Project on Mutual Fund Industy in India and Comparative Study of Its Annuliased Return

7/27/2019 Project on Mutual Fund Industy in India and Comparative Study of Its Annuliased Return

1/50

SUMMER TRAINING PROJECT REPORT ON

MUTUAL FUND

WITH

REFERENCE TO SBI MUTUAL FUND

Faculty Guide: submitted by:

Industry guide:

karanpal singh

DR. MANINDER SINGH GILL Roll no - 1272081

H.O.D

MR. ANKUSH KHOKHAR

S.B.I MUTUAL FUNDS


2/50

Acknowledgement

I would like to thank the management of SBI Mutual Funds for giving me an

opportunity to intern with them. The training at the company was held over aperiod of 2 months. During this period I was guided by the manager of theInvestor Service Desk, Mr. Ankush khockhar The project report and thelearning process would not have been possible without his inputs andguidance at critical points of the project. He imparted to me the knowledgeof mutual funds and shared with me the practical marketing techniques ofmutual funds. He also made sure that I was exposed to all the distributionchannels, the operational processes and also was exposed to the sale ofmutual funds. Under his guidance I was able to enhance my marketing andinter-personal skills.

During the course of the two months I also came across other people whoput in their time and effort towards acclimatizing me towards the working oftheir organization. I express my thanks to every one of them.

I would also like to Thanks Prof . Maninder singh gill for the help andguidance provided to make me learn and understand the concepts. His

guidance was very valuable in transferring the class room concepts to thecorporate world.

These two months were very important to me as it helped me in goingbeyond the class room and get a practical feel of how things worked.

I would also like to thank all the distributors, customers, clients and peopleat large who I have interacted with during the course of my training.


3/50

ContentsExecutive Summary

Concept of Mutual Funds

1.1 Working of Mutual Funds:

1.2 Role of SEBI and AMFI:

1.3 Common Terms Used

1.5 Types of Mutual Funds Schemes in India

1.5.1 Overview of existing schemes in mutual fund category:

By Structure


By Nature


By Investment

Industry Analysis

Introduction to SBI Mutual Fund

Distribution Network of SBI Mutual Fund

4.1 Structure of SBI Mutual Fund

4.2 The Distribution Channels

4.3 Structure of SBI Mutual Funds

Research Design

Objective of Research


4/50

Systematic Investment Plan

Analysis of Mutual Fund Schemes since Inspections

Conclusion

References


5/50

List of Figures

Figure 1: Working of Mutual Funds

Figure 2: Risk Return Matrix

Figure 3: Growth in Assets under Management

Figure 4: Risk Return of Different Funds

Figure 5: Distribution Network

Figure 6: Distribution Channels

Figure 7: Structure of SBI mutual Funds


6/50

Executive Summary

SBI MF wanted to identify the factors which influence the distributoropinion of an asset management company (AMC). This is very essential

because most of the investors in our country are dependent on the

distributor s advice for their investment. An asset management company therefore looks to positively influence the distributors. During the course ofthe meetings with the manager at SBI MF and some distributors, weidentified 5 factors which may influence how a particular AMC was

perceived by the distributors. They were payout, performance, service level,relations and brand. A questionnaire was formed keeping these factors inmind. The distributors involved included individual financial advisors,national distributors and banks.On conducting the analysis of the data obtained, three factors were found to

be critical in influencing the distributor opinion. They are performance,service level and relations.Since the ban on entry loads by the Securities and Exchange Board of India(SEBI) the amount of commission paid to the distributors has remainedalmost same across all companies. It has become unviable for them to pay ahigher amount. In a situation such as this performance, service level andrelations with the distributors become important for an asset managementcompany.During interactions with the distributors it could be concluded that SBIMutual Funds (SBI MF) had to focus more on improving their service level

and performance of its funds. SBI Mutual Funds as a company relies uponits brand value for sales to be made to customers. However, majority of thedistributors are of the opinion that there are other companies which arecomparable with SBI MF in terms of brand recognition and hence thecompany should market itself more aggressively.Aggressive marketing would involve creating public awareness through themass market medium and having tie-ups with other banks and nationaldistributors for the sale of their funds.


7/50

Concept of Mutual Funds

Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors whoshare a common financial goal. The money thus collected is then invested incapital market instruments such as shares, debentures and other securities.The income earned through these investments and the capital appreciationrealised are shared by its unit holders in proportion to the number of unitsowned by them. Thus a Mutual Fund is the most suitable investment for thecommon man as it offers an opportunity to invest in a diversified,

professionally managed basket of securities at a relatively low cost.

