SVKM’s Narsee Monjee Institute of Management Studies – Hyderabad

Submitted in Partial fulfillment of Post Graduate Diploma in

Management 2018-20 in SVKM’S NMIMS HYDERABAD

Industry Analysis Report – Financial Services: Asset Management

Companies

Franklin Templeton India

Submitted by:
Mukund Bagaria (80303180017)

Guided by – Dr.Kavita Kulkarni

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 Declaration

I hereby declare that the project work entitled “Financial Services: Asset Management
Companies” submitted to the SVKM’s NMIMS, Hyderabad, is a record of original work
done by me under the guidance of Dr.Kavita Kulkarni, professor at NMIMS Hyderabad
and this project work is submitted in regards to the Industrial Analysis Subject. The
results embodied in this report have not been submitted to any other University or Institute
for the award of any degree or diploma.

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 Preface

The asset management industry serves as a critical link between providers and seekers of investment
capital around the world. The industry provides professional investment services for a diverse client base
with varying objectives and risk tolerances. Asset managers have evolved with the global expansion of
capital markets and will likely continue to evolve as technological advancements and demographic trends
influence new innovations and opportunities.

The Indian asset management industry has registered a strong growth, driven by robust capital markets
and record equity flows in the industry. This impressive AUM growth has also translated into surge in
profitability over the last three years, with record levels of profit pools in FY 17.

The outlook for the industry is positive, but there are challenges that need to be addressed to ensure
sustained profitability. The magnitude of changes underway in Indian asset management could demand a
prompt response from the industry. To win in these new environment asset managers will need to revisit
their business models and re-imagine their value proposition amidst six key structural trends.

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 Acknowledgement

I am thankful tо Dr. Prithvi Yadav (Dirеctоr, NMIMS Hydеrabad) fоr giving us an оppоrtunity tо dо
thе prоjеct оn Industry Analysis.

I wоuld alsо likе tо thank my guidе Dr. Kavita Sasidharan Kulkarni whо has cоntinuоusly hеlpеd and
given valuablе suggеstiоns tо guidе me in thе succеssful cоmplеtiоn оf thе prоjеct wоrk.

Lastly I would also like to thank all my Tеachеrs and friеnds whо havе dirеctly оr indirеctly hеlpеd me in
cоmplеting thе project succеssfully.

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 Executive Summary

The Indian Asset Management industry has been growing leap and bounds over the past
few years and there is substantial data to prove that. In opinions of most experts, there is
tremendous scope for further escalation of this industry as the upper middle class grows
and looks for means of not just saving his cash, but increasing it through means of
investments.

Of late, there have been changes in the political frame work of the nation which
have affected the country as a whole. While the affects of the changes may have
been dampening for other industries, these changes have certainly helped boost the
Asset Management industry through mobilization of funds.

In the present day, corporate investors account for around 43.44 per cent of total AUM in
India. High Net-Worth Individuals (HNWI) makes up 30.09 per cent and retail investors
stand at 24.79 per cent. In the Asia-Pacific, India is among the top five countries in terms
of HNWIs.

With increasing individual investors and failing competing industries, Asset

Management companies are making the most of the opportunities coming their way.

The future of Asset Management is seen in Robo-advisory. It is a model that is already

gaining traction. Robo-advisory presents ability to leverage big-data, and use of
analytics, machine learning to predict consumer behavior and at the same time it aims
to service customers.

Increasing focus on the value of goods and their economic value and with there being a
requirement for speedy advancement, one can predict that it would lead to automation in
manufacturing functions. This in turn will lead to COOs pushing wider adoption of
automated advisory and distribution solutions. This will be done in order to rationalize
cost of workforce expansion and customer acquisition. This transformation has already
begun. But it is yet to be known how the Indian Fund Managers would play against the
“Deep Blue”.

