The document provides an overview of mutual funds in India, including:
1) It defines mutual funds as pooled investment funds that allow investors to invest in a diversified portfolio managed by fund managers.
2) It describes the structure of mutual funds in India including sponsors, trustees, asset management companies, custodians, and SEBI regulations.
3) It outlines different types of mutual fund schemes according to structure, investment objectives, and maturity periods.
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INTRODUCTION
Investment in share markets are influenced by the analysis & reasoning which help in
predicting the market to some extent. Over the past years a number of technical & theories for
analysis have evolved, these combined with modern technology guides the investor. The big
players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertise
for various analytical tools & make use of them. The small investors are not in a position to
benefit from the market the way Mutual Funds can do. Generally a small investor‟s
investments are based on market sentiments, inside information, through grapevine, tips &
intuition. The small investors depend on brokers and brokerage house for his investments.
They can invest through the Mutual Funds who are more experienced and expert in this field
than a small investor himself.
In recent years a large number of players have entered into his market. The project has been
carried out to have an overview of Mutual Fund Industry and to understand investor‟s
perception about Mutual Funds in the context of their trading preference & explore investor‟s
risk perception.
Concept of Mutual funds:
Mutual funds, as the name indicates is the fund where in numerous investors come together to
invest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays a
crucial role in an economy by mobilizing savings and investing them in the capital market, thus
establishing a link between savings and the capital market. A mutual fund is an institution that
invests the pooled funds of public to create a diversified portfolio of securities. Pooling is the
key to mutual fund investing. Each mutual fund has a specific investment objective and tries to
meet that objective through active portfolio management. Mutual fund as a investment
company combines or collects money of its shareholders and invests those funds in variety of
stocks, bonds, and money market instruments. The latter include securities, commercial
papers, certificates of deposits, etc. Mutual funds provide the investor with professional
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management of funds and diversification of investment. Investors who invest in mutual funds
are provided with units to participate in stock markets. These units are investment vehicle that
provide a means of participation in the stock market for people who have neither the time, nor
the money, nor perhaps the expertise to undertake the direct investment in equities. On the
other hand they also provide a route into specialist markets where direct investment often
demands both more time and more knowledge than an investor may possess.
The price of units in any mutual fund is governed by the value of underlying securities. The
value of an investor‟s holding in a unit can therefore, like an investment in share, can go down
as well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund can
not guarantee a fixed rate of return. It depends on the market condition. If the particular
scheme is performing well than more return can be expected. It also depends on the fund
manager expertise knowledge. It is also seen that people invest in particular funds depending
on who the fund manager is.
The following diagram shows the working of mutual fund
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This diagram signifies the importance of Mutual Fund.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is invested by the fund manager in different types of
securities depending upon the objective of the scheme. These could range from shares to
debentures to money market instruments. The income earned through these investments and
the capital appreciations realized by the schemes are shared by its unit holders in proportion to
the number of units owned by them. Since small investors generally do not have adequate
time, knowledge, experience & resources for directly accessing the capital market, they have
to rely on an intermediary, which undertakes informed investment decisions & provides
consequential benefits of professional expertise. A collected corpus can be used to procure a
diversified portfolio indicating greater returns has also create economies of scale through cost
reduction. This principle has been effective worldwide as more & more investors are going the
mutual fund way. This portfolio diversification ensures risk minimization. The criticality such a
measure comes in when you factor in the fluctuations that characterize stock markets. The
interest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds are
governed by SEBI (Mutual Funds) regulations, 1996. A Mutual Fund is a trust that pools the
savings of a number of investors who share a common financial goal. The money thus
collected is then invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital appreciation realized
is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an opportunity to invest
in a diversified, professionally managed basket of securities at a relatively low cost. The flow
chart describes broadly the working of a mutual fund:-
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AMC
Savings
Trust Investments
Unit
Unit holders s Returns
Registrar
SEBI Trust
Custodian AMC
The structure of Mutual Funds in India is governed by SEBI (Mutual Fund) Regulations, 1996.
It is mandatory to have a three tier structure of Sponsor – Trustee – Asset Management
Company.
The trust is established by a Sponsor or more than one sponsor who is like a promoter of a
company. He appoints the Trustees who are responsible to the investors of the fund.
The Trustees of the mutual fund hold its property for the benefit of the unit holders.
Asset Management Company (AMC) approved by SEBI is the business face of the mutual
fund as it manages all the affairs of the fund by making investments in various types of
securities.
Custodian, who is registered with SEBI, holds the securities of various schemes of the
funds in its custody.
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Sponsor:
The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund &
registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior
approval of SEBI, & in accordance with SEBI regulations.
