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A STUDY

ON

INVESTORS PERCEPTION TOWARDS MUTUAL FUNDS IN

INDIA

A THESIS

PRESENTED TO THE FACULTY OF

SBS SWISS BUSINESS SCHOOL

IN PARTIAL FULFILLMENT

OF THE REQUIREMENT FOR THE DEGREE

MASTER OF BUSINESS ADMINISTRATION

BY

MAHESH KORRAPATI

ROLL NUMBER: 2029

JUNE 2011

PROMOTER: Dr. (Mrs.) MANITA D. SHA



2011 SBS Swiss Business School 1

“Think big; fly high. The world belongs to those who break

away, take risks and reap dividends. Always try to go off thebeaten track for a target with a newer destiny”.




CERTIFICATE

This is to certify that the Thesis Report is

Submitted in partial fulfillment of the requirements for the award of the degree of


(SBS SWISS BUSINESS SCHOOL)

TO

SBS SWISS BUSINESS SCHOOL

Is a record of bonafide thesis carried out by

MAHESH KORRAPATI

Under my supervision and guidance and that no part of this report has been submitted

for any

Other degree/diploma/fellowship or similar titles or prizes.

FACULTY GUIDE

Signature:

Name: Dr. (Mrs.) Manita D. Sha

Mcom, Ph.D.

Signature & seal of the learning centre




STUDENT’S DECLARATION

I hereby declare that the Thesis Report conducted

Under the guidance of

Dr. (Mrs.) Manita D. Sha

Submitted in partial fulfillment of the requirements for the

Degree of


(SBS SWISS BUSINESS SCHOOL)

TO

SBS SWISS BUSINESS SCHOOL, ZURICH

Is my original work and the same has not been submitted for the award of any other

Degree/Diploma/Fellowship or other similar title or prizes.

Place: Bangalore Date: 13 - 06- 2011

Roll number 2029




ACKNOWLEDGEMENT

I extend my special gratitude to The Dean, my Thesis Guide DR.MANITHA D SHA

for supporting me throughout this thesis. I would like to thank DR.BERT WOLF,

(ACADEMIC DEAN SWISS BUSINESS SCHOOL) for his invaluable academic

support through out the year.

I wish to acknowledge my sincere gratitude and indebtedness to my thesis guide

DR.MANITHA D. SHA of Ramaiah Institute of Management Studies, Bangalore for

her valuable guidance and constructive suggestions in the preparation of the thesisreport.

I extend my gratitude to all my colleagues for their encouragement, support, guidance

and assistance for preparing the thesis report.

Mahesh Korrapati




TABLE OF CONTENTS

S. No. TOPIC Page No.

1. PREFACE 8

2. EXCUTIVE SUMMARY 10

1.TITLE OF THE PROJECT 11

2.STATEMENT OF THE PROBLEM 11

3.OBJECTIVES OF THE STUDY 11

3. HYPHOTHESIS STATEMENT 13

4. REVIEW OF LITERATURE 15

4.1) INVESTMENT 16

4.2) INTRODUCTION TO MUTUAL FUND 19

4.3) MUTUAL FUND INDUSTRY IN INDIA 24

4.4) RISK FACTORS OF MUTUAL FUNDS 35

4.5) WORKING OF MUTUAL FUNDS 38

4.6) MUTUAL FUND COMPANIES IN INDIA 44

5. REASEARCH METHODOLOGY 45

5.1) SECONDARY DATA 48

5.2) PRIMARY DATA 53

6. TESTING HYPHOTHESIS 74

7. FINDINGS AND CONCLUSIONS 77

8. LEARNING EXPERIENCE 81




9. GLOSSARY 89

10. REFERENCES AND BIBLIOGRAPHY 90




CHAPTER -1

PREFACE




PREFACE

In today’s world, only theoretical knowledge is not sufficient for man. Every man

must have practical knowledge about a particular field or company. With the help of

practical knowledge a man can learn more than the theoretical Knowledge.

India is one of the fastest growing economies in the world due to which the income

level of people in India is increasing and along with it the savings and investments are

also growing. Due to liberalization and deregulation which was announced in New

Industrial Policy 1991, has dismantled barriers in the financial market, allowed the

entry of new players and created environment for efficient allocation of resources.

One of the important industries in emerging financial market is the mutual fund

industry.

The mutual fund industry has played a significant role in the development of capital

market, growth of corporate sectors and financial intermediation. As mutual fund

industry in India is relatively new, the level of awareness among the people is less butwith the increase in level of awareness the mutual fund industry is also growing. The

government has also announced the regulatory measures for the growth of mutual

fund industry and protection of investors in mutual funds. Here i have attempted to

study on investors perception and their awareness towards mutual funds in India.




CHAPTER-2

EXECUTIVE SUMMARY




There are a lot of investment avenues available today in the financial market for an

investor with an investable surplus. He can invest in Bank Deposits, Corporate

Debentures, and Bonds where there is low risk but low return. He may invest in Stock

of companies where the risk is high and the returns are also proportionately high. The

recent trends in the Stock Market have shown that an average retail investor always

lost with periodic bearish tends. People began opting for portfolio managers with

expertise in stock markets who would invest on their behalf. Thus we had wealth

management services provided by many institutions. However they proved too costly

for a small investor. These investors have found a good shelter with the mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational

companies coming into the country, bringing in their professional expertise in

managing funds worldwide. In the past few months there has been a consolidation

phase going on in the mutual fund industry in India. Now investors have a wide range

of Schemes to choose from depending on their individual profiles.

The type of sampling technique used is sampling wherein a questionnaire was

prepared and distributed to the investors. The investor’s profile is based on the results

of a questionnaire that the Investors completed. The sample consists of 200 investors

from various backgrounds. The target customers were only the investors who invest in

various avenues so as to know about their knowledge and concern regarding their

choice of fund, return expectation, risk taking ability etc…

According to the opinion of these investors interpretation has been done and there has

been findings and conclusion along with some recommendations.




TITLE OF THE PROJECT:

“A STUDY ON INVESTORS PERCEPTION TOWARDS MUTUAL FUNDS

INDIA.”

STATEMENT OF THE PROBLEM:

Indian Mutual fund industry has undergone a massive change in the last few years

with the launch of many conglomerates in India. They have introduced professional

dexterity and technology in handling capitals both nationally and internationally.

Owing to this investors have spoilt choice for a diverse range of policies depending

on their portfolios.

Mutual Fund market provides vast investment avenues for the prospective investors

ranging from bonds to bank deposits and corporate debentures, which are low on risk

and high on returns. The latest mutual fund market has indicated bearish trend, which

means that investors who are seeking for profitable investments should opt for highly

skilled fund managers who invests on their behalf.

My project report on mutual funds provides a summary on investors perception

towards mutual fund market in India, and it also discuss the performance of assets

under management of Indian mutual fund industry, and investors folios for the

financial year 2010-11.

OBJECTIVES OF THE PROJECT:

To know about the investment behavior and awareness towards mutual funds .

To know the different attitudes of people regarding risk, rate of return, period

of investment etc…

To study the structure of mutual funds in India.

To study the performance of assets under management and investors folios

regarding mutual fund industry in India.




CHAPTER-3

HYPOTHESIS STATEMENT

A hypothesis is a proposed explanation for an observable phenomenon. The term




derives from the Greek word – hypotithenai meaning "to put under" or "to suppose”.

For the present study it is proposed to have following hypothesis:

A. Most of the investors prefer mutual funds because of safety, fair return.

B. Consistency in fund performance and brand equity influence customers to make

relevant selection of mutual funds for investment purposes.




CHAPTER-4

REVIEW OF LITERATURE

4.1 INVESTMENT




An investment is a commitment of funds made in the expectation of some positive

rate of returns. The expectations bring with it a probability that the quantum of return

may vary from a minimum to a maximum. This possibility of variation in the actual

return is known as investment risk. Thus every investment involves a return and risk.

Investment is an activity that is undertaken by those who have savings. Savings can

be defined as the excess of income over expenditure. An investor earns/expects to

earn additional monetary value from the mode of investment that could be in the form

of financial assets.

The three important characteristics of any financial assets are:

Return – the potential return possible from an asset

Risk – the variability in returns of the asset from the chances of its value going

down/up.

Liquidity – the ease with which an asset can be converted into cash.

Investors tend to look at these three characteristics while deciding on their individual

preference [pattern of investments]. Each financial asset will have a certain level of

each of these characteristics.

INVESTMENT ALTERNATIVES:

An investor has wide range of investment avenues such as:

Non – Marketable Financial Assets

A good portion of financial assets is represented by non – marketable

Financial Assets. They can be classified into various categories such as:

o Bank deposits,

o Post office deposits,

o Company deposits and

o Provident fund deposits.

Equity Shares




Equity shares represent ownership capital. An equity shareholder has an

ownership stake in the company i.e. he / she has a residual interest in income

and wealth. Equity shares are classified into broad categories by stock market

analysts such as:

o Blue chip Shares,

o Growth Shares,

o Income Shares,

o Cyclical Shares and

o Speculative Shares.

Bonds

Bonds or Debentures represent long-term debt instruments. The issuer of a

bond promises to pay a stipulated stream of cash flow. Bonds may be

classified into the following categories such as:

o Government Securities,

o Savings Bonds,

o Government Agency Securities,

o PSU Bonds,

o Debentures of Private Sector Companies and

o Preference Shares.

