Study on the Different Channels of Distribution of Mutual Funds And an Analysis of the Top Equity Schemes.

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A PROJECT REPORT ON

“Study on the Different Channels of Distribution of Mutual Funds and an Analysis of the Top

Equity Schemes.”

A Project Report submitted in partial fulfillment of the requirement for the award ofPost Graduate Diploma in Management (PGDM)

Submitted by:

George T Cherian

PGDM, Batch 18,Roll No 58

Submitted on

3rd August, 2013

Under the guidance of Mr. Sandeep Chikalla

Project Guide (Channel Head- Banking-SBI Funds Management Pvt Ltd Company)

and Mr Kushal Shenoy (Lecturer, XIME)

Xavier Institute of Management & EntrepreneurshipElectronics City, Phase – 2, Bangalore – 560100

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Declaration

I hereby affirm that this project report titled “Study on the Distribution Channels of Mutual

Funds and an Analysis of the top Equity Schemes” being submitted to the Xavier Institute of

Management and Entrepreneurship, Bangalore in partial fulfillment of the requirement for the award

of the Post Graduate Diploma in Business Management is bonafide work carried out by me.

Bangalore George T Cherian

03-08-2013

Forwarded by

Mr Kushal Shenoy

Project Guide

XIME

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ACKNOWLEDGEMENT

I would like to express my profound gratitude towards SBI Funds Management Pvt Ltd for giving

me the opportunity to complete my Summer Internship Program with the company. I am highly

obliged to them for the training and the immense knowledge that the company has shared with me in

the past eight weeks of the program. The summer internship program completed at SBI Funds

Management Pvt Ltd has helped me comprehend the finer details of how the marketing team works

and has had an unexceptional impact on me

I am deeply indebted to Professor J. Philip, President, XIME, and Bangalore for providing me with

an opportunity to work on this project. I also wish to thank Professor Tyagaraj , the Academic

Dean of XIME and my faculty guide Mr. Kushal Shenoy for giving me direction and

encouragement, which helped me in the execution of this project.

I would sincerely like to thank Ms. C Padmaja, the Deputy Manager of SBI Mutual Funds for

giving me her precious time and guidance throughout the internship program, My Company guide,

Mr. Sandeep Chikkala who took time out to help me understand the basics of Mutual Funds and

how to market right mutual fund to the customer after understanding his financial habit.

I would also like to express my special thanks to Mr. Prashanth Rao, Vice-President SBI Mutual

Fund who gave me this wonderful opportunity of doing internship with SBI MF and for being

someone I could look up to.

Last but not the least I would like to thank my Parents and God almighty for being by my side all the

time

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Table of Contents

Lists of Tables 7

List of Figures 8

Executive Summary 9

Conceptual Understanding 10

All about Mutual Funds .12

Organization of Mutual Fund 14

Advantages of Mutual Funds……………………………………………..

………………..18

Disadvantages of Mutual Funds……………………………………………………………

20

Types of Mutual Funds…………………………………………………………..…………

21

Criteria to Evaluate Mutual Munds………………………………...………………………

26

Channels of Mutual Funds…………………………………………………………………

30

Benefits of channels of Distribution to

SBI………………………………………………..34

Methodology

………………………………………………………………………………...36

Comparative analysis of SBI’s EBF with its Competitors……………..……..………….

37

Analysis of risk of selected Midcap Funds……………………………………...….

……...45

Comparative Study of Sbi’s magnum Equity fund with its top competitors…..

……….51

Analysis of risk of the selected large Cap Funds………………...

………………………..61

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Findings……………..

……………………………………………………………………….65

Challenges……………………………...……………………………………………………

66

Recommendations …………………………….……………………………………………

68

Conclusio

n…………………………………………………………………………………...69

Appendices………………………...……………...…………………………………………

70

References……………………………………………………………...……………………

72

.

.

List of Tables:

Table No Contents Page

3.1 Comparison of Midcap Funds 45

4.1 Comparison of Largecap Funds 60

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List of Figures:

Figure No. Contents Page No

1.1 The working of Mutual Fund 11

1.2 Organization of Mutual Fund 12

2.1 Mutual Funds sold through different channels 33

3.1 Sector exposure of EBF 36

3.1.2 Performance of EBF 36

3.1.3 Sector Exposure of HDFC Midcap Opportunities 38

3.1.4 Performance of HDFC Midcap Opportunities 38

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3.1.5 Sector Exposure of IDFC Premier Equity 40

3.1.6 Performance of IDFC Premier Equity 40

3.1.7 Sector Exposure of ICICI Prudential Discovery Fund 42

3.1.8 Performance of ICICI Prudential Discovery Fund 42

3.2 Standard Deviation of various funds 43

3.3 Beta of various funds 44

3.4 P/E ratio of various funds 45

3.5 Turnover ratio of various funds 46

4.1 Sector exposure of Magnum Equity Scheme 50

4.1.1 Performance of Magnum Equity Scheme 50

4.1.2 Sector Exposure of HDFC Top 200 Scheme 52

4.1.3 Performance HDFC Top 200 Scheme 52

4.1.4 Sector Exposure of Franklin India Bluechip Fund 53

4.1.5 Performance of Franklin India Bluechip Fund 53

4.1.6 Sector Exposure of Birla Sunlife Equity Fund 56

4.1.7 Performance of Sunlife Equity Fund 56

4.2 Standard Deviation of the Large Cap Funds 57

4.3 Beta of the Large Cap Funds 58

4.4 P/E ratio of the Large Cap Funds 59

4.5 Turnover ratio of the Large Cap Funds 60

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Executive SummaryMutual Funds over the years have gained immensely in their popularity. Apart from the many

advantages that investing in mutual funds provide like diversification, professional management, the

ease of investment process has proved to be a major enabling factor. However, with the introduction

of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. With

the introduction of diverse options, investors needs to choose a mutual fund that meets his risk

acceptance and his risk capacity levels and has similar investment objectives as the investor.

With the plethora of schemes available in the Indian markets, an investors needs to evaluate and

consider various factors before making an investment decision. Hence an investor must infer the fact

sheets of the various scheme to assets the portfolio management style of the fund manager. Mutual

funds provide risk diversification: diversification of a portfolio is amongst the primary tenets of

portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder.

Mutual funds represent one such option. So it is always safe for investor to invest their hard earned

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money in those schemes which have invested in stock of divers sectors with potential to earn higher

returns.

So this project is carried to understand the science of portfolio management that mutual fund apply to

trade off with risk and maximize return. It becomes very difficult for investor to make decision as

where to invest his hard earned money and in which stream of investment will reap optimal

appreciation of money invested for the period. By analyzing the fact sheets of the Asset Management

Company we can auspicate the best fund scheme to invest. There are many research institutes, which

provide updated information of all the schemes that are available and the trend in the Mutual Fund

industry. All that we need is to read between the lines and make sense of befuddling information,

and acquire knowledge related to investment and comprehend finance terminology.

In this report I have studied about the various channels of distribution of mutual funds and have done

an analysis of the two of the most popular schemes of SBI with that of its competitors.

Objectives:

To Study the various distribution channels of Mutual Funds and find out the channel that

provides the maximum sales

To evaluate portfolio performances of two of SBI Mutual Funds’ schemes with that of its

competitors.

Sub objectives

Elaborate rationalism of investment.

Comprehensive study of Mutual Fund industry.

Criteria to be used while evaluating Mutual Funds.

Results:

After concluding the project it was found that banks constitute almost half the sales of mutual funds

in all the distribution channels and the investors who come to the mutual fund office has been

gradually increasing.

It was also found that among the two schemes of SBI that the analysis is done on, the Emerging

Business Fund is the best fund in its category as it has been consistently beating its benchmark and

giving the highest returns in comparison to the other funds. The Magnum Equity Fund on the other

hand also has been beating its benchmark and giving good returns but there are other funds too that

has done better than it.

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Conclusion:

Almost 45% of the sale of SBI Mutual Funds arises from the various SBI branches across the

country and the fact that the State Bank group has the most number of branches in the country plays

to its advantage and the company should make the best use of this fact.

The customer awareness regarding mutual funds has increased manifold and hence the number of

people to go the mutual fund office and the internet to invest in mutual funds has been steadily

increasing and will continue to do so, especially people investing online.

1 Conceptual Understanding:

1.1 All About Mutual Funds:

Before we understand what is mutual fund, it’s very important to know the area in which mutual

funds works, the basic understanding of stocks and bonds.

Stocks: Stocks represent shares of ownership in a public company. Examples of public companies

include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned

investment traded on the market.

Bonds: Bonds are basically the money which you lend to the government or a company, and in

return you can receive interest on your invested amount, which is back over predetermined amounts

of time. Bonds are considered to be the most common lending investment traded on the market.

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There are many other types of investments other than stocks and bonds (including annuities, real

estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What is a Mutual fund?:

Mutual funds, as the name indicates is the fund where in numerous investors come together to invest

in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a crucial role

in an economy by mobilizing savings and investing them in the capital market, thus establishing a

link between savings and the capital market.

A mutual fund is an institution that invests the pooled funds of public to create a diversified portfolio

of securities. Pooling is the key to mutual fund investing. Each mutual fund has a specific investment

objective and tries to meet that objective through active portfolio management.

Mutual fund as an investment company combines or collects money of its shareholders and invests

those funds in variety of stocks, bonds, and money market instruments. The latter include securities,

commercial papers, certificates of deposits, etc. Mutual funds provide the investor with professional

management of funds and diversification of investment.

Investors who invest in mutual funds are provided with units to participate in stock markets. These

units are investment vehicle that provide a means of participation in the stock market for people who

have neither the time, nor the money, nor perhaps the expertise to undertake the direct investment in

equities. On the other hand they also provide a route into specialist markets where direct investment

often demands both more time and more knowledge than an investor may possess.

The price of units in any mutual fund is governed by the value of underlying securities. The value of

an investor’s holding in a unit can therefore, like an investment in share, can go down as well as up.

Hence it is said that mutual funds are subjected to market risk. Mutual fund cannot guarantee a fixed

rate of return. It depends on the market condition. If a particular scheme is performing well then

more return can be expected.

