ketan.bhanushali
Ketan Bhanushali
EXECUTIVE SUMMARY
MF is a retail product designed to target small investors, salaried people and others who are intimidated by the mysteries of stock market but, nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, their fund/scheme selection also widely differs. Investors demand inter-temporal wealth shifting as he or she progresses through the life cycle. This necessitates the Asset Management Companies (AMCs) to understand the fund/scheme selection/switching behavior of the investors to design suitable products tomeet the changing financial needs of the investors. With this background a survey was conducted among 70 Mutual Fund Investors in Delhi and Gurgaon to study the factors influencing the fund/scheme selection behaviour of Retail Investors. This paper discusses the survey findings. It is hoped that it will have some useful managerial implication for the PRINCIPAL PNB ASSET MANGMENT COMPANY in their product designing and marketing.
In financial markets, “expectations” of the investors play a vital role. They influence the price of the securities, the volume traded and determine quite a lot
of things in actual practice. These ‘expectations’ of the investors are influenced
by their “perception” and humans generally relate perception to action. The beliefs and actions of many investors are influenced by the dissonance effect and endowment effect
This study finds ample proof for the wide prevalence of such a psychological state among Mutual Fund (MF) investors in India
Mutual fund: -
A Mutual fund is a company that pools the money of many investors to invest in a variety of different securities. Investments may be in stocks (shares), bonds, money market securities or some combination of these. Those securities are professionally managed on the behalf of the investors, and each investor holds a pro rata share of the portfolio-entitled to any profits when the securities are sold.
Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund, by its nature, is diversified – its assets are invested in many different securities. Beyond that there are different types of mutual funds with different objectives and levels of growth potential, furthering your chance to diversity.
History of mutual funds and the role of SEBI in the mutual funds industry:-
The genesis of the mutual fund industry in India can be traced back to 1964 with the setting up of the unit trust of India by the government of India. Since then UTI has grown to be a dominant player in the industry. UTI is governed by a special legislation, the unit trust of India act, 1963.
The industry was opened up for wider participation in 1987 when public sector banks and insurance companies were permitted to se up mutual funds. Since then 6 public sector banks have set up mutual funds. SEBI formulated the mutual fund (regulation) 1993, since then several mutual funds have been set up by the private and joint sectors.
A MUTUAL FUND SET UP: -
A Mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC), and custodian.
Sponsor: - The trust is established by sponsor who is like the promoter of a company.
Trustees: - The trustees of the mutual fund hold its property for the benefit of the unit holders.
AMC: - It is approved by SEBI manages the fund by making investments in various types of securities.
Custodian: - who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the director of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
Net Asset Value
NAV denotes the value of a particular scheme of a mutual fund.
The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.
For example: - if the market value of securities of a mutual fund scheme is Rs. 200 lakhs and the mutual fund has issued 10 lakh units of Rs. 10 each to the investors, then the NAV per unit of the fund is RS.20. NAV is required to be disclosed by the mutual funds on a regular basis-daily or weekly depending on the type of scheme.
Advantages and Disadvantages
Every investment has advantages and disadvantages. But it's important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
Professional Management — Professional money managers research, select, and monitor the performance of the securities the fund purchases.
Diversification — Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.
Affordability — some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.
Liquidity — Mutual fund investors can readily redeem their shares at the current NAV — plus any fees and charges assessed on redemption — at any time. But mutual funds also have features that some investors might view as disadvantages, such as:
Costs despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses (which we'll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
Lack of Control — Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
Price Uncertainty — With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.
DIFFERENT TYPES OF MUTUAL FUNDS
SCHEMES ACCORDING TO MATURITY PERIOD
Open-ended schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund n any business day. These schemes have unlimited capitalization as there is no cap on the amount you can buy from the fund and the unit capital can keep growing. Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis.
The advantages of open-ended funds over close-ended are as follows:
Any time exit option, the issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors. Any time entry option, an open-ended fund allows one to enter the fund at any time and even to invest at regular intervals.
Close-ended schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such scheme cannot issue new units except in case of bonus or rights issue.
SCHEME ACCORDING TO INVESTMENT OBJECTIVES:
When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance — either on your own or with the help of a financial professional. Once you know what you're saving for, when you'll need the money, and how much risk you can tolerate, you can more easily narrow your choices.
Most mutual funds fall into one of three main categories — money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.
Money Market Funds
Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued by the Indian government, Indian corporations, and state and local governments. Money market funds try to keep their net asset value (NAV) — which represents the value of one share in a fund — at stable rs. 10 per share. But the NAV may fall below rs.10 if the fund's investments perform poorly. Investor losses have been rare, but they are possible.
Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That's why "inflation risk" — the risk that inflation will outpace and erode investment returns over time — can be a potential concern for investors in money market funds.
Bond Funds
Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC's rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Some of the risks associated with bond funds include:
Credit Risk — the possibility that companies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Credit risk is less of a factor for bond funds that invest in insured bonds or Indian Treasury bonds. By contrast, those that invest in the bonds of companies with poor credit ratings generally will be subject to higher risk.
Interest Rate Risk — the risk that the market value of the bonds will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk.
Prepayment Risk — the chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield.
Stock Funds
Although a stock fund's value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments — including corporate bonds, government bonds, and treasury securities.
Overall "market risk" poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons — such as the overall strength of the economy or demand for particular products or services.
Not all stock funds are the same. For example:
Growth funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains. Growth funds generally incur higher risks than income funds (debt) in an effort to secure more pronounced growth.
Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal.
Income funds invest in stocks that pay regular dividends.
The aim is to provide regular and steady to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market also. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVS of such funds are affected because of change in interest rates in the country. However, long-term investors may not bother these fluctuations
Index funds aim to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, by investing in all — or perhaps a representative sample — of the companies included in an index.
Sector funds may specialize in a particular industry segment, such as technology or consumer products stocks.
Gilt funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as in the case with income or debt oriented schemes.
Tax saving schemes
Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units.
The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a fund.
