NFO PROCESS IN MUTUAL FUNDS AT INDIA INFOLINE
Project report submitted in Partial fulfillment for the award of
MASTER OF BUSINESS ADMINISTRATION
Submitted by: RANJITH KUMAR.P Bearing Roll No.0240-60-141
PRINCETON P.G. COLLEGE
(Affiliated to Osmania University) RAMANTHAPUR, HYDERABAD (2006-2008)
I hereby declare that the project titled “NFO PROCESS IN MUTUAL FUNDS” done at India Info line submitted by me as part of partial fulfillment for the award of the Masters of Business Administration, at Princeton P.G College, OSMANIA University, Hyderabad is a record of Bonafide work done by me. I also declare that this report has to my knowledge is my own and is neither submitted to any other university nor published any time before.
(RANJITH KUMAR P)
The presentation of this project has given me an opportunity to express myprofound gratitude to all concern in guiding me. Foremost I would like to thank GOPAL SIR (Manager of Indiainfoline) for giving me an opportunity to undertake this projectwork. I would like to thank the INDIAINFOLINE staff for giving me support and the required material on time. Iwould also thank the principal of our college, P.G.R.R CENTER FOR DISTNACE EDUCATION,OSMANIA UNIVERSITY Hyderadad. For providing an opportunity to undergo a project study program. I would like to thankMOHD.ABDUL NAYEEM for assisting and guiding me to complete the project work.
Investments goals vary from person to person. While somebody wants security, others might give more weightage to returns alone. Somebody else might want to plan for his child's education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range , it is obvious that the products required will vary as well. Indian Mutual Funds industry offers a plethora of schemes and serves broadly all tupe 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 investors intersts, ensures that the investors are not cheated out of their hard earned money. All in all, benefits provided by them cut across the boundaries of investor category and thus create for them, a universal appeal. Investors of all categories could choose to invest on their own in multiple options but opt for Mutual Funds for the sole reason that all benefits come in a package.The Mutual Fund industry is having its hands full to cater to various needs of the investors by coming up with new plans, schemes and options with respect to rate of returns, dividend frequency and liquidity. In view of the growing competition in the Mutual Funds industry, it was felt necessary to study the investors orientation towards Mutual Funds i.e. their pattern of risk apetite and preferences in various schemes, plans and options in order to provide a better service, The study is an attempt in that direction.
The purpose of this project creates a design in relation to process of NFO (NEW FUND OFFER) and how this process is carried out till the end. The school work of this project is based on the procedure takes place in indiainfoline while going through the NFO. To schoolwork the technical procedure, legal dimensions of NFO at India info line and examine briefly the organizational structure, communication network, resource, requirements to launch a new fund. The analysis is made by carrying the applications of reliance equity fund The data for his study is colleted from various sources like magazines, Books, Websites, and from the staff of Indian Info Line. It generates an Idea to the investors in knowing the technical procedure in carrying a NFO by the Organization. New Fund Offer process may not be same for all Mutual funds that are released. It may differ from one fund to other depending up on the size like NO .of Applications received, Subscriptions amount received etc. .
TITLE INTRODUCTION REVIEW OF LITERATURE COMPANY PROFILE ANALYTICAL FRAME WORK PAGE NO 1 7 23 29 52 57 58 60
Introduction to the study:
Mutual Fund Industry which is a relatively of a post-economic reforms phenomena in India, has been expanding during this Period in branch and bound Many commercial banks, insurance companies entered into mutual fund industry apart from foreign players. In the early years of evolution of mutual fund industry in the Indian financial market it was a monopoly and continued to be the same till very recent time. Then many players both foreign and Indian entered in the Mutual Fund Industry. This increased the competition between the various firms working in the mutual fund Industry The need for developing various new schemes arises so as to attract investors towards the firm and equally encouraging them to invest. This growth in the Mutual Fund Industry and scope of increasing markets has further increased the competition between the firms in the industry. The competitions had given raise to demand for specialized products and skills of various individuals who can contribute towards the containment and growth of individual firms in the mutual firm industry. This gave rise to various related organizations and individuals working as specialized teams in the various areas of mutual funds. One such organization is INDIA INFO LINE PVT LTD it comes into pictures where the investors apply for the units in a Mutual Fund schemes and verify the validity and eligibility of the investor and allots the units The mutual fund companies now receive millions of applications if a new scheme is launched.
This is due to the wide spread awareness created among the urban and rural Population of India. It therefore becomes a Herculean task to Manage the flooding applications However it should be noted that this is a One time activity similar to that of a short run project It is needless to State that a given mutual fund firm will not be possessing The technological, human and knowledge resources to take up such a gigantic task, it is in fact not needed by a mutual fund firm to create such a vast organizational structure when it is seen from the point of view scale of economies. Further to this problem, the mutual fund industry does not know where it stands in the current volatile and turbulent environment. This may be The reason they prefer to hire the services of professionals firm with specialized knowledge and Expertise.
