birla sun life mutual fund report

NEED OF FINANCIAL ADVISOR FOR MUTUAL FUND INVESTOR

A Study

On

“Need of financial advisor for Mutual Fund Investors”

(Conducted At BIRLA MUTUAL FUND Pvt. Ltd, Rajkot From 1st June to 15th July. 2010)

A project report submitted to in the partial fulfillment of requirement of the award of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

Kukadiya Gautam D.

M.B.A (Sem-2nd)

Roll no: 53

Under the guidance of

Mr. Hitesh Shah

Om Shanti Institute of Engineering (MBA)

At-Hadmatiya(Bedi), Morbi Road,

Dit. – Rajkot.

Submitted To:

GUJARAT TECHNOLOGICAL UNIVERSITY

AHEMADABAD

OM SHANTI INSTITUTE OF ENGINEERING (MBA) 1 | P a g e


ACKNOWLEDGEMENT

“The only place where success comes before work is in the dictionary.”

It is great exposure for me using my theoretical knowledge which I have learnt till 2nd

semester of Master of Business Administration (M.B.A.) in my project work which I

have done at Birla Sun Life Mutual Fund Pvt. Ltd. It is great pleasure to use

knowledge in practical way in our tenure of training.

I like to first heartily thanks to GUJARAT TECHNOLOGICAL UNIVERSITY

(GTU) for including project in our M.B.A. syllabus. It is helpful to learn real situation

of industry and helpful for increasing in our practical knowledge.

I thankful to Dr. V.J. Dwivedi, I/c Principal of Om Shanti Institute of Engg. For

giving me chance to do my project work.

I am very thankful to Mr. Chirag Patel, Branch Manager of Birla Sun Life Mutual

Fund Pvt. Ltd. As without his help and guidance this project is not possible, he share

his good knowledge and guide in my project work. I am also thankful to all staff

member of Birla Sun Life Mutual Fund Pvt. Ltd.

I am thankful to my project guide Mr. Hitesh Shah for guiding during my project

tenure. As he helps me whenever I need and spare her valuable time. Without her this

project is not possible.

I am thankful to my parents and my friends as they always motivate me and help me

directly or indirectly in my project work.

Gautam D. Kukadiya.



DECLARATION

I Kukadiya Gautam D., hereby declare that the project report entitled “NEED

OF FINANCIAL ADVISOR FOR MUTUAL FUND INVESTORS” under the

guidance of Mr. CHIRAG PATEL Submitted in partial fulfillment of the

requirements for the award of the degree of Master of Business Administration to

GUJRAT TECHNOLOGICAL UNIVERSITY, Rajkot is my original work –

research study – carried out during 1st June, 2010 to 15th July, 2010 and not

submitted for the award of any other degree/diploma/fellowship or other similar titles

or prizes to any other institution/organization or university by any other person.

Signature,

(Kukadiya Gautam D.)

(M.B.A. 53)



INDEX

Sr.No. Subject Page No.1 Executive Summary 012 Company Profile

History Vision Mission Values Product Offering Marketing Department HR Department

02030303070810

3 Mutual Fund Introduction Advantages of Mutual Fund Drawbacks of Mutual Fund Risk in Mutual Fund Performance of Mutual Fund In India Organization of Mutual Fund Process of Invest in Mutual Fund Cost Associated with Mutual Fund Categories of Mutual Fund Measuring Performance of Mutual Fund

15171819222430313338

4 Systematic Investment Plan 455 Portfolio Analysis Tools 476 Research Methodology

Literature Review Objectives of Research Data Analysis Testing Hypothesis Findings And Conclusion Recommendations Sample Questionnaire

51525464666869

7 Glossary of Some Concepts 728 Conclusion 759 Bibliography 76

EXECUTIVE SUMMARY



This project has been a great learning experience for me; at the same time it gave me

enough scope to implement my analytical ability. This project as a whole can be

divided into two parts:

The first part gives an insight about the mutual funds and its various aspects. It is

purely based on whatever I learned at Birla Sun Life Mutual Fund. One can have a

brief knowledge about mutual funds and all its basics through the project. Other than

that the real servings come when one moves ahead. Some of the most interesting

questions regarding mutual funds have been covered. Some of them are: why has it

become one of the largest financial intermediaries? How investors do chose between

funds? Most popular stocks among fund managers, most lucrative sectors for fund

managers, a special report on Systematic Investment Plan, does fund performance

persists and the topping of all the servings in the form of portfolio analysis tool and its

application.

All the topics have been covered in a very systematic way. The language has been

kept simple so that even a layman could understand. All the data have been well

analyzed with the help of charts and graphs.

The second part consists of data and their analysis, collected through a survey done on

200 people. It covers the topic” need of financial advisors for mutual fund investors”.

The data collected has been well organized and presented. Hope the research findings

and conclusions will be of use. It has also covered why people don’t want to go for

financial advisors? The advisors can take further steps to approach more and more

people and indulge them for taking their advices.



COMPANY PROFILE

OF

BIRLA SUN LIFE MUTUAL FUND



The Aditya Birla Group is one of India's largest business houses. Global in vision,

rooted in Indian values, the Group is driven by a performance ethic pegged on value

creation for its multiple stakeholders.

The Group's operations span 66 state of the art, straddling India, Thailand, Malaysia,

Indonesia, Egypt, Philippines, Canada, Australia and China.

A US $28 billion corporation with a market cap. Of US $31.5 billion and in the

League of Fortune 500, the Aditya Birla Group is anchored by an extraordinary force

of 100,000 employees, belonging to 25 different nationalities. Over 50 per cent of its

revenues flow from its operations across the world.

The Aditya Birla Group is a dominant player in all its areas of operations viz;

Aluminum, Copper, Cement, Viscose Staple Fiber, Carbon Black, Viscose Filament

Yarn, Fertilizers, Insulators, Sponge Iron, Chemicals, Branded Apparels, Insurance,

Mutual Funds, Software and Telecom. The Group has strategic joint ventures with

global majors such as Sun Life (Canada), AT&T (USA), the Tata Group and NGK

Insulators (Japan), and has ventured into the BPO sector with the acquisition of Trans

Works, a leading ITES/BPO company.

Sun Life Financial

Sun Life Financial is a leading international financial services organization providing

a diverse range of wealth accumulation and protection products and services to

individuals and corporate customers. Chartered in 1865, Sun Life Financial and its

partners today have operations in key markets worldwide, including Canada, the

United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia,

India, China and Bermuda.

Since its inception in 1994, Birla Sun Life Mutual fund has emerged as one of India's

leading Mutual Funds managing assets of a large investor base. The fund offers a

range of investment options, which include diversified and sector specific equity

schemes, fund of fund schemes, hybrid and monthly income funds, a wide range of

debt and treasury products and offshore funds.

Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment



managers of Birla Sun Life Mutual Fund, is a joint venture between the Aditya

Birla Group and the Sun Life Financial Services Inc. of Canada. The joint

venture brings together the Aditya Birla Group s experience in the Indian

market and Sun Life s global experience.

No. of schemes 71

No. of schemes including options 218

Equity Schemes 63

Debt Schemes 106

Short term debt Schemes 17

Equity & Debt 10

Money Market 0

Gilt Fund 16

Corpus under management

Rs.49983.17 Crs. as on Feb 28, 2009

Key Personnel

Donald Stewart (Chairman), A Balasubramanian (CEO), Ashok Suvarna

(COO), Abhay Palnitkar (CFO), Sanjay Singal(CMO), Bhavdeep Bhatt ( Head

Products), Chandrashekhar Chavan (Head HRD), Rama Vasantharajan (Hd

Compliance & Risk),

Fund Managers

Ajay Garg , Ankit Sancheti , Atul Penkar , Maneesh Dangi , Navneet Munot,

Nishit Dholakia , Prasad Dhonde , Sanjay Chawla , Satyabrata Mohanty,

Sunaina da Cunha , Vineet Maloo .



BSLAMC follows a long-term, fundamental research based approach to investment.

The approach is to identify companies, which have excellent growth prospects and

strong fundamentals. The fundamentals include the quality of the company’s

management, sustainability of its business model and its competitive position,

amongst other factors. Birla Sun Life Asset Management Company has one of the

largest team of research analysts in the industry, dedicated to tracking down the best

companies to invest in. Birla Sun Life AMC strives to provide transparent, ethical and

research-based investments and wealth management services.

As of 30 June 2010, the Sun Life Financial group of companies had total assets under

management of CDN $ 435 billion.

Vision

To be the most trusted name in investment and wealth management, to be the

preferred employer in the industry and to be a catalyst for growth and excellence of

the asset management business in India.

Mission

Achieving superior and consistent investment results.

Creating a conducive environment to hone and retain talent.

Providing customer delight.

Institutionalizing system-approach in all aspects of functioning.

Upholding highest standards of ethical values at all times.

Values

Integrity

Commitment

Passion

Seamlessness

Speed



Track Record

With a proven track record of over 14 years, Birla Sun Life Mutual Fund has been a

catalyst towards the growth of the private sector asset management business.

