Beruflich Dokumente
Kultur Dokumente
Report on
Submitted by:
Nikhil Bajaj
07BS2556
Corporate Guide: Academic Guide:
Mr. Vikas Sharma Prof. V.N.Srivastava
1
Acknowledgements
I am greatly obliged to, for providing me with the right kind of opportunity
and facilities to complete this venture.
Finally, I would also like to thank all my dear friends for their cooperation,
advice and encouragement during the long and arduous task of carrying
out the project and preparing this report
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TABLE OF CONTENTS
1 Acknowledgement 2
2 Abstract 4
4 Executive Summary 5
6 Introduction 7
9 Company Background 21
10 Literature Review 24
12 SWOT Analysis 35
12 Methodology 44
13 Analysis 46
15 Bibliography 66
3
ABSTRACT
I joined RELIANCE MUTUAL FUND for internship program (as a part of MBA), I
only had a theoretical knowledge of related subjects, thanks to my Faculty Guide
and my Company Mentor for giving me an opportunity to implement my
theoretical knowledge in practical aspect.
My Company mentor Mr. Vikas Sharma has given me the project to manage the
relationship with the existing distributors, updating all the necessary information
to them & to empanel new distributors with Reliance Mutual Fund in SOUTH
DELHI. I started this project by understanding the concept & technicalities of
Mutual Fund. Analysis of SOUTH DELHI market through Primary & Secondary
data helped me for further strategy. I have collected the secondary data of
different ratios, portfolios, volatility measures, NAVs performance & returns of all
the leading AMCs from the net and other source to make my analysis more
effective. For the analysis of services & overall quality of Reliance AMC with
other leading AMCs, I collected the Primary Data through Questionnaire. It
helped me a lot to complete my project on time. Interaction with IFAs (Individual
Financial Adviser) also helped me to understand more the concept &
technicalities of mutual funds & also, compare our AMC with other AMCs
because these are the persons who have enough knowledge about the
investment market and investor behaviour.
The Final Report includes, the analysis of the whole data (primary and
Secondary) by putting in Graphical Mode. This analysis might be a Value
Addition to RELIANCE Mutual Fund to make a strategy for particular Area
(SOUTH DELHI).
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Executive Summary
The project involves a study of mutual fund industry and evaluating and
suggesting measures to improve the services provided by the Representatives
of Reliance Mutual fund to the retail distributors and also to identify the strong as
well as the weak points so that an appropriate sales pitch could be developed.
The sales pitch highlighted features like Reliance being the pioneer in terms of
AUM, its huge distributor base, returns being independent of the market ups and
downs, etc. Calls were made to all the different channel distributors (Retail)
across all tiers from companys database and appointments were sought.
Thereafter a brief questionnaire was filled up by them regarding their and
consumers perception about reliance since they get the direct interaction with
investors.
The second part of the project is to study & analyze the comparison of beta,
volatility measures, portfolios and returns of different large Cap, mid cap & small
cap funds because every distributors ask about the different ratios & beta (risk
factor) of Reliance. So I have to provide all the necessary information to them so
as to manage the relationship with them.
A lot of interaction has been done with the distributors about the products and
services of Reliance. A comparative analysis is also done of Reliance Mutual
Fund with other AMCs in order to find the market position of the company with
respect to services provided by it. It was found that there are many issues on
which the company needs to improve, which are elaborated in further parts of
the report.
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Objective of the project
As the title of the project suggests, the objective of the project is to find out
the satisfaction level of Distributors with respect to the services & overall
quality provided by the AMC.
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Introduction
What are mutual funds?
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Advantages of Mutual Funds:
Professional management:
Diversification of Risk:
8
A direct investor bears all the cost of investing such as brokerage and
custody of security. When going through a fund, he has the benefits of
economies of scale; the funds pay a lesser costs because of larger
volumes, benefits passed on to its investors.
Costs:
Mutual funds don't exist solely to make your life easier--all funds are in it
for a profit. The mutual fund industry is masterful at burying costs under
layers of jargon. These costs are so complicated that in this tutorial we
have devoted an entire section to the subject.
Dilution:
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It's possible to have too much diversification. Because funds have small
holdings in so many different companies, high returns from a few
investments often don't make much difference on the overall return.
Dilution is also the result of a successful fund getting too big. When
money pours into funds that have had strong success, the manager often
has trouble finding a good investment for all the new money.
Taxes
When making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a
security, a capital-gain tax is triggered, which affects how profitable the
individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability
There are wide variety of Mutual Fund schemes that cater to investor needs,
whatever the age, financial position, risk tolerance and return expectations. The
mutual fund schemes can be classified according to both their investment
objective (like income, growth, tax saving) as well as the number of units (if
these are unlimited then the fund is an open-ended one while if there are limited
units then the fund is close-ended).
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Open-ended schemes
These funds are sold at the NAV based prices, generally calculated on every
business day. These schemes have unlimited capitalization, open-ended
schemes do not have a fixed maturity - i.e. there is no cap on the amount you
can buy from the fund and the unit capital can keep growing. These funds are
not generally listed on any exchange.
Open-ended funds are bringing in a revival of the mutual fund industry owing to
increased liquidity, transparency and performance in the new open-ended funds
promoted by the private sector and foreign players. Open-ended funds score
over close-ended ones on several counts. Some of these are listed below:
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a) Any time exit option: The issuing company directly takes the responsibility of
providing an entry and an exit. This provides ready liquidity to the investors and
avoids reliance on transfer deeds, signature verifications and bad deliveries.
c) Any time entry option: An open-ended fund allows one to enter the fund at
any time and even to invest at regular intervals (a systematic investment plan).
Schemes that have a stipulated maturity period, limited capitalization and the
units are listed on the stock exchange are called close-ended schemes.
i) Growth Funds
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funds generally incur higher risks than income funds in an effort to secure more
pronounced growth.
They are not suitable for investors who must conserve their principal or who
must maximize current income.
Growth and income funds seek long-term growth of capital as well as current
income. The investment strategies used to reach these goals vary among funds.
