Indian mutual fund industry

I would like to thank the management of SBI Mutual Funds for giving me an opportunity to intern with them. The training at the company was held over a period of 2 months. During this period I was guided by the manager of the Investor Service Desk, Mr. Ankush khockhar The project report and the learning process would not have been possible without his inputs and guidance at critical points of the project. He imparted to me the knowledge of mutual funds and shared with me the practical marketing techniques of mutual funds. He also made sure that I was exposed to all the distribution channels, the operational processes and also was exposed to the sale of mutual funds. Under his guidance I was able to enhance my marketing and inter-personal skills.

During the course of the two months I also came across other people who put in their time and effort towards acclimatizing me towards the working of their organization. I express my thanks to every one of them.

I would also like to Thanks Prof . Maninder singh gill for the help and guidance provided to make me learn and understand the concepts. His guidance was very valuable in transferring the class room concepts to the corporate world.

These two months were very important to me as it helped me in going beyond the class room and get a practical feel of how things worked.

I would also like to thank all the distributors, customers, clients and people at large who I have interacted with during the course of my training.

SBI MF wanted to identify the factors which influence the distributor opinion of an asset management company (AMC). This is very essential because most of the investors in our country are dependent on the distributor‟s advice for their investment. An asset management company therefore looks to positively influence the distributors. During the course of the meetings with the manager at SBI MF and some distributors, we identified 5 factors which may influence how a particular AMC was perceived by the distributors. They were payout, performance, service level, relations and brand. A questionnaire was formed keeping these factors in mind. The distributors involved included individual financial advisors, national distributors and banks. On conducting the analysis of the data obtained, three factors were found to be critical in influencing the distributor opinion. They are performance, service level and relations. Since the ban on entry loads by the Securities and Exchange Board of India (SEBI) the amount of commission paid to the distributors has remained almost same across all companies. It has become unviable for them to pay a higher amount. In a situation such as this performance, service level and relations with the distributors become important for an asset management company.

During interactions with the distributors it could be concluded that SBI Mutual Funds (SBI MF) had to focus more on improving their service level and performance of its funds. SBI Mutual Funds as a company relies upon its brand value for sales to be made to customers. However, majority of the distributors are of the opinion that there are other companies which are comparable with SBI MF in terms of brand recognition and hence the company should market itself more aggressively. Aggressive marketing would involve creating public awareness through the mass market medium and having tie-ups with other banks and national distributors for the sale of their funds.

Concept of Mutual Funds

Mutual Funds

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 then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realised 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 man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

1.1 Working of Mutual Funds:

The following figure explains the working of Mutual funds

Figure 1: Working of Mutual Funds
The important terms of the figure are explained as follows:

Fund Sponsor:

A ‟sponsor‟ is any person who, acting alone or in combination with another body corporate, establishes a MF. The sponsor of a fund is similar to the promoter of a company. In accordance with SEBI Regulations, the sponsor forms a trust and appoints a Board of Trustees, and also generally appoints an AMC as fund manager. In addition, the sponsor also appoints a custodian to hold the fund assets. The sponsor must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over five years prior to registration.

Trustees:

The MF or trust can either be managed by the Board of Trustees, which is a
body of individuals, or by a Trust Company, which is a corporate body. Most of the funds in India are managed by Board of Trustees. The trustee being the primary guardian of the unit holders‟ funds and assets has to be a person of high repute and integrity. The trustees, however, do not directly manage the portfolio securities. The portfolio is managed by the AMC as per the defined objectives, accordance with Trust Deed and SEBI (Mutual Funds) Regulations.

Asset Management Company (AMC):

The AMC, which is appointed by the sponsor or the trustees and approved by SEBI, acts like the investment manager of the trust. The AMC functions under the supervision of its own Board of Directors, and also under the direction of the trustees and SEBI. AMC, in the name of the trust, floats and manages the different investment ‟schemes‟ as per the SEBI Regulations and as per the Investment Management Agreement signed with the Trustees. Others:

Apart from these, the MF has some other fund constituents, such as custodians and depositories, banks, transfer agents and distributors. The custodian is appointed for safe keeping of securities and participating in the clearing system through approved depository. The bankers handle the financial dealings of the fund. Transfer agents are responsible for issue and redemption of units of MF.

Risk Return Matrix:

The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investor opts for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments are risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but ar e also invested in the stock markets which involves a higher risk but can expect higher returns.

