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A STUDY
ON
INVESTORS PERCEPTION TOWARDS MUTUAL FUNDS IN
INDIA
A THESIS
PRESENTED TO THE FACULTY OF
SBS SWISS BUSINESS SCHOOL
IN PARTIAL FULFILLMENT
OF THE REQUIREMENT FOR THE DEGREE
MASTER OF BUSINESS ADMINISTRATION
BY
MAHESH KORRAPATI
ROLL NUMBER: 2029
JUNE 2011
PROMOTER: Dr. (Mrs.) MANITA D. SHA
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“Think big; fly high. The world belongs to those who break
away, take risks and reap dividends. Always try to go off thebeaten track for a target with a newer destiny”.
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CERTIFICATE
This is to certify that the Thesis Report is
Submitted in partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
(SBS SWISS BUSINESS SCHOOL)
TO
SBS SWISS BUSINESS SCHOOL
Is a record of bonafide thesis carried out by
MAHESH KORRAPATI
Under my supervision and guidance and that no part of this report has been submitted
for any
Other degree/diploma/fellowship or similar titles or prizes.
FACULTY GUIDE
Signature:
Name: Dr. (Mrs.) Manita D. Sha
Mcom, Ph.D.
Signature & seal of the learning centre
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STUDENT’S DECLARATION
I hereby declare that the Thesis Report conducted
Under the guidance of
Dr. (Mrs.) Manita D. Sha
Submitted in partial fulfillment of the requirements for the
Degree of
MASTER OF BUSINESS ADMINISTRATION
(SBS SWISS BUSINESS SCHOOL)
TO
SBS SWISS BUSINESS SCHOOL, ZURICH
Is my original work and the same has not been submitted for the award of any other
Degree/Diploma/Fellowship or other similar title or prizes.
Place: Bangalore Date: 13 - 06- 2011
Roll number 2029
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ACKNOWLEDGEMENT
I extend my special gratitude to The Dean, my Thesis Guide DR.MANITHA D SHA
for supporting me throughout this thesis. I would like to thank DR.BERT WOLF,
(ACADEMIC DEAN SWISS BUSINESS SCHOOL) for his invaluable academic
support through out the year.
I wish to acknowledge my sincere gratitude and indebtedness to my thesis guide
DR.MANITHA D. SHA of Ramaiah Institute of Management Studies, Bangalore for
her valuable guidance and constructive suggestions in the preparation of the thesisreport.
I extend my gratitude to all my colleagues for their encouragement, support, guidance
and assistance for preparing the thesis report.
Mahesh Korrapati
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TABLE OF CONTENTS
S. No. TOPIC Page No.
1. PREFACE 8
2. EXCUTIVE SUMMARY 10
1.TITLE OF THE PROJECT 11
2.STATEMENT OF THE PROBLEM 11
3.OBJECTIVES OF THE STUDY 11
3. HYPHOTHESIS STATEMENT 13
4. REVIEW OF LITERATURE 15
4.1) INVESTMENT 16
4.2) INTRODUCTION TO MUTUAL FUND 19
4.3) MUTUAL FUND INDUSTRY IN INDIA 24
4.4) RISK FACTORS OF MUTUAL FUNDS 35
4.5) WORKING OF MUTUAL FUNDS 38
4.6) MUTUAL FUND COMPANIES IN INDIA 44
5. REASEARCH METHODOLOGY 45
5.1) SECONDARY DATA 48
5.2) PRIMARY DATA 53
6. TESTING HYPHOTHESIS 74
7. FINDINGS AND CONCLUSIONS 77
8. LEARNING EXPERIENCE 81
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9. GLOSSARY 89
10. REFERENCES AND BIBLIOGRAPHY 90
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CHAPTER -1
PREFACE
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PREFACE
In today’s world, only theoretical knowledge is not sufficient for man. Every man
must have practical knowledge about a particular field or company. With the help of
practical knowledge a man can learn more than the theoretical Knowledge.
India is one of the fastest growing economies in the world due to which the income
level of people in India is increasing and along with it the savings and investments are
also growing. Due to liberalization and deregulation which was announced in New
Industrial Policy 1991, has dismantled barriers in the financial market, allowed the
entry of new players and created environment for efficient allocation of resources.
One of the important industries in emerging financial market is the mutual fund
industry.
The mutual fund industry has played a significant role in the development of capital
market, growth of corporate sectors and financial intermediation. As mutual fund
industry in India is relatively new, the level of awareness among the people is less butwith the increase in level of awareness the mutual fund industry is also growing. The
government has also announced the regulatory measures for the growth of mutual
fund industry and protection of investors in mutual funds. Here i have attempted to
study on investors perception and their awareness towards mutual funds in India.
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CHAPTER-2
EXECUTIVE SUMMARY
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There are a lot of investment avenues available today in the financial market for an
investor with an investable surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock
of companies where the risk is high and the returns are also proportionately high. The
recent trends in the Stock Market have shown that an average retail investor always
lost with periodic bearish tends. People began opting for portfolio managers with
expertise in stock markets who would invest on their behalf. Thus we had wealth
management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.
Mutual fund industry has seen a lot of changes in past few years with multinational
companies coming into the country, bringing in their professional expertise in
managing funds worldwide. In the past few months there has been a consolidation
phase going on in the mutual fund industry in India. Now investors have a wide range
of Schemes to choose from depending on their individual profiles.
The type of sampling technique used is sampling wherein a questionnaire was
prepared and distributed to the investors. The investor’s profile is based on the results
of a questionnaire that the Investors completed. The sample consists of 200 investors
from various backgrounds. The target customers were only the investors who invest in
various avenues so as to know about their knowledge and concern regarding their
choice of fund, return expectation, risk taking ability etc…
According to the opinion of these investors interpretation has been done and there has
been findings and conclusion along with some recommendations.
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TITLE OF THE PROJECT:
“A STUDY ON INVESTORS PERCEPTION TOWARDS MUTUAL FUNDS
INDIA.”
STATEMENT OF THE PROBLEM:
Indian Mutual fund industry has undergone a massive change in the last few years
with the launch of many conglomerates in India. They have introduced professional
dexterity and technology in handling capitals both nationally and internationally.
Owing to this investors have spoilt choice for a diverse range of policies depending
on their portfolios.
Mutual Fund market provides vast investment avenues for the prospective investors
ranging from bonds to bank deposits and corporate debentures, which are low on risk
and high on returns. The latest mutual fund market has indicated bearish trend, which
means that investors who are seeking for profitable investments should opt for highly
skilled fund managers who invests on their behalf.
My project report on mutual funds provides a summary on investors perception
towards mutual fund market in India, and it also discuss the performance of assets
under management of Indian mutual fund industry, and investors folios for the
financial year 2010-11.
OBJECTIVES OF THE PROJECT:
To know about the investment behavior and awareness towards mutual funds .
To know the different attitudes of people regarding risk, rate of return, period
of investment etc…
To study the structure of mutual funds in India.
To study the performance of assets under management and investors folios
regarding mutual fund industry in India.
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CHAPTER-3
HYPOTHESIS STATEMENT
A hypothesis is a proposed explanation for an observable phenomenon. The term
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derives from the Greek word – hypotithenai meaning "to put under" or "to suppose”.
For the present study it is proposed to have following hypothesis:
A. Most of the investors prefer mutual funds because of safety, fair return.
B. Consistency in fund performance and brand equity influence customers to make
relevant selection of mutual funds for investment purposes.
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CHAPTER-4
REVIEW OF LITERATURE
4.1 INVESTMENT
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An investment is a commitment of funds made in the expectation of some positive
rate of returns. The expectations bring with it a probability that the quantum of return
may vary from a minimum to a maximum. This possibility of variation in the actual
return is known as investment risk. Thus every investment involves a return and risk.
Investment is an activity that is undertaken by those who have savings. Savings can
be defined as the excess of income over expenditure. An investor earns/expects to
earn additional monetary value from the mode of investment that could be in the form
of financial assets.
The three important characteristics of any financial assets are:
Return – the potential return possible from an asset
Risk – the variability in returns of the asset from the chances of its value going
down/up.
Liquidity – the ease with which an asset can be converted into cash.
Investors tend to look at these three characteristics while deciding on their individual
preference [pattern of investments]. Each financial asset will have a certain level of
each of these characteristics.
INVESTMENT ALTERNATIVES:
An investor has wide range of investment avenues such as:
Non – Marketable Financial Assets
A good portion of financial assets is represented by non – marketable
Financial Assets. They can be classified into various categories such as:
o Bank deposits,
o Post office deposits,
o Company deposits and
o Provident fund deposits.
Equity Shares
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Equity shares represent ownership capital. An equity shareholder has an
ownership stake in the company i.e. he / she has a residual interest in income
and wealth. Equity shares are classified into broad categories by stock market
analysts such as:
o Blue chip Shares,
o Growth Shares,
o Income Shares,
o Cyclical Shares and
o Speculative Shares.