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 Table of contents

Particulars Page Number

Declaration 2
Preface 3
Acknowledgement 4
Executive summary 5
List of tables,grapgs and figures 7
Chapter 1: Introduction
1.1 Brief Profile 8
1.2 Impact of GST on financial Services 9
1.3 Impact of Demonetisation on Financial 10

Services
1.4 Impact of GST on AMC 11

1.5 Impact of Demonetisation on AMC 11

12
1.6 Stakeholders
Chapter 2 : Industry & Competition 16
2.1 Market Size 16
2.2 Market Trend 18
Chapter 3: Industry Analysis 19
3.1 Financial Analysis 19
3.2 Operational Analysis 22
3.3 KPI 24
3.4 SWOT Analysis 25
3.5 Porters 5 Forces Analysis 26
Chapter 4 : Conclusion 29
Chapter 5 : Bibliography/References 30

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 List of Tables, Figures & Graphs
Tables

Table 1.1 Classification of Financial Services 9

Table 1.2 Regulatory Bodies of Different Types of Funds 13
Table 1.3 Functions of various managers in a MF 14
Table 2.1 Investors Break-Up over the past 2 years 17
Table 2.2 Top 6 AMCs in India and their Asset Under Management 17
Table 3.1 Different Financial Ratios of Franklin India 19
Table 3.2 Statement of Profit and Loss 20

Graphs

Graph 1.1 AUM in Various Years in MF 12

Grpah 2.1 Investor Breakup as on June 2017 16
Graph 2.2 global assets under management from 2002 to 2017 17
Graph 3.1 Grpah showing different Financial Ratios 19
Graph 3.2 Statementof Profit and loss 20
Graph 3.3 Market Share 21

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 CHAPTER 1 : Introduction
1. The Scope of Industry

1.1 Brief Profile

Put in a broad context, the term financial services means mobilizing and allocating savings.
Thus, Financial Services encompasses all activities that lead to the conversion of savings into
investments.

Financial services are often termed as financial inter mediation. Financial intermediation
refers to the procedure by which funds are gathered and then assembled from a substantial
number of savers and then all those who require funds are provided these, in particular
corporate clients. This showcases the importance of the financial services sector and why it
is incredibly vital for industrial developments. Further on, a well-developed financial services
industry is a must in order to mobilize the savings and for allocation of the funds into a
range of channels where they can be invested and eventually lead to uplifting of the
industrial development of a country.

Put in a global context, the financial services industry leads the world in terms of earnings
and equity market capitalization.

Classification of Financial Services Industry:

Financial intermediaries can be traditionally classified into two:

i. Capital Market intermediaries

ii. Money market intermediaries.

The Capital Market Intermediary category is made up of Term Lending Institutions and
Investing Institutions which mainly provide long term funds.

On the other hand, Money Market consists of Commercial banks, Co-Operative Banks and
other agencies which provide only short term funds to its consumer base. Hence, all kinds of
organizations which act as intermediaries and facilitate financial transactions of both
individuals and corporate customers are included in the category of Financial Services
industry.
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 Financial Services

Capital Market Money Market

Asset Management Banks/NBFC’s

Broking Insurance Companies

Table 1.1 Classifications of Financial Services

Companies in one or more of the following lines of business are considered to be a part of the
Financial Services industry: Insurance, Investment Funding, Securities Trading, Credit unions,
Credit card companies, Mutual Funds, Asset Management companies.

1.2 Impact of GST on Financial Services

The GST rate on Financial Services has been raised from 15% to 18% with the execution of
this reform from July 01, 2017 onwards. The GST impact on financial services may further be
classified into the following sub-sections:

 Network of branches to be registered separately

Before implementation of GST, the companies pertaining to financial sector with
operations spread across India could discharge its compliance on service tax through
one ‘centralised’ registration. After GST regulation, these institutions will be required
to get a separate tax registration for each of the states they work in.

 Leveraged and de-leveraged Input Tax Credit

Earlier, Financial Sector Industry had been majorly opting for the reversal of 50% of
the Central Value Added Tax (CENVAT) credit that they avail against the inputs and
input services, while the CENVAT credit on the capital goods was given without any
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 reversal conditions. Under GST, the 50% of the CENVAT credit that was availed for
inputs, input services and capital goods has been reversed. This leaves the industry
with a decreased credit of 50% on capital goods, and in turn raises the cost of capital.
However, this can be counterbalanced by the advantages posed Operating one’s
business in the new taxation scenario. A unified domestic market can help with more
opportunities for expansion and reduced production costs enhancing one’s
profitability.

