Description
project deals with origin of mutual fund,recent development in MF and detail about ABN AMRO
MUTUAL FUND DISTRIBUTION THROUGH RETAIL CHANNEL
An analytical study of the sales and distribution of ABN Amro mutual fund
SUBMITTED BY:
Ananthakrishnan
(Trainee)
SUBMITTED TO: Kumaresan
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ACKNOWLEDGEMENT
I would like to express my profound gratitude to MR. ALOKE SHARMA who is my Project Administrator, for all his guidance and answers that he gave me for my queries and the unforgettable out of the way helped me. And I would also like to thank him to give us such an opportunity to undergo this project, through which I had enhanced my knowledge about mutual funds. I am also highly obliged to all those supported me at every point of time . who have helped and
I am very thankful to the sales team which includes : Mr. Abhinav Sharma Miss Kavita Arora Mr. Akshay Saxena from whom I have learnt the maximum skills.
And special thanks to Mrs. Vidhi Khanna and Miss Darpan from the client service and sales support from whom I have learnt the basic banking procedure.
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EXECUTIVE SUMMARY
ABN AMRO MUTUAL fund is a well known name in the mutual fund industry and has a number of varied investment options for the investors. They have at present more than ten schemes catering to the needs of these investors. They have also recently launched ABN AMRO FUTURE LEADERS FUND. I was working under the Marketing Manager at ABN AMRO AMC and my first job at the company was to make a detailed study on “Mutual Fund Distribution Through Retail Channel” . This was a difficult task and during this period I got to learn the basics of mutual funds and the complete working of all the departments viz. Marketing, Finance, Compliance, Information Service and Back office. My work involved studying in details how the distribution channel worked and to find out the defects if any and suggest changes to make the distribution channel more effective and profitable for the company. Then I also got to do the real job which is the selling of the mutual funds and for that I was advised to complete an AMFI certification (Advisory Module) which is mandatory by SEBI before selling mutual funds. My learning and the project details are being provided in the pages following.
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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. The flow chart below describes broadly the working of a mutual fund:
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:
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History of the Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases.
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 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.
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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 Ltd, 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. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
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Structure of the Indian mutual fund industry
The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest category of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn. The third largest category of mutual funds are the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250b
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Some of the AMCs operating currently are:
Name of the AMC ABN AMRO Asset Management Company Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Benchmark Canbank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company Limited Deutsche Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Fidelity Asset Management Company Limited HSBC Asset Management Company Limited ING Vysya Kotak Mahindra Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Principal Prudential Icici Quantum Reliance Capital Asset Management Company Limited Sahara Standard Chartered Sundaram State Bank of India Funds Management Limited Templeton Asset Management (India) Private Limited Tata Asset Management Company Limited Taurus Unit Trust of India
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was
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not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.
TYPES OF MUTUAL FUND SCHEMES
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By Structure:
Open-ended Funds
An Open-ended 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.
Close-ended Funds
A Close-ended Fund has a stipulated maturity period, which generally ranges from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges, if they are listed. The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unit holders' expectations and other market factors.
By Investment Objective:
Growth Funds
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The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time.
Income Funds
The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund.
Balanced Funds:
The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.
Money Market Funds
The aim of Money Market Funds is 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. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
Other Equity Related Schemes:
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues.
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Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.
Sectoral Schemes
Sectoral Funds are those which invest exclusively in specified sector(s) such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to sector(s) / industry (ies). Mutual fund schemes may be classified on the basis of their structure and its investment objective.
Different plans in Mutual funds
Mutual Funds, in order to cater to a range of investor needs, have various investment plans. Some of the important investment plans include:
Growth Plan
Dividend is not paid-out under a Growth Plan and the investor realises only the capital appreciation on the investment (by an increase in NAV).
Income Plan
Dividends are paid-out to investors under an Income Plan to the investors. However, the NAV of the mutual fund scheme under an Income Plan falls to the extent of the dividend payout.
Dividend Re-investment Plan
Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.
Retirement Pension Plan
Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporates participate for their employees.
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Insurance Plan
UTI and LIC Mutual Funds have some schemes that offer insurance cover to investors.
Systematic Investment Plan (SIP)
Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. The investor is allotted units on the date of the respective cheques at the applicable NAV.
Systematic Withdrawal Plan
As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day.
Benefits of Mutual Fund investment
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a
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stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.
Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
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Net Asset Value (NAV)
The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below.
Asset value is equal to
Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid
Details on the above items
For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date.
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Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis.
Market Trends
A lone UTI with just one scheme in 1964, now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generation of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund
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mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September, 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
Banks v/s Mutual Funds
MUTUAL FUNDS Returns Low Better Administrative exp. High Low Risk Low Moderate Investment options Less More Network High penetration Low but improving Liquidity At a cost Better Quality of assets Not transparent Transparent Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday Guarantee Maximum Rs.1 lakh on deposits None BANKS
Global Scenario Of Mutual Funds
Some basic factsABN AMRO MUTUAL FUND
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The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India. Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group. In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway. In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India. On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. 72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. are expected to trade on-line by 2003.
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(Source: The Financial Express September, 99) Internationally, on- line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better. In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the Net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227 billion ; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period. Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business.
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Here are some of the basic changes that have taken place since the advent of the Net. • Lower Costs: Distribution of funds will fall in the online trading regime by 2003 . Mutual funds could bring down their administrative costs to 0.75% if trading is done on- line. As per SEBI regulations , bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low , the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India , brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net. New investors would prefer online : Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. a is witnessing a genesis in this area . There are many sites such as indiainfoline.com and indiafn.com that are doing something similar and providing advice to investors regarding their investments. In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by corporate’s who want to hedge their exposure to the commodities they deal with. For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of it’s corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short –term and long-term U.S. treasuries etc. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In
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India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end. In developed countries like the U.S.A there are funds to satisfy everybody’s requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds.
Regulatory Aspects
Schemes of a Mutual Fund
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The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board. Every mutual fund shall along with the offer document of each scheme pay filing fees. The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution". The mutual fund and asset management company shall be liable to refund the application money to the applicants,(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation (1); (ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation
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The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.
Rules Regarding Advertisement:
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The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.
Investment Objectives And Valuation Policies:
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The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.
General Obligations:
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Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained. The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule. Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.
Procedure For Action In Case Of Default:
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On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.
Restrictions On Investments:
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A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset management company. A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset management company. No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights.
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Such transfers are done at the prevailing market price for quoted instruments on spot basis. The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance. Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. No mutual fund scheme shall make any investment in; Any unlisted security of an associate or group company of the sponsor; or Any security issued by way of private placement by an associate or group company of the sponsor; or The listed securities of group companies of the sponsor which is in excess of 30% of the net assets [of all the schemes of a mutual fund] No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme. A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.
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Advantages of Investing in Mutual Funds
Professional Money Management & Research
Mutual funds are managed by professional fund managers who regularly monitor market trends and economic trends for taking investment decisions. They also have dedicated
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research professionals working with them who make an in depth study of the investment option to take an informed decision.
Risk Diversification
Diversification reduces risk contained in a portfolio by spreading it. It is about not putting all your eggs in one basket. As mutual funds have huge corpuses to invest in, one can be part of a large and well-diversified portfolio with very little investment.
Convenience
With features like dematerialized account statements, easy subscription and redemption processes, availability of NAVs and performance details through journals, newspapers and updates and lot more; Mutual Funds are sure a convenient way of investing.
Liquidity
One of the greatest advantages of Mutual Fund investment is liquidity. Open-ended funds provide option to redeem on demand, which is extremely beneficial especially during rising or falling Markets.
Reduction in Costs
Mutual funds have a pool of money that they have to invest. So they are often involved in buying and selling of large amounts of securities that will cost much lower than when you invest on your own.
Tax Advantages
Investment in mutual funds also enjoys several tax advantages. Dividends from Mutual Funds are tax-free in the hands of the investor(This however depends upon changes in Finance Act). Also Capital Gain accrued from Mutual Fund investment for a period of over one year is treated as long term capital appreciation and is tax free.
Other Advantages
Indian Mutual fund industry also presents several other benefits to the investor like: transparency - as funds have to make full disclosure of investments on a periodic basis, flexibility in terms of needs based choices, very well regulated by sebi with very strict compliance requirements to investor friendly norms.