It also depends on the fund manager expertise knowledge. It is also seen that people invest in

particular funds depending on who the fund manager is.

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Figure 1.1- The working of mutual fund

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

appreciations realized by the schemes are shared by its unit holders in proportion to the number of

units owned by them.

Thus a mutual fund is the most suitable investment for the common person as it offers an opportunity

to invest in a diversified, professionally managed basket of securities at a relatively low cost. Since

small investors generally do not have adequate time, knowledge, experience & resources for directly

accessing the capital market, they have to rely on an intermediary, which undertakes informed

investment decisions & provides consequential benefits of professional expertise.

The advantage of Mutual Funds to the investors is professionally managed, low transaction cost,

liquidity, transparency, well regulated, diversified portfolios & tax benefits. By pooling their assets

through mutual funds, investors achieve economies of scale.

A collected corpus can be used to procure a diversified portfolio indicating greater returns has also

create economies of scale through cost reduction. This principle has been effective worldwide as

more & more investors are going the mutual fund way. This portfolio diversification ensures risk

minimization. The criticality of such a measure comes in when you factor in the fluctuations that

characterize stock markets. The interest of the investors is protected by the SEBI, which acts as a

watchdog. Mutual funds are governed by SEBI (Mutual Funds) regulations, 1996.

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1.2ORGANISATION OF A MUTUAL FUND:[2]

There are many entities involved and the diagram below illustrates the organizational set up of a

mutual fund:

Figure 1.2 – Organization of a Mutual Fund

Mutual funds have a unique structure not shared with other entities such as companies or firms. It is

important for employees & agents to be aware of the special nature of this structure, because it

determines the rights & responsibilities of the fund’s constituents viz., sponsors, trustees, custodians,

transfer agents & of course, the fund & the Asset Management Company(AMC) the legal structure

also drives the inter-relationships between these constituents.

The structure of the mutual fund India is governed by the SEBI (Mutual Funds) regulations, 1996.

These regulations make it mandatory for mutual funds to have a structure of sponsor, trustee, AMC,

custodian. The sponsor is the promoter of the mutual fund,& appoints the trustees. The trustees are

responsible to the investors in the mutual fund, & appoint the AMC for managing the investment

portfolio. The AMC is the business face of the mutual fund, as it manages all affairs of the mutual

fund. The mutual fund & the AMC have to be registered with SEBI. Custodian, who is also

registered with SEBI, holds the securities of various schemes of the fund in its custody.

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Sponsor:

The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund & registers

the same with SEBI. He appoints the trustees, Custodians & the AMC with prior approval of SEBI,

& in accordance with SEBI regulations. He must have at least five year track record of business

interest in the financial markets. Sponsor must have been profit making in at least three of the above

five years. He must contribute at least 40% of the capital of the AMC.

Trustees:

The Mutual Fund may be managed by a Board of trustees of individuals, or a trust company – a

corporate body. Most of the funds in India are managed by board of trustees. While the board of

trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate body,

it would also be required to comply with the provisions of the companies act, 1956. the board of

trustee company, as an independent body, act as protector of the unit-holders interest. The trustees

don’t directly manage the portfolio of securities. For this specialist function, they appoint an AMC.

They ensure that the fund is managed by AMC as per the defined objectives & in accordance with

the trust deed & SEBI regulations. The trust is created through a document called the trust deed i.e.,

executed by the fund sponsor in favor of the trustees. The trust deed is required to be stamped as

registered under the provision of the Indian registration act & registered with SEBI. The trustees

begin the primary guardians of the unit-holders funds & assets, a trustee has to be a person of high

repute & integrity.

Asset Management Company (AMC):

The role of an Asset management companies is to act as the investment manager of the trust. They

are the ones who manage money of investors. An AMC takes decisions, compensates investors

through dividends, maintains proper accounting & information for pricing of units, calculates the

NAV, & provides information on listed schemes. It also exercises due diligence on investments &

submits quarterly reports to the trustees. AMCs have been set up in various countries internationally

as an answer to the global problem of bad loans.

Bad loans are essentially of two types: bad loans generated out of the usual banking operations or

bad lending, and bad loans which emanate out of a systematic banking crisis.

It is in the latter case that banking regulators or governments try to bail out the banking system of a

systematic accumulation of bad loans which acts as a drag on their liquidity, balance sheets and

generally the health of banking. So, the idea of AMCs or ARCs is not to bail out banks, but to bail

out the banking system itself.

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Types of AMCs in Indian Context:

The following are the various types of AMCs we have in India:

AMCs owned by banks.

AMCs owned by financial institutions.

AMCs owned by Indian private sector companies.

AMCs owned by foreign institutional investors.

AMCs owned by Indian & foreign sponsors.

Custodian:

Often an independent organization, it takes custody all securities & other assets of mutual fund. Its

responsibilities include receipt & delivery of securities collecting income-distributing dividends,

safekeeping of the unit & segregating assets & settlements between schemes.

Mutual fund is managed either trust company board of trustees. Board of trustees & trust are

governed by provisions of Indian trust act. If trustee is a company, it is also subject Indian Company

Act. Trustees appoint AMC in consultation with the sponsors & according to SEBI regulation. All

mutual fund schemes floated by AMC have to be approved by trustees. Trustees review & ensure

that net worth of the company is according to stipulated norms, every quarter.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first

functionary to be appointed, & is involved in appointment of all other functionaries. The AMC

structures the mutual fund products, markets them & mobilizes fund, manages the funds & services

to the investors.

A draft offer document is to be prepared at the time of launching the fund. Typically, it pre-specifies

investment objectives of the fund, the risk associated, the cost involved in the process & the broad

rules to enter & to exit from the fund & other areas of operation. In India as in most countries, these

sponsors need approval from a regulator, SEBI in our case. SEBI looks at track records of the

sponsor & its financial strength 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 & perhaps the third

one to handle registry work for the unit holder of the fund.

Registrars & Transfer Agent(R & T Agent):

The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing function,

as they maintain the records of investors in mutual funds. They process investor applications; record

details provide by the investors on application forms; send out to investors details regarding their

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investment in the mutual fund; send out periodical information on the performance of the mutual

fund; process dividend payout to investor; incorporate changes in information as communicated by

investors; & keep the investor record up-to-date, by recording new investors & removing investors

who have withdrawn their funds.

SEBI – Securities and Exchange Board of India:

Securities and Exchange Board of India (SEBI) is a board (autonomous body) created by the

Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992 with its head

office at Mumbai.

The Securities and Exchange Board of India is perhaps the most important regulatory body. Similar

to the Securities Exchange Commission in the US, it is the authority that has to always be on its toes.

More so, when the markets are doing well and there are a spate of IPOs (initial public offerings) or

FPO’s (follow-on public offerings) like now.

Its main mandate is to protect the interest of investors in the securities markets and to promote the

development of and to regulate the securities markets so as to establish a dynamic and efficient

securities market.

When investors have complaints against listed companies or registered intermediaries, and if they are

not solved directly between the parties concerned, or if the investor is not happy with the response

then SEBI acts as the nodal agency for addressing these complaints.

SEBI has listed certain categories of grievances for which investors can file complaints with it.

These include:

Non-receipt of refund order or allotment advice in case of investment in IPO's, FPO's and

rights issues

Non-receipt of dividend from listed companies

Non-receipt of share certificates after transfer from listed companies

Non-receipt of debentures after transfer or non-receipt of interest or principal on redemption

and non-receipt of interest on delayed repayment

Non-receipt of rights offer letter

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1.3ADVANTAGES OF MUTUAL FUND :

Professional Management

Mutual funds offer investors the opportunity to earn an income or build their wealth through

professional management of their investible funds. There are several aspects to such professional

management viz. investing in line with the investment objective, investing based on adequate

research, and ensuring that prudent investment processes are followed.

Portfolio Diversification:

Units of a scheme give investors exposure to a range of securities held in the investment portfolio of

the scheme. Thus, even a small investment of Rs 5,000 in a mutual fund scheme can give investors a

diversified investment portfolio. With diversification, an investor ensures that all the egg is not in the

same basket. Consequently, the investor is less likely to lose money on all the investments at the

same time. Thus, diversification helps reduce the risk in investment. In order to achieve the same

diversification as a mutual fund scheme, investors will need to set apart several lakh of rupees.

Instead, they can achieve the diversification through an investment of a few thousand rupees in a

mutual fund scheme. Economies of Scale The pooling of large sums of money from so many

investors makes it possible for the mutual fund to engage professional managers to manage the

investment. Individual investors with small amounts to invest cannot, by themselves, afford to

engage such professional management. Large investment corpus leads to various other economies of

scale. For instance, costs related to investment research and office space get spread across investors.

Further, the higher transaction volume makes it possible to negotiate better terms with brokers,

bankers and other service providers.

Liquidity

At times, investors in financial markets are stuck with a security for which they can’t find a buyer –

worse, at times they can’t find the company they invested in! Such investments become illiquid

investments, which can end in a complete loss for investors. Investors in a mutual fund scheme can

recover the value of the moneys invested, from the mutual fund itself. Depending on the structure of

the mutual fund scheme, this would be possible, either at any time, or during specific intervals, or

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only on closure of the scheme. Schemes where the money can be recovered from the mutual fund

only on closure of the scheme, are listed in a stock exchange. In such schemes, the investor can sell

the units in the stock exchange to recover the prevailing value of the investment.

Tax Deferral

Mutual funds are not liable to pay tax on the income they earn. If the same income were to be earned

by the investor directly, then tax may have to be paid in the same financial year. Mutual funds offer

options, whereby the investor can let the moneys grow in the scheme for several years. By selecting

such options, it is possible for the investor to defer the tax liability. This helps investors to legally

build their wealth faster than would have been the case, if they were to pay tax on the income each

year.

Tax benefits

Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit of

deduction of the amount invested, from their income that is liable to tax. This reduces their taxable

income, and therefore the tax liability. Further, the dividend that the investor receives from the

scheme, is tax-free in his hands.