1.3 Impact of Demonetization on Financial Services

 Shift in currency demand: There has been a significant shift in the income elasticity
of currency demand in the post-demonetisation period to 0.9 from more than 1 in
the pre-demonetisation period, reflecting a reduction in cash intensity in retail
transactions.
 Significant growth in bank deposits: The ‘excess’ low-cost bank deposit growth, a
mirror image of the decline in currency in circulation (CIC), following demonetisation
has been estimated in the range of 3.0-4.7 percentage points.
 Higher collections under life insurance schemes: The cumulative insurance premium
collections during November 2016 to January 2017 increased by 46 per cent over the
same period of the previous year.
 Accelerated digitisation of retail payments: The latest data reveal that prepaid
payment instrument (PPI) volumes increased by 54 per cent between November
2016 and August 2017, as also mirrored in the significant drop in the income
elasticity of currency demand referred to earlier.

ASSET MANAGEMENT COMPANIES:

The asset management industry in India is among the fastest growing in the world.
An asset management company is a company that pools in funds from the investors and
invests those funds into securities that will be in line with their desired financial objectives.
Asset Management companies provide investors with investing options that are more
diverse and these are the options that are more varied as compared to those that they
would have found themselves. The work of an AMC includes management of mutual funds,
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hedge funds and pension plans.The main source of income for these companies is the
service fee or commission that they charge form their clients for the services provided.
AMC’s offer their clients diversification owing to the larger pool of resources at their
disposal as compared to the individual investors. When assets are pooled in together and
proportional returns are paid out, it allows investors to avoid minimum investment
requirement that is often required when purchasing securities on one’s own. AMCs also
provide investors the ability to invest in a larger set of securities with a smaller investment.

1.4 Impact of GST on Asset Management Company

An asset management company offers portfolio management services to investors. For

this, it charges a management fee. On the management fee, which is a part of the Total
Expense Ratio (TER) of the fund, a service tax at the rate of 15 per cent was levied before
implementation of GST; it has gone up to 18 per cent after GST is implemented.
TER charged for managing funds and distributor commissions (in case of regular plans) etc.,
would increase based on the call each fund house takes (TER for mutual funds varies
between 1.25% and 2.75%). Since tax is eventually borne by investors, their expenses too
have gone up marginally, as reflected by the increased expense ratios of schemes. With the
increase in tax from 15% to 18%, the impact of GST on mutual funds has been felt.

1.5 Impact of Demonetisation on Asset Management Company

Demonetisation actually helped the industry to attract more investments. The mutual fund
industry AUM crossed the Rs.20 trillion mark in 2017 and has more than doubled since
2014. Since the demonetisation, the overall industry AUM has increased by 32 per cent and
continues to grow at a rapid pace. Retail investor participation and flows into equity and
balanced funds are the two stand out trends over the last few years.
Since demonetisation, flows into mutual funds have been very strong, especially into equity

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Graph 1.1 AUM in Various Years

and balanced funds. From November 2016 to October 2017, equity funds have received
inflows of Rs.1.35 lakh crore and balanced funds have received Rs 74,000 crore. This
represents a huge jump in the flows received in these categories a year after
demonetisation.

1.6 Stakeholders of the industry

Regulatory Bodies
In India, the primary regulator of the funds management industry is the Securities and
Exchange Board of India (SEBI), the securities market regulator, and they are judged with
respect to the legal and regulatory framework of the SEBI Act 1992 and regulations issued
thereunder. The resident investors who put their funds with Asset Management Companies
are subject to industry regulations. Any investment made through AMCs are monitored and
controlled by the restrictions notified by the regulator.
In addition, the Association of Mutual Funds in India (AMFI) is an industry standards
organisation monitoring the mutual funds sector in India. Formed in 1995, all 43 Asset
Management Companies are its members.

