Working File MF
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INTRODUCTION
The definition of a mutual fund is a form of collective investment that pools money from many
investors and invests their money in stocks, bonds, short-term money market instruments, and/or other
securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or
losses, and collects the dividend or interest income. The investment proceeds are then passed along to the
individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is
calculated daily based on the total value of the fund divided by the number of shares currently issued and
outstanding.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
The money thus collected is then invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital appreciations realized are shared by
its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual
fund: brief
Thus a mutual fund is the most suitable investment for the common man as its offers an opportunity to invest
in a diversified, professionally managed portfolio at a relatively low cost. Thus the mutual fund is packed
product which consists of following attributes:-
Professionally manage portfolio Diversification Convenience Tax benefits u/s 80c Liquidity Lesser risk
Mutual fund scheme is prepared by fund manager of that company where offer document contains
Load structure (exit load /exit load) Type of fund Investment objective Asset allocation
Plans and options Minimum application Bench mark index
EVOLUTION OF MUTUAL FUNDS IN INDIA
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 objective then was to attract the small investors and
introduce them to market investment. The history of mutual funds in India can be broadly divided into four
distinct phases
Phase 1- 1964-87: Growth of Unit Trust of India
In 1963, UTI was established by an act of Parliament. The first scheme launched by UTI was Unit Scheme
1964. Later in 1970’s and 80’s, UTI started innovating and offering different schemes to suit the different
classes of investors. Unit Link Insurance Plan (ULIP) was launched in 1971. Six new schemes were introduced
between 1981 and 1987. The asset under management of UTI was increased from Rs. 600 crores in 1984 to Rs.
6700 cr. by the end of 1987.
Phase 2- 1987-1993: Entry of public sector funds
1987 marked the entry of public sector mutual funds. With the opening up of the economy, many public
sector banks and financial institutions were allowed to establish mutual funds. State Bank of India established
the first non UTI mutual fund- SBI Mutual Fund in November 1987. This was followed by Canbank Mutual
Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB
Mutual Fund. From 1987-88 to 1992-93, the asset under management increased from Rs.6700 cr. to Rs.47004
cr.
Phase 3-1993-1996: Emergence of Private Funds
A new era of mutual fund industry began in 1993 with the permission granted for the entry of private
sector funds. This gave the Indian investors a broader choice of ‘fund families’ and increasing competition to
the existing private sector funds. Foreign fund management companies entered joint ventures with Indian
companies to start the mutual fund business in India. These private funds have bought in with them the latest
product innovation, investment management techniques and investor-servicing technology that make the
Indian mutual fund industry today a vibrant and growing financial intermediary. During the year 1993-94, five
private sector mutual funds launched their schemes followed by six others in 1994-95. Due to the SEBI
regulatory in Indian mutual fund industry, the fund industry began to witness much greater investor
confidence in due course. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first
private sector mutual fund registered in July 1993.
Phase 4-1996-1999: Growth and SEBI regulation
Since 1996, the mutual fund industry in India saw tighter regulation and higher growth. It scaled new
heights in terms of mobilization of funds and number of funds. Deregulation and liberalization of the Indian
economy had introduced competition and provided impetus to the growth of industry. Measures were taken
both by SEBI to protect the investor and by the Government to enhance investors’ returns through tax
benefits.
A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (mutual
fund) Regulations, 1996. These regulations set uniforms standards for all funds. The budget of Union
Government in 1999 took a big step in exempting all mutual fund dividends from income tax in hands of
investors. During this phase, both SEBI and AMFI launched investor awareness programmes aimed at
educating all investors about investing through mutual funds.
Phase 5-1999-2004: Emergence of a large and uniform industry
The other major development in the fund industry has been the creation of a level playing field for all
mutual funds operating in India. This happened in February 2003, when the UTI Act was repealed. Unit Trust
of India no longer has a special legal status as a trust established by an Act of Parliament. Instead, it has also
adopted the same structure as any other fund in India- a Trust and an Asset Management Company. UTI
Mutual Fund is the present name of the erstwhile Unit Trust of India. UTI Mutual Fund is now under the SEBI’s
(Mutual Fund) Regulations, 1996 like all other Mutual Fund in India. UTI Mutual Fund is still the largest player
in the Indian Fund industry.
The emergence of a uniform industry with the same structure, operations and regulations made it easier for
distributers and investors to deal with any fund house in India. 1999 marked the beginning of a new phase in
the history of the mutual fund industry in India, a phase of significant terms of both amounts mobilized from
investors and asset under management. Between 1999 and 2005, the size of the industry has doubled in
terms of asset under management which has gone up from Rs. 68000 cr. to Rs. 1, 50,000cr. Within the
growing industry, the relative share of different players in terms of amount mobilized and asset under
management have also undergone changes.
