saptarshi banerjee strategies of uti and hdfc mutual funds

M P Birla Institute of Management 1

RESEARCH PROJECT ON

DETERMINATION AND EVALUATION OF STRATEGIES OF UTI AND HDFC MUTUAL FUNDS

BY

SAPTARSHI BANERJEE MBA FOURTH SEMESTER

(This research topic has been conceptualized by me under the guidance of Prof. S.Ramgopal, Senior Professor, MPBIM, Bangalore)

M P BIRLA INSTITUTE OF MANAGEMENT

(Associate Bharatiya Vidya Bhavan) 43, Race Course Road, Bangalore-560001

MARCH 2007


PRINCIPAL’S CERTIFICATE

This is to certify that this report titled “DETERMINATION AND EVALUATION OF

STRATEGIES OF UTI AND HDFC MUTUAL FUNDS” has been prepared by Saptarshi

Banerjee of M. P. Birla Institute of Management in partial fulfillment of the award of the

degree, Master of Business Administration at Bangalore University, under the guidance

and supervision of Prof. S.Ramgopal, MPBIM, Bangalore.

Place: Bangalore

(Dr. Nagesh. S Malavalli)

Date: May 2007 Principal

MPBIM,Bangalore


GUIDE’S CERTIFICATE This is to certify that Saptarshi Banerjee, bearing registration no.05XQCM6079

has undertaken a research project and has prepared a report titled “DETERMINATION

AND EVALUATION OF STRATEGIES OF UTI AND HDFC MUTUAL FUNDS”

under my guidance. This has not formed a basis for the award of any degree/diploma for any

other university.

Place: Bangalore

Date:

Prof S.Ramgopal

(Professor)


D E C L A R A T A I O N

I hereby declare that the project report titled “DETERMINATION AND EVALUATION OF

MARKETING OF UTI AND HDFC MUTUAL FUNDS” is a record of independent work

carried out by me towards the partial fulfillment of the requirements for the Masters Degree

in Business Administration course of Bangalore University, at M.P. Birla Institute of

Management, Associate Bharatiya Vidya Bhavan, Bangalore.

Place: Bangalore

(Saptarshi Banerjee)

Date: 05XQCM6079


ACKNOWLEDGEMENTS

The immense gratification this project work has given me does not lead to a

sense of fulfillment unless I express my boundless gratitude to all those who

made this work successful. I do recognize that mere thanksgiving does not

redeem me of my indebtedness for all the timely help, support and guidance

I received.

I script on this page my sincere thanks to each one of them:

Dr. Nagesh. S. Malavalli – Principal, M. P. Birla Institute of Management

for his constant and dedicated service to brighten our careers.

Prof S. Ramgopal., my professor and internal guide for this project to

whom I am deeply grateful for his constant support and guidance.

My family and friends for always having stood by my convictions and

encouraging me to perform better.

Finally, all the people who helped me complete this project by filling the

questionnaires.

Thank You.

Saptarshi Banerjee


CONTENTS

1. EXECUTIVE SUMMARY

2. DESIGN OF THE STUDY

• Research Gap

• Problem Statement

• Research Objectives

RESEARCH DESIGN ADOPTED

• Type Of Research

• Sampling Design

SOURCES OF DATA COLLECTION

• Primary Data

• Secondary Data

LIMITATIONS

3. INDUSTRY PROFILE

4. COMPANY PROFILE

6. DATA ANALYSIS AND INFERENCES

7. SUMMARY OF FINDINGS

8. RECOMMENDATIONS AND CONCLUSIONS

9. BIBLIOGRAPHY

10. APPENDIX


EXECUTIVE SUMMARY


The Indian Mutual Fund industry is likely to be one of the largest and most dynamic parts

of the Indian financial service sectors in the past years. Mutual Fund plays important in

the development of the financial market. Mutual fund in India have emerged as strong

financial intermediaries and are playing very important role in bringing stability in

financial system and it also helps the corporate in raising their funds to meet their

financial needs, which ultimately lead to the growth in the Economy.

The research conducted was Descriptive and Analytical in nature. The survey was

conducted to determine and evaluate the marketing strategies of UTI and ICICI Prudential

mutual funds: the top two mutual funds in India. Questionnaire method was adopted along

with some interview to obtain the desired information. Judgment sampling method was

the mode of conducting the survey. A sample of 200 respondents was taken and this

sample mainly covers owners of mutual funds (mainly UTI and ICICI Prudential mutual

funds).

Awareness level of Mutual fund was very high among the people but their attitude

towards mutual fund is that people consider mutual fund as risky mode so their

investment in mutual fund is very low. Mutual fund industry is waiting for the

introduction of derivatives in India as this would enable it to hedge its risk and this in

turn would be reflected in its Net Asset Value.


INTRODUCTION


There is competition in every field and investment is no exception. With rising

competition, end customers are being showered with numerous investment options with

varied degree of risk and different investment avenues are available to investors. Mutual

funds also offer good investment opportunities to the investors. Like all investments,

Mutual Funds also carry certain risks. Investment pattern and criteria depends on

individuals risk taking limit and return wants. For instance, Stock market can give an

individual a quick and good return with some risk involved and Bank can provide lower

return as compared to Stock market but in safe mode, whereas Mutual Fund can provide a

good return with minimum risk involved. The investors should compare the risks and

expected yields after adjustment of tax on various instruments while taking Mutual Fund

investment decisions.

Over the last two years, the world of money has changed for Indians. Interest rates have

come down dramatically. Borrowers have become more powerful than ever before, with

plenty of lenders slugging it out for their attention.

Mutual funds provide a form of investment that is both relatively safe and lucrative.

Mutual funds offer investors the advantages of professional management of invested

money and diversification of that investment. Mutual fund managers assume the

responsibility of investigating and researching financial markets and selecting the

combination of stocks, bonds, and other investment vehicles to be bought and sold. Thus,

consumers purchase shares in a mutual fund and rely on the expertise of the mutual fund

manager, whose job is to provide them with the highest possible return on their

investments.

Investment options such as the 8% Reserve Bank of India (RBI) bond have died. Bank

fixed deposits, the most preferred investment for decades, have lost their sheen. Stock

market has boomed all right, but the risks have increased too .Most mutual funds pay

higher returns than competing banks and offer check-writing services that have grown to

compete in quality and quantity with those provided by banks and thrifts. And also


Mutual funds offer several advantages over stock investments, including diversification

and professional management.

So, Mutual fund is like a middle way of investing money which is safer than investing in

Stock market and which can give someone good return than bank.

.


DESIGN OF THE STUDY


Problem statement

Comparative study and analysis of the marketing strategies of top 2 mutual funds in India

i.e. UTI and ICICI prudential mutual funds..

Scope of the study

The scope of the study is restricted to analyze the marketing strategies of top two brands i.e.

UTI and ICICI Prudential mutual funds. The study intends to throw light on the success of

these two brands in the mutual funds market.

Research objectives

• Level of Awareness

• Perception about Mutual Fund

• Target Age Group

• Investment pattern of different professional group and different income group

people.

• How an individual can invest their money as per his/her requirement (such as

mutual funds which offer Tax Rebate) in different Mutual funds.

• Analysis of marketing strategies on UTI and ICICI Prudential mutual funds.

Research design adopted

Research Design:

A research design is the specification of methods and procedures for acquiring the

information needed. It is overall operational pattern or framework of the project that

stipulates what information is to be collected from which source by what procedures.


Types of Research

1. Exploratory Research

2. Descriptive Research

3. Analytical Research

Exploratory Research: It is done to generate new ideas; respondents should be given

sufficient freedom to express themselves. Sometimes a group of respondents is bought

together and a focus group interview is held.

An exploratory study is generally based on the secondary data that are readily available.

Descriptive Research: It includes surveys and fact-finding enquires of different kinds. It

is undertaken in many circumstances, when the researcher is interested in knowing the

certain characteristics of different group; interested in knowing the proportion of in a

given population who have behaved in a particular manner or determining the

relationship between two or more variables.

