A PROJECT REPORT

ON
PORTFOLIO MANAGEMENT

Submitted in partial fulfillment for

MASTER OF BUSINESS ADMIMISTRATION
(INTERNATIONAL BANKING & FINANCE)

Under the guidance of

Mrs.Lubza Nihar Dr. Vijay Das

Assistant Professor Associate Professor

GSIB GSIB

Mr.Sanat Bhardwaj

Cluster head

HDFC AMC, Jamshedpur

GITAM SCHOOL OF INTERNATIONAL BUSINESS

Submitted by

ARCHANA TIWARI

ROLL NO. 1226209103

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 DECELARATION

I hereby declare that this project report entitled “Portfolio Management” in HDFC Mutual
Fund submitted in the requirement of Master of Business Administration of Gitam School of
International Business, Visakhapatnam is based on Primary data which I collected through
surveys by filling up of questionnaires, mails and formal and informal meetings and
Secondary data found by me in various books, magazines and websites collected by me under
guidance Shailesh Bansal..

DATE: ARCHANA TIWARI

MBA (IBF)

1226209103

ACKNOWLEDGEMENT
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It is indeed an opportunity to prepare a report on Mutual fund and consumer behaviour
towards the investment in Mutual fund. Preparation of such type of report calls for
intellectual nourishment, professional help and encouragement from many areas.

I would like to thank Gitam School of International Business for the compulsion of this most
wonderful aspect of our MBA curriculum without which knowledge of management studies
is incomplete and futile.

I would like to thank and express my gratitude to my Functional guide Mrs. Lubza Nihar and
my Industrial Guide Dr. Vijay Das for providing their guidance and co-operation.

I would like to thank and express my gratitude to Mr. shailesh Bansal and Mr. Sanat
Bhardwaj for providing me their guidance and co- operation.

Further, I am thankful to all the respondents of our questionnaire who spared there time from
their busy schedule and obliged us by giving their co-operation and the information we
needed

Lastly, we would like to thank to all those who had helped us directly or indirectly in
completing this project successfully

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 CERTIFICATE

This is to certify that Miss Archana Tiwari a student of Gitam School of International
Business Visakhapatnam has completed project work on “Mutual Fund is the better
Investment Plan” in HDFC AMC during 21 April to 20 June 2010 under our guidance and
supervision.

We certify that this is an original work and has not been copied from any source.

Signature of Functional Guide Signature of Industrial Guide

Mrs.Lubza Nihar Dr. Vijay Das

Assistant Professor Associate Professor

GSIB GSIB

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CONTENTS

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 Executive Summary 07

 Objectives of the study 08

 Limitations of the study 09

 Research methodology 10

 Introduction to Mutual Funds 12

 History of Mutual Funds 12

 Types of Mutual Funds 14

 Advantages of Mutual Funds 17

 Disadvantages of Mutual Funds 18

 Limitations of Mutual Funds 21

 Analysis of financial instruments 21

 Features of financial instruments 22

 Company profile 29

 Data analysis and Interpretation 31

 Findings and conclusion 66

 Suggestions and Recommendations 67

 Bibliography 68

EXECUTIVE SUMMARY

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In few years Mutual Fund has emerged as a tool for ensuring one’s financial well being.
Mutual Funds have not only contributed to the India growth story but have also helped
families tap into the success of Indian Industry. As information and awareness is rising more
and more people are enjoying the benefits of investing in mutual funds. The main reason the
number of retail mutual fund investors remains small is that nine in ten people with incomes
in India do not know that mutual funds exist. But once people are aware of mutual fund
investment opportunities, the number who decide to invest in mutual funds increases to as
many as one in five people, the trick for converting a person with no knowledge of mutual
funds to a new Mutual Fund customer is to understand which of the potential investors are
more likely to buy mutual funds and to use the right arguments in the sales process that
customers will accept as important and relevant to their decision.

This Project gave me a great learning experience and at the same time it gave me enough
scope to implement my analytical ability. The analysis and advice presented in this Project
Report is based on market research on the saving and investment practices of the investors
and preferences of the investors for investment in Mutual Funds. This Report will help to
know about the investors’ Preferences in Mutual Fund means Are they prefer any particular
Asset Management Company (AMC), Which type of Product they prefer, Which Option
(Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic
Investment Plan or One time Plan).

This Project as a whole can be divided into two parts.

The first part gives an insight about Mutual Fund and its various aspects, the Company
Profile, Objectives of the study, Research Methodology. One can have a brief knowledge
about Mutual Fund and its basics through the Project.

OBJECTIVES OF THE STUDY

The various objectives of the study are

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 To study the various financial opportunities available for investment.

 To study about the investors perception regarding various investment opportunities

available in the market

 To analyze the investment patterns of the investment.

 To examine the investors changing behavior regarding various investment

opportunities.

LIMITATIONS

 Some persons were not responding.

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  Possibility of error in data collection because many investors have not given actual
answers of my questionnaire.

 The research is confined to certain part of Jamshedpur

 Sample size does not adequately represent the whole market

RESEARCH METHODOLOGY
This report is based on primary as well as secondary data, however primary data collection
was given more importance since it is a very important factor. One of the most important
users of research methodology is that it helps in identifying the problem, collecting,
analyzing the required information data and providing an alternative solution to the problem.

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It also helps in collecting the vital information that is required by top management to assist
them for better decision making.
DATA SOURCES

Research is totally based on primary data and the data has been collected by interacting with
the people of different age groups and questionnaires were given to them. The secondary data
has been collected through books, journals, websites etc.

DURATION OF STUDY

The study was carried out for a period of two months from April 21, 2010 to June 20, 2010.
SAMPLING PROCEDURE

It was collected through personal visits to persons through formal and informal meetings and
through filling of the questionnaires.
SAMPLE SIZE

The sample size of my project is limited to only members. Out of which only 43 members
have invested in mutual funds and others have not invested in mutual funds.
SAMPLE DESIGN

Data has been presented with the help of pie charts, bar diagrams, factor analysis,
discriminate analysis, cross tabulation and Chi square.

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 INTRODUCTION TO MUTUAL FUNDS
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

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units owned by them. Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly the working of a
mutual fund.

HISTORY OF MUTUAL FUUNDS

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 of India. The history of mutual
funds in India can be broadly divided into four distinct phases

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.

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

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

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,

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

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
The second is the UTI Mutual Fund, 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.

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TYPES OF MUTUAL FUND SCHEMES

• By Structure
o Open - Ended Schemes
o Close - Ended Schemes
o Interval Schemes

• By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
• Money Market Schemes
• Other Schemes
o Tax Saving Schemes
o Special Schemes
o Index Schemes
o Sector Specific Schemes
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Open-ended funds: A type of mutual fund that does not have restrictions on the amount of
shares the fund will issue. If demand is high enough, the fund will continue to issue shares no
matter how many investors there are. Open-end funds also buy back shares when investors
wish to sell.Investors can buy and sell the units from the fund, at any point of time.

Close-ended funds: These funds raise money from investors only once. Therefore, after the
offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks
exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently,
most of the New Fund Offers of close-ended funds provided liquidity window on a periodic
basis such as monthly or weekly. Redemption of units can be made during specified intervals.
Therefore, such funds have relatively low liquidity.

Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating
share prices, such funds show volatile performance, even losses. However, short term
fluctuations in the market, generally smoothens out in the long term, thereby offering higher
returns at relatively lower volatility. At the same time, such funds can yield great capital
appreciation as, historically, equities have outperformed all asset classes in the long term.
Hence, investment in equity funds should be considered for a period of at least 3-5 years. It
can be further classified as:
 Index funds- In this case a key stock market index, like BSE Sensex or Nifty is
tracked. Their portfolio mirrors the benchmark index both in terms of composition
and individual stock weightages.
 Equity diversified funds- 100% of the capital is invested in equities spreading
across different sectors and stocks.
 Dividend yield funds- It is similar to the equity diversified funds except that they
invest in companies offering high dividend yields.
 Thematic funds- Invest 100% of the assets in sectors which are related through
some theme. E.g. -An infrastructure fund invests in power, construction, cements
sectors etc.
 Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector
fund will invest in banking stocks.
 ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
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 Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds. Balanced
funds are the ideal mutual funds vehicle for investors who prefer spreading their risk
across various instruments. Following are balanced funds classes:
o Debt-oriented funds -Investment below 65% in equities.
o Equity-oriented funds -Invest at least 65% in equities, remaining in debt.
 Debt fund: They invest only in debt instruments, and are a good option for investors
averse to idea of taking risk associated with equities. Therefore, they invest
exclusively in fixed-income instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of deposit (CD),
commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
 Gilt funds: Invest in only treasury bills and government securities, which do not
have a credit risk (i.e. the risk that the issuer of the security defaults).
 Diversified debt funds on the other hand, invest in a mix of government and non-
government debt security Junk bond schemes or high yield bond schemes invest in
companies that are of poor credit quality. Such schemes operate on the premise that
the attractive returns offered by the invested companies makes up for the losses
arising out of a few companies defaulting.
 Fixed maturity plans are a kind of debt fund where the investment portfolio is
closely aligned to the maturity of the scheme. AMCs tend to structure the scheme
around pre-identified investments. Further, like close-ended schemes, they do not
accept moneys post-NFO. The fund manager has little ongoing role in deciding on
the investment options. Such a portfolio construction gives more clarity to investors
on the likely returns if they stay invested in the scheme until its maturity. This helps
them compare the returns with alternative investments like bank deposits.
 Floating rate funds invest largely in floating rate debt securities i.e. debt securities
where the interest rate payable by the issuer changes in line with the market. For
example, a debt security where interest payable is described as ‘5-year Government
Security yield plus 1%’, will pay interest rate of 7%, when the 5-year Government
Security yield is 6%; if 5-year Government Security yield goes down to 3%, then
only 4% interest will be payable on that debt security. The NAVs of such schemes

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 fluctuate lesser than debt funds that invest more in debt securities offering a fixed
rate of interest.
 Liquid schemes or money market schemes are a variant of debt schemes that invest
only in debt securities where the moneys will be repaid within 91-days.These are
widely recognized to be the lowest in risk among all kinds of mutual fund schemes.
 MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure
of 10%-30% to equities.

ADVANTAGES OF MUTUAL FUNDS

Professional Management
Mutual funds offer investors the opportunity to earn an income or build their wealth through
professional management of their investible funds. There are several aspects to such
professional management viz. investing in line with the investment objective, investing based
on adequate research, and ensuring that prudent investment processes are followed.
Economies of Scale
The pooling of large sums of money from so many investors makes it possible for the mutual
fund to engage professional managers to manage the investment. Individual investors with
small amounts to invest cannot, by themselves, afford to engage such professional
management. Large investment corpus leads to various other economies of scale. For
instance, costs related to investment research and office space get spread across investors.
Further, the higher transaction volume makes it possible to negotiate better terms with
brokers, bankers and other service providers
Liquidity
At times, investors in financial markets are stuck with a security for which they can’t find a
buyer – worse; at times they can’t find the company they invested in! Such investments
become illiquid investments, which can end in a complete loss for investors. Investors in a
mutual fund scheme can recover the value of the moneys invested, from the mutual fund
itself. Depending on the structure of the mutual fund scheme, this would be possible, either at
any time, or during specific intervals, or only on closure of the scheme. Schemes where the
money can be recovered from the mutual fund only on closure of the scheme are listed in a
stock exchange. In such schemes, the investor can sell the units in the stock exchange to
recover the prevailing value of the investment.
Tax Deferral
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Mutual funds are not liable to pay tax on the income they earn. If the same income were to be
earned by the investor directly, then tax may have to be paid in the same financial year.
Mutual funds offer options, whereby the investor can let the moneys grow in the scheme for
several years. By selecting such options, it is possible for the investor to defer the tax
liability. This helps investors to legally build their wealth faster than would have been the
case, if they were to pay tax on the income each year.
Tax benefits
Specific schemes of mutual funds (Equity Linked Savings Schemes) give investors the benefit
of deduction of the amount invested, from their income that is liable to tax. This reduces their
taxable income, and therefore the tax liability. Further, the dividend that the investor receives
from the scheme is tax-free in his hands.
Convenient Options
The options offered under a scheme allow investors to structure their investments in line with
their liquidity preference and tax position. Investment Comfort Once an investment is made
with a mutual fund, they make it convenient for the investor to make further purchases with
very little documentation. This simplifies subsequent investment activity.
Regulatory Comfort
The regulator, Securities & Exchange Board of India (SEBI) has mandated strict checks and
balances in the structure of mutual funds and their activities. These are detailed in the
subsequent units. Mutual fund investors benefit from such protection.
Systematic approach to investments
Mutual funds also offer facilities that help investor invest amounts regularly through a
Systematic Investment Plan (SIP); or withdraw amounts regularly through a Systematic
Withdrawal Plan (SWP); or move moneys between different kinds of schemes through a
Systematic Transfer Plan (STP). Such systematic approaches promote an investment
discipline, which is useful in long term wealth creation and protection.
DISADVANTAGES OF MUTUAL FUNDS

Like many investments, mutual funds offer advantages and disadvantages, which are
important for you to consider and understand before you decide to buy. Here we explore
some of the drawbacks of mutual funds.

Fluctuating Returns

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Mutual funds are like many other investments without a guaranteed return. There is always
the possibility that the value of your mutual fund will depreciate. Unlike fixed-income
products, such as bonds and Treasury bills, mutual funds experience price fluctuations along
with the stocks that make up the fund. When deciding on a particular fund to buy, you need to
research the risks involved - just because a professional manager is looking after the fund,
that doesn't mean the performance will be stellar.

Another important thing to know is that mutual funds are not guaranteed by the U.S.
government, so in the case of dissolution, you won't get anything back. This is especially
important for investors in money market funds. Unlike a bank deposit, a mutual fund will not
be FDIC insured.

Diversification

Although diversification is one of the keys to successful investing, many mutual fund
investors tend to over diversify. The idea of diversification is to reduce the risks associated
with holding a single security; over diversification (also known as diworsification) occurs
when investors acquire many funds that are highly related and so don't get the risk reducing
benefits of diversification. To read more on this subject, see this article.

At the other extreme, just because you own mutual funds doesn't mean you are automatically
diversified. For example, a fund that invests only in a particular industry or region is still
relatively risky.

Cash

Mutual funds pool money from thousands of investors, so everyday investors are putting
money into the fund as well as withdrawing investments. To maintain liquidity and the
capacity to accommodate withdrawals, funds typically have to keep a large portion of their
portfolio as cash. Having ample cash is great for liquidity, but money sitting around as cash is
not working for you and thus is not very advantageous.

Costs
Mutual funds provide investors with professional management; however, it comes at a cost.
Funds will typically have a range of different fees that reduce the overall payout. In mutual

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funds the fees are classified into two categories: shareholder fees and annual fund-operating
fees.

