PROJECT REPORT ON
“AWARENESS OF SALARIED INVESTORS
ABOUT MUTUAL FUND INDUSTRY’’
Submitted by:
ANKITA RAJAN GAWDE
BACHELOR OF COMMERCE
BANKING & INSURANCE
SEMESTER V
MITHIBAI COLLEGE
VILE PARLE (W)
SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR
2013 - 2014
NAME OF PROJECT GUIDE
PROF.RIDDHI SHARMA
1
CERTIFICATE
I, Prof. Riddhi Sharma, hereby certify that ANKITA RAJAN
GAWDE of MITHIBAI COLLEGE OF TYBBI [Semester V] has
completed the project “AWARENESS OF SALARIED INVESTORS
ABOUT MUTUAL FUND INDUSTRY’’ in the academic year 2013 14. The information submitted is true and original to my knowledge.
_______________________
_____________________
Signature of Principal
Project Guide
(Prof. Riddhi Sharma)
_________________________
External Examiner
College Seal
2
DECLARATION
I, ANKITA RAJAN GAWDE OF MITHIBAI COLLEGE of TYBBI
[Semester V] hereby declare that I have compiled this project on
“AWARENESS OF SALARIED INVESTORS ABOUT MUTUAL
FUND INDUSTRY’ ’in the academic year 2013 -14. The information
submitted is true and original to the best of my knowledge.
DATE:
PLACE:
Signature of student
(ANKITA RAJAN GAWDE)
Roll No. - 10
TYBBI
3
ACKNOWLEDGEMENT
I would like to thank Mithibai College & the faculty members of
BBI for giving me an opportunity to prepare a project on
“AWARENESS OF SALARIED INVESTORS ABOUT MUTUAL FUND
INDUSTRY’’. It has truly been an invaluable learning experience.
Completing a task is never one man's effort. It is often the result of
invaluable contribution of number of individuals in direct or indirect
way in shaping success and achieving it.
I would like to thank principal of the college Dr. D.B. GADKARI
and Co-ordinator Prof. NARESH SUKHANI for granting permission for
this project. I would like to extend my sincere gratitude and
appreciation to Prof. Riddhi Sharma who guided me in the study of
this project. It has indeed been a great learning, experiencing and
working under him during the course of the project.
I would like to appreciate all my colleagues and family members
who gave me support and backing and always came forward
whenever a helping hand was needed. I would like to express my
gratitude to all those who gave me the possibility to complete this
thesis.
4
EXECUTIVE SUMMARY
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus
collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them.
The origin of mutual come from, when three Boston securities
executives pooled their money together in 1924 to create the First
Mutual Fund, they had no idea how popular mutual funds would
become.
The origin of mutual fund industry in India is with the introduction
of the concept of mutual fund by UTI in the year 1963. Though the
growth was slow, but it accelerated from the year 1987 when Non-UTI
players entered the industry.
The base of mutual fund is on net assets value. The net asset
value of the fund is the cumulative market value of the assets fund net
of its liabilities. In other words, if the fund is dissolved or liquidated, by
selling off all the assets in the fund, this is the amount that the
shareholders would collectively own. This gives rise to the concept of
net asset value per unit, which is the value, represented by the
ownership of one unit in the fund. It is calculated simply by dividing the
net asset value of the fund by the number of units. However, most
people refer loosely to the NAV per unit as NAV, ignoring the "per
unit".
5
The Mutual Fund Industry in India is governed by SEBI (Mutual
Fund) Regulations, 1996, which lay the norms for the MF and its Asset
Management Company (AMC). SEBI requires all MFs to be registered
with it. All MFs in India are constituted as trusts. A MF is allowed to
issue Open Ended and Close Ended schemes under a common legal
structure. The SEBI (Mutual Fund) Regulations, 1996, lay down
detailed procedure for launching of schemes, disclosures in their offer
document, advertisement material, listing and repurchase of Closed
Ended schemes, of a period, transfer of units, investment, etc. SEBI
regulations also specify the qualifications for being the sponsor of a
fund; the contents of the Trust Deed; rights and obligations of
Trustees; appointment, eligibility criteria and restrictions on
business activities and obligations of the AMC and its directors.
The AMCs, members of Board of Trustees or Directors of Trustee
Company and other associated company have to follow certain code
of conduct. They should ensure that the information given to unit
holders is accurate and should also avoid conflicts of interest in
managing the affairs of the schemes.
Mutual fund schemes may be classified on the basis of its
scheme type and its investment objective. There are base on scheme
type open ended and closed ended scheme and based on investment
objective Growth scheme and Income scheme.
Indian scenario, now mutual is more popular amongst salaried
people and they are investing mutual fund for their tax purpose same
way for higher return and expert handling or management of money.
6
RESEARCH METHODOLOGY
Objectives of the research:
To study “Awareness of salaried investors about mutual fund
industry’’
Secondary Data:
The secondary data has been collected from various reference
books and websites which have been mentioned in the bibliography at
the end of the project
Limitations of the Research:
Problems of selection of right information available from various
sources
Scope of the Research:
The main objective of the project is to get to know about the
awareness of the mutual fund industry amongst Indian salaried
investors.
7
TABLE OF CONTENT
SR.NO
PARTICULARS
PAGE NO.
1
Mutual Funds - Concept
10
2
The Origin Of Mutual Fund Investment
11
3
The Origin Of Mutual Fund Industry In
India
12
4
Phases Of Mutual Fund Industry
13
5
Net Asset Value (NAV)
16
6
Regulation And Management of Mutual
Funds
18
7
Rights As A Mutual Fund Unit Holder
20
8
Types Of Mutual Funds Schemes
22
9
Tax Saving Schemes
26
10
Risks Involved In Mutual Fund
investment
27
11
Indian Scenario
28
12
Key Drivers
29
13
Key Challenges
32
14
Growth of mutual funds in India
35
15
Mutual Fund Companies in India
37
16
Some AMC’s currently operating
42
8
17
Resources Mobilized By Mutual Funds
44
18
Rule Of 3
46
19
Global Scenario Of Mutual Fund Industry
47
20
Mutual Fund Industry’s Share In GDP
Global Scenario
49
21
Top Mutual Funds In India For 2013
50
22
23
The Ten Best Mutual Funds In 2012-13
Globally
Tax Benefits In Investing In Mutual
Funds
52
53
24
Calculation Of Mutual Funds
55
25
Potential Of Mutual Fund Industry
56
26
Porters Model
58
27
Survey
59
28
Questionnaire
60
29
Results Of The Survey
62
30
Conclusion
71
31
Bibliography
72
32
Webliography
73
9
“Awareness of Salaried Investors about Mutual
Fund Industry”
Mutual Funds - Concept
A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus
collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized are shared
by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a mutual fund:
MutualFundOperationFlowChart
10
THE ORIGIN OF MUTUAL FUND INVESTMENT
When three Boston securities executives pooled their money
together in 1924 to create the First Mutual Fund, they had no idea how
popular mutual funds would become.
The idea of pooling money together for investing purposes started in
Europe in the mid-1800s. The first pooled fund in the U.S. was created in
1893 for the faculty and staff of Harvard University. On March 21st, 1924
the first official mutual fund was born. It was called the Massachusetts
Investors Trust.