Some invest in a dual portfolio consisting of growth stocks and income stocks, or
a combination of growth stocks, stocks paying high dividends, preferred stocks,
convertible securities or fixed-income securities such as corporate bonds and
money market instruments. Others may invest in growth stocks and earn current
income by selling covered call options on their portfolio stocks.
Growth and income funds have low to moderate stability of principal and
moderate potential for current income and growth. They are suitable for
investors who can assume some risk to achieve growth of capital but who also
want to maintain a moderate level of current income.
The goal of fixed income funds is to provide current income consistent with the
preservation of capital.
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iv) Balanced Funds
The Balanced fund aims to provide both growth and income. These funds invest
in both shares and fixed income securities in the proportion indicated in their
offer documents. These funds are ideal for investors who are looking for a
combination of income and moderate growth.
For the cautious investor, these funds provide a very high stability of principal
while seeking a moderate to high current income. They invest in highly liquid,
virtually risk-free, short-term debt securities of agencies of the Indian
Government, banks and corporations and Treasury Bills. Because of their short-
term investments, money market mutual funds are able to keep a virtually
constant unit price; only the yield fluctuates.
Therefore, they are an attractive alternative to bank accounts. With yields that
are generally competitive with - and usually higher than -- yields on bank savings
account, they offer several advantages. Money can be withdrawn any time
without penalty. Although not insured, money market funds invest only in highly
liquid, short-term, top-rated money market instruments.
Money market funds are suitable for investors who want high stability of principal
and current income with immediate liquidity.
Sector funds offer the opportunity for sharp capital gains in cases where the
fund's industry is "in favor" but also entail the risk of capital losses when the
industry is out of favor. While sector funds restrict holdings to a particular
industry, other specialty funds such as index funds give investors a broadly
diversified portfolio and attempt to mirror the performance of various market
averages.
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Index funds generally buy shares in all the companies composing the BSE
Sensex or NSE Nifty or other broad stock market indices. They are not suitable
for investors who must conserve their principal or maximize current income.
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Structure of Mutual Funds in India:
Mutual funds in India act as a Unit Trust.
The structure is required to be followed by mutual funds in India as per
SEBI Regulations, 1996.
It is constituted in the form of a Public Trust created under the Indian trust
act, 1882.
The Trustees hold the unit holders money in a fiduciary capacity i.e. the
money belong to the unit holders and is entrusted to the fund for the
purpose of investment.
The Trustees do not manage the portfolio of securities directly, for this
specialist function they appoint the Asset Management Company.
The trust is executed through a document called a trust deed that is
executed by the fund sponsor in favour of the trustees.
The Trust deed is required to be stamped as registered under the
provisions of the Indian Registration Act and registered with SEBI.
The role of the Asset Management Company is to act as the investment
manager of the Trust and must have a net worth of at least Rs. 10 crores.
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Sponsors:
Sponsor is the person who acting alone or in combination with another body
corporate establishes a mutual fund. Sponsor must contribute atleast 40% of
the networth of the Investment Managed and meet the eligibility criteria
prescribed under the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996.The Sponsor is not responsible or liable for any loss or
shortfall resulting from the operation of the Schemes beyond the initial
contribution made by it towards setting up of the Mutual Fund.
Trust:
Trustee:
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The AMC if so authorised by the Trust Deed appoints the Registrar and
Transfer Agent to the Mutual Fund. The Registrar processes the application
form, redemption requests and dispatches account statements to the unit
holders. The Registrar and Transfer agent also handles communications with
investors and updates investor records.
Custodians:
The bank or trust company that maintains a mutual funds assets, including
its portfolio of securities or some record of them. Provides safe keeping of
securities but has no role in portfolio management.
Sell units on behalf of funds and are generally appointed by the AMC.
Corpus:
Entry/Exit load :
A mutual fund is a common investment vehicle where the assets of the fund
belong directly to the investors. Investors subscriptions are accounted for by
the fund not as liabilities or deposits but as Unit Capital. On the other hand,
the investments made on behalf of the investors are reflected on the assets
side and are the main constituent of the balance sheet. There are, however,
liabilities of a strictly short-term nature that may be part of the balance sheet.
The funds Net Assets are therefore defined as the assets minus the
liabilities. As there are many investors in a fund, it is common practice for
mutual funds to compute the share of each investor on the basis of the value
of Net Assets Per Share/Unit, commonly known as the Net Asset Value
(NAV).
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The following are the regulatory requirements and accounting definitions laid
down by SEBI.
For the purpose of the NAV calculation, the day on which NAV is calculated by a
fund is known as the valuation date.
A funds NAV is affected by four sets of factors:
Purchase and sale of investment securities
Valuation of all investment securities held
Other assets and liabilities, and
Units sold or redeemed
FORMULA:
If period covered is less/more than one year: for annualized NAV change:
{[(Absolute change in NAV/NAV at the beginning)/months covered]*12} 100
Example: Thus, if a funds NAV was Rs.20 at the beginning of the year and
Rs.22 at the end of the year, the absolute change was Rs.2 (22-20) and
percentage change was + 10% (22-20/20*100). Now, let us assume that an
investor purchases a unit in an open-end fund at Rs.20, and its NAV after 16
months is Rs.22, the annualized NAV change is: 7.5%: ({[22-20]/20}
16}*12)*100).
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History of Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank the. The
history of mutual funds in India can be broadly divided into four distinct phases.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47, 004 crores.
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003
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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations.
As at the end of September, 2004, there were 29 funds, which manage
assets of Rs.153108 crores under 421 schemes.
Management:
Employees:
Reliance Capital Asset Management Ltd. has a preset code of conduct for all
its officers. It has a clearly defined prohibition on insider trading policy and
regulations. The management believes in the principles of propriety and
utmost care is taken while handling public money, making proper and
adequate disclosures.
Reliance Capital Asset Management Ltd. gives top priority to compliance in
true letter and spirit, fully understanding its fiduciary responsibilities.
The Sponsors
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Reliance Mutual Fund
Reliance Mutual Fund (RMF) has been established as a trust under the
Indian Trusts Act, 1882 with Reliance Capital Limited (RCL), as the
Settlor/Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the
Trustee.