How Funds Can Earn Money for You: -
You can earn money from your investment in three ways:
Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.
Dividend reinvestment —Dividend reinvestment is the process of reinvesting the dividend declared by the company. It enhances the units of the fund rather than NAV. With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load).
Increased NAV (growth) — If the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.
Fees and Expenses
As with any business, running a mutual fund involves costs — including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses. It is important that you understand these charges because they lower your returns.Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide "operating expenses." Funds typically pay their operating expenses out of fund assets — which means that investors indirectly pay these costs.
Shareholder Fees: -
Sales Charge (Load) on Purchases — the amount you pay when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the amount of your investment.
Purchase Fee — another type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund's costs associated with the purchase.
Deferred Sales Charge (Load) — a fee you pay when you sell your shares. Also known as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The most common type of back-end sales load is the "contingent deferred sales load" (also known as a "CDSC" or "CDSL"). The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to zero if the investor holds his or her shares long enough.
Redemption Fee — another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder's redemption.
Exchange Fee — a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or "family of funds."
Account fee — a fee that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain amount.
Load is defined as a charge on purchase/sale of units, which is utilized by AMC to meet the costs of distribution.
Basically, Indian mutual fund industry charges entry load as per SEBI guidelines is 2.25% and exit load is nil.
Liquidity in a mutual fund: - in open ended schemes you can get your money back promptly at NAV related prices from the mutual funds itself. When an investor wants the money back, he/she needs to file a request for redemption (which is annexed to the statement sent to the investor) and submit it to the mutual fund or registrar directly or through distributor.
Asset allocation:- asset allocation means allocating the investment over the various asset classes. In mutual funds there are broadly two asset classes namely, equity and debt. Equity delivers higher returns over longer period of time but is subject to higher risks as compared to debt funds, which deliver relatively lower returns. As an investor, one has to assess the risk he is willing to undertake and should allocate the investment accordingly. An investor, who is young and is open to higher risk, should allocate a higher percentage towards equity . on the other hand, an investor who is more conservative an investors must take into account the time horizon for his investments. For very short periods an nvestors must take into account the time horizon for his investments. For very shot periods cash fund or floaters are most suitable. Equity is meant for logger horizons.
Investors get a certificate or statement of account after investing in a mutual fund
Mutual funds normally dispatch certificates or statements of account a day after the investment in the scheme. In case of an IPO, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme.
How do you find out, where the mutual fund scheme has invested the money, mobilized from the investors:- as per guidelines the mutual funds are required to disclose full portfolios of their schemes on half yearly basis, which are published in the newspapers. However, mutual funds normally declare portfolios on a monthly basis. This is disclosed in a fact sheet, which lists the portfolio across various schemes.
The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, govt.securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio, investment made in rated and non rated debt securities, non performing assets (NPA), etc.
Types of Risks
All investment involves some form of risk. Consider this common type of risk and evaluate them against potential rewards when you select an investment.
Market risk:- At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and fledging corporation may be affected. This change in price is due to “market risk”.
Inflation risk:- Sometimes referred to as “loss of purchasing power” . Whenever inflation rises forward faster than the earnings on your investment, you run the risk that you will actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.
Credit risk:- How stable is the company or entity to which you lend your money you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
Interest rate risk:- Changing interest rates affect both equities and bonds in many ways. Investors are reminded that “predicting” which way rates will go is rarely successful.
Exchange risk:- A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Change rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.
Investment risks:- The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.
Changes in the government policy:-changes in govt. policy especially in regard to the tax benefits may impact the business prosects of the compnies leading to an impact on the investment made by the fund.
INTRODUCTION
About Principal Mutual Fund
Principal Mutual Fund is sponsored by Principal Financial Services Inc., USA, a member of Principal Financial Group Inc. USA.
Principal Financial Group entered Indian mutual fund market in September 2000 through a 50:50 joint venture with IDBI. In October 2000, IDBI Principal Mutual Fund pioneered an Asset Allocation Program, which it christened Future Goals — India's first life stage investment plan.
The Future Goals series offered unique features such as Asset Allocation and Automatic Rebalancing and Triggers, which gave investors tremendous flexibility in planning out their investment strategies. This and various other products and services positioned Principal Mutual Fund firmly in the Indian mutual fund market, as reflected by the confidence and trust shown by its 267,686 investors.
In June 2003, Principal Financial Group bought out IDBI’s 50 per cent stake in the joint venture.
Principal Pnb Asset Management Company Private Limited
Principal Pnb Asset Management Company Private Limited is the investment manager for Principal Mutual Fund. It was the first private sector company to tie-up with the Department of Postal Services to sell mutual funds through the postal network.
In June 2003, Principal Pnb Asset Management Company Private Limited acquired the right to manage the schemes of SUN F&C Mutual Fund.
In May 2004, Punjab National Bank and Vijaya Bank bought 30% and 5 % respectively in Principal Asset Management.
Sponsor
Principal Financial Services Inc., USA (A member of the Principal Financial Group Inc., USA)
The Principal Financial Group
The Principal Financial Group (The Principal) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and mortgage banking through its diverse family of financial services companies. More employee choose the Principal Financial Group for their 401(k) plans than any other bank, mutual fund or insurance company in the United State.
A Member of the FORTUNE 500, the Principal Financial Group has $135 billion in assets under management and serves some 14.8 million customers worldwide from office in 12 countries throughout Asia, Australia, Europe, Latin America and United States. The Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG.
More employees choose the Principal Financial Group for their 401(k) plans than they do from any other bank, mutual fund or insurance company in the United States.
The Principal Financial Group Inc. trades on the New York Stock Exchange under the ticker symbol PFG
Trustee
Principal Trustee Company
Principal Trustee Company Private Limited (formerly IDBI-PRINCIPAL Trustee Company Limited), a company incorporated under the Companies Act, 1956 is the Trustee to the Fund with effect from October 18, 2002. Prior to October 18, 2002 Board of Trustees discharged the Trusteeship function of the Fund.
