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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

A MANAGEMENT THESIS ON INVESTMENT PATTERNS IN MUTUAL FUNDS WITH SPECIAL REFERENCE TO DEUTSCHE MUTUAL FUND

BY NARESH KAMRA

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Naresh Kamra: ICFAI NATIONAL COLLEGE

Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

A MANAGEMENT THESIS ON INVESTMENT PATTERNS IN MUTUAL FUNDS WITH SPECIAL REFERENCE TO DEUTSCHE MUTUAL FUND

In Partial Fulfillment Of The Requirements Of The MBA Program (The Class Of 2009) Submitted To: Mr. Nilesh Arora (Faculty Supervisor) Submitted By: Naresh Kamra (7NBGN016)

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Naresh Kamra: ICFAI NATIONAL COLLEGE

Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

ACKNOWLEDGEMENT
Success is not a destination, but a journey. While I reach towards the end of this journey, I realize I may not have come this far without the guidance, help and support of people who acted as guides, friends and torch bearers along the way. I express my deepest and most sincere thanks to my project guide Mr.Vishal Sood, Manager Banking Channel Sales of Deutsche Asset Management India (P) Ltd. and my faculty supervisor Mr. Nilesh Arora, the research could not be complete without their able support and guidance. I express my sincere gratitude to Mr. Vikram, and Mr. Vipin Gupta, Executives, Deutsche Asset Management India (P) Ltd, and Mr. Yogesh Nain, Executive, ICICI Bank, Sri Ganganagar for helping me and providing me with useful information. Interacting with them I learnt basics of the Mutual Fund Industry and I am sure the knowledge imparted will go a long way in enriching my career. I take this opportunity to thank all senior executives and every associate of Deutsche Asset Management and ICICI Bank without their cooperation I would not have been able to complete this research. Naresh Kamra (7NBGN016) MBA (Class of 2009) INC Sri Ganaganagar

TABLE OF CONTENT
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

S. No.
1. 2. 3. 4.

Particulars

Page No.

Acknowledgement..3 Table of content..4 Abstract of the Thesis......6 Introduction...7


4.1. Objectives.7 4.2. Methodology....8 4.3. Mutual Fund Industry.10 4.3.1. Mutual Funds.10 4.3.2. Mutual fund Terminology..19 4.4. Company Profile..22 4.4.1. History of Deutsche Bank..22 4.4.2. The Indian Route..24 4.4.3. Deutsche Asset Management.27 4.4.4. DWS Investments.28 4.4.5. Products Offered By Deutsche AMC..29

5. Facts And Findings..34 5.1. Macro-economic Investment Patterns.34 5.2. Micro-economic Investment Patterns..41 6. Analysis.56 6.1. Comparative Analysis.56 6.2. Trend Analysis..66 7. Conclusion..68

8. Recommendations..69
8.1. For Mutual fund Companies..69 8.2. For Investors.70

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

9. Questionnaire.77 10. References 79

ABSTRACT
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Naresh Kamra: ICFAI NATIONAL COLLEGE

Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

The thesis is titled on investment patterns mutual fund. Today, there is a huge potential in the mutual fund sector but it is surrounded with number of basic problems without the improvement of which it cannot become a healthy portfolio. This thesis identifies and examines the various aspect of mutual fund industry, from consumers point of view and from the company point of view as well. In the beginning the project briefs about the current market scenario of mutual fund sector in India and then various other micro factors that includes a survey which shall show individual patterns for mutual fund investment by different individuals. Hence this thesis undertakes both kind of studies exploratory as well as descriptive as it included both macro and micro aspect of mutual fund investments in India This thesis, gave the researcher an exposure into the investment scenario in India. The researcher has undertaken an analytical evaluation of the factors influencing the sale of the various mutual fund schemes, which is of much use in servicing the clients/investor. This involved catering to the queries of the investors about the concept of mutual funds, the various schemes that an investor can invest his money into and showing light to industry participants towards investor behavior. Incorporation of text/literature emphasizing mutual fund related issues has contained views of some of the eminent speakers & economists about the mutual fund sector in India. The analysis of the survey has been conducted, which can be very useful in understanding the basic problems which mutual fund industry are facing today has also been incorporated for better outlook.

INTRODUCTION
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

OBJECTIVES

To study basics of mutual funds. To study various advantages and disadvantages of mutual funds. To survey preferences of investors regarding investment in mutual funds. To Evaluate performance of Deutsche mutual fund using various financial ratios and financial measures. To compare and rate Deutsche mutual fund with other mutual funds. To conduct trend analysis for various types of schemes. To find out myths about mutual fund investments. To give tips for investments in mutual funds.

METHODOLOGY
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Type of research: Descriptive and exploratory. Universe: Deutsche mutual fund and other top five mutual funds (Reliance, ICICI, DSP etc.) and people investing in these funds.

Data Source

Primary Data: The data has been collected from investors by survey using a questionnaire specially designed to study their investment patterns.

Secondary Data: The data has been collected from the internet, the company website, books, magazines and journals.

Sampling

Technique

and

Procedure:

Non

Probability

or

convenience sampling.

Sample Size: The study is based on a survey of 100 respondents through a questionnaire and application forms covering different groups of investors.

Sample Units: The respondents consisted of walk in customers in the bank, leads generated by bank, general investors in various mutual funds.

Sampling Area: Sri Ganganagar city. Analysis Tools: The data obtained has been analyzed by using descriptive counting method, factor analysis and multivariate regression for identification of the key features preferred by the respondents in a mutual fund product. The theoretical framework for evaluating the performance of mutual fund is explained by using Sharpes performance measure for portfolio and Jensens measure
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

for portfolio management. If the Jensens index is positive, then the scheme has performed better and if it is negative it has performed up to the benchmark. Other tools used for evaluation of funds performance are: NAV Beta Standard Deviation Absolute and Mean return

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

MUTUAL FUNDS
What is a Mutual Fund? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. It is essentially a diversified portfolio of financial instruments - these could be equities, debentures / bonds or money market instruments. The corpus of the fund is then deployed in investment alternatives that help to meet predefined investment objectives. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is a 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. One could make money from a mutual fund in three ways: 1) Income is earned from dividends declared by mutual fund schemes from time to time. 2) If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. 3) If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain. What are the benefits of investing in a mutual fund? The benefits of investing in mutual funds are as follows Access to professional money managers - Experienced fund managers using advanced quantitative and mathematical techniques manage your money. Diversification - Mutual funds aim to reduce the volatility of returns through diversification by investing in a number of companies across a broad
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

section of industries and sectors. It prevents an investor from putting "all eggs in one basket". This inherently minimizes risk. Thus with a small investible surplus an investor can achieve diversification which would have otherwise not been possible. Liquidity - Open-ended mutual funds are priced daily and are always willing to buy back units from investors. This mean that investors can sell their holdings in mutual fund investments anytime without worrying about finding a buyer at the right price. In the case of other investment avenues such as stocks and bonds, buyers are not necessarily available and therefore these investment avenues are less liquid compared to open-ended schemes of mutual funds. Tax Efficiency - Mutual fund offers a variety of tax benefits as per various provisions of Income Tax Act-1961 e.g. section 80C. Low transaction costs - Since mutual funds are a pool of money of many investors, the amount of investment made in securities is large. This therefore results in paying lower brokerage due to economies of scale. Transparency - Prices of open ended mutual funds are declared daily. Regular updates on the value of your investment are available. The portfolio is also disclosed regularly with the fund manager's investment strategy and outlook. Well-regulated industry - All the mutual funds are registered with SEBI and they function under strict regulations designed to protect the interests of investors. Convenience of small investments - Under normal circumstances, an individual investor would not be able to diversify his investments (and thus minimize risk) across a wide array of securities due to the small size of his investments and inherently higher transaction costs. A mutual fund on the other hand allows even individual investors to hold a diversified array of securities due to the fact that it invests in a portfolio of stocks. A mutual fund therefore permits risk diversification without an investor having to invest large amounts of money.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

What are the different types of Mutual Funds? Mutual fund schemes may be classified on the basis of their structure and their investment objective

By Structure Open-ended Funds An Open-ended Fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. Close-ended Funds A Close-ended Fund has a stipulated maturity period, which generally ranges from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the Stock Exchanges, if they are listed. The market price at the stock exchange
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

could vary from the scheme's NAV on account of demand and supply situation, unit holders' expectations and other market factors.