The research adopted in this study is Descriptive and Analytical Research in order to

produce information so as to compare and contrast the marketing strategies adopted by

UTI and ICICI Prudential mutual funds and consumer investment pattern and their

attitude towards these two mutual funds.

SOURCES OF DATA COLLECTION:

Collection of data is the first step in statistics the goal of conclusion. The data collection

process follows the formulation of research design including the sample plan. Data,

which can be secondary or primary, can be collected using variety of tools.

Collection of Primary data can be done with the help of

• Observation Method

• Interview Method


• Through Questionnaire

• Through Schedule

• Warranty Cards

• Distributor Audits

• Pantry Audits

• Consumer Panels

• Depth Interview

• Using Mechanical Devices

Collection of Secondary data can be done with the help of

• Various publications of central, state and local government

• Various publications of international bodies.

• Technical and trade journals.

• Books, magazine, newspapers and reports.

The data collected during the research is primary in nature and in that Questionnaire

method has been taken because it is cost effective, free from the biasness of the

interviewer and respondents can give sufficient time to give well thought out answers.

SAMPLING

An integral component of a research design is the sampling plan. Specially, it address

three questions: whom to survey (the sample unit), how many to survey (the sample size),

and how to select them (the sampling procedure). Making the census study of the entire

universe will be impossible on the account of limitations of time and money. Hence

sampling becomes inevitable. A sample is only the portion of the population. Properly

done, sampling produces representative data of the entire population.

Method of Sampling:

1. Probability Sampling


2. Non-Probability Sampling

Probability Sampling is also known as ‘random sampling’ or ‘chance sampling’. Under

this sampling design every items of the universe has an equal chance or probability, of

being chosen for samples. Probability samples may take the form of:

• Sample Random Sampling

• Systematic Sampling

• Stratified Sampling

• Cluster and Area Sampling

• Sequential Sampling

• Multi stage Sampling

Non Probability Sampling is also known as deliberate sampling, purposive and

judgmental sampling. Non-probability samplings are those that do not provide every item

in the universe with a known chance of being included in the sample.

Non-probability samplings are of following type:

• Convenience Sampling

• Quota Sampling

• Judgement Sampling

• Panel Sampling

The Sampling method used here is Non-Probability Sampling in which Judgement

Sampling has been used. Judgement Sampling method has been adopted in which the

target group includes Doctors, Engineers and people belonging to financial institutes

because they are the possible investors for the company also they are the highly qualified

persons in our society.

LIMITATIONS

1. Judgement Sampling was used as the mode of conducting the research.


2. Respondents may not have been true in answering various questions and may be

biased to certain other questions. Some respondents however were not willing to

share their views and did not give any information.

3. The Questionnaire mostly contained multiple-choice questions, therefore many

respondents did not give a proper thought before up the questions, and some even

ticked things, which were not applicable. Therefore all this increases the biasness.

4. Respondents were reluctant to answer some questions, as they took them as

personal, therefore increasing the possibility of error.


INDUSTRY PROFILE


Mutual Fund-Concept

A Mutual Fund is a trust that pools the saving of a number of investors who share a

common financial goal. 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 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 diversified,

professionally managed basket of securities at a relatively low cost. The flow chart below

describes broadly the working of mutual fund:

Mutual Fund Operation Flow Chart

The mutual funds normally come out with a number of schemes with different investment

objectives which are launched from time to time. A mutual fund is required to be

registered with Securities and Exchange Board of India (SEBI) which regulates securities

markets before it can collect funds from the public.


The first open-end mutual fund, Massachusetts Investors Trust was founded on March 21,

1924 and after one year had 200 shareholders and $392,000 in assets. The entire industry,

which included a few closed-end funds, represented less than $10 million in 1924.

The origin of mutual fund industry in India is with the introduction of the concept of

mutual fund by UTI in the year 1963. 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 dramatic improvements, both

quality wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase; the Assets under Management (AUM) were Rs. 67bn. The private sector

entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004;

it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is

less than the deposits of SBI alone, constitute less than 11% of the total deposits held by

the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the

country. Large sections of Indian investors are yet to be intellectuated with the concept.

Hence, it is the prime responsibility of all mutual fund companies, to market the product

correctly abreast of selling.

The Indian Timeline

1963-- UTI is India’s first mutual fund

1964-- UTI launches US-64

1971-- UTI’s ULIP (Unit-Linked Insurance Plan) is second scheme to be

launched

1986-- UTI Mastershare, India’s first true mutual fund’ scheme launched

1987-- PSU banks and insurers allowed to float mutual funds; State Bank of India

(SBI) first off the blocks

1992-- The Harshad Mehta- fuelled bull market arouses middle-class interest in

shares and mutual funds.


1993--Private sector and foreign players allowed; Kothari Pioneer first fund

house to start operations; Sebi set up to regulate industry.

1994--Morgan Stanley is the first foreign player

1996--Sebi’s mutual fund rules and regulations, which form the basis of most

current laws, come into force.

1998--UTI Master Index fund is the country’s first index fund.

1999--The takeover of 20th Century AMC by Zurich mutual fund is the first

acquisition in the mutual fund industry.

2000--The industry assets under management crosses Rs.1, 00,000 crore.

2002--UTI bifurcated, comes under Sebi purview mutual fund distributors banned

from giving commission to investors; floating rate funds and foreign debt

funds debut.

2003--AMFI certification made compulsory for new agents, fund of funds

launched.

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

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up

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. 6700 crores of Assets under Management.

Second Phase – 1987-93 (Entry of Public Sector Funds)

Entry of Non-UTI mutual funds, SBI Mutual Fund was the first 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 in 1989 and GIC in 1990. The end of 1993 marked Rs 47,004 as assets under

management.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 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.

The number of mutual fund houses went on increasing, with many foreign mutual funds

setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets

of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phase – Since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One

is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as

on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations.

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. With the


bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of

AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual

Fund Regulations, and with recent mergers UTI Mutual Fund, conforming to the SEBI

Mutual Fund Regulations, and with recent mergers taking place among different private

sector funds, the mutual fund industry has entered its current phase of consolidation and

growth. As at the end of September, 2004, there were 29 funds, which manage assets of

Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.

• Numbers of foreign AMC’s are in the queue to enter the Indian markets like Fidelity

Investments, US based, with over US$1trillion assets under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channelizing these savings in

mutual funds sector is required.

• We have approximately 33 mutual funds which is much less than US having more

than 800. There is a big scope for expansion.


• Mutual fund can penetrate rural like the Indian insurance industry with simple and

limited products.

• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

• Introduction of Financial Planners who can provide need based advice.

Types of Mutual Funds

Mutual Fund schemes may be classified on the basis of its Structure and its Investment

objective.

• By Structure

1. Open - Ended Schemes

2. Close - Ended Schemes

3. Interval Schemes

• By Investment Objective

1. Growth Schemes

2. Income Schemes

3. Balanced Schemes

4. Money Market Schemes

Structure

Open-Ended Funds:

An open-ended 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-ended schemes is liquidity.

Close-Ended Funds:


A close-ended has a stipulated maturity period which generally ranges from

3-15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the Initial Public Issue and thereafter they can buy

or sell the units of the scheme 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 of the mutual fund through periodic repurchase at NAV related prices.

SEBI regulations stipulate that at least one of the two exit routes is provided to the

investor.

Interval Funds:

Interval Funds combine the features of open-ended and close-ended schemes. They are

open for sale or redemption during pre-determined intervals at NAV related prices.

Investment Objective

Growth Funds:

The aim of growth fund is to provide capital appreciation over the medium to long-term.

Such schemes normally invest a majority of their corpus in equities. It has been proven

that return from the stock have outperformed most other kinds of investment held over

the long-term. Growth schemes are ideal for investors having a long term outlook seeking

growth over a period of time.

Income Funds:

The aim of income funds is to provide regular and steady income to investors. Such

schemes generally invest in fixed income securities such as bonds, corporate debentures

and government securities. Income funds are ideal for capital stability and regular

income.

