31-10-2012, 06:09 PM
A STUDY ON ANALYSIS OF RISK AND RETURN TOWARDS MUTUAL FUND SCHEMES IN SUNDARAM FINANCE, COIMBATORE
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INTRODUCTION
Industry Overview
Mutual Funds Industry
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.
Trustees
The Mutual Fund may be managed by a Board of trustees a 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 favour 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.
Industry Strengths
Professional Management -The primary advantage of funds (at least theoretically) is the professional management of your money. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
Diversification -
By owning shares in a mutual fund instead of owning individual stocks or bonds, your risk is spread out. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. In other words, the more stocks and bonds you own, the less any one of them can hurt you (think about Enron). Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be possible for an investor to build this kind of a portfolio with a small amount of money.
Company Overview
Sundaram Finance Ltd incorporated in 1954 has grown today into one of the most trusted financial services groups in India.Today, the activities of the group span savings products like Deposits and Mutual Funds, Car and Commercial Vehicle Finance, Insurance, Home Loans, Software Solutions, Business Process Outsourcing, Tyre Finance, Fleet Cards and Logistics Services.
Sundaram Finance achieved its leadership position by a unique combination of traditional conservatism and judicious dynamism. The values envisioned and inculcated by Shri T.S.Santhanam have endured and inspired the professional workforce at Sundaram Finance to a very high degree of commitment and dedication. The prudent practices followed by the Company such as strong credit appraisal skills, effective receivables management, well defined documentation and procedures have become industry benchmarks.
At Sundaram Finance, people are its most valuable assets. The Company conducts regular in-house training programmes that help motivate employees and improve leadership and managerial abilities. Every employee at Sundaram Finance is proud to represent an institution that values professional integrity, above all else.