A

PROJECT REPORT

ON

“VICTORY PORTFOLIO LIMITED”

{Investor Behavior on Stock Market}

A Project Report

Submitted in the partial fulfillment of the requirement for the award of the Degree of Bachelor of Business Administration

 Submitted By:                                                     Under the Guidance  

___________________

BHARATI VIDYAPEETH UNIVERSITY

INSTITUTE OF MANAGEMENT & RESEARCH, NEW DELHI

An ISO 9001:2000 Certified Institute

PREFACE

A brief cursory look of any economy will definitely and easily point out the significant role played by the financial system. As a matter of fact, the financial works as it were or something sort of nucleus. It is a trust that pools the savings, which are then invested in capital market instruments such as share, debentures and other securities. It works in a distinctively different matter as compared to other saving organization such as banks, national savings, post offices, non-banking financial companies etc.

Market is full of uncertainty and on the top of that new event is adding up to the fuel. Take the output trend in infrastructure and industry.

The stock market have bid farewell to badla system and have introduced sophisticated finance products and other options of investments that are giving right to the holder to buy or sell units at a predetermined rates.

I have made an attempt to evaluate the performance of mutual funds among various categories of investors in different plans and schemes, which are distributed by VICTORIA PORTFOLIO LIMITED   AMC.

ACKNOWLEDGEMENT

I would like to take this opportunity to thank ______________, my project guide, Director Dr. S.S.Verenekar, for their continuous guidance and support and for making me comfortable without which this project would not have materialized.

I would also like to thanks to …………….., Asst. sales manager, VICTORIA PORTFOLIO LIMITED   Mutual Fund for extending valuable support and providing me vital information on investment market.

Finally, I would express my gratitude to distributor …………….. for helping me throughout my project.

                                                        __________________

CONTENTS

PREFACE

ACKNOWLEDGEMENT

CHAPTER -        1        1.0 INTRODUCTION

                        1.1 Overview of Indian Mutual Fund Industry

                        1.2 Profile of victory portfolio limited  

1.3 Problems of the Organization

1.4 Competitor’s Information

1.5 SWOT Analysis

CHAPTER –2        2.0 CONCEPTUAL DISCUSSION

                                2.1 Theoretical backdrop and Literature Review 

                                2.2  Investors behaviour 

CHAPTER –3        3.0 OBJECTIVES AND METHODOLOGY

                        3.1 Significance of the Study

                        3.2 Managerial Usefulness of the Study

                        3.3 Objectives

                        3.4 Scope of the Study

3.5 Methodology

CHAPTER –4        4.0 DATA ANALYSIS AND INTERPRETATIONS

CHAPTER –5        5.0 FINDINGS AND RECOMMENDATIONS

ANNEXURES

Chapter-1

Introduction of report

1. Overview

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases:-

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.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.

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)-  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. 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 assets under management and with the setting up of a 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.

                                        1.2 PROFILE

INDUSTRY PROFILE

Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being open-ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes.

The second largest category of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn.

The third largest category of mutual funds are the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn.

VICTORY PORTFOLIO LIMITED  GROUP PROFILE

Victory portfolio limited is one of India’s leading Mutual Funds agency with Average Assets Under Management (AAUM) of Rs. 10,451 thousand and an investor count of over 720.  

Victory portfolio is one of the fastest growing mutual funds in the country. Victory portfolio offers investors a well-rounded portfolio of products to meet varying investor requirements. Victory portfolio limited constantly endeavors to launch innovative products and customer service initiatives to increase value to investors.

Victory portfolio limited is owned by Promod goel who is the director of the company. it is listed in NSE in 1980. Its SEBI REGISTRATION NO.= INB230781930

Vision of the group is that to make money for all the clients and to reduce risk.

Mission is to make victory port folio the largest mutual fund in the world

 1.3 Problems of the organization

1. Less Number of employees in the organization to cater market needs.
2. Low promotional activities.
3. Highly dependent on distributors and brokers for business.
4. Increasing competition.
5. Communication gap between the distributor/broker and organization.

1.4 Competitor’s Information

Some of the AMCs operating currently are:

Competition in mutual fund industry:

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

1.5 SWOT ANALYSIS

Strengths

• Premiere market image
• Largest distributor of Mutual Fund
• Largest corpus of Mutual Fund
• Wide range if investment products
• Committed staff
• Satisfied customer
• Wide range of portfolio in investment

Weakness

• Declining customer service
• Low awareness and usage levels of a few schemes can disappoint the investors
• Limited investment centers
• Slow processing
• Lack of skilled consellor of investment products
• Due to wide range of products, lack of focus towards any particular product

Threats

• Increasing number in new Mutual Fund floaters
• Highly competitive market in distribution
• Stagnant urban demand
• Highly volatile market
• Unawareness of investors can spoil the image of AMC
• Low commission to investors like agents as well as individuals can loose their customer base.

Opportunity

• By providing all investment products at one stop can keep them on top on distribution
• By giving more commission to investors, customer base can be increased at other distributors
• Educate the investors about the portfolio management se as to increase their database of investors
• Victoria Portfolio Limited  can open new investment centers in small cities or new upcoming economic zones.

Chapter 2

Conceptual

discussion

 CHAPTER 2: conceptual discussion

INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. 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 (pro rata). 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 portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations.

A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund.

In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. E.g. VICTORIA PORTFOLIO LIMITED   Sons Ltd. and VICTORIA PORTFOLIO LIMITED   Investment Corporation Ltd. are the sponsors of the VICTORIA PORTFOLIO LIMITED   Asset Management Company Ltd. which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.

Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.

Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

HOW IS A MUTUAL FUND SET UP?

⇒Is set up in the form of a trust, which has sponsor, trustees, asset Management Company (AMC) and custodian.

⇒The trust is established by a sponsor or more than one sponsor who is like a promoter of a company.

⇒The trustees of the mutual fund hold its property for the benefit of the unit holders.

⇒Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities.

⇒Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody.

SPONSOR

What a promoter to a company, a sponsor is to a mutual fund. The sponsor initiates the idea to set up a mutual fund .It could be a financial services company, a bank or a financial institution. It could be Indian or foreign. It could do it alone or through a joint venture. In order to run a mutual fund in India, the sponsor has to obtain a license from SEBI. For this, it has to satisfy certain conditions, such as on capital and profits, track record(at least five years in financial services),default-free dealings and a general reputation for fairness.

Like the company promoter, the sponsor takes big-picture decisions related to the mutual fund, leaving money management and other such nitty-gritty to the other constituents, whom it appoints. The sponsor should inspire confidence in you as a money manager and, preferably, be profitable. Financial muscle, so long as it is complemented by good fund management, helps, as money is then not an impediment for the mutual fund-it can hire the best talent, invest in technology, and continuously offer high service standards to investors.

In the days of assured return schemes, sponsors also had to fulfill return promises made to unit holders. This sometimes meant meeting shortfalls from their own pockets, as the government did for UTI. Now that assured return schemes are passé, such bailouts wont be required. All things considered, choose sponsors who are good money managers, who have a reputation for fair business practices, and who have deep pockets.

ASSET MANAGEMENT COMPANY (AMC)

An AMC is the legal entity formed by the sponsor to run a mutual fund. It’s the AMC           that employs fund managers and analysts, and other personnel. It’s the AMC that handles all operational matters of a mutual fund-from launching schemes to managing them to interacting with investors.

The people in the AMC who should matter the most to you are those who take investment decisions. There is the head of the fund house, generally referred to as the chief executive officer (CEO). Under him comes the chief investment officer (CIO),who shapes the fund’s investment philosophy, and fund managers, who manages its schemes. They are assisted by a team of analysts,  who track markets, sectors and companies.

Although, these people are employed by the AMC, its you, the unit holder, who pays their salaries, partly or wholly. Each scheme pays the AMC an annual ‘fund management fee’, which is linked to the scheme size and results in a corresponding drop in your return. If a scheme’s corpus is up to Rs.100 crore it pays 1.25% of its corpus a year; on over Rs.100 crore, the fee is 1% of corpus. So, if a fund house has two schemes, with a corpus of Rs.100 crore and Rs.200 crore respectively, the AMC will earn Rs.3.25 crore(1.25+2) as fund management fee that year.