By Investment Objective Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. Growth schemes are ideal for investors who have a long-term outlook and are seeking growth over a period of time. Income Funds The aim of Income Funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund. Balanced Funds The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer shortterm instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Other Equity Related Schemes Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 88 of the Indian Income Tax Act, 1961. Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50. Sectoral Schemes Sectoral Funds are those which invest exclusively in specified sector(s) such as FMCG, Information Technology, Pharmaceuticals, etc. These schemes carry higher risk as compared to general equity schemes as the portfolio is less diversified, i.e. restricted to specific sector(s) / industry (ies). What are the different plans that mutual funds offer? To cater to different investment needs, Mutual Funds offer various investment options. Some of the important investment options include: Growth Option Dividend is not paid-out under a Growth Option and the investor realizes only the capital appreciation on the investment (by an increase in NAV). Dividend Payout Option Dividends are paid-out to investors under the Dividend Payout Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend payout. Dividend Re-investment Option

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional units in open-ended funds. In most cases mutual funds offer the investor an option of collecting dividends or re-investing the same. Retirement Pension Option Some schemes are linked with retirement pension. Individuals participate in these options for themselves, and corporate participate for their employees. Insurance Option Certain Mutual Funds offer schemes that provide insurance cover to investors as an added benefit. Systematic Investment Plan (SIP) Here the investor is given the option of preparing a pre-determined number of post-dated cheques in favour of the fund. The investor is allotted units on a predetermined date specified in the offer document at the applicable NAV. Now-a-days ECS facility is also available. Systematic Encashment Plan (SEP) As opposed to the Systematic Investment Plan, the Systematic Encashment Plan allows the investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day. What are the types of returns? On the basis of fund nature the returns and risk level of each type of fund is shown below.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

What are the types of risks? Risk is an inherent aspect of every form of investment. For mutual fund investments, risks would include variability, or period-by-period fluctuations in total return. The value of the scheme's investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets, interest rates, currency exchange rates, foreign investment, changes in government policy, political, economic or other developments.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Market Risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences, when this happens, the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk". Inflation Risk: Sometimes referred to as "loss of purchasing power." Whenever the rate of inflation exceeds the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Credit Risk: In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? Interest Rate Risk: Changing interest rates affect both equities and bonds in many ways. Bond prices are influenced by movements in the interest rates in the financial system. Generally, when interest rates rise, prices of the securities fall and when interest rates drop, the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV. Investment Risks: In the sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Liquidity Risk: Thinly traded securities carry the danger of not being easily saleable at or near their real values. The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the Indian fixed income market. Changes in the Government Policy: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. Are returns from mutual funds guaranteed? Generally, Mutual Funds do not offer guaranteed returns to investors. Although, SEBI regulations allow Mutual Funds to offer guaranteed returns subject to the Fund meeting certain conditions, most Funds do not offer such guarantees. In case of a guaranteed return scheme, the sponsor or the AMC, guarantees a minimum level of return and makes good the difference if the actual returns are less than the guaranteed minimum. The name of the guarantor and the manner in which the guarantee shall be met must be disclosed in the offer document by the Mutual Fund. Investments in mutual funds are not guaranteed by the Government of India, the Reserve Bank of India or any other government body.

Does investing in Mutual Funds mean investing in equities? No, this is not necessary. Mutual funds can be divided into various types depending on asset classes. They can also invest in debt instruments such as bonds, debentures, commercial paper and government securities apart from equity.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Every mutual fund scheme is bound by the investment objectives outlined by it in its prospectus. The investment objectives specify the class of securities a mutual fund can invest in. Based on the investment objective, the following types of mutual funds currently operate in the country. Growth Schemes Income Schemes Balanced Schemes Money Market Schemes

Abstract: We investigate the value of active mutual fund management by examining the stockholdings and trades of mutual funds. We find that stocks widely held by funds do not outperform other stocks. However, stocks purchased by funds have significantly higher returns than stocks they sell-this is true for large stocks as well as small stocks, and for value stocks as well as growth stocks. We find that growth-oriented funds exhibit better stock-selection skills than income-oriented funds. Finally, we find only weak evidence that funds with the best past performance have better stock-picking skills than funds with the worst past performance.

MUTUAL FUND TERMINOLOGY


Annual and Semiannual Reports: Summaries that a mutual fund sends to its shareholders that discuss the funds performance over a certain time period and identify the securities in the funds portfolio on a specific date.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Asked or Offering Price: The price at which a mutual funds shares can be purchased. The asked or offering price includes the current net asset value per share plus any sales charge. Average Portfolio Maturity: The average maturity of all the bonds in a bond funds portfolio. Automatic Reinvestment: A fund service giving shareholders the option to purchase additional shares using dividends and capital gain distributions. Bid or Sell Price: The price at which a mutual funds shares are redeemed, or bought back, by the fund. The bid or redemption price is usually the current net asset value per share. Closed -end Fund: A type of investment company that has a fixed number of shares which are publicly traded. The price of a closed-end fund share fluctuates based on investor supply and demand. Closed-end funds are not required to redeem shares and have managed portfolios. Commission: A fee paid by an investor to a broker or other sales agent for investment advice and assistance. Custodian: An organization, usually a bank, that holds the securities and other assets of a mutual fund. Dollar -cost Averaging: (Known as Rupee Cost Averaging in India) The practice of investing a fixed amount of money at regular intervals, regardless of whether the securities markets are declining or rising. Exchange Privilege: A fund option enabling shareholders to transfer their investments from one fund to another within the same fund family as their needs or objectives change. Typically, fund companies allow exchanges several times a year for a low or no fee. Expense Ratio: A funds cost of doing business disclosed in the prospectusexpressed as a percent of its assets Hedge Fund: A private investment pool for wealthy investors that, unlike a mutual fund, is exempt from SEC regulation. Individual Retirement Account: (IRA)An investor-established, taxdeferred account set up to hold and invest funds until retirement.

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Investment Company A corporation, trust or partnership that invests pooled shareholder dollars in securities appropriate to the organizations objective. Mutual funds, closed-end funds and unit investment trusts are the three types of investment companies. Long-term Funds: A mutual fund industry designation for all funds other than money market funds. Long-term funds are broadly divided into equity (stock) and bond and income funds. Management Fee: Amount paid by a mutual fund to the investment adviser for its services. Maturity: The date by which an issuer promises to repay the bonds face value. Net Asset Value (NAV): The per-share value of a mutual fund, found by subtracting the funds liabilities from its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once daily. Portfolio: A collection of securities owned by an individual or an institution (such as a mutual fund) that may include stocks, bonds and money market securities. Redeem: To cash in mutual fund shares by selling them back to the fund. Mutual fund shares may be redeemed on any business day. You will receive the current share price, called net asset value, minus any deferred sales charge or redemption fee. Reinvestment Privilege: An option whereby mutual fund dividends and capital gain distributions automatically buy new fund shares. Sales Charge or Load: Amount charged for the sale of some fund shares, usually those sold by brokers or other sales professionals. By regulation, a mutual fund sales charge may not exceed 8.5 percent of an investment purchase. The charge may vary depending on the amount invested and the fund chosen. A sales charge or load is reflected in the asked or offering price. Generally the entry or exit load in most of the funds is charged at the rate of 2.25 %. Total Return: Measure of a funds performance that encompasses all elements of return: dividends, capital gain distributions and changes in net asset value. Total return is the change in value of an investment over a
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

given period, assuming reinvestment of any dividends and capital gain distributions, expressed as a percentage of the initial investment. Withdrawal Plan: Fund service allowing shareholders to receive income or principal payments from their fund account at regular intervals. Yield: Measure of net income (dividends and interest) earned by the securities in the funds portfolio less fund expenses during a specified period. A funds yield is expressed as a percentage of the maximum offering price per share on a specified date.

HISTORY OF DEUTSCHE BANK


Since 1988, one of the focal points of the Historical Institute's research has been on the National Socialist period. A general summary of the history of the bank during the years 1933-1945 written by Harold James, Princeton University, was published in 1995 as a chapter of The Deutsche Bank 187022
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

1995. In 2003, Harold James published a fully revised edition of this chapter in a new book with the title The Nazi Dictatorship and the Deutsche Bank, which brings together all of the recent results in historical research. This general presentation of the history of Deutsche Bank during the Nazi period was preceded by detailed studies, such as the examination of "Aryanization" (2001), also written by Harold James, and the report by Jonathan Steinberg, University of Pennsylvania, The Deutsche Bank and its Gold Transactions during the Second World War (1999). The most recent publication (autumn 2004), written by Lothar Gall, University of Frankfurt am Main, is an extensive biography of Hermann Josef Abs (1901-1994), who was the bank's Spokesman of the management board for many years. With discerning judgment, Gall dedicates special attention in this book to the years of the "Third Reich". Lothar Gall, Harold James, and Jonathan Steinberg are all members (along with Gerald D. Feldman of Berkeley and Avraham Barkai of Jerusalem) of the Historical Commission Appointed to Examine the History of Deutsche Bank in the Period of National Socialism set up in 1997. Additional areas of research of the Historical Institute are the relations between banking and politics, the development of corporate culture and the history of Deutsche Bank in East Asia and North America. Deutsche Bank's business in the USA - against the background of GermanAmerican financial and trade relations since 1870 - are currently being researched by the American business historian Christopher Kobrak from the European School of Management, Paris. The results of this extensive study are scheduled to be published at the end of 2007 Under the Empire (1870-1918) 1870 Deutsche Bank is founded in Berlin Its purpose: "to transact banking business of all kinds, in particular to promote and facilitate trade relations between Germany, other European countries and overseas markets". 1870: Deutsche Bank is founded in Berlin - its purpose: "to transact banking business of all kinds, in particular to promote and facilitate trade relations between Germany, other European countries and overseas markets".

