STUDY ON INVESTOR’S PERCEPTION OF MUTUAL FUNDS

CHAPTER I
INTRODUCTION
Mutual funds are financial intermediaries, which collect the savings of investors & invest
them in a large & well diversified portfolio of securities such as money market instruments,
corporate & government bonds & equity shares of joint stock companies. A Mutual fund is a
pool of common funds invested by different investors, who have no contact with each other.
Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market. Since small investors generally do not have adequate time
knowledge, experience & resources for directly accessing the capital market, they have to rely
on an intermediary which undertakes informed investment decisions & provides consequential
benefits of professional expertise. The advantages for the investors are reduction in risk, expert
professional management, diversified portfolios, & liquidity of investment & tax benefits. By
pooling their assets through mutual funds, investors achieve economies of scale. The interests
of the investors are protected by the SEBI, which acts as a watchdog. Mutual funds are
governed by the SEBI (Mutual funds) regulations, 1993.

From its inception the growth of mutual funds is very slow and it took really long years
to evolve the modern day mutual funds. Mutual Funds emerged for the first time in Netherlands
in the18th century and then got introduced to Switzerland, Scotland and then to United States
in the 19th century. The main motive behind mutual fund investments is to deliver a form of
diversified investment solution. Over the years the idea developed and people received more
and more choices of diversified investment portfolio through the mutual funds. In India, the
mutual fund concept emerged in 1960. The credit goes to UTI for introducing the first mutual
fund in India. Monetary Funds benefited a lot from the mutual funds. Earlier investors used to
invest directly in the stock market and many times suffered from loss due to wrong speculation.
But with the coming up of mutual funds, which were handled by efficient fund managers, the
investment risks were lowered by a great extent.

History of Mutual Funds

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.

Unit Trust of India(UTI) was established in 1963 by Act of Parliament. It was set up by
the reserve Bank of India and functional under the Regulatory and administrative control of
Reserve bank of India. In 1978 UTI was de-linked form 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.

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 Mutual Fund (Oct
921), LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990.
Scope of Mutual Fund
Scope of mutual fund has grown enormously over the year. In the first age of mutual
funds when investment management companies started to offer mutual funds, choices were
few. Ever through people invested their money in mutual funds as these funds offered them
diversified investment option for the first time. By investing in these funds they were able to
diversify their investment in common stocks, preferred stocks, bonds and other financial
securities. At the same time they also enjoyed the advantages of liquidity. With mutual fund,
they got the scope of easy access to their invested funds on requirement.

But in today’s world, scope of mutual funds has become so wide, that people sometimes
take time to decide the mutual fund type, they are going to invest in several investment
management companies have emerged over the years who offer various types of mutual funds.
Each type carrying unique characteristics and different beneficial features.

To understand the board scope of mutual funds we need to discuss the main types of
mutual funds that are normally offer by mutual companies.

Advantages of Mutual Fund Investments

1. Manage inflation
2. Safe and transparent
3. High return
4. Diversification
5. Liquidity
6. Professional management
7. Flexibility
8. Choice of scheme
9. Tax benefits

Types of Mutual Funds

Mutual funds can be classified in different ways according to their investment

objectives, their constitution, as follows;

 Equity Funds
 Debt / income Funds
 Balanced Funds
 Liquid / Money Market Funds.
 Closed Ended Funds
 Open Ended Funds
 Load Funds
 No Load Funds
Structure of the Mutual Fund

Statement of the problem

Mutual funds are the avenues for common investors to reap the benefits of share market
performance. Investing in equity directly by investors is fraught with highest level of risk &
uncertainty Retail investors do not actively participate in share market but inflation edged
investment return demands the exploitation of the equity market as an investment avenue
Therefore there is a necessity to create awareness of the utility of investing in mutual funds
schemes to enjoy a return which will be inflation adjusted real returns Therefore this project is
taken on to assess the investors perception of mutual fund investment. This project will evaluate
the financial performance of mutual fund schemes.

Scope of research
From the various mutual funds operated in India Three mutual funds organizations has
been identified based on convenient sampling. Selected equity funds of these organizations are
taken up for research. The financial details reflecting performance of mutual funds for the
financial year 2018-19 is considered as an academic project. It is executed during a period of
one month, conclusions arrived at are influenced by economic and business environment of the
year 2018-19.
The research is based on different investment & saving schemes so there’s lots of
opportunities to choose an investment schemes which is beneficial to investor as well as the
companies in the market. Choosing a right research technique lead to better profits &
investment decisions.

Research objectives
 To examine the penetration of mutual funds among Indian investors.
 To examine the various mutual fund investments available to investors in India.
 Finally, to assess the perception of investors towards mutual funds schemes.
 Awareness of mutual funds in Indian market.

 To identify the investor behaviour while selecting a fund

Research Methodology
Sources of data
Introduction:
This report is based on secondary data. All the data required for this analytical study has been
obtained mainly from secondary sources. The secondary data has been collected through various
journals & websites. Secondary data is based on information gleaned from studies previously
performed by various journals.

Collection of data
Primary data: Since the study require a systematic gathering of information, a survey
research (using a structured questionnaire) was selected
Secondary data: Here in this research project the secondary data is used data which are
taken from published sources of Bombay stock exchange, Money control, value research
online, National stock exchange & Mutual fund India.

Limitation of the study

Apart from Details about mutual funds it has some limitations due to that all the details
could not be published & displayed. It has been done on the basis of secondary sources like
Journals, Websites & like resources.