Bonds
Bonds or Debentures represent long-term debt instruments. The issuer of a
bond promises to pay a stipulated stream of cash flow. Bonds may be
classified into the following categories such as:
o Government Securities,
o Savings Bonds,
o Government Agency Securities,
o PSU Bonds,
o Debentures of Private Sector Companies and
o Preference Shares.
Money Market Instruments
Debt Instruments which have a maturity of less than one year at the time of
issue are called money market instruments. The important money market
instruments are:
o Treasury bills,
o Commercial paper and
o Certificate of deposit.
Mutual Funds
Instead of directly buying equity shares and / or fixed income instruments we
can participate in various schemes of mutual funds, which, in turn, invest in
equity shares and fixed income securities. There are three broad types of
mutual fund schemes such as:
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o Equity Schemes
o Debt Schemes
o Balanced Schemes
Life Insurance Policies
Life Insurance may also be viewed as an investment. Insurance premiums
represent the sacrifice and the assured sum, the benefit. The important types of
insurance policies are:
o Endowment assurance policy
o Money back policy
o Whole life policy
o Term assurance policy
Real Estate
For the bulk of the investors the most important asset in their portfolio is a
residential house. In addition to a residential house, the more affluent investors
are likely to be interested in the following types of real estate:
o Agricultural Land
o Semi – Urban Land
o Commercial Property
o A resort home
o A second house
Precious Objects
Precious objects are items that are generally small in size but highly valuable
in monetary terms. The most important precious objects are:
o Gold and Silver
o Precious Stones
o Art Objects
Financial Derivatives
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A financial derivative is an instrument whose value is derived from the value
of an underlying asset. The most important financial derivatives from the point
of view of investors are:
o Options
o Futures
INVESTORS PROFILE: An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated to different proportions of the total
disposable amount. Investments for specific goals normally find their way into the
debt market as risk reduction is of prime importance, this is the area for the risk-
averse investors and here, and Mutual Funds are generally the best option. One can
avail of the benefits of better returns with added benefits of anytime liquidity by
investing in open- ended debt funds at lower risk, this risk of default by any company
that one has chosen to invest in, can be minimized by investing in Mutual Funds as
the fund managers analyze the companies financials more minutely than an individual
can do as they have the expertise to do so.
Moving up the risk spectrum, there are people who would like to take some risk andinvest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of
investment techniques, they can invest in equity as well as good quality debt thereby
reducing risks and providing the investor with better returns than he could otherwise
manage. Since they can reshuffle their portfolio as per market conditions, they are
likely to generate moderate returns even in pessimistic market conditions.
Next comes the risk takers, risk takers by their nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than not,
because they have historically generated better returns than any other avenue,
provided, the money was judiciously invested. Though the risk associated is generally
on the higher side of the spectrum, the return-potential compensates for the risk
attached. 4.2 INTRODUCTION OF MUTUAL FUND
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There are a lot of investment avenues available today in the financial market for an
investor with an investable surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock
of companies where the risk is high and the returns are also proportionately high. The
recent trends in the Stock Market have shown that an average retail investor always
lost with periodic bearish tends. People began opting for portfolio managers with
expertise in stock markets who would invest on their behalf. Thus we had wealth
management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.
CONCEPT OF MUTUAL FUND: A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with a stated objective. The
ownership of the fund is thus joint or “mutual”; the fund belongs to all investors. A
single investor’s ownership of the fund is in the same proportion as the amount of the
contribution made by him or her bears to the total amount of the fund.
Mutual Funds are trusts, which accept savings from investors and invest the same in
diversified financial instruments in terms of objectives set out in the trusts deed with
the view to reduce the risk and maximize the income and capital appreciation for
distribution for the members. A Mutual Fund is a corporation and the fund manager’s
interest is to professionally manage the funds provided by the investors and provide
a return on them after deducting reasonable management fees
The objective sought to be achieved by mutual fund is to provide an opportunity for
lower income groups to acquire without much difficulty financial assets. They cater
mainly to the needs of the individual investor whose means are small and to manage
investors portfolio in a manner that provides a regular income, growth, safety,
liquidity and diversification opportunities.
DEFINITION:
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“Mutual funds are collective savings and investment vehicles where savings of small
(Or sometimes big) investors are pooled together to invest for their mutual benefit
and returns distributed proportionately”. “A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each own
shares of the fund. The fund's assets are invested according to an investment objective
into the fund's portfolio of investments. Aggressive growth funds seek long-term
capital growth by investing primarily in stocks of fast-growing smaller companies or
market segments. Aggressive growth funds are also called capital appreciation
funds”. WHY MUTUAL FUND? While everyone fantasizes about investing in the stock markets and is passionate
about investing in stocks, what’s more important is; how smartly are these
investments done. One can invest in the stock markets either through the direct route
i.e. stocks or through the indirect route i.e. mutual funds. Both have their own pros
and cons, and so it’s important for us to understand both routes before embarking on
an investment spree.
If an investor has a profound insight into stocks and investments with the requisite
time and skill to analyze companies, then he can surely begin independent stock
picking. However, if an investor lacks any one or all these pre-requisites, then he’s
better off investing in stocks through the indirect route i.e. through mutual funds.
Mutual funds offer several important advantages over direct stock- picking.
Diversification
Investing in stocks directly has one serious drawback - lack of diversification.
By putting your money into just a few stocks, you can subject yourself to
considerable risk. Decline in a single stock can have an adverse impact on
your investments, damaging the returns of your portfolio.
A mutual fund, by investing in several stocks, tries to overcome the risk of
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investing in just 3-4 stocks. By holding say, 15 stocks, the fund avoids the
danger of one rotten apple spoiling the whole portfolio. Funds own anywhere
from a couple of dozen to more than a hundred stocks. A diversified portfolio
may thus fall to a lesser extent, even if a few stocks fall dramatically. Also, a
mutual fund’s NAV may certainly drop, but mutual funds tend to not fall as
freely or as easily as stocks. The legal structure and stringent regulations that
bind a mutual fund do a very good job of safeguarding investor interest.
Professional management
Active portfolio management requires not only sound investment sense, but
also considerable time and skill. By investing in a mutual fund, you as an
investor do not have to track the prospects and potential of the companies in
the mutual fund portfolio. This is already being done for you, by skilled
research professionals appointed by the mutual fund houses, professionals
whose job it is to continuously research and monitor these companies.
Lower entry level
There are very few quality stocks today that investors can buy with ` 5,000 in
hand. This is especially true when valuations are expensive. Sometimes, with
as much as ` 5,000 you can buy just a single stock. In the case of mutual
funds, the minimum investment amount requirement is as low as ` 500. This is
especially encouraging for investors who start small and at the same time take
exposure to the fund’s portfolio of 20-30 stocks.
Economies of scale
By buying a handful of stocks, the stock investors lose out on economies of
scale. This directly impacts the profitability of portfolio. If investors buy or
sell actively, the impact on profitability would be that much higher. On the
other hand, in case of mutual funds, frequent voluminous purchases/sales
results in proportionately lower trading costs than individuals thus translating
into significantly better investment performance.
Innovative plans/services for investors
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By investing in the stock market directly, investors deprive themselves of
various innovative plans offered by fund houses. For example, mutual funds
offer automatic re-investment plans, systematic investment plans (SIPs),
systematic withdrawal plans (SWPs), asset allocation plans, triggers etc., tools
that enable you to efficiently manage your portfolio from a financial planning
perspective too. These features allow you to enter/exit funds, or switch from
one fund to another, seamlessly - something that will probably never be
possible in case of stocks.
Liquidity
A stock investor may not always find the liquidity in a stock to the extent they
may want. There could be days when the stock is hitting an upper/lower
circuit, thus curtailing buying/selling. Further, if an investor is invested in a
penny stock, he may find it difficult to get out of it.
On the other hand, mutual funds offer some much-required liquidity while
investing. In case of an open-ended fund, you can buy/sell at that day's NAV
by simply approaching the fund house directly, or by approaching your mutual
fund distributor or even by transacting online.
As highlighted above, investing in mutual funds has some unique benefits that may
not be available to stock investors. However by no means are we insinuating that
mutual fund investing is the only way of clocking growth. This can also be done even
by investing directly into the right stocks. However, mutual funds offer the investor a
relatively safer and surer way of picking growth minus the hassle and stress that has
become synonymous with stocks over the years.
On account of the aforementioned advantages, which mutual funds offer, they (mutual
funds) have emerged as immensely popular asset class, especially for retail investor,
and for the investor looking for growth with lower risks.
Investment Objectives and Valuation Policies:
The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made an available to
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the investors.