The shareholder fees, in the forms of loads and redemption fees, are paid directly by
shareholders purchasing or selling the funds. The annual fund operating fees are charged as
an annual percentage - usually ranging from 1-3%. These fees are assessed to mutual fund
investors regardless of the performance of the fund. As you can imagine, in years when the
fund doesn't make money these fees only magnify losses.

Misleading Advertisements

The misleading advertisements of different funds can guide investors down the wrong path.
Some funds may be incorrectly labeled as growth funds, while others are classified as small-
cap or income. The SEC requires funds to have at least 80% of assets in the particular type of
investment implied in their names. The remaining assets are under the discretion solely of the
fund manager.

The different categories that qualify for the required 80% of the assets, however, may be
vague and wide-ranging. A fund can therefore manipulate prospective investors by using
names that are attractive and misleading. Instead of labeling itself a small cap, a fund may be
sold under the heading growth fund. Or, the "Congo High-Tech Fund" could be sold with the
title "International High-Tech Fund".

Evaluating Funds

Another disadvantage of mutual funds is the difficulty they pose for investors interested in
researching and evaluating the different funds. Unlike stocks, mutual funds do not offer
investors the opportunity to compare the P/E ratio, sales growth, earnings per share, etc. A
mutual fund's net asset value gives investors the total value of the fund's portfolio less
liabilities, but how do you know if one fund is better than another?

Furthermore, advertisements, rankings and ratings issued by fund companies only describe
past performance. Always note that mutual fund descriptions/advertisements always include
the tagline "past results are not indicative of future returns". Be sure not to pick funds only
because they have performed well in the past - yesterday's big winners may be today's big
losers.
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Limitations of a Mutual Fund
Lack of portfolio customization
Lack of portfolio customization some securities houses offer Portfolio Management Schemes
(PMS) to large investors. In a PMS, the investor has better control over what securities are
bought and sold on his behalf. On the other hand, a unit-holder is just one of several thousand
investors in a scheme. Once a unit-holder has bought into the scheme, investment
management is left to the fund manager (within the broad parameters of the investment
objective). Thus, the unit-holder cannot influence what securities or investments the scheme
would buy. Large sections of investors lack the time or the knowledge to be able to make
portfolio choices. Therefore, lack of portfolio customization is not a serious limitation in
most cases.
Choice overload
Over 800 mutual fund schemes offered by 38 mutual funds – and multiple options within
those schemes – make it difficult for investors to choose between them. Greater
dissemination of industry information through various media and availability of professional
advisors in the market should help investors handle this overload.

ANALYSIS OF FINANCIAL INSTRUMENTS

Types of Investments

There are many ways to invest your money. Of course, to decide which investment vehicles
are suitable for you, you need to know their characteristics and why they may be suitable for
a particular investing objective.
 Debt Market
 Public Provident Fund
 Fixed Deposits
 Bonds
 Mutual Funds
 Banks Deposits
 Equity Market
 Initial Public Offer
 Insurance
 Forex
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  Cash
 Gold
 Real Estate

FEATURES OF DIFFERENT TYPES OF INVESTMENTS

DEBT INSTRUMENTS
Debt instruments protect your capital, therefore the importance of a solid debt portfolio. This
not only gives stability, but also offers you optimal returns, liquidity and tax benefits. Debt
products, besides safeguarding your capital, can be used to meet short, medium and long-term
financial needs.
SHORT TERM INVESTMENT
They are good for short term goals; you can look at liquid funds, floating rate funds and short
term bank deposits as options for this category of investments. Liquid funds have retuned
around 5% post-tax returns as compared to 5.6% post-tax that your one-year 8% bank fixed
deposit gives you. So, if you have funds for investment for over a period of one year, it is
better to go in for bank deposits. However, liquid funds are better, if your time horizon is less
than one-year, say around six months. This is because the bank deposit rates decrease
proportionately with lower periods, while liquid funds will yield the same annualized returns
for any period of time. Short-term floating rate funds can be considered at par to liquid funds
for short term investments.
Fixed Maturity Plan (FMP)
If you know exactly for how much time you need to invest your surplus, a smarter option is
to invest in FMPs. They are shorter-tenured debt schemes that buy and hold securities till
maturity, thereby eliminating the interest rate risk. Try and opt for FMPs that offer a double
indexation benefit. Fund houses usually launch double-indexation FMP’s during the end of
the financial year so that they cover two financial year closings.

MEDIUM AND LONG TERM OPTIONS

These options typically offer low or virtually no liquidity. They are, however, largely useful
as income accumulation tools because of the assured interest rates they offer. These
instruments (small savings schemes) should find place in your long-term debt portfolio.

BONDS
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A bond is a debt security, in which the authorized issuer owes the holders a debt and,
depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to
repay the principal at a later date, termed maturity. A bond is a formal contract to repay
borrowed money with interest at fixed intervals.
Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender
(creditor), and the coupon is the interest. Bonds provide the borrower with external funds to
finance long-term investments, or, in the case of government bonds, to finance current
expenditure. Certificates of deposit (CDs) or commercial paper are considered to
be money market instruments and not bonds. Bonds must be repaid at fixed intervals over
a period of time.
Bonds and stocks are both securities, but the major difference between the two is that
stockholders have an equity stake in the company (i.e., they are owners), whereas
bondholders have a creditor stake in the company (i.e., they are lenders). Another difference
is that bonds usually have a defined term, or maturity, after which the bond is redeemed,
whereas stocks may be outstanding indefinitely. An exception is a consol bond, which is
a perpetuity (i.e., bond with no maturity)
TAX SAVING BONDS
These are those bonds that have a special provision that allows the investor to save on tax.
Examples of such bonds are:
 Infrastructure Bonds:-
 Capital Gains Bonds:-
 Rural Electrification Corporation (REC) Bonds
 National Highway Authority of India (NHAI)
 National Bank for Agriculture & Rural Development
 RBI Tax Relief Bonds

MUTUAL FUNDS
A mutual fund is a body corporate registered with SEBI that pools money from the
Individuals/corporate investors and invests the same in a variety of different financial
Instruments or securities such as Equity Shares, Government Securities, Bonds, Debentures,
etc. The income earned through these investments and the capital appreciations realized are
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
23
in a diversified, professionally managed basket of securities at a relatively low cost. Mutual
fund units are issued and redeemed by the Asset Management Company (AMC) based on the
fund’s net asset value (NAV), which is determined at the end of each trading session. Mutual
funds are considered to be the best investments
FIXED DEPOSITS
A fixed deposit is meant for those investors who want to deposit a lump sum of money for a
fixed period; say for a minimum period of 15 days to five years and above, thereby earning a
higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity
of the deposit. Bank fixed deposits are one of the most common savings scheme open to an
average investor. Fixed deposits also give a higher rate of interest than a savings bank
account. The facilities vary from bank to bank. Some of the facilities offered by banks are
overdraft (loan) facility on the amount deposited, premature withdrawal before maturity
period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are
subject to control of the Reserve Bank of India.
GOLD FUNDS
These funds invest in gold and gold-related securities. They can be structured in either of the
following formats:
Gold Exchange Traded Fund, which is like an index fund that invests in gold. The structure
of exchange traded funds is The NAV of such funds moves in line with gold prices in the
market.
Gold Sector Funds i.e. the fund will invest in shares of companies engaged in gold mining
and processing. Though gold prices influence these shares, the prices of these shares are more
closely linked to the profitability and gold reserves of the companies. Therefore, NAV of
these funds do not closely mirror gold prices.