These developments have led to an outcome that today, launching of mutual fund scheme has become a well organized activity which is accomplished through the coordinated endeavors of task groups. The asset management companies have designed various schemes in accordance with the requirements of the various sections on investors on basis of equity linked, debt instruments linked, commodities linked and specific industry linked instruments. The investor today is given a wide
range of options to invest in various types of funds according to his interests and capabilities. Mutual funds enable even a small investor to investor to invest, as most of the mutual funds just start from a minimum amount of investment of RS. 5000 hence even a small investor can invest into a mutual fund and reap returns in the same proportions as the other big time investors. This shows that mutual fund industry is one which aims at every section of the society. To deal with this large population of investors and the competition, the asset management company has been forced to develop and design new schemes and hire the services of professionals.
mutual fund industry involves various operations from the stage of identification of the target group or defining a market segment, designing a scheme which comes up to the expectations and aspirations of the target group or market segment, reaching the selected market through launching the scheme which is thereby called NFO, till the stage of investing the amount raised in accordance with the norms stipulated with offer document and distributing the returns to the investor by way of dividend, after making adequate provision for taxation and other operating costs. All this process is well organized and performed in a specific order. There are various related organizations which specialize in the activities at various stages of the functioning of the mutual funds.
It is therefore felt expedient to examine the various intricacies involved in the new fund offer (NFO). Specifically the various documents that are being processed, the parameters evolve either customarily or by legal mandate to scrutinize the applications. Various stages involved in the scrutiny, the rejection criteria, the creation of human organization to monitor the activities, the communication channel and the structure of the organized activities and the legal environment of NFO to some extent. Such a
dissertation would help to come out with a comprehensive report which may serve as a guide for the prospective entrants into mutual fund investment and to the existing mutual fund investors to some extent.
Objectives of the study:
* To study the technical, procedural, legal dimensions of the NFO * To examine briefly the organizational structure,
communication network, resource requirements to launch a new fund * To study a sample of application drawn from Reliance Mutual Fund.
Methodology of study:
To fulfill the objective of the study both primary and secondary data has been collected. Primary data is the data collected specifically for the study. Data is collected directly from people and organizations via questionnaires or surveys before being analyzed to reach conclusions concerning the issues covered in the questionnaire or survey. In this study primary data was collected through interaction with staff of India info line Pvt Ltd. and the applications of Reliance equity fund. Secondary data is the data collected previously by someone else for some other purpose which can be analyzed and interpreted according to requirements. For example, sources of secondary data are government
publications, newspapers, worldwide web etc. In this study the Secondary data is mainly taken from * * * The company’s training material. Reconciliation statements. Other documents generated with in the organization Which have to Access? * www. indiainfoline.com, www.amfiindia.com,www.sebi.com.
Limitations of study:
Analysis of the applications is carried out by taking the applications from Reliance equity Fund. The data available is therefore restricted by the design of the application.
The inspection of applications is done on the basis of a sample of 120 applications. Though the sample is drawn randomly, the possibility of sampling fluctuations affecting the findings cannot be ruled out.
Numerical data like number of applications received, total subscription amount received, statement of accounts, investor details, etc are not available and therefore a description of these aspects is given.
NFO process may not be same for all mutual funds that are released. It may differ from one fund to other depending upon the size like the no. of applications received, subscription amount received, etc.
REVIEW OF LITERATURE
New fund offer (NFO):
When a mutual fund asset management company announces Public issue of units of a new fund/scheme it is called a New Fund Offer (NFO). When a mutual fund company plans for a new fund offer it first informs to the registrar or the back office functions provider like INDIA INFO LINE
through email. This is called as “NFO Launching Information Mail” send by the fund manager of the asset management company to the NFO coordinator of the INDIA INFOLINE. In this Mail the fund manager will ask the NFO coordinator to get ready for the new fund with the required man power and software. Later they send the sample application form, the key information
memorandum (KIM) and offer document to INDIA INFO LINE. This offer document sets forth concisely, necessary information about the scheme for a prospective investor to make an informed investment decision on the scheme described. The offer document contains the salient features of the scheme like NFO opening date, NFO closing date, Scheme name, Scheme class, reopening date, plans available banks involved, number of bank branches involved, minimum amount – fresh purchase, maximum amount – fresh purchase, expected number of applications, entry load and exit load. The unit manager or the NFO coordinator will arrange a meeting where the AMC team, NFO expert’s team, Data entry team, Reconciliation team and the dispatch team will discuss and fix the target dates by which the work has to be completed accordingly.
What is a mutual fund?
Mutual fund is a mechanism for pooling the resources by issuing to the investors and investing funds in securities in accordance with objectives as disclosed in 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. The profits or losses are shared by the investors in proportion to their investment. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public. Mutual fund is a collection of stocks and / bonds. A mutual fund as a company brings together a group of people and invests their money in stocks, bonds and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. With increased uncertainties or fluctuations in the primary market and decreasing bank interest rates, mutual funds are gaining popularity day by day Now-a- day’s mutual funds are performing well will high returns to the
investors. There are various types of schemes and plans available to all type of investors. Let us assume that you inertia million rupees over night and want to invest the same to get better returns you can consider the following investment avenues that are popular in Indian context Company shares Fixed deposits in banks Government bonds Fixed deposits in NBFC Chit fund Real estate Other local money lending options
Pros and con’s of the investments:
SNO. Investment avenue Company shares and stocks Fixed deposits in banks Govt. bonds Fixed deposits in NBFC Chit funds Real estate Other money lending options Risk Return Effort required to track/maintain investment High Low Medium Medium Medium Medium Depends
1. 2. 3. 4. 5. 6. 7.
High Low Medium High High Medium Medium
High Low Medium Medium Medium Medium Medium
How you can make money from a mutual fund?