1.1 Working of Mutual Funds:

The following figure explains the working of Mutual funds

Figure 1: Working of Mutual FundsThe important terms of the figure are explained as follows:


8/50

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 thepromoter of a company. In accordance with SEBI Regulations, the sponsor

forms a trust and appoints a Board of Trustees, and also generally appointsan AMC as fund manager. In addition, the sponsor also appoints a custodianto hold the fund assets. The sponsor must contribute at least 40% of the networth of the AMC and possess a sound financial track record over five years

prior to registration.

Trustees:

The MF or trust can either be managed by the Board of Trustees, which is abody of individuals, or by a Trust Company, which is a corporate body.

Most of the funds in India are managed by Board of Trustees. The trusteebeing the primary guardian of the unit holders funds and assets has to be aperson of high repute and integrity. The trustees, however, do not directlymanage the portfolio securities. The portfolio is managed by the AMC as perthe defined objectives, accordance with Trust Deed and SEBI (MutualFunds) Regulations.

Asset Management Company (AMC):

The AMC, which is appointed by the sponsor or the trustees and approvedby SEBI, acts like the investment manager of the trust. The AMC functionsunder the supervision of its own Board of Directors, and also under thedirection of the trustees and SEBI. AMC, in the name of the trust, floats andmanages the different investment schemes as per the SEBI Regulations and as per the Investment Management Agreement signed with the Trustees.Others:

Apart from these, the MF has some other fund constituents, such ascustodians and depositories, banks, transfer agents and distributors.

The custodian is appointed for safe keeping of securities and participating inthe clearing system through approved depository. The bankers handle thefinancial dealings of the fund. Transfer agents are responsible for issue andredemption of units of MF.


9/50

Risk Return Matrix:

The risk return trade-off indicates that if investor is willing to take higherrisk then correspondingly he can expect higher returns and vice versa if he

pertains to lower risk instruments, which would be satisfied by lower

returns. For example, if an investor opts for bank FD, which providemoderate return with minimal risk. But as he moves ahead to invest incapital protected funds and the profit-bonds that give out more return whichis slightly higher as compared to the bank deposits but the risk involved alsoincreases.Thus investors choose mutual funds as their primary means of investing, asMutual funds provide professional management, diversification,convenience and liquidity. That doesnt mean mutual fund investments arerisk free. This is because the money that is pooled in are not invested only indebts funds which are less riskier but ar e also invested in the stock markets

which involves a higher risk but can expect higher returns.

Figure 2: Risk Return Matrix


10/50

1.2 Role of SEBI and AMFI:

To protect the interest of the investors, SEBI formulates policies andregulates the mutual funds. Mutual Funds either promoted by public or by

private sector entities including those promoted by foreign entities are

governed by these Regulations.SEBI approved Asset Management Company (AMC) manages the funds bymaking investments in various types of securities. Custodian, registered withSEBI, holds the securities of various schemes of the fund in its custody.According to SEBI Regulations, two thirds of the directors of TrusteeCompany or board of trustees must be independent.The Association of Mutual Funds in India (AMFI) reassures the investors inunits of mutual funds that the mutual funds function within the strictregulatory framework. Its objective is to increase public awareness of themutual fund industry.

AMFI also is engaged in upgrading professional standards and in promotingbest industry practices in diverse areas such as valuation, disclosure,transparency etc.

1.3 Common Terms Used

Net Asset Value (NAV): Net Asset Value is the market value of theassets of the scheme minus its liabilities. Per unit NAV is the net asset valueof the scheme divided by the number of units outstanding on the Valuation

Date.

Sale Price: Is the price you pay when you invest in a scheme. It mayinclude a sales load.

Repurchase Price: Is the price at which units under open-ended schemesare repurchased by the Mutual Fund. Such prices are NAV related.

Redemption Price: Is the price at which close-ended schemes redeemtheir units on maturity. Such prices are NAV related.

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.

Repurchase or Back-end Load: Is a charge collected by a schemewhen it buys back the units from the unit holders.

Diversification: Diversification is nothing but spreading out your moneyacross available or different types of investments. By choosing to diversify


11/50

respective investment holdings reduces risk tremendously up to certainextent.

SIP: Is a plan where investors make regular, equal payments into amutual fund. By using a systematic investment plan (SIP), investors are

benefitting from the long-term advantages of d cost averaging and the

convenience of saving regularly without taking any actions except the initialsetup of the SIP.

Beta: A measure of the volatility, or systematic risk, of a security or aportfolio in comparison to the market as a whole. Beta is calculated usingregression analysis, and indicates the tendency of a security's returns torespond to swings in the market. A beta of 1 indicates that the security's

price will move with the market. A beta of less than 1 means that thesecurity will be less volatile than the market. A beta of greater than 1

indicates that the security's price will be more volatile than the market. Expense Ratio: A measure of what it costs an investment company tooperate a mutual fund. It is determined through an annual calculation, wherea fund's operating expenses are divided by the average dollar value of itsassets under management. Operating expenses are taken out of a fund'sassets and lower the return to a fund's investors.