NEW PENSION SCHEMES

Any Indian citizen between 18 and 55 years, only tier-I of the scheme, involving a
contribution to a non-withdrawable account, is open. Subsequently tier-II accounts, which
permit voluntary savings that can be withdrawn at any point of time, can be opened. But to be
eligible to open a tier-II account, you need a tier-I account.
There is no investment ceiling. But the minimum investment limit has been fixed at Rs 500 a
month or Rs 6,000 annually. Subscribers are required to contribute at least once a quarter but
there is no ceiling on how many times you invest during the year.
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The investment is covered under section 80CCD of the Income Tax Act and a tax will be
levied if you withdraw the money. You can avoid paying tax by transferring the entire corpus
to the annuity service provider. PFRDA has, however, approached the government to treat
investment in NPS on a par with instruments like Employees Provident Fund and Public
Provident Fund, for which no tax is levied at the investment, accumulation or withdrawal
stage.
MONEY MARKET

The money market is a component of the financial markets for assets involved in short-term
borrowing and lending with original maturities of one year or shorter time frames. Trading in
the money markets involves Treasury bills, commercial paper, bankers' acceptances,
certificates of deposit, federal funds, and short-lived mortgage- and asset-backed securities. It
provides liquidity funding for the global financial system.
COMMON MONEY MARKET INSTRUMENTS

Certificate of deposit - Time deposits, commonly offered to consumers by banks, thrift

institutions, and credit unions.
Repurchase agreements - Short-term loans normally for less than two weeks and frequently
for one day arranged by selling securities to an investor with an agreement to repurchase
them at a fixed price on a fixed date.
Commercial paper - Unsecured promissory notes with a fixed maturity of one to 270 days;
usually sold at a discount from face value.
Treasury bills - Short-term debt obligations of a national government that are issued to
mature in three to twelve months. For the U.S., see Treasury bills.
Money funds - Pooled short maturity, high quality investments which buy money market
securities on behalf of retail or institutional investors.
Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal of
the exchange of currencies at a predetermined time in the future.
REAL ESTATES

Real estate investment involves the commitment of funds to property with an aim to
generate income through rental or lease and to achieve capital appreciation. Real estate refers
to immovable property, such as land, and everything else that is permanently attached to it,
such as buildings. When a person acquires real estate, s/he also acquires a set of rights,
including possession, control and transfer rights.

25
Understanding real estate investment is crucial because it usually involves a substantial
investment and a long-term one. Moreover, the real estate market can be unpredictable. This
is particularly important when one goes beyond buying a home to actually 'investing' in real
estate. There are a number of ways in which an investor can participate in the real estate
market.
INSURANCE

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another,
in exchange for payment. An insurer is a company selling the insurance;
an insured or policyholder is the person or entity buying the insurance policy. The insurance
rate is a factor used to determine the amount to be charged for a certain amount of insurance
coverage, called the premium. Risk management, the practice of appraising and controlling
risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss
in the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a large, possibly devastating loss. The insured receives
a contract called the insurance policy which details the conditions and circumstances under
which the insured will be compensated.
COMMODITY FUNDS

Commodities as an asset class, include: Food crops like wheat and chana, spices like pepper
and turmeric, fibres like cotton, industrial metals like copper and aluminium, energy products
like oil and natural gas and precious metals (bullion) like gold and silver. The investment
objective of commodity funds would specify which of these commodities it proposes to
invest in, as with gold, such funds can be structured as Commodity ETF or Commodity
Sector Funds. In India, mutual fund schemes are not permitted to invest in commodities.
Therefore, the commodity funds in the market are in the nature of Commodity Sector Funds,
i.e. funds that invest in shares of companies that are into commodities. Like Gold Sector
Funds, Commodity Sector Funds too are a kind of equity fund.

26
27
COMPANY PROFILE

 HDFC Asset Management Company Ltd (AMC) was incorporated under the
Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset
Management Company for the HDFC Mutual Fund by SEBI vide its letter dated on
July 3, 2000.
 In terms of the Investment Management Agreement, the Trustee has appointed the
HDFC Asset Management Company Limited to manage the Mutual Fund. The paid
up capital of the AMC is Rs. 25.161 crore.

28
  The AMC is managing 24 open-ended schemes of the Mutual Fund viz.
o HDFC Growth Fund (HGF)
o HDFC Balanced Fund (HBF)
o HDFC Income Fund (HIF)
o HDFC Liquid Fund (HLF)
o HDFC Long Term Advantage Fund (HLTAF)
o HDFC Children's Gift Fund (HDFC CGF)
o HDFC Gilt Fund (HGILT)
o HDFC Short Term Plan (HSTP)
o HDFC Index Fund
o HDFC Floating Rate Income Fund (HFRIF)
o HDFC Equity Fund (HEF)
o HDFC Top 200 Fund (HT200)
o HDFC Capital Builder Fund (HCBF)
o HDFC TaxSaver (HTS)
o HDFC Prudence Fund (HPF)
o HDFC High Interest Fund (HHIF)
o HDFC Cash Management Fund (HCMF)
o HDFC MF Monthly Income Plan (HMIP)
o HDFC Core & Satellite Fund (HCSF)
o HDFC Multiple Yield Fund (HMYF)
o HDFC Multiple Yield Fund Plan 2005 (HMYF-Plan 2005)
o HDFC Quarterly Interval Fund (HQIF)
o HDFC Arbitrage Fund (HAF)
The AMC is also managing 10 closed ended Schemes of the HDFC Mutual Fund viz.

o HDFC Long Term Equity Fund

o HDFC Mid-Cap Opportunities Fund
o HDFC Infrastructure Fund
o HDFC Fixed Maturity Plans - Series V
o HDFC Fixed Maturity Plans - Series VII
o HDFC Fixed Maturity Plans - Series VIII
29
o HDFC Fixed Maturity Plans - Series IX
o HDFC Fixed Maturity Plans - Series X
o HDFC Fixed Maturity Plans - Series XI
o HDFC Fixed Maturity Plans - Series XI.

30
 DATA ANALYSIS AND INTERPRETATION
AGE OF INVESTORS

31
 Age Frequency
of no of Valid Cumulative
investors Percent Percent
Under 30 28 28.0 28.0
30-45 43 43.0 71.0
45-60 26 26.0 97.0
Above 60 3 3.0 100.0
Total 100 100.0

AGE

above 60
45-60 3% under 30
26% 28%

30-45
43%

Interpretation:-

The sample consists of diversified age groups of investors where the age of the investors lies
from below 30 years to more than 60 years but the majority of the investors belonged to age
group of 30 to 45 years as this is the age group where the people are settled and they being
having many liabilities on them and also they have to meet the financial requirements of the
future on a particular time they have to plan their investment in the best and the most
effective way where in they could maximise their returns.

QUALIFICATION OF INVESTORS

32
 Valid Cumulative
Frequency Percent Percent
Under
2 2.0 2.0
matriculation
Under
17 17.0 19.0
graduation
Graduation 47 47.0 66.0
Post graduation 34 34.0 100.0
Total 100 100.0

QUALIFICATION

graduation
47%
under graduation
Other
17%
81%

post garduation
under matriculation 34%
2%

Interpretation:-

Despite of the educational qualification people go in for savings and investments but the type
of investment differs. The majority of the investors are graduates and post graduates so the
financial literacy is high among these type of investors so these type of investors go for
investments in different type of investments like equity, mutual funds, forex etc but where as
the investors with low financial literacy go for investments which has guaranteed returns. The
qualification helps in understanding the market risks. Around 81% of the sample consists of
graduates and post graduates.

