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EXECUTIVE SUMMARY

In few year investment advisory services has emerged as a tool for ensuring one’s financial

well being. Advisory services has not only contributed to the Individual growth story but

have also helped economy to mobilize the savings. As information and awareness is rising

more and more people are enjoying the benefits of investment advisory services. The

reason for low number of people investing with investment advisory services is low

awareness among people about financial services available and their benefits. But once

people are aware of investment advisory services, the number may grow.

This Project gave me a great learning experience and at the same time it gave me enough

scope to implement my analytical ability. The analysis and advice presented in this Project

Report is based on market research on the saving and investment practices of the investors

and preferences of the investors for investment in fixed deposits and other options. This

Report will help to know about the investors’ Preferences in making investment. Report

will help us know how does a investor weigh fixed deposits against other investment

options like insurance, mutual funds, NSCs. It will also help us to know that what are the

factors which affects the investment decision of investor, whether it is being affected by

brand name, security or ratings by CRISIL or ICRA, or type of deposit i.e. company

deposits, secured deposit.

The first part gives an insight about Fixed deposit and other investment options and its

various aspects, the Company Profile, Objectives of the study, Research Methodology.

One can have a brief knowledge about Investment options and its basics through the

Project.

The second part of the Project consists of data and its analysis collected through survey

done on 343 people. For the collection of Primary data I made a questionnaire and

surveyed of 343 people. I also taken interview of many People those who were coming at

Banks and their ATMs. This Project covers the topic “ANALYSIS OF INVESTMENT

OPTIONS WITH FOCUS ON FIXED DEPOSIT.” The data collected has been well

organized and presented. I hope the research findings and conclusion will be of use.

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OBJECTIVE OF THE PROJECT

The main objective of undertaking the project with Mahindra Finance was to understand the

functioning of the investment division of a NBFC and analyze the various investment

options available in the Indian financial market. The main objectives of the project are:-

Understand the various investment options available in Indian market.

Concepts of Mutual Fund and Corporate Fixed Deposits

Understanding asset allocation and wealth management

Analyzing various Tax Saving options available

Understanding the marketing and promotional activities involved in promoting the

various investment products offered by Mahindra Finance.

Developing communication skills and presentation skills

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INTRODUCTION TO MUTUAL FUND AND ITS ASPECTS

Mutual fund is a trust that pools the savings of a number of investors who share a common

financial goal. This pool of money is invested in accordance with a stated objective. The

joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The

money thus collected is then invested in capital market instruments such as shares,

debentures and other securities. The income earned through these investments and the

capital appreciations realized are shared by its unit holders in proportion the number of

units owned by them. Thus a Mutual Fund is the most suitable investment for the common

man as it offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost. A Mutual Fund is an investment tool that allows small

investors access to a well-diversified portfolio of equities, bonds and other securities. Each

shareholder participates in the gain or loss of the fund. Units are issued and can be

redeemed as needed. The fund’s Net Asset value (NAV) is determined each

day. 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.

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Company Profile

Mahindra Finance is a subsidiary of the prestigious Mahindra & Mahindra (M&M) group

and is one of the leading non-banking financial companies. It largely focuses on the rural

and semi-urban sector providing finance for utility vehicles, tractors and cars. Having

been incorporated in January, 1991 as Maxi Motors Financial Services Limited, it

changed its name to Mahindra & Mahindra Financial Services Limited (MMFSL) in

November, 1992. MMFSL provides financial loans to tractors, utility vehicles, light

commercial vehicles, cars, three-wheelers and used vehicles. It also provides financial

services which include Mutual Fund distributions and financial advisory services.

Goal of MMFSL is to be the preferred provider of retail financing services in the rural

and semi-urban areas of India, while our strategy is to provide a range of financial

products and services to our customers through our nationwide distribution network. We

seek to position ourselves between the organised banking sector and local money lenders,

offering our customers competitive, flexible and speedy lending services.

Mahindra Finance principally finance UVs used both for commercial and personal

purposes, tractors and cars. While we predominantly finance M&M UVs and tractors, we

have continued to expand our lending to vehicles not manufactured by Mahindra &

Mahindra Ltd..

MMFSL is a company with a strong foundation and a shining legacy, growing every day

to create a legacy of our own. Our leading promoter Mahindra & Mahindra holds the

majority of our Equity Shares and is also a leading tractor and UV manufacturer with

over 60 years’ experience in the Indian market. As a supplement to our business, in May

2004, we started an insurance broking business through our wholly owned subsidiary,

Mahindra Insurance Brokers Limited.

