A

PROJECT REPORT
ON

A STUDY OF SBI MUTUAL FUNDS

A detailed study done in

SBI
Submitted in partial fulfillment of the requirement for the award of degree of
Bachelor in Business Administration () under Bharati Vidyapeeth University-Pune

Submitted by
Under the guidance of

ACKNOWLEDGEMENT

The opportunity to get practical training in a reputed organization fulfills the felt
gap between the theory and practical. In the case of a student of finance & control,
this aspect assumes an additional dimension.
I hereby acknowledge SBI mutual funds providing the constant guidance for
encouragement which helped me a lot to be successful in my efforts. This formal
acknowledgement will hardly be sufficient to express my deep sense of gratitude to
all of them. It was a memorable experience while doing my winter training project
on a study of SBI Mutual Funds.
I would also like to

thanks director of

and

my faculty guide without

whom this project report could not be successfully completed.

Above all, I would like to thank almighty God, who helped me in successfully
completing my winter training project.

DECLARATION

This is to certify that Winter Training Report entitled A Study of SBI Mutual
Fund. Which is submitted by me in partial fulfillment of the requirement for the
award of degree

( ), at

comprises only my original work and due

acknowledgement has been made in the text to all other material used.

EXECUTIVE SUMMARY
In few years Mutual Fund has emerged as a tool for ensuring ones financial well
being. Mutual Funds have not only contributed to the India growth story but have
also helped families tap into the success of Indian Industry. As information and
awareness is rising more and more people are enjoying the benefits of investing in
mutual funds. The main reason the number of retail mutual fund investors remains
small is that nine in ten people with incomes in India do not know that mutual funds
exist. But once people are aware of mutual fund investment opportunities, the
number who decide to invest in mutual funds increases to as many as one in five
people. The trick for converting a person with no knowledge of mutual funds to a
new Mutual Fund customer is to understand which of the potential investors are
more likely to buy mutual funds and to use the right arguments in the sales process
that customers will accept as important and relevant to their decision.
This Project gave me a great learning experience and at the same time it gave me
enough scope to implement my analytical ability. The analysis and advice presented
in this Project Report is based on market research on the saving and investment
practices of the investors and preferences of the investors for investment in Mutual
Funds. This Report will help to know about the investors Preferences in Mutual
Fund means Are they prefer any particular Asset Management Company (AMC),
Which type of Product they prefer, Which Option (Growth or Dividend) they prefer
or Which Investment Strategy they follow (Systematic Investment Plan or One time
Plan). This Project as a whole can be divided into two parts.
4

The first part gives an insight about Mutual Fund and its various aspects, the
Company Profile, Objectives of the study, Research Methodology. One can have a
brief knowledge about Mutual Fund and its basics through the Project.
The second part of the Project consists of data and its analysis collected through
survey done on 200 people. For the collection of Primary data I made a
questionnaire and surveyed of 200 people. I also taken interview of many People
those who were coming at the SBI Branch where I done my Project. I visited other
AMCs in Mumbai to get some knowledge related to my topic. I studied about the
products and strategies of other AMCs in mumbai to know why people prefer to
invest in those AMCs.

This Project covers the topic A STUDY OF

PREFERENCES OF THE INVESTERS FOR THE INVESTMENT IN MUTUAL

FUND. The data collected has been well organized and presented. I hope the
research findings and conclusion will be of use.

CONTENTS

Acknowledgement
Declaration
Executive Summary

Chapter - 1

INTRODUCTION

Chapter - 2

COMPANY PROFILE

Chapter - 3

OBJECTIVES AND SCOPE

Chapter - 4

RESEARCH METHODOLOGY

Chapter - 5

DATA ANALYSIS AND INTERPRETATION

Chapter - 6

FINDINGS AND CONCLUSIONS

Chapter - 7

SUGGESTIONS & RECOMMENDATIONS

ANNEXURE

BIBLIOGRAPHY
QUESTIONNAIRE

CHAPTER- 1
INTRODUCTION

INTRODUCTION TO MUTUAL FUND

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 invested by the fund
manager in different types of securities depending upon the objective of the
scheme.These could range from shares to debentures to money market instruments.
The income earned in these investments and the capital appreciation realized by the
scheme is 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 portfolio
at a relatively low cost. Anybody with an invest able surplus of a few thousand
rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined
investment objective and strategy.
A mutual fund is the ideal investment vehicle for todays complex and modern
financial scenario. Markets for equity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets have become mature and
8

information driven. Price changes in these assets are driven by global events
occurring in faraway places. A typical individual is unlikely to have the knowledge,
skills, inclination and time to keep track of events, understand their implications
and act speedily.
A mutual fund is answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a fulltime basis. The
large pool of money collected in the fund allows it to hire such staff at a very low
cost to each investor. In fact, the mutual fund vehicle exploits economies of scale in
all three areas research, investment and transaction processing.
A draft offer document is to be prepared at the time of launching the fund.
Typically, it pre specifies the investment objective of the fund, the risk associated,
the