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Tax benefits available for investing in mutual funds
The tax benefits for investing in mutual funds are as follows: Twenty percent of the amount invested in specified mutual funds (called equity linked savings schemes or ELSS and loosely referred to as "tax savings schemes") is deductible from the tax payable by the investor in a particular year subject to a maximum of Rs2000 per investor. This benefit is available under section 88 of the I.T. Act. Investment of the entire proceeds obtained from the sale of capital assets for a period of three years or investment of only the profits for a period of 7 years, exempts the asset holder from paying capital gains tax. This benefit is available under section 54EA and 54EB of the I.T. Act, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. The mutual fund is completely exempt from paying taxes on dividends/interest/capital gains earned by it. While this is a benefit to the fund, it is the indirect benefit of unitholders as well. This benefit is available to the mutual fund under section 10 (23D) of the I.T. Act. A mutual fund has to pay a withholding tax of 10% on the dividends distributed by it under the revised provisions of the I.T. Act putting them on par with corporates. However, if a mutual fund has invested more than 50% of its assets into equity shares, then it is exempt from paying any tax on the dividend distributed by it, for a period of three years, by an overriding provision. This benefit is available under section 115R of the I.T. Act. The investor in a mutual fund is exempt from paying any tax on the dividend received by him from the mutual fund, irrespective of the type of the mutual fund. This benefit is available under section 10(33) of the I.T. Act. The units of mutual funds are treated as capital assets and the investor has to pay capital gains tax on the sale proceeds of mutual fund units sold by him. For investments held for less than one year the tax is equal to 30% of the capital gain. For investments held for more than one year, the tax is equal to 10% of the capital gains. The investor is entitled to indexation benefit while computing capital gains tax. Thus if a typical growth scheme of an income fund shows a rise of 12% in the NAV after one year and the investor sells it, he will pay a 10% tax on the selling price less cost price and indexation component. This reduces the incidence of tax considerably. This concession is available under section 48 of the I.T. Act. The following calculations show this in more detail:
Purchase NAV = Rs 10 Sale NAV = Rs 11.2 Indexation component = 8% Capital gains = 11.2 – 10(1.08)
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= 11.2 – 10.8 = 0.4 Capital gains tax = 0.4*0.1 = 0.04. If an investor buys a fresh unit in the closing days of March and sells it in the first week of April of the following year, he is entitled to indexation benefit for two financial years which close in the two March ending periods. This is termed as double indexation and lowers the tax even further especially for income funds. In the above example, the calculation would be as follows: Capital gains = 11.2 – 10(1.08)(1.08) = 11.2 – 11.7 = -0.5 Thus there would be no capital gains tax.
The future is mutual Funds
Mutual funds are the fastest growing segment of the financial services sector in India. During the last year, the assets managed by the industry have grown from Rs87,000 crore to Rs 1.55 lakh crore.
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The Rs87,000 figure itself is significant, since in the previous year the Unit Trust of India was split into two and Rs30,000 crore went out of the mutual funds industry along with the government-administered UTI-1. I personally visualise a minimum annual growth of between 30 and 35 per cent, since we are on a growth phase (a real take off, if I may venture to say) as penetration into semiurban and rural areas is steadily increasing since more and more households are opting for mutual funds. The mutual fund industry in India started in 1964, thanks to the vision of the then finance minister, the late T T Krishnamachari (TTK) who wanted to create an institution that would channelise the funds of small investors into the capital market. The government engaged David Silver, known as the father of mutual funds, as one of the consultants, to create a mechanism and devise an instrument for these investors. As envisaged 40 years ago, UTI evolved as a government promoted organisation, which combined in itself the functions of a mutual fund and a financial institution. As a result, UTI was allowed to participate in term financing, which today's mutual funds do not do. Its activities as a financial institution were in keeping with the ethos of the times, which required us to promote industries and also promote the capital markets. By 1987, UTI was managing assets worth Rs 40,000 crore. That was the first phase of the mutual fund sector in India. The second phase of the sector's growth came in 1987 with the entry of governmentowned banks and financial institutions like the Life Insurance Corporation, the General Insurance Corporation, the State Bank of India, Canara Bank, Punjab National Bank and others being permitted to set up their own mutual funds. With their entry, mutual funds started penetrating the semi-urban and rural areas and by 1993, the mutual fund market had grown to about Rs80,000 crore. Then in 1993, came the liberalisation policy, under which, mutual funds were one of the early sectors to be opened to private and foreign participation. As a result, most of the leading foreign funds have set up their operations in the country. This phase has brought many advantages such as high benchmarks in quality and customer service, which are comparable to the best in the world. Consequently, the sector has grown rapidly and is today worth Rs1.4 lakh crore.
Systems and safeguards
Keeping pace with the growth, a stringent regulatory framework has evolved. It started with the promulgation of the Mutual Fund Regulation Act 1993, amended in 1996, which lays down the regulatory framework and extensive operational details for the functioning of these funds.
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Here, the Association of Mutual Funds of India (AMFI), helped create regulatory and disclosure norms that could match with the best in the world. We have evolved standards and practices of professional and ethical conduct in every area starting from the wording of offer documents, disclosures, transparency, and valuations — the heart of mutual funds — to training intermediaries who are the sellers of mutual funds, and a code of conduct within which to operate. And, I must say very humbly, thanks to the people around AMFI, all these steps have contributed to the enormous acceptance of the wide variety of innovative products tailored by mutual fund houses to suit the varied needs of the entire investment community — for children, couples, parents or the aged and the retired. In fact, we now have, perhaps, the world's best array of products ranging from conventional products like growth and income schemes to sophisticated products like index funds, sector specific products and what is called new generation products like exchange traded funds which are funds traded on the exchanges. Right now, an AMFI committee is exploring the possibility of funds to invest in commodity futures and capital guaranteed products. However, in an industry where lakhs of applications are processed, there can always be a slip up, a mistake or an error. Some time ago, the newspapers had reported the switching of shares by a mutual fund. Subsequent investigations revealed the switch was caused by a transaction error. When lakhs of applications are processed at various levels — the branch, the registrar's office or the front office — an entry may some times be wrongly entered or missed out altogether. However, what was encouraging was that it was detected purely through the internal control system of the fund and rectified immediately. Since internal controls and monitoring exist at three levels — the directors of the asset management company, the trustees of the funds who have fiduciary responsibility and SEBI to whom daily, weekly, fortnightly, monthly, quarterly and annual reports are provided, the scope for wilful misconduct becomes extremely difficult. That is why the error was detected within a matter of days and remedial action was initiated instead of being swept under the carpet.
ABN AMRO Asset Management (India) Limited
ABN AMRO Asset Management (India) Limited, a subsidiary of ABN AMRO Bank N.V., are the Investment Managers to ABN AMRO Mutual Fund. ABN AMRO Bank N.V. is among the 10 largest banks in the world and ranks among the five largest European banks. ABN AMRO Asset Management is the separately organised investment management division of ABN AMRO Bank N.V. and has more than 7 decades of experience in managing assets for private investors and institutional
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clients. Headquartered in London and Amsterdam with other main units in Atlanta, Chicago, Hong Kong and Singapore, ABN AMRO Asset Management is one of the world's leading asset management organisations. It manages assets of Eur 162 billion (as on September 30, 2004) and employs more than 400 investment professionals located across the globe. In India, as globally, our focus on proven investment management processes underlines our commitment to long-term client relationships. We believe that excellence can only be achieved when investment performance and risk management are combined with highquality client servicing. Our team of specialists is a part of our endeavour to deliver a wholesome investment experience to our family of investors and business associates. Sponsor: ABN AMRO Bank N. V. With history dating back to 1824, ABN AMRO Bank is among the 10 largest banks in the world and ranks among the five largest European banks. ABN AMRO has more than 3,400 branches in over 50 countries and regions, with strong regional networks throughout Europe, the Americas, the Middle East, South East Asia and Australia. ABN AMRO’s position in the eurozone is unrivalled by any other financial institution. The Bank holds a position of financial strength and stability, with about US$500 billion in capital, over 100,000 employees worldwide and an AA- credit rating.
A Truly International Investment Manager
ABN AMRO Asset Management is the separately organised investment management division of ABN AMRO Bank. ABN AMRO Asset Management is headquartered in London and Amsterdam with other main units in Atlanta, Chicago, Hong Kong and Singapore. It has significant experience in managing money for over 2000 institutional clients including central banks, pension funds, insurance companies and other institutions. In addition to managing funds for institutional clients, ABN AMRO Asset Management offers tailored investment management services to private clients. It employs 2000 people worldwide in over 30 countries, with portfolio managers and analysts located around the world. All investment products benefit from the valuable source of local expertise, while portfolios are often managed locally. This local knowledge is used as input for international co-ordination of the investment policy. ABN AMRO Asset Management’s approach to full-service investment management underlines our commitment to long-term client relationships. We believe that excellence can only be achieved when investment performance and risk management are combined with high-quality client servicing. Our goal is to add value by offering risk-controlled outperformance in the context of specific benchmarks and investment horizons of our investors.
Expertise In All Asset Classes
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As a global, full-service investment manager, we offer our broad customer base capabilities in all major asset classes, and a spectrum of products including both fundamentally driven investment approaches and more quantitative investment processes. ABN AMRO Asset Management has significant experience in managing money for consumers as well as for institutional clients including central banks, pension funds, insurance companies and other institutions.
THE ASSET MANAGEMENT COMPANY
ABN AMRO Asset Management (India) Limited is a company incorporated under the Companies Act, 1956, on November 4, 2003, having its registered office at 101, 10th Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021. ABN AMRO Asset Management (India) Limited is appointed as the Investment Manager to the Mutual Fund vide the Investment Management Agreement dated April 15, 2004. Out of the paid-up equity share capital of the AMC of Rs. 30.36 crores, 75% is held by ABN AMRO Bank N.V., 24.99% is held by Mr. J R Desai and the balance by resident individual shareholders. Mr. Desai is the Chairman of Tropicana Enterprises (P) Limited, a company which is involved in distributing & marketing of a range of electronic products. SEBI approved the AMC to act as the Asset Management Company of the Mutual Fund vide its letter No IMD/YK/11091/2004 dated May 28, 2004. The AMC will manage the Scheme, in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI Regulations and the objectives of the Scheme.
THE TRUSTEE
ABN AMRO Trustee (India) Private Limited, a company incorporated under the Companies Act, 1956, on November 4, 2003, is appointed as the Trustee to the Mutual Fund vide. the Trust Deed dated April 15, 2004. ABN AMRO Trustee (India) Private Limited is a subsidiary of ABN AMRO Bank N.V. The registered office of the Trustee is situated at 101, 10th Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021.
