Professional Documents
Culture Documents
ON
SUBMITTED BY
BATCH: 2009-11
I hereby declare that the project entitled “MUTUAL FUND IN RURAL MARKET”, is a
genuine work carried out during my Post Graduate Diploma Management in Finance & Control of
Institute of Management and Information Science (IMIS), Bhubaneswar (2009-11), and has not
been submitted to any other university or Institute towards the award of any degree.
An attempt have been made by us to provide all relevant and important details regarding
the topic to support the theoretical edifice with concrete research evidence, which is based on the
primary and secondary data collected from authentic sources and survey made during the tenure.
“Knowledge is an experience gained in life, it is the choicest possession, which should not be
shelved but should be happily shared with others”.
I would like to express our sincere gratitude to MR. SESHADEV SAHOO (Faculty Guide) who
has shared with us his experience and expertise about the mutual fund market and providing us
helping hand and guidance whenever I needed.
I would also thank to BARASAT and BARRACKPORE people who had share ideas with me & all
kinds of support and assistance.
The project has been possible because of the constant guidance, encouragement and help from all
these persons and without whom this wouldn‟t have been possible.
ARUN KUMAR
Executive summary
Rural households need relatively large sums of money for life cycle needs (such as marriages,
festivals and old age), emergencies (such as illness, the death of a bread-winner and floods) and
investment opportunities (as much in assets and household goods, for example, as in investments
in micro businesses)i. They therefore need access to a basket of financial services.
When looking at rural financial markets, we discover not only the lack of access to credit, but also
other financial services (Investments, Insurance, etc) not being available. This note discusses how
innovative modes of savings products like money market mutual funds can be used to cater to the
need of rural households in India. Such financial instruments can be used for planning and
investment which can contribute in many ways to enhance their security by building capital for
consumption and investments at the same time provide liquidity to meet emergencies.
With the Indian Economy slowly and steadily reviving from the effects of the Global Financial
Crisis, organizations and industries are probably in every sector are eyeing for a positive market
trend and sustainable revenue generation and increase in market capitalization. The finance sector
being one of the most badly affected sectors, feeling the pinch of the Global Scenario, is no
exception.
With the situation improving in the Indian as well as Global market, companies belonging to this
sector have started re-activating their projects which were withheld Mutual fund Industry, one of
the major participants of the financial sector, has shown promising recovery and outstanding
performance and is expected to have a massive growth in the years to come.
Through this project I have tried to provide an insight about Mutual fund and its type and other
functional aspects of Mutual fund in Rural market and recent trends in the Mutual fund Industry
along with the projected future forms a part of the project.
The main subject of the project centers on the MUTUAL FUND IN RURAL MARKET and
associated activities.
CONTENTS:
SERIAL NO PAGE NO.
i. Declaration 1
ii. Acknowledgement 2
ix. References 35
FUNDAMENTALS
MUTUAL
. FUND- BETTER OTIONS TO GENERATE RETURNS
ON INVESTMENT
Mutual fund is a professionally-managed form of collective investments that pools money from many
investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.
Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal.
This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is
thus “Mutual”, i.e. the fund belongs to all investors. The income earned through these investments and the
capital appreciations realized are shared by its unit holders in proportion the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity
to invest in a diversified, professionally managed basket of securities at a relatively low cost. In a mutual
fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying
securities, realizing capital gains or losses, and collects the dividend or interest income. Mutual fund
issues units to then investors in accordance with quantum of money invested by them. Investors of mutual
funds are known as unit holders. The profits or losses are shared by the investors in proportion to their
investments. The mutual funds normally come out with a number of schemes with different investment
objectives. The investment proceeds are then passed along to the individual investors. The value of a share
of the mutual fund, known as the net asset value per share (NAV) is calculated daily based on the total
value of the fund divided by the number of shares currently issued and outstanding.
SPONSOR
TRUSTEES
CUSTODIAN A.M.C
SCHEMES OF INVESTMENT
1. Lump-Sum – The basic form of investment is one time/lump-sum investment, which is particularly
suited for an investor with a valid investible surplus and has capital appreciation as the prime investment
objective.
2. Systematic Investment Plan (SIP) - These are best suited for young people who have started their
careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money at regular
intervals in mutual fund scheme the investor has chosen.
3. Systematic Withdrawal Plan (SWP) - These plans are best suited for people nearing retirement. In
these plans an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of
money at regular intervals to take care of expenses.