Investment Philosophy

Birla Sun Life Mutual Fund follows a long-term, fundamental research based

approach to investment. The approach is to identify companies, which have excellent

credit-worthiness and strong fundamentals. The fundamentals include the quality of

the company's management, sustainability of its business model and its competitive

position, amongst other factors. Birla Sun Life Asset Management Company

(BSLAMC) has one of the largest team of research analysts in the industry, dedicated

to tracking down the best companies to invest in.

BSLAMC will always strive to provide transparent, ethical and research-based

investments and wealth management services.

Geographical Reach

Today, BSLAMC is present in 111 locations, including 74 branches.

Product Offerings

Birla Sun Life Mutual Fund offers a range of investment options, which include

diversified and sector specific equity schemes, fund-of-fund schemes, hybrid and

monthly income funds, a wide range of debt and treasury products and offshore funds.

BSLAMC also provides Private Wealth Management services.



BIRLA SUN LIFE MUTUAL FUND’s

DIFFERENT SCHEMEs

EQUITY SCHEMES DEBT SCHEMES

Birla Sun Life Advantage FundBirla Sun Life Short Term Opportunities

Fund

Birla Sun Life Dividend Yield Plus Birla Sun Life Dynamic Bond fund

Birla Sun Life Tax Plan Birla Sun Life Gilt Plus- liquid Plan

Birla Sun Life Index Fund Birla Sun Life Gilt Plus-PF Plan

Birla Sun Life India GenNect Fund Birla Sun Life Gilt Plus- Regular Plan

Birla Sun Life India Opportunities Fund Birla Sun Life Income Plus

Birla Sun Life Midcap Fund Birla Sun Life Govt. Securities(Long Term)

Birla Sun Life MNC Fund Birla Sun Life Govt. Securities(Short Term)

Birla Sun Life Basic Industries fundBirla Sun Life Income Fund- Half Yearly

Dividend

Birla Sun Life Buy India FundBirla Sun Life Income Fund- Quarterly

Dividend

Birla Sun Life Equity FundBirla Sun Life Liquid Plus-Institutional

Monthly Dividend

Birla Sun Life Frontline Equity FundBirla Sun Life Liquid Plus-Retail Monthly

Dividend

Birla Sun Life New Millennium fundBirla Sun Life Short Term Fund- Monthly

Dividend

Birla Sun Life Tax Relief’96

Birla Sun Life Top 100 fund



MARKRTING DEPARTMENT

Marketing is a comprehensive term & it includes all resources & set of activities

necessary to direct & facilitate the flow of goods & services from producer to consumer

in the process of distribution.

“Marketing is the human activity directed at satisfying needs & wants through exchange

process.”

Marketing is the process of planning, pricing, distribution of goods, ideas; services create

exchanges that satisfy individual & organizational goals.

PRODUCT PLANNING

A product planning is a company plan for marketing its products. Product planning

means planning for the product that is to decide what type of products to be produced

or what needs or requirements the product should satisfy.

In Birla Sun Life Mutual Fund, product planning is done very carefully. They first

contact Advisors & ask, for the what type of product customers want means Debt

based, Equity Based or Low risk Product etc then they prepare few samples & give to

Advisors. As per the suggestions & Response of customers they prepare the new

Schemes.

STRATEGIES RELATED PRODUCT

In developing a marketing strategy of individual products, the seller has to comfort

many decision. There are four elements related to the products. The brief study of

these elements will complete the concept. These four elements are:

1. Branding

2. Packing & labeling

3. Promotion

4. After sales service



First one is Brand. Branding is the art and corner stone of marketing. A brand

identifies the seller or marketing. It can a name, trademark, logo or other symbol

under trademark law, the seller is granted exclusive right to the use of brand name.

Second element is packing and labeling. Many marketers are of view that

packing is a fifth P along with price, product, place and promotion. Packing includes

the activities of designing and producing the container or wrapper for product while

the label identifies the product. “Birla Sun Life Mutual Fund” also gives much

important to the packing and labeling.

Next is Promotion. Today promotion is one of the most important tools for

stay in competition. Birla give full attention on this segment because Mutual Fund

Industry is totally service based company and required high promotion to attract the

investors.

BIRLA prepare and distribute its new schemes regularly with some exclusive

paper advertisement. Because in this industry the past performance is only measure of

performance of company and it only show through paper Advertisement.

It also distributes Seasonal Gifts to their Advisor for promoting their product

and motivates them. Example: Give free Umbrella in Monsoon under “Monsoon

Dhamaka” Schemes to attract the advisor for promote BIRLA’s products.

In this business the actual work of company start after sales of product i.e. After Sales

Services. After Sales Services include how company response to their Clint. BIRLA is

known for their After Sales Services.

Birla send monthly valuation report of their Clint through currier.

Birla solved any Query within 48 hours.

Birla also continues suggest good schemes to their current Clint.

Birla give Statement of their (Clint) investment free of costs.



PERSONNEL (HR) DEPARTMENT

Personnel management is the most important area of any business organization. The main

aim of personnel management is to manage the personnel at work. It is concern with

employees both as individual as well as group. The aim being to get better results with

their collaboration and activity involvement in the organization activity.

“Personnel management means quite simply the task of dealing with human relationship

within an organization.”

“Personnel management is that phase of management which deals with the effective

control and use of manpower as distinguished from other sources of power”

ORGANISATION STRUCTURE

Organization is a group of people working together co-operating under “authority”,

towards achieving benefit the participants and the organization. Every organization has

goals and objectives.

In Birla Sun Life Mutual Fund, there is a separate personnel department for

achievement of goals. Personnel management is a most important part in an

organization. All the functions related with personnel department. Personnel manager

has got higher status in the organization.

RECRUITMENT

Recruitment is the process of selection for prospective employees simulating

them to apply for job in the organization. In other words it is linking activity bearing

to gather with jobs, selection jobs. Recruitment makes it possible to acquire the

number and type of people necessary to ensure the continued operation of the

organization.

“Recruitment is a process of searching for prospective employee and

stimulating encouraging them to apply for jobs in an organization”.



There are two sources of requirement:

1. Internal Sources

o Promotion

o Transfer

o Demotion

2. External Sources

o Advertisement

o Employment

o On Campus Requirement

o Employee Recommendation

In “Birla Sun Life Mutual Fund” they are using internal sources as well as external

sources. Their policy for external sources is such that first they give advertisement in

the newspaper and they have also contact with employment exchange through these

source first of all collect application, separated and then after appropriate candidates

are called for the interview.

SELECTION

After creating if application of required number of employees secured through

different sources of recruitment the selection process begins. The main purpose of

selection process of selection process is it find the right man for each job. The

efficiency and profitability of the concern depends mainly on proper selection of the

personnel.

Company select employees through commercial made of three numbers. One is the

work manager, second is of manager and the third is the head department in which

company exists.



WHY SHOULD INVESTORS CHOOSE BIRLA?

Excellence is next to nothing….and here at Birla everybody tries their best to offer

excellent services to its clientele through its offerings maintaining the Birla culture

which includes:

Controlled and low cost service culture

Birla is there to serve its client at the minimum possible cost. it controls cost by its

various cost- cutting techniques and minimization of avoidable costs.

Large volume processing capability

Being the largest financial service provider in the country, it has the unique distinction

of operating its activities on a large scale which benefits all the parties cordially.

Adherence to strict time schedule

Birla knows that time is money and tries it best to finish the task within the stipulated

time schedule.

Expertise in coordinating multi-location responses

Birla has got a wide network and hence one can find its branches at most of the places

in India. Thus it enjoys its presence everywhere and coordinates among itself in

solving the queries and in responding to any situation.

Expertise in managing independent entities such as banks, post-office etc .

The work culture of Birla and the ethics followed inside Birla makes its workforce

compatible with everybody.



Pooling of group resources

Birla group consists of eight subsidiaries, so it can easily pool up its resources for

accomplishment of its goals, whenever needed. The groups can help each other

whenever there are peaks and lows, and even in the case when they have huge targets

just as we saw few years back, Tata group pooling its resources to acquire Corus.

How Birla achieved it?

The core competency of Birla lies in the following points due to which it enjoys a1

competitive edge over its competitors. The following culture adopted by Birla makes

it all time favorite among its clientele:

1. Professionally managed by qualified and trained manpower.

2. Uniquely structured in-house software and hardware department

3. Query handling within 48 hrs.

4. Strong secretarial, accounting and audit systems.

5. Unique work culture of working 7 days a week in 3 shifts.

6. Unmatched network spreading all over India.



MUTUAL FUNDs



INTRODUCTION

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 invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciation realized by the scheme is

shared by its unit holders in proportion to the number of units owned by the (pro rata).

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 portfolio at a

relatively low cost. Anybody with an invest able surplus of as a few thousand rupees

can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment

objective and strategy.

A mutual fund is the ideal investment vehicle for today's complex and modern

financial scenario. Markets for equity shares, bonds and other fixed income

instruments, real estate, derivatives and other assets have become mature and

information driven. Price changes in these assets are driven by global events

occurring in faraway places. A typical individual is unlikely to have the knowledge,

skills, inclination and time to keep track of events, understand their implications and

act speedily. An individual also finds it difficult to keep track of ownership of his

assets, investments, brokerage dues and bank transactions etc.

