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A REPORT
ON FUND SELECTION BEHAVIOR OF INVESTORS & SCOPE FOR GROWTH OF MUTUAL FUNDS IN INDIA By SAURABH SHEKHAR
(Enrollment No: 07BS3884)

NAME OF THE ORGANIZATION: TATA MUTUAL FUND

Contract: A REPORT ON FUND SELECTION BEHAVIOR OF INVESTORS & SCOPE FOR GROWTH OF MUTUAL FUNDS IN INDIA By SAURABH SHEKHAR
(Enrollment No: 07BS3884)

A report submitted in partial fulfillment of the requirements of MBA Program of IBS, Hyderabad.
Distribution List: 1) PROF. P.V.MURALI KRISHNA (FACULTY GUIDE) 2) MS. NISCHALA SRIPATHI (COMPANY GUIDE) (ASSISTANT MANAGER-BANKING, TATA ASSET MANAGEMENT LIMITED)

ACKNOWLEDGEMENTS

With great pleasure I take the privilege to acknowledge the people who have been involved in completion of my project at different stages. I acknowledge gratefully my indebtedness to my Company Guide; Ms. Nischala Sripathi, Assistant Manager-Banking, Tata Asset Management Limited, for her patient help, valuable suggestions, encouragement and guidance at every stage of my project. I would like to thank Mr. Raghavendra , Regional Manager; Tata Mutual Fund (Hyderabad) for providing information and suggestions for this project report. I am also grateful to all the employees of Tata Mutual Fund; Somajiguda, Hyderabad, for helping me throughout the tenure of this project. I would give the credit of fruition of my project to Prof. P.V. Murali Krishna, my faculty guide for the summer internship project who inspired me by his discussions and showed me the right course to pursue. The successful completion of the project would not have been possible without his constant support. In the end, I express my thanks to all those who were directly or indirectly involved in this project.

TABLE OF CONTENTS
Acknowledgements------------------------------------------------------------------------ 3 List of Illustrations ------------------------------------------------------------------------ 6 Abstract ------------------------------------------------------------------------------------- 8 1. Introduction------------------------------------------------------------------------------ 9 1.1 Purpose, Scope, and Limitations------------------------------------------ 10 1.2 Sources & Methodology----------------------------------------------------- 13 2. Industrial Analysis --------------------------------------------------------------------- 16 2.1 Mutual Funds: An Overview -------------------------------------------------17 2.2 Growth of Mutual Fund Industry in India---------------------------------- 18 2.3 Types of Mutual Fund Schemes--------------------------------------------- 22 2.4 Calculation of Risk------------------------------------------------------------ 29 2.5Role of AMFI------------------------------------------------------------------- 34 2.6 Advantages of Mutual Funds------------------------------------------------- 36 2.7 Risks Associated with Mutual Funds-----------------------------------------38
2.8 Marketing of Mutual Funds----------------------------------------------------41

3. Company Profile -------------------------------------------------------------------------- 46 3.1 Tata Mutual Fund: An Overview---------------------------------------------- 47 3.2 Distribution Channel ------------------------------------------------------------ 54 3.3 Competitors of Tata Mutual Fund --------------------------------------------- 56

3.4 Comparative Analysis of Tata Equity Opportunities Fund ----------------- 57 4. Methodology --------------------------------------------------------------------------------- 61 4.1 Project Objective ------------------------------------------------------------------ 62 4.2 Literature Review ----------------------------------------------------------------- 63 4.3 Data & Data Sources -------------------------------------------------------------- 66 4.4 Factor Analysis -------------------------------------------------------------------- 67 4.5 Descriptive Analysis --------------------------------------------------------------- 73

5. Scope for Growth of Mutual Funds in India----------------------------------------------- 76 6. Recommendations & Conclusions---------------------------------------------------------- 81 7. Appendix--------------------------------------------------------------------------------------- 84 8. References-------------------------------------------------------------------------------------- 97

LIST OF TABLES

1. Riskiness of Mutual Funds------------------------------------------------------- 26 2. Investment Options----------------------------------------------------------------- 27 3. Equity Products of Tata Mutual Fund-------------------------------------------- 50 4. Debt Products of Tata Mutual Fund---------------------------------------------- 52 5. Balanced Products of Tata Mutual Fund----------------------------------------- 53 6. Asset Allocation of Tata Equity Opportunities Fund--------------------------- 57 7. Profile of Tata Equity Opportunities Fund--------------------------------------- 57 8. CAGR of Tata Equity Opportunities Fund--------------------------------------- 59 9. Comparative Analysis of Tata Equity Opportunities Fund--------------------- 59 10. KMO & Bartletts Test-------------------------------------------------------------- 68 11. Communalities------------------------------------------------------------------------ 69 12. Total Variance Explained------------------------------------------------------------ 69 13. Component Matrix-------------------------------------------------------------------- 71 14. Rotated Component Matrix---------------------------------------------------------- 71 15. Variables & Factors------------------------------------------------------------------- 72 16. Correlation Matrix--------------------------------------------------------------------- 89 17. Rotated Component Matrix----------------------------------------------------------- 90 18. Component Transformation Matrix-------------------------------------------------- 90 19. Case Processing Summary------------------------------------------------------------ 91

7 20. Case Summaries------------------------------------------------------------------------ 92

LIST OF FIGURES

1. Working of Mutual Funds ------------------------------------------------------- 17 2. Growth in Asset Under Management------------------------------------------- 20 3. Structure of Mutual Funds-------------------------------------------------------- 21 4. Risk Return Trade Off------------------------------------------------------------ 28 5. Risk & Return----------------------------------------------------------------------- 29 6. Advantages of Mutual Funds------------------------------------------------------ 37 7. Distribution Channel---------------------------------------------------------------- 55 8. Sectoral Allocation of Tata Equity Opportunities Fund------------------------ 58 9. Scree Plot----------------------------------------------------------------------------- 70 10. Bar Chart: Age Group of Investors----------------------------------------------- 73 11. Pie Chart: Fund Preferences------------------------------------------------------- 74

8 12. Pie Chart: Preferred Source of Information------------------------------------- 75 13. Pie Chart: Expenses of Mutual Funds-------------------------------------------- 87

ABSTRACT

Mutual Fund industry is one of the fastest growing industries in India, with so many investment options around giving an investor a wide range of choices to invest into; Mutual Fund offers a specialized service where the funds of the investors are professionally managed by the fund managers with various schemes offering all kinds of investors a product of their choice. The investors of the Mutual Funds are unique as a highly heterogeneous group. Hence their fund/scheme selection widely differs. This necessitates the Mutual Fund Companies to understand the fund selection behavior of the investors to design suitable products to meet the financial needs of the investors. This report has made an attempt to examine the aspects of fund selection behavior of individual investor towards Mutual Funds. On the basis of the findings; this report also intends to provide some suggestions regarding marketing of appropriate Mutual Fund schemes to the investors and targeting new customers.

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CHAPTER 1 INTRODUCTION

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INTRODUCTION

Purpose, Scope, and Limitations The purpose of the project is to study-- the fund selection behavior of the investors coupled with gaining some practical knowledge about this financial market & their overall marketing strategies and processes. The project also intends to analyze the marketing and distribution of Mutual Funds in India. As the aspects of this project is multidimensional so as its purpose. The project tries to identify the level of awareness among the investors about mutual funds. In this light the project analyzes the scope for growth of mutual fund industry in India. Value-addition to the company ---

1) To promote their product portfolio not only among the existing customers base but

also among new customers. 2) To get an idea about their customer base Their investment pattern & future trends. 3) To know about the consumer behavior regarding the various products offered by Tata Mutual Fund. 4) To get an idea about the new marketing strategies that can be applied in future to compete with the competitors. 5) To analyze the efficiency of the existing distribution channels. 6) To explore the new avenues /channels to reach the customers. Academic Benefits --1) To apply the functional knowledge and adopt multi functional approach to solve real life business problems.
2) To gain firsthand experience of corporate world and to acquire social skills by coming

in to contact with real professionals.

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3)

To get acquainted with the overall financial market specifically the

mutual funds. 4) To know about the arena of financial products in the field of

investment &services & to know about its marketing & selling strategies. 5) To know about the marketing & selling strategies of Tata Mutual Fund.
6) Real time experience of doing a market research & practical experience of interacting

with

the investors.

7) To get acquainted with the distribution channels of mutual funds.

Scope

The scope of the project work is quite large in the sense that not only it has given me the practical exposure to the Investment & Services sector but also it has provided an in-hand experience of marketing of financial products. It has also given me the opportunity to interact with the various types of customers as a representative of the company. Regarding the promotion of the NFO- Tata Growing Economies Infrastructure Fund; the scope was much larger as I worked under the guidance of the assistant manager (banking) & regional manager (sales) of the company. Scope expanded to a greater extent in the sense that I got the opportunity of interacting with the investors of Tata Mutual Fund in Hyderabad. In this project, customers are the ultimate focal point and the whole research has been carried out regarding their behavioral attitude towards the mutual funds. The project involves a market research on the consumer behavior regarding the investment patterns depending on various factors like past performance, visibility, brand name, brokers advice, expense ratio etc. The information obtained from individuals is noted down in a systematic format and then using the market research tools and certain software like SPSS, the information is analyzed as per the requirements of the project. Since, the projects objective is market research of investors fund selection behavior, the market research tools are used to analyze the effect of different variables on the selection of particular funds.

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Limitations

Although the project aims at making an in-depth market research but there are some practical limitations regarding the methodology followed & the overall procedure. These can be summed up under the following points --1. Due to time constraint the sample size of the survey is restricted to the extent of 105.

2. The sample taken for this research might not represent the whole population.
3. Since the survey is conducted exclusively on individuals investment behavior, there

is ample scope of personal bias creeping in. 4. Some people do not want to give correct details of their income and saving habits as required in the questionnaire. Some people even refused to disclose their occupation. 5. It is also possible that some people might have given false or misleading information. 6. Many people doubted the fact that the information given by them would be kept strictly confidential. 7. Many people gave unauthentic information to hide their ignorance. 8. Obtaining required information from the investors was difficult but in the end I managed to get data from one hundred individuals.

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Sources & Methods

Source Primary source Customers walking in Tata Mutual Fund office (Somajiguda), HDFC Bank (S.R.Nagar), DCB (A.S.Rao Nagar) &DCB (Abids). Secondary source Various journals, fact sheets, and web-data, previous research works mentioned in the reference section.