Key Employees
Rakesh Vengayil Head - Asset Management Operations Mr. Vengayil, a Science graduate with a Post Graduate diploma in systems management, has over 13 years of experience in Securities Industry in the areas of Operations, Business Management, Product Development and Client Relationship. Mr. Vengayil began his career as a project co-ordinator with a leading IT firm managing projects for Stock Holding Corporation of India Ltd, Chennai. He then moved to Southern India
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Depository India (Pvt.) Ltd. and was responsible for settlements. Subsequently, he joined the custody operations in HDFC Bank Ltd, and was part of the core team that set up the custodial services for HDFC Bank, before moving to Morgan Stanley Trust Company, where he was responsible for settlements and cash management Operations. His last assignment was with ABN AMRO Bank N.V. as Vice President, Head of Business Management, Custody and Clearing Advisory business for South Asian Region. In this role, he was responsible for the business strategy and product development for the region and was a Management Team member of the Working Capital Business of ABN AMRO Bank in India. He was also responsible for setting up the Custody and Fund Administration Operations, thereafter heading the operations and played a prominent role in building and supporting this business. He was nominated by Operations Management, a Securities Market Publication, which covers the international markets, for "Innovator of the Year Nominees 2004" for initiating an integrated custody and fund administration platform for ABN AMRO Bank, with the intention of establishing a global IT platform for Custody Business.
Mihir M. Vora
Head – Equities
Mr. Mihir M Vora, is an alumnus of the Indian Institute of Management, Lucknow and a Mechanical Engineer from Maharaja Sayajirao University, Vadodara. He began his career with SBI Asset Management Company Limited where he trained in various investment management functions like Portfolio Management, Dealing, Product Development and Research. He grew to be a Fund Manager in SBI Mutual Fund where he managed a range of equity, hybrid and specialised funds. He then moved on to Prudential ICICI Asset Management Company Limited as Fund Manager where he successfully managed a range of diversified and sector funds.
Mahendra Jajoo Head - Fixed Income Mr. Jajoo, is a qualified Chartered Accountant and has more than 14 years of experience in the Indian financial markets, primarily in the area of Debt securities. Mr. Jajoo began his career with ICICI Limited and has worked with many leading financial institutions in India. He worked with the Treasury Department of ICICI Bank Limited from 1997 from where he joined ABN AMRO Securities (India) Private Limited as the Head of Primary Dealership in 1999 before moving to ABN AMRO Asset Management (I) Limited in
January 2005.
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Rana Vikram Anand Head - Distribution & Marketing Mr. Rana Vikram Anand holds a master's degree in management studies from Jamnalal Bajaj Institute of Management Studies, Mumbai University and has a Bachelor's degree in Economics from Delhi University. Mr Rana brings with him over a decade of experience in the financial services business. Before joining us, Mr. Rana was with ABN AMRO Bank for more than 6 years and has handled various responsibilities spanning all regions and on a pan India level. In his last assignment, he headed the Personal Banking Segment of ABN AMRO Bank's Consumer Banking operations in India. Prior to joining ABN AMRO Bank, he has also worked with ANZ Grindlays Bank. Abhaya Joglekar Head - Compliance & Risk Management Ms Abhaya Joglekar, 36, is a member of the Institute of Company Secretaries of India. She has over eleven years of experience in financial service Industry in areas of secretarial, compliance and legal. Ms. Joglekar was previously A.V.P. - Compliance and Asst. Company Secretary in Prudential ICICI Asset Management Company Limited. In her career she was associated with the Stock Holding Corporation of India Ltd. and IL&FS Asset Management Company Limited in areas of secretarial, compliance and legal.
K M Suneej Head - Fund Accounting & Settlement Mr. K. M. Suneej, is a qualified Chartered Accountant and Cost Accountant with over 6 years of post qualification experience of which 5 years have been with Mutual Funds. Suneej began his career in Mutual Funds with IDBI Investment Management Company Limited. He then joined Alliance Capital Asset Management (India) Pvt Limited and served as Manager-Fund Accounting for 3 years. Subsequently, he moved over to SBI
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Fund Management (India) Pvt Limited as an Assistant Vice President- Operations, where he was instrumental in restructuring the operations and implementing the migration of the fund accounting software.
ALOKE SHARMA Head Sales –North & South Mr. Aloke sharma is the Vice President and Head Sales of North and south. Suren Kochhar Head Sales-West & East Mr. Suren kochhar is the vice president and head sales of west and east.
Products
List of Products under each category
Equity Schemes
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ABN AMRO Equity Fund
- ABN AMRO Opportunities Fund - ABN AMRO Dividend Yield Fund - ABN AMRO Tax Advantage Plan (ELSS)
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- ABN AMRO Future Leaders Fund
Fund of Funds Scheme
-ABN AMRO Multi Manager Fund
Income Schemes
-ABN AMRO Monthly Income Plan - ABN AMRO Flexi Debt Fund - ABN AMRO Long Term Floating Rate Fund - ABN AMRO Fixed Term Plan - Series 1 - ABN AMRO Fixed Term Plan - Series 2 (Quarterly Plan A) - ABN AMRO Fixed Term Plan - Series 2: Thirteen Month Plan - ABN AMRO Fixed Term Plan - Series 2 : Half Yearly Plan A
Liquid Schemes
- ABN AMRO Floating Rate Fund - ABN AMRO Cash Fund
“ ABN AMRO FUTURE LEADERS FUND ”
NAME OF THE SCHEME ABN AMRO Future Leaders Fund-An Open Ended Equity Scheme With No Assured Returns. INVESTMENT OBJECTIVE
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Investment Objective Is to Seek To Generate Long Term Capital Appreciation By Investing Primarily In companies with high growth opportunities in the middle and and small capitalization segment ,defined as ‘ FUTURE LEADERS ’.The fund will emphasize on companies that appear to offer opportunities for long term growth and will be inclined towards companies that are driven by dynamic style of management and entrepreneurial flair.
PLANS AND OPTIONS
The scheme offers regular plan.This plan offers growth option and Dividend option . The dividend option offers Dividend Payout and Dividend Reinvestment facilities.
BENCHMARK INDEX CNX MID CAP Index.
NAME OF THE FUND MANAGER Mr. Mihir Vora NAME OF THE TRUSTEE COMPANY ABN AMRO Trustee (India) Private Limited. EXPENSES OF THE SCHEME LOAD STRUCTURE NEW FUND OFFER PERIOD
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• •
Entry Load- There is no entry load. Contingent deferred sales charge (CDSC) In respect of each subscription/Switch –In of units for an amount less than Rs. 5 crores in value: - 1.5% if units are redeemed /switched out within and upto 6 months from the date of allotment - .75% if units are redeemed /switched out after 6 months but before 12 months from the date of allotment In respect of each subscription/switch-in of units for an amount equal to Rs. 5 crores in value or more: 2.25% if units are redeemed /switched out within and upto 12 months from the date of allotmeant
Exit Load: There is no exit load.
DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND OBJECTIVES OF THE PROJECT
The objective of the project is to study the existing distribution channel of ABN AMRO Mutual Fund, and to know in detail how ABN AMRO Mutual Fund is being sold in the market. It further includes finding out the strengths and weakness of the existing structure and to recommend certain changes in order to improve upon the weaknesses that I have come across during my interaction with the various intermediaries.
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METHODOLOGY OF THE PROJECT
The project was carried out by meeting & visiting various brokers and sub-brokers like Bajaj Capital,Karvy and Indiainfoline that covered all classes of investors ,visiting the branches of ABN AMRO BANK and discuss in the working of ABN AMRO Mutual Fund.
RECENT TRENDS IN MUTUAL FUNDS INDUSTRY
The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these foreign mutual funds. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per
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annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
DISTRIBUTION MODEL OF ABN AMRO MUTUAL FUND AMC
DIRECT
INTERMEDIATES
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CORPORATES HNI’s & SME’s
RETAIL DISTRIBUTORS FOR FINANCIAL INSTITUTIONS INSTITUT IONAL & INDIVIDUAL BROKER
CORPORATES
HNI’s & SME’S
RETAIL INVESTOR
NOTE ON DISTRIBUTION CHANNEL
ABN AMRO MUTUAL FUND sells its product directly through its marketing team in Mumbai , Delhi,Chennai and kolkata also through various intermediaries spread all over India which are empanelled with ABN AMRO AMC .
SELLING DIRECTLY THROUGH AMC
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As Direct selling leads to saving of the Brokerage fees that are to be paid to the Intermediaries, so it becomes a very important mode of investments for the fund. ABN AMRO MUTUAL FUND sells its products directly through its marketing team in Mumbai , Delhi,Chennai and kolkata the investors targeted by mutual fund directly can be grouped in three main categories on the basis of the average amount they invest and the level of knowledge they have about various Financial Instruments and the benefits that investing in Mutual funds provide, the categories and the distribution practices followed by the fund’s marketing people are given below:-
1. Corporate: - This segment of investors are generally banks,
financial institutions and large corporate houses. This is the most lucrative segment for the fund as the fund saves the brokerage fees, which the fund gives to brokers on the investment they bring. This segment of investors are very well aware of the market situation and generally invest in liquid schemes, mainly for safety of their investment and at the same time get some returns on their working capital surplus which is at present in their current accounts. These investors are followed up by the marketing people and require frequent interaction as the investors want to make sure that if they have any problem in future, they can contact the concerned person here and make sure that every thing possible is done for them. Apart from returns and safety of their investments the investors also look for funds which can provide them good sales and Post sales services. The AMC provides all the services like collecting the application form & cheque. Delivering the redemption cheques to the clients address. The post sales services include an advice on the expected market trend in coming days and the guidance about future investments and the market trend.