The largest component of operating expenses is the fee paid to a fund'sinvestment manager/advisor. Other costs include recordkeeping, custodialservices, taxes, legal expenses, and accounting and auditing fees.

R-Squared: A statistical measure that represents the percentage of a fundor security's movements that can be explained by movements in a

benchmark index. R-squared values range from 0 to 100.

An R-squared of 100 means that all movements of a security are completely

explained by movements in the index. A high R-squared (between 85 and100) indicates the fund's performance patterns have been in line with theindex. A fund with a low R-squared (70 or less) doesn't act much like theindex.

1.4 History of Mutual Funds


12/50

The mutual fund industry in India started in 1963 with the formation of UnitTrust of India, at the initiative of the Government of India and Reserve Bankof India. The history of mutual funds in India can be broadly divided intofour distinct phases.

First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.It was set up by the Reserve Bank of India and functioned under theRegulatory and administrative control of the Reserve Bank of India. In 1978UTI was de-linked from the RBI and the Industrial Development Bank ofIndia (IDBI) took over the regulatory and administrative control in place ofRBI. The first scheme launched by UTI was Unit Scheme 1964. At the endof 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up bypublic sector banks and Life Insurance Corporation of India (LIC) andGeneral Insurance Corporation of India (GIC). SBI Mutual Fund was thefirst non- UTI Mutual Fund established in June 1987 followed by CanbankMutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), IndianBank Mutual Fund (Nov 89), Bank of India (Jun 14 Bank of Baroda MutualFund (Oct 92). At the end of 1993, the mutual fund industry had assets under

management of Rs.47, 004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indianmutual fund industry, giving the Indian investors a wider choice of fundfamilies. Also, 1993 was the year in which the first Mutual FundRegulations came into being, under which all mutual funds, except UTI wereto be registered and governed. The erstwhile Kothari Pioneer (now mergedwith Franklin Templeton) was the first private sector mutual fund registered

in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a morecomprehensive and revised Mutual Fund Regulations in 1996. The industrynow functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreignmutual funds setting up funds in India and also the industry has witnessedseveral mergers and acquisitions. As at the end of January 2003, there were33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of


13/50

India with Rs.44,541 crores of assets under management was way ahead ofother mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963UTI was bifurcated into two separate entities. One is the SpecifiedUndertaking of the Unit Trust of India with assets under management ofRs.29,835 crores as at the end of January 2003, representing broadly, theassets of US 64 scheme, assured return and certain other schemes. TheSpecified Undertaking of Unit Trust of India, functioning under anadministrator and under the rules framed by Government of India and doesnot come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC.It is registered with SEBI and functions under the Mutual Fund Regulations.With the bifurcation of the erstwhile UTI which had in March 2000 morethan Rs.76,000 crores of assets under management and with the setting up ofa UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, andwith recent mergers taking place among different private sector funds, themutual fund industry has entered its current phase of consolidation &growth.

Figure 3: Growth in Assets under Management


14/50

1.5 Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such asfinancial position, risk tolerance and return expectations etc. Thus mutualfunds have a variety of flavors. There are over hundreds of mutual fundsscheme to choose from. It is easier to think of mutual funds in categories,mentioned below.

1.5.1 Overview of existing schemes in mutual fundcategory: By Structure

Open - Ended Schemes: An open-end fund is one that is available forsubscription all through the year. These do not have a fixed maturity.Investors can conveniently buy and sell units at Net Asset Value ("NAV")related prices. The key feature of open-end schemes is liquidity.

Close - Ended Schemes: These schemes have a pre-specified maturityperiod. One can invest directly in the scheme at the time of the initial issue.Depending on the structure of the scheme there are two exit optionsavailable to an investor after the initial offer period closes. Investors cantransact (buy or sell) the units of the scheme on the stock exchanges where

they are listed. The market price at the stock exchanges could vary from thenet asset value (NAV) of the scheme on account of demand and supplysituation, expectations of unit holder and other market factors. Alternativelysome close-ended schemes provide an additional option of selling the unitsdirectly to the Mutual Fund through periodic repurchase at the schemes

NAV; however one cannot buy units and can only sell units during theliquidity window. SEBI Regulations ensure that at least one of the two exitroutes is provided to the investor.

Interval Schemes: Interval Schemes are that scheme, which combinesthe features of open-ended and close-ended schemes. The units may be

traded on the stock exchange or may be open for sale or redemption duringpre-determined intervals at NAV related prices.

1.5.2 Overview of existing schemes in mutual fundcategory: By Nature

Equity fund: These funds invest a maximum part of their corpus intoequities holdings. The structure of the fund may vary different for different


15/50

schemes and the fund manager s outlook on different stocks. The EquityFunds are sub-classified depending upon their investment objective, asfollows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity fundsrank high on the risk-return matrix.