Methodology This project follows a simple & systematic methodology. I have followed a phase by phase approach to complete this project.

1st Phase In the 1st phase I got the product training to start away with the project with proper product knowledge. Here formal training was provided by the organization. I received complete product knowledge from my company guide Ms Nischala Sripathi, Asst.Manager (Banking) Tata Asset Management Limited. In this stage I have gone through some of the research works in this field. The company guided also provided me with some informative materials about mutual funds and Tata Mutual Fund. These materials helped me a lot in understanding the practical implications of the theories of Financial Management learned in the classroom. In this phase the company guide also briefed me about the distribution channels and the marketing strategies of Tata Mutual Fund. Now, I was able to correlate the marketing and selling strategies with the theories of Marketing Management. 2nd Phase After getting product knowledge I was engaged in promotional activities. I used to go to

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different banks and distributors to promote Tata Mutual Funds NFO--Tata Growing Economies Infrastructure Fund. In this stage the company guide & the sales people helped me a lot by sharing their practical experiences with me. I visited several distribution channels of Tata Mutual Fund in Somajiguda (i.e. Banks & Distributors) and interacted with the persons responsible for selling and promoting Tata Mutual Fund. It gave me an insight of the marketing strategies adopted by the company. It also helped me to understand the network of distribution channels.

3rd Phase In this phase I interacted with the investors as well as potential investors and tried to generate productive lead for the company. I used survey method of obtaining information based on the questioning of the respondents. So, respondents were asked a variety of questions regarding their investment behavior, intentions, attitudes, awareness, motivation and lifestyle characteristics. The questions were asked verbally. In this stage the company guide helped me a lot by sharing their practical experiences with me. This in a way provided many points regarding how to prepare an effective questionnaire which can reveal the consumer behavior with respect to investments & services.

4th Phase Based on the unstructured data collection, I prepared a formal questionnaire to conduct the market survey. The structured questionnaire was designed to elicit specific information from the respondents. It was done among the customers walking in Tata Mutual Fund office, HDFC Bank, DCB Bank in Hyderabad. I uploaded the questionnaire on internet and responses were taken through internet also. Some of the respondents sent their responses using email. It was done on a regular basis for almost three weeks. I tried to cover people with diversified portfolio, different kind of appetite & investment pattern.

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5th Phase In this phase I was engaged in the promotional activities of SIP (Systematic Investment Plan) plan of different schemes of Tata Mutual Fund. I went to DCB ASR Nagar branch & DCB Abids branch for promotional activities. At these branches, I also tried to collect data for market survey. Here at this stage I tried to generate some productive lead for the company while promoting SIP schemes. At the time of asking the questions for market survey, I tried to predict the mind of the customer & approached them to go for the investments too. Actually the main aim was to close the deal with the customer which will be beneficial for the company from the commercial view-point & for me too, in the sense that it helps in increasing the confidence level in true sense. It also helped me in understanding the importance of effective marketing.

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CHAPTER 2 INDUSTRIAL ANALYSIS

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MUTUAL FUNDS: AN OVERVIEW

'Put your money in trust, not trust in money' entices the small investors, who generally lack expertise to invest on their own in the securities market and prefer some kind of collective investment vehicles, which can pool their marginal resources, invest insecurities and distribute the returns there from among them on cooperative principles. 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 market 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. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The investors benefit in terms of reduced risk, and higher returns arising from professional expertise of fund managers employed by such investment vehicle. This was the original appeal of mutual funds (MFs) which offer a path to stock market far simpler and safer than the traditional call-a-broker-and-buy-securities route. This caught the fancy of small investors leading to proliferation of MFs. In developed financial markets, MFs have overtaken bank deposits and total assets of insurance funds. The flow chart below describes broadly the working of a mutual fund:

FIGURE: 1

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History of Mutual Fund Industry in India

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds,

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except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

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 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.

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Growth in Assets under Management

Figure: 2

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

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Mutual Fund Structure

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. The structure of a mutual fund house can be well understood with the example given below

FIGURE: 3

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Types of Mutual Fund Schemes Mutual funds Schemes can be segregated into three heads

1. Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices.

NOTE: SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

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2. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long-term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally

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invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as are the case with income or debt oriented schemes.

Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

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Sector specific funds/schemes These are the funds/schemes, which invest in the securities of only those sectors or industries as specified in the offer documents, e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues, e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

3. Load or no-load Fund: A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

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The table below summarizes the funds according to their nature of risk Nature of risk Low risk Categories of funds Money market funds G-Sec funds Moderate risk Income funds Short term plans Balanced funds High risk Index funds Growth funds Sector funds TABLE: 1

Risk Return Matrix The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets

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This involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. The table below compares the investment options under the broad heads viz. return, safety, volatility, liquidity and convenience. Investment Option Equity FI Bonds CDs Company FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds Convenience High Moderate Moderate Moderate High Moderate Moderate Moderate Low High Return High Moderate Moderate Moderate Moderate Moderate Low Low High High TABLE: 2 Safety Low High Moderate Low High High High High Moderate High Volatility High Moderate Moderate Low Low Low Low Moderate High Moderate Liquidity High Moderate Low Low High Moderate Low Moderate Low High

Risk vs. Return

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In any financial market, risk and return are closely associated. All investors want to maximize their return, while minimizing risk. Some investments are certainly more "risky" than others, but no investment is risk free. Risk can never be eliminated, but it can be managed.

In the investing world, the definition of risk is the chance that an investment's actual return will be different than expected. Technically, this is measured in statistics by standard deviation.

Low levels of uncertainty (low risk) are associated with low potential returns. High levels of uncertainty (high risk) are associated with high potential returns. The risk/return tradeoff is the balance between the desire for the lowest possible risk and the highest possible return. This is demonstrated graphically in the chart below. A higher standard deviation means a higher risk and higher possible return.

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FIGURE: 4

Calculation of Risk

Standard Deviation:

It reflects the degree to which returns fluctuate around their average. The higher the standard deviation, the greater is the risk. The measure is typically calculated using monthly results which are generally disclosed by Fund houses in their fund updates. A conservative equity fund might have a number below 3.5% per month, whereas an extremely aggressive one could have a value of 6% or more. About two thirds of the time a funds actual monthly return will range within plus or minus one standard deviation of its monthly average. Its return will vary within the two standard deviations about 95 % of the time.

To determine how well a fund is maximizing the return received for its volatility, one can compare the fund to another with a similar investment strategy and similar returns. The fund with the lower standard deviation would be more optimal because it is maximizing the return received for the amount of risk acquired.

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FIGURE: 5

With the S&P 500 Fund B, the investor would be acquiring a larger amount of volatility risk than necessary to achieve the same returns as Fund A. Fund A would provide the investor with the optimal risk/return relationship.

The Beta Measure:

Market risk is commonly measured by whats known as the beta coefficient. It relates the return on a stock or mutual fund to a market index. This is often done by taking returns for, say, the past 3 years & correlating them with the indexs monthly results. Beta reflects the sensitivity of the return to fluctuations in the market index. The beta for the average welldiversified portfolio equals 1.0. Betas greater than 1.0 indicate above average volatility- i.e. higher the beta, greater the risk. If Beta is less than 1.0 it reflects below-average volatility. These include defensive portfolios that invest primarily in slow moving stocks such as utilities. Money-market funds have a beta of zero since their returns are independent of the stock market.

32 The Treynor Measure:

Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as Treynor's Index (Ti) = (Ri - Rf)/Bi Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure:

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

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Comparison of Sharpe and Treynor Ratios:

Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios.

On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure.

The Jenson Model:

Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method.

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This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. It compares the actual results of a portfolio with what would have been expected given the funds beta & the markets behavior. If the fund fares better than predicted, it has a positive alpha & vice-versa. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cant mitigate unsystematic risk, as his knowledge of market is primitive.

Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure that considers the entire risk associated with fund is suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.

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ROLE OF ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

The mutual fund industry has a trade association called Association of Mutual Funds in India (AMFI) modeled on the lines of a Self Regulating Organization (SRO) with a view to 'promoting and protecting the interest of mutual funds and their unit-holders, increasing public awareness of mutual funds, and serving the investors interest by defining and maintaining high ethical and professional standards in the mutual funds industry'. AMFI plays an important role in disciplining members and assist the regulatory authority in protecting investors' interest. The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders. AMFI works through a number of committees, some of which are standing committees to address areas where there is a need for constant vigil and improvements and other which are ad hoc committees constituted to address specific issues. These committees consist of industry professionals from among the member mutual funds.

Objectives of AMFI

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To define and maintain high professional and ethical standards in all areas of

operation of mutual fund industry.

To recommend and promote best business practices and code of conduct to be

followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.
To interact with the Securities and Exchange Board of India (SEBI) and to represent

to SEBI on all matters concerning the mutual fund industry.

To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.
To develop a cadre of well trained Agent distributors and to implement a program me

of training and certification for all intermediaries and other engaged in the industry.
To undertake nationwide investor awareness programs me so as to promote proper

understanding of the concept and working of mutual funds. To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.

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Advantages of investing in a Mutual Fund

The benefits of investing in mutual funds can summarized in the following points Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. Diversification We must spread our investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of our returns, for example during one period of time equities might underperforms but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. Variety

38

Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending on his risk appetite and thus create a balanced portfolio easily or simply just buy a Balanced Scheme.

Professional Management Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. When we buy in to a mutual fund, we are handing our money to an investment professional that has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required.

Transparency Being under a regulatory framework, mutual funds have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. SEBI acts as a watchdog and safeguards investors interests. Securities Exchange Board of India (SEBI), the mutual funds regulator has clearly defined rules, which govern mutual funds. These rules relate to the formation, administration and management of mutual funds and also prescribe disclosure and accounting requirements. Such a high level of regulation seeks to protect the interest of investors.

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FIGURE: 6

Liquidity A distinct advantage of a mutual fund over other investments is that there is always a market for its unit/ shares. It's easy to get ones money out of a mutual fund. Redemptions can be made by filling a form attached with the account statement of an investor.

Risks Associated with Mutual Funds

The risks associated with the investments in mutual funds can be termed as disadvantages of the mutual funds, which are as followings:
1) Professional Management- Some funds dont perform in the market, as their

management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks.