Trustees:
The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company
– a corporate body. Most of the funds in India are managed by board of trustees. While the
board of trustees is governed by the provisions of the Indian trust act, where the trustee is the
corporate body, it would also be required to comply with the provisions of the companies act,
1956. the board of trustee company, as an independent body, act as protector of the unit-
holders interest.
Asset Management Company(AMC):
The role of an Asset management companies is to act as the investment manager of the trust.
They are the ones who manage money of investors.
An AMC takes decisions, compensates investors through dividends, maintains proper
accounting & information for pricing of units, calculates the NAV, & provides information on
listed schemes.
It also exercises due diligence on investments & submits quarterly reports to the trustees.
AMCs have been set up in various countries internationally as an answer to the global problem
of bad loans.
Custodian:
Often an independent organization, it takes custody all securities & other assets of mutual
fund. Its responsibilities include receipt & delivery of securities collecting income-distributing
dividends, safekeeping of the unit & segregating assets & settlements between schemes.
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Registrars & Transfer Agent(R & T Agent):
The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing
function, as they maintain the records of investors in mutual funds. They process investor
applications; record details provide by the investors on application forms; send out to investors
details regarding their investment in the mutual fund; send out periodical information on the
performance of the mutual fund; process dividend payout to investor; incorporate changes in
information as communicated by investors; & keep the investor record up-to-date, by recording
new investors & removing investors who have withdrawn their funds.
SEBI – Securities and Exchange Board of India:
Securities and Exchange Board of India(SEBI) is a board (autonomous body) created by
the Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992
with its head office at Mumbai. The Securities and Exchange Board of India is perhaps the
most important regulatory body. Similar to the Securities Exchange Commission in the US, it is
the authority that has to always be on its toes. More so, when the markets are doing well and
there are a spate of IPOs (initial public offerings) or FPO‟s (follow-on public offerings) like now.
Its main mandate is to protect the interest of investors in the securities markets and to promote
the development of and to regulate the securities markets so as to establish a dynamic and
efficient securities market. When investors have complaints against listed companies or
registered intermediaries, SEBI acts as the nodal agency for addressing these complaints, if
they are not solved directly between the parties concerned, or if the investor is not happy with
the response.
SEBI has listed certain categories of grievances for which investors can file complaints with it.
These include:
Non-receipt of refund order or allotment advice in case of investment in IPO's, FPO's
and rights issues
Non-receipt of dividend from listed companies
Non-receipt of share certificates after transfer from listed companies
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Non-receipt of debentures after transfer or non-receipt of interest or principal on
redemption and non-receipt of interest on delayed repayment
Non-receipt of rights offer letter
Collective investment schemes like plantation companies. Investors can send complaints to
SEBI regarding non-receipt of invested principal and returns there from. Derivative trading -
Many investors sign legal papers empowering the broker to trade on their behalf, without
proper knowledge and wake up on seeing their margin money eroded due to sustained losses.
In other instances, major complaints are against brokers squaring off outstanding derivatives
positions due to lack of margins or not giving the client adequate time or notice, leading to
huge losses for investors/traders. These happen especially when markets turn volatile of see
sustained and large one- way movements. There are other areas such as corporate
governance, corporate restructuring, acquisitions, buybacks, delisting and other compliance
related issues for which one could approach SEBI. For all this one can
File complaints electronically on the SEBI website
Get a complaint registration number
Track the status of the complaint online
SEBI looks into the merit of the complaint and takes up the matter with the concerned
company or intermediary
It can also direct intermediaries to redress the investor complaints satisfactorily if the case
merits such an order one can also send grievances by post or fax. In other words, there is a
wide range of issues that come under the jurisdiction of SEBI. And the onus is entirely on it to
keep the stocks markets healthy.
TYPES OF MUTUAL FUND SCHEMES:
By Structure
o Open-ended schemes
o Close-ended schemes
o Interval schemes
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By Investment Objective
o Growth schemes
o Income schemes
o Balance schemes
o Money Market schemes
Other types of schemes
o Tax Saving schemes
o Special schemes
o Index schemes
o Sector specific schemes
Schemes according to maturity period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.
Open-ended Fund / Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on
a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund / Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is
open for subscription only during a specified period at the time of launch of the scheme.
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 where the units are listed. In order
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to provide an exit route to the investors, some close-ended funds give an option of selling back
the units to the mutual fund through periodic repurchase at NAV related prices.
Interval scheme:
Interval funds combine the features of open-ended & closed ended schemes. They are open
for sale or redemption during pre-determined intervals at NAV related prices.
Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Schemes:
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. These schemes provide different options to the investors like
dividend option, capital appreciation, etc. and the investors may choose an option depending
on their preferences. The investors must indicate the option in the application form.