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

1871/72: First branches in Bremen and Hamburg, followed by more branches in, for example, Frankfurt am Main, Munich, Leipzig and Dresden. 1873: Opening of the first European foreign branch in London. 1880: Deutsche Bank begins to supply industry with loans and capital market products. Foreign investments in North and South America, Eastern Asia, and Turkey. 1959: Deutsche Bank enters retail banking by introducing small personal loans. 1999: Acquisition and integration of Bankers Trust in the U.S.A. 2001: The Deutsche Bank share is traded for the first time on the New York Stock Exchange. 2002: Purchase of the US asset manager Scudder Investments. 2003: Acquisition of the Swiss Private Bank Rued Blass & Cie. 2006: Complete acquisition of the Russian investment bank United Financial Group (UFG).

THE INDIAN ROUTE

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Identity Deutsche Bank is a leading global investment bank with a strong and profitable private clients franchise. Our businesses are mutually reinforcing. A leader in Germany and Europe, we are powerful and growing in North America, Asia and key emerging markets. Mission Deutsche Bank is competing to be the leading global provider of financial solutions for demanding clients creating exceptional value for our shareholders and people. A Passion to Perform This is the way Deutsche Bank do business. Deutsche Bank pursue excellence, leverage unique insights, deliver innovative solutions and build long-term relationships. Deutsche Bank has been operating in India since 1980 with a strong presence in the businesses of Global Markets, Global Corporate Finance (Investment Banking), Global Equities (Equities Broking), Asset Management, Private Wealth Management and the traditional Corporate & Transaction Banking which includes Corporate Banking, Trade Finance,
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Domestic Custody Services, Cash Management, Financial Institutions, Corporate Trust & Agency Services. The Bank is among the market leaders in India in many of the segments it operates in and is recognized as one of Indias leading foreign investment banks and foreign exchange providers. Deutsche Bank has recently launched retail banking services in India, making it the first go-to-market retail initiative of Deutsche Bank outside Europe. Deutsche Bank will offer comprehensive retail banking services to customers in the seven cities of Mumbai, Delhi, Kolkata, Chennai, Bangalore, Gurgaon and Noida. Their partnership with various providers of mutual fund, insurance products, bonds and portfolio management services gives a wide choice of financial products driven by the discipline of Financial Planning Process and guided by life goals. Deutsche Bank offers you more than 300 funds from 14 Asset Management Companies. These companies have been selected through a comprehensive review process so that one can choose to invest in funds that fit their requirements. This ensures that the people are in complete control of their investments. Their team of Private Banking Relationship Managers provides with carefully designed plans for the portfolio after understanding the investment objectives, offering unbiased advice so that one can invest as per their unique needs. Deutsche Bank offers Portfolio Management Services from 4 providers that work towards the growth of the funds. This investment vehicle is sophisticated, personalised and gives a high levels of customer service and interaction with the Portfolio Manager. In return for a fee, the Portfolio Manager offers a bouquet of stocks and bonds that aim to suit the personal investment goals and risk preferences. They offer Portfolio Management Services of Prudential ICICI, Reliance Capital, Franklin Templeton, and Benchmark Asset Management. Deutsche Bank is the only bank in India that guarantees a completely secure account. Apart from giving a zero liability across a variety of transactions, they also ensure that the personal space is not invaded.
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

It is always complicated to collate account statements from multiple fund houses at the time of reviewing your entire mutual fund portfolio. Thats why they offer consolidated statements of the investments in various mutual funds through Deutsche Bank. This statement not only shows the latest market value of the mutual funds portfolio but also the unrealized gains and losses. Deutsche Bank India has been awarded:

Best Investment Bank India Euromoney Award for Excellence 2007 Best Debt House India Euromoney Award for Excellence 2007 Best Private Bank India Asiamoney Private Banking Poll 2007 Best Cash Management Bank South Asia The Asset Asian Awards 2007 Best Trade Bank India Euromoney Trade Finance Magazine Awards for Excellence 2007Best Sub-Custodian Bank India

DEUTSCHE ASSET MANAGEMENT


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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

Deutsche Asset Management, a member of the Deutsche Bank Group, is a leading financial powerhouse in global asset management. With over 5,000 highly qualified professionals covering local, regional and global markets in the worlds major financial centers, we serve clients in 42 countries and manage over USD 816.00 billion in assets (As of Dec 2007). Established in 2002, Deutsche Asset Management (DeAM), India covers marketing, client servicing and fund management. Building upon this success over the last 5 years, our product portfolio today consists of range of equity and debt schemes with assets under management of Rs 13999 crores (As on Feb 2008). As part of our firm commitment to strengthen our mutual fund business in Asia, in May 2006 we have introduced the renowned retail brand of the Deutsche Bank Group to India namely DWS Investments.

DWS INVESTMENTS

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

DWS Investments, part of Deutsche Asset Management, was founded in 1956 in Frankfurt/Main. With fund assets under management of euro 267 bn, the company is one of the Top 10 companies worldwide. In Europe, DWS is one of the leading mutual fund companies and currently manages euro 173 bn. In excess of more than euro 147 bn assets under management, DWS represents 22,3% of the fund market in Germany, making it the unchallenged number one. The international nature of its business differentiates DWS significantly from its domestic and international competitors. DWS Investments activities span all the key European markets. In the USA, DWS is represented by DWS Scudder and manages assets of euro 86 bn. In spring 2006, it launched its first funds as well as the DWS brand in Singapore and India, continuing its successful expansion in the Asia-Pacific region. Thereafter, more funds were registered in other countries in Asia-Pacific.

DWS PRODUCTS (Snapshot)

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

DWS ALPHA EQUITY FUND

An open-ended growth scheme with the objective to generate long term capital growth from investment in a diversified portfolio of equity and equity related securities. The fund basically focuses generating long term capital growth by investing in a diversified portfolio of predominantly large cap of equity and equity related securities while taking low to moderate risk.
DATE OF INCEPTION:21 JANUARY 2003 Asset under Expense Fund Management(A Ratio Benchmark: UM) NSE Nifty 9776.71 lakhs 2.47% Volatility Measures (3 Years): Standard R-Squared Beta Deviation 7.97% 0.84 1.02 Portfolio Turnover 2.66 Sharpe Ratio 1.08

DWS INVESTMENT OPPORTUNITY An open-ended dynamic allocation equity scheme with the objective of capital appreciation on the portfolio over a long term by actively investing in different asset classes as per market conditions. It is an aggressively managed multi cap equity fund that seeks to capture opportunities by investing in different asset classes as per the market conditions.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Management(A Ratio Benchmark: UM) BSE 200 7526.22 lakhs 2.25% Sensex Volatility Measures (3 Years): Standard R-Squared Beta Deviation 7.97% 0.84 1.02

Portfolio Turnover 1.70

Sharpe Ratio 1.08

DWS TAX SAVING FUND


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An open-ended equity linked saving scheme with the objective to generate long term capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments.
DATE OF INCEPTION:2O MARCH Asset under Fund Management(A Benchmark: UM) S&P CNX 500 5885.50 lakhs Volatility Measures (3 Years): Standard R-Squared Deviation 10.08% 0.96 2006 Expense Ratio 3.63% Beta 1.06 Portfolio Turnover 2.06 Sharpe Ratio .70

DWS MIP FUND-PLAN A An open-ended income scheme with the primary objective to generate regular income (no assured income) in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio Portfoli o Turnove r .23

CRISIL MIP Blended 451.36 lakhs 2.25% Index AVERAGE MATURITY MODIFIED DURATION 8.82 Yrs AAA/P1+ 10.08% AA 16.83

4.05 Yrs Credit Quality Profile (%) EQUITY 14.51

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DWS MIP FUND PLAN-B An open-ended income scheme with the primary objective to generate regular income (no assured income) in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio Portfoli o Turnove r .23

CRISIL MIP Blended 72.87 Index AVERAGE MATURITY 6.99 Yrs AAA/P1+ 73.11% AA 17.72

2.25%

MODIFIED DURATION 3.74 Yrs Credit Quality Profile (%) EQUITY 9.71

DWS PREMIER BOND FUND An open-ended income scheme with the objective to provide regular income by investing in debt securities including bonds and money market instruments.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio

CRISIL MIP Blended 3993.59 1.32% Index AVERAGE MATURITY MODIFIED DURATION 13.55 Yrs AAA/P1+ 99.75 AA .25

Portfol io Turno ver -

7.98 Yrs Credit Quality Profile (%) EQUITY -

DWS SHORT MATURITY FUND


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An open-ended income scheme with the objective to generate steady returns with low volatility by investing in short-medium term debt and money market securities.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio

CRISIL Short Term 34107.77 Lacs .9% Bond Fund Index AVERAGE MATURITY MODIFIED DURATION 4.46 Yrs AAA/P1+ 73.99 AA 25.38

Portfol io Turno ver -

3.31 Yrs Credit Quality Profile (%) OTHERS 1.43

DWS LIQUID PLUS FUND The Prime objective of the scheme is to provide income consistent with the prudent risk from a portfolio comprising substantially of floating rate debt instruments, fixed rate debt instruments swapped for floating rate returns, and also fixed rate instruments and money market instruments
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio

CRISIL Liquid Fund 15089.83 Lacs .46% Index AVERAGE MATURITY MODIFIED DURATION .89 Yrs AAA/P1+ 96.89 AA 3.12