2) Costs The biggest source of AMC income is generally from the entry & exit load

which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3) Dilution - Because funds have small holdings across different companies, high

returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money

40

pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

4) Taxes - when making decisions about your money, fund managers don't consider your

personal tax situation. For example, when a fund manager sells a security, a capitalgain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Taxing in Mutual Funds

Since, April 1, 2003, all dividends, declared by debt-oriented mutual funds (i.e. mutual funds with less than 50% of assets in equities), are tax-free in the hands of the investor. A dividend distribution tax of 12.5% (including surcharge) is to be paid by the mutual fund on the dividends declared by the fund. Long-term debt funds, government securities funds (Gsec/gilt funds), monthly income plans (MIPs) are examples of debt-oriented funds. Dividends declared by equity-oriented funds (i.e. mutual funds with more than 50% of assets in equities) are tax-free in the hands of investor. There is also no dividend distribution tax applicable on these funds under Section115R. Diversified equity funds, sector funds, balanced funds are examples of equity-oriented funds. Amount invested in tax-saving funds (ELSS) would be eligible for deduction under Section 80C; however the aggregate amount deductible under the said section cannot exceed Rs 100,000.

Section 2(42A):

41

Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term capital asset if the same is held for less than 12 months. The units held for more than twelve months are treated as long-term capital asset.

Section 10(38): Under Section 10(38) of the Act, long term capital gains arising from transfer of a unit of mutual fund is exempt from tax if the said transaction is undertaken after October 1, 2004 and the securities transaction tax is paid to the appropriate authority. This makes long-term capital gains on equity-oriented funds exempt from tax from assessment year 2005-06. Short-term capital gains on equity-oriented funds are chargeable to tax @10% (plus education cess, applicable surcharge). However, such securities transaction tax will be allowed as rebate under Section 88E of the Act, if the transaction constitutes business income. Long-term capital gains on debt-oriented funds are subject to tax @20% of capital gain after allowing indexation benefit or at 10% flat without indexation benefit, whichever is less. Short-term capital gains on debt-oriented funds are subject to tax at the tax bracket applicable (marginal tax rate) to the investor.

Section 112: Under Section 112 of the Act, capital gains, not covered by the exemption under Section 10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax:

Resident Individual & HUF -- 20% plus surcharge, education cess. Partnership firms & Indian companies -- 20% plus surcharge. Foreign companies -- 20% (no surcharge).

Capital gains will be computed after taking into account the cost of acquisition as adjusted by Cost Inflation Index, notified by the central government.

42

'Units' are included in the proviso to the sub-section (1) to Section 112 of the Act and hence, unit holders can opt for being taxed at 10% (plus applicable surcharge, education cess) without the cost inflation index benefit or 20% (plus applicable surcharge) with the cost inflation index benefit, whichever is beneficial. Under Section 115AB of the Income Tax Act, 1961, long term capital gains in respect of units, purchased in foreign currency by an overseas financial, held for a period of more than 12 months, will be chargeable at the rate of 10%. Such gains will be calculated without indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB, in respect of corporate bodies.

MARKETING OF MUTUAL FUNDS

Mutual Fund industry in India has undergone the most dramatic transformation in the postliberalization era of the nineties. There has been a paradigm change in the quality and quantity of product and service offerings. After being serviced by monopoly players for decades with hardly any choice in product offerings, the Indian investor today is being wooed by virtually the who's who of global and Indian players with a choice that was unimaginable a decade back. In this backdrop, it is interesting to know the strategic marketing approach adopted by the mutual fund companies to survive and thrive in this highly promising industry. The changing marketing trends in the mutual fund industry in India can be easily linked and traced to its history of growth. The changes in marketing strategies can be characterized by different stages, which have evolved along with the growth and evolution of the industry. Marketing today has various options to offer and no doubt in the case of investment business also marketing plays an important role since it starts from tracing a potential customer who will buy into the scheme/fund and ends when the scheme/fund is finally sold to him.

Product Focus:

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In the beginning the only focus of the marketing strategy was different product offerings. As the concept was new so the companies made things a little simple for the investors so the categorization was primarily based on two factors; one was the way the schemes were traded and the other through different composition of debt and equity securities in the scheme. In the Product Focus stage, the aim of the mutual fund companies was to introduce a wide variety of products and the only way in which a fund used to outperform other fund was: a). the performance of the fund in giving returns to its investors. b). the way in which that particular fund was marketed.

Customer Ownership Focus:

Next stage was customer ownership stage, in this stage mutual fund companies began to segment big and small investors with equal focus. The target segment was broadly divided into institutional segment and individual investor segment. The institutional segment consisted of treasury departments of Corporate and Trusts etc., and suitable products such as Institutional Income schemes and Money Market schemes were targeted at them. The individual investor was in turn divided into various segments such as young families with small or no children, middle-aged People saving for retirement and retired People looking for steady income. Suitable products such as Growth and Balanced schemes for young families and Income schemes for retired people were marketed.

Specialized Product & Service Focus:

Now the product is offered according to the needs of the individual investor. As awareness levels of individual investors go up, focus is on identifying one's investment needs depending on one's financial goals, ability to handle risks, the time horizon individual is ready to be

44

invested. Investors chose companies, which help them in the above through specialized products and services. To sustain in the industry, proper and efficient marketing is vital now.

Marketing Strategies Adopted by Mutual Funds The present marketing strategies of mutual funds can be divided into three main headings: Direct marketing Selling through intermediaries Joint Calls

Direct Marketing: Personal Selling: In this case the customer support officer of the fund at a particular branch takes appointment from the potential prospect. Once the appointment is fixed, the branch officer, also called Business Development Associate (BDA), then meets the prospect and gives him all details about the various schemes being offered by his fund. Telemarketing: In this case the emphasis is to inform the people about the fund. The names and phone numbers of the people are picked at random from telephone

45

directory. Sometimes people belonging to a particular profession are also contacted through phone and are then informed about the fund.

Direct mail: This is one of the most common methods followed by all mutual funds. Addresses of people who want to get information about mutual funds are provided by support system. The customer support officer (CSO) then mails the literature of the schemes offered by the fund. The follow up starts after 3 4 days of mailing the literature. The CSO calls on the people to whom the literature was mailed. Answers their queries and is generally successful in taking appointments with those people. It is then the job of BDA to try his best to convert that prospect into a customer. Advertisements in newspapers and magazines: The funds regularly advertise in business newspapers and magazines besides in leading national dailies. The purpose to keep investors aware about the schemes offered by the fund and their performance in recent past. Hoardings and Banners: In this case the hoardings and banners of the fund are put at important locations of the city where the movement of the people is very high. Internet: Advertisements of new funds and schemes are also posted on popular web sites to spread the awareness. Internet advertisements are generally aimed at younger investors.

Selling through intermediaries: Intermediaries are the distributors who are in direct touch with the investors. They perform an important role in attracting new customers. Most of these intermediaries are also involved in selling shares and other investment instruments. They do a commendable job in convincing investors to invest in mutual funds. A lot depends on the after sale services offered by the intermediary to the customer. Customers prefer to work with those intermediaries who give them right information about the fund and keep them abreast with the latest changes taking place in the market especially if they have any bearing on the fund in which they have invested.

46

Most of the funds conduct monthly/bi-monthly meetings with their distributors. The objective is to hear their complaints regarding service aspects from funds side and other queries related to the market situation. Sometimes, special training programs are also conducted for the new agents/ distributors. Training involves giving details about the products of the fund, their present performance in the market, what the competitors are doing and what they can do to increase the sales of the fund. Joint Calls: This is generally done when the prospect seems to be a high net worth investor. The BDA and the agent (who is located close to the HNIs residence or area of operation) together visit the prospect and brief him about the fund. The conversion rate is very high in this situation, generally, around 60%. Both the fund and the agent provide even after sale services in this particular case. Whenever a top official visits a particular branch office, he devotes at least one to two hours in meeting with the HNIs of that particular area. This generally develops a faith among the HNIs towards the fund. CHALLENGES AND OPPORTUNITIES:

The mutual fund industry in India presents huge challenges as well as opportunities to the marketer. The main aspects of these challenges and opportunities are as followings: Assessing the needs of the investors; Expanding the customer base; Responding to investors needs; Studying the macro environment; Choosing the distribution network; Finalizing strategies for publicity and advertisement; Preparing offer documents and other literature;

47

Getting feedback about sales; Studying performance indicators about fund performance like NAV; Sending certificates in time and other after sales activities; Honoring the commitments made for redemptions and repurchase; Paying dividends and other entitlements; Creating positive image about the fund; Spreading awareness about mutual funds; Creating new markets for mutual funds.

CHAPTER 3

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COMPANY PROFILE

TATA MUTUAL FUND

Tata Mutual Fund (TMF) has been constituted as a Trust in accordance with the provisions of The Indian Trusts Act, 1882 (2 of1882) and is registered as a Trust under The Indian Registration Act,1908.TMF was registered with Securities & Exchange Board of India(SEBI) and commenced operation by launching its first scheme on 30th August 1995. The Trustee Company has appointed Tata Asset Management Limited (TAML) as the Asset Management Company.

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Tata Asset Management Ltd is a part of the Tata group, one of India's largest and most respected industrial groups, renowned for its adherence to business ethics.

The Group has always believed in returning wealth to the society that it serves. Thus, nearly two-thirds of the equity of Tata Sons, the Group's promoter company, is held by philanthropic trusts, which have created a host of national institutions in the natural sciences, medical care, energy and the arts. The trusts also give substantial annual grants and endowments to deserving individuals and institutions in the areas of education, healthcare and social uplift.

By combining ethical values with business acumen, globalization with national interests and core businesses with emerging ones, the Tata Group aims to be the largest and most respected global brand from India. This way, it fulfills its long-standing commitment to improving the quality of life of its stakeholders.

Incorporated in 1994, Tata Asset Management Limited is one of the oldest fund houses in India. Registered with and regulated by the Securities Exchange Board of India, Tata Asset Management Limited manages an asset base of about Rs27,938.11 crore as on 30 April 2008, and serves an investor base of over one million investors. A leading player in the mutual fund arena, Tata Asset Management Limited offers a wide array of products for institutional and individual investors at various life stages across the risk-reward spectrum. The core strength of Tata Asset Management Limited stems not only from its sound systems and processes but also from the quality of its intellectual capital, which is made up of the best and brightest minds. At the same time, the company provides a robust risk management framework with in-built controls and balances.

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The Tata Asset Management philosophy is centered on seeking consistent, long-term results. Tata Asset Management aims at overall excellence, within the framework of transparent and rigorous risk controls. Backed by one of the most trusted and valued brands in India, Tata Mutual Fund has earned the trust of lakhs of investors with its consistent performance and world-class service.

