MRP Final PDF
MRP Final PDF
MRP Final PDF
It is a trust that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instruments and/or other securities.
And the income generated from this collective investment is distributed proportionately amongst the
investors after deducting applicable expenses and levies, by calculating a scheme‘s ―Net Asset
Value‖. Simply put, the money pooled in by a large number of investors is what makes up a Mutual
Fund.
A Mutual Fund is an investment security that enables investors to pool their money together into
one professionally managed investment. Mutual funds can invest in stocks, bonds, cash or a
combination of those assets. The underlying security types, called holdings, combine to form one
mutual fund, also called a portfolio.
In simpler terms, mutual funds are like baskets. Each basket holds certain types of stocks, bonds or
a blend of stocks and bonds to combine for one mutual fund portfolio.
Since mutual funds can hold hundreds or even thousands of stocks or bonds, they are described as
diversified investments. The concept of diversification is similar to the idea of strength in numbers.
Diversification helps the investor because it can reduce market risk compared to buying individual
securities.
The following reasons that you should consider buying mutual funds:
1. Diversification.
When you buy a Mutual Fund, you buy a collection of what that Mutual Fund has invested.
Diversification means the Mutual Fund has spread out your money over different companies and/or
different types of assets. Your money is invested in a mixture of products with high and low risk to
both helps it grow and also protects it.
3. Professional Management.
Mutual fund managers and analysts wake up each morning with one goal – to research, analyze and
study current and potential holdings for their mutual fund. And your investment advisor studies and
evaluates mutual fund managers to pick the best funds to help you meet your goals.
4. Lower costs.
Buying stocks and bonds costs you more (set up of a DEMAT account/ transaction fee etc).
Because they manage large amounts of money on behalf of lakhs of individual investors, mutual
funds are able to take advantage to reduce transaction costs.
6. Transparency.
The investments that a Mutual Fund makes are publicly available every month, so if needed, you
can see what your fund manager is doing.
7. Liquidity.
Because your money is spread across so many stocks and bonds, you can sell your mutual funds at
any time to meet your financial needs. The money hits your bank account within 2 working days.
There are Mutual Funds that do this even faster called Instant Redemption Funds. Your money
comes back into your bank account within 60 seconds of selling an Instant Redemption Fund.
Just like an equity share has a traded price, a mutual fund unit has Net Asset Value per Unit. The
NAV is the combined market value of the shares, bonds and securities held by a fund on any
particular day (as reduced by permitted expenses and charges). NAV per Unit represents the market
value of all the Units in a mutual fund scheme on a given day, net of all expenses and liabilities plus
income accrued, divided by the outstanding number of Units in the scheme.
Mutual funds are ideal for investors who either lack large sums for investment, or for those who
neither have the inclination nor the time to research the market, yet want to grow their wealth. The
money collected in mutual funds is invested by professional fund managers in line with the
scheme‘s stated objective. In return, the fund house charges a small fee which is deducted from the
investment. The fees charged by mutual funds are regulated and are subject to certain limits
specified by the Securities and Exchange Board of India (SEBI).
India has one of the highest savings rate globally. This penchant for wealth creation makes it
necessary for Indian investors to look beyond the traditionally favored bank FDs and gold towards
mutual funds. However, lack of awareness has made mutual funds a less preferred investment
avenue.
Mutual funds offer multiple product choices for investment across the financial spectrum. As
investment goals vary post-retirement expenses, money for children‘s education or marriage, house
purchase, etc. – the products required to achieve these goals vary too. The Indian mutual fund
industry offers a plethora of schemes and caters to all types of investor needs.
Let‘s say that there is a box of 12 chocolates costing Rs.40. Four friends decide to buy the same, but
they have only Rs.10 each and the shopkeeper only sells by the box. So the friends then decide to
pool in Rs.10 each and buy the box of 12 chocolates. Now based on their contribution, they each
receive 3 chocolates or 3 units, if equated with Mutual Funds.
And how do you calculate the cost of one unit? Simply divide the total amount with the total
number of chocolates: 40/12 = 3.33.
So if you were to multiply the number of units (3) with the cost per unit (3.33), you get the initial
investment of Rs.10. This results in each friend being a unit holder in the box of chocolates that is
collectively owned by all of them, with each person being a part owner of the box.
A strong financial market with broad participation is essential for a developed economy. With this
broad objective India‘s first mutual fund was establishment in 1963, namely, Unit Trust of India
(UTI), at the initiative of the Government of India and Reserve Bank of India ‗with a view to
encouraging saving and investment and participation in the income, profits and gains accruing to
the Corporation from the acquisition, holding, management and disposal of securities‘.
The Mutual Fund industry in India started in 1963 with formation of UTI in 1963 by an Act of
Parliament and functioned under the Regulatory and administrative control of the Reserve Bank of
India (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. Unit Scheme 1964
(US ‘64) was the first scheme launched by UTI. At the end of 1988, UTI had Rs. 6,700 crores of
Assets under Management (AUM).
The year 1987 marked the entry of public sector mutual funds set up by Public Sector banks and
Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI
Mutual Fund was the first ‗non-UTI‘ mutual fund established in June 1987, followed by Canbank
Mutual Fund (Dec. 1987), Punjab National Bank Mutual Fund (Aug. 1989), Indian Bank Mutual
Fund (Nov 1989), Bank of India (Jun 1990), Bank of Baroda Mutual Fund (Oct. 1992). LIC
established its mutual fund in June 1989, while GIC had set up its mutual fund in December 1990.
At the end of 1993, the MF industry had assets under management of Rs.47, 004crores.
The Indian securities market gained greater importance with the establishment of SEBI in April
1992 to protect the interests of the investors in securities market and to promote the development of
and to regulate, the securities market.
In the year 1993, the first set of SEBI Mutual Fund Regulations came into being for all mutual
funds, except UTI. The erstwhile Kothari Pioneer (now merged with Franklin Templeton MF) was
the first private sector MF registered in July 1993. With the entry of private sector funds in 1993, a
new era began in the Indian MF industry, giving the Indian investors a wider choice of MF
products.
In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was bifurcated into
two separate entities, viz., the Specified Undertaking of the Unit Trust of India (SUUTI) and UTI
Mutual Fund which functions under the SEBI MF Regulations. With the bifurcation of the erstwhile
UTI and several mergers taking place among different private sector funds, the MF industry entered
its fourth phase of consolidation following the global melt-down in the year 2009, securities
markets all over the world had tanked and so was the case in India. Most investors, who had entered
the capital market during the peak, had lost money and their faith in MF products was shaken
greatly.
Taking cognizance of the lack of penetration of MFs, especially in tier II and tier III cities, and the
need for greater alignment of the interest of various stakeholders, SEBI introduced several
progressive measures in September 2012 to "re-energize" the Indian Mutual Fund industry and
increase MFs‘ penetration.
Since May 2014, the Industry has witnessed steady inflows and increase in the AUM as well as the
number of investor folios (accounts).The Industry‘s AUM crossed the milestone of Rs.10 Trillion
(Rs.10 Lakh Crore) for the first time as on 31st May 2014 and in a short span of two years the
AUM size has crossed Rs.15 lakh crore in July 2016.The overall size of the Indian MF Industry has
grown from Rs. 3.26 trillion as on 31st March 2007 to Rs. 15.63 trillion as on 31st August 2016, the
highest AUM ever and a five-fold increase in a span of less than 10 years!!
In fact, the MF Industry has more doubled its AUM in the last 4 years from Rs. 5.87 trillion as on
31st March, 2012 to Rs. 12.33 trillion as on 31st March, 2016 and further grown to Rs. 15.63
trillion as on 31st August 2016.The no. of investor folios has gone up from 3.95 crore folios as on
31-03-2014 to 4.98 crore as on 31-08-2016.
MF Distributors have been providing the much needed last mile connect with investors, particularly
in smaller towns and this is not limited to just enabling investors to invest in appropriate schemes,
but also in helping investors stay on course through bouts of market volatility and thus experience
the benefit of investing in mutual funds.
Every investor has a different investment objective. Some go for stability and opt for safer securities
such as bonds or government securities. Those who have a higher risk appetite and yearn for higher
returns may want to choose risk-bearing securities such as equities. Hence, mutual funds come with
different schemes, each with a different investment objective. Broadly, they have been categorized
in three categories. Based on the structure, the mutual funds can be closed-ended, open- ended and
interval funds. Based on the nature, they can be equity funds, debt funds and hybrid funds. Based on
the investment objective, they can be classified as the growth funds, income funds, balanced funds
and index funds.
NATURE
STRUCTURE INVESTMENT
MUTUAL
FUND
Mutual funds are one of the most popular ways invest, thanks to their ease of use and built-in
diversity.
Less easy for new investors may be sifting through the thousands of mutual funds on the market.
Generally speaking, there are four broad types of mutual funds: those that invest in stocks (equity
funds), bonds (fixed-income funds), short-term debt (money market funds) or both stocks and bonds
(balanced or hybrid funds).
Every mutual fund is designed to spread around risk while capturing wider market gains. Some
types of funds carry a higher amount of risk than others, but also higher potential rewards. Here‘s a
more detailed look at the most common types of mutual funds.
Open
Ended
Fund
Close
Interval
Ended
Funds
Fund
Structure
A close ended fund or scheme has a predetermined maturity period (e.g., 5-7 years). The fund is
open for subscription during the launch of the scheme for a specified period of time. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the
units 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 or they are listed in secondary market.
The most common type of mutual fund available for investment is an open-ended mutual fund.
Investors can choose to invest or transact in these schemes as per their convenience. In an open-
ended mutual fund, there is no limit to the number of investors, shares, or overall size of the fund,
unless the fund manager decides to close the fund to new investors in order to keep it manageable.
The value or share price of an open-ended mutual fund is determined at the market close every day
and is called the Net Asset Value (NAV).
Interval Funds
Interval schemes combine the features of open-ended and close-ended schemes. The units may be
traded on the stock exchange or may be open for sale or redemption during pre-determined intervals
at NAV related prices. FMPs or Fixed maturity plans are examples of these types of schemes.
Debt
Mutual
Funds
Equity
Balanced
Mutual
Funds
Funds
Nature
These funds invest maximum part of their corpus into equity holdings. The structure of the fund
may vary for different schemes and the fund manager‘s outlook on different stocks. The Equity
funds are sub-classified depending upon their investment objective into diversified equity funds,
mid-cap funds, small cap funds, sector specific funds and tax savings funds/ Equity Linked Savings
Scheme (ELSS). Equity investments rank high on the risk-return grid and hence, are ideal for a
longer time frame.
These funds invest in debt instruments to ensure low risk and provide a stable income to the
investors. Government authorities, private companies, banks and financial institutions are some of
the major issuers of debt papers. Debt funds can be further classified into gilt funds, income funds,
MIPs, short term plans and liquid funds.
