Professional Documents
Culture Documents
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A REPORT
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ON
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MUTUAL FUND INVESTORS-THEIR
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EXPECTATIONS & STRATEGIES IN
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CHANGING SCENARIO
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BY
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Ankit Gupta
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STANDARD CHARTERED BANK
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2
A REPORT
ON
MUTUAL FUND INVESTORS-THEIR
EXPECTATIONS & STRATEGIES IN
CHANGING SCENARIO
BY
ANKIT GUPTA
TABLE OF CONTENTS
Topic Page No.
Acknowledgement 4
Abstract ... 5
Introduction
Mutual funds
Concept.. 12,13
Characteristics 14
Advantages. 14
Disadvantages. 16
Latest AUM .. 30
Study
Methodology used.. 39
Limitations . 40
References.. 68
Appendix 69
ACKNOWLEDGEMENT
Last but not the least, I would like to thank all the respondents for giving their
precious time and relevant information and experience, I required, without which
the project would have not been completed.
5
ABSTRACT
Mutual funds have been one of the most preferred investment instruments. They
are looked upon by individual investors as financial intermediaries/ portfolio
managers who process information, identify investment opportunities, formulate
investment strategies, invest funds and monitor progress at a very low cost. Thus
the success of mutual funds is essentially the result of the combined efforts of
competent fund managers and alert investors. A competent fund manager should
analyze investor behavior and understand their needs and expectations, to gear up
the performance in order to meet investors requirements. The project Mutual
fund investors expectations & strategies in changing scenario is to understand
the changing sentiments, expectations & strategies of the investor.
The volatility of stock market has affected the mutual funds sales. There has been a
plunge in the sales of mutual funds. The expectations & strategies of the investors
have changed. This has become a challenge for fund houses. Investors preference
has changed. Now they are not sure about what the investors want. This project
aims at understanding their behavior & thus giving recommendations to SCB for
meeting these challenges. Thus, to analyze the difference between investors
expectations & investment managers approach.
The project will seek to cover all the fundamental aspects related to mutual funds &
investment in mutual funds. The project will also cover the various problems of the
global scenario that has affected the Indian market. Then it will analyze the
behavior of investors in changing scenario.
There will also be a comparative analysis of some of the star ranked mutual funds
as per the expectations of the investors, so as to understand whether the star ranked
mutual funds are catering to the requirements & expectations of the investors or
not.
INTRODUCTION
The growth and maturation of mutual fund industry is the greatest investment story
of the twentieth century. With the introduction of innovative products, the world of
mutual funds nowadays has a lot to offer to its investors. With the introduction of
diverse options, investors need to choose a mutual fund that meets his risk
acceptance, his risk capacity levels and has similar investment objectives as the
investor. There are a large number of schemes available in the market to cater to
the different needs of the investor. As on 29th Feb, 2008, there were 5343 mutual
fund schemes in the market.
The market has been bullish in past few months & has given huge returns. Even the
retail investors started investing in a big way expecting the rally to continue. But
with change in the global scenario, there has been a sudden & unexpected downfall
in the market which sunk the investors expectations, creating a negative sentiment
in the market. This has also affected the mutual fund investments.
Since Indian economy is no more a closed market, and has started integrating with
the world markets, external factors which are complex in nature are also affecting
us. Factors such as Sub-prime problem, expected US recession, an increase in
short-term US interest rates, the hike in crude prices and many other factors
have made Indian market volatile. The market has shown a downfall of --% in past
3 months. There has been sharp fall in the sales of mutual funds in past 2 months,
since January. The average asset under management (AUM) of the mutual fund
industry has declined sharply by 6.62% in March 2008, according to data released
by Association of Mutual Funds in India (AMFI). This shows that there has been a
change in the investors sentiments & expectations.
is government owned and controlled, which, while legally incorrect, is true for all
practical purposes.
The second largest category of mutual funds is the ones floated by nationalized
banks. Canbank Asset Management floated by Canara Bank and SBI Funds
Management floated by the State Bank of India are the largest of these. GIC AMC
floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated
by the LIC are some of the other prominent ones. The aggregate corpus of funds
managed by this category of AMCs is about Rs150bn.