Portfol io Turno ver -

.74 Yrs Credit Quality Profile (%) EQUITY -

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DWS INSTA CASH PLUS FUND The Investment objective of the scheme is to generate steady returns along with high liquidity by investing in a portfolio of short term, high quality money market and debt instruments.
DATE OF INCEPTION:29 JANUARY 2004 Asset Expense Ratio regul instit Super Fund Benchmark: under ar ution institutio Manageme al nal nt CRISIL Liquid 148889.89 .66% .51% .40% Fund Index Lacs AVERAGE MATURITY MODIFIED DURATION .53 Yrs AAA/P1+ 91 AA 9 .52 Yrs Credit Quality Profile (%) OTHERS -

DWS CREDIT OPPORTUNITIES CASH FUND To generate regular income by investing primarily in investment graded fixed income securities/ money market instruments.
DATE OF INCEPTION:29 JANUARY 2004 Asset under Expense Fund Benchmark: Management Ratio Portfol io Turno ver -

CRISIL Short Term 34107.77 Lacs .9% Bond Fund Index AVERAGE MATURITY MODIFIED DURATION 4.46 Yrs AAA/P1+ AA

3.31 Yrs Credit Quality Profile (%) OTHERS

FACTS AND FINDINGS


MACROECONOMIC PATTERNS IN MUTUAL FUNDS
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Investment Trends In Mutual Funds

Scheme Wise Classification


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It has been observed that investor are more keen to invest in income schemes the most and then in the growth option. There are few others who are investing in liquid schemes.

Mutual Fund Awareness & Investment Rates Across Geographical Types

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The low level of awareness of mutual fund investment opportunities is a hurdle asset managers need to leap over. Awareness is the highest in the metros where nearly half of all savers know about mutual funds; nearly one in three of the so-called aware group had also invested in mutual funds.

Mutual Fund Awareness & Investment Rates Across Income Groups

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AMCs would also be well advised to target more of their sales efforts at middle income groups with annual incomes in the Rs2.5-10 lakh range as the conversion rate of the aware population in this income band is a very healthy 50%.

Sources Of Awareness Mutual Fund Investments

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Mutual fund customers source their information mainly from agents, bank distributors or newspapers.

Penetration Of Mutual Funds Among Aware Investors Across States


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On a state-specific basis, the rate at which the aware population invests in mutual funds varied from a high of 47% in Haryana to a low of 3% in northern hill states, according to the survey.
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Haryana and Madhya Pradesh also stood out because their aggregate awareness levels were low at 15.5% and 13.3%, respectively, but conversion rates of aware population to mutual-fund investors were highest. In Madhya Pradesh, 37.7% of aware investors put money into mutual funds.

MICRO-ECONOMIC PATTERNS
SURVEY RESULTS

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RANK 1 2 8 4 6 5 3 7

INDEPENDENT VARIABLES Historical Performance Fund Return Over Market Return Type Of Scheme Lock In Period Regular Income(Dividend) Fund Rating Risk of the fund( ) Fees

1 5 7 16 8 17 17 9 15

2 8 11 22 15 20 17 12 22

3 12 16 19 18 18 20 16 19

4 29 25 20 23 18 19 24 17

5 46 41 23 36 27 27 39 27

As it can be seen from the above results the most important factor for 24% of the investors surveyed is past performance of the funds. The past performance of the funds is generally given on the 1 yr, 3 yr and 5 yr scale but the most preferred scale of performance check is 3 yr scale. The past performances of the funds can be viewed from various secondary sources. There are portals like value research, money control, investment guru etc for the purpose of viewing performance comparisons. Various journals and magazines are also available for the same. The second most important factor preferred by the investors is return. The investors are usually advised to invest in mutual funds for at least 1-2 yrs, making the nature of their
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investment long term. Thus the return on annual or past three year or five year record is quoted to the investors. If the markets have stayed in a volatile condition for quite a long time then the investors prefer to compare past 3 yr or 5 yr performance. Though many investors were not aware of the term (beta) of the fund, they chose to designate it by a much simpler expression, thus preferring risk associated with the fund as the third most important factor. Risk can be differentiated in diverse categories as default risk of the organization, capital risk associated with fund; market risk etc. default risk of the organization or the fund is justified by the reputation of the same, which till date has been maintained by all of them. The next most important factor which investors preferred was the lock in period associated with the fund. The lock in period of the fund refers to the period for which the investor cannot redeem his invested capital. This term is usually cited in the case of close ended funds (eg. ELSS schemes), in which the lock in period generally is 3 yrs. Fund rankings is the next most preferred factor by the investors. There are various portals and research reports available online but the most commonly used source for viewing fund rankings by investors as well as Amcs is www.valueresearchonline.com. These portals are indulged into extensive fund research and provide rankings stating top 20-30 funds available in the market. The term expense ratio cannot be mentioned as a factor while investing but investors are always apprehensive in knowing the expenses involved when investing in mutual funds. In past times a lot of people used to pay a lot of importance to dividends paid by the funds, but it was surprising to see that only 5% of the respondents suggested Dividends as a deciding factor for their investment. But it is still believed that they play a lot of importance in their mind as because of this fact only a lot of companies try to lure the investors by announcing dividends at the time of their tax filing. A lot of investors even fall for this as they have to buy ELSS schemes around March or year end and what better if they get instant returns in the form of dividends. Scheme of the fund as in growth, liquid, ELSS, Index or any other was also one of the criteria for investors to go for the funds. 2% of the investors gave this factor also one of the importance criteria behind their investment decision.

Whenever we want to market a particular product, the first thing we need to understand is that what the need of the customer is. How does he behave and what are the factors that affect his buying decisions? Only by
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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

understanding customers needs we can design a strategy which can maximize the customer satisfaction and achieve organizational goals. Financial Services Industry being in the growing stage now, it becomes very imperative for us to know how much of our target market is aware of the Concept of Mutual Funds as an investment option

In the above chart we can see that: o Around half of the sample taken was having a nominal awareness about the mutual funds. o Around 25% of the sample was completely unaware of this option. o Only 10% of the respondents had good knowledge about mutual funds as an investment option. These people were mainly the people who were in industry itself. It included consultants, bank employees, brokers, etc. The second thing we need to understand is why does a person invest? What needs are mutual funds satisfying? Here the correlation between the occupation the person is in, his income level and his investment purpose was observed.

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Returns are the top priority among all the classes Both businessmen and professional are more tilted towards tax saving Future security is up to the extent mostly by salaried people and professionals. Experience and knowledge are last reason to invest. This shows that still people are hesitant in putting their money on stake.

Age is one factor which is increasingly becoming one major factor with the advent of new products in the market.

80% 60% 40% 20% 0% < 30


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Invest do not invest 30-45 Ag e > 45

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

People below the age of 30 generally invest due to returns. Tax saving and future security is also becoming an important concern for young people. People between the age of 30 and 45 mainly want to invest due to factor of tax saving and returns. Future security is also close second. For people above 45 yrs of age returns and tax benefits are highest priority reasons. They are not too much tilted by the factors future security and experience. Experience and knowledge is last priority factor.

FAQ: Why should I start investing early? Warren Buffet bought his first stock in the year 1941 when he was 11 years old. In 1943, at an age of 13 he told a family friend that by the time he is 30 he would become a millionaire. Most of the people start earning in their 20s. At this time in life they face biggest dilemma. Their decision will decide when and how much wealth they will create. Better option is to save and invest entire earnings. Opposite of that is splurging away the entire pay. There can also be a compromise between the two options. There can be various reasons for your early investments. 1. When people are in their 20s & 30s their financial responsibilities in these years are least. In all probability in 20s they are single and staying with their parents. There is hardly any household expense burden on them. Even after they get married in late 20s, they are just two of them. If both spouses are earning then income of one of them can be easily saved. By the time they reach mid thirties, expenses related to children will start coming up. In late 40s it is higher education of children and our parental responsibilities. Soon you will be in 50s and decade away from retirement.

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2. While people are in 20s and 30s they have age on their side and hence they can take higher risk to generate higher returns. Also because there is long working life left, they will get benefit of compounding. Income is also one big factor which helps the investors decision in the selection of the amount to be invested, products to be invested in, time period of investments, etc.

People with income less 200000 per annum include young individuals which are employed at the first level of various organizations. Thus around 80% of the respondents surveyed did not invest at all. While

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among the few investors, tax saving component is nil and future security and returns forms the major components.