PRODUCTS OFFERED BY TATA MUTUAL FUND Equity Products Schemes Objectives

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Tata Pure Equity Fund

To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. To provide medium to long term capital gains along with income tax relief to its unit holders while emphasizing the importance of capital appreciation. To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. To provide medium to long term capital gains and/or income distribution along with capital gains tax relief to its unit holders, while at all times emphasizing the importance of capital appreciation. To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. To provide medium to long term capital gains to its Unit holders. To provide reasonable and regular income along with possible capital appreciation to its unit holder. To provide reasonable and regular income along with possible capital appreciation to its unit holder. To provide income distribution and / or medium to long term capital gains by investing predominantly in high dividend yield stocks. To provide income distribution and / or medium to long term capital gains by investing predominantly in equity or equity related instrument of companies in infrastructure sector.

Tata Tax Saving Fund

Tata Select Equity Fund

Tata Life Sciences &Tech. Fund

Tata Equity Opportunities Fund

Tata Index Fund Tata Growth Fund

Tata Equity P/E Fund

Tata Dividend Yield Fund

Tata Infrastructure Fund

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53

Tata Service Industries Fund

to provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instrument of companies in the service sector Tata Mid Cap Fund To provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instrument of mid cap companies. Tata Contra Fund To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. Contrarian investing refers to buying into fundamentally sound scripts that have been overlooked by the market (for reasons of short term trend) and waiting for the market to give these stocks their real value in course of time. Tata Tax Advantage Fund- 1 To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. Tata Equity Management Fund To seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related instruments and the secondary objective is to generate consistent returns by investing in debt and money market securities. Tata Capital builder Fund Seeks to generate capital appreciation over a period of 3 years by investing predominantly in equity & equity related instruments of companies across large, mid and small market capitalizations. Tata Indo-Global Infrastructure To generate long term capital appreciation by investing predominantly in equity and equity related instruments of companies engaged in infrastructure and infrastructure related sectors and which are incorporated to have their area of primary activity, in India and other parts of the World. Tata Growing Economies to generate capital appreciation / income by Infrastructure Fund investing predominantly in equities of companies in infrastructure and other related sectors in the growing economies of the world and in India

Table: 3

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Debt Products Schemes Tata Short Term Bond Fund Objectives To provide reasonable returns and high level of liquidity by investing in short- term debt instruments. To generate risk-free return and thus provide medium to long term capital gains and income distribution to its unit holders, while at all times emphasizing the importance of capital preservation. To provide income distribution and/ or medium to long term capital gains while at all times emphasizing the importance of safety and capital appreciation. To provide income/ bonus distribution and / or medium to long-term capital gains while at all times emphasizing the importance of safety and capital appreciation. To generate regular returns by investing in fixed income securities normally maturing in line with the maturity of the respective plans. To provide reasonable and regular monthly income along with possible capital appreciation to its unit holders. To provide reasonable returns and liquidity to the unit holders. To generate stable returns with a low risk strategy by creating a portfolio that is substantially invested in good quality floating rate debt or money market instruments, fixed rate debt or money market instruments swapped for floating returns and fixed rate debt and money market instruments. To create a highly liquid portfolio of good quality debt as well as money market instruments so as to provide reasonable returns and high liquidity to the unit holders.

Tata Gilt Securities Fund

Tata Income Fund

Tata Income Plus Fund

Tata Fixed Horizon Fund

Tata Monthly Income Fund

Tata Dynamic Bond Fund Tata Floating Rate Fund

Tata Liquid Fund

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Tata MIP Plus Fund

To provide reasonable and regular income along with possible capital appreciation to its unit holders To generate stable returns with a low interest rate risk strategy by creating a portfolio that is predominantly invested in good quality floating rate debt instruments, money market instruments and in fixed rate debt instruments which can also be swapped for floating rate returns To generate reasonable returns along with high liquidity and safety by investing in a portfolio of money market and other short term debt instruments. To generate reasonable returns along with liquidity by investing predominantly in a portfolio of money market and other short term debt instruments. To generate returns and / or capital appreciation along with minimization of interest rate risk. In order to achieve its investment objective, the scheme will invest predominantly in a portfolio of Debt & Money market instruments

Tata Floater Fund

Tata Liquidity Management Fund

Tata Treasury Manager Fund

Tata Fixed Income Portfolio Fund

Tata Fixed Investment Plan 1

To generate income and / or capital appreciation by investing in wide range of Debt and Money Market Instruments.

Table: 4

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Balanced Products

Schemes Tata Balanced Fund

Objective To provide income distribution and / or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. To provide long-term capital growth along with steady capital appreciation to its unit holders, while at all times emphasizing the importance of capital preservation.

Tata Young Citizens' Fund

Tata SIP Fund Scheme

To achieve a long term growth. The scheme seeks to achieve its investment objective by investing systematically in Equity / Equity related instruments. Table: 5

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Distribution Channels

Tata Mutual Fund operates by the use of five types of distribution channels:

Banks

Private Banks The Tata Mutual Fund products are pushed by the private banking organizations to its customers, like DCB, HDFC Bank. Public Banks -- with which Tata Mutual Fund has tie-ups. Like SBI, Indian Overseas Bank.

Distribution Houses

National Level Distributors Tie-ups exist with distributors who have a national presence to promote and sell Tata Mutual Fund products to their clients. Like Karvy, ICICI Direct.

Local Level Distributors There also exists distributors who are region specific and they sell to the prospective investors.

Independent Financial Advisors

Independent Financial Advisors are Association of Mutual Fund in India (AMFI) certified agents who work as freelancers. They get registered with Tata Mutual Fund and advice their clients into investing in Tata Mutual Fund products according to their needs.
Direct Selling

Tata Mutual Fund sells its products directly to the walk in customers also. As per SEBI Circular dated 31st December,2007 no entry load shall be charged on the direct purchase/switch in applications accepted by the AMC. So, now it is beneficial for the investors who prefer to directly purchase from Tata Mutual Fund.

58 Internet

Internet is also used as a medium of direct selling by Tata Mutual Fund. An investor of Tata Mutual Fund can purchase any product using the portal of Tata Mutual Fund. All transactions done through this channel are safe and secure.

Overview of Distribution Channels

AMC AMC

Direct Sales Sales es Brokers

Banks

Distribution Houses

Internet

Institutional Brokers

Independent Financial Advisors

Large Corporate Corporate

High Net worth Customers

Retail Customers

Customer Segment

Figure: 7

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The Customer Segment shown in the above diagram is not sacrosanct, sometimes there is overlapping one segment being catered by more than one intermediary. For a country as diverse and widespread as India, the banks are the ideal medium to tap the huge base of investors; it will also provide the necessary push to transform the huge amount of money lying in savings account to be transformed into investments. Tata Mutual Funds tie up with Public Sector Banks, like State Bank of India helps not only in targeting newer customer classes but also in reaching areas that are far-flung and where few intermediaries will care to set up offices.

COMPETITORS OF TATA MUTUAL FUND

The major competitors of Tata Mutual Fund are the private sector Mutual Funds like Reliance, ICICI, Franklin Templeton and HDFC. Also the public sector Mutual Funds that have huge AUM like UTI, LIC, SBI and GIC are threats for Tata Mutual Fund. But if we consider the performance based on the returns generated by the funds then the private sector Mutual Funds out-perform their public sector counterparts by huge margins except for SBI whose fund management for the last couple of years has been one of the best. Also, the promotional campaigns of the private players are more aggressive and they frequently come up with NFOs (New Fund Offering) thus posing an imminent threat to Tata Mutual Fund. But the Mutual Fund Industry as a whole has competition from the equity and debt market of which the investors are more aware. The unawareness of the MF Industry can also be attributed to the fact that the industry is in its nascent state. And the tax planning Mutual Fund schemes have competition from the Insurance schemes, NSCs (National Savings Certificate), PFs (Provident Fund) and Post Office Savings schemes. Even when an investor invests in a tax planning Mutual Fund his main motive remains tax saving and not the returns that he gets in due course of time. And when the investor thinks of returns, he turns towards the equity market which is much more risky and volatile. Therefore the psyche or the perception of the investor needs to be changed; the investor needs to be educated about the benefits of a diversified portfolio and calculated risks of Mutual Funds. It is one of the objectives of Tata Mutual Fund to educate the investors about the benefits of mutual funds. Tata Mutual Fund has been very much successful in this endeavor.

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TATA EQUITY OPPORTUNITIES FUND: A Comparative Analysis

Fund Objective: The fund positioned as stock pickers delight, follows a proactive fund management strategy. The scheme aims to pick up stocks ahead of the market and on an ongoing basis book profits to enter new opportunities. Thus it is focused on capitalizing on opportunities offered by equity markets from time to time. Investments under this scheme will be made in equities of growth value stocks, and there will be an exposure to debt and money market instruments also. Asset Allocation: Tata Equity Opportunities Fund Min Equity & Equity Related Debt (Including Money Market) 80% 0% Max 100% 20%

Table: 6 Latest Statistics and Profile: Tata Equity Opportunities Fund Latest NAV (Rs) 52 week high (Rs) 52-week low (Rs) Fund category Type Launch date Net assets (Rs cr) Benchmark 74.52 (09/05/08) 85.31 51.49 Equity diversified Open ended March 2003 495.42 Sensex

Table: 7

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Sectoral Allocation: Tata Equity Opportunities Fund

Figure: 8

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Performance at a Glance (%) CAGR (as on 30th November, 2007) Scheme Vs. Benchmark Last 1 Year Last 3 Years Last Years Tata Fund BSE Sensex 41.38% 45.90% 43.05% 13.99% Equity Opportunities 62.59% 54.10% 65.08% 5 Since Inception 16.30%

Table: 8 Comparative Analysis: Tata Equity Opportunities Fund vs. Competitors Scheme Tata Equity Opportunity Fund Reliance Equity Opportunity Fund Franklin Opportunities Fund ING Vysya Domestic Opportunities Fund Kotak Opportunities Fund DBS Chola Opportunities Fund Birla India Opportunities Fund Scheme Returns* 41.97 31.89 38.73 34.31 41.20 39.66 20.07 Index Returns** 41.45 41.45 41.45 41.45 41.45 41.45 41.45 *return over 3 years **BSE Sensex Table: 9

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Tata Equity Opportunities Fund has been a constant performer in its category. The funds past performance has been very good and the fund managers stock picking abilities have worked well. In the past, the fund has been successful in overcoming difficulties thrown by unprecedented market fluctuations and the fund managers decision on aggressive equity allocation has paid rich dividends. Tata Equity Opportunities Fund has outperformed its benchmark index consistently. In comparison, very few funds launched by its competitors are able to match its performance. Therefore, ET Quarterly MF Tracker included this fund into Platinum Funds category in Nov 2007.