The third largest categories of mutual funds are the ones floated by the private
sector and by foreign asset management companies. The largest of these are
Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets
managed by this category of AMCs is in excess of Rs250bn
The growth and development of Indian Mutual Fund Industry can be broadly
divided into four phases:-
First Phase (1964-87)
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was
set up by the Reserve Bank of India and functioned under 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.
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 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
The Standard Chartered Group was formed in 1969 through a merger of two banks:
The Standard Bank of British South Africa founded in 1863 and the Chartered
Bank of India, Australia and China, founded in 1853.
From the early 1990s, Standard Chartered has focused on developing its strong
franchises in Asia, the Middle East and Africa using its operations in the United
Kingdom and North America to provide customers with a bridge between these
markets. Secondly, it would focus on consumer, corporate and institutional banking
and on the provision of treasury services - areas in which the Group had particular
strength and expertise.
10
Through global network of over 1,700 branches and outlets, SCB offer personal
financial solutions to meet the needs of more than 14 million customers across
Asia, Africa and the Middle East.
1) Personal Banking
2) SME Banking
3) Wholesale Banking
4) Islamic Banking
5) Private Banking
Mutual funds
Capital protected products
Derivative Arbitrage Products
Equity Advisory Services
Fixed income products
Mutual funds have huge potential. Standard Chartered bank deals in more than
2000 mutual funds. They offer a huge range of funds for varied customers. Initially
they make investors fill the customers so that they can understand the requirements
of the customers and thus provide services accordingly. This project basically
covers the mutual funds investors sentiments, to understand them and make
recommendations to SCB.
11
MUTUAL FUNDS
Concept
A mutual fund is a pool of money, collected from investors, & is invested
according to certain investment objectives.
A mutual fund is created when investors put their money together. It is therefore a
pool of the investors funds. The most important characteristic of a mutual fund is
that the contributors & the beneficiaries of the fund are the same class of people,
namely the investors. The term mutual means that investors contribute to the pool,
& also benefit from the pool. There are no other claimants to the funds. The pool of
funds held mutually by investors is the mutual fund.
A mutual funds business is to invest the funds thus collected, according to the
wishes of the investors who created the pool. In many market these wishes are
articulated as investment mandates. Usually, the investors appoint professional
investment managers, to manage their funds. The same objective is achieved when
professional investment managers create a product, and offer it for investment to
the investors. This product represents a share in the pool, & pre-states investment
objectives.
The investors share in the fund is denominated by units the value of the
units change with the change in the portfolios value, everyday. The value of
one unit of investment is called as the Net Asset Value or NAV.
The investment portfolio of the mutual fund is created according to the stated
investment objective of the fund.
Professional Management
Investment managers & funds are also bound by the AMFI code of
ethics, which foster professional standards in the industry.
14
Reduction in risk
Mutual funds invest in a portfolio of securities. This means that all the funds
are not invested in the same investment avenue. It is well known that risk &
returns of various investment options do not move uniformly or in sympathy
with one another. Therefore, holding a portfolio that is diversified across
investment avenues is a wise way to manage risk. When such a portfolio is
liquid & marked to market, it enables investors to continuously evaluate the
portfolio & manage their risks more efficiently.
Liquidity
Most of the funds being sold today are open-ended. That is, investors
can sell their existing units, or buy new units, at any point of time, at
prices that are related to the NAV of the fund on the date of the
transaction. This enables investors to enjoy a high level of liquidity on
their investments.
Since investors continuously enter & exit funds, funds are actually
able to provide liquidity to investors, even if the underlying markets,
in which the portfolio is invested, may not have the liquidity that the
investor seeks.
15
Disadvantages
Since investors do not directly monitor the funds operations they cannot
control the costs effectively. Regulators therefore usually limit the expenses
of mutual funds.
No tailor-made portfolio
Mutual fund portfolios are created and marketed by AMCs, into which
investors invest. They cannot create tailor made portfolios.
