ANAND RATHI 2012

“MUTUAL FUNDS IS THE BETTER

INVESTMENTS PLAN”

Undertaken at

ANAND RATHI SHARES AND STOCK BROKER LTD.

PUNE, MAHARASHTRA

SUBMITTED BYPIYUSH CHAUHANPGDM (FIN + MKT )01110031

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ACKNOWLEDGEMENT

With regard to my Project with Mutual Fund I would like to thank each and every one

who offered help, guideline and support whenever required.

First and foremost I would like to express gratitude to Manager Aplit

Jaiswal, Pune and other staffs for their support and guidance in the Project work.. I am

extremely grateful to my guide, Mangesh sir for their valuable guidance and timely

suggestions. I would like to thank all faculty members of Anandrathi shares and stock

broker ltd for the valuable guidance& support.

I would also like to extend my thanks to my members and friends for their

support .And lastly, I would like to express my gratefulness to the parent’s for seeing

me through it all.

PIYUSH CHAUHAN

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DECLERATION

I hereby declare that this Project Report entitled “THE MUTUAL FUND IS BETTER

INVESTMENT PLAN in Anand Rathi Shares and Stock Broker ltd ,Pune submitted in

the partial fulfillment of the requirement of Post Graduate Diploma in Management

(PGDM) FIN+MKT,is based on primary & secondary data found by me in various

departments, books, magazines and websites & Collected by me in under guidance of

MANGESH KUKADHAR.

PIYUSH CHAUHAN

PGDM (FIN+MKT)

ANAND RATHI 2012

EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring one’s financial well

being. Mutual Funds have not only contributed to the India growth story but have also

helped families tap into the success of Indian Industry. As information and awareness

is rising more and more people are enjoying the benefits of investing in mutual funds.

The main reason the number of retail mutual fund investors remains small is that nine

in ten people with incomes in India do not know that mutual funds exist. But once

people are aware of mutual fund investment opportunities, the number who decide to

invest in mutual funds increases to as many as one in five people. The trick for

converting a person with no knowledge of mutual funds to a new Mutual Fund

customer is to understand which of the potential investors are more likely to buy

mutual funds and to use the right arguments in the sales process that customers will

accept as important and relevant to their decision.

This Project gave me a great learning experience and at the same time it gave me

enough scope to implement my analytical ability. The analysis and advice presented in

this Project Report is based on market research on the saving and investment practices

of the investors and preferences of the investors for investment in Mutual Funds. This

Report will help to know about the investors’ Preferences in Mutual Fund means Are

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they prefer any particular Asset Management Company (AMC), Which type of Product

they prefer, Which Option (Growth or Dividend) they prefer or Which Investment

Strategy they follow (Systematic Investment Plan or One time Plan). This Project as a

whole can be divided into two parts.

The first part gives an insight about Mutual Fund and its various aspects, the Company

Profile, Objectives of the study, Research Methodology. One can have a brief

knowledge about Mutual Fund and its basics through the Project.

The second part of the Project consists of data and its analysis collected through survey

done on 200 people. For the collection of Primary data I made a questionnaire and

surveyed of 200 people. I visited other AMCs in Pune to get some knowledge related

to my topic. I studied about the products and strategies of other AMCs in Pune to know

why people prefer to invest in those AMCs. This Project covers the topic “THE

MUTUAL FUND IS BETTER INVESTMENT PLAN.” The data collected has been

well organized and presented. I hope the research findings and conclusion will be of

use.

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CONTENTS

Acknowledgement

Declaration

Executive Summary

Chapter - 1 COMPANY PROFILE

Chapter - 2 INTRODUCTION

Chapter - 3 OBJECTIVES AND SCOPE

Chapter - 4 RESEARCH METHODOLOGY

Chapter - 5 DATA ANALYSIS AND INTERPRETATION

Chapter - 6 CONCLUSIONS

Chapter - 7 SUGGESTIONS & RECOMMENDATIONS

Chapter-8 BIBLIOGRAPHY

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Company ProfileORGANIZATION HISTORY

a. Company Profile

b. Milestones

c. AR Core Strengths

d. Management Team

About Anand Rathi

AnandRathi shares and stock brokers ltd. (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by M r . A n a n d R a t h i , t o d a y h a s a p a n I n d i a p r e s e n c e a s w e l l a s a n i n t e r n a t i o n a l  presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing longt e r m   v a l u e   a d d i t i o n   t o   c l i e n t s ,   w h i l e   m a i n t a i n i n g   t h e   h i g h e st   s t a n d a r d s   o f   excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions and was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich

.In year 2007 Citigroup Venture Capital International joined the group as a financial partner.