Income / Debt Oriented Scheme
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, Government
securities and money market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity markets.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. These are appropriate for investors looking for moderate growth. They generally
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invest 40-60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be
less volatile compared to pure equity funds.
Other Schemes
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g.
Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also
offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities.
Their growth opportunities and risks associated are like any equity-oriented scheme.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P
NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age
comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or
fall in the index, though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.
Sector specific funds / schemes
These are the funds/schemes which invest in the securities of only those sectors or industries
as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer
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Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time. They may also
seek advice of an expert.
BANKS V/S MUTUAL FUNDS:
Mutual Funds are now also competing with commercial banks in the race for retail investor‟s
savings and corporate float money. The power shift towards mutual funds has become
obvious. The coming few years will show that the traditional saving avenues are losing out in
the current scenario. Many investors are realizing that investments in savings accounts are as
good as locking up their deposits in a closet. The fund mobilization trend by mutual funds
indicates that money is going to mutual fund in a big way.
CATEGORY BANKS MUTUAL FUNDS
Returns Low High
Administrative exp. High Low
Risk Low Moderate
Investment options Less More
Network High penetration Low but improving
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Minimum balance
Interest calculation between 10th & 30th of Everyday
every month
Maximum Rs.1 lakh on
Guarantee None
deposits
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FREQUENTLY USED TERMS
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per
unit NAV is the net asset value of the scheme divided by the number of units outstanding on
the Valuation Date. The net asset value (NAV) is the market value of the fund's underlying
securities. It is calculated at the end of the trading day. Any open-end funds buy or sell order
received on that day is traded based on the net asset value calculated at the end of the day.
The NAV per units is such Net Asset Value divided by the number of outstanding units
NAV = Market Value of Assets - Liabilities
Units Outstanding
For example., if the market value of the securities of a mutual fund scheme is Rs. 200 lakhs &
the mutual fund has issued 10 lakhs units at Rs. 10 to the investors, then the NAV per unit of
the fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis- daily
or weekly- depending
BETA RATIO:
A high beta is good or bad depending on the state of the market. If the market sentiments are
bullish, i.e., the market is seeing a rise in general, then a high beta stock is better and if the
market sentiment is bearish then low beta is preferred. A beta of 1 indicates that the security's
price will move with the market. A beta less than 1 means that the security will be less volatile
than the market. A beta greater than 1 indicates that the security's price will be more volatile
than the market.
R - SQUARED
A statistical measure that represents the percentage of a fund's or security's movements that
are explained by movements in a benchmark index. R-squared values range from 0 to 100. An
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R-squared of 100 means that all movements of a security are completely explained by
movements in index.
A higher R-squared value will indicate a more useful beta figure.
SHARP RATIO
High returns are generally associated with a high degree of volatility. The Sharpe ratio
represents this trade off between risk and returns. At the same time it also factors in the desire
to generate returns, which are higher than those from risk free returns.
The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance is.
Sharpe Index = (Ri – Rf) / Si
Where,
Ri = Return on Fund.
Rf = Risk free rate of Return.
Si = Standard Deviation of the fund.
EXPENSE RATIO
The percentage of total fund assets that is used to cover expenses associated with the
operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return
that fund holders achieve. These expenses include management fees and operating
expenses. So lesser the expense ratio the better it is for the investors
Sale Price
Is the price you pay when you invest in a scheme or NAV a unit holder is charged while
investing in an open-ended scheme is sale price. Also called Offer Price. It may include a sales
load if applicable.
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Repurchase Price
Is the price at which a close-ended scheme repurchases its units and it may include a back-
end load. This is also called Bid Price.
Redemption Price
Is the price at which open-ended schemes repurchase their units and close-ended schemes
redeem their units on maturity. Such prices are NAV related.
Sales Load
Is a charge collected by a scheme when it sells the units. Also called, „Front-end‟ load. A load
is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells
units in the fund, a charge will be payable. This charge is used by the mutual fund for
marketing & distribution expenses. Suppose the NAV per unit is Rs.10. if the entry as well as
exit load charged were 1%, then the investors who buy would be required to pay Rs.10.10 &
those who offer their units for repurchase to the mutual fund will get only Rs.9.9 per unit.
No Load
Schemes that do not charge a load are called „No Load‟ schemes. A no-load fund is one that
does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and
no additional charges are payable on purchase or sale of units.
WHY TO INVEST IN MUTUAL FUNDS:
A proven principle of sound investment is –do not put all eggs in one basket. Investment in
mutual funds is beneficial due to following reasons.
They help in pooling of funds and investing in large basket of shares of different
companies. Thus by investing in diverse companies, mutual funds can protect
against unexpected fall in value of investment.
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An average investor does not have enough time and resources to develop
professional attitude towards their investment. Here professional fund managers
engaged by mutual funds take desirable investment decision on behalf of investors
so as to make better utilization of resources.
