A

Grand
Project Report
On
“MUTUAL FUND AS AN INVESTMENT OPTION”
Submitted to

L.J. Institute of Management Studies

In requirement of partial fulfillment of

Master’s of Business Administration (MBA)
2 year full time Program of Gujarat Technological University

SUBMITTED BY: GUIDED BY:

SHAH PRATIK R (097290592099) PROF. KIRAN KHATRI

1
L.J MBA (IMS)
 L.J institute of management studies

CERTIFICATE FROM INSTITUTE

This is to certify that Mr. PRATIK SHAH, students of MBA

(2009-11 batch) at L.J institute of management studies, Gujarat
technological University have prepared a Grand Project on “Mutual
Fund as an investment option” in fulfillment of two years full-time
MBA Program of Gujarat Technological University. This project work
has been undertaken under the guidance of Prof. Kiran Khatri, core
faculty at L.J institute of management studies, Gujarat technological
University.
This is also to ascertain that this project has been prepared only for
the award of MBA degree and has not been submitted for any other
purpose.

Dr. P.K.Mehta Prof. Kiran Khatri

Director Core faculty
_________________ _________________

Date: 25/04/2011
Place: Ahmadabad

2
L.J MBA (IMS)
 DECLARATION

we do hereby declare that this project “Mutual Fund as an

investment option” is original and bonafied work done by me is
being submitted in fulfillment of two years full-time MBA program of
gujarat technological university under the guidance of our project
guide Prof. Kiran Khatri.

This project is our own and is not submitted to any other institution or
published any where before.

Place:
Signature

Date:

3
L.J MBA (IMS)
 Acknowledgement

I am very Thankful to those who generously helped me by sharing their

invaluable time and rich experience with me, without which this project
would have never been accomplished.
No task can be achieved alone, particularly while attempting to finish a
project of such magnitude. It took many very special people to facilitate it
and support it. First and foremost, I express my sincere thanks to Prof.
kiran khatri who has given a great opportunity to explore ourselves by
having this type of project work.

At last, I would like to throw a light of credit to other faculty members

and friends who supported me even indirectly.

Thank you all for supporting me in making this project.

4
L.J MBA (IMS)
 Executive Summary

India is thought to be a first-rate investment. India has a vast potential for

foreign investment and foreign players find it their next investment
destination.

According to some experts, the share of the US in world GDP is expected

to fall (from 21 per cent to 18 per cent) and that of India to rise (from 6
per cent to 11 per cent in 2025), and hence the latter will emerge as the
third pole in the global economy after the US and China.

Mutual Funds are suitable investments for small individual investors who
invest their savings at regular intervals. Investors fund is very difficult to
keep the track of companies and monitor their performance. It has
become popular due to its flexibility, liquidity, transferability and wide
choice of schemes to invest. There are different Mutual Funds schemes
available in the market depending on maturity, objective of investment,
type of investors, etc. the investor has to keep in mind various factors and
strategies before opting for a particular scheme.

The investors face various problems while selecting the best fund to
invest their money for getting the better returns. There is a need to create
awareness and confidence among the individual investors, in order to
achieve the investment objectives. What factors an individual considers
while making investments? What are the preferential choices of investors
while taking investment decisions? What investment strategy is adopted
by the investors? How much returns are generated from the investments?
This study will help to make investors more conscious and alert while
making investment decisions. This study will also benefit the MF
companies to understand the investor’s behavior and expectations.

If you are anxious of investing in the stock market because of its

unpredictability, it is advisable to play relatively safe with MFs. In this
time of recession, selecting a mutual fund seems to have become very
complex. The most crucial factor in determining which one is better than
the rest is to look at returns.
In this project named, Mutual Fund I have covered
advantages/importance of Mutual Fund and types of it. Main part of
report is covered by interpreting the different behavior of the investors in

5
L.J MBA (IMS)
investing in the various Mutual Funds Schemes and how much they
investing in mutual fund out of his total income.

Table of contents

Sr. No. Page No.

1. Introduction to mutual Fund 7
1.1 concept of Mutual Fund 10
1.2 Definition of Mutual Fund 12
1.3 History of Mutual Funds of India 13
1.4 Future scenario 16
1.5 Organization structure of the 22
Mutual Fund Industry
1.6 Mutual Fund Operations 24
1.7 Types of Mutual Funds 25
1.8 Net Asset Value 36
1.9 Advantages of the Mutual Fund 38

2. Research Methodology 40
2.1 objectives of study
2.2 Research Design
2.3 Sampling Method & size
2.4 Data sources

3. Mutual Fund is subject to Market risks. 42

4. Mutual Fund - performance comparison 45

5. Mutual Fund - Certain Facts 49

6. Data Interpretation & Findings 58

7. Recommendation 67

8. Conclusion 68
9. Appendix
9.1 Bibliography 69
9.2 Questionnaire 70

6
L.J MBA (IMS)
 1. INTRODUCTION TO MUTUAL FUND

An efficient, articulate and developed financial system is necessary

for the rapid economic growth and development of a country. Financial
system facilitates the transformation of savings of individuals,
governments and business into investments and consumption. A complete
system is formed of specialization intermediaries and non-specialized
intermediaries, organized and non-organized financial markets and
financial instruments and services. Financial institutions act as mobilizes
and depositories of savings of credits and providers of various financial
services of the community. Financial institution may be classified on the
basis of their primary activity, or the degree of their specialization with
relation of savers or borrowers with whom they deal and also on the basis
of the process under which they are created. Be that as it may, the
financial system helps accelerate the rate of economic development and
there by improve the standard of living and increase the social welfare of
the community. This is achieved by the financial system through
mobilizing the savings and investing them gainfully. Financial markets
make it possible by performing a number of important and useful
functions and providing variety of services such as:

 Enabling economic units to exercise their time preference

 Diversification and reduction of risk
 Efficient operation of the payments mechanism
 Transformation of financial claims suiting to the preferences of
savers and borrowers
 Increasing liquidity of financial claims through securities trading
and portfolio management.

In the economy at a particular point of time some people have higher

current income than their current expenditures, while just reverse
happens in respect of other. While the former are known as surplus

7
L.J MBA (IMS)
spenders are the ultimate investors, the need for connecting the savers
and the investors can hardly be over emphasized as savings would be
wasted for the want of investment opportunities and investment plans
would become meaningless for the want of savings. It is the financial
system which establishes a link between the savers and investors and
helps converting investment into realities,

The link between the savings and the investments is provided by a

mechanics through which savings also known as claims to resources of
different kinds of savers-small, moderate and large are pooled together
and are put at the disposal of those who are able and willing to invest.
Such a mechanics includes variety of institutions, which meet the
strategy, liquidity and profitability requirements of savers, and short term
and long term financial requirement of investors, these institutions are
broadly classified as money market and capital market institutions. While
money market institutions, comprising of banks and other institutions,
cater to the short and medium term financial need, the capital market
institutions, grant long-term loans and boosts the savings but also ensure
that entrepreneurs get the needed funds at reasonable price. The role of
this institutions becomes more prominent in a developing economy like
India where there is predominance of larger number of small savers who
can, at best, hold securities of only a few industrial units exposing them
to a greater risk as prospects of earnings there from would be tied to the
fate of such units. The financial helps reducing this risk by diversifying
the investments across a large number of securities, units, industries and
geographical regions. By investing in the financial institutions, the savers
can participate in the benefits of diversifications. Furthermore, these
institutions engage the services of expert’s investment analysts and hire
professional knowledge and expertise for the selection and supervision of
their investment portfolio. Thus, a financial institution can supervision of
their investors triple benefits of low risk, steady return and capital
appreciation. Financial institutions, therefore act as conducts through
which scattered savings are aggregated and then distributed among many
business firms.

The last two decades have seen a phenomenal expansion in the

geographical coverage and financial spread of our financial system. This
in turn, has helped maintaining the savings and investments at a relatively
high level in this duration. It was evident that savings from the household
sector, which constitute more than three-fourth of the gross domestic
savings have grown at a yearly rate falling between 17.4% and 20.5%
during 1990’s. The percentage of gross financial assets to GDP at current
market prices has risen to 12.8% in 1995-96. However the investment in

8
L.J MBA (IMS)
shares, debentures and mutual funds as percentage at GDP at current
market prices has declined considerably to 0.2 in 1997-98 from 0.8 in
1995-96. The spread of banking system has been a major factor in
promoting financial intermediation in the economy. The growing
interdependence between the various national financial markets and
emergence of international financial markets has been the most
significant developments in the area of finance during the 1980’s and
1990’s. A significant outcome of these developments has been the
emergence of a variety of new financial instruments and services. The
development of various mutual funds is also a part of the response to this
favorable environment. Mutual funds have emerged as powerful player in
the financial markets, but they have diverse reactions from financial
experts.

9
L.J MBA (IMS)
 1.1 MUTUAL FUND CONCEPT

“Mutual fund is vehicle that enables a number of investors to pool

their money and have it jointly managed by a professional money
manager”

A Mutual Fund is a pool of money, collected from investors, and is

invested according to certain investments objectives. 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 then invested in capital
instruments such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation
realized is shared by its unit holders in proportion to the number of units
owned by them. Mutual Fund companies are known as asset management
companies. They offer a variety of diversified schemes. Mutual Fund acts
as investment companies. They pool the savings of investors and invest
them in a well-diversified portfolio of sound investments. Mutual funds
can be broken down into two basic categories: equity and bond funds.

Equity funds invest primarily in common stocks, while bond funds invest
mainly in various debt instruments. Within each of these sectors,
investors have a myriad of choices to consider, including: international or
domestic, active or indexed, and value or growth, just to name a few. We
will cover these topics shortly. First, however, we are going to focus our
attention on the “nuts and bolts” of how mutual funds operate.