4. Systematic Transfer Plan (STP) - They allow the investors to transfer on a periodic basis a specified
amount from one scheme to another within the same fund family meaning two schemes belonging to the
same mutual fund. A transfer will be treated as redemption of units from the scheme from which the
transfer is made. Such redemption or investment will be at the applicable NAV. This service allows the
investor to manage his investment actively to achieve his objectives.
S.
ADVANTAGE PARTICULARS
NO.
DISADVANT
S. NO. PARTICULARS
AGE
TAX
PRODUCT RETURN LIQUIDITY SAFETY FLEXIBILITY
BEBEFITS
BANK
LOW MODERATE HIGH NO HIGH
DEPOSITS
EQUITY
HIGH MODERATE LOW NO MODERATE
INSTRUMENTS
DEBENTURES
BONDS
GOVT
LOW LOW HIGH YES LOW
CERTIFICATES
MODERATE
HIGH
PERCENTAGE OF INVESTMENT
26%
38%
FIXED DEPOSITS
MUTUA L FUND
OTERS
36%
RECENT TRENDS IN MUTUAL FUND INDUSTRY
Mutual fund assets have grown more than twelve-fold from 1980 to mid-1993 and by half in the last
two years of that period. Most of this growth has come from net purchases of fund shares by the
public, rather than from price appreciation, and it has lately reflected a choice by investors to move
funds out of depository institutions. In 1992, the public made net purchases of $206 billion of mutual
fund shares, while making net withdrawals from their deposits at banks and thrift institutions. In
turn, mutual funds supplied about one-fourth of funds raised by the domestic non financial sectors of
the economy last year, while depository institutions provided only about one-tenth. In short, mutual
funds are now a significant competitor of depository institutions for household savings and, with
more than $1.8 trillion in assets; they are a major source of funds in the capital markets.
Findings indicate that mutual fund gross sales and redemptions were at their highest levels in 2007
and 2008, exceeding $2 trillion in each year. The velocity of money movement will remain high for
the next several years with the percentage of gross sales and redemptions remaining above historic
industry averages.
In response to the growth of the funds industry, banks have increased their participation in the
provision of mutual fund services. For example, many banks sell mutual fund shares to their retail
customers and, in some cases, act as an investment adviser to mutual funds and provide other related
services. The increased involvement of banks has brought attention to their role in the sale of mutual
fund shares, including their responsibility for ensuring that customers are made aware of the
differences between mutual fund shares and insured deposits.
Net sales of long-term mutual funds were a record $202 billion in 1992, up from $130 billion in
1991 and easily outpacing the previous record of $144 billion set in 1986 (chart 5).(12) During the
first half of 1993, net sales amounted to $135 billion and at that rate will set another record.
One reason for the surge in net sales has been the drop in deposit rates to low levels by historical
standards and the accompanying steepening of the yield curve. Although both short-term and long-
term rates have fallen since 1989, the decline in short-term rates has been more pronounced. The rate
on the six-month Treasury bill fell from 8.8 percent in the spring of 1989 to 3.2 percent in the
summer of 1993, and the yield on the thirty-year Treasury bond fell from 8.7 percent to 6.3 percent
over the same period. Thus, the returns on long-term assets, such as stock and bond funds, became
increasingly attractive relative to rates on deposits at banks and thrift institutions, which follow
short-term market rates.
The strong inflows to mutual funds reflect their popularity among households. According to
preliminary data from the Federal Reserve Board's Survey of Consumer Finances, households
shifted assets from deposits to mutual funds in the 1989-92 period; they held about 13 percent of
their financial assets in long-term mutual funds at the end of 1992, up from about 10 percent in 1989,
while their holdings of deposits and money funds fell from about 37 percent to 31 percent.
Mutual funds also have increased their presence in the market for tax-exempt securities; they are
now the largest net purchaser in that market (table 4) and are offsetting the reduced net purchases by
households and the runoff at commercial banks.
The potential for MF industry to grow is huge. Currently 77% of the investments in mutual fund
come from super metros and Tier I towns. The scenario is most likely to change with everyone
expanding. SBI MF alone has more than 100 points of acceptance across India, 28 investor service
centers, 45 investor‟s service desk and 52 district organizers, a base of over 20,000 agents currently.
SBI‟s branch network, which is one of the widest networks in the country, as well as India Post and
offices of CAMS, is a part of this distribution network. Reliance and HDFC are believed to have
plans to have their presence in 400 places. UTI already has probably the largest network. The
strategy, firstly, is to increase the penetration to cover Tier II-Tier III cities and rural areas.