If  an AMC’s expenses for the year exceed what it earns as fund management fee from its schemes, the balance has to be met by the sponsor. Again, financial strength comes into play: a cash-rich sponsor can easily pump in money to meet short falls, while a sponsor with less financial clout might force the AMC to trim costs, which could well turn into an exercise in cutting corners.

TRUST

• The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act,1882 by the Sponsor. The trust deed is registered under the Indian Registration Act,1908.

TRUSTEES

Trustees are like internal regulators in a mutual fund, and their job is to protect the interests of unit holders. Trustees are appointed by sponsors, and can be either individuals or corporate bodies .In order to ensure they are impartial and fair, SEBI rules mandate that a least two-thirds of the trustees be independent-that is,not have any association with the sponsor.

 Trustees appoint the AMC, which, subsequently, seeks their approval for the work it does, and reports periodically to them on how the business being run. Trustees float and market schemes, and secure necessary approvals. They check if the AMC’s investments are within defined limits and whether the fund’s assets are protected. Trustees can be held accountable for financial irregularities in the mutual fund.

CUSTODIAN

A custodian handles the investment back office of a mutual fund. Its responsibilities include receipt and delivery of securities, collection or income, distribution of dividends, and segregation of assets between schemes. The sponsor of a mutual fund cannot act as a custodian to the fund. This condition, formulated in the interest of investors, ensures that the assets of a mutual fund are not in the hands of its sponsor. For example, Deutsche Bank is a custodian, but it cannot service Deutsche Mutual Fund, its mutual fund arm.

REGISTRAR

Registrars, also known as transfer agents, handle all investor-related services.This includes issuing and redeeming units, sending fact sheets and annual reports. Some fund houses handle such functions in-house. Others outsource it to registrars;Karvy and CAMS are the more popular ones.It doesn’t really matter which model your mutual fund opt for, as long as it is prompt and efficient in servicing you. Most mutual funds, in addition to registrars, also have investor service centers of their own in some cities.

Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure:

Open-ended Funds

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.

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 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 to 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.

By Investment Objective:

Schemes can be classified by way of their stated investment objective such as Growth Fund, Income Fund, Balanced Fund etc.

Growth Funds

The aim of growth funds 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 returns from stocks, have outperformed most other kind of investments 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 earning 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 ideal 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 safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. 

Other Schemes:

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes

• Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

• Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50.NAV’s of such schemes rise or fall in accordance with the rise or fall in the index,though not exactly by the same percentage due to some factors known as “tracking error” in technical terms.

• Sectoral Schemes

These schemes restrict their investing to one or more pre-defined sectors, e.g. technology sector. Depending upon the performance of select sectors only, these schemes are inherently more risky than general-purpose schemes.They are suited for informed investors who wish to take a viewand risk on the concerned sector.

Benefits of Mutual Fund investment

Professional Management

Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential

Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs

Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

Transparency
You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

Net Asset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below.

Asset value is equal to

Sum of market value of shares/debentures

+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

Details on the above items

For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded

For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation.

Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date.

Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued".

Expenses including management fees, custody charges etc. are calculated on a daily basis.

Mutual Funds in India (1964-2000)

The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it.

UTI commenced its operations from July 1964 .The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter capital market.
The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth.
The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small."

His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors.

UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust.

One thing is certain – the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs1130bn.

The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debut in 1993-94, the stock market was booming.

The opening up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the host of domestic players join the party. But for the equity funds, the period of 1994-96 was one of the worst in the history of Indian Mutual Funds.

1999-2000 Year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF’s. This time around all the participants are involved in the revival of the funds from the AMC’s, the unit holders, the other related parties. However the sole factor that gave lifr to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later.

It provided centrestage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business which would mean to increase asset base, and to get asset base and investor base they had to be fully armed with a whole lot of schemes for every investor .So new schemes for new IPO’s were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI)

One cam say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions.

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.

Banks Vs Mutual Funds

Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds indicates that money is going to mutual funds in a big way.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change.

This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.

Budget 2005-2006 and Mutual Funds.

A new Section 80(C) is proposed to be introduced in the Income Tax Act. Investments up to Rs.1, 00,000 in any of the investment options listed under this Section, are eligible to be deducted from the taxable income. The options are the same as found in erstwhile Section 88,with the flexibility for the government to increase the list of eligible investments through gazette notification. The tax saving scheme of the mutual funds is one of them. This deduction is available to all assesses who are individuals and HUFs, including those that are today having a gross total income over Rs.5, 00,000 and therefore ineligible for Section 88 rebate. If we assume that about half of the 3.5 crore income tax payers are likely to make this investment, and about 50% of that investment comes into tax saving schemes, we are looking at a market of rs.87,500 crore.

Section 80(L) is slated to go. 80(L)earlier allowed a deduction of Rs.15000(12000+3000 exclusive for G-secs).This means interest earned on bank deposits, government securities, post office deposits and MIS, are all now taxable. Only PPF will continue to earn tax-exempt incomes. While investment in savings schemes earlier eligible for 80(L) are now under the new Section 80(C),the taxability of income is something investors will care about when they compare products. The effective post tax return from many of these schemes will now be lower. For example, the post tax return on the post office MIP will be 5.6% with 2.4% payable as tax(which can get higher including surcharge and cess).The reduction in the competitive rate of return for a number of debt products is a big opportunity for debt funds.

Gold ETFs is a new opportunity for mutual funds. We can now offer units, whose value is linked to the gold prices, thus enabling a liquid and market linked manner of investing in gold. The dividends of the gold fund will be tax exempt, as it comes from mutual fund, though the government is likely to impose a dividend distribution tax on the product. According to the World Gold Council, India has the largest hoard of private gold in the world,90% of it as jewellery, estimated at over 15,000 tons, and the retail buyer in India represents 25% of annual gold demand in India is from the rural segment. World Gold Council acknowledges that Indian gold demand is rooted in viewing jewellery as an investment, and even poor Indians aspire to buy gold with their savings. About Rs.7000 crore is invested in gold by the Indian household every year.

The budget proposes a uniform stamp duty for CPs, except that it mentions uniform across “issuers” whereas the differential stamp duties also apply for “investors”. While banks pay a stamp duty ranging from 0.012% to 0.4% (depending on maturity),non-banks pay 0.06% to 0.5%.If this difference is also removed, mutual funds will be able to buy CPs directly from issuers, rather than the present practice of banks buying them out and then re-selling to mutual funds. The lower costs due to lower stamp duties, and the ability of mutual funds to directly negotiate rates with the issuer, should be positive for short-term funds that buy CPs.

Asset backed securities market has grown quite significantly in the last few years, and automobile loan receivables, home loans and such credits have been securitised by banks. The budget now makes it possible to list and perhaps trade on these assets backed securities, now that ABS is being included in the list of securities under the SCRA. That in itself may not create liquidity in the instrument, but is a positive for the ABS markets that should see higher volumes. Larger investible universe for debt funds, if that happens.

Other minor developments:                                                                                                      

⇒The inclusion of funds under the STT has not happened.

⇒NRI deposits continue to be tax exempt. The large shift to MFs not expected to materialize.

⇒TDS for NRIs on STCG from equity funds, remains unchanged at 33.6%

⇒Corporates now subject to 10% SC, which increases DDT on debt funds to 22.4%.

 Core point:

The budget has ingeniously moved investors away from administered rate products and debt products, to a wider range of products, most importantly portfolio products like mutual funds, annuities and pension products. This is sensible because there is no one-size-fits-all in financial product choice. To have extended this to all tax payers, makes it possible for many new investors to consider these products, market expansion for players like us. The relative attractiveness of investment choices has changed and higher allocation to long-term tax advantaged investment is finally here.

Regulatory Aspects

Schemes of a Mutual Fund

• The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board.

• Every mutual fund shall along with the offer document of each scheme pay filing fees.

• The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution".
• The mutual fund and asset management company shall be liable to refund the application money to the applicants,-

(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation (1).