Debt funds: The objective of these Funds is to invest in debt papers.Government authorities, private companies, banks and financial institutionsare some of the major issuers of debt papers. By investing in debt

instruments, these funds ensure low risk and provide stable income to theinvestors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government,popularly known as Government of India debt papers. These Funds carryzero Default risk but are associated with Interest Rate risk. These schemesare safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments suchas bonds, corporate debentures and

Government securities.

MIPs: Invests maximum of their total corpus in debt instruments whilethey take minimum exposure in equities. It gets benefit of both equity anddebt market. These scheme ranks slightly high on the risk-return matrixwhen compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to sixmonths. These funds primarily invest in short term papers like Certificate ofDeposits (CDs) and Commercial Papers (CPs). Some portion of the corpus isalso invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These fundsprovides easy liquidity and preservation of capital. These schemes invest inshort-term instruments like Treasury Bills, inter-bank call money market,CPs and CDs. These funds are meant for short-term cash management ofcorporate houses and are meant for an investment horizon of 1day to 3


16/50

months. These schemes rank low on risk-return matrix and are considered tobe the safest amongst all categories of mutual funds.

Balanced funds: These are a mix of both equity and debt funds. They

invest in both equities and fixed income securities, which are in line with

pre-defined investment objective of the scheme. These schemes aim toprovide investors with the best of both the worlds. Equity part providesgrowth and the debt part provides stability in returns.Further the mutual funds can be broadly classified on the basis of investment

parameter viz, by investment objective and types of returns.Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his owninvestment needs with the funds objective and invest accordingly.

1.5.3 Overview of existing schemes in mutual fundcategory: By Investment Objective:

Growth Schemes: Growth Schemes are also known as equity schemes.The aim of these schemes is to provide capital appreciation over medium tolong term. These schemes normally invest a major part of their fund inequities and are willing to bear short-term decline in value for possiblefuture appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The

aim of these schemes is to provide regular and steady income to investors.These schemes generally invest in fixed income securities such as bonds andcorporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth andincome by periodically distributing a part of the income and capital gainsthey earn. These schemes invest in both shares and fixed income securities,in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easyliquidity, preservation of capital and moderate income. These schemesgenerally invest in safer, short-term instruments, such as treasury bills,certificates of deposit, commercial paper and inter-bank call money.

Other schemes:

Tax Saving Schemes: Tax-saving schemes offer tax rebates to theinvestors under tax laws prescribed from time to time. Under Sec.88 of the


17/50

Income Tax Act, contributions made to any Equity Linked Savings Scheme(ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of aparticular index such as the BSE Sensex or the NSE 50. The portfolio of

these schemes will consist of only those stocks that constitute the index. Thepercentage of each stock to the

Types of returns

There are three ways, where the total returns provided by mutual fundscan be enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. Afund pays out nearly all income it receives over the year to fundowners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has acapital gain. Most funds also pass on these gains to investors in adistribution.

If fund holdings increase in price but are not sold by the fundmanager, the fund's shares increase in price. You can then sell yourmutual fund shares for a profit. Funds will also usually give you achoice either to receive a check for distributions or to reinvest theearnings and get more share.

1.6 Pros & cons of investing in mutual funds

For investments in mutual fund, one must keep in mind about the Pros andcons of investments in mutual fund.

Pros of Investing Mutual Funds

1. Professional Management - The basic advantage of funds is that, theyare professional managed, by well qualified professional. Investors purchase

funds because they do not have the time or the expertise to manage theirown portfolio. A mutual fund is considered to be relatively less expensiveway to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buyingindividual stocks or bonds, the investors risk is spread out and minimized upto certain extent. The idea behind diversification is to invest in a largenumber of assets so that a loss in any particular investment is minimized bygains in others.


18/50

3. Economies of Scale - Mutual fund buy and sell large amounts ofsecurities at a time, thus help to reducing transaction costs, and help to bringdown the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows

investors to liquidate their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compareto other available instruments in the market, and the minimum investment issmall. Most AMC also have automatic purchase plans whereby as little asRs. 2000, where SIP start with just Rs.50 per month basis.

Cons of Investing Mutual Funds:

1. Professional Management- Some funds dont perform in the market, as

their management is not dynamic enough to explore the availableopportunity in the market, thus many investors debate over whether or notthe so-called professionals are any better than the investor himself, for

picking up stocks.

2. Costs The biggest source of AMC income is generally from the entry &exit load which they charge from an investors, at the time of purchase. Themutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies,high returns from a few investments often don't make much difference onthe overall return. Dilution is also the result of a successful fund getting too

big. When money pours into funds that have had strong success, themanager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don'tconsider your personal tax situation. For example, when a fund managersells a security, a capital-gain tax is triggered, which affects how profitablethe individual is from the sale. It might have been more advantageous for the

individual to defer the capital gains liability.


