Concept of Mutual Fund

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Executive Summary

The project deals with understanding of mutual fund and analysis. During my project, I got the
opportunity to understand the concept, various AMC (Asset management company) issuing
various Mutual Fund according to the needs of the investors. During my project, I came to know
about the important regulations of SEBI for mutual fund operations.
During the project I suggested the investors how to invest and in which fund they should invest
and for how much period of time.
During the project, I made an endeavour to understand the awareness of mutual funds among the
various classes of investors. The data is collected mainly through fact sheets of funds, brochures
and also from various sites of Reliance mutual funds etc.
The growth of mutual funds has been phenomenal. The mobilization of funds by mutual funds
has been on the rise since 1964. When mutual fund market was thrown open to the private sector
in 1993, the corpus of mutual fund in India has swelled tremendously. The main objective of the
study is to find the investors’ perception of Mutual Fund.

1

INTRODUCTION
As the name suggests, a 'mutual fund' is an investment vehicle that allows several investors to
pool their resources in order to purchase stocks, bonds and other securities.
These collective funds (referred to as Assets Under Management or AUM) are then invested by
an expert fund manager appointed by a mutual fund company (called Asset Management
Company or AMC).
The combined underlying holding of the fund is known as the 'portfolio', and each investor owns
a portion of this portfolio in the form of units.
There are a lot of investment avenues available today in the financial market for an investor with
an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where
there is low risk but low return. He may invest in Mutual of companies where the risk is high and
the returns are also proportionately high. The recent trends in the Mutual Market have shown that
an average retail investor always lost with periodic bearish tends. People began opting for
portfolio managers with expertise in Mutual markets who would invest on their behalf. Thus we
had wealth management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.
Like most developed and developing countries the mutual fund cult has been catching on in
India. The reasons for this interesting occurrence are:Mutual funds make it easy and less costly for investors to satisfy their need for capital growth,
income and/or income preservation. Mutual fund brings the benefits of diversification and
money management to the individual investor, providing a Opportunity for financial success that
was once available only to a select few.

2

OBJECTIVES









To study the mutual fund industry in detail.
To study the investment procedure in detail.
To find out the market risk of sip plan.
To aware the client about mutual fund investment.
To suggest better investment option according to market behavior to the client.
Expansion of mutual fund investment.
To remove the past image of mutual fund from the mind of investors.
To show the beneficiary aspect of mutual fund.

3

INDUSTRY PROFILE
The mutual fund industry in India began in 1963 with the formation of the Unit Trust of India
(UTI) as an initiative of the Government of India and the Reserve Bank of India. Much later, in
1987, SBI Mutual Fund became the first non-UTI mutual fund in India.
Subsequently, the year 1993 heralded a new era in the mutual fund industry. This was marked by
the entry of private companies in the sector. After the Securities and Exchange Board of India
(SEBI) Act was passed in 1992, the SEBI Mutual Fund Regulations came into being in 1996.
Since then, the Mutual fund companies have continued to grow exponentially with foreign
institutions setting shop in India, through joint ventures and acquisitions.
As the industry expanded, a non-profit organization, the Association of Mutual Funds in India
(AMFI), was established on 1995. Its objective is to promote healthy and ethical marketing
practices in the Indian mutual fund Industry. SEBI has made AMFI certification mandatory for
all those engaged in selling or marketing mutual fund products.

TERMS USED IN MUTUAL FUNDS
SIP- Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to create
wealth, by investing small sums of money every month, over a period of time. Investing at an
early stage of life lets you enjoy the benefits of two powerful strategies, rupee cost averaging and
the power of compounding.
HOW IT WORKS
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. SIP allows one to
buy units on a given date each month, so that one can implement a saving plan for themselves.
An SIP is generally preferred for an equity scheme and can be started with as small as Rs 500 per
month.
The biggest advantage of SIP is that one need not time the market. In timing the market, one can
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miss the larger rally and may stay out while markets were doing well or may enter at a wrong
time when either valuation have peaked or markets are on the verge of declining. Rather than
timing the market, investing every month will ensure that one is invested at the high and the low,
and make the best out of an opportunity that could be tough to predict in advance. SIPs thus
make the volatility in the market work in favor of an investor and help in averaging out the cost
called “Rupee Cost Averaging”. For example, with Rs 1000 one can buy 50 units at Rs 20 per
unit or 100 units at Rs.10 per unit depending upon whether the market is up or down. Thus, more
units are purchased when a schemes’ NAV is low and fewer units when the NAV is high. Hence,
when the two cases are taken together, cost is averaged out. The longer the time-frame, the larger
are the benefits of averaging.

TAXATION IN FUNDS
Long-term capital gains on stocks and equity mutual funds are not taxed. But short-term gains
are taxed at 15%.
In case of debt mutual funds, both short-term and long-term capital gains are taxed. Short-term
capital gains are added to the income and taxed as per the individual's income tax slab. Longterm capital gains from debt mutual funds are taxed at 20% with indexation and 10% without
indexation. Indexation is adjusting the purchase price for inflation. This increases the purchase
cost and, thus, lowers the gain.

HOW TO GET CAPITAL GAIN STATEMENT
Calculating capital gains is not easy. Imagine you invested in an equity fund through a systematic
investment plan, or SIP, till December 2013 and redeemed the investment in March 2014. You
might have made decent profits on your total investment, but a part of it could be short-term
gains (each SIP instalment must complete one year if it is to be considered a long-term
investment for tax purpose), which are taxable at 15%.

