TYPES OF MUTUAL FUND

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk
tolerance and return expectations etc. thus mutual funds has Variety of flavours, being a collection
of many stocks, an investors can go for picking a mutual fund might be easy. There are over
hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories,
mentioned below.

Overview of existing schemes existed in mutual fund category: BY

STRUCTURE

1. Open – Ended Schemes:

Open ended funds are ones that sell & repurchase units at all times. The Asset under
management keeps fluctuating depending on investors buying or selling units. An AMC might stop
selling units if the fund size becomes too big to manage. However repurchase of units is done at all
times.

2. Close – Ended Schemes:

These schemes have a pre-specified maturity period. One can invest directly in the scheme at the
time of the initial issue. Depending on the structure of the scheme there are two exit options
available to an investor after the initial offer period closes. Investors can transact (buy or sell) the
units of the scheme on the stock exchanges where they are listed. The market price at the stock
exchanges could vary from the net asset value (NAV) of the scheme on account of demand and
supply situation, expectations of unit holder and other market factors. Alternatively some close-
ended schemes provide an additional option of selling the units directly to the Mutual Fund through
periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units
during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is
provided to the investor.
Overview of existing schemes existed in mutual fund category: BY
INVESTMENT OBJECTIVE
 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These
schemesnormally invest a major part of their fund in equities and are willing to bear short-
termdecline in value for possible future appreciation.
 Income Schemes: Income Schemes are also known as debt schemes. The aim of
theseschemes is to provide regular and steady income to investors. These schemes
generallyinvest in fixed income securities such as bonds and corporate debentures.
Capitalappreciation in such schemes may be limited.
 Balanced Schemes: Balanced Schemes aim to provide both growth and income
byperiodically distributing a part of the income and capital gains they earn. These
schemesinvest in both shares and fixed income securities, in the proportion indicated in
their offerdocuments (normally 50:50).
 Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservationof capital and moderate income. These schemes generally invest in safer, short-
term instruments,such as treasury bills, certificates of deposit, commercial paper and inter-
bank call money.
 CHAPTER PLANNING
Our study has been organized under the following chapters:

 Conceptual Framework – This chapter deals with the brief discussion on the
definition of SBI Mutual Fund, its advantages and disadvantages, an introduction to the SBI
and a precise summary on its national and international scenario.
 Presentation of data, analysis and findings – This chapter sums up the
facts about investing in Mutual Fund of State Bank of India. We have also used various tools
to analyse the performance of the selected mutual fund schemes.
 Conclusions and recommendations -This chapter, ultimately, gives the
conclusion of our research project based on the findings and analysis of the data retrieved in
the previous chapter “Presentation of Data Analysis and Findings”. Some recommendations
and suggestions also, have been enlisted for the opportunities and threats to SBI for mutual
fund.
 CONCEPTUAL FRAMEWORK
CONCEPT OF MUTUAL FUND
 Many investors with common financial objectives pool their money.
 Investors on a proportionate basis get mutual fund units for the sum contributed to the
pool.
 The money collected from investors is invested into shares, debentures and other securities
by the fund manager.
 The fund manager realizes gains or losses and collects dividend or interest income.
 Any capital gains or losses from such investments are passed on to the investor in proportion
of the units held by them.

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 so 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 exposure to equities as in Monthly Income Plans or Children
Plan. Hence they are safer than equity funds. At the same time the expected returns from debt funds
are to be lower.Such investments are available for the risk-avenue investor and as part of the
investment portfolio for other investors.

 Magnum Childrens Benefit Plan

 Magnum Gilt Fund
 Magnum Income Plans Fund
 Magnum Insta Cash Fund
 SBI Debt Fund Series

What is Mutual Fund?

The securities and exchange board of India regulations 1993 defines a mutual fund as” a fund
established in the form of a trust by a sponsor, to raise money through the sale of units to the public,
under one or more schemes, for investing in securities in accordance with these regulations”.

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 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.