On June 23, 2003, Principal Financial Services Inc. USA acquired 100% stake in IDBI-PRINCIPAL Trustee Company Limited, through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Name of the Trustee Company was changed to Principal Trustee Company Private Limited, to reflect the change in ownership. On April 30, 2004, Punjab National Bank and Vijaya Bank became equity shareholders of the Trustee Company and post this, Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank hold 65%, 30% and 5% respectively of the paid up equity capital of the Trustee Company.
Fund Information
Equity Funds
Principal Index Fund Open ended Indexed fund
Principal Equity Fund Open-ended Equity Growth Fund
Principal Growth Fund Open-ended Equity Fund
Principal Tax Savings Fund Open-ended Equity-linked Savings Fund
Principal Global Opportunities Fund An open ended Growth Scheme
Principal Resurgent India Equity Fund Open end Equity Scheme
Principal Personal Tax Saver Fund Open end Equity Linked Saving Scheme. Open ended ELSS under Section 80 C(2) of the Income Tax Act, 1961
Principal Dividend Yield Fund An open ended Equity Fund
Principal Focussed Advantage Fund Open Ended Equity Fund
Principal Junior Cap Fund Open ended Equity Fund
Principal Large Cap Fund Open ended Equity Fund
Infrastructure & Services Ind Fund An Open Ended Equity Scheme
Debt Funds
Principal Floating Rate fund An open-ended income fund consisting of two funds - Fixed Maturity Plan and Short Maturity Plan
Deposit Fund Fixed maturity products of varying durations primarily investing in debt markets
Government Securities Fund A 100% debt oriented fund investing primarily in government securities.
Cash Management fund An 100% debt-based mutual fund targetted at investors with a short-term investment horizon
Principal Income Fund Open-ended Income Fund
Principal Short Term Income Fund Open-ended Income Fund
PrincipalMonthly Income Plan Open-ended Income Plan with no assured monthly returns
Principal Monthly Income Plan MIP Plus An open ended fund. Monthly income is not assured and is subject to the availability of distributable surplus
Principal PNB Debt Fund Open-ended Debt Scheme
Principal Money Value Bond Fund Open end Income Scheme
Principal FMP 91 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal PNB FMP 460 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 91 Days Series II A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 385 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 91 Days Series III A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 385 Days Series II A closed-ended Debt Scheme offering Fixed Maturity Plan
Specialty Funds
Principal Trust Bebefit Fund Open ended Income Fund
Principal Child Benefit Fund Open ended Balanced Fund
Balanced Funds
Principal Balanced Fund Open ended balanced fund
ANALYSIS
INVESTMENT IN FINANCIAL INSTRUMENTS
GROUPS INVESTMENT IN FINANCIAL
INSTRUMENTS (In percentage)
A. STUDENT AND UNMARRIED 13.3
B. YOUNG MARRIED STAGE 78.0
C. WORKING PEOPLE WITH YOUNGER CHILDREN 83.0
D. WORKING PEOPLE WITH OLDER CHILDREN 85.7
E. RETIRED PEOPLE 89.0
Investment decision of individuals depends to a large extent on income, expenses and cash flow requirement of individuals.
Out of the 15 respondent from group A 13 say that they don’t invest in financial instruments, this is because there ability to invest in financial instruments gets limited due to higher spending. As most of the responders from these group are student are attracted toward banks because of bank’s fund transfer mechanism which they widely used in their day to day financial transactions.
And almost all responder from remaining do invest there saving in financial instruments, because there cash flow requirement is completely different from group A. Like they have basic needs such as:-
• Housing and insurance needs
• Consumer finance needs
• Children’s education
• Children’s marriage
• Medical cover
• Need for pension
So based upon these needs individual take there investment decision for different financial instruments.
INVESTMENT OPTIONS AVAILABLE
Various investment options available to the individuals are Bank deposit, Post office scheme, mutual funds, share, etc and investor put there money According to there financial needs and risk appetite
Majority of responder invest there majority of saving in Mutual funds and Share market this is because of low rate of interest from banks however 37% of respondent invest there saving in banks but major share of this is from group A, whom financial needs are completely different from other responders
Again retired people show there interest in bank deposit because of there low ability to take risk and most important reason is there protection needs i.e. need for regular income, need for retirement income and need for insurance cover retired people show less interest in Shares and Mutual funds. Only 22% go for it
Young married people invest majority of there investment in Mutual funds (31%) this is because of there ability to face the up and down of stock market and they are in a position to take the higher risk.
FINANCIAL NEEDS
Financial goals and plans depend on large extant on the income, expenses and cash flow requirement of individuals. It is well known that the age of investor is an important determinant of financial goals. In the following questionnaire it is well clear. Financial need of individual can be classified as:-
- Immediate and short term need
- Immediate and short term need, for housing and insurance needs, consumer finance
needs.
- Medium and long term needs for children education, holidays and housing
- Medium term needs for children education and marriage, need for pension,
insurance and Medical cover
- Short to medium term.
In questionnaire
53% of respondent from Group A go for immediate and short term needs.
Respondent from Group B have a mixture of needs from immediate and short term to medium and long term. 61.5% form Group C have medium and long term need for children education, housing, consumer finance.
64% from Group D go for medium term needs for children education marriage, pension, insurance and medical cover and,
55% from Group E that is from retiring people go for short to medium term.
Therefore invest plan of individual or choice of Mutual fund product depend upon these financial needs. There product choice can be categories as:-
STUDENT AND UNMARRIED Liquid plan and some exposure to equity and
Pension Product
YOUNG MARRIED STAGE Fixed income, insurance and Equity product
WORKING PEOPLE WITH Portfolio of product for Growth and long
YOUNGER CHILDREN growth
WORKING PEOPLE WITH Portfolio of product including equity, debt OLDER CHILDREN and pension plan
RETIRED PEOPLE Liquid and income generating products
INVESTMENT OBJECTIVES
Investment objectives can be classified as
• Growth of investment
• Regular dividend
• Tax saving
• Assured return
Most of the respondent from group A and group B go for growth of investment Growth of investment.