In short, At Mahindra Finance they have a wide range of products and services, with

something to suit everyone’s needs. Right from finance for two wheelers, tractors, farm

equipment, cars and utility vehicles to commercial vehicles and construction equipment,

we also have a group of experts providing investment advice, surveying available market

products and choosing the most suitable to our customers’ needs.

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Investment Options in India

The table below compares the investment options under the broad heads viz. return, safety,

volatility, liquidity and convenience

Investment Option Convenience Return Safety Volatility Liquidity

Equity High High Low High High

FI Bonds Moderate Moderate High Moderate Moderate

CD’s Moderate Moderate Moderate Moderate Low

Company FD’s Moderate Moderate Low Low Low

Bank Deposits High Moderate High Low High

PPF Moderate Moderate High Low Moderate

Life Insurance Moderate Low High Low Low

Gold Moderate Low High Moderate Moderate

Real Estate Low High Moderate High Low

Mutual Funds High High High Moderate High

Table No.1 Comparison of Various Investment Options

MARKET SURVEY ON PREFERENCE OF MUTUAL FUNDS

The awareness of Mutual Funds as a financial instrument has been comparatively low in India.

Though the concept of mutual fund in India dates back to mid 1960s, but only around 2% of

India’s population has invested till date in mutual funds(Source: www. Amfiindia.com). Thus it was

very important to know about the investor’s preference towards Mutual Funds. It is always

crucial to be aware of the requirements of the potential customers and thus adjusting the schemes

accordingly. The questionnaire used for the survey is attached in appendix #. The survey was

conducted with a target population of 500 to determine the level of awareness about Mutual

Funds. The target population constituted of basically employees of IT Companies, who were in

the age group of 25-40years.

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Objective of the Survey:-

The prime objective of performing the survey was to understand the customer’s

preference and interest in various Financial Instruments, and especially in Mutual Fund.

Though Mutual Funds are a safer option than investing directly in the Equity market,

there has been very low awareness of MFs amongst the people and the masses are still

not comfortable in investing in this instrument.

MUTUAL FUND INDUSTRY IN INDIA

ALL ABOUT MUTUAL FUNDS

WHAT IS MUTUAL FUND

BY STRUCTURE

BY NATURE

EQUITY FUND

DEBT FUNDS

BY INVESTMENT OBJECTIVE

OTHER SCHEMES

PROS & CONS OF INVESTING IN MUTUAL FUNDS

ADVANTAGES OF INVESTING MUTUAL FUNDS

DISADVANTAGES OF INVESTING MUTUAL FUNDS

MUTUAL FUNDS INDUSTRY IN INDIA

MAJOR PLAYERS OF MUTUAL FUNDS IN INDIA

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

CATEGORIES OF MUTUAL FUNDS

INVESTMENT STRATEGIES

WORKING OF A MUTUAL FUND

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GUIDELINES OF THE SEBI FOR MUTUAL FUND

COMPANIES DISTRIBUTION CHANNELS

DOES FUND PERFORMANCE AND RANKING PERSIST?

PORTFOLIO ANALYSIS TOOLS

When an investor subscribes for the units of a mutual fund, he becomes part owner of the

assets of the fund in the same proportion as his contribution amount put up with the corpus

(the total amount of the fund). Mutual Fund investor is also known as a mutual fund

shareholder or a unit holder. Any change in the value of the investments made into capital

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market instruments (such as shares, debentures etc) is reflected in the Net Asset Value

(NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's

assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of

scheme's assets by the total number of units issued to the investors.

ADVANTAGES OF MUTUAL FUND

Portfolio Diversification

Professional management

Reduction / Diversification of Risk

Liquidity

Flexibility & Convenience

Reduction in Transaction cost

Safety of regulated environment

Choice of schemes

Transparency

DISADVANTAGE OF MUTUAL FUND

No control over Cost in the Hands of an Investor

No tailor-made Portfolios

Managing a Portfolio Funds

Difficulty in selecting a Suitable Fund Scheme

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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,

at the initiative of the Government of India and Reserve Bank. Though the growth was

slow, but it accelerated from the year 1987 when non-UTI players entered the Industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both

qualities wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase; the Assets under Management (AUM) was Rs67 billion. The private sector

entry to the fund family raised the Aim to Rs. 470 billion in March 1993 and till April

2004; it reached the height if Rs. 1540 billion.

