Summer Training

Project Report
On

“INVESTOR’S APPROACH TOWARDS MUTUAL FUNDS”

Submitted to:
Mr. H.S.Sidhu

In Partial fulfillment of the requirements

For the degree of

Master of Business Administration

2006-2008
of

Punjab Technical University

Submitted By:
Lakhvir Singh

Rayat Institute of Management,

Nawan Shaher, PUNJAB
2
 ACKNOWLEDGEMENT

The project “investor’s approach towards mutual funds” is an outcome of

my research. For the completion of this project I get an opportunity to
express my deep gratitude to all those who helped me in making this report.

First of all I would like to thank The Almighty for his blessing for
completing this project successfully.

I would like to extend my sincere thanks to Mr.H.S.Sidhu (Executive

Director), Mr. J.S.Arneja (Sr. Manager) for providing me articulate
guidance and ceaseless encouragement throughout my training.

I express my grateful thanks to Mrs. Pooja M.Kohli for offering valuable

suggestions. I also like to thanks to Mr. Anil Kumar Angrish (NIPER), Mr.
Ajit Kumar (Master Group) and all the staff for providing their kind
cooperation and environment that played a vital role at every step of work
completed.

Last but not the least, I also express my grateful thanks to respondents for
giving their valuable time to make this project to success.
And also my college mates who attended this training programme with me.

Lakhvir Singh

3
 INDEX

Sr. No. TABLE OF CONTENTS

1. Executive Summary

2. Company Profile

3. Industry Profile

3.1 Indian Major Players

3.2 History of Mutual funds

3.3 Economic Environment

3.4 Technological Environment

3.5 Legal Environment

4. Mutual Funds

4.1 Introduction

4.2 Characteristics of Mutual Fund

4.3 Advantages of Mutual Fund

4.4 Disadvantages of Mutual Fund

4.5 Structure of Mutual Fund

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 4.6 Types of Mutual Fund

5. Research Methodology

5.1 Objectives

5.2 Scope

5.3 Research Design

5.4 Limitations

6. Investor’s approach towards mutual funds

6.1 Analysis

6.2 Findings / Conclusions

6.3 Suggestions / Recommendations

6.4 Questionnaire Sample

6.5 Code Sheet

7. Bibliography

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 EXECUTIVE SUMMARY

A mutual fund is a trust that pools the savings of a number of investors who
shares a common financial goal. The money thus collected is invested by the
fund manager in different type of securities depending upon the objective of
the schemes
Mutual fund plays a vital role in the growth and development of the
investment industry. Mutual fund is the right product in which investors
invest their money securely and get more benefits as compare to other
investments.
Basic aim of the project “Investor’s approach towards mutual funds” is to
study investor’s behaviour towards their investment .i.e. whether they have
conservative approach or an aggressive approach and whether they belong to
bull category or bear category.
The methodology used was data collection using Questionnaire. The target
customers were salaried, professionals and business class people. The area
of survey was restricted to people residing in Chandigarh. The following
finding was made during the survey:

• “More Than 50 % of the people are willing to take high risk in the
market”
• Most of the people invest their 5% - 10% of their annual income in
mutual funds

6
 COMPANY
PROFILE

INTRODUCTION OF STOCK EXCHANGE

“STOCK EXCHANGE” is a platform where buyer and seller of securities

issued by Govt. financial institutions, corporate house etc meet and where
the trading of these corporate securities, take place. The securities which are
trade in stock exchange are shares, debentures of public limited companies,
utility undertakings and such other authorities. .The securities contracts
(regulation) Act, 1956 defines stock exchange as:
7
“Stock Exchange is an association, organization or body of individuals
whether incorporated or not, constituted for the purpose of assisting,
regulating or controlling the business of buying, selling or dealing in
securities”.

Since buying and selling of different type of securities takes place in stock
exchange, the prices of particular securities reflect their demand and supply.
A stock exchange, share market or bourse is a corporation or mutual
organization which provides facilities for stock brokers and traders, to trade
company stocks and other securities. Stock exchanges also provide facilities
for the issue and redemption of securities, as well as, other financial
instruments and capital events including the payment of income and
dividends. The securities traded on a stock exchange include: shares issued
by companies, unit trusts and other pooled investment products and bonds.
To be able to trade a security on a certain stock exchange, it has to be listed
there. Usually there is a central location at least for recordkeeping, but trade
is less and less linked to such a physical place, as modern markets are
electronic networks, which gives them advantages of speed and cost of
transactions. Trade on an exchange is by members only. The initial offering
of stocks and bonds to investors is by definition done in the primary market
and subsequent trading is done in the secondary market. A stock exchange is
often the most important component of a stock market. Supply and demand
in stock markets is driven by various factors which, as in all free markets,
affect the price of stocks
There is usually no compulsion to issue stock via the stock exchange itself,
nor must stock be subsequently traded on the exchange. Such trading is said
to be off exchange or over-the-counter. This is the usual way that bonds are
traded. Increasingly, stock exchanges are part of a global market for
securities.

History of stock exchanges

8
 In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania'
in India began with the American Civil War broke and the cotton supply
from the US to Europe stopped. Further the brokers increased to 250.

At the end of the war in 1874, the market found a place in a street (now
called Dalal Street). In 1887, "Native Share and Stock Brokers' Association"
was established. In 1895, the exchange acquired a premise in the street
which was inaugurated in 1899.

Who Benefit from stock exchange: ---

INVESTORS: It provides them liquidity, volatility and safety of

investment.
COMPANIES: It provides them access to market funds, higher rating and
public interest.
BROKERS: They receive commission in lieu of their services to
investor.
ECONOMY OF COUNTRY: There is a huge amount of investment,
which increase the industrial growth, thus the growth of the economy of the
country.

THE ROLE OF STOCK EXCHANGES IN CAPITAL MARKET

Stock exchanges have multiple roles in the economy, these may include
the following:

9
Raising capital for businesses
The Stock Exchange provides companies with the facility to raise capital for
expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more
rational allocation of resources because funds, which could have been
consumed, or kept in idle deposits with banks, are mobilized and redirected
to promote business activity with benefits for several economic sectors such
as agriculture, commerce and industry, resulting in a stronger economic
growth and higher productivity levels.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines,
increase distribution channels, hedge against volatility, increase its market
share, or acquire other necessary business assets. A takeover bid or a merger
agreement through the stock market is one of the simplest and most common
ways for a company to grow by acquisition or fusion.

Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth although casual and
professional stock investors through stock price increases (that may result in
capital gains for the investor) and dividends get a chance to share in the
wealth of profitable businesses.

Corporate governance
By having a wide and varied scope of owners, companies generally tend to
improve on their management standards and efficiency in order to satisfy the
demands of these shareholders and the more stringent rules for public
corporations imposed by public stock exchanges and the government.
Consequently, it is alleged that public companies (companies that are owned
by shareholders who are members of the general public and trade shares on
public exchanges) tend to have better management records than privately-
held companies (those companies where shares are not publicly traded, often
owned by the company founders and/or their families and heirs, or otherwise
by a small group of investors). However, some well-documented cases are
known where it is alleged that there has been considerable slippage in
corporate governance on the part of some public companies

Creating investment opportunities for small investors

10
As opposed to other businesses that require huge capital outlay, investing in
shares is open to both the large and small stock investors because a person
buys the number of shares they can afford. Therefore the Stock Exchange
provides the opportunity for small investors to own shares of the same
companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to
finance infrastructure projects such as sewage and water treatment works or
housing estates by selling another category of securities known as bonds.
These bonds can be raised through the Stock Exchange whereby members of
the public buy them, thus loaning money to the government. The issuance of
such municipal bonds can obviate the need to directly tax the citizens in
order to finance development, although by securing such bonds with the full
faith and credit of the government instead of with collateral, the result is that
the government must tax the citizens or otherwise raise additional funds to
make any regular coupon payments and refund the principal when the bonds
mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on
market forces. Share prices tend to rise or remain stable when companies
and the economy in general show signs of stability and growth. An
economic recession, depression, or financial crisis could eventually lead to a
stock market crash. Therefore the movement of share prices and in general
of the stock indexes can be an indicator of the general trend in the economy.

11
 STOCK EXCHANGES IN INDIA

List of Stock Exchanges.