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Will you be able to calculate the short-term gains on your own? You can, if you are financially
savvy, get the net asset value, or NAV, of the fund on each SIP date and calculate the profit/loss
on each SIP to arrive at the net gain. Most retail investors will find the process tedious. Even if
they are able to do the calculation, they would rather not take any chance lest they make a wrong
disclosure in the return.
It's better to get the figure from a trusted source. Mutual fund investors can get the capital
account statement on demand from the fund house. However, some fund houses send the
statement after the end of each financial year.
Alternatively, one can go to the websites of Registrar and Transfer Agents such as CAMSOnline
and Karvy and get the statement through their mail back services. All you have to do is enter the
email id registered with the fund house. However, it is not easy for investors in direct equity, as
not all brokerage houses give the statement.

STP
STP is a variant of SIP. STP is essentially transferring investment from one asset or asset type
into another asset or asset type. The transfer happens gradually over a period. STP and its
importance Systematic Transfer Plan is of two types; fixed STP, and capital appreciation STP. A
fixed STP is where investors take out a fixed sum from one investment to another. A capital
appreciation STP is where investors take the profit part out of one investment and invest in the
other. Example of STP Suppose you have invested 5 lakhs in debt funds because you thought
market is trading at close to peak. The PE ratio of the market is 25 and hence you think that fall
is imminent. Hence you invested your money in debt fund. Now assume that your prophecy was
right and the market indeed fell to a level where you can make entry to equities. However, there
are overall weak sentiments which may push market further down. What is the best strategy in
this case? You can take out 5 lakhs out of debt fund and invest in equity oriented mutual fund.
The risk is that if the market goes further down, your fund value will also fall. This is a risky
strategy. Moreover, if the weak sentiments prolong for some time, you will lose on the
opportunity cost because your money is stuck with an investment which has gone down in value.
6

There is other way which can really minimize the risk. The way is called STP. In this case, you
can withdraw a fixed amount from your debt fund investment and invest in equity oriented fund.
This can go on for several months depending upon your choice. For example, if you want to
continue STP for 3 years, you can direct your fund to do this and the fund will withdraw money
automatically from your debt fund and put into equity oriented fund every month. What this
strategy achieves is that it essentially acts as a defense against any adverse movement of the
market.

SWP
An SWP (Systematic Withdrawal Plan) allows an investor to withdraw designated sum of money
and units from the fund account at pre-defined regular intervals. It allows the investor a certain
level of independence from market instability and helps in avoiding market timing. The investor
can reinvest the redeemed cash in another portfolio or use it as a source of regular income. It is
suitable for retirees who are looking for a fixed flow of income. SWP help investors who require
liquidity as it permits them to access their money precisely when they need it to meet their
objectives.

LONG TERM CAPITAL GAIN
Capital asset is defined to include property of any kind excluding stock-in-trade, personal effects,
agricultural land and certain specified bonds. However, jewellery, archaeological collections,
drawings, paintings, sculptures or any work of art although may be for personal use are also
covered under the definition of 'capital asset'. Capital gain is computed by deducting the cost of
acquisition, cost of improvement and any expenditure incurred in connection with transfer from
the sale consideration. Capital gains can be classified into long-term (LTCG) and short-term
(STCG) depending on the period for which the capital asset has been held by the transferor
before the date of such transfer. It is important to remember the category in which the capital
gain falls because it will eventually impact the rate at which it is taxed and the tax benefits which
can be enjoyed on re-investment of such gains/consideration.
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STCG is earned on sale of a capital asset which has been held for not more than 36 months
immediately preceding the date of its transfer. In case of any security listed on a recognized stock
exchange in India or a unit of the Unit Trust of India or a unit of equity-oriented mutual fund or a
zero-coupon bond, the period of holding for the gain to qualify as STCG is twelve months. The
Income tax law has recently been amended to provide that the unlisted securities and a unit of
mutual fund (other than an equity-oriented mutual fund) shall be a short-term capital asset, if it is
held for not more than 36 months (which was 12 months in the erstwhile provisions). Any
"capital asset" held for more than 36 months before its transfer (more than 12 months in case of
listed securities, units of UTI or equity-oriented mutual fund) will qualify as a long-term capital
asset and gains realized on its sale will qualify as a LTCG.
LTCG is taxed at a beneficial rate of 20%, plus a cess of 3%, subject to fulfillment of certain
conditions. Besides the concessional rate of taxes available on sale of capital assets, there are
also certain exemptions provided under the Income tax law for capital gains arising from sale of
long-term capital asset.

TRIGGERS
Triggers allow you to keep track of the timing of the transfer of funds. You can specify the event,
the amount or the number of units to be redeemed and help ensure that you book some profits
and maintain the desired asset allocation in the portfolio.
Triggers could be based on actual occurrence of one or more of the below events:


Value of the investment reaching a specified value



NAV of the scheme reaching a specified value



Level of capital appreciation
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Level of the market indices or



A specified date

LITERATURE REVIEW

Risk Taking by Mutual Funds as a Response to Incentives
Judith A. Chevalier (National beaureau of economy and , Glenn D. Ellison(massusettes institute
of tech and national bureau of economy)

This paper examines the agency conflict between mutual fund investors and mutual fund
companies. Investors would like the fund company to use its judgment to maximize risk-adjusted
fund returns. A fund company, however, in its desire to maximize its value as a concern has an
incentive to take actions which increase the inflow of investment. We use a semi parametric
model to estimate the shape of the flow-performance relationship for a sample of growth and
growth and income funds observed over the 1982-1992 period. The shape of the flowperformance relationship creates incentives for fund managers to increase or decrease the
riskiness of the fund which are dependent on the fund's year-to-date return. Using a new dataset
of mutual fund portfolios which includes equity portfolio holdings for September and December
of the same year, we show that mutual funds do alter their portfolio riskiness between September
and December in a manner consistent with these risk incentives.

