A Research Proposal

On

A study of Best Fund Manager in Mutual fund

In partial fulfilment of the requirements of Summer Research Project in the

Masters of Business Administration programme at GLS University

Submitted to

Faculty of Management

 Under the Guidance of

Dr. Tanvi Pathak

 By

Priyank Bhuva Hitarthi Ganatra

(201900620010420) (201900620010445)

M.B.A. Semester III & IV

Batch: 2019-21

1
 CHAPTER 1
INTRODUCTION
OF
INDUSTRY

2
 Concept of a Mutual fund

A mutual fund is a professionally managed investment vehicle. Practically, one does not
invest in mutual fund, but invests through mutual funds. However, we hear of “investing in
mutual funds” or “investing in mutual fund schemes”. While that is fine for the purpose of
discussions, technically it is not correct. As a mutual fund distributor, it is critical to understand
the difference between the two concepts.

When someone says that one has invested in a mutual fund scheme, often, the scheme is
perceived to be competing with the traditional instruments of investment, viz. equity shares,
debentures, bonds, etc. The reality is that one invests in these instruments through a mutual fund
scheme. In other words, through investment in a mutual fund, an investor can get access to
equities, bonds, money market instruments and/or other securities, that may otherwise be
unavailable to them and avail of the professional fund management services offered by an
asset management company.

Thus, an investor does not get a different product, but gets a different way of investing.
The difference lies in the professional way of investing, portfolio diversification, and a regulated
vehicle. Mutual fund is a vehicle (in the form of a “trust”) to mobilize money from investors, to
invest in different markets and securities, in line with stated investment objectives. In other
words, through investment in a mutual fund, an investor can get access to equities, bonds, money
market instruments and/or other securities, that may otherwise be unavailable to them and avail
of the professional fund management services offered by an asset management company.

Role of Mutual Funds

The primary role of mutual funds is to help investors in earning an income or building
their wealth, by investing in the opportunities available in securities markets. It is possible for
mutual funds to structure a scheme for different kinds of investment objectives.

3
 Mutual funds offer different kinds of schemes to cater to the need of diverse investors. In
the industry, the words ‘fund’ and ‘scheme’ are used inter-changeably. Various categories of
schemes are called “funds”. In order to ensure consistency with what is experienced in the
market, this workbook goes by the industry practice. However, wherever a difference is
required to be drawn, the scheme offering entity is referred to as “mutual fund” or “the fund”.
The money that is raised from investors, ultimately benefits governments, companies and
other entities, directly or indirectly, for funding of various projects or paying for various
expenses. The projects that are facilitated through such financing, offer employment to
people; the income they earn helps them buy goods and services offered by other companies,
thus supporting projects of these goods and services companies. Thus, overall economic
development is promoted.

As a large investor, the mutual funds can keep a check on the operations of the investee
company, and their corporate governance and ethical standards. The mutual fund industry itself,
offers livelihood to a large number of employees of mutual funds, distributors, registrars and
various other service providers. Higher employment, income and output in the economy boosts
the revenue collection of the government through taxes and other means. When these are spent
prudently, it promotes further economic development and nation building. Mutual funds can also
act as a market stabilizer, in countering large inflows or outflows from foreign investors. Mutual
funds are therefore viewed as a key participant in the capital market of any economy.

Investment Policy of Mutual Funds

Each mutual fund scheme starts with an investment objective. Since mutual funds are
investment vehicles that invest in different asset categories, the mutual fund scheme returns
would depend on the returns generated from these underlying investments. Hence, once the
investment objective is finalized, the mutual fund scheme’s investment policy is arrived at.
This is to achieve the investment objective. The investment policy includes the scheme’s asset

4
allocation and investment style.

A mutual fund scheme with an objective of providing liquidity would invest in money
market instruments or in debt papers of very short-term maturity. At the same time, a mutual
fund scheme that aims to generate capital appreciation over long periods, would invest in equity
shares. This would reflect in the scheme’s asset allocation, which would be disclosed in the
Scheme Information Document (SID). However, even within the same asset category, the fund
manager may adopt different styles, e.g. growth style or value style; or different levels of
portfolio concentration, e.g. focused fund or diversified fund. The scheme’s investment policy
would disclose two aspects–asset allocation and investment style.

Important terminologies in Mutual Funds

Units
The investment that an investor makes in a scheme is translated into a certain number of
‘Units’ in the scheme. Thus, an investor in a scheme is issued units of the scheme.

Face Value

Typically, every unit has a face value of Rs. 10. The face value is relevant from an accounting
perspective.

Unit Capital

The number of units issued by a scheme multiplied by its face value (Rs. 10) is the capital of
the scheme–its Unit Capital.

Recurring Expenses
The fees or commissions paid to various mutual fund constituents come out of the expenses

5
charged to the mutual fund scheme. These are known as recurring expenses. These expenses
are charged as a percentage to the scheme’s assets under management (AUM). The scheme
expenses are deducted while calculating the NAV. This means that higher the expenses, lower
the NAV, and hence lower the investor returns. Given this, SEBI has imposed strict limits on
how much expenses could be charged to the scheme. For running the scheme of mutual
funds, operating expenses are also incurred.

Net Asset Value

The true worth of a unit of the mutual fund scheme is otherwise called Net Asset Value (NAV)
of the scheme. When the investment activity is profitable, the true worth of a unit increases.
When there are losses, the true worth of a unit decreases. The NAV is also the net realizable
value per unit in case the scheme is to be liquidated–how much money could be generated if
all the holdings of the scheme are sold and converted into cash.

Assets Under Management

The sum of all investments made by investors’ in the mutual fund scheme is the entire mutual
fund scheme’s size, which is also known as the scheme’s Assets Under Management (AUM).
This can also be obtained by multiplying the current NAV with the total units outstanding. The
relative size of mutual fund companies/asset management companies is assessed by their
assets under management (AUM). When a scheme is first launched, assets under management is
the amount mobilized from investors. Thereafter, if the scheme has a positive profitability
metric, its AUM goes up; a negative profitability metric will pull it down.

Further, if the scheme is open to receiving money from investors even post-NFO, then such
contributions from investors boost the AUM. Conversely, if the scheme pays any money to
the investors, either as dividend or as consideration for buying back the units of investors, the
AUM falls. The AUM thus captures the impact of the profitability metric and the flow of unit-
holder money to or from the scheme.

Mark to Market

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The process of valuing each security in the investment portfolio of the scheme at its current
market value is called Mark to Market (MTM). The mark-to-market valuation is done on a daily
basis for calculation of daily NAV of a mutual fund scheme. This results in daily
fluctuations in the NAVs of all schemes.

Advantages of Mutual Funds for Investors

Professional Management
Mutual funds offer investors the opportunity to earn an income or build their wealth
through professional management of their investible funds. There are several aspects to such
professional management viz. investing in line with the investment objective, investing based
on adequate research, and ensuring that prudent investment processes are followed.
Investing in the securities markets will require the investor to open and manage multiple
accounts and relationships such as broking account, demat account and others. Mutual fund
investment simplifies the process of investing and holding securities. The fund management
function is not restricted to research and selection of securities to construct a portfolio of
investments, but also to take care of various administrative tasks like collection of corporate
benefits (for example: interest payments, dividends, rights issues, buybacks, etc.), or follow up
on the same.