S.NO. NAME OF STOCK YEAR OF

EXCHANGE ESTABLISHMENT
1. Bombay Stock Exchange 1875
2. National Stock Exchange 1994
3. Ahmedabad Stock Exchange 1897
4. Bangalore Stock Exchange 1957
5. Bhubaneshwar Stock Exchange 1989
6. Calcutta Stock Exchange 1908
7. Cochin Stock Exchange 1978
8. Coimbatore Stock Exchange 1996
9. Delhi Stock Exchange 1947
10. Guwahati Stock Exchange 1984
11. Hyderabad Stock Exchange 1943
12. Jaipur Stock Exchange 1983
13. Ludhiana Stock Exchange 1983
14. Madhya Pradesh Stock 1930
Exchange
15. Madras Stock Exchange 1937
16. Magadh Stock Exchange 1986
17. Mangalore Stock Exchange N.D
18. Meerut Stock Exchange N.D
19. OTC Exchange Of India N.D
20. Pune Stock Exchange 1982
21. Saurashtra Kutch Stock 1989
Exchange
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 22. Uttar Pradesh Stock Exchange 1982
23. Vadodara Stock Exchange 1990
24. Interconnected Stock N.D.
Exchange(ICSE)

LUDHIANA STOCK EXCHANGE LIMITED

PROFILE
The Ludhiana Stock Exchange Limited was established in 1983, by Sh. S.P.
Oswal and Sh. B.M. Munjal, leading industrial luminaries, to fulfill a vital
need of having a Stock Exchange in this region. Since its inception, the
13
Stock Exchange has grown phenomenally. The Stock Exchange has played
an important role in channelising savings into capital for the various
industrial and commercial units of the State of Punjab and other parts of the
country The exchange has facilitated the mobilization of funds by
entrepreneurs from the public and thereby contributed in the overall,
economic, industrial and social development of the STATE.

GOVERNING COUNCIL, COMMITTEES AND ADMINISTRATION

The Council of Management of the Exchange consists of nine members, out
of which two are Government Nominees, four are Public Representatives
and one Executive Director who is also Ex-officio member of the Board. At
every Annual General Meeting, one third of the elected Directors retire by
rotation. Administration of the Exchange is managed by the Executive
Director who is assisted by a Company Secretary and a team of Executives,
Assistants, Technicians and Sub-staff. The Exchange has four Statutory
Committees namely Disciplinary Committee, Arbitration Committee and
Defaults Committee and Investor Services Committee. In addition, it has
Advisory and Standing committees to assist the administration.

CORPORATE GOVERNANCE
Although the Ludhiana Stock Exchange is not a listed Company, yet it has
followed a model of corporate governance, which is evident from the
composition of the Statutory Committees, the Investor Services Committee
and Audit Committee. The Investor Services Committee comprises of four
Public Representatives and one broker members. It is headed by Sh.
D.K.Malhotra,a legal expert. The audit committee is headed by Sh. R.K.
Bansal, Chartered Accountant. Statutory Committees are represented by
brokers and non-brokers in 20:80 ratio.

OPERATIONS OF LUDHIANA STOCK EXCHANGE

1.TURNOVER
Ludhiana Stock Exchange is one of the leading Stock Exchanges among the
Regional Stock Exchanges of the country, and has been providing trading
platform for the investors situated in Punjab, J&k, Himachal Pradesh &
Chandigarh. At present, it has 357 listed companies and among them, 231
are listed as regional companies. It had been generating significant amount
of the business in the secondary market. It recorded a peak turnover of
14
Rs.9154 crores during the year 2000-2001. The structural changes that took
place in the recent past in the Capital Market of the country had a negative
impact on the trading volume of the Regional Stock Exchanges. There has
been a significant reduction of turnover during the financial year 2001-2002,
but the reduction in the turnover of the Exchange has been more than
adequately compensated by substantial rise in the turnover of LSE Securities
Limited, a subsidiary of Ludhiana Stock Exchange.

2. LISTING
Listing is one of the major functions of a Stock Exchange wherein the
securities of the Companies are enlisted for trading purpose. Any Company
incorporated under Companies Act,1956, coming out with an IPO, has to
mandatory list its shares on a Stock Exchange.

The Listing Department of Ludhiana Stock Exchange deals with listing of

securities, further listing of issues like bonus and rights issues, post listing
compliance of the companies which are already listed with Ludhiana Stock
Exchange. The Companies desirous of listing its securities on the Exchange
have to sign a Listing Agreement with the Stock Exchange. After getting the
listing approval, the Company has to ensure and report compliance of the
post listing requirements. The listing section of the LSE monitors the post-
listing compliance of all the listed companies and follows up with the
companies, which are found deficient in compliance.

3. SETTLEMENT GUARANTEE FUND (SGF)

The Stock Exchange established a Settlement Guarantee Fund (SGF) on
April 6, 1998. It provides guarantee of all the genuine trades made through
the Screen Based Trading System of the Stock Exchange.

4.END OF AN ERA
The management of the Stock Exchange apprehended that the smaller
regional Stock Exchanges would not be able to meet the challenges imposed
by expansion of bigger Stock Exchanges like NSE and BSE and might end
up loosing their entire business to VSAT counters of the bigger Stock
Exchanges. In order to prepare for such an eventuality, Stock Exchange set
up a broking arm in the name of LSE Securities Limited (a Subsidiary
Company of the Stock Exchange) in January 2000 and built infrastructure
15
and IT based sophisticated systems to enable its members and investors to
trade on NSE and BSE through the subsidiary route. The Stock Exchange
was thus able to convert the "threat" it faced from expansion of NSE and
BSE into an opportunity for its members and investors. As expected, there
was a marked shift in the trading volumes from the Stock Exchange to the
NSE and BSE through the Subsidiary Company. This shift became more
prominent when SEBI introduced compulsory Rolling Settlement and
banned the deferral products like Badla, MCFS and ALBM w.e.f. July 2,
2001 causing thereby an end to arbitrage opportunities between the Stock
Exchange and NSE/BSE. Ultimately, there was complete shift of trading
from the Stock Exchange to the LSE Securities Limited in January 2002.

TRADING ON BIGGER STOCK EXCHANGES THROUGH

SUBSIDIARY ROUTE
As stated in the preceding para, the Exchange acquired the membership of
NSE & BSE through its subsidiary, the LSE Securities Limited, with the
objective of providing an enabling mechanism to its member brokers to trade
on NSE and BSE as sub-brokers of LSE Securities Limited.

Trading at BSE and NSE was commenced through the subsidiary route
from September 2000 and December 2000, respectively, and the trading in
F&O segment of NSE commenced in February 2002.

INVESTOR RELATED SERVICES.

LSE is pioneer organization. It’s investor greviances services shows it’s

ethical service environment. In capital market investor may boom or doom.
Sometime he face problem to deal in market. So to safeguard the investor’s
interest LSE has taken following steps.

1. Investor Grievances
The Exchange has made special arrangements to handle investor's
complaints and grievances. It has established an Investor Grievance Cell
which receives complaints from investors and follows up the complaints
with companies and member-brokers to ensure their satisfactory redress.
Recording of complaints and monitoring of their redressal has been fully
computerised.The Committee meets periodically to concile the grievances
between investors and broker members.

2. Investor Protection Fund

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The Exchange has set-up an Investor Protection Fund in the month of
January, 1990 for providing compensation to individual investors in case of
default by a member of the Exchange. In case any member-broker defaults
to meet his obligation towards investors in respect of deals that took place
through the trading system of the Stock Exchange, then the concerned
investors are compensated from this fund.

3. Investor Service Centre

The Exchange has set-up an Investor Service Centre in its premises for
providing information relating to Capital Market to the general public. The
Centre has a well equipped library, which subscribes to leading economic,
financial dailies and periodicals. It also stores the Annual Reports of the
companies listed at the Stock Exchange. The Investor Service Centre is also
equipped with a Terminal for providing "live" rates of trading at NSE and
BSE. A large number of the investors visit the centre.

17
LSE Securities Ltd., was incorporated in January, 2000 with a view to revive
the capital market in the region and for taking full advantage of the emerging
opportunities being provided by expansion of bigger stock exchanges like
NSE and BSE. The company since its inception has marched forward
rapidly and has maintained consistent growth record.
LSE Securities Limited is a subsidiary of the Ludhiana Stock Exchange has
presence at various locations to effectively service its large base of
individual clients. The clients of the company greatly benefit from strong
research capability, which encompasses fundamentals as well as technicals
of LSE Securities Ltd, besides its wide reach in this part of the country.

ORGANIZATION

1. OBJECTIVESOF THE COMPANY

LSE Securities Limited is a subsidiary of the Ludhiana Stock Exchange,
which was formed with an objective to enhance business and investment
opportunities for the investors and members of Ludhiana Stock Exchange at
large, through innovative products by encompassing a variety of activities
related to the capital market. The company has a paid-up capital of Rs 5.55
crores.

2. INTRODUCTION OF THE LSE SECURITIES LTD.

LSE Securities Ltd., was incorporated in January, 2000 with a view to revive
the capital market in the region and for taking full advantage of the emerging
opportunities being provided by expansion of bigger stock exchanges like
NSE and BSE. The company since its inception has marched forward
rapidly and achieved many milestone in a short span of existence.

3. GOVERNING COUNCIL
The Council of the management of the Company comprises of 10 directors
of which 3are broker members and 7non-brokers. Five non broker members
are Independent Directors of eminent status from the field of finance, law
and management and remaining two are Chief Executive Officer of LSE

18
Securities Limited and Executive Director of the holding company
(Ludhiana Stock Exchange), who are on the Board of the company as ex-
officio Directors. Thus the council of management has representation of sub-
brokers as well as professionals and subject specialists representing various
fields of business activities. Operations of the company are run in a
professional, transparent and fair manner keeping in view of the interest of
investors as well as other stake-holders.