Balanced Funds:


The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earnings and invest both in equities and fixed

income securities in the proportion indicated in their offer documents. In a rising stock

market, the NAV of these schemes may not normally keep pace, or fall equally when the

market falls. These are ideas for investors looking for a combination of income and

moderate growth.

Money Market Funds:

The aim of money market funds is to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safe short term instruments such as

treasury bills, certificate of deposits, commercial papers and inter-bank call money.

Returns on these schemes may fluctuate depending upon the interest rate prevailing in the

market. These are ideal for corporate and individual investors as a means to park their

surplus funds for short periods.

The Basic Functions of ISC

Undergoing summer training at the Investor Service Center (ISC), was a great learning

experience for us. During our stay at the ISC in the capacity of summer trainees we tried

to observe the functioning of a Mutual Fund from within and thus gain an inside

perceptive of the same.

For the purpose of explaining the detail of what we learnt during our stint with

HDFC MF, we would first like to explain the basic functions, which are carried out at a

mutual fund office on a day to day basis.


The work flowchart of a Mutual Fund ISC is of following nature:

The flowchart indicates that the new investors investing in varied mutual fund schemes

route their investment through two channels:

(1) Selling agents and Distribution houses

(2) Direct marketing team at the ISC

Subsequently the applications are forwarded to the operations department at the ISC

which is in direct contact with the registrar, which in case of HDFC MF is cams,

Chennai.

The application are processed at the ISC, either manually or scanned to the

registrar, where records of the same are maintained. The investors are allotted folio

numbers and subsequently allotted the units as per the amount invested by them.

All further subsequent transaction initiated by investor like redemption and

switching using a transaction slip are routed through the ISC to the registrar who finally

execute the same.

Investor

Sales & marketing team of ISC

Head office

Selling & distribution agent

Operation dept at ISC

Registrar (CAMS)


Apart from the above mentioned functions, an ISC performs the following as well-

1. Tapping the potential investors which are done by the sales team at

the ISC.

2. Mobilizing the investments through the selling agents and

distribution houses like banks and other private distribution

channels.

3. Client service which involves-

• Addressing investor’s valuation enquiries

• Issuing account statements to the investor every time a

fresh transaction is initiated by the investor.

• Reconciling issues related to dividend payable to investors.

• Verifying investor’s signature before executing a switch or

redemption request.

4. Carrying out non functional transaction like-

• Changing of correspondence addresses of investors.

• Changing investor’s Bank mandates.


Basic Mutual Fund Structure


Benefits of Mutual Fund

• Diversification: The best mutual funds design their portfolios so individual

investments will react differently to the same economic conditions. For example,

economic conditions like a rise in interest rates may cause certain securities in a

diversified portfolio to decrease in value. Other securities in the portfolio will

respond to the same economic conditions by increasing in value. When a portfolio

is balanced in this way, the value of the overall portfolio should gradually

increase over time, even if some securities lose value.

• Professional Management: Most mutual funds pay topflight professional to

manage their investments. These managers will decide what securities fund will

buy or sell.

• Regulatory oversight: Mutual funds are subject to many government regulations

that protect investors from fraud.

• Liquidity: It’s easy to get your money out of a mutual fund. Write a check, make

a call, and you have got the cash.

• Convenience: You can usually buy mutual fund shares by mail, phone or over the

Internet.

• Low cost: Mutual fund expenses are often no more than 1.5 percent of your

investment. Expenses for Index Funds are less than that, because index funds are

not actively managed. Instead, they automatically buy stock in companies that are

listed on a specific index.

• Transparency

• Flexibility

• Choice of schemes

• Tax benefits

• Well regulated


Draw Backs of Mutual Fund

Mutual funds have their drawbacks and may not be for everyone:

• No Guarantees: No investment is risk free. If the entire stock market declines in

value, the value of mutual fund shares will go down as well, no matter how

balanced the portfolio. Investors encounter fewer risks when they invest in mutual

funds than when they buy and sell stocks on their own. However, anyone who

invests through a mutual fund runs the risk of losing money.

• Fees and commissions: All funds charge administrative fees to cover their day-to-

day expenses. Some funds also charge sales commissions or "loads" to

compensate brokers, financial consultants, or financial planners. Even if you don't

use a broker or other financial adviser, you will pay a sales commission if you buy

shares in a Load Fund.

• Taxes: During a typical year, most actively managed mutual funds sell anywhere

from 20 to 70 percent of the securities in their portfolios. If your fund makes a

profit on its sales, you will pay taxes on the income you receive, even if you

reinvest the money you made.

• Management risk: When you invest in a mutual fund, you depend on the fund's

manager to make the right decisions regarding the fund's portfolio. If the manager

does not perform as well as you had hoped, you might not make as much money

on your investment as you expected. Of course, if you invest in Index Funds, you

forego management risk, because these funds do not employ managers.


Fund Structure and Constituents

Mutual Funds have a unique structure not shared with other entities such as companies or

firms. It is important here to discuss the special nature of this structure because it

determines the rights and responsibilities of the fund’s constituent’s viz. Sponsors

Trustees, custodian, transfer agent and of course, the fund and the asset management

company (AMC). The legal structure also drives the inter-relationship between these

constituents.

The Fund Sponsor:

“Sponsor” is defined under SEBI regulations as any person who, acting alone in a

combination with another body corporate, establishes a mutual fund. The sponsor of the

fund is akin to the promoters of a company as he gets the fund registered SEBI. Sponsors

will form a trust and a point a board of trustees. The sponsors, either directly or acting

through the Trustees, will also appoint an AMC as Fund Manager. All these

appointments are made in accordance with SEBI regulations. As per the existing SEBI

regulations, for a person to qualify as a sponsor, he must contribute at least 40% of the

net worth of the AMC and possess a sound financial track record over 5 years prior to

registration.

Trustee:

The trust- the mutual fund – may be managed by board of Trustees – body of individuals,

or trust company – corporate body. Most of the funds in India are managed by board of

Trustees. While the board of trustees will be governed by the provision of the Indian

Trust Act, where the trustee is a corporate body, it would also be required to comply with

the provisions of independent body acts as a protector of the unit – holder’s interest. The

Trustees being the primary guardian of the unit – holder’s funds and assets, a Trustee has

to be a person of high repute and integrity. SEBI has laid down a set of conditions to be

fulfilled by the individuals being proposed as trustees of mutual fund – both dependent

and independent.


Risk associated with Mutual Fund

Risk arises out of the fact that returns do not remain constant or unchanged.

Credit Risk:

Mutual funds face a credit risk when the counter party fails to meet the

contractual obligation or when there is a reduction in a portfolio value due to

deterioration in credit quality.

Market Risk:

Mutual funds face market risk when there are adverse changes in the market

variable like interest rates, prices of securities, equities and commodities.

Operational Risk:

Mutual funds face operational risk due to failure or inadequacy of internal

processes, people systems or due to external events.

Liquidity Risk:

It pertains to how saleable a security is in the market. If a particular doesn’t have

a market at the time of sale, and then the schemes may have to bear an impact depending

on its exposure to that particular security.

Interest Rate Risk:

It is associated with movements in interest rates which depend on various factors

such as government borrowing, inflation, economic performance etc. The values of

investments will appreciate/ depreciates if the interest rates fall/ rise.


Derivative Risk:

The derivatives will entail a counter party risk to the extent of amount that can

become due from the party. The cost hedged can be higher than adverse impact of the

market movements. An exposure to derivatives can also limit the profits from a genuine

investment transaction.

Reinvestment Risk:

This risk arises from the uncertainty in the rate at which cash flows from an investment

may be reinvested. This is because the bonds will pay coupons, which will have to be

reinvested. The rate at which the coupons will be reinvested will depend upon prevailing

market rates at the time the coupons are received.