9

Mutual Fund Flows and Performance in Rational Markets
Jonathan B. Berk, Richard C. Green
NATIONAL BUREAU OF ECONOMIC RESEARCH

We develop a simple rational model of active portfolio management that provides a natural
benchmark against which to evaluate observed relationship between returns and fund flows. We
show that many effects widely regarded as anomalous are consistent with this simple
explanation. In the model, investments with active managers do not outperform passive
benchmarks because of the competitive market for capital provision, combined with decreasing
returns to scale in active portfolio management. Consequently, past performance cannot be used
to predict future returns, or to infer the average skill level of active managers. The lack of
persistence in active manager returns does not imply that differential ability across managers is
nonexistent or unrewarded, that gathering information about performance is socially wasteful, or
that chasing performance is pointless. A strong relationship between past performance and the
ow of funds exists in model, indeed this is the market mechanism that ensures that no
predictability in performance exists. Calibrating the model to the fund flows and survivorship
rates, these features of the data are consistent with the vast majority (80%) of active managers
having at least enough skill to make back their fees.

Investor Diversification and International Equity Markets
Kenneth R. French, James M. Poterba
The benefits of international diversification have been recognized for decades. In spite of this,
most investors hold nearly all of their wealth in domestic assets. In this paper, we construct new
estimates of the international equity portfolio holdings of investors in the U.S., Japan, and
Britain. More than 98% of the equity portfolio of Japanese investors is held domestically; the
analogous percentages are 94% for the U.S., and 82% for Britain. We use a simple model of
investor preferences and behavior to show that current portfolio patterns imply that investors in
10

each nation expect returns in their domestic equity market to be several hundred basis points
higher than returns in other markets. This lack of diversification appears to be the result of
investor choices, rather than institutional constraints.

Large Shareholder Activism in Corporate Governance in Developing
Countries: Evidence from India
Jayati Sarkar and Subrata Sarkar
Indira Gandhi institute of development research, Mumbai, India

LargeIndia*
Corporate
Shareholder
Governance
Activism
in
inon the SARKAR
Developing
from
Countries:
Evidence
JAYATI
Indira
Gandhi
SARKAR
Institute
AND
ofSUBRATA
Development
Research, Mumbai,
India
Most
of
the
existing
evidence
effectiveness
of large shareholders
in corporate governance
has been restricted to a handful of developed countries, notably the UK, US, Germany and Japan.
This paper provides evidence on the role of large shareholders in monitoring company value with
respect to a developing and emerging economy, India, whose corporate governance system is a
hybrid of the outsider-dominated market-based systems of the UK and the US, and the insiderdominated bank-based systems of Germany and Japan. The picture of large-shareholder
monitoring that emerges from our case study of Indian corporate is a mixed one. Like many of
the existing studies, while we find block holdings by directors to increase company value after a
certain level of holdings, we find no evidence that institutional investors, typically mutual funds,
are active in governance. We find support for the efficiency of the German/Japanese bank-based
model of governance; our results suggest that lending institutions start monitoring the company
effectively once they have substantial equity holdings in the company and that this monitoring is
reinforced by the extent of debt holdings by these institutions. Our analysis also highlights that
foreign equity ownership has a beneficial effect on company value. In general, our analysis
supports the view emerging from developed country studies that the identity of large
shareholders matters in corporate governance.

Measuring Performance of Indian Mutual Funds
Deepak Aggrawal

11

Indore Institute of Science & Technology
September 15, 2007

Abstract:
Since the development of the Indian Capital Market and deregulations of the economy in 1992
there have been structural changes in both primary and secondary markets. Mutual funds are key
contributors to the globalization of financial markets and one of the main sources of capital flows
to emerging economies. Despite their importance in emerging markets, little is known about their
investment allocation and strategies. This article provides an overview of mutual fund activity in
emerging markets. It describes about their size and asset allocation. This paper is a process to
analyze the Indian Mutual Fund Industry pricing mechanism with empirical studies on its
valuation. It also analyzes data at both the fund-manager and fund-investor levels. The study
reveled that the performance is affected by the saving and investment habits of the people and
the second side the confidence and loyalty of the fund Manager and rewards affects the
performance of the MF industry in India.

THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–
1964
Michael C. Jensen
University of Rochester College of Business.

The evidence on mutual fund performance discussed above indicates not only that these 115
mutual funds were on average not able to predict security prices well enough to outperform a
buy-the-market-and-hold policy, but also that there is very little evidence that any
individual fund was able to do significantly better than that which we expected from mere
random chance. It is also important to note that these conclusions hold even when we measure
the fund returns gross of management expenses (that is assume their bookkeeping, research, and
12

other expenses except brokerage commissions were obtained free). Thus on average the funds
apparently were not quite successful enough in their trading activities to recoup even their
brokerage expenses.
It is also important to remember that we have not considered in this paper the question of
diversification. Evidence reported elsewhere indicates the funds on average have done an
excellent job of minimizing the “insurable” risk born by their shareholders. Thus the results
reported here should not be construed as indicating the mutual funds are not providing a socially
desirable service to investors; that question has not been addressed here. The evidence does
indicate, however, a pressing need on the part of the funds themselves to evaluate much more
closely both the costs and the benefits of their research and trading activities in order to provide
investors with maximum possible returns for the level of risk undertaken.

