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DSP BlackRocK Mutual Funds
1 | P a g e
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Mutual funds
August 10, 2011
ACKNOWLEDGEMENT
Before we get into thick of things, I would like to add a few words of appreciation for
the people who have been a part of this project right from its inception. The writing of this
project has been one of the significant academic challenges I have faced and without the
support, patience, and guidance of the people involved, this task would not have been
completed. It is to them I owe my deepest gratitude.
It gives me Immense pleasure in presenting this project report on “Mutual Funds as
an Investment Avenue”. It has been my privilege to have a team of project guide who have
assisted me from the commencement of this project. The success of this project is a result of
sheer hard work, and determination put in by me with the help of my project guide. I hereby
take this opportunity to add a special note of thanks for Mr Rizwan Aziz, who undertook to
act as my mentor despite his many other professional commitments. His wisdom,
knowledge, and commitment to the highest standards inspired and motivated me. Without his
insight, support, and energy, this project wouldn't have kick-started and neither would have
reached fruitfulness.
I convey my heart full thanks to the staff members of DSP Blackrock Mutual funds, with their help and corporation.
I am very thankful to my guide Prof. Yash Sridhar (IIPM , Lko) for his full support in completing this project work.Last but not least, I would like to thank My family and Friends for their full cooperation & continuous support during the course of this assignment.
The project is dedicated to all those people, who helped me while doing this project.
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TABLE OF CONTENTS
Contents page no.
Certificate 2
Acknowledgement 3
Table of content 4,5
Executive summary 6
Objectives of Study 7
Recommendation & Suggetions 8
Introduction to the Project 9
Introduction to Investment Investment strategy. Types of investments.
Introduction of mutual fund 10
Advantages and disadvantages 11-14
Types of mutual fund schemes 16-18
Pointers to measure mutual fund performance 19
Tax rules for mutual fund investors 20,21
History of mutual funds 22,23
Procedure of registered mutual funds 24
Evaluating portfolio performance 25
Investors financial planning and its results 25
7 investment tips to improve your returns 28,29
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How to reduce risk while investing 30
Introduction to the company 32
Snapshot of DSP BlackRock Mutual Funds 33
Unique approaches 34
Milestone keys 35
History of DSP BlackRock Mutual Funds36
Objectives of the study and research methodology 37
Objectives of Study 38
Data Presentation, Analysis and Interpretation 41
Comparison of 4 major mutual funds 42
Suggestions 63 Conclusion 65
Annexure 66
Questionnaire 67
Glossary 72
Bibliography
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EXECUTIVE SUMMARY
Role of financial system is to enthusiast economic development. As investors are getting
more educated, aware and prudent they look for innovative investment instruments so that
they are able to reduce investment risk, minimize transaction costs, and maximize returns
along with certain level of convenience as a result there has been as advent of numerous
innovative financial instrument such as bonds, company deposits, insurance, and mutual
finds. All of which could be matched with individual’s investment needs. In few years
Mutual Fund has emerged as a tool for ensuring one’s financial wellbeing. Mutual Funds
have not only contributed to the India growth story but have also helped families tap into
the success of Indian Industry. As information and awareness is rising more and more
people are enjoying the benefits of investing in mutual funds. The main reason the number
of retail mutual fund investors remains small is that nine in ten people with incomes in India
do not know that mutual funds exist. But once people are aware of mutual fund investment
opportunities, the number who decide to invest in mutual funds increases to as many as one
in five people.
Mutual funds score over all other investment options in terms of safety, liquidity, returns,
and are as transparent, convenient as it can get. Goal of a mutual fund is to provide an
efficient way to make money. In India there are 36 mutual funds with different Investment
strategies and goals to choose from .different mutual funds have different risks, which differ
because of fund’s goals, funds manager, and investment styles. The trick for converting a
person with no knowledge of mutual funds to a new Mutual Fund customer is to understand
which of the potential investors are more likely to buy mutual funds and to use the right
arguments in the sales process that customers will accept as important and relevant to their
decision.
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This Project gave me a great learning experience and at the same time it gave me enough
scope to implement my ability. The recommendation presented in this Project Report is
based on market research on the investors for investment in Mutual Funds. This Report will
help to know about the investors’ Preferences in Mutual Fund means Do they prefer any
particular Asset Management Company (AMC), Which type of Product they prefer, Which
Option (Growth or Dividend) they prefer or Which Investment Strategy they follow
(Systematic Investment Plan or One time Plan). The first part gives an insight about Mutual
Fund and its various aspects, the Company Profile, Objectives of the study, Research
Methodology. One can have a brief knowledge about Mutual Fund and its basics through
the Project.
This Project covers the topic “THE MUTUAL FUND AS INVESTMETN AVENUE”. The
data collected has been well presented. I hope the conclusion will be of use.
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OBJECTIVES OF THE STUDY
1. The objective of the research is to study and analyze the awareness level of investors of
mutual funds.
2. To measure the satisfaction level of investors regarding mutual funds.
3. An attempt has been made to measure various variable’s playing in the minds of
investors in terms of safety, liquidity, service, returns, and tax saving.
4. To get insight knowledge about mutual funds
5. Understanding the different ratios & portfolios so as to tell the distributors about these
terms, by this, managing the relationship with the distributors
6. To know the mutual funds performance levels in the present market
7. To analyze the comparative study between other leading mutual funds in the present
market.
8. To know the awareness of mutual funds among different groups of investors.
9. Finding out ways and means to improve on the services by DSP BlackRock Mutual
Funds Ltd.
10. To find out what should be done to boost Mutual Fund Industry.
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INVESTMENT
Investment refers to the concept of deferred consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. In finance, investment is the commitment of funds through collateralized lending, or making a deposit into a secured institution.
In contrast to investment; dollar cost averaging, market timing, and diversification are
phrases associated with speculation.
Investments are often made indirectly through intermediaries, such as banks, Credit
Unions, Brokers, Lenders, and insurance companies. Though their legal and procedural
details differ, an intermediary generally makes an investment using money from many
individuals, each of whom receives a claim on the intermediary.Various
investment options are available, offering differing risk-reward tradeoffs. An understanding
of the core concepts and a thorough analysis of the options can help an investor create a
portfolio that maximizes returns while minimizing risk exposure.
INVESTMENT STRATEGY
An investment strategy is a set of rules, behaviors or procedures, designed to guide an
investor's selection of an investment portfolio. Usually the strategy will be designed around
the investor's risk-return tradeoff: some investors will prefer to maximize expected returns by
investing in risky assets, others will prefer to minimize risk, but most will select a strategy
somewhere in between.
One of the better known investment strategies is buy and hold. Buy and hold is a long
term investment strategy, based on the concept that in the long run equity markets give a
good rate of return despite periods of volatility or decline. A purely passive variant of this
strategy is indexing where an investor buys a small proportion of all the shares in a market
index or more likely, in a mutual fund called an index fund or an exchange-traded
fund (ETF).
TYPES OF INVESTMENT
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There are many different types of investment.
Short term Deposits Bonds Property Shares
Short term deposits
Bank savings accounts
The simplest kind of short term (or cash) investment is a savings account. Returns are low compared to other investments, but returns are guaranteed by the bank - so your investment won't drop in value in the short term like others might.
Bank fixed term investments
You give the bank a lump sum for a set period (a fixed term) usually three, six or 12 months. Your money is locked away for the fixed term. In return, you get a higher interest rate than you could get in a straight savings account. You may be able to withdraw your money, but you will get a lower rate.
Bonds
A bond is like an IOU issued by a government or a company. You give them money for a certain period, and they promise to pay a certain interest rate and re-pay you on maturity. Bonds lock your money away for a set period of time, but they can sometimes be traded. Generally, they aren't a good short term investment. Small investors don't usually invest directly in bonds, it's more usual to go through a managed fund.