Restrictions on Investments:
A mutual fund scheme shall not invest more than 15% of its NAV in debt
instrument issued by a single issuer, which are rated not below investment
grade by a credit rating agency authorized to carry out such activity under the
Act. Such investment limit may be extended to 20% of the NAV of the
scheme with the prior approval of the Board of Trustees and the Board of
Asset Management Company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated
debt instruments issued by a single issuer and the total investment in such
instruments shall not exceed 25% of the NAV of the scheme. All such
investments shall be made with the prior approval of the Board of Trustees
and the Board of Asset Management Company.
No mutual fund under all its schemes should own more than ten percent of any
company’s paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on
spot basis. The securities so transferred shall be in conformity with the
investment objective of the scheme to which such transfer has been made.
Rules Regarding Advertisements:
The offer document and advertisement materials shall not be misleading or contain
any statement or opinion, which are incorrect or false.
4.3 MUTUAL FUND INDUSTRY IN INDIA
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The Evolution:
The formation of Unit Trust of India marked the evolution of the Indian mutual fund
industry in the year 1963. The primary objective at that time was to attract the small
investors and it was made possible through the collective efforts of the Government of
India and the Reserve Bank of India. The history of mutual fund industry in India can
be better understood divided into following phases:
Phase 1. Establishment and Growth of Unit Trust of India - 1964-87:
Unit Trust of India enjoyed complete monopoly when it was established in the year
1963 by an act of Parliament.UTI was set up by the Reserve Bank of India and it
continued to operate under the regulatory control of the RBI until the two were de-
linked in 1978 and the entire control was transferred in the hands of Industrial
Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as
Unit Scheme 1964 (US-64), which attracted the largest number of investors in any
single investment scheme over the years.
UTI launched more innovative schemes in 1970s and 80s to suit the needs of different
investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's
Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share
(India’s first equity diversified scheme) in 1987 and Monthly Income Schemes
(offering assured returns) during 1990s. By the end of 1987, UTI's assets under
management grew ten times to Rs 6700 crores.
Phase II. Entry of Public Sector Funds - 1987-1993:
The Indian mutual fund industry witnessed a number of public sector players entering
the market in the year 1987. In November 1987, SBI mutual fund from the State Bank
of India became the first non-UTI mutual fund in India. SBI mutual fund was later
followed by Can bank mutual fund, LIC mutual fund, Indian Bank mutual fund, Bank
of India mutual fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets
under management of the industry increased seven times to Rs. 47,004 crores.
However, UTI remained to be the leader with about 80% market share.
Phase III. Emergence of Private Sector Funds - 1993-96:
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The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters) to
enter the mutual fund industry in 1993, provided a wide range of choice to investors
and more competition in the industry. Private funds introduced innovative products,
investment techniques and investor-servicing technology. By 1994-95, about 11
private sector funds had launched their schemes.
Phase IV. Growth and SEBI Regulation - 1996-2004:
The mutual fund industry witnessed robust growth and stricter regulation from the
SEBI after the year 1996. The mobilization of funds and the number of players
operating in the industry reached new heights as investors started showing more
interest in mutual funds.
Investors' interests were safeguarded by SEBI and the Government offered tax
benefits to the investors in order to encourage them. SEBI (Mutual Funds)
Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual
funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands
of investors from income tax. Various Investor Awareness Programmes were
launched during this phase, both by SEBI and AMFI, with an objective to educate
investors and make them informed about the mutual fund industry.
In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal
status as a trust formed by an Act of Parliament. The primary objective behind this
was to bring all mutual fund players on the same level. UTI was re-organized into two
parts: 1. The Specified Undertaking, 2. The UTI mutual fund.
Presently Unit Trust of India operates under the name of UTI mutual fund and its past
schemes (like US-64, Assured Return Schemes) are being gradually wound up.
However, UTI mutual fund is still the largest player in the industry.
Phase V. Growth and Consolidation - 2004 Onwards:
The industry has also witnessed several mergers and acquisitions recently, examples
of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun
F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously,
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more international mutual fund players have entered India like Fidelity, Franklin
Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is
a continuing phase of growth of the industry through consolidation and entry of new
international and private sector players.
SCHEMES OF MUTUAL FUND:
i). The asset management company shall launch no scheme unless the trustees
approve such scheme and a copy of the offer document has been filed with the Board.
ii). Every mutual fund shall along with the offer document of each scheme pay filing
fees.
iii). The offer document shall contain disclosures, which are adequate in order to
enable the investors to make informed investment decision including the disclosure on
maximum investments proposed to be made by the scheme in the listed securities of
the group companies of the sponsor A close-ended scheme shall be fully redeemed at
the end of the maturity period. “Unless a majority of the unit holders otherwise decide
for its rollover by passing a resolution”.
TYPES OF MUTUAL FUNDS SCHEMES IN INDIA Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. thus mutual funds has Variety of
flavors, Being a collection of many stocks, an investors can go for picking a mutual
fund might be easy. There are over hundreds of mutual funds scheme to choose from.
It is easier to think of mutual funds in categories, mentioned below
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b. Close - Ended Schemes:
A closed-end fund has a stipulated maturity period which generally ranging from 3 to
15 years. The fund is open for subscription only during a specified period. Investors
can invest in the scheme at the time of the initial public issue and thereafter they can
buy or sell the units of the scheme on the stock exchanges where they are listed. In
order to provide an exit route to the investors, some close-ended funds give an option
of selling back the units to the Mutual Fund through periodic repurchase at NAV
related prices. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor.
c. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and
close- ended schemes. The units may be traded on the stock exchange or may be open
for sale or redemption during pre-determined intervals at NAV related prices.
B). BY NATURE
a. Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund manager’s
outlook on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:
Diversified Equity Funds
Mid-Cap Funds
Sector Specific Funds
Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus Equity funds rank high
on the risk-return matrix.
b. Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers of
debt papers. By investing in debt instruments, these funds ensure low risk and provide
stable income to the investors. Debt funds are further classified as:
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Gilt Funds: Invest their corpus in securities issued by Government, popularly
known as Government of India debt papers. These Funds carry zero Default
risk but are associated with Interest Rate risk. These schemes are safer as they
invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as
bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they
take minimum exposure in equities. It gets benefit of both equity and debt
market. These scheme ranks slightly high on the risk-return matrix when
compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate of
Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is
also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provide
easy liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs.
These funds are meant for short-term cash management of corporate houses
and are meant for an investment horizon of 1day to 3 months. These schemes
rank low on risk-return matrix and are considered to be the safest amongst all
categories of mutual funds.
c. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors with the
best of both the worlds. Equity part provides growth and the debt part provides
stability in returns.
Further the mutual funds can be broadly classified on the basis of investment
parameter viz; Each category of funds is backed by an investment philosophy, which
is pre-defined in the objectives of the fund. The investor can align his own investment
needs with the funds objective and invest accordingly.
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b. Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those
stocks that constitute the index. The percentage of each stock to the total holding will
be identical to the stocks index weight age. And hence, the returns from such schemes
would be more or less equivalent to those of the Index.
Investment strategies: a. Systematic Investment Plan: under this a fixed sum is invested each month on a
fixed date of a month. Payment is made through post-dated cheques or direct debit
facilities. The investor gets fewer units when the NAV is high and more units whenthe NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)
b. Systematic Transfer Plan: under this an investor invest in debt oriented fund and
give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the
same mutual fund.
c. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fundthen he can withdraw a fixed amount each month.
NET ASSET VALUE (NAV):
Since each owner is a part owner of a mutual fund, it is necessary to establish the
value of his part. In other words, each share or unit that an investor holds needs to be
assigned a value. Since the units held by investor evidence the ownership of the
fund’s assets, the value of the total assets of the fund when divided by the total
number of units issued by the mutual fund gives us the value of one unit. This is
generally called the Net Asset Value (NAV) of one unit or one share. The value of an
investor’s part ownership is thus determined by the NAV of the number of units held.
Calculation of NAV:
Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10
investors who have bought 10 units each, the total numbers of units issued are 100,
and the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3
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units, the value of his ownership of the fund will be Rs. 30.00(1000/100*3). Note that
the value of the fund’s investments will keep fluctuating with the market-price
movements, causing the Net Asset Value also to fluctuate. For example, if the value
of our fund’s asset increased from Rs. 1000 to 1200, the value of our investors
holding of 3 units will now be (1200/100*3) Rs. 36. The investment value can go up
or down, depending on the markets value of the fund’s assets.
MUTUAL FUND FEES AND EXPENSES
Mutual fund fees and expenses are charges that may be incurred by investors who
hold mutual funds. Running a mutual fund involves costs, including shareholder
transaction costs, investment advisory fees, and marketing and distribution expenses.
Funds pass along these costs to investors in a number of ways.
A. TRANSACTION FEES
i) Purchase Fee:
It is a type of fee that some funds charge their shareholders when they buy shares.
Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and
is typically imposed to defray some of the fund's costs associated with the purchase.
ii) Redemption Fee:
It is another type of fee that some funds charge their shareholders when they sell or
redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not
to a broker) and is typically used to defray fund costs associated with a shareholder's
redemption.
iii) Exchange Fee:
Exchange fee that some funds impose on shareholders if they exchange (transfer) to
another fund within the same fund group or "family of funds."
B. PERIODIC FEES
i) Management Fee:
Management fees are fees that are paid out of fund assets to the fund's investment
adviser for investment portfolio management, any other management fees payable to
the fund's investment adviser or its affiliates, and administrative fees payable to the
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investment adviser that are not included in the "Other Expenses" category. They are
also called maintenance fees.
ii) Account Fee:
Account fees are fees that some funds separately impose on investors in connection
with the maintenance of their accounts. For example, some funds impose an account
maintenance fee on accounts whose value is less than a certain dollar amount.
C. OTHER OPERATING EXPENSES
Transaction Costs:
These costs are incurred in the trading of the fund's assets. Funds with a high turnover
ratio, or investing in illiquid or exotic markets usually face higher transaction costs.
Unlike the Total Expense Ratio these costs are usually not reported.
RECENT TRENDS IN MUTUAL FUND INDUSTRY IN INDIA:
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 them. 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 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 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
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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.
SELECTION PARAMETERS FOR MUTUAL FUND
Objective:
The first point to note before investing in a fund is to find out whether your objective
matches with the scheme. It is necessary, as any conflict would directly affect your
prospective returns. Similarly, you should pick schemes that meet your specific needs.
Examples: pension plans, children’s plans, sector-specific schemes, etc.
Risk capacity and capability:
This dictates the choice of schemes. Those with no risk tolerance should go for debt
schemes, as they are relatively safer. Aggressive investors can go for equity
investments. Investors that are even more aggressive can try schemes that invest in
specific industry or sectors.
Fund Manager’s and scheme track record:
Since you are giving your hard earned money to someone to manage it, it is
imperative that he manages it well. It is also essential that the fund house you choose
has excellent track record. It also should be professional and maintain high
transparency in operations. Look at the performance of the scheme against relevant
market benchmarks and its competitors. Look at the performance of a longer period,
as it will give you how the scheme fared in different market conditions.
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund
before investing. This is because the money is deducted from your investments. A
higher entry load or exit load also will eat into your returns. A higher expense ratio
can be justified only by superlative returns. It is very crucial in a debt fund, as it will
devour a few percentages from your modest returns.
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Also, Morningstar rates mutual funds. Each year-end, many financial publications list
the years best performing mutual funds. Naturally, very eager investors will rush out
to purchase shares of last year's top performers. That's a big mistake. Remember,
changing market conditions make it rare that last year's top performer repeats that
ranking for the current year. Mutual fund investors would be well advised to consider
the fund prospectus, the fund manager, and the current market conditions. Never rely
on last year's top performers.
Types of Returns on Mutual Fund:
There are three ways, where the total returns provided by mutual funds can be
enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays
out nearly all income it receives over the year to fund owners in the form of a
distribution.
If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the
fund's shares increase in price. You can then sell your mutual fund shares for a
profit. Funds will also usually give you a choice either to receive a check for
distributions or to reinvest the earnings and get more shares.
4.4 RISK FACTORS OF MUTUAL FUNDS:
A. The Risk-Return Trade-Off:
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 upto
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.
B. 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
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Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”)
might help mitigate this risk.
C. 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. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is
considered poor credit quality. A well-diversified portfolio might help mitigate this
risk.
D. 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 cost 50 paise?.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.
E. 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.
F. Political / Government Policy Risk:
Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.
G. 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
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maturities as well as internal risk controls that lean towards purchase of liquid
securities.
RISK RETURN MATRIX
HIGHER RISK
MODERATE RETURNS
VENTURE CAPITAL
HIGHER RISK
HIGHER RETURNS
EQUITY
LOWER RISK
LOWER RETURNS
BANK FD
POSTAL SAVINGS
LOWER RISK
HIGHER RUTURNS
MUTUAL FUNDS
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4.5 WORKING OF MUTUAL FUNDS
The mutual fund collects money directly or through brokers from investors. The
money is invested in various instruments depending on the objective of the scheme.The income generated by selling securities or capital appreciation of these securities
is passed on to the investors in proportion to their investment in the scheme. The
investments are divided into units and the value of the units will be reflected in Net
Asset Value or NAV of the unit. NAV 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. Mutual fund companies
provide daily net asset value of their schemes to their investors. NAV is important, as
it will determine the price at which you buy or redeem the units of a scheme.
Depending on the load structure of the scheme, you have to pay entry or exit load.
3.9 .1 STRUCTURE OF MUTUAL FUND:
India has a legal framework within which Mutual Fund have to be constituted. In
India open and close-end funds operate under the same regulatory structure i.e. as unit
Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes
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under a common legal structure. The structure that is required to be followed by any
Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.
The Fund Sponsor: Sponsor is defined under SEBI regulations as any person who, acting alone or in
combination of another corporate body establishes a Mutual Fund. The sponsor of the
fund is akin to the promoter of a company as he gets the fund registered with SEBI.
The sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints
the Asset Management Company as fund managers. The sponsor either directly or
acting through the trustees will also appoint a custodian to hold funds assets. All these
are made in accordance with the regulation and guidelines of SEBI.
As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute
at least 40% of the net worth of the Asset Management Company and possesses a
sound financial track record over 5 years prior to registration. Mutual Funds as Trusts: A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund
sponsor acts as a settler of the Trust, contributing to its initial capital and appoints a
trustee to hold the assets of the trust for the benefit of the unit-holders, who are the
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beneficiaries of the trust. The fund then invites investors to contribute their money in
common pool, by scribing to “units” issued by various schemes established by the
Trusts as evidence of their beneficial interest in the fund.
It should be understood that the fund should be just a “pass through” vehicle. Under
the Indian Trusts Act, the trust of the fund has no independent legal capacity itself,
rather it is the Trustee or the Trustees who have the legal capacity and therefore all
acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance
the investors or the unit-holders are the beneficial owners of the investment held by
the Trusts, even as these investments are held in the name of the Trustees on a day-to-
day basis. Being public trusts, Mutual Fund can invite any number of investors as
beneficial owners in their investment schemes.
Trustees: A Trust is created through a document called the Trust Deed that is executed by the
fund sponsor in favor of the trustees. A board of trustees- a body of individuals, or a
trust company- a corporate body may manage the trust. Most of the funds in India are
managed by Boards of Trustees. While the Indian Trusts Act, governs the boards of trustees where the trusts are a corporate body, it would also require to comply with
the Companies Act, 1956. The Board or the Trust company as an independent body,
acts as a protector of the of the unit-holders interests. The Trustees do not directly
manage the portfolio of securities. For this specialist function, the appoint an Asset
Management Company. They ensure that the Fund is managed by ht AMC as per the
defined objectives and in accordance with the trusts deeds and SEBI regulations.
The Asset Management Companies: The role of an Asset Management Company (AMC) is to act as the investment
manager of the Trust under the board supervision and the guidance of the Trustees.
The AMC is required to be approved and registered with SEBI as an AMC. The AMC
of a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times.
Directors of the AMC, both independent and non- independent should have adequate
professional expertise in financial services and should be individuals of high moralestanding, a condition also applicable to other key personnel of the AMC. The AMC
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cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund manager,
it may undertake specified activities such as advisory services and financial
consulting, provided these activities are run independent of one another and the
AMC’s resources (such as personnel, systems etc.) are properly segregated by the
activity. The AMC must always act in the interest of the unit-holders and reports to
the trustees with respect to its activities.
Custodian and Depositories: Mutual Fund is in the business of buying and selling of securities in large volumes.
Handling these securities in terms of physical delivery and eventual safekeeping is a
specialized activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or participating in any clearance system through approved
depository companies on behalf of the Mutual Fund and it must fulfill its
responsibilities in accordance with its agreement with the Mutual Fund. The custodian
should be an entity independent of the sponsors and is required to be registered with
SEBI. With the introduction of the concept of dematerialization of shares the
dematerialized shares are kept with the Depository participant while the custodian
holds the physical securities. Thus, deliveries of a fund’s securities are given or
received by a custodian or a depository participant, at the instructions of the AMC,
although under the overall direction and responsibilities of the Trustees. Bankers: A Fund’s activities involve dealing in money on a continuous basis primarily with
respect to buying and selling units, paying for investment made, receiving the
proceeds from sale of the investments and discharging its obligations towards
operating expenses. Thus the Fund’s banker plays an important role to determine
quality of service that the fund gives in timely delivery of remittances etc. Transfer Agents: Transfer agents are responsible for issuing and redeeming units of the Mutual Fund
and provide other related services such as preparation of transfer documents and
updating investor records. A fund may choose to carry out its activity in-house and
charge the scheme for the service at a competitive market rate. Where an outside
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Transfer agent is used, the fund investor will find the agent to be an important
interface to deal with, since all of the investor services that a fund provides are going
to be dependent on the transfer agent. REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in India is guided by the SEBI, Regulations, 1996.