Mutual Fund Companies in India

Some of the major companies are given below

ABN AMRO Mutual Fund Birla Sun Life Mutual Fund Bank of Baroda Mutual Fund (BOB Mutual Fund) HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund


Prudential ICICI Mutual Fund Unit Trust of India Mutual Fund State Bank of India Mutual Fund Tata Mutual Fund Kotak Mahindra Mutual Fund

Unit Trust of India Mutual Fund Reliance Mutual Fund Standard Chartered Mutual Fund Franklin Templeton India Mutual Fund Morgan Stanley Mutual Fund India Sahara Mutual Fund Alliance Capital Mutual Fund BenchmarkMutual Fund .


LIC Mutual Fund GIC Mutual Fund Chola Mutual Fund

Asset Management Company

The role of an Asset Management Company (AMC) is to act as the investment manager

of the trust under the board of supervision and direction of the Trustees. The AMC is

required to be approved and registered with SEBI as an AMC.

The AMC of a Mutual Fund must have a net worth of at least Rs. 10 crores at all

times. Directors of the AMC, both independent and non-independent, should have

adequate professional experience in financial services and should be individuals of high

moral standing, a condition applicable to other key personnel of the AMC. The AMC

cannot act as a trustee of other Mutual Fund. Besides its role as fund manager, it may

undertake specified activities such as advisory services and financial consulting ,provided

these activities are run independently of one another and the AMC’s resources (such as

personnel, systems, etc.) are properly segregated by activity.

Custodian and Depositories:

Mutual Funds are in the business of buying and selling of securities in large

volumes, handling these securities in terms of physical delivery and eventually

safekeeping is therefore a specialized activity. The custodian appointed by the board of


Trustees for safekeeping of securities or participating in a clearing system through

approved depository companies on behalf of the mutual fund. The custodian should be an

entity independent of the sponsors and is requires to be registered with SEBI. A Mutual

Fund’s dematerialized securities holdings will be a depository through depository

participant.

Bankers:

A fund’s activities involve dealing with money on a continuous basis primarily with

respect to buying and selling units, paying for investments made, receiving the proceeds

on sales of investments and discharging its obligation towards operating expenses. A

fund’s bankers therefore play crucial role with respect to its financial dealings by holding

its bank accounts and providing it with respect to its financial dealings by holding its

bank accounts and providing it with remittances services.

Transfer Agents:

Transfer agents are responsible for receiving and redeeming units of the Mutual fund and

provide other related services such as preparation of transfer documents and updating

investor’s records. A fund may choose to carry out this activity in – house and charge the

scheme for the service at a competitive market rate. where an outside transfer agent is

used, the fund investor will find the agent to be an important interface to deal with, since

all of the investor services that a fund provides ( besides the investment management) are

going to be dependent on the transfer agents.

Distributors:

Mutual Funds operate as collective vehicles on the principle of accumulating fund from a

large number of investors and then investing on a big scale. For a fund to sell units across

a wide retail base of individual investors and established network of distribution agents is

essential.


Distribution Channels of Mutual Fund

Role of Distribution Channels:

Mutual Funds device investment plans for the institutional and the individual investors.

Some funds target and contact the institutional investors directly, without using any

external distribution channels. For example, UTI and some private funds have some

schemes targeted at provident fund, which are contacted directly by their own sales

officers. Other funds work through distributors for institutional clients as well as

individual ones. But, it is important to note that Mutual Funds are primarily vehicles for

large collective investments, working on the principal of pooling the funds of large

number of investors. That is why a large majority of schemes are targeted at individual

investors. A substantial portion of investment in mutual funds takes place at their retail

level. Retail distribution channels are therefore a critical element in the distribution at

mutual funds. This is particularly relevant in the Indian context, in view of the diverse

nature of the investor community and the vast geographic spread of the country. The

agents or distributors are vital link between the mutual funds and investors.

Traditionally in India, financial products such as insurance or bank and corporate

deposits have been distributed through individual who serve as independent

brokers/agents. The increasing number of players in the mutual fund industry has resulted

in opening up new channels of distribution. We review the role of different kinds of funds

distributors below.

Types of Distribution Channels

Individual Agents:

Uses of agents have been the most widely prevalent practice for distribution of funds over

the years. By definition, an agent acts on behalf of a principal – in this case, the mutual

fund. An agent is essentially a broker between a fund and the investor. In India, we also

have the unique system whereby a broker has a number of sub-brokers working under


him. The vast sub- broker network ensures a larger geographic coverage than otherwise.

According to AMFI, there are nearly 100,000 agents selling mutual funds and other

financial products. Of this number, 80-85 thousand are UTI agents.

Mutual fund agents are not exclusive but usually sell other financial products as well. The

system has the advantage that the distributor has a broader knowledge of financial

services available, and is therefore potentially in a position to act as investment advisors.

Investors expect the right kind of recommendations from the agents. From the

perspective of the mutual funds themselves, such multi product distributors mean loss of

exclusivity in the marketing of their particular products. However a drawback can be

converted into a benefit for the funds, if the agents are properly trained in their role and

responsibility as financial advisors to the investors.

In India, any investor who signs an assignment with a fund on non judicial stamp paper

can act as its agent. In India, too from November 1, 2001 SEBI has made it mandatory

for newly recruited distributors pass the AMFI Certification test and has recommended

the test for the existing distributors .As financial markets, investment options and the

variety of Mutual Funds get more and more sophisticated, distributors need more and

more information knowledge and skills. This is why distributors in India will find that

many mutual funds now will prescribe minimum qualification that a person must possess

to be its agent. These qualifications may be in terms of education, experience or even

registration on an exchange. For example U.T.I requires its agents to have at least passed

the level of matriculation and also to provide two references. Some private sector funds

like to deal with only stock brokers. Eventually some funds may even require their

distributors to pass the AMFI Testing programmed.

In case of U.T.I agents are provided with in-hose training and refresher courses. Agents

performance is monitored and they receive commission at a basic rate plus incentive

depending on the volume of business of generated by them U.T.I has evolved the concept

of a chief representative for each district, who is assigned a target and has several agents


reporting to him. U.T.I also has franchisee offices that function as small decentralized

distribution centers. In addition, agents are allowed privileges such as membership to the

chairman’s club, based on performance.

Private Mutual Fund also rely on agents for distributing their schemes. However, many of

the relatively small funds, interaction with the large agent force is both costly and

difficult to administer. For this reason the recent trend has been, to shift to distribution

companies as opposed to individual agent.

Distribution companies:

Availing of the services of the established distribution companies is a practice accepted

by mutual fund internationally. This practice evolved with a view to support a large agent

force. Instead of having to deal with several agents a fund can interact with a distribution

company which has several employees or sub-broker under it. A distribution usually

manages distribution for several funds simultaneously and receives commissions for its

services. Many private funds have preferred to adopt this practice because of its

sophisticated nature and because they benefit from the specialist knowledge and

established client contacts of these marketing firms. In India, there are about 10 major

distribution companies in addition to a few hundred small ones.

Banks and NBFC’s:

In developed countries, banks are an important marketing vehicle for mutual funds, given

that banks themselves have a large depositor/client base of their own. We can see the

opening up of this new channel in India now. Several banks particularly private and

foreign banks are involved in the fund distribution by providing services similar to those

of distribution companies, on the commission basis. Some NBFC’s are also providing

such services. All funds do not yet use this channel, nor all banks have yet taken up the

fund distributor role, but increasing use of bank networks for mutual fund distribution is

almost a certain development.


Direct Marketing:

Direct marketing means that the mutual funds sell their own products without the use of

any intermediaries. Usually, this takes the form of the sales officer and employees of the

AMC who approach the investors and accept their contributions directly. However, in

India independent agents may really be treated as a direct marketing channel, in the sense

that they do not form a well-knit independent and organized single entity and act more

like fund employees. Other channels like the distribution companies or banks or even

stockbrokers are clearly distinct and independent intermediaries.

Direct marketing by the funds themselves accounts for a very small percentage of mutual

fund sales. Many private sector funds require that investments into any of their schemes

be routed only through registered brokers and they do not accept direct subscription from

investors.