After one year, the Massachusetts Investors Trust grew from $50,000
in assets in1924 to $392,000 in assets (with around 200 shareholders).
In contrast, there are over 10,000 mutual funds in the U.S. today
totaling around $7 trillion (with approximately 83 million individual
investors) according to the Investment Company Institute.
Mutual funds are very popular today, known for ease-of-use, liquidity,
and unique diversification capabilities.
11
THE ORIGIN OF MUTUAL FUND INDUSTRY IN INDIA
The origin of mutual fund industry in India is with the introduction of
the concept of mutual fund by UTI in the year 1963. Though the growth was
slow, but it accelerated from the year 1987 when Non-UTI players entered
the industry.
In the past decade, Indian mutual fund industry had seen a dramatic
improvement, both qualities wise as well as quantity wise. Before, the
monopoly of the market had seen an ending phase; the Assets under
Management (AUM) were Rs. 67bn. The private sector entry to the fund
family raised the AUM to Rs. 470 billion in March 1993 and till April 2004 it
reached the height of 1,540 billion.
Putting the AUM of the Indian Mutual Funds Industry into comparison,
the total of it is less than the deposits of SBI alone, constitute less than
11% of the total deposits held by the Indian banking industry.
The mutual fund industry can be broadly put into four phases
according to the development of the sector. Each phase is briefly described
further.
12
PHASES OF MUTUAL FUND INDUSTRY
First Phase - 1964-87:
Unit Trust of India (UTI) was established in 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 RBI. 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):
The second phase saw the entry of Non-UTI mutual funds.
SBI Mutual Fund was the first entrant followed by Can bank Mutual Fund
in ‘Dec 87, Punjab National Bank Mutual Fund in ’Aug 89, Indian Bank
Mutual Fund in ’Nov 89, Bank of India in ‘Jun 90, Bank of Baroda Mutual
Fund in ‘Oct 92, Life Insurance Corporation in 1989 and GIC in 1990. The
end of 1993 marked Rs.47, 004 as Assets under Management.
Third Phase - 1993-2003 (Entry of Private Sector Funds)
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.
13
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. 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. A notable change brought in by the entry
of private sector players is the emergence of new channels of distribution
and increased emphasis on Investor Service. However, on the other side,
this penetration has largely been an Urban Phenomena with not much
progress made, and also perhaps efforts put into, to further the reach in
Rural Areas, which even today largely remain untouched.
Fourth Phase - since February 2003:
This phase had bitter experience for UTI. It was bifurcated into two
separate entities. One is the Specified Undertaking of the Unit Trust of
India with AUM of Rs.29, 835 crores (as on January 2003). 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 AUM 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.
14
The Assets under Management during this period swelled at a
phenomenal rate from a mere Rs. 47,000 crores in March 1993 to Rs.
121,805 crores by Jan 2003; by March 2004 Assets under Management
grew to Rs. 1, 39,616 crores. At the end of September,2004, there were 29
funds, which manage assets of Rs.1,53,108 crores under 421
scheme. At the end of March, 2009, the Assets under Management were
Rs. 4, 17,300 crores.
The following graph indicates the growth of assets over the years:
15
NET ASSET VALUE (NAV)
The net asset value of the fund is the cumulative market value of the
assets fund net of its liabilities. In other words, if the fund is dissolved or
liquidated, by selling off all the assets in the fund, this is the amount that
the shareholders would collectively own. This gives rise to the concept of
net asset value per unit, which is the value, represented by the ownership
of one unit in the fund. It is calculated simply by dividing the net asset value
of the fund by the number of units. However, most people refer loosely to
the NAV per unit as NAV, ignoring the "per unit". We also abide by the
same convention.
As The Net Asset Value is an important term and concept in Mutual
Funds, how to calculate Net Asset Value is shown below.
Calculation of NAV:
The most important part of the calculation is the valuation of the
assets owned by the fund. Once it is calculated, the NAV is simply the net
value of assets divided by the number of units outstanding. The detailed
methodology for the calculation of the asset value is given below.
“Net Asset Value =
Sum of Market Value of Share/Debentures
(+) Liquid Assets/Cash held (if any)
(+) Dividends/Interest Accrued
(+) Amount due on Unpaid Assets
(+) Expenses Accrued but not paid”
16
Details on the mentioned items from the formula:
For liquid shares/debentures, valuation is done on the basis of the
last or closing market price on the principal exchange where the security is
traded.
For illiquid and unlisted and/or thinly traded shares/debentures, the
value has to be estimated. For shares, this could be the book value per
share or an estimated market price if suitable benchmarks are available.
For debentures and bonds, value is estimated on the basis of yields of
comparable liquid securities after adjusting for illiquidity. The value of fixed
interest bearing securities moves in a direction opposite to interest rate
changes Valuation of debentures and bonds is a big problem since most of
them are unlisted and thinly traded. This gives considerable leeway to the
AMCs on valuation and some of the AMCs are believed to take advantage
of this and adopt flexible valuation policies depending on the situation.
Interest is payable on debentures/bonds on a periodic basis say
every 6 months. But, with every passing day, interest is said to be accrued,
at the daily interest rate, which is calculated by dividing the periodic interest
payment with the number of days in each period. Thus, accrued interest on
a particular day is equal to the daily interest rate multiplied by the number
of days since the last interest payment date.
Usually, dividends are proposed at the time of the Annual General
meeting and become due on the record date. There is a gap between the
dates on which it becomes due and the actual payment date. In the
intermediate period, it is deemed to be "accrued". Expenses including
management fees, custody charges etc. are calculated on a daily basis.
17
REGULATION AND MANAGEMENTOF MUTUAL FUNDS
REGULATIONS OF MUTUAL FUNDS:
The Mutual Fund Industry in India is governed by SEBI (Mutual Fund)
Regulations, 1996, which lay the norms for the MF and its Asset
Management Company (AMC). SEBI requires all MFs to be registered with
it. All MFs in India are constituted as trusts. A MF is allowed to issue Open
Ended and Close Ended schemes under a common legal structure. The
SEBI (Mutual Fund) Regulations, 1996, lay down detailed procedure for
launching of schemes, disclosures in their offer document, advertisement
material, listing and repurchase of Closed Ended schemes, of a period,
transfer of units, investment, etc. SEBI regulations also specify the
qualifications for being the sponsor of a fund; the contents of the Trust
Deed; rights and obligations of Trustees; appointment, eligibility criteria
and restrictions on business activities and obligations of the AMC
and its directors. The AMCs, members of Board of Trustees or Directors of
Trustee Company and other associated company have to follow certain
code of conduct. They should ensure that the information given to unit
holders is accurate and should also avoid conflicts of interest in managing
the affairs of the schemes.
In addition to SEBI, RBI also supervises the operations of bankowned MFs. Further, MFs, AMCs and corporate trustees are
companies registered under the Companies Act 1956, and therefore
answerable to regulatory authorities empowered by the Companies Act.