RMF has been registered with the Securities & Exchange Board of India
(SEBI) vide registration number MF/022/95/1 dated June 30, 1995. The
name of Reliance Capital Mutual Fund has been changed to Reliance Mutual
Fund effective 11th. March 2004 vide SEBI's letter no. IMD/PSP/4958/2004
date 11th. March 2004. Reliance Mutual Fund was formed to launch various
schemes under which units are issued to the Public with a view to contribute
to the capital market and to provide investors the opportunities to make
investments in diversified securities.
Custodian
The Registrar
Trustees
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Reliance Capital Trustee Co. Limited
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Organizational Hierarchy
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Literature Review
Mutual funds are as much about marketing as investing in the 1990s, which
is why the hoary clich Mutual funds are sold, not bought is as true as ever.
As Glorianne Stromberg once told Canadian Business magazine, the fund
business may have started out in the portfolio management business, but
somewhere along the line, the marketers got hold of it, and the advisory
function has been almost superseded by the sales function.
-Jonathan Chevreau, the Wealthy Boomer
Successful fund marketing creates value for Fund companies, dealers and unit
holders so that each is satisfied. The definition goes much deeper than simply
"selling something to somebody". Fund marketeers must understand both the
"Needs & Wants" side of the equation and the "Product, Ideas, & Services" side
of the equation. Not only must marketing fully understand both sides of the
equation, but it must also effectively communicate the details of each in order to
successfully bridge the gap between the two. Every facet of modern marketing
has been effectively employed to dramatically grow the Indian mutual fund
industry.
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MARKETING IN MUTUAL FUNDS
Marketing
From this definition, it should be clear that successful fund marketing creates
value for Fund companies, dealers and unit holders so that each is satisfied. The
definition goes much deeper than simply "selling something to somebody". Fund
marketers must understand both the "Needs & Wants" side of the equation and
the "Product, Ideas, & Services" side of the equation. Not only must marketing
fully understand both sides of the equation, but it must also effectively
communicate the details of each in order to successfully bridge the gap between
the two. Every facet of modern marketing has been effectively employed to
dramatically grow the Indian mutual fund industry.
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The essence of professional selling today is building and maintaining of high
quality relationships, based on establishing a high level of trust and credibility
with the customer. Your job is to create and keep a customer indefinitely. You
keep your customer by continually investing in maintaining the quality of your
relationships. You should approach your clients as consultants and not as
vendors and help them achieve their financial goals.
Selling Models
As mentioned earlier, apart from the existing players like Reliance, Franklin
Templeton, Fidelity, Prudential ICICI etc. more and more players like Bharti AXA,
JP Morgan, AIG etc. are entering the mutual fund industry and this has given rise
to increased competition among the players. To sustain this cut throat
competition, the fund houses are developing new marketing strategies and
revamping the existing strategies. Thus, the marketing in mutual funds have
assumed an important role like never before. The marketing strategies that can
help the fund houses to hold the market share are:
1. Product Innovation
2. Devise innovative channels of delivery, i.e., different distribution channels
and models.
3. Build brand awareness strong enough to pull the investors towards
itself.
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1. PRODUCT INNOVATION
Of late, the marketers have realized the importance of marketing in mutual funds
and have come up with product innovation in the category of mutual funds as
well. With the marketing mantra Customer is the king, the mutual fund
houses understand the importance of innovating need based products. Different
segments have different expectations like long term growth, regular income, tax
benefits etc. New products are aimed at satisfying one or more objectives. Indian
mutual funds have seen many products launched to cater the ever increasing
need of the investors. Product innovation in mutual funds is one of the
discernable trends that have the potential to change the face of Indian mutual
fund industry.
The asset management companies are shifting from old plain vanilla schemes
towards differentiating themselves by providing innovative options to the
investors.
For instance:
Apart from the plain vanilla schemes, fund houses are offering SECTOR
FUNDS, in order to capitalize on the success of sectors like Banking, Power,
Media & Entertainment, pharmaceuticals etc.
Also keeping in mind the different type of risk taking propensity among the
investors, fund houses have come up with BALANCED/ HYBRID FUNDS to
cater effectively to their investors.
In the U.S.A, mutual funds are sold through five principal distribution
channels:
1. Direct Channel
3. Advice Channel
4. Institutional Channel
5. Supermarket Channel
The first four channels primarily serve individual investors. In the direct
channel, investors carry out transactions directly with mutual funds.
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In the advice, retirement plan, and supermarket channels, individual
investors use third parties or intermediaries that conduct transactions with
mutual funds on their behalf. Third parties also provide services to fund
investors on behalf of mutual funds. The most important feature of the
advice channel is the provision of investment advice and ongoing
assistance to fund investors by financial advisers at full-service securities
firms, banks, insurance agencies, and financial planning firms. Advisers
are compensated through sales loads or from asset-based fees.
In India, mutual funds are sold through four principal channels viz.:
2. Direct channel
4. Banks
However, in Reliance, the distribution channels are slightly different. The flow
chart for the distribution channels for Reliance is as follows:
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Reliance
Distribution
Channel
Independent
National Financial Alternate Corporate
Distributors Advisors Channels Channels
o The National Distributors consists of all the private banks like Standard
Chartered Bank, American Express Bank, Deutsche bank to name a few
and other investment consultants like Karvy securities, Bajaj Capital etc.
o The Independent Financial Advisors are the ones who are eligible to
sell financial products individually to the retail investors after they have
obtained AMFI certification.
o The Alternate Channels consists of all the PSUs like State Bank of India,
Oriental bank of Commerce, Unit Trust of India bank among many.
It is very imperative for the fund houses to develop a proper distribution network
in order to reach out to the investors effectively.
Brand name in mutual funds highlights the inherent benefits and investment
objectives and ensures investor loyalty. Brand name and identity is an important
marketing aspect because it facilitates product identification at the market place.
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However, product identification coupled with BRAND AWARENESS will lead
to the true success of the brand and the company. High brand awareness leads
to high levels of usage and preference. With keen competition today, mutual
fund brands need to work harder on the quality of awareness to drive
consideration. Creating media noise is just not enough to secure strong brand
equity. Indian investors are more sophisticated than ever and are looking at
overall comfort levels with the fund houses.