10
L.J MBA (IMS)
 Concept of Mutual Fund
↓

Many investors with common financial objectives

pool their money

Investors on a proportionate basis get mutual fund units

for the sum contributed to the pool

The money collected from investors is invested into shares,

debentures and other securities by the fund manager

The fund manager realizes gains or losses and collects dividend or

interest income

Any capital gains or losses from such investments are passed on to

the investors in proportion of the number of units held by them

11
L.J MBA (IMS)
 1.2 Definition of Mutual Fund

Mutual Funds Definition refers to the meaning of Mutual Fund, which is

a fund, managed by an investment company with the financial objective
of generating high rate of returns. These asset management or investment
management companies collects money from the investors and invest
those money in the different stocks, bonds and other financial securities
in a diversified manner. Before investing they carry out thorough
research and detailed analysis on the market conditions and market trends
of stock and bond prices. These things help the fund managers to
speculate properly in the right direction.

The investors, who invest their money in the Mutual fund of any
Investment Management Company, receive an equity position in that
particular mutual fund. When after certain period of time, whether long
term or short term, the investors sell the shares of the Mutual Fund, they
receive the return according to the market
conditions.

The investment companies receive profit by allocating people’s money in

different stocks and bonds according to their speculation about the
Market Trend.

Other than some specific mutual funds which carry certain Maturity
Term, Investors can generally sell the shares of their mutual funds at the
any time they want. But, the return will vary according to market value of
the stocks and bonds in which that particular mutual fund made
investment. But, generally the share holders of mutual fund sell their
share when the prices are up and capital gain is sure to happen.

12
L.J MBA (IMS)
1.3 History of Mutual Funds of India (1964-2003)

The formation of unit Trust of India marked the evolution of the

Indian mutual fund industry in the year 1963. The primary objective at
that time was to attract the small investors and it was made possible
through the collective efforts of the Government of India and the Reserve
Bank of India. The history of mutual fund industry in India can be better
understood divided into following phases:

Phase I. Establishment and Growth of Unit Trust of India

1964-87.

Unit Trust of India enjoyed complete monopoly when it was established

in the year 1963 by an act of parliament. UTI was set up by the Reserve
Bank of India and it continued to operate under the regulatory control of
the RBI until the two were de-linked in 1978 and the entire control was
transferred in the hands of Industrial Development Bank of India (IDBI).
UTI launched its first scheme in 1964, named as unit Scheme 1964(US-
64), which attracted the largest number of investors in any single
investment over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs
of different investors. It launched ULIP in 1971, six more schemes
between 1981-84, children’s Gift Growth Fund and India Fund (India’s
first offshore fund) in 1986, Master share (India’s first equity diversified
scheme) in 1987 and monthly Income Schemes (offering assured returns)
during 1990s. By the end of 1987, UTI assets under management grew
ten times to Rs 6700 crores.

13
L.J MBA (IMS)
Phase II. Entry of Public Sector Funds 1987-1993

The Indian mutual fund industry witnessed a number of public sector

players entering the market in the year 1987. In November 1987, SBI
Mutual Fund from the SBI became the first non-UTI mutual fund in
India. SBI Mutual fund was later followed by Can-bank Mutual Fund.
LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund,
GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under
management of the industry increased seven times to Rs. 47,004 crores.
However, UTI remained to be the leader with about 805 market share.

1992-93 Amount Assets Under Mobilisation as

Mobilised Management % of gross
Domestic
Savings
UTI 11,057 38,247 5.20%
Public Sector 1,964 8,757 0.90%
Total 13,021 47,004 6.10%

Phase III. Emergence of Private Sector Funds 1993-96

The permission given to Private Sector Funds including foreign fund

management companies (most of them entering through joint ventures
with Indian Promoters) to enters the mutual fund industry in 1993,
provided a wide range of choice to investors and more competition in the
industry. Private funds introduces innovative products, investment
techniques and investor-servicing technology. By 1994-95, about 11
private sector funds had launched their schemes.

FOURTH PHASE – SINCE FEBRUARY 2003:

In February 2003, following the repeal of the Unit Trust of India Act
1963 UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an

14
L.J MBA (IMS)
administrator and under the rules framed by Government of India and
does not come under the purview of the Mutual Fund Regulations.
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. With the bifurcation of the erstwhile UTI which had in
March 2000 more than Rs.76,000 crores of assets under management and
with the setting up of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its
current phase of consolidation and growth. As at the end of September,
2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes

Phase V. Growth and Consolidation - 2004 Onwards

The industry has witness several mergers and acquisitions recently,

examples of which are acquisition of schemes of Alliance mutual Fund
by Birla Sun Life, Sun F&C Mutual Fund
and PNB Mutual Fund by principal Mutual Fund. Simultaneously, more
international mutual fund players have entered India like Fidelity,
Franklin Templeton Mutual Fund etc. There were 29 funds as at the end
of March 2006. This is a continuing phase of growth of the industry
through consolidation and entry of new international and private players.
The graph indicates the growth of assts over the years.

15
L.J MBA (IMS)
 1.4 Future Scenario
Mutual funds are the one of the fastest growing segment of the financial
services sector in India. Analysts believe that the mutual funds and banks
would be able to corner sizeable funds from savings bank accounts in
metros such as Delhi, Mumbai, Kolkata, Chennai and Bangalore. But
semi-urban and rural centers would continue more time. Surely, investors
are not going to say no to the banker or financial advisor who will make
that extra buck for you.

By December 2004, Indian mutual fund industry reached rs 1,50,537

crores. It is estimated that by 2010 March-end, the total assets of all
scheduled commercial banks should be rs.40,90,000 crores. The annual
composite rate of growth is expected 13.5% during the rest of the decade.
In the last 5 years we have seen annual growth rate of 8.5% According to
the current growth rate, by year 2010, mutual fund assets will be double
the current markets.

The numbers of investors are also going to grow with the massive speed,
which no one would have thought. There are going to be very high
expectations with the working and the functioning of the mutual funds.

Growth in AUM in the Indian Mutual Fund Industry

2005: 1496
2006: 2319
2007: 3590
2008: 5385
2009: 4933
2010: 5010

16
L.J MBA (IMS)
Industry AUM is likely to continue to grow in the range of 15 to 25
percent from the period 2010 to 2015

In the event of a quick economic revival and positive Reinforcement of

growth drivers identified, KPMG in India is of the view that the Indian
mutual fund industry may grow at the rate of 22-25 percent in the period
from 2010 to 2015, resulting in AUM if INR 16,000 to 18,000 billion in
2015.

Projected AUM Growth from 2010 to 2015

Scenario 1: Favorable growth scenario with quick economic revival

20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
a 2009 2012 2015

Key growth drivers for this scenario include:

 Increased retail investors participation with a preference for

mutual funds over other asset classes perceived to be more risky.
This could result in the fulfillment of growing financial
aspirations, enabled by rising disposable incomes and increased
financial savings.
 Innovations in distributions driven by increase in the number of
certified IFAs and banks selling mutual funds focusing on Tier 2
and Tier 3 towns.
 Increase in institutional participation triggered by rising corporate
revenues with increased economic activity.

Scenario 2: Relatively lower growth scenario with slow economic

revival

17
L.J MBA (IMS)
 18000
16000
14000
12000
a
10000
b
8000
c
6000
4000
2000
0
2009 2012 2015

In the event of a relatively slower economic revival resulting in the

identified growth drivers not reaching their full potential, KPMG in India
is of the view that the Indians mutual fund industry may grow in the
range of 15-18 percent in the period from 2010 to 2015, resulting in
AUM of INR 15,000 to 17,000 billion in 2015.

Key factors driving the growth in spite of the slow revival of the
economy include:

 Incremental increase in the retail investor participation owing to

limited focus beyond Tier 2 towns and limited efforts to draw risk
averse customers of traditional products under the fold of mutual
funds.
 Tightening of liquidity leading to better yields on instruments
liquid funds invest in, thereby investments from the institutional
investors.

Industry profitability may reduce further as revenues shrink

and operating costs escalate

Industry profitability is expected to gradually reduce as revenues of AMC

shrinks due to focus on low margin products to attracts risk averse
investors, and also as operating costs escalate due to the focus on
penetrating retail population beyond Tier 2 cities.

 Decline in investment management fees isa expected as risk averse

customers prefers investments in debt products.

18
L.J MBA (IMS)
 Increase in distribution costs as players attempts to set up their own
branch presence in smaller towns.
 competition is expected to intensify further with the entry of
global players who are facing stagnant growth in global markets.
This is expected to result in a fall in market shares of the Top 10
players and result in a squeeze on margins.
 co-existence of large players with diversified portfolio and some
niche plays expected.

Product innovation is expected to be limited

 High margin products such as equity and select debt products

likely to continue to contribute a significant share of industry
AUM.
 Emerging product such as ETF, Multi manger funds, REMF,
outcome-oriented funds such as principal-protected, tax
managed and inflation-indexed funds, expected to have
marginal share of AUM in spite of rapid growth.
 possibility of introducing mandatory rating for mutual fund
products through rating agencies likely to increase investors
confidence.

 Efforts expected to be undertaken for developing a well

structured and well managed regulated, debt market which
should increase in depth.

Market deepening and widening is expected with the objective of

increased retail penetration and participation in mutual funds

Retail segment

 Increased focus on growing investor awareness and increasing

financial literacy is expected, resulting in an increase in the
contribution of the retail segment to the industry AUM in the
range of 46-48 percent by 2015, from 36 percent as of 2008 as
mentioned earlier.
 Domestic players expected to tap the overseas markets to grow
their AUM through alliances with global players.
 HNI and Mass Affluent segments may dominate the retail
segment.

19
L.J MBA (IMS)
  Average holding period for mutual funds and average ticket
size of investments in mutual funds likely to remain
unchanged.