The registrar of companies ensures that the AMCs, or the Trustee
company compiles with the provisions of the Companies Act. Many
Close Ended schemes of the MFs are listed on one or more stock
exchanges. Such schemes are subject to regulation by the concerned
stock exchange(s). MFs, being Public Trust are governed by the Indian
Trust Act 1852.
18
MANAGEMENT OF MUTUAL FUNDS:
SEBI amended (Mutual fund) regulations, 1996 to provide that the
meeting of the Trustees should be held at least once in two calendar
months and at least six such meetings should be held in every year. It
provides that as a result of non-recording of transactions, the NAV of a
scheme should not be affected by more than 1%. If the investors are
allotted units at a price higher than NAV or given a price lower that NAV at
the time of sale of units, they shall be paid the difference in amount by the
scheme.
SEBI amended its Mutual Funds regulations, 1996, also to provide
nomination facility for unit holders. Where the units are held jointly the joint
unit holders may together nominate a person in whom all the rights in the
units shall vest in the event of death of all the joint unit holders.
19
RIGHTS AS A MUTUAL FUND UNIT HOLDER
As a Unit Holder in a Mutual Fund Scheme coming under the SEBI (Mutual
Funds) regulations, one is entitled to:
1. Receive unit certificate or statement of accounts confirming one’s title
within 30 days from the date of closure of the subscription under
Open End schemes or within 6 weeks from the date your request for
a unit certificate is received by the Mutual Fund;
2. Receive information about the investment policies, investment
objectives, financial position and general affairs of the scheme;
3. Receive dividend within 30 days of their declaration and receive the
redemption or repurchase proceeds within 10 days from the date of
redemption or repurchase;
4. Vote in accordance with the regulations to: Change the asset
Management Company; Wind up the schemes.
5. To receive communication from the Trustee about change in the
fundamental attributes of any scheme or any other changes which
would modify the scheme and affect the interest of the unit holders
and to have option to exit at prevailing Net Asset Value without any
exit load in such cases;
6. Inspect the documents of the Mutual Funds specified in the scheme’s
offer document.
20
In addition to one’s rights, one can expect the following from Mutual
Funds:
1. To publish their NAV, in accordance with regulations: Daily in case of
Open Ended Schemes and Once a week in case of Close Ended
Schemes;
2. To disclose your schemes entire portfolio twice a year,
unaudited financial results half yearly and audited annual accounts
once a year. In addition, many Mutual Funds send out newsletters
periodically.
3. To adhere to a Code of Ethics this requires that investment decisions
are taken in the best interest of unit holder.
21
TYPES OF MUTUAL FUNDS SCHEMES
Mutual fund schemes may be classified on the basis of its scheme
type and its investment objective.
By Scheme type:
1. Open-ended Funds
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 Net Asset Value ("NAV") related prices. The key
feature of open-end schemes is liquidity.
2. Closed-ended Funds
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. 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.
22
1. By Investment Objective:
1) Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the
medium to long- term. Such schemes normally invest a majority of their
corpus in equities. It has been proven that returns from stocks, have
outperformed most other kind of investments held over the long term.
Growth schemes are ideal for investors having a long-term outlook seeking
growth over a period of time.
2) Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures and Government securities. Income Funds
are ideal for capital stability and regular income. Such funds are less risky
as compared to Equity schemes. These funds are not affected because of
fluctuations in equity markets. However, opportunities of Capital
Appreciation are also limited in such funds.
3) Balanced Fund
The aim of balanced funds is to provide both growth and regular
income. Such schemes periodically distribute a part of their earning and
invest both in equities and fixed income securities in the proportion
indicated in their offer documents. In a rising stock market, the NAV of
these schemes may not normally keep pace, or fall equally when the
market falls. These are ideal for investors looking for moderate growth.
They generally invest 40 – 60 % in Equity and Debt instruments. These
funds are also affected because of fluctuations in share prices in the Stock
Markets.
23
4) Money Market /Liquid Fund
The aim of money market funds is to provide easy liquidity,
preservation of capital and moderate income. These schemes generally
invest in safer short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter- bank call money. Returns on these
schemes may fluctuate depending upon the interest rates prevailing in the
market. These are ideal for Corporate and individual investors as a means
to park their surplus funds for short periods.
5) Gilt Fund
These funds invest exclusively in Government Securities.
Government Securities have no default risk. NAV’s of these schemes also
fluctuate due to changes in interest rates and other economic factors as is
the case with Income or Debt oriented schemes.
6) Index Funds
Index Funds replicate the portfolio of a particular Index such as the
BSE Sensitive index, S & P NSE 50 Index (Nifty), etc. these schemes
invest in the Securities in the same weight age comprising an Index. NAV’s
of such schemes would rise or fall in accordance with the rise and fall in the
index.
There are also exchange traded index funds launched by the mutual
funds which are traded on the Stock Exchanges.
24
7) Specialized Schemes
These include Sector Funds that invest in a particular industry like
Pharmaceuticals, InfoTech, Petrochemicals, etc. there are also some
specialized funds targeted at a particular class of investors like women and
children.
25
TAX SAVING SCHEMES
These schemes offer tax rebates to the investors under specific
provisions of the Income Tax Act, 1961 as the government offers tax
incentives for investment in specified avenues example: Equity linked
Savings Schemes (ELSS). Pension Schemes launched by Mutual Funds
also offer tax benefits. These schemes are growth-oriented and invest pre
dominantly in Equities. Their growth opportunities and risks associated are
like any Equity oriented scheme.
 LOAD OR NO-LOAD FUND
A Load fund is one that charges a percentage of NAV for entry or
exit. That is, each time one buys or sells units in the fund, a charge will be
payable. This charge will be used by the Mutual Fund for marketing and
distribution expenses. Suppose the NAV per unit is Rs. 10/-. If the entry as
well as the exit Load charged is 1%, then the investors would be required
to pay Rs. 10.10/- and those who offer their units for repurchase to the
Mutual Fund will get only Rs.9.90/- per unit. The investors should take the
load into consideration while making investment as these affect their
yields/returns. However, the investors should also consider the
performance track record and service standards of the Mutual Fund which
are more important. Efficient funds may give higher returns in spite of
Loads.
A No-Load fund is one that does not charge for entry or exit. It means
the investors can enter the funds/schemes at NAV and no additional
charges are payable on purchase or sale of units.
26
RISKS INVOLVED IN MUTUAL FUND INVESTMENT
1. Market Risk
If the overall stock or bond markets fall on account of Macro
economic factors, the value of Stock or Bond holdings in the fund’s portfolio
can drop thereby impacting the NAV.
2. Non Market Risk
Bad news about an individual company can pull down its stock price,
which can affect, negatively, funds holding a large quantity of that stock.
This risk can be reduced by having a diversified portfolio that consists of a
wide variety of stocks drawn from different industries.
3. Interest Rate Risk
Bond prices and interest rates move in opposite directions. When
interest rate rise, bond prices fall and thus this decline in underlying
securities affects the NAV negatively. The extent of the negative impact is
dependent on factors such as maturity profile, liquidity, etc.
4. Credit Risk
Bonds are debt obligations. So, when funds invest in corporate bonds, they
run the risk of corporate defaulting on their interest payment and the
principal payment obligations and when the risk crystallizes, it leads to a fall
in the value of the bond causing the NAV of the fund to take a beating.
