The Mutual Fund Industry: A View of Agents and Advisors on Micro Sip s (Systematic Investment Plan)

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1 The Mutual Fund Industry: A View of Agents and Advisors on Micro Sip s (Systematic Investment Plan) Dr. Swati Bandi Teaching Consultant, Faculty of Management Studies, MLSU, Udaipur ABSTRACT Mutual Funds provide a platform for a common investor to participate in the Indian capital market with professional fund management irrespective of the amount invested. The Indian mutual fund industry is growing rapidly and this is reflected in the increase in Assets under management of various fund houses. Mutual fund investment is less risky than directly investing in stocks and is therefore a safer option for risk averse investors. Mutual Funds are now provided with an innovative strategy of Micro SIP which requires very low investment and will be treated as boon to rural and poor urban people. However it has been observed that most of the investors are not aware of the benefits of investment in mutual funds. This paper makes an attempt to identify various factors and perception of agents and advisors regarding investment in Mutual fund s Micro SIP. The finding will put light on the investment pattern they follow, their collection habits, whether they are ready to do tie ups for selling micro SIP and even their view of towards financial inclusion and economic development through investment in Mutual Fund. Key words: AMC (Asset Management Company), AUM (Asset Under Management), SIP (Systematic Investment Plan), Micro SIP, Financial inclusion, Economic Development. INTRODUCTION An Investment in knowledge pays the best interest (Benjamin Franklin) The Indian capital market has been increasing tremendously during last few years. With the reforms of economy, reforms of industrial policy, public sector, and the financial sector, the economy has been opened up and many developments have been taking place in the Indian capital market. In the present era, mutual funds have appeared as the key player of saving and investment process. Most of the retail investors have been showing keen interest in the structured financial operation. With the growing emphasis on the adoption of well structural professional management of investments, the role of mutual fund has assumed greater significance. Mutual fund is an innovative financial instrument, and investment vehicle for investors who pool their savings for investing in diversified portfolio of securities, with the aim of attractive yields and appreciation in their value. Mutual funds have really moved into retail attention in last few years. A stock market that has given super normal rewards to regular investors in equity fund, a maturing industry, the desire of urban mass affluent to control the pace and direction of wealth creation, and regulations that are just a step behind, have all worked together to make mutual fund come into their own. A Mutual fund is a single, large professionally managed investment organization that combines the funds of many individual investors having similar investment objectives. It designs its schemes to meet the needs of different types of investors in terms of nature of investment, dividend, distribution and liquidity etc. The entire income and profits are distributed to the investor in portion to their investments. However, expenses for managing the fund are charged to the fund. Mutual fund activity has come to play an important role in our wealth creation and development efforts. Importance of the Study: Many studies are done regarding Mutual Fund investment and their performance but no study is being done to know the view of agents and advisors towards the investment in Micro SIP 1343 Dr. Swati Bandi

2 Objectives of the study: 1. To know the collection pattern of agents and advisors 2. To understand the various kinds of service offerings they do. 3. To understand the collection pattern they follow. 4. To analyze whether AMC s are ready to do tie up to sell Micro SIP. International Journal of Engineering Technology Science and Research Research Methodology: The data for the study has been derived from both Primary as well as secondary sources. The secondary sources include, internet, journals, magazines, books, publications of various research agencies like, KPMG, Pricewaterhousecooper, ALW, etc. and RBI Report. The data has been properly analyzed and interpreted to draw conclusion and inferences. The Primary data consist of structured Questionnaire, which provides the view of Agents and advisors and investment done through Micro SIP. 1.1 WHAT IS MUTUAL FUND The basic of a mutual fund is the pooling concept that pool money from a cross-section of investors by issuing units, constructs a diversified portfolio of stocks, bonds and other investment instruments, and invests the same in the capital markets. But before they can mobilize resources and invest them in the capital market, they have to be registered with the regulating authority of the country. The flow chart below describes broadly the working of a mutual fund: Figure 1.1: The working of a mutual fund Source : Understanding Mutual Fund. Tata Mc Graw Hill Publication Structure of Mutual Fund In India, the mutual fund industry is highly regulated with a view to imparting operational transparency and protecting the investor's interest. The structure of a mutual fund is determined by SEBI regulations. These regulations require a fund to be established in the form of a trust under the Indian Trust Act, A mutual fund is typically externally managed. It is now an operating company with employees in the traditional sense. Instead, a fund relies upon third parties that are either affiliated organizations or independent contractors to carry out its business activities such as investing in securities. A mutual fund operates through a four-tier structure. The four parties that are required to be involved are a sponsor, Board of Trustees, an asset management company and a custodian Dr. Swati Bandi

