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Working of Mutual Funds
Posted Date:
Total Responses: 0
Posted By: vikas papreja Member Level: Silver Points/Cash: 10
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INTRODUCTION
Helping Indians experiencing the joy of home ownership is the objective of the bank. The road to success is a tough and challenging journey in the dark, where only obstacles light a path, however success on a terrain like this is not without a solution.
As the bank was found out over 2 decades ago in 1977, the solution for success is customer satisfaction. All you need is the courage to innovate the skill to understand your client and the desire to give them your best.
Today over a million satisfied customers whose dreams we helped realized, stand testimony to the bank’s success. The objective of the bank from the very beginning has been to finance residential housing stock and promote home ownerships. Now offerings range from home loans, deposits, products to property related services and a training facility.
Bank also offers specialized financial services to our customer base through partnerships with some of the best financial institutions worldwide.
BACKGROUND: The bank was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownerships. It was promoted with an initial share capital of Rs 100 million.28years has been successfully completed.
BANK PROFILE
The Housing Development Finance Co-Operation Limited (HDFC) was amongst the first to achieve an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector as part of the RBI’s liberalization of the Indian Banking Industry. It was incorporated in August 1994 in the name of ‘HDFC Bank Limited’ with its registered office in Mumbai. It began its operations as a scheduled commercial Bank in January 1995.
LINEAGE
HDFC and NAT WEST Group, UK-both are promoters of HDFC Bank. In 1994 HDFC Bank, into a strategic alliance with the Nat west group in UK, which acquired 20% of its equity. The promoter of the Bank, HDFC is India’s premier housing finance company. It enjoys an in acceptable track record in India as well as in International Market.
Since its inception in 1997, HDFC has maintained a consistent growth in its operations and profitability and over the past 5 years it has achieved annual growth rate of 25-30%. Its outstanding loan portfolio covers over a million dwelling units.
HDFC BANK
The banking industry was thrown open to private sector by Government of India in 1992 in the constitution of its policy of economic liberalization and privatization. HDFC Bank is a scheduled commercial bank, promoted by the largest bank of USA and Housing Development Finance Co-Operation (which was promoted by GIC, LIC, World Bank & UTI).
Mission Statement
? To build a sound customer franchise across distinct businesses so as to be the preferred provider of banking services in the niche segments that the bank operates in and to achieve healthy growth in profitability, consistent with the bank’s risk appetite.
? To ensure the highest level of ethical standards, professional integrity and regulatory compliance.
ORGANIZATION STRUCTURE
HDFC Bank is a two tier organization, head office and Branch Office. It has been done so as to make decision making more responsive to the needs of the customers. The branches are directly linked to the head office at Mumbai. The bank presently has 220 branches.
ORGANISATIONAL GOALS
? To develop close relationships with individual households.
? To maintain its position as the premier housing finance institution in the country.
? To transform ideas into viable and creative solutions.
? To provide consistently high returns to shareholders.
? To grow through diversification by bearing off the existing client ways.
DISTRIBUTION NETWORK
HDFC Bank’s head-quarter is in Mumbai. The branch network will be extended to cover major cities in India, as well as some semi-urban locations in line with RBI guidelines.
Mumbai, Calcutta, Chennai and Delhi are supported by phone Banking Centers.
BUSINESS OBJECTIVES.
? PRIMARY OBJECTIVE: To enhance the residential housing stock in the country through the provision of housing finance in a systematic and professional manner.
? OTHER OBJECTIVE: To increase the housing finance sector with the overall domestic financial markets.
HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.
In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore.
The present equity shareholding pattern of the AMC is as follows :
Particulars % of the paid up equity capital
Housing Development Finance Corporation Limited 60
Standard Life Investments Limited 40
Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as follows:
Former Name New Name
Zurich India Equity Fund HDFC Equity Fund
Zurich India Prudence Fund HDFC Prudence Fund
Zurich India Capital Builder Fund HDFC Capital Builder Fund
Zurich India TaxSaver Fund HDFC TaxSaver
Zurich India Top 200 Fund HDFC Top 200 Fund
Zurich India High Interest Fund HDFC High Interest Fund
Zurich India Liquidity Fund HDFC Cash Management Fund
Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund*
The AMC is managing 24 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Long Term Advantage Fund (HLTAF), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund (HT200), HDFC Capital Builder Fund (HCBF), HDFC TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Cash Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP), HDFC Core & Satellite Fund (HCSF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap Fund (HPMCF), HDFC Multiple Yield Fund . Plan 2005 (HMYF-Plan 2005), HDFC Quarterly Interval Fund (HQIF) and HDFC Arbitrage Fund (HAF).