The calculation and publishing of NAV on a daily basis means that the accounting of the
entire portfolio is done on a daily basis. The investor managing one’s portfolio independently
would need to take too much efforts to take care of this part. All these benefits come at a very
low cost and is available even for the smallest investments. Further, the expenses charged for
professional management of funds are quite reasonable.

Affordable Portfolio Diversification

Investing in the units of a scheme provide investors the exposure to a range of securities
held in the investment portfolio of the scheme in proportion to their holding in the scheme. Thus,

7
an investor can get proportionate ownership in a diversified investment portfolio even for a
small investment of Rs. 500 in a mutual fund scheme.

With diversification, an investor ensures that “all the eggs are not in the same basket”.
Consequently, the investor is less likely to lose money on all the investments at the same
time. Thus, diversification helps reduce the risk in investment. In order to achieve the same
level of diversification as a mutual fund scheme, investors will need to set apart several lakhs
of rupees. Instead, they can achieve the diversification through an investment of less than
thousand rupees in a mutual fund scheme.

Economies of Scale
Pooling of large sum of money from many investors makes it possible for the mutual
fund to engage professional managers for managing investments. Individual investors with small
amounts to invest cannot, by themselves, afford to engage such professional management.
Large investment corpus leads to various other economies of scale. For instance, costs related
to investment research and office space gets spread across investors. Further, the higher
transaction volume makes it possible to negotiate better terms with brokers, bankers and
other service providers.

Mutual funds give the flexibility to an investor to organize their investments according to
their convenience. Direct investments may require a much higher investment amount than what
many investors may be able to invest. For example, an effectively diversified equity portfolio
may require a large outlay. Mutual funds offer the same benefits at a much lower investment
value since it pools small investments by multiple investors to create a large fund. Similarly,
the dividend and growth options of mutual funds allow investors to structure the returns from
the fund in the way that suits their requirements. Thus, investing through a mutual fund offers a
distinct economic advantage to an investor as compared to direct investing in terms of cost
saving.

Transparency

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 An investor is well served if relevant information is available on time. Availability of
such information is critical for taking informed investment decision. The structure of the mutual
funds and the regulations by SEBI have ensured that investors get such transparency about their
investments. There are three essential places from where the investor can get enough information
for taking informed decisions, viz., scheme related documents (SID, SAI, and KIM), portfolio
disclosures, and the NAV of the scheme. Incidentally, even a prospective investor can access all
this information.

Liquidity
At times, investors in financial markets are stuck with a security for which they can’t find
a buyer–worse, at times they can’t find the company they invested in. Such investments, whose
value the investor cannot easily realize in the market, are technically called illiquid investments
and may result in losses for the investor.

Investors in a mutual fund scheme can recover the market value of their investments,
from the mutual fund itself. Depending on the structure of the mutual fund scheme, this would be
possible, either at any time, or during specific intervals, or only on closure of the scheme.
Schemes, where the money can be recovered from the mutual fund only on closure of the
scheme, are compulsorily listed on a stock exchange. In such schemes, the investor can sell
the units through the stock exchange platform to recover the prevailing value of the
investment.

If a ‘material’ development takes place related to investments in a mutual fund scheme,

then such information is made available on time. This helps an investor to take an appropriate
action, including taking out the money from a mutual fund scheme. This combination of
transparency and liquidity enhances the safety.

Tax Deferral
Mutual funds are not liable to pay tax on the income they earn. If the same income were
to be earned by the investor directly, then tax may have to be paid in the same financial year.

9
Mutual funds offer options, whereby the investor can let the money grow in the scheme for
several years. By selecting such options, it is possible for the investor to defer the tax liability.
This helps investors to legally build their wealth faster than would have been the case, if they
were to pay tax on the income each year. Tax benefits Specific schemes of mutual funds (Equity
Linked Savings Schemes) give investors the benefit of deduction of the amount subscribed (upto
Rs. 150,000 in a financial year), from their income that is liable to tax. This reduces their taxable
income, and therefore the tax liability.

Convenient Options
The options offered under a scheme allow investors to structure their investments in line
with their liquidity preference and tax position. There are also transaction conveniences like the
ability to withdraw only part of the money from the investment account, ability to invest
additional amount to the account, setting up systematic transactions, etc.

Investment Comfort
Once an investment is made with a mutual fund, they make it convenient for the investor
to make further purchases with very little documentation. This simplifies subsequent investment
activity.

Regulatory Comfort
The regulator, Securities and Exchange Board of India (SEBI), has mandated strict
checks and balances in the structure of mutual funds and their activities. Mutual fund investors
benefit from such protection.

Systematic Approach to Investments

Mutual funds also offer facilities that help investors invest amounts regularly through a
Systematic Investment Plan (SIP); or withdraw amounts regularly through a Systematic
Withdrawal Plan (SWP); or move money between different kinds of schemes through a
Systematic Transfer Plan (STP). Such systematic approaches promote investment discipline,
which is useful in long-term wealth creation and protection.

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 Limitations of Mutual Fund

Lack of Portfolio Customization

Some brokerages offer Portfolio Management Services to large investors. In a PMS, the
investor has better control over what securities are bought and sold on his behalf. The
investor can get a customized portfolio in case of PMS. On the other hand, a unit-holder in a
mutual fund is just one of several thousand investors in a scheme. Once a unit-holder has bought
into the scheme, investment management is left to the fund manager (within the broad
parameters of the investment objective). Thus, the unitholder cannot influence what securities or
investments the scheme would invest into.

Choice Overload
There are multiple mutual fund schemes offered by several mutual fund houses and
multiple options within those schemes which makes it difficult for investors to choose between
them. Greater dissemination of industry information through various media and availability of
professional advisors or mutual fund distributors in the market helps investors handle this
overload.

In order to overcome this choice overload, SEBI has introduced the categorization of
mutual funds to ensure uniformity in characteristics of similar type of schemes launched by
different mutual funds. This would help investors to evaluate the different options available
before making informed decision to invest.

No Control Over Costs

All the investor's money is pooled together in a scheme. Costs incurred for managing the
scheme are shared by all the Unit-holders in proportion to their holding of units in the
scheme. Therefore, an individual investor has no control over the costs in a scheme.
SEBI has however imposed certain limits on the expenses that can be charged to any scheme.

11
These limits, which vary with the size of assets and the nature of the scheme, are discussed
later. However, at the same time, it should be noted that the market forces also push the cost
down, and there are many schemes that operate at expenses much lower than the limits
allowed by the regulator. This aspect turns out to be advantageous for investors.