OCCUPATION OF THE INVESTORS

33
 Valid Cumulative
Frequency Percent Percent
1 66 66.0 66.0
2 28 28.0 94.0
3 6 6.0 100.0
Total 100 100.0

OCCUPATION

service
self employed
others

Interpretation:-

While considering the occupation of the investors the majority of the investors were
employees working in Private and Government organizations and some of them were self
employed. The factors the investors would consider and the type of funds they would go in
for investment also differs in the different working group. As for example a salaried
employee would go for investing in those type of investments were he would get a
guaranteed and moderate rate of return but where as the investors who are self employed
would go for one time investment as they don’t get a fixed income every month. The self
employed people may also look for the short term investments where as the service people
may look after long term investments. So different occupation group helps in understanding
the different patterns of investments

NUMBER OF DEPENDENTS

34
 Valid Cumulative
Frequency Percent Percent
None 19 19.0 19.0
1 to 2 30 30.0 49.0
3 to 4 43 43.0 92.0
5 or more 8 8.0 100.0
Total 100 100.0

NUMBEROFDEPENDENTS
5 or more
8% none
19%

3to 4
43%
1to 2
30%

Interpretation:-

The savings and investment pattern varies with the investors based on the number of
dependents on him. The sample consists of diversified group which gives understanding
about the investment pattern and the risk taken by the investors. In the sample the major
group of investors are having 3-4 dependent on them which comprises of 43% of the total
sample. Thus, if the dependents are more, then they would definitely prefer higher returns
and at the same time they are also unwilling to take higher risks.

INCOME OF THE INVESTORS

35
 Valid Cumulative
Frequency Percent Percent
0 to 150000 15 15.0 15.0
150000-30000 50 50.0 65.0
30000-50000 21 21.0 86.0
Above 50000 14 14.0 100.0
Total 100 100.0

Interpretation:-

The income of the investors is one of the important factors for the investor to invest. In the
sample considered about 50% of the people are earning about 15000-30000 and the rest of
the 50% is divided among the other three groups. Though the sample has 50% of the
investors who are earning 15000-30000, but consists of both the service and self employed
people. Thus the investment pattern of them varies though it is the same income group. It
gives understanding about the investment of the individuals based on the income and the risk
they would take risk based on their occupation.

ANNUAL SAVINGS OF THE INVESTORS

36
 Cumulative
Frequency Percent Percent
Valid Below
28 28 28
10
10-20 43 43 71
20-30 18 18 89
Above
11 11 100
30
Total 100 100

SAVINGSOFINVESTORS
above 30 %
11%
below 10%
28%
20-30%
18%

10-20%
43%
Interpretation:-

The majority of the sample is saving about 10-20% which consists of about 43% of the total
sample. There is lot of scope for the mutual fund industry because 72% of the investors are
saving is above 10% of their income. If the investments can provide higher returns then
savings with more or less same risk, then there is a lot of scope for increase in the
investments.

CURRENT INVESTMENT OF THE PEOPLE

Fixed Deposits 42

Public Provident Fund 30

37
Mutual Funds 53

Shares 37

New Pension Schemes 7

Insurance 73

Gold/Gold ETF 15

Real Estates 20

Post Office Saving Scheme 23

CURRENT INVESTMENT

Post Office Saving Scheme

Real Estates
Gold/Gold ETF
Insurance
New Pension Schemes
Shares
Mutual Funds
Public Provident Fund
Fixed Deposits

0 10 20 30 40 50 60 70 80

Interpretation:-

A large number of investors invest in insurance besides in mutual funds because the investors
are really thinking about the future, safety and guarantee. Where as the investments in the
post office savings, fixed deposits and provident funds are coming down this indicates that
the investors are looking for higher returns when compared to these investments and also they
are not willing to take higher risks this can be understood from the decline in real estates and
shares. If the mutual funds can provide a guaranteed return then there is lot of investors will
prefer the mutual funds as their primary investment

SOURCES OF INFORMATION

Television 31

Internet 27
38
Newspapers & Journals 28

Friends & Relatives 26

Financial Advisors 55

Banks 25

60

50

40

30 Series2
5, 55
Series1

20
1, 31
2, 27 3, 28 4, 26 6, 25
10

0
1 2 3 4 5 6 7

Interpretation:-

The investors get information from various sources such as internet, television, banks;
financial advisors etc but a majority of the investors prefer to take advice from the financial
advisors. If the mutual fund industry can have a financial advisor which can clear the doubts
of many investors and thus there will be a flow of investment will take place in the mutual
fund industry.
INVESTMENT DURATION

39
 Valid Cumulative
Frequency Percent Percent
Valid 1-3
24 24.0 24.0
years
3-6
28 28.0 52.0
years
6-9
12 12.0 64.0
years
9 or
36 36.0 100.0
more
Total 100 100.0

INVESTMENTDURATION
1-3 years
24%
9 or more
36%

3-6 years
6-9 years 28%
12%

Interpretation:-

So many of them have been investing from the long time the mutual funds can target towards
them if they can attract those pool of customers and understand their investment pattern as
these customers are already investing and also they have been investing for longer periods.
The mutual fund companies can target these types of investors.

PRIMARY OBJECTIVES OF INVESTMENT

Preservation of principal 14
40
Growth & Income 68

Conservative Growth 13

Appreciation 13

Tax Benefit 48

Aggressive Growth 10

Interpretation:-

The majority of the investors have been investing mainly for two reasons one is growth and
income and another is to have a tax benefit. If they go for the investment they will have the
income along their regular income and also it is one of their growth options. They are also
having tax benefit. Though the investment is of aggressive or conservative nature, the
investors are not having that as their primary objective.

PURPOSE OF INVESTMENT

Retirement Plans 40

Education 16
41
Purchase of House 20

Marriage 18

Others 22

40
40

35

30

25 22
20
20 18
16 Series1
15

10

0
Retirement Education Purchase of Marriage Others
Plans House

Interpretation:-

Though previously majority of them has been investing retirement plans as their main
purpose bit now it is changing, Though retirement plans is one of their main purpose along
with that they are investing in the investments for different reasons like for education,
purchase of property, etc so if the mutual funds produce a constant returns they can attract
huge investors because their main purpose is to have the regular returns for the education and
retirement plans.

INVESTMENTS MADE IN DIFFERENT MUTUAL FUND COMPANIES

HDFC 43

HSBC 5

UBI 2
42
TATA 29

SBI 39

ICICI 33

RELIANCE 19

AXIS 6

OTHERS 7

Interpretation:-

The people are interested in willing in both the public and private sector as we can observe
that 39 of them are interested in SBI and 43 of them are interested in HDFC. So they are
giving more or less equal importance to both the sectors. Those investors who are willing to
take high risk may go for investment in private sector as the returns are higher and those who
are willing to take low risk may invest in public sector or they may invest in funds which
gives guaranteed returns.

TIME PERIOD AFTER INVESTMENT

Frequency Cumulative

43
 frequency

1-3 years 18 18

3-5 years 35 53

More than 5 years 47 100

TIMEPERIODOFINVESTMENT

more than 5

3-5 years

1-3 years

0 10 20 30 40 50

time period for investment

Interpretation:-

Majority of the investors are willing to wait for longer times to get back their investment
returns. Among the sample of 100 people, 47% of them are willing to wait for longer times.
Thus the mutual fund industry may not worry about the time in returning back the investment
but they had to think about the investments which can fetch the investors’ higher returns
which is the ultimate interest of the investor.

