MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

1.1 INTRODUCTION TO THE PROJECT

This project is developed after visiting and interviewing at the different cities

in the North Gujarat and after collecting the data of different places through different

sources, the over all scenario of the market is looked into, In doing this there was also

find best cities to get highest business and awareness levels about mutual fund in

different cities in North Gujarat.

After looking at the north Gujarat market it was found that the source of the

money which flows into different investment avenues is generally from the rural

areas nearby the main centers that have been visited. Also one more source of the

money In the Investment avenues is from the people who have shifted from that

particular rural area and settled in a different urban area. But since their origin is in

that particular rural area they have been investing. Other source is from the NRI’s

who have moved out from that particular city.

Now the question arise why should people invest. The general perspective of

this is to get returns as common but if we look in a broader perspective, we can see

that the investment is done for the following reasons:

• To create assets

• To meet Certain Expenses

• For Retirement Planning or for better future

• To generate regular income

• For Tax benefits

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 1

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

Generally, when investors actually invest they invest because of the above-

specified reasons now the question comes where to invest? In addition, the question

arises that what are the investments avenues. The answer to these questions could be

that are generally three avenues under which the investment could be made they are:

• Investing in Debt or Fixed income investments.

• Investing in Equity Market or Related Instruments.

• Investing in Assets

These are the avenues where an individual can invest; now we should look

into different investment avenues and what all contributes in making the above given

avenues. Now when investing is done in Debt or Fixed Income Investments it means

that the investment is done in Bonds, Debentures, Government Securities, RBI

Bonds, T- bills Post Office Instruments, etc. Nevertheless, there are certain problems

in investing this type of avenues. The major problem is that these types of the

instruments are Low Returns, Risk of Repayment or Credit Risk and Non-

transparency. These types of instruments yield very low returns so you get lower

interest rates for the period you have invested it. There is also a Credit Risk involved

in investing in the Debt Instruments.

As far as investing in equity markets or related instruments are concerned the

investment is concerned the investment is done in shares and stocks, index futures

and forwards. Investing in equity also has its drawbacks. The major drawback that is

involved in this avenue is that it is highly risky and volatile market, operative

expenses are too high because of investment of lot of intermediates. The equity

instruments do not have access to technical and fundamental reports.

Investing in assets deals with investments made into Real Estates and Bullion.

For any type of investment, there are certain key considerations that should be made

and understood before investing.

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 2

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

The key considerations that should be made in investing are Safety, Liquidity,

Tax Benefits, Returns and Convenience. When safety is looked into it mainly is

concerned with the safety of the money invested in a particular investment avenue.

The consideration made for safety is that the money invested will be received back or

not. Liquidity means that getting your money back when you are in need of it the

most. Thus, before investing, a proper care should be taken of the time factor and the

investment should be made accordingly. Before investing, an investor should give a

look at what he is left with after tax. From an individual’s viewpoint what he is left

with all his deductions in tax should be considered and then and only then the

investment should be made. Convenience, yes of course a major concern for

Convenience is always looked into before investing. It should be seen how easy it is

to invest in a specific investment avenue, how convenient is it to disinvest in a

specific investment avenue and how does your investment adjust to your needs.

If we look at the overall options available to investors, it can be summarized

as follows:

• Mutual Funds

• Bond & deposits

o Bank Deposits

o Company Deposits

o Bonds

o RBI Bonds

• Small savings Schemes

o National Savings Certificate

o Monthly Saving Scheme

o Public Provident Funds

• Life Insurance

• Equity Instruments

o Equities (Stocks)

o Commodities trading

o Portfolio management service

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 3

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

Thus the investors in India have the above-specified option for investment.

Now looking at the different option s in details.

1.2 INVESTMENT OPTIONS IN DETAILS

Mutual Funds

Instead of investing on

your own, for a small

fee, a set of experts does

it for you through

Mutual fund schemes.

You can choose the risk

profile and asset mix.

Liquid for low Return

instant liquidity, Debt/

income for fixed income

assets and a host of

equity funds for high –

risk high – reward

investing.

Bonds & Deposits

RBI bonds for supreme

safety with sovereign

guarantee. ICICI/IDBI

bonds will save tax if you

are not in high-income

bracket. Capital gains

bonds, a cool way to escape

long-term capital gain tax

on property etc. Company

fixed deposits were earlier a

popular investment option

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 4

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

which are now losing their

charm owing to taxable

interest income coupled

with questionable credit

worthiness of some

companies.

Small Savings Schemes

Administered through

post Offices, these are

ideal for small investors

looking for fixed return

with high safety. A

number of schemes with

varying tax treatment,

monthly income option,

and carrot of bonus too.

‘No TDS’ is the

tempting sweetener.

Life Insurance Schemes

Insure your life, plan for

a financially secure

future for your family

and get attractive tax

breaks along the way.

All this is possible with a

single class of products,

Life Insurance. Get

adequate life cover

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 5

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

coupled with total peace

of mind.

Equities

Over longer term,

equities have yielded

highest returns, provided

you have ability to pick

up good stocks and hold

term for a longer term.

The India Infoline team

will help you with their

research, advisory

support.

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 6

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

Commodities Trading

A better alternative to

share trading since

valuation of shares in

India is more event-

driven making it difficult

to anticipate. On the

other hand, laws of

demand and supply

rather than sentiment

rule the commodities

markets. Trade in

commodities with

5paisa.com, which has

memberships in both the

leading exchanges, MCX

and NCDEX.

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 7

MARKET RESEACH ON CUSTOMER AWARENESS OF MUTUAL FUND IN NORTH GUJARAT

Portfolio Management Service

When it comes to

managing your hard-

earned money, leave it to

the experts. With a little

help from us, your

portfolio can

consistently earn market

–beating returns. Choose

from growth and

momentum schemes.

S.K. PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES 8

1.3 WHAT IS MUTUAL FUND?

Mutual Fund is a collective vehicle of investment. It is a common pool of

money into which investor place their contributions that are to be invested in accordance

with stated objective. By structure it is trust registered under Indian Trust Act and

sponsored by promoters and is highly registered by SEBI. To find out the potential of

mutual funds we should have the knowledge of, how mutual fund differs from the other

investment avenues taking into account the considerations like the safety, Returns, Tax

benefits convenience and liquidity. The comparison is being made on the basis of

considerations given above which should be taken care of before investing.

Comparison With Other Products:

COMPANY FIXED DEPOSITS VERSUS MUTUAL FUNDS:

Fixed deposits are unsecured borrowings by the company accepting the

deposit. Credit rating of the fixed deposit program is an indication of the inherent default

risk in the investment. The moneys of investors in a mutual fund scheme are invested by

the AMC in specific investments under that scheme. These investments are held and

managed in trust for the benefit of the scheme’s investors. On the other hand there is no

such direct correlation between company’s fixed deposit mobilization, and the avenues

where it deploys these resources.

A corollary of such linkages between mobilization and investment is that

the gains and losses form the mutual fund scheme entirely flows through to the investors.

Therefore there can be no certainty of yield, unless a named guarantor assures a return or

to a lesser extent if the investment is in a serial gilt scheme. On the other hand, the return

under a fixed deposit is certain, subject only to the default risk of the borrower.

Both fixed deposit and mutual fund offer liquidity offers liquidity, but subject to

some differences:

• The provider of liquidity in the case of fixed deposits is the borrowing

company. In mutual funds, the liquidity provider is the scheme itself for open –

ended schemes, or the market in the case of closed – ended schemes.

• The basic value at which fixed deposits are excusable is not subject to market

risk. However the value at which units of scheme are redeemed entirely

depends on the market. If securities have gained in value during the period,

then the investor can even earn a return that is higher than what he anticipated,

when he invested. Conversely, he could end up making loss.

BANK FIXED DEPOSITS VERSUS MUTUAL FUNDS

Bank deposits are similar to company fixed deposits. The major

difference is that banks are more stringently regulated than are companies. They even

operate under stricter requirements regarding Statutory Liquidity Ratio and Cash

Reserve Ratio mandated by RBI.

While the above are causes for comfort, bank deposits too are subject to

default risk. However, given the political and economic impact of bank defaults, the

government as well as RBI tries to ensure that banks do not fail.

BONDS AND DEBENTURES VERSUS MUTUAL FUNDS

As in the case of fixed deposits credit rating of a bond or debenture is an

indication of the inherent default risk in the investment. However unlike fixed deposits

bonds and debentures transferable securities.

While an investor may have an early encashment option form the issuer,

liquidity is generally through a listing in the market. Implications of this are:

• If the security is not traded in the market, then the liquidity remains on paper. In

this respect, an open – ended scheme offering continuous sale/ re – purchase

option is superior.

• The value that the investor would realize in an early exit is subject to market risk.

The investor could have a capital gain or capital loss. This aspect is similar to

mutual fund schemes.

EQUITY VERSUS MUTUAL FUNDS

Investment in both equity and mutual funds are subject to market risk. An

investor holding an equity security that is not traded in the market place has a problem in

realizing value from it. But investment in an open – ended mutual fund eliminates this

direct risk of not being able to sell the investments in markets. An indirect risk remains

because the scheme has to realize its investments to pay investors. Another benefit of

equity mutual fund schemes is that they give investors the benefit of portfolio

diversification through a small investment.

LIFE INSURANCE VERSUS MUTUAL FUNDS

Life Insurance is a hedge against risk and not only the investment option.

So it would be wrong to compare life insurance against any other financial product.

Occasionally on account of market inefficiencies or mis – pricing of

products in India. Life insurance products have offered a return that is higher than a

comparable safe fixed return security – thus, you are effectively paid for getting insured.

Such opportunities are not sustainable in the end.

The below given chart Will given a more clear picture as it shows the comparison

between Mutual funds and other investment avenues specified above.

Investment Avenues

Return Safety Liquidity Tax Benefit

Convenience

Bank Deposits Low High High No High

Equity Instruments

High Low High or Low

No Moderate

Debentures Moderate Moderate Low No Low

Fixed Deposits Moderate Low Low No Moderate

Bonds Moderate Moderate Moderate Yes Moderate

Life Insurance Moderate High Low Yes Moderate

Mutual Funds(Open ended)

Moderate Moderate High No High

Mutual Funds (close ended)

Moderate Moderate High Yes High

RBI Relief Bonds

Moderate High Low Yes Moderate

PPF Moderate High Low Yes Moderate

National Savings Certificate

Moderate High Low Yes Moderate

Monthly Income Scheme

Moderate High Low Yes Moderate

TABLE 1: - Comparison of mutual funds with other investment options

Source:- www.amfiindia .com

1.4 ORGANIZATION OF MUTUAL FUND

chart-1 Organization of mutual fund-1

The Fund Sponsor:

Any person or corporate body that establishes the fund and registers it wills SEBI.

From a trust and appoint a Board of Trustees.

Appoints Custodian and Asset management Company either directly of through Trust, in accordance with SEBI regulations.

SEBI regulations also define that a sponsor must contribute at least 40% to the net worth of the asset management company.

Trustees:

Created through a document called the Trust Dead that is executed by the fund Sponsor registered with SEBI.

A Board of Trustee -a body of individuals or a Company-a corporate body may manage the Trust- the Mutual fund.

Protector of unit holders' interests.

2/3rd of the trustees shall be independent persons and shall not be associated with the sponsors.