4. CORPORATE MEMBERSHIP OF NSE & BSE

SEBI, at the initiative of LSE, permitted smaller Stock Exchanges, to trade
on bigger Stock Exchanges through their subsidiary companies. The
Ludhiana Stock Exchange floated its subsidiary company, the LSE
Securities Limited, with the objective of obtaining trading rights on bigger
Stock Exchanges. It has obtained corporate membership of both NSE and
BSE in the first half of year 2000.

5. TRADING AT NSE AND BSE

The LSE Securities Ltd. commenced trading operations in Capital Market
Segments of BSE and NSE in September, 2000 and December 2000
respectively. The turnover of the Company at NSE and BSE is growing by
leaps and bounds ever since in incorporation. There was encouraging
response from the sub-brokers specially at NSE counters.During the
financial year 2005-06, the Company recorded a turnover of Rs. 7975 crores
and Rs.3834 crores in "Capital Market" segments of NSE and BSE
respectively. For the year ended 2005-2006, there were 128 sub-brokers
registered for NSE and 68 for BSE.

6. F&O SEGMENT OF NSE

The LSE Securities Ltd. commenced trading operations in Future and
Options Segment of NSE in February 2002. The Company became the first
subsidiary of any Regional Stock Exchange which commenced trading in
“F&O” Segment of NSE. Response to trading facilities in the “F&O”
segment of NSE has been very encouraging and volumes generated in this
segment soon exceeded those in “Capital Market” segment.

7. TRADING THROUGH V-SATS

The LSE Securities Limited has provided facility to its sub-brokers for
trading on NSE and BSE through VSAT counters which are located outside
Stock Exchange Building. During 2005-2006, 27 sub-brokers of the
company have been trading through VSAT on NSE and 13 on BSE.

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8.CERTIFICATION IN FINANCIAL MARKET
In order to provide professional services to the investors of LSE Securities
Limited through its sub-brokers, the company motivated its sub-brokers and
its staff to qualify the certification in financial markets conducted by NSE.
All trading terminals for Capital Market Segment and F&O segment are
being operated by the persons after having qualified the said certification

9. DEPOSITORY PARTICIPANT SERVICES – NATIONAL

SECURITIES DEPOSITORY LIMITED (NSDL)
The LSE Securities Ltd. commenced its operations as Depository Participant
of NSDL in August 2000. The DP services provided by the Company have
technology edge over other DPs, as DP of the company is the only On-line
Real-Time DP in the region. As a result of efficient services and competitive
rates, the Company has been able to increase its market share in the DP
business at the cost of other DPs in the region. As on date DP of NSDL and
CDSL of the Company at Ludhiana is servicing over 35000 beneficiary
accounts

10. DEPOSITORY PARTICIPANT SERVICES – CENTRAL

DEPOSITORY SERVICES (INDIA) LIMITED (CDSL)
In order to further strengthen its services to sub-brokers and investors, the
Company applied for the DP of CDSL. It started DP operations of CDSL in
December 2001. With the operationalisation of DP Services of CDSL, the
Company has been able to provide delivery of shares to sub-brokers and
investors on the day of pay-out which in turn helps the sub-brokers to give
timely deliveries to their clients. Introduction of CDSL operations has also
enabled the sub-brokers and investors of the Company to timely meet the
pay-in obligations of securities purchased by the investors on BSE and sold
next day on NSE through the Company and vice-versa.

11.EXPANSION PROJECTS
To increase its presence in the region further, the company plans to open its
branches of Depository Services in the major cities of the region. To start
with, it has already opened its branches at Jalandhar Amritsar and
Chandigarh.

MANAGEMENT

The management of the Company comprises of 12 directors of which 5 are

member directors and 5 Public Representatives being persons of eminent
status from the field of finance, law and management, who are nominated by
Ludhiana Stock Exchange after approval of their name from SEBI. Besides
20
the Chief Executive Officer of company and Executive Director of the
holding company (Ludhiana Stock Exchange) are on the Board of the
company as ex-officio Directors. Operations of the company are run in a
professional, transparent and fair manner keeping in view the interest of
investors as well as other stake-holders.

BUSINESS PARTNERS
LSE Securities Ltd. is a subsidiary of The Ludhiana Stock Exchange Ltd.
and is providing trading services to the clients through its SEBI registered
cub brokers. The details of the SEBI registered sub brokers of LSE
Securities Ltd. as on 31.10.2005 is as under:
SUB BROKERS REGISTERED FOR TRADING AT NSE:

SUB BROKERS REGISTERED FOR TRADING AT BSE:

TABLE:OFFICE ADDRESS OF LUDHIANA STOCK EXCHANGE.

OFFICES OF LUDHIANA STOCK EXCHANGE

Registered Office Corporate Office
SCO 50, 1st Floor, 1st Floor, LSE Building,
Sector 34-A, Feroze Gandhi Market,
Chandigarh 160 022, Ludhiana 141 001,
Tele. Nos. 0172-3258091 Tele. Nos. 0161-4612317-18,
Tele. Nos. 0172-3258091 2774716

BRANCHES OF LSE
Amritsar Chandigarh
35-36, 2nd Floor, Deep Complex, SCO 50, 1st Floor,
Opp. Centurion Bank of Punjab, Sector 34-A ,
Court Road, Amritsar- 143001, Chandigarh 160 022 (UT) ,
Ph. 0183-2542212 Ph. 0172-5012555, 3258091

Jalandhar Una
Milbertan Building, Chaudhary Ram Sharan Commercial
PNB Chowk, Complex,
Jalandhar 144 001, Near Bus Stand,
Ph: 0181- 5073480 Una (H.P.) ,
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 Phone: 01975-224245 .

DEPARTMENTS

The aim of LUDHIANA STOCK EXCHANGE is to ensure the secure

channel to the investments of the investors and to provide the proper
services under the prescribed guidelines of SEBI. To maintain the proper
system of working of stock exchange, there are so many departments in
which particular functions are performed. The LSE has categorized it’s
functioning of department into two types. These are services & operational.
Operational Departments are:
1. Legal Department.
2. Secretarial Department
 Listing department.
 Membership department.
 Investors Grievance Cell.

3. Technical & Maintenance Department.

4. Personnel Department.
5. Accounts Department
Service Departments
1. EDP /Computer Section.
2 Margin Section.
3. Clearing Section
4. Surveillance Section
5. Depository Participant Section.

OPERATIONAL DEPARTMENTS

1. LEGAL DEPARTMENT
When the brokers or outside clients do not settle the claims in between then
they move to the legal courts. The legal department comes into the picture to
fight for the cause of investors and against the defaulting members. Legal
department also assist the members, investors to settle their disputes through
the arbitration committee, default committee, disciplinary committee, so that
the disputes may be settled at the earliest without incurring heavy dues or
amount regarding court fee tickets, advocate fee etc. It has also other
committees like human resource committee, canteen committee and women
committee.

22
The main object of legal department is to undertake and make effective, the
bye- laws, rules and regulations of the exchanges and to see the guidelines,
circulars and any amendments in bye-laws made by SEBI and to
enforce them at right time so that the further complications may be reduced
or avoided.

2. SECERETARIAL DEPARTMENT
The duties and functions of the secretarial section include maintenance of
records of minutes like:
 Meeting of various committees.
 Meeting of members.
Meeting of Board of Directors
 Minutes of Annual General Meeting (AGM)
 Minutes of Extra Ordinary General Meeting (EGM).
This department cover-
A. LISTINGG DEPARTMENT
B. MEMBERSHIP DEPARTMET
C. INVESTORS GREIVANCE CELL.
A. Listing Department
Listing means admission of securities of a public limited company on a
recognized stock exchange which provides the forum for the purchase and
sale of securities. Any company incorporated under the companies Act 1956,
coming out with an IPO has to mandatory list its shares on SE. The
companies desirous of listing its securities on the exchange have to sign a
listing agreement with the stock exchange. After getting listing approval the
company has to ensure and report compliance of the post listing
requirements.
PAID-UP CAPITAL FEE
Upto 1 Crore 8400
1 to 5 Crore 16800
5 to 10 Crore 28000
10 to 20 Crore 56000
20 to 50 Crore 84000
Above 50 Core 140000
The companies which have paid up capital of more than capital of Rs. 50
crores will pay additionally Rs. 2800 per every increase of Rs. 5 crores or
part thereof. The annual listing fees referred to above be applicable only if
the exchange is regional stock exchange otherwise the fees will be 50% of
the fees indicated above.

DOCUMENTS NEEDED FOR LISTING

a. Memorandum of Association.
23
 b. Articles of Association.
c. Listing Agreement.
d. Listing Documents.
e. Offer Document.
f. Distribution Schedule.
g. Shareholding Pattern etc.
B. Membership Departmennt
It is the first and foremost department of the stock exchange. It is base or the
primary department without which effectiveness and efficiency of the
working of any stock exchange is impossible. All members are required to
comply with rules under the securities control (regulation) act 1956.
 The section looks after the activities relating to
recruitment of personnel.
 Maintenance of attendance register.
 Appointment and removal of authorized
representative of brokers.
 Maintains the register of members.
This department deals with the membership of individual and corporate
members. The trade in market is done through the authorized members who
have duly registered with
concerned stock exchange and SEBI. The total members/brokers are 301.