A mutual fund is answer to all these situations. It appoints professionally qualified

and experienced staff that manages each of these functions on a full time basis. The

large pool of money collected in the fund allows it to hire such staff at a very low cost

to each investor. In effect, the mutual fund vehicle exploits economies of scale in all

three areas – research, investments and transaction processing. While the concept of

individuals coming together to invest money collectively is not new, the mutual fund

in its present form is a 20th century phenomenon. In fact, mutual fund gained

popularity only after the Second World War. Globally, there are thousands of firms



offering tens of thousands of mutual funds with different investment objectives.

Today, mutual funds collectively manage almost as much as or more money as

compared to banks

Mutual Funds now represent perhaps the most appropriate investment opportunity for

most investors. As financial markets become more sophisticated and complex,

investors need a financial intermediary who provides the required knowledge and

professional expertise on successful investing. As a result, in the birthplace of mutual

funds - the U.S.A. - the fund industry has overtaken the banking industry: more funds

are under mutual fund management than deposited with banks.

In India with more person getting interested to earn more from their saving to

minimize the effect of growing inflation mutual funds are becoming one the best way

to achieve the required solution. Despite the fact that mutual funds are still a new

financial intermediary in India, they have started opening up many exciting

investment opportunities for the Indian investor.

A mutual fund is a professionally-managed firm of collective

investments that pools money from many investors and invests it in stocks, bonds,

short-term money market instruments, and/or other securities. In other words we can

say that A Mutual Fund is a trust registered with the Securities and Exchange Board

of India (SEBI), which pools up the money from individual / corporate investors and

invests the same on behalf of the investors /unit holders, in equity shares, Government

securities, Bonds, Call money markets etc., and distributes the profits.

The value of each unit of the mutual fund, known as the net asset value (NAV), is

mostly calculated daily based on the total value of the fund divided by the number of

shares currently issued and outstanding. The value of all the securities in the portfolio

in calculated daily. From this, all expenses are deducted and the resultant value

divided by the number of units in the fund is the fund’s NAV.

NAV = Total value of the fund

Number of shares currently issued and outstanding



ADVANTAGES OF MUTUAL FUNDs

Professional Management

The primary advantage of funds (at least theoretically) is the professional

management of your money. Investors purchase funds because they do not have the

time or the expertise to manage their own portfolios. A mutual fund is a relatively

inexpensive way for a small investor to get a full-time manager to make and monitor

investments.

Diversification

By owning shares in a mutual fund instead of owning individual stocks or bonds, your

risk is spread out. The idea behind diversification is to invest in a large number of

assets so that a loss in any particular investment is minimized by gains in others. In

other words, the more stocks and bonds you own, the less any one of them can hurt

you (think about Enron). Large mutual funds typically own hundreds of different

stocks in many different industries. It wouldn't be possible for an investor to build this

kind of a portfolio with a small amount of money.

Economies of scale

Because a mutual fund buys and sells large amounts of securities at a time, its

transaction costs are lower than what an individual would pay for securities

transactions.

Liquidity

Just like an individual stock, a mutual fund allows you to request that your shares be

converted into cash at any time.



DRAWBACKS OF MUTUAL FUNDs

No guarantee

No investment is risk free. If the entire stock market declines in value, the value of

mutual fund shares will go down as well, no matter how balanced the portfolio is.

Investors encounter fewer risks when they invest in mutual funds than when they buy

and sell stocks on their own. However, anyone who invests through a mutual fund

runs the risk of losing money.

Fees and commission

All funds charges administrative fees to cover their day to day expenses. Some funds

also charge sales commission or “loads” to compensate brokers, financial consultants

or financial planners. Even if you do not use a broker or other financial adviser, you

will pay a sales commission if you buy shares in a load fund.

Taxes

During a typical year, most actively managed mutual funds sell anywhere from 20 to

70 % of the securities in their portfolios, if your fund makes a profit on its sales, you

will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk

When you invest in a mutual fund, you depend on the fund manager to make the right

decisions regarding the fund’s portfolio. If the manager does not freeform as well as

you had hoped, you might not make as much money on your investment as you

expected. Of course, if you invest in Index funds, you forego management risk

because these funds do not employ managers.



RISK ASSOCIATED WITH THE INVESTMENT IN THE

MUTUAL FUNDS

Savings are invested in various investment opportunities for earning better returns.

The returns of the investment depend upon the risk of such investment. All

investments involve some risk. The objective of any investor is to minimize the risk

and maximize returns. The value of financial assets depends on their return and risk

patterns.

Risk can be defined as “the chance factor in trading in which expected or

perspective advantage, gain, profit or return may not materialize”

The actual outcome of investment may be less than the expected outcome. The greater

is the variability in the possible outcome, the greater is the risk. Generally, the

variance and the standard deviation of return are used as the alternative statistical

measures of the risk of the financial asset. Similarly, co-variance measured the risk of

the assets, relative to other assets in a portfolio. Some risks can be controlled by the

investors. Others cannot be controlled, and they are to be borne by the investor

compulsorily.



DIFFERENT TYPES OF RISK IN MUTUAL FUNDs

Risk is an inherent aspect of every form of investment. For mutual fund investments,

risks would include variability, or period-by-period fluctuations in total return. The

value of the scheme’s investment may be affected by factors affecting capital markets

such as price and volume, volatility in the stock markets, interest rates, currency

exchange rates, foreign investment, changes in government policy, political,

economic or other developments.

Market Risk

At times the prices or yields of all the securities in a particular market rise or fall due

to broad outside influences. When this happens, the stock prices of both an

outstanding, highly profitable company and a fledgling corporation may be affected.

This change in price is due to “market risk.”

Inflation Risk

Sometimes it is referred to as “loss of purchasing power”. Whenever the rate of

inflation exceeds the earnings on your investment, you run the risk that you will

actually be able to buy less, not more.

Credit Risk

In short, how stable is the company or entity to which you lend your money when you

invest? How certain are you that it will be able to pay the interest you are promised, or

repay your principal when the investment matures?



Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Bond prices are

influenced by movements in the interest rates in the financial system. Generally, when

interest rates rise, prices of the securities fall and when interest rates drop, the prices

increase. Interest rate movements in the Indian debt markets can be volatile leading to

the possibility of large price movements up or down in debt and money market

securities and thereby to possibly large movements in the NAV.

Investment Risk

In the sectored fund schemes, investments will be predominantly in equities of

selected companies in the particular sectors. Accordingly, the NAV of the schemes

are linked to the equity performance of such companies and may be more volatile than

a more diversified portfolio of equities.

Liquidity Risk

Thinly traded securities carry the danger of not being easily saleable at or near their

real values. The fund manager may therefore be unable to quickly sell an illiquid bond

and this might affect the price of the fund unfavorably. Liquidity risk is characteristic

of the Indian fixed income market.

Changes in the Government Policy

Changes in government policy especially in regard to the tax benefits may impact the

business prospects of the companies leading to an impact on the investments made by

the fund.



PERFORMANCE OF MUTUAL FUND IN INDIA

Let us start the discussion of the performance of mutual funds in India from the

concept of mutual fund took birth in India. The year was 1963, Unit Trust of India

invited investors or rather to those who believed in savings, to park their money in

UTI mutual fund. And their idea of this investment was good.

For 30 years it goaled without a single second player. Though the 1988 year saw some

new mutual fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to

satisfactory level. People rarely understood, and of course investing was out of

question. But yes, some 24 million shareholders were accustomed with guaranteed

high returns by the beginning of liberalization of the industry in 1992. This good

record of UTI became marketing tool for new entrants. The expectations of investors

touched the sky in profitability factor. However, people were miles away from the

preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me

concentrate about the performance of mutual funds in India through figures. From Rs.

67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure

had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices started

falling in the year 1992. Those days, the market regulations did not allow portfolio

shifts into alternative investments. There were rather no choices apart from holding

the cash or to further continue investing in shares. One more thing to be noted, since

only closed-end funds were floated in the market, the investors disinvested by selling

at a loss in the secondary market.



The performance of mutual funds in India suffered qualitatively. The 1992 stock

market scandals, the losses by disinvestments and of course the lack of transparent

rules in the where about rocked confidence among the investors. Partly owing to a

relatively weak stock market performance, mutual funds have not yet recovered, with

funds trading at an average discount of 1020 percent of their net asset value.

The supervisory authority adopted a set of measures to create a transparent and

competitive environment in mutual funds. Some of them were like relaxing

investment restrictions into the market, introduction of open-ended funds, and paving

the gateway for mutual funds to launch pension schemes.

The measure was taken to make mutual funds the key instrument for long-term

saving. The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks

and higher profitability within a short span of time, more and more people will be

inclined to invest until and unless they are fully educated with the dos and don’ts of

mutual funds.