Money Market Instruments

Debt Instruments which have a maturity of less than one year at the time of

issue are called money market instruments. The important money market

instruments are:

o Treasury bills,

o Commercial paper and

o Certificate of deposit.

Mutual Funds

Instead of directly buying equity shares and / or fixed income instruments we

can participate in various schemes of mutual funds, which, in turn, invest in

equity shares and fixed income securities. There are three broad types of

mutual fund schemes such as:




o Equity Schemes

o Debt Schemes

o Balanced Schemes

Life Insurance Policies

Life Insurance may also be viewed as an investment. Insurance premiums

represent the sacrifice and the assured sum, the benefit. The important types of

insurance policies are:

o Endowment assurance policy

o Money back policy

o Whole life policy

o Term assurance policy

Real Estate

For the bulk of the investors the most important asset in their portfolio is a

residential house. In addition to a residential house, the more affluent investors

are likely to be interested in the following types of real estate:

o Agricultural Land

o Semi – Urban Land

o Commercial Property

o A resort home

o A second house

Precious Objects

Precious objects are items that are generally small in size but highly valuable

in monetary terms. The most important precious objects are:

o Gold and Silver

o Precious Stones

o Art Objects

Financial Derivatives




A financial derivative is an instrument whose value is derived from the value

of an underlying asset. The most important financial derivatives from the point

of view of investors are:

o Options

o Futures

INVESTORS PROFILE: An investor normally prioritizes his investment needs before undertaking an

investment. So different goals will be allocated to different proportions of the total

disposable amount. Investments for specific goals normally find their way into the

debt market as risk reduction is of prime importance, this is the area for the risk-

averse investors and here, and Mutual Funds are generally the best option. One can

avail of the benefits of better returns with added benefits of anytime liquidity by

investing in open- ended debt funds at lower risk, this risk of default by any company

that one has chosen to invest in, can be minimized by investing in Mutual Funds as

the fund managers analyze the companies financials more minutely than an individual

can do as they have the expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk andinvest in equity funds/capital market. However, since their appetite for risk is also

limited, they would rather have some exposure to debt as well. For these investors,

balanced funds provide an easy route of investment, armed with expertise of

investment techniques, they can invest in equity as well as good quality debt thereby

reducing risks and providing the investor with better returns than he could otherwise

manage. Since they can reshuffle their portfolio as per market conditions, they are

likely to generate moderate returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to

investing in high-risk avenues. Capital markets find their fancy more often than not,

because they have historically generated better returns than any other avenue,

provided, the money was judiciously invested. Though the risk associated is generally

on the higher side of the spectrum, the return-potential compensates for the risk

attached. 4.2 INTRODUCTION OF MUTUAL FUND




There are a lot of investment avenues available today in the financial market for an

investor with an investable surplus. He can invest in Bank Deposits, Corporate

Debentures, and Bonds where there is low risk but low return. He may invest in Stock

of companies where the risk is high and the returns are also proportionately high. The

recent trends in the Stock Market have shown that an average retail investor always

lost with periodic bearish tends. People began opting for portfolio managers with

expertise in stock markets who would invest on their behalf. Thus we had wealth

management services provided by many institutions. However they proved too costly

for a small investor. These investors have found a good shelter with the mutual funds.

CONCEPT OF MUTUAL FUND: A mutual fund is a common pool of money into which investors place their

contributions that are to be invested in accordance with a stated objective. The

ownership of the fund is thus joint or “mutual”; the fund belongs to all investors. A

single investor’s ownership of the fund is in the same proportion as the amount of the

contribution made by him or her bears to the total amount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same in

diversified financial instruments in terms of objectives set out in the trusts deed with

the view to reduce the risk and maximize the income and capital appreciation for

distribution for the members. A Mutual Fund is a corporation and the fund manager’s

interest is to professionally manage the funds provided by the investors and provide

a return on them after deducting reasonable management fees

The objective sought to be achieved by mutual fund is to provide an opportunity for

lower income groups to acquire without much difficulty financial assets. They cater

mainly to the needs of the individual investor whose means are small and to manage

investors portfolio in a manner that provides a regular income, growth, safety,

liquidity and diversification opportunities.

DEFINITION:




“Mutual funds are collective savings and investment vehicles where savings of small

(Or sometimes big) investors are pooled together to invest for their mutual benefit

and returns distributed proportionately”. “A mutual fund is an investment that pools your money with the money of an

unlimited number of other investors. In return, you and the other investors each own

shares of the fund. The fund's assets are invested according to an investment objective

into the fund's portfolio of investments. Aggressive growth funds seek long-term

capital growth by investing primarily in stocks of fast-growing smaller companies or

market segments. Aggressive growth funds are also called capital appreciation

funds”. WHY MUTUAL FUND? While everyone fantasizes about investing in the stock markets and is passionate

about investing in stocks, what’s more important is; how smartly are these

investments done. One can invest in the stock markets either through the direct route

i.e. stocks or through the indirect route i.e. mutual funds. Both have their own pros

and cons, and so it’s important for us to understand both routes before embarking on

an investment spree.

If an investor has a profound insight into stocks and investments with the requisite

time and skill to analyze companies, then he can surely begin independent stock

picking. However, if an investor lacks any one or all these pre-requisites, then he’s

better off investing in stocks through the indirect route i.e. through mutual funds.

Mutual funds offer several important advantages over direct stock- picking.

Diversification

Investing in stocks directly has one serious drawback - lack of diversification.

By putting your money into just a few stocks, you can subject yourself to

considerable risk. Decline in a single stock can have an adverse impact on

your investments, damaging the returns of your portfolio.

A mutual fund, by investing in several stocks, tries to overcome the risk of




investing in just 3-4 stocks. By holding say, 15 stocks, the fund avoids the

danger of one rotten apple spoiling the whole portfolio. Funds own anywhere

from a couple of dozen to more than a hundred stocks. A diversified portfolio

may thus fall to a lesser extent, even if a few stocks fall dramatically. Also, a

mutual fund’s NAV may certainly drop, but mutual funds tend to not fall as

freely or as easily as stocks. The legal structure and stringent regulations that

bind a mutual fund do a very good job of safeguarding investor interest.

Professional management

Active portfolio management requires not only sound investment sense, but

also considerable time and skill. By investing in a mutual fund, you as an

investor do not have to track the prospects and potential of the companies in

the mutual fund portfolio. This is already being done for you, by skilled

research professionals appointed by the mutual fund houses, professionals

whose job it is to continuously research and monitor these companies.

Lower entry level

There are very few quality stocks today that investors can buy with ` 5,000 in

hand. This is especially true when valuations are expensive. Sometimes, with

as much as ` 5,000 you can buy just a single stock. In the case of mutual

funds, the minimum investment amount requirement is as low as ` 500. This is

especially encouraging for investors who start small and at the same time take

exposure to the fund’s portfolio of 20-30 stocks.

Economies of scale

By buying a handful of stocks, the stock investors lose out on economies of

scale. This directly impacts the profitability of portfolio. If investors buy or

sell actively, the impact on profitability would be that much higher. On the

other hand, in case of mutual funds, frequent voluminous purchases/sales

results in proportionately lower trading costs than individuals thus translating

into significantly better investment performance.

Innovative plans/services for investors




By investing in the stock market directly, investors deprive themselves of

various innovative plans offered by fund houses. For example, mutual funds

offer automatic re-investment plans, systematic investment plans (SIPs),

systematic withdrawal plans (SWPs), asset allocation plans, triggers etc., tools

that enable you to efficiently manage your portfolio from a financial planning

perspective too. These features allow you to enter/exit funds, or switch from

one fund to another, seamlessly - something that will probably never be

possible in case of stocks.

Liquidity

A stock investor may not always find the liquidity in a stock to the extent they

may want. There could be days when the stock is hitting an upper/lower

circuit, thus curtailing buying/selling. Further, if an investor is invested in a

penny stock, he may find it difficult to get out of it.

On the other hand, mutual funds offer some much-required liquidity while

investing. In case of an open-ended fund, you can buy/sell at that day's NAV

by simply approaching the fund house directly, or by approaching your mutual

fund distributor or even by transacting online.

As highlighted above, investing in mutual funds has some unique benefits that may

not be available to stock investors. However by no means are we insinuating that

mutual fund investing is the only way of clocking growth. This can also be done even

by investing directly into the right stocks. However, mutual funds offer the investor a

relatively safer and surer way of picking growth minus the hassle and stress that has

become synonymous with stocks over the years.

On account of the aforementioned advantages, which mutual funds offer, they (mutual

funds) have emerged as immensely popular asset class, especially for retail investor,

and for the investor looking for growth with lower risks.

Investment Objectives and Valuation Policies:

The price at which the units may be subscribed or sold and the price at which such

units may at any time be repurchased by the mutual fund shall be made an available to




the investors.

Restrictions on Investments:

A mutual fund scheme shall not invest more than 15% of its NAV in debt

instrument issued by a single issuer, which are rated not below investment

grade by a credit rating agency authorized to carry out such activity under the

Act. Such investment limit may be extended to 20% of the NAV of the

scheme with the prior approval of the Board of Trustees and the Board of

Asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated

debt instruments issued by a single issuer and the total investment in such

instruments shall not exceed 25% of the NAV of the scheme. All such

investments shall be made with the prior approval of the Board of Trustees

and the Board of Asset Management Company.