These regulations make it mandatory for mutual fund to have three structures of
sponsor trustee and asset Management Company. The sponsor of the mutual funds
and appoints the trustees. The trustees are responsible to the investors in mutual fund
and appoint the AMC for managing the investment portfolio. The AMC is the
business face of the mutual fund, as it manages all the affairs of the mutual fund. The
AMC and the mutual fund have to be registered with SEBI.
ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI): With the increase in mutual fund players in India, a need for mutual fund association
in India was generated to function as a non-profit organization. Association of Mutual
Funds in India (AMFI) was incorporated on 22nd August 1995.
AMFI is an apex body of all Asset Management Companies (AMC), which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and guidelines of its
Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing andmaintaining standards. It follows the principle of both protecting and promoting the
interests of mutual funds as well as their unit holders. The Objectives of Association of Mutual Funds in India: The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives, which juxtaposes the guidelines of its Board
of Directors. The objectives are as follows:
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This mutual fund association of India maintains high professional and ethical
standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of
conduct which is followed by members and related people engaged in the
activities of mutual fund and asset management. The agencies who are by any
means connected or involved in the field of capital markets and financial
services also involved in this code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the
mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the
Mutual Fund Industry. It develops a team of well-qualified and trained Agent distributors. It
implements a programme of training and certification for all intermediaries
and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to
promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate
information on Mutual Fund Industry and undertakes studies and research
either directly or in association with other bodies.
AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly basis and the other
is quarterly. These publications are of great support for the investors to get intimation
of the knowhow of their parked money.
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4.6 MUTUAL FUND COMPANIES IN INDIA:
AIG Global Investment Group Mutual Fund IDBI Mutual Fund
AXIS Mutual Fund IDFC Mutual Fund
Baroda Pioneer Mutual Fund ING Mutual Fund
Benchmark Mutual Fund JM Financial Mutual Fund
Bharti AXA Mutual Fund JP Morgan Mutual Fund
Birla Sun Life Mutual Fund Kotak Mahindra Mutual Fund
BNP Paribas Mutual Fund L&T Mutual Fund
Canara Robeco Mutual Fund LIC Mutual Fund
Daiwa Mutual Fund Mirae Asset Mutual Fund
Deutsche Mutual Fund Morgan Stanley Mutual Fund
DSP Black Rock Mutual Fund Motilal Oswal Mutual Fund
Edelweiss Mutual Fund Peerless Mutual Fund
Escorts Mutual Fund Pramerica Mutual Fund
Fidelity Mutual Fund PRINCIPAL Mutual Fund
Franklin Templeton Mutual Fund Quantum Mutual Fund
HDFC Mutual Fund Reliance Mutual FundHSBC Mutual Fund Religare Mutual Fund
ICICI Prudential Mutual Fund Sahara Mutual Fund
SBI Mutual Fund Tata Mutual Fund
Sundaram Mutual Fund Taurus Mutual Fund
UTI Mutual Fund
(Source: www.jpbuzz.com)
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CHAPTER-5
RESEARCH METHODOLOGY
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COLLECTION OF SECONDARY DATA:
Secondary data consist of information that is already in existence, having been
collected for another purpose. Review of literature, from previous research findings,
journals, web sources etc.
PRIMARY DATA:
Data observed or collected directly from first-hand experience. Published data and the
data collected in the past or other parties are called secondary data. So, all the data
that we got without the intervention of other party or that is collected directly by the
researcher is considered to be primary.
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5.1 SECONDARY DATA
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A. Performance Of Mutual Funds between 2010-11
A.AUM:
Category Assets Under Management Inflow/Outflow (Rs Cr)
31-03-
10
31-03-
11
Change Change
(%)
Net Flow Change (%)
Income 311,715 291,975 (19,740) (6.33) (36,706.92) (11.78)
Equity 174,054 169,754 (4,300) (2.47) (13,404.58) (7.70)
Liquid 78,094 73,666 (4,428) (5.67) (3,519.80) (4.51)
ELSS 24,066 25,569 1,503 6.25 266.40 1.11
Balanced 17,246 18,445 1,999 6.95 1,344.72 7.80
GILT 3,395 3,409 14 0.41 (115.84) (3.41)
GOLD
ETF
1,590 4,400 2,810 176.73 2,248.98 141.45
FoF
Overseas
2,862 2516 (346) -12.09 (906.97) (31.69)
Other
ETFs
957 2516 1,559 162.90 1,388.20 145.06
TOTAL 613,979 592,250 -21,729 (3.54) (49,405.80) 8.05
The Assets Under Management (AUM) of the Indian mutual fund industry as on
March 31, 2011 (as per AMFI data) has witnessed a decrease of 3.54% to Rs.
5,92,250 crore on a year on year basis, on account of substantial outflows
from equity, liquid and income schemes. A sharp fall in equity markets as well
as spiked yields on the long term debt side during the financial year forced the
investors to opt for other alternate asset classes like gold and silver. Maximum
growth was observed in AUM of Gold ETFs by 176.7%, while AUM of ‘FOF
Overseas’ dropped the most with 12.2%. The financial yearend AUM of the
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industry for March 2011 stood at Rs. 5.92 lakh crore, down from Rs. 6.13 lakh
crore in March 2010.
On a year-on-year basis, the AUM for equity category fell by 2.47% to Rs.
1,69,754 crore. Turbulences in the equity market over the course of the
financial year subdued the investors’ sentiment that resulted in more
redemption on equity side, although the primary indices –Sensex and Nifty
registered annual returns about 10.93% and 11.14% respectively.
As the NAVs of most schemes inched back up to the 2007 levels, some
investors opted to redeem their equity holdings. The equity category witnessed
outflow of Rs. 13,404 crore during the year. This category accounts for 29%
of the industry’s total asset base.
The other categories ELSS and Balanced observed growth in their AUM by
6.25% and 6.95% respectively. ELSS, a tax saving instrument from mutual
fund segment attracted inflows about Rs. 266 crore during the year (the lowest
annual collection since FY06). An inflow of Rs. 1,344.72 crore during the
Financial year into balanced category reflected the cautious stance of investors
against equity market down turns.
Gold ETFs has been glittering and attracting investors’ attention during the
year. The category witnessed a highest growth of 176.73% in AUM to a total
of Rs. 4,400 crore in the year. The category attracted inflows of Rs. 2,248
crore during the period and yielded an annual return of 25.77% while the
physical gold prices rose 27.35%. The category –Other ETFs, a collection of
equity exchange traded funds (ETFs) also witnessed higher growth of
162.90% during the year.
Debt categories saw their assets shrink relatively more in wake of high WPI
inflation that resulted in an uptick in interest rates, which consequently caused
yields of debt securities to inch up to elevated levels. The tight liquidity
condition in the banking system compared to previous financial year on
account of 3G and BWA auctions, advance tax outflows during the year led
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the banks and corporates to pull out money from such schemes further
impacting their AUMs. The income and liquid categories witnessed outflows
of Rs. 36,706 crore and Rs. 3,519 crore respectively during the period.
B. FOLIOS:
FINANCIAL YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
EQUITY ORIENTED SCHEMES
No. Of Folios Change (in no’s) Change (in %)
9,041,075 1,007,507 12.54
17,238,776 8,197,701 90.67
25,376,347 8,137,571 47.21
37,766,259 12,389,912 48.82
41,131,623 3,365,364 8.91
41,118,785 (12,838) (0.03)
39,290,289 (1,828,496) (4.45)
FINANCIAL YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
DEBT ORIENTED SCHEMES
No. Of Folios Change (in no’s) Change (in %)
3,245,694 (571,836) (14.54)
2,906,669 (339,025) (10.45)
3,161,689 255,020 8.77
2,989,743 (171,946) (5.44)
3,399,194 309,451 10.35
3,738,842 439,648 13.33
4,527,435 788,593 21.09
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FINANCIAL YEAR
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
GRAND TOTAL
No. Of Folios Change (in no’s) Change (in %)
13,845,292 (798,032) (5.45)
21,788,215 7,942,923 57.37
30,366,707 8,578,492 39.37
43,796,078 13,429,371 44.22
47,964,617 4,168,539 9.52
48,174,920 210,303 0.44
47,233,262 (941,658) (1.95)
The total numbers of investors’ folios for Indian mutual fund industry has
witnessed a decline of 1.95% to 4.72 Crore during the financial year of 2010 –
11 (as per the SEBI data) on account of huge redemptions made on equity
schemes. Though there was a notable increase of 21.1% on debt schemes
folios, a shrink of 18 lakhs folios on equity schemes to 3.9 crore led to a fall in
folios after six years. The total number of folios of the industry for the FY
2010 –11 stood at 4.72 crore folios, down from 4.82 crore in the FY 2009 –10.