If the fund sells the securities that have increased in price, the fund has a capital gain Most of the funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the funds shares increase in price. You can then sell your mutual fund units for profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. Income it earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
Types of Funds:
Mutual funds also come in various sizes and shapes. There are about dozen fund classes but all of them are derivatives of three basic classes are as follows. Growth Income Liquidity
Growth: Long term growth, since these funds invest in equities, they are
also called as equity funds. Their risk level is high so is the return.
Income: This type of fund provides regular income by investing in debt
instruments like bonds, debentures etc., Because of their nature of
investment, they are also called debt schemes. Their risk and return levels are medium.
Liquidity: These are primarily invested in money market instruments and
thus most volatile, safer and give lower returns. known as cash or money market funds. In addition to the above type there are other derivative classes as listed below. This type of fund... Balanced fund Invest in this area Is an investment blend of equity and dept Instruments Index fund Invests in the companies that participate in stock market indices in the same weight age comprising of an index Sector fund Invests in companies pertaining to specific sectors like health care, banking, FMCG, technology etc. Ells / Tax funds Invests is Government bonds and generally long term in nature. They provide tax These funds are also
These are called mutual fund schemes. It is based on the investment objective. There is another Classification based on the capitalization of funds. If the fund offers purchase or selling on a Continuous basis it is called
open ended mutual fund. On the contrary, if the fund is open only for a particular period, it is called closed ended fund.
SNO. 1. 2. 3. 4. 5. 6.
Open ended and Closed ended funds
Open ended Unlimited Yes Yes Yes No (with exemption of FMP schemes) Generally No Closed ended Limited No No No Yes Yes
Feature Capitalization Any time entry Any time exit Tax advantage Available for a fixed period Listed on the exchange
Open ended funds gained popularity because of their flexibility and variety of features they offer. For this reason, majority of the mutual funds are ‘open’ in nature.
Arms of a mutual fund:
Primarily mutual fund is formed as a trust by a group of sponsors. They are the owners of the mutual funds and forms trust by a group of sponsors. 20
They are the owners of the mutual funds and forms trustees who in turn appoint AMC and manage the mutual fund. SEBI regulations require that at least two at least two thirds of the directors 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 of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
This entity… Sponsor Trustees
Asset management company Registrar Distributors
Does this… Forms Mf as a trust. Registers with SEBI. Holds funds invested in a form of units. Ensure compliance with SEBI. Appoints AMC Floats MF Schemes, Manages funds and cash. Holds investor data. Do services to investors Market various schemes of MF
Transaction types (commercial & non-commercial):
Let’s compare various transactions of mutual funds with those of banks.
In a bank, you will… Open an account with initial deposit Deposit money With draw money Opt for a recurring deposit
In a mutual fund… You subscribe in a scheme and buy units Do additional purchases You redeem units Start a systematic investment plan
Since mutual fund offers many more options to investors, it will have many more transaction types as well. Let us see some popular transactions in mutual funds SNO. 1. Description New investment. Buying units in a scheme 2. Additional purchase Buying additional units in a scheme 3. Redemption Selling units and getting money back. 4. Switch/shift Transferring investment from one scheme to other. 5. Dividend When AMC announces dividend in a scheme. 6. Systematic Investing fixed investment amounts periodically like a recurring deposit. 7. Systematic with Reverse of drawl systematic investment Selling units periodically Rest are relating to general maintenance only. So they are non-commercial transactions. Net asset value: As you must have noticed, we always talk about ’units’ in a mutual fund and not money itself. A unit is basic measure of investment n a mutual fund. 22 Transaction New purchase
Each scheme / plan will have a different market value is called the Net asset value or simply NAV. Since market value of the underlying securities changes every day, NAV of a scheme also varies on a day to day basis.
NAV = Total assets – Total liabilities/Number of units
SEBI Guidelines on New Fund Offer:
1. Procedure for launching of schemes:
No scheme shall be launched by the asset management company unless
such scheme is approved by the trustees and a copy of the offer document has been filed with the Board.
Every mutual fund shall along with the offer document of each scheme
pay filing fees as specified in the Second Schedule. 2. Disclosures in the offer document:
The offer document shall contain disclosures which are adequate in order
to enable the investors to make informed investment decision [including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor].
The Board may in the interest of investors require the asset management
company to carry out such modifications in the offer document as it deems fit.
In case no modifications are suggested by the Board in the offer
document within 21 [working] days from the date of filing, the asset management company may issue the offer document.
No one shall issue any form of application for units of a mutual fund
unless the form is accompanied by the memorandum containing such information as may be specified by the Board. 3. Advertisement material:
Advertisements in respect of every scheme shall be in conformity with
the Advertisement Code as specified in the Sixth Schedule and shall be submitted to the Board within 7 days from the date of issue.
The advertisement for each scheme shall disclose [investment objective
for each scheme] 4. Misleading statements: The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false. 5. Listing of close ended schemes: Every close ended scheme shall be listed in a recognized stock exchange within six months from the closure of the subscription Provided that listing of close ended scheme shall not be mandatory.
If the said scheme provides for periodic repurchase facility to all the unit
holders with restriction, if any, on the extent of such repurchase; or
if the said scheme provides for monthly income or caters to special
classes of persons like senior citizens, women, children, widows or physically handicapped or any special class of persons providing for repurchase of units at regular intervals; or
If the details of such repurchase facility are clearly disclosed in the offer
If the said scheme opens for repurchase within a period of six months
from the closure of subscription. 6. Repurchase of close ended scheme:
The asset management company may at its option repurchase or reissue
the repurchased units of a close ended scheme.
