Professional Documents
Culture Documents
ITM-IFM ITM-IFM
Under the Guidance of Mr. KHAGESH SHARMA ITM Institute of Financial Markets BSEL Tech Park, Vashi
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CERTIFICATE
STANDARD CHARTERED BANK Project entitled: KNOWLEDGE OF BANKING OPERATIONS (SPECIALIZING IN MUTUAL FUNDS)
This is to certify that the project work entitled KNOWLEDGE OF BANKING OPERATIONS (SPECIALIZING IN MUTUAL FUNDS) has been carried out by the student SHAHAB AHMED of the Institute for Technology and Management, Navi Mumbai doing the Post Graduate Diploma in Management Financial Markets 2010-2012, during his / her summer placement with our organization between 10th May 2011 to 25th July 2011. Submitted by: SHAHAB AHMED in partial fulfillment of the Post Graduate Diploma in Management Financial Markets 2011-2013, course.
(Seal of ITM)
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This project has been a whirlwind experience of banking industry and enriches both the project and my mind with knowledge. My sole objective is that reader of this project gets the first hand experience of the banking operations and should equip with ready-made data and fundamentals. There are people who simply by being they are influence and inspire you to do thing. I acknowledge my gratitude and indebtness to Mr. KHAGESH SHARMA who spared his precious time in guiding me and for making valuable suggestions in compiling this project report. I express my deep gratitude to my Guide Mr. VISHAL, who was a source of continuous guidance and inspiration to me. I am also thankful to Mr. KHAGESH SHARMA, who gave me chance to prove my capability. Lastly, I would like to thank my mentor Mr. P.SUBBARAO sir. I would also like to thank Ms. DIMPLE SONDHI (ASSISTANT MANAGER) who has given me the chance to learn work under her supervision & guidance. Last but not the least, I would like to thank my parents and my friends, for their co-operation in completing my project work.
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Acknowledgement
I am privileged to get the guidance and support of P.SUBBARAO sir, who apart from being my official project guide, is a mentor and great motivator to me. I sincerely acknowledge and respect ITM IFMs decision to allow me to do this project under esteemed guidance of P.SUBBARAO. Thanks are due STANDARD CHARTERED company guide, And to KHAGESH SHARMA sir. Finally I extend my Dr. K. S. Murthy, Director, ITM IFM for 2010-12
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(Signature of the Student) Name: SHAHAB AHMED Roll No.: 21 PGDM FM (2009-11) ITM Institute of Financial Markets Vashi, Navi Mumbai.
OBJECTIVE
The purpose of this project is to have an effective and knowledgeable study of Banking Operations and focusing on mutual funds functioning and the essential elements required to judge a mutual fund according to its performance, risk, return and other basic criteria. The project has internal as well as external information about the working of a mutual fund and will commensurate the investor with full knowledge of mutual fund background.
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Table of Contents
No. a. b. c. d. e. f. Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Page No. 1 2 3 4 5 6 Page No. 7 8 9 10 14 16 20 21 23 26 29 30 33 34 37 39 40 41 55 56 56 57 58
Title Title page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Abstract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acknowledgement Objective . . . . . . . . . . . . . . . . . . . . . . . . . Table content. . . . . . . . . . . . . . . . . . . . . . . Title Company profile What is Banking Banking operations Mutual funds Investment option Working of Mutual funds Background of mutual fund Global scenario Current status Types of mutual funds Types of risk Benefits if investing in mutual funds Demerits of investing in mutual funds Various schemes of standard chartered bank (mutual fund) Mutual fund operation in SCB SWOT analysis of mutual fund industry Challenges and issues Future outlook Research work Key findings Limitations Conclusion Bibliography Glossary
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Companys Profile
INTRODUCTION
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 Chartered Bank Of India, Australia and China, founded in 1853.