Though still at a nascent stage, Indian Mutual Fund industry offers a large number of schemes and
serves broadly all types of investors. The range of products includes equity funds, debt, liquid, gilt
and balanced funds. There are also funds meant exclusively for young and old, small and large
investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard investor’s
interest, ensures that the investors are not cheated out of their hard earned money.
DATA ANALYSIS AND INTERPRETATION
FINDINGS
The analysis of funds on basis of pie charts and graphs yielded the following results:

SBI Magnum Equity Growthis an equity based fund and so has shown very high returns in last
year (25.65%) but has not been a consistent performer. Its last 3 year annualized returns has
been just(7.22%). It also has inconsistent returns which is proved by the fact it has Highest
SD of 3.76, though it’s an equity based investment it is assuring to see that it has a lower
Beta than generated nice returns this year it cannot be termed 1(0.88). Though it has as a
very good scheme due to high SD, moderate Beta and low 3 year Annualized Return.

SBI dynamic bond fundis a debt related fund, and like all other debt related funds it has low SD,
Beta and nice returns. On a comparative basis it has generated lower return in last year (11.81%) but
inthe last 3 year annualized Return category it has been the best performer, with an annualized
return of 10.72%. It also has the lowest Beta of (0.03) and low SD of (0.18) which proves it is a
consistent return provider. It has though a low growth of NAV.

SBI Magnum Balanced Fund– Growth is a balanced fund which has investment in both equity and
debt funds. It has yielded the highest return of (33.31%) in last 1year which proves that the fund
managers of this fund have performed flawlessly. But it has certain drawbacks of having low
consistent performance as the annualized returns of last 3 year of this fund has been the lowest at
6.13%. It also has the problem of highest Beta of 1.08 and high SD of 2.76.

SBI Magnum Insta Cash Fund– Liquid Floater Plan (G) is a money market fund and has performed
most poorly among the 4 schemes. It does not have a high last year return (9.24) and also a low 3
year annualized return (7.97). But it has the lowest SD (0.04) and also a low Beta of 0.68.Comparing
the overall performance of all the selected Mutual Fund schemes, SBI dynamic bond fund has been
the best Mutual Fund scheme, as it has given highest returns in last 3 year annualized return though
having a low Beta and low SD.

PERCENTAGE
30

25

20

15

10 PERCENTAGE

0
Magnum Dynamic Bond Magnum Insta Cash
Equity Growth Fund Balanced Fund Fund
Fund
SWOT ANALYSIS
SBI Mutual Fund is one of the premier fund houses in India.The fund serves its vast of over 3.5
million investors by reaching out to them through a network of over 100 points of acceptance,26
investor service centers., 33 investor service desks, 52 district organisers and 2 overseas official
points of acceptance located in Doha and Dubai.

STRENGHTHS:

 Goodwill of the company

 SBI is the largest bank in India in terms of market share,revenue and assets.
 Strong market position which sustains customers confidence.
 Strong capital position.
 It has a whole distribution network.
 It is government owned.
 Recently bank did well in loan, recoveries and looks promising in its future earnings.

WEAKNESS:

 Employees show reluctance to solve issues quickly.

 Customers waiting period is long when compared to private banks.
 It lags modernisation.
 Recently it has been seen that,higher provisions against Non Performing Assets(NPA) amd
marginal growth in other income dented the banks profit margin.
 The greatest limitation in a SBIMF which one can face is the skill of the investment manager.
 The investment return is limited to the skill of the manager.

OPPURTUNITIES:

 Merger of associated banks with SBI.

 The bank is modernising few of its banking operations,there is a better scope of using
advanced technologies and software to improve customer relations.
 New branches, ATMS and various types of other services provided by SBI like
GCC,GRC,Agriculture gold loan etc.
 Expansion on foreign soils.

THREATS:

 Customer prefer to switch to private banks and financial service providers for loans and
mortgages, as SBI involves stringent verification procedures and take long time for
processing.
 INVESTORS INVESTMENT IN MUTUAL FUND

PERCENTAGE
DEBT PORTFOLIO

DEBT AND EQUITY

PORTFOLIO
EQUITY PORTFOLIO

The above number depicts that among 48 investors only 28 of them have invested in SBIMF whereas
12 of them have invested in HDFC, 7 in Reliance, 2 in Kotak and 1 in Axis bank.
 PREFERENCE OF THE INVESTORS INVESTING IN
SBI MUTUAL FUNDS

PERCENTAGE
45
40
35
30
25
20 PERCENTAGE
15
10
5
0
DEBT
DEBT
PORTFOLIO
AND EQUITY
EQUITY
PORTFOLIO
PORTFOLIO

In the above diagram 84 of them have shown their interest in future investment.