Asset Management company:

Acts as an invest manager of The Trust under the Board Supervision, and direction of the Trustees.

Has to be approved and registered with SEBI.

Will float and manage the different investment schemes in the name of the trust and in accordance with SEBI regulations.

Acts in interest of unit-holders and reports to the trustees.

At least 50% of directors on the Board are independent of the sponsor or the trustees.

Custodian:

Has the responsibility of physical handling and safe keeping of the securities.

Should be independent of the sponsors and registered with SEBI.

chart-2 Organization of mutual fund-2

chart-3 Organization of mutual fund-3

2.1 ARTICLES FROM THE ECONOMICS TIMES AS ON 6TH JULY.

Big NFO slice for small investor

MFs WIIL BE FORCED TO WOO RETAIL INVESTORS AS EXPOSURE OF CORPORATES MAY BE CAPPED

The retail inventor is likely to get a far bigger piece of the mutual fund

pie. The regulation is considering a cap on the total exposure of the corporate sector in

the new fund offers (NFOs) made by mutual funds.

The plan would replicate the quota system of the equity public offers, which has

caps for different categories of investors such as retail, high net worth or FII. The object

is to spur greater investment by smaller players as there would be upper limit for the

retail investors in this proposal for mutual funds.

The subject is likely to be discussed by the securities and exchange Board of

India at its next board meeting. At present, there is no cap on how much the corporate

sector in aggregate can invest in a fund offering. There is, however, a cap of 20% on

investment by any one entity in the total size of a mutual fund scheme.

Unlike a public offer for equities, an NFO does not have a fixed corpus, the issue

of determining the cap could be tricky.

The government has been struggling with the question of how to make the mutual

fund industry become the preferred investment choice for retail investors.

According to industry estimates more than 50% of the total assets under

management of the mutual fund industry, at 2,76,000 crore, as on may 31,2006 is held

by institutional investors, including new entrants such as provident fund. Against this , in

the US, for instance, households hold 77% of mutual fund assets.

In 2004-05, only 1.4% of household saving got allocated to the capital market

including mutual funds, said prithvi haldea, chief of prime database, a capital market

think tank. He says the reason for this low figure lies in the “corporatisation of the funds

industry”.

The government has already ruled out tax incentives to promote this class of

investment, as has been urged by the association of mutual funds in India.

So a cap on aggregate corporate sector exposure would ensure that mutual funds

reach out to more number of small investors. This may also spur them to set up shop in

small towns and other investment centers. Very few of the 28 fund houses have any

outlets beyond the large cities, the exception being some of the public sector entities like

UTI-MF.

3. RESEARCH METHODOLOGY

(1) Objectives Of The Study:

Main Objective: -

To study the customer awareness of mutual funds in the north Gujarat

market.

Sub Objective: -

To analyze the Response of three new NFO’s in North Gujarat.

1. Fidelity India special situation fund

2. Tata equity management fund.

3. Template India equity income fund

(2) Scope Of The Study:

The primary learning objective of my project is to study the customer awareness

of mutual funds in the north Gujarat. By the virtue of its size investment field is so large

that an in depth study is not possible.

So we have taken an overview of different investment avenues by Interviewing

different people involved and who have been in the field for a period of time. The survey

conducted to study the customer awareness of mutual funds is restricted to the

geographic area of specific cities in the north Gujarat such as Mehsana, Visnagar, Unjha,

Palanpur, Deesa, and Patan.

(3) Sampling Design:

1) Sample Type:

According to the target population the sample type is a non-probability - Quota

Sampling Because On element basis the samples are selected individually from the list of

customers who are the best information providers so it is in the form of Quota Sampling.

By representation it will be random so Simple Random Sampling.

2) Sample Population:

It is the total collection of the elements about which I wish to make the

inferences, i.e. all major customers that are doing investment through India Infoline

Distribution. Co.Ltd in different cities in North Gujarat.

3) Sample Frame:

The sample frame will be the cities visited in the north Gujarat.

4) Sample Unit:

Customers of the India Infoline Distribution. Co.Ltd

5) Sample Size:

350 Respondents would be surveyed which are divided as follows: -

City Sample Size

1.Mehsana 100 Respondents

2.Visanagar 50 Respondents

3.Unjha 50 Respondents

4.Palanpur 50 Respondents

5.Deesa 50 Respondents

6.Patan 50 Respondents

6) Sample Scope:

Scope of the sample is within the north Gujarat.

(4) Data Collection Sources:

1) Primary Data Collection:

The primary data was collected through two research instruments.

1.1) Personal Interview:

Interviewing past, current and new customer of India Infoline.

1.2) Questionnaire:

Another tool used for data collection was questionnaire. The preparation of

questionnaire was such that it could give an over all market of savings being done in the

north Gujarat. The questionnaire also provided a percentage wise distribution of the total

savings in that particular market as per the viewpoint of the respondent.

2) Secondary Data Collection:

Web sites.

News Papers.

(5) Analysis of Data: -

Each question would be tabulated shown in graphical form and interpreted and analyzed.

(6) Limitation of the study: -

The study was based only on North Gujarat so the Research & finding about awareness of Mutual fund my be biased.

The study was done two months only thus the time constrains my give-biased results.

4.1 INDUSTRY AT A GLANCE

The mutual fund industry in India has seen phenomenal growth since its

inception in 1965 and particularly in the post reform period after 1993. The asset

managed by the industry shot up from Rs. 25 crore in 1965 to Rs. 1, 13,005 crore in

2000 to Rs. in 2004. Until 1986, UTI was the only mutual fund. That year bank

sponsored funds made an entry; the first one being SBI and Can bank mutual funds. In

1993, the country saw the first private sector mutual fund, Morgan Stanley.

Today there are 35 mutual funds run by asset management companies and the

total number of schemes has shot up to as in March. Among them, there are 8

bank/financial institution sponsored funds and 26 private sector funds. Of these private

sector funds, 14 are joint ventures between Indian companies and foreign mutual funds.

The industry has been growing at a compounded annual growth rate (CAGR) over 1989-

2000 at 21.4% and over 1964-2000 at 25.6%.

The oldest fund, Unit Trust of India, with total assets of Rs. 57,684 crore leads

pack followed by Prudential ICICI Mutual Fund with assets worth 5000 crore marks.

Equity funds roughly comprise 18% of the industry, whereas income funds constitute

49%. There are 30 sector-specific schemes in the industry.

Introduction of Mutual Fund

A Mutual Fund is a trust that pools the savings of a number of investors who

share a common financial goal. The money thus collected is invested by the fund

manager in different types of securities depending upon the objective of the scheme.

These could range from shares to debentures to money market instruments. The incorne

earned through these investments and the capital appreciation realized by the scheme are

shared by its unit holders in proportion to the number of units owned by them (pro rata).

Thus a Mutual Fund is the most suitable investment for the common man as it offers an

opportunity to invest in a diversified, professionally managed portfolio at a relatively

low cost Anybody with an investible surplus of as little as a few thousand rupees can

invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective

and strategy.

A mutual fund is the ideal investment vehicle for today's complex and modem

financial scenario. Markets for equity shares, bonds and other fixed income instruments,

real estate, derivatives and other assets have become mature and information driven,

Price changes in these assets are driven by global events occurring in faraway places. A

typical individual is unlikely to have the knowledge, skills, inclination and time to keep

track of events, understand their implications and act speedily. An individual also finds it

difficult to keep track of ownership of his assets, investments, brokerage dues and bank

transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally

qualified and experienced staff that manages each of these functions on a full time basis.

The large pool of money collected in the fund allows it to hire such staff at a very low

cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all

three areas - research, investments and transaction processing. While the concept of

individuals coming together to invest money collectively is not new, the mutual fund in

its present form is a 20th century phenomenon. In fact, mutual funds gained popularity

only after the Second World War. Globally, there are thousands of firms offering tens of

thousands of mutual funds with different Investment objectives. Today, mutual funds

collectively manage almost as much as or more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund.

Typically, it pre specifies the investment objectives of the fund, the risk associated, the

costs involved in the process and the broad rules for entry into and exit from the fund

and other areas of operation. In India, as in most countries, these sponsors need.

Approval from a regulator, SEBI (Securities exchange Board of India) in our ease. SEBI

looks at track records of the sponsor and its financial strength in granting approval to the

Fund for commencing operations.

A sponsor then hires an asset management company to invest the funds according

to the investment objective. It also hires another entity to be the custodian of the assets of

the fund and perhaps a third one to handle registry work for the unit holders (subscribers)

of me fund.

Chart Showing Operation Of Mutual Funds

chart-4 Operation of mutual fund

4.2 TYPES OF MUTUAL FUNDS IN INDIA

Mutual funds are investment portfolios that invest in financial markets

instruments. Pooling investor contributions, usually denominated in units, creates these

portfolios. There are varieties of ways in which mutual funds are created, to cater the

varied risk and return requirements of investors. Depending on the investment portfolio

that is created, and the segments of the various markets in which funds are invested,

there is a choice of funds to investors. Mutual fund schemes may be classified based on

its structure and its investment objectives.

BY SCHEME TYPE

A mutual fund scheme can be classified into Open – ended scheme or Close –

ended scheme depending on its maturity period.

OPEN – ENDED FUNDS

An open – ended fund is one that is available for subscription all throughout the

year. These do not have a fixed maturity. Investors can conveniently buy and sell units at

Net Asset Value (“NAV”) related prices which are declared on daily basis . The key

feature of open-ended schemes is liquidity.

CLOSED – ENDED FUNDS

A closed – ended fund has a stipulated maturity period which generally ranging

from 5 to 7 years. The fund is open for the subscription only during a specified period at

the time of launch of the scheme. 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 either of the two exit routes is

provided to the investor i.e. repurchase facility or through listing on stock exchanges.

These mutual fund schemes disclose NAV related prices generally on weekly basis.

BY INVESTMENT OBJECTIVE

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering the investment objective. Such schemes may be open – ended or

close – ended schemes as described earlier. Such schemes can be classified as follows:

GROWTH FUNDS

The aim of the growth funds is to provide capital appreciation over the medium

to long – term. Such schemes normally invest a majority of their corpus in equities. Such

funds have comparatively high risk. These schemes provide different options to the

investors like dividend option capital appreciation etc. and the investors may choose an

option depending on their preference. The investors must indicate the option in the

application form. Mutual Funds also allow investors to change the options at a later date.

Growth schemes are good investors having a long – term outlook seeking appreciation

over a longer period. It has been proven that returns from stocks, have outperformed

most other kind of investments held over the long term. Growth schemes are ideal for

investors having a long – term outlook seeking growth over a period.

INCOME FUNDS

The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds, corporate

debentures, government securities, and money market instruments. Such funds are less

risky compared to equity schemes. These funds are not affected because of fluctuations

in equity markets. However, opportunities of capital appreciation are also limited in

these types of schemes.

The NAVs of such schemes are affected because of a change in the interest rates

of the country. If the interest rats fall, the NAVs of such schemes are likely to increase in

the short run and vice – versa. However long – term investors may not bother about these

fluctuations. Income funds are ideal for capital stability and regular income.