2. High Net worth Individuals & Small to Medium Enterprises: - This class of investors are people who are very well
aware of the benefits of investing in mutual funds with respect to investing in other financial instruments and invest in debt as well as equity schemes. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits etc and choose the appropriate scheme that suits their requirement; they invest for a longer duration as compared to corporates and need a view on the asset allocation in accordance to their needs, benefits they desire, the level of risk they want to take, their current financial position and the time they
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wish to invest their money, they also need advice so that they can change their asset allocation with the, changes that are happening in the market or with the future expected market scenario. This class of investors are followed by the marketing people from time to time or they invest themselves as they have an idea of which fund is performing well and giving good returns.
3. Retail Investors:-This is the largest segment of investors in terms
of the number and has huge potentials as most of the people don’t even know about Mutual Funds and their benefits and still continue to invest their savings in fixed deposits and saving accounts thereby earning a very low interest on their investments or they invest in equity market with no diversification of their portfolio. This class of investors is targeted through advertisement in news papers and magazines and various hoardings that are displayed at various locations, also various camps/exhibitions are organized at different locations where people come to know about Mutual fund ,its past performance and the benefits of investing in Mutual Funds. ABN AMRO through its vast network of branches spread in all parts of country can also provide a very good avenue to reach the retail investors. This class of investors don’t have much knowledge about mutual funds and look for returns, safety and Tax benefits while investing in Mutual funds. Majority of investors invest on the advice of knowledgeable persons while choosing the Mutual Fund for investments.
SELLING THROUGH INTERMEDIATES
Intermediate market in Mutual Funds is a highly organized industry and work on commission basis that are given to them as a reward for bringing in investment in the fund. As per SEBI guidelines all agents have to be AMFI certified prior to selling mutual funds, also an agent has to get empanelled so as to canvass business for that particular Mutual Fund and for entailment of commission for the investment they bring in. The various classes of intermediates in the industry that sell mutual funds, their clients and there working is explained in detail below:
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1. Distributors for Financial Institutions: -These institutions
are mainly broking arm of the Financial institutions. Institutions invest their funds through this arm which is empanelled with the Mutual funds. In turn the brokerage whether upfront/trail will be received by the group itself. These institutions consider not only the returns that they will earn, but also the kind of services offered by the fund and also look for the brokerage that the investment agency will earn before deciding the Mutual fund for investment. The marketing people of the Mutual Fund do the marketing & selling of the fund but the investment is done through the Investment agency. These Investment agencies mainly invest the money of their sponsor company only. All the work is done by the marketing people of the Mutual Fund and the process and the services offered are the same as selling directly without any intermediate, the only difference is that the investment is made by the Investment agency and so the brokerage is to be paid to the subsidiary investment agency
2. Institutional & Individual Brokers: -These brokers are in
business of providing financial advice and earn a brokerage from the Funds as a reward for bringing the investment to their fund. They mainly look for the benefits of their clients, so as to build a long term relation with the client and look for more clients through their present client’s word of mouth publicity. The institutional brokers mostly have their own research agency and use different software’s to evaluate the details of every scheme of every Mutual Fund, so as to know in detail which fund is giving more returns, what is the portfolio of the investment, the risk adjusted returns, the fund managers and the corpus of each scheme. While the individual brokers who can bring only small business become sub-brokers of the institutional brokers and rely on their main broker for analyzing different funds and their schemes. They publish their own monthly news magazine comprising of the comparative performance of various schemes, details of the new schemes that are launched during the month or will be launched shortly and the relevant news about the Mutual Fund Industry. The marketing strategy and the process differ depending on the investments of the client, the clients can be classified in four main segments that are explained below: -
a).Corporates: - this segment of Industry comprise mainly of big
corporate houses which are regularly followed by the marketing people of the brokers, this segment invests mainly in debt instruments and that too for a very short time, when the client wants to invest, the broker visit the client depending on his time frame with top five funds selected
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by the research agency of the broker on the parameters of returns adjusted with the risk profile, corpus, past performance of the fund and track record of the Fund managers, out of these top funds the client lists out one or two funds on his perception or on his prior exposure with these funds, then the agency people guide the clients on the basis of level of services and their view on the short listed funds and the interaction with the marketing people of the fund. The services they offer is filling up the application form, collecting the cheque and delivering at the time of redemption. While dealing with the corporates the agency people don’t give top priority to brokerage they will receive, as firstly there is not much difference in brokerage fees of all the mutual funds in debt funds and also they want to build long term relations with the client so as to cash-in in the long run, and also they want to make sure that the client should not be in any trouble at any cost. The post sales services that broker gives is sending daily updates on NAV and other happenings in the industry and how other funds are performing. The broker may even suggest a change in fund if there is any problem in the fund or he expects some problems in future like change in management, sudden redemption or the performance is coming down and he expects that client will be more beneficial in investing in some another fund.
b).High Net worth Individuals: - This class of investors are
people who are very well aware of the benefits of investing in mutual funds with respect to investing in other financial instruments and invest in debt as well as equity schemes. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits, they invest for a longer duration as compared to corporates .they are followed by the marketing people and need consultation in accordance to their needs the benefits they desire, the level of risk they want to take, their current financial position and the time they wish to invest their money, the broker keeping in mind all these factors guide them in deciding the best fund for them and the asset allocation .the broker provides all the services to the client and also sends them regular updates on their investments and if advice on changes in the fund if there is some problem in the fund like change in management, sudden redemption or the performance is coming down and he expects that client will be more beneficial in investing in some another fund and guide the client so that they can change their asset allocation in accordance with the changes that are happening in the market with respect to their needs and priorities
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c). Small to Medium Entrepreneurs: - this class of investors are
business man who do invest in mutual fund and have a understanding of different financial instruments to a certain extent ,they know or are explained the benefits of investing in debt as well as equity schemes and ready to take risk. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits, they invest for a longer duration as compared to corporates. These investors generally depend on the broker for the deciding the asset allocation and choosing the Fund and the scheme. The process followed is the same as is done to other investors; the main difference is that the broker gives his view on the asset allocation and investments to these investors in addition to the regular services that they provide to all other clients.
d).Retail investors: -these people come to know about new schemes
and the industry mainly through Sub-brokers and the monthly news magazine that they publish and distribute .They don’t have much knowledge about Mutual funds and are in no position to judge the performance of different funds and so mostly rely on word of mouth of the broker, the broker mainly gets his clients through his personal contacts. They personally visit the client’s office or the individual broker personally visit them and advice them about the schemes after studying their requirements, their financial position and the level of risk they are ready to take and depending on these factors they recommend them the fund and scheme as these investors invest in small amount so they invest in only one scheme and no advice on asset allocation is required.
STRENGTHS OF DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND
1.Branches of ABN AMRO BANK-there are a total of 16 branches
of abn amro spread all over India and is a very good medium to reach no. of investors all around the country who do invest their savings in financial instruments and can be prospective investors in our schemes, if they are explained what Mutual Funds are and what are its benefits
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2.Overseas branches of ABN AMRO BANK-can also be a very good medium to attract NRI investors and OCB’s, with a total of 3568 branches and offices spread in 76 countries can be a very profitable channel to bring investments in the fund.
3.Existing Funds Performance-As ABN AMRO Is a growing
AMC,the existing funds are performing well in the market.The distribution channel is in the mode of expansion.
WEAKNESSES OF DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND 1. Not enough people in marketing- at present the level of
interaction with brokers is very less because of less number of employees in the marketing and sales department and in this business investor’s look for interaction with marketing people in addition to returns and other parameters before recommending any Fund to investor.
2.Weak public relations-Nothing is been done to promote the fund
through Public Relations. The only interview published in Business Standard was of equity Fund manager in April 06 and nothing is been done to promote the Existing Funds that is equity as well as opportunity which is rated in
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the Industry, brokers don’t know about this rank. As in this business where people invest their money they rely on interviews and news articles in spite of advertisements and hoardings.
3.Low awareness- Awareness of ABN AMRO Mutual Fund is very less
among retail investors and corporates and brokers are not aware of our present returns and corpus, also there is no visibility of ABN AMRO Mutual Fund in the premises of brokers office as these things make an impression in the mind of investor when he enters the brokers office and it also advertises at the point of purchase, so some stationary items or envelopes or any office use product should be distributed to brokers accompanied with a constant interaction with the broker.
RECOMMENDATIONS ON THE BASIS OF THE PROJECT
The recommendations to remove the weakness of the present structure and on the basis of working of other Mutual Funds are as follows: -
1.Increase the number of people in marketing department- so as to
increase the level of interaction with the distributors.
2.Using the vast network of ABN AMRO branches in India and abroad to
its full potential, by training a few staff members of the bank so as to interact with customers efficiently and a poster portraying the benefits of investment in mutual funds and our past returns.
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3. Improve the awareness of the Fund through advertisement and also
promote the fund through Public relations so as to increase the awareness of the fund and its performance.
4. Empanelled brokers should be provided with monthly fact sheets
as early as possible as well as application forms.
5. Interaction with the empanelled brokers via mails or telephonic
conversation for market information and feed back of investors.
6. Empanellment Eligibility Should be Relaxed,So that Some of the
Efficient distributors can Participate.