Investment in mutual funds is comparatively more liquid because investor can sell
the units in open market or can approach mutual fund to repurchase the units at
net asset value depending upon the type of scheme.
Investors can avail tax rebates by investing in different tax saving schemes floated
by these funds, approved by the government.
STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY
There are many entities involved and the diagram below illustrates the organizational set up
of a mutual fund:
Mutual funds have a unique structure not shared with other entities such as companies of
firms. It is important for employees & agents to be aware of the special nature of this structure,
because it determines the rights & responsibilities of the fund‟s constituents viz., sponsors,
trustees, custodians, transfer agents & of course, the fund & the Asset Management
Company(AMC) the legal structure also drives the inter-relationships between these
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constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds)
regulations, 1996. These regulations make it mandatory for mutual funds to have a structure of
sponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund, & appoints
the trustees. The trustees are responsible to the investors in the mutual fund, & appoint the
AMC for managing the investment portfolio. The AMC is the business face of the mutual fund,
as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registered
with SEBI. Custodian, who is also registered with SEBI, holds the securities of various
schemes of the fund in its custody. The largest categories of Mutual Funds are the ones
floated by the private sector and by Foreign Asset Management Companies. The largest of
these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets
managed by this category of AMCs is in excess of Rs.350 bn.
Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has a
total corpus of Rs.700 bn collected from more than 20 million investors. The UTI has many
funds/schemes in all categories i.e. equity, balanced, income etc. with some being open-ended
and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which
is a balanced fund, is the biggest scheme with a corpus of about Rs.200 bn. UTI was floated
by financial institutions and is governed by a special Act of Parliament. Most of its investors
believe that the UTI is government owned and controlled, which, while legally incorrect, is true
for all practical purposes. The second largest categories of mutual funds are the ones floated
by nationalized banks. Can bank Asset Management floated by Canara Bank and SBI Funds
Management floated by the State Bank of India are the largest of these. GIC AMC floated by
the General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are
some of the other prominent ones. The aggregate corpus of funds managed by this category of
AMCs is about Rs.200 bn.
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RISKS ASSOCIATED WITH MUTUAL FUNDS:
MAX
RISK
High risk
Aggressive growth
Aggressive income
Average risk
Growth and income
Low risk
Conservative income and reasonable
stability
Lowest risk
Maximum safety and stability
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The above pyramidal speaks about the different types of risk and the respective growth
associated with the risk. It can be seen that, at the lower level risk is very less and their more
safety. This kind of portfolio is usually preferred by the in the third level of their life cycle i.e.
mainly people who are pension holders. As we move on to the pyramid we see that there is
average risk and reasonable growth and income. These are people in second level of their life
cycle who are well settled in life who are ready to take the calculated risk. The last level
depicts a picture of people who can assume the highest risk. these are people who have just
started their career who can take high risk.
The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, the
investor to decide how much risk you are willing to take. In order to do this you must first be
aware of the different types of risks involved with your investment decision.
MARKET RISK
Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting
the market in general lead to this. This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on
the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.
CREDIT RISK
The debt servicing ability (may it be interest payments or repayment of principal) of a company
through its cash flows determines the Credit Risk faced by you. This credit risk is measured by
independent rating agencies like CRISIL who rate companies and their paper. An „AAA‟ rating
is considered the safest whereas a „D‟ rating is considered poor credit quality. A well-
diversified portfolio might help mitigate this risk.
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INFLATION RISK
Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100 tomorrow.”
“Remember the time when a bus ride coasted 50 paisa?” “Mehangai Ka Jamana Hai.”
The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot of times
people make conservative investment decisions to protect their capital but end up with a sum
of money that can buy less than what the principal could at the time of the investment. This
happens when inflation grows faster than the return on your investment. A well-diversified
portfolio with some investment in equities might help mitigate this risk.
INTEREST RATE RISK
In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of
bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate
environment. A well-diversified portfolio might help mitigate this risk.
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POLITICAL RISK:
Changes in government policy and political decision can change the investment environment.
They can create a favorable environment for investment or vice versa.
LIQUIDITY RISK
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities. You have been reading
about diversification above, but what is it? Diversification The nuclear weapon in your arsenal
for your fight against Risk. It simply means that you must spread your investment across
different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.)
and different sectors (auto, textile, information technology etc.). This kind of a diversification
may add to the stability of your returns,
COMPETITION IN MUTUAL FUNDS INDUSTRY
The most important trend in the mutual fund industry is the aggressive expansion of the foreign
owned mutual fund companies and the decline of the companies floated by nationalized banks
and smaller private sector players. Many nationalized banks got into the mutual fund business
in the early nineties and got off to a good start due to the stock market boom prevailing then.