Mutual funds often use their employees to mobilize funds high net worth individuals and

institutional investors. In case of short /medium term investment in liquid and/or income

funds, targeted at companies funds often resort to direct marketing.

AMFI Code of Ethics

AMFI has published a code of ethics which lays down suggested practices for funds with

respect to overall fund operations including distribution and selling practices. At present,

the code is not mandatory and is in the form of recommended practices. The code

primarily covers the following broad prescriptions:

• Management of the fund ought to be in the interest of the unit – holders

• High standards of service ate expected from the funds

• Adequate disclosures by the funds ought to be made to unit – holders and

trustees


• Funds are urged to adopt the use of professional selling practices

• Management of funds collected has to be in accordance with stated

investment objectives

• Funds should avoid conflicts of interest in dealings by directors, officers or

employees

• Funds have to refrain from unethical market practices

SEBI Regulations

Although SEBI does not prescribe the minimum amount of commissions payable by a

fund to agents, under SEBI (M.F) Regulations, 1996 all initial issue expenses including

brokerage paid to agents are limited to 6% of resources raised under the scheme. In

addition, SEBI regulated open-end funds are authorized to charge the investors “entry

and exit” loads to cover the fund distribution expenses. These loads should not exceed the

percentage specified in the scheme’s offer document. In case the agent’s commission

paid by the fund result in over all distribution expenses exceeding the rate specified in the

offer document, excess distribution expenses are to be born by the AMC i.e. the excess

cannot be passed on to the unit holders.

A no-load fund charging no entry or exit load, is authorized to charge the schemes

with the commissions paid to the agents as a part of the regular management and

marketing expenses allowed by SEBI, SEBI puts a cap on the total expenses( including

commissions) that can be charged to a scheme each year. Any excess over allowable

expenses is required to be borne by the AMC.


Future Scenario

The asset base will continue to grow at an annual rate of about 30% to 35% over the next

few years as investor’s shift their assets from banks and other traditional avenues. Some

of the older public and private sector players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge with

stronger players in three to four years. In the private sector this trend has already started

with two mergers and one takeover. Here too some of them will down their shutters in the

near future to come.

But this does not mean there is no room for other players. The market will witness

a flurry of new players entering the arena. There will be a large number of offers from

various asset management companies in the time to come. Some big names like Fidelity,

Principal, Old Mutual etc. are looking at Indian market seriously. One important reason

for it is that most major players already have presence here and hence these big names

would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as

this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset

Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund schemes to

trade in derivatives. Importantly, many market players have called on the Regulator to

initiate the process immediately, so that the mutual funds can implement the changes that

are required to trade in Derivatives.


COMPANY PROFILE


UTI MUTUAL FUNDS

INTRODUCTION

UTI Mutual Fund is managed by UTI Asset Management Company Private Limited

(Estb: Jan 14, 2003) who has been appointed by the UTI Trustee Company Private

Limited for managing the schemes of UTI Mutual Fund and the schemes transferred /

migrated from UTI Mutual Fund.

The UTI Asset Management Company has its registered office at : UTI Tower, Gn Block,

Bandra - Kurla Complex, Bandra (East), Mumbai - 400 051 will provide professionally

managed back office support for all business services of UTI Mutual Fund (excluding

fund management) in accordance with the provisions of the Investment Management

Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations and the objectives of

the schemes. State-of-the-art systems and communications are in place to ensure a

seamless flow across the various activities undertaken by UTI AMC.

UTI AMC is a registered portfolio manager under the SEBI (Portfolio Managers)

Regulations, 1993 on February 3 2004, for undertaking portfolio management services

and also acts as the manager and marketer to offshore funds through its 100 % subsidiary,

UTI International Limited, registered in Guernsey, Channel Islands.

UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset

Management Company presently manages a corpus of over Rs. 34500 Crore.

UTI Mutual Fund has a track record of managing a variety of schemes catering to the

needs of every class of citizenry. It has a nationwide network consisting 70 UTI Financial

Centers (UFCs) and UTI International offices in London, Dubai and Bahrain. With a

view to reach to common investors at district level, 4 satellite offices have also been

opened in select towns and districts. It has a well-qualified, professional fund


management team, who have been highly empowered to manage funds with greater

efficiency and accountability in the sole interest of unit holders. The fund managers are

also ably supported with a strong in-house equity research department. To ensure better

management of funds, a risk management department is also in operation.

It has reset and upgraded transparency standards for the mutual funds industry. All the

branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-

effective quick and efficient service. All these have evolved UTI Mutual Fund to position

as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant

entity.

SPONSORS

Three leading public sector banks – Bank of Baroda (BOB), Punjab National Bank (PNB)

and State Bank of India (SBI) and Life Insurance Corporation of India (LIC), the largest

public financial investment institution and life insurer in India have entered into an

agreement with the Government of India as Sponsors of the UTI Mutual Fund.

Bank of Baroda

Bank of Baroda was established in July 1908 by Maharaja - Sir Sayajirao Gaikwad III.

During the period since inception, it has always maintained its practice of sound value

based banking to emerge as one of the premier public sector Banks of the country today.

It has a track record of uninterrupted profits since inception in 1908. The financial

strength of the Bank and its long tradition of efficient customer service are drawn

substantially from the extensive reach of its 2,715 strong branch network (as of

31.03.2003) covering almost every State and Union Territory in the Country. The Bank is

also one of the few Indian Banks with a formidable presence overseas with 38 branches.

Thus, the total branch network is 2,753 as at 31.03.2003.


Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is amongst the largest insurance companies in

the world, serving over 10 crore policy holders and managing a Fund of over Rs.-186000

crores.

Punjab National Bank

PNB is a statutory body performing banking activities in terms of Banking Companies

(Acquisition and Transfer of undertaking) Act 1970 under which the Undertaking of the

Bank was taken over by the Central Government. The main object of the bank under the

said Act is as below:-

An act to provide for the acquisition and transfer of the undertaking of certain banking

companies, having regard to their size, resources coverage and organisation, in order to

further to control the heights of the economy, to meet progressively and serve better, the

needs of the development of the economy and to promote the welfare of the people, in

conformity with the policy of the State towards securing the principles laid down in

clause (b) and (c) of Article 39 of the Constitution of India and for matter connected

therewith or incidental therein.

Punjab National Bank has 4037 branches and 4 subsidiaries. The bank has a deposit size

of Rs.75813.49 crores as on 31.03.2003.

State Bank of India

The State Bank of India is the largest public sector bank in India with 9033 branches in

India and 48 offices in 28 countries worldwide. In addition to this, SBI also has 17

subsidiaries.


The sponsors are not responsible nor liable for any loss resulting from the operation of all

the schemes of UTI Mutual Fund beyond the contribution of an amount of Rs.10,000/-

made by them towards setting up of the UTI Mutual Fund.

SCHEMES

LIQUID FUNDS

INCOME FUNDS

ASSET ALLOCATIONN FUNDS

INDEX FUNDS

EQUITY FUNDS BALANCED FUNDS

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC)

Vision:

To be a dominant player in the Indian MF industry recognized for its high levels of

ethical and professional conduct and a commitment towards enhancing investor interests.

Sponsor:

The sponsor of the HDFC MF is the Housing Development Finance Corporation

Limited (HDFC). HDFC was incorporated in 1977 as the first specialized housing

finance institution in India. HDFC provides financial assistance to Individuals, Corporate

and Developers for the purchase or construction of residential housing. As on December

31 2002, HDFC’s cumulative loan disbursement are Rs 40,060 crore financing over 2.1

million units all over India.


Partners:

Standard Life Insurance Company of United Kingdom set up base in 1825. It is today the

largest pension fund in UK and the largest Mutual Life assurance company in Europe.

Standard Life Investment was set up as a dedicated Investment management company.

Management:

HDFC Trustee Company Limited

A company incorporated under Companies Act 1956, is the trustee to the Mutual Fund

vide the trust deed dated June 8, 2000 as amended from time to time. HDFC Trustee

Company Limited is a wholly owned subsidiary of HDFC Limited.