BALANCED FUNDS

The aim of balanced funds is to provide both growth and regular income. Such

schemes periodically distribute a part of their earning, invest both in equities, and fixed

income securities in the proportion indicated in their offer documents. These are

appropriate for the investors who are looking for moderate growth. They generally invest

40 – 60% in equity and debt instruments. These funds are also affected because of

fluctuations in share prices in the stock market. However, the NAVs of such schemes are

likely to be less volatile compared to pure equity funds. In a rising stock market, the

NAV of these schemes may not normally keep pace, or fall equally when the market

falls. These are ideal for the investor s looking for a combination of income and

moderate growth.

MONEY MARKET FUNDS

The aim of money market fund is to provide easy liquidity, preservation of

capital and moderate income. These schemes invest exclusively in safer short – term

instruments such as treasury bills, certificates of deposits, commercial papers and inter –

bank call money and government securities. Returns on these schemes may fluctuate

depending upon the interest rates prevailing in the market; they also fluctuate much less

compared to other funds. These are ideal for Corporate and individual investors as a

means to park their surplus funds for short periods.

TAX SAVING SCHEMES

These schemes offer tax rebates to the investors under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment in

specified avenues. Investments made in Equity Linked Saving Schemes (ELSS) and

Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act

also provides opportunities to investors to save capital gains u/s 54EA and 54EB by

investing in Mutual Funds, provided the capital asset has been sold prior to April 1 2000

and the amount is invested before September 30 2000.

GUILT FUNDS

These funds invest exclusively into government securities. Government securities

have no default risk. NAVs of these schemes also fluctuate due to changes in the interest

rates and other economic factors, as is the case with income or debt – oriented schemes.

SPECIALIZED SCHEMES

These include Sectoral funds that invest in a particular industry like

Pharmaceuticals, InfoTech, Petrochemicals, etc. There are some special funds targeted at

a particular class of investors like women and children.

LOAD OR NO – LOAD FUNDS

A load fund is one that charges a percentage of NAV for entry or exit. That is,

each time one buys or sells units of the fund, a charge will be payable. This charge is

used by the mutual fund for marketing and distribution of expenses. Suppose the NAV

per unit is RS. 10. If the entry as well as exit load charged is 1%, then the investors who

buy would be required to pay RS. 10.10. And those who offer their units for repurchase

to the mutual funds will get only RS. 9.90 per unit.

The investor should consider the loads while making investments as these affects

their yields/returns. However, the investors should al so take into consideration the

record of accomplishment and service standard of the mutual fund, which are more

important. Efficient funds may give higher returns in spite of loads. A no – load fund is

that does no charge for entry or exit. It means the investors can enter the fund/scheme at

NAV and no additional charges are payable on sale or purchase of funds.

SYSTEMATIC INVESTMENT PLAN

Here the investor is given the option of preparing the predetermined number of

post-dated cheques in favour of the fund. He will get the unit on the date of the cheques

at the existing NAV. For instance, if on March 25 he has given the cheques of June 25

then he will get the units on June 25 on the existing NAV.

SYSTEMATIC WITHDRAWAL PLAN

As opposed to the Systematic Investment Plan, the Systemic Withdrawal Plan

allows the investor the facility to withdraw the pre – determined amount/units from his

fund at the pre – determined interval. The investor’s units will be redeemed at the

existing NAV as on that day.

RETIREMENT PENSION PLAN

Some schemes are linked with retirement pension. Individuals participate in these

plans for themselves and corporate for their employees.

INSURANCE PLANS

UTI and LIC offer insurance cover to investors launches some schemes.

TYPES OF SCHEMES BY POSITION PHILOSOPHY

HEDGE FUNDS/ LEVERAGED FUNDS

While the name hedge funds give a psychological comfort of a fund being on a

low on risk, nothing can be further away from the truth.

Hedge funds are leveraged funds where the fund manager invests a mix of funds

belonging to investors and funds from lenders. A leveraging of two would mean that for

every Re. 1 of the unit capital, an additional Rs. 2 is borrowed, thus investing Rs. 3 in the

market.

Borrowed funds have interest and repayment obligations that are independent of

how the market performs. Thus, in bad market conditions, a non – leveraged fund only

needs to bear a loss, a leveraged fund would also need to generate additional resources to

meet the interest and repayment obligations on its borrowed funds.

Hedged funds are, therefore extremely risky funds the level of risk being a

function of the extent of leveraging.

INDEX FUNDS

Index Funds replicate the portfolio of a particular index such as the BSE sensitive

index, S&P NSE 50 index etc. These schemes invest in the securities in the same

weightage comprising an index. NAVs of such schemes would rise and fall in

accordance with the rise of fall in the index though not exactly by the same percentage

due to some factors known as ‘tracking error’ in technical terms. Necessary disclosures

in this regard are made in offer document of the mutual fund scheme

There are also exchange traded index funds launched by the mutual funds, which

are traded on the stock exchanges.

EXCHANGE TRADED FUNDS

Exchange traded funds are open – ended funds that trade on the exchange. Like

index funds, ETFs, are benchmarked to a stock exchange index.

TYPES OF FUNDS BY GEOGRAPHY

COUNTRY OR REGION FUNDS

Countries funds invest in securities form a specific country or region. The

underlying belief is that the chosen country or region is expected to demonstrate superior

performance, which, in turn would be favorable for the securities of that country.

OFFSHORE FUNDS

Offshore funds mobilize moneys from investors for investment outside their

country. Indian mutual funds have been permitted to invest in foreign debt securities in

countries with convertible currencies.

4.3 KEY DRIVERS OF MUTUAL FUNDSThe mutual fund industry has been growing annually at the rate of 9% for the

past 5 years and is expected to double the current AUM by the march 2010. Further, the

annual composite growth rate of the industry is expected to be around 13% in the next 10

years. The industry, which in 1993 had less than 10 schemes today, has 460 schemes

offered by mutual funds. The schemes are more diverse and offer a wide array of choices

to investors. The following factors have contributed to the sprout growth of the mutual

funds in the recent times.

BUOYANT STOCK MARKET

If there is one major, reason for the industry to grow at such level it is the

booming stock market over the last three years. The buoyant stock market, which has

gained 18% in the last one year and 90% in the last three years has really proved boon to

the mutual fund industry as not only it has attracted the investors to it but also has

spread its popularity among the Indian people who are always averse to invest into the

stock market.

PRODUCT INNOVATION

The innovative schemes launched by the mutual fund house have given

the investors the option to choose funds, which suit his investment needs. Introduction of

the innovative schemes like hybrid funds, children funds or fixed maturity plans and new

schemes such as exchange traded funds and commodity – traded funds have helped

galvanized the industry growth. The innovations have changed the once unattractive

offerings to a menu consisting a tailor made schemes for investors.

INCREASED COMPETITION

The entry of new players both foreign as well as local has helped the

industry to expand further. This has been ably supported by a slew of new schemes from

existing player as well. Further, the consolidation in the industry has just started. Many

big mutual fund houses like Fidelity and Vanguard have entered the market. These fund

houses’ individual assets are more than the size of the entire Indian mutual fund

industry; this certainly will help improve the growth levels of the industry.

TECHNOLOGY

The technology waves which has transformed many industries in how

they operated and survive has also come to the aid of the mutual fund industry to widen

its reach, offer flexibility and convenience to investors. The advantages include lower

distribution costs through online online transactions, more customized approach and

personal advice and reaching out to the growing young and net – savvy population of

India.

DEEPER PENETRATION INTO THE COUNTRY

Though India has good savings rate the savings is channelzed more into

insurance and banking schemes, which carry lesser risk. Mutual fund players are now

realizing the potential of the B class and C class cities of India, many of which are seeing

good growth in income levels as major player from diversified industries such as IT,

Services, Banking, Retailing and Petroleum are setting up their base in these cities.

Increased penetration in these cities has increased to help its assets under management.

The potential will be huge for the Indian mutual fund industry as the present markets are

still dominated by corporate and investors from the A class cities.

TAX INCENTIVES

Tax benefits extended to the mutual fund investors investing in equity

mutual fund schemes too have acted as a catalyst for the growth of the industry. As of

now, the dividend is tax – free in the hands of investors. Also the, removal of the long –

term capital gain tax is the main catalyst.

4.4 RISKS INVOLVED IN INVESTING IN MUTUAL FUNDS

All investments in Mutual Funds and Securities are subject to market risks and

the NAV of the Schemes may go up or down, depending upon the factors and forces

affecting the securities market. There cannot be any assurance that the Schemes’

Investment Objectives can be achieved. The past performance of the AMC, Mutual

Fund, the Sponsor or its Group affiliation is not indicative of the future performance of

the Schemes. ¨ The Sponsor is not responsible or liable for any loss resulting from the

operations of the Schemes beyond the initial contribution of Rs. 1 lakh made by them

towards setting of the Mutual Fund. Chola Midcap Fund, Chola Triple Ace and Chola

Liquid are only the name of the Schemes and do not in any manner indicate the quality

of the Schemes, its future prospects or returns. The rating of CRISIL is not an opinion of

the AMC’s willingness or ability to make timely payment. The rating is also not an

opinion on the stability of the NAV of the fund, which may vary substantially with the

movements in the capital markets. Investors are requested to study the Offer Document

of the Schemes carefully before making any investment ¨ The Scheme do not guarantee

any assured returns to the investors.

MARKET RISK

If the overall stock or bond market falls because of macroeconomic factors, the

value of the stock or bond holdings in the fund’s portfolio can drop thereby affecting the

NAV.

NON – MARKET RISK

Bad news about an individual company can pull down its stock price, which can

affect, negatively, funds holding a large quantity of that stock. Having a diversified

portfolio that consist a wide variety of stocks drawn from different industries can reduce

this risk.

INTEREST RATE RISK

Bond prices and interest rates move in opposite directions. When interest rate

rise, bond prices fall and this decline in underlying securities affects the NAV

negatively. The extent of the negative effect is dependent on factors such as maturity

profile, liquidity etc.

CREDIT RISK

Bonds are debt obligations. So, when funds invested in corporate bonds, they run

the risk of the corporate defaulting on their interest payment and the principal payment

obligations and when that risk crystallizes, it leads to fall in the value of the bond

causing the NAV of the bond to take the beating.

4.5 HISTORY OF MUTUAL FUNDS INDUSTRY

IN INDIA

The Indian mutual fund industry has come a long way since the inception

of UTI in 1963. According to AMFI, the evolution of the industry can be broadly divided

into four phases, which mark its transition from a period when UTI dominated to a

period of completion and increased awareness among investors.

INDIAN MUTUAL FUND INDUSTRY

The history of Indian mutual fund industry can be distinctly divided into two

phases - the period before liberalization when only public sector players existed with one

dominant player Unit Trust of India and the post-liberalization era where the industry

was opened up to private players.

Unit trust of India (UTI) was established in 1963 and launched its legendary first

scheme 'US-64' in 1964. UTI witnessed a slow and steady growth over seventies and

eighties and by end of 1988; it had an AUM of Rs. 67,000 million. From 1987, non-UTI,

public sector mutual funds were allowed and public sector banks and financial

institutions set up a series of mutual fund companies. At the end of 1993, the overall

AUM of mutual fund industry was Rs. 470,004 million.

The mutual fund industry was opened up for private participation 1993 and a new

era was ushered in, paving the way for an unprecedented choice of products and services

to Indian investors. Detailed guidelines were established and the mutual fund industry

(except UTI) came under the regulation of Securities Exchange Board of India (SEBI).