The units of close ended schemes referred to in the proviso to regulation
may be open for sale or redemption at fixed pre-determined intervals if the maximum and minimum amount of sale or redemption of the units and the periodicity of such sale or redemption has been disclosed in the offer document.
The units of close ended scheme may be converted into open ended
If the offer document of such scheme discloses the option and the period
of such conversion; or
The unit holders are provided with an option to redeem their units in full. A close ended scheme shall be fully redeemed at the end of the maturity
period [Provided that a close ended scheme may be allowed to be rolled over if the purpose, period and other terms of the roll over and all other material details of the scheme including the likely composition of assets immediately before the roll over, the net assets and net asset value of the scheme, are
disclosed to the unit holders and a copy of the same has been filed with the Board. Provided further, that such roll over will be permitted only in case of those unit holders who express their consent in writing and the unit holders who do not opt for the roll over or have not given written consent shall be allowed to redeem their holdings in full at net asset value based price. 7. Offering Period: No scheme of a mutual fund other than the [initial] offering period of any equity linked savings schemes shall be open for subscription for more than 45 days 8. Allotment of Units and refund of money:
The Asset management company shall specify in the offer document The minimum subscription amount it seeks to raise under the scheme
In case of over subscription the extent of subscription it may retain
Provided that where the asset management company retains the over subscription referred to in clause (b), all the applicants applying up to five thousand units shall be given full allotment subject to the oversubscription mentioned in clause (b).
The mutual fund and asset Management Company shall be liable to
refund the application money to the applicants(i)
If the mutual fund fails to receive the minimum subscription amount
referred to in clause (a) of sub-regulation (1);
If the moneys received from the applicants for units are in excess of
subscription as referred to in clause (b) of sub-regulation (1).
Any amount refundable under sub-regulation (2) shall be refunded
within a period of six Weeks from the date of closure of subscription list, by Registered A.D and by cheque or Demand Draft marked "A/C Payee" to the applicants. In the event of failure to refund the amounts within the period specified
in sub-regulation (3), the asset management company shall be liable to pay interest to the applicants at a rate of fifteen percent per annum on the expiry of six weeks from the date of closure of the subscription list. 9. Unit certificates or Statement of Accounts: The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the [initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme].Provided that if an applicant so desires, the asset management company shall issue the unit certificates to the applicant within six weeks of the receipt of request for the certificate. 10. Transfer of units: (1) A unit certificate unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law.
(2) The asset management company shall, on production of instrument of transfer together with relevant unit certificates, register the transfer and return the unit certificate to the transferee within thirty days from the date of such production. Provided that if the units are with the depository such units will be transferable in accordance with the provisions of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
11. Dispatch of warrants and proceeds: Every mutual fund and asset management company shall,
Dispatch to the unit holders the dividend warrants within [30 days] of
the declaration of the dividend. (b) Dispatch the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase. (c) In the event of failure to dispatch the redemption or repurchase proceeds within the period specified in sub-clause (b), the asset
management company shall be liable to pay interest to the unit holders at such rate as may be specified by Board for the period of such delay. (d) Aside payment of such interest to the unit holders under sub-clause (c) the asset management company may be liable for penalty for failure to dispatch the redemption or repurchase proceeds within the stipulated time. Wherever an application for a total value of RS. 50,000 or more, the applicant or in the case of application in joint names, each of the applicants,
should mention his/her permanent account number (PAN) allotted under the Income Tax Act, 1961 or where the same has not been allotted, the GIR number and the income-tax Circle/Ward/District should be mentioned. In case where neither the PAN nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the application form. Any application form without these details should not be accepted by the mutual fund. The above clarification is being issued in accordance with Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996. 12. Instructions for filing scheme offer document with SEBI: As advised in SEBI circular MFD/CIR/06/275/2001 dated July 9, 2001, while filing offer document for launching a new scheme/revising and filing existing offer document with SEBI, the mutual funds should highlight and clearly mention the page number of the offer document on which each of the following observation has been incorporated. In case of any amendment to Regulations, the new provisions should be incorporated in the offer documents.
Circa1995. A group of professional formed a company called Probity Research & Services Pvt Ltd. The name was later changed to India Info line Ltd. The Objective was to provide unbiased and independent information to market intermediaries and investors. The quality of research soon caught the imagination of all major participants in the financial market. In a span of 2 to 3 years the client list read like the who’s who of Indian Financial market. The list included consulting firms like Mc Kinsey, companies like Hindustan Lever, Banks like Citibank, Rating agencies like CRISIL, D&B, FIS, foreign brokers as well as leading Indian brokers. One fine morning in early 1999, a colleague had a crazy idea that if the company made all the research available free on the web, the number of users may well jump from 250 to 2.5 million. To make it true, the business required a reincarnation. And the pre-requisite was a death. It meant that
the company put up all the information free on the website and let go of all the revenues and profits. Worse, if the new avatar failed, there would be ‘no comebacks’. The company became heavily dependent on its e-broking business for survival. The odds were against them. There was no money available from the private equity investors at any valuation. The core promoters of the company had little experience of broking. To add to it, the market was hit by a scam. They also had their share of price to pay and lessons to learn. It was difficult to retain people. Although devastating for morale, but not surprising, most market observers had written them off.