2003-2004: A retrospect :
This year was extremely eventful for mutual funds. The aggressive competition in the business took its toll and
two more mutual funds bit the dust. Alliance decided to remain in the ring after a highly public bidding war did
not yield an acceptable price, while Zurich has been sold to HDFC Mutual. The growth of the industry
continued to be corporate focused barring a few initiatives by mutual funds to expand the retail base. Large
money brought with it the problems of low retention and consequently low profitability, which is one of the
problems plaguing the business. But at the same time, the industry did see spectacular growth in assets,
particularly among the private sector players, on the back of the continuing debt bull run. Equity did not find
favor with investors since the market was lack-luster and performances of funds, barring a few, were quite
disappointing for investors. The other aspect of this issue is that institutional investors do not usually favor
equity. It is largely a retail segment product and without retail depth, most mutual funds have been unable to
tap this market.
Impact of local and international developments
During the year we had two major political developments that affected the mutual fund industry. The standoff
between India and Pakistan at the beginning of the financial year saw the debt market being extremely
volatile. Investors pulled out of funds and this also put pressure on fund managers to hold returns and at the
same time meet redemption commitments. The equity markets were equally subdued but the industry did not
react greatly to this since equity funds were in any case not a significant part of the mobilization in the last few
years. With the stand down on the Indian side, the debt markets recovered and with that the inflow of funds
into our industry soared once again. But at the end of the year the industry was hit by another war – the
impending US attack on Iraq and consequent oil price pressures once again made the debt market volatile. It is
a mark of the maturing of the Indian investor that redemptions were only need based and the industry did not
see as much outflows as one feared.
Product innovations
With the bond yields plateauing and with the mutual fund industry trying to attract people to the equity
market, the year also saw some remarkable products flavors for Indian investors. Birla Sunlife Mutual Fund led
the pack with an equity fund focused on dividend yield stock, a bond index fund and a bond-for-units swap
product. Some of the other innovative products were the series of exchange-traded funds from Benchmark,
including a liquid index traded fund. Prudential-ICICI also launched an exchange-traded fund, the SPICE, in
association with BSE.
The industry focused also on making existing products more attractive by adding on a number of service
features and cost control measures. Same day redemption in liquid funds, “institutional” plans which would
reduce the overall cost of investment and bonus units in lieu of dividend were some of these features.
A new Emphasis on Risk Management
The year also saw a tremendous emphasis on risk management. A number of mutual funds were already
taking steps to mitigate risks not only in operations as in the past, but also in the area of management of
funds. A committee constituted by AMFI carried the initiative taken under the FIRE (Financial Institutions
Reform and Expansion) Project forward and developed a risk management framework for the industry. The
subsequent circular by SEBI is perhaps one of the most comprehensive attempts to address the issue of risk in
the mutual fund business and carries with it the added advantage of phase wise escalation starting with
mandatory items and moving towards best practices.
RISK
TYPE OF FUND
Money Market Fund
Debt Fund
Gilt FundHybrid Fund
Equity Fund
Aggressive Growth Fund
Flexible Asset Allocation Fund
Growth Funds
High Yield Debt Funds
Diversified Equity Fund
Index Fund
Value Funds
Money Market Funds
Equity Income Funds
Focused Debt Funds
Diversified Debt Fund
Balanced FundsGilt Funds
RISK HIERARCHY OF MUTUAL FUNDS
Growth and Income Funds
STRUCTURE OF MUTUAL FUND:
SEBI
Trustee Sponsor
AMC
FUND MANAGER MKT/SALES
MUTUAL FUND DISTRIBUTOR
SCHEMES
INVESTOR
Structure of the organization
Gap analysis
Customers expect different levels of services from different organizations for example the level of customer
services from different organizations. For example, the level of customer services expected from a fast food
outlet differs from that of a restaurant at a star hotel. Therefore, an organization should understand
customer expectations and deliver the service in a way that matches these expectations. Some of the gaps
that MAHINDRA FINANCE (finsmart) should minimize to improve the quality of services delivered to their
customer are:-
Gap 1. Consumer Expectation----------------------Management Perception Gap
This gap arises as service marketers may not always understand what consumers expect in a service.