HISTORY OF MERGER
In 1969, a decision was made by Chartered and by Standard to undergo friendly merger. From The early 90s, Standard Chartered has focused on developing its strong franchises in Asia, the Middle East and Africa using its operations in the United Kingdom and North America to provide customers with a bridge between these markets. Secondly, it would focus on consumer, corporate and institutional banking, and on the provision of treasury services areas in which the Group had particular strength and expertise. In the new millennium they acquired Grind lays Bank from the ANZ Group and the Chase consumer banking operations in Hong Kong in 2000. Standard Chartered leading the way in Asia, Africa and the Middle East. Standard Chartered PLC is listed on both the London Stock Exchange and the Hong Kong Stock Exchange and is consistently ranked in the top 25 among FTSE-100 companies by market capitalization. Standard Chartered has a history of over 150 years in banking and operates in many of the world's fastest-growing markets with an extensive global network of over 1,400 branches (including subsidiaries, associates and joint ventures) in over 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas.
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BANKING
Banking is that where Banks are engaged in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credit etc. As per Section 5(b) of Banking Regulation Act, 1949, banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, and order or otherwise.
BANKS IN INDIA:
In India the banks are being segregated in different groups. Each group has their own benefits and limitations in operating in India. Each has their own dedicated target market. Few of them only work in rural sector while others in both rural as well as urban. Many even are only catering in cities. Some are of Indian origin and some are foreign players.
In India the banking sector is segregated as public or private sector banks, cooperative banks and regional rural banks. Foreign banks have been given a different head followed by upcoming foreign banks in this section.
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BANKING OPERATIONS
ITEM PROCESSING
INTERNAL SERVICES
ACCOUNTIN G SERVICES
INWARD CLEARING
OUTWAR D CLEARING
MICR High Value National Clearing
MICR National Clearing Credit Cards ECS Claims Clearing RTGS Logistics
ATMs Copy of statements Cheque book request Debit cards pins Handling legal cases Retrievals Deceased Persons Output control Signature updations KCS
Transactions ROC Reports Salary Transfer FAS DEMAT New Account Opening Assets operations Cards Insurance Investment
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THOUGH THERE ARE MANY TYPES OF OPERATIONS AVALIABLE TO STUDY BUT IN A SHORT SPAN OF JUST 2 MONTHS IT IS NOT POSSIBLE TO COVER ALL THE AREAS. SO I HAVE TRIED TO PUT MY BEST EFFORTS TO LEARN ABOUT ALL THE OPERATIONS AND INSIGHTS OF BANKING SPECIALLY MUTUAL FUNDS. TO BEGIN WITH IT LET US FIRST GO WITH ITS (MUTUAL FUND) INTRODUCTION.
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Stocks:
When you purchase stocks, or equities, as your advisor might put it, you become a part owner of the business. This entitles you to vote at the shareholders' meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends. While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren't guaranteed anything. Many stocks don't even pay dividends, in which case, the only way that you can make money is if the stock increases in value - which might not happen.
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Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential: you must assume the risk of losing some or all of your investment
Mutual Funds:
A mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stocks, small stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc. The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself.
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THOUGH THERE ARE MANY INVESTMENT OPTIONS AVALIABLE WITH THE INVESTORS BUT IN A SHORT SPAN OF 2.5 MONTHS ITS NOT POSSIBLE TO COVER ALL THE AREAS.BUT STILL I HAVE TRIED TO PUT MY BEST OF EFFORTS TO LEARN ABOUT ALL THE AREAS.MY AREA OF FOCUS WAS MUTUAL FUNDS.TO BEGIN WITH IT LET US FIRST GO WITH ITS INTRODUCTION.
CONCEPT:
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 appreciation realized is 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:
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ALL OF THE ABOVE CONSTITUENTS ARE EXPLAINED BELOW: FUND SPONSOR - A sponsor is any person who, acting alone or in
combination with another body corporate, establishes a MF. The sponsor of a fund is similar to the promoter of a company. In accordance with SEBI Regulations, the sponsor forms a trust and appoints a Board of Trustees, and also generally appoints an AMC as fund manager. In addition, the sponsor also appoints a custodian to hold the fund assets. The sponsor must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over five years prior to registration.