Secondly, complementary to the first idea, enhancing investor education and awareness initiatives
by the industry is getting high priority. Savvy fund houses are increasing appropriate technological
infrastructure in rural areas and strengthening alternative distribution networks.
Recent regulatory changes may have temporarily brought despondency to the distribution channels
but in time suitable strategies (including fee for advisory) will restore balance. Investment is an area
where consultation is very important; the direct route will be used by very few investors.
What is needed is standardization of operational areas and services like inner fund house swaps,
common portals providing single view of investments with the entire industry, uniform and pooled
customer education including investor communication.
Cross-selling opportunities are strong in India. In the context of a multi-channel but branch-
dominated market, a desire for more financial advice among Indian consumers means more cross-
selling opportunities. The consultancy found that over the past five years, the average number of
personal financial services products per person in India has grown from 2.71 in 1999 to 3.27 in 2004.
However, while the distribution of life insurance remains significant among highand upper-middle
income groups, penetration of securities and mutual funds remains stubbornly low - just 4 percent
and 7 percent, respectively.
Unsurprisingly, banks are pushing cross-selling. SBI, for example, is planning to redeploy about
5,000 of its existing staff as marketing personnel and relationship managers across the top 50 cities
in the country over the course of the next five years. By then the bank also aims to change the role of
its network of 14,000 branches to help improve customer service.
REASON FOR MUTUAL FUND INVESTMENT
14%
32%
SAVINGS
INCOME
TAX BENEFITS
26%
FUTURE CONTINGECIES
RETIREMENT
4%
24%
Rural households face numerous constraints in their efforts to immune themselves against risks by
accumulating assets. Lack of savings instruments makes it challenging for them to accumulate their risk
capital. They invest in informal savings vehicles such as gold and other precious metals. These
households for whom savings is a risk coping strategy have been saving even if the returns on these
assets are negative. Because of paucity of savings instruments they borrow to save down instead of save
up. They have been paying to save because their motive is not to take advantage of the financial
opportunities but for their financial security. For any household real financial security is dependent on
the Cushion they have built which can help not only smooth consumption but also deal with
emergencies. Even if the assets have negative returns, rural households may choose it as a hedge against
the risksvii. Some, who are lucky enough to stay close to a bank branch, invest in bank savings accounts
or fixed deposits. But in India, where the number of villages serviced per branch is 19, around 60% of
the rural population is unbanked (See Box).
Some statistics on financial inclusion
Source: Sreelatha Menon, Business Standard, RBI sets financial inclusion at a distance with 15
km cut-off, May 12, 2008
Success in the Indian Mutual Fund Industry, in the midst of all the growth that is evident, will depend
upon strong distribution network and transparent approach towards trust building and client servicing at
retail level will soon assume greater importance. Indian mutual fund industry has been growing at a
rapid pace. Particularly over the last 4 four years the growth has been phenomenal, thanks to a booming
capital market and favorable tax regime. This era of exponential growth has seen changes, refinements,
innovations etc in products, practices and channel development of the AMCs. The ultimate beneficiary
has been the growing and prospering investors.
In the past 25 years, there have been dramatic changes in how mutual funds are sold to the investing
public. Before 1980, all funds had a single share class, and shares of a given fund were offered to all
investors. Most funds were sold through a broker, who provided advice, assistance, and ongoing service
to the fund buyer. The shareholder paid for these distribution services through a front-end sales charge
when he or she bought the fund. Other funds sold shares directly to investors without a sales charge.
Investors in these funds either did not receive advice and assistance or obtained and paid for these
services separately.
The distribution channels that have evolved in India are: Independent Financial Advisors (IFA), the big
distribution firms, banks and direct selling, including online selling of mutual funds. The various factors
which influence the success of distribution channel are trust, customer servicing, including multiple and
accessible service points, good infrastructure, including IT support, the comfort factor & exclusivity. An
efficient and effective distribution network is as important as any other consumer industry. The customer
base is huge here too. The industry since its inception has been trying hard to attract retail investors by
taking well calibrated steps. It has entered into previously untapped markets. There is more stress on
product innovation.