27
INDIAN SCENARIO
Marketing Aspect
The Indian Mutual Fund Industry is going through a phase of
transformation since liberalization. Liberalization has paved the way for
foreign investors in the Mutual Fund Industry. This has increased the
pace of evolution in the industry and made more products and services
available to the investors. Institutional investors dominate this industry.
They hold about 65% of the Indian Mutual Fund Assets, whereas
retail investors account for only 1.3%. The miniscule penetration among
retail investors can be attributed to their lack of awareness and risk
aversion attitude. To realize the potential of the retail segment, MF AMC’s
are beefing up their distribution channel which will help them expand their
reach. The Indian Mutual Fund Industry is worth around Rs. 1, 50,000
crores. It is poised to grow by a CAGR of 8-9%. Savings contribute about
25% of the GDP to the Mutual Fund assets which is one of the highest in
the Asian region. This is mainly attributed to the huge saving tendency
among the Indian’s. In contrast their investment is low.
28
KEY DRIVERS:
The Mutual Fund Industry has been growing annually at the rate of
9% for the past 5 years and is expected to double the current AUM by the
end of March 2010. Further the annual composite growth rate is expected
to be around 13% in the next 10 years. The industry which in 1993 had less
than 10 schemes today has 460 schemes offered by Mutual Funds. The
schemes are more diverse and offer a wide array of choices to investors.
The following factors have attributed to the spurt in the growth in the
industry in recent times.
1. Buoyant Stock Market
If there is one major reason for the industry to grow at such levels it is
he booming stock market over the last 3 years. The buoyant stock market,
which has gained 18% in the last 1 year and 90 % in the last 3 year.
2. Product Innovation
The innovative schemes launched by the Mutual Funds houses have
given the investors option to choose funds which suits his investment
needs. Introduction of Innovative schemes like Hybrid funds (fund for
funds); Children Funds, Fixed Maturity Plans and New Schemes such as
Exchange-Traded Funds and Commodity Based Funds have helped
galvanize the industry growth.
29
3. Increased Competition
The entry of new players, both foreign as well as local, has helped
the industry to expand further. This has been ably supported by a slew of
new schemes from existing players as well. Further, the consolidation in
the industry has just started. Many big International Fund Houses like
Fidelity and Vanguard have entered the market. These fund houses’
individual assets are more that the size of the entire Indian Mutual Fund
Industry this certainly will help improve the growth levels of the industry.
4. Technology
The technology wave, which has transformed many industries in how
they operate and survive, has also come to the aid of the Mutual Fund
Industry to widen its reach, offer flexibility and convenience to investors.
The advantages include lower distribution costs through online
transactions, more customized and personal advised to customers and
reaching put to the growing young and net savvy population of India.
5. Deeper Penetration into the country
Though India has a good savings rate, the savings are channelized
more into insurance and baking schemes, which carry lesser risks. Mutual
fund players are slowly realizing the potential of B and C class cities of
India, many of which are seeing good growth in income levels as major
players from diversified industries such as IT, services, banking, retailing
and petroleum are setting up their bases in these cities. Increased
penetration is helping the industry to improve its Assets under
Management. The potential will be huge for the Indian Mutual Fund
Industry as the present markets are still dominated by corporate and
investors from “A” class cities.
30
6. Tax Incentives
Tax benefits extended to Mutual Fund investors investing in Mutual
Fund Schemes to have acted as a catalyst for the growth of the industry.
As of now, dividend is tax free in the hands of the investors. Also, the
removal of Long Term Capital Gains Tax is a major catalyst.
31
KEY CHALLENGES:
Though India enjoys a good savings rate, the Mutual Fund Industry
gets very little out of this. If this money gets channelized into Mutual Funds
it will help India match over well developed markets like the US, Canada,
etc. Another issue facing the industry is that till now the Indian Mutual
Funds have focused on the A cities and have not made much impact on the
B & C class cities and the rural areas, which have also seen a marked
increase in income levels and spending power.
Following are the major challenges that the industry is facing.
1. Poor Reach
Lack of deeper distribution networks and channel is hurting the
growth of the industry. This is an area of concern for the Mutual Fund
Industry which has not been able to penetrate deeper into the country and
has been limited to the metros and ‘A’ class cities. If the Mutual Fund
Industry comes up with better distribution models and increases its reach it
could tap into a huge potential investors market of the rural and other ‘B’
&‘C’ class cities, which are also witnessing good growth in disposable
incomes.
2. Banks Still Dominate
The biggest hindrances to the growth of the industry lies in its inability
to attract the savings of the public, which constitute the major investment
sources in other Mutual Funds Markets. A large pool of money in savings in
India is still with the state-run and private banks.
32
BANKS
MUTUAL
FUNDS
Returns
Low
Better
Administrative exp.
High
Low
Risk
Low
Moderate
Investment options
Less
More
Network
High penetration
Low but
Liquidity
At a cost
Better
Improving
Quality of assets
Not transparent
Transparent
Interest calculation
Minimum balance between 10th. & 30th. Of every
month
Everyday
Guarantee
Maximum Rs.1 lakh on deposits
None
3. Impact of Global Developments
Though the economic reforms have brought India on the global
investment map, this also exposes Indian Financial Market, including Indian
Mutual Fund Industry to the volatility in international markets. Fluctuations
in the global markets and financial systems will now be evident as the
Indian markets get linked to other foreign markets. Managing risks in such
a scenario will be a key challenge for the Indian Mutual Fund Industry.
33
4. Operational Hassles
Operational inefficiencies are still hampering the growth prospects of
the industry. Lengthy transaction cycles and old fashioned returns
distribution models like Cheque-based returns are preventing the industry
to grow t good rates. Investments in technology take up huge capital and
are pretty risky for the Mutual Fund companies to invest in. the rapid
obsolescence of technology and huge upfront investment costs are also
getting in the way of Mutual funds embracing the technology wave.
5. Lack of Investment Advisors
The lack of investment advisors, especially to give personalized
investment advice to the investors is creating road blocks for the growth in
Mutual funds. Further, the awareness levels in India about the Mutual fund
industry is largely restricted to high income investors and ‘A’ class cities.
This rules out the potentiality huge ‘B’, ‘C’ class cities and rural areas,
which have strong growth potential. Lack of access, distribution models and
advisors in these areas have blocked out a large pool of potential investors
for the industry.