Respondent from young married stage go for growth of investment because in this stage investors are earning and they have no need for investment income and they focus on saving and accumulating wealth for long term and almost same are the requirement of respondent from group C and Group D. Respondent from Group C and Group D need accumulation of wealth for there needs like higher studies of children, children’s marriage housing etc.
But financial needs for Group E (Retired people) are completely different they need regular dividend because in thin stage of life investor need income from there investor and they can’t save further.
INVESTMENT IN MUTUAL FUNDS
About 52 % of respondent invest there saving in Mutual Funds. Respondent from Group A don’t go for investment in mutual fund because most of them are student and depends upon parents, so they don’t have enough saving for investment in mutual funds.
Other than that majority of investors from all group show interest in Mutual Funds. This is because Mutual funds cater all type of investment needs of investors. Mutual Funds generally offer different type of products to all type of investments need.
Majority of respondent are satisfied with there investment in mutual funds
REASON BEHIND NOT INVESTING IN MUTUAL FUNDS
Respondent from group A and Group E show less interest in mutual funds. Respondent from Group A say that they lack knowledge about the investment in mutual fund. Retired people say that they are not in a position of taking risk in that stage of life (reaping stage).
REASON BEHIND INVESTMENT IN MUTUAL FUNDS
Respondent from Group A say that they invest in Mutual Funds for creation of wealth and not current income.
Respondent from Group B have a mixed opinion. Some need regular income, some need creation of wealth and some need current.
Respondent from Group C says that they need current income and investment should grow over a period of time because at this stage they have to think about the present need and also future needs like children education there marriage and housing.
Respondent from Group D have a completely different need, they say that they need creation of wealth because at this stage of life they have to think about there future security E say that they need regular income because at this stage of life they need regular source of income which they can spend on current needs.
PART OF SAVING IN MUTUAL FUNDS
Part of saving investment in Mutual Funds depend the ability of taking risk which may vary with age group and there ability to save money.
SELECTION OF FUND AND ASSET ALLOCATION
Selection of type of funds and asset allocation strategy is to a large extant depend upon the age of investor. Majority of respondent from Group A, B and C goes for equity funds because of there ability to take risk and face the up and down of equity market .But fund selection for retired people are completely different they go either Debt funds of Hybrid funds because they are not in a position to take risk, they need diversification in funds.
Another thing is financial needs which vary with age.
ABSTRACT OF INFORMATION COLLECT FROM MF AGENTS
All MF advisor suggest there client to invest in Mutual Funds. Out of all Seven(7) respondent all say that they ask there client to invest in MF.
All of them first try to know about the client profile and goal before start financial planning of client, Seven (7) out of seven respondents go for it.
Majority of investors say that to know he financial needs of client they consider age of client, five (5) out of seven (7).
To know the risk tolerance of client agent consider age of client, Six (6) out of Seven (7).
Determination of asset allocation for the client is done by considering the age of client, five (5) out of seven (7).
Selection of fund for client also depends on the age of client. Five (5) out of seven (7) responder ay that they consider age of client.
So it is clear that age is one of the most important factors which influence the selection of MF product by the retail investor.
FINDINGS
It is revealed that the investors are influenced by the infrastructural facilities of the sponsor and the reputation enjoyed by the sponsor, in their selection of the schemes. Hence, AMCs should take steps to develop their infrastructural facilities. Bank sponsored MFs and Public Sector MFs enjoy their already built-in branch networks. AMCs should note that investment in the development of, agency network, research and, introduction of technology in money management, will capture a segment of investors. Further, establishing a brand name and building up reputation and carefully maintaining the reputation by prudent public money management on the Gandhian principle of Trusteeship will also attract one segment of investors. Huge fund mobilization by Public Sector sponsored funds in the early 90s was purely due to their image and reputation factor. In Morgan Stanley case, it was the sponsor’s reputation which attracted a serpentine line of investors. But unfortunately, these funds failed to recognise that their brand name and reputation was influential in the selection of funds/schemes by investors. They ignored to further build and maintain their goodwill, which ultimately resulted in loss of investors to them and loss of investment to investors. Days ahead will reveal the loss of investor accounts
Further, investors are influenced by the extent and quality of disclosure of Information subsequent to their investment regarding disclosure of NAV, Portfolio of investment and disclosure of deviation of investment from the stated objectives and the attached fringe benefits to the scheme in their selection of the scheme.
The falling interest rates and a reasonably good performance of many growth schemes during the turn of the century might have been the reason for the high preference of Growth Schemes during the period under study. Now the scale is in favour of Income Schemes. So, it is suggested that AMCs should react in time to the changing market moods by launching new products or repositioning old ones. Deviation from the stated investment objectives without authority should be dealt seriously by the regulatory bodies. Safety of capital subject to market risk, should be assured to the MF investor
CONCLUSIONS AND RECOMMENDATIONS
Following are recommendations based on this study:
Before development of any mutual fund product AMC’s should consider what the expectations of investors are so that so that MF product fulfill the financial needs of investor.
AMC’s have to develop variety of product so that investors from all groups (age, income, occupation etc) can invest in a MF products.
AMC’s are required to run program like road shows to create awareness among the investors about MF.
Study shows that people from Group A show low interest in MF investment so AMC’s are required are required to pay more attention to this segment.
The AMC should close down the close-ended scheme because the investors do not want to invest in that fund which has the fixed period of maturity
The AMC should provide the little bit fixed returns on investment so that the investors can rely on that
The investors should look after the performance of the fund in the newspaper so that they can measure whether that fund is performing well or not.
MF is a retail product designed to target small investors, salaried people and others who are intimidated by the mysteries of stock market but, nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, their fund/scheme selection also widely differs. Investors demand inter-temporal wealth shifting as he or she progresses through the life cycle. This necessitates the Asset Management Companies (AMCs) to understand the fund/scheme selection/switching behavior of the investors to design suitable products tomeet the changing financial needs of the investors. With this background a survey was conducted among 70 Mutual Fund Investors in Delhi and Gurgaon to study the factors influencing the fund/scheme selection behaviour of Retail Investors. This paper discusses the survey findings. It is hoped that it will have some useful managerial implication for the PRINCIPAL PNB ASSET MANGMENT COMPANY in their product designing and marketing.
