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.”
-------------- WHEELER --------------------------
“Financing
consists in the raising, providing & managing all the money, capital (or)
funds of any kind to be used in connection with the business.”
------------------ BONNEVILLE & PEWEY ------
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.
No comments:
Post a Comment