There was a core group who never lost hope. They cut all possible costs and worked on a bare bones structure. They survived against all odds and started capturing market share. The company rose from strength to strength to become the leading corporate agent in life insurance and among the top retail players in mutual fund and broking space.
Our Key Milestones:
• • • • • • Incorporated on October 18, 1995 as Probity Research & Services. Launched Internet portal www.indianinfoline.com in May 1999. Commenced distribution of personal financial products like Mutual Funds and RBI Bonds in April 2000. Launched online trading in shares and securities branded as www.5paisa.com in July 2000. Started life insurance agency business in December 2000 as a Corporate Agent of ICICI Prudential Life Insurance. Became a depository participant of NSDL in September 2001.
• • • • •
Launched stock messaging service in May 2003. Acquired commodities broking license in March 2004. Launched portfolio management services in August 2004. Listed on NSE and BSE on May 17, 2005. Acquired 75% stake holding in Money tree Consultancy services, which is a distributor of Mortgages and other Loan products, in October 2005.
Acquired 100% equity of March Mont Capital Advisors Pvt Ltd in December 2005 through which we have ventured into Merchant Banking.
DSP Merrill Lynch Capital subscribed to convertible bonds aggregating Rs.80crores in December 2005. Their current stake in India Info Line is a little over 14 % as on 31st March 2007.
• • • • •
Bennett Coleman & Co Ltd (BCCL) invested Rs.20crores in India Info line by way of preferential allotment in December 2005. Became a depository participant of CDSL in June 2006. Merger of India Info line Securities Private Limited with India Info line Limited in January 2007. Entered into an alliance with Bank of Baroda for Baroda e-trading in February 2007. IRDA license for Insurance Broking April 2007.
Our Management Team:
Mr.Nirmal Jain (Chairman and Managing Director) • • Nirmal Jain is the founder and Chairman of India Info line Ltd. He holds an MBA degree from IIM Ahmedabad, and is a Chartered Accountant (All India Rank 2) and a Cost Accountant. Mr. R.Venkataraman (Executive Director) 33
R. Venkataraman is the co-promoter and Executive Director of IndiaInfoline Ltd. He holds a B tech degree in Electronics and Electrical Communications Engineering from IIT Kharagpur and an MBA degree from IIM Bangalore.
He has held the position of Assistant Vice President with G E Capital Services India Limited in their private equity division.
The Board of Directors:
Mr. Sat Pal Khattar (Non Executive Director) • • • Mr. Sat Pal Khattar joined the Board with effect from April 20, 2001. Mr. Sat Pal Khattar is a lawyer by profession. He is a director of a number of public companies in Singapore and India. Mr. Sanjiv Ahuja (Independent Director) • • • Mr. Sanjiv Ahuja joined the Board with effect from August 28, 2002. Mr. Ahuja graduated from National University of Singapore with a degree in Computer Science and is also a Certified Public Accountant. He started his own investment advisory and consulting company in 2001, named Centennial Management Consultants Private Limited. Mr. Nilesh Vikamsey (Independent Director) • Mr. Nilesh Shivji Vikamsey joined the Board with effect from February 11, 2005.
Mr. Vikamsey qualified as a Chartered Accountant in 1985 and has been a member of the Institute of Chartered Accountants of India since 1985.
Mr. Kranti Sinha (Independent Director) • • • Mr. Kranti Sinha joined the Board with effect from January 27, 2005. Mr. Sinha graduated from the Agra University with a Masters degree. Mr. Sinha is also on the Board of Directors of Hindustan Motors Limited, Larsen & Turbo Limited & LICHFL Care Homes Limited.
Its vision will not be accomplished only by maintaining high growth alone. Our vision is to emerge as the most respected financial services company in India. Needless to emphasize that it is imperative for all us to align our personal goals and values to this vision.
• Always keep yourself up-to-date by reading newspapers like Economics Times, Business standard and Business Line daily. Passing NCFM, AMFI, IRDA exams also help you to get basic domain understanding. • We are in a knowledge industry and hence we cannot afford to go to a client and appear ignorant and foolish by not even knowing basic things.
• By technology, we mean that as an organization, we leverage technology to deliver best service to our clients at the least cost.
Our trading interface for broking is absolutely world class. We expect our employees to be comfortable with and confident of using technology.
• Our customer service is warm, friendly and responsive that media cannot help but rave about. Today, service is the key driver for growth in financial services. We take pride in our ability to add value that our customers can feel and appreciate. • Remember we have to always ensure that simple things like ensuring customer problems are solved, requests are catered to, giving him investment ideas etc. Basically, whatever it takes to keep him served.