Many reputed foreign mutual funds such as Templeton, Alliance, Prudential group etc.

set up operations in India. As at the end of January 2003, there were 33 mutual funds

with total assets of Rs. 1,218,050 million.

In February 2003, the Unit Trust of India Act 1963 was repealed and UTI

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

of India, still under the control of Government of India with AUM of Rs. 298,350

million as at the end of January 2003. The second is the UTI Mutual Fund Ltd,

sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under

the Mutual Fund Regulations. As at the end of October 31, 2003, there were totally 31

funds in India, with assets under management of about Rs. 1,267,260 million.

The industry passed through different phases of growth:

FIRST PHASE (1964 – 87)

This phase began with the inception of the Unit Trust of India. It remained the

only mutual fund player in the country till 1987.UTI started its operations in July 1964 ;

with a view to ‘ENCOURAGE SAVINGS AND INVESTMENT AND

PARTICIPATION IN THE INCOME, PROFITS AND GAINS ACCURING TO THE

CORPORATION FROM THE ACQUITION, HOLDING, MANAGEMENT AND

DISPOSAL OF SECUTITIS’. In short, the Indian Government with a view to augment

small savings to the capital markets set it up. UTI witnessed a slow and steady growth

and by the end of 1988 it had an AUM of Rs. 67 bn. It continues to be the largest player

in the domestic mutual funds industry with the AUM of Rs. 23500 crore as on March

2005.

SECOND PHASE (1987 – 1993)

Public sector mutual funds set up by public sector banks, Life Insurance

Corporation of India and the General Insurance of India entered into the market in 1987

The first non – UTI mutual fund was the SBI mutual fund established in June 1987,

followed by the Can bank mutual fund in December 1987, Bank of Baroda in October

1992. LIC set up its mutual fund in June 1989, while GIC established its mutual funds in

December 1990. During this period the total AUM of the industry, grow to about RS.

610 bn with the total number of the schemes increasing to about 167 by the end of 1994.

THIRD PHASE (1993-2003)

This phase marked the entry of private sector funds. The phase also signaled the

intensification of the competition. Both domestic and foreign players entered the market,

offering wide range of schemes to investors. Kothari Pioneer Mutual Fund was the first

private mutual fund to be established in association with a foreign fund. The opening up

of the market to the private players saw international players like Morgan Stanley,

George Soros, and Capital International entering into the market. The total AUM by the

end of January 31 2005 increased up to $ 34,927 mn from $ 23,260 mn in March 1995.

FOURTH PHASE (SINCE FEBRUARY 2003)

In February 2003, the Unit Trust of India Act 1963 was repealed and UTI was

bifurcated into two separate entities: Specified Undertaking of the Unit Trust of India,

which is still under the Government of India and the UTI Mutual Fund Limited. This

was done in the wake of the severe payment crisis that UTI suffered because of its

assured return in the adverse impact on the Indian capital markets. US 64 were the first

scheme launched by UTI with a significant equity exposure and the returns of which

were not linked to the market. However, the industry has overcome that shock and is

hoped to have learnt its lesson.

4.6 BENEFITS OF INVESTING IN MUTUAL FUNDS

PROFESSIONAL MANAGEMENT

Mutual Funds provide the services of experienced and skilled professionals,

backed by a dedicated investment research team that analyses the performance and

prospects of companies and selects suitable investments to achieve the objectives of the

scheme.

DIVERSIFICATION

Mutual Funds invest in a number of companies across a broad cross-section of

industries and sectors. This diversification reduces the risk because seldom do all stocks

decline at the same time and in the same proportion. You achieve this diversification

through a Mutual Fund with far less money than you can do on your own.

CONVENIENT ADMINISTRATION

Investing in a Mutual Fund reduces paperwork and helps you avoid many

problems such as bad deliveries, delayed payments and follow up with brokers and

companies. Mutual Funds save your time and make investing easy and convenient.

RETURN POTENTIAL

Over a medium to long-term, Mutual Funds have the potential to provide a higher

return as they invest in a diversified basket of selected securities.

LOW COSTS

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage, custodial and

other fees translate into lower costs for investors.

LIQUIDITY

In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units can be sold

on a stock exchange at the prevailing market price or the investor can avail of the facility

of direct repurchase at NAV related prices by the Mutual Fund.

TRANSPARENCY

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion invested in

each class of assets and the fund manager's investment strategy and outlook.

FLEXIBILITY

Through features such as regular investment plans, regular withdrawal plans and

dividend reinvestment plans, you can systematically invest or withdraw funds according

to your needs and convenience.

INVESTMENT IN SMALL SUMS:

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the benefit

of its investment strategy.

CHOICE OF SCHEMES

Mutual Funds offer a family of schemes to suit your varying needs over a

lifetime.

WELL REGULATED

All Mutual Funds are registered with SEBI and they function within the

provisions of strict regulations designed to protect the interests of investors. The

operations of Mutual Funds are regularly monitored by SEBI. The net asset value of the

fund is the cumulative market value of the assets fund net of its liabilities. In other

words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, the

shareholders would collectively own this amount. This gives rise to the concept of net

asset value per unit, which is the value, represented by the ownership of one unit in the

fund. It is calculated simply by dividing the net asset value of the fund by the number of

units. However, most people refer loosely to the NAV per unit as NAV, ignoring the

"per unit". We also abide by the same convention.

4.7 KEY CHALLENGES OF MUTUAL FUNDSThough India enjoys a good savings rate, the mutual fund industry gets very little

out of this. If this money gets channelized into mutual funds it will help India match

other well – developed markets like the US, CANADA etc. An other issue facing the

industry is that till now the Indian mutual fund industry have focused on A class cities

and haven’t made much impact into the B and C class of cities and the rural areas, which

have also seen marked increased in the income level and spending power. Following are

the major challenges that Indian mutual fund is facing.

The Mutual Funds has been positioning itself as a growth and sunrise industry,

they have been set up with the purpose of mobilising savings of the households and

invest the proceeds in stock markets. Their performance on both these accounts has not

been encouraging as the total assets under management for the past few years have

remained stagnant and they have not been major players in stock.

The industry has seen shifting of assets from one asset class to another and one

fund house to another without any significant growth in aggregate assets.

Mutual funds in their present state are focused only in major metros and mini

metros, thus a large section of potential investors remains outside the reach of the

industry. Though attempts have been made to expand the reach, for e.g. Indian Post and

IDBI- principle launched a scheme for distribution through select post offices.

Apart from reach, mutual fund products are perceived to complex by investors,

though various awareness programmes are being carried out to educate the investors.

Recently, various investor awareness programs have been conducted by the MFs. Also,

to foster professional standards in the operations of MFs, AMFI in association with the

NSE has developed a self-study and testing/certification programme for the employees

and distributors of MFs.

Further, AMFI in consultation with the SEBI has made it mandatory to all

existing personnel of MFs/AMCs, who are engaged in sales, marketing and employees to

complete the certification process. Despite these efforts, their reach is limited and

awareness among the investors is still low.

The biggest problem with Mutual Funds is that they have failed to demonstrate

effectiveness of their investment process for generating sustainable investment return

with a few exceptions. As a result, MFs are seen as momentum chasers rather than

professional investment managers. Hence the assets have been garnered based on

performance of the MF rather than confidence of the investors. This is reflected in the

pattern of flow of funds whereby the last quarter performance is the biggest driver for

attracting money. The MF needs to demonstrate robustness of their investment

management process rather than last quarter return to ensure investor participation

through the ups and downs of the market. Investors need to choose the fund based on its

process rather than the end result. This has forced the MFs to be short-termism and

thereby hampered the growth of the MF industry. In the developed countries, MF

mobilise amounts at par with banks, but in India they are nowhere near the deposits

mobilized by the banks.

POOR REACH

Lack of deeper distribution networks and channels is hurting the growth of the

industry. This is an area of concern for the mutual fund industry, which has not been able

to penetrate deeper into the country and has been limited to the metros and a class cities.

If the mutual fund industry comes up with the better distribution network models and

increases its reach it could help in tapping the huge potential investor markets of the

rural and other Band C class of cities.

BANKS STILL DOMINATE

The biggest hindrance to the mutual fund industry lies in its inability to attract the

savings of the public, which constitute the major investment sources in other developed

mutual fund markets. A large pool of money in savings in India is still with the state –

run and private banks.

IMPACT OF GLOBAL DEVELOPMENTS

Though the economic reforms have brought India on the global investment map,

this also exposes Indian financial markets, including Indian mutual fund industry, to the

volatility in international markets. Fluctuations in the global markets and financial

systems will now be evident as the Indian markets get linked to other foreign markets.

Managing risks in such a scenario will be a key challenge of the Indian mutual fund

industry.

OPERATIONAL HASSLES

Operational inefficiencies are still hampering the growth prospects of the

industry. Lengthy transaction cycles and old – fashioned returns distribution models like

cheques – based returns are preventing the industry to grow at good rates. Investments in

good technology take up huge capital and are pretty risky for the mutual fund companies

to invest in. The rapid obsolescence of technology and huge upfront investment costs are

also getting in the way of the mutual funds from embracing the technology wave.

LACK OF INVESTMENT ADVISORS

The lack of investment advisors, especially to give personalized investment

advice to the investors is creating roadblocks for the growth in mutual funds. Further, the

awareness levels in India about the mutual fund industry are largely restricted to the

high-income investors and the investors of A class cities. These rules out the potentially

huge B, C class cities and rural areas, which have the strong growth potential. Lack of

awareness, distribution models and advisors in these areas have blocked out a large pool

of potential investors for the industry.

MAJOR PLAYERS

Fidelity Mutual Fund

Tata Mutual Fund

Franklin Templeton Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

Reliance Mutual Fund

SBI Mutual Fund

Prudential Mutual Fund

Birla Sunlife Mutual Fund

Chola Mandela Mutual Fund

Kotak Mahindra Mutual Fund

DSP Merill Lynch Mutual Fund

Standard Chartered Mutual Fund

Principal Mutual Fund

JM Mutual Fund

4.8 CURRENT SCENARIO OF MUTUAL FUNDS IN INDIASince private players were allowed in 1993, the Indian Mutual fund industry has

witnessed a sea change in the way it operates, in the regulatory and investor attitude

towards Mutual fund products. From a single player in 1987 today there are 29 mutual

funds offering as many as 477 schemes. The total assets under management have risen to

Rs 195784 crores. However, the accolades regarding the growth of the MF industry

should be reserved until this growth is analyzed taking the MF industry in other

developed countries in consideration. Here are certain statistics that reflect that Indian

Mutual fund industry still has a long way to go when compared to global standards:

AUM AS A PERCENTAGE OF GDP :

In most of the developed countries the total assets under management ranges

from 30% -60% of the GDP. Total assets under management are only 8% of the GDP in

case of India.

PENETRATION OF MUTUAL FUNDS:

In India it is estimated that 6.7% of the households hold mutual funds. This

figure is close to 50% in case of the US and 17% in case of UK. Mutual funds account

for only 0.73% of total financial assets in India (11% of bank deposits). AUM for Mutual

funds had exceeded the bank deposits in US in as early as 1998. These are only some of

the statistics that show that the Indian mutual funds industry is still in its infancy. It is

important to study the present industry scenario to gain a better understanding of the

impediments to the growth of the industry:

LACK OF INVESTOR AWARENESS:

Retail investors had wrong notions about the mutual funds as an investment

avenue. The benefits of risk diversification, professional management and ease of

administration involved while investing in mutual funds are not closely understood.