Balanced Funds
They invest in both equities and fixed income securities which are in line with pre- defined
investment objective of the scheme. The equity portion provides growth while debt provides
stability in returns. This way, investors get to taste the best of both worlds.
Index Balanced
Funds Funds
Income Liquid
Funds Funds
Growth Gilt
Funds Investment Funds
Growth Funds
Also known as equity schemes, these schemes aim at providing capital appreciation over medium to
long term. These schemes normally invest a major portion of their fund in equities and are willing
to withstand short-term decline in value for possible future appreciation.
Income Funds
Also known as debt schemes, they generally invest in fixed income securities such as bonds and
corporate debentures. These schemes aim at providing regular and steady income to investors.
However, capital appreciation in such schemes may be limited.
Balanced Funds
A combination of growth and income funds, also known as balanced funds, are those that have a
mix of goals. They seek to provide investors with current income while still offering the potential
for growth. Some funds buy stocks and bonds so that the portfolio will generate income whilst still
keeping ahead of inflation. Equities provide the growth potential, while the exposure to fixed-
income securities provides stability to the portfolio during volatile times in the equity markets.
Growth and income funds have a low-to-moderate stability along with a moderate potential for
current income and growth.
These schemes attempt to reproduce the performance of a particular index such as the BSE Sensex
or the NSE 50. Their portfolios consist of only those stocks that constitute the index. The
percentage of each stock to the total holding is identical to the stock index weight age. And hence,
the returns from such schemes are more or less equivalent to those of the Index
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital
and moderate income. These schemes invest exclusively in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money, government
securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds
are appropriate for corporate and individual investors as a means to park their surplus funds for
short periods.
Gilt Funds
These funds invest exclusively in government securities. Government securities have no default
risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic
factors as is the case with income or debt oriented schemes.
i. A Sponsor
ii. A Trustee
While the above mentioned play the most important roles in creating and running a fund house, the
custodian, registrar and transfer agent (RTA), auditors and the fund accountants play a vital
supporting role in aiding the smooth functioning of a mutual fund.
The Sponsor is the main body that establishes the Mutual fund. The Sponsor can be compared to a
promoter of a company. The responsibility of the sponsor includes appointing the trustees with the
approval of SEBI and setting up an AMC under the Companies act 1956 while getting the trust
registered with SEBI. Since the Sponsors play the most important role in the functioning of a
mutual fund, SEBI has a set of strict guidelines for the eligibility of a sponsor. Some of them are as
follows: the sponsor should have a sound track record of carrying out business in the financial
services space for not less than five years. A Sponsor also needs to have made profits in at least
three of the five years including the latest year. During the same period, it is also important that the
sponsor has had a positive net worth. It should be contributing a minimum of 40 per cent net worth
of the AMC. it is also important that the sponsor has a good track record of fairness and integrity in
all its transactions. For example ICICI Bank and Purdential Plc are sponsors for ICICI Mutual Fund.
For Birla Sun Life Mutual Fund, Aditya Birla Financial Services and Sun Life (India) AMC
Investments Inc. are sponsors.
TRUSTEE
The main role of a trustee is to ensure that the interest of the unit holders is protected while making
sure that the mutual fund complies with all the regulations of SEBI. Either, the sponsor should
appoint four trustees or establish a trustee company with at least four independent directors.
Additionally, at least two thirds of the trustees or the directors should be independent not associated
with the sponsor in any way.
Some of the key responsibilities of the trustees include, entering into an investment management
agreement with the AMC to define its functioning. They are also responsible for ensuring that the
AMC has all the required process, procedures and systems in place while making sure that all the
key personnel such as the CEO, CIO, the fund managers and the analysts are appointed after
through due diligence.
The AMC is the investment manager of the trust. It takes care of the day today operation of the
mutual fund and managing the investor‘s money as well. The AMC is appointed either by the
trustee or the Sponsor after obtaining the approval of SEBI. The AMC consists of the Chief
Investment Officer, the fund managers and analysts, who are together responsible for managing the
various schemes launched. The compliance officer ensures compliance of all the activities of the
AMC in line with SEBIs rules and regulations. For example; HDFC AMC is the Asset Management
Company for HDFC Mutual Fund.
The custodian has the custody of the all the shares and various other securities bought by the AMC.
The custodian is responsible for the safe keeping of all the securities. The custodian is liable for
keeping the investment account of the mutual fund.
The RTA maintains and updates all the investor‘s records. The main function is investor servicing
through its office and various other branches. Its functions include processing of investor
application, purchase and redemption transactions by investors in various schemes and plans.
The auditors are responsible for auditing of the AMC‘s accounts while ensuring that the accounts of
schemes are maintained independently from that of AMC. The fund accountants are responsible for
calculating the NAV of the schemes based on the information regarding the assets and liabilities of
each scheme.
Thus we can note that the mutual funds in India are a well regulated entity with clearly defined
structure comprising of several components whose roles and responsibilities are properly defined
under the preview of SEBI.
Certainly, technology has now become a universal aspect of each and every element of mutual fund
operations – be it transaction processing, fund management, customer service or distribution.
In today‘s age, technology is par for the course. In any walk of life, its presence has made things
‗smart‘. The financial markets are no exception. Take a look at the mutual fund industry, for
instance. Caught in the web of digitalisation, it has begun to use technology intelligently across all
its processes - fund management, executing transactions, and customer servicing.
In fact, digitalisation of the payment spectrum is the key to the industry‘s meteoric rise in recent
years. The industry‘s assets under management more than tripled from Rs 7.66 trillion in August
2013 to over Rs 25 trillion in August 2018.
In the two years ended March 2018, the volume of digital payments via mobile phones increased
over 100 percent on an annualised basis. While payments through Immediate Payment Service
(IMPS) surged 106 percent, mobile wallets and mobile banking volumes jumped over 120 percent
each. In contrast, the volume of payments through debit and credit cards – the more mature digital
payment systems – logged 15 percent annual growth.In the mutual fund industry, the share of
digital gross inflows increased from just 0.5 percent two years ago to more than 6 percent in March
2018 and to nearly 10 percent in June 2018.
Gone are the days when Mutual Fund investors needed to wade through mountains of paperwork to
get started with their investments, or for that matter to execute future transactions on investments
already made. Technology has now become a ubiquitous aspect of each and every element of
Mutual Fund operations – be it transaction processing, fund management, customer service or
distribution. Aashish Somaaiya, MD & CEO of Motilal Oswal AMC, believes that the Mutual Fund
operations are fast moving towards ‗total technology dependence‘. ―It‘s worth noting that asides of
retail banking, Mutual Funds is the only other industry which can comfortably do the entire
transaction chain from receiving money to investing and back to redeeming it – everything on
technology platforms, without any physical or even a paper leg to it‖, said Somaaiya.
In 2014, SEBI paved the way for future growth by permitting distributors to redeem mutual fund
units as well as transact on non-demat units through the stock exchange. Using feature rich
platforms such as BSE‘s Star MF, AMFI Registered Mutual Fund Advisors can now buy, sell or
switch Mutual Fund units on behalf of their clients – without the obvious inefficiencies of moving
papers back and forth to complete transactions. Over the past twelve months, a large number of
intermediaries have adopted these platforms in order to stay relevant in the overall ecosystem. In
fact, the removal of this physical layer has spawned an entirely new business model of distributing
Mutual Funds ―remotely‖, without the need for face to face meetings with clients!
In a recent statement, the Bombay Stock exchange stated that BSE Star MF had processed more
than 81,000 orders worth Rs. 270 crore on 28th March. They claim to have processed close to 33
Lakh orders in FY 2015-16 and are well poised for further growth. This augurs well for clients, as
their overall investing experience is bound to get enhanced as their distributors choose to go online.
The recently launched AMFI and CRISIL report has outlined five technology trends, which will
affect the MF industry in coming years.
In last few years, AMCs, RTAs, industry associations such as AMFI (MF Utility) and stock
exchanges have developed online platforms. These platforms enable investors to transact online in
mutual funds.
One such platform promoted by AMFI, MF Utility (MFU) reported transaction of Rs. 1800 crore
every day. Over the last two years, the trade volumes on MFU have grown five times indicating the
growing popularity of online transaction platforms.
In a recent press release, BSE Star MF an exchange platform reported a growth of over 540% in the
last 2 years.NSE NMF II, which clocked 76 lakh transactions in the last financial year, has already
processed 45 lakh transaction this year.
This rapid growth in business witnessed by these online trading platforms is a clear indicator of
changing transaction landscape.
Use of social media as a communication channel is gaining wide acceptance in the asset
management industry. Many fund houses are using social media holistically to create awareness
about their products and services, engage with clients, resolve their queries and understand investor
needs.
E-commerce platforms
The reach of mutual funds will increase exponentially across the country if e-commerce platforms
receive permission to sell mutual funds.
A recent study by IBEF (India Brand Equity Foundation) found that there are 1-1.2 million
transactions per day in e commerce retailing. The market size stands at US$ 38.5 billion as of 2017
and is expected to grow at 20.09% CAGR over the next decade. The mutual funds too can benefit
from the wider reach of these platforms.
Data reigns supreme. Using big data analytics mutual funds can statistically analyse the actions of
investors. This will help them get deeper insights on the investor behaviour and devise new
strategies.
The big technology companies are using data to increase sales. Mutual funds too might be able to
offer customised investment solutions to different investors using big data analytics, the report
added.
Beyond transactions:
The widespread and cost-effective dissemination of technological tools in the Mutual Fund industry
suggests that it‘s a matter of time before distributors will be unable to differentiate themselves on
transaction capabilities alone. Unfortunately, the availability of direct plans (coupled with the
widespread attempt to de-jargonize and simplify mutual funds that is currently under way) is likely
to diminish the active role of distributors within the ecosystem.
In such times, it becomes critical for traditional distributors to think beyond mere transaction
processing as a means of creating value addition. Although there‘s no simple solution to this – a
Financial Planning based approach, multi-product distribution, ‗bundled‘ services and outstanding
CRM practices may help distributors stay relevant. In the meantime, it‘s safe to predict that
technology is here to stay in the Mutual Fund industry, and will only become a larger component of
the framework in the years to come.
Amfi Chairman A Balasubramanian attributed the impressive surge in assets base to 'aggressive'
investor awareness campaign both at the individual players' level as well as at an industry level.
"The Mutual Fund Sahi Hai' campaign has created huge impact in building confidence among
investors.
Mutual fund distributors too have played a key role in connecting with their existing and new
customers. It is also believed that investors are no more interested in buying into traditional asset
classes such as real estate and gold thus moving to financial asset class,"
"There is a need to encourage households to shift from physical savings to financial avenues,
especially mutual funds. With this objective in mind, under SEBI's guidance, AMFI has launched
this investor awareness outreach program. I am sure the public will find these simple but powerful
messages very thought provoking and will be encouraged to start investing in mutual funds," said A
Balasubramian, AMFI Chairman.