To achieve this, the fund house should be able to carve a niche for itself in the
mind of the customers by making them aware about their products. A significant
amount of brand awareness in the minds of the investors/ customers creates a
PULL for the products when the customers walk in and ask for the product by
themselves, instead of a third party pushing it for the company.
Clients are different. Their financial needs and choice of investment vary
depending upon their age, earning capacity, family commitments and ability to
take on risks. Some broad types of clients are given below:
Young and accumulating: Typically under 40, seeking to build capital for
a long-term goal such as buying a house, children's education or a family
wedding. These clients may take higher risks for higher returns.
Middle-aged with family commitments: Typically between 40 and 60, in
their prime earning years and with family commitments that require large,
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periodic expenditures. They may be willing to sacrifice a higher return for
a stable investment and lower risks.
Retired: Typically over 60, seeking income to meet their regular expenses
and are primarily concerned with safety of their principal.
Institutions and high net worth individuals: Corporate, banks, trusts
and wealthy investors, who seek an appropriate combination of tax
efficient growth and income depending upon their return expectations and
risk taking ability.
To make the most of your time, you must identify the clients with whom you can
establish a good business relationship. There are three types of clients -
respective, potential and independent minded. The receptive clients are those
who will work with you to develop a financial plan, have the discipline to invest
regularly and believe in the merits of professional financial advisors.
The potential client is one who wishes to become a successful investor, but does
not have the discipline or patience to do so. If you work closely with these
investors, they could join the ranks of your good receptive clients. The
independent minded are those who do not use financial intermediaries and
prefer investing directly. Such clients need to be cultivated over time.
For you are to be able to recommend a sound financial plan to your clients, you
must understand their needs and priorities. Find out your client's:
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Having understood your client's profile and needs, you now have to advise them
on where to invest. It might be a selection of only Mutual Funds or a combination
of Mutual Funds and other investments.
Advise your clients to invest early and stick to a regular investment plan. This will
help them to make more money because the power of compounding enables
your clients to earn income on income and their money to multiply at
compounded rates.
The best plans and the best choice of investments are of little use unless your
clients act upon them and invest. Ensure that your clients give you the
commitment for their investment. Be ready with application forms and other
documents and if necessary, help them to complete the paperwork and bank the
cheques.
o Making periodic calls to see if they need any help with their
investments;
o Getting in touch if there is a great deal of fluctuation in market
prices which may be of concern to them;
o Assessing any change in their personal circumstances which may
call for a review of the financial plan recommended by you.
o Informing them of new schemes and products that could be useful
to them;
o Following up with the Mutual Fund if your clients have experienced
a service related problem with their investments.
Stay in touch with your clients on a regular basis. You will not only get more
business from them, but you can also earn the business of their friends and
relatives by getting positive
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companies is that if performance goes in the tank than investors exit the funds
pulling out tens of millions of dollars. Better to offer many varied funds so that if
a few turn cold the others are still cooking and at least some performing ones
can be prominently advertised in newspapers.
Mutual fund industry has seen a high rate of growth due to exceptional
marketing. Over 80 mutual fund companies employs 60,000 salespersons and
employs thousands more portfolio managers, administrators, analysts and
marketing personnel. Brokers gain substantial transaction business from the
funds. Auditors trust firms and advertising agencies make a good living off the
funds. Guides, books, newsletters, public speakers, fund gurus, specialist
software firms, rating companies and advisors also cash in. The media love to
write about the fund industry and their advertising departments gladly receive the
lucrative ad revenues. During RRSP season, television advertising becomes so
pervasive that one cartoon observed, The RRSP ads are periodically
interrupted by hockey games.
Mutual Funds are still not the most preferred investment vehicle in the country. In
our country, people want to buy only sacred assets. Unless this mindset
changes, it will be difficult to get investors interested in mutual funds.
Government securities and post-office investments offer 8 per cent assured
returns, while banks offer 6 per cent. So, competition is very high. Only
sustained efforts by a trained and qualified distributor class can bring success.
AMFI has taken the initiative in training an army of distributors. Today, we have
about 30,000 registered distributors. About 700 to 800 people are taking the test
and getting registered every month. Around 100-odd investor awareness
programmes are being conducted each month. From August to June this year,
1,600 programmes have been conducted across 600 locations by different fund
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companies. Thanks to foreign banks distributing funds, there is a band of new
investors today. More than 50 banks are active distributors. A lot of churning has
been happening because of new fund launches wherein distributors are paid
substantially higher commissions.
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SWOT Analysis
The SWOT Analysis provides information that is helpful in matching the firms
resources and capabilities to the competitive environment in which it operates.
The following diagram shows how a SWOT analysis fits into an environmental
scan:
Internal External
Strengths - to build on
Weaknesses - to cover
Opportunities - to capture
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Strengths:
Well run companies have a well known name and reputation and this is
the most powerful strength of the RMF as well. Its the company brand
name which is giving a hit to other market players when it comes to
competing in the market whether it be in terms of coming up with new
schemes or tapping the market opportunities.
2. Funds performances:
One of the most important reasons for RMFs popularity is the return that
its schemes have given i.e. the fund performance of RMF. The continuous
dividend that the company keeps declaring is one of the most attractive
elements of the RMF schemes. The flagship products of RMF i.e.
Reliance Vision and Reliance Growth both have given returns of
approximately more than 50% since its inception. Both the schemes have
declared dividends on a regular basis. Also some of the schemes have
been awarded for their best performances.
Reliance banking fund growth plan bagged the best fund award for three
year return in the equity banking segment
Reliance Growth Fund was named as best equity funds in three year as
well as five year return categories
Reliance Income fund growth plan was selected as best fund for five-year
returns in the bond Indian rupee category
Reliance Gilt securities fund was awarded as the best three-year return
fund in the bond India rupee-government segment
(According to globally acclaimed fund tracking firm Lipper Inc.)
Reliance Mutual Fund is one of the few mutual funds to pioneer retail
investing in the country by reaching out to investors and distributors in
over 115 cities through branches and representatives across India. Also
the company has 1500+ distributors in Delhi region itself. Hence the
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companys strong distribution network is playing a great role in making
reliance reaching out to maximum number of investors.