The AMC is also managing 11 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Long Term Equity Fund, HDFC Mid-Cap Opportunities Fund, HDFC Infrastructure Fund, HDFC Fixed Maturity Plans, HDFC Fixed Maturity Plans - Series II, HDFC Fixed Maturity Plans - Series III, HDFC Fixed Maturity Plans - Series IV, HDFC Fixed Maturity Plans - Series V, HDFC Fixed Maturity Plans - Series VI, HFDC Fixed Maturity Plans - Series VII and HFDC Fixed Maturity Plans - Series VIII.
The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 8, 2006 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2007 to December 31, 2009.
The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists of the following eminent persons.
• Mr. Deepak S. Parekh
• Mr. N. Keith Skeoch
• Mr. Keki M. Mistry
• Mr. Mark Connolly
• Mr. P. M. Thampi
• Mr. Humayun Dhanrajgir
• Dr. Deepak B. Phatak
• Mr. Hoshang S. Billimoria
• Mr. Rajeshwar Raj Bajaaj
• Mr. Vijay Merchant
• Ms. Renu S. Karnad
• Mr. Milind Barve
Trustees
HDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is the Trustee to HDFC Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFC
The Board of Directors of HDFC Trustee company Limited consists of the following eminent persons.
• Mr. Anil Kumar Hirjee
• Mr. James Aird
• Mr. Shishir K. Diwanji
• Mr. Ranjan Sanghi
• Mr. V. Srinivasa Rangan
SPONSORS
Housing Development Finance Corporation Limited (HDFC)
HDFC was incorporated in 1977 as the first specialised mortgage company in India. HDFC provides financial assistance to individuals, corporates and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity.HDFC has a client base of around 12 lac borrowers, around 8 lac depositors, over 1.08 lac shareholders and 50,000 deposit agents, as at March 31, 2008. HDFC has raised funds from international agencies such as the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banks and insurance companies, bonds and deposits.
Standard Life Investments Limited
The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata and Mumbai. The company re-entered the Indian market in 1995, when an agreement was signed with HDFC to launch an insurance joint venture. On April 2006, the Board of The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special General Meeting held in May voting members overwhelmingly voted in favour of this. The Court of Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10th July 2006. Standard Life Investments was launched as an investment management company in 1998.
HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough.
Our Investment Philosophy
The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest “fads” and trends.
We Offer
We believe, that, by giving the investor long-term benefits, we have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with our investors in the form of product offerings. We have come up with various products across asset and risk categories to enable investors to invest in line with their investment objectives and risk taking capacity. Besides, we also offer Portfolio Management Services.
Our Achievements
HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the ‘CRISIL Fund House Level – 1’ rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC It is the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of awards and accolades for our performance.
INTRODUCTION TO THE STUDY
MUTUAL FUND
A Mutual fund is a pool of money, collected from investors and 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 investor’s funds. The most important characteristic of the Mutual fund is that the contributories and the beneficiaries are the same class of people, namely the investors. The term mutual means that the investors contribute to the pool, and 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 fund business is to invest the funds thus collected, according to the wishes of the investors who created the pool. 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 investments to the investors. This product represents a share in the pool, and Pre states investment objectives.
WORKING OF MUTUAL FUNDS
CHARACTERISTICS
? 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 investment professionals and other service providers.
? The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated everyday.
? The investors share fund is denominated by units. The value of the units changes with change in the portfolios value everyday. The value of one unit of investment is called as the net assets value.
? The investment portfolio of the mutual fund is created according to the stated investment objectives.
ORGANISATION OF MUTUAL FUNDS
IMPORTANT PHASES IN THE HISTORY OF MUTUAL FUNDS.
? 1963-1987: The Unit Trust of India was the sole player in the market. Created by an act of parliament in 1963, UTI launched its first product, THE UNIT SCHEME 1964 which is even today the single largest mutual fund scheme. UTI created a number of products such as monthly income plans, equity oriented schemes and offshore funds during this period. UTI managed assets of Rs 6700 crore at the end of this phase.
? 1987-1993: In 1987 public sector banks and financial institutions entered the mutual fund industry. SBI mutual fund was the first non UTI fund. Signifant shift of investors from deposits to mutual fund industry happened in this period. By the end of this period, assets under UTI grew to Rs 38,247 crores and public sector managed Rs 8750 crores.
? 1993-1996: In 1993 the mutual fund industry was opened to private players, both Indian and foreign. SEBI first set of regulations for the industry was formulated in 1993, and substantially revised in 1996.Significant innovations in servicing, product design and information disclosure happened in this phase, mostly initiated by private sector players.