C). Investor Grievance Cell

LSE has established IOC, which receives complaints from investors and
follow up the complaints with the company and member brokers to ensure
satisfactory redressal. The rationale behind establishing IOC is:

a) To safeguard the investors' interest.

b) To participate as monitoring authority of the public and
the right Issue of the company.
c) To ensure that the company has listed at the LSE
complies with all the listing requirements.
d) To keep record of the inquiry base of the listed
companies their annual financial results and any
subsequent increase in the equity base.

The LSE has maintained investor protection fund and investor service fund
for providing better services to the investors. SEBI has a vanishing company
cell, it enquires about fake companies. It includes:

a. INVEVSTOR GRIEVANCE CELL.

24
 b. ARBITRATION COMMITTEE
When matter is not solved at IGC then it is taken to arbitration committee.

3. TECHNICAL AND MAINTENANCE DEPARTMENT

The technical and maintenance section of LSE is regulating the activities of
electrical, mechanical and security system of LSE. It looks after the
following functions:

Electrification of Building:- All the electrical fittings and related

arrangements are provided at the basement of LSEAL and general entry to
basement is strictly prohibited. The LSE getting 11000 volts from PSEB and
incurring estimated expenses of Rs., 6 to 7 lacs per month and considered
one out of the major expenses of the LSE. Further electrification of the
building was featured with various transformers, circuit breakers and electric
panels.
Airconditioning of Plant:- LSE have its own air conditioning system which
comprises of own air conditioning system having 480 T.R. (tonnage of
refrigeration). Exchange consists of 262 rooms that are completely air
conditioned to 22 to 25 degree. The 480 T.R. is divided into 4 units
comprising 120 T.R.
Maintenance of Generators:- LSE maintains 3 generators. The capacity of
each generator is different and used for different purpose.
Fire Fighting System:- LSE have maintained a high degree of fire fighting
system. The system consists of 8 lacks gallon of water at the basement of the
exchange and fire system at each floor.
Others:- Apart from the above, the LSE maintains two lifts, safety
equipment, computer server room, security staff, metal detectors and
telephones for the smooth and safe working.

4.PERSONNEL DEPARTMENT
Motive of personnel department is to choose a right person for right job. It
deals with the appointment, interview and leaves, provident fund of
employees, recruitment and selection. Employees get gratuity after 5 years
of duration. DA is not more than 43% of basic salary. Now the LTC is
freezed. The department see the employees related activity only. This
department carries out all the activities related to human resource. It plays
effective part in the following functions:-

a. Recruitment of staff members.

25
 b. Keeping leave records: Earned leave 30 days from 2002 to any
employee with 5 international or national holidays.
c. Maintenance of register of attendance.
d. Having a look on the matters related to 1'.1"., Gratuity, I).A., Bonus
etc.
e. Loan:- For two basic loan a minimum of six months service and for
eight basic loan three years service and proof of necessity is required.
At present in the LSE Association Ltd has 226 employees which work
on various posts in various departments.
5. ACCOUNTS DEPARTMENT
Most of the work in accounts department of LSE is done manually. Help is
taken from the computer for the purpose of making the Trial Balance,
Income and Expenditure statement and Balance Sheet. The annual report of
the exchange is generally published in Sept after Annual General Meeting
every year. It performs the following functions:-

a. To make and receive payment to the outside agencies.

b. To disburse personal expenses.
c. To keep the record of all incoming and outgoing money and
preparation of financial statement at the end of financial year.
d. To get their accounts audited from the third party.

SERVICE DEPARTMENTS
1. EDP SECTION
The growing technicalities and increasing work load has enhanced the
importance of computer section of LSE. This department is mainly referred
as "EDP Section" i.e. electronic data processing section. In the present time
this section is the backbone of entire stock exchange because it is
performing many important activities. The whole function of stock exchange
would come to halt, if this department becomes inactive.
It prepares several reports namely:-

a. Scrip wise statement of number of each settlement period.

26
 b. Sub broker wise delivery bill receives order (after payout).
c. Downloading of delivery orders.
d. Sub broker wise final statement.
e. HDFC bank entry.
f. Scrip wise statement.

2. MARGIN SECTION
Behind the establishment of the margin section, there is some rationale,
which is

a. To prevent brokers in indulging in excessive speculation.

b. To keep a track of Base Minimum capital (BMC) and Additional Base
Minimum Capital (ABMC) and set exposure limits for each broker
member.

Before the trading being started a broker has to deposit BMC to this
department.

CASH PORTION CASH/FDR/BG

CRIPS
Cash track only Rs. 1.25 lakhs Rs. 3 lakhs

The margin section allows two types of limits to brokers. They are:

NET EXPOSURE LIMIT

NSE = 25 times gross 3.5 times net BSE = 25 times gross
3.5 times net 6 times net

Types of margins
Earlier, before the SEBI decisions to ban any carry forward trade, 6 types of
margins were imposed i.e. mark to market margin, carryover margin,
incremental margin, cash trade margin, volatility margin and special margin
(imposed after the Ketan Parkeh Scam). However the brokers are now
required to pay following margins with regard to their trades under rolling
settlement.
VAR (Value at risk) Margin.
For the scrips in the compulsory rolling settlements, the 99% V AR based
margin system would be introduced w.e.f. July 2. 2001, the
computation of this margin is performed by software developed by
Chicago Stock Exchange.
ADDITIONAL MARGIN
27
This margin of 12% would be levied over and above, the VAR margin.
Mark to market margin
In addition to VAR margin and additional margin as mentioned above the
brokers would also be required to pay Mark to Market margin. It is
collected on daily basis, brokers wise 100% of national loss of each member
for each scrip. Calculated as the difference of this buying or selling price and
closing price of that scrip at the end of the days. The margin is payable in
cash or in the form of a bank guarantee.

3. CLEARING HOUSE
Settlement Function
There are rolling settlement cycles w.e.f. 1st April 2002 which is prevailing
at LSE and commenced on daily basis. At the end of settlement date
members have scrips wise delivery notes and have to deposit it with clearing
house as per following:
T = Trading period (say Monday)
T+2 = Pay in of funds on Wednesday by 10.30 a.m.
T+2 = Pay in of securities on Wednesday at 2.00 P.M.
T+3 = Auction for undelivered scripts on Thursday.
T +5 = Auction pay in of Securities and funds on Monday by 10.30
A.M.
T+5 = Auction pay in of securities and funds on Monday at 2.00 PM.
a. Rolling Settlement:- There is rolling settlement cycle prevailing at LSE
on T+2 basis since 01.04.2002 at the end of each settlement members are
given script wise notes e.g. if a member purchases shares on Monday, then
he has to pay in funds on Wednesday but if the purchase made on Thursday
then he has to provide funds on Monday. On Saturday and Sunday, trading
in every stock exchange in India is closed, the same procedure is applied in
case of sale of shares.

b.Auction:- As per rolling settlement pay-in, pay-out may not be complete.

Some members make fault for which the clearing house has the
responsibility to settle the pending securities. In order to perform the
responsibility the clearing house conducts an auction on Thursday (T+3) of
pending securities. In the trading of auction session the auction price of
securities may be 20% high / less of closing price of that day.

REPORTING STRUCTURE TO MANAGEMENT IN CLEARING

HOUSE
ASSISTANTS ASSISTANTS
to to
NSE BSE
28
 Sr. Assistants Sr. Assistants
1 member 1 member

Sr. Officer
(LSE/BSE/NSE)

MANAGER

EXECUTIVE DIRECTOR

The ultimate authority lies with the Executive Director to whom overall
reporting done. The ED received from manager and the manager from the
senior officer. Two assistants report the senior officer (BSE & LSE).

4. SERVELLANCE SECTION
In LSE, for the purpose of ensuring a fair market, this section is responsible
for monitoring the trading activity. Some CO's rig the price of their scrip. So
this section keep track of trading patterns of the brokers to prevent the
market manipulation. Whenever a member makes excessive exposure,
beyond the limits alerts (signals) are given by the system. Then large
variations in the price as well as the volume of the scrip are scrutinized. and
appropriate actions are taken.

5. DEPOSITORY PARTICIPANT DEPARTMENT

Another most important section is depository of LSE. This system
commenced trading in demat shares from Nov 6, 1998 by becoming a
depository participation of NSDL and CDSL. A depository is a system,
which holds out shares in the form of electronic accounts in the same way a
bank holds our money in a saving account. Depository system provided the
following advantages:-
• Shares cannot be lost or stolen and there is no need to doubt the
genuineness of shares i.e.whether they are forged or fake.
There is no risk of bad delivery shares transactions like transfer etc. can No
delay in transfer

29
INDUSTRY
PROFILE

30
 INDIAN MAJOR PLAYERS

List of Asset Management Companies in India

Bank Sponsored
I. Bank of Baroda Asset Management Co. Ltd.
II. Canbank Investment Management Services Ltd.
III. PNB Asset Management Ltd.
IV. UTI Asset Management Company (P) Ltd.