HDFC Asset management Company Limited (AMC) :

It was incorporated under the Companies Act 1956, on December 10, 1999 and was

approved to act as an asset management company for the MF by SEBI on July 3, 2000.

Pursuant to the joint participation agreement dated October 29, 1999, entered between

Housing Development Finance Corporation Limited(HDFC) and Standard Life

Investment Limited, 26% of the paid up share capital of AMC has been transferred by

HDFC to Standard Life Investment company on April 17, 2001.

The present stock holding pattern of AMC is as follows:

Particulars capital The Paid –up Capital

HDFC 50.1%

The Standard Life Insurance Company 49.9%


Investment Philosophy

• Consider above average return.

• Conservative investment decisions.

• Premium service

• Essentially positioned as a “No Surprise Fund”

Product / Schemes of HDFC Mutual Fund

.The investment approach will be based on a set of well established but flexible principles

that emphasize the concept of sustainable economic earnings and cash returns on

investment as the means of valuation of companies.

Five basic principles serve as the foundation for this investment approach. They are as

follows:

• Focus on the long term.

• Investment confers proportionate ownership of the business.

• Maintain a margin of safety.

• Maintain a balanced outlook on the market.

• Disciplined approach to selling.

In order to implement the investment approach effectively, it would be important to

periodically meet the management face to face. This would provide an understanding of

their broad vision and commitment to the long term business objective.

The investment strategy is expected to be a function of extensive research and

based on data and reasoning, rather than current fashion and emotion. The objectives will

be to identify “business with superior growth prospects and good management, at a

reasonable price”.


Equity Investments:

The investment approach would be based on the concept of the economic earning power

and cash return on investments.

Five basic principles would serve as the foundation for this investment approach. They

are as follows:

• Focus on the long term.

• Investment confers proportionate ownership of the business.

• Maintain a margin of safety.

• Maintain a balanced outlook on the market.

• Disciplined approach to selling.

Debt Investments:

Debt securities (in the form of non-convertible debentures, bonds, deep discount bonds,

floating rate bonds, pass through certificates, asset backed securities, mortgage backed

securities etc.) include, but are not limited to-:

• Debt obligations of the government of India, state and local government,

Government agencies and statutory bodies (which may or may not carry a central/

state government guarantee).

• Securities that have been guaranteed by government of India and state

government.

• Securities issued by Public/private sector banks, developed financial institutions.

Money Market Instrument includes:

• Commercial Paper

• Commercial bills

• Treasury Bills

• Government securities having an unexpired maturity up to 1 year

• Call money

• Certificate of Deposit


Investment will be made through secondary market purchases, initial public offer, other

public offer, right offer (including renunciation) and negotiated deals. The securities

could be listed, unlisted, privately placed, secured/unsecured, rated/unrated of any

maturity.

The AMC retains the flexibility to invest across all the securities / instruments in Debt

and Money Market. Pending deployment of funds of the schemes in securities in terms of

the investment objective of the scheme, the AMC may invest the funds of the schemes in

short term deposits of the scheduled commercial banks.

HDFC Growth Fund (HGF):

HGF was launched on July 20, 2000.The initial offer period for the scheme end on

August 10, 2000. HGF has been open for ongoing sales and redemption since September

11, 2000.

HDFC Income Fund:

HIF was launched on July 20, 2000. The initial offer period of the scheme ended on

August 10th 2000. HIF has been open for on going sales and redemption since September

11, 2000. The objective of this scheme is to optimize returns while maintaining a balance

of safety, yield and liquidity. The scheme will retain the flexibility to invest in the entire

range of debt and money market instruments. The flexibility is being retained to ensure

adequate adjustment to the portfolio in response to a change in the risk to return equation

for asset classes under investments, with a view to maintain risks with manageable limits.

HDFC Long term Advantage Plan:

HTP is an open ended equity linked saving scheme (ELSS) was launched on Dec 26,

2000. The initial offer period for the scheme ended on December 27, 2000. HTP has been

open for ongoing sales and redemption since Jan 2, 2001. The particulars of the schemes

have been prepared in accordance with the Equity linked saving scheme, 1992 and Equity


linked savings (amendment) scheme, 1998 notification issued by the department of

economics Affair. Ministry of Finance, Govt. of India.

Five basic principles would serve as the foundation for this investment approach. They

are as follows:

Focus on the long term :

Investment confers proportionate ownership of the business.

Maintain a margin of safety.

Maintain a balanced outlook on the market.

Disciplined approach to selling.

Short Term Plan:

It is proposed to invest the proceeds of the short-term plan in sovereign securities issued

by the central govt. and state govt. with medium to long-term maturities

Long Term Plan:

It is proposed to invest the proceeds of the long –term plan in sovereign securities issued

by the central govt. and the state govt. with medium to long term maturities.

The scheme will purchase securities in the public offering as well as those traded in the

secondary market. On occasion if deemed appropriate, the scheme may also participate in

auction of govt. securities.

HDFC Income Fund:

HDFC Index fund was launched on July3, 2002. he initial offer period of the scheme

ended on July 10, 2002 . HDFC Index fund has been open for ongoing sales and

redemption since July 19, 2002.


The Sensex plan and nifty plan will be managed passively with investments in stock in

proportion that is as close as possible to the weightages of these stocks in the respective

indices. The investment strategy would revolve around reducing the tracking error to the

least possible through regular rebalancing of the portfolio, taking into account the

changes in weights of stocks in the indices as well the incremental collections/

redemption from these plans.

HDFC Equity Fund:

On July 19, 2003, the schemes migrated from Zurich India Mutual Fund to HDFC Mutual

Fund. In order to provide long term capital appreciation, the schemes will invest

predominantly in growth companies. Companies selected under this portfolio would as

far as practicable consist of medium to large sized companies which:

• Are likely to achieve above average growth than the industry;

• Enjoy distinct competitive advantages ; and

• Have superior financial strengths

The aim will be to build a portfolio, which represents a cross-section of the strong growth

companies in the prevailing market. In order to reduce the risk of volatility; the schemes

will diversify across major industries and economic sector.

The scheme may also invest up to 25% of net assets of the scheme in derivatives such as

Futures & Options and such other derivative instruments as may be introduced from time

to time for the purpose of hedging and portfolio balancing and other uses as may be

permitted under the regulations.

The scheme may also invest in the part of its corpus, not exceeding 40% of its net asset,

in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity,

bonds in mutual funds and such other instruments as may be allowed under the

regulations from time to time.


HDFC Top 200 Fund:

On June 19, 2003, the scheme migrated from Zurich India mutual fund. The investment

strategy of primarily restricting the equity portfolio to the BSE 200 Index scripts is

intended to reduce risk while maintaining the steady growth. Stocks specific risk will be

minimized by investing only in those companies/ industries that have been thoroughly

researched by investment manager’s research team.

Risk will also be reduced through the diversification of the portfolio. The scheme may

also invest a part of its net assets, not exceeding 40% of its net assets, in overseas market

GDRs, ADRs, overseas equity, bonds, mutual funds and such other instruments as may

be allowed under the regulations from time to time. If the investment in equities and

related instruments fall below 65% of the portfolio of the scheme at any point of time, it

would be endeavored to review and rebalance the composition

HDFC Capital Builder Fund:

On June 19, 2003 the scheme migrated from Zurich India mutual Fund to HDFC Mutual

Fund. The scheme may also invest up to 25% of net assets of the scheme in derivatives

such as Future Options and such other instruments as may be introduced from time to

time for the purpose of hedging and portfolio balancing and other uses as may be

permitted under the regulations and guidelines. The scheme may also invest a part of its

net asset, in overseas market in GDR, ADR, overseas equity, bonds and Mutual Funds

and such other instruments as may be allowed under the regulations from time to time.