No mutual fund under all its schemes should own more than ten percent of any

company’s paid up capital carrying voting rights.

Such transfers are done at the prevailing market price for quoted instruments on

spot basis. The securities so transferred shall be in conformity with the

investment objective of the scheme to which such transfer has been made.

Rules Regarding Advertisements:

The offer document and advertisement materials shall not be misleading or contain

any statement or opinion, which are incorrect or false.

4.3 MUTUAL FUND INDUSTRY IN INDIA




The Evolution:

The formation of Unit Trust of India marked the evolution of the Indian mutual fund

industry in the year 1963. The primary objective at that time was to attract the small

investors and it was made possible through the collective efforts of the Government of

India and the Reserve Bank of India. The history of mutual fund industry in India can

be better understood divided into following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87:

Unit Trust of India enjoyed complete monopoly when it was established in the year

1963 by an act of Parliament.UTI was set up by the Reserve Bank of India and it

continued to operate under the regulatory control of the RBI until the two were de-

linked in 1978 and the entire control was transferred in the hands of Industrial

Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as

Unit Scheme 1964 (US-64), which attracted the largest number of investors in any

single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different

investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's

Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share

(India’s first equity diversified scheme) in 1987 and Monthly Income Schemes

(offering assured returns) during 1990s. By the end of 1987, UTI's assets under

management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993:

The Indian mutual fund industry witnessed a number of public sector players entering

the market in the year 1987. In November 1987, SBI mutual fund from the State Bank

of India became the first non-UTI mutual fund in India. SBI mutual fund was later

followed by Can bank mutual fund, LIC mutual fund, Indian Bank mutual fund, Bank

of India mutual fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets

under management of the industry increased seven times to Rs. 47,004 crores.

However, UTI remained to be the leader with about 80% market share.

Phase III. Emergence of Private Sector Funds - 1993-96:




The permission given to private sector funds including foreign fund management

companies (most of them entering through joint ventures with Indian promoters) to

enter the mutual fund industry in 1993, provided a wide range of choice to investors

and more competition in the industry. Private funds introduced innovative products,

investment techniques and investor-servicing technology. By 1994-95, about 11

private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004:

The mutual fund industry witnessed robust growth and stricter regulation from the

SEBI after the year 1996. The mobilization of funds and the number of players

operating in the industry reached new heights as investors started showing more

interest in mutual funds.

Investors' interests were safeguarded by SEBI and the Government offered tax

benefits to the investors in order to encourage them. SEBI (Mutual Funds)

Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual

funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands

of investors from income tax. Various Investor Awareness Programmes were

launched during this phase, both by SEBI and AMFI, with an objective to educate

investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal

status as a trust formed by an Act of Parliament. The primary objective behind this

was to bring all mutual fund players on the same level. UTI was re-organized into two

parts: 1. The Specified Undertaking, 2. The UTI mutual fund.

Presently Unit Trust of India operates under the name of UTI mutual fund and its past

schemes (like US-64, Assured Return Schemes) are being gradually wound up.

However, UTI mutual fund is still the largest player in the industry.

Phase V. Growth and Consolidation - 2004 Onwards:

The industry has also witnessed several mergers and acquisitions recently, examples

of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun

F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously,




more international mutual fund players have entered India like Fidelity, Franklin

Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is

a continuing phase of growth of the industry through consolidation and entry of new

international and private sector players.

SCHEMES OF MUTUAL FUND:

i). The asset management company shall launch no scheme unless the trustees

approve such scheme and a copy of the offer document has been filed with the Board.

ii). Every mutual fund shall along with the offer document of each scheme pay filing

fees.

iii). The offer document shall contain disclosures, which are adequate in order to

enable the investors to make informed investment decision including the disclosure on

maximum investments proposed to be made by the scheme in the listed securities of

the group companies of the sponsor A close-ended scheme shall be fully redeemed at

the end of the maturity period. “Unless a majority of the unit holders otherwise decide

for its rollover by passing a resolution”.

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial

position, risk tolerance and return expectations etc. thus mutual funds has Variety of

flavors, Being a collection of many stocks, an investors can go for picking a mutual

fund might be easy. There are over hundreds of mutual funds scheme to choose from.

It is easier to think of mutual funds in categories, mentioned below




b. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to

15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchanges where they are listed. In

order to provide an exit route to the investors, some close-ended funds give an option

of selling back the units to the Mutual Fund through periodic repurchase at NAV

related prices. SEBI Regulations stipulate that at least one of the two exit routes is

provided to the investor.

c. Interval Schemes:

Interval Schemes are that scheme, which combines the features of open-ended and

close- ended schemes. The units may be traded on the stock exchange or may be open

for sale or redemption during pre-determined intervals at NAV related prices.

B). BY NATURE

a. Equity Fund:

These funds invest a maximum part of their corpus into equities holdings. The

structure of the fund may vary different for different schemes and the fund manager’s

outlook on different stocks. The Equity Funds are sub-classified depending upon their

investment objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high

on the risk-return matrix.

b. Debt Funds:

The objective of these Funds is to invest in debt papers. Government authorities,

private companies, banks and financial institutions are some of the major issuers of

debt papers. By investing in debt instruments, these funds ensure low risk and provide

stable income to the investors. Debt funds are further classified as:




Gilt Funds: Invest their corpus in securities issued by Government, popularly

known as Government of India debt papers. These Funds carry zero Default

risk but are associated with Interest Rate risk. These schemes are safer as they

invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as

bonds, corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they

take minimum exposure in equities. It gets benefit of both equity and debt

market. These scheme ranks slightly high on the risk-return matrix when

compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six

months. These funds primarily invest in short term papers like Certificate of

Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is

also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provide

easy liquidity and preservation of capital. These schemes invest in short-term

instruments like Treasury Bills, inter-bank call money market, CPs and CDs.

These funds are meant for short-term cash management of corporate houses

and are meant for an investment horizon of 1day to 3 months. These schemes

rank low on risk-return matrix and are considered to be the safest amongst all

categories of mutual funds.

c. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in

both equities and fixed income securities, which are in line with pre-defined

investment objective of the scheme. These schemes aim to provide investors with the

best of both the worlds. Equity part provides growth and the debt part provides

stability in returns.

Further the mutual funds can be broadly classified on the basis of investment

parameter viz; Each category of funds is backed by an investment philosophy, which

is pre-defined in the objectives of the fund. The investor can align his own investment

needs with the funds objective and invest accordingly.




b. Index Schemes:

Index schemes attempt to replicate the performance of a particular index such as the

BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those

stocks that constitute the index. The percentage of each stock to the total holding will

be identical to the stocks index weight age. And hence, the returns from such schemes

would be more or less equivalent to those of the Index.

Investment strategies: a. 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 whenthe NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

b. 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.

c. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fundthen he can withdraw a fixed amount each month.

NET ASSET VALUE (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish the

value of his part. In other words, each share or unit that an investor holds needs to be

assigned a value. Since the units held by investor evidence the ownership of the

fund’s assets, the value of the total assets of the fund when divided by the total

number of units issued by the mutual fund gives us the value of one unit. This is

generally called the Net Asset Value (NAV) of one unit or one share. The value of an

investor’s part ownership is thus determined by the NAV of the number of units held.

Calculation of NAV:

Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10

investors who have bought 10 units each, the total numbers of units issued are 100,

and the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3




units, the value of his ownership of the fund will be Rs. 30.00(1000/100*3). Note that

the value of the fund’s investments will keep fluctuating with the market-price

movements, causing the Net Asset Value also to fluctuate. For example, if the value

of our fund’s asset increased from Rs. 1000 to 1200, the value of our investors

holding of 3 units will now be (1200/100*3) Rs. 36. The investment value can go up

or down, depending on the markets value of the fund’s assets.

MUTUAL FUND FEES AND EXPENSES

Mutual fund fees and expenses are charges that may be incurred by investors who

hold mutual funds. Running a mutual fund involves costs, including shareholder

transaction costs, investment advisory fees, and marketing and distribution expenses.

Funds pass along these costs to investors in a number of ways.

A. TRANSACTION FEES

i) Purchase Fee:

It is a type of fee that some funds charge their shareholders when they buy shares.

Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and

is typically imposed to defray some of the fund's costs associated with the purchase.

ii) Redemption Fee:

It is another type of fee that some funds charge their shareholders when they sell or

redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not

to a broker) and is typically used to defray fund costs associated with a shareholder's

redemption.

iii) Exchange Fee:

Exchange fee that some funds impose on shareholders if they exchange (transfer) to

another fund within the same fund group or "family of funds."

B. PERIODIC FEES

i) Management Fee:

Management fees are fees that are paid out of fund assets to the fund's investment

adviser for investment portfolio management, any other management fees payable to

the fund's investment adviser or its affiliates, and administrative fees payable to the




investment adviser that are not included in the "Other Expenses" category. They are

also called maintenance fees.

ii) Account Fee:

Account fees are fees that some funds separately impose on investors in connection

with the maintenance of their accounts. For example, some funds impose an account

maintenance fee on accounts whose value is less than a certain dollar amount.