The campaign- "Mutual Funds Sahi Hai"- appears in different media such as TV, Digital, radio,
print, cinema and outdoor hoardings in different languages. With everyday situations as the
backdrop, the campaign tries to communicate to prospective investors that mutual funds are the
right option for them.
The campaign was launched by G. Mahalingam, whole time member, SEBI. "It is for the first time
in the history of financial services that all industry participants have come together to promote the
category. This campaign makes it easy for common public to understand about mutual funds and
dispels many myths around them," Mahalingam said while launching the campaign. AMFI data
shows that the MF industry had added about 9.05 lacs SIP accounts each month on an average
during the FY 2017-18, with an average SIP size of about Rs.3, 250 per SIP account.
Assets under Management or AUM are the total market value of all the assets managed by
the mutual fund companies.
A large AUM size thus could imply that the public has some faith in the performance of the AMC.
Investors believe that their investments would bear good returns when invested in a fund with high
AUM
HDFC is one of India‘s leading providers of financial services. HDFC AMC was launched in 1999
and is among the top AMCs in the country. The AMC made a notable name after the acquisition of
eight funds from Zurich India Mutual Fund. HDFC Mutual Fund launched its first product in the
year 2000 and has been constantly evolving over the last decade and a half. There are over 11 types
of mutual fund schemes. The company has recently traded in IPO and has soared a massive 65% in
its debut. The overall assets under management (AUM) are INR 3,06,840.72 Cr (as on June 30,
2018). These funds were then renamed to funds such as HDFC Top 200 Fund, HDFC Equity Fund,
etc. The fund house offers nearly 900 funds across all categories and has some of the notable funds
to its credit such as:
Reliance Mutual Fund is one of the fastest developing mutual fund houses in India. The mutual
fund is sponsored by a joint venture of Nippon Life Insurance (Japan) and Reliance Capital (India).
The company has an impressive track record of consistent returns. Reliance Mutual Fund has a
presence in more than 150 cities in India. The diverse array of offerings has something for
everyone. The company has over 55 lakh active portfolios. There are over 200 schemes in place for
customers to choose from. While Reliance currently has less AUM as compared to ICICI and
HDFC, the fund offers close 1100 funds and enjoys decent popularity in India. Some of the notable
mutual fund schemes offered by Reliance Mutual Fund are:
Reliance Mutual Fund was set up on June 30, 1995, and has its headquarters in Santacruz, Mumbai.
The AMC has been plying its trade in the market for over two decades and has massive experience
in identifying the basic needs of the investors. This experience in the market allows them to pick
stocks and funds that possess a good potential to generate returns for the investors. The company
prides itself in launching new and innovative.
The fund house manages over Rs 2, 41,107 crore in AUM currently spread across 600+ schemes.
The AMC is a joint venture between Aditya Birla Group of India and Sun Life Financial Inc. of
Canada and was started in 1994. The company has now established a strong reputation and gained
wide recognition in the mutual fund industry. The Birla Sun Life Mutual Fund offers a broad
spectrum of mutual fund schemes ranging from diversified equity schemes to sector-specific
schemes. It also offers debts mutual funds, hybrid schemes, fund of fund schemes, monthly income
plans, and offshore funds. It boasts of a diverse range of investments and sound financial portfolio.
The company specializes in various investment objectives like tax savings, personal savings, wealth
creation etc. It is well known for its consistency in helping its customers to reach their financial
goals. The company‘s schemes are well crafted to cater to the needs of the investors. Some of the
notable funds offered by the AMC include
Aditya Birla Sun Life Tax Relief 96
SBI Mutual Fund is managed by SBI Fund Management Company. SBI Fund Management
Company is India‘s oldest asset management company. It boasts a rich history of over two and a
half decades in investing and fund management. The AMC is a joint venture between the State
Bank of India (SBI) and Amundi, a European Asset Management Company. The fund house
manages assets over Rs 2,05,273 crore and offers 550+ funds. It has an extensive reach in the
country with over 200 acceptance points all over. The user base of SBI Mutual Fund is well over 50
lakhs. The company is India‘s one of the most trusted and popular mutual fund scheme provider.
The company is also a leading enterprise in terms of offshore fund management. Some of the
notable funds include:
UTI was founded in 1963 and is one of the first asset management companies in India. The AMC,
UTI Mutual Fund is sponsored by the four biggest institutes in the public sector: SBI, PNB, BoB,
and LIC. Being the first company to offer mutual fund, UTI offers some of the best schemes with
assured returns. Investment in UTI easy and can be accessed at any time of the year. UTI Mutual
Fund schemes are managed by the sharpest minds in finance domain and hence the yields from their
schemes are reliable and in line with their capital appreciation objectives. With nearly 1400
funds, the AMC manages over Rs 1,53,364 crore in AUM and offers fund across multiple
categories. Some of the notable funds across categories include:
Kotak Mahindra Bank is the fourth biggest private sector bank in India and has an AA+ brand
rating. The brand value of Kotak Mahindra is over US$481 million. The company ranks at a
respectable rank of 245 among the top 500 banks across the globe. The company offers more than
40 schemes for investors to choose from depending on their risk profile and time horizon. The
AMC offers different schemes with variable risk according to the specific customer requirement. It
was the first fund house in the country to launch a dedicated gilt fund scheme. The company
operates in over 70 cities in India currently and has a healthy network of more than 75 branches to
help the customers. The AMC has AUM of over Rs 1,19,800 crore, and the fund house offers over
300 funds. Some of the notable funds by Kotak Mahindra MF include:
Franklin Templeton is an American company that was established in 1947. The company‘s Indian
office was set up in 1996 and ever since its AUM has been growing rapidly. It aims to build a
company with a broad range of investment experience and has built profitable mutual fund
portfolios. Since the consolidation, the business has scaled substantially. This has catapulted
Franklin Templeton to be considered as one of the top fund houses in India. The company focuses
on short-term market fluctuations, revenues, cash flows, and the intrinsic value of the company to
provide the perfect solution to the customer query.
Initially, AMC was a joint venture between the 150-year old DSP and BlackRock Group. Recently,
DSP decided to buy out the 40% stake of BlackRock Inc in the joint venture. This lead to DSP
BlackRock Mutual Fund renamed to DSP Mutual Fund. With AUM of over Rs 86,255 crore and
over 250 funds, the fund house has made a notable name in the mutual fund industry. Some of the
notable funds include:
IDFC Ltd was set up by the Government of India in 1997. IDFC Mutual Fund is wholly managed
by IDFC Asset Management Company Ltd. The AMC provides different products and schemes for
institutional investors as well as individual investors. The company aims to develop assets through
measures like savings in equity and debt markets. AMC‘s investments and portfolios around
infrastructure are one of the best in the markets. IDFC has a strong connection with the private
sector and government. This helps it to offer smart and unbiased wealth management and growth
advice and help investors. There are over 50 mutual funds schemes in place to cater to the needs of
the investors. The AMC launched its first mutual fund in 2000 and currently has around 300 funds
to offer with AUM of over Rs 71,388 crore. Some of the notable funds offered by IDFC Mutual
Fund include:
Global Scenario of Mutual Fund Industry During the last decade, the net assets of mutual fund
industry have witnessed the tremendous growth all over the world. However, in spite of this healthy
growth a significant difference exists in the size and structure of mutual fund industry across the
nations.
The United States alone captures about half of the world mutual fund industry, suggesting disparity
in the growth of world MF industry. Mutual fund industry has grown larger in those countries
which are developed and have a strong institutional base whereas the growth of mutual fund
industry has been smaller in those countries which have high entry barriers.
Other factors that have influenced the size and structure of mutual fund industry are percentage of
educated population, level of the maturity of industry, presence of multinational financial institution
in the country, performance of equity and bond market, tax incentive and regulatory framework,
attractiveness of complimentary and substitute financial products and operational efficiency of
mutual fund industry. Mutual funds have been and continue to be favored as workplace retirement
plan options, but the fund world is evolving. Despite these changes, the size of the industry is still
impressive.
To look at how mutual funds first began, we need to hop in the time machine and go all the way
back to 1774. It was here in the Netherlands that the idea of pooling investment capital together in
order to own assets was first created.
Historians credit a Dutch merchant named Abraham van Ketwich with creating the first ―mutual
fund.‖ Ketwich created a diversified pooled security specifically designed for citizens of modest
means. The negotiate was called EendragtMaaktMagt, which translates to "unity creates strength,‖
and owned bonds issued by foreign governments and plantation loans in the West Indies.
Ketwich followed up the Negotiate with several others, including one that lasted for more than 114
years before being dissolved. Various other merchants and traders in the Netherlands began offering
similar vehicles to regular folk.
In fact, during the 1780s, there were more than 30 negotiates that owned United States credit issues
alone.
By the time the calendar rolled over to the 19th century, Ketwich‘s idea had become a European
phenomenon. The negotiate had spread across almost a continent, especially in England and France.
The English offered a few refinements to the structure and used it to help expand the British
Empire. The negotiate evolved into the investment trust, which is akin to modern closed- end funds.
In 1868, the first ―official‖ investment trust—the Foreign and Colonial Government Trust—was
founded in London. Shares of the fund are still traded on the London Stock Exchange today.
From here, the investment trust structure flowed towards and into America. Formed in 1893, The
Boston Personal Property Trust became America‘s first closed-end fund. Shortly after several others
would launch, including the important Alexander Fund.
This fund was critical in shaping the modern history of mutual funds as it allowed investors to make
withdrawals on demand. That feature has many historians calling the Alexander fund the very first
mutual fund.
The roaring ‘20s saw the introduction of the first official open-ended mutual fund. On March 21st,
1924, the Massachusetts Investors Trust (MITTX) was created.
The ke1y distinction of this fund was that open-ended mutual funds must buy back their shares from
their investors at the end of every business day. The creation of MITTX essentially gave birth to
mutual fund industry as we know it today.
The late ‘20s saw a flurry of mutual fund activity including some notable firsts. State Street
launched its first fund, while Scudder, Stevens and Clark would launch the first no-load fund in
1928.
Perhaps the biggest advancement would come from the creation of the Wellington Fund.
Wellington—which is now part of Vanguard—was the first mutual fund to own stocks and bonds in
one ticker. By the end of 1929, there were 19 open- ended mutual funds and roughly 700 closed-end
funds in the U.S.
The Mutual Fund industry really got cooking after World War II ended and America began to boom
during the 1950s. By 1951, there were more than 100 mutual funds operating and more than 150
additional funds were created over the next two decades.
The 1960s saw the birth of aggressive growth funds, which bet on high tech stocks, while the 1970s
and 1980s saw some of the biggest contributions to mutual funds‘ history.
One of the biggest contributions was the creation of the index fund – a mutual fund that would hold
all the stocks of a particular market measure. William Fouse and John McQuown of Wells Fargo
established the first index fund in 1971. However, it was Vanguard‘s John Bogle who made it
memorable back in 1974 by offering it to retail investors.