RISK RETURNS SCENARIOS INVESTORS ARE COMFORTABLE

44
 Valid Cumulative
Frequency Percent Percent
No risk/return 6 6 6
Low risk/return 14 14 20
Moderate risk/
45 45 65
return
High risk/ return 35 35 100.0
Total 100 100.0

Interpretation:-

Majority of the people are willing to take moderate or high risk and very few people are
thinking about the low risk or no risk. Since the pattern of the investment is changing the
investors are mainly thinking of the higher returns and thus for getting higher returns they are
also accepting higher risks. So they are willing to invest in those investments where they can
earn higher returns. So if the mutual fund industry can show higher returns to the investors
then majority of the people would start investing in them.

INVESTORS SATISFIED WITH THEIR INVESTMENT RETURNS

Yes 87

45
No 13

RETURN SATISFACTION
Satisfaction with investment return

NO 13

87
YES

Interpretation:-

Among the investors the majority of the people are satisfied with their investments where as
very few are expecting very high returns. In the sample 87% are satisfied with the returns.

CROSS TABULATION
INCOME WITH RESPECT TO ANNUAL SAVINGS

46
 how much do you save annually as (%) of your annual
earnings

0-10% 10-20% 20-30% >30% Total

income 0-15000 9 3 1 2 15

15000-30000 13 25 7 4 49

30000-50000 4 10 7 0 21

Above 50000 2 5 2 5 14

Total 28 43 17 11 99

The investors are diversified among different working groups such as employees working in
private and Government organizations, self employed etc so the savings habits also differ to
their occupation. For example, a employee would save a certain amount every month but
where as a self employed who gets the payment after completion of the work cannot save
every month. Thus the savings pattern varies with their occupation. Among the sample, the
majority of people who are earning 15000-30000 are having different savings pattern.

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 24.688a 9 .003

Likelihood Ratio 23.279 9 .006

Linear-by-Linear Association 7.496 1 .006

N of Valid Cases 99

Null hypothesis: The annual savings of the investors is independent of the income of the
investor

Alternate hypothesis: The annual savings of the investors is independent of the income of
the investor

Here, the calculated Chi Square value is 24.688 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is rejected at 5% level of significance. i.e. The savings of the
investors is dependent on the income.
RISK RETURN SCENARIO WITH RESPECT TO INCOME.

47
 Which of the following risk return scenario would you be most
comfortable with

No risk Low risk Moderate risk High risk Total

income 1 0 2 7 6 15

2 3 6 22 18 49

3 2 4 12 3 21

4 1 1 4 8 14

Total 6 13 45 35 99

Generally the risk taken by the investors doesn’t depend mostly on their income but it is one
of the reasons for their investment. From the table it is clear that irrespective of their income
majority of people are willing to take moderate risk only and very few people are interested
in taking high risk. The majority of people who are earning 15000-30000 are taking moderate
or high risk. And also the people who are earning more are also taking high risk.

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 8.476a 9 .487

Likelihood Ratio 9.889 9 .360

Linear-by-Linear Association .102 1 .750

N of Valid Cases 99

Null hypothesis: The income of the investor is independent on the risk return scenario

Alternate hypothesis: The income of the investor is dependent on the risk return scenario
Here, the calculated Chi Square value is 8.746 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is accepted at 5% level of significance. i.e. The income of the
investor is independent on the risk return scenario. The risk taken capability will does not
depend on the income of the person is more or less dependent on whether he is an risk
averter, risk neutral or risk taker.

RISK RETURN SCENARIO WITH RESPECT TO ANNUAL SAVINGS

48
 Risk return scenario

1 2 3 4 Total

how much do you save 0-10% 3 1 17 7 28

annually as (%) of your 10-20% 0 6 17 19 42
annual earnings
20-30% 3 2 6 6 17

>30% 0 4 4 3 11

Total 6 13 44 35 98

The risk taking capacity of the investors does not only depend on the earnings but also it
depends on their perception, attitudes and the risk taking capability. A large number of
investors who save less but have high risk taking capability but where as there are also some
investors who have high earning but less risk taking capability.

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 18.824a 9 .027

Likelihood Ratio 19.952 9 .018

Linear-by-Linear Association .409 1 .523

N of Valid Cases 98

Null hypothesis: The annual savings of the investor’s is independent on the risk return
scenario

Alternate hypothesis: The annual savings of the investor’s is independent on the risk return
scenario

Here, the calculated Chi Square value is 18.824 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is rejected at 5% level of significance. The annual savings of
the investor’s is independent on the risk return scenario. The investor’s who is high risk
takers will generally prefer in investing rather than savings and those who take low risk will
go for savings because they have guaranteed returns
ANNUAL SAVINGS WITH RESPECT TO NO OF DEPENDENTS

49
 no of dependents

None 1-2 3-4 >5 Total

how much do you save 0-10% 7 9 11 1 28

annually as (%) of your 10-20 11 14 14 4 43
annual earnings
20-30 1 2 11 3 17

> 30 0 5 6 0 11

Total 19 30 42 8 99

The investors who are not having any dependents are savings upto 20 % where as the
investors who are having 3-4 dependents are diversified their investment. But majority of the
sample are not saving more than 30%

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 22.278a 9 .011

Likelihood Ratio 23.848 9 .007

Linear-by-Linear Association 16.548 1 .000

N of Valid Cases 100 .011

Null hypothesis: The annual savings of the investors is independent of the number of
dependents

Alternate hypothesis: The annual savings of the investors is dependent of the number of
dependents

Here, the calculated Chi Square value is 22.278 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is rejected at 5% level of significance. i.e. The annual savings
of the investors is dependent of the number of dependents. If there is more number of
dependents in the family on the investor then the savings of the investor will come down.

ANNUAL SAVINGS WITH RESPECT TO TIME PERIOD AFTER INVESTMENT

50
 how long do you wait after investing
1-3 3-5 >5 Total
how much do you save 0-10 9 7 12 28
annually as (%) of your 10-20 4 10 29 43
annual earnings
20-30 1 7 8 16
>30 1 2 8 11
Total 15 26 57 98

Those who are saving more are waiting for long time to get back more returns where as those
who are saving less planning to get back their return in short span of time. The table shows
that majority of the investors who are saving more than 10% are waiting for more than 5
years to get back their returns.

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 11.958a 6 .063

Likelihood Ratio 10.973 6 .089

Linear-by-Linear Association 3.884 1 .049

N of Valid Cases 98

Null hypothesis: The time, investor will wait to get back his returns is independent of the
annual savings

Alternate hypothesis: The time, investor will wait to get back his returns is dependent of the
annual savings

Here, the calculated Chi Square value is 11.958 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is rejected at 5% level of significance. i.e the time, investor
will wait to get back his returns is independent of the annual savings. If the investor has more
savings it doesn’t mean that he will wait for long time to get back his returns and vice versa.
Hence the time, the investor will wait to get back his returns will not depend on the annual
savings

NUMBER OF DEPENDENTS WITH RESPECT TO INVESTMENT DURATION

51
 how long have you been investing

1 2 3 4 Total

no of dependents 1 10 5 1 3 19

2 9 9 3 9 30

3 5 12 8 18 43

4 0 2 0 6 8

Total 24 28 12 36 100

The investors having more number of dependents mainly invested for long term periods
where as if they had no dependents they mainly investing for short term periods. The time
period of investment is diversified so the investors invest according to their requirement of
funds in the future.