• The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.  

Rules Regarding Advertisement:

• The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.

Investment Objectives And Valuation Policies:

• The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.

General Obligations:

• Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained.

• The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule.
• Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.

Procedure For Action In Case Of Default:

• On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.

Restrictions On Investments:

• A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset Management Company.
• A mutual fund scheme shall not invest more than 10% of its NAV in un-rated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset Management Company.
• No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights.
• Such transfers are done at the prevailing market price for quoted instruments on spot basis.

The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.

• A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate inter scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.
• The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme.
• Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it
  has to make short sale or carry forward transaction or engage in badla finance.
• Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature.
• Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks.
• No mutual fund scheme shall make any investment in;

1.           Any unlisted security of an associate or group company of the sponsor; or
2. Any security issued by way of private placement by an associate or group company of the sponsor; or

The listed securities of group companies of the sponsor, which is in excess of 30% of the net assets [of all the schemes of a mutual fund]

• No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme.
• A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.

COMPARISON OF INVESTMENT PRODUCTS

Investors behavior

Investors behavior means the behavior of investor when he invest in any kind of stock, commodity and property for an appropriate return is called as investors behavior.

Things that judge the behavior of investor are:

• Facts
• Theory’s
• Mental status
• Profit and Loss
• Over confidence

1. Facts – A piece of information which has already occurred in the past. It tells the investor that what will happen in the future by foreseeing the past events.
2. Theories – A well substantial explanation of some aspect of natural world.

Example – Recession which occurs after a period of time which gives opptunity to some and gives threat to others.

3.  Mental status – A mental status which guide a person to take risk and earn profit in the stock market.
4. Profit and loss – it is the main aspect which bring a person to stock market for taking chances and earn profit but if luck don’t help investor lands making loss.
5.  Over confidence – it is the major enemy of an investor which leads him ending into trouble and leads to losses.

Conclusion - Behavioral finance certainly reflects some of the attitudes embedded in the investment system. Behaviorists will argue that investors often behave irrationally, producing inefficient markets and mispriced securities - not to mention opportunities to make money. That may be true for an instant, but consistently uncovering these inefficiencies is a challenge. Questions remain over whether these behavioral finance theories can be used to manage your money effectively and economically. (To continue reading on behavioral finance, see taking A Chance On Behavioral Finance.)

That said, investors can be their own worst enemies. Trying to out-guess the market doesn't pay off over the long term. In fact, it often results in quirky, irrational behavior, not to mention a dent in your wealth. Implementing a strategy that is well thought out and sticking to it may help you avoid many of these common investing mistakes.

Chapter 3

Research

Methodology

CHAPTER 3: OBJECTIVES AND METHODOLOGY

                                                       3.1 Significance

        Significance of the project is to find out prospect investors of Victoria Portfolio Limited  Mutual Funds investment centers in Delhi and also to provide key information about the investors perception and preferences by Mutual Fund industry. The study helps the Victoria Portfolio Limited  in getting information about their performance at other distributors as well as at their own investment center or why people go for Victoria Portfolio Limited  Mutual Fund for investments. Study also helps in finding out the problems related to distribution.

                                      3.2 Managerial Usefulness of study

1. From the study, VICTORIA PORTFOLIO LIMITED  Mutual Fund will come to know about its prospective, individual as well as corporate clients in different areas.
2. The study provides the complete information about all close competitors in Mutual Fund investment so as to remain no. 1 investment service provider.
3. It provides the AMC a feedback from customers regarding their problems and perception about investing in Mutual Funds so that they can improve their services.
4. The study also provides the problems related to distribution of Mutual Fund so that they can improve the service rendered by them as a distributor.
5. The study also gives information about prospective investors both individual as well as institutional clients in areas of surrey where they can get lead.

                                             3.3 Objectives

1. To study the performance of VICTORIA PORTFOLIO LIMITED   Mutual Fund at other distributor’s end.
2. To compare the total sales in Mutual Fund’s of various companies in different schemes at VICTORIA PORTFOLIO LIMITED   Mutual Fund.
3. To compare the most popular and widely invested Mutual Fund schemes offered at VICTORIA PORTFOLIO LIMITED   Mutual Fund distribution outlet.
4. To find out prospective investors or leads in Mutual Funds for VICTORIA PORTFOLIO LIMITED  .
5. To analyze the major problems faced by the investors while accessing the VICTORIA PORTFOLIO LIMITED services and devise methods to improve the VICTORIA PORTFOLIO LIMITED services towards this service of distribution of different Mutual Funds.
6. To analyze the perception of investors by investing in different schemes of various Mutual Funds.
7. To analyze that what ails the Indian Mutual Fund Industry.

                                     3. 4  Scope of the study

1. In current scenario, the bank rates have been cut down rapidly due to severe competition, so people are not going for contemporary deposits because that cannot provide them. The better returns or the desired interest rates. So, they can look for some other investment options like Mutual Funds, which can provide them higher returns in short term and can easily meet their financial goals.
2. To look out for new prospective customers who are willing to invest in Mutual Funds.
3. Due to changing economic scenario the small new economic zones are emerging rapidly, so VICTORIA PORTFOLIO LIMITED   can look out for those small zones and can make available their all investment products by opening new investment centers.

      Limitations

1. To get the information about the performance of VICTORIA PORTFOLIO LIMITED   Mutual Fund at various distributors was very difficult, so very few of them revealed their sales record as well as total investments in all Mutual Funds hiding all other trade secrets as it was against their rule and regulations. Only close competitors are taken for comparison.
2. The survey was conducted in selective areas because of constraints of time and resource. Therefore the generalisability of the findings cannot be claimed until further research has been carried out.
3. The sample size is 120, which may not reflect a true picture of the investors objective. Because of these constraints, the analysis may not be accurate and may vary when tested among different category of investors in different plans among existing and new investors from different places like industrial as well as residential sectors.
4. Details on the precise nature of investors objective was limited. For example the measures used only captured certain information on standards that individuals had in mind as acceptable outcomes of their goal directed objective.
5. Also the research does not alicit subtle goals such as mood repair motives. So the possibility of personal biases of the respondents may not be precluded.
6. The situation in which a investor is questioned about routine actions is an artificial one at best. Due to the influence of questioning process, respondents may furnish quite different information from facts.
7. Thus, though the study is not conclusive in nature, it tends to explore the investors perception and ideas about the investment services of the VICTORIA PORTFOLIO LIMITED   Mutual Fund as a distributor of Mutual Fund.

3.5 Methodology

The project is divided into four stages. The included gathering information about the VICTORIA PORTFOLIO LIMITED   Mutual Fund profile, the various investment schemes available and other which launched by the AMC and getting acquainted with the system of distribution work of the VICTORIA PORTFOLIO LIMITED  . The second stage involved determining the objective of the study, knowing the target investors and drafting a questionnaire. The questionnaire was designed keeping in mind the target investors and their objectives of the investment in any plan. It was non-disguised in nature and included a few open-ended questions. Visits to residential areas of Delhi were made. Around 50% of the respondents surveyed were from patpargang area…etc.

The 3rd stage covers the conceptual study of the topic and 4th stage covers the data analysis, which leads to some findings and recommendations.

The further details of the survey are presented below:-

1. RESEARCH PLAN

The research conducted was exploratory in nature and the goal was to gather preliminary data to shed light on the real nature of problems faced by an invested and to suggest possible solutions or improved services provided by VICTORIA PORTFOLIO LIMITED   AMC. It involves getting a feel of the situation and lays emphasis on the discovery of ideas and possible insights.

2. DATA SOURCES

The research can call for gathering secondary data, primary data or both. Secondary data is the data that was collected from another purpose and already exists somewhere. Primary data is gathered for a specific purpose and is collected by the researcher himself from rout mapping or cold calls methods. The data used in this project is primary data collected from the various categories of investors from different areas. Secondary data available in monthly Mutual Funds review and AMFI latest issues, value research insight on Mutual Fund and product catalogues was also used in compiling the report.