? 1996-1999: The implementation of the new SEBI regulations and the restructuring of the mutual fund industry led to rapid industry growth. Bank mutual funds were recast according to the SEBI recommended structure, and UTI came under the SEBI voluntary supervision.
? 1999-2002: This phase was marked by very rapid growth in the industry, and significant increase in the share of private sector players in the market. Assets crossed Rs. 1 crore. UTI share dropped to nearly 50%.
ADVANTAGES
FINANCIAL PLANNING: Investors in the mutual fund industry today have a choice of 39 mutual funds, offering nearly 500 products. Though the categories of products offered can be classified under about a dozen generic heads. It is also possible for investors to decide the manner in which their returns would be distributed and choose from the product itself. The most important benefit of product choice is that it enables investors to choose options that suit their return requirements and risk appetite. Investors can combine the options to arrive at their own mutual fund portfolios that fit with their financial planning objectives.
REDUCES RISK: Mutual funds invest in a portfolio of securities. This means that all funds are not invested in the same investment avenue. It is well known that risk and returns of various investment options do not move uniformly or in sympathy with each other. If a pharma company share is going down, an automobile company shares could be moving up , if the equity market is going down, the debt market may be moving up. Therefore the holding a portfolio that is diversified across avenues is a wise way to manage risk.
REDUCES TRANSACTION COSTS: Mutual funds provide the investor the benefits of economies of scale, by virtue of their size. Though the investor’s individual contribution is small the mutual fund itself is large enough to be able to reduce costs in transactions. These benefits are passed on to the investors.
PROVIDES LIQUIDITY: Most of the funds being sold today are open ended. That is investors can sell existing units or buy new units at any point if 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 and exit funds, funds are actually able to provide liquidity to the investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investors seek.
REGULAR PERIODIC SAVINGS: Mutual funds units in modern times are not issued in the form of certificates, with a minimum denomination. They are instead issued as account statements, with the facility to hold units in fractions up to 4 decimal points. It is also simpler for investors to make additional investments, to repurchase a part of their, to reinvest dividends, to convert their holdings in one fund into a holding in another, and to alter the investment options regarding their periodical dividends. these facilities make it possible for small investors to regularly save a fixed amount in a mutual fund, and create saving plans that suit their saving habits and financial goals.
PROVIDES INFORMATION: MUTUAL FUNDS inform investors periodically about the performance of the fund .They disclose the NAVS daily and in most cases this information is available on phone and on internet. The complete portfolio of the fund is available to investors. They also provide additional information on the maturity profile of their investments, credit quality of their portfolios, and the behavior of NAV, over the period since the inception of the fund
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS
? NO CONTROL OVER COSTS: Since investors do not directly monitor the funds operations, they can not control the costs effectively. Regulators therefore usually limit the expenses of mutual funds.
? NO TAILOR MADE PORTFOLIOS: Mutual fund portfolios are created and marketed by AMC’S, into which investors invest. They can not create tailor made portfolios.
? MANAGING A PORTFOLIO OF FUNDS: As the number of mutual funds increase, in order to tailor a portfolio for himself, an investor may be holding a portfolio of funds, with the costs of monitoring them and using them, being incurred by him.
? FUNDS ARE NOT RISK FREE: It is possible that we could lose money.
? DISTRIBUTIONS ARE TAXABLE: We will owe taxes and on any dividend or capital gain distributions from the fund portfolio in the year they received, even if distribution is reinvested.
? FEES AND EXPENSES ARE INVOLVED: Some fund companies can impose loads like redemption fees, advertising and distribution fee, low balance account fee or custodian fees.
? BURRIED COSTS: Many mutual funds specialize in burying their costs and in hiring salesman who do not make those costs clear to their clients.
? DILUTION: Mutual funds have such small holdings of so many different stocks that insanely great performance by a fund’s top holdings still does not make much of a difference in a mutual funds total performance.
? THE WISDOM OF PROFESSIONAL MANAGEMENT: The average mutual fund manager is no better at picking stocks than the average non professional
MUTUAL FUND PRODUCT
Generic choices to mutual funds.
? Nature of participation: Open and Close ended funds.
? Nature of income distribution: Dividend, Growth, reinvestment of dividends.
? OPEN ENDED FUNDS: In an open ended funds, investors can buy and sell units of the fund, at NAV related prices, at any time direct from the fund. This called an open ended fund, because pool of fund is open for additional sales and purchases. Therefore both the amount of funds that the mutual fund manages and the number of units vary everyday. The price at which investors buy and sell units is linked to the NAV.Open ended funds are offered for sale at a pre specified price.