Given the outreach of the Banking network, Savings intermediation is left to poorly capitalized entities
like SHGs/Co-operative Banks/RRBs/ NBFCs with prudential norms which could lead to the following
risks: _ Systemic Risk : On account of not having geographical diversification these entities when borrow
and lend in the same geography would expose the savings thus collected to systemic risks like natural
calamities, catastrophes, etc.3 Because of the inherent systemic risk in the above approach, these
institutions may have to pay higher rates of interest to attract depositors which will increase their cost of
funds and push the lending rates higher. This means they may face adverse selection and their portfolio
quality may deteriorate over a period of time. This could be one of the reasons for RBI not allowing MFIs
(Section 25companies/Societies/Public and Private Trusts) to collect savings to on lend. To make these
services available to people where banks do not have branches, RBI in 2006 introduced the business
correspondents BC model to offer savings accounts on behalf of banks to increase the outreach to remote
rural locations in India(SEE BOX). BC model offers
Fact File
January 2006: RBI issues notification permitting banks to appoint Business Facilitators and
Correspondents to deliver financial services as their agents.
March 2006: RBI advises banks to defer selection/use of NBFCs as BCs. However, banks can
use NBFCs licensed under Section 25 of the Companies Act, 1956 as Business Correspondents.
April 2008: RBI sets limit of 15 km for operation of a bank through business correspondents.
August 2008: Banks can engage companies registered under Section 25 of the Companies Act,
1956, as Business Correspondents (BCs) provided in such Section 25 Companies NBFCs,
banks, telecom companies and other corporate entities or their holding companies do not have
equity holdings in excess of 10 %.
An alternative structure to branch based banking in order to ensure that Financial Inclusion and
outreach of Financial Services to all citizens of the country, becomes an operational reality. In other
words, the Business Correspondent /Business Facilitator model can provide the last mile reach for
delivery of Financial Services in the country. But the RBI guideline notifying that all business
correspondents must be located within 15 km of the base branch puts serious limitations to the
purpose of BCs.While everyone has been looking up to banks to offer the savings vehicle to the
remote population in India, Mutual funds also as one of the instruments for financial inclusion has
not been given a careful thought. From the perspective of a remotely located household, a savings
instrument is expected to offer,
(1)Direct channel, (2) Advice channel, (3) Retirement plan channel, (4) Supermarket channel,
and (5) Institutional channel.
A. In the direct channel, investors carry out transactions directly with mutual funds. In the
advice, retirement plan, and supermarket channels, individual investors use third parties or
intermediaries that conduct transactions with mutual funds on their behalf. Third parties also
provide services to fund investors on behalf of mutual funds.
B. The most important feature of the advice channel is the provision of investment advice and
ongoing assistance to fund investors by financial advisers at full-service securities firms, banks,
insurance agencies, and financial planning firms. Advisers are compensated through sales loads
or from asset-based fees.
D. The supermarket channel is made up of discount brokers that offer mutual funds from a large
number of fund sponsors. Many of the fund offerings are subject to no transaction charges or
sales loads.
The retail push to MFs in India has been spearheaded by the big distribution houses, IFAs and banks,
including PSBs. MFs are now expanding their own networks to this end. Online distribution, while
catching up among the computer-savvy segment of the public, will not be a very significant contributor, at
least in the near future.
Distribution success for mutual funds or any financial product is dependent on certain key elements. These
are:
• Proper training - Training is the axle on which the entire distribution revolves. Continuous
training of the sales force is essential in this dynamic environment.
• Educating / counseling the customer about products, keeping in mind rising customer
expectations and increasing buyer expertise.
There have been dramatic changes in the manner in which mutual funds are sold. Before 1980, most
funds were vended through a broker, who provided advice, assistance and ongoing service to the buyer.
The unit holder paid for these distribution services through a front-end sales charge when he bought the
fund. Funds sold through finance professionals such as brokers have since adopted alternatives to the
front-end sales charge. With the expansion in distribution channels, many fund sponsors have moved
from single-channel distribution strategies in favor of multi-channel distribution. The changes in fund
distribution have been accompanied by a significant decrease in the average cost of distribution services
incurred by mutual fund buyers.
SHARE OF MUTUAL FUND ASSETS BY DISTRIBUTION CHANNELS (% OF MUTUAL FUND
ASSETS)
RETIREMENT PLAN
10%
INSTITUTIONAL
15%
ADVICE
56%
DIRECT
13%
SUPERMARKET
6%
DIRECT SELLING: Direct selling is the least significant element today. Normally, only very big ticket
items are done through this. Alternatively, it derives its inflows mainly from online sales. However,
recent changes in regulation are all set to give this channel a fillip. MFs are gearing up by opening their
own offices in more places. Also R&T Agents are expanding their infrastructure to facilitate this.