3. DATA COLLECTION FORM

For the purpose of this project, a questionnaire was designed to collect data. The questionnaire was designed to collect data. The questionnaire was non-disguised because the objective and purpose was conveyed to the respondents by asking for their responses. The questions were structured open for general information and closed for collecting specific information.

4. SAMPLING PLAN

The sampling unit comprised of the people who were interested in the various investment plans in different Mutual Funds through the VICTORIA PORTFOLIO LIMITED   AMC. The sample size taken for the study was hundred twenty. The samples were chosen on the basis of random sampling and these investors belonged to different categories like corporates, agents, and individuals. The surveyed respondents belonged to the main types of aggressive investors conservative and moderate type in different age group.

The research was carried out in the following areas in Delhi:-

• Patparganj
• Lakshminagar etc etc..

Chapter 4

Data

analysis

Chapter-4: DATA ANALYSIS

The Graph indicates the growth of assets over the Year:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the specified undertaking of the UTI effective from Feb.2003.The AUM of the specified undertaking of the UTI has therefore been excluded from the total assets of the industry as a whole from Feb.2003 onwards.

Investor’s Perspective

Funds V/S other investment products

Perception of investors about Mutual Fund.

Interpretation

There is very strong approach towards the investment in Mutual Fund as the market is growing up rapidly in equity plans so around 70% praised Mutual Fund investment; 21% says good to get safe return from balanced of gilt funds, around 5% said that they had a bad experience with Mutual Fund investments, very few says that they have worst experience with Mutual Funds.

Type of investors

Interpretation:

Among various categories of investors, 66% are Aggressive which are ready to take the high risk. 17% of the investors are found to be slightly conservative in respect of Mutual Fund investments they don’t want to take any sort of risk they generally prefer to invest in gilt funds, 13% are moderate investors i.e. they want good return but without much risk so they prefer this kind of investments. Rest of them usually shifts to others frequently.

Shifting nature of the investors for better returns

Interpretation:

In survey, it was found that many investors can shift to other Mutual Fund form VICTORIA PORTFOLIO LIMITED   Mutual Fund in need of better returns but large number of them said that they’ll not shift because VICTORIA PORTFOLIO LIMITED   Mutual Fund has a better track record for the past period (however past record is not the bare of selecting any Mutual Fund) it has the largest corpus among all Mutual Fund Company, few of the investors told that they cannot say, it depends on the better schemes provided by any Mutual Fund Company.

Drives behind the performance of the fund

Interpretation:

After analyzing this question, we come to conclusion that main factor which is behind any investment is portfolio of any Mutual Fund, well there are other factors also behind any investment like corpus of that fund, service rendered by distributor and past performance of that fund through past performance is not the criteria for selecting any fund. So about 46% of investors look for the portfolio diversification and rest are least important accordingly.

AWARENESS OF VICTORIA PORTFOLIO LIMITED MUTUAL FUND AMONG INVESTORS

Interpretation:

After survey in different category of investors, we found that 15% of the investors are aware of VICTORIA PORTFOLIO LIMITED   Mutual Fund. It is surprisingly that there is no such regarding unawareness of VICTORIA PORTFOLIO LIMITED   Mutual Fund.

VICTORIA PORTFOLIO LIMITED   Mutual Fund performance on various parameters

Interpretation:

During survey, it was found that there dimensions of performance varies at each level and also depends on investors objective and his expectation level from funds. Returns aspect is on top level where as goodwill also matters a lot, very few client are unsatisfied by the service at distributor level while networking was satisfactory among good number of investors.

Questions asked during the survey

Q-Is it true that globally mutual funds under perform benchmark indices? Why are smart money managers unable to do as well as the market? Or is it that they are not smart at all? What are the limitations of mutual funds?

It is 100% true that globally, most mutual fund managers under perform the asset class that they are investing in, over the very long-term. It is not true that the fund managers are dumb; this under performance is largely the result of limitations inherent in the concept of mutual funds. These limitations are as follows:

Entry and exit costs: Mutual funds are a victim of their own success. When a large body like a fund invests in shares, the concentrated buying or selling often results in adverse price movements i.e. at the time of buying, the fund ends up paying a higher price and while selling it realizes a lower price. This problem is especially severe in emerging markets like India, where, excluding a few stocks, even the stocks in the Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there is simply no way that a fund can beat the Sensex or any other index, if it blindly invests in the same stocks as those in the Sensex and in the same proportion. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not face this problem

Wait time before investment: It takes time for a mutual fund to invest money. Unfortunately, most mutual funds receive money when markets are in a boom phase and investors are willing to try out mutual funds. Since it is difficult to invest all funds in one day, there is some money waiting to be invested. Further, there may be a time lag before investment opportunities are identified. This ensures that the fund under performs the index. For open-ended funds, there is the added problem of perpetually keeping some money in liquid assets to meet redemptions. The problem of impracticability of quick investments is likely to be reduced to some extent with the introduction of index futures.

Fund management costs: The costs of the fund management process are deducted from the fund. This includes marketing and initial costs deducted at the time of entry itself, called "load". Then there is the annual asset management fee and expenses, together called the expense ratio. Usually, the former is not counted while measuring performance, while the latter is. A standard 2% expense ratio means that, everything else being equal, the fund manager under performs the benchmark index by an equal amount.

Cost of churn: The portfolio of a fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager i.e. whether he is a buy and hold type of manager or one who aggressively churns the fund. It is also dependent on the volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and redemptions. Such portfolio changes have associated costs of brokerage, custody fees, registration fees etc. that lowers the portfolio return commensurately.

Change of index composition: World over, the indices keep changing to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem in India with the Sensex having been changed twice in the last 5 years, with each change being quite substantial. Another reason for change index composition is Mergers & Acquisitions. The weight age of the shares of a particular company in the index changes if it acquires a large company not a part of the index.

Tendency to take conformist decisions: From the above points, it is quite clear that the only way a fund can beat the index is through investment of some part of its portfolio in some shares where it gets excellent returns, much more than the index. This will pull up the overall average return. In order to obtain such exceptional returns, the fund manager has to take a strong view and invest in some uncommon or unfancied investment options. Most people are unwilling to do that. They follow the principle "No fund manager ever got fired for investing in Hindustan Lever" i.e. if something goes wrong with an unusual investment, the fund manager will be questioned but if anything goes wrong with the blue chip, then you can always blame it on the "environment" or "uncontrollable factors" knowing fully well that there are many other fund managers who have made the same decision. Unfortunately, if the fund manager does the same thing as several others of his class, chances are that he will produce average results. This does not mean that if a fund manager takes "active" views and invests in heavily researched "uncommon" ideas, the fund will necessarily outperform the index. If the idea does not work, it will result in poor fund performance. But if no such view is taken, there is absolutely no chance that the fund will outperform the index.

Q-Should an investor invests in a mutual fund despite its limitations or no?

Yes. Investor should invest some part or their investment portfolio in mutual funds. In fact some investors may be better off by putting their entire portfolio in mutual funds. This is on account of the following reasons:

• On their own, uninformed investors could perform much worse than mutual funds.
• Diversification of risks which is difficult for an investor to achieve with the small amount of funds at his disposal
• Possibility of investing in small amounts as and when the investor has funds to invest
• Unquestioned service of transaction processing, tracking of investments, collecting dividends/interest warrants etc.
• Debt funds in India offer exposure to a diversified portfolio of bonds/debentures, which is possible, only if the investor is investing millions of rupees. Further, they offer easy liquidity and tax benefits. Debt funds thus offer a great proposition that is impossible for ordinary investors to replicate on their own. This proposition compares favorably against competing investments like small savings.
• Investors require analytical capability and access to research and information and need to spend an enormous amount of time to make investment decisions and keep monitoring them. Some people have the inclination and the time to make better decisions than fund managers do, but the vast majority does not. Those who can are advised to invest some part of their money into funds, especially debt funds, to diversify their risk. They may also note that one of the objectives of this site is to help them improve the odds in their favor.

Q-Are mutual funds safe? Are returns on mutual funds guaranteed by Government of India, or Reserve Bank or any other government body?