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CHAPTER 4 METHODOLOGY

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METHODOLOGY

Defining the Project Objective: Background It is widely known that the expectations of the investors play a vital role in the financial markets. The expectations influence the volume of trade, the value of indices and the prices of securities. Hence the beliefs and actions of the investors are crucial for the financial markets. Much of economic and financial theory is based on the notion that individuals act rationally and consider all available information in the decision making process. Investor behavior does not; however, conform to such norms. In practical situations, it is very difficult to explain the effect of beliefs and perception on decision making process of the investors. Investor behavior may also change from time to time, even if other variables influencing investors behavior remain constant. However, with the help of Consumer Behavior, we can understand the why and how aspect of investor behavior; which can have managerial implications. Thus, with this background, this study attempts to analyze the behavioral aspects of fund selection strategy of individual investors. At the same time this study also tries to assess the level of awareness of Mutual Funds among the investors.

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Literature Review Mutual Funds have attracted lots of attention and interest of financial analysts. Several studies have been done to understand the financial behavior of the investors. A study done by Brad M. Barber, Terrance Odean and Lu Zheng, The Behavior of Mutual Fund Investors(2000)1,in which they analyzed the mutual fund purchase and sale decisions of over 30,000 households with accounts at a large U.S. discount broker for the six years ending in 1996. They documented three primary results. First, investors buy funds with strong past performance; over half of all fund purchases occur in funds ranked in the top quintile of past annual returns. Second, investors sell funds with strong past performance and are reluctant to sell their losing fund investments; they are twice as likely to sell a winning mutual fund rather than a losing mutual fund and, thus, nearly 40 percent of fund sales occur in funds ranked in the top quintile of past annual returns. Third, investors are sensitive to the form in which fund expenses are charged; though investors are less likely to buy funds with high transaction fees (e.g., broker commissions or front-end load fees), their purchases are relatively insensitive to a funds operating expense ratio. Another study done by CashmanGeorge D, Deli Daniel N,Nardari Federicko,Villupuram Shriram V, Investor Behavior in the Mutual Fund Industry: Evidence from Gross Flows(2007),2 using a large sample of monthly gross flows from 1997 to 2003, they have uncovered several previously undocumented regularities in investor behavior. First investor purchases and sales produce fund-level gross flows that are highly persistent. Persistence in fund flows dominates performance as a predictor of future fund flows. Also, failing to account for flow persistence leads to incorrect inferences with respect to the relation between performance and flows. Second, they have documented that investors react differently to performance depending on the type of fund, and that investor trading activity produces meaningful differences in the persistence of fund flows across mutual fund types. Third, at least some investors appear to evaluate and respond to mutual fund performance over much shorter time spans than previously assessed. Additionally, they documented

1 2

http://faculty.haas.berkeley.edu/odean/papers/MutualFunds/mfund.pdf http://papers.ssrn.com/sol3/papers.cfm?abstract_id=966360

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differences in the speed and magnitude of investors' purchase and sales responses to performance. DALBAR's 2003 update to the Quantitative Analysis of Investor Behavior (QAIB) 3shows that investors continue to chase investment returns to the detriment of their pocket books. Motivated by fear and greed, investors pour money into equity funds on market upswings and are quick to sell on downturns. Most investors are unable to profitably time the market and are left with equity fund returns lower than inflation. Thus, according to this study, market Chasing Mutual Fund Investors earn less than inflation. L. Franklin Fant, Investment behavior of mutual fund shareholders: The evidence from aggregate fund flows(1999)4.According to this study the relationship of stock market returns with components of aggregate equity mutual fund flows (new sales, redemptions, exchangesin, and exchanges-out) is examined. Vector auto regressions and tests of linear feedback show that the flow-return relationship exists solely between returns and exchanges-in and -out. Further, only exchanges-out is responsible for the contrarian flow behavior noted by Warther (1995). The evidence suggests that the various components reflect different investor objectives and information. The study, Investors Behaving Badly-An Analysis Of Investors Trading Pattern In Mutual Funds5 commissioned by Phoenix Investment Partners, a leading US investment management company ; examines trading patterns in the mutual fund industry and the impact of behavioral finance on investors returns during the 1990s.The research concludes that investor behavior is often detrimental to the long term success of financial plans. The findings expose the negative influence of psychological, emotional, and behavioral drivers on trading activity in mutual funds. The study also finds that investors who use financial advisors tend to experience slightly better results than those who dont rely on professional advice.

3 4

http://www.dalbarinc.com/content/printerfriendly.asp?page=2003071601 http://www.ingentaconnect.com/content/els/13864181/1999/00000002/00000004/art00006 5 Gregory Elmiger, Greg Elmiger, Steve S. Kim, Risk Grade Your Investments: Measure Your Risk & Create Wealth,p. 59.

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Research Objective The research objective is defined as a market research on fund selection behavior of individual investors. The study aims to analyze the following major issues:

To assess the level of awareness of mutual fund among the investors. To assess fund/scheme preference of investors. To evaluate fund/scheme qualities that would affect the selection of Mutual Funds. To understand the preferential feature in the funds among individual investors. To know the importance of various source of information and marketing channels in purchasing investment products. To establish a relationship between types of investors and MF qualities that influence Fund/Scheme selection. To identify the information sources influencing the scheme selection decision of investors. To assess the influence of personal variables on the mutual fund conceptual awareness level of individual investors. To evaluate investor related services that would affect the selection of Mutual funds. To establish a relationship between types of investors and fund qualities that influence Fund/scheme selection.

69

Data and Data Sources Since this is an exploratory research, no specific hypothesis is formulated. To collect the data for exploratory study; survey method is used. A questionnaire was designed to collect the responses from the investors. After designing the questionnaire a pilot study was done on a sample of 20 people. The various reliability tests and sample adequacy tests were performed to check whether I was moving in the right direction. I also had discussions with my Company Guide and Faculty Guide and the changes suggested were incorporated in the questionnaire. After the final draft of the questionnaire was developed; I went ahead with conducting the survey. For data collection questionnaires were filled up during individual interaction. The responses were collected from walk- in customers at Tata Mutual Fund Office at Somajiguda; HDFC (SR Nagar), DCB (ASRao Nagar) & DCB (Abids).The questionnaire was also uploaded on internet to collect the responses. The sample size chosen is round about 105. After data were collected, evaluation of data was done using research methods and software like SPSS & MS Excel. For evaluation, coding of the questions was done and Factor Analysis test was run to obtain the results.

Limitations of the Study: The sample size of 105 may not represent the whole population. Simple Random and judgmental sampling techniques have been adopted due to time and financial constraints; but these are not always perfect. This study has not been conducted over an extended period of time; so it may not capture the market sentiments perfectly.

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Factor Analysis

The analysis of the project is done with the help of the software SPSS with the module Factor Analysis. It is so because factor analysis is the most appropriate method for the analysis of the project with the obtained primary data from investors to meet the project objective. Factor analysis is a technique for discovering patterns among the variables to determine if an underlying combination of the original variables (a factor) can summarize the original set.

This tool of SPSS was extensively used to classify a large number of variables into smaller number of factors. Factor Analysis was used to determine whether there was any common constructs that represented investor concerns. 13 variables were analyzed using the Varimax Algorithm of Orthogonal Rotation, the most commonly used method. Evaluation of the resulting constructs and naming of the factors is largely subjective. Hence, to identify investors underlying Fund/Scheme selection criteria, so as to group them into specific factors, which would further identify Investor types, to enable the designing of appropriate marketing strategies. Principal Component Analysis method was used for Factor Analysis.

71

Explanation of the Analysis

In the Fund/Scheme related qualities, 13 variables were analyzed to extract the factors using Factor Analysis tool of data reduction in SPSS. Bartletts test of sphericity and Kaiser Meyer- Olkin (KMO) measure of sampling adequacy were used to measure the appropriateness of factor analysis.

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig. .550 161.448 78 .000

Table: 10

The approximate chi-square statistic is 161.448 with 78 degrees of freedom, which is significant at .000 levels. The KMO statistic (0.550) is also large (>0.5). Hence factor analysis is considered an appropriate technique for further analysis of data.

The table of communalities shown below gives the extent to which the variance in the variables has been accounted for by the extracted factors. As the table clearly shows, 67% of the variance in brokers advice is taken into consideration. Similarly 72% of the variance in after sales service has been taken into consideration.

72

Communalities

brand record broker's advice expense ratio theme min. investment tax benefits portfolio visibility credit ratings lock in period prompt redemptions after sales

Initial 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000

Extraction .584 .320 .676 .629 .495 .513 .696 .716 .619 .681 .625 .596

1.000 .725 Extraction Method: Principal Component Analysis.

Table: 11

Total Variance Explained Com pone nt

1 2 3 4 5 6 7 8 9 10 11 12 13

Initial Eigen values % of Varianc Cumulati Total e ve % 2.120 16.306 16.306 1.789 1.531 1.346 1.089 .953 .845 .764 .694 .573 .469 .454 13.759 11.779 10.351 8.380 7.330 6.499 5.873 5.336 4.406 3.606 3.495 30.065 41.844 52.195 60.574 67.904 74.403 80.277 85.613 90.019 93.625 97.120

Extraction Sums of Squared Loadings % of Varianc Cumulat Total e ive % 2.120 16.306 16.306 1.789 1.531 1.346 1.089 13.759 11.779 10.351 8.380 30.065 41.844 52.195 60.574

Rotation Sums of Squared Loadings % of Varianc Cumulati Total e ve % 1.941 14.930 14.930 1.793 1.458 1.434 1.249 13.792 11.212 11.032 9.607 28.723 39.934 50.967 60.574

.374 2.880 100.000 Extraction Method: Principal Component Analysis.

Table: 12

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The total variance explained in the table shows the Eigen values which represent the extent of coverage of the critical factors included in the factor analysis. As the table clearly shows; the first factor has the highest significance.

Scree Plot

2.0

Eigenvalue

1.5

1.0

0.5

10

11

12

13

Component Number

Figure: 9

The Scree Plot shown above helped in deciding the number of factors that should be retained. It is evident from the above plot that the curve begins to even out after the extraction of the fifth factor. Therefore only five factors are kept. The Component Matrix given in the table below shows the loadings of the variables on the five extracted factors. The loading value tells about the extent to which the factor contributes to the variable. Loadings less than 0.5 are not shown as the suppress loading less than 0.5 value was entered for factor analysis in SPSS.