19/50

Indian Mutual Fund Industry

The financial market provides different investment options to the perspectiveinvestors. These include low risk and low return products like the FixedDeposits, corporate debentures and bonds as well as high risk and high

return options like stock market. But most of investors in India are not ableto trust the stock market given its fluctuating nature. The recent financialcrisis and stock market crash has added to that development. Mutual Funds

provide a mid-way for getting returns better than FDs with more securitythan the stock market. There are a large number of schemes for investors tochoose from based upon their investment requirements.The market regulator has also taken a number of steps to increase thetransparency of the mutual fund operations.As the Indian Economy grows, there has been an increase in the personalfinancial assets and a rise in foreign participation. With these changes, themutual fund industry is also witnessing a rapid growth. There are moreinvestors with a growing risk appetite, rising income, increasing awarenessand all see mutual funds as the most preferred investment option.. The banning of entry load has also resulted in dwindling distributor interesttowards the sale of mutual funds and they prefer selling other financial

products which give them a higher commission. With money flowing intomutual funds in a trickle, fund houses are focusing on other businesses likeoffshore advisory business and Portfolio Management Services to coverlosses.

According to a report from Research and analytics firm, Boston Analyticsonly 10 percent of Indian households have invested in mutual funds. Thestudy also says that this is because mutual funds are perceived as high riskand a lack of information on how mutual funds work. Indian mutual fundsindustry currently manages assets worth 8.1 trillion rupees ($174 billion)and this is expected to grow to about $520 billion by 2015. In order to makesure that investors were fully informed about the working of an AMC beforearriving at a decision, the Securities and Exchange Board of India (SEBI)has made it mandatory for companies to disclose investor complaints ontheir websites and in their annual reports. A SEBI panel also recommendedretaining the expense ratio which mutual funds deduct annually frominvestors Net Assets value (NAV) at 2.25%. 22As of now there are 38 AMCs in operation and some more companies are inthe pipeline to launch their own AMCs which us gives an idea about theintense level of competition prevalent in the industry and on the other side italso tells us that there is tremendous scope for further growth. The top 10Asset Management Companies in terms of assets under management(AUM), as on April 30, 2010 are:


20/50

Table 1: Top 10Asset ManagementCompanies in India SNo.

Asset Management

Company

Corpus (Amount in

Cr)

1 Reliance Mutual

Fund

1,11,819.33

2 HDFC Mutual Fund 94,702.79

3 ICICI PrudentialMutual Fund

83,035.31

4 UTI Mutual Fund 79,456.70

5 Birla Sun Life MutualFund

69508.69

6 LIC Mutual Fund 40507.21

7 SBI Mutual Fund 39,826.35

8 Franklin TempletonMutual Fund

34,107.00

9 Kotak MahindraMutual Fund

33,743.49

10 IDFC Mutual Fund 25,177.28

Mutual fund industry has also witnessed several mergers and acquisitionsrecently, examples of which are acquisition of schemes of Alliance MutualFund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by

Principal Mutual Fund. Simultaneously, more international Mutual Fundplayers have entered India like Fidelity, Franklin Templeton Mutual fundetc. This is a continuing phase of growth of the industry throughconsolidation and entry of new international and private sector players.SEBI has also asked fund houses to disclose all complaints received by themon their websites and also in their annual reports. Besides, it has crackeddown on the expensive gifts and payouts by fund houses to distributors.SEBI has directed the fund houses to disclose to investors the dividend inthe form of Rs per unit in their future communications and advertisements

and to benchmark returns on investment against the Sensex and Niftyinstead of sectoral indices.


21/50

Introduction to SBI Mutual Fund In November 1987, SBI Mutual Fundfrom the State Bank of India became the first non UTI mutual fund in India.SBI Mutual Funds (SBI MF) is a partnership between Indias largest bankState Bank of India and Frances Society General Asset Management. State

bank of India owns 63% in SBI MF and the rest 37% is owned by Frances

Society General Asset Management. As on April 30 2009, the company hadassets of Rs 37213.06 Crs.It is currently operating a total of 46 schemes which includes Equityschemes, Debt schemes, Short term debt schemes, Equity and debt, Giltfund.A total of over 6 million people have invested in the funds of SBI. The fundreaches out to investors through a network of over 150 points of acceptance,28 investor service centre, 46 investor service desks and 56 districtorganisers.On the 17th of May, 2010 the company launched a PSU fund with the aim of

investing in public sector companies which offer significant growthprospects for the investors and also take advantage of the unlocking of valueof some of these companies due to disinvestment by the government.Products currently being offered by the company are as follows:

Equity / Growth based products- The equity based funds offeredby SBI Mutual Fund, are as follows:

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund

Magnum Multicap Fund

Magnum Multiplier Plus 1993

Magnum Sector Funds Umbrella

MSFU - FMCG Fund

MSFU - Emerging Businesses Fund

MSFU - IT FundMSFU - Pharma Fund

MSFU - Contra Fund

SBI Arbitrage Opportunities Fund

SBI Blue chip Fund

SBI Infrastructure Fund - Series I

SBI Magnum Taxgain Scheme 1993


22/50

Debt / Income based products-The debt based funds that are inoperation now, are as follows:

Magnum Children's Benefit Plan

Magnum Gilt Fund

Magnum Gilt Fund (Long Term)Magnum Gilt Fund (Short Term)

Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund

Magnum InstaCash Fund -Liquid Floater Plan

Magnum Institutional Income Fund

Magnum Monthly Income PlanMagnum Monthly Income Plan Floater

Magnum NRI Investment Fund

SBI Capital Protection Oriented Fund - Series I

SBI Debt Fund Series

SDFS 15 Months Fund

SDFS 90 Days Fund

SDFS 13 Months Fund

SDFS 18 Months Fund

SDFS 24 Months Fund

SDFS 60 Days Fund

SDFS 180 Days Fund

SBI Premier Liquid Fund

SBI Short Horizon Fund

SBI Short Horizon Fund - Liquid Plus Fund

SBI Short Horizon Fund - Short Term Fund

Balanced funds- The balanced funds that are in operation now, are asfollows:Magnum Balanced Fund.

Magnum NRI Investment Fund - FlexiAsset Plan.


23/50

Distribution Network of SBI

SBI Mutual Fund has a very wide and robust distribution network. It

operates in 15 regions and has 29 investor service centre, 55 investor servicedesks, 45 district organizers and 1 overseas office in Dubai. This coupledwith the reach of the State Bank of India which has close to 15600 branchesin India and more than 147 million customers provides the assetmanagement company (AMC) an opportunity to reach investors even in theremote parts of the country. The decision making structure of SBI mutualfund is designed to take advantage of this opportunity. Here, I will beexplaining in detail the structure of SBI mutual funds in India.

Figure 5:

Strategic decisions regarding the direction of the company are taken byindividuals at the corporate office level. This is then passed on to theinvestor service centers (ISC), in this case the Delhi ISC. The business headand his team at the ISC, in co-ordination with the various investor servicedesks (ISD) under them are responsible for the implementation of thestrategic decisions.Individual targets are given to the investor service desks. The managers atthese desks are held accountable by the business head of the correspondinginvestor service center, who in turn reports directly to the national sales head(NSD).


24/50

The individual managers at the respective ISC or ISD is responsible forhandling of the individual financial advisors (IFA), banks and nationaldistributors (ND). The manager is expected to maintain friendly relationswith the IFAs, Banks and NDs, handle complaints effectively, educate themabout the company policies and encourage them to advice investors to avail

of the companys services.


25/50

4.2 The Distribution Channels

Figure 6: Distribution ChannelsApart from the direct channel, there are three categories of distributionchannels for the sale of mutual funds.

Banks: The banking channel is categorized as SBI Banks and Othercommercial Banks.SBI being the 63% stakeholder in the SBI Mutual FundsPvt. Ltd. Provides its own banks for the sale of mutual funds. Other bankssell the funds of different AMCs based on the corporate relations that thecompany has with them or based on the demand for another fund houses

product by their existing bank customer. SBI Banks: In Noida, out of the 25 odd branches, only 4-5 are consideredas active in selling mutual funds. For a bank to be called active, theyshould have a certain number of clients. In such banks, special designatedemployees are appointed for the sale of mutual funds along with other bankofferings. These employees are given the training on the different aspect ofthe mutual fund product. They are then given targets which have to be metwithin a period of time.


26/50

Independent Financial Advisors(IFA): These individuals are certifiedto advice on mutual funds to people. To become an IFA, one has to appear inan examination conducted by NSE called the AMFI Test for Mutual FundsBasic/Advisor. Once cleared, one can get empanelled with the AMCs andsell their products. IFAs get an upfront amount as a percentage of the

invested amount and a trailing percentage.

National Distributors: These are companies with national presencewhich provide all investment advice to their clients. The working model issimilar to the IFAs but these operate on a larger scale and are present inmultiple locations in the country under the same brand name.

Payout:

The amount of commission to be paid to banks and distributors are decided

at the corporate and it might vary for each bank and national distributor. Thepayout here depends on the reach of the bank (number of branches of thebank and national distributor) and the potential of the bank to getinvestments. The amount of commission for the individual financial advisorsdepends on the amount of business that they have previously generated forthe company.