When asked for the Asset Management Companies, 48 of them have shown their interest in SBIMF,
13 in Reliance,9 in HDFC ,3 in Axis bank and ICICI and 1 in Kotak bank.
PORTFOLIOS THAT WOULD BE PREFERRED BY
THE RESPONDANTS

PERCENTAGE

EQUITY PORTFOLIO

DEBT AND EQUITY PORTFOLIO

PERCENTAGE

DEBT PORTFOLIO

0 10 20 30 40 50

The portfolio funds by the respondants for future investment was equity portfolios as 40 of them
choose this option while 27 went with the balanced option of having debt and equity both while 22
of them went for the debt portfolio.
 HISTORY OF MUTUAL FUNDS IN INDIA
The mutual fund industry in India started in 1963 with the formation of unit trust of India, at the
initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be
broadly divided into four distinct phases

FIRST PHASE1964-1987
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was setup by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India.

SECOND PHASE 1987-1993(Entry of Public Sector Funds)

The year 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 Can bank
Mutual Fund (Dec 87). Punjab national bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov
89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92), LIC established its Mutual Fund in
June 1989 while GIC had set up its Mutual Fund in December 1990.

THIRD PHASE-1993- 2003(Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian Mutual Fund industry,
giving the Indian investors a wider choice of fund families. Also 1993 was the year in which the first
Mutual Fund regulations came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was
thefirst 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.

FOURTH PHASE (SINCE FEBRUARY 2003)

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was bifurcated into
two separate entities. One is the specified Undertaking of the Unit Trust of India with assets under
management of Rs.29, 835 crores as at the end of January 2003 representing broadly, the assets of
US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of
India, functioning under an administrator and under the rules framed by Government of India and
does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd. Sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI
and functions under the Mutual Fund regulations. With the bifurcation of the erstwhile UTI which
had in March 2000 more than Rs 76,000 crores of assets under management and with setting up of a
UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations.

FIFTH PHASE- Growth and Consolidation- 2004 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are
acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB
Mutual Fund by Principal Mutual Fund. Simultaneously, more international Mutual Fund players
have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 33 funds as at the
end of March 2010. This is a continuing phase of growth of the industry through consolidation and
entry of new international and private sector players.

Graph showing increase in asset under management of all Mutual Funds in India

6
Change (in Crores)
5
Amt (in Crores)
4
Year
3

0 500000 1000000 1500000 2000000

In the above graph it is depicted that thec asse

 MERITS OF INVESTING IN MUTUAL FUNDS:
1. Professional Management – The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have the
time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less
expensive way to make and monitor their investments.

2. Diversification – Purchasing units in a mutual fund instead of buying individual stocks or

bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular investment is
minimized by gains in others.

3. Economies of Scale – Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for their
investors.

4. Liquidity – Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity– Investments in mutual fund is considered to be easy, compare to other available

instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

6. Convenient Administration- Investing in a mutual fund reduces paperwork and helps you
avoid many problems such as bad deliveries, delayed payments and follow up with brokers and
companies. Mutual funds save your time and make investing easy and convenient.

7. Affordability- With many mutual funds, you can begin buying units with a relatively small
amount of money(e.g., Rs 5000 for the initial purchase). Some mutual funds also let you buy more
units on a regular basis with even smaller instalments (e.g., Rs 500 per month).

8. Liquidity– Units or shares of mutual funds can be redeemed at any time.

.
 DEMERITS OF INVESTING IN MUTUAL FUNDS:
1. Professional Management- Some funds do not perform in none of the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many
investors debate over whether or not the so-called professionals are any better than mutual fund
orinvestor himself, for picking up stocks.

2. Costs– The biggest source of AMC income is generally from the entry & exit load which
they charge from investors, at the time of purchase. The mutual fund industries are thus charging
extra cost under layers of jargon.

3. Dilution– Because funds have small holdings across different companies, high returns from a
few investments often don’t make much difference on the overall return. Dilution is also the result
of a successful fund getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.

4. Taxes– when making decisions about your money, fund managers don’t consider your personal
tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered,
which affects how profitable the individual is from the sale. It might have been more advantageous
for the individual to defer the capital gains liability.

5. Fees and Commission-All funds charge administrator’s fees to cover their day to day
expenses some funds also charge commission to compensate brokers, financial consultants. Even if
an investor doesn’t uses a broker or other financial advisor, he will pay a sales commission if he buys
shares in a Load Fund.