Mutual Fund In India: A Financial Service In Capital Market
NALINI PRAVA TRIPATHY
ABSTRACT
The Indian capital market has been increasing tremendously during last few years. With the
reforms of economy, reforms of industrial policy, reforms of public sector and reforms of
financial sector, the economy has been opened up and many developments have been taking
place in the Indian money market and capital market. In order to help the small investors, mutual
fund industry has come to occupy an important place. The main objective of this paper is to
examine the importance and growth of mutual funds and evaluate the operations of mutual funds
and suggest some measures to make it a successful scheme in India.

MUTUAL FUND: A RESOURCE MOBILIZER IN FINANCIAL MARKET
Vidyasagar University Journal of Commerce
13

12, March 2007
P. Hanumantha Rao, Vijay Kr. Mishra
ABSTRACT
The success story of any economy can only be scripted on the basis of sound financial system of
the country. Economic reform process of 1991 had a great impact on the financial system of the
country leading to the overall development of the Indian economy. Today, India’s financial
system is considered to be sound and stable as compared to many other Asian countries where
the financial market is facing many crises. During last one decade or so, role of Indian mutuals
funds industry as a significant financial service in financial market has really been noteworthy. In
fact, Mutual funds have emerged as an important segment of financial market of India, especially
as a result of the initiatives taken by the Govt. of India for resolving problems relating to UTI’s
US-64 and to liberalize tax liabilities on the incomes earned by the mutual funds. They now play
a very significant role in channelizing the saving of millions of individuals into the investment in
equity and debt instruments. This paper aims at making a critical study of the role performed by
mutual funds as a financial service in Indian

MOBILIZATION OF FUNDS
In India mutual fund is a tool for mobilization of financial resources for the development of the
economy. It is the concept of “a small drop of water makes a big ocean”. It is a trust that pools
the savings of several investors and then invests these into different kinds of securities i.e., shares
debentures, money market instruments, or a combination of these in keeping with a pre-stated
investment objective. The main objective of mutual funds is diversification of funds for
minimizing risk and maximizing returns. The income will be distributed among mutual fund unit
holders in proportion to the number of units help by them. It is no doubt this industry is fastest
growing industry in India. It offers a specialized service towards the investors as per their
product choice.

Pattern of Investment Number Percentage Bank deposit, Bonds, Pension and Provident fund 32
21 Real estates 12 8.6 Life insurance Policy 26 17 Mutual Funds 58 39 Shares 8 5.3 Mutual fund
14

based on their operations growth scheme, index scheme income scheme, money market mutual
fund scheme and balanced schemes. The features of these schemes are to meet the needs and
requirements of the investors. The following table 04 analyze 65 respondents of the mutual fund
investors preferred growth scheme due to high capital appreciation in the long run and 39
respondents with 26 per cent of the investors prefer to invest in income schemes due to regularity
of returns. Besides, 38 per cent of the investors belong to the age group of 25-35 years and 40
respondents’ falls in the age group of 35-45 years prefer mutual fund investment.
Customers believe that the MF industry falls short of expectations in meeting their needs at the
time of economic uncertainty and market volatility. The investors always prefer to invest in
financial a product which gives risk free returns. This confirms that the investors prefer to play
safe in the market. Thus, the mutual fund industry has to bring many innovative concepts and
should frame distinct marketing strategies to satisfy the need of investor.

GROWTH OF MUTUAL FUND IN INDIA

Mutual fund penetration in India is low as compared to global and peer benchmarks. The AuM to
GDP ratio stands at 7 to 8% as compared to a global average of 37%. Even the SAAAME
economy of Brazil, considered a peer emerging economy, is significantly ahead, with an AuM to
GDP ratio of 45% (Source – AMFI, ICI Fact Book 2013). AuM of the asset management
industry grew from 470 billion INR in 1993 to 1396 billion INR in 2004 and to 8252 billion INR
in 2014. While the AuM has grown from approximately 470 billion INR as on 31 March 1993 to
approximately 8,250 billion INR as on 31 March 2014 (reflecting a CAGR of 14.6% over the last
21 years), the Sensex has grown from approximately 2280.52 as on 31 March 1993 to 22,386.27
as on 31 March 2014 (reflecting a CAGR of approximately 11.5%).

15

Who is investing in Mutual FundsThe asset management industry held 39.5 million folios as on 31 March 2014, which has
declined from around 47.6 million as on 31 March 2009. The composition of the sources of
investment for the industry as a whole in 2009 and in 2014 is given in image below. This shows
that the industry has not managed to improve the share of retail and individual investors in the
Mutual Funds over the last decade.

Data from 2009 to 2014

16

Top Mutual Funds based on AUM
Top mutual funds in terms of average AUM posted highest absolute gains in the June quarter of
2014. Out of the 45 fund houses (including IDFs) that have declared their average AUM, 35
posted a rise in AUM. Top Mutual Funds based on AUM are
1.

HDFC Mutual Fund’s average AUM retained its top position across fund houses and
was the best performer in the June quarter. The fund registered highest absolute rise of Rs
17,000 crore or 15.1% to Rs 1,30,000 crore. Increase in the fund house’s assets was also
boosted by acquisition of Morgan Stanley Mutual Fund, which held Rs 2500 crore of average
AUM as of March 2014.
2.
ICICI Prudential Mutual Fund maintained the second position at Rs 1,18,000 crore as
it gained 10.52%.
3.
Reliance Mutual Fund maintained third rank with the asset tally at Rs 1,13,000 crore.
AMCs, which witnessed a major fall in AUM, included JPMorgan Mutual Fund whose average
AUM fell by Rs 1,700 crore to Rs 14500 crore and LIC Nomura Mutual Fund whose average
AUM declined to Rs 9,489 crore.