Knowledge of financial while investing in mutual funds are not clearly understood.

Knowledge of financial products is ingrained in school and college curriculum in

countries like UK, France and US.

INVESTOR RISK APPETITE:

Equity funds account for 30% of the total AUM in India. This figure is more than

50% in most developed countries. Frequent stock market scams and the bust of tech

sector specific MFs have contributed to this apprehension. The growth in mutual funds

has come through the growth in investments in short term instrument like Money Market

Mutual Funds, which account for 40% of AUM.

HIGHER RETURNS OF ALTERNATIVE DEBT INSTRUMENTS:

Government guaranteed schemes provide risk free returns at competitive rates of

returns. This is why mutual funds have difficulty competing retail business.

CONCENTRATION OF CORPORATE INVESTORS:

Mutual funds have become overly attractive to corporate investors because of

higher returns than bank deposits and ability to distribute capital gains tax. Corporate

investors account for 57% of the AUM (by value). Though the turnover rates have

increased, the average fund in management has grown by only 25% in the past 4 years. It

is clear that the lack of growth in funds under management in India is because of the

absence of long-term investors. Corporate investors take profits frequently resulting in

destruction in the compound growth in funds under management.

Distributors are forced to pass on more commissions to companies, while fund

companies are compelled to offer funds with wafer thin margins. Retail investors lose

out in the sense that they continue to pay higher expenses.

DISTRIBUTION:

One of the major factors affecting the growth of mutual fund industry is the

absence of any regulation in distribution of mutual funds. Mutual fund investors need

distributors who are able to inform them about the efficacy of distribution product for a

particular risk profile and stage in life cycle. Lack of distributor awareness and the

absence of any disclosures from distributors make mis selling of MF products

commonplace. Also penetration in rural areas is a problem. Only 3% of rural households

own mutual funds. For mutual funds to set up a distribution network in these centers can

be very expensive. In many countries, mutual fund industry sees a point of inflection, a

point after which the AUM increases spectacularly after a period of sluggish growth.

This happened in case of US after 1992-93 when the AUM increased from $1 trillion to

$7.3 trillion in 2004. Many studies have revealed that this period of growth corresponds

to following factors:

• Explosive growth in capital markets

• A sound system of regulation

• Increase in investor awareness

BSE has witnessed a phenomenal rise in the last 2 years (market cap has more

than doubled in the past 2 years), a question thus arises: Has India reached its point of

inflection after which the mutual fund industry will witness a phenomenal growth? What

are the improvements in mutual fund industry (regulation, investor awareness, depth,

distribution etc) required to stimulate such rapid growth?

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

bifurcated into two separate entities: the Specified Undertaking of Unit Trust of India

and the UTI Mutual Fund. The Specified Undertaking of the Unit Trust of India as at

the end of January 2003 had Rs.29, 835 crore assets under management, which

included assets of US 64 scheme, assured return and certain other schemes. The UTI

mutual fund limited sponsored by SBI, PNB, BOB and LIC, is registered with Sebi

and therefore functions under the regulation of sebi. As at the end of March 2005,

there were 30 funds, managing assets worth Rs.1, 49,600 crores, under 452 schemes.

4.9 FUTURE EXPECTATIONS FROM INDIAN MUTUAL FUND INDUSTRYTaking into consideration the above comparison and the current situation

prevailing in the capital markets, the alisticxpectations from the Indian Mutual fund

Industry could be:

INCREASED PENETRATION :

With the proposed opening up of pension funds to the private sector we

can expect the penetration levels of MFs to increase in the next few years. Because of

their experience in managing MFs the AMCs will play an important role in the

management of pension funds.

INCREASED EMPHASIS ON RETAIL INVESTORS THROUGH SUPPLY CHAIN INNOVATIONS:

Retail investments less than Rs 10,000 are unprofitable for AMCs.

However, certain supply chain innovations and investments in retail infrastructure would

lead to increased emphasis on retail investors. Some of the possible innovations can be

the use of “straight-through processing," an industry buzz phrase for automating mutual

fund transactions so that the entire process-from placing a trade to final settlement-is

fast, relatively seamless and less subject to manipulation. Straightforward concept,

straight-through processing requires substantial integration and cooperation among

members of the mutual fund supply chain. Using IT, members of the mutual fund supply

chain can improve efficiency, manage risk and improve regulatory compliance-all

critical moves for maintaining investor confidence in mutual funds. As urban markets

reach a peak mutual funds would target second rung cities and smaller towns to increase

their investor base.

DIVERSE RANGE OF PRODUCTS:

In order to make MFs more acceptable to the retail investor mutual fund

industry has to mature to offering comprehensive life cycle financial planning and not

products alone. These would include products catering to specific life cycle needs like

buying a house, funding college admission etc. With increase in investor awareness

many new products would be introduced. Some of them are listed here: derivative based

MFs (though a cap on derivative exposure for a sponsor currently exists), commodities

and real estate MFs, feeder funds, funds of funds, capital protected funds, etc.

INCREASE IN THE NEED FOR FINANCIAL ADVICE:

As the affluence of Indians increases and the range of financial products

available to meet people’s needs expand – mortgages, deposits, life products, defined

contribution pensions, mutual funds, etc – the need for financial advice will increase.

Mutual fund distribution will become geared towards providing sound financial advice

according to investor’s risk profile and stage in life cycle.

RECOMMENDATIONS

With penetration levels at close to 6% great scope exists for the growth of

mutual funds in India. Mutual funds have to compete with bank deposits and government

securities for a share of consumer savings. This requires the regulator and the AMC to

increase the credibility of MFs and develop a trust among the average retail investors. I

recommend the following steps on part of SEBI and AMCs:

STEPS TO BE TAKEN BY SEBI

• Give the board of trustees the right to choose a fund manager of their own

choice. This will make them more accountable and aware as to what the AMC is

doing.

• Benchmark the performance of funds with peers as well as with specific indices

Restriction on who can be appointed as sub-brokers.

• Implementation of international accounting principles across the mutual fund

industry will help promote fairness and stability of the sector.

• AMFI will work towards increasing investor awareness through the publication

of documents, organizing seminars etc.

• In addition, AMFI serve as a regulator of distributors because mutual funds

complain of poor distributor regulation as the biggest challenge to the industry.

REGULATING CORPORATE INVESTMENTS.

Regulatory requirements that require mutual funds to segregate large and

small investors. This would enable retail investors to pay expenses that are relevant to

their investments and turnover rates.

INVESTOR EDUCATION PROGRAMS

As the principal regulator of financial services in the country, SEBI

should invest in programs that give investor knowledge about financial products in the

country. Investors should be able to make informed decisions after knowing how MFs

can be used for financial planning. This could be done in conjunction with AMCs, AMFI

and other participants in the financial sector.

STEPS TO BE TAKEN BY AMCS

• Make mutual fund offer documents more comprehensible by aking

disclosures more simple and relevant, and fund structure more distinctive

to the common people.

• Make disclosures regarding the MF expenses more transparent especially

distributor expenses, which form a major chunk of entry, loads.

• Make fund managers accountable to unit holders. Organizing Annual

General Meetings of unit holders where performance of the fund would

be reviewed can do this.

CONCLUSION

The comparison of the Indian MF industry with respect to global

standards showed that India has a lot of catching up to do in terms of penetration, the

diversity of products, and the risk mitigation techniques used. However, the attitude of

the regulator towards investor protection and governance of mutual funds was found to

be very close to global standards. The Indian MF industry is possibly at a point of

inflection on the verge of explosive growth. The factors that point towards this are the

existence of robust capital markets and the presence of an impartial regulator. In order to

reap the benefits of this growth, the mutual fund industry has to introduce changes at the

rate of knots. These changes include introduction of newer products, improvements in

Mutual Funds distribution and better governance of mutual funds. The MF regulator

(SEBI) should increase the accountability of all major players including the AMCs,

distributors and brokers to build trust among retail investors.

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India Infoline was founded by a group of professionals in 1995, a seemingly

distant past in the Internet age. Our meticulous research was published and distributed in

printed form to a client base comprising the who's who of Indian business including

leading MNCs, investment banks and consulting firms. The quality of research was

highly acclaimed and soon became the industry benchmark. Over the last few years, our

research coverage has grown to cover practically all companies, sectors, economy and

financial markets. The breadth and depth of our content is unmatched - stock markets,

mutual funds, personal finance, taxation and economy.

Insurance- Completing The Basket

Post deregulation of the insurance sector, we saw a big opportunity. We became

one of the first corporate agents to be licensed by IRDA and have tied up with ICICI

Prudential Life Insurance Company.

The quality of our services is unmatched, for the following reasons

• High quality, reliable information and advisory support

• Network of in-house Financial Advisors to cater to tailor made requirements of

investors

• Investor Points all over the country for personalized service.

• State of the art technology to ensure security and confidentiality.

• Housekeeping support, like portfolio tracking and online accounts statements.

Strengths That Set Us Apart

• We have been in information services for the last seven years and have

assiduously built the data and skill sets necessary for the business.

• We have leveraged our content to create the India Infoline brand, which is

synonymous with high quality and credible information on business and finance.

• Our top management team represents a skill set, which is mutually exclusive but

collectively exhaustive.

• The strength of the organization has been to continuously innovate and reinvent

itself.

We as a team are continuously learning and are in sync with a rapidly changing

environment. Without this approach we would never have killed our earlier business

model, and gone into Internet space. We would not have opened up Investor Points when

people were still counting eyeballs and page views.

We would not have offered services that were till then the preserve of large

corporate houses and we would not have offered brokerage rates that are now the delight

of investors. With us you can be sure that tomorrow will not be just another day.

Services

We offer E-broking services and door-to-door service to investors for a gamut of

products ranging from Mutual Funds, GoI Securities to Fixed Deposits and Insurance.

While our strong base of offline customers gives us a head start, we continue to pioneer

online offerings of these services. We were the first company in India to sell.

Investor Points - A Human Touch

We have a well-entrenched physical network of 75 Investor Points. At these

customers can see our human face and get service unparalleled in India. The Investor

Points also help educate investors and aid financial transactions in smaller towns with

the use of computers and the Internet. We also provide clients with financial planning

and taxation advisory services to ensure that they get the maximum out of their hard-

earned money. Apart from our acclaimed research capabilities, we have a group of

trained and professionally qualified Financial Advisors to cater to the requirements of

our clients.

Unique E-Broking Service

It was launched for online trading in mid-2000. Stock market investors in India

have never had it so good - low brokerage rates and some of the best research, thanks to

Internet technology and E-broking. This is a unique model, which combines the rates of

a discount brokerage and service of a boutique house. We ensure independence and

integrity as we do not trade on our account, and all employees have to adhere to strict

compliance guidelines. Besides high quality investment advice from an experienced

research team, the site offers real time stock quotes, market news and multiple tools for

technical analysis.

We have implemented world-class security systems to prevent any possibility of

misuse, fraud or data pilferage. We have successfully emerged as one of the leading

providers of E-broking services in India.