34
GROWTH OF MUTUAL FUNDS IN INDIA
Year
Sept. 2013
Sept. 2012
Sept. 2011
Sept. 2010
Sept. 2009
Sept. 2008
Sept. 2007
AUM (Crores)
808295
740302
703622
704744
733728
521442
467539
AUM (Crores)
900000
800000
700000
600000
AUM
(Crores)
500000
400000
300000
200000
100000
0
Sept. 2013
Sept. 2012
Sept. 2011
Sept. 2010
35
Sept. 2009
Sept. 2008
Sept. 2007
Year
Sept. 2013
Sept. 2012
Sept. 2011
Sept. 2010
Sept. 2009
Sept. 2008
Sept. 2007
No. of schemes
8806
4963
4514
3660
3485
4636
3108
No. of schemes
10000
9000
8000
7000
6000
5000
No. of schemes
4000
3000
2000
1000
0
Sept. 2013 Sept. 2012 Sept. 2011 Sept. 2010 Sept. 2009 Sept. 2008 Sept. 2007
Source:
http://portal.amfiindia.com/AUMReport_Frm_Po.aspx?rpt=swise
36
Mutual Fund Companies in India
Major Mutual Fund Companies in India:
1. BNP Paribas Mutual funds:
BNP Paribas Investment Partners is the dedicated asset
management business line of BNP Paribas and backed up by the financial
strength of one of the best rated banks1 in the world.
BNP Paribas Investment Partners manages and advises assets of
over EUR 478 billion across 40 countries with significant presence in
Europe, Asia and the Americas. It is Europe's 6th largest asset manager
and among the leading asset managers in the world offering one of the
widest range of investment solutions in the industry.
2. Birla Sun Life Mutual Funds:
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group
and Sun Life Financial. Sun Life Financial is a global organization evolved
in 1871 and is being represented in Canada, the US, the Philippines,
Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual
Fund follows a conservative long-term approach to investment.
3. HDFC Mutual Fund:
HDFC Mutual Fund was setup on June 30, 2000 with two sponsor’s
namely Housing Development Finance Corporation Limited and Standard
Life Investments Limited.
37
4. ING Vysya Mutual Fund
ING Vysya Mutual Fund was setup on February 11, 1999 with the
same named Trustee Company. It is a joint venture of Vysya and ING. The
AMC, ING Investment Management (India) Pvt. Ltd was incorporated on
April 6, 1998.
5. Prudential ICICI Mutual Fund
The mutual fund of ICICI is a joint venture with Prudential Plc. of
America, one of the largest life insurance companies in the US of A.
Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two
sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is
Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset
Management Company Limited incorporated on 22nd of June, 1993.
6. Tata Mutual Fund
Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882.
The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata
Investment Corporation Ltd. The investment manager is Tata Asset
Management Limited and its Tata Trustee Company Pvt. Limited. Tata
Asset Management Limited is one of the fastest in the country with more
than Rs. 19157 crores (as on March, 2008) of AUM.
7. Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a
subsidiary of KMBL. It is presently having more than 1, 99,818 investors in
its various schemes. KMAMC started its operations in December 1998.
Kotak Mahindra Mutual Fund offers schemes catering to investors with
varying risk - return profiles. It was the first company to launch dedicated
gilt scheme investing only in government securities.
38
8. Unit Trust of India Mutual Fund
UTI Asset Management Company Private Limited, established in Jan
14, 2003, manages the UTI Mutual Fund with the support of UTI
Trustee Company Private Limited. UTI Asset Management Company
presently manages a corpus of over Rs.20000 Crores. The sponsors of UTI
Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB),
State Bank of India (SBI), and Life Insurance Corporation of India (LIC).
The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset
Management Funds, Index Funds, Equity Funds and Balance funds.
9. Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under Indian
Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and
Reliance Capital Trustee Co. Limited is the Trustee. It was registered on
June 30, 1995 as Reliance Capital Mutual Fund which was changed on
March 11, 2004. Reliance Mutual Fund was formed for launching of various
schemes under which units are issued to the Public with a view to
contribute to the capital market and to provide investors the
opportunities to make investments in diversified securities.
10.
Franklin Templeton India Mutual Fund
The group, Franklin Templeton Investments is a California (USA)
based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005).
It is one of the largest financial services groups in the world. Investors can
buy or sell the Mutual Fund through their financial advisor or through mail
or through their website. They have Open end Diversified Equity
schemes, Open end Sector Equity schemes, Open end Hybrid
schemes, Open end Tax Saving schemes, Open end Income and Liquid
schemes, Closed end Income schemes and Open end Fund of Funds
schemes to offer.
39
11.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and it’s
leading in the market in securities, investment management and credit
services. Morgan Stanley Investment Management (MISM) was
established in the year 1975. It provides customized asset management
services and products to governments, corporations, pension funds and
non-profit organizations. Its services are also extended to high net worth
individuals and retail investors. In India it is known as Morgan Stanley
Investment Management Private Limited (MSIM India) and its AMC is
Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified
equity scheme serving the needs of Indian retail investors focusing on a
long-term capital appreciation.
12.
Can bank Mutual Fund
Can bank Mutual Fund was setup on December 19, 1987 with
Canara Bank acting as the sponsor. Can bank Investment Management
Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate
Office of the AMC is in Mumbai.
13.
Chola Mutual Fund
Chola Mutual Fund under the sponsorship of Cholamandalam
Investment & Finance Company Ltd. was setup on January 3, 1997.
Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is
Cholamandalam AMC Limited.
40
14.
LIC Mutual Fund
Life Insurance Corporation of India set up LIC Mutual Fund on 19th
June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC
Mutual Fund was constituted as a Trust in accordance with the provisions
of the Indian Trust Act, 1882.The Company started its business on 29th
April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan
Bima Sahayog Asset Management Company Ltd as the investment
Managers for LIC Mutual Fund.