17

18

ANALYSIS OF MUTUAL FUND TRENDS

The number of retail investor investing in the market has risen considerably which was once
occupied by the selected investors. Although mutual fund investing is a blooming concept in a
country like India, the economic, social and environmental factors had an important effect on the
growth of the mutual funds. The main factor attributed to the mutual Fund growth is the
introduction of various schemes by many fund houses and in particular by the banks and nonbanking institutes too like HDFC,IDFC,ICICI, Reliance Capital, UTI etc. In today’s environment
banks are the main participatory resource for the mutual fund schemes. According to the market
sources, 70% of the products of the mutual funds are through banks. Another reason is the
marketing strategy adopted by many fund houses, in order to lure the customers. As we can see
from the above mentioned graph there was drastic change from 2006 to 2008 i.e by 117.85% .
But further there was dip in 2012 from 6140,000 million INR to 5872,000 million INR . But
since then , market growth has been positive towards mutual fund , as there has been constant
growth . In addition to these factors, another factor which helped the growth of the mutual funds
has been the creation of tailored schemes to suit the requirements of the retail investors.

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Beyond its industrial and cosmetic uses, gold performs two functions in the economic system.
It’s a store of value, and it’s an object of speculation. In recent years, speculation has been
rampant, with hedge funds, mutual funds, exchange-traded funds (E.T.F.s), and individual
investors bidding the price up from sixty thousand rupees an ounce in 2007 to a peak of around
Rupees 87,500 in August, 2011. The supply and demand factor is pivotal in determining the price
of gold.
Many analysts argue there isn't enough gold being produced to satisfy rising demand. The aboveground stock of gold is around 160,000 metric tons and grows about 2,400 tons a year, which is
only 1.75%, while demand keeps expanding. This is the main cause now of rigorous fall in the
gold market as well prices. Due to this many gold scheme launched by various fund managers
are failing and raising the distrust on the investment in gold by investors.

20

SAVING PATTERN BY CUSTOMERS

As per cent of GDP at current market prices
10
9
8
7
6
5
4

2011-12
2012-13
2013-14
2014-15

3
2
1
0

Among the constituents of the private corporate sector, joint stock companies (financial and
nonfinancial) accounted for more than 90 per cent of the private corporate sector saving in the
current decade and their share reached about 95 per cent in the latter half of the decade.
Correspondingly, share of the cooperative banks and societies including a few nonprofit
corporate institutions steadily decreased from 7.8 per cent in 2004-05 to 6.3 per cent in 2006-07
and further to 5.0 per cent in 2009-10. Within joint stock companies, the share of non-financial
companies remained at the level of 95 per cent while the financial companies, covering private
banks and insurance companies, and non-banking financial companies accounted for the
remaining 5 per cent.
And now we can see from the graph that people still think bank deposits as the safest option for
saving. And second best option is life insurance as many people have this myth in their head that
insurance is an investment . And investing money in shares and debentures is gaining trust in the
market again.
21

Fund mobilization in mutual fund
0.45
0.4
0.35
0.3

rate

0.25
0.2
0.15
0.1
0.05
0

2000

2001

2002

2003

2004

2005

2007

2020

(RATE: percentage of fund invested in mutual fund in India ,taking world’s fund as 100%)

As it can be seen that there was little down in investment in mutual funds in 2004 but again
mutual fund investment gained the market back 2005 onwards. Due to the introduction of
various customer ridden schemes and plans , there is increase in mutual fund investment . Also
there is projection of almost double investment in mutual funds by 2020.

22

Conclusion:


As we have seen that there growth in mutual fund market 2011 onwards i.e raising
upto 8,252,00 million INR . And the similar pattern can be seen in sensex index
too . There is constant rise in sensex too. The market is gaining its strength back



thus encouraging customers to invest in market too.
Secondly we see the rise in Per capita income too, the purchasing power and



money in hand capacity of Indians have increased too.
But as we see the gold market, it is losing its glitter and decreasing in terms of



supply in the economy as compared to demand .
Thus from the above graph we can see that there is increase in fund mobilization



towards mutual fund
Hence we can conclude that the public has shifted from various investment areas
to market investment and specifically if we see the mutual fund option. Privates
are into more of mutual fund investment and understanding the risk-return trade
off.

GUIDELINES BY RBI ON MUTUAL FUNDS
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Investment in quoted MF Units should be valued as per Stock Exchange quotations.



Investment in un-quoted MF Units is to be valued on the basis of the latest re-purchase
price declared by the MF in respect of each particular Scheme.



In case of funds with a lock-in period, where repurchase price/ market quote is not
available, Units could be valued at Net Asset Value (NAV).



If NAV is not available, then these could be valued at cost, till the end of the lock- in
period.



Wherever the re-purchase price is not available, the Units could be valued at the NAV of
the respective scheme.

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COMPANY PROFILE

Reliance Capital Limited is an Indian diversified financial services holding company promoted
by Reliance Group.
It is one of the largest financial services companies in India by market capitalization. Reliance
Capital also ranks among the top private sector financial services and banking groups, in terms of
net worth in India. The company is a constituent of MSCI India and CNX Junior Nifty. As of
July 2014, Reliance Capital’s market capitalization was over₹160 billion (US$2.5 billion), ahead
of Bajaj Holdings, L&T Finance promoted by Larsen & Toubro and Muthoot Finance. As on
March 31, 2013, Reliance Capital had assets worth ₹455.28 billion (US$7.2 billion), a 16-fold
increase in 8 years and net worth of ₹124.83 billion(US$2.0 billion).
Reliance Capital has interests in asset management and mutual funds; life insurance and general
insurance; finance; stock; wealth management services; distribution of financial products; private
equity; asset reconstruction; proprietary investments and other activities in financial services.
The company operates across India and has over 20 million customers and workforce of
approximately 18,500 as of March 31, 2014.[6]
Anil Ambani, promoter of Reliance Group is the Chairman of Reliance Capital, while Amitabh
Jhunjhunwala is the Vice-Chairman and Sam Ghosh is the Chief Executive Officer.