74

Component Matrix (a)

Component 1 brand record broker's advice expense ratio theme min. investment tax benefits portfolio visibility credit ratings lock in period prompt redemptions after sales Extraction Method: Principal Component Analysis. a 5 components extracted. .798 .529 .537 -.543 -.640 -.568 -.694 .510 .624 2 3 4 5

Table: 13

Rotated Component Matrix (a)

Component 1 brand record broker's advice expense ratio theme min. investment tax benefits portfolio visibility credit ratings lock in period prompt redemptions after sales Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 10 iterations. .704 .609 .754 .709 .742 .727 .849 .553 -.804 .758 2 3 4 -.566 5

Table: 14

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On the basis of Varimax rotation with Kaiser Normalization, 5 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. The clubbing of the variables into Factors is given below: Variables Factors Brokers advice, Tax benefits, Portfolio of Fund Performance the fund. Visibility of the fund, Credit rating by the Brand Strength agencies. Lock in period, Expense ratio. Brand, Minimum investment, redemptions. After sales support Table: 15 Initial Cost Prompt Intrinsic Fund Qualities After Sales Service

The factors, which investors take into account while selecting a fund or scheme, as given in the table are Fund Performance, Brand Strength, Initial Cost, Intrinsic Fund Qualities and After Sales Service.

Descriptive Analysis

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Age group of Investors

age

10

Percent

0 28 29 30 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 54 55 56 58 59 62

age

Figure: 10

From the above figure, it is quite clear that maximum number of investors falls in the age group of 35-45 while the least in the age bracket of 25-30. The most probable reason behind such an investment pattern can be due to the fact that the youngsters of this generation do not believe much in saving for tomorrow. They spend life lavishly without thinking much for tomorrow. They do not have as such more burden on them or any kind of financial liability towards others. As we can see that maximum is in 35-45 age group it is just because the investors at this stage are generally married & thus have many financial responsibilities towards their family. Though the maximum investment should have been in the age bracket of 25 -35 but it is not so may be due to late marriages that are quite prevalent today.

Mutual Fund Scheme Preference among Individual Investor

77

Type of Funds

15.63%

type
1 2 3 Pies show counts

12.50%

1=Equity Funds 2=Debt Funds 3=Balance Funds

71.88%

Figure: 11

Investors have a plethora of options ranging from Equity funds to Balance funds. Now investors are not offered just plain vanilla schemes but an assorted basket to tune with their risk appetite. Mutual Fund preference for majority of investors is Equity Funds. The preference for growth or any other scheme is also influenced by stock market conditions prevailing at the time of investment decision. As the pie chart shows; around 72% of investors preferred equity funds over debt funds and balance funds. Equity funds are clearly more popular among the investors.

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Source of Information
1.94%

6.80% 6.80%

information medium
1 2 3 4

12.62%

5 6 46.60% Pies show counts

1=Newspaper, 2=Magazines, 3=Internet, 4= Television 5=Agents, 6=Friends, 7=Others

25.24%

Figure: 12

Investors

use some sources to gain awareness regarding investing in Mutual Funds. The

sources in the present study are confined to Newspapers General& Business, Financial Magazines, Television, Brokers/ Agents, Friends and Internet. As the above pie chart clearly shows; around 47% of investors depend on newspapers to get information about mutual funds. Next came, Magazines- which is used by 25% investors to get information about Mutual Funds. Findings of the study reveal that investors attach high priority to published information, thereby preferring Newspapers General& Business and Financial Magazines. This throws light on the possibility that Mutual Fund investors spend time analyzing and examining relevant information before taking any crucial decision.

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Chapter 5 Scope

80

Scope for Development of Mutual Fund Business in India

Mutual funds have opened new vistas to millions of small investors by virtually taking investment to their doorstep. In India, a small investor generally goes for bank deposits, which do not provide hedge against inflation and often have negative real returns. He has limited access to price sensitive information and if available, may not be able to comprehend publicly available information couched in technical and legal jargons. He finds himself to be an odd man out in the investment game. Mutual funds have come, as a much needed help to these investors. Mutual Funds are looked upon by individual investors as financial intermediaries/ low cost. A Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. India has a burgeoning population of middle class now estimated around 300 million. Investments in Banks are liquid and safe, but with the falling rate of interest offered by banks on deposits, it is no longer attractive. Mutual Funds provide the best alternative to fixed deposit schemes if the rate of inflation is adjusted. Viewed in this sense globally India is one of the best markets for Mutual Fund Business. The Indian mutual fund industry has traditionally been faced with an unstable asset composition, a small geographically skewed retail investor base, and a relatively insignificant share of household savings. Till a few years ago, for example, the incomes of most Indians were at levels too modest for mutual funds to be of active interest. This has rapidly receded into history as India seems set to shoulder its way into a more prosperous future and with average incomes in India rising by nearly 30 per cent from the 2004-05 levels. Another reason is that smaller retail investors traditionally have been offered a limited range of investment options and most household savings have been channeled into either low yielding bank deposits or to life insurance policies. This has produced a low risk appetite in the minds of many small investors. portfolio managers who process information, identify investment opportunities, formulate investment strategies, invest funds and monitor progress at a very

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Interest rate subsidies offered by the government as a back door method of selling government paper through various savings schemes offered by India Post have not helped the cause of Mutual Funds as they have parked a significant share of household savings in that direction. In addition to it, the mandatory publicly managed pension and provident funds have consumed over US $50 billion of stable and long-term household savings. The awareness of mutual funds is also very low in India. According to a survey conducted by
Invest India Incomes and Savings Survey 2007; 90 percent of individuals with

incomes in India do not know that mutual funds exist. Of those who are aware, over 30 per cent are unable to recall even a single mutual fund brand. An important part of this survey is that the existing retail mutual fund investor base represents some 18 per cent of the "aware" population. This suggests that the mutual fund investor base can be grown significantly if visibility level among the larger audience, where visibility does not exist, is raised. Therefore, fund houses need to create a mass market for Mutual Funds to increase the base of investors. According to new research posted by IIMS Data works, the mutual fund retail investor base is today at 5.3 million. At a conservative estimate, an additional 34 million individuals, with the capacity and interest to invest up to US $14 billion annually in mutual fund type products already exists in India. However, over 57 per cent (19.6 million) of this population lives in rural areas. For the Mutual Fund industry as a whole, it is penetration rather than performance that has been the bigger challenge. The customer base has grown by almost 300 per cent over the past three years. But this growth has been on a very small base and penetration is still below 3 per cent. In three years, assets under management (AUM) in the Mutual Fund industry have grown at a compounded annual growth rate (CAGR) of 37 per cent from Rs 1,39,616 crore in March 2004 to Rs 3,26,388 crore in March 2007. In the same period, the AUM for equity schemes has grown from Rs 29,362 crore in March 2004 to Rs 132,707 crore in March 2007, a CAGR of 65 per cent. During this period, the Sensex has grown at a CAGR of 35 per cent. This shows that the mutual fund industry has grown faster which is good for now. But there is still huge scope for growth, given the low penetration levels.

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Creating a mass market for mutual funds

Traditionally, most investments in mutual funds have come from the top 20-30 towns. The Mutual Fund industry needs to reach out to new investors to expand the market. Therefore, while most of the new demand from existing mutual fund investors will naturally come from middle and higher income earners, most of the potential mass market for mutual funds is likely to be found mainly among the lower and lower middle income groups. For obvious reasons, this population is unlikely to be of much interest to the existing sales and distribution channels for mutual funds.
Therefore most of these potential investors can instead be reached through the

banking and postal networks. On the ground, promotional activities by the mutual fund industry at a bank or postal branch level also may reap rich dividends as three in four of these customers usually visit their bank at least once a month. It will also help in spreading the awareness of Mutual Funds.

To grow big, Mutual Funds need to turn to small investors. Small investors can be

effectively attracted towards mutual funds by promoting the Systematic Investment Plan (SIP) approach; wherein smaller investors can more easily participate, and in the process spread risks more effectively when doing so.

Some fund houses have taken innovative steps in this direction. ICICI Prudential

Mutual Fund lowered the minimum limit for its systematic investment plan (SIP) to Rs 50 per month in April 2007. In the same year, Reliance Mutual Fund lowered its SIP limit to Rs 100 per month. Earlier, investors in smaller towns used to stay away from the mutual fund industry because of the higher threshold. By lowering the threshold limit, these SIP schemes have provided an entry point to retail investors in smaller towns.

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Prudential ICICI intends to use its existing microfinance infrastructure and customer base of ICICI to educate the investors. Reliance Mutual Fund is planning to use its web world outlets to reach out to the investors in smaller towns. If the mutual fund industry manages to mobilize the necessary effort to bring the huge number of potential investors for whom mutual fund investments are not yet on the radar, the sky could literally be the limit.

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CHAPTER 6 RECOMMENDATIONS & CONCLUSIONS

85

Recommendations:

Mutual Fund houses should continuously design suitable schemes to meet the needs

of the investors. They should also develop the infrastructure to reach to the investors.
More investor service branches should be opened to provide prompt and effective

service .In addition to it, arrangements should be made with banks to provide overthe-counter redemption facility across the country through their banking network.
Mutual fund companies should segment their target customers and position their

various products based on the target segment they propose to address. By proper segmentation and by targeting the right product to the right customer, Mutual Fund companies can hope to win the confidence of their customers.
AMFI should effectively convey the message that among the multitude of investment

options available, Mutual Funds are better geared to offer the balanced mix of return, safety and liquidity to the investors. Negative perceptions about Mutual Funds require to be tackled through appropriate investor education measures. It is suggested that AMFI may set aside a percentage of membership fee that it collects from the AMCs and create a fund for investor education programmes.
Mutual Funds should adopt the technology that reduces the turnaround time for

services like investments, redemptions and transfers and bring them on par with banks in turnaround time.
Mutual Funds should establish friendlier and easily accessible Automated Response

Systems to convey information on products and services. It can be used for grievance redressal also.