6. No Guarantees- The return of any mutual fund scheme is not assured as the investment or
the corpus of the fund is invested in the capital market which may or may not generate returns. No
investment is risk free, if the entire stock market declines in value, the value of mutual fund shares
will go down as well, no matter how balanced the portfolio is but encounter fewer risks when they
invest in mutual funds than when they buy and sell stocks on their own.

7. Time Horizons- Does the investment fit with your expected investment time horizon? For
example, if you’ re investing for a relatively short time, will sales charges and redemption fees offset
any possible gains? Might the value of the fund be down just when you need to redeem your
investment?

8. Service Provider - Do you know something about the mutual fund firm offering the mutual
funds for sale? Consider who operates the mutual fund and who provides the services necessary for
its operations. You ll also want to look at the performance history of the fund manager who selects
the securities to be held in the fund.
 CONCLUSION
FINDINGS AND CONCLUSION

CONCLUSION
Investors who want the highest returns and are willing to take the higher risk should invest their
funds in SBI – Magnum Balanced Fund – Growth as it has yielded highest return in last 1 year
(33.31%)among all 4 schemes.

Investors here should understand the basic fact that these investments are associated with high risk
and one can only get higher returns by taking a higher risk. It must also be mentioned that this
investments also should be done keeping in tune with the market, to get the highest returns.

Investors who are interested in consistent returns should invest in SBI Magnum Insta Cash Fund –
Liquid Floater Plan (G) as it has the lowest Standard Deviation (0.04) among all 4 selected schemes

Investors who have lower risk appetite should invest in SBI dynamic bond fund. As it has the lowest
Beta (0.03) among all selected schemes. Beta measures the volatility of a fund relative to a particular
market benchmark. Therefore lower the Beta lower is the risk and vice versa.

It can be therefore rightly said that in last 3 years debt funds have performed most effectively but
we can surely feel that in last year equity and balanced funds have started to perform better and can
be highly expected to perform much better in future as the Indian share market is slowly reviving
from the recession.

RECOMMENDATIONS
Study finds that mutual fund industry is growing at a very fast rate and the equity funds are very
popular in recent years but it is not correct to analyze them only on the basis of their returns. The
debt funds on the other hand are doing in bearish market conditions and are gaining popularity now
when markets are crashed. The findings and recommendations of the study are as follows:

 The most common way of looking at past performance and return is not correct; other
measures should also be analyzed.
 Investment in a funds with spectacular returns (albeit in the recent past) just on the basis of
the returns without analyzing the risks is not correct.
 Even the fact that debt also bears some risk, Debt funds are far better than equity funds for
a risk averse investor as they provide better risk adjusted returns.
 Equity funds provide better returns on long term basis where debt on short term as it is least
affected by the short term fluctuations. Short term investor should always look for
investment in debt funds as money will not get blocked in a market crash.
 Investors are still not aware of the various risks associated with the investments. One should
analyze the risks in detail before investing the money.
 Risk can’t be diversified fully. Diversification is like ice cream: most people would agree that
both diversification and ice cream are “good” things. This doesn’t mean you can’t have too
much of a good thing. Eat too much ice cream and you’ll end up with a stomach ache.
 The proper information about the fund is not available to the common investor regarding
the risk adjusted performance of the funds and it’s compared returns to the other similar
 ones or the benchmark index. Such information should be available to the investor so that
he can make the decision according to his risk taking capacity.
 Earlier the benchmarks for the debt funds are not available, so it’s not easy to evaluate the
performance of the fund manager. But now the indexes for all types of funds are available
and one can compare the funds performance with its relative index and can find whether
the Fund manager have beaten the fund or just giving the normal returns.
 BIBLIOGRAPHY

With the help of various information, facts and knowledge we have gathered from internet I was
able to make this project. I got help from following websites and books –

WEBSITES
 WWW.NSEINDIA.COM
 WWW.BSEINDIA.COM
 WWW.MONEYCONTROL.COM
 WWW.MUTUALFUNDSINDIA.COM
 WWW.AMFIINDIA.COM
 WWW.INVESTOPEDIA.COM
 WWW.SBIMF.COM

BOOKS
 Donald E.Fischer/Ronald J.Jordan, 2006.Security Analysis and Portfolio Management,
SixthEdition, Pearson Education, Inc.