INDEPENDENT FINANCIAL ADVISORS: Presently the IFA is the friendly neighborhood guy – one
who is very effective in selling the product. However, he has to manage his costs from the commission
he gets. Advisory services are today given gratis. The scenario is changing and the space in advisory
services will undergo a rapid change in the next few years. Financial Planning services will be much
sought after and Certified Financial Planners will be in demand for their specialized services.
MUTUAL FUND STATISTICS FOR BANK DISTRIBUTION CHANNEL
Mutual fund distribution by banks is emerging a key element. Banks have huge potential to build and
improve the retail segment, which needs to become as strong as its institutional counterpart. Over the
last decade, commercial banks have augmented their traditional deposit and lending services with
investment products, including mutual funds. Banks offer both proprietary mutual funds, managed and
sold through the bank or an affiliate, and nonproprietary mutual funds, managed by an independent
fund company but sold through the bank or an affiliate.
Even among banks there are two major types of distributors. There are those that handle wealth
management of their clients and, on their behalf, manage portfolios wherein investment in mutual
funds is one asset class. Such banks have sophisticated wealth management practices with qualified
staff and well-heeled clients. MNC banks, private banks and a few niche players (like HSBC, Citi,
ICICI, HDFC, Kotak etc) are examples.
Then there are banks that use their networks to sell MFs as just another financial service. Most of the
PSBs and other commercial banks including large cooperative banks fall under this category. For the
banks the existing customer base serves as a captive prospective investor base for marketing mutual
funds. They have the advantage of having already won the trust of the customer. There is no other
distribution channel that can have a more effective retail penetration across Tier-II and Tier-III cities
as well as across rural India. This channel has slowly realized its own potential and is now emerging as
a big player. Abroad banks are among the leading fund supermarkets. The Post Office too has been
emerging as an effective channel. For all practical purposes, it can be clubbed with PSBs. Banks with
post offices are likely to emerge as a very crucial channel for “financial inclusion” in the MF arena.
This combination along with the online variants in the near future will dominate the distribution of
mutual funds.
19%
32%
1
2
3
22% 4
27%
Distribution cost represents those charges, if any, incurred by mutual fund buyers either directly
through the payment of sales loads or indirectly through fees. Since 1980, these costs have declined
significantly for long-term mutual funds. In particular, buyers of equity funds in 1980, on average,
incurred a distribution cost amounting to 1.49 percent or 149 basis points of their initial investment.
By 2001, the distribution cost for equity funds stood at 40 basis points, down 73 percent since 1980.
Distribution costs of bond funds likewise moved lower, falling 60 percent from 82 basis points in
1980 to 33 basis points in 2001.
The substantial decline in the distribution cost of equity and bond funds between 1980 and 2001 is
the result of several developments. For both bond and equity funds, about one-third of the decrease
resulted from a relative shift in new sales from share classes with loads to those with no load. A no-
load share class, including single-share class funds, is one that has no sales load and; all other share
classes have a load. Between 1980 and 2001, the percent of equity fund sales due to no-load share
classes rose from 34 to 58 percent, while the share of no-load sales of bond funds increased from 47
percent to 64 percent Because no load share classes have lower distribution costs than load share
classes, a rising percent of sales in no-load share classes causes the sales-weighted average cost to
decline. The decline in distribution cost partly reflects investor behavior, as investors sought lower
cost funds.
The remaining two-thirds of the decrease in overall distribution costs for equity and bond funds
between 1980 and 2001 can be attributed to a decline in distribution costs for load share classes. The
distribution cost in equity fund share classes with loads fell from 227 basis points in 1980 to 90 basis
points in 2001, a 60 percent. The average distribution charge for bond fund share classes with loads
declined from 155 basis points in 1980 to 88 basis points in 2001, a 43 percent decline.
The reduction in maximum front-end loads also shifted downward the schedule of quantity
discounts. As the schedule of discounts moved lower, funds generally did not change the breakpoints
at which lower sales loads were effective. As inflation pushed incomes higher and rising stock prices
raised asset values, small investors and middle-income households were increasingly able to qualify
for load reductions.34 In addition, most fund companies reduced their minimum front end loads to
zero for large purchases, compared with 1 percent before 1980.
Finally, the growing share of purchases made through employer-sponsored retirement plans in which
front-end loads were reduced or waive contributed to the decline in the distribution cost of load share
classes. A larger percentage of front-end load share class purchases also occurred with the load
waived through fee-based advisers which are paid directly by investors rather than through the fund.
