ABSTRACT

A mutual fund is simply a financial intermediary that allows a group of investors to pool
their money together with a predetermined investment objective. The mutual fund will
have a fund manager who is responsible for investing the pooled money into specific
securities (usually stocks or bonds). When you invest in a mutual fund, you are buying
shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual
funds are one of the best investments ever created because they are very cost efficient and
very easy to invest in (you don't have to figure out which stocks or bonds to buy). By
pooling money together in a mutual fund, investors can purchase stocks or bonds with
much lower trading costs than if they tried to do it on their own. But the biggest
advantage to mutual funds is diversification. 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.

1
 TABLE OF CONTENT

ABSTRACT

1. INTRODUCTION

2. RESEARCH METHODOLOGY

3. LITERATURE REVIEW

4. FINDINGS AND ANALYSIS

5. RECOMMENDATIONS

6. CONCLUSION

7. REFERENCES

8. ANNEXURE

QUESTIONNAIRE

2
 1. INTRODUCTION

Mutual funds have been a significant source of investment in both government and
corporate securities. It has been for decades the monopoly of the state with UTI being the
key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned
insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds
exist, including private and foreign companies. Banks--- mainly state-owned too have
established Mutual Funds (MFs). Foreign participation in mutual funds and asset
management companies is permitted on a case by case basis. UTI, the largest mutual fund
in the country was set up by the government in 1964, to encourage small investors in the
equity market. UTI has an extensive marketing network of over 35, 000 agents spread
over the country. The UTI scrips have performed relatively well in the market, as
compared to the Sensex trend. However, the same cannot be said of all mutual funds. All
MFs are allowed to apply for firm allotment in public issues. SEBI regulates the
functioning of mutual funds, and it requires that all MFs should be established as trusts
under the Indian Trusts Act. The actual fund management activity shall be conducted
from a separate asset management company (AMC). The minimum net worth of an AMC
or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be
penalized for defaults including non-registration and failure to observe rules set by their
AMCs. MFs dealing exclusively with money market instruments have to be registered
with RBI. All other schemes floated by MFs are required to be registered with SEBI.

EMERGENCE OF THE MUTUAL FUND INDUSTRY IN INDIA

The origin of the Indian mutual fund industry can be traced back to 1964 when the Indian
government, with a view to augment small savings within the country and to channelise
these savings to the capital markets, set up the Unit Trust of India (UTI).

The UTI was setup under a specific statute, the Unit Trust of India Act, 1963. The Unit
Trust of India launched its first open-ended equity scheme called Unit 64 in the year
1964, which turned out to be one of the most popular mutual fund schemes in the

3
country. In 1987, the government permitted other public sector banks and insurance
companies to promote mutual fund schemes. Pursuant to this relaxation, six public sector
banks and two insurance companies’ viz. Life Insurance Corporation of India and General
Insurance Corporation of India launched mutual fund schemes in the country.
Subsequently, in 1993, the Securities and Exchange Board of India (SEBI) introduced
The Securities and Exchange Board of India (Mutual Funds) Regulations, 1993, which
paved way for the entry of private sector players in the mutual fund industry. In the
period between 1963 and 1988, when the UTI was the sole player in the industry, the
assets under management grew to about Rs. 67 billion.

In the second phase, between 1988 and 1994, when public sector banks and insurance
companies were allowed to launch mutual fund schemes, the total assets in the mutual
fund industry grew to about Rs. 610 billion with the total number of schemes increasing
to 167 by the end of 1994.

The third phase of the mutual fund industry, which commenced in 1994, witnessed
exponential growth of the industry, with the advent of private players therein. Kothari
Pioneer Mutual fund was the first fund to be established by the private sector in
association with a foreign fund. As on September 30, 2002, the total assets under
management stood at Rs. 1069 billion and the total number of schemes stood at 384.

During the last three and a half decades, UTI has been a dominant player in the mutual
fund industry. The total assets under the management of the UTI as on September 30,
2002 were to the tune of Rs. 442 billion, which amount to almost 41% of the total assets
under management in the domestic mutual fund industry. UTI has witnessed some
erosion of assets pursuant to the last year’s crisis arising on account of its Unit 64
scheme, the scheme with largest amount of assets under management. This was the first
scheme launched by the UTI with a significant equity exposure and the returns of which
was not linked to the market. This resulted in a payment crisis when the stock markets
crashed which resulted in some degree of loss of investors’ confidence in UTI leading to
erosion of its assets under management.

4
This period also gave opportunity to the private players to demonstrate better returns
thereby capturing a significant market share. As by the end of September 30 2002, there
were in all 22 private sector funds (excluding UTI and funds sponsored by banks and
other government institutions) operating in India with total assets under management of
Rs. 529 billion. A list of mutual funds operating in India on September 30,2002 is
attached here to as Annexure 1.

MUTUAL FUND AND TYPES OF MUTUAL FUND

a) What is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
through these investments and the capital appreciation realized by the scheme 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 portfolio at a relatively low cost. The
small savings of all the investors are put together to increase the buying power and hire a
professional manager to invest and monitor the money. Anybody with an investible
surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual
Fund scheme has a defined investment objective and strategy.

5
b) Types of Mutual Funds

This section provides descriptions of the characteristics -- such as investment objective

and potential for volatility of your investment -- of various categories of funds. These
descriptions are organized by the type of securities purchased by each fund: equities,
fixed-income, money market instruments, or some combination of these.

Organization of fund types is done to show how aggressive or conservative they are and
what is the investment objective. Because mutual funds have specific investment
objectives such as growth of capital, safety of principal, current income or tax-exempt
income, one can select one fund or any number of different funds to help investor meet
her specific goals. In general mutual funds fall into these general categories:

1. Equity Funds invest in shares of common stocks.

2. Fixed-Income Funds invest in government or corporate securities which offer

fixed rates of return.

3. Balanced Funds invest in a combination of both stocks and bonds.

4. Money Market Funds for high stability of principal, liquidity and income.

5. Bond Funds, both tax-exempt and taxable funds to generate income.

6
 6. Specialty/Sector Funds to diversify holdings within an industry.

Equity Funds

i. Aggressive Growth Funds

These funds seek maximum growth of capital with secondary emphasis on

dividend or interest income. They invest in common stocks with a high potential
for rapid growth and capital appreciation.

Because they invest in stocks which can experience wide swings up or down,
these funds have a relatively low stability of principal. They often invest in the
stocks of small emerging growth companies and generally provide low current
income because these companies usually reinvest their profits in their businesses
and pay small dividends, if any. Aggressive growth funds generally incur higher
risks than growth funds in an effort to secure more pronounced growth. These
funds may invest in a broad range of industries or concentrate on one or more
industry sectors. Some use borrowing, short-selling, options and other speculative
strategies to leverage their results.

This type of mutual fund is suitable for investors who can assume the risk of
potential loss in value of their investment in the hope of achieving substantial and
rapid gains. They are not suitable for investors who must conserve their principal
or who must maximize current income.

ii)

Growth Funds

Generally invest in stocks for growth rather than current income. Growth funds
are more likely to invest in well-established companies where the company itself
and the industry in which it operates are thought to have good long-term growth
potential.

Growth funds provide low current income, but the investor's principal is more
stable than it would be in an aggressive growth fund. While the growth potential
may be less over the short term, many growth funds have superior long-term

7
 performance records. They are less likely than aggressive growth funds to invest
in smaller companies which may provide short-term substantial gains at the risk
of substantial declines.

Although growth funds are more conservative than aggressive growth funds, they
are still relatively volatile. They are suitable for growth-oriented investors but not
investors who are unable to assume risk or who are dependent on maximizing
current income from their investments.

iii) International/Global Funds

International funds seek growth through investments in companies outside India.

Global funds seek growth by investing in securities around the world, including
India. Both provide investors with another opportunity to diversify their mutual
fund portfolio, since foreign markets do not always move in the same direction as
India.

The best way to invest abroad is through mutual funds, rather than direct
investment in a foreign security. Most investors are unfamiliar with foreign
investment practices and currencies and may not have a clear understanding of
how economic or political events can affect foreign securities. An investor in an
international mutual fund doesn't have to worry about trading practices,
recordkeeping, time zones or other laws and customs of a foreign country -- that
is all handled by the fund's money manager.

International and global funds can invest in common stocks or bonds of foreign
firms and governments. Many international funds invest in a particular country or
region of the world.

While international and global funds offer opportunities for growth and
diversification, these types of funds do carry some additional risks over domestic
funds and should be carefully evaluated and selected according to the investor's
objectives, timeframe and risk profile. Because most international and global
funds are considered to be aggressive growth funds or growth funds, investors
must be willing to assume the risk of potential loss in value in the hope of

8
 achieving substantial gains. They are not suitable for investors who must conserve
their principal or maximize current income.

iv) Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current
income. The investment strategies used to reach these goals vary among funds.

Some invest in a dual portfolio consisting of growth stocks and income stocks, or
a combination of growth stocks, stocks paying high dividends, preferred stocks,
convertible securities or fixed-income securities such as corporate bonds and
money market instruments. Others may invest in growth stocks and earn current
income by selling covered call options on their portfolio stocks.

Growth and income funds have low to moderate stability of principal and
moderate potential for current income and growth. They are suitable for investors
who can assume some risk to achieve growth of capital but who also want to
maintain a moderate level of current income.

1. Fixed-Income Funds

The goal of fixed income funds is to provide high current income consistent with
the preservation of capital. Growth of capital is of secondary importance.

Income funds that invest primarily in common stocks are classified as equity
income funds. Those that invest primarily in bonds and preferred stocks are
classified as fixed-income funds. These funds invest in corporate bonds or
government-backed mortgage securities that have a fixed rate of return.

Since bond prices fluctuate with changing interest rates, there is some risk
involved despite the fund's conservative nature. When interest rates rise, the
market price of fixed-income securities declines and so will the value of the
income funds' investments. Conversely, in periods of declining interest rates, the
value of fixed-income funds will rise and investors will enjoy capital appreciation
as well as income.