Convenient Options

The options offered under a scheme allow investors to structure their investments in line with their

liquidity preference and tax position.

Investment Comfort

Once an investment is made with a mutual fund, they make it convenient for the investor to make

further purchases with very little documentation. This simplifies subsequent investment activity.

Regulatory Comfort

The regulator, Securities & Exchange Board of India (SEBI) has mandated strict checks and balances

in the structure of mutual funds and their activities. These are detailed in the subsequent units.

Mutual fund investors benefit from such protection.

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Systematic approach to investments

Mutual funds also offer facilities that help investor invest amounts regularly through a Systematic

Investment Plan (SIP); or withdraw amounts regularly through a Systematic Withdrawal Plan

(SWP); or move moneys between different kinds of schemes through a Systematic Transfer Plan

(STP). Such systematic approaches promote an investment discipline, which is useful in long term

wealth creation and protection

1.4 Disadvantage of Investing Through Mutual Funds

Lack of portfolio customization:

Some securities houses offer Portfolio Management Schemes (PMS) to large investors. In a PMS, the

investor has better control over what securities are bought and sold on his behalf. On the other hand,

a unit-holder is just one of several thousand investors in a scheme. Once a unit-holder has bought

into the scheme, investment management is left to the fund manager (within the broad parameters of

the investment objective). Thus, the unit-holder cannot influence what securities or investments the

scheme would buy. Large sections of investors lack the time or the knowledge to be able to make

portfolio choices. Therefore, lack of portfolio customization is not a serious limitation in most cases.

Choice overload:

Over 800 mutual fund schemes offered by 38 mutual funds – and multiple options within those

schemes – make it difficult for investors to choose between them. Greater dissemination of industry

information through various media and availability of professional advisors in the market should

help investors handle this overload.

1.5 TYPES OF MUTUAL FUND SCHEMES: By Structure

o Open-ended schemes

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o Close-ended schemes

o Interval schemes

By Investment Objective

o Growth schemes

o Income schemes

o Balance schemes

o Money Market schemes

Other types of schemes

o Tax Saving schemes

o Special schemes

o Index schemes

o Sector specific schemes

Schemes according to maturity period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending

on its maturity period.

Open-ended Fund / Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a

continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy

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and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key

feature of open-end schemes is liquidity.

Close-ended Fund / Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for

subscription only during a specified period at the time of launch of the scheme. 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 the units 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 i.e. either repurchase facility or through listing on stock

exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Interval scheme

Interval funds combine the features of open-ended & closed ended schemes. They are open for sale

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

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering

its investment objective. Such schemes may be open-ended or close-ended schemes as described

earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Schemes

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

schemes normally invest a major part of their corpus in equities. Such funds have comparatively high

risks. These schemes provide different options to the investors like dividend option, capital

appreciation, etc. and the investors may choose an option depending on their preferences. The

investors must indicate the option in the application form. The mutual funds also allow the investors

to change the options at a later date. Growth schemes are good for investors having a long-term

outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme

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, Government

securities and money market instruments. Such funds are less risky compared to equity schemes.

These funds are not affected because of fluctuations in equity markets. However, opportunities of

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capital appreciation are also limited in such funds. The NAVs of such funds are affected because of

change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to

increase in the short run and vice versa. However, long term investors may not bother about these

fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest both

in equities and fixed income securities in the proportion indicated in their offer documents. These are

appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and

debt instruments. These funds are also affected because of fluctuations in share prices in the stock

markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital

and moderate income. These schemes invest exclusively in safer short-term instruments such as

treasury bills, certificates of deposit, commercial paper and inter-bank call money, government

securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds

are appropriate for corporate and individual investors as a means to park their surplus funds for short

periods.

Other Schemes

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act,

1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked

Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits.

These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities

and risks associated are like any equity-oriented scheme.

Gilt Fund

These funds invest exclusively in government securities. Government securities have no default risk.

NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is

the case with income or debt oriented schemes.

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Risk

Money Market Funds

Floaters

Income FundsGilt Funds

MIPsBalanced Funds

Diversified Equity FundsR

eturns

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE

50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an

index. NAVs of such schemes would 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. Necessary disclosures in this regard are made in the offer document of the mutual fund

scheme. There are also exchange traded index funds launched by the mutual funds which are traded

on the stock exchanges.

Sector specific funds / schemes

These are the funds/schemes which invest in the securities of only those sectors or industries as

specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods

(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the

respective sectors/industries. While these funds may give higher returns, they are more risky

compared to diversified funds. Investors need to keep a watch on the performance of those

sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

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1.6VARIOUS CRITERIA TO EVALUATE THE MUTUAL FUNDS

The most important and widely used measures of performance are:-

Basic criterions to evaluate the mutual fund schemes

P/E ratio

Page | 26

Turnover ratio

Expense ratio

Standard deviation

P/E RatioA valuation ratio of a company's current share price compared to its per-share earnings.

(EPS).

Calculated as:

EPS is the profit that a company makes on a per share basis. So, if EPS is one, the PE ratio will

reflect the price that an investor will pay for this one rupee of the company's profits. Higher PE ratio

signifies that investor expectation from these shares is higher. This is because the growth in share

price is expected to follow earnings growth. In general, a high P/E suggests that investors are

expecting higher earnings growth in the future compared to companies with a lower P/E. However,

the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E

ratios of one company to other companies in the same industry, to the market in general or against

the company's own historical P/E.

Turnover Ratio

The turnover ratio is the lower of the total sales or total purchases over the period divided by the

average of the net assets. Higher the turnover ratio, greater is the volume of trading carried out by the

fund. The turnover ratio is more important for equity and balanced funds where the trading cost of

equities is substantial. So, each time a fund manager buys and sells, he has to keep in mind that the

cost of buying and selling will eat into the fund's returns. Dynamic equity funds, which can move

rapidly between sectors, will obviously have a higher turnover ratio. Here risk will not be just of the

fund manager making a wrong call on a sector but also that of turnover risk. In comparison a

passively managed fund, such as an index fund, will have a lower turnover rate compared to an

active fund as it has to just mirror the index. The only trading here will be due to investments,

redemptions and changes in the index. Also, it is not meaningful to use turnover ratio for new

schemes, which are not fully invested. As the scheme is deploying its assets there will be more

transactions, at least buy orders, as compared to a fund` which is fully invested. Turnover ratio is less

relevant for income funds as brokerage costs are much lower, and hence they will have a lower

potential to eat into returns. So, even though gilt funds may have equally high turnover as compared

Page | 27

to equity funds, the impact of this turnover is much less. In Short, Turnover ratio is a measure of how

a fund's portfolio changes in a year. This ratio indicates how much a fund is trading. Understanding

turnover ratio helps in gaining insights into a fund's performance.

Expense Ratio

Expense ratio is the percentage of total assets that are spent to run a mutual fund. As returns from

bond funds tend to be similar, expenses become an important factor while comparing bond funds.

SHARPE RATIOSt= Rp --Rf

S.D

WHERE

Rp – Avereage return to portfolio

Rf—Risk free rate of interest

S.D- Standard Deviation

Sharpe’s performce index gives a single value to be used for the performance ranking of various

funds or portfolios. Sharpe index measures the risk premium of the portfolio relative to the total

amount of risk in the portfolio. The risk premium is the difference between the portfolio’s average

rate of return and the risk less rate of return. The standard deviation of the portfolio indicates the risk.

Higher the value of sharpe ratio better the fund has performed. Sharpe ratio can be used to rank the

desirability of funds or portfolios. The fund that has performed well comapred to other will be

ranked first then the others.

TREYNOR RATIO

Ty= Rp—Rf

B

WHERE

Rp- Average return to portfolio

Rf- Risk less rate of interest.

B- Beta coeffecient

Treynor ratio is based on the concept of characteristic line. Characteristic line gives the relation

between a given market return and fund’s return. The fund’s performance is measured in relation to

Page | 28

market performance. The ideal fund’s return rises at a faster rate than the market performance when

the market is moving upwards and its rate of return declines slowly than the market return, in the

decline. Treynor’s risk premium of the portfolio is the difference between the aveage return and the

risk less rate of return. The risk premium depends on the systematic risk assumed in a portfoilo.

Standard Deviation

Standard Deviation is the most common statistical measure of judging a fund's volatility and risk. It

gives you a 'quality rating' of an average. A measure of the total volatility of a fund is based on the

trailing three-year monthly returns. For debt and gilt funds it is based on average weekly return over

the past one and a half years. The Standard Deviation of an average is the amount by which the

numbers that go into an average deviate from that average. It tells us how closely an average

represents the underlying numbers. A high Standard Deviation may be a measure of volatility, but it

does not necessarily mean that such a fund is worse than one with a low Standard Deviation. If the

first fund is a much higher performer than the second one, the deviation will not matter much.

BETA

Beta describes the relationship between the stock’s return and index returns. There can be direct or

indirect relation between stock’s return and index return. Indirect relations are very rare.

1) Beta =+1.0

It indicates that one percent change in market index return causes exactly one percent change in the

stock return. It indicates that stock moves along with the market.

2) Beta= + 0.5

One percent changes in the market index return causes 0.5 percent change in the stock return. It

indicates that it is less volatile compared to market.

3) Beta=2.0

One percent change in the market index return causes 2 percent change in the stock return. The stock

return is more volatile. The stocks with more than 1 beta value are considered to be very risky.

4) Negative beta value indicates that the stocks return move in opposite direction to the market

return.

Beta= N*∑XY- (∑X) (∑Y/ N(X*X) * (∑x)

Where

N- No of observation

X- Total of market index value

Y- Total of return to Nav

Page | 29

NAV

Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net

asset terms.

NAV = Net Assets of the scheme / Number of Units Outstanding

Where Net Assets are calculated as:-

(Market value of investments + current assets and other assets + Accrued income – current liabilities

and other liabilities – less accrued expenses) / No. of Units Outstanding as at the NAV date

Page | 30

1.7 CHANNELS OF SELLING MUTUAL FUNDS

Mutual funds are emerging as an important financial intermediary for the investing public in India.