The First Index Investment Trust—based on the S&P 500 Index—allowed Mom & Pop investors to
own the entire market. The first money market fund—The Reserve Fund—debuted in 1971, while
1976 saw the first municipal bond launch. The 1990s saw the rise of the superstar fund manager, as
people like Bill Miller and Peter Lynch became driving forces at the funds they managed.
Today, the evolution of mutual funds continues with the creation of the exchange traded fund
(ETF).
In 1993, Nathan Most developed a way for investors to trade index funds throughout the day. He
dubbed his fund the Standard & Poor‘s Depository Receipts (SPDRs -pronounced spiders) and
based it off the S&P 500 Index. The SPDR S&P 500 (SPY) kicked off the ETF revolution and is
still one of the most successful funds.
As of June 30, 2017, the mutual fund industry had approximately $17.4 billion in total assets, a gain
of nearly 10% when compared to the same day one year earlier. The majority of those gains come
From equity funds, where strong returns in the neighborhood of 15-20% during that time helped
offset net outflows from these funds.
Over the past year, investors have instead directed new investments mainly into the relative safety
of fixed- income products, despite modest performance. Still, about 54% of mutual fund assets
belong to equity funds, with the remainder split among bond, money market and balanced funds.
India has among the lowest mutual fund investments to GDP ratios in the world at 7 per cent,
offering a vast untapped opportunity for MF houses, which can leverage technology to enhance
reach, a report said today. The 7 per cent MF: GDP ratio as of 2015 compares to 114 per cent in
Australia, 91 percent in the US and 51 percent in the UK, it said. MF investments accounted for
only 3.4 per cent of total financial investments by individual investors, including HNIs.
"Furthermore, the new digitally-powered entrants such as Payment Banks, who are allowed to sell
third-party MFs through their platforms, will revolutionize the reach and efficiency of the Indian
mutual fund industry. He added. SEBI is pushing for a more transparent, investor-friendly and
less risky MF industry. The watchdog is also focused on driving the growth of direct plans t o
increase retail participation.
Going forward, a number of robo-advisors are expected to enter the sector. Online MF distributors
and robo-advisors are also witnessing interest from private equity players.
"Digital has created a lot of difference in the MF industry. Ever since SEBI allowed intermediaries
to use stock exchange platforms to facilitate transactions in mutual funds on behalf of their clients,
many distributors have signed up with transaction enabling platforms to grow their business," said
Prem Khatri Founder and CEO of CafeMutual.
Figure 6 CAGR
Mutual fund industry saw its assets base jump to over Rs 22 lakh crore in 2017, adding more than
Rs 5.4 lakh crore to the kitty, on strong participation from retail investors and investor awareness
initiatives. Moreover, fund houses are expecting similar 'healthy' growth in AUM to continue in the
New Year too as the penetration levels of mutual funds are still very low in the country.
Total AUM of all the fund houses put together soared by over Rs 5.4 lakh crore, or 32 per cent, to
Rs 22.35 lakh crore at the end of December 2017 from Rs 16.93 lakh crore in December-end 2016,
latest update with Association of Mutual Funds in India (Amfi) noted. This was the fifth
consecutive yearly rise in the industry AUM, after a drop in the assets base for two preceding years.
Out of the 42 active fund houses, two mutual funds have not disclosed the assets under management
(AUM) data at the end of December 2017.
Retail investors hold 89% of mutual fund assets in USA, and they rely on these funds to meet
their long-term financial objectives especially building their retirement corpus and education
savings. 94% of such households hold mutual fund shares inside employer-sponsored retirement
accounts, Individual Retirement Accounts and other tax deferred accounts. Survey shows that
from 2005 onwards, 68% of individuals have made their first purchase in mutual funds in
employee-sponsored retirement plans. 90 mn retail investors have holdings in mutual funds,
which imply that 43% of all US households owned mutual funds in 2018.68% of US retail
investors hold more than half of their financial assets in mutual funds, with $103,000 being the
median value of mutual fund assets.
Institutional clients‘ share of AUM in the European mutual fund market rose from 69% in 2007 to
74% in 2018. Institutional clients comprise primarily insurance companies (39% of AUM) and
pension funds (33% of AUM), and they rely on the expertise of the fund managers to manage the
contributions collected from their members. Households contribute a significant share of the
institutional client segment through their ownership of unit-linked products offered by insurance
companies, and pension schemes offered by both insurers and pension funds. Households are also
engaging in higher purchase of mutual funds from 2013 onwards, and these purchases are made
either from third-party distributors or through the internet.
More than 50% of US mutual fund assets are in equity funds and this is congruent with the long-
term investment perspective for the retail investors. The picture is different in the European market
where bond assets comprise the single largest holding at 43% of AUM.
The ability of US and European funds to have a strong retail customer base presents the Indian
industry with pointers on increasing their reach in the retail market.
4 Aditya Birla Sun Life Mutual Fund 205,715 224,650 18,935 9.20
Current Scenario the Indian Mutual Fund Industry is one of the fastest growing sectors in the Indian
capital and financial markets. The mutual fund industry in India has seen dramatic improvements in
quantity as well as quality of products and services offering in recent years. Mutual funds as an
investment vehicle have gained immense popularity in the current scenario, which is clearly
reflected in the robust growth levels of Assets under Management.
The Indian Mutual fund industry has witnessed considerable growth since its inception in 1963. The
assets under management (AUM) have surged to Rs 825240 crores as on 31st Mar, 2018 from just
Rs 25 crores in March, 1965.
The impressive growth in the Indian Mutual Fund Industry in recent years can largely be attributed
to various factors such as rising household savings, comprehensive regulatory framework, favorable
tax policies, and introduction of several new products, investor education campaign and role of
distributors. In the last few years, household‘s income levels have grown significantly, leading to
commensurate increase in household‘s savings.
The considerable rise in household‘s financial savings, point towards the huge market potential of
the Mutual fund industry in India. Besides, SEBI has introduced various regulatory measures in
order to protect the interest of small investors that augurs well for the long term growth of the
industry. The tax benefits allowed on mutual fund schemes (for example investment made in Equity
Linked Saving Scheme (ELSS) is qualified for tax deductions under section 80C of the Income Tax
Act) also have helped mutual funds to evolve as the preferred form of investment among the
salaried income earners.
Besides, the Indian Mutual fund industry that started with traditional products like equity fund, debt
fund and balanced fund has significantly expanded its product portfolio. Today, the industry has
introduced an array of products such as liquid/money market funds, sector-specific funds, index
funds, gilt funds, capital protection oriented schemes, special category funds, insurance linked
funds, exchange traded funds, etc.
It also has introduced Gold ETF fund in 2007 with an aim to allow mutual funds to invest in gold or
gold related instruments. Further, the industry has launched special schemes to invest in foreign
securities. The wide variety of schemes offered by the Indian Mutual fund industry provides
multiple options of investment to common man.
The Mutual Fund (MF) industry in India has seen rapid growth in Assets under Management
(AUM). Total AUM of the industry stood at Rs 23.80 trillion (US$ 340.48 billion) between April
2018-February 2019. At the same time the number of Mutual fund (MF) equity portfolios reached a
high of 74.6 million as of June 2018.
Another crucial component of India‘s financial industry is the insurance industry. The insurance
industry has been expanding at a fast pace. The total first year premium of life insurance companies
reached Rs 214,673 crore (US$ 30.72 billion) during FY19. Along with the secondary market, the
market for Initial Public Offers (IPOs) has also witnessed rapid expansion. The total amount of
Initial Public Offerings (IPO) increased to US$ 1.2 billion raised from 37 between April – June
2018.
Over the past few years India has witnessed a huge increase in Mergers and Acquisition (M&A)
activity. In H12018, 74 deals of acquisition took place in financial sector. The total value of such
transactions was US$ 4.166 billion. Furthermore, India‘s leading bourse Bombay Stock Exchange
(BSE) will set up a joint venture with Ebix Inc to build a robust insurance distribution network in
the country through a new distribution exchange platform.
More than 40 Asset Management Companies [AMC] have set up their operations since the
liberalization of the Indian economy in 1993. Currently, 44 AMCs are operating in India and these
comprise private sector companies, joint ventures (including those with foreign entities), bank-
sponsored, etc. The industry has a tiered structure with the top 7 AMCs having 70% of the industry
Asset under Management [AUM].
Institutional investors currently hold 54% of assets with individual investors increasing their share
from 45% to 46% in the last one year (source: AMFI). The institutional investor group comprises
corporates (85%) as well as Indian and foreign institutions and banks.
The number of investor accounts had hit a low of 39.5 mn in March 2014 compared to levels of 48
mn witnessed in 2009. There has been a recovery in the last one year, and the figure increased to
42.8 mn by June 2015. 99% of such accounts are individual investor accounts, which include both
retail and High Networth Individual [HNI] investors (ticket size greater than Rs 5 lakh).
Investments by Foreign Portfolio Investors (FPIs) in Indian capital markets have reached Rs 6,310
crore (US$ 899.12 million) up to November 22, 2018.
As of October 2018, the Financial Inclusion Lab has selected 11 fintech innovators with an
investment of US$ 9.5 million promoted by the IIM-Ahmadabad‘s Bharat Inclusion Initiative (BII)
along with JP Morgan, Michael and Susan Dell Foundation, and the Bill and Melinda Gates
Foundation. The private equity and venture capital (PE/VC) investments reached US$ 25.20 billion
between January to October 2018.*
In December, 2018, Securities and Exchange Board of India (SEBI) proposed direct overseas listing
of Indian companies and other regulatory changes.
Bombay Stock Exchange (BSE) introduced weekly futures and options contracts on Sensex 50
index from October 26, 2018.
In September 2018, SEBI asked for recommendations to strengthen rules which will enhance the
overall governance standards for issuers, intermediaries or infrastructure providers in the financial
market.
The Government of India launched India Post Payments Bank (IPPB), to provide every district with
one branch which will help increase rural penetration. As of August 2018, two branches out of 650
branches are already operational.
India is today one of the most vibrant global economies, on the back of robust banking and
insurance sectors. The relaxation of foreign investment rules has received a positive response from
the insurance sector, with many companies announcing plans to increase their stakes in joint
ventures with Indian companies. Over the coming quarters there could be a series of joint venture
deals between global insurance giants and local players.
The Association of Mutual Funds in India (AMFI) is targeting nearly five fold growth in assets
under management (AUM) to Rs 95 lakh crore (US$ 1.47 trillion) and a more than three times
growth in investor accounts to 130 million by 2025. India's mobile wallet industry is estimated to
grow at a Compound Annual Growth Rate (CAGR) of 150 per cent to reach US$ 4.4 billion by
2022 while mobile wallet transactions to touch Rs 32 trillion (USD $ 492.6 billion) by 2022.