? CLOSED ENDED FUNDS: These are open for sale to investors for a specific period, after which further sales are closed. Any further for buying the units or repurchasing them, happen in the secondary markets where closed end funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. Thus the pool of funds can be technically be kept constant. The price at which the units can be sold or redeemed depends on the market prices, which are fundamentally linked to NAV.Investors receive either certificates or depository receipts, for their holdings in a closed end mutual fund.
OPTIONS FOR STRUCTURING RETURNS TO AN INVESTOR IN A MUTUAL FUND
DIVIDEND OPTION: Investors will receive dividends from mutual fund, as and when such dividends are declared. Dividends are paid in the form of warrants or are directly credited to the investors bank accounts.
GROWTH OPTION: Investors who do not require periodic income distributions can choose the growth option, where the incomes earned are retained in the investment portfolio, and allowed to grow rather than being distributed to the investors. Investors with longer term investment horizons, and limited requirements for income choose this option. The return to the investor who chooses a growth option is the rate at which his initial investment grows over the period for which he has 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 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.
PRODUCT TYPES AVAILABLE WITH RESPECT TO INVESTMENT OBJECTIVES.
? EQUITY FUNDS: Equity funds are those that invest pre-dominantly in equity shares of companies, there are A variety of ways in which equity portfolio can be created for investors. Following are choices in equity funds:
? SIMPLE EQUITY FUNDS: These funds invest predominant portion of the funds mobilized in equity, and equity related products in most cases about 80-90% of their investments in equity shares. These funds have the freedom to invest both in primary and secondary markets of equity.
? PRIMARY MARKET FUNDS: The primary market 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 primary markets, either through a public offer or through private placements.
? SECTORAL FUNDS: Sect oral funds choose to invest in one or more chosen sectors of the equity markets. These sectors could vary depending on the investor preference and risk return attributes of the sector. These are not well diversified as simple equity funds as they tend to focus on fewer sectors in the equity markets. They can exhibit very volatile returns.
? INDEX FUNDS: Costs of index funds are lower and the funds performance virtually tracks the market index. It provides an ideal exposure to equity markets, without investors having to bear the risk and costs arising from the market views that a fund manager may take.
? DEBT FUNDS: Debt funds are those that predominantly invest in debt securities. Since most debt securities pay periodic interest to investors. These funds are also known as income funds. However it must be remembered that funds invested in debt products can also offer a growth option to investors. What is important is that the portfolio is pre dominantly made up of debt securities.
? LIQUID FUNDS AND MONEY MARKET FUNDS: These debt funds only invest in instruments with maturities less than a year. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The fund predominantly invests in money market instruments and provides investors a return that are available on these instruments. in some cases , the funds also provide investors with cheque writing facility as an additional facility for liquidity.
? GILT FUNDS: A gilt fund invest only in securities that are issued by the government and therefore does not carry any credit risk. These funds invest in short and long term securities issued by the government. These are preferred by the 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.
? SIMPLE DEBT FUNDS: These funds invest in portfolios of debt securities chosen from the universe of debt. The fund manager has the freedom to choose from the universe of debt securities government and others as well as long and short term.
? SECTORAL DEBT FUNDS: These funds invest in a pre specified subset of the debt markets.
? TERM PLANS: SERIAL PLANS OR FIXED This is a variation to the simple debt fund, where the objective is to match the holding period horizon of the investor with the maturity of the investment. A variety of serial plans that enable investors to choose from 14 days to 5 years are available.
? BALANCED FUNDS: Funds that invest both in debt and equity markets are called balanced funds. A typically balanced fund would be almost equally invested in both markets. The variations are funds that invest pre dominantly in equity, about 70% and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component by bringing in debt. Similarly there are predominantly debt funds over70% in debt securities which invest in equity to provide some growth potential to their funds. It also tends to provide investors exposure to both equity and debt markets in one product. Therefore the benefits of diversification get further enhanced, as equity and debt markets have different risk and return profiles.
REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA
The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These regulations make it mandatory for mutual fund to have three structure of sponsor trustee and asset management company. The sponsor of the mutual fund and appoints the trustees. The trustees are responsible to the investors in mutual fund and appoints 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 AMC and the mutual fund have to be registered with SEBI.
WHO CAN BE THE SPONSOR?WHAT DOES THE SPONSOR DO?
? Sponsor appoints the trustees, custodians and AMC with prior approval of SEBI.
? Sponsor must have at least 5 year track record. of business interest in the financial market.
? Sponsor must have been profit making in 3 out of the above 5 years.
? Sponsor must contribute at least 40% of the capital of the AMC.
HOW ARE MUTUAL FUNDS STRUCTURED?
Mutual funds can be structured in the following way:
? COMPANY FORM, in which investors hold shares of the mutual fund. In this structure, management of the fund is in the hands of an elected board which in turn appoints investment managers who manage the fund.