Conceptually and operationally they are different. The investors need to understand the working of a

mutual fund and the increasingly diverse and complex investment options brought to them by a large

number of mutual funds. The key channel in bringing the mutual funds to a large number of investors all

over the country is the network of

INTERMEDIARIES / DISTRIBUTORS.

In this industry we have five different channels through which mutual fund are sold:

• Mutual Fund Company

• National Distributors (NDs) & Intermediaries

• Banks

• Individual Financial Advisors (IFAs)

• Internet

Each one has its own customer base. Their way of dealing with them is totally different from other.

Every one attracts in their own way. How they attract we will study. There are many industries here. The

urgency to keep increasing in size has led mutual funds to use marketing hooks to draw investors. As we

rely only on channel partners, our relation with them really is going to play a vital role. How different

companies lure the partners, we’ll study that. As to start with we will first study about the intermediaries

in brief by describing who they are and how they help a direct investor.

Mutual Fund Office:

Anyone can walk into a mutual fund’s office, and buy/sell units of its schemes. It’s a simple process, and

there are employees of the fund house on hand to guide you through. If you are buying units, you will

have to fill up an application form and hand over a cheque equivalent to your investment. The fund

house will give you an acknowledgement of your investment in its scheme(s) and subject to your cheque

being cleared, send you an account statement within three to seven days. Since a fund house market only

its schemes and not those of its competitors, buying directly means knowing which fund house we want

to invest in. If we are selling units, the relevant document is the redemption form, which sometimes

Page | 31

forms part of your account statement and can be torn off it, or can be had from the fund house’s office.

The fund house mails the cheque within three days.

Intermediaries:

Distributors such as agents, banks and stockbrokers are present in much greater numbers, which makes

them the preferred option among investors. While dealing with the intermediaries, make sure they have

the AMFI (Association of Mutual Fund in India) certification-a SEBI precondition; since September

2003, for selling mutual funds, intended t ensure that only qualified distributors dispense mutual fund

advice. AMFI issues photo identity cards to registered intermediaries, which is proof of their having

acquired the certification.

National Distributors [7]

The big agents are one-stop sellers of financial products. Agents score over mutual funds on

convenience, choice and quality of service. They operate from multiple locations-for example, national

distributors like Bajaj Capital has more outlets than most mutual funds-and are supported by an army of

registered agents, some of whom are willing to come to our doorstop and sell schemes to you. Further,

while a mutual fund offer its schemes, a big agent has the biggest stock among all mutual fund sellers,

selling virtually all schemes of virtually every fund house, as well as other investment products. For us,

this means more choice. If we know the scheme we want to invest in, go to an agent, fill up the scheme’s

form and give in a cheque. Even if we don’t know which scheme we want to invest in, a good agent will

understand our need and help you pick a scheme. The agent should understand our reasons for investing

in a mutual fund and based on that offer us appropriate options, and let us make a choice. An agent is

supposed to be impartial and not show a preference towards a particular fund house. The very nature of

the relationship between an intermediary and fund houses opens up the possibility of bias. Fund houses

pay intermediaries a commission linked to the business they bring in. If fund house X pays a higher

commission than fund house Y, an intermediary might push scheme X, as it stands to earn more. How do

we know that we are being misguided or not? The entry load charged by a scheme can offer us some

clues. The entry load represents the upfront costs an investor pays to invest in a scheme, and the agent’s

commission tends to flow out of it. The higher the entry load, chances are, the higher the agent’s

commission. If the agent is pushing the higher load scheme, perhaps he is more interested in maximizing

his commission than our returns. Hence always know the entry load being charged by a scheme. Till mid

2002, intermediaries passed on a part of their commission to investors, as an incentive to invest. The

amount of cash paid depended largely on much they got from a fund house. Obviously the more they got

form the fund house, the more they passed on to investors. This often created an unhealthy situation,

where cash incentives, and not investment-worthiness, determined which scheme, an agent

Page | 32

recommended. In June 2002, to stop such abuse, SEBI made it illegal for intermediaries to give money

and gifts to investors. Although intermediaries can’t lure you with money now (legally speaking that is),

their commission-based earnings structure means a distributor could still be a partial to a fund house.

Which is why, listen to what an intermediary to say but also do the homework, and use your judgment to

make an informed decision. The benefits of investing through brokers for a customer are:

Banks

A number of banks, especially the private and foreign ones, are into marketing the mutual fund schemes.

Many of them market not only their own schemes, but also those of their rivals as a point of purchase;

banks are a good option because of their fantastic reach-banks can be found in every neighborhood. This

wide reach has enabled banks to emerge as a major distributor. In 1999, barely 10 percent of fresh

mutual fund sales were made through banks; during 2003, various estimates put the share of banks in

mutual fund sales at between 30 percent and 50 percent. In terms of scope of service, banks are a notch

below agents. Whatever your profile or investment amount might be, an agent will offer you

personalized service-he will listen to your investment needs, offer you information on various schemes

as asked by you, and suggest investment options. The private sector Banks today like HDFC,ICICI and

AXIS Bank are very aggressive in their approach and are willing to take that extra effort to satisfy their

customers and hence are willing to sell the mutual funds of their competitors too. All the schemes in

such banks are customer centric as they give a lot of importance to customer retention. It should also be

noted that about 40% of SBI’s funds are sold through the various Sbi branches around the country. It is

one competitive advantage that SBI Mutual Funds enjoys as SBI has the most number of branches in the

country and no other bank is yet to match that.

Individual Financial Advisors

Big brokers combine the attributes of agents (one-stop shop, personalized service) and banks (a team of

analyst who crack the mutual fund industry). This service, though usually comes at a cost, and is

reserved for their clients. Small brokers, on the other hand, welcome retail investors, but most of them

market schemes of select fund houses only. These are independent professionals trained to advice you on

all personal finance matters. They all sell financial products, as agents currently do. Unlike agents,

though, CFPs might charge you for their services.

Page | 33

The Internet

At present, around 3 percent of mutual fund transactions are done online. This figure is bound to

increase, with better Net connectivity are also expected to tie up with more banks, which will bring more

investors into the loop. The other move that will provide a fill up to online transactions to be

supplemented by physical documentation. At present, some fund houses enable buying-and in some

instances, selling on three platforms:

1. Own websites- Most of the mutual fund houses let you buy and sell the units of their schemes through

their websites. All you need is a Net banking account with any of the banks the fund houses have tied up

with. You log on to the fund’s site, choose your scheme and investment amount. A link on the website

takes you to the website of the designated bank, where you make your payment. Money is transferred

from your Net banking account to the mutual fund and units are allotted to you instantaneously. The

transaction is also documented in the physical form-the fund houses send you the application form to

sign, and send back. Once you have done an online transaction with a fund house, you can open an

online account with it. This will enable you to sell your holdings, switch between the schemes and

purchase additional units-at the click of a mouse.

2. Financial Portals- You can also buy units of several mutual funds through financial portals as

myiris.com, timesofmoney.com and indiainfoline.com among others. The process and requirements are

similar to that of for buying through the fund’s site. However, most portals enable only purchase.

3. Online trading portals- Share trading portals like ICICI Direct (icicidirect.com) and Sharekhan

(sharekhan.com) too offer a fair number of mutual fund schemes on their platforms. Registered user can

buy or sell their units on offer, just like a stock-at no extra cost

Page | 34

1.8 The benefits that the channels of distribution provide SBI Mutual Funds are:

1. Reduce search and analysis costs. Finding and selecting a mutual fund from among the thousands of

possible choices is neither simple nor anxiety-free. The search and evaluation costs for some types of

funds (and customers) may be greater than for others. “Harder to find funds” might include those

that are younger and smaller. In addition, some types of funds are harder to analyze than others.

Money market funds and index funds are probably easier to understand than would be international

funds or more specialized funds. If consumers use brokers to help them find funds for which search

and analysis costs are higher, then we should see brokers specializing in these types of funds.

2. Reduce non-distribution expenses. There is ample evidence that higher expenses systematically lead

to lower performance. Many studies have tried to establish whether fund managers can earn enough

pre-fee alpha to offset the drag caused by their fees. By definition, inserting a paid broker into the

fund selection process will increase the costs to the consumer. Brokers cannot change the

performance of a fund (they do not make portfolio decisions), but they could direct consumers to

different types of funds. Perhaps brokers help the consumer find funds whose non-distribution costs

(investment management, custody, legal, audit, etc.) are lower, offsetting some or all of the higher

costs of distribution.

3. Help consumers identify funds with higher risk-adjusted returns. Just as consumers pay

investment managers with the hope that they will select portfolios of securities that produce positive

risk-adjusted returns, perhaps they pay brokers to select mutual funds that produce positive risk-adjusted

returns. While academic research has failed to find that investment managers can repeatedly outperform

risk-adjusted indices, perhaps professional brokers might help their customers find superior performing

funds. These funds may not be “superior” in an absolute sense (have persistent positive alphas), but

rather in a relative sense, i.e., compared with the alphas of direct sold funds, before or after the deduction

of the various expenses of fund purchase and ownership

Page | 35

2.1Graphical representation of the Percentage of the Mutual Funds sold through the

different channels during Financial Year April 1st 2011- March 31st 2013

45

10

12

24.5

3.55

Sales

SBINational DistributorsIFA'sMutual Fund officeInternetOther Banks

Figure 2.1- Mutual Funds sold through different channels

Interpretations:

As of now banks play a major role in the distribution of SBI’s Mutual Funds as 50% of it’s funds are

distributed through it.

However, it should also be noted that 45% of the 50% are sold through the various SBI Branches

across the country and that the other banks like Axis, HDFC and ICICI that also sell Mutual Funds

of other rival companies contribute a mere 5%.

It has been observed that the contribution of the Mutual Office and the Internet in the sales of the

mutual office has been steadily increasing in the last couple of years as the customer awareness has

increased manifold in these years.