ORGANISATION OF MUTUAL FUND



ORGANISATION OF MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset

Management Company (AMC) and custodian. The trust is established by a

sponsor or more than one sponsor who is like promoter of a company. The

trustees of the mutual fund hold its property for the benefit of the unit holders.

AMC approved by SEBI manages the fund by making investments in various

types of securities. A custodian, who is registered with SEBI, holds the securities

of various schemes of the fund in its custody. The trustees are vested with the

general power of superintendence and direction over AMC. They monitor the

performance and compliance of SEBI regulations by the mutual fund.

Sponsor

Mutual Fund as Trust

Asset Management Company

Other Fund Constituents

1. Sponsor

Any person acting alone or in concert with another body corporate

comparable to a promoter of a company as he gets fund registered with SEBI. For

person to qualify as sponsor at least 40% of the initial Net worth of AMC should

be contributed by him should be in the financial services business for a period of

not less than five years should possess sound financial track record of over five

years & should have positive net worth in all the immediately preceding five

years form a trust and appoint Board of Trustees appoint AMC directly or in

concert with Trustees.

2. Mutual Fund as Trust

Constituted as Trust under Indian Trust Act, 1882 (and registered under

Indian Registration Act, 1908). Sponsor acts as Settler of trust contributes initial

trustee to hold the investors’ assets in trust. Trust deed to be executed by the

sponsor in favor of trustees.



3. Trustees

Eligibility of Board of Trustees or a Trustee Company

Not guilty of moral turpitude

Not convicted (economic offence and securities laws)

Not part of AMC (director, employee or officer of AMC)

Appointment approved by SEBI

More than one trusteeship (in mutual fund industry; approved by SEBI)

At least two third should be independent

‘Meaning of Independence’

Rights of Trustees

Appoint AMC with SEBI approval

Approve schemes floated by AMC

Right to necessary information

Remedial action to ensure that business is conducted as per SEBI

regulation – right to dismiss AMC with approval from SEBI and in

accordance with regulations

Ensure based on quarterly review that any shortfall in NW of AMC is made

up.

Obligations of Trustee

Investment Management Agreement between trustee and AMC with approval

from SEBI (4th schedule)

Monitoring of AMC by trustees – right to information

Right to dismiss the AMC with approval SEBI

Must ensure transactions are in accordance with trust deed

Ensure AMC has proper systems and procedures

Due diligence in appointment of brokers

Ensure AMC is managing funds independent of other activities



Half yearly report of fund activities and certificate that AMC has been

managing funds independent of other activities

4. Other Fund Constituents

i. Custodian and Depositories

For safekeeping of securities and participating in clearing system through

approved depository companies. Entity independent of the sponsor’s

direction and responsibility of the Trustees.

ii. Bankers

Bankers are dealing with money for buy and sale of units, paying and

receiving funds for investments, discharging obligations for operational

expenses.

iii. Transfer Agent

Transfer agents are used for used for issuing and redeeming units,

preparation of transfer documents, updating investor records, in-house or

external agency.

iv. Distributors

Distributor enable fund to sell units over a wide bas of investors, brokers,

banks, individual agents.



HOW TO INVEST IN MUTUAL FUND

1. Reading a Prospectus

2. Objective Statement

3. Performance

4. Fees and Expenses

THE PROCESS TO PURCHASE AND REDEEM UNITS

The most common method to invest in a fund once you are in it is to simply fill

out investment forms and write a check to the mutual fund family. This is

probably the easiest but it often takes a few days or even a week to have the funds

credited to your account.

Another method that is common is automatic withdrawals. These allow

you to have a certain amount, which you choose to be deducted from your bank

account each month. These are excellent for getting into the habit of investing on

a regular basis.

The fund will also provide information on how you can redeem your

shares. One common way is to request redemption by filling out a form or writing

a letter to the mutual fund family. This is the most common method but it isn’t the

only one.

Now that you understand the basics of a prospectus, you are one step closer to

getting started in mutual funds. So when you finally receive the information you

requested on a mutual fund, look it over carefully and make an educated decision if it

is right for you.



PROCESS OF INVESTING IN MUTUAL FUND

Identify Your Investment Needs

Your financial goals will vary, based on your age, lifestyle, financial

independence, family commitments, and level of income and expenses among

many other factors. Therefore, the first step is to assess your needs. You can begin

by defining your investment objectives and needs, which could be regular income,

buying a home or finance a wedding or educate your children or a combination of

all these needs, the quantum of risk you are willing to take and your cash flow

requirements.

Choose the Right Mutual Fund

The important thing is to choose the right mutual fund scheme, which suits

your requirements. The offer document of the scheme tells you its objectives and

provides supplementary details like the track record of other schemes managed by

the same Fund Manager.

Select the Ideal Mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your

investment needs. Your may consider investing in a combination of schemes to

achieve your specific goals.

Invest Regularly

The best approach is to invest a fixed amount at specific intervals, say

every month. By investing a fixed sum each month, you buy fewer units when the

price is higher and more units when the price is low, thus bringing down your

average cost per unit. This is called rupee cost averaging and do investors all over

the world follow a disciplined investment strategy.



Start Early

It is desirable to start investing early and stick to a regular investment

plan. If you start now, you will make more than if you wait and invest later. The

power of compounding lets you earn income on income and your money

multiplies at a compounded rate of return.

The Final Step

All your need to do now is to for online application forms of various

mutual fund schemes and start investing. You may reap the rewards in the years

to come.



THE COST ASSOCIATED WITH MUTUAL FUND

Costs are the biggest problem with mutual funds. These costs eat into your return, and

they are the main reason why the majority of funds end up with sub-par performance.

What's even more disturbing is the way the fund industry hides costs through a layer

of financial complexity and jargon. Some critics of the industry say that mutual fund

companies get away with the fees they charge only because the average investor does

not understand what he/she is paying for.

Fees can be broken down into two categories:

1. ongoing yearly fees to keep you invested in the fund.

2. Transaction fees paid when you buy or sell shares in a fund.

The Expense Ratio

The ongoing expenses of a mutual fund are represented by the expense ratio. This is

sometimes also referred to as the management expense ratio (MER). The expense

ratio is composed of the following:

1. The Cost Of Hiring The Fund Manager(S)

Also known as the management fee, this cost is between 0.5% and 1% of

assets on average. While it sounds small, this fee ensures that mutual fund

managers remain in the country's top echelon of earners. Think about it for a

second: 1% of 250 million (a small mutual fund) is $2.5 million - fund

managers are definitely not going hungry! It's true that paying managers is a

necessary fee, but don't think that a high fee assures superior performance.

2. Administrative Costs

These include necessities such as postage, record keeping, customer service,

cappuccino machines, etc. Some funds are excellent at minimizing these costs

while others (the ones with the cappuccino machines in the office) are not.



On the whole, expense ratios range from as low as 0.2% (usually for

index funds) to as high as 2%. The average equity mutual fund charges around

1.3%-1.5%. You'll generally pay more for specialty or international funds,

which require more expertise from managers.

Loads are just fees that a fund uses to compensate brokers or other

salespeople for selling you the mutual fund. All you really need to know about

loads is this: don't buy funds with loads.

Here is how certain loads work

3. Front-end loads

These are the simplest type of load: you pay the fee when you purchase the

fund. If you invest $1,000 in a mutual fund with a 5%, $50 will pay for the

sales charge, and $950 will be invested in the fund.

4. Back-end loads (also known as deferred sales charges)

These are a bit more complicated. In such a fund you pay the back end load. If

you sell a fund within a certain time frame. A typical example is a 6% back-

end load that decreases to 0% in the seventh year. The load is 6% if you sell in

the first year, 5% in the second year, etc. If you don't sell the mutual fund until

the seventh year, you don't have to pay them.



CATEGORIES OF MUTUAL FUND

Mutual funds can be classified as follow:

Based on their structure

Open-ended funds:

Investors can buy and sell the units from the fund, at any point of time.

Close-ended funds:

These funds raise money from investors only once. Therefore, after the offer

period, fresh investments cannot be made into the fund. If the fund is listed on

a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley

Growth Fund). Recently, most of the New Fund Offers of close-ended funds

provided liquidity window on a periodic basis such as monthly or weekly.



Redemption of units can be made during specified intervals. Therefore, such

funds have relatively low liquidity.

Based on their investment objective

i. Equity Funds

These funds invest in equities and equity related instruments. With fluctuating

share prices, such funds show volatile performance, even losses. However, short

term fluctuations in the market, generally smoothens out in the long term, thereby

offering higher returns at relatively lower volatility. At the same time, such funds

can yield great capital appreciation as, historically, equities have outperformed all

asset classes in the long term. Hence, investment in equity funds should be

considered for a period of at least 3-5 years. It can be further classified as:

Index funds

In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their

portfolio mirrors the benchmark index both in terms of composition and

individual stock weightages.

Equity diversified funds

100% of the capital is invested in equities spreading across different sectors and

stocks.

Dividend yield funds

It is similar to the equity diversified funds except that they invest in companies

offering high dividend yields.

Thematic funds

Invest 100% of the assets in sectors which are related through some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

Sector funds

Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will

invest in banking stocks.

ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.



ii. Balanced fund

Their investment portfolio includes both debt and equity. As a result, on the risk-

return ladder, they fall between equity and debt funds. Balanced funds are the

ideal mutual funds vehicle for investors who prefer spreading their risk across

various instruments. Following are balanced funds classes:

Debt-oriented funds -Investment below 65% in equities.

Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

iii. DEBT FUND

They invest only in debt instruments, and are a good option for investors averse to

idea of taking risk associated with equities. Therefore, they invest exclusively in

fixed-income instruments like bonds, debentures, Government of India securities;

and money market instruments such as certificates of deposit (CD), commercial

paper (CP) and call money. Put your money into any of these debt funds

depending on your investment horizon and needs.

Liquid funds- These funds invest 100% in money market instruments, a large

portion being invested in call money market.

Gilt funds ST- They invest 100% of their portfolio in government securities of

and T-bills.

Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

Arbitrage fund- They generate income through arbitrage opportunities due to

mis-pricing between cash market and derivatives market. Funds are allocated to

equities, derivatives and money markets. Higher proportion (around 75%) is put in

money markets, in the absence of arbitrage opportunities.

Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.

Income funds LT- Typically, such funds invest a major portion of the portfolio in

long-term debt papers.



MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

INVESTMENT STRATEGIES

1. Systematic Investment Plan

Under this a fixed sum is invested each month on a fixed date of a month.

Payment is made through post dated cheques or direct debit facilities. The investor

gets fewer units when the NAV is high and more units when the NAV is low. This

is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan

Under this an investor invests in debt oriented fund and gives instructions to

transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual

fund.

3. Systematic Withdrawal Plan

If someone wishes to withdraw from a mutual fund then he can withdraw a fixed

amount each month.



RISK Vs RETURN



MEASURING AND EVALUATING MUTUAL FUND PERFORMANCE

Every investor investing in the mutual funds is driven by the motto of either wealth

creation or wealth increment or both. Therefore it’s very necessary to continuously

evaluate the funds’ performance with the help of factsheets and newsletters, websites,

newspapers and professional advisors like BIRLA mutual fund services. If the

investors ignore the evaluation of funds’ performance then he can lose hold of it any

time. In this ever-changing industry, he can face any of the following problems:

1. Variation in the funds’ performance due to change in its management/ objective.

2. The funds’ performance can slip in comparison to similar funds.

3. There may be an increase in the various costs associated with the fund.

4. Beta, a technical measure of the risk associated may also surge.

5. The funds’ ratings may go down in the various lists published by independent

rating agencies.

6. It can merge into another fund or could be acquired by another fund house.

Performance measures

Equity funds

The performance of equity funds can be measured on the basis of: NAV Growth,

Total Return; Total Return with Reinvestment at NAV, Annualized Returns and

Distributions, Computing Total Return (Per Share Income and Expenses, Per Share

Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover

Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.

Debt fund

Likewise the performance of debt funds can be measured on the basis of: Peer Group

Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,

besides NAV Growth, Total Return and Expense Ratio.



Liquid funds

The performance of the highly volatile liquid funds can be measured on the basis of:

Fund Yield, besides NAV Growth, Total Return and Expense Ratio

To measure the fund’s performance, the comparisons are

usually done with

1. With a market index.

2. Funds from the same peer group.

3. Other similar products in which investors invest their funds.

Financial Planning For Investors (Ref. To Mutual Funds)

Investors are required to go for financial planning before making investments in any

mutual fund. The objective of financial planning is to ensure that the right amount of

money is available at the right time to the investor to be able to meet his financial

goals. It is more than mere tax planning.

Steps in financial planning are

1. Asset allocation.

2. Selection of fund.

3. Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset

allocation, leaving the actual allocation of securities and their management to fund

managers. A fund manager has to closely follow the objectives stated in the offer

document, because financial plans of users are chosen using these objectives.



WHY HAS IT BECOME ONE OF THE LARGEST

FINANCIAL INSTRUMENTS?

If we take a look at the recent scenario in the Indian financial market then we can find

the market flooded with a variety of investment options which includes mutual funds,

equities, fixed income bonds, corporate debentures, company fixed deposits, bank

deposits, PPF, life insurance, gold, real estate etc. All these investment options could

be judged on the basis of various parameters such as- return, safety convenience,

volatility and liquidity. Measuring these investment options on the basis of the

mentioned parameters, we get this in a tabular form

Return Safety Volatility Liquidity Convenience

Equity High Low High High Moderate

Bonds Moderate High Moderate Moderate High

Co.

Debentures

Moderate Moderate Moderate Low Low

Co. FDs Moderate Low Low Low Moderate

Bank

Deposits

Low High Low High High

PPF Moderate High Low Moderate High

Life

Insurance

Low High Low Low Moderate

Gold Moderate High Moderate Moderate Gold

Real Estate High Moderate High Low Low

Mutual

Funds

High High Moderate High High

We can very well see that mutual funds outperform every other investment option. On

three parameters it scores high whereas it’s moderate at one. comparing it with the

other options, we find that equities gives us high returns with high liquidity but its

volatility too is high with low safety which doesn’t makes it favorite among persons



who have low risk- appetite. Even the convenience involved with investing in equities

is just moderate.

Now looking at bank deposits, it scores better than equities at all fronts but lags badly

in the parameter of utmost important i.e.; it scores low on return , so it’s not an

happening option for person who can afford to take risks for higher return. The other

option offering high return is real estate but that even comes with high volatility and

moderate safety level, even the liquidity and convenience involved are too low. Gold

have always been a favorite among Indians but when we look at it as an investment

option then it definitely doesn’t gives a very bright picture. Although it ensures high

safety but the returns generated and liquidity are moderate. Similarly the other

investment options are not at par with mutual funds and serve the needs of only a

specific customer group. Straightforward, we can say that mutual fund emerges as a

clear winner among all the options available.

The reasons for this being:

1. Mutual funds combine the advantage of each of the investment products

Mutual Fund is one such option which can invest in all other investment options.

Its principle of diversification allows the investors to taste all the fruits in one

plate. Just by investing in it, the investor can enjoy the best investment option as

per the investment objective.

2. Dispense the shortcomings of the other options

Every other investment option has more or less some shortcomings. Such as if

some are good at return then they are not safe, if some are safe then either they

have low liquidity or low safety or both….likewise, there exists no single option

which can fit to the need of everybody. But mutual funds have definitely sorted

out this problem. Now everybody can choose their fund according to their

investment objectives.

3. Returns get adjusted for the market movements

As the mutual funds are managed by experts so they are ready to switch to the

profitable option along with the market movement. Suppose they predict that

market is going to fall then they can sell some of their shares and book profit and

can reinvest the amount again in money market instruments.



HOW DO INVESTORS CHOOSE BETWEEN FUNDS?

When the market is flooded with mutual funds, it’s a very tough job for the investors

to choose the best fund for them. Whenever an investor thinks of investing in mutual

funds, he must look at the investment objective of the fund. Then the investors sort

out the funds whose investment objective matches with that of the investor’s. Now the

tough task for investors start, they may carry on the further process themselves or can

go for advisors like BIRLA. Of course the investors can save their money by going

the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry

load) but could cost the investors in terms of returns if the investor is not an expert. So

it is always advisable to go for MF advisors. The mf advisors’ thoughts go beyond

just investment objectives and rate of return. Some of the basic tools which an

investor may ignore but an mf advisor will always look for are as follow:

1. Rupee Cost Averaging

The investors going for Systematic Investment Plans (SIP) and Systematic

Transfer Plans (STP) may enjoy the benefits of RCA (Rupee Cost Averaging).

Rupee cost averaging allows an investor to bring down the average cost of buying

a scheme by making a fixed investment periodically, like Rs 5,000 a month and

nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always at

a profit, even if the market falls. In case if the NAV of fund falls, the investors can

get more number of units and vice-versa. This results in the average cost per unit

for the investor being lower than the average price per unit over time.

The investor needs to decide on the investment amount and the frequency. More

frequent the investment interval, greater the chances of benefiting from lower

prices. Investors can also benefit by increasing the SIP amount during market

downturns, which will result in reducing the average cost and enhancing returns.

Whereas STP allows investors who have lump sums to park the funds in a low-

risk fund like liquid funds and make periodic transfers to another fund to take

advantage of rupee cost averaging.



2. Rebalancing

Rebalancing involves booking profit in the fund class that has gone up and

investing in the asset class that is down. Trigger and switching are tools that can

be used to rebalance a portfolio. Trigger facilities allow automatic redemption or

switch if a specified event occurs. The trigger could be the value of the

investment, the net asset value of the scheme, level of capital appreciation, level

of the market indices or even a date. The funds redeemed can be switched to other

specified schemes within the same fund house. Some fund houses allow such

switches without charging an entry load.

To use the trigger and switch facility, the investor needs to specify the event, the

amount or the number of units to be redeemed and the scheme into which the

switch has to be made. This ensures that the investor books some profits and

maintains the asset allocation in the portfolio.