? TRUST FORM, in which the funds of the investors are held by a trust on behalf of the investors. The trust appoints the investment managers and monitors their functioning in the interest of investors.
WHO ACTUALLY MANAGES THE MUTUAL FUND?
The sponsors acting through the trustees appoint all the functionaries required for managing the investor’s money. These are:
? Asset Management Company.
? Registrars and transfer agents.
? Brokers
? Selling agents and distributors.
? Custodians
? Depository participants.
? Bankers.
? Legal advisors.
? Auditors.
WHAT ARE THE REGULATORY REQUIREMENTS FOR TRUSTEES?
The mutual fund which is a trust is either managed by a trust company or a board of trustee and trust companies are governed by the provisions of the Indian Trust Act. If a trustee is a company then it is also regulated by the provisions of the Indians companies act. The AMC and the other functionary are functionally responsible to the investors.
? The sponsor executes and registers a trust deed in favour of the trustees.
? The appointment of all the trustees has to be done with prior approval of SEBI.
? There must be at least 4 members in the board of trustees and at least 2/3 of the members of the board of trustees must be independent.
? The trustee of one mutual fund can not be a trustee of another mutual fund, unless he is independent trustee in both cases, and has the approval of both the boards.
WHAT ARE THE RIGHTS OF THE TRUSTEES?
? Trustees appoint the AMC in consultation with the sponsor and according to SEBI regulations.
? All mutual fund schemes floated by the AMC on the operations and the compliance of the mutual fund with provisions of the trust deed, investment management agreement and the SEBI regulations.
? Trustees can seek remedial actions from AMC and in the extreme situation of dissatisfactory performance, dismiss the AMC.
? Trustees review and ensure that net worth of AMC is according to stipulated norms of quarter.
WHAT ARE THE OBLIGATIONS OF THE TRUSTEES.
? Trustees must ensure that the transactions of the mutual fund are in accordance with the trust deed.
? Trustees must ensure that the AMC has systems and procedures in place, and that all the constituents are appointed.
? Trustees must ensure that due diligence on the part of AMC in the appointment of constituents and business associates.
? Trustees must furnish to SEBI, on half yearly basis, a report on the activity of AMC
? Trustees must ensure that the activities of mutual fund are in compliance with the SEBI regulations.
OTHER CONSTITUENTS
? REGISTRAR AND TRANSFER AGENTS: These are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investors applications, record details provided but the investors sent on application forms send details regarding investment in the mutual fund process dividend payout, send out information on the performance of mutual funds. keep the investors record up to date.
? BROKERS: They support the investment management function. By enabling the investment managers to buy and sell securities. Brokers are registered members of stock exchanges. They manage to buy and sell securities. They charge a commission for their services. They also provide information on the performance of the various companies and industrial sectors and investment recommendations.
? SELLING AND DISTRIBUTING AGENTS.: Mutual fund products reach across the country through selling agents and distributors. Selling agents are usually individuals who bring in investors funds for a commission .Distributors are the institutions that appoints agents and other mechanisms to mobilize funds from investors. Banks tend to offer mutual fund products to their choose customers.
? CUSTODIANS: They are responsible for the securities held in the mutual funds portfolio. They discharge an important back office function, by ensuring that securities that are bought are delivered and transferred to the books of mutual fund and that the funds are paid out when a mutual fund buy securities. They also track corporate actions like bonus issues, right offers offer for sale, buy back and open offers for acquisitions. On the advise of the fund managers, they act on these corporate actions.
? LEGAL ADVISORS AND AUDITORS: They advise on regulatory and taxation issues. Every mutual fund has a compliance officer who works under the advise of legal advisors. The accounts of the mutual funds are actually the accounts of the pool in which investors have invested.
Growth of Top Seven AMC’s (Assets Under Management)
Rank AMC AAUM (Rs. In Lacs)
1 Relaince Mutual Fund 9081345.11
2. ICICI Prudential Mutual Fund 5947358.64
3. HDFC Mutual Fund 5271080.51
4. UTI Mutual Fund 5077056.56
5. Birla Sun Life Mutual Fund 4107523.54
6. SBI Mutual Fund 3013240.09
7 Franklin Templeton Mutual Fund 2474206.35
.
Needs:
The need of the study is to know the savings in investment levels among general masses as the investment criteria has been shifted to banks-postoffice schemes to securities investments such as shares & mutual funds. The need is also confined to know the influential groups who influence people to invest in mutual funds and the returns expected by investors by investing in mutual funds.