In financial markets, “expectations” of the investors play a vital role. They influence the price of the securities, the volume traded and determine quite a lot
of things in actual practice. These ‘expectations’ of the investors are influenced
by their “perception” and humans generally relate perception to action. The beliefs and actions of many investors are influenced by the dissonance effect and endowment effect
This study finds ample proof for the wide prevalence of such a psychological state among Mutual Fund (MF) investors in India
Mutual fund: -
A Mutual fund is a company that pools the money of many investors to invest in a variety of different securities. Investments may be in stocks (shares), bonds, money market securities or some combination of these. Those securities are professionally managed on the behalf of the investors, and each investor holds a pro rata share of the portfolio-entitled to any profits when the securities are sold.
Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund, by its nature, is diversified – its assets are invested in many different securities. Beyond that there are different types of mutual funds with different objectives and levels of growth potential, furthering your chance to diversity.
History of mutual funds and the role of SEBI in the mutual funds industry:-
The genesis of the mutual fund industry in India can be traced back to 1964 with the setting up of the unit trust of India by the government of India. Since then UTI has grown to be a dominant player in the industry. UTI is governed by a special legislation, the unit trust of India act, 1963.
The industry was opened up for wider participation in 1987 when public sector banks and insurance companies were permitted to se up mutual funds. Since then 6 public sector banks have set up mutual funds. SEBI formulated the mutual fund (regulation) 1993, since then several mutual funds have been set up by the private and joint sectors.
A MUTUAL FUND SET UP: -
A Mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC), and custodian.
Sponsor: - The trust is established by sponsor who is like the promoter of a company.
Trustees: - The trustees of the mutual fund hold its property for the benefit of the unit holders.
AMC: - It is approved by SEBI manages the fund by making investments in various types of securities.
Custodian: - who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the director of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
Net Asset Value
NAV denotes the value of a particular scheme of a mutual fund.
The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date.
For example: - if the market value of securities of a mutual fund scheme is Rs. 200 lakhs and the mutual fund has issued 10 lakh units of Rs. 10 each to the investors, then the NAV per unit of the fund is RS.20. NAV is required to be disclosed by the mutual funds on a regular basis-daily or weekly depending on the type of scheme.
Advantages and Disadvantages
Every investment has advantages and disadvantages. But it's important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
Professional Management — Professional money managers research, select, and monitor the performance of the securities the fund purchases.
Diversification — Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.
Affordability — some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.
Liquidity — Mutual fund investors can readily redeem their shares at the current NAV — plus any fees and charges assessed on redemption — at any time. But mutual funds also have features that some investors might view as disadvantages, such as:
Costs despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses (which we'll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
Lack of Control — Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
Price Uncertainty — With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.
DIFFERENT TYPES OF MUTUAL FUNDS
SCHEMES ACCORDING TO MATURITY PERIOD
Open-ended schemes
Open-ended schemes do not have a fixed maturity period. Investors can buy or sell units at NAV-related prices from and to the mutual fund n any business day. These schemes have unlimited capitalization as there is no cap on the amount you can buy from the fund and the unit capital can keep growing. Open-ended schemes are preferred for their liquidity. Such funds can issue and redeem units any time during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a daily basis.
The advantages of open-ended funds over close-ended are as follows:
Any time exit option, the issuing company directly takes the responsibility of providing an entry and an exit. This provides ready liquidity to the investors. Any time entry option, an open-ended fund allows one to enter the fund at any time and even to invest at regular intervals.
Close-ended schemes
Close-ended schemes have fixed maturity periods. Investors can buy into these funds during the period when these funds are open in the initial issue. After that such scheme cannot issue new units except in case of bonus or rights issue.
SCHEME ACCORDING TO INVESTMENT OBJECTIVES:
When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance — either on your own or with the help of a financial professional. Once you know what you're saving for, when you'll need the money, and how much risk you can tolerate, you can more easily narrow your choices.
Most mutual funds fall into one of three main categories — money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss.
Money Market Funds
Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued by the Indian government, Indian corporations, and state and local governments. Money market funds try to keep their net asset value (NAV) — which represents the value of one share in a fund — at stable rs. 10 per share. But the NAV may fall below rs.10 if the fund's investments perform poorly. Investor losses have been rare, but they are possible.
Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That's why "inflation risk" — the risk that inflation will outpace and erode investment returns over time — can be a potential concern for investors in money market funds.
Bond Funds
Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC's rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Some of the risks associated with bond funds include:
Credit Risk — the possibility that companies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Credit risk is less of a factor for bond funds that invest in insured bonds or Indian Treasury bonds. By contrast, those that invest in the bonds of companies with poor credit ratings generally will be subject to higher risk.
Interest Rate Risk — the risk that the market value of the bonds will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk.
Prepayment Risk — the chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield.
Stock Funds
Although a stock fund's value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments — including corporate bonds, government bonds, and treasury securities.
Overall "market risk" poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons — such as the overall strength of the economy or demand for particular products or services.
Not all stock funds are the same. For example:
Growth funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains. Growth funds generally incur higher risks than income funds (debt) in an effort to secure more pronounced growth.
Growth funds are suitable for investors who can afford to assume the risk of potential loss in value of their investment in the hope of achieving substantial and rapid gains. They are not suitable for investors who must conserve their principal.
Income funds invest in stocks that pay regular dividends.
The aim is to provide regular and steady to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market also. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVS of such funds are affected because of change in interest rates in the country. However, long-term investors may not bother these fluctuations
Index funds aim to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, by investing in all — or perhaps a representative sample — of the companies included in an index.
Sector funds may specialize in a particular industry segment, such as technology or consumer products stocks.
Gilt funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as in the case with income or debt oriented schemes.
Tax saving schemes
Investors (individuals and Hindu Undivided Families (“HUFs”)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units.