No Guaranteed Returns
The structure of mutual funds is such that—it is a pass-through vehicle and passes on the
risk and return to the fund’s investors. That itself protects the interests of the investors. A mutual
fund is not a guaranteed return product. It is just another way of managing money–except
that instead of an investor–it is a professional fund management team that takes care of the
funds invested. The performance of these investments impacts the returns generated by the
mutual fund scheme. The deciding factors are: the movement of the specific market in which
the money is invested, the performance of individual securities held and the skills of the
investment management team. Out of these, the fund manager can work towards improving
one’s skills, but the other factors are out of his control.

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 ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian
Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain
standards in all areas with a view to protecting and promoting the interests of mutual funds and
their unit holders.

AMFI, the association of all the Asset Management Companies of SEBI registered
mutual funds in India, was incorporated on August 22, 1995, as a non-profit organization. As of
now, all the 44 Asset Management Companies that are registered with SEBI, are its members.

Mr. N. S. Venkatesh, Chief Executive

Mr. Balkrishna Kini, Dy. Chief Executive

Objective of AMFI

 To define and maintain high professional and ethical standards in all areas of operation of
mutual fund industry.

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 To recommend and promote best business practices and code of conduct to be followed by
members and others engaged in the activities of mutual fund and asset management including
agencies connected or involved in the field of capital markets and financial services.
 To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI
on all matters concerning the mutual fund industry.
 To represent to the Government, Reserve Bank of India and other bodies on all matters
relating to the Mutual Fund Industry.
 To undertake nation wide investor awareness programmed so as to promote proper
understanding of the concept and working of mutual funds.
 To disseminate information on Mutual Fund Industry and to undertake studies and research
directly and/or in association with other bodies.
 To take regulate conduct of distributors including disciplinary actions (cancellation of ARN)
for violations of Code of Conduct.
 To protect the interest of investors/unit holders.

AMFI Members

 Aditya Birla Sun Life AMC Limited

 Axis Asset Management Company Ltd.
 Baroda Asset Management India Limited
 BNP Paribas Asset Management India Private Limited
 BOI AXA Investment Managers Private Limited
 Canara Robeco Asset Management Company Limited
 DSP Investment Managers Private Limited
 Edelweiss Asset Management Limited
 Essel Finance AMC Limited
 Franklin Templeton Asset Management (India) Private Limited
 HDFC Asset Management Company Limited
 HSBC Asset Management (India) Private Ltd.
 ICICI Prudential Asset Management Company Limited

14
 IDBI Asset Management Ltd.
 IDFC Asset Management Company Limited
 IIFCL Asset Management Co. Ltd.
 IIFL Asset Management Ltd.
 IL&FS Infra Asset Management Limited
 Indiabulls Asset Management Company Ltd.
 Invesco Asset Management (India) Private Limited
 ITI Asset Management Limited
 JM Financial Asset Management Limited
 Kotak Mahindra Asset Management Company Limited
 L&T Investment Management Limited
 LIC Mutual Fund Asset Management Limited
 Mahindra Manulife Investment Management Pvt Ltd
 Mirae Asset Global Investments (India) Pvt. Ltd.
 Motilal Oswal Asset Management Company Limited
 Nippon Life India Asset Management Limited
 PGIM India Asset Management Private Limited
 PPFAS Asset Management Pvt. Ltd.
 Principal Asset Management Pvt. Ltd.
 Quant Money Managers Limited
 Quantum Asset Management Company Private Limited
 Sahara Asset Management Company Private Limited
 SBI Funds Management Private Ltd.
 Shriram Asset Management Co. Ltd.
 SREI Mutual Fund Asset Management Pvt. Ltd.
 Sundaram Asset Management Company Limited
 Tata Asset Management Limited
 Taurus Asset Management Company Limited
 Trust Asset Management Private Limited
 Union Asset Management Company Private Limited

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 UTI Asset Management Company Ltd
 YES Asset Management (India) Ltd.

Mutual Funds History

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 - 1964-1987

Unit Trust of India (UTI) was established in 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 90), Bank of Baroda Mutual Fund (Oct 92). LIC
established its mutual fund in June 1989 while GIC had set up its mutual fund in December
1990.

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

16
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 and growth.

The graph indicates the growth of assets over the years.

17
Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit
Trust of India effective from February 2003. The Assets under management of the Specified
Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the
industry as a whole from February 2003 onwards.

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 INDUSTRY DATA ANAYLSIS

INDUSTRY TRENDS

Total Assets (Rs. Trillion)

Assets managed by the Indian mutual fund industry has increased from Rs. 25.60 trillion in
September 2019 to Rs. 27.74 trillion in September 2020. That represents 8.35% increase in assets
over September 2019.

NOTE:

Assets are measured as average assets for the month.Rs. Trillion is equivalent to Rs. Lakh Cr.

19
Scheme wise Composition of Assets

NOTE:

Equity-oriented schemes include equity and balance funds.

20
Investor Type-wise Composition of Mutual Fund Assets

NOTE:
Institutions include domestic and foreign institutions and banks. HNIs are investors who invest
with a ticket size of Rs.2 lakhs or above

Investor Categories Across Scheme Types

Debt Oriented Equity Oriented Liquid/ Money ETFsFoF

Schemes Schemes Market , s
1% 1% 9%
2 6
4%
1
5%
9
8% 8% 9%
8 4 1

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Equity-oriented schemes derive 88% of their assets from individual investors (Retail
+ HNI)

Institutional investors dominate liquid and money market schemes (84%), debt
oriented schemes (59%) and ETFs, FOFs (91%).

NOTE:

Institutions include domestic and foreign institutions and banks. HNIs are investors who invest
with a ticket size of Rs. 2 lakhs or above. Equity-oriented schemes include equity and balanced
funds.

Composition of Investors’ Holdings

Institutions Individuals
1%
7%
24%
38%
37%

10% 68%
15%

Individual investors primarily hold equity-oriented schemes while institutions hold liquid and
debt oriented schemes.

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68% of individuals investor assets are held in equity oriented schemes.

75% of institutions assets are held in liquid / money market schemes and debt oriented schemes.

NOTE:

Institutions include domestic and foreign institutions and banks. Individuals include HNIs or
investors who invest with a ticket size of Rs. 2 lakhs or above. Equity-oriented schemes include
equity and balanced funds.

Growth in Assets

2,774,145

2,560,423
,442,061

,383,970

,332,085
1 ,176,453
1

Individuals Institutions Grand Total

Sep-20 Sep-19

The value of assets held by individual investors in mutual funds increased from Rs.13.84
lakh cr in September 2019 to Rs. 14.42lakh cr in September 2020, a increase of 4.20%.

The value of Institutional assets has increased from Rs.11.76 lakh cr in September 2019 to
Rs.13.32 lakh cr in September 2020, an increase of 13.23%.

NOTE:

Institutions include domestic and foreign institutions and banks.

Rs. Lakh cr is equivalent to Rs. Trillion.
https://www.amfiindia.com/Themes/Theme1/downloads/home/Industry-Trends.pdf

23
T30 VS B30

B30 Assets

August 2020 September 2020

T302,332,681
T302,327,027
445,469 447,119
B30 (Rs.