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 Table 1.2 puts forth different categories and their particular regulatory bodies:

Type of fund Regulations Comments

DOMESTIC FUNDS

SEBI (Mutual Funds)

Mutual funds Public market funds
Regulations 1996

Real estate investment SEBI (REIT) Regulations

Public market funds
trusts (REITs) 2014

Infrastructure
SEBI (INVIT) Regulations
investment trusts Public market funds
2014
(INVITs)

Alternative investment
SEBI (AIF) Regulations 2012 Private
funds (AIFs)

Collective investment
SEBI (CIS) Regulations 1999 Private
schemes (CIS)

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 FUND MANAGERS AND OTHER SERVICE PROVIDERS

SEBI (Portfolio Managers)

Portfolio managers Managing funds or securities of clients
Regulations 1993

SEBI (Investment Advisers) Providing ‘investment advice’. AIF

Investment advisers
Regulations 2013 managers are exempt from registration

SEBI (Research Analysts) Providing buy and sell recommendations

Research analysts
Regulations 2014 or research reports

SEBI (Debenture Trustee) In case of REITs and INVITs, the trustee

Trustee
Regulations 1993 needs to be registered with SEBI

Table 1.3 Functions of Various Managers In a MF

Consumers

It does not come as a surprise when told that consumers in the metro areas are at the helm
of the slow and steady growth of Asset Management services in India. Consumer investment
in mutual funds (generating from metro areas) has increased 5% in the past three years.
Growth in non-metros has been increasing 2 percent since 2010, which should be seen as a
respectable rate.
Upon further enquiry into who is investing, the recent study findings from Nielsen observe
that investment in mutual funds is an age driven act rather than gender driven act.
For example, it was observed through the survey that there is high growth among
respondents 30 years of age and older. In comparison, penetration is low among youth.
Another factor that affects investment into Asset Management companies is income. As per
the Nielsen survey, results show that individuals with middle-to high-income tend to invest
in mutual funds. The survey’s results say that more than 50 percent of respondents with
lower incomes said they have never invested and are not planning to invest in mutual
funds/AMCs. The issue AMCs face here is that non-investors from these particular segments
of income believe in saving their money rather than growing it.

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Competitors

The competing industry for Asset Management industries are the traditional means
of saving and investment. These would include:

1.6.1 Gold:

People invest in gold because it is seen to have a negative correlation to equity

investments. Since 2007, the equity markets saw a slump but on the other hand
gold has performed well.Gold is also perceived as a hedge against inflation. Seeing
over a period of time, the return on gold investment has aligned itself with the
rate of inflation.

1.6.2 Fixed Deposit:

A fixed deposit (FD) is a financial instrument provided by banks or NBFCs.
Investors are provided a higher rate of interest than a customary investment
account, until the given maturity date.

1.6.3 Recurring Deposit

An RD is a special kind of term deposit offered by banks. It is an investment tool
which permits those with a regular income to deposit certain amount every
month into their Recurring Deposit account earn decent returns on their
investment.

1.6.4 Public Provident Fund

Introduced in India in 1968, Public Provident Fund (PPF) scheme is a long term
investment option. It has the backing of the Government of India which makes
the returns fully exempted from Tax. An amount minimum of Rs. 500 to
maximum of Rs.1,50,000 can be invested in one financial year.
FD, RD and PPF are low risk investment avenues, the returns are also lower .

1.6.5 Real Estate

Real estate is seen to be one of the most favoured investment modes in India.
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 Chapter 2: Industry

2.1 Market Size/ Market Structure

India boasts of one of the fastest growing Asset Management Industries in the world.
As of September 2018, there are 43 Asset Management companies listed under Securities
and Exchange Board of India (SEBI) and are members of Association of Mutual Funds in
India (AMFI).
Compared to Rs.12.3 lakh crore as in March 2016, as of August 2018, the average
assets under management (AUM) stood at Rs.24 Lakhs Crore. Further, as per the
estimate of majority of asset management companies the AUM of mutual funds is
likely to double within the next 5 years. This means that the mutual fund industry is
looking to amount to nearly Rs.50 Lakhs Crores.
This industry has seen a striking growth of more than 86% in only two-and-half years
with respect to the asset base. The industry owes these numbers primarily to higher
retail participation. Besides, the majority of this growth comes through equity oriented
funds.

Break-up of the Asset Management Industry in India:

 Corporate investors account for around 46.95 per cent of total AUM in India.
 High Net-Worth Individuals (HNWI) makes up 27.63 per cent.
 Retail investors stand at 22.74 per cent.
 In the Asia-Pacific, India is among the top five countries in terms of HNWIs.