It is the pool of fund which is open for sales & repurchases. An open-end fund is one that
is available for subscription all through the year. These do not have a fixed maturity.
Investors can conveniently buy and sell units at NAV related prices. Therefore both the
amount of funds that the mutual fund manages & the number of units vary everyday. The
key feature of open-end schemes is liquidity.
Open-ended funds have to balance the interests of investors who come in, investors who
go out & investors who stay invested. Open-ended funds are offered for sale at a pre-
specified price, in the initial offer period. After a pre-specified period, the fund is declared
open for further sales & repurchases. These transactions happen at the computed NAV
related price.
A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or
sell the units of the scheme on the stock exchanges where they are listed. Therefore new
investors buy from the existing investors, & existing investors can liquidate their units by
selling them to other willing buyers. In a closed end funds, thus, the pool of funds can
technically be kept constant.
The price at which units can be sold or redeemed depends on the market prices, which is
fundamentally linked to the NAV.
In order to provide an exit route to the investors, some close-ended funds give an option
of selling back the units to the Mutual Fund through periodic repurchase at NAV related
prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to
the investor.
c) Interval schemes
18
Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.
On the basis of INVESTMENT OBJECTIVE, mutual funds can be divided into 4 types:
a) Growth Option
Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline
in value for possible future appreciation.
In it incomes earned are retained in the investment portfolio, & allowed to grow, rather
than being distributed to the investors.
The return to the investors is at the rate at which his initial investment has grown over
the period for which he was invested in fund. The NAV will vary with the value of the
investment portfolio while the number of unit held will remain constant.
b) Income Scheme
Income Schemes are also known as debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest in
fixed income securities such as bonds and corporate debentures. Capital appreciation
in such schemes may be limited.
c) Balanced Funds
Funds that invest both in debt & equity markets are called balanced funds. Balanced
Schemes aim to provide both growth and income by periodically distributing a part of
the income and capital gains they earn. A typical balanced fund would be almost
equally invested in both the markets. A balanced fund also tends to provide investors
exposure to both equity & debt markets in one product. Therefore the benefits of
diversification get further enhanced, as equity & debt markets have different risk and
return profiles.
Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income .These debt funds invest only in instruments with a maturity less
than a year. The investment portfolio is very liquid, & enables investors to hold their
investments for very short horizons of a day or more. These schemes generally invest
in safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.
a) Equity Funds
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund managers
outlook on different stocks. Equity funds can be further divided into 4 types:
These funds invest a pre-dominant portion of the funds mobilized in equity &
equity related products. In most cases about 80-90% of their investments are in
equity shares. These funds have the freedom to invest both in primary & secondary
markets for equity.
These funds choose to invest in one or more chosen sectors of the equity markets.
These sectors could vary depending on the investor preference & the return-risk
attributes of the sector. Sector specific funds are not as well diversified as simple
equity funds, as they tend to focus on fewer sectors in the equity funds, as they tend
to focus on fewer sectors in the equity markets. They can exhibit very volatile
returns.
20
One variation of the simple equity fund is the ELSS (Equity Linked Saving
Schemes). These funds, named variously in the mutual fund industry, are equity
funds formed under a special scheme notified by the Government of India in 1990.
According to the provisions of this notification, investment in a specially formed
mutual fund product, that invest at least 90% of its funds in equity & equity-linked
investments is eligible for a tax rebate, up to a maximum investment of Rs. 10,000,
under section88 of the Income Tax Act. Investors have to hold their units for a
minimum lock-in period of 3 years, in order to avail of the tax rebate.
These funds invest in equity shares, but do so only when a primary market offering
is available. The focus is on capturing the opportunity to buy those companies
which issue their equity in primary markets, either through a public offer or
through private placements.
Index funds
This strategy is also called passive fund management. The costs of this strategy are
lower, & the fund performance virtually tracks the market index. An index fund
provides an ideal exposure to equity markets, without the investors having to bear
the risks & costs arising from the market views that a fund manager may take.