Getting Started

India Infoline Ltd

India Infoline Ltd is listed on both the leading stock exchanges in India, viz. the

Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). The India

Infoline group, comprising the holding company, India Infoline Ltd and its subsidiaries,

straddles the entire financial services space with offerings ranging from Equity research,

Equities and derivatives trading, Commodities trading, Portfolio Management Services,

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

instruments to loan products and Investment banking. India Infoline also owns and

manages the websites, www.indiainfoline.com and www.5paisa.com .

For the nine months ended December 31, 2005, India Infoline Ltd had a total

income of Rs 1323.40 Mn up 179% for the same period for the previous year with a PAT

of Rs 324.00 Mn, which is a growth of 146% for the same period for the previous year.

India Infoline Ltd, being a listed entity, is regulated by SEBI (Securities and

Exchange Board of India). It undertakes equities research which is acknowledged by

none other than Forbes as 'Best of the Web' and '…a must read for investors in Asia'.

India Infoline's research is available not just over the Internet but also on international

wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities

where it is amongst the most read Indian brokers.

Its various subsidiaries are in different lines of business and hence are governed

by different regulators. The subsidiaries of India Infoline Ltd are:

India Infoline Securities Pvt Ltd

India Infoline Securities Pvt Ltd is a 100% subsidiary of India Infoline Ltd,

which is engaged in the businesses of Equities broking and Portfolio Management

Services. It holds memberships of both the leading stock exchanges of India viz. the

Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). It offers

broking services in the Cash and Derivatives segments of the NSE as well as the Cash

segment of the BSE.

A SEBI authorized Portfolio Manager it offers Portfolio Management Services to

clients. These services are offered to clients as different schemes, which are based on

differing investment strategies made to reflect the varied risk-return preferences of

clients.

India Infoline Commodities Pvt Ltd

India Infoline Commodities Pvt Ltd is a 100% subsidiary of India Infoline Ltd,

which is engaged in the business of commodities broking. It holds memberships of both

the leading Commodity exchanges in India viz. the Multi-Commodities Exchange

(MCX) and the National Commodity and Derivatives Exchange, India (NCDEX)

India Infoline.Com Distribution Co Ltd

India Infoline.com Distribution Co Ltd is a 100% subsidiary of India Infoline Ltd

and is engaged in the business of distribution of Mutual Funds, IPOs, Fixed Deposits and

other small savings products. It is one of the largest 'vendor-independent' distribution

houses and has a wide pan-India footprint of over 150 branches coupled with a huge

number of 'feet-on-street', which help source and service customers across the length and

breadth of India.

Its unique value proposition of free doorstep expert advice coupled with free

pick-up and delivery of cheques has been met with an enthusiastic response from

customers and fund houses alike.

India Infoline Insurance Services Ltd

India Infoline Insurance Services Ltd is also a 100% subsidiary of India Infoline

Ltd and is a registered Corporate Agent with the Insurance Regulatory and Development

Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance

Co Ltd, which is India's largest private Life Insurance Company.

India Infoline Insurance Brokers Ltd

India Infoline Insurance Brokers Ltd is a 100% subsidiary of India Infoline Ltd

and is a newly formed subsidiary which will carry out the business of Insurance broking.

We have applied to IRDA for the insurance broking license and the clearance for the

same is awaited.

India Infoline Investment Services Ltd

India Infoline Investment Service Ltd is also a 100% subsidiary of India Infoline

Ltd. It has an NBFC license from the Reserve Bank of India (RBI) and offers margin-

funding facility to the broking customers.

Marchmont Capital Advisors Pvt Ltd

Marchmont Capital Advisors Pvt Ltd is a 100% subsidiary of India Infoline Ltd.

It is engaged in the business of Investment banking and advisory. We have applied to

SEBI for our Merchant Banking license and are awaiting an approval on the same from

SEBI. We plans to leverage upon our research capabilities, corporate relationship,

distribution network of over 150 branches and our network with small and mid size

corporates as well as capabilities to execute cross border deals to build the investment

banking business. We expect significant numbers of small and medium- sized companies

to be turning to the capital markets and becoming involved in mergers and acquisitions.

Investment banking targeted at this segment is a logical extension of the

company's existing services. The leading investment banks are targeting the large

companies and the 'small and medium-sized companies' bracket is a good untapped

growth opportunity.

Moneytree Consultancy Services Pvt Ltd

Moneytree Consultancy Services Pvt Ltd is a company in which India Infoline

Ltd has a 75% stake. It is engaged in the business of loan products, distributing home

loans and personal loans in two major cities of India. We have plans to ramp up the scale

of operations and take the business to a pan-India level.

Across its 155 branches spread across India, around 3,500 people work with

India Infoline Ltd. We are driven by the philosophy of 'Owner mindset' and each of our

employee carries out his/ her duties as if the owner. This philosophy is not just an

esoteric value and has been given an actual form by way of an active ESOPs scheme.

6.1 PORTER'S FIVE FORCES MODELThe model of pure competition implies that risk-adjusted rates of return

should be constant across firms and industries. However, numerous economic studies

have affirmed that different industries can sustain different levels of profitability; part of

this difference is explained by industry structure. Michael Porter provided a framework

that models an industry as being influenced by five forces. The strategic business

manager seeking to develop an edge over rival firms can use this model to better

understand the industry context in which the firm operates.

CHART-6 PORTER’S FIVE FORCES MODEL

RIVALRY

In the traditional economic model, competition among rival firms drives profits

to zero. But competition is not perfect and firms are not unsophisticated passive price

takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of

rivalry among firms varies across industries, and strategic analysts are interested in these

differences.

If rivalry among firms in an industry is low, the industry is considered to be

disciplined. This discipline may result from the industry's history of competition, the role

of a leading firm, or informal compliance with a generally understood code of conduct.

Explicit collusion generally is illegal and not an option; in low-rivalry industries

competitive moves must be constrained informally. However, a maverick firm seeking a

competitive advantage can displace the otherwise disciplined market.

In pursuing an advantage over its rivals, a firm can choose from several

competitive moves:

• Changing prices - raising or lowering prices to gain a temporary advantage.

• Improving product differentiation - improving features, implementing

innovations in the manufacturing process and in the product itself.

• Creatively using channels of distribution - using vertical integration or using a

distribution channel that is novel to the industry.

• Exploiting relationships with suppliers.

The intensity of rivalry is influenced by the following industry

characteristics:

• A Larger Number Of Firms increases rivalry because more firms must

compete for the same customers and resources.

• Slow Market Growth causes firms to fight for market share. In a growing

market, firms are able to improve revenues simply because of the expanding

market.

• High Fixed Costs result in an economy of scale effect that increases

rivalry.

• High Storage Costs Or Highly Perishable Products cause a producer

to sell goods as soon as possible. If other producers are attempting to unload

at the same time, competition for customers intensifies.

• Low Switching Costs increases rivalry.

• Low Levels Of Product Differentiation is associated with higher levels

of rivalry.

• High Exit Barriers place a high cost on abandoning the product. The firm

must compete. High exit barriers cause a firm to remain in an industry, even

when the venture is not profitable.

THREAT OF SUBSTITUTES

In Porter's model, substitute products refer to products in other industries. To the

economist, a threat of substitutes exists when a product's demand is affected by the price

change of a substitute product. Substitute products affect a product’s price elasticity - as

more substitutes become available, the demand becomes more elastic since customers

have more alternatives. A close substitute product constrains the ability of firms in an

industry to raise prices.

The competition engendered by a Threat of Substitute comes from products

outside the industry. The price of aluminium beverage cans is constrained by the price of

glass bottles, steel cans, and plastic containers. These containers are substitutes yet they

are not rivals in the aluminium can industry.

While the treat of substitutes typically impacts an industry through price

competition, there can be other concerns in assessing the threat of substitutes. Consider

the substitutability of different types of TV transmission: local station transmission to

home TV antennas via the airways versus transmission via cable, satellite, and telephone

lines. The new technologies available and the changing structure of the entertainment

media are contributing to competition among these substitute means of connecting the

home to entertainment. Except in remote areas it is unlikely that cable TV could compete

with free TV from an aerial without the greater diversity of entertainment that it affords

the customer.

BUYER POWER

The power of buyers is the impact that customers have on a producing industry.

In general, when buyer power is strong, the relationship to the producing industry is near

to what an economist terms a monophony - a market in which there are many suppliers

and one buyer. Under such market conditions, the buyer sets the price. In reality, few

pure monopolies exist, but frequently there is some asymmetry between a producing

industry and buyers. The following tables outline some factors that determine buyer

power.

BUYERS ARE POWERFUL IF:

• Buyers are concentrated - there are a few buyers with significant market

share.

• Buyers purchase a significant proportion of output - distribution of purchases

or if the product is standardized

• Buyers possess a credible backward integration threat - can threaten to buy

producing firm or rival

BUYERS ARE WEAK IF:

• Producers threaten forward integration - producer can take over own

distribution/retailing

• Significant buyer switching costs - products not standardized and buyer

cannot easily switch to another product

• Buyers are fragmented (many, different) - no buyer has any particular

influence on product or price

• Producers supply critical portions of buyers' input - distribution of purchases

SUPPLIER POWER

A producing industry requires raw materials - labor, components, and other

supplies. This requirement leads to buyer-supplier relationships between the industry and

the firms that provide it the raw materials used to create products. Suppliers, if powerful,

can exert an influence on the producing industry, such as selling raw materials at a high

price to capture some of the industry's profits. The following tables outline some factors

that determine supplier power.

SUPPLIERS ARE POWERFUL IF:

• Credible forward integration threat by suppliers

• Suppliers concentrated

• Significant cost to switch suppliers

• Customers Powerful

SUPPLIERS ARE WEAK IF:

• Many competitive suppliers - product is standardized

• Purchase commodity products

• Credible backward integration threat by purchasers

• Concentrated purchasers

• Customers Weak

BARRIERS TO ENTRY / THREAT OF ENTRY

It is not only incumbent rivals that pose a threat to firms in an industry; the

possibility that new firms may enter the industry also affects competition. In theory, any

firm should be able to enter and exit a market, and if free entry and exit exists, then

profits always should be nominal. In reality, however, industries possess characteristics

that protect the high profit levels of firms in the market and inhibit additional rivals from

entering the market. These are barriers to entry. Barriers to entry are more than the

normal equilibrium adjustments that markets typically make.. Firms also may be

reluctant to enter markets that are extremely uncertain, especially if entering involves

expensive start-up costs. These are normal accommodations to market conditions.

However, if firms individually (collective action would be illegal collusion) keep prices

artificially low as a strategy to prevent potential entrants from entering the market, such

entry-deterring pricing establishes a barrier.

Barriers to entry arise from several sources:

• Government creates barriers. Although the principal role of the government in

a market is to preserve competition through anti-trust actions, government also

restricts competition through the granting of monopolies and through regulation.

• Patents and proprietary knowledge serve to restrict entry into an industry.

• Asset specificity inhibits entry into an industry. Asset specificity is the extent

to which the firm's assets can be utilized to produce a different product.

• Organizational (Internal) Economies of Scale. The most cost efficient level of

• Production is termed Minimum Efficient Scale (MES).