C. OTHER OPERATING EXPENSES

Transaction Costs:

These costs are incurred in the trading of the fund's assets. Funds with a high turnover

ratio, or investing in illiquid or exotic markets usually face higher transaction costs.

Unlike the Total Expense Ratio these costs are usually not reported.

RECENT TRENDS IN MUTUAL FUND INDUSTRY IN INDIA:

The most important trend in the mutual fund industry is the aggressive expansion of

the foreign owned mutual fund companies and the decline of the companies floated by

nationalized banks and smaller private sector players. Many nationalized banks got

into the mutual fund business in the early nineties and got off to a good start due to

the stock market boom prevailing them. These banks did not really understand the

mutual fund business and they just viewed it as another kind of banking activity. Few

hired specialized staff and generally chose to transfer staff from the parent

organizations. The performance of most of the schemes floated by these funds was

not good. Some schemes had offered guaranteed returns and their parent

organizations had to bail out these AMCs by paying large amounts of money as the

difference between the guaranteed and actual returns. The service levels were also

very bad. Most of these AMCs have not been to retain staff, float new schemes etc,

and it is doubtful whether, barring a few exceptions, they have serious plans of

continuing the activity in a major way.

The foreign owned companies have deep pockets and have come in here with the

expectation of a long haul. They can be credited with introducing many new practices

such as new product innovation, sharp Improvement in service standards and




disclosure, usage of technology, broker education and support etc. In fact, they have

forced the industry to upgrade itself and service levels of organizations like UTI have

improved dramatically in the last few years in response to the competition provided

by these.

SELECTION PARAMETERS FOR MUTUAL FUND

Objective:

The first point to note before investing in a fund is to find out whether your objective

matches with the scheme. It is necessary, as any conflict would directly affect your

prospective returns. Similarly, you should pick schemes that meet your specific needs.

Examples: pension plans, children’s plans, sector-specific schemes, etc.

Risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt

schemes, as they are relatively safer. Aggressive investors can go for equity

investments. Investors that are even more aggressive can try schemes that invest in

specific industry or sectors.

Fund Manager’s and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is

imperative that he manages it well. It is also essential that the fund house you choose

has excellent track record. It also should be professional and maintain high

transparency in operations. Look at the performance of the scheme against relevant

market benchmarks and its competitors. Look at the performance of a longer period,

as it will give you how the scheme fared in different market conditions.

Cost factor:

Though the AMC fee is regulated, you should look at the expense ratio of the fund

before investing. This is because the money is deducted from your investments. A

higher entry load or exit load also will eat into your returns. A higher expense ratio

can be justified only by superlative returns. It is very crucial in a debt fund, as it will

devour a few percentages from your modest returns.




Also, Morningstar rates mutual funds. Each year-end, many financial publications list

the years best performing mutual funds. Naturally, very eager investors will rush out

to purchase shares of last year's top performers. That's a big mistake. Remember,

changing market conditions make it rare that last year's top performer repeats that

ranking for the current year. Mutual fund investors would be well advised to consider

the fund prospectus, the fund manager, and the current market conditions. Never rely

on last year's top performers.

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be

enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays

out nearly all income it receives over the year to fund owners in the form of a

distribution.

If the fund sells securities that have increased in price, the fund has a capital

gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the

fund's shares increase in price. You can then sell your mutual fund shares for a

profit. Funds will also usually give you a choice either to receive a check for

distributions or to reinvest the earnings and get more shares.

4.4 RISK FACTORS OF MUTUAL FUNDS:

A. The Risk-Return Trade-Off:

The most important relationship to understand is the risk-return trade-off. Higher the

risk greater the returns / loss and lower the risk lesser the returns/loss. Hence it is upto

you, the investor to decide how much risk you are willing to take. In order to do this

you must first be aware of the different types of risks involved with your investment

decision.

B. Market Risk:

Sometimes prices and yields of all securities rise and fall. Broad outside influences

affecting the market in general lead to this. This is true, may it be big corporations or

smaller mid-sized companies. This is known as Market Risk. A Systematic




Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”)

might help mitigate this risk.

C. Credit Risk:

The debt servicing ability (may it be interest payments or repayment of principal) of a

company through its cash flows determines the Credit Risk faced by you. This credit

risk is measured by independent rating agencies like CRISIL who rate companies and

their paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is

considered poor credit quality. A well-diversified portfolio might help mitigate this

risk.

D. Inflation Risk:

Things you hear people talk about: "Rs. 100 today is worth more than Rs. 100

tomorrow." "Remember the time when a bus ride cost 50 paise?.The root cause,

inflation. Inflation is the loss of purchasing power over time. A lot of times people

make conservative investment decisions to protect their capital but end up with a sum

of money that can buy less than what the principal could at the time of the investment.

This happens when inflation grows faster than the return on your investment. A well-

diversified portfolio with some investment in equities might help mitigate this risk.

E. Interest Rate Risk:

In a free market economy interest rates are difficult if not impossible to predict.

Changes in interest rates affect the prices of bonds as well as equities. If interest rates

rise the prices of bonds fall and vice versa. Equity might be negatively affected as

well in a rising interest rate environment. A well-diversified portfolio might help

mitigate this risk.

F. Political / Government Policy Risk:

Changes in government policy and political decision can change the investment

environment. They can create a favorable environment for investment or vice versa.

G. Liquidity Risk:

Liquidity risk arises when it becomes difficult to sell the securities that one has

purchased. Liquidity Risk can be partly mitigated by diversification, staggering of




maturities as well as internal risk controls that lean towards purchase of liquid

securities.

RISK RETURN MATRIX

HIGHER RISK

MODERATE RETURNS

VENTURE CAPITAL

HIGHER RISK

HIGHER RETURNS

EQUITY

LOWER RISK

LOWER RETURNS

BANK FD

POSTAL SAVINGS

LOWER RISK

HIGHER RUTURNS

MUTUAL FUNDS




4.5 WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The

money is invested in various instruments depending on the objective of the scheme.The income generated by selling securities or capital appreciation of these securities

is passed on to the investors in proportion to their investment in the scheme. The

investments are divided into units and the value of the units will be reflected in Net

Asset Value or NAV of the unit. NAV is the market value of the assets of the scheme

minus its liabilities. The per unit NAV is the net asset value of the scheme divided by

the number of units outstanding on the valuation date. Mutual fund companies

provide daily net asset value of their schemes to their investors. NAV is important, as

it will determine the price at which you buy or redeem the units of a scheme.

Depending on the load structure of the scheme, you have to pay entry or exit load.

3.9 .1 STRUCTURE OF MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In

India open and close-end funds operate under the same regulatory structure i.e. as unit

Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes




under a common legal structure. The structure that is required to be followed by any

Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor: Sponsor is defined under SEBI regulations as any person who, acting alone or in

combination of another corporate body establishes a Mutual Fund. The sponsor of the

fund is akin to the promoter of a company as he gets the fund registered with SEBI.

The sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints

the Asset Management Company as fund managers. The sponsor either directly or

acting through the trustees will also appoint a custodian to hold funds assets. All these

are made in accordance with the regulation and guidelines of SEBI.

As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute

at least 40% of the net worth of the Asset Management Company and possesses a

sound financial track record over 5 years prior to registration. Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund

sponsor acts as a settler of the Trust, contributing to its initial capital and appoints a

trustee to hold the assets of the trust for the benefit of the unit-holders, who are the




beneficiaries of the trust. The fund then invites investors to contribute their money in

common pool, by scribing to “units” issued by various schemes established by the

Trusts as evidence of their beneficial interest in the fund.

It should be understood that the fund should be just a “pass through” vehicle. Under

the Indian Trusts Act, the trust of the fund has no independent legal capacity itself,

rather it is the Trustee or the Trustees who have the legal capacity and therefore all

acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance

the investors or the unit-holders are the beneficial owners of the investment held by

the Trusts, even as these investments are held in the name of the Trustees on a day-to-

day basis. Being public trusts, Mutual Fund can invite any number of investors as

beneficial owners in their investment schemes.

Trustees: A Trust is created through a document called the Trust Deed that is executed by the

fund sponsor in favor of the trustees. A board of trustees- a body of individuals, or a

trust company- a corporate body may manage the trust. Most of the funds in India are

managed by Boards of Trustees. While the Indian Trusts Act, governs the boards of trustees where the trusts are a corporate body, it would also require to comply with

the Companies Act, 1956. The Board or the Trust company as an independent body,

acts as a protector of the of the unit-holders interests. The Trustees do not directly

manage the portfolio of securities. For this specialist function, the appoint an Asset

Management Company. They ensure that the Fund is managed by ht AMC as per the

defined objectives and in accordance with the trusts deeds and SEBI regulations.

The Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment

manager of the Trust under the board supervision and the guidance of the Trustees.

The AMC is required to be approved and registered with SEBI as an AMC. The AMC

of a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times.

Directors of the AMC, both independent and non- independent should have adequate

professional expertise in financial services and should be individuals of high moralestanding, a condition also applicable to other key personnel of the AMC. The AMC




cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund manager,

it may undertake specified activities such as advisory services and financial

consulting, provided these activities are run independent of one another and the

AMC’s resources (such as personnel, systems etc.) are properly segregated by the

activity. The AMC must always act in the interest of the unit-holders and reports to

the trustees with respect to its activities.