Equity funds can also be created to invest in equity shares of companies with
specific attributes. For Example, there are small stock funds, which invest only in
21
equity shares of small companies; there are PSU funds which specialize in
investing only in PSU stocks; there is a top 200 fund, which invests in companies
within the universe of the top 200 equity stocks; there is a select equity fund, which
invests from the universe of stocks comprising the A group companies of the
Bombay Stock Exchange; & there is a 30-stock fund that limits the number of
stocks in its portfolio to 30 stocks. All these products try to define a subset of the
equity market, in terms of size &other attributes, & tend to focus on that segment.
b) Debt Funds
Debt funds are those that pre-dominantly invest in debt securities. Since most debt
securities pay periodic interest to investors, these funds are also known as income
funds. However, investing in debt products can also offer a growth option to their
investors. The universe of debt securities comprises of long term instruments such as
bond issues by central & state governments, public sector organizations, public
financial institutions & private sector companies; and short term instruments such as
call money lending, commercial papers, certificates of deposit; & treasury bills. Debt
funds tend to create a variety of options for investors by choosing one or more of these
segments of the debt markets in their investment portfolio. Debt funds can be further
divided into 5 types:
Gilt Funds
A gilt fund invests only in securities that are issued by the government, & therefore
does not carry any credit risk. These funds invest in short & long-term securities
issued by the government. These funds are preferred by institutional investors who
have to invest only in government paper. These funds also enable retail investors to
participate in the market for government securities, which is otherwise a large-
ticket wholesale market.
22
Income Funds
These funds invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities
MIPs
These funds invest maximum of their total corpus in debt instruments while they
take minimum exposure in equities. It gets benefit of both equity and debt market.
These scheme ranks slightly high on the risk-return matrix when compared with
other debt schemes.
These funds are meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.
Liquid funds
These funds are also known as Money Market Schemes, These funds provide easy
liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These
funds are meant for short-term cash management of corporate houses and are meant
for an investment horizon of 1day to 3 months. These schemes rank low on risk-
return matrix and are considered to be the safest amongst all categories of mutual
funds.
c) Balanced Funds
As the name suggest they, are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors
with the best of both the worlds. Equity part provides growth and the debt part
provides stability in returns. The benefits of diversification get further enhanced,
as equity & debt markets have different risk &return profiles.
23
The structure of mutual funds in India is governed by the SEBI (mutual fund)
Regulations, 1996. These regulations make it mandatory for mutual funds to have a
three-tier structure of Sponsor-Trustee-Asset Management Company (AMC). The
sponsor is the promoter of the mutual fund, & appoints the Trustees. The trustees
are responsible to the investors in the mutual fund, & 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 mutual fund & the AMC
have to be registered with SEBI.
SEBI regulations also provide for who can be a sponsor, trustee & AMC, &
specify the format of agreements between these entities. These agreements provide
for the rights, duties & obligations of these three entities. These agreements provide
for the rights, duties & obligations of these three entities.
24
Sponsor
The sponsor is the promoter of the mutual fund. The sponsor establishes the mutual fund
& registers the same with SEBI.
Sponsor appoints the trustees, custodians & the AMC with prior approval of
SEBI, & in accordance with SEBI Regulations.
Sponsor must have at least 5-year track record of business interest in the
financial markets.
Sponsor must have been profit making in at least 3 of the above 5 years.
Trustee
The mutual fund, which is a trust, is managed either by a Trust company or a board of
Trustees. It is the responsibility of the trustees to protect the interest of investors, whose
fund is managed by the AMC. The AMC & other functionaries are functionally
accountable to the trustees.
The trustee, on the advice of the sponsor, usually appoints the AMC. The trust deed
authorizes the trustee to appoint the AMC. The AMC is usually a private limited
company, in which the sponsors & their associates or joint venture partners are
shareholders. The AMC has to be SBI registered entity, & should have a minimum net
worth of Rs. 10 crores.
