Mutual Funds Introduction

INTRODUCTION

Financial management is that managerial activity which is concerned with planning and controlling of firms financial resources. Financial management is concerned with rising of funds and their effective utilization keeping in view the overall objective of the firm financial management is one of the four important functional areas of the management. The major objective of any business field of a firm is to make a profit for its owners by producing goods or services for sale in the market. To reach the goal, the firm purchases the various factors of production and produces the output in cell. The all process requires fund. Finance may be said in the circulatory system of economic body of the firm.

                       

                       Financial management is that administrative area or set of administrative functions, while related the arrangement of each and credit so that the organization have the means to carryout is objectives as satisfactorily as possible. The central features is financial managements is its formulation of firm’s strategy in determining the most effective use of the funds, currently it the disposal the firm and is selected the most favorable sources of additional funds that the firm will need in the near future.

                       To define financial management as an application of general management principles to the area of financial decision making in the word of Weston and Brigham. Financial management is an area of financial decision making harmonizing individual motives and enter prizes goal. Financial management in the modern sense of the term can be broken down into three major decisions as functions of finance. There are –

 A. The investment decision

B. The financing decision.

C. The dividend policy decision

Investment decision is broadly consigned with investment project of assets. The main idea is maximization of owner’s wealth. Decision is taken to maximize the benefits of equity share holders.

                    

                  Financial decision major second decision of the firm is the financial manager is concerned with determining the best management will decide how much funds should be provided from outside public and financial institutions.

                      Divided decision every company after making profits it may distribute to its shareholders and it may retain therefore the top management decides how much is retained and distributed to equity shareholders. These earnings are called earning avail to equity shareholders. It can meet future expenses and programs it can construct new project without getting investment funds. These earnings can be retained or distributed t equity shareholders.

MEANING

                      

                    Financial management is an organizational activity that is concerned with the financial resources. In common parlance is derived as providing monitory resource at the time they are required. But financial management covers the mobilization and effective utilization of funds.

 

DEFINITION OF FINANCIAL MANAGEMENT

                                 

                    Financial management is defined as “the business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and over all objectives of business enterprise.”

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                  “Financing consists in the raising, providing & managing all the money, capital (or) funds of any kind to be used in connection with the business.”

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 NATURE OF FINANCIAL MANAGEMENT

                           

                         Financial management is that managerial activity which is concerned with the planning and controlling of firm’s financial resources. As a separate activity or discipline it is of recent origin it was a branch of economics till 1980. Still today it has no unique body of knowledge of its own, and it draws heavily on economics for its theoretical concepts

                       

                         The subjects of financial management are of immerse interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing, and there are still certain areas where controversies exist for which no unanimous solutions have been reaching as yet.

                        

                          Practicing managers are interested in this subject because among the most crucial decisions of the firm’s are those which relate to finance and an understanding of the financial management provides them with conceptual and an understanding of the theory of financial management provides them with conceptual and analytical insights to make those decisions skillfully.

SCOPE OF FINANCIAL MANAGEMENT

                   

             Sound financial management is essential in all types of organizations whether it be profit or non-profit. Financial management is essential in a planned economy as well as in a capitalist set-up as it involves efficient use of the resources.

                From time to time it is observed that many firms have been liquidated not because their technology was obsolete or because their products were not in demand or their labour was not skilled and motivated, but that there is a mis-management of financial affairs. Even in a boom period, when a company make high profits there is also a fear of liquidation because of bad financial management

                     

                Financial management the out put from the given input of funds. In a country like India where resources are scarce and the demand for the funds are many, the need of proper financial management is required in case of newly started companies with a high growth rate. So, it is more important to have sound financial management.

FINANCIAL GOAL: PROFIT VS. WEALTH

                    

                         The firm’s investment and financing decision are unavoidable and continuous. In order to make them rationally, the firm must have a goal. It is generally agreed in theory that the financial goal of the firm should be the maximization of owners economic welfare could be maximized by maximizing the shareholder’s wealth as reflected in the market value of the shares. In this selection, we show that the Shareholder’s wealth maximization (SWM) is theoretically logical and operationally feasible normative goal for guiding the financial decision making.

PROFIT MAXIMIZATION

                                  The objective of financial management is the same as the objective of the company which is to earn profit. But profit maximization alone cannot be the sole objective of the company. It is a limited. The term profit is vague and it involves much more contradiction.