Non Banking Finance Company

25

Reliance Capital obtained its registration as a Non-banking Finance Company (NBFC) in
December 1998. Reliance Capital has since diversified its activities in the areas of asset
management; life and general insurance; commercial finance; stock broking; private equity and
proprietary investments; asset reconstruction; distribution of financial products and other
activities in financial services.

Credit Rating

Reliance Capital had a net debt equity ratio of 1.82 as on March 31, 2014. It is one of the top
most rated Indian financial institutions and enjoys the highest ratings of ‘A1+’ by ICRA and
CRISIL, for its short term borrowing program and ‘CARE AAA’ by CARE for its long term
borrowing program.

Operations

Reliance Capital offers a range of financial services in many business lines. The company is one
of the most diversified financial services firms in India with interests expanding from asset
management, insurance, commercial finance, broking, private equity to other niche financial
services.
The prominent businesses are as follows.
26

Reliance Capital Asset Management

Reliance Capital Asset Management (RCAM) managed ₹1.94 trillion (US$31 billion) as on
March 31, 2014, across mutual funds, pension funds, managed accounts and offshore funds.
RCAM manages Reliance Mutual Fund (RMF), which is amongst India’s top three Mutual
Funds, with Average Assets under Management (AAUM) of ₹1.13 trillion(US$18 billion) for
June 30, 2014. Sundeep Sikka is the CEO of Reliance Capital Asset Management. Reliance
Mutual Fund is the first Indian Mutual Fund to have crossed the Rs. 1 trillion AUM mark. It has
the largest customer base of over 5 million investor folios that are served from offices spread
over 175 locations in India with over 42,500 distributors.
RMF has 55 schemes - 21 equity oriented schemes, 29 debt oriented schemes, 4 exchange traded
funds and 1 funds-of-funds. Reliance manages some of the most successful schemes in terms of
returns. As on March 31, 2014, RMF had conducted more than 2,500 Investor Awareness
Programs, covering over 50,000 participants, which was highest in the Industry.
It is also the leading AMC in garnering AUMs from ‘beyond Top 15 cities’ category (18% share
in total AUMs).
In September Reliance Capital Asset Management and Japanese financial services major Nissay
have joined hands to launch two mutual fund products for the Japanese retail investors. The two
funds –Short Term Indian Bond Fund and India Equity Selection Fund — will enable Japanese
retail investors to participate in the India growth story.

Reliance Life Insurance

27

Reliance Life Insurance is among the top private sector life insurance players in terms of new
business premium with a market share of 7% of the private sector. The total premium
was ₹42.57 billion (US$680 million) for the year ended March 31, 2014. Reliance Life offers
products that fulfill savings and protection needs of millions of Indians.
Reliance Life is the only life insurance player in India to be certified with ISO 2000 9001 for all
its processes and first life insurance company to introduce OTC process. Reliance Life offers 22
products, of which 16 are targeted at individuals and 6 at group business.
The distribution network stood at over 900 offices as on March 31, 2014.

Reliance General Insurance

Reliance General Insurance is one of the top five private sector general insurance companies in
India in terms of gross written premium with a private market share of 7.5%. RGI offers
insurance solutions for auto, health, home, property, travel, marine, commercial and other
specialty products.
The Gross Written Premium for the year ended March 31, 2014 was at ₹24.42
billion (US$390 million) with a distribution network composed of over 125 branches and nearly
15,500 intermediaries.

Reliance Commercial Finance

Reliance Commercial Finance is amongst the leading lenders in Indian non-banking finance
sector. RCF offers a wide range of products which include Home loans, Loans against property,

28

Small and Medium Enterprises loans, Vehicle loans, Loans for construction equipment and
Infrastructure financing.
The company had a loan book at ₹136.67 billion (US$2.2 billion) as on March 31, 2014, with
over 66,000 customers across top 37 Indian metros.

Reliance Capital Broking and Distribution Business

Reliance Capital’s broking business – Reliance Securities, one of the leading retail broking
houses in India, provides a varied customer base with access to equities, equity options, wealth
management solutions and mutual funds.
The distribution business of Reliance Capital, branded as ‘Reliance Money’ is a comprehensive
financial services and solutions provider, providing customers with access to mutual funds,
insurance products and other financial products. Reliance Money is amongst the leading
domestic distributors of financial products with a pan India presence with over 170 branches

Reliance Asset Reconstruction

Reliance Asset Reconstruction is the premier asset reconstruction company, the principal
sponsor/shareholder of which is the Reliance Group (through Reliance Capital). As on March 31,
2014, the asset base was over ₹6.8 billion (US$110 million).

29

RELIANCE SCHEMES AND FUNDS
1.) Mid and small cap fund
The primary investment objective of the scheme is to seek to generate long term
capital appreciation & provide long-term growth opportunities by investing in a
portfolio constituted of equity & equity related securities and Derivatives
predominantly in Mid Cap and Small Cap companies and the secondary objective is
to generate consistent returns by investing in debt and money market securities.
However there can be no assurance that the investment objective of the scheme will
be realized, as actual market movements may be at variance with anticipated trends.
2.) Equity opportunity fund
The primary investment objective of the scheme is to seek to generate capital
appreciation & provide long-term growth opportunities by investing in a portfolio
constituted of equity securities & equity related securities and the secondary objective
is to generate consistent returns by investing in debt and money market securities.