Custodian and Depositories: Mutual Fund is in the business of buying and selling of securities in large volumes.

Handling these securities in terms of physical delivery and eventual safekeeping is a

specialized activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or participating in any clearance system through approved

depository companies on behalf of the Mutual Fund and it must fulfill its

responsibilities in accordance with its agreement with the Mutual Fund. The custodian

should be an entity independent of the sponsors and is required to be registered with

SEBI. With the introduction of the concept of dematerialization of shares the

dematerialized shares are kept with the Depository participant while the custodian

holds the physical securities. Thus, deliveries of a fund’s securities are given or

received by a custodian or a depository participant, at the instructions of the AMC,

although under the overall direction and responsibilities of the Trustees. Bankers: A Fund’s activities involve dealing in money on a continuous basis primarily with

respect to buying and selling units, paying for investment made, receiving the

proceeds from sale of the investments and discharging its obligations towards

operating expenses. Thus the Fund’s banker plays an important role to determine

quality of service that the fund gives in timely delivery of remittances etc. Transfer Agents: Transfer agents are responsible for issuing and redeeming units of the Mutual Fund

and provide other related services such as preparation of transfer documents and

updating investor records. A fund may choose to carry out its activity in-house and

charge the scheme for the service at a competitive market rate. Where an outside




Transfer agent is used, the fund investor will find the agent to be an important

interface to deal with, since all of the investor services that a fund provides are going

to be dependent on the transfer agent. REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in India is guided by the SEBI, Regulations, 1996.

These regulations make it mandatory for mutual fund to have three structures of

sponsor trustee and asset Management Company. The sponsor of the mutual funds

and appoints the trustees. The trustees are responsible to the investors in mutual fund

and appoint the AMC for managing the investment portfolio. The AMC is the

business face of the mutual fund, as it manages all the affairs of the mutual fund. The

AMC and the mutual fund have to be registered with SEBI.

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI): With the increase in mutual fund players in India, a need for mutual fund association

in India was generated to function as a non-profit organization. Association of Mutual

Funds in India (AMFI) was incorporated on 22nd August 1995.

AMFI is an apex body of all Asset Management Companies (AMC), which has been

registered with SEBI. Till date all the AMCs are that have launched mutual fund

schemes are its members. It functions under the supervision and guidelines of its

Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional and healthy market with ethical lines enhancing andmaintaining standards. It follows the principle of both protecting and promoting the

interests of mutual funds as well as their unit holders. The Objectives of Association of Mutual Funds in India: The Association of Mutual Funds of India works with 30 registered AMCs of the

country. It has certain defined objectives, which juxtaposes the guidelines of its Board

of Directors. The objectives are as follows:




This mutual fund association of India maintains high professional and ethical

standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of

conduct which is followed by members and related people engaged in the

activities of mutual fund and asset management. The agencies who are by any

means connected or involved in the field of capital markets and financial

services also involved in this code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the

mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the

Reserve Bank of India and other related bodies on matters relating to the

Mutual Fund Industry. It develops a team of well-qualified and trained Agent distributors. It

implements a programme of training and certification for all intermediaries

and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to

promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate

information on Mutual Fund Industry and undertakes studies and research

either directly or in association with other bodies.

AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly basis and the other

is quarterly. These publications are of great support for the investors to get intimation

of the knowhow of their parked money.




4.6 MUTUAL FUND COMPANIES IN INDIA:

AIG Global Investment Group Mutual Fund IDBI Mutual Fund

AXIS Mutual Fund IDFC Mutual Fund

Baroda Pioneer Mutual Fund ING Mutual Fund

Benchmark Mutual Fund JM Financial Mutual Fund

Bharti AXA Mutual Fund JP Morgan Mutual Fund

Birla Sun Life Mutual Fund Kotak Mahindra Mutual Fund

BNP Paribas Mutual Fund L&T Mutual Fund

Canara Robeco Mutual Fund LIC Mutual Fund

Daiwa Mutual Fund Mirae Asset Mutual Fund

Deutsche Mutual Fund Morgan Stanley Mutual Fund

DSP Black Rock Mutual Fund Motilal Oswal Mutual Fund

Edelweiss Mutual Fund Peerless Mutual Fund

Escorts Mutual Fund Pramerica Mutual Fund

Fidelity Mutual Fund PRINCIPAL Mutual Fund

Franklin Templeton Mutual Fund Quantum Mutual Fund

HDFC Mutual Fund Reliance Mutual FundHSBC Mutual Fund Religare Mutual Fund

ICICI Prudential Mutual Fund Sahara Mutual Fund

SBI Mutual Fund Tata Mutual Fund

Sundaram Mutual Fund Taurus Mutual Fund

UTI Mutual Fund

(Source: www.jpbuzz.com)




CHAPTER-5

RESEARCH METHODOLOGY




COLLECTION OF SECONDARY DATA:

Secondary data consist of information that is already in existence, having been

collected for another purpose. Review of literature, from previous research findings,

journals, web sources etc.

PRIMARY DATA:

Data observed or collected directly from first-hand experience. Published data and the

data collected in the past or other parties are called secondary data. So, all the data

that we got without the intervention of other party or that is collected directly by the

researcher is considered to be primary.




5.1 SECONDARY DATA




A. Performance Of Mutual Funds between 2010-11

A.AUM:

Category Assets Under Management Inflow/Outflow (Rs Cr)

31-03-

10

31-03-

11

Change Change

(%)

Net Flow Change (%)

Income 311,715 291,975 (19,740) (6.33) (36,706.92) (11.78)

Equity 174,054 169,754 (4,300) (2.47) (13,404.58) (7.70)

Liquid 78,094 73,666 (4,428) (5.67) (3,519.80) (4.51)

ELSS 24,066 25,569 1,503 6.25 266.40 1.11

Balanced 17,246 18,445 1,999 6.95 1,344.72 7.80

GILT 3,395 3,409 14 0.41 (115.84) (3.41)

GOLD

ETF

1,590 4,400 2,810 176.73 2,248.98 141.45

FoF

Overseas

2,862 2516 (346) -12.09 (906.97) (31.69)

Other

ETFs

957 2516 1,559 162.90 1,388.20 145.06

TOTAL 613,979 592,250 -21,729 (3.54) (49,405.80) 8.05

The Assets Under Management (AUM) of the Indian mutual fund industry as on

March 31, 2011 (as per AMFI data) has witnessed a decrease of 3.54% to Rs.

5,92,250 crore on a year on year basis, on account of substantial outflows

from equity, liquid and income schemes. A sharp fall in equity markets as well

as spiked yields on the long term debt side during the financial year forced the

investors to opt for other alternate asset classes like gold and silver. Maximum

growth was observed in AUM of Gold ETFs by 176.7%, while AUM of ‘FOF

Overseas’ dropped the most with 12.2%. The financial yearend AUM of the




industry for March 2011 stood at Rs. 5.92 lakh crore, down from Rs. 6.13 lakh

crore in March 2010.

On a year-on-year basis, the AUM for equity category fell by 2.47% to Rs.

1,69,754 crore. Turbulences in the equity market over the course of the

financial year subdued the investors’ sentiment that resulted in more

redemption on equity side, although the primary indices –Sensex and Nifty

registered annual returns about 10.93% and 11.14% respectively.

As the NAVs of most schemes inched back up to the 2007 levels, some

investors opted to redeem their equity holdings. The equity category witnessed

outflow of Rs. 13,404 crore during the year. This category accounts for 29%

of the industry’s total asset base.

The other categories ELSS and Balanced observed growth in their AUM by

6.25% and 6.95% respectively. ELSS, a tax saving instrument from mutual

fund segment attracted inflows about Rs. 266 crore during the year (the lowest

annual collection since FY06). An inflow of Rs. 1,344.72 crore during the

Financial year into balanced category reflected the cautious stance of investors

against equity market down turns.

Gold ETFs has been glittering and attracting investors’ attention during the

year. The category witnessed a highest growth of 176.73% in AUM to a total

of Rs. 4,400 crore in the year. The category attracted inflows of Rs. 2,248

crore during the period and yielded an annual return of 25.77% while the

physical gold prices rose 27.35%. The category –Other ETFs, a collection of

equity exchange traded funds (ETFs) also witnessed higher growth of

162.90% during the year.

Debt categories saw their assets shrink relatively more in wake of high WPI

inflation that resulted in an uptick in interest rates, which consequently caused

yields of debt securities to inch up to elevated levels. The tight liquidity

condition in the banking system compared to previous financial year on

account of 3G and BWA auctions, advance tax outflows during the year led




the banks and corporates to pull out money from such schemes further

impacting their AUMs. The income and liquid categories witnessed outflows

of Rs. 36,706 crore and Rs. 3,519 crore respectively during the period.