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Property
Real EstateReal Estate is a tangible kind of investment. It includes your land and anything permanently attached to your piece of property. This may include your home, rental properties, your company or empty pieces of land. Real estate is typically a smart and can make you a lot of money over time
Shares
By investing in shares in a public company listed on a stock exchange you get the right to share in the future income and value of that company. Your return can come in two ways:
Dividends paid out of the profits made by the company. Capital gains made because you're able at some time to sell your shares for more than you
paid. Gains may reflect the fact that the company has grown or improved its performance or that the investment community see that it has improved future prospects.
Others kinds are :-
Mutual funds
In a managed fund your money is pooled with other investors, and a professional fund manager invests it in a variety of investments. Managed funds come in many forms - different funds invest in different types of assets for different objectives. Some funds target all-out growth and invest more in high risk shares than others - they could rise dramatically or just as easily drop dramatically. These are funds for money that isn't absolutely vital to your future plans. Other funds look for solid long term growth from a range of deposits, bonds, and shares - a better place for a lump sum intended for your retirement. Financial advisers, banks and insurance companies can all advise you on managed funds that match your investment needs.
Life InsuranceLife Insurance policies are another kind of investment that is fairly popular. It is a way to ensure income for your family when you die. It allows you a sense of security and provides a valuable tax deduction.
Money Market FundsA good short-term investment is a Money Market Fund . With this kind of investment you can earn interest as an independent shareholder.
INTRODUCTION TO MUTUAL FUND
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GENERAL INTRODUCTION
In today’s market people invest money to gain more. So when they take into account,they mostly look out for Investment Company where they can get more income.Mutual funds now represent the most appropriate investment opportunity for all theinvestors whether small or big. As financial markets become more sophisticated andcomplex, investors need a financial intermediary who provides the required knowledgeand professional expertise on successful investing. Investment companies can be classified into Close-end is when it is readily transferable in the market. Open-end funds sell their own shares to investors and ready to buy back their old shares. These days’ people mainly look for avoiding tax so normally they look out for someinvestments, which will help them to do so. When it comes to this point of view, peoplemainly look for mutual fund.
What is a Mutual fund?
Mutual fund is an investment company that pools money from shareholders and invests in a variety of securities, such as stocks, bonds and money market instruments. Most open-end Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which depends on the total market value of the fund's investment portfolio at the time of redemption. Most open-end Mutual funds continuously offer new shares to investors. Also known as an open-end investment company, to differentiate it from a closed-end investment company. Mutual funds invest pooled cash of many investors to meet the fund's stated investment objective. Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net asset value: total fund assets divided by shares outstanding.
In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in
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offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of Mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The Mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. In India, A Mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. In Short, a Mutual fund is a common pool of money in to which investors with common investment objective place their contributions that are to be invested in accordance with the stated investment objective of the scheme. The investment manager would invest the money collected from the investor in to assets that are defined/ permitted by the stated objective of the scheme. For example, an equity fund would invest equity and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a 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.
ADVANTAGES OF MUTUAL FUNDS
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Professional Management.
The major advantage of investing in a mutual fund is that you get a professional
money manager to manage your investments for a small fee. You can leave the
investment decisions to him and only have to monitor the performance of the fund at
regular intervals.
Diversification.
Considered the essential tool in risk management, mutual funds make it possible for
even small investors to diversify their portfolio. A mutual fund can effectively
diversify its portfolio because of the large corpus. However, a small investor cannot
have a well-diversified portfolio because it calls for large investment. For example, a
modest portfolio of 10 bluechip stocks calls for a few a few thousands.
Convenient Administration.
Mutual funds offer tailor-made solutions like systematic investment plans and
systematic withdrawal plans to investors, which is very convenient to investors.
Investors also do not have to worry about investment decisions, they do not have to
deal with brokerage or depository, etc. for buying or selling of securities. Mutual
funds also offer specialized schemes like retirement plans, children’s plans, industry
specific schemes, etc. to suit personal preference of investors. These schemes also
help small investors with asset allocation of their corpus. It also saves a lot of paper
work.
Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective method (the
AMC fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds
get concession from brokerages. Also, the investor gets the service of a financial
professional for a very small fee. If he were to seek a financial advisor's help directly,
he will end up paying significantly more for investment advice. Also, he will need to
have a sizeable corpus to offer for investment management to be eligible for an
investment adviser’s services.
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Liquidity.
You can liquidate your investments within 3 to 5 working days (mutual funds
dispatch redemption cheques speedily and also offer direct credit facility into your
bank account i.e. Electronic Clearing Services).
Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your
investments on a regular basis. They also send quarterly newsletters, which give
details of the portfolio, performance of schemes against various benchmarks, etc.
They are also well regulated and Sebi monitors their actions closely.
Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You also have
the advantage of capital gains taxation. Tax-saving schemes and pension schemes
give you the added advantage of benefits under section 88.
Affordability
Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual fund can do that because it collects money from many people and it has a large corpus.
DISADVANTAGES OF MUTUAL FUNDS:
Professional Management- Did you notice how we qualified the advantage of professional management with the word "theoretically"? Many investors debate over 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. We'll talk about this in detail in a later section.
Costs - 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.
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Dilution - It's possible to have too much diversification (this is explained in our article entitled "Are You Over-Diversified?"). Because funds have small holdings 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-gain 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.
Equity funds, if selected in the right manner and in the right proportion, have the ability to play an important role in achieving most long-term objectives of investors in different segments. While the selection process becomes much easier if you get advice from professionals, it is equally important to know certain aspects of equity investing yourself to do justice to your hard earned money.
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TYPES OF MUTUAL FUND
There are many types of mutual funds available to the investor. These different types of funds can be grouped into certain classifications:
A. ON THE BASIS OF STUCTURE :
i. Open ended funds:An open-ended mutual fund is one that has units available for purchase and sale at all time at NAV related prices. There is free entry and exit of investors. An open-ended fund rarely denies to its investors the facility to redeem existing units subject to certain obvious conditions
ii. Close ended funds:Close-ended funds do not provide the facility of subscription throughout the year. It is open for a subscription for a fixed duration as specified in the prospective of the fund. Investor can apply for shares only during initial offer period, following which units can be bought & sold only atthe stock exchange where they are listed at market price.
iii. Interval FundsThis is a mix of both open ended and close-ended schemes.For a certain stipulated period, an investor can buy and sell NAV relatedprices, while at some times it is traded at stock exchange where it is listed.
B) ON THE BASIS OF OBJECTIVES
1. Growth fundsGrowth funds aim to achieve capital appreciation in the medium to long term. These funds do not pay dividends, instead they reinvest the returns. Their assets usually comprises of equity, as it has been proved that equity markets provide the maximum growth in returns amongall other assets classes
2. Income funds
Income funds aim at generating and distributingregular income to the members on a periodical basis. Fund invests in fixed income assets such as corporate debentures, government securities, bonds etc. it concentrate on short-term gains.
3 Balanced fund:Balanced fund provided both growth as well asregular income to the investor. It aims at distributing regular income as well as capital appreciation. This can be achieved by balancing the investments between the high growth equity shares and fixed income securities.
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4 Tax saving funds:These schemes offer tax rebates to investors under specific provision of income tax act1961. It is suitable to salaried people who want to enjoy tax rebates. Government offers tax incentives for investment in specified avenues.
C) ON THE BASIS OF COMPOSITION OF FUNDS:
1 Equity funds:Equity funds invest a major portion of their corpus in equity shares issued by companies. They are riskiest, as they do not offer any guaranteed repayment NAV of equity funds fluctuates with price moments caused by external factors like political, economical and social factors. Investors who want capital appreciation should invest in these funds.
2 Debt funds:Debt funds invest in debt investment issued by government, private companies, banks, financial instruments etc. These funds provide low risks and stable income to the investors.
3 Money market mutual funds:They invest in highly liquid and safe securities like commercial papers, certificates of deposits, treasury bills etc. Money market funds offer liquidity and safety of principal that an investor can expect from short-term funds.
4 Gilt funds:Gilt funds invest in government securities and treasury bill. These funds have less risk of default and hence offer better protection of principal. These fund provide timely payment of principal and interest.