9
 Fixed-income funds offer a higher level of current income than money market
funds, but a lower stability of principal. They are generally more stable in price
than funds that invest in stocks. Within the fixed-income category, funds vary
greatly in their stability of principal and in their dividend yields. High-yield funds,
which seek to maximize yield by investing in lower-rated bonds of longer
maturities, entail less stability of principal than fixed-income funds that invest in
higher-rated but lower-yielding securities.

Some fixed-income funds seek to minimize risk by investing exclusively in

securities whose timely payment of interest and principal is backed by the full
faith and credit of Indian Government. These include securities like various
Treasury bills, government dated securities, etc.

Fixed-income funds are suitable for investors who want to maximize current
income and who can assume a degree of capital risk in order to do so. Again,
carefully read the prospectus to learn if a fund's investment policy with respect to
yield and risk coincides with your own objectives.

2. Balanced/Equity Income funds

Equity income funds seek high current yield by investing primarily in equity
securities of companies which pay high dividends. Unlike interest payments on
bonds, dividends on equity securities can change as companies raise or lower their
dividends. Since yield-oriented stocks are more volatile than comparably rated
fixed-income securities, equity income funds offer less stability of principal than
fixed-income funds. Balanced funds are more evenly invested in equities and
income securities.

Balanced and equity income funds are suitable for conservative investors who
want high current yield with some growth.

3. Money Market Funds

10
 For the cautious investor, these funds provide a very high stability of principal
while seeking a moderate to high current income. They invest in highly-liquid,
virtually risk-free, short-term debt securities of agencies of the Government,
banks and corporations and Treasury Bills. They have no potential for capital
appreciation.

Tax-exempt money market funds invest in securities that provide safety of

principal, liquidity and income exempt from federal income taxes by investing in
short-term, high-rated municipal obligations.

Because of their short-term investments, money market mutual funds are able to
keep a constant share price; only the yield fluctuates. Therefore, they are an
attractive alternative to bank accounts. With yields that are generally competitive
with -- and usually somewhat higher than -- yields on bank certificates of deposit
(CDs), they offer several advantages:

o Money can be withdrawn any time without penalty. Money market funds
also offer check writing privileges.

o Money market funds invest only in highly-liquid, short-term, top-rated

money market instruments.

o Money market funds are suitable for conservative investors who want high
stability of principal and moderate current income with immediate liquidity.

Money market funds are suitable for conservative investors who want high
stability of principal and moderate current income with immediate liquidity.

4. Municipal Bond Funds

Municipal bond funds provide higher tax-exempt income than tax-exempt money
market funds by investing in longer-maturity (and often lower-rated) securities, which
generally offer higher yields than the short-term, high-rated securities in which tax-
exempt money market funds invest. Municipal bond funds vary greatly in the quality
and maturity of the municipal bonds they invest in. The longer the maturity, the

11
 higher the yield. Also, the lower the credit rating of the issuer, the greater is the risk
and the higher the yield.

While municipal bond funds generally provide lower yields than income funds with debt
obligations of similar maturities and ratings, for an investor in a high marginal tax
bracket the after-tax yields of municipal bond funds will be higher. The price and yield of
municipal bond funds will fluctuate moderately with interest rates. As interest rates
decline, the value of principal increases while yield decreases; as rates increase, bond
prices decline but yields increase.

Suitable for investors in medium to higher tax brackets who want current income free
from federal income tax.

5. Double & Triple Tax-Exempt Bond Funds

These bond funds provide the investor with an even greater tax advantage by investing in
municipal bonds of a single state. Triple tax-exempt funds are exempt from income tax in
a specific city. Thus they generate income exempt from not only federal income tax but
also from state and/or city income tax for residents of those jurisdictions. Like all bond
funds, the value of the shares will fluctuate with interest rates, as will the current yield.
Also, the stability of principal and yield levels varies with the quality and maturity length
of the bonds in which the funds invest. Lack of geographic diversification increases credit
risk of these funds compared with national funds.

These funds are suitable for investors in medium to high tax brackets in high tax states
who want income with maximum exemption from taxes.

6. Specialty/Sector Funds

These funds invest in securities of a specific industry or sector of the economy such as
health care, high technology, leisure, utilities or precious metals. Because such funds
invest primarily in one sector, they do not offer the element of downside risk protection
found in mutual funds that invest in a broad range of industries. However, the funds do

12
enable investors to diversify holdings among many companies within an industry, a more
conservative approach than investing directly in one particular company. Sector funds
offer the opportunity for sharp capital gains in cases where the fund's industry is "in
favor" but also entail the risk of capital losses when the industry is out of favor.

While sector funds restrict holdings to a particular industry, other specialty funds such as
index funds give investors a broadly-diversified portfolio and attempt to mirror the
performance of various market averages. Index funds generally buy shares in all the
companies composing the S&P 500 Stock Index or other broad stock market indices.

Asset allocation funds move funds among a variety of markets and instruments in
response to the fund manager's view of relative market prospects. They are broadly
diversified and sometimes have higher management fees since there may be a variety of
securities in the portfolio. These funds are suitable for investors, who can tolerate a
moderate to high degree of risk, are seeking capital appreciation and to whom dividend
income is secondary in importance. And whatever the instruments, social responsibility
funds apply moral and ethical as well as economic principles in the selection of
securities.

Specialty funds are suitable for investors seeking to invest in a particular industry who
can monitor industry performance regularly and alter investment strategies accordingly.
Investors must be willing to assume the risk of potential loss in value of their investment
in the hope of achieving substantial gains. They are not suitable for investors who must
conserve their principal or maximize current income.

c) Types of Mutual Funds Best Suited to Particular Investment Objective.

Capital Potential
Basic Funds’ Potential
Fund Type Appreciation Current
Objective Investment Risk
Income

13
 Aggressive
Growth
Common
stocks with
potential for
Maximum
very rapid High to
Capital International Very High Very Low
growth. May Very High
Growth
employ certain
aggressive

Growth strategies

Specialty/
sector

Common
stocks with
High Capital International High to Very
long-term Very Low High
Growth High
growth
Growth & potential
Income

Common
Current stocks with
Income & Fixed potential for Moderate
Moderate Moderate
Capital Income high dividends to High
Growth and capital
appreciation

14
 Equity
Income
Both high-
High
dividend- High to Low to
Current General Very Low
paying stocks Very High Moderate
Income Money & bonds
Market
Funds

Current
Tax-Exempt Money market Moderate
Income & None Very Low
Money instruments to High
Protection of
Market
Principal

Tax-Free Short-term
Income & U.S. municipal None Moderate
Low
Protection of notes and to High
Principal bonds
Government U.S. Treasury
Current
Money and agency
Income &
Market issues Moderate
Maximum None Low
guaranteed by to High
Safety of Municipal
the U.S.
Principal Bonds
Government

Double &
Tax-Exempt A broad range Low to Moderate Low to
Triple Tax-
Income of municipal Moderate to High Moderate
Exempt
bonds

15
d) The Benefits of Mutual Funds

1. Professional Investment Management.

By pooling the funds of thousands of investors, mutual funds provide full-time, high-
level professional management that few individual investors can afford to obtain
independently. Such management is vital to achieving results in today's complex markets.
The fund managers’ interests are tied to investors’ interest, because their compensation is
based not on sales commissions, but on how well the fund performs. These managers
have instantaneous access to crucial market information and are able to execute trades on
the largest and most cost-effective scale. In short, managing investments is a full-time job
for professionals.

2. Diversification.

Mutual funds invest in a broad range of securities. This limits investment risk by
reducing the effect of a possible decline in the value of any one security. Mutual fund
shareowners can benefit from diversification techniques usually available only to
investors wealthy enough to buy significant positions in a wide variety of securities.

3. Low Cost.

If investor tries to create her own diversified portfolio of 50 stocks, she needs at least
Rs.1,00,000 and pays thousands of rupees in commissions to assemble a portfolio.
Mutual fund lets investor participate in a diversified portfolio for as little as Rs.1,000 and
sometimes less. And if investor buys a no-load fund, then pays no sale charges to own
them.

4. Conveniences and Flexibility.

Investor owns just one security rather than many, yet enjoy the benefits of a diversified
portfolio and a wide range of services. Fund managers decide what securities to trade,

16
clip the bond coupons, collect the interest payments and see that dividends on portfolio
securities are received and investors’ are rights exercised. It's easy to purchase and
redeem mutual fund shares, either directly online or with a phone call.

5. Quick, Personalized Service.

Most funds now offer extensive websites with a host of shareholder services for
immediate access to information about investors’ fund accounts. Or a phone call puts an
investor in touch with a trained investment specialist at a mutual fund company who can
provide information investor can use to make her own investment choices, assist her with
buying and selling her fund shares, and answer questions about her account status.

6. Ease of Investing

Investor may open or add to her account and conduct transactions or business with the
fund by mail, telephone or bank wire. Investor can even arrange for automatic monthly
investments by authorizing electronic fund transfers from her checking account in any
amount and on a date she choose. Also, many of the companies allow account
transactions online.

7. Total Liquidity, Easy Withdrawal

Investor can easily redeem her shares anytime she needs cash by letter, telephone, bank
wire or check, depending on the fund. Investor’s proceeds are usually available within a
day or two.

8. Life Cycle Planning

With no-load mutual funds, investor can link her investment plans to future individual
and family needs -- and make changes as her life cycles change. Investor can invest in
growth funds for future college tuition needs, then move to income funds for retirement,
and adjust her investments as needs change throughout her life. With no-load funds, there
are no commissions to pay when investor change her investments.

9. Market Cycle Planning

17
For investors who understand how to actively manage their portfolio, mutual fund
investments can be moved as market conditions change. Investor funds in equities when
the market is on the upswing and move into money market funds on the downswing or
take any number of steps to ensure that her investments are meeting her needs in
changing market climates. Since it is impossible to predict what the market will do at any
point in time, staying on course with a long-term, diversified investment view is
recommended for most investors.