Custodian
Custodians are responsible for the securities held in mutual funds portfolio. They
discharge an important back-office function, by ensuring that securities that are bought,
delivered & transferred to the books of the mutual funds, & those funds are paid out when
a mutual fund buys securities. They keep the investment account of the mutual fund, &
also collect the dividends and interest payments due on the mutual fund investments.
Custodians also track corporate actions like bonus issues, right offers, offer for sale, buy
back & open offers for acquisition.
The R & T agents are responsible for the investor servicing functions, as they maintain
the records of investors in mutual funds.
Incorporate changes in
information as communicated by investors.
Every security in the funds portfolio has a market value. The value of the entire portfolio
is calculated to reach this figure. It is here that any capital appreciation or depreciation of
the portfolio is reflected.
Income
27
This is the interest income earned by debt securities or dividend income earned by stocks
in the portfolio.
Profit
This is the capital gain realized by selling a security (debt or equity) at a price higher than
its purchase price.
Loss
This is the capital loss suffered by selling a security (debt or Equity) at a lower price than
its purchase price.
Expenses
This is the actual expenses incurred by the fund. For example, fees paid to AMC,
custodians, registrars etc., SEBI restricts the expenses that can be paid by the fund.
Growth option
Investors who do not require periodic income distributions can choose the
growth option, where the income earned are retained in the investment
portfolio, & allowed to grow, rather than being distributed to the investors.
Investors with longer-term investment horizons, & limited requirements for
income, choose this option. The return to the investors is at the rate at which
his initial investment has grown over the period for which he was invested in
the fund. The NAV of the investor choosing this option will vary with the
value of the investment portfolio, while the number of units held will remain
constant.
Re-investment Option
Investors re-invest the dividends that are declared by the mutual fund, back
into the fund itself, at NAV that is prevalent at the time of re-investment. In
this option, the number of units held by the investor will change with every
re-investment. The value of the units will be similar to that under the
dividend option.
SELECTION OF FUNDS
29
Classify the equity funds into broad categories that signify their return
& risk characteristics.
Evaluate the performance of the schemes. This is done both within the
peer group, & comparison with the bench mark
Under the structural characteristics of the scheme like Size of the fund,
fund age, portfolio managers experience, and costs of investing.
The performing fund will have higher ex marks, lower beta, & higher
gross dividend yield.
Fund age & size Newer & smaller fund may not be risky to the
investors.
Relative Yield the total return on the fund may not be risky to the
investors.
Costs expenses ratio in a bond fund is very important, higher loads &
expenses could lead to a yield sacrifice.
Quality of the portfolio Better the rating of the bonds in the portfolio,
better the fund.
Change in Strategy
If investors research their fund before investing in it, they most likely
invested in a fund that accurately reflects their financial goals. If their fund
manager suddenly starts to invest in financial instruments that do not reflect
the mutual fund's original goals, they may want to re-evaluate the fund you
are holding. For example, if a small-cap fund starts investing in a few
medium or large-cap stocks, the risk and direction of the fund may change.
Consistent Underperformance
This can be tricky since the definition of "underperformance" differs from
investor to investor. If the mutual fund returns have been poor over a period
of less than a year, then investors may not liquidate, thinking that
liquidating their holdings in the portfolio may not be the best idea since the
mutual fund may simply be experiencing some short-term fluctuations.
However, if they have noticed significantly poor performance over the last
two or more years, they may liquidate their holdings.
Amount in
crores
MUTUAL FUND NO. OF 32 ASSET UNDER MANAGEMENT
NAME SCHE- As on Mar As on Feb Net Inc/Dec as
MES 31,2008 29,2008 on Mar 31,2008
As per the graph, we can see there has been a sharp increase in the sales of mutual
funds in the month of January. The volatility of the market started in January.
When the market decreased in January, investors thought that it is correction and
they put in money so as to buy mutual funds at lower NAV. But after the market
crashed on 21st January, investors began to panic. In the month of February there
has been a sharp decrease in the sales of mutual funds. This is because of
34
downward motion of market in February. In March there has been a slight recovery
in the sales.