Any mutual fund is as safe or unsafe as the assets that it invests in. There are two basic categories of mutual funds with others being variations or mixtures of these. Firstly, there are those that invest purely in equity shares (called equity funds or " growth funds") and secondly, there are those that invest purely in bonds, debentures and other interest bearing instruments called "income" or "debt" funds. The NAV of growth funds fluctuates in line with the fluctuation of the shares held by them. They can also witness face substantial erosion in value, which could be permanent in some cases. On the other hand, prices of debt instruments fluctuate to a much lesser degree and an income fund is extremely unlikely to face erosion in value – especially of the permanent kind.

Most mutual funds have qualified and experienced personnel, who understand the risks of investing. But, nobody is immune from making mistakes. However, funds diversify the investment portfolio substantially so that default in any single investment (in the case of an income fund) will not affect the overall performance of a fund in a significant manner. In the event of default of a part of the portfolio, an income fund is extremely unlikely to face erosion in face value.

Generally, mutual funds are not guaranteed by anybody. However, in the Indian context, some of the mutual funds have floated "guaranteed" or "assured" return schemes which guarantee a certain annual return or guarantee a buyback at a specified price after some time. Examples of these include funds floated by the UTI, Can bank Mutual Fund, SBI Mutual Fund, LIC Mutual Fund etc. Many of these funds have not earned returns that they promised and the asset management companies of the respective mutual funds or their sponsors have made good their promises. The biggest case pertains to the US 64, which never guaranteed any returns but is being bailed out by the Government due to the millions of individuals who have invested in it.

Q-Can the foreign mutual funds operating in India take investors money outside the country?

A mutual fund and the company that manages it are 2 entirely different companies. Legally speaking, a mutual fund is a trust formed and registered under the Indian Trust Act. The sponsor asset management company is formally appointed by the trustees of the trust to manage money on their behalf e.g. DSP Merrill Lynch equity fund is a mutual benefit trust registered under the Indian Trust Act. The trustees have appointed DSP Merrill Lynch Asset Management Company Pvt. Ltd. to manage the funds in the trust and the company cannot touch one rupee from the trust except to the extent of the fees that it receives for managing the funds.

Repatriation of money outside India comes under the purview of the Foreign Exchange Regulation Act, 1973 which specifies the situations in which money can be remitted outside India. Under the act, banks that repatriate money on behalf of their clients have to ensure compliance with various legal formalities and ensure that the entity, which remits money, is entitled to do so. Any failure or violation leads to serious consequences for both the remitter and the bank. Money collected by a mutual fund domestically is not allowed to be remitted outside India. However, with the repeal of FERA, 1973, regulations are likely to be eased.

Q-Is mutual funds out performance always good?

Mutual fund performance of index may not always be a positive indicator. In several cases one notice that the funds performance is very lop-sided and is driven by few scrips. In other words the fund manager has taken significantly higher risks and in the game of probability he would have made more money. But it is very likely that if his call had not been right, he would have under performed and lost badly. From an investor’s point of view, when he is looking at such out-performances in the past, he cannot derive confidence and comfort in the fund managers' ability to repeat the performance in future. As markets are not rational, there is no methodology in the world to scientifically predict stock prices. Therefore it is not possible for anyone to beat the market on a consistent basis and hence there is no guarantee that the fund manager would perform well all the while.

Q-How does one see through the marketing hype given out by mutual funds?

It is amazing how fund marketers can come up with statistics to show how their particular fund has done extremely well. Standard techniques include the following:

Defined period returns: Some period is depicted in which the particular fund outperformed others or some benchmark. One should look very carefully at start and end dates – they can always be chosen in a way that shows the fund in a favorable light

Out performance vs. performance: Sustained periods of low absolute performance are a cause for concern. It is all right to look at relative returns with respect to benchmark indices; but there is no sense if a particular fund produces absolute returns less than the deposit interest rates, even after a few years of existence.

Promise of long term performance: Lack of performance is often explained away as temporary with promises of good performance in the long term. Few define what this "long term" is – 1 or 2 or 5 or 10 years. Do not forget that the longer the period, the longer is the uncertainty in between – in other words, would you want to wait for 10 years to get an uncertain 2% higher returns as compared to the certain returns that you get in say the Public Provident Fund.

Rupee cost averaging: This is a term that has found its way into the marketing literature of all mutual funds. What it means is that if you put in a fixed amount of money every month in a fund, then, in months when the NAV is low, the investor gets more units, which benefits him when the NAV rises. Do not forget the implicit assumption behind this – that the NAV will raise eventually. If it does not, you are no better off than by not buying.

Equities are the best bet in the long run: Ask this to any investor who put money in the Sensex in 1992. After a long run of 7 years, the investor is down on his investment by 50%. He would have been better off by investing in other avenues.

Q-What went wrong with US64?

Basically, for a period of 2-3 years, the UTI distributed more dividends to the unit holders of US 64 than the return earned from the investments in the scheme. This reduced the value of the residual investments in the scheme. This problem was compounded by the persistent fall in the prices of shares, especially the shares of companies in basic commodity industries like cement, steel, manmade fibers etc. and shares of public sector units. Throughout this period, when the NAV of US 64 was going down, UTI kept increasing the sale and repurchase prices of US 64 units. The stock market collapse after the Pokhran II nuclear tests was the last straw, which resulted in the erosion of the scheme’s book reserves and a wide difference between the actual NAV and the sale/repurchase price.

When this became known, it set a panic amongst investors of US 64. Many people felt that if there were large-scale redemptions, UTI would not be able to meet them without support of outside bodies like the RBI. Further, theoretically, if all investors wanted to redeem their US 64 units on the same day, the US 64 simply did not have the money to meet the redemptions on its own (due to the difference between NAV and the repurchase price).

Q-How important is an AMC (Asset Management Company) behind a mutual fund?

AMC controls the operations and functioning of a mutual fund. It is very critical to the performance of a mutual fund as it decides on the style of functioning, people who are going to manage the funds, the commitment to service quality and overall supervision.

The financial strength and the commitment of the AMC sponsors to the business are very key issues. This is because most AMCs lose money in the first few years of operations. In most cases, these losses are much more than the capital requirements stipulated by SEBI. Hence, a sponsor which is financially weak or which cannot capital to the business either because of its inability or unwillingness will result in an unhealthy operation. There will be a tendency to cut corners and unwillingness to spend money to expand operations. This is the last place where high quality persons would want to remain and work. The AMC then remains stunted and the sponsors lose interest. The worst affected are the investors. This is exactly what has happened with some AMCs promoted by Indian business houses.

This is also a problem that has afflicted some of the AMCs floated by nationalized banks. In these organizations, the traditional thinking is prevalent which can be summarized, as "money is power". Since mutual fund business did not have access to too much money, a posting in the AMC became punishment postings for some personnel who were not doing well in the parent organization or who lost out in the organizational politics. The management of the banks also did not allow these AMCs to become independent viable businesses. The CEO’s of the AMCs did not have any clue of the mutual fund business and neither were they interested in it – the entire effort was spent in getting a posting back in the parent. The fund managers had no experience in the activity making a mockery of "professional management". The sad results are there to see. Some of the parents had to provide funds to bridge the gap in "assured return schemes". It looks extremely likely that some of these AMCs will no longer exist in a few years.

Q-How and against what should you benchmark the performance of a mutual fund?

All mutual funds have different objectives and therefore their performance would vary. A mutual funds performance should be benchmarked against mutual funds of similar type or India info line mutual fund index for a particular type. e.g. equity fund index, income fund index or balanced fund index or liquid fund index. One can also benchmark the fund against the Sensex or any other broad based index for the particular asset class.

One has to be very careful about choosing the comparison period. Ideally, one should compare the performance of equity or an index fund over a 1-2 year horizon. Any comparison over a shorter period would be distorted by short term, volatile price movements. Comparisons over a longer period need to be interpreted carefully by looking at other factors such as change in individuals managing the fund, one time investment successes etc. Similarly, the ideal comparison period for a debt fund would be 6-12 months while that for a liquid/money market fund would be 1-3 months. Apart from the entire period, one should also compare the performance in smaller intervals within the same period say intervals of one-month duration.