Page | 36

3.0 Methodology:

The study involved collection of both primary as well as secondary data. After the collection of

secondary data & interviews with the Finance and the Distribution team and other staff, the analysis was

done with the help of excel. The results are depicted in the tables and graphs. The descriptive mode of

research was followed throughout the study. It is a systematic and rigorous investigation of the

distribution channels of SBI Mutual Funds and the best equity schemes it has to offer.

3.1 Primary DataPrimary data was collected from facts and figures obtained through personal visits and discussions with

staff of SBI Funds Management Pvt Ltd Company and also related parties.

3.2 Secondary Data

For collecting secondary data various other sources were used like:

Audited Annual Report of the company.

Information from journals and magazines.

Information from internet, intranet, and reference books.

Different accounting records of the company.

3.1

Page | 37

Comparative analysis of SBIMF’s Emerging Business Fund with its Competitors in the

Mid cap segment:

SBI Emerging Business Fund:

SBI Emerging Businesses Fund is a market capitalization agnostic fund; it may invest into large, mid

and/or small cap stocks in any proportion based on the market conditions making the most of different

market phases. This kind of strategy proves beneficial as:

during times of volatility, large caps have comparatively been more consistent

whereas, when markets rally, mid & small caps have taken the lead, so seeing the market pattern

and based on careful predictions investments are made

Investment Objective:

• This fund would predominantly invest in Mid Cap. & Small Cap. Companies which have

tremendous growth potential.

• Companies which have exporting orientation and outsourcing opportunities and are globally

competitive are focused upon.

• Companies which have growth potential and domestic focus are also evaluated by this fund.

Focussed Approach:

High Conviction: The portfolio invests in 20-30 stocks based on return expectations

Concentrated: The current top 10 holdings amount to 50.44%

Flexibility: Since there are no sector holding limits, the portfolio is more flexible thereby allowing the

fund manager to hold the sectors that the fund manager believes are the best suited for the portfolio

For large cap stocks, a top-down approach is taken which is analysing the broader economic outlook,

then identifying the sectors & eventually narrowing down to stock selection

For mid & small caps, the bottom up approach in which micro factors (business specific) are taken into

consideration which eventually lead to sector selection

Page | 38

Sector Exposure Percentage:

Financial services

Consumer Goods

Automobiles

Services

Energy

Pharma

0 5 10 15 20 25

20

17.5

10

8

6

8.4

Figure 3.1-Sector exposure of EBF

The Fund manager has put a lot of faith in the financial, consumer goods and the automobile sectors

respectively as nearly 50% of the amount is invested in these sectors.

Performance:

1 Year 2 Year 3 Year 4 Year

-40

-20

0

20

40

60

80

65

-10

35

2530

-30

2520

25

-25

22 20Emerging Business FundBSE 500 Index (Scheme Benchmark)BSE SENSEX (Additional Benchmark)

Figure 3.1.2- Performance of EBF

As shown in the above graph Sbi’s Emerging Business Fund has consistently outperformed it’s

benchmark making it an must have fund.

Page | 39

HDFC MIDCAP OPPURTUITIES:

This product is suitable for investors who are seeking: capital appreciation over long term. investment predominantly in equity and equity related instruments of Small and Mid Cap

companies. high risk.

Investment Objective:

To generate long–term capital appreciation from a portfolio that is substantially constituted of equity and

equity-related securities of small and mid–cap companies.

Investment Strategy:The investment objective of the Scheme is to generate long-term capital appreciation from a portfolio

that is substantially constituted of equity and equity related securities of Small and Mid-Cap companies.

The Investment Manager will also seek participation in other equity and equity related securities to

achieve optimal portfolio construction. The Scheme may also invest a certain portion of its corpus in

debt and money market securities.

Page | 40

SECTOR PERCENTAGE EXPOSURE:

FINANCIAL

HEALTHCARE

CHEMICALS

ENGINEERING

TECHNOLOGY

FMCG

SERVICES

0 2 4 6 8 10 12 14 16

14.91

14.76

10.37

8.77

8.36000000000001

7.56

7.37

Figure 3.1.3- Sector exposure of HDFC Midcap Opportunities

The fund manager has put a lot of faith in the Financial, Healthcare and the Chemicals industry

and had put about 40% of his funds in these sectors.

Performance:

1 Year 2 Year 3 Year 5 Year-2

0

2

4

6

8

10

12

14

16

5.3

1.4

5.3

14.9

3.2

-0.5

0.3

3.9

Fund ReturnsBSE 500 Index

Figure 3.1.4- Performance of HDFC MidCap Opportunities

The fund as it shows in the above graph has outperformed it’s benchmark consistently making it

a good fund to invest in.

Page | 41

IDFC Premier Equity:

IDFC Premier Equity Fund was conceptualized to invest into ideas early into their lifecycle. A typical

business cycle adopts a 3-5 year window through which it transitions. Thus the ideal holding period in

each idea is spread out over 3-5 years. The focus remains on buying into emerging business & taking a

call on the entrepreneur /organization to ride through successfully the growth curve of the business

cycle. Here we polarize capital into strong business trends. The fund strives to create long term investor

wealth by opening for lump sum subscriptions during periods when such trends are identifiable. By this

the Endeavour is to prevent short term money from flowing into the fund which can prove detrimental to

the interest of long term investors.

This product is suitable for investors who are seeking:

Capital appreciation over long term. Investment predominantly in equity and equity related instruments of Small and Mid Cap

companies. High risk.

Current Strategy:

The current structure largely weights around a very balanced domestic opportunity of the investment

economy and the consumer economy. During the course of the year the money will be allocated to the

fastest growing part of the economy. The portfolio has attempted to identify emerging themes & segment

leaders which have a strong correlation to the growth of the economy.

Page | 42

Sector Exposure:

Banking & Financial Services

Services

Manufacturing

Chemicals

Oil & gas

Consumer Durables

0 2 4 6 8 10 12 14

12.56

11.56

11.38

9.48

8.56

7.45

Figure 3.1.4- Sector Exposure of IDFC Premier Equity

The fund manager has put a lot of faith in the Financial, Services and the Manufacturing industry

and had put about 30% of his funds in these sectors.

Performance:

1 Year 2 Year 3 Year 5 Year0

2

4

6

8

10

12

14

16

18

20

13.59

4.745.78

14.9

17.75

3.58 3.47

6.33

Fund ReturnS&P BSE Sensex

Figure 3.1.5 Performance of IDFC Premier Equity

The fund as it shows in the above graph has outperformed its benchmark consistently making it

a good fund to invest in.

Page | 43

ICICI Prudential Discovery Fund (G):

ICICI Prudential Discovery Fund is an Open-ended Diversified Equity Fund, which aims to invest stocks

available at a discount to their intrinsic value, through a process of ‘Discovery’. The process involves

identifying companies that are well managed, fundamentally strong, and are available at a price, which

can be termed as a bargain.

Investment Philosophy:This fund adopts a "Bottom-up" strategy, to identify and pick its investments based on an evaluation of

several parameters such as Price / Earning, Price / Book Value and Dividend Yield. The fund manager

works towards building a portfolio that is well diversified across sectors and constructed based on in-

depth research.

Key Benefits: It follows a value strategy of bargain hunting for intrinsically good stocks

As the potential value of the stocks in which the fund invests has not yet been unlocked, the

probability of growth is much higher.

This product is suitable for investors who are seeking: Long term wealth creation solution

A diversified equity fund that aims to generate returns through a combination of dividend income

and capital appreciation by primarily investing in value stocks. 

High risk

Page | 44

Sector Exposure:

Financial

Energy

Engineering

Metals

Healthcare

0 2 4 6 8 10 12 14 16

15.02

10.02

9.72

9.63

8.33

Sector Exposure

Figure 3.1.6- Sector Exposure of ICICI Prudential Discovery Fund

The fund manager has put a lot of faith in the Financial, Energy and the Engineering industry

and had put about 45% of his funds in these sectors.

Fund Performance:

1 Year 2 Year 3 Year 5 Year0

2

4

6

8

10

12

14

16

18

2.98 2.65

7.56

15.8116.81

3.2

7.046.2

Fund PerformanceCNX Nifty(Benchmark Return)

Figure 3.1.7- Performance of ICICI Prudential Discovery Fund

The fund started off on a bad note but all those customers who kept their faith in the fund

were rewarded nicely as it performed well as time passed.

Page | 45

3.2 Analysis of the Risk of the Selected Mid-Cap Funds:

Standard Deviation:

HDFC M

id-Cap

Opportu

nities

ICICI Pru

dential

Discove

ry

IDFC

Premier

Equity

Regular

SBI E

mergin

g Busin

esse

s15.5

16

16.5

17

17.5

18

18.5

19

17.38 17.3416.61

18.74

Figure 3.2- Standard Deviation of the various funds The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates

in relation to its average return of a fund over a period of time.

 

In other words, it is a measure of the consistency of a mutual fund's returns. A higher SD number

indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund

with a lower SD. Therefore from the above graph we can conclude that:

IDFC Premier Equity Fund has the least risk

SBI Emerging Business Fund has the highest risk. We should also keep in mind that the

returns one gets from a fund are in proportion to the risk of that fund.

Page | 46

Beta:

HDFC M

id-C

ap O

pportuniti

es

ICICI P

ruden

tial Disc

overy

IDFC

Pre

mier

Equity

Reg

ular

SBI E

mer

ging B

usines

ses0.66

0.68

0.7

0.72

0.74

0.76

0.78

0.8

0.82

0.8 0.81

0.720000000000001

0.760000000000003

Figure 3.3- Beta of the Funds

1. A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index.

The fund will move up and down in tandem with the movement of the markets (as indicated by the

benchmark)

2. A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index.

3. A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index.

It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper.

For example, if the beta of “ABC-Equity (G)” is 1.4 - then it’s considered as 40% more volatile than the

benchmark index (beta of benchmark index being 1).

Therefore from the above graph we can come to the conclusion that IDFC Premier Equity Fund is the

least volatile fund among the four funds and that the ICICI Prudential Discovery Fund is the most

volatile of the lot.

 

Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors can

opt to invest in mutual fund schemes which have higher beta value for higher returns taking more risk.