These banks did not really understand the mutual fund business and they just viewed it as
another kind of banking activity. Few hired specialized staff and generally chose to transfer
staff from the parent organizations. The performance of most of the schemes floated by these
funds was not good. Some schemes had offered guaranteed returns and their parent
organizations had to bail out these AMCs by paying large amounts of money as the difference
between the guaranteed and actual returns. The service levels were also very bad. Most of
these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing the activity in a major
way. The experience of some of the AMCs floated by private sector Indian companies was
also very similar. They quickly realized that the AMC business is a business, which makes
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money in a long term and requires deep-pocketed support in the intermediate years. Some
have sold out to foreign owned companies, some have merged with others and there is
general restructuring going on. The foreign owned companies have deep pockets and have
come in here with the expectation of a long haul. They can be credited with introducing many
new practices such as new product innovation, sharp improvement in service standards and
disclosure, usage of technology, broker education and support etc. In fact, they have forced
the industry to upgrade itself and service levels of organizations like UTI have improved
dramatically in the last few years in response to the competition provided by these.
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INTRODUCTION TO THE COMPANY :
COMPANY PROFILE :-
SBI Mutual Fund is India‟s largest bank sponsored mutual fund and has an enviable track
record in judicious investments and consistent wealth creation SBI Mutual Fund Set up on 29
June 1987, SBI Mutual Fund is a joint venture between the State Bank of India, India's largest
bank and Society General Asset Management of France, one of the world's leading fund
management companies. SBI Funds Management Private Limited was incorporated on 7th
February 1992 to manage assets of the mutual fund. Mentioned below are the schemes
offered by SBI Mutual Fund for investment in India:
PRODUCTS :-
There are six basic asset classes, which we manage, and variations of these six asset classes
from various products:
1. Equity Schemes-The primary objective of the equity asset class is to provide capital
growth / appreciation.
2. Hybrid Schemes-These schemes invest in a mixture of debt and equity securities in
different proportions.
3. Debt / Income Schemes-The schemes in this asset class generally invest in fixed income
securities.
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4. Fixed Maturity Plans-These are closed ended debt schemes with a fixed maturity date.
5. Liquid Schemes-The strategy for liquid funds include investments in short investment.
6. Exchange Traded Funds-ETFs are nothing but a basket of securities that are traded on
the stock exchange.
RESEARCH METHODOLOGY
Research methodology is a systematic way to solve a research problem. It may be understood as a
science of studying how the research is done systematically.
TITLE OF STUDY : “Investor‟s Perception about Mutual Fund”
DURATION OF PROJECT: from 04 June 2012 to 18 July 2012 (45 days)
OBJECTIVE OF STUDY :
1. To know the perception of investors
2. To know people aware of Mutual Fund
3. To study the behavior of investors & general mass
4. To study the risk associated with MF
5. To analyze the yield & returns associated with Mutual fund
SAMPLE SIZE:-
The study is based on survey of 250 investors who have invested in mutual fund through a
questionnaire.
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SAMPLING TECHNIQUE:- Random Sampling
UNIVERSE :- Udaipur
RESEARCH DESIGN:-
It is a task of defining the research problem by preparing the design of research project. Research
design used for this study is descriptive which describes the nature of the people while making the
investments in Mutual Funds. This type of research is one, which aims at finding new relationships.
Since we are not having any control over the variables in this study, relevant result is calculated
with this study through facts available. The design decision is concerned with what, why, when and
where of the study.
LIMITATION OF STUDY:-
Time was one of the limiting factors. 45 days duration was really a short period to conduct a
survey like this.
Besides time, resources have played the biggest constraint for the research work.
Some sampling and non-sampling errors may have crept into the study.
The selected sample may or may not be considered as a true representative of the whole
population.
DATA COLLECTION:-
Both the primary and the secondary data were used in the study; Primary data is totally fresh &
is collected for the first time, for collecting primary data questionnaire was prepared for finding the
perception of investors. The customers filled up the questionnaire & the secondary data are those,
which have been already collected & analyzed. It is published & available on different media for this
study. Secondary data was collected through magazine & Internet.
25. 25
METHODOLOGY:-
Prepare a list of information needed
Frame questionnaire
Collect information
Convert information into data and graph
Analyses and interpret
DATA ANALYSIS AND INTERPRETATION
Q.1 Analysis of income group per month:
25
20
15
10
5
0
below Rs1oooo Rs 10000 to 15000 Rs 15000 to 25000 above Rs 25000
Analysis
Maximum respondents lie in group of 15000 to 25000 and minimum lie in group of below
10000.
26. 26
Q.2 what type of investment plan is liked most by investors?