10. Investor Information

Shareholders receive regular reports from the funds, including details of transactions on a
year-to-date basis. The current net asset value of investors shares (the price at which you
may purchase or redeem them) appears in the mutual fund price listings of daily
newspapers. Investor can also obtain pricing and performance results for the all mutual
funds at this site, or it can be obtained by phone from the fund.

11. Periodic Withdrawals

If investor wants steady monthly income, many funds allow her to arrange for monthly
fixed checks to be sent to her, first by distributing some or all of the income and then, if
necessary, by dipping into her principal.

12. Dividend Options

Investor can receive all dividend payments in cash. Or investor can have them reinvested
in the fund free of charge, in which case the dividends are automatically compounded.
This can make a significant contribution to investor’s long-term investment results. With
some funds investors can elect to have their dividends from income paid in cash and
capital gains distributions reinvested.

13. Automatic Direct Deposit

Investor can usually arrange to have regular, third-party payments -- such as Social
Security or pension checks -- deposited directly into investor’s fund account. This puts
investor’s money to work immediately, without waiting to clear her checking account,
and it saves one from worrying about checks being lost in the mail.

18
14. Safekeeping

When investor own shares in a mutual fund, she own securities in many companies
without having to worry about keeping stock certificates in safe deposit boxes or sending
them by registered mail. Investor doesn’t even have to worry about handling the mutual
fund stock certificates; the fund maintains her account on its books and sends one
periodic statements keeping track of all her transactions.

15. Online Services

The internet provides a fast, convenient way for investors to access financial information.
A host of services are available to the online investor including direct access to no-load
companies.

17. Asset Management Accounts

These master accounts, available from many of the larger fund groups, enable an investor
to manage all her financial service needs under a single umbrella from unlimited check
writing and automatic bill paying to discount brokerage and credit card accounts.

STRUCTURE OF A MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and a custodian. The trust is established by a sponsor or
more than one sponsor who is like a promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit-holders. The AMC, approved by SEBI,
manages the funds by making investments in various types of securities. The 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.

19
A typical mutual fund structure in India can be graphically represented as follows:

REGULATORY REGIME

A mutual fund is a fund established in the form of a trust to raise monies through the sale
of units to the public or a section of the public under one or more schemes for investing
in securities, including money market instruments. The regulation of mutual funds
operating in India falls under the purview of the authority of the Securities and Exchange
Board of India (SEBI). Any person proposing to set up a mutual fund in India is required,
under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996
(Mutual Fund Regulations), to be registered with the SEBI.

a. Mutual Fund

The Mutual Fund Regulations lay down several criteria that need to be fulfilled in order
to be granted registration as a mutual fund. Every mutual fund must be registered with
SEBI and must be constituted in the form of a trust in accordance with the provisions of
the Indian Trusts Act, 1882. The instrument of trust must be in the form of a deed

20
between the sponsor and the trustees of the mutual fund duly registered under the
provisions of the Indian Registration Act, 1908.

b. Sponsor

The sponsor is required, under the provisions of the Mutual Fund Regulations, to have a
sound track record, a reputation of fairness and integrity in all his business transactions
additionally; the sponsor should contribute at least 40% to the net worth of the AMC.
However, if any person holds 40% or more of the net worth of an AMC shall be deemed
to be a sponsor and will be required to fulfill the eligibility criteria specified in the
Mutual Fund Regulations. The sponsor or any of its directors or the principal officer
employed by the mutual fund should not be guilty of fraud, not be convicted of an
offence involving moral turpitude or should have not been found guilty of any economic
offence.

c. Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two thirds of
the trustees should be independent persons who are not associated with the sponsors in
any manner whatsoever. An AMC or any of its officers or employees are not eligible to
act as a trustee of any mutual fund. In case a company is appointed as a trustee, then its
directors can act as trustees of any other trust provided that the object of such other trust
is not in conflict with the object of the mutual fund. Additionally, no person who is
appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual
fund unless he is an independent trustee and prior approval of the mutual fund of which
he is a trustee has been obtained for such an appointment.

The trustees are responsible for - inter alia - ensuring that the AMC has all its systems in
place, all key personnel, auditors, registrars etc. have been appointed prior to the launch
of any scheme. It is also the responsibility of the trustees to ensure that the AMC does not
act in a manner that is favorable to its associates such that it has a detrimental impact on
the unit holders, or that the management of one scheme by the AMC does not
compromise the management of another scheme. The trustees are also required to ensure
that an AMC has been diligent in empanelling and monitoring any securities transactions

21
with brokers, so as to avoid any undue concentration of business with any broker. The
Mutual Fund Regulations further mandates that the trustees should prevent any conflicts
of interest between the AMC and the unit holders in terms of deployment of net worth.

The trustees are also responsible for ensuring that there is no change carried out in the
fundamental attributes of any scheme or the trust or fees and expenses payable or any
other change that would modify the scheme and affect the interest of unit holders, unless
each unit holder is provided with written communication thereof. In addition, the unit
holders must be given the option to exit at the prevailing Net Asset Value (“NAV”)
without any exit load. They are obliged to perform a quarterly review of all transactions
carried out between the mutual funds, AMC and its associates. As far as professional
indemnity cover for the trustees or the AMC is concerned, industry practice in India
reveals that the insurance policy is taken out by an Indian insurance company (as is
required by the Insurance Act, 1938) while the risk is subsequently ceded to an overseas
re-insurer who underwrites the primary policy issued by the Indian insurance company.

d. Asset Management Company

The sponsor or the trustees are required to appoint an AMC to manage the assets of the
mutual fund. Under the Mutual Fund Regulations, the applicant must satisfy certain
eligibility criteria in order to qualify to register with SEBI as an AMC:

o the sponsor must have at least 40% stake in the AMC;

o the directors of the AMC should be persons having adequate professional

experience in finance and financial services related field and not found guilty of
moral turpitude or convicted of any economic offence or violation of any
securities laws;

o the AMC should have and must at all times maintain, a minimum net worth of Rs.
100 million;

o the board of directors of such AMC has at least 50% directors, who are not
associate of, or associated in any manner with, the sponsor or any of its
subsidiaries or the trustees;

22
 o the Chairman of the AMC is not a trustee of any mutual fund.

In addition to the above eligibility criteria and other on going compliance requirements
laid down in the Mutual Fund Regulations, the AMC is required to observe the following
restrictions in its normal course of business:

o any director of the AMC cannot hold office of a director in another AMC unless
such person is an independent director and the approval of the board of the AMC
of which such person is a director, has been obtained;

o the AMC shall not act as a trustee of any mutual fund;

o the AMC cannot undertake any other business activities except activities in the
nature of portfolio management services, management and advisory services to
offshore funds, pension funds, provident funds, venture capital funds,
management of insurance funds, financial consultancy and exchange of research
on commercial basis if any of such activities are not in conflict with the activities
of the mutual fund; However, the AMC may, itself or through its subsidiaries,
undertake such activities if it satisfies the Board that the key personnel of the asset
management company, the systems, back office, bank and securities accounts are
segregated activity wise and there exist systems to prohibit access to inside
information of various activities.

o the AMC shall not invest in any of its schemes unless full disclosure of its
intention to invest has been made in the offer. However, an AMC shall not be
entitled to charge any fees on its investment in that scheme.

The AMC is required to take all reasonable steps and exercise due diligence to ensure
that the investment of funds pertaining to any scheme are not contrary to the provisions
of the Mutual Fund Regulations and the trust deed. An AMC cannot, through any broker
associated with the sponsor, purchase or sell securities, which is an average of 5% or
more of the aggregate purchases and sale of securities made by the mutual fund in all its
schemes. However, the aggregate purchase and sale of securities excludes the sale and
distribution of units issued by the mutual fund and the limit of 5% shall apply only for a
block of any three months.

23
 e. Custodian

The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian
to carry out the custodial services for the schemes of the fund. Only institutions with
substantial organizational strength, service capability in terms of computerization, and
other infrastructure facilities are approved to act as custodians. The custodian must be
totally delinked from the AMC and must be registered with SEBI. Under the Securities
and Exchange Board of India (Custodian of Securities) Guidelines, 1996, any person
proposing to carry on the business as a custodian of securities must register with the
SEBI and is required to fulfill specified eligibility criteria. Additionally, a custodian in
which the sponsor or its associates holds 50% or more of the voting rights of the share
capital of the custodian or where 50% or more of the directors of the custodian represent
the interest of the sponsor or its associates cannot act as custodian for a mutual fund
constituted by the same sponsor or any of its associate or subsidiary company.

f. Schemes

Under the Mutual Fund Regulations, a mutual fund is allowed to float different schemes.
Each scheme has to be approved by the trustees and the offer document is required to be
filed with the SEBI. The offer document should contain disclosures which are adequate
enough to enable the investors to make informed investment decision, including the
disclosure on maximum investments proposed to be made by the scheme in the listed
securities of the group companies of the sponsor. If the SEBI does not comment on the
contents of the offering documents within 21 days from the date of filing, the AMC
would be free to issue the offer documents to public.

There are obligations on the AMC and the trustee to ensure that the statements made in
the offer documents are true and correct. The AMC is also required to provide an option
to the unit-holder to nominate a person in whom the units held by him shall vest in the
event of his death. SEBI has also prescribed an Advertising Code that has to be observed
while launching a new scheme.

Close-ended schemes are required to be listed on a recognized stock exchange within six
months from the closure of the subscription. However, this requirement is not mandatory

24
if the scheme provides for periodic repurchase facility to all the unit-holders or monthly
income or caters to special classes of persons, if the details of such repurchase facility are
clearly disclosed in the offer document or if the scheme opens for repurchase within a
period of six months from the closure of subscription. The units of close-ended scheme
may be converted into open-ended scheme if the offer document of such scheme
discloses the option and the period of such conversion or if the unit-holders are provided
with an option to redeem their units in full. A close-ended scheme is required to be fully
redeemed at the end of the maturity period. However, a close-ended scheme may be
allowed to be rolled over if the purpose, period and other terms of the roll over and all
other material details of the scheme including the likely composition of assets
immediately before the roll over, the net assets and NAV of the scheme, are disclosed to
the unit-holders and a copy of the same has been filed with SEBI. Additionally, such a
roll over would be permitted only in case of those unit-holders who have expressed their
consent in writing and the unit-holders who do not opt for the roll over or have not given
written consent shall be allowed to redeem their holdings in full at NAV based price.