Page | 47

P/E Ratio:

HDFC M

id-Cap

Opportu

nities

ICICI Pru

dential

Discove

ry

IDFC Pre

mier Eq

uity Reg

ular

SBI E

mergin

g Busin

esse

s0

5

10

15

20

25

30

35

16.5113.14

30.6524.08

Figure3.4-P/E Ratio of the Funds

A high P/E usually indicates that the market will pay more to obtain the company's earnings because it

believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of

popularity (e.g.: telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth

orientation.

A low P/E indicates the market has less confidence that the company's earnings will increase; however, a

fund manager or an individual with a 'value investing' approach may believe such stocks have an

overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining,

tend to have low P/E ratios, reflecting a value orientation.

According to the graph the P/E ratio of IDFC’s PEF and SBI’s EBF are the two funds that the

customers feel will grow.

It shows that the customers have tremendous confidence in those funds when compared to the

other two funds.

Page | 48

Turnover Ratio:

HDFC M

id-C

ap O

pportuniti

es

ICIC

I Pru

dential

Disc

overy

IDFC

Pre

mie

r Equity

Reg

ular

SBI E

mer

ging

Busines

ses

0102030405060708090

100

88

49

74

13.82

Figure-3.5 Turnover Ratio of the Funds

A low turnover ratio indicates a buy and hold strategy for actively-managed mutual funds but it is

naturally inherent to passively-managed funds, such as index funds and Exchange Traded Funds (ETFs).

In general, and all other things being equal, a fund with higher relative turnover will have higher trading

costs (Expense Ratio) and higher tax costs, than a fund with lower turnover. In summary, lower turnover

generally translates into higher net returns.

SBI’s Emerging Business Fund has the lowest turnover ratio among the lot and hence incurs less

of trading costs and less tax costs and therefore is the best fund among the lot.

HDFC’s Mid Cap Opportunities has the highest turnover ratio and hence a lot of money will get

deducted as tax and will also have a higher expense ratio.

Page | 49

Comparison of the the SmallCap Funds:

Scheme SBI Emerging Busi (G)

HDFC MidCap Opportunities (G)

IDFC Premier Equity - A (G)

ICICI Pru Discovery Fund (G)

Fund Class Small & Mid Cap Small & Mid Cap Small & Mid Cap Small & Mid Cap

Fund Type Open-Ended Open-Ended Open-Ended Open-Ended

Ranking Rank 1 Rank 2 Rank 2 Rank 2

Scheme Asset Rs in cr

1,214.96Mar-30-2013

2,719.45Mar-30-2013

3,381.06Mar-30-2013

2,538.81Mar-30-2013

Inception Date Sep 17, 2004 May 07, 2007 Sep 26, 2005 Jul 23, 2004

Last Dividend Rs/Units

N.A. N.A. N.A. N.A.

Benchmark BSE 500 CNX Midcap BSE 500 CNX MidcapMinimum InvestmentRs

Rs.2000 Rs.5000 Rs.10000 Rs.5000

AMC/Fund Family

SBI Funds Management Private

Limited

HDFC Asset Management Co. Ltd.

IDFC Asset Management

Company Private Limited

ICICI Prudential Asset Mgmt.Co. Ltd

AMC Asset 

Rs in cr

54,905.44Mar-31-2013

101,720.28Mar-31-2013

32,885.99Mar-31-2013

87,835.07Mar-31-2013

NAV DetailsLatest NAV Rs/Units

51.98550Jun-27-2013

16.88900Jun-27-2013

36.22030Jun-27-2013

49.95000Jun-27-2013

52 week high 62.500Jan 04, 13

19.047Jan 15, 13

40.873Jan 04, 13

59.470Jan 15, 13

52 week low 46.290Jun 28, 12

15.858Jun 28, 12

32.293Jul 27, 12

47.700Jun 28, 12

Performance Returns as on Jun 27, 13

3 Months -3.3% -2.0% -0.8% -6.8%6 Months -13.6% -9.0% -9.3% -12.8%1 Year 12.3% 6.5% 11.0% 4.7%2 Years 10.8% 2.6% 6.6% 1.9%3 Years 12.4% 5.8% 6.7% 3.1%5 Years 15.2% 15.2% 14.9% 15.8%

Page | 50

Management & FeesFund Manager R. Srinivasan Chirag Setalvad ~

Rakesh VyasKenneth Andrade Mrinal Singh

Entry Load 0% 0% 0% 0%Exit Load 1.00% 1.00% 1.00% 1.00%Load comment Exit Load 1% if units

are redeemed / switched-out within 1 year from the date of

allotment.

Exit Load 1% if units are redeemed /

switched-out within 1 year from the date of

allotment.

Exit Load 1% if redeemed within

365 days from date of allotment.

Exit Load 1% if units are redeemed /

switched-out for a period of up to 12

months from the date of allotment

Table 1 – Comparison of the various Funds

From the above table we can conclude that SBI’s Emerging Business Fund is the best scheme in

the segment as

It has consistently given more than 10% returns and

According to the Crisil ratings it has received 5 stars

The minimum investment required is the least in comparison to the other funds.

The Fund Manager, Mr. R Srinivasan has been voted the best fund manager according the

“The Economic Times” for the 2nd year in a row.

A common feature that all these funds have in common is that the sector in which the fund

managers have put their faith in is the banking\finance sector.

Page | 51

4.1 Comparative analysis of SBIMF’s Magnum Equity Growth with that of its Top competitors in the Large Caps segment.

SBI Magnum Equity Fund:

Large caps are generally more consistent & stable compared to mid & small cap.

While they may not generate aggressive returns, one may not see large declines in them either.

In a downward trending market, large caps tend to outperform mid and small caps

Large caps generally recover faster than small and mid cap stocks.

Fund Philosophy

• Currently a focused large cap fund

• A concentrated portfolio, investing in 25 to 40 stocks, yet offering adequate diversification benefit

• Follows a top-down approach for investment, starting with analyzing the broader economic outlook,

Then identifying the sectors & eventually narrowing down to stock selection

Page | 52

Sector Exposure:

Banking/Finance

Oil & Gas

Technology

Tobacco

Automotive

Metals & Mining

0 5 10 15 20 25 30 35

31.97

13.17

12.58

9.12

8.52

6.97

Figure 4.1- Sector Exposure of Magnum Equity

The Fund manager has put a lot of faith in the financial, oil & gas and the automobile sectors

respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance (Returns):

1 Year 2 Year 3 Year 5 Year0

2

4

6

8

10

12

14

16

12.2

3.4 3.6

9

14.9

1.31.8

6.3

Fund ReturnS&P CNX Nifty Index

Figure 4.1.1- Performance of the Fund

Page | 53

Initially the fund started of slowly but as the fund remained invested in the stocks it kept growing

consistently and kept outperforming the benchmark.

All those investors who have kept faith in the funds have earned rich dividends.

HDFC Top 200 Fund:

This product is suitable for investors who are seeking:

Capital appreciation over long term.

Investment in equity and equity linked instruments including equity derivatives primarily drawn

from the companies in the S&P BSE 200 Index.

High risk.

Investment Objective:

To generate long term capital appreciation from a portfolio of equity and equity-linked instruments

primarily drawn from the companies in BSE 200 index.

Investment Strategy:

The investment strategy of primarily restricting the equity portfolio to the BSE 200 Index scrips is

intended to reduce risks while maintaining steady growth. Stock specific risk will be minimized by

investing only in those companies / industries that have been thoroughly researched by the investment

manager's research team. Risk will also be reduced through a diversification of the portfolio.

The Trustee may from time to time at their absolute discretion review and modify the strategy, provided

such modification is in accordance with the Regulations or in the event of a discontinuation of or change

in the compilation or the constituents of the BSE 200 Index.

Page | 54

Sector Exposure:

Financial

Energy

Technology

FMCG

Healthcare

0 5 10 15 20 25 30 35

30.79

19.16

10.81

9.48

6

Figure 4.1.2- Sector Exposure of HDFC Top 200

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors

respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance:

Year 1 Year 2 Year 3 Year 5

-2

0

2

4

6

8

10

12

14

8.8

-0.70000000000000

1

1.4

10.8

12.9

0.20.8

6.1 Fund ReturnsBSE 200

Figure 4.1.3- Performance HDFC Top 200

In the first year the fund started of slowly but as the fund remained invested in the stocks it kept

growing consistently and kept outperforming the benchmark.

In the 2nd year the fund did very badly and even gave negative returns and fared even badly than the

benchmark

Page | 55

The 3rd year the fund picked up and and started giving positive returns and outperformed the

benchmark and kept doing so later on also

All those investors who have kept faith in the funds have earned rich dividends.

Franklin India Blue-chip :

Scheme Objectives

 Is an open end growth scheme with an objective to primarily provide medium to long term capital appreciation.

Key features:

An open ended diversified equity fund with primary objective to provide medium to long term capital

appreciation

The fund focuses investing in large-cap companies with strong financials, quality management and

market leadership

The fund is suitable for Investors that prefer large cap oriented equity fund with an investment horizon

of 3-5 years

The fund may be considered more suitable for investors who prefer funds with a long term track

record as Franklin India Blue-chip Fund has tackled the bull and bear phases by focusing on long term

opportunities rather than short term trends

Page | 56

Sector Exposure:

Figure 4.1.4- Sector Exposure of Franklin Templeton

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors

respectively as nearly 60% of the amount is invested in these sectors.

Fund Performance:

Year 1 Year 2 Year 3 Year 50

2

4

6

8

10

12

14

16

18

20

10.4

2.53.7

11.1

17.6

2.43.2

6.8

Fund ReturnsBSE Sensitive Index

Figure 4.1.5- Performance of the fund

Page | 57

Financial

Energy

Technology

Healthcare

Communication

0 5 10 15 20 25 30

24.08

22.95

8.95

7.71

7.08

In the first year the fund started of slowly but as the fund remained invested in the stocks it kept

growing consistently and kept outperforming the benchmark.

In the 2nd year the fund just managed to outperform it’s benchmark.

The 3rd year the fund picked up and outperformed the benchmark and kept doing so later on also.