Investor Breakup as of June 2017

2.06% 0.62%
Corporates
22.74% 46.95% HNWI

27.63% Retail
Banks/FI
FII

Graph 2.1 Investor Breakuo

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 Investor Type 2017 2016
Corporate investors 46.95% 46.9%

High Net-Worth Individuals (HNWI) 27.63% 28.6%

Retail Investors 22.74% 22.3%

Table 2.1 Investors Break-Up over the past 2 years

Top 6 AMCs in India AUM (US$ billion)

ICICI Prudential Asset Management Co. Ltd 40.64

HDFC Asset Management Co. Ltd 39.54

Reliance Nippon Life Asset Management Ltd 34.70

Birla Sun Life Asset Management Co. Ltd 32.04

SBI Funds Management Private Limited 26.26

UTI Asset Management Company Ltd 22.66

Table 2.2 Top 6 AMCs in India and their Asset Under Management

Global Asset Management Scenario

Graph 2.2 depicts global assets under management in selected years from 2002 to 2017.

As of 2017, the total assets managed worldwide are valued at around 79.2 trillion U.S.
dollars in 2017.

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 2.2 Trends in the Industry:

 Measuring by the number of folios, the industry added over nine million investor
accounts and the total number investors now stand at 62 million. Of these, individual
investor accounted for 99.4 percent. This showed growth of 50.29 percent in the total
value of assets held by individual investors.
 As of March 2018, total asset stand at INR 11.44 trillion with individual investors
holding a majority of the industry assets at 50.6 percent. This means that they surpass
the share of assets holding by the institutional investors for first time since December
2016.
 The industry is experiencing growth of investment from outside the T15 (top 15)
cities. When compared to December 2016, in a year’s time B15 (outside top 15)
cities registered a 50.44 percent growth in total assets.
 Along with this, the share of individual assets in the B15 locations stood at 27.71
percent in December 2017, whereas in was 24.85 percent in December 2016.

This data highlights a couple of trends:

 Capital inflow in to the Indian AMCs is strongly driven by individual investors and bulk
of this investment is going into equities.
 The industry is now tapping into the saving potential previously undiscovered, and
this emerges from remote areas of the country.

This has led many to believe that this is beginning of a new trend – the rise
of individual investor.

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 Chapter 3: Industry Analysis

3.1 Financial Analysis

Franklin Templeton India

Ratios 2017 2016

DU PONT ANALYSIS 0.597453 0.910689
CURRENT RATIO 9.275994 9.275995
DEBT RATIO 0.106578 0.32328
DEBT TO EQUITY 0.119292 0.477717
FIXED ASSET
TURNOVER 35.57341 33.6619
TOTAL ASSET
TURNOVER 0.533777 0.616281
NET PROFIT 0.507039 0.385018
ROA 0.270646 0.237279
EPS 17.42 14.05
Table 3.1 : Different ratios of Franklin India

1
0.9
0.8
0.7
0.6
0.5
2017
0.4
0.3 2016
0.2
0.1
0
DU POINT DEBT DEBT TO TOTAL NET ROA
ANALYSIS RATIO EQUITY ASSET PROFIT
TURNOVER
Grpah 3.1: Graph depicting the various ratios of Franklin

INTERPRETATION

 The current ratio of the company is well above the optimum level of 1:1. It shows that
company has good liquidity to pay off its current liabilities.

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  The debt equity ratio of the company has drastically fallen down which infers that the
company’s ability to pay off its debts has increased.

 DU Pont of the company has fallen down due to substantial increase in Reserves and
surplus as compared to revenue.