B. FOLIOS:

FINANCIAL YEAR

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

EQUITY ORIENTED SCHEMES

No. Of Folios Change (in no’s) Change (in %)

9,041,075 1,007,507 12.54

17,238,776 8,197,701 90.67

25,376,347 8,137,571 47.21

37,766,259 12,389,912 48.82

41,131,623 3,365,364 8.91

41,118,785 (12,838) (0.03)

39,290,289 (1,828,496) (4.45)

FINANCIAL YEAR

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

DEBT ORIENTED SCHEMES


3,245,694 (571,836) (14.54)

2,906,669 (339,025) (10.45)

3,161,689 255,020 8.77

2,989,743 (171,946) (5.44)

3,399,194 309,451 10.35

3,738,842 439,648 13.33

4,527,435 788,593 21.09




FINANCIAL YEAR

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

GRAND TOTAL


13,845,292 (798,032) (5.45)

21,788,215 7,942,923 57.37

30,366,707 8,578,492 39.37

43,796,078 13,429,371 44.22

47,964,617 4,168,539 9.52

48,174,920 210,303 0.44

47,233,262 (941,658) (1.95)

The total numbers of investors’ folios for Indian mutual fund industry has

witnessed a decline of 1.95% to 4.72 Crore during the financial year of 2010 –

11 (as per the SEBI data) on account of huge redemptions made on equity

schemes. Though there was a notable increase of 21.1% on debt schemes

folios, a shrink of 18 lakhs folios on equity schemes to 3.9 crore led to a fall in

folios after six years. The total number of folios of the industry for the FY

2010 –11 stood at 4.72 crore folios, down from 4.82 crore in the FY 2009 –10.

Equity category that comprises ELSS and other equity oriented schemes lost

4.45% or 18.28 lakhs of folios to 3.92 Crore during the year 2010 –11. Thecategories –ELSS and other equity oriented schemes lost 1.77% and 5.15% of

folios respectively. The number of folios for the equity schemes for the

previous FY 2009 -10 stood at 4.11 crore folios.

On the other hand, Debt oriented categories observed an increase of 21.09% to

45.27 lakhs folios during the financial year due to the increased risk aversion

on individual investors’ fraternity. Albeit the liquid category that was

preferred for steady returns in wake of current up trend in short term interest




rates, lost most during the year i.e. 19% to 1.93 lakhs folios.

Banks hiked rates of their Fixed Deposits (FD) to increase the deposit growth

that resulted into redemption from liquid funds.

An increase in folios in the income schemes (excluding liquid and Gilt) during

FY 2010 –11 was about 8.37 lakhs to the total of 43 lakhs.

There was a commendable increase on the folios of equity ETFs and gold ETFs

of around 179% and 92% to 1.03 Lakhs and 3.20 lakhs respectively. It showed

the growing interest among investors on passively managed funds that

replicate indices and other alternate asset classes.

The factors such as profit booking at higher levels by investors who invested in

2007 – 08 period and were trapped due to a big drop in the markets, increased

risk aversion in wake of high volatility in equity markets resulted into pulling

out investments from equity and to invest in alternate asset classes like gold,

silver and real estate, diminished interest among distributors’ front to sell

mutual funds because of the low commission structure and consolidation of

folios influenced and contributed to reduction in folio numbers.

The ban on entry load by market regulator Securities and Exchange Board of

India (SEBI) for all mutual fund schemes from August 1, 2009 has impacted

distributors’ earnings to a large extent.

The unwillingness of the distributors’ community to sell mutual fund products

due to the huge difference between commissions that they earn by selling

other financial products further subdued the inflows into mutual funds.




5.2 PRIMARY DATA




SELECTION OF THE SAMPLE

To get the information about the study, a survey has been conducted considering

number of respondents. Respondents were selected by using random sampling

technique. Data has been collected through questionnaire mainly considering various

age groups, their risk level, return expectation, liquidity etc. Keeping this view in

mind we followed a simple method of selecting respondents – following the method

of “Simple Random Sampling”. The respondents were selected randomly. Due to the

want of time and resources only 200 respondents were selected for the study.

DATA COLLECTION SOURCES:

Data Sources

o Primary

o Secondary

Reasearsh Approaches

o Survey

Research instruments

o Questionnaire

Sampling Plan

o Any earning person.




DATA INTERPRETATION:

1.Occupation of the investors?

Occupation No. Of Respondents Percentage

Govt.Service 50 25

Pvt.Service 92 46

Business 58 29

Total 200 100

INTERPRETATION:

A.46 % of the respondents are belongs to pvt.service.

B.29 % of the respondents are belongs to business.

C.25 % of the respondents are belongs to Govt.service.




2.What is your age?

Table-2: Classification of Age group of respondents.

Age group No. Of respondents Percentage

<35 42 21

35-50 108 54

>50 50 25

Total 200 100

Graph showing the classification of age group

INTERPRETATION:

A.54 % of the respondents are in the age group of 35-50.

B. 25% of the respondents are belongs to the group of above 50 years.

C. 21% of the respondents are belongs to the group of below 35 years.




3.What is your Income?

Table-3: Annual Income of the respondents

Annual Income No of respondents Percentage

80-1 lakhs 10 5

1-3 lakhs 90 453-5 lakhs 50 25

Above 5 lakhs 50 25

Total 200 100

Graph showing the percentage of annual Income of the respondents

INTERPRETATION:

A.45% of the respondents are belongs to the income group of 1-3 lakhs.

B.24% of the respondents are belongs to the income group of 3-5 lakhs.

C.25% of the respondents are belongs to the income group of above 5 lakhs.

D.5% of the respondents are belongs to the income group of above 80-1 lakhs.




4.In which type of Investments do you invest?

Table-4: Investment Options

Options No of respondents Percentage

Gold 32 16

Fixed deposits 26 13

Insurance 46 23

Mutual funds 44 22

Stocks & shares 32 16

Bonds & debentures 20 10

Total 200 100

Graph showing the percentage of investment options

INTERPRETATION:

A.23% of the respondents are preferred to invest in insurance.

B. 22% of the respondents are preferred to invest in mutual fund.

C. 17% of the respondents are preferred to invest in stocks and shares.

D.15% of the respondents are preferred to invest in gold.

E.13% of the respondents are preferred to invest in fixed deposits.

F.10% of the respondents are preferred to invest in bonds and debentures.




5.How much amount have you invested in mutual funds?

Table-5: The amount invested in mutual funds

Amount No of respondents Percentage

Up to Rs 20000 80 40

Above Rs 20000 120 60

Total 200 100

Graph showing the amount invested in Mutual funds.

INTERPRETATION:

A. 60 % of the respondents are invested an amount of more than Rs 20000 in mutual

funds.

B. 40% of the respondents are invested an amount of Rs 20000 in mutual funds.




6.What are the reasons for selections of mutual funds?

Table-6 Reasons provided by the survey respondents on selection of mutual

funds.

Reasons No. Of respondents Percentage

PAST PERFORMANCE

OF THE PRODUCT

65 32.5

BRAND NAME OF THE

FUND HOUSE &

TRACK RECORD

70 35

RECOMMENDATION

BY THE ADVISOR

20 10

SELF MONITORING OF

THE PRODUCT

32 16

OTHERS 15 7.5




INTERPRETATION:

A.35% of the people are selecting mutual funds based upon the brand name of the

fund house and track record.

B. 32.5% of the people are selecting mutual funds based upon the past performance of

the product.

C. 16% of the people are selecting mutual funds based upon the self-monitoring of the

product.

D. 10% of the people are selecting mutual funds based upon the recommendation by

the advisor.

E. 7.5% of the people are selecting mutual funds because of other reasons.




7.For how long have you been investing in mutual funds?

Table-7: The time horizon of investments

Term No of respondents Percentage

Below 1 year 10 5

1-3 years 30 15

3-5 years 70 35

5 & above years 90 45

Total 200 100

Graph showing the term of investment

INTERPRETATION:

A.45% of the respondents invest in a horizon of 1 – 3 years.

B. 25% of the respondents invest in a horizon of 3 – 5 years.

C. 20% of the respondents invest in a horizon of 0 – 1 years.




8.In how many plans have you invested?

Table-8 No. Of mutual fund plans investors have invested in

No. Of Plans No. Of investors Percentage

Only one 84 42

Two 24 12

Three 20 10

More than three 72 36

Total 200 100

Graphs showing the percentage of plans that the investors invested

INTERPRETATION:

A.42 % of the respondents are invested in one plan.

B.36% of the respondents are invested in more than plans.

C.12 % of the respondents are invested in two plans.

D.10% of the respondents are invested in three plans.




9.Through which channels you know about mutual funds?

Table-9: Channels preferred for investing in mutual funds.

Awareness about Mutual

Fund

No of investors Percentage

INTERNET 26 13

BANKS 80 40

IFAs 60 30

BROKERAGE HOUSES 22 11

DIRECT INVESTMENT 12 6

Total 200 100

Graph showing the channels through investors are aware about the mutual

funds




INTERPRETATION:

A. 40% of the people are preferred banks as their channel for investing in mutual

funds.

B. 30% of the people are preferred Independent financial advisers as their channel for

investing in mutual funds.

C. 13% of the people are preferred Internet as their channel for investing in mutual

funds.

D. 11% of the people are preferred brokerage houses as their channel for investing in

mutual funds.

E. 6% of the people are preferred banks as their channel for investing in mutual funds.




10.Which kind of scheme you prefer for your mutual fund investment?