The SEBI has restricted a mutual fund from giving guaranteed returns in a scheme unless
such returns are fully guaranteed by the sponsor or the AMC or a statement indicating the
name of the person who will guarantee the return is made in the offer document or the
manner in which the guarantee to be met has been stated in the offer document.

g. Investment Criteria

The Mutual Fund Regulations lay down certain investment criteria that the mutual funds
need to observe. There are certain restrictions on the investments made by a mutual fund.
These restrictions are listed down as Annexure 2 to this paper.

The moneys collected under any scheme of a mutual fund shall be invested only in
transferable securities in the money market or in the capital market or in privately placed
debentures or securitised debts. However, in the case of securitised debts, such fund may
invest in asset backed securities and mortgaged backed securities. Furthermore, the
mutual fund having an aggregate of securities which are worth Rs.100 million
(approximately USD 2.15 million) or more shall be required to settle their transactions
through dematerialized securities.

25
In addition to the above, mutual funds are not permitted to borrow money from the
market except to meet temporary liquidity needs of the mutual funds for the purpose of
repurchase, redemption of units or payment of interest or dividend to the unit holders.
Even such borrowing cannot exceed 20% of the net asset of a scheme and the duration of
such a borrowing cannot exceed a period of six months. Similarly, a mutual fund is not
permitted to advance any loans for any purpose. A mutual fund is permitted to lend
securities in accordance with the Stock Lending Scheme of SEBI. The funds of a scheme
are prohibited from being used in option trading or in short selling or carry forward
transactions. However, SEBI has permitted mutual funds to enter into derivative
transactions on a recognized stock exchange for the purpose of hedging and portfolio
balancing and such investments in derivative instruments have to be made in accordance
with SEBI Guidelines issued in this regard.

h. Limitation of Fees and Expenses

The Mutual Fund Regulations lay down certain restrictions on the fees that can be
charged by the AMC and also caps the expenses that can be loaded on to the Fund. The
AMC can charge the mutual fund with investment and advisory fees subject to the
following restrictions:

(i) One and a quarter of one per cent of the weekly average net assets outstanding in each
accounting year for the scheme concerned, as long as the net assets do not exceed Rs. 1
billion, and

(ii) One per cent of the excess amount over Rs. 1 billion, where net assets so calculated
exceed Rs. 1 billion.

For schemes launched on a no load basis, the AMC can collect an additional management
fee not exceeding 1% of the weekly average net assets outstanding in each financial year.
In addition to the aforesaid fees, the AMC may charge the mutual fund with the initial
expenses of launching the schemes and recurring expenses such as marketing and selling
expenses including agents’ commission, if any, brokerage and transaction cost, fees and
expenses of trustees, audit fees, custodian fees etc.

26
The Mutual Fund Regulations also lay down a cap on the initial expense and the ongoing
expense that can be borne by a scheme. In respect of a scheme, initial expenses, they
cannot exceed 6% of the initial resources raised under that scheme and any excess over
the 6% initial issue expense shall be borne by the AMC. Ongoing expenses (excluding
issue or redemption expenses) including the investment management and advisory fee
cannot exceed the following limits:

i) On the first Rs.100 crores of the average weekly net assets - 2.5%

ii) On the next Rs.300 crores of the average weekly net assets - 2.25%

iii) On the next Rs.300 crores of the average weekly net assets - 2.0%

iv) On the balance on the assets - 1.75%

In addition to the above provisions, the Mutual Fund Regulations lay down several
compliance / filing requirements pertaining to reporting to the SEBI, guidelines for
calculation of Net Asset Value, disclosure requirements, accounting norms, etc.

27
 2. RESEARCH METHODOLOGY

This thesis is basically a compilation and profound analysis of the primary and secondary
data will be collected from varied sources, pertaining to the focus of study. The study has
been a combination of field research as well as desk research. Embodied in the report
data will be collected from secondary sources comprising the libraries. Specific and
categorical articles, EPCs, government notifications, trade journals and magazines.

Data Collection :

Primary data is collected from :

 Questionnaire Surveys.

Secondary data is collected from :

 Search engines including thomson, hoovers, reuters, factiva, bloomberg

 Magazines and journals, books and Internet.

 Case studies

28
 OBJECTIVES OF THE STUDY

• To find about Indian scenario of mutual fund

• The Mutual Fund Industry is fast gaining popularity in today’s unpredictable financial
scenario. It is emerging as one of the most lucrative investment options. The primary
objective of the project is to gain detailed insight into this Industry.

• To recent trends in mutual funds industry.

• To evaluate types of Mutual Funds

29
 3. LITERATURE REVIEW

MUTUAL FUND

What is Mutual Fund?

We have discussed the concept of mutual funds earlier. To revise mutual funds are
financial intermediaries/investment institutions which act as investment conduit. Mutual
Funds are associate of trusts of people (public members) who wish to make investments
in the financial instruments or assets of the business sector or corporate sector for mutual
benefit of its members. The funds collects the money of these members from their
savings and invests them in a diversified portfolio of financial assets with a view to
reduce risk and to maximise capital appreciation for distribution to its members on pro-
rata basis. They enjoy collectively the benefits of expertise in investment by specialist in
the trust, which no single individual by himself could enjoy. Mutual fund if thus a
concept of mutual Help of subscribers for portfolio investment and management of these
investments by experts in the field.

Mutual funds are important segment of the financial system of the country. The financial
system comprises the financial institutions, banks, investment bodies, the capital market
and money market intermediaries the instruments used in the capital and money markets
through which money resources are mobilised from savers of funds to users of funds.
Mutual funds act as intermediaries which link the savor and the capital market.

Mutual Fund has been defined by different authors in different words meaning one and
the same thing i.e. it is a non-depository or non banking financial intermediary which acts
as “important vehicle for bringing wealth holders end deficit units together indirectly.
According to Dr. J.C. Verma (1992) Mutual Funds are financial intermediaries in the
investment business. They collect funds from the Public and invest on behalf of the
investor as “pass through entities” with losses and gains accruing to the investors only.

30
Mutual Funds represent pooled saving of numerous investors invested by professional
fund managers as diversified portfolio to obtain optimum return on investment with least
risk to investors. SEBI (Security Exchange Board of India) a government organisation
has defined Mutual Funds as a special type of investment institution which acts as
investment conduit. According to H.S. Shadak (1997) Mutual Funds are dynamic
financial Institutions which play a crucial role in an economy by mobilising savings and
investing them in the capital market, thus establishing a link between savings and the
capital market. I M. Pandey (1996) describes Mutual Funds as significant development in
Indian Capital Market which act as financial intermediaries/portfolio managers help
investors by rendering low cost services. Mutual funds gather and process information;
identify investment opportunities, formulate investment strategies, invest funds and
monitor progress at a very low cost.

According to Sampat Mukherjee (1996) Mutual Funds are investment companies that
issue and sell redeemable securities that present an undivided interest in the assets held
by the funds, sometimes classified as management companies or unit investment trust,
pooled resources of many investors that provide diversification and professional
management.

According to C.M. Kulshreshtha (1994) Mutual Funds are financial intermediaries

collects or pools the savings of the community numerous individual and invests the
money raised in a diversified portfolio of securities, including equities, bonds, debentures
and other interments thus spreading and reducing risk. The objective is to maximise
returns to investors who participates in equity indirectly through mutual funds”

Thus we see that MF investments large funds in a fairly large and well diversified
portfolio of sound investment. It employs professionally qualified and well experienced
investment consultants and fund managers who take the pooled money and invest in a
variety of bluechip companies which are selected from a wide range of industries with the
objective of maximising returns/ income on investments. Institutions that collectively
manage the funds obtained from different investors have commonly come to be known as
Mutual Funds. These form an important part of capital market providing the benefits of

31
diversified portfolios and expert fund management to a large number of persons,
particularly small investors. A mutual fund is generally seen as portfolio manager,
managing funds of members.

Simply what we can say is that Mutual Funds sell equity shares to investors and use these
funds to purchase stock and/or bonds. They tend to specialise in denomination and
default risk intermedation. Mutual Funds sell relatively small denomination securities to
market securities of deficit units. These organisations pool funds and thus reduce the risks
by diversification. They also gain economies of scale which lower the cost of analysing
securities, managing portfolio and trading in stocks and bonds. Mutual funds earn income
by way of interest or dividend or both from securities it holds. It deducts fees, operating
expenses and a management income, and then passes the remainder to wealth holders
through dividends on the mutual fund shares. The dividend fluctuates with the income on
mutual fund investments. To sum up, mutual funds represent pooled savings of numerous
investors invested by professional fund managers as diversified portfolio to obtain
optimum return on investments, with least risk to the investors. Thus we see, the investor
invest his money in mutual funds to enable the letter to further re-invest in scripts which
provide both short-term and long term gains. Therefore, this intermediary (MF) is a
decision maker for public money investments. Therefore, the business of mutual funds is
to re-invest in any scrip in the market, and prove their performance through returns to
investors. This success of mutual fund will depend on the performance i.e. returns to the
investors.