The Mutual Fund Industry is obviously growing at a tremendous space with the mutual

fund industry can be broadly put into four phases according to the development of the

sector. Each phase is briefly described as under.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve

Bank of India and functioned under the Regulatory and administrative control of the

Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial

Development Bank of India (IDBI) took over the regulatory and administrative control in

place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of

1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of

India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June

1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda

Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up

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its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets

under management of Rs.47, 004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations came into being, under

which all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual

fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and

revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI

(Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual

funds with total assets of Rs. 1,21,805 crores.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of

India with assets under management of Rs.29, 835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and certain other schemes

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. consolidation and

growth. As at the end of September, 2004, there were 29 funds, which manage assets of

Rs.153108 crores under 421 schemes.

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CATEGORIES OF MUTUAL FUND:

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Mutual funds can be classified as follow:

Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at any

point of time.

Close-ended funds: These funds raise money from investors only once.

Therefore, after the offer period, fresh investments can not be made into the fund. If the

fund is listed on a stocks exchange the units can be traded like stocks (E.g., Morgan

Stanley Growth Fund). Recently, most of the New Fund Offers of close-ended funds

provided liquidity window on a periodic basis such as monthly or weekly. Redemption of

units can be made during specified intervals. Therefore, such funds have relatively low

liquidity.

Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses. However,

short term fluctuations in the market, generally smoothens out in the long term, thereby

offering higher returns at relatively lower volatility. At the same time, such funds can yield

great capital appreciation as, historically, equities have outperformed all asset classes in the

long term. Hence, investment in equity funds should be considered for a period of at least

3-5 years. It can be further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked.

Their portfolio mirrors the benchmark index both in terms of composition and individual

stock weightings.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading across

different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that they

invest in companies offering high dividend yields.

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iv) Thematic funds- Invest 100% of the assets in sectors which are related through some

theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector

fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the

risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual

funds vehicle for investors who prefer spreading their risk across various instruments. Following

are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors

averse to idea of taking risk associated with equities. Therefore, they invest exclusively in

fixed-income instruments like bonds, debentures, Government of India securities; and

money market instruments such as certificates of deposit (CD), commercial paper (CP) and

call money. Put your money into any of these debt funds depending on your investment

horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion

being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-

bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

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iv)Arbitrage fund- They generate income through arbitrage opportunities due to mis-

pricing between cash market and derivatives market. Funds are allocated to equities,

derivatives and money markets. Higher proportion (around 75%) is put in money markets,

in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi)Income funds LT- Typically, such funds invest a major portion of the portfolio in long-

term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure

of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of

the fund.

INVESTMENT STRATEGIES

1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed

date of a month. Payment is made through post dated cheques or direct debit facilities. The

investor gets fewer units when the NAV is high and more units when the NAV is low. This

is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give

instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same

mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then

he can withdraw a fixed amount each month.

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RISK V/S. RETURN:

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Scope of the study

A lot of ups and down has been witnessed by financial industry since January 2008, and

collapse of Lehman Brothers only added to worry of financial industry and bail out

packaged pleaded by international banks questioned the fundamentals of financial industry.

All this events had a direct or indirect effect on trust of investor and its attitude towards

financial industry, in specific investment services and banks. Due to which many of

companies faced problems in raising capital for further expansion of business and some of

them sought the way of fixed deposits seeing and assessing the present situation. The

research was carried in Bangalore. I was working on project from Jaynagar office of

Mahindra Finance, from where i carried out all the studies and completed my project. The

main focus of study has been towards fixed deposit industry and preference of investor for

fixed deposits. The study will help to know the preferences of the customers, which

company, portfolio, mode of investment, and option for getting return and so on they

prefer. This project report may help the company to make further planning and strategy.

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CORPORATE FIXED DEPOSITS

Company Fixed Deposit market in India has an interesting phase of evolution. It basically grew

out of the need of Corporate Sector for raising short term finance and requirements of small

investors to earn superior returns as compared to returns offered by the Banks. The concept of

company fixed deposits was started in India in 1964 by Bajaj Capital Ltd. by launching first ever

Company Fixed Deposit of Oberoi Group - East India Hotels Ltd.(now EIH Ltd.).The success of

East India Hotels prompted others private and public sector companies which started accepting

deposits from public.

Since then company deposit market has grown by leaps and bounds. Today, company deposit

market has grown to approximately Rs.25,000 crores. Hundreds of top companies belonging to

reputed industrial houses like Tata, Birla, Escorts, Godrej etc. and government companies like

HUDCO are accepting deposits from public. The number of depositors has increased to around 5

million.