Birla Sun Life Equity Fund:

. 

Highlights

 1. Smart Choice

2. Flexible Stock Selection

 

Investment objective:

 BSL Equity Fund invests in the most promising companies across sectors and across sizes. Their

investment team researches countless companies in detail, hand picking companies that seem to have a

bright future, and in turn a large increase in share value.

 

Flexible Stock Selection – Always In Sync With The Market:

 The market changes at a furious pace. To be on top of the game, you need to aggressively follow the

action. The fund manager of BSL Equity Fund continuously revaluates the fund portfolio, and revises it

whenever needed, thus increasing the probability of attractive returns. This flexibility of BSL Equity

Fund helps generate consistent returns for you.

Page | 58

Sector Exposure:

Financial

Energy

Technology

FMCG

Healthcare

0 5 10 15 20 25 30

24.31

13.44

10.91

11

7.22

Figure 4.1.6- Sector Exposure of Birla Sunlife Equity Fund

The Fund manager has put a lot of faith in the Financial, Energy and the Technology sectors

respectively as nearly 50% of the amount is invested in these sectors.

Fund Performance:

Year 1 Year 2 Year 3 Year 5

-4

-2

0

2

4

6

8

10

12

14

10.7

-0.5-1.6

6.1

12.9

0.20.8

6.1Fund ReturnsBSE 200

Figure 4.1.7-Fund Performance

Page | 59

In the first year the fund started of well and gave decent returns but couldn’t outperform the

benchmark.

In the 2nd year and 3rd year the fund tanked in the stock market and it gave negative returns and

didn’t even outperform it’s benchmark.

The 5th year the fund picked up and fared as well as the benchmark.

Analysis of the Risk of the Sbi’s Magnum Equity Scheme with the other Selected Large-

Cap Funds:

Standard deviation:

Franklin India Bluechip HDFC Top 200 SBI Magnum Equity UTI Leadership Equity0

5

10

15

20

25

15.7

19.416.06 16.98

Figure 4.2- Standard Deviation of the various funds

The standard deviation of a fund measures this risk by measuring the degree to which the fund fluctuates

in relation to its average return of a fund over a period of time.

 

In other words, it is a measure of the consistency of a mutual fund's returns. A higher SD number

indicates that the net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund

with a lower SD. Therefore from the above graph we can conclude that:

Franklin India Bluechip Fund and SBI emerging Business Fund has the least risk.

HDFC Top 200 Fund has the highest risk.

Page | 60

Beta:

Franklin India Bluechip HDFC Top 200 SBI Magnum Equity UTI Leadership Equity0

0.2

0.4

0.6

0.8

1

1.2

0.81

0.990.82000000000000

10.88

Figure 4.3- Beta of the various funds

1. A beta of 1.0 indicates that the fund NAV will move in same direction as that of benchmark index.

The fund will move up and down in tandem with the movement of the markets (as indicated by the

benchmark)

2. A beta of less than 1.0 indicates that the fund NAV will be less volatile than the benchmark index.

3. A beta of more than 1.0 indicates that the investment will be more volatile than the benchmark index.

It is an aggressive fund that will move up more than the benchmark, but the fall will also be steeper.

For example, if the beta of “ABC-Equity (G)” is 1.4 - then it’s considered as 40% more volatile than the

benchmark index (beta of benchmark index being 1).

Therefore from the above graph we can come to the conclusion that SBI EBF and Franklin India Blue-

chip is the least volatile fund among the four funds and that the HDFC Top 200 is the most volatile of

the lot as the beta is almost close to 1.

 

Note: Conservative investors should focus on mutual funds schemes with low beta. Aggressive investors

Page | 61

can opt to invest in mutual fund schemes which have higher beta value for higher returns taking more

risk.

P/E Ratio:

Franklin India Bluechip HDFC Top 200 SBI Magnum Equity UTI Leadership Equity0

5

10

15

20

25

30

17.47 17.43 18.81

28.28

Figure 4.4- P/E Ratio of the various schemes

A high P/E usually indicates that the market will pay more to obtain the company's earnings because it

believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of

popularity (e.g.: telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth

orientation.

A low P/E indicates the market has less confidence that the company's earnings will increase; however, a

fund manager or an individual with a 'value investing' approach may believe such stocks have an

overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining,

tend to have low P/E ratios, reflecting a value orientation.

According to the graph the P/E ratio of UTI Leadership equity Fund is the fund that the

customers feel will grow.

Page | 62

It shows that the customers have tremendous confidence in that fund when compared to the other

funds.

The graph shows that if the UTI Leadership Fund of Rs 1 is sold at Rs 28 also the customers are

willing to purchase it .

Turnover ratio:

Franklin India Bluechip HDFC Top 200 SBI Magnum Equity UTI Leadership Equity0

10

20

30

40

50

60

70

25.0917.18

58

22.09

Figure 4.5- Turnover Ratio of the various funds

A low turnover ratio indicates a buy and hold strategy for actively-managed mutual funds but it is

naturally inherent to passively-managed funds, such as index funds and Exchange Traded Funds (ETFs).

In general, and all other things being equal, a fund with higher relative turnover will have higher trading

costs (Expense Ratio) and higher tax costs, than a fund with lower turnover. In summary, lower turnover

generally translates into higher net returns.

SBI Magnum Equity has the Highest turnover ratio among the lot and hence incurs a lot of

trading costs and High Tax costs

Page | 63

HDFC’s Top 200 has the least turnover ratio and hence very little money will get deducted as

tax and will also have a lesser expense ratio.

Tabular comparison of the Large Cap FundsScheme SBI Magnum

Equity Fund (G)HDFC Top 200 Fund (G)

Franklin India Bluechip (G)

Birla Sun Life Equity Fund (G)

Fund Class Large Cap Large Cap Large Cap Diversified Equity

Fund Type Open-Ended Open-Ended Open-Ended Open-Ended

Ranking Rank 2 Rank 3 Rank 3 Rank 4

Scheme Asset Rs in cr

1,073.25Mar-30-2013

11,958.80Mar-30-2013

4,312.21Mar-30-2013

712.16Mar-30-2013

Inception Date Jan 01, 1991 Aug 19, 1996 Nov 30, 1993 Aug 27, 1998

Last Dividend Rs/Units

N.A. 2.500 2.000 N.A.

Benchmark BSE 100 BSE 200 BSE Sensitive Index BSE 200

Minimum InvestmentRs

Rs.1000 Rs.5000 Rs.5000 Rs.5000

AMC/Fund Family

SBI Funds Management

Private Limited

HDFC Asset Management Co.

Ltd.

Franklin Templeton Asset Mgmt. (India)

Pvt. Ltd.

Birla Sun Life Asset

Management Company Ltd.

AMC Asset Rs in cr

54,905.44Mar-31-2013

101,720.28Mar-31-2013

41,564.26Mar-31-2013

77,046.43Mar-31-2013

NAV DetailsLatest NAV Rs/Units

45.70770Jun-27-2013

205.32100Jun-27-2013

221.97090Jun-27-2013

247.01000Jun-27-2013

52 week high 49.843May 16, 13

234.759Jan 21, 13

244.046Jan 15, 13

283.340Jan 15, 13

52 week low

41.620Jul 26, 12

190.951Jul 26, 12

204.347Jul 26, 12

228.020Jul 26, 12

Page | 64

Performance Returns as on Jun 27, 13

3 Months -1.6% -2.5% -1.5% -2.2%6 Months -4.6% -9.2% -6.0% -10.2%1 Year 9.5% 5.2% 8.4% 7.9%2 Years 2.9% -1.1% 1.8% -0.8%3 Years 3.2% 1.8% 4.0% -1.5%5 Years 10.6% 12.2% 12.1% 6.7%

Management & Fees

Fund ManagerR. Srinivasan Prashant Jain ~

Rakesh VyasAnand Radhakrishnan

~ Anand VasudevanAnil Shah

Entry Load 0% 0% 0% 0%

Exit Load 1.00% 1.00% 1.00% 1.00%

Load comment Exit Load 1% if units are redeemed /

switched-out within 1 year from the date

of allotment.

Exit Load 1% if units are redeemed /

switched-out within 1 year from the date

of allotment.

Exit Load 1% if units are redeemed /

switched-out within 1 year from the date of

allotment.

Exit Load of 1% if redeemed within

365 Days from the date of allotment

Table 2- Comparison of the large cap equity schemes

From the above table we can infer that in comparison to the above stated schemes SBIMF’s

Magnum is the best of the lot because:

It has consistently given good returns beating it’s benchmark the BSE 100.

The minimum investment required is the less when compared to the other schemes.

It is managed by Mr. Srinivasan who has been awarded the “The Best Fund Manager”

2 years in a row.

It has received 4 stars according to the the latest Crisil ratings which is very good.

Page | 65

Findings:

After concluding the project it was found that banks constitute almost half the sales of mutual funds in

all the distribution channels. Of the 50 % share that the banks occupy in the distribution of SBI Mutual

Funds almost 45% share is occupied by the State Bank and its subsidiaries. SBI Funds Management Pvt

Ltd has taken advantage of the fact that the State Bank and its subsidiaries have the most number of

branches in the country, even extending to tier 3 cities. The Relationship Managers in each of these

branches play a major role in the sale of SBI Mutual Funds as they are the ones who advice the

customers on various investment options .The number walk-in customers that have been coming to the

Mutual Fund office and those who invest online has also been steadily increasing over the last few years

as the general awareness on mutual funds has increased manifold.

It was also found that among the two schemes of SBI that the analysis is done on, the Emerging Business

Fund is the best fund in its category as it has been consistently beating its benchmark and giving the

highest returns in comparison to the other funds. It’s Fund Manager, Mr. Srinivasan been voted as the

best fund manager in India for 3 years in a row now which also adds to the credibility of the fund

making it a “ must have” fund in it’s category. The Magnum Equity Fund on the other hand also has

been beating its benchmark and giving good returns but there are other funds too that has done better

than it.

Page | 66

Challenges

“Mutual funds are still sold, not bought.”

- A large national distribution.