Institutions
I. GIC Asset Management Co. Ltd.
II. Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector
INDIAN
I. Benchmark Asset Management Co. Ltd.
II. Cholamandalam Asset Management Co. Ltd.
III. Escorts Asset Management
IV. J.M. Capital Management Ltd.
V. Kotak Mahindra Asset Management Co. Ltd.
VI. Sundaram Asset Management Co.
VII. Reliance Capital Asset Management Ltd.
FOREIGN
I. Principal Asset Management Co. Ltd.

Joint Ventures – Predominantly Indian

I. Birla Sun Life Asset Management Pvt. Co. Ltd.
II. Credit Capital Asset Management Co. Ltd.
III. DSP Merrill Lynch Fund Managers Ltd.
IV. First India Asset Management Pvt. Ltd.
V. HDFC Asset Management Co. Ltd.
VI. Tata TD Waterhouse Asset Management Pvt. Ltd.

Joint Ventures – Predominantly Foreign

I. Alliance Capital Asset Management (India) Pvt. Ltd.
II. Deutsche Asset Management (India) Pvt. Ltd.
III. HSBC Asset Management (India) Pvt. Ltd.
IV. ING Investment Management (India) Pvt. Ltd.
V. Standard Chartered Asset Management Co. Pvt. Ltd.

31
 VI. Prudential ICICI Management Co. Ltd.

HISTORY OF MUTUAL FUND

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve
Bank. The history of mutual funds in India can be broadly divided into four
distinct phases: -

First Phase – 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was

set up by the Reserve Bank of India and functioned under the Regulatory
and administrative control of the Reserve Bank of India. In 1978 UTI was
de-linked from the RBI and the Industrial Development Bank of India
(IDBI) took over the regulatory and administrative control in place of RBI.
The first scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the
first non- UTI Mutual Fund established in June 1987 followed by Can bank
Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian
Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda

32
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management
of Rs.47,004 crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund
Regulations came into being, under which all mutual funds, except UTI were
to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered
in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were
33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of
India with Rs.44,541 crores of assets under management was way ahead of
other mutual funds.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an
33
administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76,000 crores of assets under management and with the
setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different private
sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of September, 2004, there were 29
funds, which manage assets of Rs.153108 crores under 421 schemes.

34
 ECONOMIC
ENVIRONMENT

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

While the Indian mutual fund industry has grown in size by about 320%
from March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in
terms of AUM, the AUM of the sector excluding UTI has grown over 8
times from Rs. 152 billion in March 1999 to Rs. 1295 billion as at March
2005.

35
 Asset Under Management (excluding UTI)

1400
1295
1200 1201

1000
AUM (Rs. Bn.)

800
659
600
492
400 365 326
200
114 152
0
1998 1999 2000 2001 2002 2003 2004 2005

Though India is a minor player in the global mutual fund industry, its AUM
as a proportion of the global AUM has steadily increased and has doubled
over its levels in 1999.

The growth rate of Indian mutual fund industry has been increasing for the
last few years. It was approximately 0.12% in the year of 1999 and it is
noticed 0.25% in 2004 in terms of AUM as percentage of global AUM.

Growth rate of Indian MF Industry

0.30%
AUM as % of Global AUM

0.25%

0.20%

0.15%

0.10%

0.05%

0.00%
1999 2000 2001 2002 2003 2004

36
 The GDP of different countries

9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
China Hong-Kong India Korea Singapore US

Now we can see from the above graph that India has robust GDP growth
prospects.

Some facts for the growth of mutual funds in India

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the queue to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets
under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channelizing
these savings in mutual funds sector is required.

• We have approximately 29 mutual funds which is much less than US

having more than 800. There is a big scope for expansion.

37
• 'B' and 'C' class cities are growing rapidly. Today most of the mutual
funds are concentrating on the 'A' class cities. Soon they will find
scope in the growing cities.

• Mutual fund can penetrate rurals like the Indian insurance industry
with simple and limited products.

• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

• Introduction of Financial Planners who can provide need based

advice.

Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline
of the companies floated by the nationalized banks and smaller private
sector players.

Many nationalized banks got into the mutual fund business in the early
nineties and got off to a start due to the stock market boom was
prevailing. These banks did not really understand the mutual fund
business and they just viewed it as another kind of banking activity. Few
hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by
these funds was not good. Some schemes had offered guaranteed returns
and their parent organizations had to bail out these AMCs by paying
large amounts of money as a difference between the guaranteed and
actual returns. The service levels were also very bad. Most of these
AMCs have not been able to retain staff, float new schemes etc.

The foreign owned companies have deep pockets and have come in here
with the expectation of a long haul. They can be credited with
introducing many new practices such as new product innovation, sharp
improvement in service standards and disclosure, usage of technology,
broker education and support etc. in fact, they have forced the industry to

38
upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided
by these.

39
 TECHNOLOGICAL
ENVIRONMENT

IMPACT OF TECHNOLOGY

Mutual fund, during the last one decade brought out several innovations in
their products and is offering value added services to their investors. Some
of the value added services that are being offered are:

• Electronic fund transfer facility.

• Investment and re-purchase facility through internet.
• Added features like accident insurance cover, mediclaim etc.
• Holding the investment in electronic form, doing away with the
traditional form of unit certificates.
• Cheque writing facilities.

40
 • Systematic withdrawal and deposit facility.

ONLINE MUTUAL FUND TRADING

The innovation the industry saw was in the field of distribution to make it
more easily accessible to an ever increasing number of investors across the
country. For the first time in India the mutual fund start using the automated
trading, clearing and settlement system of stock exchanges for sale and
repurchase of open-ended de-materialized mutual fund units.

Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP)

were options introduced which have come in very handy for the investor to
maximize their returns from their investments. SIP ensures that there is a
regular investment that the investor makes on specified dates making his
purchases to spread out reducing the effect of the short term volatility of
markets. SWP was designed to ensure that investors who wanted a regular
income or cash flow from their investments were able to do so with a pre-
defined automated form. Today the SW facility has come in handy for the
investors to reduce their taxes.

Instead of going through the hassles of filling up a repurchase request form,

sending it to the investor service centre and then waiting for Cheque to be
delivered to them, all they need to do is to simply bank the cheques with
them and save time and effort.

41
 LEGAL
AND
POLITICAL
ENVIRONMENT

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organization.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd
August 1995.

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

has been registered with SEBI. Till date all the AMCs are that have launched
mutual fund schemes are its members. It functions under the supervision and
guidelines of board of directors. AMFI has brought down the Indian Mutual
42
Fund Industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interest of mutual funds as well as their unit
holders.

REGULATORY MEASURES BY SEBI

Like Banking & Insurance up to the nineties of the last century, Mutual
Fund industry in India was set up and functioned exclusively in the state
monopoly represented by the Unit Trust of India. This monopoly was diluted
in the eighties by allowing nationalized banks and insurance companies
(LIC) to set up their institutions under the Indian Trusts Act to transact
mutual fund business, allowing the Indian investor the option to choose
between different service providers. Unit Trust was a statutory corporation
governed by its own incorporating act. There was no separate regulatory
authority up to the time SEBI was made a statutory authority in 1992. but it
was only in the year 1993, when a government took a policy decision to
deregulate Indian Economy from government control and to transform it
market oriented, that the industry was opened to competition from private
and foreign players. By the year 2007 there came to be established in the
market 34 mutual funds offerings a variety of about 200 schemes,
mobilizing a gross investment of Rs. 232000 crores.

SECURITIES AND EXCHANGE BOARD OF INDIA

(MUTUAL FUNDS) REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange Board of

India (SEBI) since inception of SEBI as a statutory body. SEBI initially
formulated “SECURITIES AND EXCHANGE BOARD OF INDIA
(MUTUAL FUNDS) REGULATIONS, 1993” providing detailed procedure
for establishment, registration, constitution, management of trustees, asset
management company, about schemes/products to be designed, about
investment of funds collected, general obligation of MFs, about inspection,
audit etc. based on experience gained and feedback received from the market
SEBI revised the guidelines of 1993 and issued fresh guidelines in 1996
43
titled “SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL
FUNDS) REGULATIONS, 1996”. The said regulations as amended from
time to time are in force even today.

The SEBI mutual fund regulations contain ten chapters and twelve
schedules. Chapters containing material subjects relating to regulation and
conduct of business by Mutual Funds.

Union Budget 2006-07 - Impact on Mutual Funds Industry

Key Announcements:

» Ceiling on aggregate investments by mutual funds in overseas

instruments to be raised from $ 1 billion to $ 2 billion with removal of
requirement of 10% reciprocal shareholding.
» Limited number of qualified Indian mutual funds to be allowed to
invest, cumulatively up to $ 1 billion, in overseas exchange traded funds.
» An investor protection fund to be setup under the aegis of SEBI.
» RBI’s anonymous electronic order matching trading module (NDS-
OM) on its Negotiated Dealing System to be extended to qualified mutual
funds, provident funds and pension funds.
» Steps to be taken to create a single, unified, exchange-traded market
for corporate bonds.
» Increase of 25 per cent, across the board, on all rates of STT.
» Investments in fixed deposits in scheduled banks for a term of not less
than five years included in section 80C of the Income tax Act.
» Limit of Rs.10, 000 in respect of contribution to certain pension funds
removed in section 80CCC subject to overall ceiling of Rs.100, 000.
» Definition of open-ended equity-oriented schemes of mutual funds in
the Income tax Act aligned with the definition adopted by SEBI.
» Open-ended equity-oriented schemes and close-ended equity oriented
schemes to be treated on par for exemption from dividend distribution tax.