5 Index fund:Index funds are those funds where the portfolio are designed in such a way that they reflect the composition of some broad market index. It holds securities in the same proportion as index. The value of these indexes goes up whenever market index goes up and vice verse. The performance of index fund exactly follows the performance stock index.
6 Sector funds:Sector funds invest only in the stocks of particular industry or sector. These funds are riskier as they are not diversified. Those investors who understand the industry or sector very well may invest in these funds.
D) OTHER SCHEMES:
1) Loan funds:Loan fund charge entry or exit load every time the investor buys or sells the units of funds. These charges cover distribution, sales and marketing expenses. The load charges to the investor at the time his entry into a scheme is called entry load. The load charged to the investor at the time of exit from the scheme is called exit load.
2) No load funds:The fund that do not charge entry or exit load on sale or purchase of their units.
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NET ASSET VALUE
Net asset value is the market value of the asset of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by thenumber of units outstanding on the valuation date.Net Asset Value (NAV) denotes th performance of a particular scheme of a mutual fund.Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of the securities changes everyday, NAV of a scheme also varies on day-to-day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs200 lakhs and the mutual fund has issued 10 lakhs units of Rs 10 each to the investors, then the NAV per unit of the fund is Rs 20. Sale price
It is the price you pay when you invest in a scheme. Also called as offer price. It may include a sales load
Repurchase price
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. Redemption price
Is the price at which open- ended scheme repurchase their units and closeendedschemes redeem their 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. Repurchases or ‘Back-end’ load
Is a charge collected by a scheme when it buys back the units from the unit holders.
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COMPETITION IN MUTUAL FUND INDUSTRY :
Mutual fund is the industry, which is facing severe competition from the other financial products. The four types of competition in the mutual fund industry is as follows,
Inter-industry competition Intra- industry competition Competition between the different mutual fund schemes Competition between the different asset management companies.
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Some major players on the Indian mutual
ABN AMRO Mutual Fund
Benchmark Mutual Fund
Birla Mutual Fund
BOB Mutual Fund
Canbank Mutual Fund
Chola Mutual Fund
Deutsche Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Investments
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
JM Financial Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund
Sahara Mutual Fund
SBI Mutual Fund
Standard Chartered Mutual Fund
Sundaram Mutual Fund
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Tata Mutual Fund
Taurus Mutual Fund
Unit Trust of India
UTI Mutual Fund
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Strategies of mutual fund investing
Risks
Capital Gains Distributions are one of the most confusing stumbling blocks for Mutual Fund Investors. Mutual Fund Investors try to limit capital gain distribution expenses by avoiding buying a fund right before its distribution date and by holding funds for a long period of time so that they also receive the return and profit rather than just the additional tax liability.
Successful Mutual Fund Investors always put every fund through their mutual fund checklist and review the fund's historical performance. If something seems too good to be true, it probably is.
Benefits
Mutual Funds have two advantages over stocks when it comes to size. A stock that performs well for several years in a row will inevitably get to a point where it is nearly impossible to top last year's performance or meet analyst projections. Conversely, the longer a fund manager runs a fund, the more savvy and experienced he becomes so in most cases performance constantly improves. In addition, as a fund grows your returns actually improve because the management fees become a smaller percentage of total assets (economies of scale). Admittedly, it can be tough to manage the mega funds that get up into the billions but every fund manager has the option to close the fund to new investment if they feel that performance is deteriorating.
Mutual Funds are becoming the investment of choice for online investors because you can trade them for free through the major online brokerages, there are no fees or loads. Transaction fees add up quickly for most strategies, free trading is a significant perk for Mutual Fund Investors, especially those investors that trade a lot. Mutual Fund Investors also try to avoid funds with high expense ratios or they will have squandered this advantage. A good rule of thumb is to avoid fees with expense ratios > 1.5% unless you expect extraordinary returns.
Diversification is one of the greatest strengths of mutual funds. Each fund represents an entire portfolio, not just one stock.
Long-Term Outlook
Mutual Fund Investing is a very popular strategy that is already huge and will continue to grow. It is the only strategy that will allow you to test drive any of the other strategies without actually having to master them yourself. Today, there are over 10,000 funds to choose from and they cover every industry and investing strategy imaginable.
Investor Profile
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There are several types of investors that naturally gravitate towards Mutual Fund Investing. This is a great strategy for anyone that likes to change strategies frequently or wants to test a new strategy out before they spend an enormous amount of time and energy trying to master it. Another investor type that is a good fit is anyone that doesn't want to spend a lot of time managing their portfolio. These investors would rather spend a little time identifying strong funds with talented fund managers and then let a professional manage their money.
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MUTUAL FUND COMBINES SAFETY AND HIGH RISK RETURN
A mutual fund is a professionally managed pool of money formed by collecting money from many investors.
It combines safety with good return on investment. The pooled money is invested in various securities-either debt securities such as bonds and debentures or equities (stocks).
As the money is managed by experienced people the risk is greatly minimized. However this does not mean that any particular level of return on investment is guaranteed. The fund manager diversifies the pool so that loss in one security is compensated by profit in others. Because of this an investor has the advantage of investing in different securities with a relatively smaller amount of money which cannot be done with stock market investing .
Investors purchase units of mutual funds. This does not reflect the value of any particular security but gives an idea of the Net Asset Value (NAV) of that particular fund. The NAV of the fund is the total market value of the assets of that particular scheme minus its liabilities. If the NAV of the scheme is divided by the total number of the units we get the NAV per unit.
Conversely if we multiply the NAV per unit of the scheme by the number of units
held by an investor we get the market value of the units of that particular investor. For example if you have 100 units of a scheme and its NAV is 100 the market value of your investment is 10,000. The NAV is subjected to variation and is regularly announced by the fund manager. If you can sell it at a higher price than you purchased you make a profit.
Some fancy terms are used by mutual fund companies and it is better you know what they mean so that you do not get confused or carried away. Some name is given to the scheme. Often the name is such that you get a feeling that investing in that scheme will solve all your financial problems.
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HISTORY OF MUTUAL FUND
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank. The history of mutual funds in
India can be broadly divided into four distinct phases: -
First Phase – 1964-87
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
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 Can bank 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.
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)
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With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.
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. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
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Growth in Assets Under Management
Source: Association of Mutual in India
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Why Select Mutual Fund?
The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.
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SELECTION PARAMETERS FOR MUTUAL FUND
Your objective:
The first point to note before investing in a fund is to find out whether your objective matches with the scheme. It is necessary, as any conflict would directly affect your prospective returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension plans, children’s plans, sector-specific schemes, etc. Your risk capacity and capability: This dictates the choice of schemes. Those with no risk tolerance should go for debt schemes, as they are relatively safer. Aggressive investors can go for equity investments. Investors that are even more aggressive can try schemes that invest in specific industry or sectors. Fund Manager’s and scheme track record: Since you are giving your hard earned money to someone to manage it, it is imperative that he manages it well. It is also essential that the fund house you choose has excellent track record. It also should be professional and maintain high transparency in operations. Look at the performance of the scheme against relevant market benchmarks and its competitors. Look at the performance of a longer period, as it will give you how the scheme fared in different market conditions.
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund before investing. This is because the money is deducted from your investments. A higher entry load or exit load also will eat into your returns. A higher expense ratio can be justified only by superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your modest returns. Also, Morningstar rates mutual funds. Each year end, many financial publications list the year’s best performing mutual funds. Naturally, very eager investors will rush out to purchase shares of last years top performers. That’s a big mistake. Remember, changing market conditions make it rare that last years top performer repeats that ranking for the current year. Mutual fund investors would be well advised to consider the fund prospectus, the fund manager, and the current market conditions. Never rely on last years top performers. Types of Returns on Mutual Fund: There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the funds shares increase in price. You can then sell your mutual fund shares for a profit.
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Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
RISK FACTORS OF MUTUAL FUNDS:
1. The Risk-Return Trade-Off:
The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns / loss and lower the risk lesser the returns/loss. Hence it is up to you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.
2. Market Risk:
Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.
3. Credit Risk:
The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.