WEALTH MAXIMIZATION

                                 It is commonly understood that the objective of a firm is to maximize value and wealth. The value of a firm is represented by the market price of the companies of the stock. The market prices of a firm’s stock represent the assessment of all market participants as to what the value of the particular firm is. It takes in to account present and prospective future earnings per the timing and risk of these earning, the dividend policy of the firm and many other factors that bear upon the market price of the stock.

NEED OF FINANCIAL MANAGEMENT

·         It assists in the assessment of financial needs internal and external resources for meeting them.

·         It assesses the efficiency and effectiveness of financial institutions in mobilizing individual corporate savings. It also prescribes various means for such mobilizations of savings into desirable investment channels.

·         It assists the management while investing the funds in profitable projects by analyzing the viability of that project through capital budget techniques.

·         It permits the management to safe guards the interests of shareholders by utilizing the funds procured from different sources and it also regulates and controls the funds to get maximum use.

 NEED OF THE STUDY

                              Financial statements are the instruments to watch out the performance of the business enterprise. They highlight a managerial performance attesting managerial success or failure and the flashing signals of impending difficulties. Calculations of compound annualized returns are a technique of analyzing the financial information contained in the annualized fact sheet

INTRODUCTION TO MUTUAL FUNDS

An open fund operated by investment company/trust which raises money from shareholders /unit holders and invests in a group of assets, in accordance with a stated set of objectives. Mutual funds raise money by selling shares/units of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares/units (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares/units, share holders/unit holders receive a position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders /unit holders are free to sell their shares/units at any time, although the price of a share /unit in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Share holders/unit holders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund. Mutual fund investors make money either by receiving dividends and interest from their investments, or by the rise in value of the securities. Dividends, interest and profits from the sale of any securities /units (capital gains) are passed on to the shareholders in the form of distributions. And shareholders/ unit holders generally are allowed to sell (redeem) their shares/units at any time for the closing market price of the fund on that day

TYPES OF MUTUAL FUND SCHEMES  

Equity Diversified Schemes

These schemes mainly invest in equity. They seek to achieve long-term capital appreciation by responding to the dynamically changing Indian economy by moving across sectors such as lifestyle, Pharma, cyclical, technology etc.

Sector Schemes

These Schemes focus on particular sector such as IT, Banking, Reality, Natural Resources etc. They seek to generate long-term capital appreciation by investing in equity and related securities of companies in that particular sector.

Index Schemes

These Schemes aims to provide returns that closely correspond to the return of a particular stock market index such as BSE Sensex, NSE Nifty, etc. Such Schemes invest in all the stocks comprising the index in approximately the same weightage as they are given in that index.

Exchange Traded Funds (ETFs)

ETFs invest in stocks underlying a particular stock index like NSE Nifty or BSE Sensex. They are similar to an index fund with one crucial difference. ETFs are listed and traded on a stock exchange. In contrast, an index fund is bought and sold by the fund and its distributors.

Equity Linked Saving Schemes (ELSS)

These work on similar lines as diversified equity funds and seek to achieve long-term capital appreciation by investing in the entire universe of stocks. The only difference between these funds and equity-diversified funds is that they demand a lock-in of 3 years to gain tax benefits under section 80c.

Dynamic funds

These Schemes alter their exposure to different asset classes based on the market scenario. Such funds typically try to book profits when the markets are overvalued and remain fully invested in equities when the markets are undervalued. This is suitable for investors who find it difficult to decide when to quit from equity.

Balanced Schemes

These Schemes seek to achieve long-term capital appreciation with stability of investment and current income from a balanced portfolio of high quality equity and fixed –income securities. These schemes are risk profile is medium.

Medium-Term Debt Schemes

These Schemes have a portfolio of debt and money market instruments where the average maturity of the underlying portfolio is in the range of one to two years.

Short-Term Debt Schemes

These schemes have a portfolio of debt and money market instruments. Where the average maturity of the underlying portfolio is in the range of one to two years.

Money Market Debt Schemes

These Schemes invest in debt securities of a short-term nature, which generally means securities of less than one-year maturity. The typical short-term interest-bearing instruments these funds invest in Treasury Bills, Certificate of Deposit, Commercial Paper and inter-bank call money market.

Short-Term Gilt Schemes

These Schemes invest in government securities. The Securities invested in are of short to medium term maturities.