Crores)

16% of the assets of the mutual fund industry came from B30 locations in September 2020.
Assets from B30 locations increased from 4.45lakh cr. in August 2020 to 4.47lakh cr. in
September 2020, representing a increase of 0.37%.

NOTE:

T30 refers to the top 30 geographical locations in India and B30 refers to the locations beyond
the top 30. Rs. lakh cr is equivalent to RS. trillion.

B30 and T30

B30 locations tend towards equity assets.

63% of the assets from B30 locations are in equity schemes

For T30 locations, equity oriented schemes accounted for 36% of assets.

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 August 2020 September 2020

37% 37%
64% 64%

63% 63%
36% 36%

B30 T30 B30 T30

NOTE:

Equity-oriented schemes include equity and balance funds. Non-equity oriented schemes include
liquid and money market schemes and debt and debt-oriented funds. T30 refers to the top 30
geographical locations in India and B30 refers to the locations beyond the top 30.

25% of Individual Assets are from B30 Locations

25
 93.54%
Institutions
6.46%

74.96%
Individual
25.04%

T30 B30
August

93.66 %
6.34 %

74.85 %
25.15 %

T30 B30
Sepemteber

In September 2020, 25% of assets held by individual investors is from the B30 locations. 6% of
institutional assets come from B30 locations. Institutional assets are concentrated in T30
locations, accounting for 94% of the total.

NOTE:
Institutions include domestic and foreign institutions and banks.T30 refers to the top 30
geographical locations in India and B30 refers to the locations beyond the top 30.

26
Distributor Vs Direct

Investor Type

Grand Total

Retail

Institutions

HNIs

Corporates

0% 50% 100%

Direct Distributors

About 14% of the retail investors chose to invest directly, while 23% of HNI assets were
invested directly.

46% of the assets of the mutual fund industry came directly. A large proportion of
direct investments were in non-equity oriented schemes where institutional investors
dominate.

NOTE:

Equity-oriented schemes include equity and balance funds. Institutions include domestic and
foreign institutions and banks. HNIs are investors who invest with a ticket size of Rs. 2 lakhs or
above.

Distributor Vs Direct

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Scheme Type

Grand Total

Liquid/ Money Market

ETFs, FoFs

Equity oriented schemes

Debt oriented schemes

0% 20% 40% 60% 80% 100%

Direct Distributors

74% of liquid/money market scheme assets where institutional investors dominate, were direct,
whereas 55% of debt-oriented scheme assets and 19% of equity scheme assets were direct.

NOTE:

Equity-oriented schemes include equity and balance funds. Institutions include domestic and
foreign institutions and banks. HNIs are investors who invest with a ticket size of Rs. 2 lakhs or
above.

FOLIO AND TICKET SIZE

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Accounts Across Investor Types

0.9%

9.0%

Institutions
Retail Investors
HNIs

90.1%

29
There are 91,542,092 accounts in the mutual fund industry as at June 2020, of which 90.1% is
accounted for by retail investors.
There were:
• 82,505,476 Retail investor accounts
• 8,255,898 HNI accounts
• 780,718 Institutional investor accounts.

NOTE:

Account refers to a folio. An investor may have multiple accounts in a single fund or across
funds. This is therefore not a count of number of investors, but number of accounts.

Accounts Across Scheme Types

2. %
9
0. %
8
10.% 5. %
3. % 5. % 4 1
4 9

71.%
5

The top 3 scheme types across accounts are:

Equity Oriented Schemes (71.5%),
Hybrid Schemes (10.4%) and Solution Oriented Schemes (5.9%).

NOTE:

30
Account refers to a folio. An investor may have multiple accounts in a single fund or across
funds.
This is therefore not a count of number of investors, but number of accounts. Debt Oriented
Schemes include Gilt.

Scheme Level Folio Composition of Investor Accounts

Across fund types, most of the accounts are retail investor accounts.
Retail investors hold the least number in debt oriented schemes at about 65.4% of the total
accounts.

NOTE:

Institutions include domestic and foreign institutions and banks.High Net worth Individuals
are defined as Individuals investing 2 lakhs and above.

31
Increase in Investor Accounts

Since December 2014, there is an increase in investor accounts from 4.03 cr to 9.15 cr in June
2020.

NOTE:

Account refers to a folio. An investor may have multiple accounts in a single fund or across
funds. This is therefore not a count of number of investors, but number of accounts.

32
Average ticket size in Equity Schemes is Rs. 1.11 lakh

Liquid / Equity
Money Solution Hybrid
Market Oriented Oriented Schemes

2,258,864 111,459 33,213 315,760

Debt Index Funds
Oriented ETFs,FoFs

1,516,381 607,244 162,320

The average ticket size is relatively higher for liquid and debt oriented schemes which are
dominated by institutional investors
The average ticket size for equity oriented funds is Rs. 111,459.

NOTE:

Ticket size is computed as assets managed for a scheme category/number of accounts for that
category. Debt Oriented Schemes include gilt.

Retail investors’ average account size is Rs. 54,130

14,241,351 89,198,265 54,130 781,032

Institutional investors had the highest ticket size at Rs.8.9 cr per account. Retail investors had an
average ticket size of Rs.54,130 per account.

33
NOTE:

Ticket size is computed as assets managed for a scheme category/number of accounts for that
category. HNIs are defined as individuals investing Rs 2 lakhs and above.

Individual-Investor Assets Composition

Debt oriented schemes Liquid/ Money Market

Equity oriented schemes ETFs, FoFs

93,809 19,638

Sep-20 350,075

978,539

93,877 10,392

Sep-19 341,305

938,396

Individual investors held Rs.14.42 lakh crore in mutual funds as of September 2020, a increase
of 4.20% over September 2019. Investments of individual investors in equity schemes increased
by 4% over September 2019.

NOTE:

Equity and Non-equity schemes as per AMFI classification.

34
INDIVIDUAL INVESTORS

Individual-Investor Assets Composition

Individual investors held Rs.14.42 lakh crore in mutual funds as of September 2020, a increase
of 4.20% over September 2019. Investments of individual investors in equity schemes increased
by 4% over September 2019.
Debt oriented schemes Liquid/ Money Market
Equity oriented schemes ETFs, FoFs

93,809 19,638

Sep-20 350,075

978,539

93,877 10,392

Sep-19 341,305

938,396

NOTE:

35
Figures in Rs crores. Individual-investor assets considered here include investments by HNIs.
Equity-oriented schemes include equity and balanced funds.

Individual Investors – Overall Composition

Individual assets are primarily distributor-driven. 59% of the assets of Individual investors are
from T30 cities, brought in by distributors. Direct investments amount to 19% of individual
assets, divided as 3% from B30 and 16% from
T30.

3% 22% 16% 59%

B30 - Direct B30 - Distributors T30 - Direct T30 – Distributors

NOTE:

36
Individual investors here include HNIs.

Individual Investors – Scheme level Composition

Equity-oriented
Schemes

3% 24% 11% 62%

Debt-oriented
Schemes

4% 18% 24% 54%

B30 - Direct B30 - Distributors T30 - Direct T30 - Distributors

37
Liquid/Money
Market Schemes

5% 13% 33% 49%

ETFs & FoFs

11% 4% 50% 35%

T30 - Direct T30 – Distributors

NOTE:
Individual investors here include HNIs.