Chi-Square Tests

Asymp. Sig. (2-

Value df sided)

Pearson Chi-Square 21.278a 9 .011

Likelihood Ratio 22.848 9 .007

Linear-by-Linear Association 15.548 1 .000

N of Valid Cases 100

Null hypothesis: The time period of investment is not influenced by the number of
dependents

Alternate hypothesis: The time period of investment is influenced by the number of

dependents
Here, the calculated Chi Square value is 21.278 and the tabulated Chi Square value at 9 d.f. is
16.92. Since the calculated value is much greater than the tabulated value, it is highly
significant and null hypothesis is rejected at 5% level of significance. i.e. if the number of
dependents in the family are more on the investor then the time length of his investment
varies and thus the time period of the investment is influenced by the number of dependents.

FACTOR ANALYSIS

52
A class of procedures used for data reduction and summarization. This was an
interdependence technique in which an entire set of interdependent relationships is examined.
The factor analysis is done in the following steps

CALCULATE THE SELECT THE

FACTOR SCORES SURROGATE
VARIABLES

Formulate the problem

DETERMINE THE MODEL
The factor analysis is done to determine that which factors are looked most by the investors
FIT
when they are investing in the mutual funds. A sample of 100 respondents have been taken
and they are asked to indicate the following statements using an 5 point scale where 1 is very
little and 5 is very high

• Performance of past schemes

• Rating of mutual funds

53
 • Advertisements

• Higher returns

• Goodwill of the organization

• Time period

• Tax saving

Construct the correlation matrix

Correlation Matrix
performance rating of goodwill
of past mutual advertise higher organizati time tax
schemes funds ments returns on period saving
performance of past
1.000 -.203 -.207 .251 -.124 -.018 .049
schemes
rating of mutual
-.203 1.000 .082 -.172 -.084 .011 -.055
funds
Advertisements -.207 .082 1.000 -.088 .115 -.173 .034
higher returns .251 -.172 -.088 1.000 -.119 .180 .020
goodwill
-.124 -.084 .115 -.119 1.000 .077 -.172
organization
time period -.018 .011 -.173 .180 .077 1.000 -.018
tax saving .049 -.055 .034 .020 -.172 -.018 1.000

There are relatively high correlations among performance of past schemes, rating of mutual
funds, advertisements, and higher returns. Likewise, there are relatively high correlations
among goodwill of the organization, time period and tax saving. These variables may also be
expected to correlate with the same factors.

The null hypothesis, that the population correlation matrix is an identity matrix, is rejected by
the Barlett’s test of sphericity. The approximate CHI square is 32.972 with 21 degree of
freedom, which is significant at the 0.05 level. The value of the KMO statistic (0.508) is also
large (> 0.5). Thus factor analysis can be considered as appropriate technique for analyzing
the correlation matrix
54
Method of factor analysis

The principal components analysis is used in which the total variance in the data is
considered. The diagonal of the correlation matrix consists of unities and full variance is
brought into the factor matrix. The principal component analysis is used mainly because for
the identification of minimum number of factors that will account for maximum variance in
the data which are used in the subsequent multivariate analysis.

Communalities
Initial Extraction
performance of past
1.000 .536
schemes
rating of mutual funds 1.000 .693
Advertisements 1.000 .456
higher returns 1.000 .438
goodwill organization 1.000 .717
time period 1.000 .648
tax saving 1.000 .400
Extraction Method: Principal Component Analysis.

Under the communalities initial column, it can be seen that the communality for each variable
is 1 as unities were inserted in the diagonal of the correlation matrix. The initial Eigen values
are, as expected, in decreasing order of magnitude as we go from factor 1 to 7. The eigen
values indicate the total variance attributed for that factor. The total variance accounted by all
seven factors is 7, which is equal to number of variables. The total variance explained by the
three factors is 55.65%

Determination of number of factors

The determination is based on the scree plot. A scree plot is a plot of the Eigen values
against the number of factors. The shape of the plot is used to determine the number of
factors. From the scree plot we can say that there are 3 factors based on the shape of the plot.

55
Rotate factors

The rotation is done using the varimax procedure. This is an orthogonal method of rotation
that minimizes the number of variables with high loadings on a factor there by enhancing the
interpretability of the factors. The factor matrix contains the coefficients used to express the
standardized variables in terms of the factors and the variables. A coefficient with a large
absolute value indicates that the factor and the variable are closely related. The coefficients of
the factor matrix can be used to interpret the results. Although the initial unrotated matrix
indicates the relationship between the factors and individual variables, it seldom results in
factors that can be interpreted, because the factors are correlated with many variables. In un
rotated matrix it is complex to interpret so the through factor rotation the factor matrix is
simple to interpret.

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Component Matrixa
Component
1 2 3
performance of past
.687 -.112 -.229
schemes
rating of mutual funds -.460 -.141 .679
Advertisements -.528 -.197 -.373
higher returns .651 .117 -.007
goodwill organization -.326 .660 -.419
time period .273 .564 .505
tax saving .177 -.607 .018
Extraction Method: Principal Component Analysis.
a. 3 components extracted.

Rotated Component Matrixa

Component
1 2 3
performance of past
.669 .167 -.247
schemes
rating of mutual funds -.793 .150 -.203
Advertisements -.175 -.640 .126
higher returns .510 .409 -.108
goodwill organization .045 -.158 .831
time period -.090 .764 .237
tax saving .100 -.175 -.600
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 6 iterations.

Interpret the results

In the rotated factor matrix the factor 1 has high coefficients for variables performance of
past schemes, rating of mutual funds and higher returns. Where the factor 1 investors not yet
all influenced by the rating of mutual funds because it is negative the factor 2 has higher
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coefficients in advertisements, higher returns and time period. Where they not yet all
influenced by the advertisements because it is negative in sign the factor 3 is influenced by
the goodwill of the organization and not yet all influenced by the time period.
Calculate the factor scores
The factor scores are calculated in order to use instead of the original variables in subsequent
multivariate analysis. The standardized variable values would be multiplied by the
corresponding factor score coefficients to obtain the factor scores.

Select the surrogate variables

By examining the factor matrix one could select for each factor the variable with the highest
loading on that factor. That would be the surrogate variable for that associated factor. For
factor 1 the surrogate variable is performance of the past schemes. And for factor 2 the
surrogate variable is time period and for the third factor the surrogate variable is the goodwill
of the organization.

Determine the model fit

There are only six residuals which are larger than 0.05 hence the factor analysis can be
considered as a goof fit.

Reproduced Correlations
rating
performance of
of past mutual higher goodwill time tax
schemes funds advertisements returns organization period saving
performance of
.620a -.488 -.116 .407 -.238 -.210 .035
past schemes
rating of mutual
-.488 .483a .310 -.359 .062 -.034 .079
funds
advertisements -.116 .310 .559a -.213 -.112 -.525 .054
higher returns .407 -.359 -.213 .331a -.219 .057 .144
goodwill
-.238 .062 -.112 -.219 .504a .061 -.521
organization
time period -.210 -.034 -.525 .057 .061 .755a .169

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Reproduced Correlations
tax saving
.035 .079 .054 .144 -.521 .169 .662a

DISCRIMINANT ANALYSIS

A technique for analyzing marketing research data when the criterion or dependent variable is
categorical and the predictor or independent variables are interval in nature, in the analysis
the dependent variable is the savings annually from the income and the independent variables
are income, no of dependents, occupation, risk return scenario, how long will you wait after
investing and how long have you been investing.

Steps involved in Discriminant analysis

Formulate the problem

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The objective is to identify which variable is more dependent on the annual savings of the
investors and how much they are saving annually based on the independent variables income,
no of dependents, occupation, risk return scenario, how long will you wait after investing and
how long have you been investing.