HDFC Tax Saver:

On June 19, 2003 the scheme migrated from Zurich India mutual Fund to HDFC Mutual

Fund. The objective of the scheme is to achieve long term growth of capital. The funds

collected under the schemes shall be invested in equities, cumulative convertible

preference shares and fully convertible debentures and bonds of companies.


The scheme may also invest up to 25% of net assets of the scheme in derivatives such as

Future Options and such other instruments as may be introduced from time to time for the

purpose of hedging and portfolio balancing and other uses as may be permitted under the

regulations and guidelines. The scheme may also invest a part of its net asset , in overseas

market in GDR, ADR, overseas equity, bonds and Mutual Funds and such other

instruments as may be allowed under the regulations from time to time. It shall be

ensured that funds of the scheme shall remain invested to the extent of atleast 80%in

securities.

HDFC Prudence Fund:

The inception date of the scheme is February 1, 1994. The investment in the scheme will

comprise both debt and equities. The scheme would invest in debt instruments such as

government bonds, preference shares, quasi government bonds, preference shares and

equity shares. In the long term, the mix between the debt instruments and equity

instruments is targeted between 60:40 and 40:60 respectively. The exact mix will be a

function of interest rates, equity valuation, reserves position and risk taking capacity of

the portfolio.

The scheme may also invest up to 25% of net assets of the schemes in derivatives from

time to time for the purpose of hedging and portfolio balancing and other uses as may be

permitted under the regulations and guidelines. If the investment in equities and related

instruments fall below 40% of the portfolio or rises above 60% of the portfolio of the

schemes at any point in time, it would be endeavored to review and rebalance the

composition

HDFC Core and Satellite Fund :

The inception date of this scheme is 17th September 2004. it is an open ended growth

scheme and the objective of the scheme is to generate capital appreciation through equity

investments in companies whose shares are quoting at prices below their true value.


Income distributed by the scheme will be exempted from the income tax in the hands of

investors. Distribution tax in the case of the scheme shall be payable by the Mutual Fund

at the rate of 14.025% (including surcharge and education cess) on income distributed to

any other investor.

HDFC Mutual Fund Centers in India


DATA ANALYSIS

AND INFERENCES


Profession * Aware of Mutual Fund Cross tabulation

Aware of Mutual Fund No Yes Total

Engineer 11 62 73 Doctor 4 43 47

Profession

Other Service Class 14 66 80

Total 29 171 200

Inference:

Out of 200 respondents, 86% of them are aware of mutual finds. Among them it

is found out that Doctors and Engineers are most aware of mutual funds (In percentage

terms, 91% Doctors, 85% Engineers). The awareness level of other Service class people

is relatively low leaving those who are associated with financial Institution (LIC, Bajaj

Allianz, Standard Charted Insurance).

Count

Engineer Doctor Other Service ClassProfession

0

10

20

30

40

50

60

70

Count

Aware of Mutual Fund

NoYes

Mutual Fund Awareness among Different Profession


Income Slab * Aware of Mutual Fund Cross tabulation Aware of Mutual Fund Total

No Yes Income Slab

0-1 Lac 5 14 19

1-2 Lac 14 49 63 2-3 Lac 7 64 71 Above 3

Lac 3 44 47

Total 29 171 200 Inference:

From the above graph, it can be interpreted that maximum people of various

income slab group are aware of mutual funds. More specifically people belonging to

income slab group of Above 3 Lac are much aware than other income slab group this can

be attributed to the fact that these people to some extent have invested some amount of

money in various fund (74% people of income slab group of 0-1 Lac, 78% people from

income slab group of 1-2 Lac, 90% people from income slab of 2-3 Lac and 94% people

from income slab group of Above 3 Lac are aware). Above 3 Lac income group should

be targeted.

Count

0-1 Lac 1-2 Lac 2-3 Lac Above 3 LacIncome Slab

0

10

20

30

40

50

60

70

Count

Aware of Mutual Fund

No Yes

MF Awareness in Various Income Slab


Saving Percentage Slab * Percentage Invest in MF's from Saving Cross tabulation

Percentage Invest in MF's from Saving 1-15 15 -30 30-45 45 and Above Total

1-15 24 2 0 0 2615-30 29 3 0 1 3330-45 17 2 3 0 22

Saving Percentage Slab

45 and Above 3 3 1 0 7Total 73 10 4 1 88

Inference:

From the above graph, it can be interpreted that only 44% of people are

investing in mutual funds. Further it is found that people belonging to various income

slab group are mainly investing in slab of 1-15 % in mutual fund from their saving and

maximum investment in mutual fund is made by people of income slab group of Above 3

Lac.

45 and Above 30-4515-301-15

Saving Percentage Slab

30

25

20

15

10

5

0

Count

Saving Slab Vs Percentage Investment in MF’s

45 and Above 30-4515 -301-15

Percentage Invest in MF's from Saving


Inference:

On the basis of survey it is found that in sample of 200 people, 71% people

found that investing in mutual fund is beneficial and approximately 23% said against it

and 7% of people have no idea about this matter. One of the reasons of such a positive

opinion is continuous growth in economy and high returns from mutual funds.

Frequency Percent Valid Percent Cumulative Percent

Valid No 45 22.5 24.1 24.1 Yes 142 71.0 75.9 100.0 Total 187 93.5 100.0 Missing System 13 6.5 Total 200 100.0

NoYesMissing

Is MF's Beneficial


Preferred Investment Pattern

Frequency Percent Valid Percent Cumulative Percent

Valid Short Term 62 31.0 32.6 32.6 Long Term 128 64.0 67.4 100.0 Total 190 95.0 100.0 Missing System 10 5.0 Total 200 100.0

Inference:

In this study, it is found that maximum people in sample prefer to long term

investment because in their opinion in long term (period of more than 1 year) sudden

market fluctuations does not affect their capital. 31% people prefer to invest their money

in short term (period of less than 1 year) because they are the mainly those people who

like to invest in stock market to get quick return.

Short TermLong TermMissing

Preferred Investment Pattern


Profession * Tax Rebate Information Cross tabulation

Tax Rebate Information

No Yes Total Engineer 13 60 73 Doctor 6 41 47

Profession

Other Service Class 3 77 80

Total 22 178 200

Inference:

It is found that maximum people of target group are aware that mutual fund

investment offers tax rebate under section 80C (ELSS). It is found that other service class

peoples are much aware compare to Doctors and Engineers. Nearly 89% person is aware

of this information and is one of the major reasons to opt for mutual funds.

Engineer Doctor Other Service ClassProfession

0

20

40

60

80

Count

Tax Rebate Information

NoYes

Tax Rebate Information Vs Profession


Analysis of Investment pattern of different Professional Group

0

20

40

60

80

100

FD LIC PO Gold RealEstate

StockMarket

Investment Options

Perc

enta

ge o

f Diff

eren

t P

rofe

ssio

nal G

roup

OthersEngineerDoctor

Inference:

The above graph shows the investment pattern of different professional group.

From this can infer that, all groups prefer to invest in LIC’s and FD’s followed by post

office and for remaining options stock market has an edge, that is clearly showing that

people prefer safe options for their investment. People get tax rebate through investment

in LIC’s that’s why it is the most preferable option for them. The risk factor involved

with mutual funds is one of the major reasons for people not opt for mutual funds.


Investment pattern of Doctors

66

89

269 17 19

020406080

100


StockMarket

Investment Options

Perc

enta

ge o

f Doc

tors

Inference:

From the above graph, it was found that the most preferable investment option

for Doctors is LIC followed by FD and then Post Office. After these options Doctor opts

for stock market as next preferable investment option because they are aware from the

market and they want fast returns. The amount spent on these options depends on amount

of risk involved.


Investment pattern of Engineers

47

82

36

4 312

0102030405060708090


StockMarket

Investment Options

Perc

enta

ge o

f Eng

inee

rs

Inference:

From the above graph, it was found that the most preferable investment option

for Engineers is LIC followed by FD and then post office. Stock market is next

preferable investment option for them because they are aware from the market and they

want fast returns. It was found that investment pattern of Engineers is very much similar

to that of Doctors as they are highly educated person in the society.