Growth of the mutual fund industry in India

Mutual funds have started acquiring their fair share in the portfolios of the investors, as well
as in the minds of the people. India witnessed a surge in the mutual fund assets under
management (AUM) from Rs. 6,14,546 crores in March 2010 to Rs. 23,79,584 crores in March
2019. The 9-year growth stands at 16.23 percent p.a. compounded annually.9 Even, the
number of folios has also seen a big rise. From a little over 4.80 crore folios in March 2010,
the number has crossed 8.24 crores in March 2019, a healthy growth of 6.19 percent p.a.

38
compounded annually.

The share of mutual funds in the overall financial investments in India has risen from 10
percent in March 2016 to 12 percent in March 2017 and to 14 percent in March 2018.
Compared to this, there has been a drop in the share of bank deposits from 71 percent to 69
percent and then to 65 percent during the same period. At the same time, the growth of
Indian mutual fund industry has been stupendous in comparison to the world. The Indian
mutual fund industry’s share has gone up from 0.33 percent in 2008 to 0.60 percent in 2018.

SWOT ANALYSIS

WHAT IS SWOT ANALYSIS?

Selecting a mutual fund for investment is a difficult task. SWOT analysis is a tool, which helps
the investors take investment decision in mutual fund. It is a type of fundamental analysis of
health of a company by examining its strengths, weakness, business opportunities and any

39
threats. SWOT is a basic, and straightforward model that assesses what an organisation can and
cannot do as well as its potential opportunities and threats. The method of SWOT analysis is to
take the information from an environmental analysis and separate it into internal (strengths and
weaknesses) and external issues (opportunities and threats). Once this is completed, SWOT
analysis determines what may assist the firm in accomplishing its objectives, what obstacles
must be overcome or minimized to achieve desired results.

STRENGTHS
Well-qualified and experienced fund managers manage the pool of money collected by a mutual
fund. They thoroughly analyze the markets and economy to find out the good investment
opportunities. Hence, investors need not worry about their investment in mutual funds. They can
buy units from the various schemes of mutual funds by mail or phone or even through Internet.
Mutual funds help investors reap the benefits of returns by a portfolio spread across a wide
spectrum of companies with small investments. Such a spread would not have been possible
without their assistance of professional fund management.

Furthermore, there are innumerable schemes available in the market so that investors can switch
over to another scheme suitable to their investment when the stock market condition is weak.
Just like an individual stock, mutual funds help the investors liquidate their position in the
market without experiencing any problems. Compared to other financial instruments, mutual
funds are less expensive and can be monitored very easily by investors themselves. Mutual fund
has often acted as a counterbalance to equity market volatility, and market liquidity. The fund
industry has introduced the best products and services and delivered superlative performance .It
allows small investors to invest in market cheaply and efficiently.

Investors with a limited amount of fund might be able to invest in only one or two stocks/bonds,
which will increase their risk. However a mutual fund will spread its risk by investing a number
of sound stocks or bonds. A fund normally invests in companies across a wide range of
industries, so that the risk is diversified and at the same time taking advantage of the position it
holds. Also in cases of liquidity crisis where stocks are sold at a distress, mutual funds have the

40
advantages of the redemption option at the NAV (Net Asset Values). Mutual funds regularly
provide investors with information on the value of their investments. They also provide complete
portfolio disclosure of the investments made by various schemes and also the proportion amount
invested in each asset type. They lay out the investment strategy clearly to the investors.

Mutual fund operates under well-known brand names so that mutual fund operators can make an
appeal to many different segments of the market. Since on-line and internet based access offer a
combination of excellent growth prospects, mutual fund operators can continuously improve the
distribution of their products.

Many mutual funds have a large part of installed capacities, as a result of which the mutual fund
can be more flexible and resistant to economic and environmental change. All the mutual funds
are registered with SEBI and they function within the provisions of strict regulations,
certifications and code of conduct designed to protect the interest of investors from fraud.

WEAKNESS
Some schemes introduced by mutual funds do not receive proper attention of the investors.
Performance of some mutual funds is not dynamic enough to explore the available opportunity in
the market. Therefore, investors themselves can pick up some schemes available in the market,
using their little amount of knowledge in mutual funds.
The biggest income of AMC (Asset Management Company) comes from the exit load. AMC
charge unreasonable amount for exit load from investors at the time of sale of mutual fund units.
Besides, mutual fund industries are charging extra cost under the different names. Most of the
mutual funds have smallholdings across the different companies. Thus, high return from a few
investments will not make much different on overall return.

Mutual fund will not give a guaranteed return to investors like many other investment products
in the financial market. These are also possibility for depreciation of the value in the mutual
fund. Unlike fixed income products such as bonds and treasury bills, mutual fund experience

41
price fluctuation along with the stock. While deciding on a particular fund to investment, the
investors should undertake a research to find out the risks involved in mutual funds.

All funds charge administrative fees to cover their day-to-day expenses and sales commission to
compensate brokers and financial consultants. If the fund of the investors makes profit on its
sales, the investors pay taxes in the income they receive. When the investors invest in mutual
funds, they should depend on the fund manager to take the right decision regarding the schemes.
Before investment in any new schemes of mutual fund, investors are cautioned to read the offer
document carefully by mutual fund operators. It is one way or another to discourage the
prospective investors to enter into mutual fund for the purpose of investment. Mutual funds are
like many other investments without a guaranteed return. Hence, there is possibility to get the
value of the mutual fund depreciated.
In Indian mutual funds, there are two types of fees namely shareholders fees and annual
operating fees. The shareholders fees, which are in the form of exit load and redemption fee, are
paid by the shareholders to sell the units of the fund. Mutual fund operators use annual fees for
the operation of fund. These two fees are assessed to mutual fund investors regardless of the
performance of the fund. When the fund does not performance well, these two fees magnify
losses to mutual fund investors.

OPPORTUNITIES
In most of the developed countries, total assets under management ranges from 30% to 60% of
the GDP. In the case of USA and UK, 50% and 17% of investors hold mutual funds
respectively.6 But, mutual funds accounts only 0.73% in India. Moreover, total assets under
management are only 8% of the GDP and 6.7% of the households in India.7 Hence, mutual funds
should introduce new schemes attracting the large number of investors with a view to increasing
their share in GDP and also in households Besides, bank deposits are the biggest competition to
MF products. AUM for mutual funds has exceeded the bank deposits in the USA, whereas in
India mutual fund growth is at low ebb compared to the development of the bank deposits. Fund
operators can take big steps to divert the attention of investors towards mutual funds by
introduction of attractive schemes that are likely to yield better and study returns than bank

42
deposits. In India, rural market has great potential for the excellent growth prospects of mutual
funds. All the major market leaders consider the rural market in India for their product
improvement.

