is high risk to invest in mutual funds

45% think that investing in mutual fund is of medium risk and this

truly stands in context of mutual funds because mutual funds diversify

the risk to a large extend as compared to equity.

low

20%

medium

45%

high

30%

very high

5%

Mutual Fund Risk


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(c) As the market is going down, what is your investment strategy?

CHANGED INVESTMENT STRATEGY NO. OF RESPONDENTS

Selling off existing funds 10

Wait & watch 60Buying more as the NAV is low 30

Analysis:

10% people have negative sentiments. They want to sell of their

existing investments.

60% people say that their strategy is to wait and watch. Theywant to give market more time to recover.

30% people take it as an opportunity. They think that market

will recover. This is the time to buy because they are getting a good

deal at very low prices.


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COMPARATIVE ANALYSIS OF MUTUAL FUNDS

There are around 5343 mutual fund schemes currently in market. It is difficult for

an investor to choose from them. That is where wealth management comes into

play. There are certain mutual funds that are star ranked by the wealth managers.

So these mutual funds are analyzed on the basis of the parameters as per the

investors and to observe the following:

1) Difference between the parameters of the investors & investment managers.

2) Currently star ranked funds catering to the needs of investors

3) Funds

4) Difference between the output of current star ranked funds & expectations of

investors

5) Need for changing the investment strategies.

EQUITY ELSS

Recommendation Recommendation by SCB Recommendation by

Market

Name of the fund Principal Personal Tax Saver Tata tax Advantage fund 1

Last 1 year % 30.3 20.46

Last 3 years % 31.2 28

Since Inception % 31.7 35.1

Total Equity % 121.6 93

Expense Ratio % 2.5 2.22


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Corpus (crs.) 360 510

Inception Date 1-Jan-96 10-Apr-99

EQUITY INDEX

Recommendation Recommendation by SCB Recommendation by

Market

Name of the fund ICICI Prudential Index Fund LIC MF Index Fund -Sensex Plan - Growth

Last 1 year % 26.2 18.1

Last 3 years % 34.9 34.01



Corpus (crs.) 37 44.23Inception date 25-Feb-2002 28-Nov-2002

Sharpe .25 .21

Beta 1 .92

Treynor .89 .77

EQUITY LARGE CAP DIVERSIFIED

Recommendation Recommended by SCB Recommended by Market

Name of the fund DSP Merill Lynch Top 100

Equity Fund

Templeton India Growth

Fund- Dividend

Last 1 year % 28.1 33.4

Last 3 years % 37.6 31.8
http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044http://www.mutualfundsindia.com/fundfactsheet1.asp?sname=LC044


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Total Equity % 85 96.8



EQUITY SECTOR CONCENTRATED


Name of the fund Kotak Oppportunity Fund DSP Merrill Lynch India

Tiger FundLast 1 year % 33.7 29.7

Last 3 years % 42.1 42.8


Total Equity % 89.1 90.2



BALANCED FUNDS


Name of the fund HDFC Balanced Fund Benchmark Split capital fund

Last 1 year % 13.18 Na

Last 3 years % 21.11 Na


Expense Ratio % 2.21 0

Sharpe .20 .19

Beta .82 .87

Treynor .52 .44


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FIXED INCOME GILT LONG TERM


Name of the fund ICICI Prudential Gilt Fund

Investment Plan

HDFC Gilt Fund Long Term

Plan-growth

Last 1 year % 8.2 6.96

Last 3 years % 6.3 4.17



Sharpe .12 .05

Beta .80 .77

Treynor .07 .03

LIQUID FUNDS


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INVESTMENT PRODUCTS OFFERED BY SCB

Standard Chartered Bank offers other investment products under wealth

management & SCB is a pioneer in them. These can be other products that can be

offered to investors but many investors are not aware of them. These products

include:

Unit linked insurance plan (ULIP)

A unit linked insurance policy is one in which the customer is provided with

a life insurance cover and the premium paid is invested in either debt or

equity products or a combination of the two. In other words, it enables the

buyer to secure some protection for his family in the event of his untimely

death and at the same time provides him an opportunity to earn a return on

his premium paid. In the event of the insured person's untimely death, his

nominees would normally receive an amount that is the higher of the sum

assured (insurance cover) or the value of the units (investments).However,

there are some schemes in which the policyholder receives the sum assured

plus the value of the investments.