3. Diversification

Diversification involves investing the amount into different options. In case of

mutual funds, the investor may enjoy it afterwards also through dividend transfer

option. Under this, the dividend is reinvested not into the same scheme but into

another scheme of the investor's choice.

For example, the dividends from debt funds may be transferred to equity

schemes. This gives the investor a small exposure to a new asset class without risk

to the principal amount. Such transfers may be done with or without entry loads,

depending on the MF's policy.

4. Tax efficiency

Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final

decision of any investor before investing. The investors gain through either

dividends or capital appreciation but if they haven’t considered the tax factor then

they may end loosing.

Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus

surcharge and education fess) on dividends paid out. Investors who need a regular



stream of income have to choose between the dividend option and a systematic

withdrawal plan that allows them to redeem units periodically. SWP implies

capital gains for the investor.

If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-

tax bracket. Investors in higher tax brackets will end up paying a higher rate as

short-term capital gains and should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than

one year), the growth option is more tax efficient for all investors. This is because

investors can redeem units using the SWP where they will have to pay 10 per cent

as long-term capital gains tax against the 12.50 per cent DDT paid by the MF on

dividends.

All the tools discussed over here are used by all the advisors and have helped

investors in reducing risk, simplicity and affordability. Even then an investor

needs to examine costs, tax implications and minimum applicable investment

amounts before committing to a service.



SYSTEMATIC INVESTMENT PLAN

We have already mentioned about SIPs in brief in the previous pages but now going

into details, we will see how the power of compounding could benefit us. In such

case, every small amounts invested regularly can grow substantially. SIP gives a clear

picture of how an early and regular investment can help the investor in wealth

creation. Due to its unlimited advantages SIP could be redefined as “a methodology of

fund investing regularly to benefit regularly from the stock market volatility. In the

later sections we will see how returns generated from some of the SIPs have

outperformed their benchmark. But before moving on to that lets have a look at some

of the top performing SIPs and their return for 1 year:

Scheme Amount NAV NAV Date

Total

Amount

Reliance diversified power

sector retail 1000 62.74 30/5/2010 14524.07

Reliance regular savings

equity 1000 22.208 30/5/2010 13584.944

principal global opportunities

fund 1000 18.86 30/5/2010 14247.728

DWS investment

opportunities fund 1000 35.31 30/5/2010 13791.157

BOB growth fund 1000 42.14 30/5/2010 13769.152

In the above chart, we can see how if we start investing Rs.1000 per month then what

return we’ll get for the total investment of Rs. 12000. There is reliance diversified

power sector retail giving the maximum returns of Rs. 2524.07 per year which comes

to 21% roughly. Next we can see if anybody would have undertaken the SIP in

Principal would have got returns of app. 18%. We can see reliance regular savings

equity, DWS investment opportunities and BOB growth fund giving returns of

13.20%, 14.92%, and 14.74% respectively which is greater than any other monthly

investment options. Thus we can easily make out how SIP is beneficial for us. Its

hassle free, it forces the investors to save and get them into the habit of saving. Also



paying a small amount of Rs. 1000 is easy and convenient for them, thus putting no

pressure on their pockets.

Now we will analyze some of the equity fund SIP s of Birla Sun life with BSE 200

and bank fixed deposits In a tabular format as well as graphical.

Scheme Name NUMBER OF

INSTALMENT

S

Original inv Returns at BSE

200

FUND

RETURNS

Birla SL tax relief '96 144 1,44,000 5,53,190 16,84,008

Birla SL equity fund 114 1,14,000 3,88,701 6,69,219

Birla frontline equity

fund

66 66,000 1,56,269 1,81,127

In the above case, we have taken three funds of Birla sun life namely Birla sun life tax

relief ’96, Birla sun life equity fund and Birla sun life frontline equity fund. All these

three funds follow the same benchmark ie; BSE 200. Here, we have shown how one

would have benefitted if he would have put his money into these schemes since their

inception. And the amount even is a meager Rs. 1000 per month.

Starting from Birla frontline equity fund, we could spot that if someone would have

invested Rs. 1000 per month resulting into total investment of Rs. 66000 then it would

have amounted to rs.156269 if invested in BSE 200 whereas the fund would have

given a total return of Rs 181127. Now moving next to Birla sun life equity fund, a

total investment of 114000 for a total of 114 months at BSE 200 would have given a

total return of Rs. 388701 whereas the fund gave a total return of Rs. 669219, nearly

double the return generated at BSE 200. And now the cream of all the investments,

Birla sun life tax relief ’96. A total investment of Rs. 144000 for a period of 12 years

at BSE 200 would have given total returns of just Rs. 553190 but the Birla sun life tax

relief ’96 gave an unbelievable total return of Rs 1684008.

Thus the above case very well explains the power of compounding and early

investment. We have seen how a meager amount of Rs. 144000 turned into Rs.

1684008. It may appear unbelievable for many but SIPs have turned this into reality

and the power of compounding is speaking loud, attracting more and more investors

to create wealth through SIPs.



PORTFOLIO ANALYSIS TOOLS

With the increasing number of mutual fund schemes, it becomes very difficult for an

investor to choose the type of funds for investment. By using some of the portfolio

analysis tools, he can become more equipped to make a well informed choice. There

are many financial tools to analyze mutual funds. Each has their unique strengths and

limitations as well. Therefore, one needs to use a combination of these tools to make a

thorough analysis of the funds.

The present market has become very volatile and buoyant, so it is getting difficult for

the investors to take right investing decision. so the easiest available option for

investors is to choose the best performing funds in terms of “returns” which have

yielded maximum returns.

But if we look deeply to it, we can find that the returns are important but it is also

important to look at the ‘quality’ of the returns. ‘Quality’ determines how much risk a

fund is taking to generate those returns. One can make a judgment on the quality of a

fund from various ratios such as standard deviation, sharpe ratio, beta, treynor

measure, R-squared, alpha, portfolio turnover ratio, total expense ratio etc.

Now I have compared two funds of SBI on the basis of standard deviation, beta, R-

squared, sharpe ratio, portfolio turnover ratio and total expense ratio. So before going

into details, let’s have a look at these ratios:

Standard deviation

In simple terms standard deviation is one of the commonly used statistical parameter

to measure risk, which determines the volatility of a fund. Deviation is defined as any

variation from a mean value (upward & downward). Since the markets are volatile,

the returns fluctuate every day. High standard deviation of a fund implies high

volatility and a low standard deviation implies low volatility.



Beta analysis

Beta is used to measure the risk. It basically indicates the level of volatility associated

with the fund as compared to the market. In case of funds, as compared to the market.

In case of funds, beta would indicate the volatility against the benchmark index. It is

used as a short term decision making tool. A beta that is greater than 1 means that the

fund is more volatile than the benchmark index, while a beta of less than 1 means that

the fund is more volatile than the benchmark index. A fund with a beta very close to 1

means the fund’s performance closely matches the index or benchmark.

The success of beta is heavily dependent on the correlation between correlation

between a fund and its benchmark. Thus, if the fund’s portfolio doesn’t have a

relevant benchmark index then a beta would be grossly inappropriate. For example if

we are considering a banking fund, we should look at the beta against a bank index.

R-Squared (R2)

R squared is the square of ‘R’ (i.e.; coefficient of correlation). It describes the level of

association between the fun’s market volatility and market risk. The value of R-

squared ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can

be used as a reliable measure to analyze the performance of a fund. Beta should be

ignored when the r-squared is low as it indicates that the fund performance is affected

by factors other than the markets.

For example:

Case 1 Case 2

R2 0.65 0.88

B 1.2 0.9

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to

mention that the fund is aggressive on account of high beta. In case 2, the r- squared is

more than 0.85 and beta value is 0.9. it means that this fund is less aggressive than the

market.

Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the

returns given by a fund with the risk that the fund has taken. A fund with a higher



sharpe ratio means that these returns have been generated taking lesser risk. In other

words, the fund is less volatile and yet generating good returns. Thus, given similar

returns, the fund with a higher sharpe ratio offers a better avenue for investing. The

ratio is calculated as:

Sharpe ratio = (Average return- risk free rate)/ standard deviation

Portfolio turnover ratio

Portfolio turnover is a measure of a fund's trading activity and is calculated by

dividing the lesser of purchases or sales (excluding securities with maturities of less

than one year) by the average monthly net assets of the fund. Turnover is simply a

measure of the percentage of portfolio value that has been transacted, not an

indication of the percentage of a fund's holdings that have been changed. Portfolio

turnover is the purchase and sale of securities in a fund's portfolio. A ratio of 100%,

then, means the fund has bought and sold all its positions within the last year.

Turnover is important when investing in any mutual fund, since the amount of

turnover affects the fees and costs within the mutual fund.

Total Expenses Ratio

A measure of the total costs associated with managing and operating an investment

fund such as a mutual fund. These costs consist primarily of management fees and

additional expenses such as trading fees, legal fees, auditor fees and other operational

expenses. The total cost of the fund is divided by the fund's total assets to arrive at a

percentage amount, which represents the TER:

Total Expense Ratio = (Total fund Costs/ Total fund Assets)



RESEARCH

REPORT



REVIEW OF LITERATURE

This chapter devoted to the review of literature available on the topic under study.