As Multinational Companies are entering into our market with a tie-up of Indian mutual funds;
job opportunities are on the rise. Investment in mutual funds will give an opportunity to create
infrastructure for industries of our country. Mutual funds in India are permitted to invest up to
10% of their net assets abroad in foreign securities subject to a maximum of $ 50 million. Only
5% of Indian savings is invested in foreign securities abroad. Therefore, there is a large potential
for the fund industry to mobilize the savings of people into investments of mutual funds.
Mutual funds are currently not allowed to invest in real estate. Government should take
necessary steps to allow the mutual fund industry to invest in real estate as well. There is a huge
untapped market, which can be penetrated through the variety of schemes provided by the funds.
Since many product varieties are already introduced by Mutual fund industry, they can increase
the customer base by just strengthening the promotional activities or by conducting investor
awareness programmers.

THREATS
There is intensive competition among mutual fund operators. The entry of Multinational
Corporation is also a great threat to the mutual fund operation. Retail investors have lack of
awareness over the mutual funds. One of the major factors impeding the growth of mutual fund
industry is the absence of regulation in the distribution of mutual funds. Mutual fund investors
seek the help of distributors who are ready to inform them of the efficiency of distribution for a
particular risk profile and stages in life cycle. Lack of awareness among distributors and absence
of any disclosures from distributors will be difficult to sell the mutual fund products to investors.
Mutual fund operators are unable to penetrate in rural areas. Roughly 3% rural people own
mutual funds in India.9 Distribution of mutual fund in some centers of India by fund managers is
very expensive.

43
Large number of investment substitutes namely deposits, equities, \real estate etc available to the
Indian investors pose a threat to the growth of mutual fund. Investment products like PPF (Public
Provident Fund) is also a threat since it gives guaranteed returns besides, being free from risk.
Investment abroad will need to be closely tracked to ensure that the source of funds is legitimate
and to protect against Money Laundering, which is onus on banks to ensure the same. Investors
in India will have to be educated about risks inherent in investing abroad like foreign exchange
risks, tax implications etc.
There is a general notion among the investors that investment in mutual funds will run the risk of
losing the hard-earned money. Real estate also poses a big threat for the industry since investors
prefer investing in property rather than funds. Portfolio management has now been designed
specially for an individual investor by private mutual fund institutions. If the fund manager does
not take right decisions regarding fund’s portfolio, an individual investor will definitely burn his
fingers.
Lack of trust and knowledge about the concept of mutual fund among the rural and semi-urban
investors is curtailing the growth of mutual fund industry The foreign MF industries are also
posing threats to the growth of Indian Mutual funds As compared to foreign mutual funds, the
Indian mutual funds provide a few schemes only which do not suit the requirements of the
investors. Mutual fund operators spend roughly 60% to 70% of the revenue earned through
various schemes on the management and services.

CONCLUSION
The information provided by a SWOT analysis can be extremely helpful to an investor to choose
a mutual fund for investment. An organization’s strength, weaknesses, opportunity and threats
are key factors to consider when deciding to invest money with them. A mutual fund’s strength
and weakness are defined as internal factors on which the organization might rely to add value to
their products and services. Opportunities and threats are also external factors, which may detract
from the value of an organization’s products and services, as result of which there may be poor
management, low cash flow and redemption rates or unusually high fees. All of the information
mentioned in strength weakness opportunity and threats would be extremely helpful to
prospective investors when choosing the right decisions on investment in the mutual funds.

44
 CHAPTER 2
INTRODUCTION
OF
TOPIC

45
 Mutual fund scheme categorization and SEBI regulation

With a view to bring-in standardization in classification of mutual funds and to ensure the
schemes are clearly distinct from one another, SEBI issued a circular on Categorization and
Rationalization of Mutual Fund Schemes in 2017.

The objective was to bring uniformity in the characteristics of similar type of schemes launched
by different mutual fund houses so that the investor can objectively evaluate the schemes chosen
for investment. Accordingly, there are five broad categories of mutual fund schemes. Within
each category, there are many sub-categories.

A. Equity Schemes

B. Debt Schemes

C. Hybrid Schemes

D. Solution Oriented Schemes

E. Other Schemes

Classification of Mutual Funds

Mutual funds can be classified in multiple ways. Funds can be classified based on the
Investment objective, as discussed earlier. We have different types of mutual fund schemes-

46
-growth funds, income funds, and liquid funds. The names of the categories suggest the
investment objectives of the schemes. The other ways in which the mutual funds can be
Classified have been discussed below.

1.By the structure of the fund

Mutual fund schemes are structured differently. Some schemes are open for purchase and
Repurchase on a perpetual basis. Once the scheme is launched, the scheme remains open for
Transactions, and hence the name of this category of schemes is open-ended funds. On the
Other hand, some schemes have a fixed maturity date. This means that these schemes are
Structured to operate for a fixed period till the maturity date and cease to exist thereafter.
Since the closure of the scheme is pre-decided, such schemes are known as close-ended
Schemes.

1.Open-ended funds allow the investors to enter or exit at any time, after the NFO. Investors
Can buy additional units in the scheme any time after the scheme opens for on-going
Transactions. Prospective investors can also buy units. At any time, the existing investors can
Redeem their investments, that is, they can sell the units back to the scheme to get their
Money back.

Although some unit-holders may exit from the scheme, wholly or partly, the scheme
Continues operations with the remaining investors. The scheme does not have any kind of
Time frame in which it is to be closed. The on-going entry and exit of investors implies that
The unit capital in an open-ended fund would keep changing on a regular basis.

When an investor invests money in the scheme, new units would be created and thus the unit
Balance would increase. On the other hand, when someone exits the scheme (fully or partly),
The units sold back to the scheme would be cancelled, due to which the unit balance of the
Scheme would go down.

47
2.Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme,
From the fund, only during NFO. The investors cannot transact with the fund after the NFO
Is over. At the end of the maturity period, the scheme is wound up, units are cancelled and
The money is returned to the investors. The fund makes arrangements for providing liquidity,
Post-NFO through listing of the units on a stock exchange. Such listing is compulsory for close
ended schemes to provide liquidity to the investors. Therefore, after the NFO, investors who
Want to buy units will have to find a seller for those units in the stock exchange. Similarly,
Investors who want to sell units will have to find a buyer for those units in the stock exchange.
Since post-NFO sale and purchase of units happen to or from counter-party in the stock
exchange–and not to or from the scheme–the unit capital of the scheme remains stable or
Fixed.

Post-NFO, the sale and purchase transactions happen on the stock exchange between two
Different investors, and the fund is not involved in the transaction. Depending on the demand
supply situation for the units of the scheme on the stock exchange, the transaction price could
Be higher or lower than the prevailing NAV. Therefore, the transaction price is likely to be
Different from the NAV. Experience suggests that most of the time, the units trade at a
Discount to the NAV. This can be understood logically. The buyer has money, and hence many
Options to choose from, whereas the seller has the units of the close-ended fund. This puts
The buyer in a better bargaining position.