3 . Figure 1.2: Participants in Mutual Fund International Journal of Engineering Technology Science and Research Trustees Unit Holders The Mutual Fund Sponsors Custodian Transfer Agent SEBI AMC Source: Authors Own 2. TYPES OF MUTUAL FUND Various Mutual Fund schemes are available to cater to the needs such as financial position, risk tolerance and return expectations etc. The figure below gives an overview into the existing types of schemes in the Industry. Figure 1.3: Types of Mutual Fund Functional Portfolio Geographical Others Open- ended funds Close Ended funds Interval Funds Income Funds Growth Funds Balanced Funds Money Market Mutual Funds Domestic Funds Off- Shore Funds Sectoral Specific Funds Tax Saving Funds ELSS Funds Special Funds Gilt Funds Load Funds Index Funds ETF's Source: Mutual Fund: An Introduction to the Core Concepts John Wiley & Sons (Asia) Pvt Ltd ISBN 1345 Dr. Swati Bandi

4 3. ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS Advantages of Mutual Fund Diversification Professional Management Well Regulated Liquidity Convenience and flexibility Low cost Transparency Choice of Scheme Low cost Disadvantages of Mutual Fund Poor Performance Too Many Choices Expenses 4. STRATEGIES FOR INVESTING IN MUTUAL FUND Investors are generally risk averse, and lack expertise to analyze the stock market directly, therefore Mutual fund offers them an opportunity to invest in well-diversified basket with highly qualified professional managers which take care of their investment. Systematic Investment Plan, Systematic Withdrawal Plan and Systematic Transfer Plans are neither mutual fund nor funds, but these are investment strategies through which we can invest in various special schemes. 4.1 Systematic Investment Plan A specific amount should be invested for a continuous period at regular intervals under this plan. SIP (Systematic Investment Plan) is exactly like a recurring deposit. It s a form of investment in which a fixed sum regularly invested in a mutual fund. SIP allows the investor to buy units on a given date of every month. The amount has to be decided only subject to minimum threshold of the mutual fund scheme. While the investor's investment remains the same, more number of units can be bought in a declining market and less number of units in a rising market. The investor automatically participates in the market swings once the option for SIP is made. Whatever be the market scenario, SIP's in long run always give positive returns and that to much higher than fixed investment returns. SIPs follow the principle of time value of money which shows the relationship between value of a rupee today and the value of a rupee in the future. This is mainly due to the power of compounding which refers to the process by which interest is earned on interest. Many new innovations made in SIP are as follows: A. Micro SIP: These are the new breed of SIP, which cater specifically to people who want to divert their savings in very small amount into mutual funds and even for lower income group who cannot invest more money in mutual fund. As mutual fund penetration is very low, most of the fund houses launched Micro SIP, where your regular contribution is as low as Rs100 per month. This is suitable for retail investors who have low income base such as rickshawala, milkman, vegetable man, fruit seller, hawkers etc. B. Daily SIP: To beat market fluctuations, some fund houses are offering daily SIP. This means, specific amount is invested in a mutual fund scheme on a daily basis. So, in this type of innovation it takes rupee cost averaging advantage more effectively which leads to good returns with low level of risk. C. Flexi SIP: In this type of SIP, we have flexibility to select our regular contribution for a particular month. Through Flexi-SIP, investors will have more control over their monthly investments. Simply saying, each month the investor has a choice to set the value of SIP for the next installment. This value will vary in the range of minimum SIP amount required and the maximum set by the investor. This generally varies from 1,000 to 10,000 rupees per month Dr. Swati Bandi