The selection of the topic for the study has been undertaken after a brief review of

literature available on the subject. The purpose of referring the research paper,

project reports, articles and working paper was also to derive supporting evidence

for some of the finding of the study. An attempt was made to refer some of the

national as well as international journals and project reports. A few names may be

mentioned here in:

World development report

Journal of financial performance

The intelligent investors, Mumbai

Chartered accountant, ICAI, New Delhi

Chartered secretary, ICAI, New Delhi

Vikalpa, The journal for decision makers, IIM, Ahmedabad

Management review, IIM, Bangalore

In literature various researchers have used profitability and growth as

measurement of performance. Profitability has been used as measure of

performance by Gort (1962), Rumelt (1974), McDougal and Round (1984), Paul

(1985-86), Sambharya (19950, Tallman and Li (1996), Faejoun (1998).

One of the financial indicators that give the utmost satisfaction to the investors is

return that is generated by their investment but at the same time they are worried

about the risk that is associated with their investment. Hence, it turns out to be very

significant and vital for the financial managers to analysis and identified the risk and

return associated with the investment.

According to Erich L. Kohlar “ It is a general term applied to a part or to all of the

conduct of activities of an organization over a period of time; often with

reference to Past or Projected costs efficiency management responsibility or

accountability or the like.”



OBJECTIVE OF RESEARCH

The main objective of this project is concerned with getting the opinion of people

regarding mutual funds and what they feel about availing the services of financial

advisors.

I have tried to explore the general opinion about mutual funds. It also covers why/

why not investors are availing the services of financial advisors.

Along with it a brief introduction to India’s largest financial intermediary, BIRLA

has been given and it is shown that how they operate in mutual fund department

SCOPE OF THE STUDY

The research was carried on in the Eastern Region of India. It is restricted to

Kolkata where it has got 11 branch offices and 3 franchisees. I have visited people

randomly nearby my locality, different shopping malls, small retailers etc.

DATA SOURCES

Research is totally based on primary data. Secondary data can be used only for the

reference. Research has been done by primary data collection, and primary data

has been collected by interacting with various people. The secondary data has

been collected through various journals and websites and some special

publications of BIRLA.

SAMPLING

i. Sampling Procedure

The sample is selected in a random way, irrespective of them being investor or not

or availing the services or not. It was collected through mails and personal visits

to the known persons, by formal and informal talks and through filling up the



questionnaire prepared. The data has been analyzed by using the measures of

central tendencies like mean, median, mode. The group has been selected and the

analysis has been done on the basis statistical tools available.

ii. Sample Size

The sample size of my project is limited to 200 only. Out of which only 135

people attempted all the questions. Other 65 not investing in MFs attempted only

2 questions.

iii. Sample Design

Data has been presented with the help of bar graph, pie charts, line graphs etc.

LIMITATION

Time limitation.

Research has been done only at Rajkot.

Some of the persons were not so responsive.

Possibility of error in data collection.

Possibility of error in analysis of data due to small sample size.



DATA ANALYSIS

1. Have you ever invested/ interested to invest in Mutual funds?

YES 135NO 65

68%

33%

YESNO



2. What is the most important reason for not investing in mutual

funds? (only for above 65 participants)

Lack of knowledge about mutual funds 25

Enjoys investing in other options 10

Its benefits are not enough to drive you

for investment

18

No trust over the fund managers 12

lack of knowledge

enjoys investing in their own

benefitnot enough

no trust

25

10

18

12

Series3



3. Where do you find yourself as a mutual fund investor?

Totally ignorant 28

Partial knowledge of MFs 37

Aware of only scheme in which invested

46

Good knowledge of MFs 24

Totally igno-rant21%partial

knowledge27%

aware of only invested

scheme34%

good knowledge

18%



4. Where from you purchases mutual funds?

Directly from the AMCs 33

Brokers only ( large intermediaries) 28

Broker/ sub-brokers 59

Other sources 15

AMCs Brokers Brokers/ sub brokers

others

3328

59

15



5. Which feature of the mutual funds allure you most?

Diversification 42

Professional management 29

Reduction in risk and transaction cost 34

Helps in achieving long term goal 30

Diversification

Professional management

Reduction in risk and transaction cost

Helps in achieving long term goal

42

29

34

30

Series1



6. According to you which is the most suitable stage to invest in

mutual funds?

Young unmarried stage 55

Young Married with children stage 32

Married with older children stage 21

Pre retirement stage 27

41%

24%

16%

20%

Young unmarried stageYoung Married with children stageMarried with older children stagePre retirement stage

7. Are you availing the services of personal financial advisors?



Yes 87No 48

64%

36%

Number Of Person

yesno



8. Which expertise of the personal financial advisor is demanded most?

Portfolio review & investment recommendation

43

Planning to achieve specific financial goals

35

Managing assets in retirement 30Access to specialists in areas such as tax planning

27


Portfolio review & investment recommenda-tion

Planning to achieve specific financial goals

Managing assets in retirement

Access to specialists in areas such as tax planning

43

35

30

27

Series1


9. What is the major reason for using financial advisors?

Want help with asset allocation 42

Don’t have enough time to make

own decision

23

To explain various investment

options

37

Want to have surety about

financial goals

33

42

2337 33

Series1



10. What is the major reason for not using financial advisor?

Have access to all resources

needed

18

Believe advisors are too expensive 53

Unsure how to find a trustworthy

advisor

21

Want to be in control of own

investments

43

Have access to all resources needed

Believe advisors are too expensive

Unsure how to find a trustworthy advisor

Want to be in control of own investments

18

53

21

43

Series1

HYPOTHESIS TESTING



Following table shows the number as well as percentages of people who are availing

the service of personal Financial Advisor for invent in mutual fund. 64.44% of the

people are availing the service of personal Financial Advisor for invent in mutual

fund and rest of 35.56% people not availing the service of personal Financial Advisor

for invent in mutual fund.

Particular Frequency Percent Valid % Cumulative %

Yes 87 64.44 64.44 64.44

No 48 35.56 35.56 100.00

Total 135 100.00 100.00 100.00

Ho: 60% People availing the service of personal Financial Advisor for invent in

mutual fund.

pHO=0.60

H1: 40% people availing the service of personal Financial Advisor for invent in

mutual fund.

qHO =0.40

pHO: Hypothesized value of population proportion of success.

qHO: Hypothesized value of population proportion of failure.

It is one tailed

Sample size (n) = 135

p = 0.6444

q = 0.3555

Significance level α = 0.05

σp =√ pHO ×qHo



n

σp =√60 × 40

135

σp = 0.0422

Z = p – q

σp

Z = 0.6444 – 0.6000

0.0422

= 1.0521

For α = 0.05, Z = 1.96

The calculated Z value falls in acceptance area.

So, Accept null hypothesis and reject alternative.i.e. 60% People availing the service

of personal Financial Advisor for invent in mutual fund.

RESEARCH FINDINGS AND CONCLUSIONS



At the survey conducted upon 200 people, 135 are already mutual fund investors

or are interested to invest in future and the remaining 65 are not interested in it.

So there is enough scope for the advisors to convert those 65 participants into

investors through their convincing power and great communication skills.

Now, when those 65 people were asked about the reason of not investing in

mutual funds, then most of the people held their ignorance responsible for that.

They lacked knowledge and information about the mutual funds. Whereas just 10

people enjoyed investing in other option. For 18 people, the benefits arousing

from these investments were not enough to drive them for investment in MFs and

12 people expressed no trust over the fund managers’ decision. Again the

financial advisors can tap upon these people by educating them about mutual

funds.

Out of the 135 persons who already have invested in mutual funds/ are interested

to invest, only 18% have sound knowledge of MFs, 34% people are aware of only

the schemes in which they have invested. 27% possess partial knowledge whereas

21% stands nowhere in knowledge about MFs.

33 participants buy forms directly from the AMCs, 28 from brokers only, 55 from

brokers and sub-brokers even then 15 people buy from other sources. The brokers

and sub brokers have the maximum reach so they should try to make those

investors aware f the happenings, even the AMCs should follow it.

When asked about the most alluring feature of MFs, most of them opted for

diversification, followed by reduction in risk, helps in achieving long term goals

and helps in achieving long term goals respectively.

Most of the investor preferred to invest at a young unmarried stage. Even 32

persons were ready to invest at a stage of young married with children but person



with older children avoid investing due to increased expenses. But again the

number rose to 27 at pre-retirement stage.

Out of them 87 were already availing the services of financial advisors whereas 48

didn’t. When asked about the expertise of financial advisors which they liked

most? 43 of them favored portfolio review and investment recommendation,

followed by planning to achieve long term goals, managing assets in retirement

and access to specialists in area such as tax planning.

42 participants regarded asset allocation as the major reason for going for

financial advisors. 37 of them needed them to explain them the various investment

options available.33 of them wanted to make sure that they were saving enough to

meet their financial goals. While just 23 gave the reason- lack of time.