4. Inflation Risk:
Things you hear people talk about:"Rs. 100 today is worth more than Rs. 100 tomorrow.""Remember the time when a bus ride coasted 50 paisa?""Mehangai Ka Jamana Hai."The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happen when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk.
5. Interest Rate Risk:
In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the
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prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk.
6.Political / Government Policy Risk:
Changes in government policy and political decision can change the investment Environment. They can create a favorable environment for investment or vice versa.
6. Liquidity Risk:
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities
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WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The money is invested in various instruments depending on the objective of the scheme. The income generated by selling securities or capital appreciation of these securities is passed on to the investors in proportion to their investment in the scheme. The investments are divided into units and the value of the units will be reflected in Net Asset Value or NAV of the unit. 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 outstanding on the valuation date. Mutual fund companies provide daily net asset value of their schemes to their investors.NAV is important, as it will determine the price at which you buy or redeem the units of a scheme. Depending on the load structure of the scheme, you have to pay entry or exit load.
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STRUCTURE OF A MUTUAL FUND:
India has a legal framework within which Mutual Fund have to be constituted. In India open and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes under a common legal structure. The structure that is required to be followed by any Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.
The Fund Sponsor:
Sponsor is defined under SEBI regulations as any person who, acting alone or in combination of another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints the Asset Management Company as fund managers. The sponsor either directly or acting through the trustees will also appoint a custodian to hold funds assets. All these are made in accordance with the regulation and guidelines of SEBI.As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least40% of the net worth of the Asset Management Company and possesses a sound financial track record over 5 years prior to registration.
Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor acts as a settler of the Trust, contributing to its initial capital and appoints a trustee to hold the assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust. The fund then invites investors to contribute their money in common pool, by scribing to “units” issued by various schemes established by the Trusts as evidence of their beneficial interest in the fund. It should be understood that the fund should be just a “pass through” vehicle. Under the Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unit-holders are the beneficial owners of the investment held by the Trusts, even as these investments are held in the name of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite any number of investors as beneficial owners in their investment schemes.
Trustees: A Trust is created through a document called the Trust Deed that is executed by the fund sponsor in favor of the trustees. The Trust- the Mutual Fund – may be managed by a board of trustees- a body of individuals, or a trust company- a corporate body. Most of the funds in India are managed by Boards of Trustees. While the boards of trustees are governed by the Indian Trusts Act, where the trusts are a corporate body, it would also require to comply with the Companies Act, 1956. The Board or the Trust company as an
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independent body, acts as a protector of the of the unit-holders interests. The Trustees do not directly manage the portfolio of securities. For this specialist function, the appoint an Asset Management Company. They ensure that the Fund is managed by ht AMC as per the defined objectives and in accordance with the trusts deeds and SEBI regulations. The Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment manager of the Trust under the board supervision and the guidance of the Trustees. The AMC is required to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non- independent, should have adequate professional expertise in financial services and should be individuals of high morale standing, a condition also applicable to other key personnel of the AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Beside sits role as a fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independent of one another and the AMC’s resources (such as personnel, systems etc.) are properly segregated by the activity. The AMC must always act in the interest of the unit-holders and reports to the trustees with respect to its activities.
Custodian and Depositories:
Mutual Fund is in the business of buying and selling of securities in large volumes. Handling these securities in terms of physical delivery and eventual safekeeping is a specialized activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or participating in any clearance system through approved depository companies on behalf of the Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with the Mutual Fund. The custodian should be an entity independent of the sponsors and is required to be registered with SEBI. With the introduction of the concept of dematerialization of shares the dematerialized shares are kept with the Depository participant while the custodian holds the physical securities. Thus, deliveries of a fund’s securities are given or received by a custodian or a depository participant, at the instructions of the AMC, although under the overall direction and responsibilities of the Trustees .
Bankers :
A Fund’s activities involve dealing in money on a continuous basis primarily with respect to buying and selling units, paying for investment made, receiving the proceeds from sale of the investments and discharging its obligations towards operating expenses. Thus the Fund’s banker plays an important role to determine quality of service that the fund gives in timely delivery of remittances etc
Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and provide other related services such as preparation of transfer documents and updating investor records. A fund may choose to carry out its activity in-house and charge the
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scheme for the service at a competitive market rate. Where an outside Transfer agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides are going to be dependent on the transfer agent.
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REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:
The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.Theseregulations make it mandatory for mutual fund to have three structures of sponsor trustee and asset Management Company. The sponsor of the mutual fund and appoints the trustees. The trustees are responsible to the investors in mutual fund and appoint the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all the affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI.
SEBI REGULATIONS
:• As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors.
• SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market
.• The regulations were fully revised in 1996 and have been amended thereafter from time to time.
• SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.
• All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI.
• SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors.
• Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.• Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in any scheme and that each scheme is subject to 20 : 25 condition [I.e. minimum 20 investors per scheme and one investor can hold more than 25% stake in the corpus in that one scheme].
• Also SEBI has permitted MFs to launch schemes overseas subject various restrictions and also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.
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ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India(AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.
The Objectives of Association of Mutual Funds in India:
The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:
•This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry.
• It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.
• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.
• Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
• It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.
• AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds.
• At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.
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AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly basis and the other is quarterly. These publications are of great support for the investors to get intimation of the knowhow of their parked money.
MUTUAL FUNDS VS. OTHER INVESTMENTS
From investors’ viewpoint mutual funds have several advantages such as:
• Professional management and research to select quality securities.
• Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a hand full of stocks. The investor is not putting all his eggs in one basket.
• Ability to add funds at set amounts and smaller quantities such as $100 per month
• Ability to take advantage of the stock market which has generally outperformed other investment in the long run.
• Fund manager are able to buy securities in large quantities thus reducing brokerage fees.
However there are some disadvantages with mutual funds such as:
• The investor must rely on the integrity of the professional fund manager.
• Fund management fees may be unreasonable for the services rendered.
• The fund manager may not pass transaction savings to the investor.
• The fund manager is not liable for poor judgment when the investors fund loses value.
• There may be too many transactions in the fund resulting in higher fee/cost to the investor -This is sometimes call "Churn and Earn".
• Prospectus and Annual report are hard to understand.
• Investor may feel a lost of control of his investment dollars. There may be restrictions on when and how an investor sells/redeems his mutual fund shares.
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Company Fixed Deposits versus Mutual Funds:
Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit rating of the fixed deposit program is an indication of the inherent default risk in the investment. The moneys of investors in a mutual fund scheme are invested by the AMC in specific investments under that scheme. These investments are held and managed in-trust for the benefit of scheme’s investors. On the other hand, there is no such direct correlation between a company’s fixed deposit mobilisation, and the avenues where these resources are deployed. A corollary of such linkage between mobilisation and investment is that the gains and losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can be no certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is certain, subject only to the default risk of the borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some differences:
The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in the case of closed-end schemes)
The basic value at which fixed deposits are enchased is not subject to a market risk. However, the value at which units of a scheme are redeemed depends on the market. If securities have gained in value during the period, then the investor can even earn a return that is higher than what he anticipated when he invested. But he could also end up with a loss. Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted the fixed deposit. Mutual fund schemes also have the option of charging a penalty on “early” redemption of units (through by way of an ‘exit load’) If the NAV has appreciated adequately, then even after the exit load, the investor could earn a capital gain on his investment.
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Bank Fixed Deposits verses Mutual Fund:
Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are generally more stringently regulated than companies. They even operate under stricter requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).While the above are causes for comfort, bank deposits too are subject to default risk. However, given the political and economic impact of bank defaults, the government as well as Reserve Bank of India (RBI) try to ensure that banks do not fail. Further, bank deposits up to Rs 100,000 are protected by the Deposit Insurance and Credit Guarantee Corporation (DICGC), so long as the bank has paid the required insurance premium of 5 paisa per annum for every Rs 100 of deposits. The monetary ceiling of Rs100,000 is for all the deposits in all the branches of a bank, held by the depositor in the same capacity and right.