The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount subscribed. HDFC Tax Plan 2000 is such a fund.
How Funds Can Earn Money for You: -
You can earn money from your investment in three ways:
Dividend Payments — A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.
Dividend reinvestment —Dividend reinvestment is the process of reinvesting the dividend declared by the company. It enhances the units of the fund rather than NAV. With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load).
Increased NAV (growth) — If the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.
Fees and Expenses
As with any business, running a mutual fund involves costs — including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses. It is important that you understand these charges because they lower your returns.Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide "operating expenses." Funds typically pay their operating expenses out of fund assets — which means that investors indirectly pay these costs.
Shareholder Fees: -
Sales Charge (Load) on Purchases — the amount you pay when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the amount of your investment.
Purchase Fee — another type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund's costs associated with the purchase.
Deferred Sales Charge (Load) — a fee you pay when you sell your shares. Also known as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The most common type of back-end sales load is the "contingent deferred sales load" (also known as a "CDSC" or "CDSL"). The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to zero if the investor holds his or her shares long enough.
Redemption Fee — another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder's redemption.
Exchange Fee — a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or "family of funds."
Account fee — a fee that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain amount.
Load is defined as a charge on purchase/sale of units, which is utilized by AMC to meet the costs of distribution.
Basically, Indian mutual fund industry charges entry load as per SEBI guidelines is 2.25% and exit load is nil.
Liquidity in a mutual fund: - in open ended schemes you can get your money back promptly at NAV related prices from the mutual funds itself. When an investor wants the money back, he/she needs to file a request for redemption (which is annexed to the statement sent to the investor) and submit it to the mutual fund or registrar directly or through distributor.
Asset allocation:- asset allocation means allocating the investment over the various asset classes. In mutual funds there are broadly two asset classes namely, equity and debt. Equity delivers higher returns over longer period of time but is subject to higher risks as compared to debt funds, which deliver relatively lower returns. As an investor, one has to assess the risk he is willing to undertake and should allocate the investment accordingly. An investor, who is young and is open to higher risk, should allocate a higher percentage towards equity . on the other hand, an investor who is more conservative an investors must take into account the time horizon for his investments. For very short periods an nvestors must take into account the time horizon for his investments. For very shot periods cash fund or floaters are most suitable. Equity is meant for logger horizons.
Investors get a certificate or statement of account after investing in a mutual fund
Mutual funds normally dispatch certificates or statements of account a day after the investment in the scheme. In case of an IPO, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme.
How do you find out, where the mutual fund scheme has invested the money, mobilized from the investors:- as per guidelines the mutual funds are required to disclose full portfolios of their schemes on half yearly basis, which are published in the newspapers. However, mutual funds normally declare portfolios on a monthly basis. This is disclosed in a fact sheet, which lists the portfolio across various schemes.
The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, govt.securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio, investment made in rated and non rated debt securities, non performing assets (NPA), etc.
Types of Risks
All investment involves some form of risk. Consider this common type of risk and evaluate them against potential rewards when you select an investment.
Market risk:- At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both an outstanding, highly profitable company and fledging corporation may be affected. This change in price is due to “market risk”.
Inflation risk:- Sometimes referred to as “loss of purchasing power” . Whenever inflation rises forward faster than the earnings on your investment, you run the risk that you will actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.
Credit risk:- How stable is the company or entity to which you lend your money you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures?
Interest rate risk:- Changing interest rates affect both equities and bonds in many ways. Investors are reminded that “predicting” which way rates will go is rarely successful.
Exchange risk:- A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Change rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund.
Investment risks:- The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities.
Changes in the government policy:-changes in govt. policy especially in regard to the tax benefits may impact the business prosects of the compnies leading to an impact on the investment made by the fund.
INTRODUCTION
About Principal Mutual Fund
Principal Mutual Fund is sponsored by Principal Financial Services Inc., USA, a member of Principal Financial Group Inc. USA.
Principal Financial Group entered Indian mutual fund market in September 2000 through a 50:50 joint venture with IDBI. In October 2000, IDBI Principal Mutual Fund pioneered an Asset Allocation Program, which it christened Future Goals — India's first life stage investment plan.
The Future Goals series offered unique features such as Asset Allocation and Automatic Rebalancing and Triggers, which gave investors tremendous flexibility in planning out their investment strategies. This and various other products and services positioned Principal Mutual Fund firmly in the Indian mutual fund market, as reflected by the confidence and trust shown by its 267,686 investors.
In June 2003, Principal Financial Group bought out IDBI’s 50 per cent stake in the joint venture.
Principal Pnb Asset Management Company Private Limited
Principal Pnb Asset Management Company Private Limited is the investment manager for Principal Mutual Fund. It was the first private sector company to tie-up with the Department of Postal Services to sell mutual funds through the postal network.
In June 2003, Principal Pnb Asset Management Company Private Limited acquired the right to manage the schemes of SUN F&C Mutual Fund.
In May 2004, Punjab National Bank and Vijaya Bank bought 30% and 5 % respectively in Principal Asset Management.
Sponsor
Principal Financial Services Inc., USA (A member of the Principal Financial Group Inc., USA)
The Principal Financial Group
The Principal Financial Group (The Principal) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance and mortgage banking through its diverse family of financial services companies. More employee choose the Principal Financial Group for their 401(k) plans than any other bank, mutual fund or insurance company in the United State.
A Member of the FORTUNE 500, the Principal Financial Group has $135 billion in assets under management and serves some 14.8 million customers worldwide from office in 12 countries throughout Asia, Australia, Europe, Latin America and United States. The Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG.
More employees choose the Principal Financial Group for their 401(k) plans than they do from any other bank, mutual fund or insurance company in the United States.
The Principal Financial Group Inc. trades on the New York Stock Exchange under the ticker symbol PFG
Trustee
Principal Trustee Company
Principal Trustee Company Private Limited (formerly IDBI-PRINCIPAL Trustee Company Limited), a company incorporated under the Companies Act, 1956 is the Trustee to the Fund with effect from October 18, 2002. Prior to October 18, 2002 Board of Trustees discharged the Trusteeship function of the Fund.