4.3 Structure of SBI Mutual Funds

SBI mutual fund has a very wide and robust distribution network. It operatesin 15 regions and has 29 investor service centre, 55 investor service desks,45 district organizers and 1 overseas office in Dubai. This coupled with thereach of the State Bank of India which has close to 15600 branches in Indiaand more than 147 million customers provides the asset managementcompany (AMC) an opportunity to reach investors even in the remote partsof the country. The decision making structure of SBI mutual fund isdesigned to take advantage of this opportunity. Here, I will be explaining indetail the distribution network of SBI mutual funds in India.


27/50


28/50

Research DesignThe distributor opinion about a particular asset management company(AMC) is affected by a large number of factors. On the basis of the opinionso formed a distributor suggests funds of an AMC to an investor. SBIMutual Funds was looking to identify a few major factors which shape the

opinion of the distributor. It was necessary to bring the number of factors toa manageable level and focus on improving them, as this would lead to moredistributors suggesting funds of SBI MF to investors. For an assetmanagement company (AMC) it is very important to make sure that thedistributor opinion of the company is favourable because in India, thefinancial literacy among majority of the investors is poor and they areheavily dependent and swayed by the advice offered by the distributor. Acontinuous interaction with the concerned stakeholders revealed both theinfluential factors and the 3 AMCs which were considered to be the maincompetitors of SBI MF.

The factors that were identified are:1. Brand.

2. Pay outs.

3. Relations.

4. Returns.

5. Service Level.

Objectives

This project has been made to study about mutual funds,so the purposeof study include following objectives-

To understand the concept and working of mutual funds. To know whether mutual funds is a better investment plan or not. To compare and analyse the mutual funds schemes with other

products of SBI. To know the investment pattern of investor in mutual funds. To know the returns of various mutual fund scheme since

inspection.


29/50

Systematic Investment

Plan (SIP)


30/50


31/50


32/50

Cycle II: The Most Crucial Phase

Meet current recurring expenses

Rent, Electricity, Telephone

Childs education, Childs marriage Annual Holiday with family.

Build capital assets

House; Car.

Make provisions for

Retirement ; Contingencies- Illness,Accidents, etc.


33/50


34/50


35/50

OVERVIEW

A SIP for every dream.

Systematic Investment Plan (SIP) is a smart financial planning toolthat helps you to create wealth, by investing small sums of moneyevery month, over a period of time. Systematic Investment Plan (SIP)is a planned approach to investments and an investment technique thatallows you to provide for the future by investing small amounts ofmoney in Mutual Fund schemes of your choice.

THE SIP ADVANTAGES

Disciplined approach to investments No need to time the market

Harness the power of two powerful Investment strategies: Rupee Cost Averaging Capitalize on periodic dips in the stock

market and get more units at lower NAV thus lowering your averageunit cost resulting in higher returns.

Compounding benefits - The amounts invested early and regularly,helps not only in creating a substantial amount of wealth but alsoreturns compounded over the years.

Disciplined Investing Approach Invest small amounts regularly tobuild a sizable amount. For as little as Rs 1000/- pm a sizable amount

can be build. Simple and Convenient One time activity. Just need a completed

application form along with post dated cheques or SIP ECS/DirectDebit facility *

Lighter on the wallet Reap benefits of starting early .


36/50


37/50


38/50


39/50

Does SIP really works

in achieving

your

goals????


40/50

15 Year SIP in BSE SensexSynopsis:

SIP Period 01/06/1996 to 01/05/2011SIP Amount Rs. 3000/- p.m

Total amount invested Rs. 5.40 lakhInvestment value as on31/05/2011Rs. 18.62 lakhInvestment return 15.08%

30 Year SIP in BSE Sensex

Synopsis:

SIP Period 01/06/1981 to 01/05/2011SIP Amount Rs. 3000/- p.m

Total amount invested Rs. 10.80 lakhInvestment value as on31/05/2011Rs. 2.09 croreInvestment return 16.04%

What does one need for a SIP ?

Just these Bank account Mutual fund scheme which offers SIP facility

Rs 1000 per monthOne ID/Address proof


41/50

Nobody can go back & start new

beginning, but anyone can start

today & make a new ending.