Banks Mutual fundsReturns Low BetterAdministrative Expenses High LowRisk Low ModerateInvestment options Less MoreNetwork High Penetration Low but ImprovingLiquidity At a Cost BetterQuality of assets Not Transparent TransparentInterest Calculation Quarterly i.e. 3rd,6th,9th,12th Every MonthGuarantor Is Needed Not NeededAccount Needed Not Needed
.
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Bonds and Debentures versus Mutual Funds:
As in the case of fixed deposits, credit rating of the bond / debenture is an indication of the inherent default risk in the investment. However, unlike FD, bonds and debentures are transferable securities. While an investor may have an early encashment option from the issuer (for instance through a “put” option), generally liquidity is through a listing in the market.
Implications of this are:
•If the security does not get traded in the market, then the liquidity remains on paper. In this respect, an open-end scheme offering continuous sale / re-purchase option is superior.
• The value that the investor would realise in an early exit is subject to market risk. The investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme. It is possible for a professional investor to earn attractive returns by directly investing in the debt market, and actively managing the positions. Given the market realities in India, it is difficult for most investors to actively manage their debt portfolio. Further, at times, it is difficult to execute trades in the debt market even when the transaction size is as high as Rs 1crore. In this respect, investment in a debt scheme would be beneficial. Debt securities could be backed by a hypothecation or mortgage of identified fixed and / or current assets (secured bonds / debentures). In such a case, if there is a default, the identified assets become available for meeting redemption requirements. An unsecured bond /debenture is for all practical purposes like a fixed deposit, as far as access to assets is concerned. The investments of a mutual fund scheme are held by a custodian for the benefit of investors in the scheme. Thus, the securities that relate to a scheme are ring-fenced for the benefit of its investors.
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Advantages of Mutual Funds over Stocks:
• A mutual fund offers a great deal of diversification starting with the very first dollar invested, because a mutual fund may own tens or hundreds of different securities. This diversification helps reduce the risk of loss because even if any one holding tanks, the over all value doesn’t drop by much. If you’re buying individual stocks, you cant get much diversity unless you have $10K or so.
• Small sums of money get you much further in mutual funds than in stocks. First, you can setup an automatic investment plan with many fund companies that lets you put in as little as$50 per month. Second, the commissions for stock purchases will be higher than the cost of buying no-load fund (Of course, the funds various expenses like commissions are already taken out of the NAV). Smaller sized purchases of stocks will have relatively high commissions on a percentage basis, although with the $10 trade becoming common, this is a bit less of a concern than it once was.
• You can exit a fund without getting caught on the bid/ask spread.
• Funds provide a cheap and easy method for reinvesting dividends.
• Last but most certainly not least, when you buy a fund you’re in essence hiring a professional to manage your money for you. That professional is (presumably) monitor in the economy and the markets to adjust the funds holdings appropriately.
Advantages of Stock over Mutual Funds:
•The opposite of the diversification issue: If you own just one stock and it doubles, you are up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other hand, if you own just one stock and it drops in half, you are down 50% but the mutual fund is down1%. Cuts both ways.
• If you hold your stocks several years, you aren’t nicked a 1% or so management fee every year (although some brokerage firms charge if there aren’t enough trades).
• You can take your profits when you want to and wont inadvertently buy a tax liability.(This refers to the common practice among funds of distributing capital gains around November or December of each year. See the article elsewhere in this FAQ for more details.)
•You can do a covered write option strategy. (See the article on options on stocks for more details.)
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• You can structure your portfolio differently from any existing mutual fund portfolio.(Although with the current universe of funds I’m not certain what could possibly be missing out there!)
• You can buy smaller cap stocks which aren’t suitable for mutual funds to invest in.
• You have a potential profit opportunity by shorting stocks. (You cannot, in general, short mutual funds.)
• The argument is offered that the funds have a "herd" mentality and they all end up owning the same stocks. You may be able to pick stocks better.
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Life Insurance versus Mutual Fund:
Life insurance is a hedge against risk – and not really an investment option. So, it would be wrong to compare life insurance against any other financial product. Occasionally on account of market inefficiencies or miss-pricing of products in India, life insurance products have offered a return that is higher than a comparable “safe” fixed return security – thus, you are effectively paid for getting insured! Such opportunities are not sustainable in the long run.
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FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA
Financial experts believe that the future of Mutual Funds in India will be very bright.
It has been estimated that by March-end of 2010, the mutual fund industry of India will reach
Rs 40,90,000 crore, taking into account the total assets of the Indian commercial banks. In the
coming 10 years the annual composite growth rate is expected to go up by 13.4%.
100% growth in the last 6 years.
Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
We have approximately 29 mutual funds which is much less than US having more
than 800. There is a big scope for expansion.
'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
Mutual fund can penetrate rurals like the Indian insurance industry with simple and
limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.
Looking at the past developments and combining it with the current trends it can be
concluded that the future of Mutual Funds in India has lot of positive things to offer to its
investors.
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BlackRock is a truly global enterprise combining worldwide reach with localized
service to help clients achieve a better financial future
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ABOUT BLACK ROCK
BlackRock is one of the world's leading providers of investment, advisory and risk management solutions.
BlackRock offers a range of solutions — from rigorous fundamental and quantitative active management approaches aimed at maximizing outperformance to highly efficient indexing strategies designed to gain broad exposure to the world's capital markets. Our clients can access our investment solutions through a variety of product structures, including individual and institutional separate accounts, mutual funds and other pooled investment vehicles.
The foundation of BlackRock's business is a belief that their clients’ needs are of paramount importance. Our commitment to investment excellence is anchored in a shared culture that always places a client’s interests first, from individual investors to the world’s largest institutions . BlackRock’s investment approach is based on our conviction that we can combine our market insights, our global reach and scale, our proprietary technology, our culture of information sharing and our unwavering focus on risk management into an ability to deliver performance in all market environments. BlackRock is committed to providing a broad set of investment solutions for our clients, striving to achieve the best balance between risk and opportunity.
BlackRock is a truly global firm that combines the benefits of worldwide reach with local service and relationships. We manage assets for clients in North and South America, Europe, Asia, Australia, the Middle East and Africa. The firm employs more than 9,300 talented professionals and maintains offices in 26 countries around the world. Our client base includes corporate, public, union and industry pension plans; governments; insurance companies; third-party mutual funds; endowments; foundations; charities; corporations; official institutions; sovereign wealth funds; banks; financial professionals; and individuals worldwide.
As of March 31, 2011, BlackRock's assets under management total US$3.65 trillion across equity, fixed income, cash management, alternative investment, real estate and advisory strategies. Through BlackRock Solutions® — the natural evolution of our long-standing investment in developing sophisticated and highly integrated systems — we offer risk management, strategic advisory and enterprise investment system services to a broad base of clients with portfolios totaling approximately US$10 trillion.
Our firm's ownership structure is designed to maintain the independence we believe is necessary to retain our commitments to client focus and investment excellence. BlackRock, Inc. (NYSE: BLK) has no single majority stockholder and has a majority of independent directors.
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BlackRock' s road to success and growth in asset management
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CLIENTS
We are committed to always doing what is in our clients’ best long-term interests.Since our founding,
Clients Services
Page 50
Assets Under Management ($ Billions)
1988
11988: Founded Blackstone Financial Management
1989
2
1990
4
1991
8
1992
171992: Changed name to BlackRock
1993
23
1994
53
1995
691995: Merged with PNC, offered common vision & platform
1996
83
1997
105
1998
131
1999
1651999: IPO (NYSE: BLK) Broad employee ownership
2000
2042000: Launched BlackRock Solutions®
2001
239
2002
273
2003
309
2004
342
2005
4522005: State Street Research acquisition
2006
1,125Sept. 29: Combination of BlackRock and MLIM
2007
1,357Oct. 1: Acquired Quellos Group, LLC
2008
1,310
2009 3,190Dec. 1: Merged with Barclays Global Investors
201 3,560
Mutual funds
August 10, 2011
BlackRock’s core philosophy has been grounded in the belief that our clients’ needs are of paramount importance and our sole business is managing our clients’ assets on their behalf.