5 4.2: Systematic Withdrawal Plan (SWP) This is the Systematic way to withdraw amount at a specific interval over a defined timeframe. Either you can withdraw monthly or quarterly or yearly. Investment in Mutual Fund is withdrawn before 12 months then investors need to pay exit load of 1% percent and as per the policy or as applicable. 4.3: Systematic Transfer Plan Where investor invest lump sum amount in one scheme and regularly transfers, a pre determined amount into other scheme. Every month on a specified date and amount is being choose to transfer from one mutual fund scheme to another scheme. Suppose if you have Rs 6 lacks lump sum to invest and you want to invest in Debt fund, The steps you will have to follow are : 1. Choose good Debt Fund or Floating Rate Mutual Fund From an good AMC which allows STP to Equity Oriented Scheme 2. Invest all the money in the Debt Fund 3. Investor can start a 10k/20k/30k per month STP from Debt fund or Floating Rate Fund to Equity Oriented fund. 5. VIEWS OF AGENTS AND ADVISORS A separate questionnaire was designed to collect data from investment agents/ advisors, this section of chapter deals with the analysis of primary data collected from 40 agents/advisors. 5.1 Professional Industry License Agents were asked that which type of professional industry license they have, and results are listed in table It can be seen from the table that 75% agents have professional industry license of mutual fund, 30% agents have license of securities, 25% agents have insurance license, 15% agents have license to deal in banking products and 15% agents also have some other kinds of professional industry license. Table 5.1: Professional Industry License Type of Professional License of Percentage of of Percentage of Respondents Respondents Respondents Respondents Mutual Fund Securities Insurance Banks Others Chart 5.1: Professional Industry License Mutual Fund Securities Insurance Banks Others 1347 Dr. Swati Bandi

6 5.2 Professional Experience It has been observed that majority of agents (40%) are working from last 5-10 years as a financial advisor followed by 30% agents who are working from less than 3 years. 15% agents have professional experience of 3 to 5 years and 15% advisors are offering financial services from more than 10 years. Table 5.2: Professional Experience Professional Experience of Respondents Less Than 3 Years to 5 years to 10 years More than 10 Years 6 15 Chart 5.2: Professional Experience More than 10 Years 15 5 to 10 years 40 3 to 5 years 15 Less Than 3 Years Kind of Services Offering An agent can offer tax saving, debt oriented, equity diversified and balanced service. Out of the total agents taken under study 75% are offering all types of services, while 10% agents are offering only either equity diversified services or debt oriented service. 5% agents are only offering tax saving services. Table 5.3: Kind of Services Offering Currently offered Service of Respondents 1348 Dr. Swati Bandi Tax Saving 2 5 Debt Oriented 4 10 Equity Diversified 4 10 Balanced 0 0 All of the above 30 75

7 Chart 5.3: Kind of Services Offering Tax Saving Debt Oriented Equity Diversified Balanced All of the above 5.4 Collection Pattern Maximum number of agents (65%) follow monthly collection pattern followed by daily basis (20%), weekly basis (10%) and yearly basis (5%) Table 5.7.4: Collection Pattern Collection Pattern of Respondents Daily Basis 8 20 Weekly Basis 4 10 Monthly Basis Quarterly Basis 0 0 Half yearly Basis 0 0 Yearly Basis 2 5 Chart 5.4: Collection Pattern Yearly Basis 5 Halfyearly Basis 0 Quarterly Basis 0 Monthly Basis 65 Weekly Basis 10 Daily Basis Dr. Swati Bandi