Every insurance company has four to five ULIPs with varying investment

options, charges and conditions for withdrawals and surrender. Moreover,

schemes have been tailored to suit different customer profiles and, in that


Name of the fund HDFC Cash Management

Fund- Saving Plan

Principal Money Manager

Fund-Regular-growth

Last 1 year % 8.2 Na

Last 3 years % 7.0 Na


Expense Ratio % 0.58 Na

Sharpe 2.24 Na

Beta .15 Na

Treynor .3 Na


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sense, offer a great deal of choice. The advantage of ULIP is that since the

investments are made for long periods, the chances of earning a decent return

are high. Just as in the case of mutual funds, buyers who are risk averse can

buy into debt schemes while those who have an appetite for risk can opt for

balanced or equity schemes. However, the charges paid in these schemes in

terms of the entry load, administrative fees, underwriting fees, buying andselling charges and asset management charges are fairly high and vary from

insurer to insurer in the quantum as also in the manner in which they are

charged.

Structured notes

A debt obligation that also contains an embedded derivative component with

characteristics that adjust the security's risk/return profile. The return

performance of a structured note will track that of the underlying debt

obligation and the derivative embedded within it. A structured note is a

hybrid security that attempts to change its profile by including additional

modifying structures. A simple example would be a five-year bond tied

together with an option contract for increasing the returns.

Arbitrage funds

Arbitrage is a strategy, which involves simultaneous purchase and sale ofidentical or equivalent instruments in two or more markets in order to benefitfrom a discrepancy in pricing. This strategy normally acts as a shield againstmarket volatility as the buying and selling transactions offset each other. In


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an arbitrage transaction, returns are calculated as the difference between thefutures price and cash price at the time of the transaction. Ideally the

positions are held till the expiry of the futures contract when the offsettingpositions cancel each other and initial price difference is realized. Thisarbitrage strategy makes the fund immune to market volatility i.e. the fundwill not be affected by market fluctuations. Since the portfolio of arbitragefunds is completely hedged at all times to lower the risk of loss/erosion ofgains, it also in turn caps the returns that the fund could have clocked if the

portfolio was not hedged i.e. these funds have a limited upside.

Despite the fact that arbitrage funds offer investors the opportunity to benefitfrom investments in equities by making use of derivatives, the fund cannot

be compared to conventional diversified equity funds, especially on thereturns parameter. The returns from arbitrage funds would typically be muchlower than those of equity funds. That could be one reason why despite their

equity holdings, arbitrage funds are benchmarked against indices likeCRISIL Liquid Fund Index for want of a more appropriate index.

Fixed income funds

An investment that provides a return in the form of fixed periodic payments

and the eventual return of principal at maturity. Unlike a variable-income

fund, where payments change based on some underlying measure such as

short-term interest rates, the payments of a fixed-income security are known

in advance. An example of a fixed-income security would be a 5% fixed-rategovernment bond where a $1,000 investment would result in an annual $50

payment until maturity when the investor would receive the $1,000 back.

Generally, these types of assets offer a lower return on investment because

they guarantee income.

Portfolio management services(PMS)

Professional Investment Management Services are no longer the privilege ofonly large institutional investors. Portfolio Management Services (PMS) is

one such service that is fast gaining eminence as an investment avenue of

choice for High Net worth Investors l. PMS is a sophisticated investment

vehicle that offers a range of specialized investment strategies to capitalize

on opportunities in the market. The Portfolio Management Service combined

with competent fund management, dedicated research and technology,

ensures a rewarding experience for its clients.


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Most portfolio managers allow you to choose between a fixed and aperformance-linked management fee. If you opt for the fixed fee, you maypay between 2-2.5 per cent of portfolio value; this is usually calculated on aweighted average basis. The structure for the performance-linked fee differsacross players; usually, this includes a flat fee of 0.5-1.5 per cent. The

portfolio manager also gets to share a percentage of your profit usually15-20 per cent earned over and above a threshold level, which may range

between 8 per cent and 15 per cent. Apart from management fees, separatecharges will be levied towards brokerage, custodial services and towardsmeeting tax payments.

However, a PMS may only add significant value in the following cases:

Equity bias: Portfolio management services may be ideal for a person who

seeks a substantial investment in the stock markets. An equity portfolio also

offers greater scope for a manager to add value than does a debt portfolio.Several of the established players in the PMS business focus on equity

investments, though some also offer hybrid products.

Large surplus to invest: The minimum portfolio size that portfolio

managers accept for a customized portfolio ranges from Rs 25 lakh to Rs 5

crore.

Real estate Funds

An REMF is like a mutual fund for real estate assets. In other words the assetmanagement company (AMC) invests in a range of real estate assets around

the country and creates a fund based on those assets. Investors can buyshares in those funds which are traded on a daily basis on stock exchanges.The value of the shares depends on the value of the underlying real estateassets.

REMFs have many advantages over direct investment in real estate.

It allows investors to invest according to their income and financialcircumstances.


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The portfolio of real estate assets will be a lot more diversified than asingle home with assets ranging from office space to residential

properties all around the country as well as securities based on the realestate sector.