According to L.C. Gupta (1993) Success of Mutual Fund Organisation will depend on
three fundamentals.

a) The reliability and superiority of its investment performance. This is a matter of

investment research and investment skills.

b) Understanding of the needs of investors while designing investment schemes.

c) The quality of post sale service given to clients

32
HOW MUTUAL FUND IS FLOATED

Government allows private sector, public sector and joint sector to establish mutual
funds. The mutual fund can be sponsored by a limited company with a sound track
record, general reputation and fairness in all its business transactions. A scheduled bank
or All India or State level financial institution can also sponsor a mutual fund. Two or
more limited companies can also jointly sponsor a mutual fund. The sponsoring
entity/entities should have a sound record as evidenced by:

a) audited balance sheet and profit and loss account for last five years;

b) a positive net worth and consistent record of profitability and a good financial
standing during the last five years;

c) good credit record with banks and financial institutions;

d) general reputation in the market;

e) organisation and management; and

f) fairness in business transactions.

A company in the private sector or a bank or a financial institution desirous of setting up

a mutual fund should establish the fund as a trust under the Indian Trusts Act. It should
then establish an Asset Management Company. The Asset management Company should
have net worth of not less than Rs. 5 crores (50 million rupees).

The Asset Management Company can issue shares to the public and mobilize share
capital or it can avail loans from the sponsoring company or from any other bank or
institution. The sponsoring company/institution has to get authorization from SEBI for
the mutual fund as well as for the Asset Management Company by making an application
to SEBI in the prescribe application form and by paying prescribed fee. The AMC will
operate the mutual fund.

33
HOW MUTUAL FUND COLLECTS FUNDS

Mutual funds offer units or shares to the public by issuing an offer document or
prospectus. The offer document/prospectus contains:

(1) the face value of each unit in terms of rupees;

(2) objective of the scheme;

(3) how the funds collected will be invested and in what securities or in what money
market instruments;

(4) minimum amount of subscription per application;

(5) duration of the scheme: SEBI does not generally allow more than 10 years
duration for any mutual fund scheme;

(6) who can apply for units;

(7) date of launching the scheme and the date upto which applications will be
received; and

(8) repurchase facility (if available) or arrangements proposed to be made for listing
the units on Stock Exchanges.

Each scheme of mutual funds should be registered with SEBI. The funds give wide
publicity through newspapers about their schemes and make arrangements for collecting
the application money in important centres in one or more banks. After the last date for
receiving the application is over, mutual funds collect all the applications, scrutinize them
and allot units to the applicants and issue them unit certificates, which are the evidence
for owning the units.

34
HOW MUTUAL FUNDS OPERATE

Mutual funds invest the funds collected from the public according to the investment
objectives stated in the offer documents/prospectus. Mutual funds generally invest in a
wide range of securities in different industries with a view to spreading the investment
risk. Mutual funds are allowed to invest only in transferable securities either in the capital
market or in the money market. They can invest in privately placed debentures or
securities debts. All debt instruments in which mutual funds invest should have been
rated as investment grade by CRISIL or any other approved credit rating agency. Mutual
funds are prohibited from giving term loans. No individual scheme of mutual fund can
invest more than 5 per cent of its corpus in any one company’s shares. Under all its
schemes put together the investment of a mutual funds should not exceed 5 per cent of
the paid up capital of any single company. Further, under all its schemes put together
mutual funds should not invest more than 10 per cent of their funds in the shares or
debentures or other securities of a single company. There is a further restriction that the
investment made by the mutual fund in any single industry should not exceed 15 per cent
of its funds in the shares and debentures of any specific industry. Mutual funds should
take delivery of scrips purchased and should give delivery of scrips sold by them. Mutual
funds should not engage in short selling or carry forward transactions or badla finance.
The scrips purchased by the mutual fund should be transferred to the fund’s name and
scheme also.

The Government has granted tax exemption to all mutual funds approved by SEBI. The
investors in the mutual fund pay income-tax on the dividend/income received by them
each year from the mutual funds.

Mutual funds generally publish their net asset value every Friday. Net asset value
represents the current market value for the funds on the basis of the share market
quotations divided by the number of units or shares outstanding on any give date.

Mutual funds employ an expert fund manager for each scheme and he is entrusted with
the specific task of purchasing shares and other securities from the Stock Exchange and
selling them at a higher price at the appropriate time. The mutual fund mangers are

35
subject to the control and superintendence of the board of trustees of the fund. The board
of trustees of the mutual fund are eminent persons who have wide experience in
investment matters, finance, administration etc. The board of trustees guide the
operations of the mutual fund.

Mutual funds have to submit unaudited half-yearly financial results to SEBI. The mutual
funds should get their accounts audited once in a year by a qualified chartered accountant
or by a firm of chartered accountant and submit the audited accounts to SEBI and publish
the abridged version of balance sheet, income and expenditure statements etc., in
newspapers for the benefit of investing public.

After the annual accounts are audited, mutual funds ascertain the income earned by them
and distribute atleast 90 per cent of the income by way of dividends to their unit holders.
After the duration of each scheme is over, mutual funds sell their securities pertaining to
the concerned scheme and redeem the units issued by them by paying the investors their
capital and the capital gains made by fund in proportion to their respective holdings of
units in the fund.

ADVANTAGES OF MUTUAL FUNDS FOR INVESTORS

Reduced Risk: Mutual funds invest in a number of reputed and well managed blue-chip
companies. So, the fall in the prices of a few scrips, will not affect them much. Thus risk
of loss due to a fall in the value of few scrips is minimized.

Expertise of Professional Management: The investors get the expertise of professional

money managers who watch the funds portfolio and take necessary decisions on what
scrips are to be purchased, what scrips are to be sold and when they should be bought and
sold.

Diversification of Portfolio: When a person invests in a mutual fund, he participates in a

larger basket of shares of may different companies in a number of different industries
which are included in the fund’s portfolio.

36
Automatic Reinvestment: In a mutual fund it is possible to reinvest the dividends and
capital gains. The automatic reinvestment feature of a mutual fund is a form of forced
saving and can make a big difference in the long run.

Selection and timings of investment: Expertise in the selection of shares, debentures,

etc., and timing is made available to investors that invested funds generate higher returns
to them.

Liquidity of investment: Mutual funds are ready on any day (after the initial lock in
period is over) to buy back the units from the investors at the net asset value of the
investment. They announce through daily newspapers their re-purchase price of the units
issued under different schemes.

Saving Habit: Mutual funds encourage saving and investment habit among the public at
large.

Tax Shelter: Some mutual funds are permitted by the Government to launch Equity-
Linked Tax Saving Schemes. Investors who invest in such schemes get tax relief or tax
rebate.

Safety of Funds: Mutual funds are governed by the guidelines issued by the Ministry of
Finance on 14.02.1992. The SEBI acts as a watch-dog and tries to protect the interest of
investors. So, the funds invested in Mutual Funds are generally regarded as safe.

Mutual Fund Market in India since its inception:

The Indian mutual fund industry has evolved over distinct stages. The growth of the
mutual fund industry in India can be divided into four phases: Phase I (1964-87), Phase
II (1987-92), Phase III (1992-97), and Phase IV (beyond 1997).

 Phase I: The mutual fund concept was introduced in India with the setting up of
UTI in 1963. The Unit Trust of India (UTI) was the first mutual fund set up under
the UTI Act, 1963, a special act of the Parliament. It became operational in 1964
with a major objective of mobilizing savings through the sale of units and
investing them in corporate securities for maximizing yield and capital

37
 appreciation. This phase commenced with the launch of Unit Scheme 1964 (US-
64) the first open-ended and the most popular scheme. UTI’s investible funds, at
market value (and including the book value of fixed assets) grew from Rs 49 crore
in1965 to Rs 219 crore in 1970-71 to Rs 1,126 crore in 1980-81 and further to Rs
5,068 crore by June 1987

 Phase II: The second phase witnessed the entry of mutual fund companies
sponsored by nationalized banks and insurance companies. In 1987, SBI Mutual
Fund and Canbank Mutual Fund were set up as trusts under the Indian Trust Act,
1882. In 1988, UTI floated another offshore fund, namely, The India Growth
Fund which was listed on the New York Stock Exchange (NYSB). By 1990, the
two nationalized insurance giants, LIC and GIC, and nationalized banks, namely,
Indian Bank, Bank of India, and Punjab National Bank had started operations of
wholly-owned mutual fund subsidiaries. The assured return type of schemes
floated by the mutual funds during this phase was perceived to be another banking
product offered by the arms of sponsor banks. In October 1989, the first
regulatory guidelines were issued by the Reserve Bank of India, but they were
applicable only to the mutual funds sponsored by FIIs. Subsequently, the
Government of India issued comprehensive guidelines in June 1990 covering all
‘mutual funds. These guidelines emphasized compulsory registration with SEBI
and an arms length relationship be maintained between the sponsor and asset
management company (AMC). With the entry of public sector funds, there was a
tremendous growth in the size of the mutual fund industry with investible funds,
at market value, increasing to Rs 53,462 crore and the number of investors
increasing to over 23 million. The buoyant equity markets in 1991-92 and tax
benefits under equity-linked savings schemes enhanced the attractiveness of
equity funds

 Phase III: The year 1993 marked a turning point in the history of mutual funds in
India. Tile Securities and Exchange Board of India (SEBI) issued the Mutual
Fund Regulations in January 1993. SEBI notified regulations bringing all mutual
funds except UTI under a common regulatory framework. Private domestic and

38
 foreign players were allowed entry in the mutual fund industry. Kothari group of
companies, in joint venture with Pioneer, a US fund company, set up the first
private mutual fund the Kothari Pioneer Mutual Fund, in 1993. Kothari Pioneer
introduced the first open-ended fund Prima in 1993. Several other private sector
mutual funds were set up during this phase. UTI launched a new scheme, Master-
gain, in May 1992, which was a phenomenal success with a subscription of Rs
4,700 crore from 631akh applicants. The industry’s investible funds at market
value increased to Rs 78,655 crore and the number of investor accounts increased
to 50 million. Mutual funds found it increasingly difficult to raise money. The
average annual sales declined from about Rs 13,000. Crore in 1991-94 to about
Rs 9,000 crore in 1995 and 1996.