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ABN AMRO MUTUAL FUND
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doc_873051856.doc
project deals with origin of mutual fund,recent development in MF and detail about ABN AMRO
MUTUAL FUND DISTRIBUTION THROUGH RETAIL CHANNEL
An analytical study of the sales and distribution of ABN Amro mutual fund
SUBMITTED BY:
Ananthakrishnan
(Trainee)
SUBMITTED TO: Kumaresan
ABN AMRO MUTUAL FUND
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ACKNOWLEDGEMENT
I would like to express my profound gratitude to MR. ALOKE SHARMA who is my Project Administrator, for all his guidance and answers that he gave me for my queries and the unforgettable out of the way helped me. And I would also like to thank him to give us such an opportunity to undergo this project, through which I had enhanced my knowledge about mutual funds. I am also highly obliged to all those supported me at every point of time . who have helped and
I am very thankful to the sales team which includes : Mr. Abhinav Sharma Miss Kavita Arora Mr. Akshay Saxena from whom I have learnt the maximum skills.
And special thanks to Mrs. Vidhi Khanna and Miss Darpan from the client service and sales support from whom I have learnt the basic banking procedure.
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EXECUTIVE SUMMARY
ABN AMRO MUTUAL fund is a well known name in the mutual fund industry and has a number of varied investment options for the investors. They have at present more than ten schemes catering to the needs of these investors. They have also recently launched ABN AMRO FUTURE LEADERS FUND. I was working under the Marketing Manager at ABN AMRO AMC and my first job at the company was to make a detailed study on “Mutual Fund Distribution Through Retail Channel” . This was a difficult task and during this period I got to learn the basics of mutual funds and the complete working of all the departments viz. Marketing, Finance, Compliance, Information Service and Back office. My work involved studying in details how the distribution channel worked and to find out the defects if any and suggest changes to make the distribution channel more effective and profitable for the company. Then I also got to do the real job which is the selling of the mutual funds and for that I was advised to complete an AMFI certification (Advisory Module) which is mandatory by SEBI before selling mutual funds. My learning and the project details are being provided in the pages following.
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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. The flow chart below describes broadly the working of a mutual fund:
ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:
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History of the Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases.
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 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.
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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 Ltd, 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. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
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Structure of the Indian mutual fund industry
The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest category of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn. The third largest category of mutual funds are the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250b
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Some of the AMCs operating currently are:
Name of the AMC ABN AMRO Asset Management Company Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Benchmark Canbank Investment Management Services Limited Cholamandalam Cazenove Asset Management Company Limited Deutsche Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Fidelity Asset Management Company Limited HSBC Asset Management Company Limited ING Vysya Kotak Mahindra Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Principal Prudential Icici Quantum Reliance Capital Asset Management Company Limited Sahara Standard Chartered Sundaram State Bank of India Funds Management Limited Templeton Asset Management (India) Private Limited Tata Asset Management Company Limited Taurus Unit Trust of India
Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was
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not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.
TYPES OF MUTUAL FUND SCHEMES
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By Structure:
Open-ended Funds
An Open-ended 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.
Close-ended Funds
A Close-ended Fund has a stipulated maturity period, which generally ranges from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges, if they are listed. The market price at the stock exchange could vary from the scheme's NAV on account of demand and supply situation, unit holders' expectations and other market factors.
By Investment Objective:
Growth Funds
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The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time.
Income Funds
The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund.
Balanced Funds:
The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.
Money Market Funds
The aim of Money Market Funds is 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. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
Other Equity Related Schemes:
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues.
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Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.
Sectoral Schemes
Sectoral Funds are those which invest exclusively in specified sector(s) such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to sector(s) / industry (ies). Mutual fund schemes may be classified on the basis of their structure and its investment objective.
Different plans in Mutual funds
Mutual Funds, in order to cater to a range of investor needs, have various investment plans. Some of the important investment plans include:
Growth Plan
Dividend is not paid-out under a Growth Plan and the investor realises only the capital appreciation on the investment (by an increase in NAV).
Income Plan
Dividends are paid-out to investors under an Income Plan to the investors. However, the NAV of the mutual fund scheme under an Income Plan falls to the extent of the dividend payout.
Dividend Re-investment Plan
Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same.
Retirement Pension Plan
Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporates participate for their employees.
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Insurance Plan
UTI and LIC Mutual Funds have some schemes that offer insurance cover to investors.
Systematic Investment Plan (SIP)
Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. The investor is allotted units on the date of the respective cheques at the applicable NAV.
Systematic Withdrawal Plan
As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day.
Benefits of Mutual Fund investment
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a
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stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.
Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
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Net Asset Value (NAV)
The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below.
Asset value is equal to
Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid
Details on the above items
For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date.
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Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis.
Market Trends
A lone UTI with just one scheme in 1964, now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generation of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund
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mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September, 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
Banks v/s Mutual Funds
MUTUAL FUNDS Returns Low Better Administrative exp. High Low Risk Low Moderate Investment options Less More Network High penetration Low but improving Liquidity At a cost Better Quality of assets Not transparent Transparent Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday Guarantee Maximum Rs.1 lakh on deposits None BANKS
Global Scenario Of Mutual Funds
Some basic factsABN AMRO MUTUAL FUND
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The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India. Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group. In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway. In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India. On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. 72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. are expected to trade on-line by 2003.
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(Source: The Financial Express September, 99) Internationally, on- line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better. In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the Net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion to $ 1,227 billion ; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period. Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business.
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Here are some of the basic changes that have taken place since the advent of the Net. • Lower Costs: Distribution of funds will fall in the online trading regime by 2003 . Mutual funds could bring down their administrative costs to 0.75% if trading is done on- line. As per SEBI regulations , bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low , the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India , brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net. New investors would prefer online : Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. a is witnessing a genesis in this area . There are many sites such as indiainfoline.com and indiafn.com that are doing something similar and providing advice to investors regarding their investments. In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by corporate’s who want to hedge their exposure to the commodities they deal with. For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of it’s corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short –term and long-term U.S. treasuries etc. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In
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India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end. In developed countries like the U.S.A there are funds to satisfy everybody’s requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds.
Regulatory Aspects
Schemes of a Mutual Fund
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The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board. Every mutual fund shall along with the offer document of each scheme pay filing fees. The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution". The mutual fund and asset management company shall be liable to refund the application money to the applicants,(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of sub-regulation (1); (ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of sub-regulation
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The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.
Rules Regarding Advertisement:
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The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.
Investment Objectives And Valuation Policies:
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The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.
General Obligations:
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Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained. The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule. Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.
Procedure For Action In Case Of Default:
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On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.
Restrictions On Investments:
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A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset management company. A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset management company. No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights.
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Such transfers are done at the prevailing market price for quoted instruments on spot basis. The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance. Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature. Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. No mutual fund scheme shall make any investment in; Any unlisted security of an associate or group company of the sponsor; or Any security issued by way of private placement by an associate or group company of the sponsor; or The listed securities of group companies of the sponsor which is in excess of 30% of the net assets [of all the schemes of a mutual fund] No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme. A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.
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Advantages of Investing in Mutual Funds
Professional Money Management & Research
Mutual funds are managed by professional fund managers who regularly monitor market trends and economic trends for taking investment decisions. They also have dedicated
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research professionals working with them who make an in depth study of the investment option to take an informed decision.
Risk Diversification
Diversification reduces risk contained in a portfolio by spreading it. It is about not putting all your eggs in one basket. As mutual funds have huge corpuses to invest in, one can be part of a large and well-diversified portfolio with very little investment.
Convenience
With features like dematerialized account statements, easy subscription and redemption processes, availability of NAVs and performance details through journals, newspapers and updates and lot more; Mutual Funds are sure a convenient way of investing.
Liquidity
One of the greatest advantages of Mutual Fund investment is liquidity. Open-ended funds provide option to redeem on demand, which is extremely beneficial especially during rising or falling Markets.
Reduction in Costs
Mutual funds have a pool of money that they have to invest. So they are often involved in buying and selling of large amounts of securities that will cost much lower than when you invest on your own.
Tax Advantages
Investment in mutual funds also enjoys several tax advantages. Dividends from Mutual Funds are tax-free in the hands of the investor(This however depends upon changes in Finance Act). Also Capital Gain accrued from Mutual Fund investment for a period of over one year is treated as long term capital appreciation and is tax free.
Other Advantages
Indian Mutual fund industry also presents several other benefits to the investor like: transparency - as funds have to make full disclosure of investments on a periodic basis, flexibility in terms of needs based choices, very well regulated by sebi with very strict compliance requirements to investor friendly norms.