Investors don't have to deal with the legal and maintenance hassles ofowning property and can instead rely on the professional expertise ofthe AMCs. Finally if they need quick money, these funds are liquidassets which can be sold conveniently and rapidly.

RECOMMENDATIONS

Savings Objective of Individual InvestorsSavings Objective of the majority of Individual Investors is to invest in moderaterisk , thus throwing light on the nature of risk averse investors. AMC can attract a

pool of investors by designing products for Risk-Averse investors.But there is also a pool of investors that are ready to take high risk. Nearly 30% ofthe investors are ready to take high risk as they want high returns. These investorscan be of high potential for equity based funds.

Savings instrument preference among individual investors


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Now only 11% investors invest in secured investments like bond & fixed deposits.Now they prefer mutual funds over other investments. Around 23% of investorsinvest in equity. This group shows the highest risk appetite and thus shows a huge

potentialAround 25% of the investors invest in gold. This is the second most preferredinvestment tool next to mutual funds. It also shows a huge potential as now goldETF are available. And the increase in gold price & thus increase in gold ETF isvery much evident.

Investment expenditure RatioMaximum investors show their expenditure ratio of 20-80%. But still around 25%of investors have income-expenditure ratio of less than 20%. Thus it shows thatstill many investors are not investing properly & thus they need professionalinvestment services.

Stability of incomeAround 60% investors have a stable income source. Earlier they had a psychologyof investing in stable investment instruments like bonds & fixed deposits ratherthan investing in equity market where returns can be much higher than presentinvestments but they use to show risk aversion because of the equity marketsvolatility. Based on this it can be said that they did not believe in the economicalcondition of the country and market stability. But now conditions have changed.People with stable income are also ready to take risk. More people are ready toexplore new investment avenues. They are ready to invest in various types of

investment.

Investment adviceAround 70% of the investors do not take investment advice. They do investments

on their own. This shows that investors have become more educated. They havemore know- how of the market. But this can also be taken as a potential. Because,still there are investors who need advice. Standard Chartered Bank should targetsuch investors.Around 25% of the investors make investments after consultation with their peergroup or financial advisors. Still around 75% of the investors make investmentdecisions on their own by making return analysis or market research.

Preferential Feature in mutual funds among individual investors


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The study shows the investors need for Good Return is highest among features,followed by Safety, Liquidity, Tax Benefit, Capital Appreciation, ProfessionalManagement and Diversification Benefits.

Reason for choosing a mutual fund

The most preferred reason for choosing the mutual fund is the past returns. Around65% of the investors choose a mutual fund on the basis of past performance. ThusSCB should offer more of those mutual funds that have good track record. Nextmost preferred feature is the brand name. In case of an NFO brand name plays animportant role.

Investment strategyAround 64% of the investors have long term investment strategy. They want toinvest for longer period. For such investors SCB can offer more of equity funds. Asthough the market is volatile now but it is going to give huge returns in 3 to 4 years.

As these investors are ready to wait they can be of huge potential.

Preference of Mutual Fund Investing Over Equity InvestingThe emergence of an array of savings and investment options and the dramaticincrease in the popularity of Mutual Funds, in the recent years in India, has openedup an entirely new area for value creation and management. A house-holderinvestor with few rupees left over after paying for housing and two wheelerinstallments, is puzzled as to where he must park his funds safely, given thevolatility of the market. This category may include people who either have a low

awareness level about MF industry or still do not completely believe that MFs canget the same return like that of Equity shares. Around 75% of the investors say thatinvesting in mutual funds, risk ranges from low to medium. This shows thatsentiments of investors have changed towards mutual funds

Sentiments towards market

Around 75% of investors believe that the market will recovers again. This shows apositive sign for mutual funds. So investors can be offered long term investmentswhich can give returns.Around 25% of investors believe that market wont recover. For such investors giltfunds and money market funds can be offered

Future strategy of investorsAround 60% of investors want to play safe. With current market volatility theywant to wait and watch. Around 30% of the investors are looking at this as an


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opportunity to invest more in mutual funds as mutual funds are available at lowerNAVs. This can prove to be a good potential customer base for SCB

REFERENCES

www.mutualfundsindia.com

www.google.com
http://www.mutualfundsindia.com/http://www.google.com/http://www.mutualfundsindia.com/http://www.google.com/


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www.amfiindia.com

www.nseindia.com

www.investopedia.com

www.moneycontrol.com

www.wikipedia.com

www.bseindia.com

www.standardchartered.in.com

The Economics Times

Jeffery Lawrence, (2005), Leading the Way

Study material Standard Chartered Bank , (200

Mutual Funds 699

Documents

Transcript of Mutual Funds 699