3.) Banking Fund
The primary investment objective of the Scheme is to seek to generate continuous
returns by actively investing in equity and equity related securities of companies in
the Banking Sector and companies engaged in allied activities related to Banking
Sector. The AMC will have the discretion to completely or partially invest in any of
the type of securities stated above with a view to maximize the returns or on
defensive considerations. However, there can be no assurance that the investment
objective of the Scheme will be realized, as actual market movements may be at
variance with anticipated trends

30

4.) Top 200 fund
The primary investment objective of the scheme is to seek to generate long term
capital appreciation by investing in equity and equity related instruments of
companies whose market capitalization is within the range of highest & lowest
market capitalization of S&P BSE 200 Index. The secondary objective is to generate
consistent returns by investing in debt and money market securities.
5.) Vision Fund
The primary investment objective of the Scheme is to achieve long term growth of
capital by investing in equity and equity related securities through a research based
investment approach..
6.) Tax Saver (ELSS) fund
The primary objective of the scheme is to generate long-term capital appreciation
from a portfolio that is invested predominantly in equity and equity related
instruments. There is an advantage of tax benefit but a lock-in period of 3 years.
However, there can be no assurance that the scheme’s investment objective shall be
achieved.
7.) Growth fund
The primary investment objective of the Scheme is to achieve long term growth of
capital by investing in equity and equity related securities through a research based
investment approach. However, there can be no assurance that the investment
objective of the Scheme will be realized, as actual market movements may be at
variance with anticipated trends.
8.) Pharma Fund
The primary investment objective of the scheme is to seek to generate consistent
returns by investing in equity and equity related or fixed income securities of Pharma
and other associated companies.

31

9.)

Gold fund

The investment objective of the Scheme is to seek to provide returns that closely
correspond to returns provided by R*Shares Gold ETF.
10.) Small cap fund
The primary investment objective of the scheme is to generate long term capital
appreciation by investing predominantly in equity and equity related instruments of
small cap companies and the secondary objective is to generate consistent returns by
investing in debt and money market securities.
11.)
Equity savings fund
The primary investment objective of this fund is to generate income and capital
appreciation by investing in arbitrage opportunities & pure equity investments along
with investments in debt securities & money market instrument.

SWOT ANALYSIS OF RELIANCE MUTUAL FUND

STRENGTHS OF RELIANCE

32

BIG AMC-Reliance mutual funds are playing amongst the major Asset management
companies and giving positive returns to investors. Thus running into profits due to the
mentioned reason.
PAST PERFORMANCE -In terms of past performance , various funds like Growth
Fund has shown 80 times growth in NAV. And equivalent to it there are various funds
who are giving 20-30% of assured return in market.


CONSTANT TOUCH WITH CUSTOMERS -There is continuous focus on customer
satisfaction and to ensure this the employees are into constant meeting with their
customers, distributors, Financial advisors etc . And for that various seminars and
contests are organized like Fire walks for banks, Big Boss ka ghar contest, New fund
offer meet etc.
WEAKNESS OF RELIANCE



SERVICEAt times reliance fail in providing proper service to customers while addressing the



complaints or addressing them properly in office.
There is lack in employment of back end officers

POSTAL SERVICE FOR STATEMENT


Many customers don’t have access to internet or don’t use email. So for them
there is lack of availabity of postal service to customers. The details and
information can only be provided via mail.

FALSE COMMITMENTS


At times the sales officers make false promises to customer in order to do the
business and deviate them from the reality . The customers are at times forced to
invest in funds without making them aware about the market situation just to
complete targets.
33

OPPORTUNITIES OF RELIANCE


Potential markets: The Indian rural market has great potential. All the major market
leaders consider the segments and real markets for their products. A senior official in a
one of the leading company says foray into rural India already started and there has been
realization that the rural market is both price and quantity conscious.



Entry of MNCs: Due to multinationals are entering into market job opportunities are
increasing day by day. Also India Mutual Fund majors are tie up with other financial
institutions.

THREATS TO RELIANCE


Hedge funds: Sometimes referred to as as hot money, are also causing a threat for mutual
funds have gained worldwide notoriety for bringing the markets down. Be it a crash in
the currency, A stock or A bond market, A usually a hedge fund prominently figures
somewhere in the picture.

CHALLENGES TO RELIANCE MUTUAL FUNDS
There are certainly some benefits to mutual fund investing, but one should also be aware of the
drawbacks associated with mutual funds.
1.No Insurance: Mutual funds, although regulated by the government, are not insured
against losses. The Federal Deposit Insurance Corporation (FDIC) only insures against
34

certain losses at banks, credit unions, and savings and loans, not mutual funds. That means
that despite the risk-reducing diversification benefits provided by mutual funds, losses can
occur, and it is possible (although extremely unlikely) that you could even lose your entire
investment.
2.Dilution: Although diversification reduces the amount of risk involved in investing in
mutual funds, it can also be a disadvantage due to dilution. For example, if a single security
held by a mutual fund doubles in value, the mutual fund itself would not double in value
because that security is only one small part of the fund's holdings. By holding a large number
of different investments, mutual funds tend to do neither exceptionally well nor exceptionally
poorly.
3.Fees and Expenses: Most mutual funds charge management and operating fees that pay for
the fund's management expenses (usually around 1.0% to 1.5% per year for actively managed
funds). In addition, some mutual funds charge high sales commissions, 12b-1 fees, and
redemption fees. And some funds buy and trade shares so often that the transaction costs add
up significantly. Some of these expenses are charged on an ongoing basis, unlike stock
investments, for which a commission is paid only when you buy and sell .
4.Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on
average, around 75% of all mutual funds fail to beat the major market indexes, like the S&P
500, and a growing number of critics now question whether or not professional money
managers have better stock-picking capabilities than the average investor.
5.Loss of Control: The managers of mutual funds make all of the decisions about which
securities to buy and sell and when to do so. This can make it difficult for you when trying to
manage your portfolio. For example, the tax consequences of a decision by the manager to
buy or sell an asset at a certain time might not be optimal for you. You also should remember
that you trust someone else with your money when you invest in a mutual fund.
6.Trading Limitations: Although mutual funds are highly liquid in general, most mutual
funds (called open-ended funds) cannot be bought or sold in the middle of the trading day.