Equity category that comprises ELSS and other equity oriented schemes lost
4.45% or 18.28 lakhs of folios to 3.92 Crore during the year 2010 –11. Thecategories –ELSS and other equity oriented schemes lost 1.77% and 5.15% of
folios respectively. The number of folios for the equity schemes for the
previous FY 2009 -10 stood at 4.11 crore folios.
On the other hand, Debt oriented categories observed an increase of 21.09% to
45.27 lakhs folios during the financial year due to the increased risk aversion
on individual investors’ fraternity. Albeit the liquid category that was
preferred for steady returns in wake of current up trend in short term interest
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rates, lost most during the year i.e. 19% to 1.93 lakhs folios.
Banks hiked rates of their Fixed Deposits (FD) to increase the deposit growth
that resulted into redemption from liquid funds.
An increase in folios in the income schemes (excluding liquid and Gilt) during
FY 2010 –11 was about 8.37 lakhs to the total of 43 lakhs.
There was a commendable increase on the folios of equity ETFs and gold ETFs
of around 179% and 92% to 1.03 Lakhs and 3.20 lakhs respectively. It showed
the growing interest among investors on passively managed funds that
replicate indices and other alternate asset classes.
The factors such as profit booking at higher levels by investors who invested in
2007 – 08 period and were trapped due to a big drop in the markets, increased
risk aversion in wake of high volatility in equity markets resulted into pulling
out investments from equity and to invest in alternate asset classes like gold,
silver and real estate, diminished interest among distributors’ front to sell
mutual funds because of the low commission structure and consolidation of
folios influenced and contributed to reduction in folio numbers.
The ban on entry load by market regulator Securities and Exchange Board of
India (SEBI) for all mutual fund schemes from August 1, 2009 has impacted
distributors’ earnings to a large extent.
The unwillingness of the distributors’ community to sell mutual fund products
due to the huge difference between commissions that they earn by selling
other financial products further subdued the inflows into mutual funds.
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5.2 PRIMARY DATA
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SELECTION OF THE SAMPLE
To get the information about the study, a survey has been conducted considering
number of respondents. Respondents were selected by using random sampling
technique. Data has been collected through questionnaire mainly considering various
age groups, their risk level, return expectation, liquidity etc. Keeping this view in
mind we followed a simple method of selecting respondents – following the method
of “Simple Random Sampling”. The respondents were selected randomly. Due to the
want of time and resources only 200 respondents were selected for the study.
DATA COLLECTION SOURCES:
Data Sources
o Primary
o Secondary
Reasearsh Approaches
o Survey
Research instruments
o Questionnaire
Sampling Plan
o Any earning person.
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DATA INTERPRETATION:
1.Occupation of the investors?
Occupation No. Of Respondents Percentage
Govt.Service 50 25
Pvt.Service 92 46
Business 58 29
Total 200 100
INTERPRETATION:
A.46 % of the respondents are belongs to pvt.service.
B.29 % of the respondents are belongs to business.
C.25 % of the respondents are belongs to Govt.service.
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2.What is your age?
Table-2: Classification of Age group of respondents.
Age group No. Of respondents Percentage
<35 42 21
35-50 108 54
>50 50 25
Total 200 100
Graph showing the classification of age group
INTERPRETATION:
A.54 % of the respondents are in the age group of 35-50.
B. 25% of the respondents are belongs to the group of above 50 years.
C. 21% of the respondents are belongs to the group of below 35 years.
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3.What is your Income?
Table-3: Annual Income of the respondents
Annual Income No of respondents Percentage
80-1 lakhs 10 5
1-3 lakhs 90 453-5 lakhs 50 25
Above 5 lakhs 50 25
Total 200 100
Graph showing the percentage of annual Income of the respondents
INTERPRETATION:
A.45% of the respondents are belongs to the income group of 1-3 lakhs.
B.24% of the respondents are belongs to the income group of 3-5 lakhs.
C.25% of the respondents are belongs to the income group of above 5 lakhs.
D.5% of the respondents are belongs to the income group of above 80-1 lakhs.
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4.In which type of Investments do you invest?
Table-4: Investment Options
Options No of respondents Percentage
Gold 32 16
Fixed deposits 26 13
Insurance 46 23
Mutual funds 44 22
Stocks & shares 32 16
Bonds & debentures 20 10
Total 200 100
Graph showing the percentage of investment options
INTERPRETATION:
A.23% of the respondents are preferred to invest in insurance.
B. 22% of the respondents are preferred to invest in mutual fund.
C. 17% of the respondents are preferred to invest in stocks and shares.
D.15% of the respondents are preferred to invest in gold.
E.13% of the respondents are preferred to invest in fixed deposits.
F.10% of the respondents are preferred to invest in bonds and debentures.
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5.How much amount have you invested in mutual funds?
Table-5: The amount invested in mutual funds
Amount No of respondents Percentage
Up to Rs 20000 80 40
Above Rs 20000 120 60
Total 200 100
Graph showing the amount invested in Mutual funds.
INTERPRETATION:
A. 60 % of the respondents are invested an amount of more than Rs 20000 in mutual
funds.
B. 40% of the respondents are invested an amount of Rs 20000 in mutual funds.
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6.What are the reasons for selections of mutual funds?
Table-6 Reasons provided by the survey respondents on selection of mutual
funds.
Reasons No. Of respondents Percentage
PAST PERFORMANCE
OF THE PRODUCT
65 32.5
BRAND NAME OF THE
FUND HOUSE &
TRACK RECORD
70 35
RECOMMENDATION
BY THE ADVISOR
20 10
SELF MONITORING OF
THE PRODUCT
32 16
OTHERS 15 7.5
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INTERPRETATION:
A.35% of the people are selecting mutual funds based upon the brand name of the
fund house and track record.
B. 32.5% of the people are selecting mutual funds based upon the past performance of
the product.
C. 16% of the people are selecting mutual funds based upon the self-monitoring of the
product.
D. 10% of the people are selecting mutual funds based upon the recommendation by
the advisor.
E. 7.5% of the people are selecting mutual funds because of other reasons.
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7.For how long have you been investing in mutual funds?
Table-7: The time horizon of investments
Term No of respondents Percentage
Below 1 year 10 5
1-3 years 30 15
3-5 years 70 35
5 & above years 90 45
Total 200 100
Graph showing the term of investment
INTERPRETATION:
A.45% of the respondents invest in a horizon of 1 – 3 years.
B. 25% of the respondents invest in a horizon of 3 – 5 years.
C. 20% of the respondents invest in a horizon of 0 – 1 years.
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8.In how many plans have you invested?
Table-8 No. Of mutual fund plans investors have invested in
No. Of Plans No. Of investors Percentage
Only one 84 42
Two 24 12
Three 20 10
More than three 72 36
Total 200 100
Graphs showing the percentage of plans that the investors invested
INTERPRETATION:
A.42 % of the respondents are invested in one plan.
B.36% of the respondents are invested in more than plans.
C.12 % of the respondents are invested in two plans.
D.10% of the respondents are invested in three plans.
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9.Through which channels you know about mutual funds?
Table-9: Channels preferred for investing in mutual funds.
Awareness about Mutual
Fund
No of investors Percentage
INTERNET 26 13
BANKS 80 40
IFAs 60 30
BROKERAGE HOUSES 22 11
DIRECT INVESTMENT 12 6
Total 200 100
Graph showing the channels through investors are aware about the mutual
funds
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INTERPRETATION:
A. 40% of the people are preferred banks as their channel for investing in mutual
funds.
B. 30% of the people are preferred Independent financial advisers as their channel for
investing in mutual funds.
C. 13% of the people are preferred Internet as their channel for investing in mutual
funds.
D. 11% of the people are preferred brokerage houses as their channel for investing in
mutual funds.
E. 6% of the people are preferred banks as their channel for investing in mutual funds.
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10.Which kind of scheme you prefer for your mutual fund investment?
Table-10 Kind of Scheme that the investors prefer
Kind Of Scheme No. Of Respondents Percentage
SIP 158 79
Lump Sum 42 21
Total 200 100
Graph showing the preference of investor towards kind of scheme for mutual
fund
INTERPRETATION:
A.79 % of the people are preferred to invest in SIP kind of scheme for their mutual
fund investments.
B.21 % of the people are preferred to invest in LUMP SUM kind of scheme for their
mutual fund investments.
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12.Please rank your objective of Investing in Mutual Fund?
Table-12: Ranks for the Desired Characteristics before investing into Mutual
Funds.
Desired characteristics Ranks
Safety 1
Returns 2
Tax shelter 3
Liquidity 4
Risk cover 5
Graph showing the ranks of desired characteristics before investing into mutual
funds
INTERPRETATION:
1.Most of the respondents main objective while investing is safety. Return, tax
shelter, liquidity and risk cover will come under next.