 Phase IV: Investible funds, at market value, of the industry rose by June 2000 to
over Rs 1, 10,000 crore with UTI having 68% of the market share. During 1999-
2000 sales mobilization reached a record level of Rs 73,000 crore as against Rs
31,420 crore in the preceding year. This trend was, however, sharply reversed in
2000-01. The UTI dropped a bombshell on the investing public by disclosing the
NAV of US-64-its flagship scheme as on December 28, 2000, just at Rs 5.81 as
against the face value of Rs 10 and the last sale price of Rs 14.50. The disclosure
of NAV of the country’s largest mutual fund scheme was the biggest shock of the
year to investors. Crumbling global equity markets, a sluggish economy coupled
with bad investment decisions made life tough for big funds across the world in
2001-02. The Indian mutual fund industry has stagnated at around Rs 1, 00,000
crore assets since 2000-01. May 3, 2002, stood at Rs 11,86,468 crore. Mutual
funds assets under management (AUM) form just around 10% of deposits of
SCBs. The AUM of this sector grew by around- 60% for the year ending March
2002.

39
Promotion techniques used by mutual fund companies to fight their competitors:

1. Get in touch with Customers

Mutual fund companies directly contacts the customers through various databases.
Then the companies convince the client to invest in their mutual fund. Many of
the times due to promotion the customers also contact RMF for investment.

2. Online Investment:

Companies Web sites allow customers to invest online. However, the customer
must have an account with the banks companies have partnered with. For
example, Prudential ICICI Mutual Fund allows customers to buy funds online if
he has a banking account with any of the following banks: Centurion Bank,
HDFC Bank, ICICI Bank, IDBI Bank and UTI Bank.

3. Through Distributors:

Companies sell its products through various distribution channels. The distributor
in turn gets a variable commission from the Companies. The distributors have a
client base of their own in which they promote the mutual fund.

4. Through Banks:

AMC is sister concern of the bank example IDFC Mutual Fund is a sister concern
of IDFC BANK. This AMC aggressively promote their mutual fund to their client
and develop an interest in them to invest in mutual fund in order to get higher
returns.

5. Through online finance portals:

Some of the AMCs sell their Mutual Fund through online trading account
example IDFC

Direct sell funds online through online trading account. But the client must have a
trading account with them. Some of the AMCs which sell their product through
online trading accounts are:

40
  IDFC Securities

 RMF Direct

 Kotak Street

6. Through Advertisement:

Each companies AMCs spends a lot of money in order to advertise for its Mutual
Fund. The amount spend is high in case New Fund Offers. Various mediums of
advertisement use are given below:

 Television

 Radio

 Print Media

 Hoardings

7. Online Blogs:

Companies promote their product through online blogs. They advertise their
product on various online sites.

8. Telephonic calls:

Almost all the distributors promote the Mutual Fund with the help of telephone.
They have the phone numbers of existing clients and potential clients. A trained
person makes a call to the clients and promotes the Mutual Fund.

Companies ensure retailer to sell their mutual fund:

After the ban on entry load from 1 August 2009, the mutual fund industry has seen
a massive outflow of investments even as the bull market continued. Companies and
other mutual find companies are in competition to organize offers for its
distributors, hoping to influence them to sell their schemes to the public. Recently,
Reliance Mutual Fund took some of its distributors to Kashmir while IDFC took them to
Kerala for a long weekend. According to distributors, Templeton has a scheme wherein

41
any distributor who achieves his target is entitled to a foreign trip. Funnily, the number of
junkets have increased so much that they are becoming counter-productive. Some large
distributors are sick and tired of such frequent fly-offs. According to sources, one of the
frustrated distributors returned to Mumbai mid-way from his Kashmir junket. So far, it
was deducted from investors’ money, but the regulator has now come down heavily on
AMCs and is preventing the fund industry from making investors pay for such
extravaganzas. So AMCs are supposed to be bearing the expenses on their own. “Earlier,
AMCs were debiting the expenses of junkets to the schemes but now they have to pay out
of their pockets. In remains to be seen whether irrespective of cumbersome rules and
regulations and poor performance, the distributors, bribed by lavish junkets, would be
able to push fund products down the throats of the investing public. Interestingly,
Companies selling mutual funds are also in the same game. “Most of the brokers are
selling their products today. If a broker gets Rs1 crore sale of mutual fund business, he or
she gets a free trip to Malaysia. Everyone is getting tempted to go on a foreign trip,” said
a distributor.

RECENT TRENDS FOR MUTUAL FUND INDUSTRY

The ban on entry load on mutual fund products could impact RMF in terms of
profitability and increase their sales level. The Securities and Exchange Board of India
(Sebi) has banned the entry load charge on mutual fund products from August 1. Now,
Reliance Mutual Fund has to negotiate with customers for commission, which is to be
paid through a different cheque. "The industry is likely to witness consolidation as
Reliance Mutual Fund (RMF) may not be able to accommodate the acute profit and loss
stress and also not able to simply increase their sales level. Within equity, the
prevalence of closed-ended funds will increase, with RMF driving for low churn
ratios." For the move to be successful, business model of the RMF has to be overhauled.
Before entry load exemption, their mutual fund system, the intermediaries (distributors)
would more interest in selling mutual funds. This will in turn increase profits of mutual
fund houses, which will then charge higher trail and asset management fees.

42
 Particular 2008 (With entry load) 2009 (Without entry load)
Sale of Investment 100,069,699 117,068,389

Net sale of investment of Reliance Mutual Fund

120,000,000 117,068,389

115,000,000

110,000,000

105,000,000
100,069,699
100,000,000

95,000,000

90,000,000
2008 (With entry load) 2009 (Without entry load)

IDFC sees little financial impact on his business. IDFC says that, after ban of entry load,
selling mutual funds would not have made sense. According to IDFC, “it’s not possible to
ask clients for separate cheques every month if they opt for mutual funds via a systematic
investment plan (SIP). After the entry load ban, IDFC has shifted their small clients
online. IDFC is using mutual funds to acquire new customers and later cross-sell
them other products. IDFC, on the other hand, has seen their margins shrink after
the entry load ban and decrease in sales level. They had to pay intermediaries
commission from their pocket. To save costs, IDFC is also working on technology
platforms to enable online transactions at every distributor’s website. Intermediaries say
Reliance Mutual Fund and IDFC are about to implement this. IDFC and RMF feel that
in the beginning the profitability is likely to take a hit, not only due to the ban on
entry load, but also due to the increased spend on marketing, distribution and
administrative expenses. Barely six months into the ‘no-entry load’ era for the mutual
fund industry, is the sector witnessing a huge tectonic shift with distributors shying away

43
from the industry and opting to sell more lucrative products under the insurance and post
office fold. The trend could inflict serious damage to the long-term prospects of the
mutual fund industry and reduce the participation of retail investors to whom the industry
was intended to principally cater to, say industry participants.
Particular 2008 (With entry load) 2009 (Without entry load)
Sale of Investment 110,201,544 119,100,345

Net sale of IDFC mutual fund

120,000,000 119,100,345

118,000,000
116,000,000
114,000,000
112,000,000
110,201,544
110,000,000
108,000,000
106,000,000
104,000,000
2008 (with entry load) 2009 (without entry load)

After the ban on entry load, RMF and IDFC found themselves deprived of the money
they made for wooing a customer to an MF scheme. The entry load was as much as 2.25
per cent or more for equity schemes. According to RMF, “Yes, there has been poaching.
But, everyone is gaining and losing customers at the same time. The ban on entry load on
mutual funds (MFs) has struck its first blow to the asset management industry, with the
government-run India Post stopping the distribution of MF schemes through its
designated post offices. This is significant. In recent months, the war to gain customers
has turned ugly in the wake of the ban on entry load from August 1, 2009. Industry
sources said agents of some bigger distributors were poaching customers of smaller ones,
getting them to sign a form for transferring their account. Faced with a serious problem,

44
RMF and IDFC approached Amfi for a solution. The circular, issued on May 7, mandated
that fund houses need not pay trail commission to either the old or the new distributor.
Instead, the amount should be kept in a separate account and used for investor education.

The existing retailer, consequently, was earning his 2.25 per cent load every month from
the AMC. Such customers are told by rival agents that shifting will ensure a saving of
2.25 per cent a month. And, those not paying the entry load are offered better service.
Retailer will not sell mutual funds until they get some clarity on entry load. They will see
how the issue unfolds over the next few weeks. The final decision will depend on how
Sebi settles the issue without really hurting the distributor,” a senior official at India Post
told ET. Then, the transfer letter signed by the customer is sent to the RMF. The IDFC in
turn, issues a letter to the old distributor, saying the ‘broker code’ has been changed. In
fact, industry sources said some fund houses that sought a reason for the change, were
sent transfer letters with the customer’s signature with an additional reason filled by the
sales people. The method is something like this. Approach a customer of a small broker
and tell him he’s not being serviced properly. For instance, many customers were not
aware of the ban on entry load and were carrying on with their systematic investment
plans (SIPs). But with ban on entry load, retailers are likely to take a hit as some of the
players believe that it will be very difficult to convince investor to pay a fee for the
service given.

Many investors seem to be of the view that they have “missed the bus” and would wait
for a correction before returning in large numbers. The fact that the markets have been
moving in a relatively narrow band since August hasn’t helped create demand in the past
few months either. With the market regulator now allowing the purchase of mutual fund
units through stock brokers, reach would be wider. Besides, a common online trading
platform for mutual funds is expected to be available in less than six months. While these
factors will improve access, flows will largely depend on how the market performs. It
finds that 87% of investors with investments less than Rs 1 lakh have redeemed equity
funds at a profit. In contrast, it has been the NFOs that have caught the investors on the
wrong foot. While 49% of NFO investments have been redeemed at loss, 22% have been
redeemed at a 'minor' profit. Customers continue to dominate the equity mutual fund

45
industry with over 90% of investment volumes. Before the ban on entry load, investors
paid an entry load of 2 to 2.25% at the time of investing which covered the asset
management companies' selling and distribution expenses, commission to distributors.
Now, an investor will receive units for the entire amount invested in schemes. They can
now decide the commission payable to distributors in accordance with the level of
service.