Others
Bank 8% Insurance
11% 25%
Share Market Gold
17% 3%
Mutual Fund
36%
Analysis
Through analysis It is found that people prefer most mutual fund and then insurance and then
share market.
Q. 3 How did investors come to know about Mutual Fund?
27. 27
by direct
salesperson
of company By magazine
6% 9%
by newspaper
18%
by friends
25%
by ad
17% by tax
advisor by brokers
10% 15%
Analysis
In this research It is found that most of the people came to know about Mutual Fund through their
friends and then newspapers, advertisement, brokers, tax advisor respectively.
Q. 4 Why investors prefer Mutual Fund ?
28. 28
For safety for good returns for liquidity for tax saving benefits
16% 8%
13%
63%
Analysis
63% investors invest in Mutual Fund due to high returns while 16% prefer Mutual Fund for tax
saving benefits .13% choose Mutual Fund for liquidity and 8% for safety.
Q.5 Which asset management company is preferred most?
29. 29
OTHER HDFC
23% 14%
SUNDARAM
9% RELIANCE
31%
FRANKLIN TEMPLTON
DSP 20%
3%
Analysis: In my research I found that most of the investors invest in Reliance Mutual Fund with
31%, 20% in Franklin Templeton, 14% in HDFC, 9% in Sundram, 3% in DSP and 23% in others.
Q6. How many persons know about Mutual Funds, Debt and Balance ?
Analysis of awareness of different funds of Mutual
Fund
60
40
20
0
Yes No
Analysis
From my sample size of 50 respondents , 92% respondents know about different Funds of mutual
Fund like Equity, Debt, Balance and 8% persons don‟t know.
30. 30
Most preferred Funds for investment by respondents
Most preferd Fund by investors
35
30
25
20
15
10
5
0
Equity Debt Balance Others
Q.7 How many investors are aware about Mutual Fund’s working ?
Awareness about how Mutual Fund works
No
16%
Yes
84%
Analysis
I found in my research that most of the investors are aware about Mutual Fund‟s working, only 16%
investors do not know about it and are interested in knowing how Mutual Fund works.
31. 31
Q. 8 For how long period investors want to invest in Mutual Fund?
‘Duration of investment’
45
40
35
30
25
20
15
10
5
0
Long term Short term
Analysis- Around 80% investors think that long term investment in Mutual Fund is beneficial.
Q.9 What do investors consider mostly at the time of investment in Mutual Fund?
company's brand name high returns previous year's performance
services provided by company portfolio of fund
30% 20%
25%
21%
4%
Analysis
On the analysis of data collected around 30% investors opted for Mutual Fund due to portfolio of fund
.After that high returns , company‟s brand name & previous year‟s performance are also important.
32. 32
Q.10 Is there relation between investment in Mutual Fund and volatility of market?
40
30
20
10
0
Yes No Can't say
Analysis- On the analysis of data collected out of 50 respondents 74% believe that ups and down of
market is affecting investment in Mutual Fund as ultimately funds are put in share market while 20%
investors don‟t think so .6% investors have no idea about it.
Q.11 How much investors are satisfied with services provided by
Can't say
No
Yes
0 5 10 15 20 25 30 35 40 45
Analysis
Most of the investors are satisfied with services of mutual fund companies only 7 respondents are not
satisfied one investor was not able to answer. Dissatisfied investors want that they should be given
33. 33
timely information about fund‟s value and expert‟s advice about funds. They also want information
about new changes in schemes.
SWOT ANALYSIS OF MUTUAL FUND
Mutual fund as an investment tool can be measured on various parameters by the investors. The
investors must have adequate knowledge of the product that he intends to invest in and thus a SWOT
analysis of mutual fund is imperative. With this knowledge, the investors can compare various
investment tools.
STRENGTHS
Diversification of Risk
Professional Management
Liquidity
Return Potential
Low Costs
Transparency
Flexibility
Choice of schemes
WEAKNESSES
Taxation
Managing portfolio of funds
Prone to market risk
OPPORTUNITIES
34. 34
Although the Indian mutual fund industry has grown over the years in a very aggressive manner, the
opportunities for the industry to grow further and become a dominant force in the Indian economy are
widespread. The opportunities for the Indian mutual fund industry are illustrated as follows:
Untapped saving market
Rural India
Spread of awareness
Tailor-made product
Growing Indian capital market
THREATS
Competition from Banks
Skepticism among investors.
Fraudulent investments
Unawareness
FACT AND FINDINGS
1) Most of the respondents prefer MUTUAL FUNDS as a better option for Investment. People prefer
Mutual funds, Insurance, and Shares as the first three preferences of investment.
2) Most of the people are aware about the mutual fund as an investment option.