Table-10 Kind of Scheme that the investors prefer

Kind Of Scheme No. Of Respondents Percentage

SIP 158 79

Lump Sum 42 21

Total 200 100

Graph showing the preference of investor towards kind of scheme for mutual

fund

INTERPRETATION:

A.79 % of the people are preferred to invest in SIP kind of scheme for their mutual

fund investments.

B.21 % of the people are preferred to invest in LUMP SUM kind of scheme for their

mutual fund investments.




12.Please rank your objective of Investing in Mutual Fund?

Table-12: Ranks for the Desired Characteristics before investing into Mutual

Funds.

Desired characteristics Ranks

Safety 1

Returns 2

Tax shelter 3

Liquidity 4

Risk cover 5

Graph showing the ranks of desired characteristics before investing into mutual

funds

INTERPRETATION:

1.Most of the respondents main objective while investing is safety. Return, tax

shelter, liquidity and risk cover will come under next.




13.What is your risk level regarding mutual fund?

Table-13: Risk level of the investor

Combination No of respondents Percentage

0-15% Risk 12 6

15-30% Risk 80 40

30-50% Risk 50 25

50-75% Risk 90 45

75-100 % Risk 10 5

Total 200 100

Graph showing the percentage of combination of the choices of the respondents

regarding mutual funds.

INTERPRETATION:

A.45.5 % of the respondents are ready to take 30-50 % of risk regarding mutual fund

investments.

B.40 % of the respondents are ready to take 15-30 % risk regarding mutual fund

investments.

C.6 % of the respondents are ready to take 0-15% risk regarding mutual fund

investments.

D.5 % of the respondents are ready to take 50-75% risk regarding mutual fund

investments.

E.4 % of the respondents are ready to take 75-100 % risk regarding mutual fund

investments.




14.How much % of return, you are expecting through mutual fund?

Table-14: Rate of return that the investors getting through mutual funds

Return No. Of Respondents Percentage

5-10% 59 29.5

10-15% 28 14

15-20% 86 43

20-25% 27 13.5

TOTAL 200 100

INTERPRETATION:

A.43 % of the respondents are expecting 15-20% of return from their investments.

B.29.5 % of the respondents are expecting 5-10% of rate of return from their

investments.

C.14 % of the respondents are expecting 10-15% of rate of return from their

investments.

D.13.5 % of the respondents are expecting 20-25% of rate of return from their

investments.




15.Are you satisfied with mutual funds and its returns?

Table-15: Investors satisfaction with mutual funds and its returns

Response No. Of Respondents Percentage

Yes 172 86

No 28 14

Total 200 100

INTERPRETATION:

A.86 % of the respondents are satisfied with their returns from mutual funds.

B.14 % of the respondents are satisfied with their returns from mutual funds.




16. What do you think about the future of mutual fund in India?

Table-16: Investors opinion about the future of mutual fund in India

Future Of Mutual Funds No of respondents Percentage

Very Bright 44 22

Bright 100 50

Very Bleak 0 0

Bleak 16 8

Does not know 40 20

Total 200 100

INTERPRETATION:

A.50 % of the respondents have given their opinion i.e. future of mutual fund in India

is bright.

B. 22 % of the respondents have given their opinion i.e. future of mutual fund in India

is very bright.

C. 20 % of the respondents don’t know about he future of mutual fund in India.

D. 8 % of the respondents have given their opinion i.e. future of mutual fund in India

is bright.




17.INVESTOR OPININON TOWARDS MUTUAL FUNDS

Factors

Fully

agree Agree Neutral Disagree

Fully

Disagree

Investors receives good

quality advice from

distributor 34 98 48 20 0

Management fee charged

by AMC is reasonable 32 152 16 0 0

Advertising and

Performance portrayal is

often misleading 16 34 90 54 6

There is need to simplify

the information provided

to unit holders 90 54 52 4 0

Scheme’ performance is

linked with governance

of MF 118 48 34 0 0

Investment in MF units

should be for a longer

period 44 104 20 22 10

No direct regulatory

control on distributors 0 8 54 88 50

Most of the investors agree that the investment in mutual funds is good. Opinion

differs from person to person. What one perceives is a result of interplays between

past experiences, one’s culture and the interpretation of the perceived. Investors

perception is the process of attaining awareness or understanding of sensory

information on their investment in mutual funds.




CHAPTER-6

TESTING HYPHOTHESIS




Based on the primary data collected and relevant questions asked to the respondents

the hypothesis extended earlier in Chapter No. 5 can be tested and concluded as

below.

A- Most of the investors prefer mutual funds because of safety, fair return .

Desired Characteristics before investing into Mutual Funds given by investors.

Desired characteristics Ranks

Safety 1

Returns 2

Tax shelter 3

Liquidity 4Risk cover 5

Graph showing the ranks of desired characteristics before investing into mutual

funds

INTERPRETATION:

From the above data we can say that all the respondents have given priority to safety

return while investing into mutual funds.




B. Consistency in fund performance and brand equity influence customers to make

relevant selection of mutual funds for investment purposes.

Reasons provided by the survey respondents on selection of mutual funds.

Reasons No. Of respondents Percentage

PAST PERFORMANCE

OF THE PRODUCT

65 32.5

BRAND NAME OF THE

FUND HOUSE &

TRACK RECORD

70 35

RECOMMENDATION

BY THE ADVISOR

20 10

SELF MONITORING OF

THE PRODUCT

32 16

OTHERS 15 7.5

From the above table it is clear that most of the respondents are selecting mutual

funds based upon the past performance and band name of the fund house.




CHAPTER-7

FINDINGS AND CONCLUSIONS




From the above study we can conclude that,

As per above analysis, only 21% of respondents who are below 35 years are

interested to invest in mutual funds. The reasons being that there are more

needs to be fulfilled for this age group viz. education, entertainment etc. and

therefore these people do not have surplus funds to invest in mutual funds.

The persons within the age group of 35-50 years only 58% of respondents are

interested to invest in mutual funds. These persons have more investing

potential than their counterparts and they want to increase their income

through investing in mutual funds. The persons having the age equal to or above 50 years, only 28% of respondents

are interested to invest in mutual funds. The reasons being that these persons

are more inclined to age-old principals and want to invest in schemes giving

fixed returns as compared to investing in mutual fund.

Most of the investors like to invest in different combinations, in that more

preference was in insurance, mutual fund & gold. From the above figure we

come to know that the more respondents investing in insurance and mutual

funds as an investment options.

20% of the respondents invest with a shorter investment horizon i.e. 0 -1 year

because they mostly tilt their portfolio in favour of bonds. May be they are

more comfortable in investing in non – risky assets and do not want to take

more risk in investing into stocks or risky assets.

55% of the respondents invest in a horizon of 1 – 3 years. This shows that the

investors with a greater tolerance of risk tilt their portfolio in favour of stocks

and with a lesser tolerance of risk tilt their portfolio in favour of bonds. Here if

a risky investment performs poorly at the beginning of a short horizon, there is

little these investors can do to compensate for loss of wealth but over a long

horizon, these investors can postpone consumption, and work harder to

achieve their financial goals.




25% of the respondents invest in a longer horizon of 3-5 years. This shows

there are investors who tend to take much more risk and mostly into stocks.

These investors think the risk of stocks diminsh as the investment period

lengthens because they feel as the investment period lengthens, the average

yearly return over the period is subject to lesser volatility because low returns

in some years may be offset by high returns in other years and vice versa.

Most of the respondents (42%) have invested in only one plan and 36% of the

respondents have invested in more than three plans.12% have invested in two

plans and the rest 10% have invested in three plans.

We can say that investors who invested in one plan are getting good returns

rather than those who are investing in more than two mutual fund plans. And

they are satisfying with that plan. And they don’t want to invest in other plans.

From primary data it clearly shows that there are more investors like to invest

with the combination of balanced funds & Debt funds with more than20% of

investors. Some investors like to invest in equity fund due to high returns with

high risk with 18% of investors. Some investors are like to go with less risk

with the combination of guilt fund & tax fund.

The analysis shows that 86% of the respondents are satisfied with Investing in

Mutual Funds, and their returns, the reason is its good returns, liquidity,

Taxability, etc, and 14 % of the respondents are not satisfied with the Mutual

Funds and its Returns as the main reason is the lack of awareness and wrong

myth of the funds and the working of the funds.

From the above data we can come to know that there are more number of

investors are optimistic about the future of mutual funds in India. It shows that

investors have faith and reliability on mutual funds.

Respondents consider Return and Risk as more important factors while

investing in mutual funds. From above analysis it also indicates that the

investors are moderate above their risk and return.




It has been observed that most of the respondents are invested in mutual funds

through SIPs. It shows that investors are getting good return through SIPs

rather than lump sum amount.

Most of the respondents prefer safety of principal as 1st priority during

investing in mutual funds. This shows that the money invested by them has to

be safe and their 1st motto is to get back the money invested and then would

go for maximizing their returns.

Most of the investors are expecting 14% of return on investment with

moderate risk i.e. 50%. We can say that majority of the investors are moderate

risk takers.

It has observed that the most of the respondents are receiving 15-20% return

through mutual funds. It indicates that the mutual funds in India are giving

good return to the investors.