46
 4. FINDINGS AND ANALYSIS
Personal Information:
Name: - ____________________________________________________
Address: - ____________________________________________________
____________________________________________________
Q.1 What is your age?
□ 16-23 □ 24-31
□ 32-49 □ More than 50 Years

AGE

25

20

15
21 S e rie s 1
10 17

5 9
3
0
1 6 -2 3 2 4 -3 1 3 2 -4 9 > 50
S e rie s 1 9 21 17 3

Out of the 50 respondents, 9 are of the age group 16-23 years

Out of the 50 respondents, 21 are of the age group 24-31 years

Out of the 50 respondents, 17 are of the age group 32-49 years

Out of the 50 respondents, 3 are of the age group >50 years

47
Q.2 What is your occupation?

□ Salaried □ Retired

□ Professional □ Self employed

Out of the 50 respondents, 20 are Salaried

Out of the 50 respondents, 5 are Retired

Out of the 50 respondents, 15 are Self Employed

Out of the 50 respondents, 15 are Professional

Q.3 What is your salary range?

48
 □ Less than 2 lakh □ 2 lakh – 5 lakh

□ 5 lakh – 10 lakh □ More than 10 lakh

From the above table, Salary range of 15 respondents are less than 2 lakh and salary
range of 20 respondents are 2 lakh to 5 lakh, 10 respondents are 5 lakh to 10 lakh and rest
ranges goes to more than 10lakh.

49
Q.4 Do you invest in capital market?

□ Yes □ No

From the above table, out of 50 respondent, 40 respondents wants money invest in capital
market and rest 10 respondents says that no need it.

50
Q.5 Are you aware about what is a Mutual Fund?

□ Yes □ No

From the above table, out of 50 respondent, 45 respondents are aware about what is
mutual fund and rest respondents goes to not aware about what is mutual fund.

51
Q.6 If yes, do you invest in any of the followings:-

□ Fixed deposits □ Insurance

□ Shares □ Mutual funds

Shares emerged to be the most preferred choice of the investors for investment (preferred
by 10 respondents), followed by mutual fund and insurance for investment (Preferred by
30 respondent) and rest goes for Bank Fixed Deposits (preferred by 10 respondents).

52
Q.7 What is your expected rate of return for your ideal investment?

□ 5-10 % □ 11-14 %

□ 15-20 % □ 21-40 %

From the above table comes to know that 15 respondents expected 5-10% rate of return
for your ideal investment and 10 respondents goes for 11-15% and rest respondents goes
for 15-40% rate for return for your ideal investment.

53
Q.8 What is the source of information for your investments?

□ Friends/Family □ Newspapers

□ Internet □ Recommended by your Bank

From the above table comes to know that 15 respondents says friendly/family is source of
information for your investment and other 10 respondents goes for newspaper and 15 for
internet and rest for recommended by your bank.

54
Q.9 In which type of Mutual fund do you typically invest in?

□ Equity □ Hybrid

□ Debt

From the above table comes to know that 35 respondents agrees that equity mutual fund
is typically investment and others goes to debt and hybrid.

55
Q.10 What is the principal reason behind making investments in the market?

□ Children education □ House

□ Retirement □ Recommended by your Bank

Out of 50 respondents, 20 respondents agrees that children education reason behind

making investments in the market and 15 respondents agrees that house reason behind
making investment in the market and last goes to 10 for retirement and 5 for
recommended by bank.

56
Q.11 What are the reasons for not investing in the Mutual Funds?

□ High risk □ Huge investment

□ No expertise

From the above table comes to know that 15 respondents agrees high risk reasons for not
investment in the mutual fund and 10 go to huge investment and last 25 for not expertise.

57
 5. RECOMMENDATIONS

Following recommendations are being made on the basis of the findings of the study:

1. Role of agents in the distribution of mutual fund products are very

important. More than 90% of the investors are investing through agents. Mutual
fund houses should train these agents and update their knowledge and skills , so
that they can guide and convince the investors in better way. They should also try
to develop alternate channels of distributors to increase their reach. As seen from
the study that around 6% investors are investing directly. For the growth of
mutual funds industry, the development of channels i.e retail agents, financial
advisors and distribution companies are very important. Mutual funds should also
explore the possibilities of selling MF products through Banks, Post Offices,
Rural & Urban Co-operative Banks to increase their reach and expand their
market.

2. Investors invest in the mutual fund products to get higher returns on

their investment and tax benefits on their investment/income. Mutual fund houses
should manage their assets with least volatility and fluctuations in their returns.
They should also convince the govt. for continuing the tax benefits till the time
industry gets maturity. Stable mutual fund industry will help to keep stable capital
market also.

3. Investors rate shares and mutual fund products as the highest provider
of returns. They also rate these products very low from safety point of view.
Mutual funds should segment their customers and adopt niche marketing strategy.

4. Mutual fund investors are generally very return sensitive and they
give maximum importance to the return on their investment. Quality of sales and
after sales service is regarded the second most important factor for investment.
The convenience of location is the third. Therefore, the mutual fund houses
should always try to give better returns by managing their assets more

58
 professionally. Service is the second most important factor for selection of MF
products. Therefore, if the returns of two mutual fund houses are similar than the
chances of selecting a fund house which give better service is more. Therefore,
mutual fund houses to introduce the just in time service concept.

5. Convenience of investment or location is also important. Mutual fund

houses should open their offices or service centers near to their customers. They
should open more outlets just as banks for the convenience. Technology can help
in this regard. They can use internet/intranet for their transactions. It will save
their time and cost and improve the service standard and more convenience to
their customers.

6. Companies should find out the causes for loosing the investors
preference. They should change their marketing strategy, if required.

Again applying the entry load on mutual fund will not acceptable by an investor because
ban the entry load now work as remedy for customer and make them savier about their
investments. This means an investor will not have to pay the entry load of 2.25% for
equity funds unless he avails the services of a distributor. So, hypothetically, if an
investor puts Rs 1,000 in a scheme and the entry load is 2.25%, he would receive units
worth Rs 977.5 only (2.25% of Rs 1,000), thereby impacting his investment’s net asset
value (NAV). So in the point of view of investor, entry load is not acceptable by them.
The retail distributors, the fund houses to some extent and the relationship managers of
banks who made a neat commission out of their advice to investors on which funds to
buy and sell. They will now have to negotiate with the clients and decide on a fee (smart
investors can negotiate this to their own benefit) whereas initially they used to get a fixed
brokerage from the fund house. The taxation angle, though, is also not very clear. Initially
service tax was deducted from the brokerage and the balance was paid to the distributor.
Now it is still not clear how the service tax will be paid. Whether the distributor will
collect that amount from the investor and then pay the tax or is there any other
methodology still stands to be clarified. If distributors have to pay a service tax, then they
will have to take a service tax number. This in turn can lead to distributors asking fees in

59
the form of cash in order to avoid the service tax. The retail distributors may reduce or
may entirely stop selling mutual funds as it may no longer be lucrative to them. This will
hamper the business of fund houses.

Because now that there will be no entry load on the money that you will invest in any
mutual fund scheme all the money that you invest will be used to buy mutual fund units
unlike earlier when 2.25 per cent would be lopped off and the rest invested. The table
below illustrates this better.

As seen in the illustration above because of no entry load on their investments they will
make Rs 9,102 more than what they would have made otherwise. According to the new
ruling, investors will decide with the distributor, an upfront commission or fees to be paid
for their advice and services.

60
 6. CONCLUSION

An investor normally prioritizes his investment needs before undertaking an investment,

So different goals will be allocated to different proportions of the total disposable
amount. Investments for specific goals normally find their way into the debt market as
risk reduction is of prime importance, this is the area for the risk-averse investors and
here, Mutual Funds are generally the best option. One can avail of the benefits of better
returns with added benefits of anytime liquidity by investing in open-ended debt funds at
lower risk, this risk of default by any company that one has chosen to invest in, can be
minimized by investing in Mutual Funds as the fund managers analyse the companies
financials more minutely than an individual can do as they have the expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk and
invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risks
and providing the investor with better returns than he could otherwise manage. Since they
can reshuffle their portfolio as per market conditions, they are likely to generate moderate
returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to investing in
high-risk avenues. Capital markets find their fancy more often than not, because they
have historically generated better returns than any other avenue, provided, the money was
judiciously invested. Though the risk associated is generally on the higher side of the
spectrum, the return-potential compensates for the risk attached.

The Securities and Exchange Board of India’s (Sebi) decision to ban the deduction of
entry loads by asset management companies hasn’t affected inflows into equity mutual
funds as badly as some had feared. Industry sources say to get access to customers of
other distributors, data of fund houses have been up for sale. For instance, the database of

61
customers in a new fund offer (NFO) was for sale for Rs 1 lakh. The main aim to increase
the exit load was only to make up for losses from the ban on entry load. But now with
Sebi bring the parity among all the classes of unit holders; they can't do much at that
end." Until now, these firms typically charged up to 1% exit load for retail investors for
premature redemption and big ticket investors who invested above Rs 5 crore did not
have to pay any exit load.

There are still lots of ifs and buts as SEBI is still to issue complete guidelines. But this
preliminary guideline too is a revolutionary step in itself as investors will now be paying
for the right kind of advice. The system of pass back wherein distributors used to pass on
their incentives to the investors for inducing the investors to invest in a particular fund to
meet their personal targets will also be done away with. Now investors can gain access to
well-informed and proper advisors, financial planners to get proper advice for their
investments in accordance with the fee that they pay. Last year SEBI had done away with
entry load in cases where the investors directly invested in mutual funds without going
through an agent or a distributor. With the new ruling in place, investors will be free to
negotiate the commission with their distributor and if they are smart negotiators they may
even pay nil commission on their investments. Good news for some, not so good news
for others. Well let us have a look as to who stands to benefit and who stands to lose out
and the implications of SEBI's decision for investors, distributors and mutual fund
companies.