Implications For Mutual Fund Industry

The Union Budget 06 moved on predictable and there were some sops for
the mutual fund industry as well. The dividends from MF units’ continue to
be tax-free for its investors. Debt-oriented Mutual Funds schemes continue
to pay distribution tax amounting to 12.5 percent on the dividends declared,
while equity-oriented mutual funds schemes will not be required to pay

44
distribution tax. Long-term capital gains tax on equity funds remains nil
while for debt funds it would be taxed at the prevailing rates- 10% without
indexation or 20% with indexation. The limit on FII investment in corporate
debt would be raised from $0.5bn to $1.5bn, which is expected to encourage
the investments in debt market. Open-ended equity-oriented schemes and
close-ended equity oriented schemes would now be treated on par for
exemption from dividend distribution tax.

The ceiling on aggregate investment by mutual funds in overseas

instruments would be raised from $1billion to $2billion and the requirement
of 10% reciprocal share holding would be removed and a limited number of
qualified Indian mutual funds to invest, cumulatively up to $1 billion, in
overseas exchange traded funds would be allowed. Mutual Fund investment
abroad is currently restricted in companies that have a holding of at least
10% in a listed Indian company. This will enable Indian investors to invest
in global equity markets with a wider choice of stocks to permit greater
diversification and the convenience of dealing with an Indian mutual fund.

However, now, investors would have to bear the brunt of increased rate of
securities transaction tax. The Investments in fixed deposits in scheduled
banks for a term of not less than five years has been included in section 80C
of the Income tax Act, thereby making them more attractive to the general
public, which may affect debt-oriented mutual fund schemes.

MUTUAL FUND OVERVIEW

A mutual fund is a trust that pools the savings of a number of investors who
shares a common financial goal. The money thus collected is invested by the
fund manager in different type of securities depending upon the objective of
the schemes. 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
45
invest in a diversified, professionally managed portfolio at a relatively low
cost. Anybody with an investible surplus of as little as a few thousand rupees
can invest in mutual funds. Each mutual scheme has a defined investment
objective and strategy.
A mutual fund is the ideal investment vehicle for today’s complex and
modern financial scenario. Markets for equity shares, bonds and other fixed
income instruments, real estate, derivatives and other has become has
matured and information driven. Price changes in these assets are driven by
global events occurring in far away places. A typical individual is unlikely
to have the knowledge, skills, inclination and time to keep track of events,
understand their implications and act speedily. An individual also finds it
difficult to keep track of ownership of his assets, investments, brokerage
dues and bank transactions etc.
A mutual fund is the answer to all these solutions. It appoints professionally
qualified and experienced staff that manages each of these functions on full
time basis. The large pool of money collected in the fund allows it to hire
such staff at a very low cost to each investor. In fact, the mutual fund vehicle
exploits economies of scale in three areas – research, investments and

transaction processing. While the concept of individuals coming together to

invest money collectively is not new, the mutual fund in its present form is a
20th century phenomenon. In fact, mutual fund gained popularity only after
the Second World War. Globally there are thousands of firms offering tens
of thousands of mutual funds with the different investment objectives.
Today, mutual funds collectively manage almost as much as or more money
as compared to banks.
A draft offer document is to be prepared at the time of launching the fund.
Typically, it pre specifies the investment objectives of the fund, the risk
associated, the cost involves in the process and the broad rules for entry into
and exit from the fund and other areas of operation. In India, as in most
countries, these sponsors need approval from a regulator, SEBI. SEBI looks
at track records of the sponsor and its financial strength in granting approval
to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds
according to the investment objective. It also hires another entity to be the
custodian of the assets of the fund and perhaps a one third to handle registry
work for the unit holders (subscribers) of the fund.
In the Indian context, the sponsors promote the asset management company
also, in which it holds a majority stake. In many cases a sponsor can hold a
100% stake in the Asset Management Company (AMC). E.g. Birla Global
Finance is the sponsor of Birla Sun Life Asset Management Company Ltd.,
46
which has floated different mutual funds schemes and also acts as an asset
manager for the funds collected under the schemes.

MUTUAL FUND OPERATION FLOW CHART

47
 Mutual Fund Operation Flow Chart

Figure 1.1

Mutual fund operations is a circle in which the investors pool in their money
to earn income and then the fund manager invests the money in securities,
which may be debt or equity, which in turn generates income in the form of
returns to the investors and then investors again invest their money. So the
circle continues with more investors coming in and some of them leaving.

CHARACTERSTICS OF MUTUAL FUNDS

• The ownership is in the hands of the investors who have pooled in

their funds.

• It is managed by a team of investment professionals and other service

providers.

• The pool of funds is invested in a portfolio of marketable investments.

• The investors share is denominated by ‘units’ whose value is called as

Net Asset Value (NAV) which changes everyday.

• The investment portfolio is created according to the stated investment

objectives of the fund.

48
 ADVANTAGES OF MUTUAL FUNDS

The advantages of mutual funds are given below: -

Portfolio Diversification

Mutual funds invest in a number of companies. This diversification

reduces the risk because it happens very rarely that all the stocks decline at
the same time and in the same proportion. So this is the main advantage of
mutual funds.

Professional Management

Mutual funds provide the services of experienced and skilled

professionals, assisted by investment research team that analysis the
performance and prospects of companies and select the suitable investments
to achieve the objectives of the scheme.

Low Costs

Mutual funds are a relatively less expensive way to invest as compare

to directly investing in a capital markets because of less amount of
brokerage and other fees.

Liquidity

This is the main advantage of mutual fund, that is whenever an

investor needs money he can easily get redemption, which is not possible in
most of other options of investment. In open-ended schemes of mutual fund,
the investor gets the money back at net asset value and on the other hand in
close-ended schemes the units can be sold in a stock exchange at a
prevailing market price.

Transparency

49
 In mutual fund, investors get full information of the value of their
investment, the proportion of money invested in each class of assets and the
fund manager’s investment strategy.

Flexibility

Flexibility is also the main advantage of mutual fund. Through this

investors can systematically invest or withdraw funds according to their
needs and convenience like regular investment plans, regular withdrawal
plans, dividend reinvestment plans etc.

Convenient Administration

Investing in a mutual fund reduces paperwork and helps investors to

avoid many problems like bad deliveries, delayed payments and follow up
with brokers and companies. Mutual funds save time and make investing
easy.

Affordability

Investors individually may lack sufficient funds to invest in high-

grade stocks. A mutual fund because of its large corpus allows even a small
investor to take the benefit of its investment strategy.

Well Regulated

All mutual funds are registered with SEBI and they function with in
the provisions of strict regulations designed to protect the interest of
investors. The operations of mutual funds are regularly monitored by SEBI.

50
 DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their following drawbacks:

No Guarantees

No investment is risk free. If the entire stock market declines in value,

the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they invest in
mutual funds than when they buy and sell stocks on their own. However,
anyone who invests through mutual fund runs the risk of losing the money.

Fees and Commissions

All funds charge administrative fees to cover their day to day

expenses. Some funds also charge sales commissions or loads to compensate
brokers, financial consultants, or financial planners. Even if you don’t use a
broker or other financial advisor, you will pay a sales commission if you buy
shares in a Load Fund.

Taxes

During a typical year, most actively managed mutual funds sell

anywhere from 20 to 70 percent of the securities in their portfolios. If your
fund makes a profit on its sales, you will pay taxes on the income you
receive, even you reinvest the money you made.

Management Risk

When you invest in mutual fund, you depend on fund manager to

make the right decisions regarding the fund’s portfolio. If the manager does
not perform as well as you had hoped, you might not make as much money
on your investment as you expected. Of course, if you invest in index funds,
you forego management risk because these funds do not employ managers.

51
 STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below illustrates the struct
ure of mutual funds: -

Structure of Mutual Funds

Figure 1.2

SEBI

52
 The regulation of mutual funds operating in India falls under the
preview of 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
SEBI (Mutual Funds) Regulations, 1996 to be registered with the SEBI.

Sponsor

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 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 or guilty of any economic offence.

Trustees

The mutual fund is required to have an independent Board of

Trustees, i.e. two third of the trustees should be independent persons who are
not associated with the sponsors in any manner. An AMC or any of its
officers or employees are not eligible to act as a trustee of any mutual fund.
The trustees are responsible for - inter alia – ensuring that the AMC has all
its systems in place, all key personnel, auditors, registrar etc. have been
appointed prior to the launch of any scheme.

Asset Management Company

The sponsors 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.
1. The sponsor must have at least 40% stake in the AMC.
2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net
worth of rs. 100 million.
4. The director of the AMC should be a person having adequate
professional experience.
5. 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.