ANALYICAL FRAME WORK
When a mutual fund Assets Management Company (AMC) announces a public issue of units of & new fund/scheme, it is called a new fund offer (NFO). The new fund is planned and sources from where it should be collected and where the amount should be invested is planned by the AMC. According to the SEBI rules any new fund launched should be approved by SEBI. Once the AMC get the approval of SEBI for the fund it does the marketing of the fund by it self or through brokers. The investors who are willing to invest in a particular fund deposit the amount they plan to invest in the bank as directed by the AMC. These banks collect the application and amount and direct it towards the registrar specified by the AMC. From this point India info line came into the picture as the registrar. The role, responsibilities, activities, forms and reports involved in this process of NFO is general, are AMC, fund manager, SIP I/c, Switches I/c., NFO Coordinator. Internal auditor, Systems(S/W) dept. IPO Centre coordinator, IPO-RTI, IPO-EDP, Scanning and Printing & Dispatching. Teams involved in the NFO process Mutual fund unit Technology team Data entry team
Verification team External audit team Scanning team Franking and dispatching team
Description of NFO process:
Bank wise segregation: The India info line branches collect the applications of the investors across India and abroad for all the branches of the bank that is involved in this NFO. These applications are sent to India info line processing center, Hyderabad. After receiving, these applications are segregated bank wise and branch wise. IH Numbering: IH numbering is also called as In house Numbering. India info line gives this IH numbering to those applications. This is done for their convenience in
doing back office functions easily. All the data on the application is entered into systems through software developed by India info line technology team called K-Bolt. Later on, we can get any information of a particular
application or investor that we require by entering this IH number. Binding: All the applications that are received are given for binding. Binding of
application is done by segregating them according to the bank and branch fro which they are received. India info line does this Binding because to keep all these applications safe, out of any damage and miss-place.
First Entry: After finishing binding of applications they are sent to Date Entry team. Here the first time entry is done. All the information or date of an investor
that is available on the application like name of the applicant, age, Address, PAN, Bank details, broker code, sub broker code, email addresses, guardian name, amount invested, name of the scheme or plan invested in, etc., are entered into the systems of India info line. Second Entry: After first entry the data is again sent for the second entry. Here in second entry, the data that is entered in first entry is checked and the information what ever is missing is entered.
Online Matching: After entering the data like applicant, age, Address, PAN, Bank details, broker code, sub broker code, email addresses, guardian name, amount invested, name of the scheme or plan invested in, etc., in the first entry and once again in the second entry it is sent to the online matching. Here in online matching the physical form of application are kept side by an checking of data that was entered in the first entry and second entry is done. First time verification: Data from online matching is sent to the verification team. This team verifies mistakes that are left in online matching. Mistakes like blank address, PAN blank for amount greater than or equal to 50000 RS. Name blank, bank details blank, invalid or blank broker code etc., are rectified in the first time verification. First time CCL: 43
First time check clearing list is in short is called as first time CCL. First Time CCL is prepared based on the data that is provided after first time verification. External Audit: First time check-clearing list is sent to an external audit team. India info line appoints this team before the NFO processes. They are nowhere related to the organization. This external audit team will mainly check name of the investor, amount invested, bank details PAN number, name of the scheme/plan and mode of holding (MOH). But in total they will check more than 30 characters Second time verification: If the external auditing is not satisfied and if they find any mistakes or missing information they will send the first time CCL for second time verification. Here they verify the check list once again and mistakes like invalid mode of folding (MOH), invalid email address, status minor without guardian name, invalid date of birth for minor, invalid existing account number, blank/null application number, NRI with blank account type, saving or current, investor signature missing are rectified. Second time CCL: Second check the verification team prepares clearing after verifying the mistakes that are pointed out by the external audit team. After preparing second time CCL it is again sent to external audit team. Integrity Check (NFO team):
Check clearing list will be given by the external audit team to the NFO team in India info line This NFO team in India info line will once again check further mistakes like spelling mistakes in the name of the applicant etc., and rectify them. Integrity Check (by Audit): After integrity check by the NFO team it is once checked by the internal audit team of India info line. Scanning Default Values, Verification of Mismatch cases: Entire data is filtered at each and every step and finally it is given to the scanning team for scanning here scanning team will detect and rectify any further default values and mismatch cases. Reconciliation, Rejections and Cheque returns: Cheques of the investors are sent are sent by the balk to India info line Reconciliation team. Here this team will verify bank details of the investor like PAN number, bank a/c number, comparing the amount invested with that of the minimum amount that has to be invested cheques with out hue signature of the investor bounced cheques etc., and they are rejected. These rejected cheques are dispatched to the investors. A sample statement of accounts (SOA) is prepared by this reconciliation team.
Handling over the data to MFS:
Entire data after getting filtered at each and every step will be handing over to mutual fund services team. This MFS team will once again verify the data and the final data will come out any mistakes and default values. Porting in Task MF: Task MF is the software developed by India info line Technology team. It is prepared according to the suggestion given by AMC. This Task MF will resemble the style or Performa or outlook of the statement of accounts. Final data that they got after filtering the mistakes and default values is ported in the task MF. Allotment of units: Allotment of units is done as per the amount that is invested by investors. They will avail the units taking the Net Asset Value (NAV) of that particular scheme as base. Sample SOA verification by audit: Statement of accounts (SOA) is picked up randomly from a huge lot and the audit team does verification. This verification will result in preparing a statement of accounts which in cent percent correct and exact.
This SOA contains data like:
* * * * * * * * * * * * * * * * * * *
Name of the investor Address Bank details Pan Number Guardian name Broker code Sub broker code Nominee name Nominee addresses 2nd and 3rd applicant name Amount invested No. Of units allotted Fund name, Scheme Name, Plan Name & A/c no Transaction type details Mode of redemption payment Mode of dividend payment Mode of dispatch Status, occupation. Current balance, average price, current cost, current NAV etc.,
Dispatch of SOA: Statement of accounts (SOA) once prepared is dispatched to the investor. SOA’s are neatly packed in an envelope and dispatched to the investors by the dispatch team through courier.