Institutional segment

Institutional segment likely to witness the emergence of a new

category of SME seeking advice on managing their funds

Market focus

 Greater participation expected from Tier 2 cities and Tier 3

Towns, including rural centers.
 Share of top 10 cities in the AUM expected to decline as
retail investors from smaller cities, towns and rural areas
join the mutual fund fold

Banks

 The public sector network of nationalized banks and post offices

likely to increase their focus on the distribution of mutual funds.
 Entry of public sector banks as mutual fund manufacturers
expected to increase their focus on mutual fund distribution.
 Private Banks providing financial advice to HNI expected to
marginally increase their market share.

IFAs

 IFAs expected to emerge as a dominant channel in a scenario of

robust stock market growth, focusing on increasing penetration,
and will therefore have to focus on initiatives to develop and
support this channel.

Other channels

 India likely to witness the entry of global fund super-markets

enabled by regulatory changes.
 cooperative though beset with internal administrative issues, likely
to emerge as another channel which should be tapped by Mutual
funds.

20
L.J MBA (IMS)
  Tapping the large network of NGO, recognized by local authorities
to interact and reach out to the lower middle class and poorer
segments of population to increase mutual fund penetration.

 Distributors likely to explore the possibility of innovations such as

a common online platform and the usage of debit and credit cards
for transactions.

Massive expansion is expected in the mutual fund distribution

network

 The public sector network of nalionalised banks and post offices

are likely to increase their focus on the distribution of mutual
funds.
 Entry of public sector banks as mutual fund manufacturers is
expected to increase their focus on mutual fund distributions.
 IFA are expected to emwrge as a dominant channel focused on
increasing penetration, and will therefore have to focus on
initiatives to develop and support this channel.
 IFA channels are expected to witness growth at a faster pace than
banks.
 Private Banks providing financial advice to HNI expected to
marginally increase their market share.
 Distributors likely to explore the possibility of innovations such as
a common online platform and the usage of debit and credit cards
for transactions.
 AMC are expected to invest in channel innovation such as mobile
and Internet services. Mobile telephony enabling mobile
transaction for the purchase and sale of mutual funds and SMS-
based services is expected to revolutionized the industry.

21
L.J MBA (IMS)
1.5 Organization structure of mutual Funds Industry

Mutual funds

Mutual fund is a vehicle that enables a number of investors to pool their

money and have it jointly managed by a professional money manager.

Sponsor

Sponsor is the person who acting alone or in combination with another

body corporate establishes a mutual fund. The Sponsor is not responsible
or liable for any loss or shortfall resulting from the operation of the
Schemes beyond the initial contribution made by it towards setting up of
the mutual fund.

Trustee

Trustee is usually a company (corporate body) or a Board of Trustees

(body of individuals). The main responsibility of the Trustee is to
safeguard the interest of the unit holders and ensure that the AMC
functions in the interest of investors and in accordance with the securities
and Exchange Board of India (Mutual Funds) Regulations, 1996.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the

Mutual Fund. At least 50% of the directors of the AMC are independent

22
L.J MBA (IMS)
directors who are not associated with the sponsor in any manner. The
AMC must have a net worth of at least 10 crores at all times.

Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and
Transfer Agent to the Mutual Fund. The Registrar processes the
application form, redemption request and dispatches account statements
to the unit holders. The Registrar and Transfer agent also handles
communications with investors and updates investor’s records.

23
L.J MBA (IMS)
 1.6 Mutual Fund Operations

Investors
↓
Fund Manager
↓
Securities
↓
Returns
↓
Investors

Mutual Funds primarily sell a service to the investors - The service of

organizing the pool of resources, and managing assets and investments of
the investors. They mobilize funds from the investing public to manage
funds efficiently, i.e they create an expectation of good returns in the
mind of the investors and generate a desire in them to invest their money
in Mutual Fund units/ shares.

24
L.J MBA (IMS)
 1.7 TYPES OF MUTUAL FUNDS

Open-end Funds

Funds that can sell and purchase units at any point in time are classified
as Open-end Funds. The fund size of an open-end is variable (keeps
changing) because of continuous selling (to investors) and repurchases
(from the investors) by the Fund. An open-end Fund is not required to
keep selling new units to the investors wants to sell his units. The NAV
of an open-end fund is calculated every day.

Closed-end Funds

Funds that can sell a fixed number of units only during the New Fund
Offer (NFO0 period are known as closed-end Funds. The corpus of a
Closed-end Fund remains unchanged at all times.
After the closure of the offer, buying and redemption of units by the
investors directly from the Funds is not allowed. However, to protect the
interests of the investors, SEBI provides investors with two avenues to
liquidate their positions:

 Closed-end Funds are listed on the stock exchanges where

investors can buy/sell units from/ to each other. The trading is
generally done at a discount on a weekly basis (updated every
Thursday).
 Closed-end Funds may also offer “buy-back of units” to the unit
holders. In this case, the corpus of the Fund and its outstanding
units do get changed.

Load Funds/ No-Load Funds

Load Funds

Mutual Funds incur various expenses on marketing, distribution,

advertising, portfolio churning, fund manager’s salary etc. Many funds
recover these expenses from the investors of load. These funds are

25
L.J MBA (IMS)
 known as load Funds. A load fund may impose following types of
Loads on the investors:

 Entry Load - Also known as Front-end load, it refers to the

load charged to an investor at the time of his entry into a
scheme. Entry load is deducted from the investor’s contribution
amount to the fund.
 Exit Load - Also known as Back-end load, these charges are
imposed on an investors when he redeems his units (exists from
the scheme). Exit load is deducted from the redemption
proceeds to an outgoing investor.
 Deferred Load - Deferred load is charged to the scheme over a
period of time.
 Contingent Deferred Sales Charge (CDSC) - In some
schemes, the percentage of exit load reduces as the investors
stays longer with the fund. This type of load is known as
Contingent Deferred Sales Charge.

No-Load Funds

All those funds that do not charge any of the above mentioned
loads are known as No-load Funds.

Tax-exempt Funds/ Non-Tax-exempt Funds

Tax-exempt Funds

Funds that invest in securities free from tax are known as Tax-exempt
Funds. All open-end equity oriented funds are exempt from distribution
tax. Long term capital gains and dividend income in the hands of
investors are tax-free.

Non-Tax-exempt Funds

Funds that invest in taxable securities are known as Non-Tax-exempt

Funds. In India all funds, except open-end equity oriented funds are liable
to pay tax on distribution income. Profits arising out of sale of units by an

26
L.J MBA (IMS)
investors within 12 months of purchase are categorized as short term
capital gain, which are taxable. Sale of units of an equity oriented fund is
subject to securities Transaction Tax (STT). STT is deducted from the
redemption proceeds to an investor.

27
L.J MBA (IMS)
 BROAD MUTUAL FUND TYPES

A. Equity Funds: 1. Aggressive Growth Funds

2. Growth Funds
3. Equity Income or
Dividend yield
4. Diversified Equity Funds (ELSS)
5. Equity Index Funds
6. Value Funds
7. Speciality Funds

B. Money Market/Liquid Funds

C. Hybrid Funds: 1. Balanced Funds

2. Growth and Income Funds
3. Asset Allocation Funds

D. Debt/Income Funds: 1. Diversified Debt funds

2. Focused Debt Funds
3. High Yield Debt Funds
4. Assured Return Funds
5. Fixed Term Plan Series

E. Gilt Funds:

F. Others: 1. Commodity Funds

2. Real Estate Funds
3. Exchange Traded Funds (ETF)
4. Fund of Funds

1. Equity Funds

Equity funds arte considered to be more risky funds as compared to other

fund types, but they also provide higher returns than other funds. It is
advisable that an investors looking to invest in an equity fund should

28
L.J MBA (IMS)
invest for long term for 3 years or more. There are different types of
equity funds each falling into different risk bracket. In the order of
decreasing risk level, there are following types of equity funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds,

fund manager aspire for maximum capital appreciation and invest
in less researched shares of speculative nature. Because of these
speculative investments Aggressive Growth Funds become more
volatile and thus, are prone to higher risk than other equity funds.
b. Growth Funds - Growth funds also invest for capital
appreciation (with time horizon of 3 to 5 years) but they are
different from Aggressive Growth Funds in the sense that they
invest in companies that are expected to outperform the market in
the future. Without entirely adopting speculative strategies, Growth
Funds invest in those companies that are expected to post above
average earnings in the future.
c. Speciality Funds - Speciality Funds have stated criteria for
investments and their portfolio comprises of only those companies
that meet their criteria. Criteria for some speciality funds could be
to invest/not to invest in particular regions/companies. Speciality
funds are concentrated and thus, are comparatively riskier than
diversified funds. There are following types of speciality funds:

1. Sector Funds: Equity funds in a particular sector/industry

of the market are known as sector Funds. The exposure of
these funds is limited to a particular sector (say Information
Technology, Auto, Banking, Pharmaceuticals or FMCG)
which is why they are more risky than equity funds that
invest in multiple sectors.
2. Foreign Securities Funds: Foreign Securities Equity
Funds have the option to invest in one or more foreign
companies. Foreign securities funds achieve international
diversification and hence they are less risky than sector
funds. However, foreign securities funds are exposed to
foreign exchange rate risk and country risk.
3. Mid-cap or Small-cap Funds: Funds that invest in
companies having lower market capitalization than large
capitalization companies are called mid-cap or small-cap
Funds. Market capitalization of mid-cap companies is less
than that of big, blue chip companies (less than Rs. 2500

29
L.J MBA (IMS)
 crores but more than Rs. 500 crores) and Small-cap
companies have market price of the company share by the
total number of its outstanding shares in the market. The
shares of mid-cap or small-cap companies are not as liquid
as of large-cap which gives rise to volatility in shares prices
of these companies and investment gets risky.
4. Option Income Funds: While not yet available in India,
option Income Funds write options on a large fraction of
their portfolio. proper use of options can help to reduce
volatility, which is otherwise considered as a risky
instrument. funds invest in big, high dividend yielding
companies, and then sell options against their stock
positions, which generate stable income for investors.