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Tax benefits available for investing in mutual funds
The tax benefits for investing in mutual funds are as follows: Twenty percent of the amount invested in specified mutual funds (called equity linked savings schemes or ELSS and loosely referred to as "tax savings schemes") is deductible from the tax payable by the investor in a particular year subject to a maximum of Rs2000 per investor. This benefit is available under section 88 of the I.T. Act. Investment of the entire proceeds obtained from the sale of capital assets for a period of three years or investment of only the profits for a period of 7 years, exempts the asset holder from paying capital gains tax. This benefit is available under section 54EA and 54EB of the I.T. Act, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. The mutual fund is completely exempt from paying taxes on dividends/interest/capital gains earned by it. While this is a benefit to the fund, it is the indirect benefit of unitholders as well. This benefit is available to the mutual fund under section 10 (23D) of the I.T. Act. A mutual fund has to pay a withholding tax of 10% on the dividends distributed by it under the revised provisions of the I.T. Act putting them on par with corporates. However, if a mutual fund has invested more than 50% of its assets into equity shares, then it is exempt from paying any tax on the dividend distributed by it, for a period of three years, by an overriding provision. This benefit is available under section 115R of the I.T. Act. The investor in a mutual fund is exempt from paying any tax on the dividend received by him from the mutual fund, irrespective of the type of the mutual fund. This benefit is available under section 10(33) of the I.T. Act. The units of mutual funds are treated as capital assets and the investor has to pay capital gains tax on the sale proceeds of mutual fund units sold by him. For investments held for less than one year the tax is equal to 30% of the capital gain. For investments held for more than one year, the tax is equal to 10% of the capital gains. The investor is entitled to indexation benefit while computing capital gains tax. Thus if a typical growth scheme of an income fund shows a rise of 12% in the NAV after one year and the investor sells it, he will pay a 10% tax on the selling price less cost price and indexation component. This reduces the incidence of tax considerably. This concession is available under section 48 of the I.T. Act. The following calculations show this in more detail:
Purchase NAV = Rs 10 Sale NAV = Rs 11.2 Indexation component = 8% Capital gains = 11.2 – 10(1.08)
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= 11.2 – 10.8 = 0.4 Capital gains tax = 0.4*0.1 = 0.04. If an investor buys a fresh unit in the closing days of March and sells it in the first week of April of the following year, he is entitled to indexation benefit for two financial years which close in the two March ending periods. This is termed as double indexation and lowers the tax even further especially for income funds. In the above example, the calculation would be as follows: Capital gains = 11.2 – 10(1.08)(1.08) = 11.2 – 11.7 = -0.5 Thus there would be no capital gains tax.
The future is mutual Funds
Mutual funds are the fastest growing segment of the financial services sector in India. During the last year, the assets managed by the industry have grown from Rs87,000 crore to Rs 1.55 lakh crore.
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The Rs87,000 figure itself is significant, since in the previous year the Unit Trust of India was split into two and Rs30,000 crore went out of the mutual funds industry along with the government-administered UTI-1. I personally visualise a minimum annual growth of between 30 and 35 per cent, since we are on a growth phase (a real take off, if I may venture to say) as penetration into semiurban and rural areas is steadily increasing since more and more households are opting for mutual funds. The mutual fund industry in India started in 1964, thanks to the vision of the then finance minister, the late T T Krishnamachari (TTK) who wanted to create an institution that would channelise the funds of small investors into the capital market. The government engaged David Silver, known as the father of mutual funds, as one of the consultants, to create a mechanism and devise an instrument for these investors. As envisaged 40 years ago, UTI evolved as a government promoted organisation, which combined in itself the functions of a mutual fund and a financial institution. As a result, UTI was allowed to participate in term financing, which today's mutual funds do not do. Its activities as a financial institution were in keeping with the ethos of the times, which required us to promote industries and also promote the capital markets. By 1987, UTI was managing assets worth Rs 40,000 crore. That was the first phase of the mutual fund sector in India. The second phase of the sector's growth came in 1987 with the entry of governmentowned banks and financial institutions like the Life Insurance Corporation, the General Insurance Corporation, the State Bank of India, Canara Bank, Punjab National Bank and others being permitted to set up their own mutual funds. With their entry, mutual funds started penetrating the semi-urban and rural areas and by 1993, the mutual fund market had grown to about Rs80,000 crore. Then in 1993, came the liberalisation policy, under which, mutual funds were one of the early sectors to be opened to private and foreign participation. As a result, most of the leading foreign funds have set up their operations in the country. This phase has brought many advantages such as high benchmarks in quality and customer service, which are comparable to the best in the world. Consequently, the sector has grown rapidly and is today worth Rs1.4 lakh crore.
Systems and safeguards
Keeping pace with the growth, a stringent regulatory framework has evolved. It started with the promulgation of the Mutual Fund Regulation Act 1993, amended in 1996, which lays down the regulatory framework and extensive operational details for the functioning of these funds.
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Here, the Association of Mutual Funds of India (AMFI), helped create regulatory and disclosure norms that could match with the best in the world. We have evolved standards and practices of professional and ethical conduct in every area starting from the wording of offer documents, disclosures, transparency, and valuations — the heart of mutual funds — to training intermediaries who are the sellers of mutual funds, and a code of conduct within which to operate. And, I must say very humbly, thanks to the people around AMFI, all these steps have contributed to the enormous acceptance of the wide variety of innovative products tailored by mutual fund houses to suit the varied needs of the entire investment community — for children, couples, parents or the aged and the retired. In fact, we now have, perhaps, the world's best array of products ranging from conventional products like growth and income schemes to sophisticated products like index funds, sector specific products and what is called new generation products like exchange traded funds which are funds traded on the exchanges. Right now, an AMFI committee is exploring the possibility of funds to invest in commodity futures and capital guaranteed products. However, in an industry where lakhs of applications are processed, there can always be a slip up, a mistake or an error. Some time ago, the newspapers had reported the switching of shares by a mutual fund. Subsequent investigations revealed the switch was caused by a transaction error. When lakhs of applications are processed at various levels — the branch, the registrar's office or the front office — an entry may some times be wrongly entered or missed out altogether. However, what was encouraging was that it was detected purely through the internal control system of the fund and rectified immediately. Since internal controls and monitoring exist at three levels — the directors of the asset management company, the trustees of the funds who have fiduciary responsibility and SEBI to whom daily, weekly, fortnightly, monthly, quarterly and annual reports are provided, the scope for wilful misconduct becomes extremely difficult. That is why the error was detected within a matter of days and remedial action was initiated instead of being swept under the carpet.
ABN AMRO Asset Management (India) Limited
ABN AMRO Asset Management (India) Limited, a subsidiary of ABN AMRO Bank N.V., are the Investment Managers to ABN AMRO Mutual Fund. ABN AMRO Bank N.V. is among the 10 largest banks in the world and ranks among the five largest European banks. ABN AMRO Asset Management is the separately organised investment management division of ABN AMRO Bank N.V. and has more than 7 decades of experience in managing assets for private investors and institutional
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clients. Headquartered in London and Amsterdam with other main units in Atlanta, Chicago, Hong Kong and Singapore, ABN AMRO Asset Management is one of the world's leading asset management organisations. It manages assets of Eur 162 billion (as on September 30, 2004) and employs more than 400 investment professionals located across the globe. In India, as globally, our focus on proven investment management processes underlines our commitment to long-term client relationships. We believe that excellence can only be achieved when investment performance and risk management are combined with highquality client servicing. Our team of specialists is a part of our endeavour to deliver a wholesome investment experience to our family of investors and business associates. Sponsor: ABN AMRO Bank N. V. With history dating back to 1824, ABN AMRO Bank is among the 10 largest banks in the world and ranks among the five largest European banks. ABN AMRO has more than 3,400 branches in over 50 countries and regions, with strong regional networks throughout Europe, the Americas, the Middle East, South East Asia and Australia. ABN AMRO’s position in the eurozone is unrivalled by any other financial institution. The Bank holds a position of financial strength and stability, with about US$500 billion in capital, over 100,000 employees worldwide and an AA- credit rating.
A Truly International Investment Manager
ABN AMRO Asset Management is the separately organised investment management division of ABN AMRO Bank. ABN AMRO Asset Management is headquartered in London and Amsterdam with other main units in Atlanta, Chicago, Hong Kong and Singapore. It has significant experience in managing money for over 2000 institutional clients including central banks, pension funds, insurance companies and other institutions. In addition to managing funds for institutional clients, ABN AMRO Asset Management offers tailored investment management services to private clients. It employs 2000 people worldwide in over 30 countries, with portfolio managers and analysts located around the world. All investment products benefit from the valuable source of local expertise, while portfolios are often managed locally. This local knowledge is used as input for international co-ordination of the investment policy. ABN AMRO Asset Management’s approach to full-service investment management underlines our commitment to long-term client relationships. We believe that excellence can only be achieved when investment performance and risk management are combined with high-quality client servicing. Our goal is to add value by offering risk-controlled outperformance in the context of specific benchmarks and investment horizons of our investors.
Expertise In All Asset Classes
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As a global, full-service investment manager, we offer our broad customer base capabilities in all major asset classes, and a spectrum of products including both fundamentally driven investment approaches and more quantitative investment processes. ABN AMRO Asset Management has significant experience in managing money for consumers as well as for institutional clients including central banks, pension funds, insurance companies and other institutions.
THE ASSET MANAGEMENT COMPANY
ABN AMRO Asset Management (India) Limited is a company incorporated under the Companies Act, 1956, on November 4, 2003, having its registered office at 101, 10th Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021. ABN AMRO Asset Management (India) Limited is appointed as the Investment Manager to the Mutual Fund vide the Investment Management Agreement dated April 15, 2004. Out of the paid-up equity share capital of the AMC of Rs. 30.36 crores, 75% is held by ABN AMRO Bank N.V., 24.99% is held by Mr. J R Desai and the balance by resident individual shareholders. Mr. Desai is the Chairman of Tropicana Enterprises (P) Limited, a company which is involved in distributing & marketing of a range of electronic products. SEBI approved the AMC to act as the Asset Management Company of the Mutual Fund vide its letter No IMD/YK/11091/2004 dated May 28, 2004. The AMC will manage the Scheme, in accordance with the provisions of the Investment Management Agreement, the Trust Deed, the SEBI Regulations and the objectives of the Scheme.
THE TRUSTEE
ABN AMRO Trustee (India) Private Limited, a company incorporated under the Companies Act, 1956, on November 4, 2003, is appointed as the Trustee to the Mutual Fund vide. the Trust Deed dated April 15, 2004. ABN AMRO Trustee (India) Private Limited is a subsidiary of ABN AMRO Bank N.V. The registered office of the Trustee is situated at 101, 10th Floor, Sakhar Bhavan, Nariman Point, Mumbai 400 021.