Table-2: - Summrisation of industry’s entry & exit barriers

7.1 MUTUAL FUND INTERPRETATION USING

PORTER’S FIVE FORCES MODEL

The Porter’s Five Forces Model of the Mutual Fund Industry is as follows:

Easy to Enter if there is:

• Common technology

• Little brand franchise

• Access to distribution channels

• Low scale threshold

Difficult to Enter if there is:

• Patented or proprietary know-how

• Difficulty in brand switching

• Restricted distribution channels

• High scale threshold

Easy to Exit if there are:

• Saleable assets

• Low exit costs

• Independent businesses

Difficult to Exit if there are:

• Specialized assets

• High exit costs

• Interrelated businesses

THREAT FROM NEW ENTRANTS

With the opening up of the MF sector there has been invasion from many

foreign players and even national players. Still now more and more new player are

coming into this sector and trying to make a market share for them. So, there is a

constant threat from new players who are coming up with innovative schemes and

trying to bite the market share of the existing players.

THREAT FROM EXISTING PLAYERS

The competition is heating up. With this all the existing competitor want to

increase their investor base and are willing to capture more and more market share. Even

these players are coming up with more and more customized schemes to suit specific

investors. Now as a result there is consolidation among the existing players.

THREAT OF SUBSTITUTES

The substitutes of mutual fund are Bank deposit, Post office, Saving schemes,

Securities, Bonds etc. So there is a considerable threat from these substitutes. The main

threat is that of regarding the return that these substitutes offer vis-à-vis that of the

mutual fund.

BARGAINING POWER OF CUSTOMERS

The customers of mutual fund are individual investors and corporate investor.

The bargaining power of these customers is very high because they influence the

working of mutual funds. In order to exert pressure on the mutual funds the investors

always demand for some new customized schemes.

BARGAINING POWER OF SUPPLIERS

The supplier of the mutual fund is the sponsor. The sponsor can also exert

considerable amount of power to the mutual funds. They can either raise their investment

limit of reduce it.

7.2. DATA ANALYSIS

Q-1 do you invest regularly?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 82 82 18 18Visnagar 56 28 44 22

Unja 74 37 26 13Palanpur 66 33 34 17

Deesa 48 24 52 26Patan 76 38 24 12

82

18

56

44

74

26

66

34

48 52

76

24

01020

30405060

708090

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

If no then ask Q-5.

Q-2 what is the frequency of investment?

Response

Monthly Quarterly Half yearly Yearly Enough money

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 40 33 10 8 20 16 25 21 5 4Visnagar 25 57 10 3 10 3 50 14 5 1

Unja 30 11 11 4 16 6 32 12 11 4Palanpur 27 9 9 3 15 5 37 12 12 4

Deesa 17 4 12 3 13 3 46 11 12 3Patan 26 10 16 6 13 5 40 15 5 2

40

10

2025

5

25

10 10

50

5

30

1116

32

11

27

915

37

1217

12 13

46

12

26

1613

40

5

0

10

20

30

40

50

60

monthly quarterly half yearly yearly enoughmoney

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-3 who takes investment decision?

Response

CA Tax consultants Finance managers

Own

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 3 2 12 10 0 0 85 70Visnagar 0 0 14 4 0 0 86 24

Unja 5 2 14 5 0 0 81 30Palanpur 3 1 9 3 0 0 88 29

Deesa 0 0 0 0 0 0 100 24Patan 8 3 18 7 0 0 74 28

312

0

85

014

0

86

514

0

81

39

0

88

0 0 0

100

818

0

74

0

20

40

60

80

100

120

CA taxconsultants

financemanagers

own

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-4 which are the various instruments used for investment?

Response Equity Instruments

Bond & deposit

Mutual Fund

Small saving

schemes

Life Insurance

Any other

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 27 22 11 9 5 4 39 32 17 14 1 1Visnagar 36 10 18 5 7 2 36 10 3 1 0 0

Unja 46 17 16 6 8 3 14 5 11 4 5 2Palanpur 33 11 18 6 3 1 40 13 6 2 0 0

Deesa 42 10 17 4 0 0 33 8 4 1 4 1

Patan 47 18 16 6 5 2 21 8 8 3 3 1

27

115

39

17

1

36

18

7

36

3 0

46

168

14 115

33

18

3

40

60

42

17

0

33

4 4

47

16

5

21

83

05

101520253035404550

eq

uit

yIn

str

um

en

ts

bo

nd

&

de

po

sit

e

Mu

tua

l Fu

nd

Sm

all

sa

vin

gs

ch

em

es

Lif

eIn

su

ran

ce

an

y o

the

r

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-5 has you ever heard about mutual fund?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 72 72 28 28Visnagar 44 22 56 28

Unja 64 32 36 18Palanpur 60 30 40 20

Deesa 20 10 80 40Patan 62 31 38 19

72

28

44

5664

36

60

40

20

80

62

38

0

10

20

30

40

50

60

70

80

90

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-6 from which source you have heard?

Response Friends News papers Television Agents Any other

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 11 8 21 15 28 20 24 17 16 12Visnagar 5 1 36 8 28 6 18 4 13 3

Unja 12 4 15 5 25 8 32 10 16 5Palanpur 6 2 27 8 33 10 27 8 61 2

Deesa 0 0 40 4 20 2 10 1 30 3Patan 10 3 19 6 32 10 23 7 16 5

11

2128

24

16

5

36

28

181312 15

2532

16

6

2733

27

61

0

40

20

10

30

10

19

32

2316

0

10

20

30

40

50

60

70

friends news papers television agents any other

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-7 do you know how mutual fund works?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 33 24 67 48Visnagar 36 8 64 14

Unja 37 12 63 20Palanpur 34 10 66 20

Deesa 20 2 80 8Patan 45 14 55 17

33

67

36

64

37

63

34

66

20

80

45

55

0

10

20

30

40

50

60

70

80

90

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-8 Are you aware about of different type of Mutual fund schemes?

Response All scheme Most of scheme

Some of scheme

None

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 11 8 16 12 23 16 50 36Visnagar 5 1 14 3 45 10 36 8

Unja 19 6 25 8 22 7 34 11Palanpur 14 4 20 6 40 12 26 8

Deesa 0 0 20 2 40 4 40 4Patan 22 7 29 9 32 10 17 5

1116

23

50

5

14

45

36

1925

22

34

1420

40

26

0

20

40 40

2229

32

17

0

10

20

30

40

50

60

all scheme most of scheme some of scheme none

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-9 have you invest in Mutual Fund?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 44 32 56 40Visnagar 36 8 64 14

Unja 54 17 46 15Palanpur 34 10 66 20

Deesa 40 4 60 6Patan 36 11 64 20

44

56

36

64

54

46

34

66

40

60

36

64

0

10

20

30

40

50

60

70

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-10 why do you invest in Mutual Funds?

Response

Return on investments.

Investment

in small

sums

Diversification

Transparency Liquidity Well regulated

Per (%)

Freq Per (%)

Freq

Per (%)

Freq Per (%)

Freq Per (%)

Freq Per (%)

Freq

Mehsana 37 12 6 2 12 4 13 4 16 5 16 5Visnagar 50 4 0 0 12 1 13 1 0 0 25 2

Unja 58 10 6 1 12 2 18 3 6 1 0 0Palanpur 60 6 0 0 10 1 20 2 10 1 0 0

Deesa 75 3 0 0 0 0 25 1 0 0 0 0Patan 64 7 0 0 0 0 9 1 9 1 18 2

37

612 13 16 16

50

012 13

0

25

58

612

186

0

60

010

210

0

75

0 0

25

0 0

64

0 09 9

18

01020304050607080

Re

turn

on

inv

es

tme

nts

.

inv

es

tme

nt

ins

ma

ll s

um

s

div

ers

ific

ati

on

Tra

ns

pe

ren

cy

Liq

uid

ity

we

ll re

gu

late

d

pe

rce

nta

ge

Mehsana visnagar Unja Palanpur Deesa patan

Q-11 In which Mutual fund Asset management companies are you

invested?

• people invest in different asset management company in mutual fund.

Q-12 are you satisfied with the performance of your Mutual Fund?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 56 18 44 14Visnagar 38 3 62 5

Unja 59 10 41 7Palanpur 40 4 60 6

Deesa 10 1 90 3Patan 46 5 64 6

56

4438

6259

4140

60

10

90

46

64

0102030405060708090

100

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-13 After the Recent debacles in the stock Market’s Volatility do you

have confidence in Mutual Funds?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 69 22 31 10Visnagar 50 4 50 4

Unja 71 12 29 5Palanpur 70 7 30 3

Deesa 10 1 90 3Patan 64 7 46 4

69

31

50 50

71

29

70

30

10

90

64

46

0102030405060708090

100

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

Q-14 would you like to know more about Mutual Fund?

Response Yes NoPer (%) Frequency Per (%) Frequency

Mehsana 92 92 8 8Visnagar 64 32 36 18

Unja 88 44 12 6Palanpur 70 35 30 15

Deesa 52 26 48 24Patan 86 43 14 7

92

8

64

36

88

12

70

30

52 48

86

14

0

20

40

60

80

100

yes no

pe

rce

nta

ge

Mehsana

visnagar

Unja

Palanpur

Deesa

patan

7.3 Overall comparison

Q-1 do you invest regularly?

Response Yes No Base Frequency 242 108 350

Per 67 33 100

67%

33%

yes

no

Interpretation: During survey conducted it was found that 67% people invest

their money regularly & 33% people are not investing as in some regular bases.

Q-2 what is the frequency of investment?

Response Monthly Quarterly Half yearly

Yearly Enough money

Base

Frequency 124 27 38 85 18 292Per 26 12 14 39 9 100

26%

12%14%

39%

9% monthlyquarterlyhalf yearlyyearlyenough money

Interpretation: survey of finding frequency of investment nearly base 39% so

it is the highest frequency at investment and remaining are different.

Q-3 who takes investment decision?

Response CA Tax consultants

Finance managers

Own Base

Frequency 8 29 0 205 242Per 3 11 0 86 100

3% 11%0%

86%

CA

tax consultants

finance managers

own

Interpretation: answer about investment decision most of the people say that their

investment decision taken by their own its 86%.

Q-4 which are the various instruments, used for investment?

Response Equity Instruments

Bond &

deposit

Mutual Fund

Small saving

schemes

Life Insurance

Any other

Base

Frequency

88 36 12 76 25 5 242

Per 38 16 4 30 9 3 100

38%

16%4%

30%

9% 3%

equityInstruments

bond & deposite

Mutual Fund

Small savingschemes

Life Insurance

any other

Interpretation: answer of using investment instrument 30% invests in small saving

schemes (post office). 38% invest in equity instruments (stock market). 4% invest in

mutual fund.

Q-5 have you ever heard about mutual fund?

Response Yes No Base Frequency 197 153 350

Per 54 46 100

54%

46%yes

no

Interpretation: during the survey in north Gujarat cities 54% people are heard

about mutual fund & 46% people are not heard the word of “ mutual fund” because

of poor marketing of mutual fund in north Gujarat.

Q-6 from which source you have heard?

Response Friends

News papers Television Agents Any other Base

Frequency

18 46 56 47 30 197

Per 5 25 25 20 25 100

5%25%

25%20%

25% friends

news papers

television

agents

any other

Interpretation: Answer of the question which source you have heard about

mutual fund. 25% people answer in paper % same as television, 20% people heard

from the agent.