SCOPE OF THE STUDY
The scope of the study is confined to current time period. For the sake of study survey was limited to Punjab specifically in Jalandhar. A limited sample was selected to fulfill the various objectives of the study and diverse customers on the basis of their economic stability and they type of response while investing in Mutual Funds.
The scope of research is related to having a general view of people regarding Mutual fund and also know about the experience with present AMC’s and general perception of people towards Mutual Funds.
OBJECTIVES
? To know the investment preferences of the investors among various investment avenues.
? To study the investors awareness and confidence towards mutual funds.
? To study the factors influencing the decision of investment in Mutual Funds.
? To check whether people are aware of different funds available with different AMC’s.
? To know the satisfaction level of investors in Mutual Funds.
RESEARCH METHODOLOGY
Definition:
Research methodology is a way to systematically solve the research problem. The research methodology includes the various methods and techniques for conducting a research. “Marketing Research is the systematic design. Collection analysis and reporting of data and finding relevant solution to a specific situation or problem”. D. Slesinger and M. Stephensn in the encyclopedia of social sciences define Research as a “The manipulation of things, concept or symbols for the purpose of generalizing to extend, “correct or verify knowledge, whether the knowledge aid in construction of theory and practice of an art.
Defining The Problem & Research Objectives
It is said, “A problem well defined is half solved”. The first step of research methodology is to define the problem and deciding the research objective. The objective of my study is to know about the investment of people in Mutual Funds.
Research Design:
Research Design is a blueprint or framework for conducting the marketing research project. It specifies the details of the procedures necessary for obtaining the information needed to structure and solve marketing research problems. The research design used in study is descriptive research.
Descriptive Research: It is that type of research which can explain what had happened and what is happening.
Sampling Design
Sampling can be defined as the section of some part of an aggregate or totality on the basis of which judgment or an inference about aggregate or totality is made. The steps involved in sampling design are as follows:-
Universe: Universe refers to the total of the units in field of inquiry. The study is restricted to Jalandhar City only.
Sampling Unit: Sampling frame is the representation of the elements of the target population. Sampling unit of my study is a person who is qualified, well aware of mutual funds, earning income more than one lakh per annum and who is residing in jalandhar city..
Sampling Size: Sampling size is the total no. of units which we covered in our study. The sample size is 50.
Sampling Technique: Te sampling technique is convenient sampling.tecnique
Data Collection and Analysis: Data can be collected in two ways:
Primary data : Primary data are those, which are collected a fresh and for the first time, and thus happen to be original in character. It is the backbone of any study.
Secondary data: Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. In this case on is not confronted with the problems that are usually associated with the collection of original data. Secondary data either be published data or unpublished data.
Source of data: Source of my research is both primary and secondary data. Primary data is obtained from respondent with the help of widely used and well-known method of survey through a well-structured questionnaire and the secondary data is collected from the internet, magazines, journals and new papers.
Research Instrument: Research instrument is that with the help of which we collect the data from respondents. The questionnaire of my research consists of open ended close ended and ranking questions.
Tools of Analysis: The resuts of the analysis has been presented with the help of
percentages, rankings , graphs and charts.
LIMITATIONS
? Due to paucity of time and resources a countrywide survey was not possible. Hence only Jalandhar district has been taken for the study.
? Since a smaller sample was chosen so it may not be a true representative of the population under study.
? The possibility of the respondent’s responses being biased cannot be ruled out.
? Limited access to secondary data pertaining to HDFC Bank’s performance in other regions or any other information was another problem in finding a correct market response.
DATA ANALYSIS AND INTERPRETATION
Q1. To know about the savings & investment habits that are prevailing among the people.
Table 7.1
Investment habits among the people.
Investment No. of Respondents %age of Respondents
People who invest 41 83%
People who do not invest 9 17%
Total 50 100%
Figure 7.1 : Investment habits among the people
Interpretation : It represents that among yearly income of more than Rs. 1,20,000. 83% of them are investing their money and 17% are not investing at all. It implies that most of the investors do save from their monthly incomes.
Q2. To know about the investment areas where people invest.
Table 7.2. : Showing the investment preference of the investors.
Investment No. of Respondents %age of Respondents
Fixed Deposits 18 36%
Recurring Deposit 6 12%
Post Office Deposit 13 26%
Gold 8 16%
Others 5 10%
Total 50 100%
Figure 7.2. : Showing the investment preference of the investors
Interpretation :- The above graph reveals that 36% people invest in FD’s, 26% people invest in Post Office Deposit, 16% people invest in Gold, 12% invest in Recurring Deposit and 10% people invest in others which there by reveals that maximum people invest in FD’s.
Q3. To know the level of awareness and knowledge among respondents regarding mutual funds.