When asked about one reason for not availing the services of financial advisors,

about 53 of them pointed the advisors as expensive. 43 of them wished to be in

control of their own assets.21 of them said that they find it difficult to get

trustworthy advisors. Whereas 18 of them said they have access to all the

necessary resources required.

RECOMMENDATIONS



The most vital problem spotted is of ignorance. Investors should be made aware of

the benefits. Nobody will invest until and unless he is fully convinced. Investors

should be made to realize that ignorance is no longer bliss and what they are

losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But

most of the people are not even aware of what actually a mutual fund is? They

only see it as just another investment option. So the advisors should try to change

their mindsets. The advisors should target for more and more young investors.

Young investors as well as persons at the height of their career would like to go

for advisors due to lack of expertise and time.

The advisors may try to highlight some of the value added benefits of MFs such as

tax benefit, rupee cost averaging, and systematic transfer plan, rebalancing etc.

these benefits are not offered by other options singlehandedly. So these are

enough to drive the investors towards mutual funds. Investors could also try to

increase the spectrum of services offered.

Now the most important reason for not availing the services of advisors was

spotted was being expensive. The advisors should try to charge a nominal fee at

the beginning. But if not possible then they could go for offering more services

and benefits at the existing rate. They should also maintain their decency and

follow the code of ethics so that the investors could trust upon them. Thus the

advisors should try to attract more and more persons and turn them into investors

and finally their clients.

QUESTIONNAIRE



1) Are you interested to invest in mutual funds?

• Yes [ ] • No [ ] (please attempt the next question)

2) What is the most important reason for not investing in mutual funds?

• Lack of knowledge about mutual funds [ ]

• Enjoys investing in other options [ ]

• Its benefits are not enough to drive you for investment [ ]

• No trust over the fund managers [ ]

3) Where did you find yourself as a mutual fund investor?

• Totally ignorant [ ]

• Partial knowledge of mutual funds [ ]

• Aware only of any specific scheme in which you invested [ ]

• Fully aware [ ]

4) From where you purchase mutual funds?

• Directly from the AMCs [ ]

• Brokers only [ ]

• Brokers/ sub-brokers [ ]

• Other sources [ ]

5) Which feature of the mutual funds attracts you most?



• Diversification [ ]

• Professional management [ ]

• Reduction in risk and transaction cost [ ]

• Helps in achieving long term goals [ ]

6) According to you which are the most suitable stage to invest in mutual funds?

• Young unmarried stage [ ]

• Young Married with children stage [ ]

• Married with older children stage [ ]

• Pre-retirement stage [ ]

7) Are you availing the services of personal financial advisors?

• Yes [ ] • No [ ]

8) Which expertise of the personal financial advisor is demanded most?

• Portfolio review & investment recommendation [ ]

• Planning to achieve specific financial goals [ ]

• Managing assets in retirement [ ]

• Access to specialist in areas such as tax planning [ ]

9) What is the major reason for using financial advisors?



• Want help with asset allocation [ ]

• Don’t have time to make my own investment decision [ ]

• To explain various investment options [ ]

• Want to make sure I am investing enough to meet my financial goals [ ]

10) What is the major reason for not using financial advisor?

• Have access to all resources needed to invest on own [ ]

• Believe advisors are too expensive [ ]

• Unsure how to find a trustworthy advisor [ ]

• Want to be in control of own investment [ ]

Thank you So much for your response.

GLOSSARY OF SOME CONCEPTS



AMC

The AMC is the corporate entity, which markets and manager and manages a mutual

fund scheme and in return receives a management fee from the fund corpus. SEBI

specifies that an AMC must be separate entity the trust that manages it.

NAV

It is the value of unit of a Mutual Fund scheme and represents its true worth. NAV is

arrived at by dividing total value of all investment made under the scheme by number

of units of the scheme. NAV is critical yardstick of the fund’s performance.

UNITS

Units in a mutual fund scheme are similar to shares of a joint company. These are

always in denominations of Rs. 10 each the sum total of all the units constitutes

corpus of mutual fund.

SPONSORS

Sponsor of a mutual fund are those who establish the mutual fund trust and the AMC

they constitute the shareholders of the AMC and receive dividends on profits made by

the AMC. SEBI rules stipulate that mutual fund trust as well as the AMC must

maintain an arm’s length relationship with the sponsors to avoid any conflict to

interests, which may affect the unit holders.

INCOME FUND

These Funds invest largely in fixed income securities like bonds and debentures. Such

funds earn returns more regularly than a growth fund but level of returns over longer

periods normally lag behind those offered by growth funds while returns in such

funds may be regular, their scale may fluctuate depending upon the prevalent interest

rates and credit quality of the debt securities.

GROWTH FUNDS

Growth funds predominantly invest in stock market securities and carry risks larger

than income funds. Since stock markets travel through a natural cycle of boom and

bursts one should normally stay invested inequity funds for a longer times to earn

higher returns.



Equity funds may earn higher but they also carry larger risks. For risk taking investor

equity are best suited.

BALANCED FUNDS

A balanced fund is the mixture of income fund and growth fund invested partly in

equity to achieve a trade-of between risk and return.

CLOSE ENDED

In a close-ended fund an investor is allowed to subscribe only during the period of the

initial offer. Close-ended funds mature after a specified period.

OPEN ENDED FUNDS

Those funds in which investor can invest & withdraw whenever they wish, after the

close of initial offer. Withdrawals are allowed at NAV minus a back end load.

LOCK IN PERIOD

Time period during which investor can neither redeem nor they transfer their holdings

to others. Lock in period is imposed to allow fund manager to deploy money for an

adequate period of time to earn a reasonable return premature withdrawals may

destabilize the fund & are not beneficial to the interests of investors.

MANAGEMENT FEES

An AMC that mangers & markets a mutual fund scheme is entitled to a management

fee@ 1% to 25% of the total funds managed, it could be charged to the scheme

irrespective of the performance of the scheme.

REDEMPTION

Disbursement of unit capital on the maturity of that particular scheme to all its

existing unit holders.

MARKET PRICE

The price at which units of mutual funds are quoted in stock exchange where they are

listed.



REGISTRAR

Organization appointed by an AMC to the schemes it is registered, monitored, and

regulated by SEBI, it provides required services like system capabilities back up,

accepts and processes investors applications in informs AMC about amounts

received/disbursed for subscription/ purchase/ redemption it also handles

communications with investors, perform data entry services and dispatches account

statements.

CUSTODAIN

Banking organization that keeps in safe custody all the securities & other instruments

belonging to the fund to insure smooth inflow & outflow of securities. It is also

approved regulated and registered with SEBI.

EXIT LOAD

Value of deduction from NAV on the date when one choose to withdraw from a fund,

load is imposed because withdrawals carry transaction cost to AMC it can not be

more than 6% of NAV of corpus as prescribed by SEBI many schemes offer

redemption facility without exit load.

ENTRY LOAD

Charge paid by unit holder when he invests an amount in the scheme. Mutual funds

incur many expenses during an issue, which are charged to the scheme. Such load is

called entry load.

LIQUIDITY

Ability of investors to change its unit into cash within minimum time as and when he

needs money.

TRANSPARENCY

Basic feature of mutual funds is transparency, their functioning is very efficient, well

monitored & transparent working of AMC is regulated by SEBI it is audited weekly,

it has to work under strict guidelines issued by SEBI, and its NAV is calculated and

published daily so that there is no chance of any default in the working of Mutual

Funds.



CONCLUSION

Every person does not have all skills. Some are good at someplace but fail at another

place. So we do work in area where we have core competence.

The Mutual Fund has great scope but it still not as much famous as Stock Market. The

people don’t know how to invest in it and what is the benefit from it.

So, the work of financial advisor is too aware the client for the different schemes of

mutual fund for they work. Without the financial advisor the investor cannot easily

convince to invest in mutual fund. Financial advisor are the backbone of the Mutual

Fund Organization in this competition time.

I also conclude that from this SIP I learn so many things like Self-discipline,

Leadership Quality, regularity at work, innovation on consistent basis, how to survive

in competition, etc.

This SIP gives me great platform for applying my theoretical knowledge which I

learned in 1st year of MBA.

At last I say that this SIP is very important for the current as well as future carrier

prospective.



BIBLIOGRAPHY

Websites

www.the-finapolis.com

www.Birla mutualfund.com

www.mutualfundsindia.com

www.valueresearchonline.com

www.moneycontrol.com

www.morningstar.com

www.yahoofinance.com

www.theeconomictimes.com

www.rediffmoney.com

www.bseindia.com

www.nseindia.com

www.investopedia.com

Journals & Other References

The Economic Times

Business Standard

The Telegraph

Business India

Fact sheet and statements of various fund houses.


http://www.investopedia.com/

http://www.nseindia.com/

http://www.bseindia.com/

http://www.rediffmoney.com/

http://www.theeconomictimes.com/

http://www.yahoofinance.com/

http://www.morningstar.com/

http://www.moneycontrol.com/

http://www.valueresearchonline.com/

http://www.mutualfundsindia.com/

http://www.the-finapolis.com/

birla sun life mutual fund report

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