Q-7 do you know how mutual fund works?

Response Yes No Base Frequency 70 127 197

Per 34 66 100

34%

66%

yes

no

Interpretation: As far as awareness about how mutual fund work is concerned

out of these who had heard about mutual fund 70(34%) respond ends only know

how mutual fund works where as 127(66%) didn’t know what is mutual fund in fact

& how it works this shows the awareness level of people.

Q-8 Are you aware about of different type of Mutual fund schemes?

Response All scheme Most of scheme Some of scheme None Base

Frequency

26 40 59 72 197

Per 12 20 34 34 100

12%

20%

34%

34%all scheme

most of scheme

some of scheme

none

Interpretation: the above chart shows that 26(12%) responds were aware of

all the schemes of mutual fund, 40(20%) were aware of most of the scheme,

59(34%) were knowing some of the scheme, whereas 72(34%) didn’t know any

scheme in mutual fund.

Q-9 have you invest in Mutual Fund?

Response Yes No Base Frequency 82 115 197

Per 40 60 100

40%

60%

yes

no

Interpretation: From the survey conducted it was fund that 82(40%)

responded invest in mutual fund & from which are aware about mutual funds

115(60%) respond not invest in mutual fund.

Q-10 why do you invest in Mutual Funds?

Response Return on investments.

Investment

in small

sums

Diversification Transparency Liquidity Well regulated

Base

Frequency

42 3 8 12 8 9 82

Per 57 2 8 16 7 10 100

57%

2%8%

16%

7%10%

Return on investments. Investment in small sumsdiversification TransperencyLiquidity well regulated

Interpretation: after survey above graph shows that most of people invest in

mutual fund because of their good return. Other sub reasons are transparency, well

regulated, diversification, & liquidity.

Q-11 In which Mutual fund Asset management companies are you

invested?

Interpretation: people invest in different asset management company in

mutual fund.

Q-12 are you satisfied with the performance of your Mutual Fund?

Response Yes No Base

Frequency 41 41 82Per 40 60 100

40%

60%

yes

no

Interpretation: checking of performance level of mutual fund so old investors

are happy & resent investors are not so happy with the performance of mutual fund.

Q-13 After the Recent debacles in the stock Market’s Volatility do you

have confidence in Mutual Funds?

Response Yes No Base Frequency 53 29 82

Per 54 46 100

54%

46%yes

no

Interpretation: answer of the question recent debacle in the stock market’s

volatility confidence level of mutual fund. So 54% people have confidence & 46%

people have not confidence on their mutual fund.

Q-14 would you like to know more about Mutual Fund?

Response Yes No Base Frequency 272 78 350

Per 75.33 24.67 100

yes75%

no25%

yes

no

Interpretation: In the question when the respondents were asked whether they

want to know more about mutual fund 75% respondents shows their willingness to know

more about mutual fund but 25% don’t willing to know more about mutual fund due to

they were not interested in mutual fund.

8.1 COMPARISION CHART SURVEY REPORT

(1) During survey conducted it was found that comparison to all six cities in

north Gujarat regular investor are high in Mehsana city 82% then Patan 76%

than other cities.

(2) According to frequency of investment yearly & monthly investment done as

high in all the cities in north Gujarat.

(3) In all six cities in North Gujarat people’s most of investment decision are

taken by their own.

(4) As investment point highest investment done in small saving schemes (post

office) & second one in equity instruments (stock market).

(5) Mutual fund awareness level high in Mehsana 72%,Less in Deesa 80%.

(6) According to survey most of people in North Gujarat city heard about

mutual fund from

1.News paper

2.Television.

3.Agents.

(7) After Survey it is clear that most of people are not know the working of

mutual fund in North Gujarat.

(8) Most of the people are not aware with different mutual fund schemes.

(9) Investment level in mutual fund is 44% in Mehsana 54%in unjha.

(10) Most of the people invest in mutual fund because high return on

Investment level & showing past performance of the mutual fund.

(11) People are invested different mutual fund Asset Management companies.

(12) Checking of performance level of mutual fund so old investor are happy

& resent investor are not so happy with their performance of mutual fund.

(13) Answer of the question recent debacle in the stock market’s volatility

confidence level high in Mehsana 69%, Unjha 71%, and Palanpur 70% but

low in Deesa 90%.

(14) In the question when the respondents were asked whether they want to

know more about mutual fund most of people in all six cities shows their

willingness to know more about mutual fund.

8.2 To analyze the Response of three new NFO’s in North Gujarat.

The survey on the base of collection of money in north

Gujarat branch. Three fund’s rank shown as below.

1. Fidelity India special situation fund

2. Tata equity management fund.

3. Template India equity income fund

The reasons of this are

(1) Fidelity India Special Situation Fund invest their collected money only in

those company which give extra benefits e.g.:- Infosis declare bonus or

dividend. Some company get good business from foreign company.

(2) Tata equity management fund on second rank because this is haging fund

so low risk & high return. But locking period is 18 months.

(3) Template India equity income fund on third rank because this fund is first

time invest their collected money in India as well as foreign company’s,

which gives good dividends. It’s objective is getting highest return.

Conclusion :

After looking at all the over all findings it could be seen that there is good

potential of mutual funds in the north Gujarat market. There is lot of investment which is

taking place in the overall market and if the awareness is generated soon by developing a

new centre as soon as possible the investment pattern of the investors could be changed.

Shifting of the investors from the main investments is possible only if a scheme

that can help the investors in generating more returns.

The major locations for developing a centre is to be looked upon by the company

in the north Gujarat are Mehsana, Unjha, Visnagar, Patan, Palanpur, and Deesa.

• Increase awareness level about mutual fund & its schemes for getting higher

return.

• Starting new local collection centre for getting good business.

• Start new centre in north Gujarat cities in below rank.

1. Mehsana

2. Unjha

3. Visnagar

4. Patan

5. Palanpur

6. Deesa

9.1 SUGGESTION OF INVESTMENT STRATEGIES

Here are examples of 3 model investment strategies that can give you a

flavour of how you can evolve your personal financial plan.

bonds25%

short term10%

stock & mutual funds65%

chart-7 An aggressive growth portfolio

An aggressive growth portfolio suggests 65% of your portfolio in stocks and

equity funds or mutual fund. 25% in bonds or debt funds and 10% in short-term money

market instruments or liquid funds. Investment experts recommend this portfolio for

people who are just starting out. It takes a lot of discipline to start saving In this season

of your life. But with a solid plan, you'll be able to plant the seeds towards a

comfortable life. early in your profession, retirement is probably a long way off. You

maybe just married or planning a family, or perhaps building your home. The younger

you are, the greater is your ability 10 withstands higher risk. The equity pan of the

portfolio is meant for capital growth to meet longer-term goals while the bund portfolio

is to provide for medium-term needs.

bonds30%

short term20%

stocks & mutual funds50%

chart-8 An moderate growth portfolio

A moderate growth portfolio seeks to balance growth and stability. it

recommends around 50% of your portfolio in stocks and equity funds or mutual fund,

30% in bonds or debt Funds and 20% in short-term instruments or liquid funds. This

portfolio would seek to provide regular income with moderate protection against

inflation. The equity component provides the potential for growth, whereas the

component in bonds and short-term instruments helps balance out fluctuation in the

stock market. The education needs could be met from the bond portfolio while you

continue to invest in equity products for retirement while may be still some years away.

This portfolio is ideal for you if you are at your peak earning years, and have to probably

finance your children's education. With retirement getting closer, it is also time to

reevaluate your goals. Is your nest egg where you want it to be at this stage in your life?

If not you probably still have time to work on it.

bonds50%

short terms25%

stocks & mutual funds25%

chart-9 An conservative growth portfolio

The conservative Portfolio suggests 25% in stocks and equity funds or

mutual funds, 50% in bonds or debt funds, and 25% in bank deposits or liquid funds and

is ideal for you if you are about to retire or have recently retired, this investment strategy

would aim to keep your savings secure while at the same time generate enough income

to help you relax and enjoy your retirement years. Moreover, since your source of

income after retirement may be limited, your savings would need to go a long way. And

the 25% equity portfolio can assist you in staying ahead of inflation.

Now as we are basically looking at the mutual fund industry and it's potential in

north Gujarat market first of all we should have a brief idea about mutual fund and what

actually mutual fund is.

9.2 RECOMMENDATIONS

Awareness regarding the mutual funds should be created among the

investors as well as the agents.

Investor meets should be organized.

Proper advertising should be done through distributing literatures through

the local newspapers and communicating with the investors personally.

Local centers for collection should be developed which could also help

investors by providing them for investing in mutual funds and also gain

the trust of investors by providing them good and fast service.

Literatures should be providing in regional languages, which help the

investors understand the schemes in a better way.

ANNEXURES-1

QUESTIONNAIREDear Respondent,

We are student of M.B.A. program. As port MBA curriculum we have

been assigned a project of India Infoline distribution CO. Ltd. For which we are

conducting a research to “ Market Research of Customer Awareness of Mutual Fund in

north Gujarat Market for India Infoline distribution CO. Ltd.

Your feedback is most important so please answer all the question without any

business. We assure you that all the collected data from you will be used for market

study purpose only.

Tick () which ever is application in following box.

Q-1 Do you invest regularly?

Yes No

If no then go to Q-5.

Q-2 what is the frequency of investment?

Monthly half yearly

Quarterly yearly

Whenever there is enough money.

Q-3 who takes investment decision?

CA finance managers

Tax consultants own

Q-4 which are the various instruments, used for investment?

Equity Instruments (stock market)

Bond & deposit Mutual Fund

Small saving schemes (post office) Life Insurance.

Any other Please specify: - ___________________________

Q-5 have you ever heard about mutual fund?

Yes No

Q-6 from which source you have heard?

Friends News papers

Television Agents

Any other (specify): - ___________________________

Q-7 do you know how mutual fund works?

Yes No

Q-8 Are you aware about the different type of Mutual fund schemes?

All scheme most of scheme

Some of scheme none

Q-9 have you invest in Mutual Fund?

Yes No

If yes, in which scheme:- ________________________

Q-10 why do you invest in Mutual Funds?

Return on investments. Investment in small sums

Diversification Transparency

Liquidity well regulated

Q-11 in which Mutual fund Asset management companies are you invested?

(1)________________ (2) _______________ (3) _______________

Q-12 are you satisfied with the performance of your Mutual Fund?

Yes No

Q-13 After the Recent debacles in the stock Market’s Volatility does you have

confidence in Mutual Funds?

YES No

Q-14 would you like to know more about Mutual Fund?

Yes No

Remarks: - ____________________________________________________

Name: - _______________________________________

Address: - ______________________________________

Phone no: - ____________________ (M): - _________________________

Gender: - male female age: -___________

Education: - _________________________________

Occupation: - _________________________________

ANNEXURES-2

MUTUAL FUND INFORMATION IN

NEWSPAPER

(A) WEBSITES:

www.amfiindia.com

www.bseindia.com

www.economictimes.com

www.indiatimes.com

www.indiainfoline.com

www.mutualfundindia.com

www.moneycontrol.com

www.investopedia.com

(B) Book Materials

Marketing research VII edition

By: luck David j. & Rrubinb Ronalds.

Marketing management XI edition

By: Philip kotler