The benefits of company deposit are numerous like superior returns from reputed companies,

fixed and assured returns, premature encashment, simplicity of transactions, TDS benefits, wide

choice, all these features have made company deposits a preferred instrument of investment.

Features:

Company Fixed Deposits are non transferable that means there is no fear of FD receipt being

stolen. In case it falls into wrong hands, it cannot be misused. The FD holder in such a case

should write to the company which shall issue duplicate deposit receipt upon execution of an

indemnity and cancel the previous one.

No income tax is deducted at source if the interest income is up to Rs 5000/-in one financial year.

One can spread his investment in more than one company, so that interest from one company

does not exceed Rs. 5000/-

Further, advantage of investing in company fixed deposits is that one can analyze the company

before investing in it because companies accepting deposits are old-established reputed

companies with proven track records.

It is also important that company fixed deposit should be made for short term, i.e., tenure

should be for 1-3 years depending upon the rate of interest. This will help the investor to

switch to other company if need be

Recently, nomination facility has been introduced in company fixed deposits.

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Recruiting students for summer internships:

In addition to dealing with the finance market we were assigned the task to recruit 50

MBA students for pursuing their summer internship at Mahindra Finance. This task

provided an opportunity to understand the HR aspects in addition to the finance and

marketing part of the training. It helped us analyze the recruitment policies of different

institutes as well as to know how one should represent a company. The students thus

recruited were assigned projects in either finance or marketing. The recruitment was done

mostly for the Bangalore centre of the company.

Corporate presentation:

In addition to the survey and the marketing activities conducted by me I was also asked

to fix up an appointment with a corporate house and present the investment options

Mahindra Finance has to offer with a special focus on the fixed deposits. I fixed up an

appointment with sonata software located in RT Nagar and gave the presentation in

front of 35 of their employees it was an enriching experience as this boosted up my

confidence to a great extent as it helped me market my products in front of the corporate.

Designing & Implementation of a Marketing Campaign for Fixed Deposit Scheme:-

Mahindra & Mahindra Financial Services Ltd. re-launched its fixed deposit scheme from 1st

January ’09 after 3 years. The interest rates were revised by the company on 20th April ’09. The

deposit came be made in 2 Schemes: Cumulative and non-Cumulative Scheme.

The salient features of our Fixed Deposit scheme are:-

Cumulative Schemes:-

Minimum Amount Period (Months) Amount Payable

(Rs.) Interest* p.a.

Effective Yield

p.a.**

Rs 10,000

12 10,900 9.00% 9.00%

18 11,430 9.25% 9.53%

24 11,990 9.50% 9.95%

36 13,310 10.00% 11.03%

Table No.2 Cumulative Scheme of Fixed Deposit

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Non-Cumulative Schemes:-

Minimum Amount Period (Months) Interest*# p.a

Rs 25,000

12 8.75%

24 9.25%

36 9.75%

Table No.3 Non-Cumulative Scheme of Fixed Deposit

* Senior Citizens/ Shareholders/ Employees will get an additional rate of 0.25% per annum.

# Interest payment half yearly on 30th

September and 31st March only through ECS

** Compounded Annually

Since the management had modified the interest rates of the FD schemes, we had to devise a

marketing campaign to promote the FD and increase the level of awareness amongst the potential

customers. The task which was more difficult was that these promotional activities should

necessarily be cost effective and can be implemented by individuals without any expenses

incurred by the company. We also had to give a corporate presentation on the Fixed Deposit

schemes in any organization with a minimum employee base of 20 and we also had to make sure

that the presentation was attended by at least 20 employees of the company. The promotional

activities I performed were:

Displaying Posters: This included displaying posters and banners at the

nearby bakeries and restaurants which included high frequency of people

who come in daily to these places

Pamphlets: This included distributing pamphlets to the people in the

nearby area to generate awareness for Mahindra fixed deposits to do this

at a large scale I made arrangements to distribute pamphlets through

newspaper vendors to cover a large area of population.

Some Innovative marketing: Stamping the tissues used at eateries and

restaurants, Creating awareness at the nearest election campaigns to

generate awareness of the product.

Market Survey: This included a survey which tried to capture the interest of the

respondents towards the Fixed Deposit.