41
Some of the AMCs operating currently are:
Nature of
ownership
Name of the AMC
Alliance Capital Asset Management (I) Private Limited
Private foreign
Birla Sun Life Asset Management Company Limited
Private Indian
Bank of Baroda Asset Management Company Limited
Banks
Bank of India Asset Management Company Limited
Banks
Canbank Investment Management Services Limited
Banks
Cholamandalam Cazenove Asset Management Company
Limited
Private foreign
DSP Merrill Lynch Asset Management Company Limited
Private foreign
Escorts Asset Management Limited
Private Indian
GIC Asset Management Company Limited
Institutions
IDBI Investment Management Company Limited
Institutions
Indfund Management Limited
Banks
ING Investment Asset Management Company Private Limited
Private foreign
J M Capital Management Limited
Private Indian
42
Jardine Fleming (I) Asset Management Limited
Private foreign
Kotak Mahindra Asset Management Company Limited
Private Indian
Kothari Pioneer Asset Management Company Limited
Private Indian
Jeevan Bima Sahayog Asset Management Company Limited
Institutions
Morgan Stanley Asset Management Company Private Limited
Private foreign
Punjab National Bank Asset Management Company Limited
Banks
Reliance Capital Asset Management Company Limited
Private Indian
State Bank of India Funds Management Limited
Banks
Shriram Asset Management Company Limited
Private Indian
Sun F and C Asset Management (I) Private Limited
Private foreign
Sundaram Newton Asset Management Company Limited
Private foreign
Tata Asset Management Company Limited
Private Indian
Credit Capital Asset Management Company Limited
Private Indian
Templeton Asset Management (India) Private Limited
Private foreign
Unit Trust of India
Institutions
Zurich Asset Management Company (I) Limited
Private foreign
43
Resources Mobilized By Mutual Funds
Details of funds mobilized, repurchase/redemption amount and
the net inflow/outflow of funds for the financial year 20012-2013 are
given in the below table:
Resources Mobilized by the Mutual Funds (Rs. Crores):
PRIVATE SECTOR MUTUAL FUNDS (Rs.in crores)
Mobilization of Funds(gross)
Repurchase/ Redemption
Amount
Net In/ Outflow of funds
Open ended
Closed
ended
Total
54283504
900688.3
55184192
34198607
2251721
36450328
20084896
-1351032
18733864
PUBLIC SECTOR MUTUAL FUNDS (Rs. In crores)
Open ended
Mobilization of Funds (gross)
Repurchase/ Redemption
Amount
Net In/ Outflow of funds
Closed
ended
Total
4175654
450344.2
4625998
3298767
1801377
5100143
876887.4
-1351032
-474145
44
UTI (Rs. In crores)
Open ended
Mobilization of Funds (gross)
Repurchase/ Redemption
Amount
Net In/ Outflow of funds
Closed
ended
Total
9743193
9907571
19650764
7209963
3467650
10677613
2533230
6439921
8973152
60000000
50000000
40000000
Mobilization of Funds (gross)
30000000
Repurchase/ Redemption Amount
20000000
Net In/ Outflow of
funds
10000000
0
-10000000
PRIVATE SECTOR PUBLIC SECTOR UTI (Rs. In crore)
MUTUAL FUNDS MUTUAL FUNDS (
(Rs.in crore)
Rs. In crore)
45
RULE OF 3
LEADER, CHALLENGER, FOLLOWER:
Having, talks with Mutual Fund experts, we learned that there was no
ONE leader, challenger and follower in the industry. Each instrument had
different Leaders, Challengers and Followers. They are given as below as
on 21st January, 2006:
LEADER, CHALLENGER & FOLLOWER
1-yr. Returns (%)
Liquid funds
LIC MF Liquid Fund
HDFC Cash Mgmt. Fund – Savings plus
Can liquid
Gilt funds
Reliance G Sec Fund-LTP-Retail
PRINCIPAL G Sec-Investment
DSP ML G Sec Fund Plan A
Income funds
Tata Income Fund
Can Income Scheme
UTI Bond Fund
Balanced funds
SBI Magnum Balanced Fund
Can Balanced II
HDFC Prudence Fund
Equity diversified funds
SBI Magnum Sector Umbrella
SBI Magnum Global Fund 94
Prudential ICICI Emerging STAR Fund
Sector funds
Prudential ICICI FMCG
Reliance Diversified Power Fund
SBI Magnum Sector Umbrella-InfoTech
Tax-planning funds
SBI Magnum Tax Gain Scheme 93
HDFC TaxSaver Fund
Prudential ICICI Tax plan
Source: Mutualfundsindia.com
46
5.7
5.7
5.6
7.2
7.1
6.9
11.2
9.8
9.5
60.8
58.5
57.6
109.1
105.2
97.4
202.8
100.6
83.2
120.2
90.7
87.3
GLOBAL SCENARIO OF MUTUAL FUND INDUSTRY
The money market mutual fund segment has a total corpus of $ 1.48
trillion in the U.S. against a corpus of $ 100 million in India. Out of the top
10 mutual funds worldwide, eight are bank- sponsored.OnlyFidelity and
Capital are non-bank mutual funds in this group.
In the U.S. the total number of schemes is higher than that of the
listed companies while in India we have just 277 schemes Internationally,
mutual funds are allowed to go short. In India fund managers do not have
such leeway.
In the U.S. about 9.7 million households will manage their assets online by the year 2003, such a facility is not yet of avail in India. On- line
trading is a great idea to reduce management expenses from the current
2% of total assets to about 0.75 % of the total assets.72% of the core
customer base of mutual funds in the top 50-broking firms in the U.S. is
expected to trade on-line by 2003.
The Mutual Fund Industry’s share in GDP – in the Global Scenario is
highest in Australia, with a share of 87%, followed by the US with a share
of 72%, etc. the Mutual Fund Industry’s share in GDP is only 6%. However,
compared to the AUM of Indian Mutual Fund Industry worth Rs. 1, 50,537
crore and bank deposit figure was a mammoth Rs. 16, 22,579 crore.
Although compared to the developed markets, the Indian Mutual Fund
market is way behind. On the positive side, the household savings in the
country is approximately 28%, which though seems to be minute compared
to that of over 40% of East Asians, is significant when compared to the
negative savings by US residents.
47
Internationally, on- line investing continues its meteoric rise. Many
have debated about the success of e- commerce and its breakthroughs,
but it is true that this aspect of technology could and will change the way
financial sectors function. However, mutual funds cannot be left far behind.
They have realized the potential of the Internet and are equipping
themselves to perform better. In fact in advanced countries like the U.S.A,
mutual funds buy- sell transactions have already begun on the net, while in
India the Net is used as a source of Information.
Such changes could facilitate easy access, lower intermediation
costs and better services for all. A research agency that specializes in
internet technology estimates that over the next four years Mutual Fund
Assets traded on- line will grow ten folds from $128 billion to $ 1,227
billion; whereas equity assets traded on-line will increase during the period
from $ 246 billion to $ 1,561 billion. This will increase the share of mutual
funds from 34% to 40% during the period. Such increases in volumes are
expected to bring about large changes in the way Mutual Funds conduct
their business.
48
MUTUAL FUND INDUSTRY’S SHARE IN GDP
GLOBAL SCENARIO
Australia
87%
USA
72%
Brazil
30%
UK
23%
South Korea
21%
India
6%
Japan
5%
Source: DSP Merrill Lynch
MUTUAL FUND Share in GDP %
Australia
USA
Brazil
UK
49
South Korea
Japan
India
Top Mutual funds in India for 2013:
NAV
1 yr.
Return
AUM
(Rs. cr.)