Amongst the people in income bracket 2-5 lakhs, same pattern was observed. Most of the investors in this income bracket did very minimal or no investments. People in this income bracket give equal priority to tax saving and returns. These basically comprise of young individuals at tier 2 of the company and are ready to take bigger risks with their investments. As income bracket of the individual increases the tax component starts to form the major factor for investments. saving

FAQ: Investments in financial products especially MFs are done for wealth creation. How do I create wealth when I dont have enough income to support my investment requirements? To invest in mutual funds per se lot of options are available. One such viable option is SIP. If someone cannot afford to invest lump sum in mutual funds he can always plan his investments in a systematic monthly pattern. It is a very interesting observation that by investing in mere small but systematic way, one can actually build a handsome corpus for much needed years of his life. Lets say if somebody wants to build a corpus of 100,00,000 in some no. of years. Thus by considering a very conservative rate of return of 8%, a person needs to invest following amounts to reach to his target figure. No of years to reach Monthly Saving Corpus 40 2864.5 30 6709.79 20 16977.34 10 54663.93 Are these amounts really unaffordable? It has been also found that a lot of people still dont prefer mutual funds as a liable investment option. Thus it becomes of utmost importance to know the reasons which keep these customers away from such an upcoming investment option. Around 25 out of 100 respondents did not prefer mutual fund as a healthy investment option. The results were:
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Around 80% of people who do not invest into mutual funds say that the lack of awareness keeps them away from MFs. Market being highly volatile during the heat of the current scenario, risk associated is also one major factor which make people hesitant to go for MFs. Preference for present consumption over future returns and past experience are the least bothering things which is good in a way. Still lack of trust amongst AMCs and bank plays a big factor.

Looking at the Indian setup, there has always been two major factors for investments in various products. The two major factor for Indian investors are Tax saving and Returns. It becomes very important to know the concentration of investors in the two major factor classes in regard with their occupation.

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All the respondents having business of their own gave utmost importance to tax saving. Service class people laid more importance on returns. Only people at high positions and income brackets went for tax saving as prime factor. Professionals mainly go for tax benefits

While taking an investment decision people consult with different sources. So the question arises that who are the influencers and whose advice do the investors seek.

The people who are service class prefer to take professional advice as they are very apprehensive towards risk.
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Businessmen usually take advice from family and friends. They are not willing to trust bankers and other professionals that much. Students are mostly influenced by their family and friends investment pattern.

This was an interesting observation as very little people went for advertisement as an influence. This shows that ads may create awareness about the product but not preference. This is financial sector gets differentiated by other sectors. Till now only general information regarding MFs has been observed. But it is also important to track the existing investors and observing what are their apprehensions regarding mutual funds.

Businessmen gave most importance to equity funds as they more focused on returns and capital growth. It was the general tendency amongst the investors that equity funds generate more returns. Debt funds like FMPs and gilt funds being low return generators were preferred least among the business class. Service class being more reserved in nature played more importance on balanced funds. Though they were equally interested in FMPs and balanced funds but again they were more towards balanced being return and growth portion more there. Professionals seem to be less keen towards the learning part as they paid almost equal preference amongst all the funds. They preferred to have a rather stable investment than return or growth oriented. Thus they also
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insisted due to lack of expertise and time they could not stress on the learning part. FAQ: Which funds to go for? Every new MF investor faces a dilemma whether he should begin investing with a balanced fund or an equity fund to build wealth over time. Volatility in the stock market every now and then adds to the confusion. As regards the choice between a balanced and an equity fund for a regular long-term investor, the key point to be considered is that a balanced fund invests around 30-35% in debt instruments. It is a common knowledge that debt instruments generally find it difficult to beat inflation on a consistent basis. Therefore, investing in them may not be a prudent choice especially when one invests to achieve long-term objectives. Though equity funds are riskier than balanced funds, the risk gets minimized for an investor who invests for the long-term in a disciplined manner. Besides, equities have the potential to outperform all other asset class in the long run. Though as an option, FMPs (Fixed Maturity Plan) offer a decent combination of safety and returns, including them in the portfolio at the cost of equity funds may not be a wise thing to do for the long-term health of a portfolio. However, FMPs can definitely play an important role in improving returns on that part of your portfolio, which you may have allocated to debt and debt related instruments.

FAQ: How to handle the urge to abandon equity funds every time the market turns volatile? Whenever the stock market turns volatile, many investors start questioning their strategy of investing in equity funds. In fact, many of them start seriously considering moving money to the safety of debt funds completely ignoring the principle of investing to beat inflation. Many investors also get perplexed to see the NAVs of some of the funds falling more than Sensex or Nifty during the turbulent times. There are certain reasons that make many funds under-perform whenever the market falls sharply.

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Mid Cap and Small cap segments of the stock market are generally the worst hit during periods of high volatility, the performance of diversified funds is impacted adversely due to varying degree of exposure to mid-cap and small cap stocks by most diversified funds. Secondly, like any industry, mutual fund industry also has players whose performances vary from poor to outstanding. As regards realigning the portfolio, short-term trends in the equity market should not compel investors to make changes in the asset allocation made to achieve long-term investment objectives. As happens with equity funds, even debt-oriented funds get affected by changes in the interest rates. Therefore, we may see a different picture with regard to the returns offered by debt-oriented funds from time to time. Another dilemma faced by investors is whether one should invest through Systematic Investment Plan (SIP) or make a lump sum investment.

S ales
SIP's Lump sum

30% 70%

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Around 70% of the investors went for the lump sum option as there is a generally tendency among investors that SIPs are not a good form of investment pattern due to lesser return generation as well as growth.

Only student class or to be precise young investors preferred SIPs as a viable investment option. The reason when asked was that they lack the availability of enough funds to suffice lump sum investment. Only few of the investors saw SIPs as a stable wealth generation option. Mostly SIPs caught a negative connotation among medium to big investors.

FAQ: I dont have enough funds but want to invest. Is SIP a right investment strategy? For investors, who do not have a lump sum but intend to build up a capital over the longer term, investing regularly through a Systematic Investment Plan (SIP) is an ideal strategy. It is a proven fact that a steady plan both in terms of savings and investments helps pursue financial goals. It also takes care of the issue of handling volatilities in the market. In fact, investments are made at different levels of the market and that results in ensuring the average purchase price being lower than the average NAV. However, for those who have a lump sum to invest, a combination of one time investment and SIP can get the best results. FAQ: Should I sign up SIP for 10 years or one year at a time? For a regular long-term investor, another tough decision to make is whether to sign up SIP for a longer period or for one year at a time. Though signing up SIP for 10 years may be a convenient option, it may not always be a wise
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one. Though there is no hard and fast rule regarding the tenure for which one can sign up for SIP at a time, it would be sensible to review the performance of the schemes every year and take a call on whether to continue in those schemes or change a scheme or two. Besides, one might like to increase the amount every year. In that case, one can do so conveniently without having to add new schemes every time one decides to increase the amount for SIP. There is also a section of very conservative investors which only like to invest in fixed income tool. There are many fixed tools available in the market but the most commonly used or preferred are FDs (Fixed Deposits) and Debt funds. Thus the people already absorbed in this area were asked about their preference amongst these two. Following results were found:

Almost 70% of the population opted for FDs as a reliable source of fixed income. When asked people seem apprehensive about the debt funds as in they have always been investing in FDs

FAQ: I would like to know, are these debt mutual funds comparable or can they give better results than bank fixed deposits (FDs). Debt funds do offer superior returns than FDs at times but they have an associated interest rate risk. If you hold a debt fund for more than a year you can avail of the indexation benefit (tax on gain from debt fund after a year - 20 per cent with indexation benefit or 10 per cent without it, whichever is less) and reduce your tax liability further. Though fixed deposits provide you a guaranteed return over a fixed term and have no associated
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interest rate risk, the interest earned is to be added to income. This reduces their yield further. There was one very interesting observation that a lot people surveyed, preferred a ULIP (Unit Linked Insurance Policy) over Mutual Funds as an investment option. The results were

Approximately 65% of the over MF as an investment option.

respondents

preferred

ULIP

When asked they replied that they get the benefit of capital growth as well as insurance in ULIPs. Though there are mutual funds which give insurance as an added advantage but that option being prevailing mostly in ELSS schemes, people prefer going for ULIP rather than a Mutual Fund.

FAQ: Why should I go for mutual funds when I am getting the same benefits by investing in ULIPs also? People should never mix up their insurance and investment needs. ULIP is a combination of insurance plus investment; you can choose whether to invest a portion of the premium in debt or the equity market. What usually fails to come to light: the high charges imposed by insurance companies. This could be anywhere between 2 to 100%. This amount takes care of the company's distribution charges, the agents commission, etc. But not many investors know about this. Investors are asked to pay a premium for only the first three years. Why? This is because the agent's commission is higher in the first three years. In the bargain, investor is losing out. If he wants to withdraw his money after three years, he will not get much in hand, because the charges are
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usually higher in the first three years; this eats into a major chunk of the premium. If the agent claims that the policy will continue even if you stop paying the premiums after three years, this means that the premium amount you paid in the fund within the first three years, will be used to keep the policy in force after you stop paying premiums! Once the amount in the fund is exhausted, the policy will automatically expire. If the investor wants returns, he should stay invested for at least six to seven years and continue paying his premium beyond three years. On the other hand, he could just pay a premium for another two years and then surrender the policy. In this case, the returns may not be impressive due to the high front-end charges in the initial years. A term plan could take care of the insurance needs and a mutual fund for investments. But if an investor is still tempted to buy a ULIP he or she could look for low front-end charges offered by insurance companies. Thus It is always better to keep insurance and investment needs separate. A term plan could take care of the insurance needs and a mutual fund for investments. But if an investor is still tempted to buy a ULIP he or she could look for low front-end charges offered by insurance companies.