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Empanel Fixed Deposit Agents:-

Following the promotional campaign for Mahindra Finance Fixed Deposits we were assigned the

task of recruiting agents/advisors for the same. These agents were supposed to empanel with

Mahindra Finance and subsequently they would be eligible for the commission as decided by the

company. The slab for commission is as follows:

Tenure of Fixed Deposit(in months) Commission (as %age of Amount invested) *

12 0.5

18 0.5

24 0.75

36 1.0

Table No.4 Brokerage of FD agents/Advisors

*An additional 0.25% would be paid if the agent gets a business of Rs 1 crore in a month and an

additional 0.5% would be paid if the agent rakes in a business of Rs 5 crore in a month.

In addition to being associated with Fixed Deposit an agent can also partner with Mahindra

Finance for selling Mutual Funds provided he/she is AMFI certified.

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FINANCIAL PLANNING

Wealth Management is the next step in financial planning. It challenges advisers, especially

those with high-net-worth clients, to bring together all aspects of a client's financial life into a

single plan-from investment advice to estate planning to long-term-care insurance. The

components, and the methods of approaching them, vary as widely as the number of practitioners

who are moving into this area.

We generally plan for everything we do in life, be it career, success, travel, shopping or family.

But most of us do not plan for financial security and hence peace of mind. Most of the times, we

do not have the time to think about our own financial management. If we do have the time, we

may lack the required knowledge, expertise and research capabilities. Hence, we often make

decisions but after a while realize its incorrectness. Financial Planning is a critical need and the

implementation of a well crafted Financial Plan. It is like a blueprint for the management of all

our financial affairs for our entire life. Managing money is getting more complicated hence

Planning is as important as earning it nowadays.

A Financial Planner has to study and analyze gamut of investment products in the Indian market

ranging from Equities and derivatives trading, Commodities trading, Portfolio Management

Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings

instruments. Financial Planner has to guide clients on all financial matters that have or will have

an impact on their life today and in future. The primary responsibility of a financial planner is to

plan their financial affairs, then execute the plan and finally keep monitoring their assets lifelong

for the fulfillment of all their financial objectives.

The Creation of a Financial Plan

Having a professionally made financial plan would provide solutions to the following issues and

many more;

How to manage changing financial needs & requirements from time to time

How to manage loans and other short & long term liabilities

How to ensure that the budget never goes into a deficit

What are the best strategies for hedging income & managing liabilities

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How to do a comprehensive planning for education funding during the time span of the

child’s career

What provisions need to be made for retirement funding so as to have ample cash flow

during retired years and not make any compromises whatsoever

How to be prepared for anything in life so as to have ample financial security

How not to be left grappling for funds when we need them the most

What is a good roadmap for long term wealth creation

Methodology

Mahindra Finance is one of the leading NBFCs in the market and is also corporate brokers to

almost all the AMCs in the market. They also have their Fixed Deposits in the market with

currently two schemes: Cumulative and Non-Cumulative Schemes. The following

methodology was adopted in the process of drawing an investment plan for a customer.

Training has been given to all the financial planners on Fixed Deposits, Mutual Funds

and Portfolio Management Services.

Financial planners have to fix up an appointment with the already existing clients of

Mahindra Finance who have invested in any mutual fund and meet them either at

residence or office based on their convenience.

Financial planners have to identify and analyze the requirements of the clients and

make an appropriate portfolio based on their risk appetite and their future financial

requirements.

Strategy used in planning and managing the money

Firstly, Financial Planner estimates an amount that is required for keeping as a safety margin.

Safety margin constitutes the amount required for protecting client’s family against liabilities

and the loss of income in his absence for which he needs an insurance cover. Once this cover is

in place, Financial Planner estimates the contingency funds that are needed to manage

emergencies. Deducting the amounts needed for the above, all the balance funds find their way

into assets capable of delivering highest possible returns. The Financial Planner then estimates

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the fund requirements for retirement, child’s education, holiday’s and other financial

goals. Financial Planner would then prepare an investment plan, do the analysis and create an

appropriate portfolio based on the client’s risk appetite.

Investment plan for a person of age 50 years: A simulation

We were asked to prepare a financial plan of Mr. X (name not to be disclosed) when he is of the

age of 50 years. This was basically a simulation exercise before letting us meet the actual clients.