3. Provide a through know-how about the schemes, especially those that the company is
highlighting in mutual fund in rural market.
4. To look into the advertisement and promotional aspect of the mutual fund industry in rural
market.
5. To study about distribution channel of mutual fund industry inter in the rural market.
However there are some disadvantages with mutual funds such as:
• The investor must rely on the integrity of the professional fund manager.
• Fund management fees may be unreasonable for the services rendered.
• The fund manager may not pass transaction savings to the investor.
• The fund manager is not liable for poor judgment when the investor's fund loses value.
• There may be too many transactions in the fund resulting in higher fee/cost to the investor - This is
sometimes call "Churn and Earn".
• Prospectus and Annual report are hard to understand.
• Investor may feel a loss of control of his investment dollars.
There may be restrictions on when and how an investor sells/redeems his mutual fund Shares.
A corollary of such linkage between mobilisation and investment is that the gains and losses from
the mutual fund scheme entirely flow through to the investors. Therefore, there can be no certainty of
yield, unless a named guarantor assures a return or, to a lesser extent, if the investment is in a serial gilt
scheme. On the other hand, the return under a fixed deposit is certain, subject only to the default risk of
the borrower.
Both fixed deposits and mutual funds offer liquidity, but subject to some differences:
The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual funds, the
liquidity provider is the scheme itself (for open-end schemes) or the market (in the case of closed-end
schemes).
The basic value at which fixed deposits are enchased is not subject to a market risk. However, the value at
which units of a scheme are redeemed depends on the market. If securities have gained in value during
the period, then the investor can even earn a return that is higher than what he anticipated when he
invested. But he could also end up with a loss.
Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted
the fixed deposit. Mutual fund schemes also have the option of charging a penalty on “early” redemption
of units (through by way of an „exit load‟,) If the NAV has appreciated adequately, then even after the
exit load, the investor could earn a capital gain on his investment.
Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are
generally more stringently regulated than companies. They even operate under stricter requirements
regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
While the above are causes for comfort, bank deposits too are subject to default risk. However, given the
political and economic impact of bank defaults, the government as well as Reserve Bank of India (RBI)
tries to ensure that banks do not fail.
Further, bank deposits upto Rs 100,000 are protected by the Deposit Insurance and Credit Guarantee
Corporation (DICGC), so long as the bank has paid the required insurance premium of 5 paise per annum
for every Rs 100 of deposits. The monetary ceiling of Rs 100,000 is for all the deposits in all the
branches of a bank, held by the depositor in the same capacity and right
While an investor may have an early encashment option from the issuer (for instance through a “put”
option), generally liquidity is through a listing in the market.
• If the security does not get traded in the market, then the liquidity remains on paper. In this respect,
an open-end scheme offering continuous sale / re-purchase option is superior.
• The value that the investor would realise in an early exit is subject to market risk. The investor could
have a capital gain or a capital loss. This aspect is similar to a MF scheme.
Debt securities could be backed by a hypothecation or mortgage of identified fixed and / or current assets
(secured bonds / debentures). In such a case, if there is a default, the identified assets become available
for meeting redemption requirements. An unsecured bond / debenture is for all practical purposes like a
fixed deposit, as far as access to assets is concerned.
The investments of a mutual fund scheme are held by a custodian for the benefit of investors in the
scheme. Thus, the securities that relate to a scheme are ring-fenced for the benefit of its investors.
An investor holding an equity security that is not traded in the market place has a problem in realizing
value from it. But investment in an open-end mutual fund eliminates this direct risk of not being able to
sell the investment in the market. An indirect risk remains, because the scheme has to realise its
investments to pay investors. The AMC is however in a better position to handle the situation
Another benefit of equity mutual fund schemes is that they give investors the benefit of portfolio
diversification through a small investment. For instance, an investor can take an exposure to the index by
investing a mere Rs 5,000 in an index fund.
• Small sums of money get you much further in mutual funds than in stocks. First, you can set up an
automatic investment plan with many fund companies that lets you put in as little as $50 per month.
Second, the commissions for stock purchases will be higher than the cost of buying no-load fund (Of
course, the fund's various expenses like commissions are already taken out of the NAV). Smaller sized
purchases of stocks will have relatively high commissions on a percentage basis, although with the $10
trade becoming common, this is a bit less of a concern than it once was.