4. Highly trustable:
Any RMF scheme that is launched in the market does well because of the
trust that RMF enjoys as a fund house. It is the most trusted mutual fund
brand in the country according to a survey conducted by AC Nielsen ORG
Marg.
5. Very Innovative:
6. Aggressive:
Service
There are two ways in which a fund house can increase its market share.
First, is by increasing the market share in the entire pie (which every fund
house does). And second, is by increasing the radius or circumference of
that pie. RMF believes in the second option. RMF has continuously
increased the number of investors especially from retail segment. It has
been instrumental in converting the FD investors into first time mutual
fund investors. And this happened due to Fixed Maturity Plan launched by
RMF. FMP(s) contributed app. Rs. 18000 crore in the total AUM of
Rs.46307 crores. And this amount was mobilized majorly through RMFs
focus on retail segment.
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regarding replenishment of application forms and also their submission
during NFOs. So the service centers, which are strategically located in
commercially viable places, have proved to be of great help.
Weaknesses:
1. Services:
Services provided to the bankers and retailers are the biggest area of
concern. The services provided to distributors such as complaints solving,
query handling and statements delivery have to be improved upon. The
distributors surveyed complain about the queries at times are not followed
up properly and the biggest concern is the delivery of accounts
statements.
Opportunities:
1. Educational institutions:
39
2. Small and medium enterprises:
As it is known that only 10% of the SMEs are invested in MFs so there
lies a need to create the awareness for the same and creating awareness
through: (Mass Marketing) such as broadcasting Ads with special focus
on SMEs, sponsoring events like ICICI CNBC SME awards & giving
presentations on cash flow management with mutual funds, giving ads in
SME column in ET, participating in trade fairs and meeting corporate
personally there, giving presentation in industrial area association
meetings.
3. Households:
Delhi has around 35 residential locations having huge potential and can
be tapped through average 4000 houses in each location. And there lies
again the efforts to create the awareness for the same. This can be done
through contacting various RWAS and conducting group presentations to
inform them about the products and the benefits they stand to gain from it.
Another method can be stationing of canopies and placing a
representative there to inform them about the products and not actually
sell but to get leads and spread awareness about the product. Also
getting a few local residents to become IFAs first and help them to
conduct the presentation or seminar.
4. International fund
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fund. Moreover fund houses are now permitted by RBI to invest in
ADR/GDR.
Threats
1. Increased competition:
2. Services:
Due to the volatility in the market, customers have a fear in their mind of
losing money, so more redemptions of the applications are taking place.
41
How expensive is mutual fund investment?
The first and last question on the minds of the investors is `what returns has the
fund given?' What goes into the expenses? Is it possible for the fund house to
lower the expenses?'
However, it pays to be aware of what the fund is charging investors. How much
of the expense adds discernible value to the investment (in terms of a fund
management fee), how much goes into pampering greedy mutual fund
agents/distributors and banks by way of exorbitantly high commissions that add
little value to the investor but add a lot of value to the distributor's bank balance.
First it's important to understand the structure of a mutual fund before one
begins to appreciate how expenses are charged. While there are several entities
involved in a mutual fund, like the Sponsors, Board of Trustees, Asset
Management Company (AMC eg. HDFC Standard Life Asset Management Co.
Pvt. Ltd.) And the mutual fund scheme (eg. HDFC Equity Fund), the last two are
the most important elements in the context of our discussion. The AMC launches
mutual fund schemes. The AMC and the mutual fund are two distinct entities.
They have distinct revenue streams and expenses.
42
(The Recurring Expenses Table has been sourced from the Offer
Document of an existing AMC)
As is evident from the table, the expenses of the AMC typically comprise of fund
management expenses, marketing fees and audit fees among other expenses.
Investors must note that these are expenses the fund incurs on a recurring basis
(annually) to operate the mutual fund. This is over and above the entry/exit load
which is a one-time fee. The entry load is usually a distribution expense that the
AMC passes on to your mutual fund agent. Then there are expenses a fund
incurs at the time of the NFO (New Fund Offer), which are distinct from the
recurring expenses in the table above. The NFO expenses are one-time in
nature, with a ceiling of 6% (of net assets), and as per SEBI (Securities and
Exchange Board of India) guidelines are to be amortized over 5 years.
The fund management expenses are very important for the AMC. It is the AMC's
only revenue stream. It is the fund management expense from which the AMC
declares a profit after accounting for all expenses like salaries for its employees
(which include fund managers and analysts among others), rent and
administration expenses.
Equity funds can and do charge as high as 1.25% (of net assets) as fund
management fee to the mutual fund. Long term debt funds are also mandated to
charge a maximum of 1.25% (of net assets), but rarely do so. scope to charge
the entire 1.25% fund management charge to the fund. So with most debt funds,
the 1.25% fund management charge is a lot lower. The percentage varies across
funds, but it's below 1.00% in most cases.
This also explains why AMCs prefer to own a larger share of equity assets than
debt assets. Equity assets draw a much larger fund management fee, which has
a direct impact on the AMC's profitability. That tells investors a lot about the mad
rush to launch equity NFOs (new fund offers) that has been on display for quite
some time now.
As investors would have gathered, it's a matter of choice for the AMC whether its
wishes to beef up its own profitability or lower costs for the mutual fund. Since
uncompromising investors have their eye on NAV returns and not on the AMC's
net profit, it seems like an easy decision for AMCs how they must allocate
expenses. However, as we have seen, it's not always that obvious. AMCs can
43
cut the fund management charges on equity funds (from the maximum of
1.25%), but rarely do so. They prefer to do that only with debt funds because the
environment demands such cost-cutting.
That is why investors must get a lot more aware and question AMCs on why they
charge such high expenses when they can very well cut down on them to add to
the investors' returns. Investors in developed markets like the US for instance,
have already driven AMCs into getting cost conscious and making them impose
rigid ceilings on several charges, including fund management charges. It's time
for the domestic mutual fund investor to take his cue from his US counterpart.
44
Methodology and Findings
Methodology
The project consisted of visiting different distributors in South Delhi region were
chosen for the survey. The reason for choosing these particular areas were that
South Delhi has a lot of potential for investors. It consisted of three stages:
Stage 1: Gathering data from the company and plan schedule to meet the
concerned
Person
Stage 2: Collecting data by survey method, on the basis of questionnaires.
