Project Report of the Summer Internship Project

At

Topic- customer perception toward mutual fund

SUBMITTED BY:

Preeti pandey

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Chapter - 1 Introduction

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INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS

Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day. Investments in securities are spread
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across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.

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When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.

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Definition of Mutual Funds

A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with the stated objective. A mutual fund uses the money collected from investors to buy those assets, which are specifically permitted by its stated investment objective. A mutual fund is an entity that pools the money of many investors its unit holdersto invest in different securities. Investment may be in shares, debt securities, money market securities or a combination of these.

A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investment decision buys units of a particular mutual fund scheme that has a defined investment objective and strategy. The money thus collected is then invested by the fund manager in different types of securities. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them.

Mutual funds are one of the best investments ever created because they are very cost effective and very easy to invest in. By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income

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instruments, real estate, derivatives and other assets have become mature and information driven. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in the present form is a 20th century phenomenon.

While the concept of individuals coming together to invest money collectively is not new, the mutual fund in the present form is a 20th century phenomenon.

THE GOAL OF MUTUAL FUND The goal of a mutual fund is to provide an individual to make money. There are several thousand mutual funds with different investments strategies and goals to chosen from. Choosing one can be over whelming, even though it need not be different mutual funds have different risks, which differ because of the funds goals fund manager, and investment style. The fund itself will still increase in value, and in that way you may also make money therefore the value of shares you hold in mutual fund will increase in value when the holdings increases in value capital gains and income or dividend payments are best reinvested for younger investors Retires often seek the income from dividend distribution to augment their income with reinvestment of dividends and capital distribution your money increase at an even greater rate. When you redeem your shares what you receive is the value of the share.
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ADVANTAGES OF MUTUAL FUND Portfolio Diversification Professional management Reduction / Diversification of Risk Liquidity Flexibility & Convenience Reduction in Transaction cost Safety of regulated environment Choice of schemes Transparency

DISADVANTAGE OF MUTUAL FUND No control over Cost in the Hands of an Investor No tailor-made Portfolios Managing a Portfolio Funds

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Difficulty in selecting a Suitable Fund Scheme

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase 1964-87

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Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, 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 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). 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 mutual fund industry had assets under management of Rs.47,004 crores.

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Third Phase 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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CATEGORIES OF MUTUAL FUND:

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Mutual funds can be classified as follow : Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.

Close-ended funds: These funds raise money from investors only once. Therefore, after the offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such funds have relatively low liquidity.

Based on their investment objective: Equity funds: These funds invest in equities and equity related

instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the
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market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds should be considered for a period of at least 3-5 years. It can be further classified as: i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark

index both in terms of composition and individual stock weightages. ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors and stocks. iii|) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies offering high dividend yields. iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme. e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

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v) Sector funds- Invest 100% of the capital in a specific sector. e.g. A banking sector fund will invest in banking stocks. vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors. Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced funds classes: i) Debt-oriented funds -Investment below 65% in equities. ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income

instruments like bonds, debentures, Government of India securities;

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and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested in call money market. ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills. iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.

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v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt papers. vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.

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INVESTMENT STRATEGIES 1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.

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RISK V/S. RETURN:

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COMPANY PROFILE Reliance Capital Ltd is a part of the Reliance - Anil DhirubhaiAmbani (ADA) Group, and is ranked among the 25 most valuable private companies in India. Reliance Capital is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking groups, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, life and general insurance, private equity and proprietary investments, stock broking, depository services, distribution of financial products, consumer finance and other activities in financial services. The Reliance ADA Group is one of India's top 2 business houses, and has a market capitalization of over Rs.2,90,000 crore (US$ 75 billion), net worth in excess of Rs.55,000 crore (US$ 14 billion), cash flows of Rs. 11,000 crore (US$ 2.8 billion) and net profit of Rs. 7,700 crore (US$ 1.9 billion). Reliance MoneyReliance Money is a group company of Reliance Capital; one of India's leading and fastest growing private sector financial services companies, ranking among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital is a part of the Reliance ADA Group.

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About Reliance Money in brief Reliance Money is a part of the Reliance Anil DhirubhaiAmbani Group and is promoted by Reliance capital. The fastest growing private sector financial services company in India ranked amongst the 3 private sector financial companies in terms of net worth. Reliance Money is a comprehensive financial solution provider that enables one to carry out trading and investment activities in a secure, cost-effective and convenient manner. Through Reliance Money, one can invest in a wide range of asset classes from Equity, Equity and Commodity Derivatives, Mutual Funds, Insurance products, IPOs to availing services of Money transfer and Money changing. Reliance Money offers the convenience of on-line and off-line

transactions through a variety of means, including its, portal, call & Transact, Transaction Kiosks and at its network of affiliates. Some key steps of the company are Success is a journey, not destination if we look for examples to prove this quote then we can find many but there is none like that of Reliance Money. This company is today known as the largest financial service provider of India. Success sutras of Reliance MoneyThe success story of the company is driven by 9 success sutras adopted by in namely Trust, Integrity, Dedication, commitment, Enterprise, Hard work, Home
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work, Team work play , Learning and Innovation, Empathy and Humility and last but not least is its Network. Mission statement: Mission of the company is to be a leading and preferred service provider to the customers, and aims to achieve this leadership position by building an innovative, enterprising and technology driven organization which will set the highest standards of service and business ethics. Vision of Reliance Money: To achieve and in market leadership Reliance Money aimed for complete customer satisfaction, by combining its human and technological resources, to provide world class quality services. In the process Reliance Money strived to meet and exceed customers satisfaction and set industry standards.

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PRODUCTS AND SERVICESEquity-Reliance Money offers its clients competitively priced Equity broking, PMS and Portfolio Advisory Services. Trading execution assistance provided to clients.

Mutual Funds- Reliance Money offers dedicated research & expert advice on Mutual Funds. Life-Insurance-Clients can choose from different plans of almost all Insurance Companies where they can invest their money. A team of experts will suggest the best Insurance scheme which suits the clients requirement. General Insurance-Reliance Money assists in areas of Health insurance, Travel insurance, Home insurance and Motor insurance. Commodities-Reliance Money is a single platform to trade on both the major commodity exchanges i.e. NCDEX and MCX. In addition in-house research desk shall provide research reports on all major commodities which shall enable in getting views for trading and diversify clients holdings. Trade Execution assistance is also provided to clients. Structured Products, Art Investments-Structured Products is a new class of financial products for investors apprehensive of increased volatility in stock markets. Specially designed products could include Equity, Index-linked in nature, Real Estate Funds, Art Funds, Overseas Investments and Infrastructure Investments. Tax Planning-Reliance Moneys wealth management offerings include tax related services like:Tax Planning & advisory services and filling Tax returns for individuals. Real Estate Advisory Services-It providesBroking Model for lease/rent and buy/sell of property,Property Valuation, Real-estate Consulting Corporate earning model, etc .Offshore Investments-Reliance Money provides a unique opportunity to invest in international financial markets through the online platform which includes different product ranges. [29]

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