Key Employees
Rakesh Vengayil Head - Asset Management Operations Mr. Vengayil, a Science graduate with a Post Graduate diploma in systems management, has over 13 years of experience in Securities Industry in the areas of Operations, Business Management, Product Development and Client Relationship. Mr. Vengayil began his career as a project co-ordinator with a leading IT firm managing projects for Stock Holding Corporation of India Ltd, Chennai. He then moved to Southern India
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Depository India (Pvt.) Ltd. and was responsible for settlements. Subsequently, he joined the custody operations in HDFC Bank Ltd, and was part of the core team that set up the custodial services for HDFC Bank, before moving to Morgan Stanley Trust Company, where he was responsible for settlements and cash management Operations. His last assignment was with ABN AMRO Bank N.V. as Vice President, Head of Business Management, Custody and Clearing Advisory business for South Asian Region. In this role, he was responsible for the business strategy and product development for the region and was a Management Team member of the Working Capital Business of ABN AMRO Bank in India. He was also responsible for setting up the Custody and Fund Administration Operations, thereafter heading the operations and played a prominent role in building and supporting this business. He was nominated by Operations Management, a Securities Market Publication, which covers the international markets, for "Innovator of the Year Nominees 2004" for initiating an integrated custody and fund administration platform for ABN AMRO Bank, with the intention of establishing a global IT platform for Custody Business.
Mihir M. Vora
Head – Equities
Mr. Mihir M Vora, is an alumnus of the Indian Institute of Management, Lucknow and a Mechanical Engineer from Maharaja Sayajirao University, Vadodara. He began his career with SBI Asset Management Company Limited where he trained in various investment management functions like Portfolio Management, Dealing, Product Development and Research. He grew to be a Fund Manager in SBI Mutual Fund where he managed a range of equity, hybrid and specialised funds. He then moved on to Prudential ICICI Asset Management Company Limited as Fund Manager where he successfully managed a range of diversified and sector funds.
Mahendra Jajoo Head - Fixed Income Mr. Jajoo, is a qualified Chartered Accountant and has more than 14 years of experience in the Indian financial markets, primarily in the area of Debt securities. Mr. Jajoo began his career with ICICI Limited and has worked with many leading financial institutions in India. He worked with the Treasury Department of ICICI Bank Limited from 1997 from where he joined ABN AMRO Securities (India) Private Limited as the Head of Primary Dealership in 1999 before moving to ABN AMRO Asset Management (I) Limited in
January 2005.
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Rana Vikram Anand Head - Distribution & Marketing Mr. Rana Vikram Anand holds a master's degree in management studies from Jamnalal Bajaj Institute of Management Studies, Mumbai University and has a Bachelor's degree in Economics from Delhi University. Mr Rana brings with him over a decade of experience in the financial services business. Before joining us, Mr. Rana was with ABN AMRO Bank for more than 6 years and has handled various responsibilities spanning all regions and on a pan India level. In his last assignment, he headed the Personal Banking Segment of ABN AMRO Bank's Consumer Banking operations in India. Prior to joining ABN AMRO Bank, he has also worked with ANZ Grindlays Bank. Abhaya Joglekar Head - Compliance & Risk Management Ms Abhaya Joglekar, 36, is a member of the Institute of Company Secretaries of India. She has over eleven years of experience in financial service Industry in areas of secretarial, compliance and legal. Ms. Joglekar was previously A.V.P. - Compliance and Asst. Company Secretary in Prudential ICICI Asset Management Company Limited. In her career she was associated with the Stock Holding Corporation of India Ltd. and IL&FS Asset Management Company Limited in areas of secretarial, compliance and legal.
K M Suneej Head - Fund Accounting & Settlement Mr. K. M. Suneej, is a qualified Chartered Accountant and Cost Accountant with over 6 years of post qualification experience of which 5 years have been with Mutual Funds. Suneej began his career in Mutual Funds with IDBI Investment Management Company Limited. He then joined Alliance Capital Asset Management (India) Pvt Limited and served as Manager-Fund Accounting for 3 years. Subsequently, he moved over to SBI
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Fund Management (India) Pvt Limited as an Assistant Vice President- Operations, where he was instrumental in restructuring the operations and implementing the migration of the fund accounting software.
ALOKE SHARMA Head Sales –North & South Mr. Aloke sharma is the Vice President and Head Sales of North and south. Suren Kochhar Head Sales-West & East Mr. Suren kochhar is the vice president and head sales of west and east.
Products
List of Products under each category
Equity Schemes
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ABN AMRO Equity Fund
- ABN AMRO Opportunities Fund - ABN AMRO Dividend Yield Fund - ABN AMRO Tax Advantage Plan (ELSS)
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- ABN AMRO Future Leaders Fund
Fund of Funds Scheme
-ABN AMRO Multi Manager Fund
Income Schemes
-ABN AMRO Monthly Income Plan - ABN AMRO Flexi Debt Fund - ABN AMRO Long Term Floating Rate Fund - ABN AMRO Fixed Term Plan - Series 1 - ABN AMRO Fixed Term Plan - Series 2 (Quarterly Plan A) - ABN AMRO Fixed Term Plan - Series 2: Thirteen Month Plan - ABN AMRO Fixed Term Plan - Series 2 : Half Yearly Plan A
Liquid Schemes
- ABN AMRO Floating Rate Fund - ABN AMRO Cash Fund
“ ABN AMRO FUTURE LEADERS FUND ”
NAME OF THE SCHEME ABN AMRO Future Leaders Fund-An Open Ended Equity Scheme With No Assured Returns. INVESTMENT OBJECTIVE
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Investment Objective Is to Seek To Generate Long Term Capital Appreciation By Investing Primarily In companies with high growth opportunities in the middle and and small capitalization segment ,defined as ‘ FUTURE LEADERS ’.The fund will emphasize on companies that appear to offer opportunities for long term growth and will be inclined towards companies that are driven by dynamic style of management and entrepreneurial flair.
PLANS AND OPTIONS
The scheme offers regular plan.This plan offers growth option and Dividend option . The dividend option offers Dividend Payout and Dividend Reinvestment facilities.
BENCHMARK INDEX CNX MID CAP Index.
NAME OF THE FUND MANAGER Mr. Mihir Vora NAME OF THE TRUSTEE COMPANY ABN AMRO Trustee (India) Private Limited. EXPENSES OF THE SCHEME LOAD STRUCTURE NEW FUND OFFER PERIOD
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Entry Load- There is no entry load. Contingent deferred sales charge (CDSC) In respect of each subscription/Switch –In of units for an amount less than Rs. 5 crores in value: - 1.5% if units are redeemed /switched out within and upto 6 months from the date of allotment - .75% if units are redeemed /switched out after 6 months but before 12 months from the date of allotment In respect of each subscription/switch-in of units for an amount equal to Rs. 5 crores in value or more: 2.25% if units are redeemed /switched out within and upto 12 months from the date of allotmeant
Exit Load: There is no exit load.
DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND OBJECTIVES OF THE PROJECT
The objective of the project is to study the existing distribution channel of ABN AMRO Mutual Fund, and to know in detail how ABN AMRO Mutual Fund is being sold in the market. It further includes finding out the strengths and weakness of the existing structure and to recommend certain changes in order to improve upon the weaknesses that I have come across during my interaction with the various intermediaries.
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METHODOLOGY OF THE PROJECT
The project was carried out by meeting & visiting various brokers and sub-brokers like Bajaj Capital,Karvy and Indiainfoline that covered all classes of investors ,visiting the branches of ABN AMRO BANK and discuss in the working of ABN AMRO Mutual Fund.
RECENT TRENDS IN MUTUAL FUNDS INDUSTRY
The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these foreign mutual funds. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per
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annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.
DISTRIBUTION MODEL OF ABN AMRO MUTUAL FUND AMC
DIRECT
INTERMEDIATES
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CORPORATES HNI’s & SME’s
RETAIL DISTRIBUTORS FOR FINANCIAL INSTITUTIONS INSTITUT IONAL & INDIVIDUAL BROKER
CORPORATES
HNI’s & SME’S
RETAIL INVESTOR
NOTE ON DISTRIBUTION CHANNEL
ABN AMRO MUTUAL FUND sells its product directly through its marketing team in Mumbai , Delhi,Chennai and kolkata also through various intermediaries spread all over India which are empanelled with ABN AMRO AMC .
SELLING DIRECTLY THROUGH AMC
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As Direct selling leads to saving of the Brokerage fees that are to be paid to the Intermediaries, so it becomes a very important mode of investments for the fund. ABN AMRO MUTUAL FUND sells its products directly through its marketing team in Mumbai , Delhi,Chennai and kolkata the investors targeted by mutual fund directly can be grouped in three main categories on the basis of the average amount they invest and the level of knowledge they have about various Financial Instruments and the benefits that investing in Mutual funds provide, the categories and the distribution practices followed by the fund’s marketing people are given below:-
1. Corporate: - This segment of investors are generally banks,
financial institutions and large corporate houses. This is the most lucrative segment for the fund as the fund saves the brokerage fees, which the fund gives to brokers on the investment they bring. This segment of investors are very well aware of the market situation and generally invest in liquid schemes, mainly for safety of their investment and at the same time get some returns on their working capital surplus which is at present in their current accounts. These investors are followed up by the marketing people and require frequent interaction as the investors want to make sure that if they have any problem in future, they can contact the concerned person here and make sure that every thing possible is done for them. Apart from returns and safety of their investments the investors also look for funds which can provide them good sales and Post sales services. The AMC provides all the services like collecting the application form & cheque. Delivering the redemption cheques to the clients address. The post sales services include an advice on the expected market trend in coming days and the guidance about future investments and the market trend.