Stage 3: Analyzing and interpreting the primary data collected.
Research design:
45
The survey method of collecting data is based on the questioning of
respondents. They are asked variety of questions regarding their behavior,
intentions, attitude, awareness and motivations. In structured data collection,
a formal questionnaire is prepared thus the process is direct. The questionnaire
designed for this project consists of questions based on various parameters
which a relationship manager would consider before selling a mutual fund. Each
question is based on different variables like investment decisions, selling
decisions, company policies, servicing issues etc.
Structure:
Scaling techniques:
Scaling is a process creating a continuum on which measured objects are
located.
For this project the following scaling techniques were used:
1) Ordinal scale:
A ranking scale in which numbers are assigned to the objects to indicate the
relative extent to which some characteristic is possessed. Thus it is possible to
know whether an object has more of a characteristic than some other object.
Examples are quality ranking, service characteristics ranking etc.
Questionnaire:
The information needed for the research project can be best collected through
questionnaire method as the information is more clearly defined and it would
clearly address all the components of the problem.
46
6. Kind of services expected from Reliance Mutual Fund like the frequency
of visits, mode of contacting the Relationship managers etc.
Personal interviews:
For this purpose personal interviews were taken along with filling the
questionnaire to get detailed information for other products prevailing in the
market. Thus varied questions were also asked verbally along with the written
questionnaire to find out how do services of other mutual fund companies are
different or better than services of Reliance Mutual Fund.
Questions like:
1. What are the frequencies of visiting of relationship managers of other
companies?
2. In what ways do you find other mutual fund companies better than RMF?
3. What complaints do you have from RMF?
4. Do you get sufficient inputs based on knowledge about various funds from
RMF?
5. Are there any servicing issues like account statements for investors,
unavailability of forms, fact sheets etc?
6. Any suggestions for RMF
Questions were asked from the respondents to get the real picture of what is
expected out of Reliance Mutual Fund in order to improve its services.
Sampling:
Sample size:
The sample size of 50 distributors of retail channel is taken.
28 were personally interviewed and questionnaires were filled and 22
questionnaires were filled through e-mails.
On the basis of the responses given in the questionnaire by the respondents the
following analysis can be done:
1. The overall response of the customers about the Reliance Mutual Fund is
very satisfied and more than 50% of the distributors are selling Reliance
Mutual Fund because of the credibility of RMF among the customers.
47
a) 26 out of 50 distributors have experienced that the overall quality of
RMF is very satisfied among customers, which is more than 50%.
b) About 38% prefer that the overall quality is satisfied.
c) About 6% distributors said that the customers are neutral
about RMF.
d) About 4% of the distributors said that customers are dissatisfied
and very dissatisfied.
By this graph, We can see that the overall quality of RMF is very satisfied among
the customers. This can be due to the following reasons:
Greater Distribution Channels.
Employees knowledge about the products
Responsiveness of the employees in resolving queries.
Individualized attention/personalized services.
Greater Return with less risk.
Goodwill of the company.
2. The service & Operation part of RMF is very good & about 60% of the
distributors are very happy with the services part of RMF.
a) About 60% of the distributors told that the services & operation part of
RMF is very good.
b) About 32% of the distributors told that the overall services of RMF is
good.
c) 6% of the distributors told that the services of RMF is on average.
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d) About 2% of the distributors are not happy with RMF regarding their
services & Operation part.
By this graph, We can see that the Overall services & operations part of RMF is
very good and mostly all the distributors are very happy with this.
To improve the services of Reliance mutual fund the distributors expect
the representatives to meet them regularly and update them with new
facts and figures.
The frequency of visits expected from the representatives of Reliance
Mutual fund is one of the important criteria which is considered by the
distributors as a characteristic of good services.
3. Almost 94% of the Distributors are getting enough materials for the
promotional purposes and about 6% of the distributors are disagree with the
promotional part of RMF. This can be shown in the graph as shown:
49
For the promotion purpose, the servicing like availability of format forms and fact
sheets etc should be provided to the distributors in time. Just 6% of the
distributors were disappointed by the promotional activities, most of them are
tier-3 distributors.
4. The most & the important part of any business is the relationship between the
seller & the buyer. So, I categorized the strongness of the relationship
between the Relationship Manager & the Distributors.
(a) About 74% of the distributors have a very strong relationship with the
Relationship Manager.
(b) About 16% of the distributors have a strong relationship with RM of RMF.
(c) About 8% of the distributors have average kind of relationship with RM
(d) Only 2% of the distributors are not happy with the relationship with RM
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By the above graph, I have analyzed that the overall Relationship of the
Relationship Manager of Nehru Place Branch is very Strong. There are some
reasons behind this as follows:
(a) Frequent Calling to all the distributors
(b) Communication & updation with the E-mails as well as calls.
(c) Frequent meetings with the distributors.
(d) Interactive sessions with the distributors time to time. E.g. we have done
sessions on Current Market Scenario and Asset Allocation & Time
Management.
(e) Updation of New Products e.g NFOs, FMPs, Liquid Funds etc.&
Dividends via calling, SMSs, E-mails.
(f) Faster response to the queries of the distributors like brokerages,
materials for promotions.
(g) Frequently sending the stationary materials to the distributors for the
promotional purposes.
I have also analyzed that the relationship of the distributors & Relationship
Manager is not good only in case of the distributors who lies in the Tier-3
categories. So, the concentration should be taken place on the Tier-3
distributors.
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How company got benefit by my project:
There should be the concentration & timing not only on the Tier-1 & Tier-2
distributors but also, Relationship Managers also have to concentrate on
Tier-3 distributors. For this purpose, I personally handling Tier-3
distributors, I regularly meet them, updating the information about the new
products by calling them and resolved all their queries. If there are any
complaints, I use to solve that problem. If any distributor wants to do any
activities like canopy etc., then I take permission for this from Relationship
Manager and allow them for the activities. At Nutshell I want to say, I am
working as the Relationship Manager of the Tier-3 distributors and new
empanelled distributors. That was actually needed because earlier there
was very less concentration & timing on the Tier-3 distributors because
These small drops (business given by Tier-3 distributors) will make
Reliance Mutual Fund that biggest ocean that no one can compete.