With this as a framework, BlackRock has assembled teams of investment professionals with significant expertise in global capital markets. Our focus on investment excellence and state-of-the-art analytics is complemented by an unwavering, senior-level commitment to service; this results in dynamic client relationships and enables us to assist clients with a range of services, including an understanding of liabilities and asset allocation needs.
BlackRock takes a three dimensional approach to the management of the organization, incorporating functional, product and regional elements in support of our clients’ goals. The functional dimension looks at our operations by specific task, such as portfolio management, account management or operations. The product dimension brings together the cross-disciplinary expertise critical to managing client assets in each class. Finally, the regional aspect of our model recognizes the unique, geography-specific needs of clients as well as the importance of local regulatory issues.
Distinct but interconnected, these factors work together to inform all of our business decisions and result in a firm that is globally efficient and locally effective. With our three-dimensional approach to managing the organization, we seek to:
ensure consistency on a global basis; allow for the tailoring of products and services according to client or local needs; promote teamwork among our employees worldwide; and facilitate operational integrity and efficiency
Given our size, scope and global footprint we strive for a consistent, interconnected approach "One BlackRock."
Institutional and Retail Investors
Institutional Investors
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BlackRock has built a diversified business by developing institutional-quality products that seek to meet the needs of taxable and tax-exempt investors worldwide. Clients select us not only for our expertise and flexibility, but also for our creativity in tackling business- and industry-specific challenges. The depth and breadth of our product offerings reflects our proactive approach to solving client problems. So, too, does the evolution of our business—we are continually searching for ways to add value to our client relationships.
Retail Investors
The investment and risk management expertise that BlackRock brings to the management of institutional products is also available globally through separately managed accounts, open-end and closed-end funds, offshore funds, unit trusts and alternative investment vehicles. At BlackRock, coordinated marketing and client service efforts are tailored to ensure the delivery of the firm’s resources to help meet the unique needs of financial intermediaries and their clients throughout the world.
BLACK ROCK “ROCK” SOLUTION
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BlackRock has long been recognized for its disciplined investment process and rigorous bottom-up approach to risk management. Since its inception, BlackRock has focused on the need to assess security-and portfolio-level risks, to make investment decisions in rapidly changing markets, and to execute transactions efficiently, while ensuring strict adherence to risk management and compliance guidelines. As a result, BlackRock developed an integrated suite of investment management tools.
As of 30 September 2010, BlackRock Solutions provides services for approximately US$9.5 trillion in securities and derivatives across more than 140 clients, many of whom are among the largest and most sophisticated financial institutions in the world.
Wards & Recognition
Shareholder Information
ExchangeNew York Stock Exchange
Listed Security BLK Common Stock
Transfer Agent
Mellon Investor ServicesStock Transfer DepartmentP.O. Box 3312South Hackensack, NJ 07606Phone: (800) 851-9677
Individual Investor Contacts:To change your registered name or address, and for inquiries regarding share balances, lost certificates and all other account related matters, please contact:
Mellon Investor ServicesAccount MaintenanceP.O. Box 3316South Hackensack, NJ 07606
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Awards and Achievements
BlackRock Chief Operating Officer Sue Wagner rises through the ranks on Fortune's 12th annual list of "50 Most Powerful Women in Business."
BlackRock receives an award from City Harvest, a non-profit organization founded in 1982 - the world's first and New York City's only food rescue program.
Financial News Asset Management Awards names Larry Fink CEO of the Year.
Larry Fink listed on Smart Money’s Power 30: Finance and Wall Street List in October 2009.
Wall Street & Technology selected BlackRock as the recipient of the "Best Analytics Award" for their Gold Book 2009 issue published in October.
Managing Director Bob Connolly, BlackRock's General Counsel, receives Fund Titan Award for "Inside Counsel of the Year" by Ignites in September 2009.
Global Pensions, a magazine for the institutional pension industry, honored BlackRock with awards for Liability Driven Investments Manager of the Year and Derivatives Manager of the Year, while iShares won the ETF Provider of the Year award. March 2010.
BlackRock honored as Global Fund House of the Year by Asian Investor Magazine.
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The Asset Management Company
DSP BlackRock Investment Managers Pvt. Ltd. is the investment manager to DSP
BlackRock Mutual Fund.
The philosophy of DSP BlackRock Investment Managers Pvt. Ltd. has been grounded in the
belief that experienced investment professionals, using a disciplined process and
sophisticated analytical tools, can consistently add value to client portfolios.
With our three-dimensional approach to managing the organization, we seek to:
Ensure consistency on a global basis;
Allow for the tailoring of products and services according to client or local needs;
Promote teamwork among our employees worldwide; and
Facilitate operational integrity and efficiency
Sponsors
DSP HMK Holdings Pvt. Ltd. and DSP ADIKO Holdings Pvt. Ltd.
DSP HMK Holdings Pvt. Ltd. and DSP ADIKO Holdings Pvt. Ltd. are companies
incorporated in 1983 under the Companies Act, 1956 and are also registered with the Reserve
Bank of India as non deposit taking Non-banking Finance Companies. These companies have
been functioning as investment companies.BlackRock
BlackRock is a premier provider of global investment management services to institutional
and retail clients around the world managing total assets of US$ 3.45 trillion as on September
30, 2010. Headquartered in New York, BlackRock serves clients from offices in 24 countries,
maintaining a major presence in North America, Europe, Asia-Pacific, and the Middle East.
With approximately 8,500 employees, including more than 700 investment professionals
worldwide, BlackRock offers clients in-depth local knowledge and understanding, while
leveraging the strength of their global presence and infrastructure to deliver focused
investment solutions. Today, BlackRock services clients in over 60 countries.
Trustees
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DSP BlackRock Trustee Company Private Ltd., a company incorporated under the
Companies Act, 1956, is the trustee for the Fund vide Trust Deed dated December 16, 1996.
The shareholding of the Trustee is as follows: BlackRock Advisors Singapore Pte. Ltd., a
wholly owned subsidiary of BlackRock Inc., holds 49% and the balance 51% is held by Mr.
Hemendra Kothari.
AMC Director Mr. Hemendra M. Kothari, ChairmanMr. Laurence D FinkMs. Susan L. WagnerMr. K R V SubrahmanianMr. Ranjan PantDr. Omkar GoswamiMr. Piyush MankadMr. Quintin Price (Alternate Director to Mr. Laurence D Fink)Mr. John R Kushel (Alternate Director to Ms. Susan L. Wagner)Mr. Rakesh MohanMr. David Rowley GrahamMr. Rohit Bhagat
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PRODUCTS OF DSPBLACK ROCK MUTUAL FUND
DSP BlackRock Natural Resources and New Energy Fund
The primary investment objective of the Scheme is to seek to generate
capital appreciation and provide long term growth opportunities by
investing in equity and equity related securities of companies domiciled in
India whose predominant economic activity is in the:-
(a) discovery, development, production, or distribution of natural resources,
viz., energy, mining etc; (b) alternative energy and energy technology sectors, with emphasis
given to renewable energy, automotive and on-site power generation, energy storage and
enabling energy technologies.
DSP BlackRock Micro Cap Fund
An Open equity growth scheme that seeks to generate long-term capital
appreciation from a portfolio that is substantially consituted of equity and
equity related securities, which are not part of the top 300 companies by
market captalisation. The Scheme was launched as a three year close
ended scheme and has been converted into an open ended scheme with
effect from June 15, 2010.
DSP BlackRock Equity Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation, from a portfolio that is substantially constituted of equity
securities and equity related securities of issuers domiciled in India
DSP BlackRock Top 100 Equity Fund
An Open Ended growth Scheme, seeking to generate capital appreciation,
from a portfolio that is substantially constituted of equity securities and
equity related securities of the 100 largest corporates, by market
capitalisation, listed in India.
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DSP BlackRock Opportunities Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation and whose secondary objective is income generation and the
distribution of dividend from a portfolio constituted of equity and equity
related securities concentrating on the investment focus of the Scheme.