3) Around 16% of people who are aware about the mutual fund are not aware about the working of
mutual funds
4) Most of the respondents select the company to invest in mutual funds on the basis of portfolio of
fund which is followed by high returns and previous year‟s performance. On the basis of the data
collected it was observed that 30% of people are inclined towards the MUTUAL FUNDS mainly due
to portfolio of fund.
35. 35
5) From the data available through survey we can easily make out that 25% of people buy mutual funds
from a company on the basis of returns and 21% of people buy mutual funds from a company on the
basis of previous year‟s performance and 20% on the basis of company‟s brand name.
6) People mostly prefer Reliance Asset management Company for investments and Franklin
Templeton as the 2nd preference..
7) Around 84% respondents are satisfied with services of mutual fund companies and their
performance. Rest want to have timely information regarding expert‟s advice, fund‟s value and new
changes in fund‟s scheme.
8) Around 74% investors believe that ups and down of share market is affecting investment in Mutual
Fund adversely. They think the reason behind this is that fund‟s money are put into share market to
a great extent.
Most of the respondents think that long term investment in mutual fund brings high returns and
low risks.
9) Around 92% investors are aware about different funds such as debt, equity, balance etc. and most of
the respondents prefer equity fund for its benefit of high returns.
CONCLUSIONS
In a nutshell, I have learned various practical aspects of trading in the stock market.
I have made calls in the initial days of training so as to generate maximum leads.
In addition, I did personal meetings with clients in order to close the deals.
I handled the queries opening of accounts, trading procedures etc.
I also assisted in executing trades from the existing clients so as to get brokerage for the
company.
During the eight years of study period, the IMFI had shown a good progress in terms of
number of private sector Indian mutual funds, number of schemes launched, funds
mobilized and assets under management. There had been a good number of schemes
been launched particularly in close-end type with income objective. The hallmark of any
mutual fund is to outperform the market both in rising and falling markets besides ensuring
benefits of diversification. Of the sample schemes, Can growth Plus Scheme, Franklin
India Blue-chip scheme, Franklin India Prima Scheme, HDFC Capital Builder Scheme and
SBI Magnum Multiplier Plus scheme outperformed the market in terms of absolute returns
36. 36
and Sharpe index. While Only SBI Magnum Multiplier Plus scheme outperformed market in
terms of Trey nor index and also had positive Jensen alpha. All the three risk-adjusted
performance measures showed significant agreement in ranking the sample schemes. Of
the sample schemes studied, SBI Magnum Multiplier Plus Scheme topped the list in all the
three portfolio performance models. All the sample schemes (except LIC MF Equity
Scheme) ensured positive returns due to stock selection skills of fund managers. The
variance explained by the market was high in the case of SBI Magnum Multiplier Plus
scheme. The market performance had a significant positive influence on scheme
performance in case of all the schemes covered under the study. The present NAV is
positively significantly correlated with that of its past NAV but the impact got reduced as the
time lag increased. The survey of investors‟ perception revealed that, profile of investors
has a significant impact on the investor‟s decisions relating to investments and particularly
mutual fund investments. Investors had high preference for bank deposits while brokers
preferred equity shares. Regular income, safety, profitability and tax benefits motivated
investors in the choice of scheme. Private sector joint venture (predominantly) Indian
mutual funds were highly preferred by both investors and brokers. Both investors and
brokers prefer growth schemes followed by income schemes. Brokers / agents were the
main source of information about mutual funds. According to investors, the most important
benefit of mutual funds was profitability while portfolio diversification, liquidity of
investment and professional management were very important for brokers. Quality of
service was the most important determinant of success for mutual fund according to
investors, brokers and fund managers. Goodwill was the main criterion of choosing mutual
fund organization for all the three categories of respondents. For investors, capital
appreciation influenced the choice of mutual fund scheme. For brokers, return on
investment and safety affected the choice of mutual fund schemes. For fund managers,
capital appreciation, liquidity and portfolio manager‟s background were important criteria of
choosing mutual fund schemes. Very few investors were fully satisfied while majority were
moderately satisfied with the performance, opportunities provided, and services offered by
the IMFI. Investors and fund managers agreed that, investing in mutual funds were less
risky compared to shares. Brokers and fund managers highly agreed that mutual funds
were more suitable to small investors who were otherwise hesitant of entering into capital
market. Fund managers viewed that mutual funds have the ability to weather the market
fluctuations and accepted that investing in funds is much better in terms of returns than
depositing money in banks. Brokers opined that risk and return characteristics of Indian
mutual funds were not in conformity with their stated objectives.
37. 37
SUGGESTIONS
In my research I found that most of the investors are aware about mutual fund as investment option
but they don‟t have sufficient knowledge about mutual fund working, schemes, and NAV of funds. So
in order to increase number of investors following suggestion should be taken into account
Arrange for presentations in schools, colleges, corporate offices, and public places.