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OTHERS - Apart from these, the MF has some other fund constituents, such
as custodians and depositories, banks, transfer agents and distributors. The custodian is appointed for safe keeping of securities and participating in the clearing system through approved depository. The bankers handle the financial dealings of the fund. Transfer agents a responsible for issue and redemption of units of MF. AMCs appoint distributors of brokers who sell units on behalf of the Fund, and also serve as investment advisers. Besides brokers, independent individuals are also appointed as agents for the purpose of selling fund schemes to investors. The regulations require arms length relationship but the fund sponsors, trustees, custodians and AMC.
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Mutual funds
Mutual fund is vehicle that facilitates a number of investors to pool their money and have it jointly managed by a professional money manager.
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
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Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.
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1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.
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Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. The mutual fund industry has entered its current phase of consolidation and growth.
AUM GROWTH
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The Assets under Management (AUM) have grown at a rapid pace over past few years, at a CAGR of 35 percent for the five-year period from 31st march 2005 to 31st march 2009. Over the 10 year period from 1999 to 2009 encompassing varied economic cycle, the industry grew at 22 percent CAGR. This growth was despite two falls in the AUM the first being after the year 2001 due to dotcom bubble burst, and the second in 2008 consequent to the global economic crisis (the first fall in AUM in march 2003 arising from the UTI split).
Growth in AUM in the Indian Mutual Fund Industry (Average AUM in INR Billion)
GLOBAL SCENARIO
Some basic facts The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India.
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The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India.
Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group.
In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes
Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway..
In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India. On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets.
72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. is expected to trade on-line by 2003.
Source: The Financial Express September, 99) internationally, on- line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better. In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period. (Source: The Financial Express September, 99) Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business.
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CURRENT STATUS
The industry is in the institution building phase setting highest Professional standards Enhancing credibility through transparency of operation and frequency of disclosure Consolidation through mergers and acquisitions. Product range conventional and new generation funds sector specific, index funds, exchange traded funds, fixed maturity funds, systematic withdrawal, automatic redemption funds etc.
Since end 1999, moved away from assured return schemes Predominance of non-individual investor base Heavy concentration of investors from a limited number of cities Emergence of independent research bodies evaluating performance and providing ratings of funds Generating investor awareness and investor interest in the industry
Investment in mutual funds in India comprised 7.7 percent of the gross household financial savings in FY 2008, a significant increase from 1.2 percent in FY 2004. The households in India continue to hold 55 percent of their savings in fixed deposits with banks, 18 percent in insurance and 10 percent in currency
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as of FY 2008. In 2008, the UK had more than thrice the investments into mutual funds as a factor of total household savings (26 percent), than India had in the same time period. So now they can say that the perception of people is changing and they are moving towards investing in mutual fund by leaving behind other options. A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.
(2) Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. 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 the units are listed. 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 i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.
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2) Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load.
3) Repurchase Price
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Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.
4) Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related.
5) Sales Load
Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes.
AFTER KNOWING THE VARIOUS TERMS THE QUESTION ARISES IN MIND HOW TO CALCULATE THE NAV OF THE PARTICULAR SCHEME ON THE BASIS OF THAT THE AMOUNT OF INVESTORS WILL BE CONVERTED INTO UNITS. THE FOLLOWING EXAMPLE WILL SHOW HOW TO CALCULATE THE NAV: The price per share (unit) of a mutual fund is called the net asset value (NAV). The equation to calculate NAV is:
EQUATION:
NAV = Net Assets of the scheme / Number of Units Outstanding Where Net Assets are calculated as:(Market value of investments + current assets and other assets + Accrued income current liabilities and other liabilities less accrued expenses) / No. of Units Outstanding as at the NAV date NAV of all schemes must be calculated and published at least theyekly for closed-end schemes and daily for open-end schemes. The major factors affecting the NAV of a fund are: Sale and purchase of securities Sale and repurchase of units
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SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV. Also the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price.
