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A
RESEARCH PAPER
On
Opportunities in indian market of mutual funds investment
PIONEER
(Since 1996)
Submitted to Submitted By
Prof. Dr. V K Jain Ravendra Kushwaha
Prof. Nidhi Kothari MBA 3rd sem
Roll. No. 09010118
DECLERATION
I hereby declare that this Research Paper entitled “OPPORTUNITIES IN INDIAN
MARKET OF MUTUAL FUNDS INVESTMENT”€ submitted for the extra co curriculum
activities fulfillment of the requirement of Master of Business Administration (MBA) of
PIONEER INSTITUTE OF PROFESSIONAL STUDIES INDORE is based on
secondary data found by me in various Companies fact sheets, books, magazines and
websites & Collected by me in under guidance of Prof. Nidhi Kothari.
DATE: Ravendra Kushwaha
MBA 3rd sem.
Roll no. 09010118
INTRODUCTION
What is mutual funds
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. Anybody with an investible surplus of as little as a few hundred
rupees can invest in Mutual Funds. These investors buy 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. These could range from shares to debentures to money market instruments,
depending upon the schemes stated objectives. The income earned through these
investments and the capital appreciation realized by the scheme are shared by its unit in
proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low-cost.
Working of the mutual funds
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Conceptual Framework
Mutual fund is a trust that pools money from a group of investors (sharing common
financial goals) and invest the money thus collected into asset classes that match the stated
investment objectives of the scheme. Since the stated investment objectives of a mutual
fund scheme generally forms the basis for an investors decision to contribute money to the
pool, a mutual fund can not deviate from its stated objectives at any point of time.
Every Mutual Fund is managed by a fund manager, who using his investment management
skills and necessary research works ensures much better return than what an investor can
manage on his own. The capital appreciation and other incomes earned from these
investments are passed on to the investors (also known as unit holders) in proportion of the
number of units they own.
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Difining variabls
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the valuation date.
Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a
sales load.
Repurchase Price
Is the price at which units under open-ended schemes are repurchased by the Mutual Fund.
Such prices are NAV related.
Redemption Price
Is the price at which close-ended schemes redeem their units on maturity. Such prices are
NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also called, “€Front-end”€™
load. Schemes that do not charge a load are called “€No Load”€™ schemes.
Repurchase or “€Back-end “€Load
Is a charge collected by a scheme when it buys back the units from the unit holders.
Asset:
Item of value. In this module, asset refers to financial assets, such as stocks and bonds.
Asset class:
A category of financial asset, such as stocks, bonds or real estate.
Balanced fund:
A mutual fund that invests in a mix of stocks and bonds to take advantage of both the
growth potential stocks provide and the income stream bonds typically provide and to
reduce risk. Also called a “hybrid”€ fund.
Difining Mutual Funds Industry
Assets under managment
The indian mutual funds industries a fast growing industry .
Indian mutual funs industries generated substaintial growth in under managment over the
past 10 years. Most of the money flow in equity funds it from indivisual investment.
One notable charactric of indian mutual fund market is the high parcentage of share
owened by corporations.
Ownership Mutual Funds
According to association of mutual funds in india indivisual investors held slightly under
50% of mutual funds assets and corporation held slightly over 50% as of the end march
2007.
History of mutual fund industry
In India, the mutual fund industry started with the setting up of the erstwhile Unit Trust of
India in 1963. Public sector banks and financial institutions were allowed to
establishmutual funds in 1987. Since 1993, private sector and foreign institutions were
permitted to set upmutual funds.
In February 2003, following the repeal of the Unit Trust of India Act 1963 the erstwhile
UTI was bifurcated into two separate entities viz.The Specified Undertaking of the
UnitTrust of India, representing broadly, the assets of US 64 scheme, schemes with assured
returns and certain other schemes and UTI Mutual Fund conforming to SEBI Mutual Fund
Regulations.
As at the end of March 2008, there were 33 mutual funds, which managed assets of Rs.
5,05,152 crores (US $ 126 Billion)* under 956 schemes. This fast growing industry is
regulated by the Securities and Exchange Board of India (SEBI).
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Types of Mutual Funds Schemes in India
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position,
risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a
collection of many stocks, an investors can go for picking a mutual fund might be easy.
There are over hundreds of mutual funds scheme to choose from.
It is easier to think of mutual funds in categories, mentioned below.
|1. Open – Ended Schemes:
|
|An open-end fund is one that is available for subscription all through the year. These do
not have a fixed maturity. Investors can |
|conveniently buy and sell units at Net Asset Value (“NAV”) related prices. The key feature
of open-end schemes is liquidity. |
|2. Close – Ended Schemes:
|
|These schemes have a pre-specified maturity period. One can invest directly in the scheme
at the time of the initial issue. Depending|
tion the structure of the scheme there are two exit options available to an investor after the
initial offer period closes. Investors |
|can transact (buy or sell) the units of the scheme on the stock exchanges where they are
listed. The market price at the stock |
|exchanges could vary from the net asset value (NAV) of the scheme on account of demand
and supply situation, expectations of |
|unitholder and other market factors. Alternatively some close-ended schemes provide an
additional option of selling the units |
|directly to the Mutual Fund through periodic repurchase at the schemes NAV; however
one cannot buy units and can only sell units |
|during the liquidity window. SEBI Regulations ensure that at least one of the two exit
routes is provided to the investor. |
|3. Interval Schemes:
|
|Interval Schemes are that scheme, which combines 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. |
|Overview of existing schemes existed in mutual fund category:
|
|1. Equity fund: |
|These funds invest a maximum part of their corpus into equities holdings. The structure of
the fund may vary different for different |
|schemes and the fund managers outlook on different stocks. The Equity Funds are
sub-classified depending upon their investment |
|objective, as follows:
|
|”€¢ Diversified Equity Funds
|
|”€¢ Mid-Cap Funds
|
|”€¢ Sector Specific Funds
|
|”€¢ Tax Savings Funds (ELSS)
|
|Equity investments are meant for a longer time horizon, thus Equity funds rank high on
the risk-return matrix. |
|2. Debt funds: |
|The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions|
|are some of the major issuers of debt papers. By investing in debt instruments, these funds
ensure low risk and provide stable income|
|to the investors. Debt funds are further classified as:
|
|”€¢ Gilt Funds: Invest their corpus in securities issued by Government, popularly known
as Government of India debt papers. These Funds|
|carry zero Default risk but are associated with Interest Rate risk. These schemes are safer
as they invest in papers backed by |
|Government. |
|”€¢ Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities. |
|”€¢ MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of |
|both equity and debt market. These scheme ranks slightly high on the risk-return matrix
when compared with other debt schemes. |
|”€¢ Short Term Plans (STPs): Meant for investment horizon for three to six months. These
funds primarily invest in short term papers |
|like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the
corpus is also invested in corporate debentures. |
|”€¢ Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes |
|invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs
and CDs. These funds are meant for short-term|
|cash management of corporate houses and are meant for an investment horizon of 1day to