(Rs./Unit)
(%)
13-Sep
Large Cap
BNP Paribas Equity Fund (G)
41.94
14.4
127.22
UTI Equity Fund (G)
63.9
6.7
2,213.04
UTI India Lifestyle Fund(G)
14.2
7
307.83
UTI Opportunities Fund (G)
32.73
6.1
1,861.83
Birla Sun Life MNC Fund (G)
261.64
4.7
382.64
JPMorgan (I) Smaller Co. (G)
8.66
3.1
109.11
51.32
-4.2
1,192.84
Birla SL India GenNext (G)
ICICI Prudential Exp. &Other ServicesRP (G)
32.16
10.8
158.01
24.74
40
152.37
Reliance Equity Opportunity - RP (G)
40.5
-2.4
4,623.00
Tata Ethical Fund (G)
80.36
13.6
107.09
UTI MNC Fund (G)
74.79
5.9
257.39
37.87
-13.3
982.86
Axis Long Term Equity Fund (G)
15.62
10.5
634.69
BNP Paribas Tax Advantage Plan (G)
17.29
10.5
128.64
617.13
7.3
381.44
Small & Mid Cap
SBI Emerging Business (G)
Diversified Equity
Thematic – Infrastructure
DSP-BR India TIGER - RP (G)
ELSS
Index
GS Nifty BeES
50
Debt Long Term
IDFC Dynamic Bond –Reg. Plan (G)
14.38
8.4
5,171.98
SBI Dynamic Bond Fund (G)
14.92
6.7
6,403.71
SBI Magnum Income Fund (G)
29.53
7
5,451.10
Birla SL Short Term Fund (G)
45.24
8.3
2,309.52
JPMorgan Short Term Income (G)
13.34
8.5
749.26
Morgan Stanley STBF - RP (G)
13.92
9.1
259.96
Sundaram Flexi Inc.-STP-IP (G)
19.33
8.3
601.34
230.23
9.4
4,634.47
16.07
8.8
1,766.15
Reliance Money Mgr. - IP (G)
1,683.97
9.2
4,581.17
UTI Treasury Advantage–Inst. (G)
1,665.15
9.4
3,826.48
IDFC G-Sec-Investment - RP B (G)
14.03
10.3
205.9
IDFC G-Sec - PF- RP A (G)
20.15
10.2
51.12
58
10.2
525.71
25.67
4.5
3,079.60
21.51
6.1
265.2
(Rs./Unit)
(%)
13-Sep
Baroda Pioneer Liquid -Plan A (G)
1,408.30
9
1,235.74
IDFC Cash Fund - Regular (G)
1,494.04
9
2,753.80
India bulls Liquid Fund (G)
1,194.35
8.9
313.99
UTI Liquid Cash – Inst. (G)
2,014.01
8.9
4,832.32
Debt Short Term
Ultra Short Term Debt
ICICI Prudential Flexi Income (G)
JPMorgan Treasury - SIP (G)
Gilt Long Term
Balanced
ICICI Prudential Balanced Fund (G)
MIP Aggressive
Reliance MIP (G)
MIP Conservative
Birla SL MIP II-Savings 5 (G)
Liquid
51
The ten best Mutual Funds in 2012-13 globally are given below:
1) Pimco Total Return (PTTAX) — Assets: $263 billion
2) Vanguard Total Stock Market Index Fund (VTSMX) — Assets: $190 billion
3) American Funds Growth Fund of America (AGTHX) — Assets: $115 billion
4) Vanguard 500 Index Investor Fund (VFINX) — Assets: $111 billion
5) Vanguard Total Bond Market Index (VBMFX) — Assets: $111 billion
6) American Funds EuroPacific Growth (AEPGX) — Assets: $94 billion
7) Fidelity Contrafund (FCNTX) — Assets: $81 billion
8) American Funds Capital Income Builder (CAIBX) — Assets: $76 billion
9) American Funds Income Fund of America (AMECX) — Assets: $72 billion
10) Vanguard Total International Stock Index (VGTSX) — Assets: $68 billion
http://www.forbes.com/sites/billharris/2012/08/08/the-10-biggest-mutual-funds-are-they-reallyworth-your-money/
52
TAX BENEFITS IN INVESTING IN MUTUAL FUNDS
Tax benefits are also one of the major reasons for people to invest in
Mutual Funds. Most of the investment schemes do not provide for Tax
exemption, which is makes Mutual Funds more lucrative.
 The tax benefits for investing in mutual funds are as follows:
Twenty percent of the amount invested in specified mutual funds
(called equity linked savings schemes or ELSS and loosely referred to as
"tax savings schemes") is deductible from the tax payable by the investor
in a particular year subject to a maximum of Rs 2000 per investor. This
benefit is available under section 88 of the I.T. Act.
Investment of the entire proceeds obtained from the sale of capital
assets for a period of three years or investment of only the profits for a
period of 7 years, exempts the asset holder from paying capital gains tax.
This benefit is available under section 54EA and 54EB of the I.T. Act,
provided the capital asset has been sold prior to April 1, 2000 and the
amount is invested before September 30, 2000.
The mutual fund is completely exempt from paying taxes on
dividends/interest/capital gains earned by it. While this is a benefit to the
fund, it is the indirect benefit of unit holders as well. This benefit is available
to the mutual fund under section 10 (23D) of the I.T. Act.
53
A mutual fund has to pay a withholding tax of 10% on the dividends
distributed by it under the revised provisions of the I.T. Act putting them on
par with corporates. However, if a mutual fund has invested more than
50% of its assets into equity shares, then it is exempt from paying any tax
on the dividend distributed by it, for a period of three years, by an
overriding provision. This benefit is available under section 115R of the I.T.
Act.
The investor in a mutual fund is exempt from paying any tax on the
dividend received by him from the mutual fund, irrespective of the type of
the mutual fund. This benefit is available under section 10(33) of the I.T.
Act.
The units of mutual funds are treated as capital assets and the
investor has to pay capital gains tax on the sale proceeds of mutual fund
units sold by him. For investments held for less than one year the tax is
equal to 30% of the capital gain. For investments held for more than one
year, the tax is equal to 10% of the capital gains. The investor is entitled to
indexation benefit while computing capital gains tax. Thus if a typical
growth scheme of an income fund shows a rise of 12% in the NAV after
one year and the investor sells it, he will pay a 10% tax on the selling price
less cost price and indexation component. This reduces the incidence of
tax considerably. This concession is available under section 48 of the I.T.
Act.
54
Calculation of Mutual Funds
 Purchase NAV = Rs 10
 Sale NAV = Rs. 11.2
 Indexation Component=8%
Therefore,
Capital Gains
= 11.2 – 10(1.08)
= 11.2 – 10.8
= 0.4
Therefore,
Capital Gains Tax
= 0.4*0.1
= 0.04
If an investor buys a fresh unit in the closing days of March and sells
it in the first week of April of the following year, he is entitled to indexation
benefit for two financial years which close in the two March ending periods.
This is termed as double indexation and lowers the tax even further
especially for income funds. Then in the above example, the calculation
would be as follows:
Therefore,
Capital gains
= 11.2 – 10(1.08) (1.08)
= 11.2 – 11.7
= -0.5
Thus there would be no capital gains tax.
55
POTENTIAL OF MUTUAL FUND INDUSTRY
Mutual Funds form a part of Indian financial sector and have gained
significant position in the economy since the liberalization process started
in 1992. In the meteoric growth of mutual fund industry enabled by Capital
market reforms and economic growth is a clear direction for the future
growth of this industry.
Mutual Funds today form 1/10th of the banking industry size. If we
compare this an indication in the current interest rate scenario, MF has
ample shelf-space to grow into an industry like the Banking Industry in
India.
In the developed economies, MFs play a vital role in channeling the
earnings of investors towards capital formation. MFs thus play a dual role
by providing superior returns to investors and act as a key for economic
development.
Intermediaries play a vital role in promoting a sale of Mutual Fund
schemes. The individual agents provided a strong foundation for growth of
the industry in the earlier years. Institutional intermediaries in the
organized sector provided a much-needed professional service to the
industry and investors in the second phase of the growth of MFs in India.
56
Even though the growth witnessed in recent years has been robust,
the intense competition, concentration and focus of the players in the
metros and urban areas have in fact restricted the growth. If the assets
under management of the industry have to grow in time with other financial
sectors, MF should accelerate their penetration to semi-urban and rural
areas. Agents have to educate investors to take informed decisions and
chose schemes depending upon the Risk-Return profile of each class of
investors.