EXAMPLE:
The XYZ Mutual Fund has the following stocks and there are 1,000,000 shares outstanding. What is the NAV of the XYZ Mutual Fund?
80 70 140 60 110
SOLUTION: NAV = (total value of the mutual fund) / (the number of shares outstanding) NAV = 46,000,000 / 1,000,000 = $46 The NAV of the XYZ mutual fund is $46.
TYPES OF RISK
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All investments involve some form of risk. Mentioned below are the common types of risks. An investor would do well to evaluate them against potential rewards while selecting an investment.
Market Risk
At times, the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". It is also known as systematic risk.
Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation rises forward faster than the earnings on your investment, one runs the risk of actually being able to buy less, not more. Inflation risk also occurs when prices rise faster than returns.
Credit Risk
In short, how stable is the company or entity to which one lends his/her money while investing? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
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Changing interest rates affect both Equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go, is rarely successful. A diversified portfolio can help in offsetting these changes.
Exchange risk
Number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.
Investment Risks
In sectoral fund schemes, investments will be predominantly in Equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of Equities
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GROWTH
INDEX FUNDS
VALUE FUND
GILT FUNDS
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Mutual funds surely do have upper hand when compared with other forms of investment and an retail investor should always look for it as it not only helps you grow your money as per you needs but it also helps you meet your long term needs. Here are some of the advantages of mutual funds which have been discussed below.
Affordable
Almost everyone can buy mutual funds. Even for a sum of Rs 1,000 an investor can invest in a mutual fund. This feature is very important as it targets every category of investors.
Professional Management
For an average investor, it is a difficult task to decide what securities to buy, how much to buy and when to sell. By buying a mutual fund, you acquire a professional fund manager who manages your money. This is the person who decides what to buy for you, when to buy it and when to sell. The fund manager takes these decisions after doing adequate research on the economy, industries and companies, before buying stocks or bonds. Most mutual fund companies charge a small fee for providing this service, which is called the management fee.
Diversification
According to finance theory, when your investments are spread across several securities, your risk reduces substantially. A mutual fund is able to diversify more easily than an average investor across several companies, which an ordinary investor may not be able to do. With an investment of Rs 5000, you can buy stocks in some of the top Indian companies through a mutual fund, which may not be possible to do as an individual investor.
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Liquidity
Unlike several other forms of savings like the public provident fund or National Savings Scheme, you can withdraw your money from a mutual fund on immediate basis. Your money invested can be redeemed at your discretion. It would be redeemed to you within ten business days of your approval.
Tax Benefits
Mutual funds have historically been more efficient from the tax point of view. A debt fund pays a dividend distribution tax of 12.5 per cent before distributing dividend to an individual investor or an HUF, whereas it is 20 per cent for all other entities. There is no dividend tax on dividends from an equity fund for individual investor. Therefore he is able to gain tax benefits from it.
Professional Management
Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate whether or not the so-called PROFESSIONALS are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. It should always be in the mind of a fund manager that he is responsible for his decisions when he is making investment on behalf of the investors.
Costs
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Mutual funds don't exist solely to make your life easier - all funds are in it for a profit. The mutual fund industry is masterful at burying costs under layers of jargon. These costs are so complicated that in this tutorial we have devoted an entire section to the subject.
Dilution
It's possible to have too much diversification. Because funds have smallholdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
Taxes
When making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital gains tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.
Expense ratio is the percentage of total assets that are spent to run a mutual fund. As returns from bond funds tend to be similar, expenses become an important factor while comparing bond funds. A wise man once said: ''There is no free lunch on Wall Street.'' This holds true for investing in a mutual fund too. Like a
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doctor who charges you for his service, mutual funds too charge a fee for managing your money. This involves the fund management fee, agent commissions, registrar fees, and selling and promoting expenses. All this falls under a single basket called expense ratio or annual recurring expenses that is disclosed every March and September and is expressed as a percentage of the fund's average weekly net assets. Expense ratio states how much you pay a fund in percentage term every year to manage your money.