New Fund Report: 47
India info line will finally prepare New Fund Report. This new fund report has to be submitted to the AMC. Then AMC will submit a copy of the same to the SEBI, which is mandatory. The new fund report details like
Scheme details * * * * * * Scheme name Scheme type Date of opening Date of closing the scheme / initial subscription period Target amount Minimum amount to be raised
Subscription / Allotment details * Number of applications received with in the country * * * * Number of NRI applications received Subscription amount received with in the country Subscription amount received form NRI Date of allotment of units
3) 4) 5) 6) 7)
Initial issue expenses Date of dispatch of refund of refund orders Unit holding pattern Distribution schedule Geographical Dispersion list
Holding profile of applicant:
No. of applicants % of applicants
80 70 60 % of applicants 50 40 30 20 10 0
0 single Joint Anyone
Mode of holding
Interpretation: It can be seen that majority of the applicants prefer to hold the allotted units individually and 26% prefer to hold anyone/survivors. This corroborates with the age profile of the applicants.
Occupation profile of applicants:
Particular Business Service Student Professional Retired Housewife Others Total No. of 34 46 2 4 7 23 5 120 applicants % of 28 38 2 3 6 19 4 100 applicants
40 35 % of applicants 30 25 20 15 10 5 0 28
St ud en
Se rv ic
Pr of es
Interpretation: Majority of the applicants are from services personnel at 38%, next comes business People are 28%. The housewife occupy 3rd highest at 19%. It is found that professionals and retired are at the lowest.
a) Residential status of individual applicants:
Particulars No. of applicants % of applicants
Resident 104 96
NRI 4 4
Total 108 100
120 100 % of applicants 80 60 40 20 0 Resident Status NRI 96
Interpretation: It can be observed from the table and the chart that the majority of applicants are resident individuals constituting 96% the applicants and remaining 4% are the Non-resident Indians.
b) Status of non-individuals:
Particulars No. of applicants % of applicants
Partnership 1 10
AOP/BOI 0 0
Trust 0 0
HUF 10 80
Fll 0 0
Banks 0 0
Particulars Company No. of applicants 1 % of applicants 10
Interpretation: In the non-individuals category HUF occupied the highest at 80% and next 10% is for partnerships. In others category 10% is found and all other nonindividual entities have recorded zero applications.
Interpretation: The age profile of the applicants shows that the majority of the applicants fall into the age Group 31-60 years and the percentage of them being 60. This is followed by the age Group 18-30 years and 15% of the applicants are above 60 years.
Investment profile of the applicants:
Above 100000 6
No. of applicants 78
% of applicants
70 60 % of applicants 50 40 30 20 10 0
3 5000-25000 25001-50000 50001-100000
Interpretation: Amount of investment is high at 65% in the range 5000-25000 and it is very low at 3% in 50001-100000, but the next slab. Above 100000 5%. has registered
Interpretation: Majority of the applicants Opted the growth option and the option of dividend reinvestment is 31%. This means that 80% of the applicants are not investing for income sake rather they look at the accumulation of profits.
Analysis of mode of payment:
Particulars No. of applicants % of applicants
Cheque 119 99
DD 1 1
Total 120 100
120 100 % of applicants 80 60 40 20 1 0 Cheque Mode of payment DD 99
Interpretation: The mode of payment reflects upon the quality of applicants. On an average 99% have paid through cheques and therefore the NFO is able to attract good quality retail investors.
Analysis of type of account:
Particulars SB No. of 119 applicants % of 99
Current 1 1
NRO 0 0
NRE 0 0
FCNR 0 0
Total 120 100
120 100 % of applicants 80 60 40 20 1 0 SB Current 0 NRO Type of account 0 NRE 0 FCNR 99
Interpretation: Majority of the payments have been made from Savings Bank account (SB). No payments have been found from NRO, NRE, and FCNR even though 4% of the applicants are NRI s
Gender profile of the applicants:
Particulars No. of applicants % of applicants
Male 89 74
Female 31 26
Total 120 100
80 70 % of applicants 60 50 40 30 20 10 0
Interpretation: The female participation in the NFO is low at 26%. The male applicants are very high at 76% as is not normally found in found in institutional investments.
Particulars West Bengal No. of applicants 10 % of applicants 8
Others 6 5
total 120 100
A predominant feature is that 40% of the applications are from Maharastra and next highest 14% is registered for Delhi. Lowest numbers of applications are from Bihar and Chandighar.
45 40 35 30 25 20 15 10 5 0
% of applicants
14 9 3 1 1 4 1 1 2 2 4 5 8 5
Pr ad es h C Bi ha ha nd r ig ha r D el h G i Ka uj r rn at at M ak ad hy K a e a Pr ria M ad ah es ar h a R sh aj as ra th a U Pu n tta r P nja b r Ta ad e m s W il N h es t B adu en ga O l th er s
An dh ra
1. ARE YOU INTERESTED IN MUTUAL FUNDS (A)YES (B)NO
70 60 50 40 30 20 10 0 YES NO 3-D Colum n 3
(From the sampling of 100 people 70 percentage of people are really Interested in mutual funds.) 2. WHAT IS YOUR AGE GROUP (A)25-35 (B)35-45 (C)45-55 (D)55-65
40 35 30 25 20 15 10 5 0 AGE
25-35 35-45 45-55 55-65
(From the above chart we can understand the age group 55-65 people are more investing in to the mutual funds).