Limitations of the study can be pointed out as follows

 Time constraints: - Due to shortage or less availability of time it may be possible that
all the related & concerned aspects may not be covered in the project.
 Analysis done is limited to the availability of data.
 It is very difficult to evaluate the accuracy of secondary data. Before using secondary
data.
 The quality of internal secondary data may be exaggerated or biased
 Mismatch between purpose collected and purpose used.
 Desired information may be unavailable or out-of-date.
 The conclusions derived from the report cannot be generalized.
Review of Literature

Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have studied Impact
of Sharpe Ratio & Treynor’s Ratio on Selected Mutual Fund Schemes. This paper examines
the performance of selected mutual fund schemes, that the risk profile of the aggregate mutual
fund universe can be accurately compared by a simple market index that offers comparative
monthly liquidity, returns, systematic & unsystematic risk and complete fund analysis by using
the special reference of Sharpe ratio and Treynor’s ratio.

Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research on
Comparative Performance Analysis of Select Indian Mutual Fund Schemes. This study
analyses the performance of Indian owned mutual funds and compares their performance. The
performance of these funds was analysed sing a five year NAVs and portfolio allocation.
Findings of the study reveals that mutual funds out perform naïve investment. Mutual funds as
a medium-to-long term investment option are preferred as a suitable investment option by
investors.

Dr. Yogesh Kumar Mehta (Feb 2012), has studied Emerging Scenario of Mutual Funds
in India: An Analytical Study of Tax Funds. The present study is based on selected equity funds
of public sector and private sector mutual fund. Corporate and Institutions who form only
1.16% of the total number of investors accounts in the MFs industry, contribute a sizeable
amount of Rs.2,87,108.01 Crore which is 56.55% of the total net assets in the MF industry. It
is also found that MFs did not prefer debt segment.

Dr Surender Kumar Gupta and Dr. Sandeep Bansal (Jul 2012), have done a
Comparative Study on Debt Scheme of Mutual Fund of Reliance and Birla Sun life. This study
provides an overview of the performance of debt scheme of mutual fund of Reliance, and Birla
Sun life with the help of Sharpe Index after calculating Net Asset Values and Standard
Deviation. This study reveals that returns on Debt Schemes are close to Benchmark return
(Crisil Composite Debt Fund Index: 4.34%) and Risk Free Return: 6% (average adjusted for
last five year).

Prof. V. Vanaja and Dr. R. Karrupasamy (2013), have done a Study on the
Performance of select Private Sector Balanced Category Mutual Fund Schemes in India. This
study of performance evaluation would help the investors to choose the best schemes available
and will also help the AUM’s in better portfolio construction and can rectify the problems of
underperforming schemes. The objective of the study is to evaluate the performance of select
Private sector balanced schemes on the basis of returns and comparison with their bench marks
and also to appraise the performance of different category of funds using risk adjusted measures
as suggested by Sharpe, Treynor and Jensen.

E. Priyadarshini and Dr. A. Chandra Babu (2011), have done Prediction of the Net
Asset Values of Indian Mutual Funds Using Auto- Regressive Integrated Moving Average
(Arima). In this paper, some of the mutual funds in India had been modeled using Box-Jenkins
autoregressive integrated moving average (ARIMA) methodology. Validity of the models was
tested using standard statistical techniques and the future NAV values of the mutual funds have
been forecasted.
 Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a
Comparative Study On Performance Evaluation of Mutual Fund Schemes of Indian
Companies. In this paper the performance evaluation of Indian mutual funds is carried out
through relative performance index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's
measure, Jensen's measure, and Fama's measure. The data used is daily closing NAVs. The
source of data is website of Association of Mutual Funds in India (AMFI). The study period is
1st January 2007 to 31st December, 2011. The results of performance measures suggest that
most of the mutual fund have given positive return during 2007 to 2011.

C.Srinivas Yadav and Hemanth N C (Feb 2014), have studied Performance of Selected
Equity Growth Mutual Funds in India: An Empirical Study during 1st June 2010 To 31st May
2013. The study evaluates performance of selected growth equity funds in India, carried out
using portfolio performance evaluation techniques such as Sharpe and Treynor measure. S&P
CNX NIFTY has been taken as the benchmark. The study conducted with 15 equity growth
Schemes (NAV ) were chosen from top 10 AMCs ( based on AUM) for the period 1st June
2010 to 31st may 2013(3 years).

Rashmi Sharma and N. K. Pandya (2013), have done an overview of Investing in

Mutual Fund. In this paper, structure of mutual fund, comparison between investments in
mutual fund and other investment options and calculation of NAV etc. have been considered.
In this paper, the impacts of various demographic factors on investors’ attitude towards mutual
fund have been studied. For measuring various phenomena and analysing the collected data
effectively and efficiently for drawing sound conclusions, drawing pie charts has been used
and for analysing the various factors responsible for investment in mutual funds.

Rahul Singal, Anuradha Garg and Dr Sanjay Singla (May 2013), have done
Performance Appraisal of Growth Mutual Fund. The paper examines the performance of 25
Growth Mutual Fund Schemes. Over the time period Jan 2004 to Dec 2008. For this purpose,
three techniques are used (I) Beta (II) Sharpe Ratio (III) Treynor Ratio. Rank is given according
to result drawn from this scheme and comparison is also made between results drawn from
different schemes and normally the different are insignificant.

Dhimen Jani and Dr. Rajeev Jain (Dec 2013), have studied Role of Mutual Funds in
Indian Financial System as a Key Resource Mobiliser. This paper attempts to identify, the
relationship between AUM mobilized by mutual fund companies and GDP growth of the India.
To find out correlation coefficient Kendall’s tau b and spearman’s rho correlation ship was
applied, the data range was selected from 1998-99 to 2009-10.