Treynor Ratio
The Treynor Ratio tells us the return generated per unit of market risk. This risk cannot be done away with even in a diversified portfolio. The Treynor Ratio, named after Jack L. Treynor, one of the fathers of modern portfolio theory, helps analyse returns in relation to the market risk of the fund. The Ratio, also known as the reward-to-volatility ratio, provides a measure of performance adjusted for market risk. Higher the Treynor Ratio, the better the performance under analysis. It is similar to the Sharpe Ratio, except that it uses Beta as the volatility measurement. The ratio divides the difference of the average return of a fund and the risk free rate by beta (market risk) of the fund. Therefore it tells us the return over the risk free per unit of market risk. Sharpe Ratio divides the same difference by the fund's standard deviation.
STANDARD DEVIATION
Standard Deviation Standard Deviation is the most common statistical measure of judging a fund's volatility and risk. A primer on this useful tool. It the core of the fund analysis activity lies the twin pursuits of judging returns and risk. Stripped of a lot of the complexity, this task involves determining a fund's average performance over a period of time.
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VARIOUS
SCHEMES
OF
STANDARD
CHARTERED
MUTUAL FUND
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Then all these documents are to be sent to the fund house and one set comes to MR. Khagesh Sharma (ACS DEPT.) in ITO branch for approval with order entry acknowledgement slip and online CIPS.
SBI Mutual Fund Birla Sun Life Mutual Fund Kotak Mahindra Mutual Fund BOB Mutual Fund LIC Mutual Fund Canara Robeco Mutual Fund Lotus India Mutual Fund DBS Chola Mutual Fund Morgan Stanley Mutual Fund
Principal Mutual Fund Deutsche Mutual Fund DSP Merrill Lynch Mutual Fund Prudential ICICI Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Escorts Mutual Fund Sahara Mutual Fund Fidelity Mutual Fund IDFC Mutual Fund Fortis Mutual Fund Franklin Templeton Mutual Fund
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Sundaram BNP Paribas Mutual Fund HDFC Mutual Fund Tata Mutual Fund HSBC Mutual Fund
Taurus Mutual Fund ING Mutual Fund UTI Mutual Fund JM Financial Mutual Fund
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Mutual funds are sold through the principal distribution channel shown below: (1) The direct channel, (2) The advice channel, (3) The retirement plan channel, (4) The supermarket channel, and (5) The institutional channel.
The first f their channels primarily serve individual investors. In the direct channel, investors carry out transactions directly with mutual funds. In the advice, retirement plan, and supermarket channels, individual investors use third parties or intermediaries that conduct transactions with mutual funds on their behalf. Third parties also provide services to fund investors on behalf of mutual funds.
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The most important feature of the advice channel is the provision of investment advice and ongoing assistance to fund investors by financial advisers at full-service securities firms, banks, insurance agencies, and financial planning firms. Advisers are compensated through sales loads or from asset-based fees. The retirement plan channel primarily consists of employersponsored defined contribution plans in which employers provide mutual funds and other investments for purchase by plan participants through payroll deductions. The supermarket channel is made up of discount brokers that offer mutual funds from a large number of fund sponsors. Many of the fund offerings are subject to no transaction charges or sales loads. Businesses, financial institutions, endowments, foundations, and other institutional investors use the institutional channel to conduct transactions either directly with mutual funds or through third parties.
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STRENGTH:
Companies utilizing brand strategy Improving distribution channel strategy Various sources of income. Large pool of installed capacities. Experienced managers for large number of Generics. Large pool of skilled and knowledgeable manpower. Increasing liberalization of government policies.