India is a country of savers. Our household savings rate stands at around 20% of the GDP, which
translates to about Rs.30 lakh crore. The latest trends show that investors are moving away from
physical assets such as gold and real estate to financial assets. A few years ago, 60% of the
investments were in physical assets and only 40% in financial assets, this has changed to 50-50
now. While the shift of 10% looks small, it translates to Rs.3 lakh crore moving into financial
sector.
Banks still constitute major portion of household savings with 45% share. However, this share has
reduced substantially by 14% over the last few years. Many people are increasingly investing their
money in financial assets such as mutual funds and insurance. To put this change in perspective, a
few years ago, mutual fund investments equalled 7% of the bank deposits. Now, they stand at 19%
of the bank deposits.
In FY 2013-14, the mutual fund industry was largely a debt industry with debt AUM of Rs.4 lakh
crore of the total industry AUM of Rs.6 lakh crore. This has undergone a sea of change in the last
four years. For instance, the industry‘s debt AUM was Rs.8 lakh crore while the equity AUM grew
to Rs.9.20 lakh crore in the FY 2017-18,. I believe that this will increase profitability for the
industry.
The last few years saw increasing participation of retail investors through SIP route. While the
industry received Rs.3,100 crore through SIP two years ago on a monthly basis, we are now
receiving close to Rs.7,500 crore a month through SIPs, largely into equity funds from retail
investors. In addition, the longevity of SIP accounts has increased over the years. Currently, over
55% of SIPs are active for five years.
In October 2012, SEBI introduced B15 cities to encourage mutual fund penetration. This has led to
geographical diversification of industry‘s assets. Currently, B15 assets are growing faster than
T15.Globally, mutual funds account for 62% of GDP. However, in India, the number is just 11%. In
addition, the mutual fund industry constitutes just 5% of the total market capitalisation. This shows
tremendous growth potential for the industry.
For years, investors, fund managers, and stock analysts have sought reliable indicators to project the
future return and risk of owning an individual stock, bond, or a portfolio of securities. The
underlying assumptions are as follows:
2. Returns and risk can be objectively quantified by mathematical analysis of historical results.
3. The correlation of potential return and underlying risk constantly varies, providing
opportunities to acquire investments with maximum potential return and minimal risk.
These assumptions exemplify modern portfolio management and are the basis for the widely used
capital asset pricing model (CAPM) developed in the 1960s, which led to a Nobel Memorial Prize
in Economics for its creators. Enabled by technology, Wall Street wonks amass and analyze
massive amounts of historical data searching for hidden, often arcane relationships to identify
undiscovered opportunities for gain without risk.
In case of Mutual fund, Returns are determined by Managerial efficiency and investment strategy.
Mutual fund marketing strategies is successful if it creates confidence among potential investors
and strengthens their desire to put their money with a particular fund
Mutual funds provide various facilities that make saving and investing simple, accessible, and
affordable, by using professional management, diversification, variety of products, liquidity,
affordability, convenience, and ease of record keeping. Moreover, strict government regulation and
full disclosure of information makes the investments more secure in India.
In Mutual fund market the key area of interest of marketing experts are understanding the investors‘
expectations and meeting those expectations. The mutual fund sector is one of the fastest growing
sectors in Indian Economy and has tremendous potential for sustained future growth. The present
era of exponential growth has seen changes, refinements, innovations etc. in products, practices and
distribution and channel development.
Mutual fund as a product is the investment, which the investors hold. The steps, which are involved
in the formulation of the schemes or product designing, are conceptualization, drafting, test
marketing, approval and authorization of the scheme. Since mutual fund is a service, there is a little
element of physicality. Physical evidence is the Mutual fund documents and the statements that are
received periodically. Mutual fund managers want to deliver good quality at a reasonable cost, but
the managers cannot make any promises about the future performance of the investment since a
mutual fund is not a consumer product with consistency of performance.
There are number of mutual fund schemes that are floating in the market. One mutual fund house
deals in many schemes. The product line of the mutual fund houses ranges from 30 to 300 schemes
in India as market segmentation is done to cater to all the specific investment demands of the
customers.
Market segmentation increases product differentiation, limiting competition to the funds belonging
to the same category, while fund proliferation increases market coverage. It is seen that Mutual
funds in India have been quite successful in brand policy and brand identification.
2. Place
Place or the marketing channel describes the groups of individuals and companies, which are
involved in channelizing the flow and sale of product and services from the provider to the eventual
customer. In mutual fund also there are channels broadly defined as ‗direct‘ or ‗indirect‘. Direct
channels involve the movement and sale of products directly between the provider and the customer
as in the traditional branch network, whereas in the case of indirect channels product flows via
intermediaries and middlemen. Traditionally mutual fund has been via the branch network, but now
different approaches are adopted.
3. Promotion
With globalization the entry of multinational corporations propelled due to which the market
changed into a buyers‘ market and due to the sudden competition growth, the domestic mutual fund
industry was shaken. Promotional efforts should be stimulating and motivating enough to generate
interest in and promote a positive attitude towards a Mutual fund house so that they will be
considered favorably in comparison with the competitors. As there are so many players in the
Mutual fund Industry, to choose one mutual fund over the other becomes very difficult for the
investors. This has led the mutual fund to follow aggressive promotional techniques.
Price competition involves using low prices as a competitive tool to attract customers. As the price
of the mutual fund is dependent upon the price of the underlying shares. Therefore it is the
distribution cost not the manufacturing cost in Mutual fund that separates one competitor with
another. One of the advantages of Mutual funds that it discloses its entire fee charged.
5. People
Mutual funds marketers need to develop a high level of inter personal skills and customer oriented
attitude in employees for the simple reason that employees in services are the key to service
experience.
All employees in the mutual fund house have an effect on the sale of the products. This is true of
frontline a staff that has direct control with customers; they provide the link between the Mutual
fund and the investors.
6. Physical evidence
The allocation of greater amount of space in a mutual fund house is likely to have a positive
relationship between the company and the investors. Physical evidence also means the offer
documents and Mutual fund statements that the investors are provided with.
In order to have a better relationship with the investors, the statements should be regular, easily
understandable and all the facts should be mentioned in it.
7. Process
Process means the process through which the investors‘ money is invested in different schemes and
the returns are provided to them. The process should be less complex. The revision of schemes
should not be a very frequent task as it leads to increase in cost. The mutual fund houses make
efforts to standardize the process. In order to customisethe process, so lot of different schemes is
coming into market.
The country‘s mutual fund industry has a huge growth potential as Indian households‘ savings
amount to Rs 20-30 lakh crore, top official of an asset management company said today. ―We are
already witnessing a gradual shift in household savings as dominance of physical savings (real
estate and gold) is going down, while share of financial savings is growing,‖
Barve highlighted the fact that India lags most major nations of the world in terms of assets under
management (AUM) of mutual funds as a percentage of gross domestic products (GDP).
In India, asset base of mutual funds as a percentage of GDP is just 11 per cent, while the world
average is 62 per cent. ―When it comes to the share of MFs in the market capitalization, it is less
than 5 percent in India, which only proves the huge market potential,‖ he said. ―India has a very
saving culture as Indians save Rs 20-30 lakh crore every year, which indicates immense scope for
channelizing this saving into MF industry,‖ he added.
The country has 42 mutual fund houses managing assets to the tune of over Rs 23 lakh crore.
Speaking about the upcoming IPO, Barve said HDFC Asset Management Company (AMC) will
launch its Rs 2,800 crore initial share-sale on July 25. The price band has been fixed at Rs 1,095-
1,100 per share. The proposed IPO offers up to 2.54 crore equity shares of the fund house through
an offer for sale of 85.92 lakh shares (4.08 per cent stake) by HDFC and up to 1.68 crore shares
(7.95 per cent holding) by Standard Life.
United States‘ households, institutions, and domestic businesses saved almost $1.9 trillion in 2013.
Where did that savings go and what was it used for? Some of the savings ended up in banks, which
in turn loaned the money to individuals or businesses that wanted to borrow money. Some was
invested in private companies or loaned to government agencies that wanted to borrow money to
raise funds for purposes like building roads or mass transit.
Some firms reinvested their savings in their own businesses. In this section, we will determine how
the demand and supply model links those who wish to supply financial capital (i.e., savings) with
those who demand financial capital (i.e., borrowing). Those who save money (or make financial
investments, which is the same thing), whether individuals or businesses, are on the supply side of
the financial market. Those who borrow money are on the demand side of the financial market. For
a more detailed treatment of the different kinds of financial investments like bank accounts, stocks
and bonds, see the Financial Markets chapter.
A definition strategy analysis includes an industry analysis, identifies key success factors and
includes focusing on managing SWOT (strengths, weaknesses, opportunities and threats).
Understand your industry strategies through online strategy guides or a strategic management
model.
There are various methods to analyze an industry; analysis can be helpful to determine the
opportunities and threats of the industry. It gives answer to various questions; How much attractive
is the industry? What are the future options for the growth of the industry? Do we have to invest,
hold or harvest from the current market position? And many more.
There are a number of attractive mutual funds and fund managers that have performed very well
over both long-term and short-term horizons. Sometimes, performance can be attributable to a
mutual fund manager's superior stock-picking abilities and/or asset allocation decisions. In this
article, we'll summarize how to analyze a mutual fund's portfolio and determine whether there are
specific performance drivers
When it comes to investing in mutual funds, you need to know how to analyze and pick funds that
are best suited for you. Most beginners look at returns, riskiness or ratings of a fund before
investing.
Here are a few more performance indicators that will help you take the right decisions in mutual
fund analysis. In this chapter, following analysis is performed:
1. PEST ANALYSIS
2. OT ANALYSIS
5. 7 P ANALYSIS
6. GE METRICS ANALYSIS
A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework or tool
used to analyze and monitor the macro-environmental factors that may have a profound impact on
an organization‘s performance. This tool is especially useful when starting a new business or
entering a foreign market.
PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental
and Legal factors. However, throughout the years people have expanded the framework with factors
such as Demographics, Intercultural, Ethical and Ecological resulting in variants such as
STEEPLED, DESTEP and SLEPIT.
* Mutual funds are regulated by SEBI (Securities and Exchange Board of India). SEBI regulates
mutual funds as 1996 Mutual fund regulation. Mutual funds regulated by the Security and Exchange
Board of India (SEBI) provide secure saving option managed by professional account managers.
* SEBI, the government body who regulates mutual funds in India, issued guidelines for the mutual
funds for the first time in 1993. The regulations were fully revised in 1996.
* The main aim of the Mutual Fund regulatory body in India is to protect the interests of the
investors. SEBI often issues guidelines for the Mutual Funds, depending on the situation in the
market. The Mutual Funds are prompted by either public or private sector entities including the
foreign entities are governed by the regulations issued by SEBI.