Annual results 2016 2017 2018 2019 (e) 2020 (e)

Released 6 618 6 392 6 319

Sales
Forecast 6 648 6 431 6 362 5 940 5 855
Million $
Spread -0,45% -0,60% -0,68%

Released 2 444 2 417 2 195

Operating income (EBITDA)
Forecast 2 879 2 404 2 332 1 981 1 956
Million $
Spread -15% 0,51% -5,9%

Released 2 366 2 264 2 119

Operating profit (EBIT)
Forecast 2 340 2 271 2 141 1 824 1 758
Million $
Spread 1,1% -0,30% -1,1%

Released
Pre-Tax Profit (EBT)
Forecast
Spread

Released 1 727 1 697 764

Net income
Forecast 1 638 1 686 636 1 501 1 447
Million $
Spread 5,4% 0,62% 20%

Released 2,94 3,01 1,39

EPS
Forecast 2,81 2,96 1,19 2,91 2,97
$
Spread 4,7% 1,6% 17%

Announcement Date 10/26/2016 10/26/2017 10/25/2018

Table 3.2: P/L A/C

Interpretation

As seen above, Franklin Templeton Investment Sales have been on a downward trend since 2016. This
has had a cascading effect on the profitability of the company, as visible through their Operating and
Income profit. Based on the data, one can see that there was a glimmer of hope when the EPS of the
company rose in 2017, but in the following year it fell back down.

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Graph 3.2 Graph Showing the statement of profit and loss

Interpretation

The above graphical evaluation sheds further light on the fall of Franklin Templeton’s profitability. While
over the past years the company saw a steep decline in profitability, one can hope that over the next few
years, while there will still be a downward trend, it might not be as steep as previous years.
There can be multiple reasons associated with the fall in sales and profits of Templeton.

Primarily, Franklin Templeton is noted to charge high fees and expenses off of its clients. Investors
would, perhaps, be ready to pay such high fees if their investments reaped solid results. But when
analyzing Templeton’s offered funds, it is noted that:

 75% (126 of 167 funds) have underperformed their respective benchmarks or did not survive the
period since inception.
 25% (41 of 167 funds) have outperformed their respective benchmarks since inception, having
delivered a POSITIVE alpha
 0.60% (1 of 167 funds) have outperformed their respective benchmarks consistently enough since
inception to provide 95% confidence that such outperformance will persist as opposed to being
based on random outcomes

Thus, we can say that majority of Templeton’s funds have failed to outperform their benchmark.
In addition, one of the most recent lawsuits the company has found themselves in deals with breach of
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Fiduciary duty from self-dealing within their own company’s 401(k) plan.
Therefore, one can see why the company’s revenues have been falling, and might continue to fall in the
next coming years.

3.2 OPERATION ANALYSIS

SIZE OF DOMESTIC MARKET

During the period of 2009 to 2017, 38 mutual fund players have been given the regulatory approval by
SEBI. Public sector mutual funds acquired 21% of the asset under management in 2009 as against 72% of
the asset under management in 2017. In India maximum market share has been captured by Reliance
mutual fund with 16% of existing asset under management and customer base, while HDFC mutual fund
acquired 12% market share among the existing market players. ICICI Prudential mutual fund, UTI Mutual
fund and Brila sun life Mutual fund each of acquired 10% market share. Franklin Templeton mutual fund
has 4% market share. IDFC mutual fund and DSP Black rock mutual fund has acquired each of 3%
market share and remaining 15% market share has been adopted by local and other players. The
conclusion drawn from the present situation has more than 58% market share achieved by top 5 major
market players. In India major top 10 players has consistently gained 75% of market share in asset under
management.

Graph 3.3 Market Share

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 Capacity Utilisation

Franklin Templeton India Pvt. Ltd. has utilized the last two of years productively in capacity building
initiatives by upgrading its technology platform as well as awareness building programmes and thus
creating markets where none existed earlier. Technology can be put to dual use – both for acquiring
customers and meeting compliance requirements in a cost-effective and time-efficient manner.

These new customers are expected to be more from the individual investor segment with higher
preference for equity schemes, which will have a positive impact on the profitability.

 The demographic shift towards a younger workforce that is more aligned with technology will
provide the industry with a larger customer base.

 The expected growth of HNIs augurs well for the industry, especially in the context of the ticket
size of their investment and preference for equity.

 FTI mutual funds coupled with simpler e-KYC process, has opened up a larger market for mutual
funds.

 Replicating the model adopted for Jan Dhan savings accounts as well as using the payment banks
to sell mutual funds, could lead to further increase in the customer base.

 Using analytics and data-driven models would help to retain and mine the customers better.

 Deploying technology to build gamification models for customer engagement would resonate
better with the young and technologically savvy customer base.

