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Chapter I INTRODUCTION 1.1 Introduction A Mutual Fund is a trust that pools the savings of number of investors who share a common financial goal. The money 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 to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as
  Chapter IINTRODUCTION 1.1 Introduction A Mutual Fund is a trust that pools the savings of number of investors whoshare a common financial goal. The money collected is then invested in capital marketinstruments such as shares, debentures and other securities. The income earned throughthese investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the mostsuitable investment for the common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities at a relatively low cost. 1.2 Industry profileMutual funds in India The changing making trends in the mutual fund industry in India can easilylinked and traced to its history of growth. The changes in marketing strategies of MutualFund can be characterized by 4 stages which have evolved along with the growth andevolution of the industry. Product Focus For the first three decades of the industry, from the setting up of UTI till theentry of private sector players, the only focus of the marketing strategy was different product offerings. UTI and various other public sector mutual funds focused onintroducing an array of products falling in different categories. The categorization was primarily based on two factors: one was the way the schemes were traded and the other through different composition of debt and equity securities in the scheme.  By the way schemes were traded: ã Open–ended Schemes ã Close–ended SchemesIn an open-ended scheme there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended scheme at any point of time at a price that islinked to the net asset value (NAV). In case of close-ended schemes, the total size of thecorpus is limited by the size of the initial offer. The entry and exit of investors is possible by only trading on the stock exchanges. Due to liquidity constraints posed by close-endedfunds, they were soon rendered obsolete and most of the prevailing schemes today areopen-ended schemes. By Composition of Debt and Equity in the Scheme:  Growth Schemes  Income Schemes  Balanced Schemes  Money Market SchemesThe products were also differentiated by the composition of equity and debt invarious schemes. Growth schemes invest predominantly in equities whereas Incomeschemes invest only in fixed income debt securities. Balanced schemes try to derive the benefits of both equity and debt by investing in both. Money market schemes invest inshort term liquid securities like money market instruments so that they serve asappropriate products for investing short term funds.There were other niche schemes to fulfill specific needs, such as Tax SavingSchemes, Sector Specific Schemes, Index Schemes (which are passively invested in a benchmark Index) and so on.  In the Product Focus stage, the aim of the mutual fund companies was to introducea wide variety of products and due to oligopolistic competition; there was no dearth of subscribers. The only parameter on which the selling was based relative performance of the products. Distribution Focus Product focus continued for 2-3 years even after the entry of private sector playersin 1993. Initially, the private sector companies introduced the same products availablefrom the pubic sector players and promised superior performance. When they realizedthat they needed to differentiate on some other parameter as well, they focused ondistribution. As it was difficult and time consuming to replicate the wide-spreaddistribution structure of Agents set up by UTI, they encouraged third-party distributioncompanies to distribute their products all over India. Specialist distribution companiessuch as Karvy, Bajaj Capital, and Integrated Enterprises etc. had emerged. Special focuswas given to investor servicing so that investors could experience superior servicingstandards from private players. Some groups such as Birla Mutual Fund even set up their own distribution companies (Birla Distribution).While the focus on improved distribution and investor servicing did help the private players establish themselves against large players like UTI, it had also resulted ina lot of problems. In the rush to gain volumes and thereby commission incomes, thedistribution companies many a time sold the wrong product to the wrong customer. Agrowth product, which invests primarily in risky instruments like equities was sold to old,retired people looking for regular, steady income as pension. The ensuing dissatisfactionhas thus paved the way at last for the most critical area for marketing, the Customer Ownership Focus.  Customer Ownership Focus Mutual fund companies began to segment their target customers and position their various products based on the target segment they proposed to address. The targetsegment was broadly divided into institutional segment and individual investor segment.The institutional segment consisted of treasury departments of Corporates, Trusts etc andsuitable products such as Institutional Income schemes and Money Market schemes weretargeted at them. The individual investor was in turn divided into various segments suchas Young Families with small or no children, Middle-aged People saving for retirementand Retired People looking for steady income. Suitable products such as Growth andBalanced schemes for young families and Income schemes for retired people weremarketed.By proper segmentation and by targeting the right product to the right customer,Mutual Fund companies hoped to win the confidence of their customers and 'own' themfor a lifetime. Specialised Product & Service Focus If one observes the trends in the recent past, Companies have been taking the abovecustomer focus further by designing and launching specialised products and services. Asawareness levels of individual investors go up, focus is on identifying one's investmentneeds depending on one's financial goals, risk taking ability and time horizon. Investorschose companies, which help them in the above through specialised products andservices.For example, a common financial goal is to save and invest for meeting theeducation needs of children. A number of mutual funds such as Pru-ICICI Mutual Fundand UTI Mutual Fund have launched products that are designed to serve this specificneed. A similar such need is planning for a comfortable retirement.In addition, there is a need for specialized services that help investors assess their risk taking ability and chose products accordingly. Some mutual fund companies are
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