3.Interval funds combine features of both open-ended and close-ended schemes. They are
Largely close-ended but become open-ended at pre-specified intervals. For instance, an
Interval scheme might become open-ended between January 1 to 15, and July 1 to 15, each
Year. The benefit for investors is that, unlike in a purely close-ended scheme, they are not
Completely dependent on the stock exchange to be able to buy or sell units of the interval
Fund. However, to provide liquidity to the investors between these intervals, the units must
Be compulsorily listed on stock exchanges to allow investors an exit route.
The periods when an interval scheme becomes open-ended, are called ‘transaction periods’;
The period between the close of a transaction period, and the opening of the next transaction

48
Period is called ‘interval period’. Minimum duration of transaction period is 2 days, and
Maximum duration of interval period is 15 days. No redemption/repurchase of units is
Allowed except during the specified transaction period (during which both subscription and
Redemption may be made to and from the scheme).

While the units of close-ended and interval funds are listed on the stock exchanges, the
Liquidity in these units may be poor. At the same time, even when the trade happens, the
Actual price may be at a discount to the NAV. This happens because of the demand-supply
Situation for the units of the schemes, as discussed earlier.
The Exchange Traded Funds (ETFs), are an innovation that addresses this liquidity issue. The
Market price also tracks the NAV very closely.

2.By the management of the portfolio

1 Actively managed funds are funds where the fund manager has the flexibility to choose the
Investment portfolio, within the broad parameters of the investment objective of the scheme.
Since this increases the role of the fund manager, the expenses for running the fund turn out
To be higher. Investors expect actively managed funds to perform better than the market.

1.Passive funds invest on the basis of a specified index; whose performance it seeks to track.
Thus, a passive fund tracking the S&P BSE Sensex would buy only the shares that are part of the
composition of the S&P BSE Sensex. The proportion of each share in the scheme’s
Portfolio would also be the same as the weightage assigned to the share in the S&P BSE
Sensex. Thus, the performance of these funds tends to mirror the concerned index. They are
Not designed to perform better than the market. Such schemes are also called index schemes.
Since the portfolio is determined by the index itself, the fund manager has no role in deciding
On investments. Therefore, these schemes have low running costs.

3. By the investment universe

This type of classification looks at the investment universe where the scheme may invest
Money. There are equity funds, fixed income funds, money market funds, gold funds,

49
International funds, etc. Here, the category names indicate where the money could be
Invested.

This classification may get further specific depending on narrowing the investment universe.
For example, within equity funds, we have large-cap funds, mid-cap funds, etc. Similarly,
Within debt funds, we have Government Securities funds, and corporate debt funds.
The topic contains comparative analysis of debt and hybrid mutual funds and ranking the
portfolio managers accordingly.
Understanding debt and hybrid funds is important so let us have a detailed explanation of debt
and hybrid funds.

A)Debt schemes

1. Overnight Fund: An open-ended debt scheme investing in overnight securities. The

investment is in overnight securities having maturity of 1 day.

2. Liquid Fund: An open-ended liquid scheme whose investment is into debt and money market
securities with maturity of upto 91 days only.

3. Ultra-Short Duration Fund: An open ended ultra-short-term debt scheme investing in debt
and money market instruments with Macaulay duration between 3 months and 6 months.

4. Low Duration Fund: An open ended low duration debt scheme investing in debt and money
market instruments with Macaulay duration between 6 months and 12 months.

5. Money Market Fund: An open-ended debt scheme investing in money market instruments
having maturity upto 1 year.

6. Short Duration Fund: An open ended short-term debt scheme investing in debt and money
market instruments with Macaulay duration between 1 year and 3 years.

50
7. Medium Duration Fund: An open ended medium-term debt scheme investing in debt and
money market instruments with Macaulay duration of the portfolio being between 3 years to 4
years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years.

8. Medium to Long Duration Fund: An open ended medium-term debt scheme investing in
debt and money market instruments with Macaulay duration between 4 years and 7 years.
Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years.
9. Long Duration Fund: An open-ended debt scheme investing in debt and money market
instruments with Macaulay duration greater than 7 years.

10. Dynamic Bond: An open ended dynamic debt scheme investing across duration.

11. Corporate Bond Fund: An open-ended debt scheme predominantly investing in AA+ and
above rated corporate bonds. The minimum investment in corporate bonds shall be 80 percent of
total assets (only in AA+ and above rated corporate bonds).

12. Credit Risk Fund: An open-ended debt scheme investing in below highest rated corporate
bonds. The minimum investment in corporate bonds shall be 65 percent of total assets (only in
AA (excludes AA+ rated corporate bonds) and below rated corporate bonds).

13. Banking and PSU Fund: An open-ended debt scheme predominantly investing in debt
instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal
Bonds. The minimum investment in such instruments should be 80 percent of total assets.

14. Gilt Fund: An open-ended debt scheme investing in government securities across maturity.
The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).

51
15. Gilt Fund with 10-year constant duration: An open-ended debt scheme investing in
government securities having a constant maturity of 10 years. Minimum investment in G-secs is
80 percent of total assets such that the Macaulay duration of the portfolio is equal to 10 years.

16. Floater Fund: An open-ended debt scheme predominantly investing in floating rate
instruments (including fixed rate instruments converted to floating rate exposures using
swaps/derivatives). Minimum investment in floating rate instruments (including fixed rate
instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of
total assets.

B. Hybrid Schemes

1. Conservative Hybrid Fund: An open-ended hybrid scheme investing predominantly in debt

instruments. Investment in debt instruments shall be between 75 percent and 90 percent of total
assets while investment in equity and equity instruments shall be between 10 percent and 25
percent of total assets.

2. Balanced Hybrid or Aggressive Hybrid Fund:

Balanced Hybrid Fund

An open-ended balanced scheme investing in equity and debt instruments. The investment in
equity and equity related instruments shall be between 40 percent and 60 percent of total assets
while investment in debt instruments shall be between 40 percent and 60 percent. No arbitrage is
permitted in this scheme.

Aggressive Hybrid Fund

An open-ended hybrid scheme investing predominantly in equity and equity related instruments.
Investment in equity and equity related instruments shall be between 65 percent and 80 percent
of total assets while investment in debt instruments shall be between 20 percent and 35 percent

52
of total assets. Mutual funds in India are permitted to offer either Aggressive Hybrid Fund or
Balanced Fund.

3. Dynamic Asset Allocation or Balanced Advantage

It is an open-ended dynamic asset allocation fund with investment in equity/debt that is managed
dynamically.

4. Multi Asset Allocation: An open-ended scheme investing in at least three asset classes with a
minimum allocation of at least 10 percent each in all three asset classes. Foreign securities are
not treated as a separate asset class in this kind of scheme.
5. Arbitrage Fund: An open-ended scheme investing in arbitrage opportunities. The minimum
investment in equity and equity related instruments shall be 65 percent of total assets.

6. Equity Savings: An open-ended scheme investing in equity, arbitrage and debt. The minimum
investment in equity and equity related instruments shall be 65 percent of total assets and
minimum investment in debt shall be 10 percent of total assets. The minimum hedged and
unhedged investment needs to be stated in the SID. Asset Allocation under defensive
considerations may also be stated in the SID.