8 5.5 Interest in Selling Micro SIPs Agents were asked to show their interest in selling Micro SIPs. 75% agents (N=30) are willing to sale Micro SIPs while rest 25% agents are not interested in selling SIPs Table 5.5: Interest in Selling Micro SIPs Interested in Selling Micro SIP's of Respondents Chart 5.5: Interest in Selling Micro SIPs 25% 75% 5.6 Retail Investors Awareness about Micro SIP's It has been found that 70% retail investors are aware about Micro SIPs while rest 30% retail investors do not have any idea about Micro SIPs Table 5.6: Retail Investors Awareness about Micro SIP's Retail investor awareness about Micro SIP's of Respondents Dr. Swati Bandi

9 Chart 5.6: Retail Investors Awareness about Micro SIP's 30% 70% 5.7 Investment Percentage in Micro SIP's According to agents maximum of their clients (50%) invest less than 5% of total investment in SIPs. 30% clients invest 5% to 10% followed by equal number of clients (10% each) who invest 10% to 15% and 15% to 20%. t a single client invest more than 20% in SIPs. Table 5.7: Investment Percentage in Micro SIP's Investment Percentage in Micro SIP's of Respondents Less than 5% % to 10% % to 15% % to 20% 4 10 More than 20% 0 0 Chart 5.7: Investment Percentage in Micro SIP's More than 20% 0 15% to 20% 10% to 15% % to 10% 30 Less than 5% Dr. Swati Bandi

10 5.8 Interested in Daily Collection Only 40% agents are interested in daily collection for selling Micro SIPs while rest 60% agents do not wish to collect amount daily from clients. Table 5.8: Interested in Daily Collection Interested in daily collection for Micro SIP's of Respondents Chart 5.8: Interested in Daily Collection 60% 40% 5.9 In selling Micro SIP's expenses meet to commission 55% agents reported that in sale of SIP, their expenses met with the commission they receive, on the counter side 45% agents denied with this fact. Table 5.7.9: In selling Micro SIP's expenses meet to commission In selling Micro SIP's expenses meet to commission of Respondents Dr. Swati Bandi

11 Chart 5.9: In selling Micro SIP's expenses meet to commission 45% 55% 5.10 Interested in Selling Micro SIP's for financial inclusion Respondents were requested to share their view that would they like to sell Micro SIP for financial inclusion and it was observed that 80% agents are willing to do so. Table 5.10: Interested in Selling Micro SIP's for financial inclusion Interested in Selling Micro SIP's for financial inclusion of Respondents Chart 5.10: Interested in Selling Micro SIP's for financial inclusion 20% 80% 1353 Dr. Swati Bandi

12 5.11 Tie up to sell Micro SIP All those agents who are ready to sell Micro SIP were asked that weather they are interested in tie up with any party to sell Micro SIP, and responses are recorded in table Maximum agents (25% each) would like to tie up with Self health groups & business correspondents followed by bank literacy programs (18.5%), 12.5% agents don t need any tie up while 12.5% respondents would like to tie up with all available parties. Only 6.25% agents are willing to tie up with NGO s. Table 5.11: Tie up to sell Micro SIP Interested in tie up with of Respondents Percentage of Respondents Self help group 8 25 NGO's Business Correspondents 8 25 Bank Literacy program On Own All Total Chart 5.11: Tie up to sell Micro SIP All 12.5 On Own 12.5 Bank Literacy program Nbusiness Correspondents 25 NGO's 6.25 Self help group Highest Selling product It has been observed that 82.5% agents are selling Mutual funds, 25% agents are selling securities, 15% agents are selling insurance policy & ponzi schemes and only 5% agents are selling Rd s & FD s 1354 Dr. Swati Bandi