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 3.3 Key Performance Indicators

1. Alpha

Alpha is the measure of a portfolio’s return versus a specific benchmark, adjusted for risk. The most
common benchmark in use – and the one you can assume is used unless otherwise noted – is the S&P
500. An investment with an alpha greater than zero has provided more return for the given amount of
risk assumed. A negative alpha – less than zero – indicates a security which has underperformed the
benchmark; it has earned too little for the risk assumed. Investors typically want investments with high
alphas.

2. Beta

Beta is the measure of an investment’s volatility to another market index, such as the S&P 500.
Volatility indicates how likely a security is to experience wide swings in value. If beta is 1.0, the
investment moves in sync with the S&P or experiences a measure of volatility similar to the S&P. If
beta is positive, the investment moves more than the index; if negative, the investment is less volatile
than the index. For example, a beta of 2.0 projects a movement two times that of the market.
Assuming a market price change of 15%, the investment could move 30% up or down. Conservative
investors typically prefer investments with low betas to reduce volatility in their portfolios.

3. R-Squared Value

The R-squared value is a measurement of how reliable the beta number is. It varies between zero and 1.0,
with zero being no reliability and 1.0 being perfect reliability.

4. Standard Deviation

While beta typically measures an investment’s movement against an index such as the S&P 500, standard
deviation measures the volatility of an investment in a different way. Instead of comparing the
investment’s return to a benchmark, standard deviation compares an investment’s individual returns over
a specific period relative to its average return over the same period. The more individual returns deviate
from the investment’s average return, the higher the standard deviation. An investment with a standard
deviation of 16.5 is more volatile than an investment with a standard deviation of 12.0.

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5. Sharpe Ratio

The Sharpe volatility ratio is a measure of a portfolio’s return versus a risk-free return. A ratio of 1.0
indicates that the return was what should be expected for the risk taken, a ratio greater than 1.0 is an
indication that the rate was better than expected, and less than 1.0 is an indication that the return did not
justify the risk taken.

6. Capture Ratios

Capture ratios, or the percent of broad market moves over a specified term reflected in a portfolio, are
intended to be a simpler way to reflect a portfolio manager’s performance. For example, if the S&P 500
has moved upward 20% while the portfolio being managed has increased 25%, the portfolio has captured
more gains than the market move and would have a ratio of 1.25 (25%/20%), an upside capture ratio. If
the market falls by 20% and the portfolio drops 25%, the downside capture ratio would also be 1.25,
indicating that the portfolio has underperformed the market for the period. Generally, investors would
prefer a fund with an upside capture ratio in rising markets greater than 1.0 and a downside capture ratio
less than 1.0.

3.4 SWOT Analysis

Strength

 Huge array of offerings: investment solutions for U.S. investors including mutual funds, retirement
savings vehicles and over 500 college savings plans.

 History of robust business and growth.

 Reputed brand image Ranked amongst top 10 securities companies.

 Specializes in conservatively managed mutual funds.

 A pioneer in global investing with clients in 150+ countries.

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Weakness

 Internal contingency may arise due to high dependency over brokers/dealers and investment
advisors.

 Liquity pressure on company due to high fixed income.

 Business concentrated across US increases firm’s dependency on US market.

Opportunity

 Scope of market expansion: increasing offerings to customers.

 Growth through mergers and acquisitions: Partnering/investing in foreign market to diversify on

global scale.

Threats

 Can be adversely impacted by new rules and laws: A change in law can put pressure on profit
margins, leading to change in company policy which might have cascading repercussions.

 Financial consolidation might lead to units being merged.

 Increasing competition: Competition from peers and new entrants in the industry

3.5 PORTERS 5 FORCES Analysis

This model was developed by Michael. E. Porter of Harvard business school in 1979. It has provided
a frame work for business strategy and industry analysis. This model concern with the pure
competition in the market, where it implies that risk adjusted rates of return should be steady across
industry or firm, hear the specific factors. Most of the industries depend on the five basic forces as
threats of the new entrants, threat of the substitutes, bargaining power of the suppliers, bargaining
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power of the investors and rivalry among the existing players. The combined efforts of these forces
find out the crucial profit potential of an industry. Information about the various forces will help to
frame the policy and strategy with respect to the competitors and other factors; it also helps to identify
the crucial strengths and weaknesses of the firm or business. Strategy maker occasionally use this five
forces framework for formulating the strategy related to the business. From the five force model a
strategy maker can easily justify that which factor is the most influencing factor and it might be
consider as opportunities or threats.