ANALYSIS
COMPARATIVE ANALYSIS
In this module a comparative analysis is done among top 10 funds as ranked by valueresearchonline, a mutual fund analysis portal. The primary objective of this module is to analyze the financial performance of various mutual funds on the basis of Carharts four-factor model which basically includes analyzing dependence of funds return on four factors given in the
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model. Further the analysis will be carried forward on the grounds on various parameters that are Returns, standard deviation, Sharpe measure, Treynor measure, Jenson measure and Beta (risk) of the fund. For this, data collected relating to NAV, Sensex & Treasury bills was fed into the excel sheet, using the results for different funds with respect to the financial parameters, ranks were allotted to all funds and points were allotted to them. Finally these points were then multiplied by the weightage of different financial parameters to obtain scores. This can be done anytime very conveniently by anyone with the help of the data available through various sources. An attempt has also been made to evaluate the performance of two DWS growth oriented mutual funds (DWS Alpha Equity and DWS Investment Opportunity) on the basis of monthly returns compared to benchmark returns. For this purpose, risk adjusted performance measures suggested by Jenson, Treynor and Sharpe are employed. It will be found that whether these funds offer the advantages of Diversification, Market timing and Selectivity of Securities to their investors. By the study it was observed, Reliance Regular Saving Scheme Fund has achieved the highest final score of 336 in the one year period category; This is even after the fund did not achieve the topmost rank in the majority of the categories of financial parameters. Next to Reliance Growth Fund, the fund which is worth the investors is StanChart Premier Equity fund with a score of 302. DWS Investment stands at 3rd position with 282 points but the potential the fund has and the way the fund is consistently giving best return since past recent quarters, it is bound to hold rank 1 very soon. The fund which has got the least score is Canara Robecco Infra Fund with a score of 84. CARHARTS FOUR FACTOR MODEL Carharts four factor model is a measure of performance of mutual funds given by Mark M. Carhart. This model is an extension to the Fama and Frenchs 3 Factor Model made by Carhart. The model involves following equation: R(P) R(f) = + 1(market share) + 2(size of the fund) + 3(book to market) +4(1 year momentum factor) Where,

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R(P) is the monthly return of the fund, R(f) is the risk free return for which returns as per the treasury bills are taken, Market share refers to the proportion of assets under management of the fund to all other funds registered under AMFI (Association of Mutual Funds of India) because change in market share changes the investment made by the fund in the market which ultimately affects the return of the fund, Size of the fund refers to the assets under management which can influence the market upto some extent which ultimately influences fund returns, Book to market refers to the ratio of the book value of assets and market value which shows the capital appreciation of the actual amount invested which is reflected in the funds market value 1 year momentum factor refers to momentum in a benchmark index to check dependence of the funds return on the market returns. Here NIFTY has been taken as the benchmark index. top ten funds given by

On the basis of one year return, the valueresearchonline as on 1st aug. 2008 are: Rank 1 2 3 4 5 6 7 8 9 10

Fund DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

NAME

1(marke

2(size)

3(book

4(1 year 59

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Investment Patterns In Mutual Funds With Special Reference To Deutsche Mutual Fund

t share)

to market equity) 7526.22 60837.1 4 28802.7 9 36389.1 1 2649.78 217746. 29 4387.37 7910.28 8147.98 124804. 6
5.1 4.1 6.95 6.07 3.75 3.1 4.77 5.58 5.11 5.72

momentu m factor)
0.973 0.897 0.939 0.932 0.960 0.963 0.947 0.982 0.978 0.988

DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

45.1 5 38.8 2 35.7 1 37.4 6 37.1 5 36.1 9 34.4 5 32 32.6 9 31.7 1

0.0014322 18 0.0115771 33 0.0054810 88 0.0069247 43 0.0005042 46 0.0414364 93 0.0008349 04 0.0015053 04 0.0015505 37 0.0237499 57

This four-factor model by Carhart is used to study the persistence of mutual fund returns. This model shows that the short-run persistence of the fund is driven primarily by momentum in the funds' underlying stocks. It is not the case that managers effectively exploit momentum to enhance fund returns. Some investors argue that small cap stocks are priced in a less efficient manner than large cap stocks, so that small cap pricing errors can more readily be exploited. There is also a belief that fund managers only consider stocks which have high momentum. The market share of the most of the equity funds positively affects most of the funds, in which the most affected are the ICICI Pru Infra and TATA Infra with former having the maximum Beta. it seems that DWS Investment Opportunity is most dependent upon its fund size as its market share being not very significant. The momentum factor is also playing an important role in enhancing the funds return. Return for Reliance Regular saving Scheme is mostly dependent on its market share as it has the second most significant market share. Another interesting observation here is that ICICI Pru Infra instead of having the highest market share and is still not able to generate
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significant returns. This is because of its book to market equity ratio being as low as 3.1. Thus this fund seems to largely depend upon its market share. FUND RETURN It refers to the return which the fund gives in a time period which shows the increase in the investment made by investors. Fund return is the most important factor which affects investors decision while making an investment in a particular fund. Fund return = (NAV (e) - NAV (s)) / NAV (s) Where, s is date at the start of the period & e is the date at the end of the period Weightage = 8 points
FUNDS 1 YR RETUR N RANK POIN TS 10 SCOR E

52.37 80 DWS Investment Opportunity 46.04 9 72 Reliance Regular Saving Scheme 42.93 8 64 Stan Chart Premier Equity 44.68 7 56 ICICI Pru Infra Inst I 44.37 6 48 DBS Chola Opportunities 43.41 5 50 ICICI Pru Infra 41.67 4 32 Taurus Discovery Stock 39.22 3 24 Sund BNP Par S.M.I.L.E. As far as 1 yr returns are concerned DWS investment opportunity has given Reg. the most returns of 52.37%(as on 1st may 2008). The data for 3 yr returns was not available for some of the funds as they are relatively new. But amongst the old ones TATA Infra has given the most returns of 44.03%.

STANDARD DEVIATION It is a statistical tool which helps in measuring the funds volatility and risk. It is of crucial importance as it helps in understanding the trade-off between risk and return. Funds with lower standard deviation are preferred over the
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funds with higher standard deviation as they show more stability in the returns to the investor. Weightage = 4 points
FUNDS Standar d Deviati on Investment 27 23 21.1 22 28.16 23 26.04 22.4 23.08 21 RANK POIN TS 2 6 9 8 1 5 3 7 4 10 SCOR E

DWS Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

8 24 36 32 4 20 12 28 16 40

As it has been mentioned above that an investor faces a higher risk if standard deviation of a fund is higher, so HSBC Equity Fund has been the most risky fund during the past 3years with the standard deviation of 3.97% and Reliance Growth Fund the least risky with lowest standard deviation of 1.37%. In the past 1-year period Reliance Vision Fund being the most risky with the standard deviation of 1.79% & Sundaram Select Mid-cap the least with lowest standard deviation of 1.26%.

BETA

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Beta is the ratio of covariance of fund returns and market returns to the returns of the market. It measures sensitivity of a particular fund to the fluctuations in the market index. It measures the % change in fund NAV with 1% change in market index. So, if a fund has similar stocks in its portfolio as the portfolio of its benchmark market index, it will have a closer beta value Beta = Covariance (R(f), R(m)) / Variance R(m) Where, R(f) is the return of the fund for a given period R(m) is the return of the market for a given period Weightage = 2 points

FUNDS

Beta

RANK POIN TS
10 9 8 7 6 5 4 3 2 1

SCOR E
80 72 64 56 48 50 32 24 16 8

DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

1.10 .679 1.01 1.17 .93 1.09 1.09 1.08 1.11 1.07

Higher the beta the more is the fund sensitive to the market movements. ICICI Pru Infra has got the highest beta value of 0.1.17 in the 1-year period. It means if Sensex moves by 1%, NAV of ICICI Pru Fund moves by 1.17% and Reliance Regular Saving Scheme has got the lowest beta value of 0.679 showing stability in its prices even if market index drops to some extent.

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Higher beta value corresponds positively with the index. Thus we can say that though higher beta value shows higher risk component associated with the fund but it can prove favorable in the bull market conditions. But the beta value closest to one is considered the safest profile for a fund. Looking at the current bearish phase of the market we can say that the fund with the lowest beta value is the most favorable one. SHARPES MEASURE It is a ratio which measures the return per unit of total risk. It indicates the excess return of the mutual fund against the risk involved. Sharpes measure = Excess return / Risk where, excess return = fund return risk free rate of return risk = standard deviation Weightage = 6 points
FUNDS SHARP E MEASU RE
1.36 1.68 1.69 1.7 1.3 1.57 1.32 1.43 1.42 1.51

RANK POIN TS
2 8 9 10 1 7 3 5 4 6

SCOR E

DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

12 48 54 60 6 42 18 30 24 36

According to Sharpes measure which indicates the reward for an investor for investing in a mutual fund by taking a risk, Stan Chart Premier Equity gives

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the highest reward to an investor with Sharpes measure of 1.69 in the last 1 year.