13 Financial Product You sell the most International Journal of Engineering Technology Science and Research Table 5.12: Highest Selling product of Respondents Percentage of Respondents of Respondents Percentage of Respondents Post Office Deposit Insurance Policy Securities Investment in NBFC & Ponzi schemes Banks deposits (RD's/Fd's) Mutual Fund Chart 5.12: Highest Selling product Mutual Fund Banks deposits (RD's/Fd's) Investment in NBFC & Ponzi schemes Securities Insurance Policy Post Office Deposit FINDINGS FROM AGENTS AND ADVISORS We have interviewed around 40 agents and advisors who are the providers of various financial services and have the experience of three years. It was found that maximum number of agents and advisor i.e, 75% of them are interested in offering all the type of services like tax saving, debt oriented and equity diversified because different customer have different needs of saving and investment so they offer all the types of services in order to fulfill the customer needs. It was found that the 75% of agents and advisor who are interested in selling Micro SIP out of which 80% of these agents and advisors have attained only 5 to 10% of total investment in Micro SIP, not single agents have attained even 20% of their total investment done through micro SIP in a month. Major cause of not investing through Micro SIP is lack of awareness among the people and sometimes agents and advisors also don t focus because of less investment amount. Respondents were asked to indicate their interest towards daily collection for selling micro SIP, 60 % of the agents and advisors were not interested in daily collection they were much more interested in monthly collection because their expenses won t meet the commission if they go for daily collection Dr. Swati Bandi

14 Very important finding that 80% of the agents and advisors are interested in selling Micro SIP for Financial Inclusion. All those agents who are ready to sell Micro SIP for financial inclusion were asked that weather they are interested in tie up with any party to sell Micro SIP, and responses are recorded Maximum agents (25% each) would like to tie up with Self health groups & business correspondents followed by bank literacy programs (18.5%), 12.5% agents don t need any tie up while 12.5% respondents would like to tie up with all available parties. Only 6.25% agents are willing to tie up with NGO s. It has been observed that out of the total agents and advisor interviewed 82.5% agents are selling Mutual funds, 25% agents are selling securities, 15% agents are selling insurance policy & ponzi schemes and only 5% agents are selling Rd s & FD s 7. CONCLUSION: The Indian Mutual Fund industry is poised to play a significant role by harnessing the emerging technological innovations and regulatory measures. The recent and new innovation in Mutual Industry is Micro SIP which is perfect match for creating Financial Inclusion, which channelizes the rural and poor urban people into our system with the regardless benefits of wealth creation. It has been observed that out of the total agents and advisor interviewed 82.5% agents are selling Mutual funds, out which maximum agents are ready to sell Micro SIP just not for their benefit but for the development of our economy which shows a very positive sign and a step towards success. REFRENCES: Avadhani, V.A. (2011), Securities Analysis and Portfolio Management, Himalya Publishing House, New Delhi. Baid, Rachana (2007), Mutual Funds Products and Services, Taxmann Publication Private Limited, New Delhi. Griffeth, Bill (1995), The Mutual Fund Masters, Vision Books, New Delhi. Gupta, L.C. and Choudhury, Utpal K. (2001), How Good are Mutual Funds-The Household investors Perceptions, Society for Capital Market Research and Development, New Delhi. Fabian, D. (2000).The mutual fund wealth builder : a profit-building guide for the savvy mutual fund investor. McGraw-Hill publications, p:236. Gupta, A. (28 August 2011). Mutual Funds Better For Small Investors. The Economic Times. Plan (SIP) A Case study Of Service Class.The Journal of Sri Krishna Research & Educational Consortium. Vol 2 (3). Kumar, D. (22 Aug 2011). There Can Be Hardly a Better Time Than w To Start A SIP (Systematic Investment Plan). The Economic Times. Lohar, P. M. (2014). Growth of Mutual Funad In India. ACME International Journal of Multi Disciplinary Research, 2 (4), Purohit, H., Sharma, P. (2011) A Study OF Mutual Fund Industry and Profile of Investor & Their Behavior With Special Reference To Rajasthan, SHARE Journal of Multidisciplinary Research & Studies, Vol 2 (4) pg Atmaramani, K. N. (2001), Mutual Funds: The Best Avenue For Investment, Chartered Secretary, Vol. XXXI,. 1, pp Banerjee, Arindam (2006), Mutual Funds: Wealth Creation Through Systematic Investment Plans, ICFAI Portfolio Organizer, pp Dr. Swati Bandi