53
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 between the sponsor and
the trustees of the mutual fund duly registered under the provisions of the
Indian Registration Act, 1908.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for

maintaining the register of investors / unit holders and every day settlements
of purchases and redemption of units. The role of a transfer agent is to
collect data from distributors relating to daily purchases and redemption of
units.

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.

Unit Holders

They are the parties to whom the mutual fund is sold. They are
ultimate beneficiary of the income earned by the mutual funds.

54
 TYPES OF MUTUAL FUNDS

1. By Structure
• Open – Ended Funds
• Close – Ended Funds
• Interval Funds

2. By Investment Objective
• Growth Funds
• Income Funds
• Balanced Funds
• Money Market Funds

3. Other Schemes
• Tax Saving Schemes
• Special Schemes
 Index Schemes
 Sector Specific Schemes
 Industry Specific Schemes
 Specific Area Schemes
 Bond Scheme

Mutual fund schemes may be classified on the basis of its structure and the
investment objective.

1. According to Structure

Open – Ended Funds

An open – ended fund is one that is available for subscription
all through the year. These do not have a fixed maturity. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related
prices. The key feature of open – ended schemes is liquidity.

55
Close – Ended Funds
A close – ended fund has a stipulated maturity period which
generally ranging from 3 to 15 years. The fund is open for
subscription only during a specified period. Investors can invest in the
scheme at the same time of the initial public issue and thereafter they
can buy and sell the units of the scheme on the stock exchanges where
they are listed. In order to provide an exit route to the investors, some
close – ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related prices.

Interval Funds
Interval funds combine the features of open – ended and close –
ended schemes. They are open for sales or redemption during pre-
determined intervals at their NAV.

2. According to Investment Objective:

Growth Funds
The aim of growth funds is to provide capital appreciation over
the medium to long term. Such schemes normally invest a majority of
their corpus in equities. It has been proven that returns from stocks are
much better than the other investments had over the long term.
Growth schemes are ideal for investors having a long term outlook
seeking growth over a period of time.

Income Funds
The aim of the income funds is to provide regular and steady
income to investors. Such schemes generally invest in fixed income
securities such as bonds, corporate debentures and government
securities. Income funds are ideal for capital stability and regular
income.

56
Balanced Funds
The aim of balanced funds is to provide both growth and
regular income. Such schemes periodically distribute a part of their
earning and invest both in equities and fixed income securities in the
proportion indicated in their offer documents. In a rising stock market,
the NAV of these schemes may not normally keep pace or fall equally
when the market falls. These are ideal for investors looking for a
combination of income and moderate growth.

Money Market Funds

The main aim of money market funds is to provide easy
liquidity, preservation of capital and moderate income. These schemes
generally invest in safe short term instruments such as treasury bills,
certificates of deposit, commercial paper and inter – bank call money.
Returns on these schemes may fluctuate depending upon the interest
rates prevailing in the market. These are ideal for corporate and
individual investors as a means to park their surplus funds for short
periods.

3. Other Schemes

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws as the government offers
tax incentives for investment in specified avenues. Investments made
in Equity Linked Saving Schemes (ELSS) and Pension Schemes are
allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act
also provides opportunities to investors to save capital gains.

Special Schemes :

Index Schemes
Index funds attempt to replicate the performance of a particular
index such as the BSE Sensex or the NSE 50.

57
 Sector Specific Schemes
Sector funds are those which invest exclusively in a specified
industry or a group of industries or various segments such as ‘A’
group shares or initial public offerings.

Industry Specific Schemes

Industry specific schemes invest only in the industries specified
in the offer document. The investment of these funds is limited to
specific industries like Info Tech, FMCG and Pharmaceuticals etc.

Specific Area Schemes

It seeks investment in a specific area usually a country or state,
country funds floated by various international fund management
companies.

Bond Schemes
It seeks investment in bonds, debentures and debt related
instrument to generate regular income flow.

FREQUENTLY USED TERMS

Advisor - Is employed by a mutual fund organization to give professional

advice on the fund’s investments and to supervise the management of its
asset.

Diversification – The policy of spreading investments among a range of

different securities to reduce the risk.

Net Asset Value (NAV) - Net Asset Value is the market value of the assets
of the scheme minus its liabilities. The per unit NAV is the net asset value of

58
the scheme divided by the number of units outstanding on the Valuation
Date.

Sales Price - Is the price you pay when you invest in a scheme. Also called
Offer Price. It may include a sales load.

Repurchase Price - Is the price at which a close-ended scheme repurchases

its units and it may include a back-end load. This is also called Bid Price.

Redemption Price - Is the price at which open-ended schemes repurchase

their units and close-ended schemes redeem their units on maturity. Such
prices are NAV related.

Sales Load - Is a charge collected by a scheme when it sells the units. Also
called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No
Load’ schemes.

59
RESEARCH METHODOLOGY
OBJECTIVES:

• To study about the mutual funds industry.

• To study the approach of investors towards mutual funds.
• To study the behaviour of the investors whether they belong to bull
or bear category.

SCOPE OF THE STUDY:

• Subject matter is related to the investor’s approach towards mutual

funds.
• People of age between 20 to 60
• Area limited to Chandigarh.
• Demographics include names, age, qualification, occupation, marital
status and annual income.

60
STEPS OF RESEARCH DESIGN:

1. Define the information needed:- This first step states that what
is the information that is actually required. Information in this case
we require is that what is the approach of investors while investing
their money in mutual funds e.g. what do they consider before
investing in mutual fund, how often do they monitor their
investment etc. So, the information sought and information
generated is only possible after defining the information needed.

2. Design the research:- A research design is a framework or

blueprint for conducting the research project. It details the
procedures necessary for obtaining the information needed to solve
research problems. In this project Descriptive Research is
designed.

3. Specify the methods if data collection:- Both primary and

secondary data have been used for the purpose of the data
collection.
Primary data was collected by administering an unbiased
structured questionnaire to the respondents. And the secondary
data was collected from secondary sources of information that
included websites, books and business magazines.

4. Specify the scaling procedures:- Scaling involves creating a

continuum on which measured objects are located. Both nominal
and interval scales have been used for this purpose.

5. Construct and pretest a questionnaire:- A questionnaire is a

formalized set of questions for obtaining information from
respondents. Where as pretesting refers to the testing of the
questionnaire on a small sample of respondents in order to identify
and eliminate potential problems.

61
6. Specify the sampling process and sample size:-

• Population
All the investors of Chandigarh in June-July 2006 who are
investing money in mutual funds.

• Sample Unit
Any investor in Chandigarh.

• Sample Size
This study involves 100 respondents.

• Sample Design
The study uses convenient sampling technique to make contacts
with the respondents.

7. Plan for data analysis:- Analysis of data is planned with the

help of mean, chi-square technique and analysis of variance.

62
 LIMITATIONS

No study is free from limitations. The limitations of this study can be:

 Sample size taken is small and may not be sufficient to predict the
results with 100% accuracy.

 The result is based on primary and secondary data that has it’s own
limitations.

 The study only covers the area of Chandigarh that may not be
applicable to other areas.

63
 INVESTOR’S APPROACH TOWARDS MUTUAL FUND
1. Who among the following has influenced your choice for
investment in mutual funds?

ANOVA
Sum of Squares df Mean Square F Sig.

Consultant Between 1.262 2 .631 1.341 .266

Groups
Within Groups 45.648 97 .471

Total 46.910 99
FRIENDS Between .325 2 .162 .301 .741
Groups
Within Groups 52.425 97 .540

Total 52.750 99
Personal Between .365 2 .183 .511 .602
Choice Groups
Within Groups 34.675 97 .357

Total 35.040 99

The scale is of 3 to 1 where –

3 = very important, 2 = important, 1 = not important

Hypothesis:

a. There is no significant difference between qualification of the

investors and influence of consultant’s advise to investor for
investing in mutual funds.
b. There is no significant difference between qualification of the
investors and influence of friend’s advise to investor for
investing in mutual funds.
c. There is no significant difference between qualification of the
investors and influence of personal choice of investor for
investing in mutual funds.

64
 2. Which factor do you consider before investing in mutual fund?

Options Percentages

Safety of principal 7%

Low risk 35%

High returns 58%

7%

35% Safety of principal

Low risk
High returns
58%

It shows that only 7% of people of Chandigarh prefer safety of principal,

which means they have a conservative approach towards their investment in
mutual funds.
Where as 58% of people want high returns from their investment that means
they have an aggressive approach because if there is a high return then there
will be a high risk also.

65
 3. At which rate do you want your investment to grow?

Options Percentages

Steadily 12%

At an average rate 35%

Fast 53%

12%

Steadily
At an average rate

53% Fast
35%

It shows that more than half of the investors .i.e. 53% want their investment
to grow at a faster rate and only 12% investors want their investment to
grow steadily.

66
4. Imagine that stock market drops immediately after you invest in
it then what will you do?