Arrange for educational seminars regularly.
Regular advertisement of schemes of respective Mutual Fund company in Television,
newspaper, and other business magazines to spread awareness.
Investors should be satisfied by providing them timely information regarding schemes,
statements, and NAV of different funds.
The analysis of the sample investors‟ opinion shows that majority were moderately satisfied
with the performance, investment opportunities and services offered by the Indian mutual
funds industry. However, the sample mutual fund schemes were also not performing up to
their expectations and does not provide adequate returns commensurate with the risk
involved. Hence, for the better future of the Indian Mutual Fund Industry the following
suggestions are made: It is absolutely necessary to harness the savings of the nation
especially from rural and semi-urban areas into financial assets and the units of mutual funds
should certainly become one such asset that can attract these savings through a wide spread
and efficient network of operations. Mutual funds should build confidence in the existing unit
holders as well as the public not covered so far. Mutual funds have to prove as an ideal
investment vehicle for retail investors by way of assuring better returns in relation to the risk
involved and by way of better customer services. Mutual funds as institutional investors have
to ensure professional market analysis, optimum diversification of portfolio, minimizing of risk
and optimizing of return. The fund managers have to provide the benefits of professional
management by way of market timing and stock selection skills. The Asset Management
companies by way of superior management, efficient market forecasting have to ensure not
only out performance but also consistency in the performance. While millions of potential
investors are not fully aware of the modes of investments, most of the investors who have
invested are not fully aware of their rights and obligations. Hence, the Government should
arrange for more number of massive educational programs on investment avenues besides
publishing „Investors guide‟ enabling the investing public to take more informed investment
decision. It would be more enlightening and effective if awareness programs were organized
at the collegiate level so that students could become aware of investment avenues even
before they start earning. SEBI and AMFI could carryout research works to introduce many
mutual fund products proved successful in foreign countries but not yet introduced in India.
Mutual fund activities could be linked with the banking institutions, through electronic clearing
38. 38
and plastic money for easy transactions and e-units of mutual funds. The role of investors‟
redress cell has to become more dynamic, efficient and wide spread so as to reach out to
investors rebuilding confidence among existing unit-holders and generate interest among the
potential investors. Mutual fund Ombudsman could be established for early settlement of
disputes. Investors have to make self-analysis of one‟s needs, risk-bearing capacity, and
expected returns so as to develop a prudent investment ideology. Investors have to be aware
of the mutual fund regulations, the channeling of money, objectives of schemes, besides
ensuring better diversification of investment.
ANNEXURE
QUESTIONNAIRE
PERSONAL DETAIL :
Name :- ……………………………………………………………….
Occupation :- ………………………………………………………………..
Address & Phone :- ………………………………………………………………..
………………………………………………………………..
1. Which income group do you belong to?
(a) Below Rs. 10,000 (b) Rs.10,000 to 15,000
(c) Rs.15,000 to 25,000 (d) Above Rs.25,000
2. Which type of investment plan do you like most?
(a)Insurance (b)Gold
(c)Mutual Fund (d)Share Market
(e)Bank (f)Others
3. How did you come to know about Mutual Fund?
(a) By Magazine (b) By Friends (c) By Newspaper
(d) By Brokers (e) By Advertisement (f) By Tax advisor
(g)By Direct salesperson of company
39. 39
4. Why do you invest in Mutual Funds?
(a) For safety (b) For good returns
(c) For liquidity (d) For tax saving benefit
5. In which of the following Mutual Fund companies you have made your investment?
(a) HDFC (b) Reliance (c) Franklin Templeton
(d) DSP (e) Sundaram (f) Other
6. Are you aware about different funds of Mutual Fund like equity, debt and balance?
(a)Yes (b)No
7. If yes then what type of funds do you prefer for investment in Mutual Fund?
(a) Equity (b) Debt (c) Balance (d) Other
8. Are you aware about how Mutual Fund works?
(a)Yes (b) No
9. If no, then are you interested in knowing about Mutual Fund‟s working?
(a)Yes (b)No
10.. For how long period do you want to invest your money in Mutual Funds?
(a) Short term (b) Long term
11. What do you consider mostly when you are going to invest in Mutual Funds?
(a) Company‟s brand name (b) High returns
(c) Previous year‟s performance (d) Services provided by company
(e) Portfolio of Fund
40. 40
12.Is present scenario of market affecting consumer‟s interest of investing in Mutual Fund &
Why?
(a) Yes (b)No
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
………………………………………………………………………………………………………………
13. Are you satisfied with services provided by different Mutual Fund‟s companies?
(a)Yes (b) No
14.What type of improvements do you want in services.
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