D. Diversified Equity Funds - Except for a small portion of

investment in liquid money market, diversified equity funds invest mainly
in equities without any concentration on a particular sector. These funds
are well diversified and reduce sector-specific or company-specific risk.
However, like all other funds diversified equity funds too are exposed to
equity market risk. One prominent type of diversified equity fund in India
is Equity Linked savings schemes (ELSS). As per the mandate, a
minimum of 90% of investments by ELSS should be in equities at all
times. ELSS investors are eligible to claim deduction from taxable
income (up to Rs. 1 lakh) at the time of filing the income tax return.
ELSS usually has a lock-in period and in case of any redemption by the
investors before the expiry of the lock-in period makes him liable to pay
income tax on such income(s) for which he may have received any tax
exemption in the past.

E. Equity Index Funds - Equity Index Funds have the objective to

match the performance of a specific stock market index. The portfolio of
these funds comprises of the same companies that form the index and is
constituted in the same proportion as the index. Equity index funds that
follow broad indices (like BSEBANKEX or CNX Bank Index etc).
Narrow indices are less diversified and therefore, are more risky.

F. Value Funds - Value Funds invest in those companies that have

sound fundamentals and whose share prices are currently undervalued.
The portfolio of these funds comprises of shares that are trading at a low
price to Earning Ratio (Market price per share/ Earning per share) and a
low Market to Book Value (Fundamental Value) Ratio. Value Funds may
select companies from diversified sectors and are exposed to lower risk
level as compared to growth funds or speciality funds. Value stocks are

30
L.J MBA (IMS)
generally from cyclical industries (such as cement, steel, sugar, etc.)
which make them volatile in the short-term. Therefore, it is advisable to
invest in value funds with a long-term time horizon as risk in the long
term, to a large extent, is reduced.

G. Equity Income or Dividend Yield Funds - The objective of

Equity Income or Dividend Yield Equity Funds is to generate high
recurring income and steady capital appreciation for investors by
investing in those companies which issue high dividend. Equity Income
or Dividend Yield Equity Funds are generally exposed to the lowest risk
level as compared to other equity funds.

2. Debt/Income Funds

Funds that invest in medium to long term debt instruments issued by

private companies, banks, financial institutions, governments and other
entities belonging to various sectors (like infrastructure companies etc.0
are known as Debt / Income Funds. Debt funds are low risk profile funds
that seek to generate fixed current income to investors. In order to ensure
regular income to investors, debt (or income) funds distribute large
fraction of their surplus to investors. Although debt securities are
generally less risky than equities, they are subject to market risk (Risk of
default) by the issuer at the time to interest or principal payment. To
minimize the risk of default, debt funds usually invest in securities from
issuers who are rated by credit rating agencies and are considered to of
“Investment Grade”. Debt funds that target high returns are more risky.
Based on different investment objectives, there can be following types of
debt funds:

A. Diversified Debt Funds - Debt funds that invest in all

securities issued by entities belonging to all sectors of the market
as diversified debt funds. The best feature of diversified debt funds
is that investments are properly diversified into all sectors which
results in risk reduction. Any loss incurred, on account of default
by a debt issuer, is shared by all investors which further reduces
risk for an individual investors.
B. Focused Debt Funds - Unlike diversified debt funds, focused
debt funds are narrow focus funds that are confined to investments
in selective debt securities, issued by companies of a specific
sector or industry or origin. Some examples of focused debt funds
are sectors, specialized and offshore debt funds, funds that invest
only in Tax Free Infrastructure or Municipal Bonds. Because of
their narrow orientation, focused debt funds are more risky as

31
L.J MBA (IMS)
 compared to diversified debt funds. Although not yet available in
India, these funds are conceivable and may be offered to investors
very soon.

C. High Yield Debt funds - As we now understand that risk of

default is present in all debt funds, and therefore, debt funds
generally try to minimize the risk of default by investing in
securities issued by only those borrowers who are considered to be
of “investment grade”. But high yield debt funds adopt a different
strategy and prefer securities issued by those issuers who are
considered to be of “below investment grade”. The motive behind
adopting this sort of risky strategy is to earn higher returns from
these issuers. These funds are more volatile and bear higher default
risk, although they may earn at times higher returns for investors.
D. Assured Return Funds - Although it is not necessary that a
fund will meet its objectives or provide assured returns to
investors, but there can be funds that come with a lock-in period
and offer assurance of annual returns to investors during the lock in
period. Any shortfall in returns is suffered by the sponsors or the
Assets management companies (AMC). These funds are generally
debt funds and provide investors with a low risk investment
opportunity, However, the security of investments depends upon
the net worth of the guarantor, To safeguard the interests of
investors, and SEBI permits only those funds to offer assured
returns schemes whose sponsors have adequate net-worth to
guarantee returns in the future. In the past, UTI had assured return
schemes (i.e. Monthly Income plans of UTI) that assured specified
returns to investors in the future. UTI was not able to fulfill its
promises and faced large shortfalls in returns. Eventually,
governments had to intervene and took over UTI payment
obligations on itself. Currently, no AMC in India offers assured
return schemes to investors, though possible.

E. Fixed Term plan Series - Fixed Term plan series usually are
closed-end schemes having short term maturity period (of less than
one year) that offer a series of plans and issue units to investors at
regular intervals. Unlike closed-end funds, fixed term plans are not
listed on the exchanges. Fixed term plan series usually invest in
debt/income schemes and target short-term investors. The
objective of fixed term plan schemes is to gratify investors by
generating some expected returns in a short period.

32
L.J MBA (IMS)
3. Gilt Funds

Also known as government securities in India, Gilt Funds invest in

government papers (named date securities0 having medium to long term
maturity period. Issued by the Government of India, these investments
have little credit risk (risk of defaults) and provide safety of principal to
the investors. However, like all debt funds, gilt funds too are exposed to
interest rate risk. Interest rates and prices of debt securities are inversely
related and any change in the interest rates results in a change in the NAV
of debt/gilt funds in an opposite direction.

4. Money Market/Liquid Funds - Money market / liquid funds

invest in short-term (maturing within one year) interest bewaring debt
instruments. These securities arte highly liquid and provide safety of
investment, thus making money market / liquid funds the safest
investments option when compared with other mutual fund types.
However, even money market / liquid funds are exposed to the interest
rate risk. The typical investment options for liquid funds include Treasury
Bills (issued by governments), Commercial papers (issued by companies)
and Certificates of Deposit (issued by banks).

5. Hybrid Funds - As the name suggest, hybrid funds are those funds
whose portfolio includes a blend of equities, debts and money market
securities. Hybrid funds have an equal proportion of debt and equity in
their portfolio. There are following types of hybrid funds in India:

A. Balanced Funds - The portfolio of balanced funds include

assets like debt securities, convertible securities, and equity and
preference shares held in a relatively equal proportion. The
objectives of balanced funds are to reward investors with a regular
income, moderate capital appreciation and at the same time
minimizing the risk of capital erosion. Balanced funds are
appropriation for conversion investors having a long term
investment horizon.
B. Growth-and-Income Funds - Funds that combine features of
growth funds and income funds are known as Growth-and-Income
funds. These funds invest in companies having high dividends. The
level of risks involved in these funds is lower than growth funds
and higher than income funds.
C. Asset Allocation Funds - Mutual Funds may invest in financial
assets like equity, debt, money or non-financial assets like real
estate, commodities etc. Asset allocation funds adopt a variable

33
L.J MBA (IMS)
 assets allocation strategy that allows fund managers to switch over
from one assets class to another at any time depending upon their
outlook for specific markets. In others words, fund managers may
switch over to equity if they expect equity debt market to provide
better returns. It should be noted that switching over from one asset
class to another is a decision taken by the fund manager on the
basis of his own judgement and understanding of specific markets,
and therefore, the success of these funds depends upon the skill of
a fund manager in anticipating market trends.

6. Commodity Funds

Those funds that focus on investing in different commodities (like

metals, food grains, crude oil etc.) or commodity companies or
commodity futures contracts are termed as commodity Funds. A
commodity fund that invests in a single commodity or a group of
commodities is a specialized commodity fund and a commodity fund
that invests in all available commodities a diversified commodity fund
and bears less risks\than a specialized commodity fund. “Precious
Metals Fund” and gold funds (that invest in gold, gold futures or
shares of gold mines) are common examples of commodity funds.

7. Real Estate Funds -

Funds that invest directly in real estate or lend to real estate developers or
invest in shares/securitized assets of housing finance companies, are
known as specialized Real Estate Funds. The objectives of these funds
may be to generate regular income for investors or capital appreciation.

8. Exchange Traded Funds (ETF)

Exchange Traded Funds provide investors with combined benefits of a

closed-end mutual funds. Exchange Traded Funds follow stock market
indices and are traded on stock exchanges like a single stock at index
linked prices. The biggest advantage offered by these funds is that they
offer diversification, flexibility of holding a single share at the same time.
Recently introduced in India, these funds are quite popular abroad.

34
L.J MBA (IMS)
9. Fund of Funds

Mutual funds that do not invest in financial or physical assets, but do

invest in other mutual fund schemes offered by different AMC are known
as Fund of Funds. Fund of Funds maintain a portfolio comprising of units
of other mutual fund schemes, just like conventional mutual funds
maintain a portfolio comprising of equity/debt/money market instruments
or non financial assets. Fund of Funds provide investors with an added
advantage of diversifying into different mutual funds schemes with even
a small amount of investments, with further helps in diversification of
risks. However, the expenses of fund of funds are quite high on account
of compounding expenses of investments into different mutual fund
schemes.