WEAKNESS:
Emerging markets i.e. competition from other countries. Mutual funds are like many other investments without a guaranteed return. Fees (charges) included in mutual fund. Poor participation of retail investors.
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There is a very high degree of discomfort along with uncertainty. Lack of focus. Under performance. Overemphasis on funds under management. Poor service conditions. Distribution network is confined only to metro cities. Increasing NPAs in the portfolio
OPPORTUNITIES:
Potential markets Entry of MNCs Huge untapped market in semi-urban and rural areas. High level of savings habit among the people. Liberalized business environment. Increasing number investors have begun turning toward money market instruments of mutual funds. Using on-line mode of trading system. Linkage of ATMs for cash withdrawal is ongoing. Consolidation in the industry is in progress. Investment opportunities abound in the international market. Failure of non-bank financial company operations.
THREATS:
Increased Competition from local players. High level of volatility in the stock market.
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NAVs are highly sensitive to internal and market factors. Possibility of more stringent regulations by SEBI, RBI, AMFI etc., in future.
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People find mutual fund investment so much interesting because they think they can gain high rate of return by diversifying their investment and risk. But, in reality this scope of high rate of returns is just one side of the coin. On the other side, there is the harsh reality of highly Fluctuating Rate of Returns. Though there are other disadvantages also, this concern of fluctuating returns is most possibly the greatest challenge faced by the mutual fund. In spite of being a diversified investment solution, mutual funds investment in no way guarantees any return. If the market prices of major shares and bonds fall, then the value of mutual fund shares are sure to go down, no matter how diversified the mutual fund portfolio be. It can be said that mutual fund investment is somewhat lo theyr risky than Direct Investment in stocks. But, every time a person invests in mutual fund, he unavoidably carries the risk of losing money. In order to diversify the investment, many times the mutual fund companies get involved in Over Diversification. The risk of holding a single financial security is removed by diversification. But, in case of over diversification, investors diversify so much that many time they end up with investing in funds that are highly related and thus the benefit of risk diversification is ruled out. Every year, most of the mutual funds sell substantial amount of their holdings. If they earn profit by this sell, then the investors receive the Profit Income. For most of the mutual funds, the investors are bound to pay taxes on these incomes, even if they reinvest the income.
Most of the mutual funds charge Shareholder Fees and Fund Operating Fees from the investors. In the year, in which mutual fund fails to make profit and the investors get no return, these fees only blow up the losses.
FUTURE OUTLOOK
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The Future of Mutual Funds in India suggests that the industry has got huge scopes of development in the times to come. The Future of Mutual Funds in India is quite bright. Mutual Funds are one of the most popular forms of investments as these funds are diversification, professional management, and liquidity. In the year 2004, the mutual fund industry in India was worth Rs 1, 50,537 crores. The mutual fund industry is expected to grow at a rate of 13.4% over the next 10 years.
Important aspects related to the future of mutual funds in India are The growth rate was 100 % in 6 previous years. The saving rate in India is 23 %. There is a huge scope in the future for the expansion of the mutual funds industry. A number of foreign based assets management companies are venturing into Indian markets. The Securities Exchange Board of India has allowed the introduction of commodity mutual funds. The emphasis is being given on the effective corporate governance of Mutual Funds. The Mutual funds in India has the scope of penetrating into the rural and semi urban areas.
RESEARCH WORK
1] Research Methodology
Management problem : Lack of proper means of communication about various mutual fund schemes.
Factors considering while investing in mutual fund. Do they are really significant?
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Research objective:
Customer expectation from mutual fund. To know the investors behavior towards mutual fund. Spreading awareness about mutual fund.
Research Design:
It is a conceptual structure within which research is conducted. Its constitutes the blue print of collection, measurement and the analysis of data. Just because of time and money constraints the data collection is done from standard chartered bank Investment advisor and some fund houses in Delhi only and an effort is made to make this research as efficient as possible.