• You can exit a fund without getting caught on the bid/ask spread.
• The opposite of the diversification issue: If you own just one stock and it doubles, you
are up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other hand, if you own
just one stock and it drops in half, you are down 50% but the mutual fund is down 1%. Cuts both ways.
• If you hold your stocks several years, you aren't nicked a 1% or so management fee every year
(although some brokerage firms charge if there aren't enough trades).
• You can take your profits when you want to and won't inadvertently buy a tax liability.
(This refers to the common practice among funds of distributing capital gains around November or
December of each year. See the article elsewhere in this FAQ for more details.)
• You can structure your portfolio differently from any existing mutual fund portfolio. (Although with
the current universe of funds I'm not certain what could possibly be missing out there!)
• You can buy smaller cap stocks which aren't suitable for mutual funds to invest in.
• You have a potential profit opportunity by shorting stocks. (You cannot, in general, short mutual
funds.)
• The argument is offered that the funds have a "herd" mentality and they all end up owning the same
stocks. You may be able to pick stocks better.
Life insurance is a hedge against risk – and not really an investment option. So, it would
• Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity Investments, US
based, with over US$1trillion assets under management worldwide.
• Our saving rate is over 23%, highest in the world. Only channelizing these savings in Mutual funds
sector is required.
• We have approximately 29 mutual funds which are much less than US having more than 800. There is a
big scope for expansion.
• „B‟ and 'C' class cities are growing rapidly. Today most of the mutual funds are Concentrating on the 'A'
class cities. Soon they will find scope in the growing cities.
• Mutual fund can penetrate rural like the Indian insurance industry with simple and Limited products
• SEBI allowing the MF's to launch commodity mutual funds.
Looking at the past developments and combining it with the current trends it can be concluded that the
future of Mutual Funds in India has lot of positive things to offer to its investors.
LITRETURE REVIEWS
According to Patawari and Jain (2008), the fund would require minimal investment on
the part of the people in the rural areas and will be designed in such a manner that it helps them
increase their financial position with respect to the other strata of the society. The fund will be
designed in the simplest possible manner so that even a layman or an illiterate can understand the
way it will function and will have no complex terms and conditions. In India the irregularity of
monsoon can play a role in the overall functioning of the fund. By securing or insuring the rural
people against such natural phenomenon, the fund can extend its advantages to higher levels. The
next wave of growth in rural areas will come from the rural markets. Presently the
underdeveloped world is facing a crisis in the infrastructure sector. Once the growth story
embraces this sector, the biggest gainer will be the villages. The most feasible tool seems to be
“Mutual Fund” specially designed to address the unique needs of the rural world. The concept of
Mutual Funds for the poor provides significant institutional mechanisms to move the poor out of
the village economy and into the more dynamic corporate sector, to a stage where a significant
share of corporate wealth could be owned by the poor. The only viable option is regular
investment through a scheme similar to Systematic Investment Plan (SIP), a scheme where you
can periodically invest a fixed sum, which could be as low as INR 500 per month. Considered as
one of the ideal low-risk methods of wealth accumulation, SIP helps investors overcome the
fluctuations of equity investment. Investing through SIP makes timing and cycles of the share
market totally irrelevant.
According to Ghatak (2011),the 700 million mobile subscribers in India, about 225
million cellphone users reside in rural India. A survey conducted in 2007 showed that of the 321
million earning population aged between 18 to 59 years, only about 120 million Indians from
rural India had bank accounts. Extensive use of technology is the only way to deliver financial
services in a secure environment at an affordable cost to the vast multitude of Indians that do not
have access to formal financial services. While the composition of mutual funds, shares and
debentures is less than 10 per cent of the gross household savings in India, the increase of its
proportion in the household savings basket over the past few years is an encouraging trend. that
non-metros are steadily increasing their share in the new collections by mutual funds, thereby
increasing the reach of mutual funds to hitherto unserved markets. The 3,000 investor awareness
programmes conducted by the fund houses covering about 280 cities and 2,50,000 participants is
expected to further facilitate the penetration of mutual fund products across India. The increasing
awareness amongst investors about mutual fund products and the change in the commission
structure for mutual fund distributors is leading to a discernible shift in the product mix being
sold to customers today.
According to Gulati (2009), Budget 2010 brings with it the promise of increased fiscal
discipline, rationalization of subsidies and the deliberate movement towards targeted as opposed
to generalized subsidies. In year 2009-10 research work has revealed many dimensions of mutual
fund in rural market in India. This research work aims at unfolding the relevance of mutual fund
industry.