35
L.J MBA (IMS)
 1.8 NET ASSET VALUE

Net Asset Value (NAV)

Net asset Value is the market value of the assets of the schemes minus its
liabilities. Per unit NAV is the asset Value of the schemes divided by the
number by the Valuation Date. Thus, NAV of a mutual fund unit is
nothing but the ‘book value’.

How NAV is calculated

NAV = The total number of all the securities in the mutual fund divided
by the number units in the mutual funds.

Example

Units = slices of pie and Mutual fund = Total Pie

Say you have one or more units, you bought 10 units of the mutual fund
at 10 per unit = 100 total. Value unit is now 16, Total = 160 (10 units *
16 per unit)

Profit = 60% (16 divided by 10) plus any distribution (cash) you received
over you holding period.

NAV and its impact on the returns

It is often felt that MF with low NAV will give better returns. This again
is due to the wrong perception about NAV. An example will make it clear
that returns are independent of the NAV.

Say, you have Rs 10,000 to invest. Say one Fund A has an NAV of Rs 10
and another Fund B has NAV of Rs 50. You will get 1000 units of Fund
A or 200 units of Fund B. After one year, both funds would have grown
equally as their portfolio is same, say by 25%. Then NAV after one year
would be Rs 12.50 for Fund A and Rs 62.50 for Fund B. The value of
your investment would be 1000*12.50 = Rs 12,500 for Fund A and

36
L.J MBA (IMS)
200*62.5 = Rs 12,500 for Fund B. Thus your returns would be same
irrespective of the NAV.

An FMCG company share at, say, Rs 1,000 may give a better return than
say a jute company share at Rs 50, since IT sector would show a much
higher Growth than jute industry (Rs 1000 may basically be over or under
priced, which will not be the case with MF NAV).

37
L.J MBA (IMS)
1.9 Advantages of the Mutual Fund perceived by
Investors
 Portfolio Diversification: Mutual Funds invest in a well-
diversified portfolio of securities which enables investors to hold a
diversified investment portfolio (whether the amount of investment
is big or small).

 Professional Management: Fund manager undergoes through

various research works and has better investment management
skills which ensure higher returns to the investors than what he can
manage on his own.

 Less Risk: Investors acquire a diversified portfolio of securities

even with a small investment in a Mutual Fund. The risk in a
diversified portfolio is lesser than investing in merely 2 or 3
securities.

 Low Transaction Costs: Due to the economies of scale (benefits

of larger volumes), mutual funds pay lesser transaction costs.
These benefits are passed on to the investors.

 Liquidity: An investors may not be able to sell some of the shares

held by him very easily and quickly, whereas units of a mutual
fund are far more liquid.

 Choice of schemes: Mutual funds provide investors with various

schemes with different investment objectives. Investors have the
option of investing in a scheme having a correlation between its
investment objectives and their own financial goals. These schemes
further have different plans/options.

38
L.J MBA (IMS)
 Transparency: Funds provide investors with updated information
pertaining to the markets and the schemes. All material facts arte
disclosed to investors as required by the regulators.

 Flexibility: Investors also benefits from the convenience and

flexibility offered by Mutual Funds. Investors can switch their
holdings from a debt scheme to an equity scheme and vice-versa.
Option of systematic (at regular intervals) investment and
withdrawal is also offered to the investors in most open-end
schemes.

 Safety: Mutual Fund Industry is part of a well-regulated

investment environment where the internets are protected by the
regulators. All funds are registered with SEBI and complete
transparency is forced.

39
L.J MBA (IMS)
 2. Research Methodology

OBJECTIVE OF THE STUDY

 To understand the saving avenue preference of the investors.

 To identify the performance of the Mutual Funds.
 To identify the factors that influence the investor’s perception
related to the investment avenues.
 To understand the investor’s behavior that affects the fund
selection and switching.
 To understand the risk associated with the mutual fund.

RESEARCH DESIGN

 Research : Descriptive

 Instrument for Data Collection : Questionnaire

 Types of Questionnaire : Structured

 No of Questions : 14

SAMPLING METHOD : Simple Random sampling method

SAMPLE SIZE - 80 samples.

SAMPLING AREA :- Area of sampling is AHMEDABAD city.

40
L.J MBA (IMS)
DATA SOURCES
 Primary Data
 Secondary Data

PRIMARY DATA
Primary data is collected through questionnaire.

SECONDARY DATA
Secondary data for my research is data collected from books,
magazines and Internet.

41
L.J MBA (IMS)
 3. MUTUAL FUND IS SUBJECT TO MARKET
RISKS........
Disclaimer of the mutual funds

“Mutual fund investments are subjects are subject to market risk. Please
read the offer document carefully before investing. There is no guarantee
that all the objectives of the mutual fund will be achieved. Past
performance of the sponsors/mutual fund/schemes/asset Management
Company is not necessarily indicate of future results. The name of the
fund/scheme dose not, in any manner, indicates either the quality of the
fund, its future prospects or returns.”

Risk associated with the Mutual Fund investments

The mutual fund works within the regulatory framework of SEBI as per
the provision of the SEBI mutual fund regulation, 1996, and other rules
and regulations declared by SEBI from time to time. SEBI keeps a close
watch on the mutual fund through various methods.

The main objectives of these rules and the regulation is to protect the
mutual fund investors and to keep him informed about the developments
from time to time. In spite of such strict supervision and regulation, there
are various risks that are faced by the mutual fund investors. A few such
risks are discussed below:

 Investors Psychology Risk

The investor psychology is such that most of the investors, be it
mutual fund investors or direct capital market investors, behave
like reactionaries. They enter the market when the share prices start
rising any they get panicky and exit when the share prices are
falling. Therefore, whether it is shares of a company or mutual
fund units, investors resort to selling their investments when the
market starts looking down. Because of this, there will be more
than normal demand on mutual fund manager to redeem the units.

 Prediction Risk

Using various tools, methods and information, but guided by their own
educated guess work, most of the mutual fund managers make market
predictions and act accordingly. Nobody can predict the capital markets
perfectly, and can always find good investments. Similarly, the fund

42
L.J MBA (IMS)
manager’s prediction of future actions and outcomes are, of necessity,
subject to error.

 Competition Risk

Returns is the ultimate measure of job performance for any investments,

be it in a mutual fund or otherwise. Performance is a matter of
comparison and the evaluation is intended to measure how the fund has
performed vis-à-vis its past performance, peers the market. At present,
Mutual funds are required to report their performance, including the
returns on a quarterly basis. Therefore, to prove that the fund is
performing well, manager focused on quarterly returns. Buying and
selling
of the stocks at the end of the quarter will be done to report better
quarterly returns and to make fund’s holdings look better based on the
recent market action. In this process, where the competition is not really
productive, fund managers incur expenses and loses that are naturally
passed on to the unit holders.

 Choice Risks

Investors are advised to stay invested for the long-term to reap good
returns. These experts also recommend different times. This means
investors need to move from fund to fund from time to time. Of
course, to be in the well doing fund, one need to move from fund to
fund intermittently. However staying invested for a long term and
being in the well doing fund can’t happen simultaneously unless and
expert when one is very fortunate to enter the magic fund, which does
better than all other funds at all times. In an attempt to stay invested
for a long term and to be in the well doing fund, the investor whether
naïve or educated and informed, will have to be satisfied with
disappointment.

 Management change Risk

It is not uncommon for a mutual fund to have changed in its

management. The changes in the fund’s management may affect the
achievement of the objectives of the fund. The fund company may, for
various reasons, replace a fund manager or may be the fund manager
himself may resign from job for any reason. This change, although
may not attract the due attention of the investors, will be significant
since the fund manger controls the fund’s investments. In fact, if the
fund’s investments style changes, it may no longer be aligned with the
investments objectives of the investors.

43
L.J MBA (IMS)
 Forward Pricing Risk

Unlike a stock, the pricing of a mutual fund does not change during
the day. Orders placed up to the cut-off time 3.00 p.m. get that day Net
Asset Value and order places after 3.00 p.m. receive the next day
NAV. This is called the rule of forward pricing. This system assures a
level playing field for investors. No investor’s is supposed to have the
benefit of post-3.00 p.m., information prior to making an investment
decision. However, a lot of significant news that can affect the price of
the stock gets released in the last hour of the trading. An investors
who could wait until such time the news comes out can make a
decision to buy the fund at old, low NAV and would have an unfair
advantage.

 Risk of Blind Diversification

As mutual funds are typically broadly diversified, it may not be

possible to track whether a fund is heavily committed to a particular
area of economy at any given time or the fund has made significant
investments in companies whose shares you own in your individual
accounts. This risk is called blind diversified risk and any investor
would like to invest in mutual funds that concentrate in asset classes
that he himself like to invest in mutual funds that concentrate in asset
classes that he himself has not invested on his own.

44
L.J MBA (IMS)
 4. MUTUAL FUND: - PERFORMANCECOMPARISON

The word “performance” is in a form suggests that the measurement of

the return achieved on the year on year basis. If a comparison is to be
done of the performance of the mutual fund then it require usage of
certain. Statistical tools and also a reference with which it should be
compared. Mutual Fund performance can’t be measured by comparing it
with the Benchmark Index or Sensex with the use of statistical tools;
because Mutual Fund investments are done by the expertise of the Fund
manager and the Index performance are solely based on the natural
performance of the individual stocks

Due to availability of the limited resources we have tried to see the

performance of the Mutual fund in a different manner. We have selected
fifteen Equity-Growth and Equity-Diversified Mutual Fund on the basis
of their rankings which are given on the returns they have obtain through
the return they have given in the last five years. We have also calculated
the return achieved by the BSE-30 stocks individually in the last five
years and also the return given by the SENSEX from its formation year
1979 to till date.