* As per the Mutual Funds regulations 1996, all mutual funds must register as trusts under the Indian
Trust Act 1882. In order to run the Mutual Fund, the company has to set up a separate asset
management company commonly known as AMC. The regulations state that the net worth of the
parent company of the AMC must be more or equal to Rs.50, 000,000/-
* If the Mutual Fund is dealing with money market exclusively, it has to register with the RBI as well.
SEBI has the authority to penalize a mutual fund founded a guilty of not following the norms. All
the mutual funds should be registered with SEBI and the government has also set up a separate
regulatory agency for Mutual Funds as well which is known as the Association of Mutual Funds in
India or AMFI.
* Under Sec 54 EB if the capital gain portion (after indexation) of the sale proceeds are invested in
Mutual Fund units and locked-in for a period of 7 years.
* The benefit under this section has been withdrawn by the finance bill 2000 and there for, the capital
gains made up to the 31st march 2000 can only be invested under this scheme before the 30th
September 2000, then after this benefit will no more be available.
* 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.
* 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.
* A Mutual Fund has to pay a withholding tax of 10% on the dividends distributed by it under the
provisions of the prevailing I.T. Act putting them on par with corporate. 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 till the year 2001- 02, by an overriding
provision.
* As per Income-tax Act, contributions made from taxable income in the specified investments
qualify for a tax rebate @ 20% of the invested amount subject to a maximum investment ceiling of
Rs.80, 000/- The rebate would be available in the year of investment.
* In case of Mutual Funds, the rebate under Section 88 can be availed of by investing in Equity linked
saving schemes (ELSS). The basic features of ELSS schemes are:
* Any Mutual Fund can offer an open-ended ELSS .There is a 3-year lock-in period for the
investment that is reckoned from the date of allotment Rebate can be claimed only up to a
maximum investment of Rs.10, 000/- per financial year.
Young Population: 65% of India‘s population below 35 years of age. Middle class population
expected to grow from 16 cr. to 55 cr. by 2025 this represents huge market potential for investments
& wealth creation in next few years.
Indians are under invested in equity as an asset class. With growing awareness, even a 10% shift
from other asset classes to equity will create huge business opportunity for wealth creators.
SOURCE: IMF
Inflation affects the Return Inflation has always been one of the most important macroeconomic
factor affection the country. It represents the general price level of the country Inflation has always
lowered the actual return from bank savings.
SOCIAL ANALYSIS
Mutual Funds schemes should not be organized, operated, managed or the portfolio of securities
selected, in the interest of sponsors, directors of asset management companies, members of Board
of Trustees of Trustee Company, associated persons as in the interest of special class of unit holders
other than in interest of all classes of unit holders of the scheme.
All mutual funds have a stated investment mandate that specifies whether the fund will invest in
large companies or small companies, and whether those companies exhibit growth.
It is assumed that the mutual fund manager will adhere to the stated investment objective. It's a
good start to understand the fund's specific investment mandate, but there is more to fund
performance that can only be revealed by digging a bit deeper into the fund's portfolio over time.
1. must ensure the dissemination to all unit holders of adequate, accurate, explicit and timely
information fairly presented in a simple language about the investment policies, investment
objectives, financial position and general affairs of the scheme,
2. must ensure the dissemination to all unit holders of adequate, accurate, explicit and timely
information fairly presented in a simple language about the investment policies, investment
objectives, financial position and general affairs of the scheme,
3. must avoid conflicts of interest in managing the affairs of the schemes and keep the interest of all
unit holders paramount in all matters,
4. must ensure scheme wise segregation of bank accounts and securities accounts,
5. should carry out the business and invest in accordance with the investment objectives stated in the
offer documents and take investment decisions solely in the interest of unit holders, and
6. not use any unethical means to sell, market or induce any investor to buy their schemes,
7. should maintain high standard to integrity and fairness in all their dealings and in the conduct of
their business
8. render at all time high standards of service, exercise due diligence, ensure proper care and exercise
independent professional judgment
9. The AMCs should not make any exaggerated oral/written statement either about their qualifications
or capability to render investment management services or their achievement.
* Obtain internal audit reports at regular intervals from independent auditors appointed by them;
* Consider the reports of independent auditor and compliance reports of AMC at their meetings for
appropriate action Maintain records of decisions/minutes of their meeting;
* Prescribe and here to a code of ethics by the trustees/AMC and its personnel; and Communicate in
writing to the AMC of the deficiencies and checking on the rectification of the deficiencies.
Over the course of the past five years or so, the Indian Mutual Fund industry has traversed an
important path in their history. The entire industry appeared to have slipped into an extended hiatus
post the tumult and panic that characterized the global markets in 2008. The pre-2008 phase was
marked by a plethora of NFO‘s (New Fund Offers) that aimed to draw new investors into the fold.
Not surprisingly, a number of investors, both uninformed and informed alike, severely burned their
fingers in the wake of the 2008 crash. This loss of faith led to a four year phase between 2008 and
late 2011 when the industry‘s overall Assets under Management (AUM) grew by a mere 18-20 per
cent (a compound annual growth of just 5 per cent per annum).
Rajesh Krishnamoorthy, MD of iFAST Financial India (One if India‘s leading technology platforms
for distributors) believes that when it comes to leveraging technology, the Mutual Fund industry has
fared a lot better than other industries within Financial Services space. ―The industry has done a
commendable job to make sure the client experience is positively impacted with the use of the right
technologies‖, he says. How technological factors helped the Mutual Fund industry to grow
exponentially? Following are the reasons:
Towards a paperless experience: Gone are the days when Mutual Fund investors needed to wade
through mountains of paperwork to get started with their investments, or for that matter to execute
future transactions on investments already made. Technology has now become a ubiquitous aspect
of each and every element of Mutual Fund operations – be it transaction processing, fund
management, customer service or distribution. Aashish Somaaiya, MD & CEO of Motilal Oswal
AMC believes that the Mutual Fund operations are fast moving towards ‗total technology
dependence‘. ―It‘s worth noting that asides of retail banking, Mutual Funds is the only other
industry which can comfortably do the entire transaction chain from receiving money to investing
and back to redeeming it – everything on technology platforms, without any physical or even a
paper leg to it‖, said Somaaiya.
Ease of transactions: The overall ease with which a first time investor can get started with Mutual
Funds has seen a significant uptrend in the past five years. For instance, the ―e-KYC‖ process now
allows non-KYC compliant investors to cross the first hurdle of KYC compliance by logging on to
the KYC Registration Agency Website and using their Aadhar Card number, followed by a simple
OTP based verification and subsequent document upload process. In 2014, SEBI paved the way for
future growth by permitting distributors to redeem mutual fund units as well as transact on non-
demat units through the stock exchange.
―Sales of our Money Market Funds (that typically don‘t happen from the advisor channel due to
lack of economic viability) have zoomed for us from IFAX press. This is great for investors as they
finally have someone offering them an alternative to bank savings accounts, that offers better tax
efficient yield & nearly the same liquidity.‖, said Kothari. Other advanced systems aim to help
previously offline distributors seamlessly ‗go online‘ in a matter of a just a few days, thereby
making a 360 degree overnight re-engineering of their business models a real possibility. For
instance, iFAST provides distributors with a technological platform to automate everything - from
research, execution, portfolio monitoring & reporting to even ‗one click‘ portfolio rebalancing.
In a distribution business with wafer thin brokerage structures (that are complex and dynamic to
boot!), it becomes nearly impossible for distributors to create predictable revenue streams. In such
situations, platforms such as iFAST can help distributors ―tech- turbocharger‖ their offering and
even consider charging a fee to its clients in the bargain. ―It‘s a win-win when Financial Advisors
use platforms. For the customer, they get the best of both worlds – an Advisor who has more time
for them, and platform technology that is continuously being upgraded to help them monitor their
wealth‖,
The widespread and cost-effective dissemination of technological tools in the Mutual Fund industry
suggests that it‘s a matter of time before distributors will be unable to differentiate themselves on
transaction capabilities alone. Unfortunately, the availability of direct plans (coupled with the
widespread attempt to de-jargonize and simplify mutual funds that is currently under way) is likely
to diminish the active role of distributors within the ecosystem.
In such times, it becomes critical for traditional distributors to think beyond mere transaction
processing as a means of creating value addition. Although there‘s no simple solution to this – a
Financial Planning based approach, multi-product distribution, ‗bundled‘ services and outstanding
CRM practices may help distributors stay relevant. In the meantime, it‘s safe to
Predict that technology is here to stay in the Mutual Fund industry, and will only become a larger
component of the framework in the years to come.
According to a recent survey of financial advisors in the US by financial web portal Investopedia,
46 per cent of traditional advisors already use or are in the process of implementing a robo-advisory
into their practice and 78 per cent feel technology will greatly impact their practice in the next five
years.
Back home, robo-advisory is still at a nascent stage, and market participants expect its impact to be
limited, at least in the foreseeable future. ―I don‘t see technology usurping the role of a fund
manager, at least not in the next few years. Even in developed countries where automated quant
models are prevalent, fund managers are still in demand because of their ability to interpret data,‖
says Nagpal.
According to him, Indian investors still rely on distributors for financial advice and will not
automatically make the transition to robo advisors. ―They need to move from the distributor-led to
the advisory model first. Only then will they turn to robo advisory,‖ points out Nagpal. Adds
Vyapak: ―In our business, advisory is personal. No doubt, robo advisory will grow but we do not
expect it to change the dynamics of personal advisory.‖ However, there are some experts who
believe there is a real threat to the role of fund managers from machines.
Opportunities are external attractive factors that represent reasons your business is likely to
prosper. It's not enough to look at the current numbers when evaluating prospective mutual funds.
You also need to look at the overall market and consider whether the fund is best positioned to take
advantage of trends. A lagging fund may offer the best opportunity for growth if the combination of
a management change and economic trends prove beneficial.
The Study of economic analysis shows many of the factors which can be taken as the opportunity for
the AMCs to tap the untapped market.
* Middle class population expected to grow from 16 cr. to 55 cr. by 2025 this represents huge
market potential for investments & wealth creation in next few years.
Figure 9 OT analysis
In spite of the record inflows into mutual funds, the penetration remains dismally low when
compared against other developed peers. On the flipside, this goes to illustrate the vast untapped
potential. With bank deposits remaining the preferred choice of Indian households the future looks
promising for mutual funds. You can also do your bit by educating your friends and relatives about
the benefits of mutual funds, especially direct.
DIVERSIFICATION OF RISK
There are many reasons for using funds with the main reason being easy, quick diversification with
just one or two transactions. So, with just one trade, you can buy the entire S&P 500, the largest 500
companies in America, either using a conventional mutual fund or an exchange traded fund
(ETF). An ETF is my preference because it trades during the day like a 0stock rather than getting
the net asset value, or NAV, at the close of the day.
With an individual stock, you have company specific risks known as unsystematic risk. This is the
risk an individual company might get into trouble or possibly even going bankrupt. Having a plant
blow up, an oil spill like the Exxon Valdeze or the BP Gulf Spill, food poisoning like Chipotle,
accounting "irregularities" and a multitude of other things are examples of unsystematic risk.