Options Percentages

Withdraw your money 15%

Wait and watch 57%

Invest more in it 28%

15%
28%

Withdraw your money

Wait & watch
Invest more in it

57%

It shows that, 15% of people of Chandigarh prefer withdrawing their

money when stock market drops that means they belong to the category
of risk avoiders who don’t want to take the risk and may be treated as
bears.
More than half of the investors .i.e. 57% prefer to just wait and watch
when stock market drops immediately after their investment that means
they belong to the category of risk averse who minimize the return at
fixed risk.
Only 28% of the investors prefer investing more money when stock
market drops that means they are risk takers who takes risk with the
expectation of high returns and they may be called bulls.

5. How long have you been investing in mutual funds?

67
 12%

For the last 1-5 years

For the last 5-10 years

32% 56% For over 10 years & above

Annual Income Total

Below 1,50,000 1,50,000-2,50,000 2,50,000-4,00,000 Above 4,00,000
TIME 1 15 18 20 3 56
2 7 10 11 4 32
3 2 8 2 12
Total 24 36 33 7 100

It shows most of the people who are having an annual income of

rs.1,50,000-2,50,000 have been investing for the last 1-5 years.
Chi-Square Tests

Value df Sig. (2-sided)

Pearson Chi-Square 7.629 6 .267

Hypothesis: There is no significant difference between the income of the

investors and the duration of investing in mutual funds.

6. What percentage of your income do you invest annually?

68
 23%
29%

Upto 5%
5%-10%
More than 10%

48%

Annual Income Total

Below 1,50,000 1,50,000- 2,50,000- Above 4,00,000
2,50,000 4,00,000
% of Income 1 12 8 8 1 29
2 9 18 16 5 48
3 3 10 9 1 23
Total 24 36 33 7 100

It shows that most of the people who are having an annual income of
between 1,50,000 – 2,50,000 invest 5% - 10% of their income.

Chi-Square Tests

Value df Sig. (2-sided)

Pearson Chi-Square 8.384 6 .211

Hypothesis: It shows that there is no significant difference between the

annual income of the investors and the percentage of their income which
they invest in mutual funds.

7. How often do you monitor your investment?

69
 Options Percentages

Daily 15%

Monthly 52%

Occasionally 33%

Daily
Occasionally 15%
33%

Monthly
52%

It shows that most of the people .i.e. 52% prefer monitoring their investment
on monthly basis.
33% of the people monitor their investment occasionally.

8. Do you invest your money in share market?

70
 No
40%

Yes
60%

It shows that 60% of the people invest their money in share market where as
only 40% of people don’t invest their money in share market.

Annual Income Total

Below 1,50,000 1,50,000- 2,50,000- Above 4,00,000
2,50,000 4,00,000
Share No 12 12 13 3 40
Market
Yes 12 24 20 4 60
Total 24 36 33 7 100

Chi-Square Tests

Value df Sig. (2-sided)

Pearson Chi-Square 1.696 3 .638

Hypothesis: There is no significant difference between the annual income of

the people and the people who invest their money in share market.

71
 Occupation Total
Salaried Business House wife Professional Retired
Share Market No 14 10 6 8 2 40
Yes 17 21 2 17 3 60
Total 31 31 8 25 5 100

Chi-Square Tests
Value df Sig. (2-sided)
Pearson Chi-Square 5.868 4 .209

Hypothesis: There is no significant difference between the occupation of the

people and the people who invest their money in share market.

AGE Total
20-30 30-40 Above 40
Share Market No 30 7 3 40
Yes 28 18 14 60
Total 58 25 17 100

Chi-Square Tests
Value df Sig. (2-sided)

Pearson Chi-Square 8.361 2 .015

Hypothesis: There is no significant difference between the age of the people

and the people who invest their money in share market.

9. How important are the following factors in your preference in

mutual funds?

72
ANOVA
Sum of Squares df Mean Square F Sig.
RETURNS Between Groups .227 2 .113 .468 .627
Within Groups 23.483 97 .242
Total 23.710 99
RISK Between Groups .247 2 .124 .326 .723
Within Groups 36.793 97 .379
Total 37.040 99
Reliability Between Groups .242 2 .121 .288 .750
Within Groups 40.718 97 .420
Total 40.960 99

1. There is no significant difference in the age of the people and return

factor expected by investors in mutual funds.
2. There is no significant difference in the age and risk factor expected
by investors in mutual funds.
3. There is no significant difference in the age and reliability factor
expected by investors in mutual funds.

DEMOGRAPHICS

73
 Age Group

17%
20-30
30-40
25% 58% Above 40

58% of people belong to 20-30 age group and on the other hand only 17% of
people belong to above 40 age group.

Qualification

17%
31%
Under graduate
Graduate
Post graduate
52%

17% of the people are under graduate.

52% of the people are graduates, and
31% of the people are post graduates.

Marital Status

Single
45%
Married
55%

55% of the people are married

45% of the people are unmarried.

74
 Occupation

Retired
Professional 5% Salaried
25% 31%

Housewife
8% Business
31%

31% of the people are having their own business.

31% of the people are salaried.
25% are professionals.
8% are housewives.
5% are retired.

Annual Income

7% 24%
Below 1,50,000
33% 1,50,000-2,50,000
2,50,000-4,00,000
Above 4,00,000
36%

24% of the people belong to below 1,50,000 income group.

36% of the people belong to1,50,000 – 2,50,000 income group.
33% of the people belong to 2,50,000 – 4,00,000 income group.
Only 7% of the people belong to above 4,00,000 income group.

75
 CONCLUSION

A mutual fund is the ideal investment vehicle for today’s complex and
modern financial scenario. Markets for equity shares, bonds and other fixes
income instruments, real estate, derivatives and other assets have become
mature and information driven. Today each and every person is fully aware
of every kind of investment proposal. Everybody wants to invest money,
which entitled of low risk, high returns and easy redemption. In my opinion
before investing in mutual funds, one should be fully aware of each and
everything.

76
 FINDINGS

• Highest number of investors comes from the salaried class.

• Highest number of investors comes from the age group of 20-30.
• Most of the investors belong to bull category that invest more money
when the stock market drops.
• Most of the people have been investing their money for the last 1-5
years belong to 1,50,000 – 2,50,000 income group.
• Mostly investors prefer monitoring their investment on monthly basis.
• Most of the people invest their 5% - 10% of their annual income in
mutual funds.
• Most of the people between the age group of 20 – 30 invest their
money in share market.

77
 RECOMMANDATIONS

The performance of the mutual fund depends on the previous years Net
Asset Value of the fund. All funds are doing well. But the future is
uncertain. So, the AMC (Asset under Management Companies) should take
the following steps: -

• The people do not want to take risk. The AMC should launch more
diversified funds so that the risk becomes minimum. This will lure
more and more people to invest in mutual funds.
• The expectation of the people from the mutual funds is high. So,
the portfolio of the fund should be prepared taking into
consideration the expectations of the people.
• People age group of 50 and above should go for high percentage of
debt mutual funds as they are risk avoiders.

78
 QUESTIONNAIRE

I am Lakhvir Singh persuing MBA from Rayat Institute of Management, Nawashaher. As

a part of the curriculum I am doing research on “INVESTOR’S APPROACH TOWARDS
MUTUAL FUNDS”. Kindly help me in the same by filling the Questionnaire. Your response would be
kept strictly confidential and would be used only for academic research.

1) Do you invest in Mutual Funds?

Yes  No 
(If yes, then proceed)

2) Who among the following has influenced your choice for investment in mutual fund?

Factors V. Imp Important Not Important

Consultant
Friends
Personal Choice

3) Which factor do you consider before investing in mutual fund?

1. Safety of principal
2. Low risk
3. High returns

4) At which rate do you want your investment to grow?

1. Steadily
2. At an average rate
3. Fast

5) Imagine that stock market drops immediately after you invest in it then what will you do?
1. Withdraw your money
2. Wait and watch
3. Invest more in it

6) How long have you been investing in mutual fund?

1. For the last 1-5 years
2. For the last 5-10 years
3. For over 10 years and above

7) What percentage of your income do you invest?

1. Up to 5%
2. 5%-10%
3. More than 10%

8) How often do you monitor your investment?

1. Daily
2. Monthly

79
 3. Occasionally

9) Do you invest your money in share market?

Yes  No 

10) How important are the following factors in your preference in mutual fund?

Factors High Intermediate Low

Return
Risk
Reliability

PERSONAL DETAILS

Name: ………………………………………………………………

Age Group:
 Below 20
 Between 20-30
 Between 30-40
 Above 40

Qualification:
 Under graduate  Graduate

 Post graduate  Other:_______________

Occupation:
 Salaried  Business  Housewife

 Professional  Retired  Other: _________

Marital status:  Single  Married

Annual income:

 Below Rs 1,50,000  Rs 1,50,000-Rs2,50,000

 Rs 2,50,000-Rs 4,00,000  Above Rs 4,00,000

BIBLIOGRAPHY

80
Websites:
• www.amfiindia.com
• www.principalindia.com
• www.investorsguide.com
• www.moneycontrol.com
• www.mutualfundsindia.com

Magazines:
Dalal Street
Business Standard
Business Today

Books:
Mutual Fund Guide for Investors By: AMFI

Newspapers:
Business Standard
The Economic Times
The Hindu Business Line

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