Estimate the Discriminant function coefficients

This was a four group discriminating analysis. Hence there will be 4-1 = 3 functions can be
extracted.

Eigenvalues
Functi % of Cumulative Canonical
on Eigenvalue Variance % Correlation
1 .217a 58.1 58.1 .422
a
2 .137 36.6 94.7 .347
a
3 .020 5.3 100.0 .139
The Eigen value associated with the first function is 0.217and this function accounts for
58.1% of the explained variance. Because the Eigen value is large the first function is likely
to be superior. The second function has the Eigen value of 0.137 and accounts for 36.6 % of
the explained variance and the third function has the Eigen value of 0.20 and explains only
5.3 % of the explained variance.

Determine the significance of the Discriminant function

The first function which is significant than the 0.05 in the below table which contribute
significantly to the group differences and 2 through 3 and the 3 are having the Wilks’ lambda
of 0.862 and 0.981 and the significance is not that much for the for the group differences
because they are not significant at 0.05 levels.

Wilks' Lambda
Test of Wilks'
Function(s) Lambda Chi-square Df Sig.
1 through 3 .709 31.358 18 .026
2 through 3 .862 13.469 10 .199
3 .981 1.784 4 .775

Interpret the results

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From the standardized canonical discriminnat function coefficients we will know that the first
function is mainly depends on the income, how long have you been investing and the
occupation. The function 2 represents the no of dependents and risk return scenario. The third
function is dependent on the investing, risk return scenario and occupation.

Standardized Canonical Discriminant Function Coefficients

Function
1 2 3
no of dependents .002 -.806 -.466
income .589 -.282 -.134
how long have you been
.480 .136 .558
investing
how long do you wait after
.256 .385 .087
investing

risk return scenario .293 .554 -.494

occupation -.470 .022 .668

But there are similarities among the groups so consider the structure matrix in which the
asterix symbol represented values are the main function in it. Among the functions, the first
function has the no of independents, income, investment and the second function has the
waiting for investment period and the risk return scenario and the third function has the
occupation as the predominant variable
Structure Matrix
Function
1 2 3
how long have you been investing .670 *
-.161 .523
Income .633* -.254 .218
how long do you wait after
.627* .214 .113
investing
no of dependents .275 -.700* -.239
Which of the following risk return
scenario would you be most .131 .549* -.466
comfortable with
Occupation -.226 -.026 .577*
The function 1 which is predominantly based on the factors like time period of investment,
income and the time the investors wait after the investment. So if these are higher their
savings are higher and if these are lower their savings are lower and the function 2

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predominantly on no of dependents and the risk return scenario. The third function is
dependent on the occupation of the investors.

Std. Valid N (list wise)

Annual savings in % Mean Deviation Unweighted Weighted
1 no of dependents 2.21 .876 28 28.000
Income 1.96 .881 28 28.000
how long have you been investing 2.04 1.201 28 28.000
how long do you wait after investing 2.11 .875 28 28.000
risk return scenario 3.00 .861 28 28.000
Occupation 1.50 .745 28 28.000
2 no of dependents 2.24 .958 42 42.000
Income 2.40 .798 42 42.000
how long have you been investing 2.67 1.141 42 42.000
how long do you wait after investing 2.60 .665 42 42.000
risk return scenario 3.31 .715 42 42.000
Occupation 1.33 .526 42 42.000
3 no of dependents 2.88 .719 16 16.000
Income 2.62 .806 16 16.000
how long have you been investing 2.81 1.223 16 16.000
how long do you wait after investing 2.44 .629 16 16.000
risk return scenario 2.88 1.147 16 16.000
Occupation 1.31 .602 16 16.000
4 no of dependents 2.55 .522 11 11.000
Income 2.73 1.272 11 11.000
how long have you been investing 3.18 1.079 11 11.000
how long do you wait after investing 2.64 .674 11 11.000
risk return scenario 2.91 .831 11 11.000
Occupation 1.45 .522 11 11.000
l no of dependents 2.37 .882 97 97.000
Income 2.35 .913 97 97.000
how long have you been investing 2.57 1.207 97 97.000
how long do you wait after investing 2.43 .749 97 97.000
risk return scenario 3.10 .860 97 97.000
Occupation 1.39 .605 97 97.000

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Among the group statistics, the group one which has the annual savings of less than 10 % is
mostly dependent on the risk return scenario and no of dependents and also it was somewhat
influenced by the time taken by the investor to get back his return and also the time from
which the investment. The second group of people who are saving about 10-20% are mostly
influenced by the risk return scenario, how long have you been investing and how long do
you wait after investing. The third group of people who are saving about 20-30% no of
dependents risk return scenario and the income levels. The fourth group who are saving more
than 30% are mainly depending on the independent variable that is how long they have been
investing and the risk return scenario.
Thus we can say that in the different percentage of savings the dependency of the annual
savings will be varying with the independent factors.

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FINDINGS AND CONCLUSION

64
  A majority of the investors belonged to the age group of 30-45 years and this group
consists of both service sector and the self employed. While coming to the investment
pattern it varies though it being a similar age group but the income and occupation
varies and the risk taking ability also varies with the nature of the investor.
 The investors are looking for the higher returns with higher or moderate risk or high
risk. So the mutual fund industry can attract the investors by promising them higher
returns. The other factors which effect the investor pattern is the number of
dependents, time duration of investment and how long they wait for the returns.
 The investors are not interested in immediate returns but they are interested in higher
returns if the mutual fund industry can promise them to pay higher returns there will
be a lot of flow of investment into this industry.
 The main factors which they are considering while investing in mutual fund are past
performance of the funds, higher returns and the rating of mutual funds. If the mutual
funds have good rating and are promising to pay higher returns then the majority of
investors are willing to invest in those types of funds.
 The majority of investors are saving more than 10% of the annual income if the
mutual funds can target these savings then there is a lot of flow of investment in this
industry. The main purpose of investing in the investments is for retirement plans and
education.
 Thus if the industry can promise the regular returns to pursue their education needs
then also there is a lot of scope for development. The objective with which the
investments are invested is growth and income and also getting the advantage from
the taxes if these funds can provide a regular income and also the investors would get
a tax benefit then the investors will be ready to invest in these funds.

SUGGESTIONS AND RECOMMENDATIONS

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In the survey it was found a majority of the investors belonged to the salaried group still the
investment and savings is found to be high so there is a very good market for mutual funds
but the only thing was that the financial literacy is low as only a few of them had knowledge
about the various financial products and their investment pattern there is a very good market
but the awareness about the financial instruments being low the companies should go for
something like creating awareness about their products and educate the investors about the
products and their returns and the risks involved in it.

Doing this it would not only increase the sales of the company but also investors are more
aware about the financial products and would come forward to invest in different types of
funds and would also take interest in different types of new product coming in the market.

So the companies should focus equally on both salaried persons as well as the businessmen
and should also focus on creating awareness and this will definitely help the companies to
increase the sales.

BIBLIOGRAPHY

66
1. Economic Times
2. Business Standards
3. Business World
4. Financial Economics (journal)
5. Wealth creation guide
6. Websites & Links
 www.nse-india.com
 www.bseindia.com
 www.moneycotrol.com
 www.valueresearchonline.com
 www.rbi.org.in
 www.helplinelaw.com
 www.amfiindia.com
 www.webindia123.com/finance
 www.personalfn.com
 www.thehindubusinessline.com
 www.economictimes.com
 www.crisil.com

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