Figure 2: Risk Return Matrix

1.2 Role of SEBI and AMFI:

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. Mutual Funds either promoted by public or by private sector entities including those promoted by foreign entities are governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

1.3 Common Terms Used

 Net Asset Value (NAV): Net Asset Value is the market value of the assets of the scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

 Sale Price: Is the price you pay when you invest in a scheme. It may include a sales load.  Repurchase Price: Is the price at which units under open-ended schemes are repurchased by the Mutual Fund. Such prices are NAV related.  Redemption Price: Is the price at which close-ended schemes redeem their units on maturity. Such prices are NAV related.  Sales Load: Is a charge collected by a scheme when it sells the units, also called „Front-end‟ load. Schemes that do not charge a load are called „No Load‟ schemes.  Repurchase or ‘Back-end’ Load: Is a charge collected by a scheme when it buys back the units from the unit holders.

 Diversification: Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent.  SIP: Is a plan where investors make regular, equal payments into a mutual fund. By using a systematic investment plan (SIP), investors are benefitting from the long-term advantages of d cost averaging and the convenience of saving regularly without taking any actions except the initial setup of the SIP.

 Beta: A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and indicates the tendency of a security’s returns to respond to swings in the market. A beta of 1 indicates that the security’s price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security’s price will be more volatile than the market.  Expense Ratio: A measure of what it costs an investment company to operate a mutual fund. It is determined through an annual calculation, where a fund’s operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund’s assets and lower the return to a fund’s investors.  The largest component of operating expenses is the fee paid to a fund’s investment manager/advisor. Other costs include recordkeeping, custodial services, taxes, legal expenses, and accounting and auditing fees.

 R-Squared: A statistical measure that represents the percentage of a fund or security’s movements that can be explained by movements in a benchmark index. R-squared values range from 0 to 100.

An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund’s performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn’t act much like the index.

1.4 History of Mutual Funds

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.

 First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

 Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 14 Bank of Baroda Mutual Fund (Oct 92). At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

 Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

 Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, 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 & growth.

Figure 3: Growth in Assets under Management

1.5 Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. Thus mutual funds have a variety of flavors. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

1.5.1 Overview of existing schemes in mutual fund category: By Structure

 Open – Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (“NAV”) related prices. The key feature of open-end schemes is liquidity.

 Close – Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unit holder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor.

 Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

1.5.2 Overview of existing schemes in mutual fund category: By Nature

 Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager‟s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:  Diversified Equity Funds

 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

 Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

 Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.

 MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

 Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

 Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

Balanced funds: These are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, by investment objective and types of returns. Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

1.5.3 Overview of existing schemes in mutual fund category: By Investment Objective:

 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

 Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and
corporate debentures. Capital appreciation in such schemes may be limited.

 Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

 Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Other schemes:

 Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

 Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the

Types of returns

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check
for distributions or to reinvest the earnings and get more share.

1.6 Pros & cons of investing in mutual funds

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

Pros of Investing Mutual Funds

1. Professional Management – The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.

2. Diversification – Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. 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.

3. Economies of Scale – Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity – Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.

5. Simplicity – Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Cons of Investing Mutual Funds:

1. Professional Management- Some funds don’t perform in the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than the investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution – Because funds have small holdings across 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.

4. 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.

Indian Mutual Fund Industry

The financial market provides different investment options to the perspective investors. These include low risk and low return products like the Fixed Deposits, corporate debentures and bonds as well as high risk and high return options like stock market. But most of investors in India are not able to trust the stock market given its fluctuating nature. The recent financial crisis and stock market crash has added to that development. Mutual Funds provide a mid-way for getting returns better than FDs with more security than the stock market. There are a large number of schemes for investors to choose from based upon their investment requirements. The market regulator has also taken a number of steps to increase the transparency of the mutual fund operations. As the Indian Economy grows,
there has been an increase in the personal financial assets and a rise in foreign participation. With these changes, the mutual fund industry is also witnessing a rapid growth. There are more investors with a growing risk appetite, rising income, increasing awareness and all see mutual funds as the most preferred investment option. . The banning of entry load has also resulted in dwindling distributor interest towards the sale of mutual funds and they prefer selling other financial products which give them a higher commission. With money flowing into mutual funds in a trickle, fund houses are focusing on other businesses like “offshore advisory business” and “Portfolio Management Services” to cover losses.

According to a report from Research and analytics firm, Boston Analytics only 10 percent of Indian households have invested in mutual funds. The study also says that this is because mutual funds are perceived as high risk and a lack of information on how mutual funds work. Indian mutual funds industry currently manages assets worth 8.1 trillion rupees ($174 billion) and this is expected to grow to about $520 billion by 2015. In order to make sure that investors were fully informed about the working of an AMC before arriving at a decision, the Securities and Exchange Board of India (SEBI) has made it mandatory for companies to disclose investor complaints on their websites and in their annual reports. A SEBI panel also recommended retaining the expense ratio which mutual funds deduct annually from investors Net Assets value (NAV) at 2.25%. 22 As of now there are 38 AMCs in operation and some more companies are in the pipeline to launch their own AMCs which us gives an idea about the intense level of competition prevalent in the industry and on the other side it also tells us that there is tremendous scope for further growth. The top 10 Asset Management Companies in terms of assets under management (AUM), as on April 30, 2010 are:

Mutual fund industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international Mutual Fund players have entered India like Fidelity, Franklin Templeton Mutual fund etc. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players. SEBI has also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors. SEBI has directed the fund houses to disclose to investors the dividend in the form of Rs per unit in their future communications and advertisements and to benchmark returns on investment against the Sensex and Nifty instead of sectoral indices. Introduction to SBI Mutual Fund In November 1987, SBI Mutual Fund from the State Bank of India became the first non UTI mutual fund in India. SBI Mutual Funds (SBI MF) is a partnership between India’s largest bank State Bank of India and France’s Society General Asset Management. State bank of India owns 63% in SBI MF and the rest 37% is owned by France’s Society General Asset Management. As on April 30 2009, the company had assets of Rs 37213.06 Crs. It is currently operating a total of 46 schemes which includes Equity schemes, Debt schemes, Short term debt schemes, Equity and debt, Gilt fund.

A total of over 6 million people have invested in the funds of SBI. The fund reaches out to investors through a network of over 150 points of acceptance, 28 investor service centre, 46 investor service desks and 56 district organisers. On the 17th of May, 2010 the company launched a PSU fund with the aim of investing in public sector companies which offer significant growth prospects for the investors and also take advantage of the unlocking of value of some of these companies due to disinvestment by the government. Products currently being offered by the company are as follows:

SBI Mutual Fund has a very wide and robust distribution network. It operates in 15 regions and has 29 investor service centre, 55 investor service desks, 45 district organizers and 1 overseas office in Dubai. This coupled with the reach of the State Bank of India which has close to 15600 branches in India and more than 147 million customers provides the asset management company (AMC) an opportunity to reach investors even in the remote parts of the country. The decision making structure of SBI mutual fund is designed to take advantage of this opportunity. Here, I will be explaining in detail the structure of SBI mutual funds in India.

Figure 5:
Strategic decisions regarding the direction of the company are taken by individuals at the corporate office level. This is then passed on to the investor service centers (ISC), in this case the Delhi ISC. The business head and his team at the ISC, in co-ordination with the various investor service desks (ISD) under them are responsible for the implementation of the strategic decisions. Individual targets are given to the investor service desks. The managers at these desks are held accountable by the business head of the corresponding investor service center, who in turn reports directly to the national sales head (NSD). The individual managers at the respective ISC or ISD is responsible for handling of the individual financial advisors (IFA), banks and national distributors (ND). The manager is expected to maintain friendly relations with the IFAs, Banks and NDs, handle complaints effectively, educate them about the company policies and encourage them to advice investors to avail of the company’s services.

4.2 The Distribution Channels

Figure 6: Distribution Channels
Apart from the direct channel, there are three categories of distribution channels for the sale of mutual funds.

Banks: The banking channel is categorized as SBI Banks and Other commercial Banks.SBI being the 63% stakeholder in the SBI Mutual Funds Pvt. Ltd. Provides its own banks for the sale of mutual funds. Other banks sell the funds of different AMCs based on the corporate relations that the company has with them or based on the demand for another fund houses product by their existing bank customer.  SBI Banks: In Noida, out of the 25 odd branches, only 4-5 are considered as „active‟ in selling mutual funds. For a bank to be called active, they should have a certain number of clients. In such banks, special designated employees are appointed for the sale of mutual funds along with other bank offerings. These employees are given the training on the different aspect of the mutual fund product. They are then given targets which have to be met within a period of time.  Independent Financial Advisors(IFA): These individuals are certified to advice on mutual funds to people. To become an IFA, one has to appear in an examination conducted by NSE called the AMFI Test for Mutual Funds Basic/Advisor. Once cleared, one can get empanelled with the AMCs and sell their products. IFAs get an upfront amount as a percentage of the invested amount and a trailing percentage.

 National Distributors: These are companies with national presence which provide all investment advice to their clients. The working model is similar to the IFAs but these operate on a larger scale and are present in multiple locations in the country under the same brand name.

Payout:

The amount of commission to be paid to banks and distributors are decided at the corporate and it might vary for each bank and national distributor. The
payout here depends on the reach of the bank (number of branches of the bank and national distributor) and the potential of the bank to get investments. The amount of commission for the individual financial advisors depends on the amount of business that they have previously generated for the company.