42/50

Analysis of Various

Mutual Funds


43/50

SBI Magnum Equity Fund

SIP Investments1

YearSIP

3Year

SIP

5Year

SIP

7 YearSIP

10Year

SIP

SinceInception(01 - Jan,

1991)

Total AmountInvested

12,000

36,000

60,000

84,0001,20,0

002,64,000

Market Value ason Dec 31,2012

13,494

40,943

81,537

1,25,761

3,15,708

17,74,709

Returns (%Annualized)

23.87 8.53 12.22 11.33 18.38 14.99

S&P NiftyReturns (%Annualized)

22.45 6.26 8.78 8.19 13.71 11.95

BSE SensexReturns (%Annualized)

21.86 5.65 8.46 7.72 13.94 11.96

SBI Magnum Sector Funds Umbrella Contra

SIP Investments1

YearSIP

3Year

SIP

5Year

SIP

7 YearSIP

10Year

SIP

SinceInception(14 - Jul,1999)


12,000

36,000

60,000

84,0001,20,0

001,62,000


13,786

39,385

74,848

1,14,364

3,67,385

10,34,856

Returns (%

Annualized)

28.71 5.92 8.78 8.67 21.19 24.91

BSE 100Returns(% Annualized)

24.73 6.19 9.03 8.27 14.34 15.11


21.86 5.65 8.46 7.72 13.94 14.50


44/50

SBI Magnum Multiplier Plus Scheme

SIP Investments1

YearSIP

3Year

SIP

5Year

SIP

7 YearSIP

10Year

SIP

SinceInception(28 - Feb,

1993)


12,000

36,000

60,000

84,0001,20,0

002,39,000


13,647

40,313

79,416

1,21,131

3,57,931

14,64,383


26.39 7.49 11.15 10.28 20.71 16.01

BSE 200Returns(% Annualized)

25.22 5.92 9.12 8.24 13.93 12.94


21.86 5.65 8.46 7.72 13.94 12.08

SBI Magnum Global Fund 1994

SIP

Investments

1Year

SIP

3Year

SIP

5 Year

SIP

7 Year

SIP

10Year

SIP

SinceInception

(30 - Sep,1994)


12,000

36,000

60,000

84,0001,20,0

002,20,000

Market Valueas on Dec 31,2012

14,180

44,268

93,287

1,34,415

4,09,082

17,10,691


45/50


35.32 13.89 17.69 13.19 23.18 19.66

CNX MidcapReturns (%Annualized)

30.32 6.23 11.40 10.09 16.20 17.86


21.86 5.65 8.46 7.72 13.94 12.62


46/50

Conclusions

From this study it can be concluded that the secondry factors thatdistributors consider when recommending funds to the investors are Relations of the company with distributors.

Service Level

Performance.

Relations: Distributors are encouraged by the fair policies of the topmanagement. It includes rewarding the distributors for good performance,organizing short courses to upgrade their skills, taking steps to ensure thatthe distributors are well informed about their products etc. It is important

that the manager at a particular distribution center is in constant touch withthe distributors and constantly motivates them to sell his company s

products. It was observed that distributors felt that SBI Mutual Funds waslacking in maintaining a healthy relationship with the distributors, thecompany would do well to ensure that there are sufficient employees tohandle the work needed to be done at a center.

Service Level: This includes dispatching of account statements to investorsregularly, handling complaints of the distributors effectively, making sure

that merchandise (application forms, fact sheets) is available when required.It was observed that investors did not receive their account statements on aregular basis which made the distributors unhappy. Here, it is theresponsibility of the registrar Computer Age Management Services (CAMS)to ensure that the statements are dispatched. SBI MF would have to co-ordinate with CAMS and ensure that investors and in turn distributors arehappy with their service.With the banning of entry loads by the Securities and Exchange Board ofIndia (SEBI), the payout provided by the various AMCs are not verydifferent. Here, the level of service provided by the company can act as a

differentiator and help in making sure that the funds of a particular AMCremain on the top of the mind of the distributor.

Performance: Performance here means returns on investment. A customeris likely to go to another distributor if the fund suggested by his currentadvisor does not perform upto the promised level and the distributor is not


47/50

able to convince the customer about the reasons for their bad performance.In other words the distributor is dependent on the company for the retentionof his customers. Also, individual financial advisors refer to independentmagazines and mutual fund websites like value research online,mutualfundsindia.com, fundsupermart.com to find out the top funds in termsof performance and in the case of banks, the relationship managers ofdifferent branches are suggested funds to be recommended based on thefund s performance by the bank s research team. During my interaction with the investors of SBI Mutual Funds, I could find that they weredissatisfied with the returns on their investments and were redeeming orconsidering redeeming their units. This does not augur well for the companyin the long run and it will have to set this right at the earliest. 49


48/50

Limitations

Many peoples are unaware about the various schemes of Mutual

Funds.

Many schemes of Mutual Funds are prone to market risk.

Some Funds are very inconsistant since inspection

.


49/50

References

Websites:

www.sbimf.com.

www.theeconomictimes.com

www.mutualfundsindia.com

www.valueresearchonline.com

www.amfiindia.com

www.livemint.com

Books:

Marketing Research by Naresh Malhotra

Mutual Funds in India by H. Sadhak

How Mutual Funds Work- by Fredman and Wiles


50/50

Documents

Project on Mutual Fund Industy in India and Comparative Study of Its Annuliased Return