Low Levels of Customer Awareness:

Low customer awareness levels and financial literacy pose the biggest challenge to channelizing

household savings into mutual funds. The general lack of understanding of mutual fund products

amongst Indian investors is pervasive in metros and Tier 2 cities alike and majority of them draw little

distinction in their approach to investing in mutual funds and direct stock market investments. A large

majority of retail investors lack an understanding of risk-return, asset allocation and portfolio

diversification concepts. Low awareness of SIPs in India has resulted in a majority of the customers

investing in a lump sum manner.

Limited Focus beyond the Top 20 Cities:

The mutual fund industry has continues to have limited penetration beyond the top 20 cities. Cities

beyond Top 20 only comprise approximately 10 percent of the industry AUM as per industry

practitioners. The retail population residing in Tier 2 and Tier 3 towns even if aware and willing, are

unable to invest in mutual funds owing to limited access to suitable distribution channels and investor

servicing. The distribution network of the fund houses is largely focused on the Top 20 cities given the

high cost associated with deeper penetration into Tier 2 and Tier 3 towns. However, SBI Mutual Funds

Page | 67

have begun focusing on cities beyond the Top 20 by building their branch presence and strengthening

distribution reach through non-branch channels.

Limited Innovation in Product Offerings:

The Indian mutual fund industry has largely been product-led and not sufficiently customer focused. The

popularity of NFOs triggered a proliferation of schemes with a large number of non-differentiated

products. The industry has had a limited focus on innovation and new product development, thereby

catering to the limited needs of the customer. Products that cater specifically to customer life stage needs

such as education, marriage, and housing are yet to find their way in the Indian market.

Sbi Mutual Funds offers limited investment options viz. capital guarantee products for the Indian

investors, a large majority of whom are risk averse. The Indian market is still to witness the launch of

green funds, socially responsible investments, fund of hedge funds, enhanced money market funds,

renewable and energy/ climate change funds.

Limited Flexibility in Fees and Pricing Structures:

The fee structure in the Indian mutual fund industry enjoys little flexibility unlike developed markets

where the level of management fees depend on a variety of factors such as the investment objective of

the fund, fund assets, fund performance, the nature and number of services that a fund offers. While the

expenses have continuously risen, the management fee levels have remained stagnant. Distributors are

compensated for their services through a fixed charge in the form of entry load and additional fees as

considered appropriate by the AMC. Regardless of the quality of advice and service provided, the

Commission payable by the mutual fund customer to the distributors is fixed.

Limited Customer Engagement:Mutual fund distributors have been facing questions on their competence, degree of engagement with

customer and the value provided to the customer. In the absence of a framework to regulate distributors,

both the distributors and the mutual fund houses have exhibited limited interest in continuously engaging

with customers post closure of sale as the commissions and incentives had been largely in the form of

upfront fees from product sales (although trail commissions have also been paid in limited instances

Page | 68

regardless of the service rendered). As a result of the limited engagement, there have been rising

instances of mis-selling to customers.

Limited Focus of the Public Sector Network on Distribution of Mutual Funds:

Public sector banks with a large captive customer base, significant reach beyond the Top 20 cities in

semi-urban and rural areas, and the potential to build the retail investor base, have so far played a very

limited role in mutual funds distribution.

Further the credibility enjoyed by the State Bank of Bank, in the rural hinterland has not been fully

leveraged to target the retail segment.

Recommendations:

In addition to the PAN card requirement, in mutual funds, the customers are required to procure

KYC acknowledgement. This requires submission of several documents and extensive paper-

work. The respondent’s complex terminology and the paperwork involved in mutual fund

investing. Further, this regulatory directive is viewed negatively by potential customers as

investments in insurance products can be undertaken without the requirement for a PAN card.

Hence, there is urgent need for the Government to facilitate harmonization of policies and

processes across different verticals in the financial services sector and to simplify

documentation that could thereby ease the process of mutual fund investments for retail

customers.

Spreading awareness about Mutual fund is required, there is a large customer base of SBI who

have no idea about mutual funds, and they need to be tapped. This can be done through

advertisements, road shows etc People who come to SBI bank for investment in FDs, TDS etc

should be convinced to invest in mutual funds as they give more returns comparatively. Young

customers having account with SBI should be convinced to invest in MF as they are less risk

averse. Schemes which have performed well in past should be advertised and promoted as it

gives a confidence to investors. Online trading should be encouraged in the metros as it will

Page | 69

save a lot of time and money. Schemes should be suggested to a customer in accordance to his

needs and not just because it is doing well at that point in time. There should be a regular

communication with existing clients as they will help us generate business through word of

mouth. Should regularly meet up with the channel partners who help in promoting our various

schemes to their clients.

Conclusion:

Mutual fund is very good for people who have less knowledge of stock market or who don’t have

enough time to keep a regular check on the market. Mutual Funds are managed by professionals, so

investor doesn’t need to take any tension about his/her money. Selling MF is a tough task as the product

is intangible and the investor doesn’t get anything tangible for the money he pays except an

acknowledgement. Though Mutual Funds are popular but still there is a large number market who have

no idea of mutual funds because awareness of mutual fund is less compared to life insurance and FDs.

Mutual Fund is a service industry so it is very important for the company to provide good service and

make sure it is at par with its competitors. Eg. – Easy process of investment and redemption, keeping

investors updated with NAVs through email or statements etc.

The 8 weeks at spent at SBI mutual fund was an eye opener into the world of marketing financial

instruments. One could learn a lot about the practical difficulties in marketing financial products in the

real world environment. The customer perception about our product could be understood and how to

adjust or modify our marketing plan accordingly. It is of utmost importance to study the market in which

we are going to sell our product and the importance of understanding customer behavior. Mutual fund

Industry is a highly regulated Industry and the competition is very intense. The way to differentiate our

product from the competitor is by comparing our schemes performance with that our competition. Also

post sales service plays a vital role in customer satisfaction, thereby helping in retaining our existing

customers. Also marketers need to keep themselves updated about the broad economic perspective. The

Page | 70

mutual fund industry is very much affected by the changes in economic policies and the performance of

the economy in general. Also it is wise to be patient when it comes to marketing of mutual funds. It is a

slow process and first we need to earn the trust of the customers. Only after proper initiation, we can

convert these interactions and pitches into business. Finally I would like to say that my summer

Internship program with SBI funds management Pvt. Ltd. has been a very fruitful experience for me as

an intern and will go a long way in shaping my career.

Appendices

Company profile:STATE BANK OF INDIA - MUTUAL FUND - A partner for life

SBI Mutual Fund (SBI MF) is one of the largest mutual funds in the country with an investor

base of over 4.6 million. With over 20 years of rich experience in fund management, SBI MF

brings forward its expertise in consistently delivering value to its investors Proven Skills in

wealth generation: SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an

enviable track record in judicious investments and consistent wealth creation. The fund traces

its lineage to SBI - India’s largest banking enterprise. The institution has grown Immensely

since its inception and today it is India's largest bank, patronized by over 80% of the top

corporate houses of the country. SBI Mutual Fund is a joint venture between the State Bank of

India and Société General Asset Management, one of the world’s leading fund management

companies that manages over US$ 500 Billion worldwide. Exploiting expertise, compounding

growth: In twenty years of operation, the fund has launched 38 schemes and successfully

redeemed fifteen of them. In the process it has rewarded it’s investors handsomely with

consistently high returns. A total of over 60 lakh investors have reposed their faith in the wealth

Page | 71

generation expertise of the Mutual Fund. Schemes of the Mutual fund have consistently

outperformed benchmark indices and have emerged as the preferred investment for millions of

investors and HNI’s. Today, the fund manages over Rs. 51,461 crores of assets and has a

diverse profile of investors actively parking their investments across 37 active schemes.SBI

Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India

Opportunities Fund. Growth through innovation and stable investment policies is the SBI MF

moto.

Fund house expertise:

The investment environment is becoming increasingly complex. Innumerable parameters need

to be factored in to generate a clear understanding of market movement and performance in the

near and long term future. At SBIMF, they devote considerable resources to gain, maintain and

sustain our profitable insights into market movements. They consistently push the envelope to

ensure our investors get the maximum benefits year after year. Research - the backbone of our

Performance Their expert team of experienced and market savvy researchers prepare

comprehensive analytical and informative reports on diverse sectors and identify stocks that

promise high performance in the future. \ This team works in tandem with a compliance and

risk-monitoring department, which ensures minimization of operational risks while protecting

the interests of the investors. Quite naturally many of their equity funds have delivered

consistent returns to investors and have repeatedly out performed benchmark indices by wide

margins.

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References

Bergstresser, D., Chalmers, J.M.R., Tufano, P., 2004. Assessing the costs and benefits

of brokers in the mutual fund industry. Working paper, Harvard Business School and

University of Oregon.

Carhart, M.M., 1997. On persistence in mutual fund performance. Journal of Finance

52: 56-82

Del Guercio, D., Tkac, P., 2005. Star power: Assessing the effect of an information

intermediary on mutual fund flows. Working Paper, Federal Reserve Bank of Atlanta/

University of Oregon Department of Finance.

Del Guercio, D., Tkac, P., 2002. The determinants of the flows of funds of managed

portfolios: mutual funds vs. pension funds. Journal of Financial and Quantitative

Analysis 37, 523-58.

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Donald E Fischer (2012). Security Analysis & Portfolio Management. 12th ed. .: Donald E Fischer. p30-

33.

Goetzmann, W., Peles, N., 1997. Cognitive dissonance and mutual fund investors.

Journal of Financial Research 20, 145-158.

H. Sadhak (2011). Mutual Funds in India. 13th ed. India: H. Sadhak. p101-105.

Shefrin, H., Statman, M., 1985. The disposition to sell winners too early and ride losers

too long: theory and evidence. Journal of Finance 40, 777-790.

Sawicki, J., 2000. Investors’ response to performance of professional fund managers:

evidence from Australian funds wholesale market. Australian Journal of Management

25, 47-67.

Sawicki, J., 2001. Investors’ differential response to managed fund performance.

Journal of Financial Research 24, 367-384.

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