Table .7.3:Knowledge about Mutual funds
Knowledge No. of Respondents % age of respondents
Very Good 4 7
Good 10 21
Average 26 53
Poor 6 12
Very poor 4 7
Total 50 100%
Figure. 7.3:Knowledge about Mutual funds
Interpretation: It was attempted to understand from the investors their knowledge of mutual funds,. It was found that 53% of the investors said that they rank their understanding about mutual funds as average while 7% of the investors rated their understanding as very good and 21% of them considered their knowledge as good. It reveals that the knowledge among investors is not too good. It is just average, so mutual fund should be increased through TV’s & news.
Q4. To know the confidence level in investors while investing in Mutual Funds.
Table.7.4: Confidence level in terms of making investments in Mutual Funds.
Level of Confidence No. of Respondents %age of respondents
High 9 18%
Moderate 35 70%
Low 6 12%
Total 50 100%
Fig . 7.4: Confidence level in terms of making investments in Mutual Funds.
Interpretation: It is evident from the above graph that 70% of people (investors) have Moderate level of confidence, 18% have high level of confidence while 12% of people have low level of confidence while invest in Mutual Funds. It means that confidence level should be increased among investors.
Q5. Sources influencing in the mutual fund investment.
Table . 7.5 : Various sources influencing the mutual fund investment
Sources No. of Respondents % age of respondents
Friends/ Relatives 12 23%
Advertisements 11 23%
Agents/ Distributors/ Financial Advisors 27 54%
Total 50 100%
Figure .7.5: Various sources influencing the mutual fund investment
Interpretation: From the above graph, it is learnt that 23% of people are influenced by their friends and relatives, 23% by advertisements while 54% of people are influenced by their agents/ distributors/ financial advisors to invest in Mutual Funds. Their by reveals that most of the people are influence by their agents and financial advisors.
Q6. To know the reasons to invest in Mutual Funds.
Table . 7.6: Reasons for investing in Mutual Funds
Reasons No. of Respondents % age of respondents
Attractive Returns 18 36%
Safety 15 30%
Liquidity 7 14%
Tax Saving 10 20%
Total 50 100%
Figure. 7.6: Factors influencing the mutual investment
Interpretation: From the above data depicts that 36% of investors who invest in Mutual Funds are influenced by attractive returns, 30% by safety in investments, 14% by liquidity while 20% because of Tax saving reasons. It there reveals that majority of investors invest because of attractive returns and safety factor while investing.
Q7. To know time horizon for investing in Mutual Funds.
Table . 7.7: Usual Investment time horizon in Mutual Fund
Time Horizon No. of respondents % age of respondents
Upto 1 year 11 22%
1 year - 3 years 28 55%
3 years - 5 years 7 14%
Above 5 years 4 9%
Total 50 100%
Figure . 7.7: Usual Investment time horizon in Mutual Fund
Interpretation: It represents that 55% of the investor said that they would prefer to keep their investment in mutual funds for 1 – 3 years, while 22% preferred to park their money in mutual funds for a period of 1 year, while only 9% are interested for a period above 5 years. 14% investors preferred for a period of 3 –5 years. It implies that investors are interested to keep the investment for an average period in mutual funds.
Q8. To know about the different funds where investors invest.
Table . 7.8 Type of funds where investors prefer to invest
Fund Types No.of respondents
% age of respondents
Equity 21 42%
Debt 14 27%
Hybrid Funds 9 19%
Liquid Funds 6 12%
Total 50 100%
Figure . 7.8: Type of funds where investors prefer to invest
Interpretation: It represents that 42% of the investor prefer to invest in Equity funds, 27% in Debt, 19% in Hybrid Funds while rest 12% invest in Liquid Funds. It there that majority of investors are influenced by good returns. It implies that Debt and balanced are very popular among the old aged investors and risk averters.
Q9. To know about the expected rate of return among investors
Table. 7.9: Expected rate of return among investors
Expected Rate No. of Respondents % age of respondents
5-10% 7 15%
10-15% 15 31%
15-25% 18 35%
25% and above 10 19%
Total 50 100%
Figure. 7.9: Expected rate of return among investors
Interpretation: The above data shows that 35% of investors are expecting rate of return between 15-25%, 31% of investors expect rate of return between 10-15% while 15% of respondents expect 5-10% returns while 19% of investors expected returns above 25%. It reveals that respondents expect rate of return between 15 to 25 percent.
Q10. To know the satisfaction level of investors and the reasons for their dissatisfaction.
Table. 7.10{a} : Satisfaction level of investors
Response No. of Respondents % age of respondents
Yes 40 81
No 10 19
Total 50 100%
Figure. 7.10{a} : Satisfaction level of investors
Interpretation: From the above data it is clear that only 19% respondents are not satisfied with their investments while 81% of the respondents feel contended with their decision of investing in mutual funds. It implies that majority of respondents expectations are being met.