Questionnaire Interviewer/Discussion
Secondary Data:
Secondary data are collected through: Various relevant web sites
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Data Analysis:
For the data analysis to know the behavior of people towards mutual fund a statistical tool of Microsoft Excel was used. With the help of this tool I came to know about the behavior and preferences of customers towards various mutual fund schemes and also companies.
Scope of Study
The scope of any study should be to cover as large a population as possible to cover any errors. But due to time and money constraints, this study is limited to Delhi only. The study involves an interaction with the consumers. An effort was put to cover most fund houses in the city and obtain correct and relevant information. Type of Sampling: Convenience Sampling Sampling frame: All retail customers with the help of SCB and Fund houses. Sampling size: 500 Sampling Area: Delhi
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Interpretation:
From the above data we can conclude that persons between age group of 40-50 yrs. mostly prefer to invest in mutual fund as for the retirement benefits. And also I can say that the perception of the people is changing towards the mutual fund.
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2) Occupation Occupation Service Businessman Profession Student No. of People 350 122 20 8
Interpretation:
By seeing the above figure we can say that the people doing service highly invest in mutual fund as a part of saving and also to get the benefit at longer period of time, but the students are very less in number to invest in mutual funds.
3) Annual Income Annual Income <200000 200000 - 400000 No. of People 135 270
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50 45
Interpretation:
The people with annul income between 200000 - 400000 highly invest (more than 50%) in mutual fund with mainly 2 motives that is saving and high return in future.
Research Questions:
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Interpretation:
Liquidity position is the main reason why people make investments. Secondly high returns are also one which attracts the customers for making investments in mutual fund. Because of high return people are ready to take the risk and are now turning towards the mutual fund leaving behind other options. And tax benefit also attracts large number of customers.
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Total
500
Interpretation:
The above data shows that people like to keep their investment for more than 5 years as investments and in them mainly mutual fund gives high return as if it is kept for longer period of time.
Q-3 You have decided to invest in mutual fund as per your financial retirement plan, a specific saving goal, to add to your savings and for speculate? Likert Scale Average Method:
As per retirement plan(x) 1 2 3 4 5 Total No. of Respondent(f) 7 14 15 5 9 50 Fx 7 28 45 20 45 145
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= 2.9 Strongly Strongly Agree Disagree 1 5 Agree 2 Cant Say 2.9 3 Disagree 4
Q-4 You have decided to invest in mutual fund as per specific saving goal, to add to your savings and for speculate?
A Specific saving goal(x) 1 2 3 4 5 Total No. of Respondent(f) 19 11 7 8 5 50 Fx 19 22 21 32 25 119
Likert Scale Average = fx/f = 119/50 = 2.38 Strongly Strongly Agree Disagree 1 5 Agree 2 2.38 Cant Say 3 Disagree 4
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Q-5 You have decided to invest in mutual fund as per to add to your savings goal, to add to your savings and for speculate?
To add to your Savings(x) 1 2 3 4 5 Total No. of Respondent(f) 17 10 8 7 8 50 Fx 17 20 24 28 40 129
Likert Scale Average = fx/f = 129/50 = 2.58 Strongly Strongly Agree Disagree 1 5 Agree 2 Cant Say 2.58 3 Disagree 4
Q-5 You have decided to invest in mutual fund as per to add to your savings goal, to add to your savings and for speculate?
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No. of Respondent(f) 5 8 15 13 9 50
Fx 5 16 45 52 45 163
Likert Scale Average = fx/f = 163/50 = 3.26 Strongly Strongly Agree Disagree 1 5 2 3 3.26 4 Agree Cant Say Disagree
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Conclusion:
Based on analysis it can be seen that benefits of mutual fund appeal to the customers as their main concern is to earn the money in short time with the condition that their money remains safe.
Q-8 What factors would you consider while making an investment in mutual fund as compared to other sources of investment?