86

Conclusion:

There is great opportunity for Mutual Fund companies as there is a rise in number of people who want to invest in share market but dont have time and knowledge to do so, also these people want to take less risk. With booming market and falling interest rate of bank deposits, people see mutual funds as an attractive financial tool which provide a high return rate at lower risk as compared to equity market. But, people are still ignorant about mutual funds and different schemes about mutual funds; hence it is very necessary to educate them about mutual funds. Mutual Fund business requires complete understanding of the peculiarities of the Indian stock market and also the psyche of the small investor. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the scheme preference and selection. It is hoped that the survey findings will have some useful managerial implication for the Mutual Fund Companies in their product designing and marketing. Mutual Fund industry in India has a large untapped market in urban areas besides the virgin markets in semi-urban and rural areas. This market potential can be tapped by scrutinizing investor behavior to identify their expectations and articulate investor's own situation and risk preference.

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CHAPTER 7 APPENDIX

88

Tata Mutual Funds NFO Tata Growing Economies Infrastructure Fund

The new fund offer of Tata Mutual Fund opened on February 18, 2008 and closed on March 18, 2008. The fund aims to invest predominantly in listed equities of companies in infrastructure in growing economies of the world and in India. Tata Growing Economies Infrastructure Fund is India's first infrastructure mutual fund scheme with an option to invest a majority of its assets overseas under Plan A. Infrastructure A Global Perspective An important learning of this era of economic globalization has been the role of quality infrastructure in economic success. It is now evident that building high-quality infrastructure is a pre-requisite for building a globally competitive economy. The success stories built on investment in infrastructure in developed countries and more recently in South East Asia, Middle East and China etc are for all to see. The learning from other countries is helping to focus attention on building quality roads, airports, communication and power networks. Closer home we have witnessed success stories in the Golden Quadrilateral / Delhi Metro / Telecom projects through public-private partnerships. New success stories in the areas of airports, power generation and distribution / SEZs are in the process of taking shape. Thus the infrastructure phenomenon is happening in India and other growing economies. As we have seen economies in their growth phase show a much higher appetite and need for rapid infrastructure development, this has been chosen as the investment theme. The wheels of growing economies move on its infrastructure. Tata Growing Economies Infrastructure Fund offers new opportunities presented by the infrastructure sector across growing economies of the world. The investment focus would be guided by the growth potential and economic factors of growing economies in the infrastructure sector.

89

Advantages of Tata Growing Economies Infrastructure Fund

Advantage of past experience: Tata Mutual Fund has experience in the infrastructure sector through managing the Tata Infrastructure Fund. A pioneering fund: India's first infrastructure mutual fund scheme which can invest a majority of its assets in overseas infrastructure securities under Plan A. Spends on infrastructure in growing economies: Investors can now benefit from wealth creation opportunities through infrastructure projects in growing global economies.

Diversification: Investments made in various growing economies resulting in portfolio diversification and reduction in country specific risks.

90

Important Terms in Mutual Funds

Net Asset Value (NAV) Net Asset Value (NAV) denotes the performance of a particular scheme of a mutual fund. Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day-to-day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme. Expenses Mutual fund investors incur the annual fees and expenses associated with managing a fund. These costs pay for portfolio management, fund administration, daily fund accounting and pricing, and other basic services that funds provide. Other fees and expenses pay for more direct services that make fund investing more convenient for shareholders, such as call centers and websites. All funds incur these two types of operating expenses, which vary from fund to fund depending on many factors, including the type of fund, size of fund, and average amount in a funds shareholder accounts. The expenses proportion under various heads is shown below

Figure: 13

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Entry load The costs of the fund management process that includes marketing and initial costs are charged when you enter the scheme. These charges are termed the entry load, the additional charge we pay when we join a scheme. And if there is no load, the bold font in the new scheme's ad says `No entry load'.

Exit load Just like entry load some funds impose a fee when we leave the scheme, i.e., redeem our units, called the exit load. Loads are usually not flat amounts but have a structure. Needless to say, loads if any are only applicable to open schemes and not close-ended schemes because we can only buy such units from the fund only when the scheme is launched. Note: The maximum entry load a fund house can charge is 6% while the maximum exit load is 4%. But AMCs cannot charge over 7% from investors when entry and exit loads are totaled. (As per SEBI guidelines)

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SPSS Output
Correlation Matrix

Correlation Matrix(a) broke expe bra reco r's nse nd rd advic ratio e brand record broker's advice expense ratio theme min. investme nt Correla tax tion benefits portfolio 1.00 .152 0 .152 1.00 0 credi lock min. tax prompt the portfo visibil t in after investm benef redemp me lio ity ratin peri sales ent its tions gs od -.036 -.212 .119 -.114 -.018 -.458 -.041 -.017 -.189 .048 -.233 -.079 -.292 -.015 .275 .189 .101 .086 .059 .112 -.051 .060 -.106 -.022 .034 -.299 .229 -.152 -.164 -.137 -.230 -.084 .018 -.086 .114 .076 -.123 .005 .056 .070

.155 -.067 .017 .163 -.003 -.18 2 -.18 1

.155 .163 1.000 -.073 -.06 -.003 7 .017 -.182 -.03 .119 6 -.21 -.114 2 -.23 -.079 3

-.073 1.000 .079 -.181 .079 1.00 0 -.18 9

-.018 -.041

1.000

.168

.133

.153 .196 .010

.173

.014

-.458 -.017 .048 -.292 -.015 .275 .060 .034 -.15 2 -.16 4 -.13 7 -.12 3

.168 1.000 .133 .153 .196

.237

.066 .155 -.146 -.246 .000 -.281

-.020

.220

.237 1.000 .066 .155

.005 -.187 .010 .009

visibility .189 .059 credit ratings lock in period .101 .112 .086 -.051

-.246 1.000 .375 .157 .000 -.281 .375 1.000 -.129 .157 -.129 1.00 0

-.106 -.299 -.022 .229

-.098 -.098 .151 .074

.010 -.146

prompt -.23 redempti .018 0 ons after sales a Determinant = .166 -.08 -.086 4

.114

.076

.173 -.020

.005

.010 -.098 .151

1.000

.016

.005

.056 .070

.014

.220

-.187

.009 -.098 .074

.016 1.000

Table: 16

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Rotated Component Matrix

Rotated Component Matrix (a)

Component 1 brand record broker's advice expense ratio theme min. investment tax benefits portfolio visibility credit ratings lock in period prompt redemptions after sales Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 10 iterations. .704 .609 .754 .709 .742 .727 .849 .553 -.804 .758 2 3 4 -.566 5

Table: 17

Component Transformation Matrix

Component Transformation Matrix

2 -.855 .463 .313 .792 .183 .200 .241 .322 .282 .122 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Component 1 2 3 4 5 1 3 .216 -.471 .574 .274 .572 4 -.045 .182 .642 -.732 -.127 5 -.074 -.144 .430 .476 -.750

Table: 18

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Case Processing Summary

Case Processing Summary
Cases Included N Case ID awareness invested reason intend to invest type brand record broker's advice expense ratio theme min. investment tax benefits portfolio visibility credit ratings lock in period prompt redemptions after sales information medium Tata ad age sex marital status academic qualification occupation annual income 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 Percent 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% N 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Excluded Percent .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% .0% N 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 105 Total Percent 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Table: 19

95

Case Summaries Ca Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 se 1 2 3 4 5 6a 6b 6c 6d 6e 6f 6g 6h 7a 7b 7c 7d 7e 8 9 10 11 12 13 14 5 ID 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 2 1 2 1 1 1 2 2 1 1 2 2 2 1 2 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 0 0 2 0 3 0 0 0 3 3 0 0 4 1 3 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 1 0 2 0 0 0 2 2 0 0 1 2 2 0 0 0 0 0 0 0 0 0 2 0 0 0 0 0 0 0 1 1 0 1 0 1 3 3 0 0 1 1 0 0 0 3 0 3 1 1 1 1 1 1 0 1 1 2 2 2 2 3 2 3 0 1 0 1 2 1 0 0 1 1 0 0 0 3 0 1 1 2 2 2 1 1 0 2 2 2 2 1 1 2 2 3 0 1 0 2 2 1 0 0 1 1 0 0 0 2 0 2 1 1 2 2 1 2 0 2 1 1 1 1 1 1 3 2 0 1 0 1 4 5 0 0 1 1 0 0 0 3 0 2 2 2 2 2 2 3 0 2 2 2 2 1 1 1 3 3 0 3 0 5 1 2 0 0 3 2 0 0 0 3 0 3 5 3 3 3 2 2 0 4 2 3 3 3 3 3 2 5 0 3 0 1 4 4 0 0 3 2 0 0 0 3 0 4 4 3 2 2 2 1 0 4 4 4 3 2 3 4 2 1 0 3 0 5 3 2 0 0 2 1 0 0 0 2 0 1 1 2 1 1 2 2 0 2 2 2 1 1 1 1 1 1 0 1 0 3 1 1 0 0 2 1 0 0 0 2 0 1 1 2 2 2 2 2 0 1 1 2 2 2 2 2 1 5 0 2 0 2 2 1 0 0 2 2 0 0 0 2 0 3 4 4 3 3 1 3 0 4 3 3 3 3 3 3 2 2 0 1 0 5 2 2 0 0 2 1 0 0 0 3 0 2 2 2 1 1 3 2 0 1 2 2 2 2 2 2 2 1 0 1 0 2 1 1 0 0 3 1 0 0 0 2 0 1 1 1 1 2 2 1 0 1 1 1 1 1 1 1 1 1 0 4 0 5 1 1 0 0 2 1 0 0 0 2 0 3 2 3 2 1 2 3 0 2 2 3 4 4 3 3 1 2 0 3 0 3 2 2 0 0 2 1 0 0 0 3 0 2 2 2 1 1 2 3 0 3 1 1 1 2 2 2 1 1 0 1 0 2 1 2 0 0 2 2 0 0 0 3 0 2 2 2 1 1 2 3 0 1 1 1 1 1 1 1 1 2 5 1 2 2 1 3 4 6 1 5 6 1 4 3 0 3 3 3 1 1 5 1 0 5 1 1 1 2 2 1 1 50 1 56 2 48 1 59 2 49 2 52 1 59 1 49 2 46 2 52 2 41 2 38 1 37 1 32 2 34 1 35 0 41 1 47 1 38 2 44 2 51 2 39 2 48 1 44 0 49 1 45 2 47 2 39 2 40 1 42 2 40 1 46 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 1 1 1 3 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 3 2 4 3 2 2 2 3 3 2 2 4 4 2 4 2 2 2 3 2 2 3 2 2 2 2 2 2 2 2 2 3 2 2 3 2 2 1 3 4 3 2 2 5 5 1 1 3 1 1 3 1 1 2 3 1 1 3 3 2 2 3 2 2 4 2 2 2 3 2 2 1 3 2 2 1 1 2 2 3 3 3 3 2 2 3 2 3 3 3 3 3 4 3 3