Following are the investment plans:

2.1. Investment plan of Mr. X at the age of 50 years:-

Current Status of Mr. X :

Son :

Age 16 years

Currently in Std XI

Plans to do Graduation

Two Daughters:

Age 20 years:

Presently in 2nd

year engineering

Plans to do MBA

Age 23 years :

Pursuing MBA (in final year)

Note: Mr. X plans to get his daughters married at the age of 25

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Assets of Mr. X:

PARTICULARS VALUE (in Rs.) Stocks 30 lacs

NSC 7 lac (maturing after 2 years)

Insurance 15 lacs (maturing after 2 yrs)

Medical Insurance 3 lacs

2 Houses 1.5 cr

Rent 25000/month

Monthly income 75000/month

Table No.5 Assets of Mr. X

Liabilities of Mr. X:

PARTICULARS AMOUNT (present value in Rs.) TIME

Personal loan 1 lac 1 year

Education loan 3 lacs 3 years

Life Insurance 30000/year 2 years

Expenditure 35000/month

Medical Insurance 10000/year

Son’s Education 4 lacs After 2 years

Daughter’s Education 8 lacs

Daughter’s Marriage 20 lacs After 2 years

Table No.6 Liabilities of Mr. X

Now we will look into the requirements of Mr. X in the coming years and will analyze the

financial liabilities and how to finance them with the assets available.

After two years he has the following liabilities to be taken care off:

PARTICULARS AMOUNT REQUIRED* (in Rs.)

Daughter marriage : 23 years old 23 lacs

Son’s Education(Graduation) 4.6 lacs

Daughter’s Education ( PG ) 9.2 lacs

Total 37 lacs

Table No.7 Liabilities of Mr. X at the age of 52

*Note: Considering inflation at 7% on an average

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The suggestions to finance these liabilities are:

PARTICULARS AMOUNT (in Rs.) REMARKS

National Saving Certificate 11.5 lacs (@ 8.5% p.a**.) At maturity

Life Insurance Corporation 15 lacs At maturity

Stocks converted to Fixed Deposit 8.5 lacs (@ 9.75% p.a**.) Invested 2 years back

Total 37 lacs

Table No.8 Suggestive Investments to finance Mr.X’s liabilities

** The rates of return are standards practiced in the market.

I suggested him to invest in fixed deposit because looking at the market conditions and the

volatility in the equity market it would not be a heady decision to risk neither the daughters’

marriage nor their education.

At the age of 55 which is 5 years from now he has following major expenses apart from his daily

expenses:

PARTICULARS AMOUNT REQUIRED* (in Rs.)

Son’s PG 28.25 lacs

Daughter’s Marriage (20 years old) 28.25 lacs

Total 56.5lacs

Table No.9 Liabilities of Mr. X at the age of 52

*Note: Considering inflation at 7% on an average

This amount of Rs. 57 lacs of liabilities will be financed in the following manner:

PARTICULARS AMOUNT** (in Rs.) Maturity Amount (In Rs.) REMARKS

Systematic Investment Plan 20,000 p.m. (@ 15% p.a.) 18 lacs At the age of 55

Stocks to FD# 11.6 lacs (@ 10% p.a.) 18 lacs At the age of 55

Stocks to FD# 3.3 lacs (@ 10% p.a.) 5.1 lacs At the age of 55

Recurring Deposit 9,000 p.m. (@ 5% p.a.) 4.8 lacs Started at 51 years

Recurring Deposit 10,000 p.m. (@ 5% p.a.) 2.48 lacs Started at 53 years

Total 48.38 lacs

Required 56 lacs

Deficit 7.62 lacs

Table No.10 Suggestive Investments to finance Mr.X’s liabilities

** The rates of return are standards practiced in the market.

# invested in two different Fixed Deposits to diversify risk

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This deficit of Rs. 7.62 lacs was proposed to be financed by an Educational Loan @ 15% for 7

years. This would give him an additional tax benefit under section 80(c) and section 80(g) on the

interest payment of the loan.

Now we will see his liabilities at the age of 60 years:

PARTICULARS AMOUNT REQUIRED (IN RS.)

Monthly Expenses 50000/Month

Contingency Requirement 1 lac

World Tour 2 lacs

Repayment of Education Loan in 7 yrs 9,500 EMI for 7 years from 57 years of age

Table No.11 Requirements of Mr. X after the age of 60 years

For the repayment of Education Loan Mr. X needs to start investing Rs. 18750 p.m. in a

Recurring Deposit which would fetch him a moderate return of 6% p.a. and will amount to Rs.

4.9 lacs after 2 years (from the age of 55yrs to 57yrs). This amount can be utilized to pay back

some amount to loan to reduce the EMI amount.