62
 7. REFERENCES

BOOKS :

• Bhattacharya, P. C and Sivasubramonian, M. N (2003), “Financial development

and economic growth in India: 1970-71 to 1998-99”, Applied Financial
Economics, 13, 905-09.
• Chang, T (2002), “ Financial development and economic growth in mainland
China : a note on testing demand following or supply leading hypothesis” ,
Applied Economics Letters, 9,869-73
• Demirguc, P.D and Maksimovic, V. (1996), “Financial constraints, use of funds
and firm growth: an international comparison” , Working paper no 1671, World
bank.
• Rani, P. Geetha (2007) 'State Finance Commissions and Rural Local Bodies.
Devolution of Resources.' Economic & Political Weekly, June 19-25.
• Rao. S.L. (1999) 'Reforming State Enterprises.' (Ed) NCAER, New Delhi.
Ravallion, Martin (2001) 'What is needed for a More Pro-Poor Growth Process in
India?' Economic & Political Weekly, March 25.
• Reddy. Y.V. (2006a) 'Financial Sector Reform: Review and Prospects.' Key note
address at the Conference on 'Growth, Governance and Empowerment: The
Future of India's Economy', at University of California, Santra Cruz on Nov. 20,
1998. Published in RBI Bulletin Jan, 1999.
• Engle, R.F. and C.W.J. Granger. (1987). “Cointegration and error correction:
representation, estimation and testing”. Econometrica, 55, 251-276.
• Evans,P.(1995), “How to estimate growth equations consistently” , paper
presented at the 7th world congress of the Econometric Society, Tokyo, 1995.
• Granger, C.W.J. (2006). “Investigating causal relations by econometric models
and cross spectral methods”. Econometrica, 37, 428-438.

63
• Habibullah, M. S. (1999), “Financial development and economic growth in Asian
countries: testing the financial-led growth hypothesis”, Savings and Development,
23, 279-290.
• Harris, R. D. F (1997). “Stock markets and development: a reassessment”,
European Economic Review, 41, 139-46.
• Johansen, S. and K. Juselius. (1990). “Maximum likelihood estimation and
inference on co integration-with application to the demand for money”. Oxford
Bulletin of Economics and Statistics, 52, 169-210.
• Levine, R., and Zervos, S. (1998), “Stock markets, banks and economic growth,”
American Economic Review, 88,537-58
• Levine, R., and Renelt, D. (1992), “A sensitivity analysis of cross country growth
regressions” , American economic Review, 82, 942-63.
• Patrick, H. T. (1966), “Financial Development and Economic Growth in
Underdeveloped Countries”, Economic Development and Cultural Change, 14,
174-189.
• [26] Phillips, R. C. B. and P Perron. (1988). “Testing for a unit root in time series
regression”. Biometrika, 75, 335-346.
• Robinson, J. (1952), “The generalization of the general theory”, The Rate of
Interest and Other Essays, McMillan, London.
• Schumpeter, J. A.(1911). “The Theory of Economic Development” , Cambridge,
Mass : Harvard University Press
• Toda, H.Y. and P.C.B. Phillips. (1993). “Vector Autoregressions and Causality”,
Econometrica, 61, 1367-1393.
• Endo, Tadashi. 1998. The Indian Securities Market—A Guide for Foreign and
Domestic Investors. Vision Books. India.
• Gupta, L.C. 1998. “What Ails the Indian Capital Market?” Economic and
Political Weekly, 23 (29-30).
• Misra, B. M. 1997. “Fifty Years of the Indian Capital Market: 1947-1997.” In
Banking and Financial Sector Reforms in India, Vol. 6, edited by Kapila, Raj and
Uma Kapila.

64
 • Rangarajan, C. 1997. “Activating Debt Markets in India.” Reserve Bank of India
Bulletin. October.
• Rangarajan, L.N., “Kautilya: The Arthashastra”, Penguin Books, New Delhi,
1987
• Ravi Kathpalia, (ed), “International Conference on Financial Management and
Accountability in the Public Sector: Strategies for Managing Change”, Oxford
Publication., New Delhi, 2001.
• Srinivasan, T.N. (2006) 'Eight Lectures on India's Economic Reforms.' Oxford.
• Srivastava, D.K. (1999) 'Budget Processes and Expenditure Management in
India.' Paper in the Training Material. See NIPFP (2007).

JOURNALS
• Agrawalla, R. K. and Tuteja, S. K. (2007), “Causality Between Stock Market
Development and Economic Growth : A Case Study of India” , Journal of
Management Research, 7, 158-168.
• Arestis, P., Demetriades, P. O. and Luintel. K. B. (2001). “Financial development
and economic growth: the role of stock markets”. Journal of Money, Credit and
Banking, 33, 16-41.
• Beck, T. (2002), “Financial development and international trade : is there a link”,
Journal of International Economics,57,107-131
• Chakraborty, I. (2008). “Does financial development cause economic growth?
The case of India”, South Asia Economic Journal, 9, 109-139.
• Jha, R. and S. Mittal, 1999, Savings, Investment and Marginal Effective Tax
Rates in India, International Journal of Development Banking, 8, no.1, pp. 3-12.
• Demetriades, P. O. and Hussein, K. (1996), “Does financial development cause
economic growth?” Journal of development Economics 51, 387-411.
• Dickey, D.A. and W.A. Fuller. (1979). “Distribution of the estimation for
autoregressive time series with a unit root”. Journal of American Statistical
Association, 79, 355-367.

65
 • Fry, M.J.(1995), “Money ,interest and banking in economic development”,
Journal of share market issue, 34, 322-346
• King, R.G and Levine, R. (1993a), “Finance and growth: Schumpeter might be
right,” Quarterly Journal of Monetary Economics, 108,717-738.
• King, R.G and Levine, R. (1993b), “Finance, entrepreneurship and growth”
Journal of Monetary Economics, 32,513-542.
• Kletzer, K. and Pardhan, P. (1987), “Credit markets and patterns of international
trade,” Journal of Development Economics, 27,27-70.
• Levine, R., Loyola, N. and Beck, T.(2000), “ Financial intermediation and growth
: causality and causes,” Journal of Monetary Economics, 46,31-77.
• Lucas, R. E. (1988), “On the mechanics of economic development”, Journal of
Monetary Economics,22,3-42.

• Pesaran, M. H. and Smith, R.(1995), “Estimating long run relationship from

dynamic heterogeneous panels” , Journal of Econometrics, 68, 79-113.
• Toda, H.Y. and T. Yamamoto. (1995). “Statistical inference in vector
autoregressions with possibly integrated processes”. Journal of Econometrics, 66,
225-250.
• Reddy, Y. V. 1997. “The Future of India’s Debt Market.” Reserve Bank of India
Bulletin, November. Reserve Bank of India. Journal on Currency and Finance,
various issues.
• Securities and Exchange Board of India. 1995/96 and 1996/97. Journal on. India:
SEBI.
• Shah, Ajay, and Susan Thomas. 1997. “Securities Markets— Towards Greater
Efficiency.” In India Development Journal, edited by K. Parikh. UK: Oxford
University Press.

Websites References:

• http://mpra.ub.uni-muenchen.de/5050/,

66
• http://www.google.co.in/search?
source=ig&hl=en&rlz=1G1GGLQ_ENIN333&q=indian+stock+market+analysis
&meta=lr%3D&aq=3&oq=Indian+Stock+market
• http://www.crnindia.com/
• http://www.crnindia.com/stockfutures.htm
• http://www.sharesdaily.in/
• http://www.bookprofit.com/
• http://business.mapsofindia.com/india-market/stock-analysis.html
• http://www.bullishindian.com/
• http://www.chanakyanipothi.com/
• http://www.indiastockmarket.com/ISM/
• http://www.sharegyan.com
• http://www.sharemasterindia.com/
• http://74.125.153.132/search?
q=cache:MTphI8Na5vYJ:www.igidr.ac.in/~money/Chittedi_Krishna.pdf+indian+
stock+market+analysis&cd=20&hl=en&ct=clnk&gl=in
• http://www.topnews.in/indian-stock-market-analysis-nirmal-bang-securities-
2166275
• http://www.esignal.com/ads/esignal/default.asp?CPID=KNC-O6O174466501
• http://www.esignal.com/ads/esignal/default.asp?CPID=KNC-O6O174466501
• http://www.accessmylibrary.com/coms2/summary_0286-14052300_ITM
• http://www.trade2win.com/boards/asia-pacific-stocks/22738-indian-stock-market-
analysis.html
• http://finance.indiamart.com/india_business_information/sebi_secondary_market.
html

67
 8. ANNEXURE

QUESTIONNAIRE

Personal Information:

Name: - ____________________________________________________

Address: - ____________________________________________________

____________________________________________________

Q.1 What is your age?

□ 18-25 □ 26-35

□ 36-45 □ More than 46Years

Q.2 What is your occupation?

□ Salaried □ Retired

□ Professional □ Self employed

Q.3 What is your salary range?

□ Less than 2 lakh □ 2 lakh – 5 lakh

□ 5 lakh – 10 lakh □ More than 10 lakh

68
Q.4 Are you aware about what is a Mutual Fund?

□ Yes □ No

Q.5 Do you invest in capital market?

□ Yes □ No

Q.6 If yes, do you invest in any of the followings:-

□ Fixed deposits □ Insurance

□ Shares □ Mutual funds

Q.7 What is your expected rate of return for your ideal investment?

□ 5-10 % □ 11-14 %

□ 15-20 % □ 21-40 %

Q.8 What is the source of information for your investments?

□ Friends/Family □ Newspapers

□ Internet □ Recommended by your Bank

Q.9 In which type of Mutual fund do you typically invest in?

□ Equity □ Hybrid

□ Debt

69
Q.10 What is the principal reason behind making investments in the market?

□ Children education □ House

□ Retirement □ Recommended by your Bank

Q.11 What are the reasons for not investing in the Stock Market/Mutual Funds?

□ High risk □ Huge investment

□ No expertise

70