Factors High Returns Low costs Professional management & Advice Brand Name Risk profile Past performance of the fund Transparency Total Respondents 14 2 1 2 6 4 5 34
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Interpretation:
High return is the main factor which customers mainly focus while investing in mutual fund,
Q-9 Base on return/performance, brand awareness and services give rank to top AMC?
AMC Reliance HDFC IDFC ICICI Birla Franklin DSP UTI Sundaram Tata Kotak SBI Principal Total
Respondent 16 18 0 2 14 0 4 2 18 1 4 14 3 96
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Interpretation:
HDFC, Reliance and Sudaram have achieved highest trust among the customers as because of their brand value and consistent performance in past.
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Interpretation:
The main reason most of the people are not investing in mutual fund though they are aware about it is uncertainty of returns followed by lack of proper knowledge about the schemes.
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Interpretation:
Here the above data shows that the people knowing the concept of SIP are today more than not known. So theres much awareness spread about it, but still there is a requirement to spread the knowledge of the concepts.
KEY FINDINGS
Study found that more young people are likely to involve in financial activities. They more frequently visit banks and meet financial advisors. This is an opportunity for mutual funds houses to attract these people. More than 50% of surveyed persons willing to take high risk for high rate of return. This indicates that riskier investment options can also attract big pool of money if investors are properly convinced. Study shows professional advisors are considered to be more reliable source of mutual funds information, not because they provide human touch to investor but others are not aggressively proposed, advertised, availed and used.
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Another observation made by study was, many a time advisors themselves do not get timely updates from AMCs. This leads them not to offer some of schemes those may give good returns. Technological advancements are at nascent stage. Therefore these channels will take time to come in picture. In other words these are seems to narrow ways to walk. Surveyed persons are not having knowledge of more than 10 AMCs name and not more than 7 schemes of any one of mutual fund houses. This requires an aggressive marketing of funds. So that awareness level of investor can be improved. Professional advisors think that investors are not educated properly. They (investor) rely on what others say or what they (advisors) say. Its easy to convince them for investment but not so easy to make them clear about market affecting factors. Stock market is going low and I am already losing, you are asking for investment in market, sorry I am not interested. An investor grievance.
LIMITATIONS
Time Constraint Competition from other Companies Investors give less time for interaction People have less knowledge about the mutual funds The study is limited to the different schemes available under the mutual funds selected.
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The study is limited to selected mutual fund schemes. The lack of information sources for the analysis part.
CONCLUSION
There is a perceived need to review risk and performance analysis capabilities and governance structures, to meet fiduciary responsibilities and the increasing demand for transparency. AMCs therefore need to re-orient their business towards fulfilling customer needs. As customers seek trusted advisors, the manufacturer-distributor-customer relationship is expected to be
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centered not on the sale of products, but for collectively promoting the financial success of customers across all facets of their professional and personal lives. This requires creating a collaborative network of experts in funds management and financial advice, innovative product offerings, efficient service delivery and supporting technology. The mutual fund industry today needs to develop products to fulfill customer needs and help customers understand how its products cater to their needs. Given that the industry needs to collectively work towards riding over the dynamic and relatively less favorable economic environment at present, the next phase for the industry is likely to be characterized by a stronger focus on customer centricity. Other areas of focus are likely to be cost management and enabling strong governance and regulatory framework all aimed at helping the industry achieve sustained, profitable growth, going forward.
BIBLIOGRAPHY
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http://news.moneycontrol.com/mf/glossary.php http://www.investopedia.com/university/mutualfunds/default .asp http://www.valueresearchonline.com http://www.amfiindia.com/ http://www.mutualfundsindia.com/resourcecentre.asp http://www.idfcmf.com http://www.sebi.com http://business.mapsofindia.com/mutual-funds/future.html Scb internal docs.
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GLOSSARY
NAV: NAV is the market value of the assets of the scheme minus
its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units.
Sale price: The price you pay when you invest in a scheme. It is
also called offer price.
Entry load: The extra amount you pay when you invest in a
scheme. It is also called front-end load or sales load.
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