At the age of 60, Mr. X has an excess cash amount of Rs. 41 lacs which needs to be invested for

suffice his future requirements. This Rs. 41 lac of cash amount has been obtained from the

following:

+ Earning of Rs 18 lacs from a SIP done at the age of 55 years (Rs 20,000 p.m)

+ Rs 10 lacs in PF account

+ Rs 16 lacs from FD after tax of 10% on interest. (Rs 6.6 lacs invested for 10 years in a

cumulative scheme@ 10% per annum.)

- Rs 2 lacs reserved for a tour

- Rs 1 lac reserved for contingency

= Net Surplus worth Rs. 41 lacs.

These Rs. 41 lacs should be invested in the following way:-

Invest Rs 41.5 lac in a FD @ 10% p.a.

Return of Rs 34,166 p.m.

Less: 10% tax (tax on interest income)

Total: Rs 30,750

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He also has an additional income from the farm house:-

Rent: Rs 41,111(Incremented at the market rate of 5% p.a.)

Less: 30% tax

Total : Rs 28,800

So his net earnings is Rs. 59,750 and his requirements are Rs. 59,500(Rs. 50,000 for monthly

expenditure + Rs. 9500 for EMI of the education loan)

Meeting up with the actual clients

The final stage of this assignment was to fix up appointments with the clients of Mahindra

Finance who have already invested in Mutual Funds through the company. We were asked to

arrange meetings with these clients and were asked to push Fixed Deposits to these clients as this

was a safer option in terms of assured returns with a reasonably good return of around 8.5% to

10% p.a. In order to advise the clients to invest in Fixed Deposit we needed to analyze the

requirements of the clients as well as his risk appetite. I used a questionnaire in order to be aware

of the customer’s requirements (Refer to appendix for the questionnaire). The scores of the

responses from the investors helped me to decide upon the apt allocation of his/her money in

equity and debt market depending upon his/her capacity to take risk and the amount of return

he/she is expecting out of the investment made.

LIMITATIONS

Mutual Funds & Mahindra Finance are both new entrants to the market

Security market’s continuous volatility

Economic factors showing it is not a perfect time for investing in security market

Awareness of the FD of Mahindra Finance is very low

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CONCLUSION

The internship with M&MFSL was a very enriching experience and helped me to understand the

various concepts involved in the functioning of the Investment division of a NBFC. During the

entire period of our internship we were given weekly assignments which helped us to gain

insights about the various aspects in promoting business and advising Mutual Funds and Fixed

Deposits. It also helped me gain valuable insights about the financial market. Working with such

an esteemed organization also helped me gain confidence and as the company is well established

and has a high brand value, it helped me understand how the customer base is made and

maintained and also the importance of building long term relationship with the clients as well as

promoters.

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BIBLIOGRAPHY

Mallette Paul, Doing the Right Thing: Bank One’s Response to the Mutual Fund Scandal,

Colorado State University

Benefits of investing in Mutual Funds, Reliance AMC

Basic of Mutual Fund, Reliance AMC

Mutual Fund industry is going down to 6.26%, Business Line, April 2, 2008

Safe Investment, Outlook Profit, July 2007 edition

Portfolio Management & Mutual Funds, ICFAI Press

Marketing Management, ICFAI Press

Business Research Methods, ICFAI Press

Fact Sheets of different AMCs

WEBSITES:

www.amfiindia.com

www.moneycontrol.com

www.rediffmoney.com

www.mahindrafinance.com

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APPENDIX

Questionnaire for MUTUAL FUND SURVEY

Name: Age:

Occupation: Address:

Phone No.: Mobile No.:

Email-ID:

1.) What are your present investment needs?

a. To build a corpus for retirement

b. To save for Children’s education & marriage

c. To provide for medical emergencies

d. To provide for family financial security

e. To create wealth

f. All of the above

2.) Are you aware of investment options for tax aversion under section 80(c)?

a. Mutual Funds

b. Fixed Deposit

c. Insurance

d. PPF

e. All of the above

3.) Which is your preferred investment option?

a. Mutual Fund

b. Fixed Deposit

c. Direct Equity

d. Life Insurance

e. Post Office Deposit

4.) Have you ever invested in Mutual Fund?

a. Yes

b. No

5.) Do you need help on Tax Effective investment options?

a. Yes

b. No

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Questionnaire for FIXED DEPOSIT AWARENESS

Name:

Address:

Contact No.:

Email-ID:

1.) Which age group do you belong to?