DSP BlackRock India T.I.G.E.R. Fund
An open ended diversified equity Scheme, seeking to generate capital
appreciation, from a portfolio that is substantially constituted of equity
securities and equity related securities of corporates, which could benefit
from structural changes brought about by continuing liberalization in
economic policies by the Government and/or from continuing investments
in infrastructure, both by the public and private sector.
DSP BlackRock Technology.com Fund
An Open Ended growth Scheme, seeking to generate long term capital
appreciation, and whose secondary objective is income generation and the
distribution of dividend from a portfolio constituted of equity and equity
related securities concentrating on the investment focus of the Scheme.
DSP BlackRock Small And Mid Cap Fund
An open Ended equity growth scheme, primarily seeking to generate long
term capital appreciation from a portfolio substantially constituted of equity
and equity related securities, which are not part of top 100 stocks by market
capitalisation.
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Mutual funds
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DSP BlackRock Tax Saver Fund
An open Ended equity linked savings scheme, whose primary investment
objective is to seek to generate medium to long-term capital appreciation
from a diversified portfolio that is substantially constituted of equity and
equity related securities of corporates, and to enable investors avail of a
deduction from total income, as permitted under the Income Tax Act, 1961
from time to time.
DSP BlackRock Focus 25 Fund
The primary investment objective of the Scheme is to generate long-term
capital growth from a portfolio of equity and equity-related securities
including equity derivatives. The portfolio will largely consist of
companies, which are amongst the top 200 companies by market
capitalisation.
DSP BlackRock Savings Manager Fund
An Open Ended income Scheme, seeking to generate income, consistent
with prudent risk, from a portfolio which is substantially constituted of
quality debt securities. The scheme will also seek to generate capital
appreciation by investing a smaller portion of its corpus in equity and equity
related securities of issues domiciled in India.
DSP BlackRock Balanced Fund
An Open Ended balanced Scheme, seeking to generate long term capital
appreciation and current income from a portfolio constituted of equity and
equity related securities as well as fixed income securities (debt and money
market securities).
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DSP BlackRock Liquidity Fund
An open ended income (liquid) scheme, seeking to generate a reasonable
return commensurate with low risk and a high degree of liquidity, from a
portfolio constituted of money market securities
Floating Rate Funds
An Open Ended income Scheme seeking to generate interest income
through investments in acceptable floating rate assets commensurate with
the credit risk. The Scheme may also invest in fixed rate debt securities.
Money Manager Fund
An Open Ended income Scheme, seeking to generate reasonable returns
commensurate with low risk and a high degree of liquidity, from a portfolio
constituted of money market securities and high quality debt securities.
DSP BlackRock Treasury Bill Fund
An open ended income scheme seeking to generate income through
investment in a portfolio comprising of Treasury Bills and other
Central Government Securitieswith a residual maturity less than or equal to
1 year.
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DSP BlackRock Bond Fund
An Open Ended income Scheme, seeking to generate an attractive return,
consistent with prudent risk, from a portfolio which is substantially
constituted of high quality debt securities, predominantly of issuers
domiciled in India. As a secondary objective, the Scheme will seek capital
appreciation.
Government Securities Fund
An Open Ended income Scheme, seeking to generate income through
investment in Central Government Securities of various maturities.
Strategic Bond Fund
An open ended income scheme seeking to generate optimal returns
with high liquidity through active management of the portfolio by investing
in high quality debt and money market securities.
DSP BlackRock World Gold Fund
The primary investment objective of the Scheme is to seek capital
appreciation by investing predominantly in units of BlackRock Global
Funds - World Gold Fund (BGF - WGF). The Scheme may, at the discretion
of the Investment Manager, also invest in the units of other similar
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overseas mutual fund schemes, which may constitute a significant part of its corpus. The
Scheme may also invest a certain portion of its corpus in money market securities and/or
units of money market/liquid schemes of DSP BlackRock Mutual Fund, in order to meet
liquidity requirements from time to time.
DSP BlackRock World Energy Fund
An open ended Fund of Funds Scheme investing in international funds and
the primary investment objective of the world energy fund Scheme is to
seek capital appreciation by investing predominantly in the units of
BlackRock Global Funds – World Energy Fund (BGF – WEF#) and
BlackRock Global Funds – New Energy Fund (BGF – NEF). The Scheme
may, at the discretion of the Investment Manager, also invest in the units of other similar
overseas mutual fundschemes, which may constitute a significant part of its corpus. The
Scheme may also invest a certain portion of its corpus in money market securities and/or
money market/liquid schemes of DSP BlackRock Mutual Fund, in order to meet liquidity
requirements from time to time. There is no assurance that the investment objective of the
Scheme will be realized.
DSP BlackRock World Mining Fund
The primary investment objective of the world mining fund Scheme is to
seek capital appreciation by investing predominantly in the units of
BlackRock Global Funds –World Mining Fund (BGF - WMF). The
Scheme may, at the discretion of the Investment Manager, also invest in the
units of other similar overseas mutual fundschemes, which may constitute a
significant part of its corpus. The Scheme may also invest a certain portion of its corpus in
money market securities and/or money market/liquid schemes of DSPBlackRock Mutual
Fund, in order to meet liquidity requirements from time to time
Market Research
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Problem Definition
It’s a fact that Mutual Funds market is not so famous avenue when it comes to investment. Mutual funds market is increasing at very slow rate. Companies are at lose to understand ,where the problem is ? Are people are reluctant towards mutual fund investment ? If Yes, Why so ? Where they normally invest their money ? What are their objectives when they for such kind of investments ? What will be the best way to reach prospective investors ?
Research Design The research design opted was Exploratory one. As , the purpose can be served with the information which is more precise , which can help in clarifying concepts , gathering explanation , gaining insight , eliminating impractical ideas . research did not try to acquire a representative sample but , rather seek to interview those are more knowledgeable people. Thus, survey was done people who are very much close to financial system ,which mostly included Finance students and other acamadecians, as there views will very much solve the problem faced by the management.
I conducted Primary research , in order to know about “ People perception about Mutual Funds”.The sample included 15 individuals answering the questionnaire attached in annexes .
Interpretation
Age group
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20 - 25 25 - 30 30 - 35 35 - 400
1
2
3
4
5
6
7
8
Age -Group
Age -Group
Occupation
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ServiceBusiness
Student
0
1
2
3
4
5
6
7
8
Occupation
Occupation
Income Group
Not Earning Presentely
Upto 5 Lakhs 5 lakhs - 15 lakhs 15 lakhs - 20 lakhs0
1
2
3
4
5
6
7
Income -group
Income -group
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Investment Instruments Preference among Stocks , RBI Bonds , Company Debenture , Mutual Funds , Insurance products
Prefernce 1 Prefernce 2 Prefernce 3 Prefernce 40
2
4
6
8
10
12
14
16
18
StocksInsurance ProductsCompany DebenturesRBI BondsMutual Funds
This diagram talks about the preference level of the investors in different type of securities available.
As per the analysis, Mutual Funds had been most preferred option followed by insurance products , stocks, RBI Bonds and Company Debentures respectively.
Most of the investors prefer RBI Bonds as their second option of investment. Second position goes to insurance products . with Stocks, Company debenture and mutual funds bagging similar positions.
Company debenture has scored top position for preference no.3 with Mutual Funds, Company debentures ,stocks closely following it.
Company Debenture as topped as being least preferred option. With Mutual Funds .Insurance Products, Stocks following the suite.
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CONCLUSION:
• Mutual Fund investment is better than other raising fund.
• Reliance Mutual Fund have good returns in investment.
• A good brand is always welcomed over here people are more aware and conscious for the brand so they go for they are ready to spend some extra bucks for the quality.
• At last all cons are concluded by that Reliance Money is still growing industry in India and is still exploring its potential and prospects in here.
LIMITATIONS:
• The time constraint was one of the major problems.
• The study is limited to the different schemes available under the mutual funds selected.
• The study is limited to selected mutual fund schemes.
• The lack of information sources for the analysis part.
CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the
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emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also to help grow these investments. This has also instilled greater confidence among fund investors who are investing more in to the market through the MF route than ever before. DSP BlackRock mutual funds provide major benefits to a common man who wants to make his life better than previous. India’s largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the mutual fund industry as a whole gets less than 2 per cent of household savings against the 46per cent that go into bank deposits. Some fund managers say this only indicates the sectors potential. "If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possible over the next few years.
With the market going up and down frequently there are lots of investors who would love to invest in equity shares but don’t want to do so directly. Some of them are simply not inclined to the amount of research required for it. While others think that it is too risky for lay investors. For such investors mutual funds provide a good alternative. Even in the days of streams of investment avenues, mutual fund had got a very good place and successful in providing opportunities for small and medium income group people to take part in capital market. But, the future of any mutual fund lies in the hands of Asset Management Company (AMC) as they are professionals who take decisions of investing the funds collected.
The study “How mutual fund is a better other investments plan” was carried out on behalf of mutual funds of DSPBLACKROCK was collected from various sources and through the tools like questionnaires and relevant interactions with concerned persons. The need was identified in the form of suitable suggestions.
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APPENDIX
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Questionnaire
Please go through the following questionnaire and identify the appropriate responses for each of them. There is no such thing as a correct answer, therefore feel free to respond unprohibitively
Disclaimer: Your response via this questionnaire will be used strictly for academic purposes. There will not be any commercial solicitation or usage of the response in any kind / form whatsoever.
Personal Information
Name :
Age :
Gender :
City :
Occupation :
Your Income Level ( per annum ) :
1. Upto 5 lac2. 5 lac-15 lac
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3. 15 lac – 25 lac 4. 25 lac- 35 lac5. 35 lac and above 6. Not earning presently
Given a sum of Rs 50,000 that you may have inherited from a rich uncle of yours , rank the various investments that you would invest this sum in :
Rank these instruments in descending order of importance from the most preferred instrument to the least preferred choices : Stocks , RBI Bonds , Company Debenture , Mutual Funds , Insurance products
What is y
Your primary investment purpose ?
1. Retirement Planning2. Building up corpus for charity donation 3. Supporting your children’s education/marriage 4. Others
Usually do you consult your family / friends before making an investment choice ?
1. Every time2. Often3. Sometimes 4. Rarely5. Never
How often you make investment decision and execute them too ?
1. Once in 15 days2. Once in a month3. Once in 3 months4. Once in 6 months 5. Once in a year
On an average how long you stay invested for an investment in Mutual Funds ?
1. 1 Year 2. 1 Year -3 Year3. 3 Year -5 Year 4. More Than 5 Years
You don’t invest in Mutual Fund Because of
(answer this question only if you haven’t invested in Mutual Funds Before )
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1. Bitter past experience 2. Lack of knowledge3. Lack of confidence in services being provided4. Difficulty in selection of schemes5. In-efficient investment advisors
Which is the primary source of your knowledge about Mutual Funds as an investment option ? ( corresponding to your choice how would you rate their influence on your final Mutual Funds purchasing decision . please rank them on scale of 1-5 with 1 representing minimal influence and 5 representing strong influence )
Television ` 1 2 3 4 5Internet 1 2 3 4 5NEWSPAPER 1 2 3 4 5SCHOLARLY Journals / Articles 1 2 3 4 5FRIENDS 1 2 3 4 5
How important is price factor when considering investment in Mutual Funds ?
Being a Mutual Fund investor :
Are you aware of all the schemes provided by Asset Management Company ( AMC).
1. Most2. Some3. Few
How Would you rate Mutual funds as an investment option on the scale of 1-5 ( 5 being poor & 1 being Excellent ).
o 1 Excellent
o 2 Very Good
o 3 Good
o 4 Fair
o 5 Poor
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GLOSSARY OF SOME CONCEPTS
AMC The AMC is the corporate entity, which markets and manager and manages a mutual fund
scheme and in return receives a management fee from the fund corpus. SEBI specifies that an
AMC must be separate entity the trust that manages it.
NAVIt is the value of unit of a Mutual Fund scheme and represents its true worth. NAV is arrived
at by dividing total value of all investment made under the scheme by number of units of the
scheme. NAV is critical yardstick of the funds performance.
UNITSUnits in a mutual fund scheme are similar to shares of a joint company. These are always in
denominations of Rs. 10 each the sum total of all the units constitutes corpus of mutual fund.
SPONSORSSponsor of a mutual fund are those who establish the mutual fund trust and the AMC they
constitute the shareholders of the AMC and receive dividends on profits made by the AMC.
SEBI rules stipulate that mutual fund trust as well as the AMC must maintain an arms length
relationship with the sponsors to avoid any conflict to interests, which may affect the unit
holders.
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INCOME FUNDThese Funds invest largely in fixed income securities like bonds and debentures. Such funds
earn returns more regularly than a growth fund but level of returns over longer periods
normally lag behind those offered by growth funds while returns in such funds may be
regular, their scale may fluctuate depending upon the prevalent interest rates and credit
quality of the debt securities.
GROWTH FUNDSGrowth funds predominantly invest in stock market securities and carry risks larger than
income funds. Since stock markets travel through a natural cycle of boom and bursts one
should normally stay invested inequity funds for a longer times to earn higher returns.
Equity funds may earn higher but they also carry larger risks. For risk taking investor equity
are best suited.
BALANCED FUNDSA balanced fund is the mixture of income fund and growth fund invested partly in equity to
achieve a trade-of between risk and return.
CLOSE ENDEDIn a close-ended fund an investor is allowed to subscribe only during the period of the initial
offer. Close-ended funds mature after a specified period.
OPEN ENDED FUNDSThose funds in which investor can invest & withdraw whenever they wish, after the close of
initial offer. Withdrawals are allowed at NAV minus a back end load.
LOCK IN PERIODTime period during which investor can neither redeem nor they transfer their holdings to
others. Lock in period is imposed to allow fund manager to deploy money for an adequate
period of time to earn a reasonable return premature withdrawals may destabilize the fund &
are not beneficial to the interests of investors.
MANAGEMENT FEESAn AMC that mangers & markets a mutual fund scheme is entitled to a management fee@
1% to 25% of the total funds managed, it could be charged to the scheme irrespective of the
performance of the scheme.
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REDEMPTIONDisbursement of unit capital on the maturity of that particular scheme to all its existing unit
holders.
MARKET PRICEThe price at which units of mutual funds are quoted in stock exchange where they are listed.
REGISTRAROrganization appointed by an AMC to the schemes it is registered, monitored, and regulated
by SEBI, it provides required services like system capabilities back up, accepts and processes
investors applications in informs AMC about amounts received/disbursed for subscription/
purchase/ redemption it also handles communications with investors, perform data entry
services and dispatches account statements.
CUSTODAINBanking organization that keeps in safe custody all the securities & other instruments
belonging to the fund to insure smooth inflow & outflow of securities. It is also approved
regulated and registered with SEBI.
EXIT LOADValue of deduction from NAV on the date when one choose to withdraw from a fund, load is
imposed because withdrawals carry transaction cost to AMC it can not be more than 6% of
NAV of corpus as prescribed by SEBI many schemes offer redemption facility without exit
load.
ENTRY LOADCharge paid by unit holder when he invests an amount in the scheme. Mutual funds incur
many expenses during an issue, which are charged to the scheme. Such load is called entry
load.
LIQUIDITYAbility of investors to change its unit into cash within minimum time as and when he needs
money.
TRANSPARENCYBasic feature of mutual funds is transparency, their functioning is very efficient, well monitored & transparent working of AMC is regulated by SEBI it is audited weekly, it has to work under strict guidelines issued by SEBI, and its NAV is calculated and published daily so that there is no chance of any default in the working of Mutual Funds.
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BIBLIOGRAPHY
Reference: Fact sheet of dspblack rock mutual fund.Website: www.amfiindia.com, www.moneycontrol.com, www.mutualfundindia.com, www.icdssecurities.com www.wikipedia.com www.investopedia .com www.yahoo.com www.etftopics.com www. dspblackrock .com
Books:
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