To make comparison meaningful, one has to compare the average annual compounded rate of return. This adjusts for comparisons of differing period and also facilitates comparison across different classes. The return also incorporates dividend payouts. Thus, for example, one can say that ABC income fund has given a compounded annual growth rate (CAGR) of 13% p.a. including dividends in the last 2 years while XYZ income fund has given a CAGR of 13.2% p.a. over the last 3 years.

Q-Apart from NAV, what other parameters can be compared across different funds of the same category?

Apart from plain numerical comparison of NAV’s, several other things can be checked, eg correlation of changes in NAV with changes in portfolio composition and appreciation/depreciation in valuation of individual items, increase in the size of the corpus etc. In debt funds, it is useful to compare the extent to which the growth in NAV comes from interest income and from changes in valuation of illiquid assets like bonds and debentures. It is also useful to compare expense ratios of funds e.g. Birla Income Plus has an expense ratio of 1.7% which is one of the lowest expense ratios of all income funds in the industry – this means that, everything else being equal, the performance of that fund will be higher by 0.55% than other funds, which have an expense ratio of 2.25%. Last, but not the least, one has to compare the risk profile of two funds. For income funds, this could mean credit quality of the portfolio and the fluctuations in the NAV with periodic changes in the interest rate environment. For equity funds, it could mean the volatility of the NAV with the ups and downs in the market or the percentage exposure to smaller company shares etc.

Q-How different is styles of different mutual funds?

Different mutual funds have very different investing styles. These styles are a function of the individuals managing the fund with the overall investment objectives and policies of the organization acting as a constraint. These are manifest in things like

Portfolio turnover – Buy and hold strategy versus frequent investment changes

Kind of investments made – small versus large companies, multi baggers (investments which yield high gains) versus percentage players (investing in shares which will give small gains in line with the market), high quality – low yield bonds versus low quality – high yield bonds

Asset allocations – Varying percentage of cash depending on aggressive views on markets

The following examples serve to illustrate a few styles of equity fund managers

Some fund managers are passive value seekers and some are value creators. The former type buys undervalued assets and patiently waits for the market to discover the value. The latter aggressively promote the undervalued stocks that they have bought.

Some fund managers restrict themselves to liquid stocks while some thrive on illiquid stocks, which offer themselves easily to large price changes.

Some fund managers are masters of the momentum game and seek to buy stocks that are in market fancy. They attach lesser importance to fundamentals and believe that a rising stock price and favorable momentum indicators imply that fundamentals are changing. In effect, they are following the philosophy, " The trend is my friend". Other fund managers go more by deep fundamental analysis completely ignoring price movements. They do not mind price going down and are in fact happy to buy more.

Some fund managers are growth investors i.e. they buy stocks with a high P/E using the forecasted growth to justify the high valuation. Others are value investors who buy shares with low P/E or P/BV multiples - typically companies rich with undervalued assets.

Q-When you buy a mutual fund unit what exactly do you buy?

When you buy a mutual fund unit you are buying a part of the equity or debt portfolio owned by the mutual fund. In other words you are buying a part ownership of various companies and when you buy a debt mutual fund you are buying a part right to title to debt securities. In other words you step into the shoes of owners or lenders indirectly. The value of your part of the assets will fluctuate in line with the value of the individual components of the portfolio on the stock or the bond market.

In effect, you are buying a bundle of services as follows:

Investment management – which means investment advice and execution rolled into one

Diversification of investment risk – buying a larger basket of securities reduces the overall risk of investment

Asset custody – which means registration and physical custody of assets, ensuring corporate actions like payment of dividend and interest, bonus, rights entitlements etc

Portfolio information – which means calculating and disseminating ownership information like NAV, assets owned, etc on a periodic basis

Liquidity – Ability to speedily disinvest assets and obtain disinvestments proceeds.

The mutual fund exploits economies of scale in research, execution and transaction processing to provide the first three services at low costs. The pooling of money makes it possible to offer the fourth service (since all investors are unlikely to exit at the same time). In addition, one also gets benefits like special tax concessions.

What you do not get is a guaranteed way of making money. There is no way that a mutual fund can insulate the investor from the vagaries of the market place and ensure that he always makes money. In addition, one is implicitly taking the risk of bad service quality in any of the four elements above including investment management.

Q-What are load and no-load funds? Why are loads charged?

Some asset management companies (AMCs) levy service charges for allowing subscribers entry into/exit from mutual fund schemes. The service charge is termed as entry/exit load and such schemes are called "load" schemes. In contrast, funds for which no entry/exit charge is levied are called no-load funds.

The load is levied to cover the up-front cost incurred by the AMC in the process of marketing and selling the fund and other one-time transaction processing costs.

Q-Why is the buy and sell price different for some mutual fund units and same for others?

Buying and selling prices are different for those mutual funds, which have up front sales charges or entry loads. Usually, the selling price is the NAV while the buying price incorporates the service charge or the load. In case the fund is a no-load fund, there is no difference between the buying and selling prices. We have a detailed section on the characteristics of all mutual fund schemes, which tells you the exact load charged by respective funds.

Q-Where can one obtain information on the market price of specific mutual fund units?

Buying and selling prices for units of open-ended mutual funds are declared every day. You can obtain this information on our website. Check out the section on mutual funds.

Most closed-ended mutual funds are listed on the stock exchanges. The trading volume in some of the widely held mutual fund units is considerable. The latest NAV and market price information of closed-ended mutual funds is available on our website.

All the above information is also available on the stock market page of popular newspapers.

Q-Why do returns from debt/income mutual funds fluctuate from period to period despite them being invested in fixed interest instruments?

The returns differ from year to year on account of the following reasons:

An income fund invests in instruments from which it earns two kinds of returns – The first comes from interest income. The second comes from any increase in the market price of invested instruments. The second component could also be negative when there is a fall in the market value of the invested instruments. The rise and fall in market prices of debt instruments is a function of the prevailing interest rates. Thus changes in interest rate environment cause fluctuations in returns.

Secondly, income mutual funds invest in an array of instruments with different maturity. Whenever any debt instrument in which the fund has invested is redeemed, the redemption proceeds have to be reinvested in a fresh instrument(s). This fresh investment would earn a rate of return depending on the prevailing interest rate, which could be higher or lower than that prevailing in the earlier period. Accordingly, the overall return of the portfolio will change.

A third reason can be active view taking by the fund manager e.g. a fund manager can take a view that interest rates are expected to rise. Accordingly, he would disinvest a large part of his holdings and convert them into cash so as to avoid loss in the value of his holdings. If this view is wrong, he may end up having a low return on a large part of his portfolio, since cash is invested in low yielding money market avenues. On the other hand, if the view is right, the cash can be deployed in higher yielding instruments after interest rates rise, thus improving the overall return and more important avoiding the loss.

There is a fourth reason, which is relevant only for open-ended income funds. Such funds have a fluctuating level of idle cash (depending on the level of fresh collections) which is typically invested in low yielding money market instruments. This causes change in the rate of return.

Lastly, there is always the possibility of a credit loss for any income mutual fund ie losses arising out of default in any of the instruments in which the fund has invested. The fund will declare a low return in the period in which such losses show up.

Q-What are the risks associated in investing in income mutual funds and how should one find out about these?

Income funds invest in a diversified portfolio of debt instruments, which provide interest income. There is a possibility that some of these instruments are of low credit quality and the issuers of these instruments default in the payment of interest or principal. Such losses, called "credit losses", constitute an area of risk for income funds. The process of diversification mitigates this risk i.e. by the fund investing in a number of debt instruments. However, it should be noted that the funds returns could be eroded considerably if even 10% of the investments have credit quality problems. Also, the problem can be accentuated for investors who are investing for a short period if the losses show up in a particular period resulting in a short term decline in NAV. Investors can check the credit quality of the investment portfolio, which is published by most funds on a quarterly basis.

The second area of risks comes from the fluctuations in the prices of the underlying instruments in which the fund invests. Any rise in interest rates will result in a fall in the value of the investments causing a dip in the NAV. The fall in value is maximum for longer dated instruments and negligible for short dated instruments. Hence, the risk is higher in a fund that has an investment portfolio with a higher average maturity. This can again be checked from the investment portfolio, which is published by the funds.