Glimpse on fund manager and portfolio

Fund Manager
Long-term watchers of mutual fund performance also develop views on AMCs/Fund Managers
that are more prescient in identifying changes in market trends. They believe that it is the
portfolio manager that makes a huge difference to the scheme’s performance.

Fund Performance

The fund’s performance is a primary criterion in its selection from amongst other schemes. The
returns that the fund has generated relative to its benchmark are evaluated over a period of time.

53
The fund should ideally have consistently outperformed the benchmark. Typically, not only
should it have out-performed in a bull market, but in a falling market it should have been able to
protect the downside. In case of equity funds, the performance should be seen for longer periods,
at least last 5 years. While for long-term debt funds at least 3 years performance need to be
considered, for short-term debts funds, shorter performance period is suitable. The fund’s
performance against the peer group should also be considered to make the right selection.

The mutual fund provides the cumulative performance of the scheme (i.e. in terms of CAGR),
the benchmark and the additional benchmark, depending upon the type of scheme, for the last 1
year, 3 years, 5 years and since inception. For shorter term debt funds like Liquid funds, the
return data is made available for shorter periods such as 7 days, 15 days and 1 month also which
are more relevant given the likely holding period of investors in such schemes. The cumulative
returns data helps evaluate how the fund performed for various holding periods. These returns
help evaluate the consistency with which the mutual fund was able to generate returns over
different periods and market situations. While looking at historical returns, it would be important
to note the following:

 Check the scheme’s performance relative to the scheme’s benchmark

 Compare the scheme’s performance with the peer group

 Do both the above comparisons over multiple periods of time, e.g. over rolling periods.
One may also consider comparing the scheme performance over various bull and bear market
cycles.

Fund Portfolio

The fund’s portfolio has to be evaluated to determine the risk and return in the scheme. In case of
equity funds, the level of diversification across sector and stocks, the market segment in which
the fund invests, the extent of cash held and the conviction showed in terms of the length of
holding in stocks and churn in the portfolio, the strategy adopted for selecting securities for the

54
portfolio and managing it, have to be considered. In case of debt funds, the average maturity and
duration of the portfolio, the credit risk profile, the contribution of interest and capital gains to
the total returns of the fund, liquid holding in the portfolio, need to be evaluated before making
an investment decision.

Fund Age

A fund with a long history has a track record that can be studied. A new fund managed by a
portfolio manager with a lack-luster track-record is definitely avoidable. A new fund that offers a
new investment opportunity should be evaluated for its suitability. Fund age is especially
important for categories of schemes, where there are more investment options, and divergence in
performance of schemes within the same category tends to be more. For example, with the SEBI
circular on scheme categorization, there may not be large differences in performance across large
cap funds, however, there could be major differences in performance across multi-cap funds,
since the investment universe is much larger in the latter.

Fund Size

The size of funds needs to be seen in the context of the proposed investment universe. For an
equity fund that intends to invest in large cap stocks, a large fund size may be an advantage,
while for a sector fund or a mid-cap fund with limited investment options, a large fund size may
be a disadvantage. A large fund size will allow better diversification and economies of scale. A
small sized fund on the other hand is more flexible and better able to take advantage of market
opportunities.

Risk levels in mutual fund schemes

In order to evaluate and select various mutual fund schemes, it is important to take a look at the
risk-return profile of the various scheme categories. The following discussion covers the risk-
return characteristics of different types of mutual fund schemes.

Risk-Return Hierarchy of mutual funds

55
Liquid funds – Debt funds – Hybrid funds – Equity funds

as one moves from liquid funds to debt funds to hybrid funds to equity funds, the potential
returns as well as the investment risks increases. Broadly, one can say that moving from left to
right, the risk as well as potential return would go up.

Risk-Return Hierarchy of debt funds

Overnight funds – Liquid funds – Ultra short duration funds – Low duration funds – Short
duration funds – Medium duration funds – Medium to long duration funds – Long duration funds

The risk-return profile of debt funds may be seen in light of two separate risks—credit risk and
interest rate risk. While comparing the schemes on credit risk, the assumption would be to
assume that the schemes are taking similar interest rate risk. Similarly, while comparing the
schemes on interest rate risk, it would be prudent to assume that credit risk is similar. as we
move from left to right, the potential returns as well as the interest rate risk increases. The
assumption here is that the credit risk is more or less similar in each of the categories.

Hierarchy of Credit risk in debt funds

Gilt fund – Banking and PSU fund – Corporate bond fund – Credit risk fund

This shows that as we move from left to right, the potential returns as well as the credit rate risk
move up. The assumption here is that the interest rate risk is more or less similar in each of the
categories.

Risk Return Hierarchy of hybrid funds

Arbitrage fund – Equity savings fund – Conservative hybrid fund – Dynamic asset allocation
fund – Multi asset allocation fund – Balanced hybrid fund – Aggressive hybrid fund

The SEBI circular on categorization of mutual fund schemes, specifies different categories of
hybrid funds, viz., conservative hybrid fund, balanced hybrid fund or aggressive hybrid fund,
dynamic asset allocation fund (or balanced advantage fund), multi asset allocation fund, arbitrage
fund and equity savings fund.

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 CHAPTER 3
RESEARCH PROPASAL

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Objective of Study
 To know the best performance of fund managers who created the most wealth for investors in
Debt and hybrid schemes from the year 2015 to 2020.
 To rank the fund managers according to the returns given be their schemes.

Research Design
This study is based on secondary data, so research design of study is analytical Research. This
study gives some idea to understand about performance of fund managers during 1st July 2015 to
30th June 2020.

Research Statistical Tools

In this study useful to analyse data are standard deviation, degree of risk, risk adjusted score, etc.
This tool will be helpful to analysis the data.

Data Collection Sources

This study is based secondary data. The required data have been collected from various source.
I.e. online reports, articles, money controls and from authentic websites.

Sampling plan
Population: Mutual fund schemes with a corpus of at least Rs 200cr are considered.

Sampling unit
This study includes fund managers cumulatively managing an AUM of at least Rs 500cr across
all debt and hybrid mutual fund schemes.

Sampling method
The sampling method used for this study is non-random convenience sampling

Research instrument
The research instrument used for this study is MS Excel.

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Beneficiary of Study
The content of this research study has academic viewpoints as well as futuristic relevance. Future
researchers can use this study as a base for further deeper study in the area of performance of the
best fund managers under Debt and hybrid schemes of mutual fund, And also useful to Retail
investors, Traders etc.

Scope of Study
The research is conducted to know the best performance of the fund managers under Debt and
hybrid mutual fund schemes which were issued during 2015 to 2020.

Limitation of study:
 This study covers only the mutual fund schemes under Debt and hybrid financing schemes.
 Only open-ended funds are considered in this study.The study may not provide justification
in future as the market may change due to various factors.
 This study is only for the period between 2015 to 2020.

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