Unfortunately, it is all about perception, especially with social media these days.
So if you are going to own just individual stocks, you need to have enough to invest in numerous
companies to diversify away from company risks. If you have enough companies, you can diversify
away from specific risk and just have systematic, or market risk.
That is the risk of the overall market. Most studies show that if you own between 14-22 companies
across different sectors in the S&P 500, you will track that index very closely with very little
"tracking error." But now you have the increased cost of 15 or more trades. So, there is a tradeoff
between tracking error and transaction costs.
With just 3 or 4 trades, you could own the S&P 500, the NASDAQ Index, and the Russell 2000
Small Cap Index. Thus, you could own a combination of mature, large companies, companies
specializing in innovation biotech and technology, and the total broader market in small caps. In
fact, there are even Total Market Index Funds where one trade can get you all of the above and you
will have a mix of the total market.
Table 3 Investment
This is good opportunity for the Mutual Fund industry. It can attract the investors by showing them
the emergence of fund or diversification.
Threats include external factors beyond your control that could place your strategy, or the business
itself, at risk. You have no control over these, but you may benefit by having contingency plans to
address them if they should occur.
Mutual Fund has to work under rules and Regulation guided by SEBI, AMFI and RBI. It has some
limitation under the law. Law board has given protection to the investor this is the threats for the
industry.
INVESTORS AWARENESS
Still investors are not aware of the Mutual Fund and its scheme. Investors have lower awareness
regarding the companies concerning with Mutual Fund. Some investors fill difficulty in
understanding Mutual Fund concept and its scheme objectives.
This unawareness has proved to be failure aspect for the industry. Industry can not cover potential
market.
To some extent, many funds move along with general economic news. Some types of funds do
better in a recession while others track well in boom times those funds are particularly threatened
by a sudden change in the unemployment rate that undermines consumer confidence or a stimulus
plan that gets people spending again. In addition, if a fund is dependent on a superstar manager,
make sure you have a plan in place if that manager suddenly decides to leave.
No discussion on mutual funds can be complete without touching upon the aspect of distribution. A
lot has been spoken about the need to increase penetration of mutual funds in Tier II and Tier III
cities. Rural participation in mutual funds continues to be poor. Such poor penetration has much to
do with lack of investor awareness, inefficiencies in fund transfer mechanisms, presence of safer
substitutes and cost of establishing presence in smaller areas. Fund houses cannot fight this battle
single handedly. They need adequate support in terms of banking infra structure, distribution
services and technological solutions to ensure a sustainable cost-benefit model of growth. Even in
terms of the transfer agency function, the choice of players was very limited which too sometimes
places a constraint in terms of ensuring administered growth.
Mutual Fund has failed to reach to the interior of the country. Currently major players have their
market from metro and big cities. Still the way to the small towns and villages is open. Industry is
in lack of Reaches.
INVESTOR EDUCATION
A thrust on financial planning the efforts taken by the industry and AMFI towards investor
education is definitely showing results. The media is also making a fair share of its contribution.
Today, we have news channels, running dedicated shows for mutual funds, wherein fundamentals
of investing in mutual funds are explained and queries of investors are answered by experts.
However, the fact remains that in our country mutual funds are sold rather than bought. This is
where professional help is required. The economic boom in our country has led to the emergence of
a very strong Small and Medium Enterprise (SME) sector. Banks and financial institutions are also
vying for a stake in wooing this niche business segment. However, the focus of SMEs has primarily
been in the manufacturing sector. The services sector could also be accredited with this status. This
would help professionalize financial planning in our country as is the trend in mature markets like
the USA. The Certified Financial Planner accreditation can now be acquired in India. With the right
kind of assistance from the banking sector, we could have an army of entrepreneurs willing to take
up financial planning as a very profitable business option and this could go a long way not only in
ensuring professional education and guidance to the investors but also in improving the long term
financial health of investors.
Fund houses have introduced interesting technological innovations such as transacting through the
internet, net asset value updates on mobile phones, unit balance alerts via SMS messages,
transacting through ATM cards etc. However, these innovations currently cater to the already
pampered urban class of investors. The internet revolution in our country is yet to penetrate to the
grass root levels. The per capita usage of internet in our country is still very low compared not only
to the developed countries but also as compared to our developing peers. Mobile telephony
comparatively has grown exponentially. Herein lays another important challenge for the industry. It
is very important to strike the right balance while choosing to invest in technological advancements.
As mentioned earlier, the industry is now at a stage where to progress to the next level of growth, it
needs more support from other sectors in the economy. A few fund houses with deep pockets may
be able to make necessary investments in the required technology.
Porter's Five Forces is a model that identifies and analyzes five competitive forces that shape every
industry, and helps determine an industry's weaknesses and strengths. Frequently used to identify an
industry's structure to determine corporate strategy, Porter's model can be applied to any segment of
the economy to search for profitability and attractiveness. The model is named after Michael E.
Porter.
Porter's Five Forces is a business analysis model that helps to explain why different industries are
able to sustain different levels of profitability. The model was originally published in Michael
Porter book, "Competitive Strategy: Techniques for Analyzing Industries and Competitors" in 1980.
The model is widely used to analyze the industry structure of a company as well as its corporate
strategy. Porter identified five undeniable forces that play a part in shaping every market and
industry in the world. The forces are frequently used to measure competition intensity,
attractiveness and profitability of an industry or market.
High the end buyers are largely concentrated to the top 8 cities of India. They may be categorised as
individual and institutional buyers. There is lack of awareness in the individual buyers and they tend
to rely on the advisory services of the distributors.
A close look, on the other hand, offers a very different picture. Some figures of the note on Indian
AMC industry indicates that 73.8% of the retail sales are contributed by corporate houses and the
HNIs, making them a concentrated set of buyers. Informed buyers have access to a wealth of
information over internet and television that allows them to compare different products and their
charges, easily allowing them to take informed decision. So it requires higher costs to push the
products that have medium to low performance putting higher pressure on margins.
There is another category of buyer here – the channel partners. Strictly speaking, the channel
partners don‘t purchase the services before reselling those to the end customers. However, the
channel partners have a significant say in the sales choice of the end customers. There are three
categories of channel partners – banks, independent financial advisors and national distributors. The
banks and national distributors enjoy a captive customer base and tend to push the products of those
AMCs that are subsidiaries of their own parents. This thereby increases the bargaining power
buyers. We can consider the Listed Companies in Indian Stock market, Stock Market, Govt.
Security, and Money Market etc. are the customer of the Mutual Fund. Blue chip companies attract
the Mutual Fund companies to invest in their securities.
Equity shares, Bank Deposits, Insurance etc. are substitute of the Mutual Fund. Currently there is
boom period in the stock market as investor prefers to invest directly to the stock market. Risk
aversion people prefer the insurance or post office schemes. New insurance company gives the
better product and security for the long term plan.
There are three categories of substitutes for mutual fund products – life insurance (for wealth
transfer), bank fixed deposit (for wealth preservation) and self-investment in equity/real estate (for
wealth creation). Investment in debt-oriented mutual funds indicates that investors are focused on
wealth preservation. This creates a high threat of substitutes for other categories of mutual funds.
Further, bank fixed deposits have always been the flavor of the Indian retail investor thereby
increasing the threat of substitution of debt mutual funds as well.
We can consider the investor investing in Mutual Funds is the supplier of the company. For
bargaining power to suppliers provide different scheme to the investor which is reach the investor
objective like High Liquidity, High Return, Low Risk, Safety against investment. Investors prefer
those securities which fulfill their investment objective. There are so many companies in the market
which give different kinds of schemes. Investor can choose the best scheme according to his
objective and bargain for the same. Companies are facing threats from the bargain power of
investors. Investor can easily switchover the scheme and cost of switching is also low. Investor
fully utilizes their bargain skill while choosing the fund.
The only supplier category that is relevant to the mutual fund industry is trader. Traders/dealers are
the actual people who trade in the markets and ensure that the returns of the funds of their
companies are higher than that of competitors. In India, qualified finance professionals in this field
are in short supply and often demand a premium for retention.
Overall the threat of new entry is high. Following are the factors that affect threat of new entry into
asset management business
• Regulatory requirement by SEBI for entering into asset management business mainly requires of a
firm to have - a sound track record and general reputation of fairness, be carrying on business in
financial services for a period of not less than five years. Most financial institutions satisfy these
requirements and hence we see such a large number of AMCs entering into the business.
• Low start-up costs – start-up costs from the perspective of financials firms are low so we see most
financial institutions have their own mutual funds.
• As units of existing financial houses, new entrants are able to sustain losses for long periods. This
means that inefficient players would continue to operate in the industry eating a pie of AUM.
Thus we can see the entry of new competitors is high. Banking companies, NBFCs, Merchant
Bankers, Insurances Companies are now entering into the Mutual Fund as the purpose of diversified
business.
New entrance increase in the competition and decline market share of exiting company. In the
Mutual Fund industry the investor‘s loyalty level is very low. So, the investors will switchover the
new company which gives him high returns.
* Types of Schemes
All companies provide different types of schemes, which are best, suited to the investor‘s
objectives. Companies in the industry are more and more concern to the investors objective and try
to give them same.
* Better Services
In the industry companies are trying to provide better services to the investors. Competitors are
providing better communication facility as well as the guidelines.
* Switching Cost
Rivalry is strong because of cost of switching the scheme is low. Investors can easily switchover to
another company or scheme. When investor feels better return or security then he will switch over
to the other company or scheme.
OVERVIEWS
Marketing is a continually evolving discipline and as such can be one that companies find
themselves left very much behind the competition if they stand still for too long. One example of
this evolution has been the fundamental changes to the basic Marketing mix. Where once there were
4 Ps to explain the mix, nowadays it is more commonly accepted that a more developed 7 Ps adds a
much needed additional layer of depth to the Marketing Mix with some theorists going even going
further.
Product - The Product should fit the task consumers want it for, it should work and it should be
what the consumers are expecting to get.
Place – The product should be available from where your target consumer finds it easiest to shop.
This may be High Street, Mail Order or the more current option via e-commerce or an online shop.
Price – The Product should always be seen as representing good value for money. This does not
necessarily mean it should be the cheapest available; one of the main tenets of the marketing
concept is that customers are usually happy to pay a little more for something that works really well
for them.
Promotion – Advertising, PR, Sales Promotion, Personal Selling and, in more recent times, Social
Media are all key communication tools for an organization. These tools should be used to put across
the organization‘s message to the correct audiences in the manner they would most like to hear,
whether it be informative or appealing to their emotions.
People – All companies are reliant on the people who run them from front line Sales staff to the
Managing Director. Having the right people is essential because they are as much a part of your
business offering as the products/services you are offering.
Processes –The delivery of your service is usually done with the customer present so how the
service is delivered is once again part of what the consumer is paying for.