Even if interest rates rise by 2-3%, the fall in NAV for most mutual funds is unlikely to exceed 5%. Similarly, a portfolio with as high as 10% of poor quality instruments will result in a fall in NAV by 10%. Regular interest income will take care of the losses in a few months. Thus, there is unlikely to be permanent erosion of capital in most reasonable circumstances. Hence, debt or income funds have a much lower risk than equity funds, which can have permanent erosion in value.

Today’s environment is characterized by a deep industrial recession and consequent high level of defaults on loans provided by banking sector to industry. In such a scenario, it may be prudent to look at the credit quality aspect very carefully before investing in an income mutual fund.

Q-Why don’t people see MF as lucrative investment products?

Mutual Funds are still not the first choice of most Indians when it comes to investing. The foremost reason for this is the availability of government backed savings instruments that offer a high rate of assured returns.

Not only do instruments like NSC and PPF guarantee a high rate of interest but they also come with the backing of central government, thus assuring capital safety of the highest order. Add to this, such instruments come with powerful tax saving incentives.

High returns, coupled with the risk-averse mentality of the average middle-class that constitutes majority of our population, have kept the bulk of savings away from mutual funds.

Long -term savings find their way into instruments like NSC and PPF, while Bank FD’s are preferred for short-term Investments. On the other hand, when it comes to investments in instruments having no assured returns, people prefer to invest directly into stock markets. One of the reasoning is that ‘Why should I pay for a fund manager when I can invest in the stock market on my own?’ Secondly, the lack of penetration of the mutual funds across the country also keeps them from tapping the savings potential of smaller towns.

However, certain developments in recent years have been encouraging for the Mutual Fund industry. First, the rates of return offered by the assured return instruments have come down significantly, inducing people to look beyond them.

Second, the Mutual Fund industry has become more transparent in terms of disclosures. Third, the ELSS category of funds has come at par with other instruments in terms of tax saving incentives.

These developments are likely to attract more people towards Mutual Fund, SEBI’s initiatives to widen distribution of Mutual Fund across the length and breadth of the country might just provide them the well-needed kick start.

Q-Over the long term which asset gives superior returns-real estate or mutual funds?

Real estate means different things to different people. Having one house or flat you live in is a very different thing from investing is real estate, by which one could mean buying and selling real estate purely as an investment, without having any intention of using it personally. Many parts of the country are experiencing a huge real estate boom and land prices have more than doubled over very short periods of time. Naturally, real estate appears to be a good investment to more and more people.

However, the two cannot be compared on returns alone. The characteristics of the two investments are so different that returns are a very small part of the picture. Lets make a comparison:

INDIVISIBILITY:

Real estate ticket size tends to be measured in lakhs. Mutual fund investments can be made of any quantum, starting with a few hundred rupees. You can also sell parts of your investment whereas Real Estate has to be sold as a large unit.

CONVENIENCE:

Real estate investments are quite effort-intensive in terms of choosing and going through the legalities of registration. Funds need just one simple form and a cheque.

COST:

In most parts of the country, stamp duty inflates purchase price by up to 10%,while funds have a load of at most 2.25%.Some forms of real estate also have various maintenance charges that have to be paid but then these are similar to the expenses that a fund charges.

LIQUIDITY AND PRICE DISCOVERY:

A fund investment is always liquid, whereas selling a piece of real estate usually takes time.

Also, when the real estate market is depressed, there are often no buyers except at deep discount to the so called market rate. Mutual fund holdings can always be sold at a transparently fixed price. The current worth of a piece of real estate is just an indicator and not a value that can be realized with certainty.

VOLATILITY:

Real estate is generally far less volatile than at least equity mutual funds; although there are boom-bust cycles where price swings can be sharp.

THE INCOME STREAM:

Constructed real estate can yield rental income over and above capital appreciation while mutual funds offer dividend from the same stream of income as capital appreciation. However, rented property definitely needs expenditure on maintenance.

Lastly, after all your patience to hold on to your investment for a long duration, comes the time to harvest. But there is one last hurdle to clear capital gain tax. A one year holding is sufficient in case of equity oriented mutual funds to save you from capital gain tax on the profits that you book upon the sale of the units. However, in case of real estate, it takes a minimum of three years holding period for the asset to be termed as long term. And even then, your gains upon the transfer of the asset will be taxed at 10% without indexation, or 20% with indexation.

THE COLOUR OF MONEY:

In practice, a vast proportion of real estate transactions in our country are done in black money and for those who have unaccounted cash, real estate is the one feasible investment.

However, if you have really decided to go ahead with your real estate investment plans, then we would end this discussion on an encouraging note. The first qualifier that Peter Lynch, one of the most successful fund managers of all time, puts in front of you before you invest in equity markets is “Do you own a house?”

Q- How to choose a good Mutual Fund?

Choosing a mutual fund seems to have become a very complex affair lately. There are a huge number of new funds being launched and they all seem to be based on specialized idea. There are funds that invest in companies of specific sizes, there are those that are based on ideas like ‘opportunity’ that are not easy to pin done and there are more and more sector funds. This overload of funds with specialized features has increased the apparent complexity of choosing a fund.

Cutting through the complexity, there is a core set of five measures that you should evaluate and choose funds and here is a basic guide to each of them.

⇒WHAT ARE FUNDS RETURNS?

The most crucial factor in most normal conditions is the returns. Returns are also the easiest to measure and the easiest to compare across funds.                                                   At the most trivial level, the returns that a fund gives over a given period is just the percentage difference between the starting NAV and the ending NAV and that’s that. However, things are slightly (though not much) complicated. The first complexity is that of measuring returns of dividend paying funds. The standard method of measuring returns of dividend paying funds is to assume that all dividends are being reinvested.

Returns by themselves don’t serve much purpose. The purpose of calculating returns is, obviously, to enable you to make comparisons. These comparisons can be between returns of different funds, between different time periods of the same fund or between a fund and its benchmark. Studying returns answers many questions that, as an investor trying to evaluate a fund, you need to know the answer of. Major questions are:

Absolute returns: Absolute returns are just returns, i.e. they are a measure of how much a fund has gained over a certain period. They are given the qualifier of ‘absolute’ just to distinguish them from benchmark returns. Returns are usually calculated and published for standard periods like six months, a year or five years. The key to using returns data meaningfully is to facilitate comparisons between similar entities. It is meaningless to compare the returns of, say, a diversified equity fund with a balanced fund. The two are trying to be something completely different and are not comparable for the purpose of making choices between funds.

The most important thing while measuring or comparing returns is to choose an appropriate time period. The time period over which returns should be compared and evaluated has to be invested in. This means that while its alright to compare short term funds on the basis of their six month returns, if you are comparing equity funds then you must use three or five returns.

Besides the time period, it is also important to see whether a funds returns history is long enough for it to have seen all kinds of market conditions. For example, at this point of time, there are equity funds that were launched one to two years ago and have done very well. However, such funds have never seen a sustained declining market so it is a little misleading to look at their rate of return since launch and comparing that to other funds that have had to face bad markets.

Benchmark Returns: Benchmark returns exist to provide a standard comparison point between what a fund has earned and what it should have earned. A fund manager cannot do magic. It is obvious that if the markets in which a fund is supposed to invest are falling drastically, then a fund cannot earn superlative returns. Similarly, if the markets are doing fabulously well, then anything less than fabulous returns would actually be a disappointment.

A funds benchmark is an index that is chosen by a fund company to serve as a standard for its returns. By SEBI’s mandate, each fund id obliged to declare a benchmark index. In effect, a fund company is saying that the benchmark’s returns are its target and a fund should be deemed to have done well if it manages to beat its benchmark. A fund’s returns compared to its benchmark are called its benchmark returns.

While the logic is impeccable, benchmark returns are a difficult idea for investors to swallow when a fund does better than a declining benchmark. By the logic, of benchmark returns, if a fund which has the Nifty as its benchmark declines 10% during a period that the Nifty crashed by 20%, then the fund’s benchmark returns are 10%, something that the fund manager can congratulate himself over.