TREYNORS MEASURE It is a ratio which measures the return per unit of systematic risk. It measures the return which the fund generates over the return which the investor would have got by investing in risk free treasury bills issued by government, over the systematic risk of the fund. The difference between Sharpes measure and Treynors measure is just that Sharpes measure takes standard deviation or total risk and Treynors measure uses Beta or systematic risk Treynors measure = Excess return / Systematic risk where, Excess return = fund return risk free rate of return Systematic risk = Beta. Weightage = 6 points
FUNDS TREYN OR MEASU RE
41.05 55.46 35.36 32.01 39.95 33.20 31.61 29.63 29.45 29.64

RANK POIN TS
9 10 7 5 8 6 4 2 1 3

SCOR E

DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

54 60 42 30 48 36 24 12 6 18

As per Treynors measure, Reliance Regular Saving Scheme has been the best performer with Treynors ratio of 55.46 in 1 year.
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JENSEN'S MEASURE Jensens measure is used to calculate alpha which tells us the excess return which the fund has generated over what it was expected to earn. Jensen's measure = Fund return Expected return where, Expected return = Risk free return + Beta * (Market return + risk free return) Weightage = 6 points
FUNDS JENSEN MEASU RE RAN K POIN TS 8 10
5.39962 -14.0022 -20.1274 -8.6246 -17.4598 -19.1998 -21.1576 -21.9442 -20.9554

SCOR E

DWS Investment Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

48 60 42 24 54 36 30 12 6 18

-8.992

7 4 9 6 5 2 1 3

According to Jensens measure, Reliance Regular Saving Scheme is the only fund which has got positive alpha value has of 5.339 in 1 years, so it should be preferred.

FINAL SCORE

Fund

Total Rank Points Investment 282

Final Rank
3 66

DWS

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Opportunity Reliance Regular Saving Scheme Stan Chart Premier Equity ICICI Pru Infra Inst I DBS Chola Opportunities ICICI Pru Infra Taurus Discovery Stock Sund BNP Par S.M.I.L.E. Reg. Canara Robeco Infra TATA Infra

336 302 258 208 234 148 130 84 128

1 2 4 6 5 7 8 10 9

As it is visible from above Reliance Regular Saving Scheme fund has achieved the first with 336 points. With 282 points DWS investments is also not far behind and with consistent performance it has been showing in the recent past, it is very much likely to achieve 1st rank. For convenience sake only six measures are taken to reach the final scores. The comparative analysis can be done by anyone at any point of time using the above given formulas. The weightages are assigned to each measure on the basis of its relative importance. It is advisable to take up 3 year analysis as it can give more concrete results. Here, 1 year analysis was taken up because some of the funds taken are relatively new and has not completed 3 years. Any number of years can be used for analysis on the same lines. The larger the number of years the better the analysis.

TREND ANALYSIS

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As years are passing by, the indian capital markets are gradually enjoying better environment and performing superior to most of the world economies. The industry and services continued to expand steadily and acted as the twin engines propelling overall growth of the economy. A pick-up in investment, reflecting the high business optimism, not only strengthened the industrial performance but also reinforced the growth outlook itself. Inflation, in most parts of the world, showed a rising tendency on account of rising global crude oil prices. The sharp and spiraling increase in international oil prices from late 2003, combined with considerable week-to-week and even day-today volatility, posed considerable challenge in the maintenance of macroeconomic stability. Nevertheless, the virtuous expansion in the current phase of economic upturn has been maintained without an undue escalation of domestic prices. Phase 1: The foreign exchange market remained orderly despite the ebbing of capital flows during May-October 2004 and the rise in demand for foreign exchange due to higher oil prices. Yields in the Government securities market hardened in consonance with higher credit off-take, a resurgence of inflationary pressures in the first two quarters of the year and the hardening of international interest rates. After a setback in May 2004, the equity markets staged a strong rally in the second half of 2004-05. Phase 2: Yields hardened in the Government securities market reflecting the upturn in the international interest rate cycle, rise in international crude oil
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prices, domestic monetary policy tightening and edging up of inflation in the first half of 2004-05. As net buyers in equities during each month,barring May 2004, net equity investments by the FIIs in the Indian equity market increased by 10.4 per cent during 2004-05. FII investment in debt instruments was, however, lower in 2004-05 than in the previous year. Phase 3: This phase shows a sudden downfall in the liquid schemes. this can be justified by many reasons: first reason can be the end of financial year. At this point of time investors shift their focus towards ELSS schemes due to tax saving component. Morover this component was also complimented by the continous performance by the equity markets. that is an increasing gap is visible amongst liquid and growth schemes. The increase in yields for longer-term maturities was, however, less than for shorter-term maturities, reflecting relatively stable inflation expectations, thus pushing the liquid curve down. Phase 4:The call money market began the first quarter of 2005-06 under conditions of comfortable liquidity stemming from the overhang in the system. Despite FII outflows in April, the Reserve Bank had to supplement reverse repo operations with sale of Government paper under the MSS to absorb liquidity and balance market conditions. Average daily call money borrowing rates hovered around reverse repo rate levels. With the increase in the fixed reverse repo rate by 25 basis points on April 29, 2005 call rates also edged up by a similar magnitude. provisions. SEBI permitted the mutual funds to participate in the derivatives market at par with FIIs in respect of position limits in index futures, index options, stock options and stock futures contracts. Phase 5: This phase is again marked by the superlative performance by equity markets. more and more investors shifted their focus on to the equity which is clearly visible by the increased gap between growth and liquid funds. Liquid fund having a component of debt in it decreased due to hardening of yields by a lot of government products.

CONCLUSION

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Mutual Funds are very good way of investing as it gives both regular return and growth simultaneously. It has more advantages as compare to disadvantages. People have good perception about mutual funds but still there is lack of mass awareness. DWS has been able to generate average amount of returns though it did very well in first quarter of the financial year as it remained at the top of charts. The market has seen number of phases in terms of investments in mutual funds and the current phase is the worst due global financial crises. People have many myths about mutual funds which has an impact on investment decisions. Hence people gets very cautious when investing as the atmosphere is not conducive for investment. There is a great need of spreading awareness about mutual funds and things related to mutual funds.

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RECOMMDATIONS
The researcher can recommend following things in two different heads on the basis of the study undertaken:

Recommendations and Benefits for a Mutual Fund Company The researcher can give following recommendation on the basis of the study that has been conducted so far which can help mutual funds to penetrate in the market and grab more and more market share and perform well.

It has been observed that investor are more keen to invest in income schemes the most and then in the growth option. There are few others who are investing in liquid schemes. Hence companies should also make other scheme lucrative enough by adding more features. The low level of awareness of mutual fund investment opportunities is a hurdle asset managers need to leap over. Awareness is the highest in the metros where nearly half of all savers know about mutual funds; nearly one in three of the so-called aware group had also invested in mutual funds. It is advisable that the companies should also focus on non metro areas as well where there is lot of potential for investments. AMCs would also be well advised to target more of their sales efforts at middle income groups with annual incomes in the Rs2.5-10 lakh range

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as the conversion rate of the aware population in this income band is a very healthy 50%.

Mutual fund customers source their information mainly from agents, bank distributors or newspapers. So it is advisable that most of the expenditure should be concentrated on these sources as these are most beneficial. On a state-specific basis, the rate at which the aware population invests in mutual funds varied from a high of 47% in Haryana to a low of 3% in northern hill states, according to the survey. Hence focus also be there on other states. Haryana and Madhya Pradesh also stood out because their aggregate awareness levels were low at 15.5% and 13.3%, respectively, but conversion rates of aware population to mutual-fund investors were highest. In Madhya Pradesh, 37.7% of aware investors put money into mutual funds.

Recommendations and Benefits for a Mutual Fund Investor (Existing and Perspective) Low NAV Should Not Be the Criteria for Purchase An investor is generally confronted with the apprehensions like: is a fund with a low NAV a better investment option than a fund with a higher NAV? Should mutual fund schemes with a higher NAV be avoided? These are questions, which trouble many first-time investors in mutual funds. It is irrelevant how high or low the NAV of a fund is. The amount of the investment remains unchanged, between two funds with identical portfolios, a low NAV would mean a higher number of units held and consequently a high NAV would mean lower number of units held. But under both circumstances, the product of the number of units and the applicable NAV, which is the value of your investment, would be identical. Thus it is the stocks in a portfolio that determine returns from a fund, the value of the NAV being immaterial. When one sells those units, the return will be the same as that of another scheme, which has performed similarly. The 'cost' of a scheme
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in terms of its NAV has nothing to do with returns. The only instance where a higher NAV may adversely affect is where a dividend has to be received. This happens because a scheme with a higher NAV will result in a fewer number of units and as dividends are paid out on face value, higher NAV will result in lower absolute dividends due to the smaller number of units. But even here, total returns will remain the same. Mutual fund schemes have to be judged on their performance. And the simplest way to do this is to compare returns over similar periods. Mutual Fund IPOs Investors often tend to think of fund IPOs in the same vein as they do of stock IPOs. However, there are some fundamental differences that they need to take into consideration. The price of a stock is based on its supply and demand. IPOs often get listed at a premium because when a stock opens, its demand is sometimes much larger than its supply. This is not true for mutual funds, where a separate unit is created at the time of investment, which is destroyed at the time of redemption. Thus, the supply of mutual fund units is unlimited and so any appreciation in the value of a fund's NAV can never be due to an increase in the demand for a fund's units. All things considered, it is generally a good idea to stay out of fund IPOs. A new fund is an untested entity without any track record. Another issue is that of a possible opportunity loss. Investments may be locked in for up to a month. This money could instead be kept in a liquid fund for a month and then invested once the fund opens for daily sale and repurchase post its IPO. There are some exceptions to this. An obvious one is closed-end funds. Even though these are no longer in vogue, there are special funds called fixed maturity plans, which are similarly structured. If you want to invest in one of these, then the IPO may be the only option available.