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13.What is your risk level regarding mutual fund?
Table-13: Risk level of the investor
Combination No of respondents Percentage
0-15% Risk 12 6
15-30% Risk 80 40
30-50% Risk 50 25
50-75% Risk 90 45
75-100 % Risk 10 5
Total 200 100
Graph showing the percentage of combination of the choices of the respondents
regarding mutual funds.
INTERPRETATION:
A.45.5 % of the respondents are ready to take 30-50 % of risk regarding mutual fund
investments.
B.40 % of the respondents are ready to take 15-30 % risk regarding mutual fund
investments.
C.6 % of the respondents are ready to take 0-15% risk regarding mutual fund
investments.
D.5 % of the respondents are ready to take 50-75% risk regarding mutual fund
investments.
E.4 % of the respondents are ready to take 75-100 % risk regarding mutual fund
investments.
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14.How much % of return, you are expecting through mutual fund?
Table-14: Rate of return that the investors getting through mutual funds
Return No. Of Respondents Percentage
5-10% 59 29.5
10-15% 28 14
15-20% 86 43
20-25% 27 13.5
TOTAL 200 100
INTERPRETATION:
A.43 % of the respondents are expecting 15-20% of return from their investments.
B.29.5 % of the respondents are expecting 5-10% of rate of return from their
investments.
C.14 % of the respondents are expecting 10-15% of rate of return from their
investments.
D.13.5 % of the respondents are expecting 20-25% of rate of return from their
investments.
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15.Are you satisfied with mutual funds and its returns?
Table-15: Investors satisfaction with mutual funds and its returns
Response No. Of Respondents Percentage
Yes 172 86
No 28 14
Total 200 100
INTERPRETATION:
A.86 % of the respondents are satisfied with their returns from mutual funds.
B.14 % of the respondents are satisfied with their returns from mutual funds.
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16. What do you think about the future of mutual fund in India?
Table-16: Investors opinion about the future of mutual fund in India
Future Of Mutual Funds No of respondents Percentage
Very Bright 44 22
Bright 100 50
Very Bleak 0 0
Bleak 16 8
Does not know 40 20
Total 200 100
INTERPRETATION:
A.50 % of the respondents have given their opinion i.e. future of mutual fund in India
is bright.
B. 22 % of the respondents have given their opinion i.e. future of mutual fund in India
is very bright.
C. 20 % of the respondents don’t know about he future of mutual fund in India.
D. 8 % of the respondents have given their opinion i.e. future of mutual fund in India
is bright.
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17.INVESTOR OPININON TOWARDS MUTUAL FUNDS
Factors
Fully
agree Agree Neutral Disagree
Fully
Disagree
Investors receives good
quality advice from
distributor 34 98 48 20 0
Management fee charged
by AMC is reasonable 32 152 16 0 0
Advertising and
Performance portrayal is
often misleading 16 34 90 54 6
There is need to simplify
the information provided
to unit holders 90 54 52 4 0
Scheme’ performance is
linked with governance
of MF 118 48 34 0 0
Investment in MF units
should be for a longer
period 44 104 20 22 10
No direct regulatory
control on distributors 0 8 54 88 50
Most of the investors agree that the investment in mutual funds is good. Opinion
differs from person to person. What one perceives is a result of interplays between
past experiences, one’s culture and the interpretation of the perceived. Investors
perception is the process of attaining awareness or understanding of sensory
information on their investment in mutual funds.
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CHAPTER-6
TESTING HYPHOTHESIS
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Based on the primary data collected and relevant questions asked to the respondents
the hypothesis extended earlier in Chapter No. 5 can be tested and concluded as
below.
A- Most of the investors prefer mutual funds because of safety, fair return .
Desired Characteristics before investing into Mutual Funds given by investors.
Desired characteristics Ranks
Safety 1
Returns 2
Tax shelter 3
Liquidity 4Risk cover 5
Graph showing the ranks of desired characteristics before investing into mutual
funds
INTERPRETATION:
From the above data we can say that all the respondents have given priority to safety
return while investing into mutual funds.
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B. Consistency in fund performance and brand equity influence customers to make
relevant selection of mutual funds for investment purposes.
Reasons provided by the survey respondents on selection of mutual funds.
Reasons No. Of respondents Percentage
PAST PERFORMANCE
OF THE PRODUCT
65 32.5
BRAND NAME OF THE
FUND HOUSE &
TRACK RECORD
70 35
RECOMMENDATION
BY THE ADVISOR
20 10
SELF MONITORING OF
THE PRODUCT
32 16
OTHERS 15 7.5
From the above table it is clear that most of the respondents are selecting mutual
funds based upon the past performance and band name of the fund house.
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CHAPTER-7
FINDINGS AND CONCLUSIONS
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From the above study we can conclude that,
As per above analysis, only 21% of respondents who are below 35 years are
interested to invest in mutual funds. The reasons being that there are more
needs to be fulfilled for this age group viz. education, entertainment etc. and
therefore these people do not have surplus funds to invest in mutual funds.
The persons within the age group of 35-50 years only 58% of respondents are
interested to invest in mutual funds. These persons have more investing
potential than their counterparts and they want to increase their income
through investing in mutual funds. The persons having the age equal to or above 50 years, only 28% of respondents
are interested to invest in mutual funds. The reasons being that these persons
are more inclined to age-old principals and want to invest in schemes giving
fixed returns as compared to investing in mutual fund.
Most of the investors like to invest in different combinations, in that more
preference was in insurance, mutual fund & gold. From the above figure we
come to know that the more respondents investing in insurance and mutual
funds as an investment options.
20% of the respondents invest with a shorter investment horizon i.e. 0 -1 year
because they mostly tilt their portfolio in favour of bonds. May be they are
more comfortable in investing in non – risky assets and do not want to take
more risk in investing into stocks or risky assets.
55% of the respondents invest in a horizon of 1 – 3 years. This shows that the
investors with a greater tolerance of risk tilt their portfolio in favour of stocks
and with a lesser tolerance of risk tilt their portfolio in favour of bonds. Here if
a risky investment performs poorly at the beginning of a short horizon, there is
little these investors can do to compensate for loss of wealth but over a long
horizon, these investors can postpone consumption, and work harder to
achieve their financial goals.
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25% of the respondents invest in a longer horizon of 3-5 years. This shows
there are investors who tend to take much more risk and mostly into stocks.
These investors think the risk of stocks diminsh as the investment period
lengthens because they feel as the investment period lengthens, the average
yearly return over the period is subject to lesser volatility because low returns
in some years may be offset by high returns in other years and vice versa.
Most of the respondents (42%) have invested in only one plan and 36% of the
respondents have invested in more than three plans.12% have invested in two
plans and the rest 10% have invested in three plans.
We can say that investors who invested in one plan are getting good returns
rather than those who are investing in more than two mutual fund plans. And
they are satisfying with that plan. And they don’t want to invest in other plans.
From primary data it clearly shows that there are more investors like to invest
with the combination of balanced funds & Debt funds with more than20% of
investors. Some investors like to invest in equity fund due to high returns with
high risk with 18% of investors. Some investors are like to go with less risk
with the combination of guilt fund & tax fund.
The analysis shows that 86% of the respondents are satisfied with Investing in
Mutual Funds, and their returns, the reason is its good returns, liquidity,
Taxability, etc, and 14 % of the respondents are not satisfied with the Mutual
Funds and its Returns as the main reason is the lack of awareness and wrong
myth of the funds and the working of the funds.
From the above data we can come to know that there are more number of
investors are optimistic about the future of mutual funds in India. It shows that
investors have faith and reliability on mutual funds.
Respondents consider Return and Risk as more important factors while
investing in mutual funds. From above analysis it also indicates that the
investors are moderate above their risk and return.
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It has been observed that most of the respondents are invested in mutual funds
through SIPs. It shows that investors are getting good return through SIPs
rather than lump sum amount.
Most of the respondents prefer safety of principal as 1st priority during
investing in mutual funds. This shows that the money invested by them has to
be safe and their 1st motto is to get back the money invested and then would
go for maximizing their returns.
Most of the investors are expecting 14% of return on investment with
moderate risk i.e. 50%. We can say that majority of the investors are moderate
risk takers.
It has observed that the most of the respondents are receiving 15-20% return
through mutual funds. It indicates that the mutual funds in India are giving
good return to the investors.
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CHAPTER-8
LEARNING EXPERIENCE
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LEARNING EXPERIENCE
One word about ‘learning experiences’ is everyone knows they are supposed to be
learning something in each and every situation. The learning I am talking about here
is more about situations where we learn but we don’t necessarily call it learning. The
word ‘experience’ refers both to the contact with the world around us, and the
knowledge we derive from it. By definition then, learning experiences are those
events and activities from which we learn by experience and can identify, to a certain
extent, what we have learnt.