On June 23, 2003, Principal Financial Services Inc. USA acquired 100% stake in IDBI-PRINCIPAL Trustee Company Limited, through its wholly owned subsidiary Principal Financial Group (Mauritius) Limited. Name of the Trustee Company was changed to Principal Trustee Company Private Limited, to reflect the change in ownership. On April 30, 2004, Punjab National Bank and Vijaya Bank became equity shareholders of the Trustee Company and post this, Principal Financial Group (Mauritius) Limited, Punjab National Bank and Vijaya Bank hold 65%, 30% and 5% respectively of the paid up equity capital of the Trustee Company.
Fund Information
Equity Funds
Principal Index Fund Open ended Indexed fund
Principal Equity Fund Open-ended Equity Growth Fund
Principal Growth Fund Open-ended Equity Fund
Principal Tax Savings Fund Open-ended Equity-linked Savings Fund
Principal Global Opportunities Fund An open ended Growth Scheme
Principal Resurgent India Equity Fund Open end Equity Scheme
Principal Personal Tax Saver Fund Open end Equity Linked Saving Scheme. Open ended ELSS under Section 80 C(2) of the Income Tax Act, 1961
Principal Dividend Yield Fund An open ended Equity Fund
Principal Focussed Advantage Fund Open Ended Equity Fund
Principal Junior Cap Fund Open ended Equity Fund
Principal Large Cap Fund Open ended Equity Fund
Infrastructure & Services Ind Fund An Open Ended Equity Scheme
Debt Funds
Principal Floating Rate fund An open-ended income fund consisting of two funds - Fixed Maturity Plan and Short Maturity Plan
Deposit Fund Fixed maturity products of varying durations primarily investing in debt markets
Government Securities Fund A 100% debt oriented fund investing primarily in government securities.
Cash Management fund An 100% debt-based mutual fund targetted at investors with a short-term investment horizon
Principal Income Fund Open-ended Income Fund
Principal Short Term Income Fund Open-ended Income Fund
PrincipalMonthly Income Plan Open-ended Income Plan with no assured monthly returns
Principal Monthly Income Plan MIP Plus An open ended fund. Monthly income is not assured and is subject to the availability of distributable surplus
Principal PNB Debt Fund Open-ended Debt Scheme
Principal Money Value Bond Fund Open end Income Scheme
Principal FMP 91 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal PNB FMP 460 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 91 Days Series II A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 385 Days Series I A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 91 Days Series III A closed-ended Debt Scheme offering Fixed Maturity Plan
Principal FMP 385 Days Series II A closed-ended Debt Scheme offering Fixed Maturity Plan
Specialty Funds
Principal Trust Bebefit Fund Open ended Income Fund
Principal Child Benefit Fund Open ended Balanced Fund
Balanced Funds
Principal Balanced Fund Open ended balanced fund
ANALYSIS
INVESTMENT IN FINANCIAL INSTRUMENTS
GROUPS INVESTMENT IN FINANCIAL
INSTRUMENTS (In percentage)
A. STUDENT AND UNMARRIED 13.3
B. YOUNG MARRIED STAGE 78.0
C. WORKING PEOPLE WITH YOUNGER CHILDREN 83.0
D. WORKING PEOPLE WITH OLDER CHILDREN 85.7
E. RETIRED PEOPLE 89.0
Investment decision of individuals depends to a large extent on income, expenses and cash flow requirement of individuals.
Out of the 15 respondent from group A 13 say that they don’t invest in financial instruments, this is because there ability to invest in financial instruments gets limited due to higher spending. As most of the responders from these group are student are attracted toward banks because of bank’s fund transfer mechanism which they widely used in their day to day financial transactions.
And almost all responder from remaining do invest there saving in financial instruments, because there cash flow requirement is completely different from group A. Like they have basic needs such as:-
• Housing and insurance needs
• Consumer finance needs
• Children’s education
• Children’s marriage
• Medical cover
• Need for pension
So based upon these needs individual take there investment decision for different financial instruments.
INVESTMENT OPTIONS AVAILABLE
Various investment options available to the individuals are Bank deposit, Post office scheme, mutual funds, share, etc and investor put there money According to there financial needs and risk appetite
Majority of responder invest there majority of saving in Mutual funds and Share market this is because of low rate of interest from banks however 37% of respondent invest there saving in banks but major share of this is from group A, whom financial needs are completely different from other responders
Again retired people show there interest in bank deposit because of there low ability to take risk and most important reason is there protection needs i.e. need for regular income, need for retirement income and need for insurance cover retired people show less interest in Shares and Mutual funds. Only 22% go for it
Young married people invest majority of there investment in Mutual funds (31%) this is because of there ability to face the up and down of stock market and they are in a position to take the higher risk.
FINANCIAL NEEDS
Financial goals and plans depend on large extant on the income, expenses and cash flow requirement of individuals. It is well known that the age of investor is an important determinant of financial goals. In the following questionnaire it is well clear. Financial need of individual can be classified as:-
- Immediate and short term need
- Immediate and short term need, for housing and insurance needs, consumer finance
needs.
- Medium and long term needs for children education, holidays and housing
- Medium term needs for children education and marriage, need for pension,
insurance and Medical cover
- Short to medium term.
In questionnaire
53% of respondent from Group A go for immediate and short term needs.
Respondent from Group B have a mixture of needs from immediate and short term to medium and long term. 61.5% form Group C have medium and long term need for children education, housing, consumer finance.
64% from Group D go for medium term needs for children education marriage, pension, insurance and medical cover and,
55% from Group E that is from retiring people go for short to medium term.