The 5 forces for Franklin are briefly discussed as under.

1. Threats of the new Entrants: SEBI (Securities board of India) and AMFI (Association of
Mutual funds in India) considerable laid out rules & regulations for new entrants in mutual
fund industry.

2. Threats of the substitutes: Among the various kinds of financial products are easily
available from the present players. On the other side various similar kinds of products are
also available in the financial market. The major alternative of mutual funds products are
insurance schemes, derivative contracts, option contracts, future contracts, forward
contracts, gold mini contracts and many more. Every day at least one new product launches
with a different type of a characteristic. Now a day mutual funds are not limited to
traditional open ended & close ended schemes, there are lots of choices that are available in
the financial basket for the purpose of investment.

3. Bargaining power of the suppliers: In India mutual fund industries are governed by SEBI
& AMFI, these two prime governing bodies are having an authority to provide guidelines
for mutual funds. Suppliers of the mutual funds industry are financial institutions, major
collaborative banks and asset management companies. The common objectives of the
suppliers are to downsizing risk and at least generate moderate or high amount of return. At
the inception time of mutual fund industry in India very limited numbers of players are
available, but from the fourth growth phase onwards various private players are also in this
industry. So the quality of the services has increased year by year. In Indian mutual fund
industry bargaining power of the suppliers are low.

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 4. Bargaining power of the investors: The bargaining powers of the investors are very high.
The wide ranges of financial products are available. The marketers have segmented the
market and it has been observed that the assets management companies are not having
sound marketing strategies. Cost of switching from one scheme to other scheme is very
low, so investors can easily shift from one to another. Fund manager have not been
performing very well then existing investors withdraw their money and invest elsewhere.

5. Rivalry among the existing players: Rivalries among the existing players are very high,
because most of the asset management companies provide homogeneous kind of products
& services. Here the main reason is high market growth. India is one of the largest market
place and overall potential economic growth of country is high as compared to other
developing countries. Another main reason for strong competition is undifferentiated
services which can be provided by all the assets management companies. Most of the
mutual fund investors are not loyal towards their mutual fund schemes, because the same
kind of investment avenues are provided with higher amount of return, that means clients
acquisition is the major competitive factor among the existing players.

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 Chapter 4: Conclusion

 Mutual funds represent the most appropriate investment opportunity for most investors. As
financial markets become more sophisticated and complex, investors need a financial intermediary
who provides the required knowledge and expertise on successful investing.

 In mutual funds advisors are the backbone and advice as per the objective of the client.

 People who want to invest for shorter period like 2 years they should invest under debt mutual
funds.

 People who want to save on a regular basis like monthly mode they can opt for SIP which gives
stable returns over a period of time.

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 References

 https://finance.yahoo.com/news/franklin-templeton-investments-sponsors-lpga-
130000579.html

 https://smallbusiness.chron.com/key-human-resource-management-policies-procedures-
60802.html

 https://www.slideshare.net/PRIYAJNVCTC/policies-processes-against-sexual-harassment

 https://www.franklintempleton.com/investor/approach/firm/press-article?DocID=ifzpih1v

 https://www.exchange4media.com/advertising-news/franklin-templeton-investments-
launches-new-ad-campaignurges-investors-toaskwhatelss-62986.html

 https://www.franklintempletonindia.com/downloadsServlet?docid=i5napmqg

 https://www.franklintempletonindia.com/downloadsServlet?docid=h6fjpzkm

 https://www.franklintempleton.com/forms-literature/download/PA-IEPP

 https://www.franklintempletonindia.com/downloadsServlet?docid=ijtwpii7

 https://www.franklintempletonindia.com/downloadsServlet?docid=h6fjpzkm

 https://www.mbaskool.com/brandguide/banking-and-financial-services/2112-franklin-
templeton-investments.html

 http://shodhganga.inflibnet.ac.in/bitstream/10603/36578/11/11_chapter2.pdf

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