This type of gap has an impact on the consumer’s evaluation of service quality
Gap 2.Management Perception ------------ Service Quality Specification Gap
This gap arises from the fact that many services provider fail to set appropriate service standards
required to deliver the service expected by the customer
Gap 3.Service Quality Specification ----- Actual Service Delivery Gap
This gap results from the employee’s inability to deliver the service according to the standards set. This
may be due to unclear standards or due lack of empowerment
Gap 4.Service Delivery--------------- External Communications Gap
This gap arises due to poor external communications that affect consumer expectations about a
service and his perception of the delivered service
As described above in structure the main four entities that are responsible for providing good/bad
services are as follows
Sales team
Back office
Cams
AMCs
Sales team generates new clients with the help database given by the company, then sales
team interacts them as per the appointments, now investor decides about the investments then sales
executive provides them the application form of respective schemes then after filling the application form,
application form comes to back office where application gets processed then application reaches to CAMs
and ,later respective AMCs receive that application form, from the CAMs and then AMCs will send the
account statement along with a folio number of that mutual fund schemes through which investor comes to
know about units purchased by him and NAV of his mutual fund scheme
Here the entire process takes around 3-4 days, so because of the share market performance
the NAV of that fund fluctuates because mutual funds are dependent on share market so once customer
agrees on particular NAV, any change at the time of purchase effects the profitability of investor
Because allotment of NAV is subject to realization of the cheque so as number of units this generally does
not matches with the investor’s expectation not only this investors do not get their account statements on
prescribed date so investor has to enquire about the account statement time and again
GAP ANALYSIS
Here I have seen in their operations, company follows a systematic way. Since the
company is in its growing stage and also I feel that company requires good marketing of its offerings to their
investors , so as to support its sales team other findings and observations are as follows :-
Company’s structure
Company is the distributor of different mutual fund.
It works as a bridge ,facilitator , and advisor between AMCs and investors
Work culture of the organization is excellent. Here I did not get unnecessary pressures from the high
authority.
4C MODEL OF MARKETING MIX
Marketing mix refers to a set of controllable, tactical marketing tool that firms blend to produce
the response that it wants in the target market (Kotler & Armstong, 2008). According toTellis,
marketing mix refers to variables that a marketing manager can control to influence a brands sale
or market share (Tellis).The term "marketing mix" was coined in 1953 by Neil Borden in his
American Marketing Association. Traditionally these considerations were known as 4Ps of
marketing mix. The 4Ps classification was first suggested by McCarthy. Marketing Mix model
(also known as 4 Ps) can be used by marketers as a tool to assist in implementing marketing
strategy. Marketing managers use this method to attempt to generate optimum response from the
target market by blending these four variables. Traditionally, the marketing specialists relied on
marketing mix or 4Ps- product, price, place and promotion to develop marketing plans. But this
approach is unidirectional in the sense that that it comes from the organisation and imposed on
the customer. That is why Schultz, Tannenbaum, Lauterborn proposed a consumer oriented four
Cs classification in 1993 for the movement from mass marketing to niche marketing (Schulz,
Tannenbaum, & Lauterborn, 1993).They suggested that marketers must think in terms of 4Cs
instead of 4 Ps: Customer solution (Not product), Customer cost (Not price alone), Convenience
(Not Place), and Communication (Not promotion). Marketers sees themselves as selling
products, customers see themselves as buying value or solution to their problems. Customers are
interested in cost rather than cost of obtaining, using and disposing the products. Customers want
the products and services as conveniently as possible. Finally they want two way
communications. These has resulted a shift of 4P model of marketing mix to 4C model.
Nezakati, Abu and Toh mentioned that 4C’s imply more emphasis on customers want and
concern than 4P’s. Consumer value as a complexity approach allows the product to develop as
the customer uses it with the perfect product emerging from the inter-relationship between
product and customer use. Price may be somewhat companies decided to charge for their
product, customer cost represent the real cost that customers will to pay. Implying management’s
method of placing product where they want to be as customer convenience recognizing
consumers’ choice for buying in ways convenient to them. Promotion suggest the ways in which
companies persuade people to buy , consumers communication is a two a process involving
feedback from customers to suppliers (Nezakati, Abu, & Toh , 2011).
1.5 ORGANIZATION STRUCTURE OF MUTUAL FUNDS
Mutual funds have organization straucture as per ther Security Exchange Board of India guideline, Security Exchange Board of India specified authority and responsibility of Trustee and Aeest Management Companies. The objectives is to controlling, to promoted, to regulate, to protected the investors right and efficient trading of units. Operation of Mutual fund start with investors save their money on mutual fund, than Mutual Fund manager handling the funds and strategic investment on scrip. As per the objectives of particular scheme manager selected scrips. Unit value will become high when fund manager investment policy generate the return on capital market. Unit return depends on fund return and efficient capital market. Also affects international capital market, liquidity and at last economic policy. Below the graph indicates how the process was going on to investors to earn returns. Mutual fund manager having high responsibility inside of return and how to minimize the risk. When fund provided high return with high risk, investors attract to invest more fund for same scheme.
Operation of mutual fund investors Fund Manager Securities
Return
7
The Mutual fund organization as per the SEBI formation and necessary formation is needed for sooth activities of the companies and achieved the desire objectives. Transfer agent and custodian play role for dematerialization of the fund and unit holders hold the account statement, but custody of the unit is on particular Asset Management Company. Custodian holds all the fund units on dematerialization form. Sponsor had decided the responsibility of custodian when investor to purchase the fund and to sell the unit. Application forms, transaction slip and other requests received by transfer agent, middle men between investors and Assts Management Companies.
A shift back to focusing on
operational excellence
MF- SUPPLY CHAIN