Floating Rate Funds

They invest in debt securities with floating interest rates, which are generally linked to some benchmark rate like MIBOR (Mumbai Inter Bank Offer Rate). Floating rate funds have a high relevance when interest rates are on the rise helping investors to ride the interest rate rise.

INTRODUCTION TO PORTFOLIO MANAGEMENT

Investing in securities such as shares, debentures and bonds are profitable as well as exciting. It in deeds it involves a great deal of risk. It is rare to find investors investing their entire saving in a single security. Instead, they tend to invest in a group of securities. Such, group of securities is called as portfolio creation of a portfolio helps to reduce risk without sacrificing returns.

WHAT IS PORTFOLIO MANAGEMENT

An investor considering investment in securities is faced with the problem of choosing from among a large number of securities. His choice depends upon the risk-return characteristics of individual securities. He would attempt to choose the most desirable securities and like to allocate his funds over the group of securities. Again he is faced with the problem of deciding which securities to hold and how much to invest in each.

The investors face an infinite number of possible portfolio or group of securities. The risk and return characteristics of portfolios defer from those of individual securities combining to form a portfolio. The investors try to choose the optimal portfolio taking into consideration the risk-return characteristics of all possible portfolios.

As the economic and financial involvement keeps changing the risk-return characteristics of individual securities as well as portfolios also change. An investor invests his funds in a portfolio expecting to get a good return with less risk to bear.

Portfolio management comprises all the processes involved in the creation and maintance of an investment portfolio. It deals specifically with security analysis, portfolio analysis, portfolio selection, portfolio revision and portfolio evaluation

SCOPE

The Scope of the project is confined to the Mutual Fund Industry. Moreover it is confined to study of portfolio management of equity diversified funds. Which includes the observation of variability in sector allocation and asset mix parameters of the equity funds? And try to reveal how the equity funds able to sustain its return in various market conditions.

OBJECTIVES OF THE PROJECT

·         To study and understand the concept of MUTUAL FUNDS.

·         To study and understand the process of investing in Mutual Funds.

·         To study the fund performance of RELIANCE MUTUAL FUND LTD.

·         To analyze the Returns of Mutual Fund schemes.

·         To understand the role of an Asset Management Company in managing the different Sector equity  Schemes.

·         To study the relative asset mix and sector allocation of Sector equity schemes  in monthly portfolios which ultimately drive the fund towards achieving investment objective.

LIMITATIONS OF THE PROJECT

·         Considerable information has been extracted from the Reliable sources and documents provided by the company. If any incorrect information is furnished in these documents, the same will be carried forward in this project work.

·         This analysis is made on the basis of primary and secondary data.

·         Although there are number of schemes available in the market more emphasizes given to equity linked saving schemes.  

·         This study has been limited to the information which is willingly shared by the authorities of Reliance Capital  Asset Management Company limited.

·         The findings of this study cannot be generalized for all the  Sector equity schemes as every fund has its own fund.

METHODOLOGY

           

             Methodology is an intensive and purposeful search for knowledge and for the understanding social and physical phenomenon. It is the method for the discovery of true values in a scientific way. There are two sources of data.

1.        Primary data  and

2.        Secondary data

 

PRIMARY DATA

The primary data is collected from the discussion with the functional managers, officers, staff and other members of the organization. Primary data is the data, which has been collected directly from the people of the organization. It is also called as first hand data.

 

SECONDARY DATA

The secondary data is obtained from Annual report financial statements i.e. balance sheet and profit and loss accounts reports, journals and other informational journals of the organization and from the text books of financial management. The secondary data are those which have been already collected by some agency arid which have been processed.  However in the study all the theoretical information’s obtained from primary data and all information is obtained from RELIANCE MUTUAL FUND LTD.

PLAN OF THE STUDY

Chapter 1:      Deals with “introduction, nature of financial management, scope of                                          financial management, need of financial management, objectives, need of the study, methodology, limitations, plan of the study & period of the study”. 

Chapter 2:     Deals with “industry profile & company profile”.

Chapter 3:      Deals with “Theoretical frame work of mutual funds.

Chapter 4:      Deals with “Data analysis consisting of mutual funds.

Chapter 5:      Deals with “findings & suggestions”.

PERIOD OF THE STUDY

         The data taken from since inception of the company are taken into consideration as the period of the study in this project. My study in the company was between 21-07-2011 to 27-08-2011.