a. 23-35yrs

b. 35-50yrs

c. above 50 years

2.) Which income bracket do you fall in (per annum)?

a. 1-3 lacs

b. 3-6 lacs

c. More than 6 lacs

3.) Are you interested in Fixed Deposit?

a. Yes

b. No

4.) What are the investment options you are looking for?

a. Mutual Fund

b. Fixed Deposit

c. Equity

d. Insurance

e. Post Office Fixed Deposit

5.) What is the expected rate of Interest?

a. 7-8%

b. 8-9%

c. more than 9%

6.) What is the tenure you are looking for the deposit?

a. less than 1 year

b. 1-2 years

c. 2-3years

d. more than 3 years

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Questionnaire for INVESTOR‟s PREFRENCE

Part A: (Choose one answer which best describes your nature and preferences)

1. If the performance of an investment you have recently made were below your

expectations, how would you feel?

a. Very upset

b. Somewhat upset, but hope that it will improve in the future.

c. Uneasy but willing to take it in my stride

d. Not upset because I know that all investments carry risk.

2. What do you normally associate the word „risk‟ with?

a. Danger

b. Uncertainty

c. Opportunity

d. Thrill

3. If you had to choose between being a salaried employee and running your own business,

which one would you prefer?

a. Being a salaried employee

b. Doing a salaried job and may be run a part-time business.

c. Running a partnership business

d. Running my own business.

4. When you invest your money, what thought comes to your mind first?

a. I should not lose my money.

b. This should not turn out to be a bad investment.

c. This should turn out to be a good investment.

d. I know this is a good decision.

5. After you have made an investment, how do you usually feel?

a. Very worried.

b. Somewhat worried.

c. Somewhat satisfied.

d. Very satisfied.

6. If you had the choice between a fixed salary and a partly variable one, depending on

your performance and the profits of your company, which one would you prefer?

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a. I would prefer a fixed salary, even if it is small.

b. I would prefer most of my salary to be fixed, with only a small variable part.

c. I would prefer half my salary to be fixed, and the other half to be variable.

d. I would prefer most of my earnings to be performance-linked.

7. If you had to make an investment decision without consulting or discussing it with

anybody, how would you feel?

a. Very unsure.

b. Not very confident.

c. Somewhat confident.

d. Very confident.

8. Consider this scenario. You had invested in a company, but its performance was so bad

past your investment, that you sold off your investments at a loss. Then you hear that the

same company has begun to do well. Would you invest in the company again?

a. Definitely not.

b. May be, but am not very sure.

c. Perhaps I will.

d. Definitely yes.

9. Experts tell you that investments are subject to risk and you have to be prepared for

losses as well as gains. What is the level of loss in your investment that you are willing to

accept?

a. I would hate to see any kind of loss in my investments.

b. I will be willing to take up to a 20% loss.

c. I can perhaps bear a loss of up to 40%.

d. I am willing to take any kind of loss.

10. If you looked at the portfolio of the investments that you have already made, how would

you characterize them?

a. Only assured return investments.

b. Limited investment in risky products

c. Divided between risky and safe products

d. Mostly risky investments.

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11. If your investment adviser told you that you could enjoy better returns if you were

willing to take the risk, to what extent would you be willing to expose your investments to

risk, to earn a higher return?

a. None at all.

b. About 20%.

c. About 40%

d. More than 50%

12. Interest rates can go up or down. If you had to take a loan and had the choice between a

fixed rate and a variable one, which one would you prefer?

a. I will always choose a fixed rate.

b. I will choose a combination of 70% fixed and 30% variable.

c. I will choose a combination of 30% fixed and 70% variable.

d. I will choose 100% variable.

CUSTOMER DETAILS

Name:

Age: Sex: Male / Female

Address:

Tel.

Investment Amount: Rs._______________. Investment Horizon (In Yrs.): ______________

Score:

Give yourself 10 marks for every (a); 20 marks for (b); 30 marks for (c) and 40 marks for

(d). Add up your score.

YOUR RISK PROFILE SCORE =

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Part B: Demographic Profile

Fill up your details in the table below. For every attribute in Column A that you have,

enter “1” in the score column next to it; for every attribute in Column B that you have,

enter “0” in the score column next to it.

YOUR DEMOGRAPHIC SCORE =

YOUR RISK PROFILE IS…

The product that is likely to suit your risk and demographic profile can be located in the matrix

below:

VAIS – Very Aggressive; AIS – Aggressive

MIS – Moderate;

CIS – Cautious; VCIS – Very Cautious