4.3 Structure of SBI Mutual Funds

SBI mutual fund has a very wide and robust distribution network. It operates in 15 regions and has 29 investor service centre, 55 investor service desks, 45 district organizers and 1 overseas office in Dubai. This coupled with the reach of the State Bank of India which has close to 15600 branches in India and more than 147 million customers provides the asset management company (AMC) an opportunity to reach investors even in the remote parts of the country. The decision making structure of SBI mutual fund is designed to take advantage of this opportunity. Here, I will be explaining in detail the distribution network of SBI mutual funds in India.

Research Design
The distributor opinion about a particular asset management company (AMC) is affected by a large number of factors. On the basis of the opinion so formed a distributor suggests funds of an AMC to an investor. SBI Mutual Funds was looking to identify a few major factors which shape the opinion of the distributor. It was necessary to bring the number of factors to a manageable level and focus on improving them, as this would lead to more distributors suggesting funds of SBI MF to investors. For an asset management company (AMC) it is very important to make sure that the distributor opinion of the company is favourable because in India, the financial literacy among majority of the investors is poor and they are heavily dependent and swayed by the advice offered by the distributor. A continuous interaction with the concerned stakeholders revealed both the influential factors and the 3 AMCs which were considered to be the main competitors of SBI MF. The factors that were identified are:

1. Brand.
2. Pay outs.

3. Relations.
4. Returns.
5. Service Level.

Objectives
This project has been made to study about mutual funds,so the purpose of study include following objectives- To understand the concept and working of mutual funds.
To know whether mutual funds is a better investment plan or not. To compare and analyse the mutual funds schemes with other products of SBI. To know the investment pattern of investor in mutual funds.

To know the returns of various mutual fund scheme since inspection.

A SIP for every dream.
Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to create wealth, by investing small sums of money every month, over a period of time. Systematic Investment Plan (SIP) is a planned approach to investments and an investment technique that allows you to
provide for the future by investing small amounts of money in Mutual Fund schemes of your choice.

THE SIP ADVANTAGES

Disciplined approach to investments No need to time the market Harness the power of two powerful Investment strategies: Rupee Cost Averaging – Capitalize on periodic dips in the stock market and get more units at lower NAV thus lowering your average unit cost resulting in higher returns. Compounding benefits – The amounts invested early and regularly, helps not only in creating a substantial amount of wealth but also returns compounded over the years. Disciplined Investing Approach –Invest small amounts regularly to build a sizable amount. For as little as Rs 1000/- pm a sizable amount can be build. Simple and Convenient – One time activity. Just need a completed application form along with post dated cheques or SIP ECS/Direct Debit facility * Lighter on the wallet Reap benefits of starting early .

Conclusions

From this study it can be concluded that the secondry factors that distributors consider when recommending funds to the investors are :

1. Relations of the company with distributors.
2.  Service Level
3. Performance.

Relations: Distributors are encouraged by the fair policies of the top management. It includes rewarding the distributors for good performance, organizing short courses to upgrade their skills, taking steps to ensure that the distributors are well informed about their products etc. It is important that the manager at a particular distribution center is in constant touch with the distributors and constantly motivates them to sell his company‟s products. It was observed that distributors felt that SBI Mutual Funds was lacking in maintaining a healthy relationship with the distributors, the company would do well to ensure that there are sufficient employees to handle the work needed to be done at a center.

Service Level: This includes dispatching of account statements to investors regularly, handling complaints of the distributors effectively, making sure that merchandise (application forms, fact sheets) is available when required. It was observed that investors did not receive their account statements on a regular basis which made the distributors unhappy. Here, it is the responsibility of the registrar Computer Age Management Services (CAMS) to ensure that the statements are dispatched. SBI MF would have to co-ordinate with CAMS and ensure that investors and in turn distributors are happy with their service. With the banning of entry loads by the Securities and Exchange Board of India (SEBI), the payout provided by the various AMCs are not very different. Here, the level of service provided by the company can act as a differentiator and help in making sure that the funds of a particular AMC remain on the top of the mind of the distributor.

Performance: Performance here means returns on investment. A customer is likely to go to another distributor if the fund suggested by his current advisor does not perform upto the promised level and the distributor is not able to convince the customer about the reasons for their bad performance. In other words the distributor is dependent on the company for the retention of his customers. Also, individual financial advisors refer to independent magazines and mutual fund websites like value research online, mutualfundsindia.com, fundsupermart.com to find out the top funds in terms of performance and in the case of banks, the relationship managers of different branches are suggested funds to be recommended based on the fund‟s performance by the bank‟s research team. During my interaction with the investors of SBI Mutual Funds, I could find that they were dissatisfied with the returns on their investments and were redeeming or considering redeeming their units. This does not augur well for the company in the long run and it will have to set this right at the earliest. 49

Limitations

Many peoples are unaware about the various schemes of Mutual Funds. Many schemes of Mutual Funds are prone to market risk.  Some Funds are very inconsistant since inspection.