3. WHAT IS YOUR OCCUPATION (A)PRIVATE EMPLOYEE (B)GOVERNMENT EMPLOYEE (C)BUSINESS PERSON (D)RETIRED
35 30 25 20 15 10 5 0 OCCUPATION PRIVATE EMPLOYEES GOVERNMENT EMPLOYEES BUSINESS PERSON RETIRED
(Here Number of Retired employees are investing more as they are concerns about their future). 4. IN WHICH TYPE OF MUTUAL FUND DO YOU LIKE TO INVEST (A)CLOSE ENDED (B) OPEN ENDED
80 70 60 50 40 30 20 10 0 MUTUAL FUNDS
OPEN ENDED CLOSE ENDED
(Here open ended schemes are more flexible compare to close so Many people are interested into open ended schemes).
5. WHAT PERCENT OF RETURN DO YOU EXPECT (A) 10-15 (B) 20-25 (C) 30-40 (D) DOUBLING YOUR AMOUNT
(Here Number of people likes to double their amount.) 6. WHICH TYPE OF FUND ALLOCATION DO YOU LIKE (A) 100 PERCENT EQUITY (B) 80 PERCENT EQUITY & 20 PERCENT DEBT (C) 70 PERCENT EQUITY 20 PERCENT DEBT & 10 PERCENT MONEY MARKET (D) 100 PERCENT DEBT
50 40 30 20 10 0 FUND ALLOCATION 70% EQUITY 20% DEBT & 10%MONEY MARKET 100% DEBT 80% EQUITY & 20 % DEBT 1OO% EQUITY
(Here many investors are love to invest in 100 percent equity fund Allocation scheme.)
7. IN WHICH OF THE UTI SCHEME YOU HAVE INVESTED (A)UTI WEALTH BUILDER FUND (B)UTI INFRASTRUCTURE ADVANTAGE FUND (C)UTI LONG TERM ADVANTAGE FUND (D)NONE
60 50 40 30 20 10 0 UTI SCHEMES UTI WEALTH BUILDER FUND UTI INFRASTRUCTURE ADVANTAGE FUND UTI LONG TERM ADVANTAGE FUND NONE
(Here the investors are likely to invest in infrastructure advantage fund as this sector is in a booming stage.) 8. ARE YOU SATISFIED WITH THE RETURNS OF WHICH UTI IS GIVING (A)YES (B)NO (C)CANNOT SAY
50 40 30 20 10 0 SATISFIED WITH RETURNS YES NO CANNOT SAY
(The above chart is clearly saying that today according to market situation many people are quite satisfied with the return they are Getting.)
9. HAD YOU INVESTED IN ANY OTHER MUTUAL FUNDS (A)RELIANCE MUTUAL FUNDS
(As people are specialized in market more the investors they all are Investing in HSBC if not in UTI because HSBC is the world’s local bank And international old more than 200 year old company) 10. DO YOU ADVICE PEOPLE TO INVEST IN MUTUAL FUNDS (A)YES (B)NO (C)CANNOT SAY
35 34 33 32 31 30 29 28 27 ADVICE TO OTHERS
YES NO CANNOT SAY
NOTE: As mutual funds is the subject to market so people generally does not Like to give advice to others as it is a risky business.
FINDINGS AND CONCLUSIONS
Findings and conclusions: * The NFO is found to be a complex activity calling for creating an organization polling the knowledge and expertise of people in different areas. * The NFO process is simple and well structured as long as it is to investor to investor, but thereafter the process is lengthy time consuming and found to be overlapping at some stages. * The SEBI regulations governing NFO are comprehensive and protect investor's interest at each level. * Different funds have been designing different forms of applications for NFO. * An analysis of sample of applications revealed the following O O O O O O O O O O O Majority applicants prefer to hold the units individually. Majority of the applicants are in service. NRI s share is about 4% of the total. More than 2/3 rd of the applicants are HUF s. The model age group is 31-60. The most common investment amount is 5000-25000. About half of the applicants prefer Growth option. Almost all applicants make the payments by cheques. There were no NRO, NRE and FCNR accounts. Majority the applicants are male, and. Majority applications are from state of Maharastra
SUGGESTIONS AND RECOMMENDAIONS
Suggestions and recommendations: * Different funds have been using different forms of applications. A standardized form of application maybe designed by the competent authority and should be made mandatory for all funds to use the standard application form. * The NFO process is very complex and there is a need to simplify the process by eliminating certain unnecessary steps in the process ie instead of carrying out audit for three times and appropriate internal check system maybe devised to keep the errors within the tolerance limits. * The NRI subscribers to the fund maybe encouraged to make the payments from NRO, NRE and FCNR accounts. * The application from institutional investors and foreign institutional investors are to be encouraged through a package of incentives. * The participation of senior citizens in the NFO s may be encouraged as they are likely to hold more surpluses compared to others. * * The holding of units in joint names shall be encouraged. There is a need to investigate the reasons for HUF s occupying more than 2/3rd share in the non-individual applications as its not a body corporate. * A savings from all channels of India / World are to be tapped by the NFO rather than one or two states applying for a loin share of the option. 69
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www.amfiindia.com NFO propeller of India info line. NFO records of Reliance Mutual Fund. Mutual Funds in India by H SADHAK.