Therefore invest plan of individual or choice of Mutual fund product depend upon these financial needs. There product choice can be categories as:-
STUDENT AND UNMARRIED Liquid plan and some exposure to equity and
Pension Product
YOUNG MARRIED STAGE Fixed income, insurance and Equity product
WORKING PEOPLE WITH Portfolio of product for Growth and long
YOUNGER CHILDREN growth
WORKING PEOPLE WITH Portfolio of product including equity, debt OLDER CHILDREN and pension plan
RETIRED PEOPLE Liquid and income generating products
INVESTMENT OBJECTIVES
Investment objectives can be classified as
• Growth of investment
• Regular dividend
• Tax saving
• Assured return
Most of the respondent from group A and group B go for growth of investment Growth of investment.
Respondent from young married stage go for growth of investment because in this stage investors are earning and they have no need for investment income and they focus on saving and accumulating wealth for long term and almost same are the requirement of respondent from group C and Group D. Respondent from Group C and Group D need accumulation of wealth for there needs like higher studies of children, children’s marriage housing etc.
But financial needs for Group E (Retired people) are completely different they need regular dividend because in thin stage of life investor need income from there investor and they can’t save further.
INVESTMENT IN MUTUAL FUNDS
About 52 % of respondent invest there saving in Mutual Funds. Respondent from Group A don’t go for investment in mutual fund because most of them are student and depends upon parents, so they don’t have enough saving for investment in mutual funds.
Other than that majority of investors from all group show interest in Mutual Funds. This is because Mutual funds cater all type of investment needs of investors. Mutual Funds generally offer different type of products to all type of investments need.
Majority of respondent are satisfied with there investment in mutual funds
REASON BEHIND NOT INVESTING IN MUTUAL FUNDS
Respondent from group A and Group E show less interest in mutual funds. Respondent from Group A say that they lack knowledge about the investment in mutual fund. Retired people say that they are not in a position of taking risk in that stage of life (reaping stage).
REASON BEHIND INVESTMENT IN MUTUAL FUNDS
Respondent from Group A say that they invest in Mutual Funds for creation of wealth and not current income.
Respondent from Group B have a mixed opinion. Some need regular income, some need creation of wealth and some need current.
Respondent from Group C says that they need current income and investment should grow over a period of time because at this stage they have to think about the present need and also future needs like children education there marriage and housing.
Respondent from Group D have a completely different need, they say that they need creation of wealth because at this stage of life they have to think about there future security E say that they need regular income because at this stage of life they need regular source of income which they can spend on current needs.
PART OF SAVING IN MUTUAL FUNDS
Part of saving investment in Mutual Funds depend the ability of taking risk which may vary with age group and there ability to save money.
SELECTION OF FUND AND ASSET ALLOCATION
Selection of type of funds and asset allocation strategy is to a large extant depend upon the age of investor. Majority of respondent from Group A, B and C goes for equity funds because of there ability to take risk and face the up and down of equity market .But fund selection for retired people are completely different they go either Debt funds of Hybrid funds because they are not in a position to take risk, they need diversification in funds.
Another thing is financial needs which vary with age.
ABSTRACT OF INFORMATION COLLECT FROM MF AGENTS
All MF advisor suggest there client to invest in Mutual Funds. Out of all Seven(7) respondent all say that they ask there client to invest in MF.
All of them first try to know about the client profile and goal before start financial planning of client, Seven (7) out of seven respondents go for it.
Majority of investors say that to know he financial needs of client they consider age of client, five (5) out of seven (7).
To know the risk tolerance of client agent consider age of client, Six (6) out of Seven (7).
Determination of asset allocation for the client is done by considering the age of client, five (5) out of seven (7).
Selection of fund for client also depends on the age of client. Five (5) out of seven (7) responder ay that they consider age of client.
So it is clear that age is one of the most important factors which influence the selection of MF product by the retail investor.
FINDINGS
It is revealed that the investors are influenced by the infrastructural facilities of the sponsor and the reputation enjoyed by the sponsor, in their selection of the schemes. Hence, AMCs should take steps to develop their infrastructural facilities. Bank sponsored MFs and Public Sector MFs enjoy their already built-in branch networks. AMCs should note that investment in the development of, agency network, research and, introduction of technology in money management, will capture a segment of investors. Further, establishing a brand name and building up reputation and carefully maintaining the reputation by prudent public money management on the Gandhian principle of Trusteeship will also attract one segment of investors. Huge fund mobilization by Public Sector sponsored funds in the early 90s was purely due to their image and reputation factor. In Morgan Stanley case, it was the sponsor’s reputation which attracted a serpentine line of investors. But unfortunately, these funds failed to recognise that their brand name and reputation was influential in the selection of funds/schemes by investors. They ignored to further build and maintain their goodwill, which ultimately resulted in loss of investors to them and loss of investment to investors. Days ahead will reveal the loss of investor accounts
Further, investors are influenced by the extent and quality of disclosure of Information subsequent to their investment regarding disclosure of NAV, Portfolio of investment and disclosure of deviation of investment from the stated objectives and the attached fringe benefits to the scheme in their selection of the scheme.
The falling interest rates and a reasonably good performance of many growth schemes during the turn of the century might have been the reason for the high preference of Growth Schemes during the period under study. Now the scale is in favour of Income Schemes. So, it is suggested that AMCs should react in time to the changing market moods by launching new products or repositioning old ones. Deviation from the stated investment objectives without authority should be dealt seriously by the regulatory bodies. Safety of capital subject to market risk, should be assured to the MF investor
CONCLUSIONS AND RECOMMENDATIONS
Following are recommendations based on this study:
Before development of any mutual fund product AMC’s should consider what the expectations of investors are so that so that MF product fulfill the financial needs of investor.
AMC’s have to develop variety of product so that investors from all groups (age, income, occupation etc) can invest in a MF products.
AMC’s are required to run program like road shows to create awareness among the investors about MF.
Study shows that people from Group A show low interest in MF investment so AMC’s are required are required to pay more attention to this segment.
The AMC should close down the close-ended scheme because the investors do not want to invest in that fund which has the fixed period of maturity
The AMC should provide the little bit fixed returns on investment so that the investors can rely on that
The investors should look after the performance of the fund in the newspaper so that they can measure whether that fund is performing well or not.