Monitor Investments Regularly Most people think that once they invest in a fund, the job of taking care of their investments has been successfully passed on to the fund manager. But this can be a dangerous strategy to adopt.
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The performance of a fund, especially equity-oriented funds, is to quite an extent dependant on the calls of the fund manager. If the fund manager quits, the investment style may change, and the fund's performance could suffer. Hence, one should carefully monitor the fund's performance any time such changes occur, and exit the fund if its performance dips drastically. The track of fund performance can be kept with the help of annual report, a half-yearly report (unaudited results) and a quarterly and monthly factsheet/newsletter provided by the AMCs. Over and above this, public disclosure of the NAV of a scheme happens on the AMFI website, on the AMC's own website, as well as in the financial dailies.

Dont Go By Instincts

it is usually seen that many investors invest going by their instincts or by the market trends. for example if the equity starts performing good we tend increase our portfolio weightage towards equity or if its generates good returns the weightage automatically increases towards equity. Here is where the concept of rebalancing comes in. Rebalancing is what we do when a particular investment's allocation has become large and you offload some of it. The biggest benefit of this technique is that it offers an automated method of booking timely profits. While being over invested in any one particular fund is risky, you must be wary of high exposure to any one fund house. Investors usually have a tendency to move according to market trend. If the market reaches their expected high level, they tend to exit the market booking profits. An investor should delineate into holdings into core, risky and illiquid. Prescribing a limit on each will ensure that he books profits in some funds and limit the illiquid portions.

Dont Pay Too Much Weight on Specialized Funds When we look at the broader picture then the funds that performed best reveals a pattern similar to the ones that have performed the worst. Sometimes we see that the bottom of the list was stacked with specialized funds that adhered to a narrow investment theme, so is the top of the list. The problem with specialized funds is not that they never do well, but that they tend to fluctuate from one extreme to
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another. When the special idea that they are based on is doing well, they are on top but when the going gets tough, then they sink to the bottom. A performance ranking with specialty funds stacked at the top and bottom is nothing surprising or contradictory. So if we find infrastructure funds bunched up much higher than IT funds this year, that says more about the risks of chasing narrowly-defined past performance rather than what you should or shouldn't do in the future. When we invest in a well-run generic equity fund that can invest in any kind of company, then it's the fund manager who decides what type of sector, industry or size of company to invest in. It's his job to analyze trends and figure out how much of your money needs to be in technology or oil companies or infrastructure or real estate or whatever. But when we invest in specialized funds, then that analysis and that decision has to be made by us. We must take a call on what percentage of your investments to put in what industry and when to put it in and when to pull it out and switch to some other industry or type of company. By investing in specialized funds investors are losing out on the major advantages of investing in mutual funds. So keeping it simple is the best strategy for investing in mutual funds.

ETFs are Not Just Gold Funds Investors seem to be under the impression that the term ETF, which stands for Exchange Traded Fund has something to do with gold. These are funds that do with gold what normal funds do with stocks and bonds. If someone like to invest in gold but is worried about quality and physical safety, these funds offer an excellent alternative. But as it happens all gold funds are ETFs and all ETFs that were widely advertised were gold funds and thus some investors have formed a notion that the two are connected. Exchange traded funds are mutual funds but are bought and sold like shares. When we want to buy or sell one, we dont go to a mutual fund salesman but to a stockbroker. Unlike a normal mutual fund where we buy and sell units from the fund company itself, ETF units are traded on the stock markets between investors. However, the fund company arranges to absorb any excess supply of units that an investor would like to sell or create fresh units when the demand for units is large enough. As a result, unlike normal shares, the trading price of ETFs is not heavily impacted by any demand-supply imbalances. The price moves more or less in line with
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the value of the stocks in the underlying index on which the ETF is based. Historical Performance Vs. Underlying Portfolio Characteristics Many investors tend to focus on a mutual fund's historical performance as opposed to considering its underlying portfolio characteristics. With individual investors, whether these are stock, bond, or fund investors, return is the sole purpose of their approach to investing. However, while an investment's return is certainly an important consideration, it would be best to first start with looking at an investment's fundamentals. After all, strong, consistent investment qualities are what produce top-rated investment performance, not vice versa. With mutual fund investing, it is particularly important to look at all the components of investment quality and not just performance alone. There is too much hype and misleading information in mutual fund advertising. In this regard, the most abused metric in fund marketing materials is performance data.

Mutual Fund Asset Size Bigger is not necessarily better when it comes to the size of a mutual fund. The key to investment quality lies in the compatibility of a fund's asset size and its investment style. The huge fund asset size is not much of a problem for bond, index and money market funds, which operate in large market segments that are very liquid and not overly impacted by large block trading transactions. With these funds, bigger is actually better because expenses can be spread over more investment assets. Fund investment advisors have little trouble managing large amounts of money in accordance with the investing objectives of the aforementioned funds. However, in the case of managed stock funds, it is a different story. Oftentimes, when a fund gets flooded with new money, the investment managers find it difficult to invest expeditiously and/or effectively. As fund assets raise, the number of appropriate new stock prospects shrink, transaction costs increase and maintaining the fund's investment style becomes difficult. That is when fund management decides that it is better to close the fund to new investors to stem the flow.
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HOW TO ASSES FUNDS INVESTMENT QUALITIES For the vast majority of the general public, investing means investing in mutual funds. These convenient investment vehicles provide investors with a relatively easy-to-use, effective means to accumulate savings over the long run. Because of the mutual fund's important role in the investment activities of individual investors, it is necessary that they understand how to make informed decisions regarding fund selection and monitoring. With growing mutual fund universe, there are, for many investors, just too many choices. The problem of choice is further complicated by an information overload, which requires investors to sort out what is nice to know and what they need to know. There are dozens of analytical financial metrics that can be used to evaluate a mutual fund. Some are quite complicated and difficult to apply. Following are just some of the fundamental evaluative criteria, or investment qualities.

Investing Style Considerations Evidence of a fund manager's ability and commitment, over the course of several years, to manage a mutual fund's assets according to its stated investment objective and avoid excessive style drift.

Favorable Risk-Return Profile Evidence of a fund manager's ability to effectively manage a mutual fund's assets by consistently producing as positive an investment riskreturn spread as possible over the course of several years.

Fund Size and Style Compatibility Recognition by the fund's manager that it is prudent to keep the size of a fund's asset base compatible with its investing style.

Manager Tenure & Structure

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A long-term fund performance record, preferably 10 years long, provides the best indicator of a manager's investing abilities. Accordingly, it is critical that managerial tenure and fund performance match each other over a meaningful time span.

Low Portfolio Turnover Whatever the category of mutual fund being considered, the lower the portfolio turnover percentage, the better, in terms of minimizing the cost of transaction commissions, which are not included in a fund's expense ratio.

Be a Cost-Conscious Investor When it comes to mutual fund costs and expenses, a mutual fund's investment quality increases with the absence of sales charges, fees and the presence of low expense and portfolio turnover ratios. Lowcost funds outperform high-cost funds.

Comparative Total Returns A mutual fund's total return investment quality is evidenced by relatively consistent positive performance as compared to its peers, its category benchmark and an appropriate broad market index over fiveand 10-year periods.

Favorable Analytics Positive analytical commentary by investment research analysts is an important indicator of mutual fund investment quality.

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QUESTIONNAIRE
Name:.Age:Sex:.. Ph. No..Occupation.. Income (Annual):

1. How large is your investment plan as a proportion of your total savings. a) Less than 10% c) Between 25% and 50% b) Between 10% and 25 % d) More than 50%

2. What is the objective of your investment? Returns Future security Tax saving Experience & knowledge

3. Are you aware of mutual funds as an investment option? Yes (If yes)
4. Rate the mutual fund as an investment option in the scale of 1 to 5

No

where 1 is least preferred and 5 is most preferred.

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5. For how long have you been investing in mutual funds? Less than1 year 1-5 year 10 years or more

6. What pattern do you follow when investing in MFs? SIPs


7.

STP

Lump sum

Rate the following factors which influences your investment in mutual funds on the importance scale where 1 is least important, 3 is neutral, 5 is most important.

Factors Funds returns over market return Type of schemes (growth, income, balanced & others) Expected Dividend going to be delivered by the fund Lock in period in a fund Regular income provided by the fund Fund rating of the fund Fluctuation in equity markets Fees ,load and expenses Expense ratio of the fund Security provided by the fund in terms of return Risk of the fund() Promotional campaign of the fund

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REFERENCES

www.google.com www.valueresearchonline.com www.moneycontrol.com www.dws-india.com www.db.com www.amfi.com Fact sheets of various mutual funds and research journals. Text book of security analysis and portfolio management of ICFAI.

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