1. A starting point
This dissertation has given me an insight into the world of mutual fund industry in
India. Going through each step during my dissertation widened my knowledge base
and increased my awareness of the latest issues in mutual fund market.
2. Some reading …
I searched for a few links on the Internet about the subject, mainly to gain
information. I wanted to be able to better grasp the concept by re-working the words
used to describe it.
3. Learning through the experience
This project has helped me to understand the importance and significance of the
consumer perception, preference and satisfaction, awareness and buying patterns in
mutual fund market. It has given me exposure to the practical side of the market and
at the same time enhanced my knowledge by applying theory learnt in class to
practice. It also enabled me to understand the source of information, which the
consumers prefer to buy a particular product in real. It made me understand that
different group of people go through different source of information.
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4. Apart from general learning
I had the opportunity to explore the following areas
• The origin, evolution, types, functioning, process, and the latest trends in mutual fund
industry.
• I clearly understood how to carry out a research.
• I understood various aspects of research in a more practical manner, starting from
identifying a problem to eliciting the solutions to that problem.
5. Questioning ways of doing things
I have been involved in this research over the last six months about the investors
perception towards in mutual funds in India and what has drawn my attention is the
practice. Within a group there are shared practices that are negotiated with others and
go to make up a ‘body of practice’ that gives identity to the group. The investors of
mutual funds shared such common practices, the response of many dealers were
common. So, for all the ‘personal’ nature of the environment, it is ultimately also
conditioned by collective practices.
6. Writing this experience
I drew all the material together from this exploration and started writing my learning
experience. The writing itself further contributed to improve my understanding of
what I’d been exploring. The challenge of communicating ideas to others forces you
to think carefully about what you have done and what you have to say.
In the process of carrying out the dissertation work, I was able to refine my analytical
and presentation skills as well.
On the offset, this dissertation was a learning opportunity for me and paved the way
for implementing my theoretical knowledge and understanding in the field of
research.
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CHAPTER-9
GLOSSARY
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Asset Allocation -The process of diversifying investments among different types of
assets like stocks, bonds and cash in order to optimize risk / return tradeoff based on a
person’s financial situation and goals.
Asset Class-Different types of investments such as stocks, bonds, real estate and cash.
Asset Management Company- A firm that invests the pooled funds of retail
investors in securities in line with the stated investment objectives. For a fee, the
investment company provides more diversification, liquidity, and professional
management service than is normally available to individual investors.
Assets- An item of value owned by an individual or an organization. It could be
stocks, cash, house or a car.
Bear Market-A prolonged period of falling securities prices in a stock market
.
Bond-A debt security, or an IOU, issued by a company or government agency. A
bond investor lends money to the issuer and, in exchange, the issuer promises to repay
the loan amount on a specified maturity date; the issuer usually pays the bondholder
periodic interest payments over the period of the loan.
Bull Market- A prolonged rise in the price of stocks, bonds or commodities
characterized by high trading volumes.
Closed-End Scheme-A mutual fund scheme that offers a limited number of units
which have a lock-in period, usually of three to five years. ELSS schemes are closed-
ended schemes. The units of closed-end funds are often listed on one of the major
stock exchanges and traded like securities at prices, which may be higher or lower
than its net asset value.
Commercial Paper-Debt instruments issued by corporations to meet their short-term
financing needs. Such instruments are unsecured and have maturities ranging from 15
to 365 days.
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Commission- A fee charged by a broker or distributor for his/her service in
facilitating a transaction.
Compound Interest - Interest earned not only on the initially invested principal but
also on accumulated interest during the period.
Credit Rating-A measure of a bond issuer's creditworthiness or the ability to repay
the loan as rated by an independent rating agency, such as CRISIL, ICRA and CARE.
Credit Risk -The possibility that a bond issuer will default, and fail to repay principal
or interest as promised. Also known as "default risk".
Custodian - The organization (usually a bank) that keeps and safeguards the custody
of securities and other assets of a fund.
Depreciation-A decline in an investment's value.
Distribution-The payment of dividends to unit holders by a mutual fund.
Diversification-The strategy of spreading investments among different securities to
reduce risk. By nature, mutual funds are a diversified investment.
Dividend-Profits, stock dividends or interest income, which funds distribute to its unit
holders.
Dividend Reinvestment - A unit holder service that allows dividend distributions to
be reinvested automatically to purchase more fund units.
Equity Schemes-A scheme that invests primarily in stocks while seeking to provide
relatively high long-term growth of capital.
Ex-Dividend Date- The date following the record dates for a scheme. When a fund's
net asset value reduces by an amount equal to a dividend distribution.
Expense Ratio-A fund's operating expenses, expressed as a percentage of its average
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net assets.
Family Of Schemes-A set of schemes with different investment objectives from a
single asset management company usually allowing investors to switch their
investments from one scheme to another at a no charge or a nominal charge.
Fixed Income Security-A security that pays a fixed rate of interest such as a bond but
do not offer an investor much potential for growth.
Front-End Load- A one-time charge that an investor pays at the time of buying units
of a scheme.
Fully Invested- The investment of nearly all available assets in securities as per the
stated objective of the scheme and having no cash or cash equivalents in one’s
portfolio.
Fund Manager-The individual responsible for making portfolio decisions for a
mutual fund.
Inception Date - The date when a scheme’s initial offering period ends and the
scheme’s formation takes place.
Income /Debt Scheme- A scheme that invests primarily in fixed income securities.
Typically, income schemes seek to provide current income rather than growth of
capital.
Inflation Risk - The possibility that the value of assets or income will be eroded by
inflation affecting the purchasing power of a currency. Often mentioned in relation to
fixed income funds as while they may minimize the possibility of losing principal,
they expose an investor to inflation risk.
Load- A one-time sales charge paid by an investor while buying or selling units of a
scheme. Typically, there are two types of loads front-end, charged at the time of
purchase and back-end, charged at the time of redemption.
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Liquidity-The ease with which an investment can be converted into cash or cash
equivalents. Mutual fund units are generally considered highly liquid investments as
they can be sold on any business day at their current net asset value.
Management Fee - The amount a scheme pays to its asset management company for
its services. Typically, a certain percentage of assets under management. A fund's
management fee is listed in its offer document.
Money Market Fund- A fund that invests in the short-term, high-grade securities
sold in the money market including government securities, treasury bills, certificates
of deposit, and commercial paper.
Mutual Fund- An investment company through which an investor can pool his
money with other investors who have a similar objective. Professional investment
managers, then invest the pool in securities, which in their judgment will help
investors achieve their objective. Mutual funds offer the benefits of portfolio
diversification (which provides greater safety and reduced volatility), professional
management, liquidity and convenience.
Net Asset Value (NAV)- The market value of a mutual fund unit. It is calculated
daily by taking the funds total assets, securities, cash and any accrued earnings,
deducting liabilities, and dividing the remainder by the number of units outstanding.
Net Assets-The net worth of a fund.
No Load Fund-A fund that sells its units to investors without a sales load/charge.
Offer Document / Prospectus - A legal document that describes a mutual fund
scheme. It contains information required by the Securities and Exchange Board of
India explaining the offer, including the terms, issuer, objectives, historical financial
statements, and other information that could help an individual decide whether the
investment is appropriate for him.
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Open-Ended Scheme - A scheme where investors can buy and redeem their units on
any business day. Its units are not listed on any stock exchange but are bought from
and sold to the mutual fund.
Operating Expenses-The day-today costs a mutual fund incurs in conducting
business, such as for maintaining offices, staff, and equipment. These expenses are
paid from the fund's assets before any earnings are distributed.
Portfolio- A collection of securities owned by a mutual fund. A fund's portfolio may
include a combination of stocks, bonds, and money market securities.
Portfolio Manager- The individual responsible for managing a mutual fund's
portfolio.
Sector Fund- A fund that invests primarily in securities of companies engaged in a
specific industry. Sector funds entail more risk, but may offer greater potential returns
than funds that diversify their portfolios.
Unit holder- An investor, owning units of a mutual fund.
Volatility- The rate by which the price of a security fluctuates in changing market
conditions.
Yield-The annual rate of return on an investment usually expressed as a percentage.
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CHAPTER 10
REFERENCES AND BIBLIOGRAPHY
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BOOKS:
1. RESEARCH METHODOLOGY REVISED 2ND EDITION BY C.R.KOTHARI,
NEW AGE INTERNATIONAL PUBLISHERS, NEW DELHI.
2. BANSAL L.K. MUTUAL FUNDS: MANAGEMENT AND WORKING, DEEP
AND DEEP PUBLICATIONS, NEW DELHI
3. SINGH, PREETI INVESTMENT MANAGEMENT, HIMALAYA PUBLISHING
HOUSE, NEW DELHI
WEBSITES:
www.amfiindia.com
www.valuereasearchonline.com
www.hdfcfund.com
www.moneycontrol.com
www.mutualfundsindia.com
www.indiacapital.com