27-06-2014, 12:41 PM
MUTUAL FUNDS ANALYSIS AT HOI PVT. LTD
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INTRODUCTION
The Indian capital market has witnessed unprecedented developments and innovations during the decades of 80s and 90s. These innovations relate to new financial instruments, new financial institutions such as mutual funds and a variety of financial services like merchant banking, credit rating, factoring etc. In a changed environment mutual funds are playing a vital role in financial intermediation, development of capital markets and growth of corporate sector.
Despite the fact that Indian mutual fund industry is relatively new, it has grown at a rapid pace, influencing various sectors of the financial market and the national economy. They have become an important medium of investment for the average Indian investor. By enabling the investor to indirectly participate in the capital market and to rear the gains of adequate diversification and professional management; mutual funds have become an important constituent of the Indian financial system.
Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings
ABOUT THE TOPIC
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more than $US 26 trillion.
There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of investment avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc. An informed investor needs to do research before investing. However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors, therefore, prefer the mutual fund route.
TYPES OF SCHEMES
Equity/growth oriented Funds
Equity schemes are those that invest predominantly in equity shares of companies. An equity scheme seeks to provide returns by way of capital appreciation. As a class of assets, equities are subject to greater fluctuations. Hence, the NAVs of these schemes will also fluctuate frequently. Equity schemes are more volatile, but offer better returns
Income/debt oriented Funds
These schemes invest mainly in income-bearing instruments like bonds, debentures, government securities, commercial paper, etc. These instruments are much less volatile than equity schemes. Their volatility depends essentially on the health of the economy e.g., rupee depreciation, fiscal deficit, inflationary pressure. Performance of such schemes also depends on bond ratings
TERMS ASSOCIATED WITH MUTUAL FUNDS
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation date
Professional Management
Qualified professionals manage money, but they are not alone. They have a research team that continuously analyses the performance and prospects of companies. They also select suitable investments to achieve the objectives of the scheme, so you see that it is a continuous process that takes time and expertise that will add value to investment. These fund managers are in a better position to manage investments and get higher returns
Diversification
The cliché, "don’t put all eggs in one basket" really applies to the concept of intelligent investing. Diversification lowers risk of loss by spreading money across various industries. It is a rare occasion when all stocks decline at the same time and in the same proportion. Sector funds will spread investment across only one industry and it would not be wise for portfolio to be skewed towards these types of funds for obvious reasons
Costs despite Negative Returns
Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform poorly after they bought shares.
Price Uncertainty
With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close
No Control over Cost
An investor in a mutual fund has no control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain the benefits of mutual fund services. However, this cost is often less than the cost of investing by the investors
No Tailor-Made Portfolio
Investors who invests on their own can build their own portfolio of shares, bonds and other securities. Investing through mutual funds means he delegates this decision to the fund managers. The very high-net-worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual funds help investors overcome this constraint by offering families of schemes-a large number of different schemes within the same fund. An investor can choose from different investment plans and construct a portfolio of his choice
GROWTH OF THE INDIAN MUTUAL FUNDS 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases.
Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth.
MARKET SHARE OF MUTUAL FUNDS COMPANIES
The percentage of market share of Public Sector Units (PSU) mutual funds in India in the overall aggregate AUM (Assets Under Management) has fallen sharply from 71.77% to 21.59% during the period between years 2000 and 2009. Correspondingly, Private sector mutual funds have gained their market share in the aggregate AUM from 28.23% to 78.41% during the period between years 2000 and 2009.
Even during the period between 2000 and 2002, the PSU mutual funds were losing their market share from 71.77% to 47.55%. Adding to that, the splitting of UTI in the year 2003 has really changed the shape of the Indian mutual fund industry once-for-all, significantly in favour of private sector.
Emergence of several mutual funds backed by foreign banks' and private sector companies is clearly shifting the AUM in favour of private sector mutual funds
VISION AND MISSION
The vision of the firm is to form the top most company in the financial sector of the Indian market.
Their mission is to make the company a listed company in the stock exchanges
LOCATION AND NUMBER OF EMPLOYEES
House of Investments Pvt. Ltd. has 9 branches. They are located at College Road, Indira Nagar, Dwarka, Panchavati, Ashok Stamb, Surgana, Ozar, Dindori and Sangamner. The Head Office is at Ganore Heights, Gangapur Road, Nashik. HOI has a team of 40 employees
SCOPE OF THE PROJECT
Scope of this project is limited to study of mutual funds offered by House of Investments Pvt. Ltd., Nashik. Moreover, the basis for selecting mutual funds is the top 5 funds in 5 categories of 5 Asset Management Companies having highest total Assets Under Management
CONCLUSION
Now a days mutual funds are emerging as one of the widely accepted options of investment. The reason behind this is low performance of traditional investment options and role played by government in this sector, which is totally oriented towards the investor. Government has formed SEBI (Security Exchange Board of India) for the same reason, which regulates Mutual Funds companies and guides to the Investor.
Mutual funds offer a lot of benefits which no other single option could offer. But most of the people see it as just another investment option. So the advisors should try to change people’s mindsets. Before investing in mutual fund investor should take reasonable care, which will help him to acquire good returns with proper safety of his funds