Investment pattern of Other Service class

38

75

31

13 1019

01020304050607080


StockMarket

Investment Option

Per

cent

age

of O

ther

se

rvic

e cl

ass

peop

le

Inference:

Their investment pattern is similar to other professional groups. But in compare

of other two groups they are investing more in gold. Rise in percentage of investor of

Stock market and gold in this group is mainly due to those people who are working in

financial institution.


Awareness of Different Mutual Funds

149 131 12794

142

53

148

51 69 73106

58

147

52

0%10%20%30%40%50%60%70%80%90%

100%

ICIC

I MF

Relianc

e MF

UTI MF

Tata M

F

SBI MF

Franklin

Temple

ton M

F

HDFC MF

Various Mutual Funds

Perc

enta

ge o

f Res

pond

ents

UnawareAware

Inference:

From the above graph, it is found that people of sample are much aware of

ICICI MF, followed by HDFC MF; this is mainly due to the good performance of these

two mutual funds in the past. SBI mutual fund is also popular among the people as State

Bank of India has recognized name in India. Since UTI being the oldest mutual fund

launched in India so its awareness is quite common. Reliance, Tata and Franklin

Templeton mutual funds are new in the market but their awareness in market is also

good.


Investors vs Non-Investors of Mutual Funds

36%

5%

2%

1%

56%

01-15%15-30%30-45%45% and AboveNot Investing

Inference:

In this study, only 44% people are investing in mutual funds and 56% are not.

It is mainly because people don’t have proper information about mutual funds. Only 36%

of total group i.e. major part of investors are investing in 1-15% slab of their saving in

mutual fund.


SUMMARY


When UTI Mutual Fund first came into being as a separate entity on February 1, 2003,

the sponsors, namely SBI, Punjab National Bank, Bank of Baroda and LIC, had only

contributed the bare legal minimum of Rs 2.5 crore each towards the company's capital.

Now, after paying the full value of the organisation to the Government of India, they are

the complete owners of the UTI Mutual Fund. This has had three implications. With

effect from the date of the deal, UTI Mutual Fund has become a completely privately

owned fund, with no government role.

Second, none of the employees, directors, sponsors will be on our Board, from now on.

This makes them a completely independent professionally-run mutual fund house.

In a summarize way it can be said that, maximum people are aware of various mutual

funds and they also know that they can get quick and high return from mutual funds in

compare of Bank FD’s and LIC’s. As the people don’t have full information about

mutual fund and they also don’t know about portfolio. So they think that it is a risky

mode, thereby they are not opting for mutual funds. One reason of less investment from

Government Employees is that they have already invested their money in PPF and GPF

which is not taken as risky investment, and the other reason for not considering mutual

funds as a investment option is because of past incidence related to mutual funds frauds

(UTI scam).

UTI had been in the limelight for all the wrong reasons. What went wrong with its

investment strategy?

In the wake of the freeze of US-64 scheme and certain developments that followed it, a

perception gained that the entire shortfall was due to something wrong that had happened.

It took about eight months for the company to go to the Government and convince

various layers of it about what the shortfall was about. The economic changes in the last

decade had an impact on the fund's performance.


The major reason was that the company promised more than what anybody could ideally

return. It is difficult to promise high return of up to 12 per cent year after year when the

products are equity-based. Nearly 62 per cent of the shortfall was because of `mis-

pricing'.

Roughly 19 per cent of the shortfall was due to equity's underperformance. In the last

four years, the equity market has been rather flat.

When 20-30 per cent of the portfolio consisted of equities in plans like US-64 and when

that investment does not earn, it impacts the overall return.

Around 7-8 per cent of shortfall was due to the NPAs, which have crept into many of our

funds and high-risk investments accounted for 3-4 per cent.

Today, UTI is a world class organisation in terms of an AMC and have introduced a five-

layer approach in asset management business — advisory, decision making, dealing

rooms, NAV and back office compliance which is headed by an officer from the RBI.

And all the five layers report directly to the Chairman.


RECOMMENDATIONS AND

CONCLUSIONS


The Mutual Fund as an option of investment is popular among the investors; in the

sample of 200, 86% people are aware of mutual funds .This awareness varies

according to various income groups and profession. This Profession group includes

Doctors, Engineers, and other service class people. In which 91% Doctors, 85%

Engineers and 83% other service class people are aware of mutual funds. But it was

found that only 44% people are investing in mutual funds and in that maximum of

them are investing only 1-15 % of their saving, in mutual fund.

Also in this study, 71% people said that investing in mutual fund is beneficial and

they prefer Long term Investment (period of more than 1 year) than short term

Investment (period of less than 1 year). After this study, it was found that nearly 89%

people are aware of the tax benefit provided by mutual fund.

Also, it was found that people are much aware of ICICI Mutual fund and HDFC

Mutual fund in private sector and SBI and UTI in public sector and many of them are

aware of the emerging mutual fund like Tata mutual fund, Reliance mutual fund.

Finally, after the study it was found that all the three groups likes to invest more in

LIC and Bank FD’s and they consider mutual fund as a risky option to invest.

Learning Outcomes

• Level of Awareness : From the interaction with the people it was observed that

people do have general awareness about mutual funds, the risk involved and high

return but there is a lack of in depth product knowledge ,so, various promotional

programs so be undertaken to increase the knowledge of end customer.

• Perception about Mutual Fund: The general perception about mutual funds is that

they are risky. Risk involved with mutual funds scores more than the returns

which is providing hindrance to Mutual Fund Popularity. Past incidence such as

UTI Scam adds to negative perception about mutual funds. Mutual fund should be

marketed as High Return and Low risk Investment option.

•


• Target Age Group: After interacting with people a trend is being observed. People

above 35 years of age tend to avoid risk thereby opt for investment options such

as FD’s , Post Office, PPF, GPF .In short opt for low risk investment options

,whereas people within age group 22- 35 are more eager to take risk for high

returns, so this age group should be targeted.

• For any AMC, it is very necessary to improve their Distribution Channel and sales

practices in order to increase more and more investment. For this, company needs

to make their distributor aware of Information Technology in order to act quickly

and empower themselves with the growing power of Internet. Net based

marketing has the potential to be highly relevant, personalized and productive.

• Mutual Fund development needs better and more attractive incentives.

• Entry load in Mutual Fund (2.25%) is much higher and it should be reduced.

• Income Tax provisions are complicated in case in mutual funds which needs more

clarifications as well as relaxations.

• Tax structure should be rationalized so as to promote saving.

• Lock-in period for the tax saving scheme should be minimized, liquidity should

be increased.


BIBLIOGRAPHY


www.google.com

www.uti.com

www.hdfc.com


APPENDIX


Questionnaire Personal Information

Name:

Profession:

Address:

Contact No.:

Income Slab:

0-1 lac 1-2 lac 2-3 lac Above 3 lac

Investment Information

1. In which Financial Instruments you are investing your money?

Bank FD's Gold Others( Specify)

LIC Real Estate

Post Office Share Market 2. Are you aware of Mutual Funds?

Yes No 3. If yes, Among the following, which companies you are aware of

ICICI Mutual Fund

SBI Mutual Fund

Reliance Mutual Fund Templeton Mutual Fund

UTI Mutual Fund HDFC Mutual Fund

Tata Mutual Fund Other Which companies do you think are the most preferred ones?...........................

4. How much percentage of your earning, you save …………%.

5. How much of your saving, you invest in Mutual Fund (approx.)………..%.

6. Do you think investing in Mutual Fund is beneficial?


Yes No

7. Which mode do you think is more beneficial

Short term Investment Long term Investment 8. Are you aware that Mutual Fund investment offers tax rebate under Section

80C(ELSS)

Yes No 9. Comment/Suggestions……………………………………………………….

saptarshi banerjee strategies of uti and hdfc mutual funds

Documents

hdfc mutual funds

owners of mutual funds

icici prudential mutual

indian mutual fund industry

research project

awareness level of mutual

bangalore date

guidance of