Intermediaries are a major and important link between the fund and
the investors. The growth of the industry thus depends on the strong and
well-spread intermediary chain. For example, The Intermediaries’ Advisory
Committee constituted by Canbank Mutual Fund attempts to provide a
platform for the intermediaries to discuss issues relating to the selling of
Mutual Funds.
At present, only a small portion of the savings are reaching the
Capital markets through the MF route. In the future, the percentage of
savings reaching Capital markets through MF route will rise gradually.
Innovations like Arbitrage Funds, Exchange Traded Funds are really going
to benefit investors.
Building a strong MF brand, product innovation, packaging,
distribution, customer education and penetration will have to go a long
way, in making the MF industry a most preferred investment vehicle, for
the masses in our country.
57
PORTER’S MODEL
58
SURVEY
A survey was conducted on the salaried investors who investing
regularly in various investment product. The survey was conducted to find
out the awareness of salaried investors about mutual fund industry. This
survey helps to find out, how far the mutual funds penetrated in the Thane
district market. The survey also helps to find out, what people think about
mutual fund. The questionnaire of the survey is given in the next page.
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Questionnaire
1) What is the first thing that comes to your mind when you think about investment?






Capital market
Real estate
Gold
FDs
Mutual funds
Others
2) What is your objective of investing?




Future security
Tax benefits
Maximization of return
All of the above
3) Do you invest in mutual funds?
 Yes
 No
4) Why don’t you invest in mutual funds?




Risky
Lengthy process/paperwork
Low returns
Not Applicable
5) How many people you know invest in mutual funds?
 0 to5
 6 to15
 16 and more
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6) How do you perceive investment in mutual funds?
 High risk
 Moderate risk
 Low risk
7) How did you come to know about Mutual funds?




TV advertising
Hoardings
Intermediary
Friend/Acquaintance
8) How much percentage of your investments is in mutual funds?





0
Less than10
10 to20
20 to50
Above 50
9) What do you consider while investing your money?
 Professional management
 Higher returns
 Risk free investment
10) Do you feel that mutual fund would satisfy your investment needs and returns?
 Yes
 No
 Can’t say
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RESULTS OF THE SURVEY
The survey was conducted on 100 people who are salaried investors
who invest regularly in various investment product. The results of the
survey are as follows:
1) What is the first thing that comes to your mind when you think about
Investment?
15%
15%
Capital market
5%
Real esate
Gold
18%
12%
FD's
Mutual funds
Others
35%
Here, when salaried investor thinks about the investment first he/she
think about the FD, then mutual fund then capital market then gold and last
is about real estate.
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2) What is your objective of investing?
50
45
40
35
30
25
Series1
20
15
10
5
0
Future security
Tax benefit
Maximization of
returns
All of the above
 Future security is the main objective of investors, and then it comes
to tax benefit & then Maximization of return. And 15 people are
investing for all objectives.
63
3) Do you invest in mutual funds?
16
Yes
No
84
 Out of 100, 84 people are investing in mutual fund.
64
4) Why don’t you invest in mutual funds?
2
35
Risky
37
Long time/ more paper work
Less returns
Not applicable
26
 Out of 100, 35 people say investing in mutual fund is risky.
 26 people say it will take a long time / more paper work.
 37 people think mutual fund gives less returns.
65
5) How many people you know invest in mutual funds?
60
50
40
30
Series1
20
10
0
0-5
6 - 15
16 and above
 In this district, more people are investing in mutual fund.
6) How do you perceive investment in mutual funds?
70
60
50
40
Series1
30
20
10
0
High risk
Moderate risk
Low risk
 Out of 100 persons 59 people says that they perceive mutual fund as
moderate risk and
 34% people think of high risk in investing in mutual fund.
66
7) How did you come to know about Mutual funds?
40
37
35
30
25
24
21
18
20
Series1
15
10
5
0
TV advertisements
Hoarding
Intermediary
Friend/ Acquaintance
 Information about mutual fund is available at various sources.
 37 people say that they know through Intermediary. 24 people know
through TV Advertising, 21 know from their friends. & 18 people know
through hoarding.
67
8) How much percentage of your investments is in mutual funds?
45
40
35
30
25
Series1
20
15
10
5
0
0
Less than 10
10 - 20
20 - 50
50 & above
 Investor who invest in mutual fund, 10 people invest above 50% of
their investment in mutual fund 40 people investment 20-50% ,35
people invest 10-20% of their investment & 12 people invest less than
10%.
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9) What do you consider while investing your money?
70
58
60
50
40
20
Series1
28
30
14
10
0
Risk free investment
Professional management
Higher returns
 58 people consider high return, 28 consider professional
management & 14 people consider risk free investment while
investing their money.
69
10) Do you feel that mutual fund would satisfy your investment needs and
Returns?
13
Yes
23
No
Cant say
64
 64 people think that mutual fund can satisfy their investment needs &
returns. 23 people think that mutual fund cannot satisfy their
investment needs & returns. & 13 people are constant.
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Conclusion
The future for industry is very good because the investors are now
concerned about the assured returns. Going by the Indian demography, the
purchasing power and the savings rate and the kind of money people earn
will increase in the future. Obviously they need investment opportunities,
and mutual funds will be one of the best opportunities for the future
because of the kind of returns they are giving, which no other asset class
can give vis a vis the risks. Investors can map this risk and return on basis
of the investments in the mutual fund industry. With this background, the
industry’s future seems very good for the coming years.
The industry has come to a stage of development where one may
see high rates of growth in the future. There may also be the advent of
more sophisticated products in various asset classes in the times to come.
Competition will stay and will only grow stronger with time. Returns are
related to the state of financial markets. Investors have also started
realizing that a mutual fund will be doing a good job so long as it gives
market related rates of return.
Mutual fund has established itself as a serious contender for a place
in investors’ financial assets. Thus the industry is likely to continue at an
above average growth rate. Although the competitive scenario is getting
tougher day by day, it actually helps in expanding the market. Competition
will also lead to innovation in product development and race for better
returns. Although the market looks crowded right now, and there could be
further consolidation in the industry, there is room for more players.
The mutual fund industry is very urban focused and the key challenge
for them is to reach out to the much larger population. This is a slow and
gradual process and the only way to do it is to build a strong cadre of
intermediaries in those areas. This is one of the biggest challenge for the
industry. If you go by the western standards of a few hundred mutual funds
and a few thousand mutual funds schemes, the journey of Indian mutual
fund industry has just begun.
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BIBLIOGRAPHY
Outlook –15th February 2011
Chartered Financial Analyst – Mutual Fund Special 2010
Chartered Financial Analyst – Mutual Fund Special 2011
NSE’s Certification in Financial Markets
How to Buy Stocks – Louis Engel & Henry R. Hecht
The International Encyclopedia of Mutual Funds, Closed End Funds
REITs – Peter W. Madlem & Thomas K. Sykes
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WEBLIOGRAPHY
www.mutualfundsindia.com
www.indiainfoline.com
www.amfi.com
www.ecotimes.com
www.google.com
daviddas@bajajcapital.com
www.valueresearchonline.com
www.moneycontrol.com
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