Physical Evidence – Almost all services include some physical elements even if the bulk of what
the consumer is paying for is intangible. For example a hair salon would provide their client with a
completed hairdo and an insurance company would give their customers some form of printed
material.
Mutual fund as a product is the investment, which the investors hold. The steps, which are involved
in the formulation of the schemes or product designing, are conceptualization, drafting, test
marketing, approval and authorization of the scheme.
Since mutual fund is a service, there is a little element of physicality. Physical evidence is the
Mutual fund documents and the statements that are received periodically. Mutual fund managers
want to deliver good quality at a reasonable cost, but the managers cannot make any promises about
the future performance of the investment since a mutual fund is not a consumer product with
consistency of performance. The product line of the mutual fund houses ranges from 30 to 300
schemes in India as market segmentation is done to cater to all the specific investment demands of
the customers. Market segmentation increases product differentiation, limiting competition to the
funds belonging to the same category, while fund proliferation increases market coverage. Sponsors
of the mutual funds make efforts to differentiate their products and bring in recognition of their
brand names in the consumers as it leads to product identification at the market place. It is seen that
Mutual funds in India have been quite successful in brand policy and brand identification.
PLACE
Place or the marketing channel describes the groups of individuals and companies, which are
involved in channelizing the flow and sale of product and services from the provider to the eventual
customer. In mutual fund also there are channels broadly defined as ‗direct‘ or ‗indirect‘. Direct
channels involve the movement and sale of products directly between the provider and the customer
as in the traditional branch network, whereas in the case of indirect channels product flows via
intermediaries and middlemen. Traditionally mutual fund has been via the branch network, but now
different approaches are adopted.
PROMOTION
With globalization the entry of multinational corporations propelled due to which the market
changed into a buyers‘ market and due to the sudden competition growth, the domestic mutual fund
industry was shaken. Promotional efforts should be stimulating and motivating enough to generate
interest in and promote a positive attitude towards a Mutual fund house so that they will be
considered favorably in comparison with the competitors. As there are so many players in the
Mutual fund Industry, to choose one mutual fund over the other becomes very difficult for the
investors. Besides leading National Dailies, funds regularly advertise in business newspapers and
magazines.
PEOPLE
Mutual funds marketers need to develop a high level of inter personal skills and customer oriented
attitude in employees for the simple reason that employees in services are the key to service
experience. All employees in the mutual fund house have an effect on the sale of the products.
This is true of frontline a staff that has direct control with customers; they provide the link between
the Mutual fund and the investors. To the investor they represent the Mutual fund Company.
Success of mutual fund is highly dependent upon the relationship of the investors with the
employees as there is a little difference between the products the different fund houses are offering,
it is mainly the commitment that a mutual fund house makes.
PHYSICAL EVIDENCE
The allocation of greater amount of space in a mutual fund house is likely to have a positive
relationship between the company and the investors. Physical evidence also means the offer
documents and Mutual fund statements that the investors are provided with. In order to have a
better relationship with the investors, the statements should be regular, easily understandable and all
the facts should be mentioned in it.
PROCESS
Process means the process through which the investors‘ money is invested in different schemes and
the returns are provided to them. The process should be less complex. The revision of schemes
should not be a very frequent task as it leads to increase in cost. The mutual fund houses make
efforts to standardize the process. In order to customize the process, so lot of different schemes is
coming into market.
Mutual funds have been a significant source of investment in both government and corporate
securities. It has been for decades the monopoly of the state with UTI being the key player, with
invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also hold
a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign
companies. Banks mainly state-owned too have established Mutual Funds (MFs). Foreign
participation in mutual funds and asset management companies is permitted on a case by case basis.
So it can be said still people in India are not aware of the beauty of mutual funds .the main reason is
the traditional methods of savings and also people in India still are not considered for their risk
taking appetite.
MARKET PENETRATION
Maintain or increase the market share of current products this can be achieved by a combination of
competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to
personal selling. In case of mutual funds the market entirely depends on the equity market, and also
the past performance of funds in terms of their return.
Companies like reliance are expert in market penetration as they use ―blanketing strategy‖ (price
penetration) i.e. they give good amount of brokerage to the distribution houses and in turn they
(distribution house) promote their products.
In mutual funds to penetrate market you need excellent sales force to capture all the uncovered
areas of the market.
A market penetration marketing strategy is very much about ―business as usual‖. The business is
focusing on markets and products it knows well. It is likely to have good information on
competitors and on customer needs. It is unlikely, therefore, that this strategy will require much
investment in new market research.
Market development is the name given to a growth strategy where the business seeks to sell its
existing products into new markets. There are many possible ways of approaching this strategy,
including:
New geographical markets; targeting 3-tier and 4-tier cities. Potentially mutual funds are
targeted to metro cities but an excellent marketing strategy is that to go for the virgin
territories where there are potential customers and they are not tapped.
Promotional strategy should not be focused only on the existing customers but to those who
can be your potential customers. The best way to do this is to educate the mass about the
equity and debt market. It can be done by distributing pamphlets‘ and giving articles in news
papers.
New distribution channels
Different pricing policies to attract different customers or create new market segments.
PRODUCT DEVELOPMENT
Product development is the name given to a growth strategy where a business aims to introduce new
products into existing markets. This strategy may require the development of new competencies and
requires the business to develop modified products which can appeal to existing markets. If we
compare the Indian market the market is very huge in terms of population and talking about money
and savings per person, Indian market is still in introductory stage.
In terms of new product development mutual fund industry is very sensitive as the whole set up
entirely depends on the equity market and the asset management company should be continuously
looking for potential sectors which are doing good and will continue to do well in the future(for ex.
infrastructure, natural resources).
DIVERSIFICATION
Diversification is the name given to the growth strategy where a business markets new products in
new markets this is an inherently more risk strategy because the business is moving into markets in
which it has little or no experience, for a business to adopt a diversification strategy, therefore, it
must have a clear idea about what it expects to gain from the strategy and an honest assessment of
the risks. We can take case of mutual funds the product is familiar to big cities and all the
companies are serving a niche market. But to diversify into new markets they need an aggressive
promotional strategy and also more emphasis should be given to buzz marketing (word of mouth).
While the popularity of the mutual fund industry can be attributed to growing investor awareness,
success of investor education campaigns, and an investor- centric regulatory regime, the most
crucial factor that will decide the future course of the industry is its performance.
As of September 2015, the 10-year average return generated by Indian mutual funds across all fund
types and asset classes is around 10.2%. Equity-oriented schemes have returned 13.8% and debt
schemes, 7.9%.
EQUITY-ORIENTED SCHEMES
The success of this category is crucial for attracting individual investors as 83% of the asset pool
for equity funds comes from them (Retail + HNI). As of September 2015, the average ticket size in
equity schemes is Rs. 0.12 man and the main investment objective is to generate superior returns.
Mutual funds enjoy an especially important status in channelizing household savings to the capital
market, where a lay investor is at a disadvantage in making informed investment decisions. This
source of funds from the capital market is essential both from the perspective of meeting the need
for funds, as also for efficient price discovery, which a larger pool of funds brings to the secondary
market.
From an investor‘s perspective, over a long term investment horizon, equity funds in India have
managed to generate positive real returns, after adjusting for inflation. At the same time, traditional
asset classes such as gold and real estate have struggled with generating inflation adjusted returns.
The Indian equity space also makes a strong case for active fund managed vis-à-vis the success of
more passive forms of equity investment management seen elsewhere in developed markets.
There have been pockets of underperformance, where the active style of investment management
has not justified the expenses charged for such fund management, this has led to some consolidation
in the types of schemes managed within an asset management company, albeit at the behest of the
regulator. Furthermore, funds which aim to diversify across economies, i.e. global funds have met
with limited traction, as performance has been disappointing relative to domestic diversified funds.
Currency fluctuations, as well as the better performance of Indian equities have meant that global
funds are yet to achieve reasonable share of assets Management Company.
The industry has met with limited success in attracting retail investors to the debt fund category.
Institutions looking for liquidity management are the primary investors within this category.
A case for dynamically managed fixed income funds has emerged with the changes in interest rates
in the current economic environment. Since the start of 2015, RBI has cut interest rates six times,
totaling 125 bps. As a result, in the last one year, dynamic bond funds have fetched 10%-12%
returns, higher than conventional long-term or short-term bond funds. However, there is a large
range of returns delivered by dynamic bond funds and the volatility in interest rates has been both,
an opportunity and a challenge for fund managers. This performance trend is evident within the Gilt
fund category as well, and there has been a revival of investor interest in such funds, with a wide
range of underperformance and high performance.
Liquid and other short-term funds have served their purpose of liquidity management in the last 10
years. The category sees the lowest participation from individual investors, at just 8% of AUM as of
September 2015, as retail investors continue to prefer bank deposits. There is considerable fund
flow across these categories within the short-term, in line with the dynamic shifts of the yield curve
at the shorter-end. In the recent past there has been significant alpha generated by fixed income
plans, however, given the close-ended nature of these funds, the price of higher performance comes
with a price of illiquidity.
At the short and medium end of the yield curve there have emerged a few new products such as
credit opportunity funds. The success of such funds is entirely dependent on a deepening bond
market, as investors and fund managers look for newer sources of generating alpha.
CONCLUSION
While doing this research report we can conclude the whole topic with just few sentences,
“Mutual Fund is a Wealth creator with minimum risk”. We had seen how MF started at global
as well as Indian level. We had seen how the whole industry is working. We had seen that who are
the parties involved in the whole process of mutual fund. How the daily valuation is calculated of
the mutual fund, the NAV calculation. So in this report all the necessary aspects had been covered.
There is a trust called Mutual fund. It takes money from the investors and invests it into the
Securities market. For performing this activity there is a mega mind called Fund manager, he takes
care of 3the entire amount being invested. There are different fund managers for different schemes
of mutual fund. The investors get the units of what they had invested. And the valuation of their
money is calculated by multiplying the units by the NAV of the scheme. And this is what the whole
process is.
After study and analyzing various aspects of Indian Mutual Fund Industry, Today, Mutual funds
have emerged as a strong financial intermediary and are the fastest growing segment of the financial
services sector in India. In the past few years, their growth is majorly driven by favorable economic
and demographic factors, such as rising personal financial assets, entry of foreign asset management
companies, favorable stock market, and aggressive marketing by mutual fund companies. Although
after years of persistent growth, the industry marked a slight fall in the value of Assets Under
Management (AUM) during 2008-09 and 2017-18 which has affected revenue and profitability of
the industry.
Currently, Indian mutual funds industry is undergoing a transformation phase; adapting to the
various regulatory changes in entry load, document procedures, and on the tax structure of the
mutual fund companies which have helped the companies to develop new business models, generate
more revenues and to attract large number of investors. mutual fund players a comfort in the Indian
economy which is driving their desire to set-up operations in India. Indian mutual fund industry can
look forward to exciting times ahead.
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