2. High Net worth Individuals & Small to Medium Enterprises: - This class of investors are people who are very well
aware of the benefits of investing in mutual funds with respect to investing in other financial instruments and invest in debt as well as equity schemes. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits etc and choose the appropriate scheme that suits their requirement; they invest for a longer duration as compared to corporates and need a view on the asset allocation in accordance to their needs, benefits they desire, the level of risk they want to take, their current financial position and the time they
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wish to invest their money, they also need advice so that they can change their asset allocation with the, changes that are happening in the market or with the future expected market scenario. This class of investors are followed by the marketing people from time to time or they invest themselves as they have an idea of which fund is performing well and giving good returns.
3. Retail Investors:-This is the largest segment of investors in terms
of the number and has huge potentials as most of the people don’t even know about Mutual Funds and their benefits and still continue to invest their savings in fixed deposits and saving accounts thereby earning a very low interest on their investments or they invest in equity market with no diversification of their portfolio. This class of investors is targeted through advertisement in news papers and magazines and various hoardings that are displayed at various locations, also various camps/exhibitions are organized at different locations where people come to know about Mutual fund ,its past performance and the benefits of investing in Mutual Funds. ABN AMRO through its vast network of branches spread in all parts of country can also provide a very good avenue to reach the retail investors. This class of investors don’t have much knowledge about mutual funds and look for returns, safety and Tax benefits while investing in Mutual funds. Majority of investors invest on the advice of knowledgeable persons while choosing the Mutual Fund for investments.
SELLING THROUGH INTERMEDIATES
Intermediate market in Mutual Funds is a highly organized industry and work on commission basis that are given to them as a reward for bringing in investment in the fund. As per SEBI guidelines all agents have to be AMFI certified prior to selling mutual funds, also an agent has to get empanelled so as to canvass business for that particular Mutual Fund and for entailment of commission for the investment they bring in. The various classes of intermediates in the industry that sell mutual funds, their clients and there working is explained in detail below:
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1. Distributors for Financial Institutions: -These institutions
are mainly broking arm of the Financial institutions. Institutions invest their funds through this arm which is empanelled with the Mutual funds. In turn the brokerage whether upfront/trail will be received by the group itself. These institutions consider not only the returns that they will earn, but also the kind of services offered by the fund and also look for the brokerage that the investment agency will earn before deciding the Mutual fund for investment. The marketing people of the Mutual Fund do the marketing & selling of the fund but the investment is done through the Investment agency. These Investment agencies mainly invest the money of their sponsor company only. All the work is done by the marketing people of the Mutual Fund and the process and the services offered are the same as selling directly without any intermediate, the only difference is that the investment is made by the Investment agency and so the brokerage is to be paid to the subsidiary investment agency
2. Institutional & Individual Brokers: -These brokers are in
business of providing financial advice and earn a brokerage from the Funds as a reward for bringing the investment to their fund. They mainly look for the benefits of their clients, so as to build a long term relation with the client and look for more clients through their present client’s word of mouth publicity. The institutional brokers mostly have their own research agency and use different software’s to evaluate the details of every scheme of every Mutual Fund, so as to know in detail which fund is giving more returns, what is the portfolio of the investment, the risk adjusted returns, the fund managers and the corpus of each scheme. While the individual brokers who can bring only small business become sub-brokers of the institutional brokers and rely on their main broker for analyzing different funds and their schemes. They publish their own monthly news magazine comprising of the comparative performance of various schemes, details of the new schemes that are launched during the month or will be launched shortly and the relevant news about the Mutual Fund Industry. The marketing strategy and the process differ depending on the investments of the client, the clients can be classified in four main segments that are explained below: -
a).Corporates: - this segment of Industry comprise mainly of big
corporate houses which are regularly followed by the marketing people of the brokers, this segment invests mainly in debt instruments and that too for a very short time, when the client wants to invest, the broker visit the client depending on his time frame with top five funds selected
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by the research agency of the broker on the parameters of returns adjusted with the risk profile, corpus, past performance of the fund and track record of the Fund managers, out of these top funds the client lists out one or two funds on his perception or on his prior exposure with these funds, then the agency people guide the clients on the basis of level of services and their view on the short listed funds and the interaction with the marketing people of the fund. The services they offer is filling up the application form, collecting the cheque and delivering at the time of redemption. While dealing with the corporates the agency people don’t give top priority to brokerage they will receive, as firstly there is not much difference in brokerage fees of all the mutual funds in debt funds and also they want to build long term relations with the client so as to cash-in in the long run, and also they want to make sure that the client should not be in any trouble at any cost. The post sales services that broker gives is sending daily updates on NAV and other happenings in the industry and how other funds are performing. The broker may even suggest a change in fund if there is any problem in the fund or he expects some problems in future like change in management, sudden redemption or the performance is coming down and he expects that client will be more beneficial in investing in some another fund.
b).High Net worth Individuals: - This class of investors are
people who are very well aware of the benefits of investing in mutual funds with respect to investing in other financial instruments and invest in debt as well as equity schemes. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits, they invest for a longer duration as compared to corporates .they are followed by the marketing people and need consultation in accordance to their needs the benefits they desire, the level of risk they want to take, their current financial position and the time they wish to invest their money, the broker keeping in mind all these factors guide them in deciding the best fund for them and the asset allocation .the broker provides all the services to the client and also sends them regular updates on their investments and if advice on changes in the fund if there is some problem in the fund like change in management, sudden redemption or the performance is coming down and he expects that client will be more beneficial in investing in some another fund and guide the client so that they can change their asset allocation in accordance with the changes that are happening in the market with respect to their needs and priorities
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c). Small to Medium Entrepreneurs: - this class of investors are
business man who do invest in mutual fund and have a understanding of different financial instruments to a certain extent ,they know or are explained the benefits of investing in debt as well as equity schemes and ready to take risk. These investors look for different benefits while investing in mutual funds like growth, safety, tax benefits, they invest for a longer duration as compared to corporates. These investors generally depend on the broker for the deciding the asset allocation and choosing the Fund and the scheme. The process followed is the same as is done to other investors; the main difference is that the broker gives his view on the asset allocation and investments to these investors in addition to the regular services that they provide to all other clients.
d).Retail investors: -these people come to know about new schemes
and the industry mainly through Sub-brokers and the monthly news magazine that they publish and distribute .They don’t have much knowledge about Mutual funds and are in no position to judge the performance of different funds and so mostly rely on word of mouth of the broker, the broker mainly gets his clients through his personal contacts. They personally visit the client’s office or the individual broker personally visit them and advice them about the schemes after studying their requirements, their financial position and the level of risk they are ready to take and depending on these factors they recommend them the fund and scheme as these investors invest in small amount so they invest in only one scheme and no advice on asset allocation is required.
STRENGTHS OF DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND
1.Branches of ABN AMRO BANK-there are a total of 16 branches
of abn amro spread all over India and is a very good medium to reach no. of investors all around the country who do invest their savings in financial instruments and can be prospective investors in our schemes, if they are explained what Mutual Funds are and what are its benefits
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2.Overseas branches of ABN AMRO BANK-can also be a very good medium to attract NRI investors and OCB’s, with a total of 3568 branches and offices spread in 76 countries can be a very profitable channel to bring investments in the fund.
3.Existing Funds Performance-As ABN AMRO Is a growing
AMC,the existing funds are performing well in the market.The distribution channel is in the mode of expansion.
WEAKNESSES OF DISTRIBUTION CHANNEL OF ABN AMRO MUTUAL FUND 1. Not enough people in marketing- at present the level of
interaction with brokers is very less because of less number of employees in the marketing and sales department and in this business investor’s look for interaction with marketing people in addition to returns and other parameters before recommending any Fund to investor.
2.Weak public relations-Nothing is been done to promote the fund
through Public Relations. The only interview published in Business Standard was of equity Fund manager in April 06 and nothing is been done to promote the Existing Funds that is equity as well as opportunity which is rated in
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the Industry, brokers don’t know about this rank. As in this business where people invest their money they rely on interviews and news articles in spite of advertisements and hoardings.
3.Low awareness- Awareness of ABN AMRO Mutual Fund is very less
among retail investors and corporates and brokers are not aware of our present returns and corpus, also there is no visibility of ABN AMRO Mutual Fund in the premises of brokers office as these things make an impression in the mind of investor when he enters the brokers office and it also advertises at the point of purchase, so some stationary items or envelopes or any office use product should be distributed to brokers accompanied with a constant interaction with the broker.
RECOMMENDATIONS ON THE BASIS OF THE PROJECT
The recommendations to remove the weakness of the present structure and on the basis of working of other Mutual Funds are as follows: -
1.Increase the number of people in marketing department- so as to
increase the level of interaction with the distributors.
2.Using the vast network of ABN AMRO branches in India and abroad to
its full potential, by training a few staff members of the bank so as to interact with customers efficiently and a poster portraying the benefits of investment in mutual funds and our past returns.
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3. Improve the awareness of the Fund through advertisement and also
promote the fund through Public relations so as to increase the awareness of the fund and its performance.
4. Empanelled brokers should be provided with monthly fact sheets
as early as possible as well as application forms.
5. Interaction with the empanelled brokers via mails or telephonic
conversation for market information and feed back of investors.
6. Empanellment Eligibility Should be Relaxed,So that Some of the
Efficient distributors can Participate.
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