45
L.J MBA (IMS)
 TOP 15 - EQUITY GROWTH FUNDS

Funds Inception 1 yr 3 yr 5 yr Rank Since

date Inception
Reliance May 8,2004 99.73 31.39 41.09 1 42.01
diversified
power
sector fund
Reliance Jun 5, 2004 170.28 34.01 31.40 2 30.85
Pharma
fund
Reliance Oct 8, 1995 116.27 18.80 30.21 3 29.81
Growth
Sundaram Jul 30, 2002 151.15 15.68 29.20 4 40.40
BNP
Paribas
Select
Midcap
ICICI Oct 31, 2002 92.87 14.78 29.12 5 35.57
Prudential
Dynamic
Plan
SBI Jul 5, 1999 86.55 16.01 29.05 6 19.49
Magnum
Sector
Umbrella
HDFC Jan 1, 1995 118.56 18.12 28.83 7 23.04
Equity
Fund
HDFC Top Sep 11, 1996 97.40 20.69 28.68 8 24.23
200
SBI Feb 28, 1993 87.42 13.96 28.50 9 13.10
Magnum
Multiplier
Plus 93
DSP Mar 10, 2003 75.42 18.49 28.00 10 36.95
BlackRock
Top 100
Equity
Fund
Kotak Sep 9, 2004 90.34 15.28 27.74 11 29.97
Opportuniti
es Fund
Birla Sun Aug 30, 2002 92.38 17.80 27.57 12 31.77
Life
Frontline
Equity
Fund
SBI Mar 31, 1993 85.60 10.83 27.39 13 14.87
Magnum
Tax Gain
Scheme 93
Birla Sun Oct 3, 2002 148.98 21.13 26.69 14 37.14
Life Mid
Cap Fund

46
L.J MBA (IMS)
DSP Jun 11, 2004 77.40 12.57 26.86 15 29.61
BlackRock
India Tiger
Fund
Source: AMFI
Top 15 - EQUITY DIVERSIFIED FUNDS

Funds Inception 1 yr 3 yr 5 yr Rank Since

Date Inception
Reliance Oct 8, 1995 116.27 18.80 30.21 1 29.81
Growth
ICICI Oct 31, 2002 92.87 14.78 29.12 2 35.57
Prudential
Dynamic
Plan
Sundaram Jul 30, 2002 151.15 15.68 29.20 3 40.40
BNP Paribas
Select
Midcap
SBI Magnum Jul 5, 1999 86.55 16.01 29.35 4 19.49
Sector
Umbrella
contra fund
HDFC Jan 1, 1995 118.56 18.12 28.83 5 23.04
Wquity Fund
HDFC Top Sep 11, 1996 97.40 20.69 28.68 6 24.23
200
SBI Magnum Feb 28, 1993 87.42 13.96 28.50 7 13.10
Multiplier
Plus 93
DSP Mar 10, 2003 75.42 18.49 28.00 8 36.95
BlackRock
Top 100
Equity Fund
Kotak Sep 9, 2004 90.34 15.28 28.06 9 29.97
Opportunities
Fund
Birla Sun Aug 30, 2002 92.38 17.80 27.90 10 31.77
Life
Frontline
Equity Fund
Birla Sun Oct 3, 2002 148.98 21.13 27.28 11 37.14
Life Mid Cap
Fund
DSP Jun 11, 2004 77.40 12.57 26.86 12 29.61
BlackRock
India Tiger
Fund
Baroda Sep 12, 2003 81.33 20.84 26.79 13 27.71
Pioneer
Growth Fund
SBI Magnum Jan 1, !991 93.06 14.40 26.71 14 11.68
Equity Fund
Tata Equity Jun 29, 2004 110.42 21.95 26.52 15 29.34
P/E Fund
Source: AMFI

47
L.J MBA (IMS)
In the above listed Mutual Fund schemes the Exit Load has to be
deducted whenever it is applicable. Exit Load will reduce the overall
return to a certain level and if the investor redeems before one year he
will be forced to pay tax on the profit gained. There is also a hidden cost
12b-1 which is applicable on quite many of the Mutual funds. The one
year are on absolute basis while thereon are on Compounded annualised
interest rate basis.

Comparison of mutual funds with other investment options

Investment Return Safety Liquidity Tax Convenience

Avenues Benefit
Bank Deposits Low High High No High

Equity High Low High or No Moderate

Instruments Low
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 Moderate Moderate High No High

(Open ended)

Mutual Funds Moderate Moderate High Yes High

(close ended)

RBI Relief Moderate High Low Yes Moderate

Bonds
PPF Moderate High Low Yes Moderate

National Moderate High Low Yes Moderate

Savings
Certificate
Monthly Moderate High Low Yes Moderate
Income Scheme
Comparison of mutual funds with other investment options
Source:- www.amfiindia .com

48
L.J MBA (IMS)
 5.Mutual Fund: - Certain Facts
“If you buy the same stocks as everybody else, you will have the same
result as everybody else”
-John Maynard Keynes

Every coin has two sides, in the same manner Mutual fund has got
Advantages and disadvantages but when we look at the past records of
facts related to Mutual Fund and certain risk related with the Mutual Fund
the perception towards the Mutual Fund very easily moves towards the
opposite direction. There are certain facts related to the Mutual Fund
which can also be considered as their Disadvantages. They are:-

 US - 64

The less discussed and only remembered by the investors of this

schemes are the scam of UTI mutual fund. This is now a long drawn-
out saga. In 1998, the situation reached crises point as the reserves of
the fund went below par. The negative trend began earlier (in 1994),
but it was only revealed to the public in 1998. All this time, the
schemes was happily paying dividends in excess of income, and
buying units at a hefty premium to the NAV.

In 1999, after much noise and public outcry, the government

appointed a committee to suggest a way out. In the meantime, the
finance minister gave several sops to help out UTI, most significant
the one exempting payment of dividend tax. Subsequently, the
government took Rs. 2700 crores worth of PSU shares off the books
of UTI, and forced promoters like IDBI, LIC, SBI, etc. to chip in with
more equity capital.

All very nice, especially considering that all this money came from the
public. Throughout all this, nobody dared to suggest that the scheme
should have been shut down. After all, what would happen to small
Investors? Thanks to this bogey, ordinary taxpayers had to pay to
protect investors. The fund managers and other officials of UTI who
goofed up along the years got away scot-free.

Anyway, after the bail-out, things were expected to improve. Yet, the
UTI appears to have fallen back into the same well once again. In

49
L.J MBA (IMS)
early 1999, they had almost no exposure to the ICE sector, but in a
much-publicized portfolio revamp portfolio, they aggressively went
after new economy stocks - aiding Mr. Ketan Parekh in his
Endeavour’s (knowingly or otherwise). By end 1999, UTI announced
proudly that they had narrowed the difference between NAV and
purchase prices.

But it was too good to last, and then we hear that NAV has once again
gone below par, even as repurchase prices haven between Rs. 13 and
Rs. 14. Simultaneously, there is massive churning of the portfolio as
they rush to exit ICE stocks and get back into old economy scripts. Is
this the kind of investment behaviour you expect from the country’s
largest fund, or what one associates with amateurs?

They are supposed to move to an NAV based system by 2002.

However, this looks increasingly difficult. Units are repurchased
between Rs. 13 and 14, when the NAV is below par, Imagine
somebody paying you 50% more than your asset is worth! And with
every redemption, the NAV falls further - penalizing those who stay
on. Obviously many others think so too, and there is a regular net
outflow from the scheme. To make matters worse, they keep paying
dividends in excess of their earnings in order to keep investors happy.

The governments eventually have to shell out the difference between

NAV and the price that the UTI management believes they should
support, for no logical reason other than the interest of the so-called
“small investors”. But how are these investors any different from
those who have lost money in the schemes of some other mutual fund?

On 1 Feb 2003 UTI, the largest mutual fund of India was bifurcated
into two-specified undertaking of UTI-I and UTI Mutual fund. UTI-I
took all the assured return schemes with US-64 and rest taken by UTI
mutual fund. The rally of stock market in October 2003 enabled the
US-64 to wipe out its entire shortfall.

 Growth Funds usually deliver high returns during an upturn,

while during a downturn they fall parallel.

It is a known fact that Mutual fund investment to the market risk, but
still investment are done in the mutual fund as it is governed by the
expertise of the Fund manager. In the time of recession which we have
experienced in the past as well as very shortly in 2008 when the
Sensex has reduced upto 55% but the major shocking thing was with

50
L.J MBA (IMS)
the downturn the Mutual Funds also have reduction in their value and
some funds have even reduced more than the respective Benchmark
Index which they follow.

This situation has also shown us the period later on when the Mutual
Fund has earned a quite heavy return then the Benchmark Index. But
that readily proves that when the sensex starts moving up the Mutual
Funds gives out heavy returns. While the investments are done in the
Mutual Fund to reduce the risk of losing the value of the asset and to
get a healthy return on investment but instead of that the market
exposure is always felt by the investor and also risk of losing value.

A research done by the ICRA on the Top 5 equity schemes in

September 2009, shows that how they have performed under the
turmoil period and what loses they have faced in it. This five equity
schemes are top ranked on the basis of the return they have provided
in the last 6 months. The return provided by this schemes during the
previous 3 months before 6 months were in negative and they have
reduced in value quite very heavily then the Benchmark Indexes.

Looking at this statistics, a question arises that whether the Expertise

of the Fund Managers can’t be utilized during the turmoil? Or they are
also helpless against such problems and if this is true then whether the
investors should invest in Mutual Funds. Usually the recession is a
period during which the liquidity is required the most and if in such a
case if investors like to redeem from the scheme then he will get very
negligible return than he expected.