CHAPTER-8

LEARNING EXPERIENCE




LEARNING EXPERIENCE

One word about ‘learning experiences’ is everyone knows they are supposed to be

learning something in each and every situation. The learning I am talking about here

is more about situations where we learn but we don’t necessarily call it learning. The

word ‘experience’ refers both to the contact with the world around us, and the

knowledge we derive from it. By definition then, learning experiences are those

events and activities from which we learn by experience and can identify, to a certain

extent, what we have learnt.

1. A starting point

This dissertation has given me an insight into the world of mutual fund industry in

India. Going through each step during my dissertation widened my knowledge base

and increased my awareness of the latest issues in mutual fund market.

2. Some reading …

I searched for a few links on the Internet about the subject, mainly to gain

information. I wanted to be able to better grasp the concept by re-working the words

used to describe it.

3. Learning through the experience

This project has helped me to understand the importance and significance of the

consumer perception, preference and satisfaction, awareness and buying patterns in

mutual fund market. It has given me exposure to the practical side of the market and

at the same time enhanced my knowledge by applying theory learnt in class to

practice. It also enabled me to understand the source of information, which the

consumers prefer to buy a particular product in real. It made me understand that

different group of people go through different source of information.




4. Apart from general learning

I had the opportunity to explore the following areas

• The origin, evolution, types, functioning, process, and the latest trends in mutual fund

industry.

• I clearly understood how to carry out a research.

• I understood various aspects of research in a more practical manner, starting from

identifying a problem to eliciting the solutions to that problem.

5. Questioning ways of doing things

I have been involved in this research over the last six months about the investors

perception towards in mutual funds in India and what has drawn my attention is the

practice. Within a group there are shared practices that are negotiated with others and

go to make up a ‘body of practice’ that gives identity to the group. The investors of

mutual funds shared such common practices, the response of many dealers were

common. So, for all the ‘personal’ nature of the environment, it is ultimately also

conditioned by collective practices.

6. Writing this experience

I drew all the material together from this exploration and started writing my learning

experience. The writing itself further contributed to improve my understanding of

what I’d been exploring. The challenge of communicating ideas to others forces you

to think carefully about what you have done and what you have to say.

In the process of carrying out the dissertation work, I was able to refine my analytical

and presentation skills as well.

On the offset, this dissertation was a learning opportunity for me and paved the way

for implementing my theoretical knowledge and understanding in the field of

research.




CHAPTER-9

GLOSSARY




Asset Allocation -The process of diversifying investments among different types of

assets like stocks, bonds and cash in order to optimize risk / return tradeoff based on a

person’s financial situation and goals.

Asset Class-Different types of investments such as stocks, bonds, real estate and cash.

Asset Management Company- A firm that invests the pooled funds of retail

investors in securities in line with the stated investment objectives. For a fee, the

investment company provides more diversification, liquidity, and professional

management service than is normally available to individual investors.

Assets- An item of value owned by an individual or an organization. It could be

stocks, cash, house or a car.

Bear Market-A prolonged period of falling securities prices in a stock market

.

Bond-A debt security, or an IOU, issued by a company or government agency. A

bond investor lends money to the issuer and, in exchange, the issuer promises to repay

the loan amount on a specified maturity date; the issuer usually pays the bondholder

periodic interest payments over the period of the loan.

Bull Market- A prolonged rise in the price of stocks, bonds or commodities

characterized by high trading volumes.

Closed-End Scheme-A mutual fund scheme that offers a limited number of units

which have a lock-in period, usually of three to five years. ELSS schemes are closed-

ended schemes. The units of closed-end funds are often listed on one of the major

stock exchanges and traded like securities at prices, which may be higher or lower

than its net asset value.

Commercial Paper-Debt instruments issued by corporations to meet their short-term

financing needs. Such instruments are unsecured and have maturities ranging from 15

to 365 days.




Commission- A fee charged by a broker or distributor for his/her service in

facilitating a transaction.

Compound Interest - Interest earned not only on the initially invested principal but

also on accumulated interest during the period.

Credit Rating-A measure of a bond issuer's creditworthiness or the ability to repay

the loan as rated by an independent rating agency, such as CRISIL, ICRA and CARE.

Credit Risk -The possibility that a bond issuer will default, and fail to repay principal

or interest as promised. Also known as "default risk".

Custodian - The organization (usually a bank) that keeps and safeguards the custody

of securities and other assets of a fund.

Depreciation-A decline in an investment's value.

Distribution-The payment of dividends to unit holders by a mutual fund.

Diversification-The strategy of spreading investments among different securities to

reduce risk. By nature, mutual funds are a diversified investment.

Dividend-Profits, stock dividends or interest income, which funds distribute to its unit

holders.

Dividend Reinvestment - A unit holder service that allows dividend distributions to

be reinvested automatically to purchase more fund units.

Equity Schemes-A scheme that invests primarily in stocks while seeking to provide

relatively high long-term growth of capital.

Ex-Dividend Date- The date following the record dates for a scheme. When a fund's

net asset value reduces by an amount equal to a dividend distribution.

Expense Ratio-A fund's operating expenses, expressed as a percentage of its average




net assets.

Family Of Schemes-A set of schemes with different investment objectives from a

single asset management company usually allowing investors to switch their

investments from one scheme to another at a no charge or a nominal charge.

Fixed Income Security-A security that pays a fixed rate of interest such as a bond but

do not offer an investor much potential for growth.

Front-End Load- A one-time charge that an investor pays at the time of buying units

of a scheme.

Fully Invested- The investment of nearly all available assets in securities as per the

stated objective of the scheme and having no cash or cash equivalents in one’s

portfolio.

Fund Manager-The individual responsible for making portfolio decisions for a

mutual fund.

Inception Date - The date when a scheme’s initial offering period ends and the

scheme’s formation takes place.

Income /Debt Scheme- A scheme that invests primarily in fixed income securities.

Typically, income schemes seek to provide current income rather than growth of

capital.

Inflation Risk - The possibility that the value of assets or income will be eroded by

inflation affecting the purchasing power of a currency. Often mentioned in relation to

fixed income funds as while they may minimize the possibility of losing principal,

they expose an investor to inflation risk.

Load- A one-time sales charge paid by an investor while buying or selling units of a

scheme. Typically, there are two types of loads front-end, charged at the time of

purchase and back-end, charged at the time of redemption.




Liquidity-The ease with which an investment can be converted into cash or cash

equivalents. Mutual fund units are generally considered highly liquid investments as

they can be sold on any business day at their current net asset value.

Management Fee - The amount a scheme pays to its asset management company for

its services. Typically, a certain percentage of assets under management. A fund's

management fee is listed in its offer document.

Money Market Fund- A fund that invests in the short-term, high-grade securities

sold in the money market including government securities, treasury bills, certificates

of deposit, and commercial paper.

Mutual Fund- An investment company through which an investor can pool his

money with other investors who have a similar objective. Professional investment

managers, then invest the pool in securities, which in their judgment will help

investors achieve their objective. Mutual funds offer the benefits of portfolio

diversification (which provides greater safety and reduced volatility), professional

management, liquidity and convenience.

Net Asset Value (NAV)- The market value of a mutual fund unit. It is calculated

daily by taking the funds total assets, securities, cash and any accrued earnings,

deducting liabilities, and dividing the remainder by the number of units outstanding.

Net Assets-The net worth of a fund.

No Load Fund-A fund that sells its units to investors without a sales load/charge.

Offer Document / Prospectus - A legal document that describes a mutual fund

scheme. It contains information required by the Securities and Exchange Board of

India explaining the offer, including the terms, issuer, objectives, historical financial

statements, and other information that could help an individual decide whether the

investment is appropriate for him.




Open-Ended Scheme - A scheme where investors can buy and redeem their units on

any business day. Its units are not listed on any stock exchange but are bought from

and sold to the mutual fund.

Operating Expenses-The day-today costs a mutual fund incurs in conducting

business, such as for maintaining offices, staff, and equipment. These expenses are

paid from the fund's assets before any earnings are distributed.

Portfolio- A collection of securities owned by a mutual fund. A fund's portfolio may

include a combination of stocks, bonds, and money market securities.

Portfolio Manager- The individual responsible for managing a mutual fund's

portfolio.

Sector Fund- A fund that invests primarily in securities of companies engaged in a

specific industry. Sector funds entail more risk, but may offer greater potential returns

than funds that diversify their portfolios.

Unit holder- An investor, owning units of a mutual fund.

Volatility- The rate by which the price of a security fluctuates in changing market

conditions.

Yield-The annual rate of return on an investment usually expressed as a percentage.




CHAPTER 10

REFERENCES AND BIBLIOGRAPHY



BOOKS:

1. RESEARCH METHODOLOGY REVISED 2ND EDITION BY C.R.KOTHARI,

NEW AGE INTERNATIONAL PUBLISHERS, NEW DELHI.

2. BANSAL L.K. MUTUAL FUNDS: MANAGEMENT AND WORKING, DEEP

AND DEEP PUBLICATIONS, NEW DELHI

3. SINGH, PREETI INVESTMENT MANAGEMENT, HIMALAYA PUBLISHING

HOUSE, NEW DELHI

WEBSITES:

www.amfiindia.com

www.valuereasearchonline.com

www.hdfcfund.com

www.moneycontrol.com

www.mutualfundsindia.com

www.indiacapital.com

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