Balanced funds sales showed the same trend. There had been a sudden increase in
the sales of balanced funds. As balanced funds is the combination of both equity &
debt. So investors who had less risk taking capacity invested in these funds. But
again in February there has been a sharp decline in the sales of balanced funds &
same continued in the month of March.
35
Income funds basically invest in debts. There had been a sharp increase in the sales
in month of January. But a slight decrease in the month of February. There has
been increase in the sales of such funds in March. It is because of their returns are
assured & they are less risk averse.
36
After the volatility of market, investors have developed a negative sentiment. And
it is visible from the sharp increase in the sales of gilt funds. They do not have
credit risk. And they invest in government securities only. Therefore, investors
invested more in the gilt funds. There has been a sharp increase in the month of
February, in spite of the decrease in the mutual funds sales. There has just been a
slight decrease in the month of March. But overall the sales of gilt funds have
increased to a very large extend.
37
Sales of gold funds have increased many folds because people are moving
towards commodities to hedge against inflation or market fall & gold ETF offer
the advantage of not holding physical gold as well as flexibility to sell at any
time & turn to equity or debt because selling instrument is easier rather than
physical quantity & procuring gold is not an easy task plus flexibility is another
reason why gold ETF is preferred against gold
38
These funds basically aim at liquidity. They invest in short term bonds & securities.
These funds also followed the trend. There has been increase in the sales in the
month of January but a slight decrease in the month of February. Again these
funds sales increased in the month of March.
OBJECTIVE
To understand the concept of wealth management & various mutual funds
and what they offer to the investors.
To analysis some of the star ranked mutual funds in the market & compare
them with the Standard Chartereds mutual funds.
METHODOLOGY USED
Sample design
Random sampling method is used for collection of data and necessary information
for which sample size of 100 respondents in Jaipur city have been taken for study.
Since the study is entirely based on the personal opinion of the respondents, the
collected data is presented in tabular form .Pie charts and diagrams are also used as
a presenting tool for the effective presentation. Percentage and majority method has
been used to analyze the responses given by the respondents. For most important
questions the responses have been accepted according to the most frequently
similar responses given by the respondents of one similar group and after that the
whole responses of all respondents were compiled in order to get a clear snap shot
of the investment behavior. So primarily the direct responses according to majority
of sample has been accepted
3) Time constraint - This study has not been conducted over an extended
period of time having both ups and downs of stock market conditions which a
significant influence on investor s buying pattern and preferences.
Analysis:
Around 11% investors want to invest in secured instruments like bonds
& FDs
Around 40% invests in mutual funds, which shows that they want to
balance between risk and returns.
Analysis:
Around 25% of the investors invest less than 20% of their income.
This is a huge potential base.
Analysis:
Analysis:
Out of 100 investors, who invest in mutual funds, 70% do not take
investment services from the bank or any other institute.
There are still large part investors who invest on their own.
Analysis:
As the data show that only 25% respondents of the total
population choose their investment medium after consultation or
according to their peer group. They are not anymore dependent on
what others have to say. They decide for their own money.
75% of respondents follow the return analysis & market trend
method for arriving at an investment decision. This shows that people
have become educated. They know where there money should go.
What are their requirements?
(b) Do you generally invest in popular mutual funds or analyze the funds
& performance before investment decisions?
Analysis
Around 50% of people still choose mutual funds after
consultation. These shows that people believe more on what other
advisors has to say rather than making their own decisions
Analysis:
While choosing a fund the most important thing that matters to
investors is past performance of the mutual funds
Next is the brand name. This shows the brand name inculcates trust
and investors want to invest where they feel that their money is safe.
Other factors like product features & quality services & transparency
are not that important to investors
3) INVESTMENT OBJECTIVE
The various schemes in the mutual fund industry are designed to suit
the particular investment purpose of the investors. The idea of
customization has penetrated into this industry as well & with the
growing diversified needs of the investors, several schemes are
formulated that help the customer achieving his goal & making his
investment valuable.