Table 7.10{b} : Reasons for dissatisfaction
Response No. of Respondents % age of respondents
Low Income 0 0
Longer redemption period 16 32
Poor after sales service 26 52
Better paying avenues in market 8 16
Total 50 100%
Figure . 7.10 (b): Reasons for dissatisfaction
Interpretation: It represents that there is no investor who is dissatisfied due to low income. But 3% investors are dissatisfied due to longer redemption period, 10% due to poor after sales service, and 6% feel that there are other better paying avenues in the market. It impl;ies that inspite of many reasons of dis-satisfaction among respondents the main reason was poor after sales service as quarterly statements don’t reach in time to them.
Q11. To know the potential for mutual funds market in future.
Table . 7.11 : Potential for mutual funds market in future
Response No. of Respondents %age of respondents
Yes 40 79
No 10 21
Total 50 100%
Figure. 7.11: Potential for mutual funds market in future
s
Interpretation: From the above data it is clear that 79% of the present investors are willing to invest in the mutual funds in future also and 21% of them are not willing to invest in future. It shows that majority of the respondents are having a high potential for further investment in mutual funds.
Q12. Perception regarding the future of mutual funds
Table . 7.12 perception regarding the future
Response No. of Respondents % age of respondents
Bright 30 59
Slow growth 2 5
Risky avenue 6 11
Dark 2 4
No response 10 21
Total 50 100%
Figure . 7.12 : Perception regarding the future of mutual funds
Interpretation: As the question is aimed to know the future of mutual funds investors, so from the analysis we will interpret that there are 59% respondents that believe the future of industry is bright 5% feel that it is growing slowly, 11% believe that it is a risky avenue, 4% believe it to be dark 21% respondents said that most of the people are unaware about the functioning of mutual funds. So some steps must be taken to make people more aware about these funds, so that these funds can have a bright future.
FINDINGS
? 83% of the respondents who have been earning more than Rs. 1,20,000 were found to have invested their money.
? Most of the respondents prefer investing in Mutual funds over investing in FD’s or Post office saving accounts. This depicts that changing investment behavior of the people these days.
? The reasons behind their changing pattern of investment as per the respondents is the attractive returns & liquidity feature of Mutual Funds.
? Majority of investors are willing to take medium risk only and they do hesitate in taking huge risks.
? Friends, relatives, newspapers, financial advisors, fund managers are the main source of influence to invest in Mutual Funds.
? On an average due to high yield available maximum number of investors expect the rate of return between 15-25%.
? Being practical, investors believe in investing in debt funds rather than equity funds due to high risk available.
RECOMMENDATIONS
1) Generally, the projection of investors about the stock market (in which mutual fund invest) is as a speculative market. So the investors hesitate to invest in Mutual Funds.
2) Mutual Funds are not so popular among the masses, so advertisement should be increased to generate awareness among the masses regarding Mutual Funds.
3) There should be proper trade off between risk and return in Mutual Fund as till now there is more risk in Mutual Fund that is why people investing in post offices and banks.
4) Investing should be a habit and not merely an exercise undertaken at one’s wishes, if one has to take really a benefit from them. Since it is very difficult to assess when to enter or exit in the market.
5) Investors should be well versed with the present NAV values so that they may know from where they can get good avenues.
CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans.
BIBLIOGRAPHY
Books:
? Avadhani V.A. (1999), “Marketing of Financial Services”,Mumbai., Himalaya Publishing House
? Gordon.N (2004) “Financial Market & Services ”. Mumbai, Himalaya Publishing House
? Kothari, C. R(1990) “Research Methodology: Methods and Techniques”. New Delhi, Wishwa Prakashan.
? Bogle J. (2005), “The greatest mathematical discovery of all time”, Newyork
References:
? .Mark.G (1995) “Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior” available at “ideas.repec.org/a/aea/aecrev/v85y1995i5p1088-1105.html - 10k”
? Roger.E(1999), “Investor flows and the assessed performance of open-end mutual funds” available at “linkinghub.elsevier.com/retrieve/pii/S0304405X99000288”
? Murad J.A (2005) “Someone Will Make Money on Your Funds—Why Not You? A Better Way to Pick Mutual and Exchange-Traded Funds” available at “www.cfapubs.org/doi/abs/10.2469/br.v2.n1.15”
SOME IMPORTANT WEBSITES:
? http://www.amazon.com/Bogle-mutualfunds-perspectives
? cje.oxford journals.org/cgi/content
? www.hdfcbank.com
? http://www.hdfcfund.com/AboutUs/
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