96

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3 3 3 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 3

2 3 3 3 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 1 1 1 2 2 2 2 2

1 1 3 2 2 2 1 1 2 1 2 1 1 1 2 2 1 2 2 1 1 1 1 2 1 1 1 1 1 1 2 1 1 1 1 2 1 1

1 2 2 3 3 2 2 3 1 1 1 2 1 1 1 1 2 2 2 2 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 1

3 3 3 3 3 2 2 2 2 2 1 2 1 2 3 3 3 3 3 3 3 1 2 3 3 3 3 2 2 3 3 3 2 2 2 2 2 2

3 3 3 3 3 1 1 3 4 4 4 5 5 3 5 5 4 2 3 5 2 4 4 4 5 5 5 5 5 5 5 4 4 4 2 3 2 5

1 1 2 2 2 2 2 2 2 2 1 1 1 3 2 2 2 3 3 1 2 2 3 3 3 2 3 2 2 1 1 2 2 2 2 2 3 3

2 1 1 1 1 1 2 2 2 2 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

2 2 2 2 2 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 3 3 3 3 3 3 3 4 4

2 2 3 3 3 3 3 2 2 2 2 3 3 2 2 2 1 1 1 1 1 1 2 2 2 1 1 1 1 2 2 2 3 3 3 3 3 3

1 1 2 2 2 2 2 3 3 2 3 2 3 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 1 1 1 1 2 2 2 2 2 2

3 3 4 2 1 2 1 2 1 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 1 1 1 2 2 2 2 2

1 1 1 1 1 1 1 1 1 1 1 1 2 2 1 1 2 2 1 2 1 2 2 1 2 1 2 1 2 2 2 2 1 1 1 1 1 1

1 1 1 1 1 2 1 1 1 1 2 2 1 2 2 1 2 1 1 1 1 1 2 1 1 2 2 1 1 2 1 2 1 2 1 2 1 2

1 2 1 1 1 1 1 1 1 1 1 1 1 2 1 1 2 2 1 1 2 1 2 1 1 1 1 2 2 3 1 3 3 2 3 1 1 1

2 38 2 35 1 43 1 37 1 46 2 34 2 46 1 44 1 40 2 38 1 39 1 28 1 48 2 52 2 32 1 43 2 38 2 33 2 45 1 38 2 37 1 42 1 39 1 38 1 36 1 37 2 29 1 44 2 40 1 42 2 51 1 35 2 41 1 38 2 52 1 42 2 44 1 47

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1

1 2 1 1 1 2 1 1 1 1 1 1 1 1 2 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1

2 2 2 4 4 4 4 4 4 4 4 4 4 3 3 3 4 4 4 4 4 4 4 4 4 3 3 3 2 3 3 4 4 4 3 3 2 3

3 2 3 1 1 1 1 1 1 1 1 1 1 3 1 2 3 1 1 1 1 1 1 1 1 3 3 3 3 3 3 3 1 1 2 2 2 2

3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 2 3 3 3 3 2 2 3 3 3 3 3 2 3 2 3 3 2 2 3 3

97

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105

71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 10 0 10 1 10 2 10 3 10 4 10

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 3 1 2 3 3 3 1

2 2 2 2 2 2 2 2 2 1 1 2 1 2 1 2 1 1 2 2 2 2 2 2 2 2 2 2 2 1 1 1 1 2 1

2 1 1 1 1 1 1 1 2 1 2 1 2 1 2 1 2 1 2 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 2 1 2 1 2 1 2 3 2 3 2 1 1 2 2 3 1 1 2 2 2 3 1 1

3 3 3 3 3 3 3 3 3 3 3 3 3 2 3 3 2 3 2 3 3 3 3 3 3 3 3 3 3 3 5 3 5 5 4

3 2 4 4 5 4 5 5 5 4 4 4 3 3 5 4 4 4 4 5 5 4 4 5 4 4 4 5 5 3 4 5 5 4 5

3 2 2 2 1 3 2 1 3 1 2 2 1 1 1 3 2 2 2 2 2 1 1 1 1 1 2 1 2 1 2 1 1 1 2

3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 2 1 2 3 1 2 2 1

4 4 4 2 2 4 4 2 2 3 4 4 4 2 2 2 2 4 4 4 3 3 3 3 3 3 3 3 3 3 5 5 4 3 5

3 3 3 2 2 2 2 2 2 3 3 2 2 2 2 2 1 1 3 3 2 2 3 3 2 2 3 3 3 3 2 1 2 2 3

2 2 2 2 1 1 1 1 1 1 3 1 2 1 1 2 2 1 1 1 1 1 1 2 1 1 2 1 2 3 1 1 1 1 1

1 1 1 1 1 1 1 2 2 2 1 1 1 2 2 3 3 3 3 2 3 2 1 3 2 1 2 3 2 1 3 2 2 3 2

1 2 2 1 1 1 1 1 1 2 2 2 1 1 1 1 1 2 2 1 1 1 1 1 1 2 2 2 1 2 1 1 1 1 1

1 1 2 1 3 3 2 3 2 2 1 1 3 3 2 3 2 2 1 1 3 3 1 1 1 1 1 1 1 1 1 1 2 2 2

1 1 4 4 2 4 5 4 3 1 2 2 1 2 3 5 5 3 4 2 2 3 2 1 2 2 1 1 1 2 2 1 1 1 2

2 62 2 42 2 44 2 56 1 45 1 55 2 51 2 52 1 42 2 39 2 48 1 44 1 54 1 52 1 49 2 58 1 51 2 47 1 40 1 30 2 43 1 42 1 45 2 37 2 49 2 51 1 37 2 38 1 42 2 48 2 28 2 43 1 38 1 42 1 48

1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

4 3 3 4 4 4 3 4 4 4 4 3 2 2 2 2 2 2 2 4 3 4 4 3 3 2 2 4 3 3 3 2 2 4 4

1 1 2 2 1 1 2 1 1 1 1 3 5 5 2 1 5 3 3 1 2 1 1 3 5 3 2 1 5 2 3 1 2 3 2

2 3 3 2 2 2 3 3 3 3 3 3 1 1 3 3 1 2 3 3 2 3 3 3 1 3 4 3 2 3 3 2 4 3 3

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5 Tot 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 N 105 al 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Table: 20

Survey Questionnaire
Dear Sir / Madam, This survey asks some questions about Mutual Funds. Your co-operation in answering these questions is greatly appreciated. Part A: Please read the following and give your views by putting a tick mark in the appropriate square. 1. Are you aware of Mutual Funds? 1. Yes 2.No 2. Do you invest in Mutual Funds? 1. Yes 2.No (If Yes, please skip to question number 5 below) 3. If No, what is your reason behind not investing in Mutual Funds? 1. Lack of guidance 3.Risky investment 2. Lack of knowledge 4.others (please specify) __________ 4. Do you intend to invest in Mutual Funds within the next six months? 1. Yes 2.No 5. In which type of funds do you prefer to invest? 1. Equity Funds 2.Debt Funds

3. Balance Funds

6. There are many qualities that could affect your selection of Mutual funds and Specific Schemes. Please indicate importance of the following in your decision. Extremely Important 1 a) Funds reputation or brand Very Important 2 Somewhat Important 3 Somewhat Not Unimportant Important At All 4 5

99 b) Fund performance record c) Brokers advice d) Schemes expense ratio e) Schemes theme of investment f) Minimum initial investment g) Tax benefits h) Portfolio of the Fund 7. Apart from above factors what else influence your decision? Rate on a scale of 1-5 Extremely Important 1 a) Visibility of the Fund b) Credit Rating by Agencies c) Lock in period d) Prompt Redemptions e) After Sales Support Very Important 2 Somewhat Important 3 Somewhat Unimportant 4 Not Important At All 5

8. How did you come to know about Mutual fund investment schemes?
1. Newspapers 2.Magazines 3.Internet 4.Television 5. Agents 6.Friends 7.Others 9. Have you seen the advertisement of Tata Mutual Funds recently launched NFOTATA GROWING ECONOMIES INFRASTRUCTURE FUND? 1. Yes 2.No

Part B: Demographics Name ________________________________________Phone:___________________ 10. Age : __________ 12. Marital Status: 1. Married 13. Academic Qualifications: 1. High School 14. Occupation: 1. Professional 2.Business 3.Salaried 4.Retired 5. Others 2.Graduate 3.Post Graduate 4.Professional Degree 2. Unmarried 11.Sex: 1.Male 2.Female

100 15. Annual Income: 1. below Rs.1, 00,000 2. Rs.3, 00,001-5, 00,000 3.Rs.1, 00,000 3, 00,000 4.Above Rs.5, 00,000

Thank you very much for your kind co-operation and for taking time to complete this Questionnaire.

REFERENCES

i. ii. iii.
iv.

Khan, M.Y. Indian Financial System, 2nd Ed. New Delhi: Tata McGraw Hill, 2002. Malhotra, Naresh K, Marketing Research, 5th Ed. New Delhi: Prentice Hall India, 2006. Zikmund, William G, Exploring Marketing Research, 8th ed. Ohio: Thomson South Western, 2002. How to create a mass market for mutual funds Rediff Money, Sep 29 2007 available on http://www.rediff.com/money/2007/sep/29guest2.htm http://www.tatamutualfund.com/about-us/overview.asp http://www.amfiindia.com/ http://www.indianexpress.com/printerFriendly/29575.html http://www.sec.gov/investor/pubs/inwsmf.htm http://209.85.175.104/search? q=cache:Q2Xe0eGem_QJ:faculty.haas.berkeley.edu/odean/papers/MutualFunds/mfu nd.pdf+behavior+of+mutual+fund+investors+india&hl=en&ct=clnk&cd=2&gl=in

v. vi. vii. viii. ix.

x.

http://www.ingentaconnect.com/content/els/13864181/1999/00000002/00000004/art0 0006 http://www.dalbarinc.com/content/printerfriendly.asp?page=2003071601 http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VHN-3XXCYVG3&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C00005022 1&_version=1&_urlVersion=0&_userid=10&md5=95dabf6395e4d9d3f9d96a144000 3d28

xi. xii.

xiii. xiv.

http://www.fma.org/Chicago/Papers/Bollen_SRI.pdf http://moneytoday.digitaltoday.in/content_mail.php?

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