However, straight comparisons of a fund’s returns with its benchmark remains a vary useful tool. For example, at the current high point of the stock markets, almost every equity fund has wonderful returns but many of them have negative benchmark returns, indicating that their performance is just a side-effect of the market’s rise rather than some brilliant work by the fund manager.

⇒HOW MUCH RISK DOES IT TAKE?

When we (or anyone who is analyzing any financial market) use the word “Risk”, what is actually being talked about is volatility. ’Risk’ can be defined as the potential for harm. Generally, past volatility is taken as an indicator of future risk and for the task of evaluating a mutual fund; this is an adequate (even if not ideal) approximation.

There are a number of ways of measuring volatility but unfortunately, all need more comfort with mathematical concepts than return calculations do. One way of measuring risk is to measure the standard deviation of a fund’s returns over some period in the past. Standard deviation is a measure of how much the actual performance of a fund over a time period deviates from the average performance. There are other measures of volatility like Alpha and Beta. There are also measures like Sharpe Ratio which look at returns and risk together and delivers a single measure that is proportional to the risk adjusted returns of an investment. To put it simply, the Sharpe Ratio of a fund (of any investment actually) measures whether the returns that a fund delivered were commensurate with the kind of volatility it exhibited.

While there is need for most investors to go into the calculation of these measures, it is enough to remember that Standard Deviation is a measure of risk and Sharpe Ratio is a measure of risk-adjusted performance. Therefore, a low Standard Deviation is good ans a high Sharpe ratio is good.

⇒WHO MANAGES IT?

When you invest money in a fund, what you are doing is to hire a fund manager. There is a person who runs the fund, who is finally responsible for its performance, whether good or bad.

When you evaluate a fund’s returns or risks, then what you are evaluating are the returns that the fund manager earned and the risks that he took. This means that the continuity of fund management is important to a fund. When a fund manager changes, then there is a risk of a fund’s investment style changing and becoming less successful.

That said, the fact is that the frequency of fund manager shuffles is pretty high in India. The fund industry is in a state of continuous flux and people do move around. In practice, fund managers changes haven’t really harmed investors, as AMCs manage to replace departing fund managers competently.

One other way that information about who manages a fund is useful is by evaluating other funds that are run by the same fund manager. Even if you are not invested in them, you should keep an eye on other funds managed by your fund manager. Ad you gain experience as an investor you eill find it useful to observe what kind of investments and market conditions your fund manager does well in and what kind of situations trip him up.

⇒WHAT DOES IT INVEST IN?

One of the main reasons for investing in a mutual fund is that it allows you to have diversified portfolio in a convenient manner, and diversifications is central to lowering risk.

As investors scarred by the tech crash (when some supposedly diversified funds were more than 50% into tech stocks) will testify, funds can easily ignore the basic tenets of diversification. A careful investor must keep an eye on how concentrated his funds are getting.

There are three types of concentration to watch out for- sectoral, company and size. A fund in which the top three sectors account for say 70% of the portfolio will definitely be far riskier than one in which this number is, say, 30%. When one of those sectors does badly then such a fund will fall much more sharply.

There is a similar logic at work in the case of a fund’s holdings in individual companies. There are funds in which the top most company holding is as high as 28%, there are many others that do not let this number go above 4-5%. Ofcourse there are funds whose job is to be aggressive, but monitoring your funds’ portfolio lets you be certain that it is only funds that are supposed to be aggressive are being so.

There is another reason for monitoring a fund’s portfolio, which has nothing to do with what individual fund managers are doing with a fund’s portfolio but with your own aggregate portfolio. If you know, on an aggregate basis, what your holdings are in a particular company or stock, then you can be sure that some combination of fund holdings hasn’t put you, individually, in a high risk position. This could also help avoid the temptation of investing in an aggressively-marketed sector fund because you would already know what your investments in that particular sector are.

⇒HOW MUCH DOES IT COST?

Fund companies charge for managing your money deducting a certain amount from the NAV everyday. While there are statutory limits imposed by the government on how much these expenses can be different. Funds have different expense charges within those limits. In a sense, monitoring expenses is redundant because a fund’s returns are post-expenses, so to speak. However, if there are funds in your portfolios that are charging much more than others, you should at least know about it. Expenses become very important in income funds where they can eat away a serious proportion of the returns that funds actually make. It is worthwhile, in the case of some types of funds (like cash funds, for instance), to actually choose funds on the basis of low expenses.

Expenses also become very important during lean periods when a fund is not generating any returns. Since expenses continue being regardless of whether the fund is gaining or losing, a prolonged period of drift could lead to a high expense fund eroding capital to a significant degree. If other things are equal, funds with low expenses are clearly preferable.

THE SUM OF IT ALL

Choosing a mutual fund is a simple and straightforward exercise, the five factors that should be considered are easy to understand, easy to compare, and most importantly, unchanging. It’s unlikely that this short list of five will stay unchanged not just for the years, but also for decades to come.  

Chapter 5

Findings & recommendation

Chapter-5: Findings & Recommendation

1. The company should try to choose unconventional programs to create awareness. In this direction, social banking can be used, as it not only shows that the company is concerned about society in general, but in the process generates confidence among the investors that the company is generating surplus profits that are being used for the welfare of the society.

1. Secondly, it also provides the company all type of media coverage without any investment on this part.

2. Leadership can be achieved by setting good example. VICTORIA PORTFOLIO LIMITED   mutual fund should try to provide best customer services than other mutual fund companies are providing to their customers.

3. A person with high integrity can be selected as brand Ambassador in 0rder to              infuse confidence and sense of security amongst the prospective investors.

4. As transparency is one of the key features of VICTORIA PORTFOLIO LIMITED   MF, this fact should be illustrated more assiduously.

5. Scheme such as VICTORIA PORTFOLIO LIMITED   Income plus, which ensures liquidity at demand, should be promoted with renewed vigor.

6. Common platforms of different Mutual funds companies in private sectors should be used to create awareness.

Bibliography

Sites visited

1. Google.com
2. Yahoo.com
3. Nse.com
4. Sharkhan.com

Books read are

1. Essentials of Organizational Behavior by Stephen Robbins
2. Organizational Behaviour by Ian brook

3. Stocks to riches by parikh

ANNEXURES

                        INVESTORS QUESTIONNAIRE

Preamble: I’m a management student of B.V.I.M.R. and doing summer training in VICTORIA PORTFOLIO LIMITED   Mutual Fund and making a project on it. So I need your valuable co-operation in this regard.

Name of the Investor                :______________________________

Age                                :__________

Sex                                         Male                        Female

Phone                                : Office ____________        Mobile:_________________

1. What is your annual income?

        Less than 2 lakh.

        Between 2 lakh and 4 lakh.

        Between 4 lakh and 6 lakh.

        Above 6 lakh.

2. Do you invest in Mutual Funds?

        Yes

        No

3. Name the Mutual Funds in which you are interested?

________________________________

4. In which type of plans/schemes you are interested?

        Open Ended                                        Liquid Plan

        Close Ended                                        Equity Funds

        Income Plan                                        Balanced Funds

5. What are the broad criteria for selecting any Mutual Fund?

        Higher returns                                        Portfolio Management

        Safe returns                                        No. of Plans

        Image of the Mutual Fund

6. How frequently do you invest in Mutual Funds?

        Once in a fortnight

        Once in a month

        Once in a six month

        Once in a year        

7. What type of investor you are?

        Aggressive

        Conservative

        Moderate or Balanced        

8. Which funds in your opinion are performing well?

        Templeton

        SBI Mutual Fund

        VICTORIA PORTFOLIO LIMITED   Mutual Fund

        HDFC Mutual Fund

9. If better returns are provided, will you shift to other Mutual Funds?

        Yes                                No

10. The most important factor that influence you about investing in any Mutual Fund?

        Fund’s Portfolio                                Funds Corpus

        Mutual Fund Reviews                                NAV’s

        Fact Sheet                                        Schemes available