cost involved in the process and the broad rules for entry into

and exit from the fund and other areas of operation. In India, as in most countries,
these sponsors need approval from a regulator, SEBI in our case. SEBI looks at
track records of the sponsor and its financial strength in granting approval to the
fund for commencing operations.
A sponsor then hires an asset management company to invest the funds according
to the investment objective. It also hires another entity to be the custodian of the
assets of the fund and perhaps a third one to handle registry work for the unit
holders of the fund.In the Indian context, the sponsors promote the Asset
Management Company also,in which it holds a majority stake. In many cases a
sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g.
Birla Global Finance is the sponsor of the Birla Sun Life Asset Management
Company Ltd., which has floated different mutual funds schemes and also acts as
an asset manager for the funds collected under the schemes.
As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum
period of one year. In case returns are guaranteed, the name of the guarantor and
9

how the guarantee would be honored is required to be disclosed in the offer

document.
Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at the same time.
Mutual fund issues units to the investors in accordance with quantum of money
invested by them. Investors of mutual funds are known as unit holders.

1.1 THE CONCEPT OF MUTUAL FUND IN DETAIL

10

A mutual fund uses the money collected from investors to buy those assets
which are specifically permitted by its stated investment objective. Thus, an equity
fund would buy equity assets ordinary shares, preference shares, warrants etc. A
bond fund would buy debt instruments such as debentures, bonds or government
securities. It is these assets which are owned by the investors in the same proportion
as their contribution bears to the total contributions of all investors put together.

Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset Value
(NAV) of the scheme. NAV is defined as the market value of the Mutual Fund
scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the
market value of scheme's assets by the total number of units issued to the investors.

11

A Mutual Fund is an investment tool that allows small investors access to a

well-diversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed as
needed. The funds Net Asset value (NAV) is determined each day.

When an investor subscribes to a mutual fund, he or she buys a part of the

assets or the pool of funds that are outstanding at that time. It is no different from
buying shares of joint stock Company, in which case the purchase makes the
investor a part owner of the company and its assets. However, whether the investor
gets fund shares or units is only a matter of legal distinction.
12

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 realized is shared by
its unit holders in proportion to the number of units owned by them. Thus Mutual
fund is most suitable investment for the common man as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively
low cost.

1.1 MUTUAL FUND OPERATION FLOW CHART

CHART 1.2

From the above chart , it can be observed that how the money from the
investors flow and they get returns out of it. With a small amount of fund, investors
13

pool their money with the funds managers. Taking into consideration the market
strategy the funds managers invest this pool of money into reliable securities. With
ups and downs in market returns are generated and they are passed on to the
investors. The above cycle should be very clear and also effective.
The fund manager while investing on behalf of investors takes into
consideration various factors like time, risk, return, etc. so that he can make proper
investment decision.

1.4 Advantages and disadvantages of mutual funds :

ADVANTAGES OF MUTUAL FUND

Professional management

Portfolio Divercification

Reduction / Diversification of Risk

Liquidity

Flexibility & Convenience

Reduction in Transaction cost

Safety of regulated environment

Choice of schemes

14

Transparency

DISADVANTAGE OF MUTUAL FUND

No control over Cost in the Hands of an Investor

No tailor-made Portfolios

Managing a Portfolio Funds

Difficulty in selecting a Suitable Fund Scheme

1.5 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. Though the
growth was slow, but it accelerated from the year 1987 when non-UTI players entered
the Industry.
In the past decade, Indian mutual fund industry had seen a dramatic improvement,
both qualities wise as well as quantity wise. Before, the monopoly of the market had
seen an ending phase; the Assets Under Management (AUM) was Rs67 billion. The

15

private sector entry to the fund family raised the Aum to Rs. 470 billion in March
1993 and till April 2004; it reached the height if Rs. 1540 billion.
The Mutual Fund Industry is obviously growing at a tremendous space with the
mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
First Phase 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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

16

1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the
mutual fund industry had assets under management of Rs.47,004 crores.
Third Phase 1993-2003 (Entry of Private Sector Funds)
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. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1,21,805 crores.
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 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. consolidation

17

and growth. As at the end of September, 2004, there were 29 funds, which manage
assets of Rs.153108 crores under 421 schemes.

1.6 CATEGORIES OF MUTUAL FUND:

18

Mutual funds can be classified as follow:

Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at any point
of time.

Close-ended funds: These funds raise money from investors only once.
Therefore, after the offer period, fresh investments can not be made into the fund. If
the fund is listed on a stocks exchange the units can be traded like stocks (E.g.,
19

Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of closeended funds provided liquidity window on a periodic basis such as monthly or
weekly. Redemption of units can be made during specified intervals. Therefore,
such funds have relatively low liquidity.