 Focus on Investors

On Monday, the SEBI took a number of steps to benefits mutual fund

investors. These included reduction in the New Fund Offer (NFO)
period and use of Application supported by Blocked Amount (ASBA).
We take a detailed look at these:

Reduction in NFO period: NFO launched funds for open-ended and

closed-ended schemes were earlier allowed to be open for 30 days and
51
L.J MBA (IMS)
45 days, respectively. This has been reduced to 15 days from July 1,
expect for equity-linked saving schemes.

Industry experts say this will hit them as MF schemes are “push-
driven”, that is, they are marketed and sold. Now, fund houses might
have to start marketing NFO before launch, said fund managers.

The SEBI circular also, “Mutual Funds/asset management companies

(AMC) shall use the NFO proceeds only on or after the closure of the
NFO period. The mutual fund shall allot units/refund money and
dispatch statements of accounts within five business days from the
closure of the NFO.”

Said Rajiv Anand, chief executive officer, Axis Mutual Fund, “These
changes may impact collections in the short term. But, the challenge
will be to put together account statements in five days.”

While some experts say this will help investors gain more interest,
fund houses disagree. A Balasubramanian, chief executive officer,
Birla Sun Life Mutual Fund, Said: “It will not make much of a
difference. The amount is Debited only on the last day of the NFO
period.” Anand said if the money was getting debited during the NFO
period, it was being deployed by the fund to earn returns, which would
not happen now.

“If it is used by the fund manager during the course of the NFO, it
may earn more returns than what a bank will pay, “said a top
executive of an AMC.

Dividends from realized gains: Mutual funds are supposed to pay

dividends from actual or realized profits. However\, some fund houses
use the unit premium reserve (UPR), an unrealized profit, to lure
investors.

For instance, if the net asset value of a scheme is Rs 15, one-third (Rs
5) is put away in UPR and the remaining Rs 10 is the unit capital or
face value. However, if an investor enters at Rs 15, the fund house
pays from UPR.

SEBI has come down hard on this practice. A fund house will now
have to book profit to pay the investor. Experts said this would bring
down the dividend payout significantly. Asset management said: “This
will reduce dividend payouts by mutual funds.”

52
L.J MBA (IMS)
 Earlier, fund houses were paying 25-30 per cent dividend, which
would come down to 5-10 per cent, said an AMC executive.

No revenue sharing between fof and offshore funds: Fund of Funds

(fof), which are primarily feeder funds that invest in schemes in other
countries, have also come under SEBI scanner. The market watchdog
has said that fund houses cannot enter into revenue-sharing
arrangements with underlying funds.

This may not have much impact because fof have not taken off. But, it
will benefits investors. “Till now, there was no mandate as to where
the fof would use the revenue earned. Hence, it was being used for
marketing and paying commission to agents. Now, it will be passed on
to the scheme and, hence, to investors,” said Balasubramanian.

 Don’t expect great returns (Jargon Risk)

During the end of the financial year, insurance companies try to tap tax-
payers with innovative schemes, including guaranteed returns products.

Life Insurance Corporation (LIC) recently launced WQealth plus, ehich

gives guaranteed return. Last year, it has launced Jeevan Aastha, which
promised to give Rs 9 and 10 for every Rs 100 invested, depending on the
policy tenure. The earlier policy invests in debt instruments such as
government bonds. Wealth Plus, on the other hand, invests in equities and
returns linked to the highest net asset value (NAV) of the fund over a
seven-year period.

LIC is not alone in the market with such a product. Reliance Life
Insurance has Reliance Life Highest NAV Guarenteed fund, which
assures the highest NAV for the entire term of the policy. Many other
players have similar plans. Tata AIG Life insurance sells such a scheme
under the name Invest Assure Apex pension plans, Birla Sun life
Insurance has Platinum plan, SBI Life Insurance calls it Smart Ulip,
ICICI Prudencial Life Insurance sells pinnacle, and Bajaj Allianz Life
Insurance Max Gain gives a similar guarantee.

53
L.J MBA (IMS)
These plans capture the highest NAV of the fund and lock it. Thus, a
customers gets returns based on the highest NAV, even if stock markets
undergo a correction. However, before buying, there are a few things you
should look at.

Working: To give the highest NAV-based returns, insurance companies

follow a trading known as constant proportion portfolio insurance (CPPI).
Institutions around the world use this model to ensure a fixed minimum
return for investors who are risk-averse.

In CPPI, a fund allocates the corpus between safe assets and risky assets
(equities), depending on stock market performance and interest rates.
Depending on losses from the equity investment, the insurance company
constantly rebalances the equity-debt mix to lock the highest NAV.

Returns: Most of these products are available for a limited period. In the
initial phase, the company decides the asset allocation between equity and
debt. “The debt portion could be small if interest rates are high and equity
markets have low volatility,” said sashi krishnan, chief investment officer
at Bajaj Allianz Life Insurance Company. He explained that if the market
falls, the allocation to debt is increased and vice-versa. “As it is not a pure
equity product, it will definitely not give equity-based returns,” said
manish kumar, head of investments at ICICI prudential Life Insurance.

Costs: Most insurance companies charge a guarantee fee over and above
the 3 per cent cap that the Insurance Regulatory and Development
Authority (IRDA) had prescribed, “This is primarily to make up for any
shortfall,” said Krishnan.

Insurance companies normally charge 0.2 - 0.5 per cent. For example,
LIC Wealth Plus has a guarantee charge of 0.35 per cent of the fund value
every year. While Bajaj Allianz levies a charge of 0.25 per cent on the
fund value every year, ICICI prudential pinnacle charges 0.10 per cent
annually to give the guarantee. “This also includes the cost the insurance
company incurs for setting up algorithms and other infrastructure related
to this product,” Kumar said.

Should you Buy? For small investors, products based on this structure are
available with insurance companies only. High net worth individuals
(HNI) can approach wealth management companies for such
arrangements.

Risk-averse investors who want to avoid insurance due to high costs can
look at monthly income plans (MIP) of mutual funds. These are

54
L.J MBA (IMS)
essentially for investors who have low appetite for volatility. They invest
10-30% in equities and the rest in debt. In the MIP category, the top 10
funds by returns have given yields of over 10 per cent in the past five
years.

 Short means more in debt mutual funds

Go short. That is the advice investment experts are giving debt mutual
fund investors these days. Faced with a rising interest rate scenario,
financial advisors are asking their clients to opt for short-term debt funds,
as these schemes have the potential to deliver at least 1.5% or more than
long-term funds. In a rising rate regime, long-term funds tend to lose
charm because of the inverse relationship between the yield and the price
of bonds they hold in their portfolio.

In a rising interest rate scenario, investors who opt to lock in their money
for a long period tend to lose on returns, say Ashutosh Wakahre, a
professional financial trainer. They should look at the sheet of mutual
funds and ensure that the average maturity of the portfolio is really
shorter.

Experts are of the opinion that though interest rates are unlikely to soar to
extremely high levels in the long term, there would be a slight pressure on
rates in the near term due to inflationary pressures in the economy. This is
in contrast to the view held by many after the budget, when they believed
that there won’t be an immediate spurt in rates, as the governments
borrowing plan was more or less at the same level as last year.

Many advisors were recommending long-term bonds as they were sure

that there won’t be a spurt in rates in the long term. However, many of
them seem to have changed the stance now. yes, we were advocating
long-term funds. In fact, we think they are still fine for long-term
investors as there won’t be drastic changes in the interest rate scenario,
says a mutual fund advisor.

 MF advisors act pricey, overcharge investors (cost)

Mutual funds charge huge fees that can get away with and that too in the
most confusing manner possible. Besides specializing in investing,
mutual funds also specialize in burying their clients. It would not be
painful for the investors to pay for the expenses and costs of the fund

55
L.J MBA (IMS)
when they derive satisfactory returns. But, the irony is that investors have
to pay for the sales charges, annul fees, and many such other expenses,
irrespective of how the fund has performed.

There are many investors out there - more so in two and three-tier cities -
which are paying money to distributors under various heads. ‘visit
charges’, ‘consultation charges’, ‘advisory charges’ and ‘redemption
charges’ are some of them.

If the industry sources are to be believed, the general practice among

financial advisors is to charge investors per visit. Investors, who have less
than Rs 5 lakh as Mutual fund investments, are charged anywhere
between Rs 100 and Rs 250 per visit. Apart from ‘visit charges’,
additional charges are levied on fund-based tasks, tax calculations and
portfolio realignment. There has also been an instance when distributors
have charged additional money (in the range of Rs 500 - 1000) for
redeeming mutual units.

“Even though SEBI mandates distributors to disclose the commission

received from fund houses, not many are adering to it. Moreover, the
regulator has not mentioned when a distributor can charge money from
investors. Even if the advisor levies consultation charges or visit charges,
there is illegal about it - expect for the fact that he is looting the investor
in broad daylight,” said the channel head of a Mumbai-based fund.

The regulator recently tightened the code of conduct for MF

intermediaries, directing them to disclose to clients all information,
involving commissions received for competing schemes of various MF,
of which the scheme was recommended.

Cities like Jaipur, Ahmedabad and Surat are witnessing huge takers for
company deposits. According to distributors, there is a conscious effort
being made by distributors to sell corporate deposit schemes, which yield
them a nominal interest of 12%, companies with dubious financial
records, which are raising money through this route, are offering
distributors as high as 15% to raise deposits from investors.

 Name Games

56
L.J MBA (IMS)
An article written on the “Games played by the Mutual Fund” in
economic times says that to attract investors in a competitive market,
funds have to create innovative themes and labels. Sometimes they
become too innovative. Balanced funds have not lived up to their name
because most of them follow a misbalanced strategy of investing. They
invest too much in equity to enhance returns and end up messing up the
portfolio. Fund companies will not be able to raise much money if they
try to sell the idea of balanced funds now. Is that why they want to bring
them back under a label that is perfectly suited to the current times? You
may find it hard to see how a balanced fund can be called dynamic asset
allocation fund but that is exactly what a new fund by Kotak is called. It
is benchmark against Crisil Balanced fund index.