Fixed Maturity Plans are open only for 3-5 days. In this small period of
time, most of the distributors even dont know whether any FMP is coming
or not. For this reason, I use to call each & every distributors and mail
them about the FMP because in case of any AMC, the most of the
business comes from the FMP & Liquid Funds. That increases the AUM
of the company in easy way, hence increases the liquidity.
Some distributors dont know about the liquid fund, some dont know
about the debt funds etc. So, there should be a time to time training given
about all the products. For this purpose, I called and gathered 5-6
52
distributors at a time and gave the understanding about these products. I
exercised this practice for 7 times means I gave the thorough knowledge
of the products of Reliance Mutual Fund to about 40 distributors.(Mostly
Tier-3 Distributors, because they need this kind of presentations).
The proper training & product knowledge should be given to the selling
persons appointed by the NDs (National Distributors). For this purpose, I
use to visit the NDs office and give the training to these selling persons
and tell them the Art and Science of selling & pushing the product to the
customers. I always use to tell them that PUSH THE PRODUCT FIRST,
GIVE THEM THE SERVICES THEY WANT AND THEY WILL
AUTOMATICALLY PULL TOWARDS YOU
There is a saying that For the expansion of any business, there should be
a good customer base. In the case of retail channel, our business
partners are the distributors/IFAs/NDs/Agents. So, There should a great
number of distributors working for Reliance Mutual Fund (Empanelled
under RMF). For this purpose, I empanelled about 40 distributors under
South Delhi Area only. By this way, I expanded a lot of business of
Reliance Mutual fund.
The relationship Manager should have the idea of the competitive AMCs
products strength & weakness so that we can take edge over others by
defeating them by their weaknesses and our strengths and also, there
should be a proper comparative analysis & Financial analysis with other
AMCs so as to become the market leader. For this purpose, I have
analyzed the comparative analysis & Financial analysis with our
competitors. This is described in the next part of the report.
53
Comparison of Reliance Mutual Fund with Other AMCs:
1. Sharpe Ratio:
While an investor seeks to generate high returns the question arises, how high?
Though the sky can be the limit, usually one asks for returns, which are higher
than those, which we are normally accustomed to. These are returns from risk-
less instruments like treasury bills, government securities or bank savings
deposits. So the aim of investing seems to be to generate returns in excess of
the risk free return.
At the same times high returns are generally associated with a high degree of
volatility. The Investors accept this volatility only because they want higher
returns. The Sharpe ratio represents this tradeoff between risk and returns. At
the same time it also factors in the desire to generate returns, which are higher
than those from risk free returns.
Mathematically, the Sharpe ratio is the returns generated over the risk free rate,
per unit of risk. Risk in this case is taken to be the fund's standard deviation. As
standard deviation represents the total risk experienced by a fund, the Sharpe
ratio reflects the returns generated by undertaking all possible risks.
Sharpe Ratio:
54
Firstly, being a ratio, the Sharpe measure is a pure number. In isolation it
has no meaning. It can only be used as a comparative tool. Thus the
Sharpe ratio should be used to compare the performance of a number of
funds.
Alternatively one can compare the Sharpe ratio of a fund with that of its
benchmark index. If the only information available is that the Sharpe ratio
of a fund is 1.2, no meaningful inference can be drawn as nothing is
known about the peer group performance.
The Sharpe ratio uses standard deviation as it's risk component, a low
standard deviation can unduly influence results. Thus a fund with low
returns but with a relatively mild standard deviation can end up with a high
Sharpe ratio. Such a fund will have a very tranquil portfolio and not
generate high returns.
For an investor who puts in all his/her money in a single fund, Sharpe
ratio is a useful measure of risk-adjusted return. This is because standard
deviation measures total risk and this is the case with a single portfolio.
The Sharpe ratio tells us whether a portfolio's returns are due to smart
investment decisions or a result of excess risk. This measurement is very
useful because although one portfolio or fund can reap higher returns
than its peers, it is only a good investment if those higher returns do not
come with too much additional risk. The greater a portfolio's Sharpe ratio,
the better its risk-adjusted performance has been.
2. Beta:
Calculating BETA
55
and can best decide whether to use weekly, monthly or daily pricing
information in BETA calculation.
For this study, Historical data for benchmark indices-BSE 200, NIFTY,
CNX 500, SENSEX and NAV performance of each of the funds have
been collected.
3. Alpha:
4. R-Squared:
56
5. Standard Deviation:
In the core of the fund analysis activity lie the twin pursuits of judging
returns and risk. Stripped of a lot of the complexity, this task involves
determining a fund's average performance over a period of time.
If the individual monthly performances are very different from the average,
then that fund is risky, delivering high returns in some months and poor
returns in others. If they are mostly similar, then the fund is a low risk one,
with about the same returns month after month.
6. P/B ratio:
7. P/E Ratio:
Calculated as:
57
Comparison of Large Cap funds of different AMCs:
I have analyzed the large Cap funds of Reliance, ICICI, HDFC, Tata AMCs.
The following are given the funds which invest their corpus in large cap
companies.
Reliance Vision Fund
ICICI Pru-G Fund
HDFC Equity-G
Tata Pure Equity-G Fund
The following are given the comparison of these four funds according to some
factors:
58
redemption in
between 180
& 365 days
upto 5 crores
Analysis & Findings:
The volatility of all the funds are less volatile than that of the market
because the beta of all the funds is less than 1.
59
3. On the Basis of Alpha:
HDFC Equity-G Fund is taking higher risk and earning higher returns
followed by Tata, Reliance, ICICI AMCs.
60
6. On the Basis of P/E Ratio:
The stocks in the portfolio ICICI Pru-G Fund are earning highest with less
risk than that of other AMCs and the stocks in the portfolio of Tata Pure-
Equity Fund is earning least with the same risk.
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Comparison of Mid Cap funds of different AMCs:
I have analyzed the large Cap funds of Reliance, ICICI, HDFC, Tata AMCs.