The aim of this literature is to investigate the mutual fund market in rural India and verify
whether or not the fund classification obtained from the name given to identify them corresponds
to that which would be obtained were prior management to be taken into account.This industry
has undergone spectacular growth in recent years, making this study one of extreme interest, not
least because institutional control could be less in times of expansion.
Research Design:
Sample size: 100 (rural area at West Bengal)
2) Secondary Data: - data collects from various websites like SSRN, PROJECT FEVER
and MANAGEMENT CANVAS etc.
15
Others, 20%
Professional, 30%
Student, 14%
Businessman, 20%
Farmer, 16%
Knowledge about stock market
80
60
76
40
24 Knowledge about stock market
20
known
unknown
According to the data that have been collected, 24 % of the people who were contacted are
aware and 76% are still unknown about stock market in India.
people income
30
25
20
15
people income
10
0
upto rs 2000 10000-7500 7500-5000 5000-2500 2500
respondent
100
80
60
40
respondent
20
0
yes
no
Only 12 people are invested in mutual fund and about 88 people are never invested in mutual fund.
How to know about mutual fund
respondent
others
brokers
advertisement
0%
10%
20%
30%
5
Systematic investment plan
4
One Time Investment
3
0
One Time Investment Systematic investment plan
Out of 12 person who invested in mutual fund 8 person are invested in SIP and only 4 person
invested in one time investment.
CONCLUSION
People in rural areas should be educated about such instruments with the help of Gram Panchayats
and other influential people in rural areas.
The main four factors influencing demand in rural India are - access, attitude, awareness and
affluence. People of rural market should be aware of mutual fund with the help of banks, newspaper,
awareness campaign, NGO and post office etc.
Different schemes can be made based on the requirement of the investor. The minimum time period
for exit should be 3 to 5 years for any scheme.
The rural population is familiar with such cards like Kisan credit card, etc. These cards will store all
the information regarding the investor and all the addition to the fund can be easily made without any
paper work.
There should not be any entry load for the fund but exit load of around 3-5% should be imposed. We
can make this instrument a unique one where the investor can see his money grow and be encouraged
to invest more money.
“Haats” are another potential low cost distribution channel available to the marketers. Also, every
region consisting of several villages is generally served by one satellite town (termed as "Mandis" or
Agri-markets) where people prefer to go to buy their durable commodities. If we use these feeder
towns, they will easily be able to cover a large section of the rural population.
Firms must be very careful in choosing the vehicle to be used for communication. Only 16% of the
rural population has access to a vernacular newspaper. Therefore, the audio visuals must be planned
to convey a right message to the rural folk.
The companies with relatively fewer resources can go in for syndicated distribution where a tie-up
between non-competitive marketers can be established to facilitate distribution. Periodical "melas"
organized are quite popular and provide a very good platform for distribution because people visit
them to make several purchases.
REFERENCES
I)Thomas Fisher and M.S. Sriram: Beyond Micro-Credit Putting Development
Back into Micro-Finance
iv) Stefan Dercon: Income Risk, Coping Strategies, and Safety Nets. Article
provided by Oxford University Press in its journal The World Bank Research
Observer. Vol 17, Year 2002
v) Marcel Fafchamps: Rural Poverty, Risk and Development. Chapter 4, Page 63.
vii) Marcel Fafchamps: Rural Poverty, Risk and Development. Chapter 4, Page 63.
ix) Nachiket Mor, Bindu Ananth: Inclusive Financial Systems. Economic and
Political Weekly, March 31, 2007 (1121-1126), Vol XLII, Number 13.
x) Nachiket Mor, Joy Miller, Suyash Rai: Savings count. India Today,
September 25, 2008
xi) Business for millennium development: Case Study- IBM and FINO – Boosting
microfinance services in India
xiii) www.google.com
xiv) www.ssrn.com
xv) www.managementcanvas.com
xvi) www.economicstimes.com
xvii) www.cii.in
xviii) www.ifastfinancial.com
QUESTIONNAIRE
A study of preferences of the investors for investment in mutual funds in rural market.
PERSONAL DETAILS
OCCUPATION:-PLEASE TICK ( )
_____________________________________________________________________________________
1. What kind of investments you prefer most? Pl tick (√). All applicable
A) Yes ( ) B) No ( )
D) Other Sources ( )
6. When you invest in mutual fund which, which mode of investment will you prefer?