This customization is the key reason for the spurt in the investment
avenue. Other than this, at times it may be identified that investors
may hold more than one expectation. In such a case he tries to create a
portfolio for himself that lives up to all his expectations. There are
many counselors who provide counseling in the same avenue basing &
researching their decisions on certain parameters which are small
things but could have the biggest of impact on ones investments.
52
(a) If you have to invest Rs. 100, how will you divide it in the
following categories?
Analysis:
Most of the investors look for growth so there are less people
who invests in short term funds
Balanced 25
Others
Analysis:
As the data show that 45% investors have opted for growth, 25
% income or the liquidity & 30 % for balanced. Here the liquidity and
balanced can be taken as same because they both show short term
object instead of long term object. We can conclude that a majority of
investors show a short term object nearly about 80 % means they are
not investing in the market with a broader horizon of stability of the
economy or the market. The result also describes that they are not
investing in stock market; they are going for the debt market as they
opt for the liquidity or the balanced returns. A lower proportionate of
the growth option show that they do not want to invest for long term
means they may have a view that the stock market will not be able to
perform well in long time. The bull ride of the economy is short in
nature according to their response. Because for obtaining growth in
future they need to invest for long term in stock market. So a lower
response regarding investment in favor of the growth shows that they
still seek security for their savings & they are risk averse.
Analysis:
Around 30% investors can take high risk. That shows that they
want high returns
Most of the investors are risk averse i.e. they want medium risk.
They want to strike a balance between risk and return
4) CURRENT SENTIMENTS
Analysis:
Another 30% thinks that market will now recover, it will not fall
further.
58
(b) With current scenario, how risky do you find investing in mutual
funds?
low
20%
high
30%
medium
45%
Analysis:
45% think that investing in mutual fund is of medium risk and this
truly stands in context of mutual funds because mutual funds diversify
the risk to a large extend as compared to equity.
60
Analysis:
60% people say that their strategy is to wait and watch. They
want to give market more time to recover.
3) Funds
4) Difference between the output of current star ranked funds & expectations of
investors
EQUITY ELSS
EQUITY INDEX
Recommendation Recommendation by SCB Recommendation by
Market
Name of the fund ICICI Prudential Index Fund LIC MF Index Fund -
62
Name of the fund DSP Merill Lynch Top 100 Templeton India Growth
Equity Fund Fund- Dividend
Last 1 year % 28.1 33.4
Last 3 years % 37.6 31.8
Since Inception % 48.6 21.3
Total Equity % 85 96.8
Expense Ratio % 2.3 2.32
Corpus (crs.) 802 320
BALANCED FUNDS
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Balanced Fund Benchmark Split capital fund
Last 1 year % 13.18 Na
Last 3 years % 21.11 Na
Since Inception % 18.06 14.28
Expense Ratio % 2.21 0
63
LIQUID FUNDS
Recommendation Recommended by SCB Recommended by Market
Name of the fund HDFC Cash Management Principal Money Manager
Fund- Saving Plan Fund-Regular-growth
Last 1 year % 8.2 Na
Last 3 years % 7.0 Na
Since Inception % 6.5 7.78
Expense Ratio % 0.58 Na
Sharpe 2.24 Na
Beta .15 Na
Treynor .3 Na
A unit linked insurance policy is one in which the customer is provided with
a life insurance cover and the premium paid is invested in either debt or
equity products or a combination of the two. In other words, it enables the
buyer to secure some protection for his family in the event of his untimely
64
death and at the same time provides him an opportunity to earn a return on
his premium paid. In the event of the insured person's untimely death, his
nominees would normally receive an amount that is the higher of the sum
assured (insurance cover) or the value of the units (investments).However,
there are some schemes in which the policyholder receives the sum assured
plus the value of the investments.