The fund would allocate assets dynamically between equity and

debt/money market securities. The asset allocation will be guided by
equity market trends. If the equity market goes up, the scheme will
increase its portfolio allocation to equity and equity related securities. At
the same time, “keeping in mind the need to minimize the risk on
investments and outstanding maturity of the scheme, there might be times
when the scheme may not increase investment in an equity market which
is moving up. If the equity market goes down the scheme will normally
decrease its portfolio allocation to equity,” says the prospectus. The fund
will buy stocks irrespective of their size and industry. As is the current
fad, the scheme “may also invest in derivatives, commodities or overseas
debt/equity instruments, in line with regulations.” For all this
adventurism, the fund would like to be benchmarked against Crisil
Balanced fund index.

Sometime ago SBI Mutual Fund launched a fund with the morbid label
Comma Fund. It is a equity fund that will invest in companies selling
commodities. Comma stood for “commodities in oil, metals, materials
and agriculture”. The fund called it a commodities fund, although it
would not buy any commodity, but simply wanted to exploit the massive
commodity boom. In the past the regulator has said no to a certain fund
name though these days it is very lenient. ING Vysya had created a fund
called WTO Theme Fund in 2004 with a focus on pharmaceuticals and
textiles, the two sectors that were expected to grow fast from 2005
onwards after the textiles quota system was abolished and the patent
regime for pharmaceuticals came into force. SEBI did not agree with this
and asked the name be changed to pharma and Textile fund. Not
anymore.

57
L.J MBA (IMS)
 6.Data Interpretation & Findings

1. In which below category do you belong?

Retired
14%
Business
40%
Salaried
30%

Professionals
16%

INTERPRETATION:
Out of the total 80 respondents, 32 were businessmen while 24 were
salaried one; they form the major portion of the total respondents.

2. How old are you?

10, 13% 9, 11%

65 & over
14, 18% 15, 19% 45 to 64
35 to 44
25 to 34

32, 39% 24 & under

INTERPRETATION:

58
L.J MBA (IMS)
The large number of investors was from the age group of 35-44 years.

3. Do you have your own house?

60 56

50

40

30 Series1
24

20

10

0
yes no

INTERPRETATION:
The ownership of the House and car in Ahmadabad suggest that the
person might be belonging to the middle or the upper-middle class
family.

4. How much rent you pay for your house?

12

10

6 Series1

0
5000 & under 5000-10000 10000 & above

59
L.J MBA (IMS)
INTERPRETATION:
Those who are not owner of the house are asked about the rent they are
paying of the house to predict their approximate annual income. Most of
them are paying rent under 5000 or under.

5. What is your primary objective for your investment?

25
20
samples

15 Series2
Series1
10

5
0
l
pa e th e h
c i m w m wt
rin co ro co r o
p In G
tI
n G
of & ve n ti v
e
n th si re a
ti o ro
w re
s ur r v
v a g C se
er
G Ag on
es C
pr

INTERPRETATION:
Growth and Income are highly preferred by the respondents as a prime
objective of the investments which is followed by the preservation the
principle.

60
L.J MBA (IMS)
6. What proportions of total income do you invest?

15 14
Below 10%
11%-20%
21%-40%
19 above 40%
32

INTERPRETATION:
Maximum responses were of investing about 21-40% of their total
income.

7. What type of investments do you make?

F.D
10% 3%
Bonds
12% Shares
48%
Property
13% post saving schemes
6% 8% Gold
Others

INTERPRETATION:
Fixed deposits (F.D) of the banks are highly preferred by overall
investors and post savings are at second position in investors list.

61
L.J MBA (IMS)
8. How do you make your investments?

5
20 fund manager
15
consulting with family
by your own
through a broker
12
28 consulting through friend

INTERPRETATION:
The investments are done through the consultation with Broker and
friends.

9. Are you investing in Mutual Fund?

24

yes
no

56

62
L.J MBA (IMS)
INTERPRETATION:
While 60% are investing in the mutual fund & rest of them are not
interested in mutual fund.

If no,
10. Why you don’t invest in Mutual Fund?

Bad experience

3
Invest in other
5 12 instruments
Risk is higher

Fluctuating returns
6
4
others

INTERPRETATION:
Investors having bad experience in the past and returns are not fixed.

If yes,
11. Reason for investing in mutual fund?

6 2 Tax benefit
3 22 High returns
Liquidity

7 Lower min. investment

Speedy Transaction
16 Transparency

63
L.J MBA (IMS)
INTERPRETATION:
Reason for investing in mutual fund is tax benefit is available and speedy
transaction.

12. Which type of mutual fund do you prefer for your investment?

25%
Equity
Liquid
Debt
52%
9% Balanced
14%

INTERPRETATION:
Most of them are investing in the Equity fund and balanced fund by the
investors.

64
L.J MBA (IMS)
13. Since how long you have been investing in the mutual fund?

9%
25%
13% Below 1year
1-3 years
3-5 years
more than 5 years
53%

INTERPRETATION:
While 53% are investing in mutual fund for 1-3 years to receive better
benefits in the mutual funds.

65
L.J MBA (IMS)
 Findings

 The people are basically of conservative in nature and hence are

very precautious about their hard earned money. Hence they would
like to play it safe when it comes to spending of their money.
 The people who do not invest in mutual fund basically fear that
they are less secured as compared with other investments.
 Investors are mostly invested in that fund where the risk is less and
the gain is more in minimum period of time.

 The others were aware about the concept of mutual fund but were
not fully aware of its intricacy hence were not interested in
investing in it.
 Most of the investors who invest in Mutual Fund substitute the
same against the Bank Deposits, insurance and Postal saving
schemes.
 Investors of younger age invest generally in equity funds whereas
age between 34 to 40 is investing in mutual funds.
 Investing through MF is best way for capital appreciation within
protection in comparison to investing directly in equity market and
other investment avenues.
 Some schemes of each AMC perform well which have a good
Fund Manager and well designed Portfolio.
 Mutual Fund investment is better than other raising fund.

66
L.J MBA (IMS)
 7.RECOMMENDATION

 First of all those who are investing in mutual fund must need
full knowledge about the fund in which they are investing.
 The investors should know that the amount that is invested in
the company how the funds are used and for what purpose
.They have the right to know where their funds are reinvested
i.e. the companies should be transparent.
 Those who are investing in FDs and post schemes are getting
lesser return than the mutual fund.
 From long term point of view mutual fund is the better option
than investing in the other investment instruments in the
market.
 While investing in the mutual fund read all schemes carefully
before investing.
 Always made investment through the consultation of the
broker and family.
 If Investors wants better return’s in Mutual fund than he/she
has to invest money for more than 2 to 3 years it gives better
return’s.

67
L.J MBA (IMS)
 8. Conclusion

 The investors are highly interested in knowing about which fund is

giving better returns from others.

 It is thus important to know the risks associated with the fund and
align it with the quantum of risk one is willing to take. One should
take a look at the portfolio of the funds for the purpose.

 It is important to identify the nature of investment. One can lose

substantially if one picks the wrong kind of fund. In order to avoid
any confusion it is better to go through the literature such as offer
documents and fact sheet that companies provide to their funds.

 In the upturn when the Sensex gives higher return the same or
more is given by the Mutual Fund and during the downturn the
same is expected by the investors which doesn’t happens in real.

 A common investor is limited in the degree of risk that he is

willing to take. It is thus of key importance that there is thought
given to the process of investment and to the time horizon of the
intended investment.

 Don’t invest all your money in the same fund. One should have to
invest in the different kinds of funds in the market.

68
L.J MBA (IMS)
9. Appendix

Bibliography
Apart from the study of company financial literature, statements
and other financial records, following books, websites and manuals have
played a crucial role in shaping report:

Books:

“Mutual Funds in India” by Arindam Banerjee

“Financial Management by prasanna Chandra

Websites:

www.moneycontrol.com
www.money reddif.com
www.mutualfundindia.com
www.amfiindia.com
www.investopedia.com
www.mutual fundindia.com

69
L.J MBA (IMS)
 Questionnaire

1. In which below mention category do you belong?

a. businessman b. professional

c. Salaried d. Retired

2. How old are you?

a. 65 and over b. 45 to 64

c. 35 to 44 d. 25 to 34

e. 24 and under

3. Do you have your own house?

a. yes b. no

If No,
4. How much rent you pay for your house?

a. 5000 and under b. 5000-10000

c. 10000 above

5. Do you have a car?

a. yes b. no

6. What is your primary objective for investment?

a. Preservation of principal b. current income

c. Growth and Income d. Conservative
Growth
e. Aggressive Growth.

7. What proportions of total income do you invest? (In %)

a. below 10% b. 11-20%

70
L.J MBA (IMS)
 c. 21-40% d. above 40%

8. What type of investments do you make?

a. Fixed Deposits b. Bonds

c. Shares d. property
e. post savings schemes f. Gold
g. others, please specify........

9. How do you make your investments?

a. Through a fund manager b. Through a broker

c. consulting with family d. consulting with friend
e. by your own

10. Do you invest in mutual fund?

a. yes b. no

If no,
11. Why you do not invest in mutual fund?

a. Bad experience b. Invest in other instruments

c. Risk is higher d. Fluctuating returns
e. others please specify.....

If yes,
12. Reason for investing in mutual fund?

a. Tax benefit b. High returns

c. Liquidity d. Lower min. investment
e. Speedy Transaction f. Transparency

13. Which type of mutual fund do you prefer for your investment?

a. Equity b. Debt
c. Liquid d. Balanced

14. Since how long you have been investing in the mutual fund?

a. below 1 year b. 1-3 years

c. 3-5 years d. more than 5 years

71
L.J MBA (IMS)
72
L.J MBA (IMS)