Based on their investment objective:

A) Equity funds: These funds invest in equities and equity related instruments.
With fluctuating share prices, such funds show volatile performance, even losses.
However, short term fluctuations in the market, generally smoothens out in the long
term, thereby offering higher returns at relatively lower volatility. At the same time,
such funds can yield great capital appreciation as, historically, equities have
outperformed all asset classes in the long term. Hence, investment in equity funds
should be considered for a period of at least 3-5 years. It can be further classified
as:
i) Index funds- In this case a key stock market index, like BSE Sensex or
Nifty is tracked. Their

portfolio mirrors the benchmark index both in terms

of composition and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities
spreading across different sectors and stocks.
iii|) Dividend yield funds- it is similar to the equity diversified funds except
that they invest in companies offering high dividend yields.

20

iv) Thematic funds- Invest 100% of the assets in sectors which are related
through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors
etc.
v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A
banking sector fund will invest in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the
investors.

B) Balanced fund: Their investment portfolio includes both debt and equity. As
a result, on the risk-return ladder, they fall between equity and debt funds. Balanced
funds are the ideal mutual funds vehicle for investors who prefer spreading their
risk across various instruments. Following are balanced funds classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds -Invest at least 65% in equities, remaining in
debt.

C) Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they invest
exclusively in fixed-income instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of deposit (CD),

21

commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
i) Liquid funds- These funds invest 100% in money market instruments, a
large portion being invested in call money market.
ii) Gilt funds ST- They invest 100% of their portfolio in government
securities of and T-bills.
iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in
debt instruments which have variable coupon rate.
iv) Arbitrage fund- They generate income through arbitrage opportunities
due to mis-pricing between cash market and derivatives market. Funds are
allocated to equities, derivatives and money markets. Higher proportion
(around 75%) is put in money markets, in the absence of arbitrage
opportunities.
v) Gilt funds LT- They invest 100% of their portfolio in long-term
government securities.
vi) Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt
and an exposure of 10%-30% to equities.

22

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in
line with that of the fund.

1.7 INVESTMENT STRATEGIES

1. Systematic Investment Plan: under this a fixed sum is invested each month on a
fixed date of a month. Payment is made through post dated cheques or direct debit
facilities. The investor gets fewer units when the NAV is high and more units when
the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan: under this an investor invest in debt oriented fund
and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme
of the same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual
fund then he can withdraw a fixed amount each month.

1.8 WHY INVESTOR NEEDS MUTUAL FUND :Mutual funds offer benefits, which are too significant to miss out. Any investment
has to be judged on the yardstick of return, liquidity and safety. Convenience and tax
efficiency are the other benchmarks relevant in mutual fund investment. In the
wonderful game of financial safety and returns are the tows opposite goals and
23

investors cannot be nearer to both at the same time. The crux of mutual fund investing
is averaging the risk.
Many investors possibly dont know that considering returns alone, many
mutual funds have outperformed a host of other investment products. Mutual funds
have historically delivered yields averaging between 9% to 25% over a medium to
long time frame. The duration is important because like wise, mutual funds return
taste bitter with the passage of time. Investors should be prepared to lock in their
investments preferably for 3 years in an income fund and 5 years in an equity funds.
Liquid funds of course, generate returns even in a short term.

MUTUAL FUND RISK:Mutual funds face risks based on the investments they hold. For example, a
bond fund faces interest rate risk and income risk. Bond values are inversely related
to interest rates. If interest rates go up, bond values will go down and vice versa.
Bond income is also affected by the changes in interest rates. Bond yields are
directly related to interest rates falling as interest rates fall and rising as interest
rates.
Similarly, a sector stock fund is at risk that its price will decline due to
developments in its industry. A stock fund that invests across many industries is
more sheltered from this risk defined as industry risk.
Followings are glossary of some risks to consider when investing in mutual
funds: COUNTRY RISK :The possibility that political events (a war, national election), financial problems
(rising inflation, government default), or natural disasters will weaken a countrys
economy and cause investments in that country to decline.
INCOME RISK :24

The possibility that political events (a war, national election), financial problems
(rising inflation, government default), or natural disasters will weaken a countrys
economy and cause investments in that country to decline.
MARKET RISK :The possibility that stock fund or bond fund prices overall will decline over short or
even extended periods. Stock and bond markets tend to move in cycles, with periods
when prices rise and other periods when prices fall.

GRAPH 1.3:- RISK RETURN REWRAD IN MUTUAL FUND

25

This graph shows risk and return impact on various mutual funds. There is a direct
relationship between risks and return, i.e. schemes with higher risk also have potential
to provide higher returns.

Chapter - 3
Objectives and scope

26

1.1 OBJECTIVES OF THE STUDY

a. To find out the Preference of the investors for Asset Management of
company.
b. To know the preference of the portfolios.
c. To know why one has invested in SBI Mutual Funds.
d. To find out the most preference channel.
e. To find out what should do to boost Mutual F und Industry.

1.2 Scope of the study

27

A big boom has been witnessed in Mutual Fund Industry in resent times. A large
number of new players have entered the market and trying to gain market share in this
rapidly improving market.
The study will help to know the preferences of the customers, which company,
portfolio, mode of investment, option for getting return and so on they prefer. This
project report may help the company to make further planning and strategy.

28