Every insurance company has four to five ULIPs with varying investment
options, charges and conditions for withdrawals and surrender. Moreover,
schemes have been tailored to suit different customer profiles and, in that
sense, offer a great deal of choice. The advantage of ULIP is that since the
investments are made for long periods, the chances of earning a decent return
are high. Just as in the case of mutual funds, buyers who are risk averse can
buy into debt schemes while those who have an appetite for risk can opt for
balanced or equity schemes. However, the charges paid in these schemes in
terms of the entry load, administrative fees, underwriting fees, buying and
selling charges and asset management charges are fairly high and vary from
insurer to insurer in the quantum as also in the manner in which they are
charged.
Structured notes
Arbitrage funds
Despite the fact that arbitrage funds offer investors the opportunity to benefit
from investments in equities by making use of derivatives, the fund cannot
be compared to conventional diversified equity funds, especially on the
returns parameter. The returns from arbitrage funds would typically be much
lower than those of equity funds. That could be one reason why despite their
equity holdings, arbitrage funds are benchmarked against indices like
CRISIL Liquid Fund Index for want of a more appropriate index.
However, a PMS may only add significant value in the following cases:
Equity bias: Portfolio management services may be ideal for a person who
seeks a substantial investment in the stock markets. An equity portfolio also
offers greater scope for a manager to add value than does a debt portfolio.
Several of the established players in the PMS business focus on equity
investments, though some also offer hybrid products.
Large surplus to invest: The minimum portfolio size that portfolio
managers accept for a customized portfolio ranges from Rs 25 lakh to Rs 5
crore.
An REMF is like a mutual fund for real estate assets. In other words the asset
management company (AMC) invests in a range of real estate assets around
the country and creates a fund based on those assets. Investors can buy
shares in those funds which are traded on a daily basis on stock exchanges.
The value of the shares depends on the value of the underlying real estate
assets.
67
RECOMMENDATIONS
Savings Objective of Individual Investors
Savings Objective of the majority of Individual Investors is to invest in moderate
risk , thus throwing light on the nature of risk averse investors. AMC can attract a
pool of investors by designing products for Risk-Averse investors.
But there is also a pool of investors that are ready to take high risk. Nearly 30% of
the investors are ready to take high risk as they want high returns. These investors
can be of high potential for equity based funds.
ETF are available. And the increase in gold price & thus increase in gold ETF is
very much evident.
Stability of income
Around 60% investors have a stable income source. Earlier they had a psychology
of investing in stable investment instruments like bonds & fixed deposits rather
than investing in equity market where returns can be much higher than present
investments but they use to show risk aversion because of the equity markets
volatility. Based on this it can be said that they did not believe in the economical
condition of the country and market stability. But now conditions have changed.
People with stable income are also ready to take risk. More people are ready to
explore new investment avenues. They are ready to invest in various types of
investment.
Investment advice
Around 70% of the investors do not take investment advice. They do investments
on their own. This shows that investors have become more educated. They have
more know- how of the market. But this can also be taken as a potential. Because,
still there are investors who need advice. Standard Chartered Bank should target
such investors.
Around 25% of the investors make investments after consultation with their peer
group or financial advisors. Still around 75% of the investors make investment
decisions on their own by making return analysis or market research.
SCB should offer more of those mutual funds that have good track record. Next
most preferred feature is the brand name. In case of an NFO brand name plays an
important role.
Investment strategy
Around 64% of the investors have long term investment strategy. They want to
invest for longer period. For such investors SCB can offer more of equity funds. As
though the market is volatile now but it is going to give huge returns in 3 to 4 years.
As these investors are ready to wait they can be of huge potential.
REFERENCES
www.mutualfundsindia.com
www.google.com
www.amfiindia.com
www.nseindia.com
www.investopedia.com
www.moneycontrol.com
www.wikipedia.com
www.bseindia.com
www.standardchartered.in.com
QUESTIONNAIRE
NAME:-
CONTACT NO. :-
AGE:-
EDUCATION:-
1) Working Profession
Service Retired
Businessman Housewife
Self Employed Others (specify)
Student
30 70% 40 60%
50 50%
6) If you have to invest Rs. 100, how will you divide it in the
following investments?
Short Term --------
3 5yrs --------
6 10yrs --------
11 15yrs --------
More than 15yrs --------
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