35

You can only buy and sell them at the end of the day, after they've calculated the current
value of their holdings.
7.Size: Some mutual funds are too big to find enough good investments. This is especially
true of funds that focus on small companies, given that there are strict rules about how much
of a single company a fund may own. If a mutual fund has $5 billion to invest and is only
able to invest an average of $50 million in each, then it needs to find at least 100 such
companies to invest in; as a result, the fund might be forced to lower its standards when
selecting companies to invest in.
8.Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as
protection against a large number of simultaneous withdrawals. Although this provides
investors with liquidity, it means that some of the fund's money is invested in cash instead of
assets, which tends to lower the investor's potential return.
9.Too Many Choices: The advantages and disadvantages listed above apply to mutual funds
in general. However, there are over 10,000 mutual funds in operation, and these funds vary
greatly according to investment objective, size, strategy, and style. Mutual funds are available
for virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech,
internet), and every country or region of the world. So even the process of selecting a fund
can be tedious.

THE RELIANCE EXPERIENCE
My interaction with my project guide was in a corporate manner. He was helpful in every
aspect and made us understood any such problem we faced in this two months of our
internship.
36

My clients were the bank officials of the Public Sector Banks in Delhi. I had to visit the
Branch Manager, Relationship Managers, FDOs, etc. They were busy but were generous
enough to know about me, ask about the mutual fund schemes which were handled by me
and the role I was playing in the company.
My work was to collect SIPs (Systematic Investment Plan) from the bank branches I was
allotted by convincing the bank officials to suggest their customers to enroll with our mutual
fund.
I learnt that what marketingand selling actually means and how people actually manage this.
I came to know about a new area of banking (i.e. Mutual Funds) as it is a vital distribution
channel for mutual funds and how to co-operate in an office environment.

WORKING WITH PUBLIC SECTOR BANKS
The following public sector banks have a tie-up with Reliance Mutual Funds

37















Andhra Bank
Syndicate Bank
Oriental Bank of Commerce
UCO Bank
Dena Bank
Karnataka Bank
United Bank of India
State Bank of Patiala
Union Bank of India
Indian Overseas Bank
Indian Bank
IDBI Bank
Canara Bank

DEALING WITH CUSTOMERS
Dealing with customers and trying to convince them to invest in mutual funds was quite a
difficult task. Initially most of the customers would refuse instantly after hearing the
word mutual fund. The common perception about mutual funds amongst customers was
that it is too risky and we do not want to invest in share markets. It is then I realized that
getting money out of people’s pocket is not so easy. After some initial struggle, I started
to get a hang of things and started understanding the psychology of the customers. To
better explain the long term advantages of investing in mutual funds I started using an
SIP calculator to make the customers understand the benefits of mutual funds in the long
term.
All in all it was a wholesome and enriching experience to work with the Reliance group
and it gave me a practical exposure to marketing and selling strategies used in the
corporate world. Also I learnt how to candle to deal with customers and handle their
queries and help remove their apprehensions and misconceptions about mutual funds.

38

RECOMMENDATIONS


There is high potential market. For mutual fund investors Kanpur city but this market



need to bed explored as investors are still hesitated to invest their money in mutual fund.
In Delhi, investor has inadequate knowledge of mutual fund, so proper marketing of
various scheme is required, co. should arrange more and more seminar about mutual



fund.
Co. should also provide the knowledge of growth rate and expected growth rate of



mutual fund in India.
Reliance must be concentrate on the management of the co. so that every work can be



done in a proper way.
Reliance must be advertising its tie up co. fund along with their features that the



investors can invest in that type of fund in Reliance.
Reliance must be provided the advice to investors about mutual fund growing fund.

39

CONCLUSION
The awareness level of investors is low who are interested in dealing in mutual fund:





Most of investors are totally unaware about this investment.
Very less people knows about the service of Reliance.
Past image of mutual fund is not good.
Reliance can promote the investors by advertising, hording, and by interviews to invest





in this fund.
Most of the investors want to invest in public co.’s fund just because of safety purpose.
Most of the investors want to safer side in investment.
Most of the investors want to invest in debt funds because those are the risk free funds;



it gives the interest on investment.
Most of the investors don’t know about the mutual funds so they want advisory services
from reliance which could provide them whole information about the market situation of
mutual fund.

40

Bibliography











WEBSITES:



http://www.moneycontrol.com
http://www.amfi.com
http://www.Reliance .com//v2/
www.amfiindia.com
https://www.reliancemutual.com
economictimes.indiantimes.com
www.fundsindia.com
www.moneycontrol.com



MAGAZINES:




S.Gopichand, The finapolis , Reliance Mutual Fund Ltd..,volume 4 , 2014
PunithavathyPandian , Security Analysis And Portfolio Management , Vikas
Publishing House , 2013

ANNEXURE
41

42

Fund mobilization in mutual fund
0.45
0.4
0.35
0.3

rate

0.25
0.2
0.15
0.1
0.05
0

2000

2001

2002

2003

2004

2005

2007

2020

43

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