The following are given the funds which invest their corpus in mid cap
companies
Reliance Growth Fund
ICICI Pru Discovery Fund
HDFC LT Advantage Fund
Tata Contra-G Fund
The following are given comparison of these four funds
according to some factors:
Reliance ICICI HDFC Tata
R-Squared 0.73 0.62 0.69 0.90
Beta 0.92 0.87 0.71 0.92
Alpha 8.85 -1.35 2.08 3.18
Mean 38.48 26.78 26.04 32.80
Standard 27.59 28.16 21.83 24.87
Deviation
Sharpe Ratio 1.21 0.77 0.96 1.12
Benchmark BSE-100 S & P CNX S & P CNX- Sensex
Nifty 500
Investment P/B 5.14 2.25 6.85 4.66
Ratio
Investment P/E 38.28 17.74 28.03 23.90
Ratio
% of Equity 84.41 96.90 94.75 98.67
Allocation
% of Debt 00.00 1.31 0.00 0.72
Allocation
% of Others 15.59 1.79 5.25 0.61
Type Open Open Ended Open-EndedOpen-
Ended Ended
Fund Category Equity- Equity- Equity-Tax Equity-
Diversified Diversified Planning Diversified
Entry Load 2.25% 2.25% upto 5 2.25% upto 5 2.25% upto
upto crores crores 1 crore
2crores &
1.5% from
2 to 5
crores
Exit Load 1%, if 1%, if Nil 1% , if
redemption redemption in redemption
before 1 between 0 & between 0 &
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year 180 days, 0.5%, 180 days
if redemption in upto 1 crore
between 180 &
365 days upto 5
crores
Analysis & Findings:
The volatility of all the funds are less volatile than that of the market
because the beta of all the funds is less than 1. The volatility is very less
in case of HDFC LT Advantage.
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3. On the Basis of Alpha:
Reliance Growth Fund is taking higher risk and earning higher returns.
But in Case of ICICI Pru Discovery fund is not even able to cover their
return as according to their risk as the value of ICICI pru-discovery fund is
negative.
The portfolio of ICICI Pru Discovery fund comprises of the volatile stocks
hence the volatility in their returns is higher than other AMCs because it
has the higher standard deviation.
64
6. On the Basis of P/E Ratio:
The stocks in the portfolio ICICI Pru-Discovery Fund are earning highest
with less risk than that of other AMCs and the stocks in the portfolio of
Reliance Growth Fund is earning least with the same risk.
65
Comparison of Sector Allocations among the AMCs:
By the above pie chart, It is shown that the Fund manager of Reliance
Vision Fund is mostly dependent on the companies which comprises of
financial sectors means maximum corpus has been invested into financial
services companies. By the above graph, it is also shown that total corpus
has been divided somewhat equally among all the sectors, there is not
much fluctuation in the investments among the sectors hence by this we
can say that the diversification of the total corpus is managed equally
among all the chosen sectors.
66
2. ICICI Pru Growth-G Fund:
By the above pie chart, It is shown that the Fund manager of ICICI Pru
Growth-G Fund is mostly dependent on the energy sectors companies
means maximum corpus has been invested into energy sectors
companies. By the above graph, it is also shown that there is a fluctuation
in the investments among the sectors e.g. we can see that about 22.97%
of the corpus has been invested into energy sectors and only 1.46% of
the corpus has been invested into consumer Non-durables.
67
3. HDFC Equity-G Fund:
By the above pie chart, It is shown that the Fund manager of HDFC
Equity-G Fund is mostly dependent on the companies which comprises of
financial sectors means maximum corpus has been invested into financial
services companies. By the above graph, it is also shown that total corpus
has been divided somewhat equally among all the sectors, there is not
much fluctuation in the investments among the sectors hence by this we
can say that the diversification of the total corpus is managed equally
among all the chosen sectors.
68
4. Tata Pure Equity-G Fund:
By the above pie chart, It is shown that the Fund manager of Tata Pure
Equity-G fund is mostly dependent on the companies which comprises of
financial sectors means maximum corpus has been invested into financial
services companies. By the above graph, it is also shown that there is a
fluctuation in the investments among the sectors e.g. we can see that
about 16.93% of the corpus has been invested into financial sectors and
only 0.79% of the corpus has been invested into consumer durables.
69
Comparison of Sector Allocations among the AMCs:
By the above pie chart, It is shown that the Fund manager of Reliance
Growth Fund is mostly dependent on the energy sectors companies
means maximum corpus has been invested into energy sectors
companies. By the above graph, it is also shown that total corpus has
been divided somewhat equally among all the sectors, there is not much
fluctuation in the investments among the sectors hence by this we can
say that the diversification of the total corpus is managed equally among
all the chosen sectors.
70
By the above pie chart, It is shown that the Fund manager of ICICI Pru
Discovery Fund is mostly dependent on the companies which comprises
of consumer durables means maximum corpus has been invested into
consumer durables sectors companies. By the above graph, it is also
shown that total corpus has been divided somewhat equally among all the
sectors, there is not much fluctuation in the investments among the
sectors hence by this we can say that the diversification of the total
corpus is managed equally among all the chosen sectors.
71
By the above pie chart, It is shown that the Fund manager of HDFC LT
Advantage fund is mostly dependent on the companies which comprises
of Basic/Engineering sectors means maximum corpus has been invested
into Basic/Engineering companies. By the above graph, it is also shown
that there is a fluctuation in the investments among the sectors e.g. we
can see that about 19.22% of the corpus has been invested into
Basic/Engineering sectors and only 1.99% of the corpus has been
invested into Textiles sectors.
72
By the above pie chart, It is shown that the Fund manager of Tata contra-
G fund is mostly dependent on the companies which comprises of
services sectors means maximum corpus has been invested into services
companies. By the above graph, it is also shown that there is a fluctuation
in the investments among the sectors e.g. we can see that about 21.93%
of the corpus has been invested into services sectors and only 0.83% of
the corpus has been invested into Consumer Durables sectors.
All the persons who have cleared the AMFI exam should be empanelled
with Reliance Mutual Fund so as to be largest distributor base.
74
Bibliography
Search Engines
a) Google
b) Yahoo
Websites
a) www.valueresearchonline.com
b) www.business-standard.com
c) www.reliancemutual.com
d) www.amfi.com
e) www.hdfcbank.com
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