MILESTONES:-

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1994: Started activities in consulting and Institutional equity sales with staff of 15

1995: Set up a research desk and empanelled with major institutional investors

1997: Introduced investment banking businessesRetail brokerage services launched

1999: Lead managed first IPO and executed first M & A deal

2001: Initiated Wealth Management Services

2002: Retail business expansion recommences with ownership model

2003: Wealth Management assets cross Rs1500 croresRetail Branch network exceeds 50Insurance broking launched Launch of Wealth Management services in Dubai

2004: Retail Branch network expands across 100 locations within IndiaCommodities brokerage and real estate services introducedWealth Management assets cross Rs3000crores Institutional equities business relaunched and senior research team put in place

2005: Retail Branch network expands across 130 locations within India

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Real Estate Private Equity Fund Launched

2006: AnandRathi Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High Networth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+ locations within India

2007: Citigroup Venture Capital International picks up 19.9% equity stake Retail customer base crosses 100 thousand Establishes presence in over 350 locations

AR Core Strengths

Breadth of Services

In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodi t ies ,  d is t r ibut ion  of  mutual   funds ,   IPO’s  and insurance  products ,   rea le s t a t e ,   i n v e s t m e n t   b a n k i n g ,   m e r g e r   a n d   ac q u i s i t i o n s ,   c o r p o r a t e   f i n a n c e   a n d corporate advisory.

Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.

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Management Team

The senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services.

Mr. Anand Rathi - Group ChairmanChartered AccountantPast President, BSEHeld several Senior Management positions with one of India's largest industrial groups

Mr. Pradeep Gupta - Vice ChairmanPlus 17 years of experience in Financial Services

Mr. Amit Rathi - Managing Director Chartered Accountant & MBAPlus 11 years of experience in Financial Services

ACQUISITION:

ANZ Grind lays  : $1.34 bn from August 2000.Hong Kong Consumer Bank  : $ 1.32 bnThailand Nakornthan Bank  : $ 320 millionIndonesians Bank Per-Mata  : $ 366 million from Oct. 2004Korea First Bank  : $ 3.3 bn from Apr. 2005

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Introduction

INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS

ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who

share a common financial goal. This pool of money is invested in

accordance with a stated objective. The joint ownership of the fund is thus

“Mutual”, i.e. the fund belongs to all investors. The money thus collected

is then invested in capital market instruments such as shares, debentures

and other securities. The income earned through these investments and the

capital appreciations realized are shared by its unit holders in proportion

the number of units owned by them. Thus a Mutual Fund is the most

suitable investment for the common man as it offers an opportunity to

invest in a diversified, professionally managed basket of securities at a

relatively low cost. A Mutual Fund is an investment tool that allows small

investors access to a well-diversified portfolio of equities, bonds and other

securities. Each shareholder participates in the gain or loss of the fund.

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Units are issued and can be redeemed as needed. The funds Net Asset

value (NAV) is determined each day.

  Investments in securities are spread across a wide cross-section of

industries and sectors and thus the risk is reduced. Diversification reduces

the risk because all stocks may not move in the same direction in the same

proportion at the same time. Mutual fund issues units to the investors in

accordance with quantum of money invested by them. Investors of mutual

funds are known as unit holders.

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What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that

allows a group of investors to pool their money together with a predetermined

investment objective. The mutual fund will have a fund manager who is responsible for

investing the gathered money into specific securities (stocks or bonds). When you

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invest in a mutual fund, you are buying units or portions of the mutual fund and thus on

investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare

to others they are very cost efficient and also easy to invest in, thus by pooling money

together in a mutual fund, investors can purchase stocks or bonds with much lower

trading costs than if they tried to do it on their own. But the biggest advantage to

mutual funds is diversification, by minimizing risk & maximizing returns.

Thus a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost. The flow chart below describes broadly the working

of a mutual fund

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act

in 1963, and started its operations in 1964 with the issue of units under the scheme

US-64.

Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended SchemesAn open-end fund is one that is available for subscription all through the year.

These do not have a fixed maturity. Investors can conveniently buy and sell units at

Net Asset Value ("NAV") related prices. The key feature of open-end schemes is

liquidity.

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Close Ended SchemesA 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.

Interval SchemesInterval 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

BY NATURE

1. 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.

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2. 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:

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 provides

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

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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.

3. 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 provide 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.

BY INVESTMENT OBJECTIVE Growth Schemes: Growth Schemes are also known as equity schemes. The aim

of these schemes is to provide capital appreciation over medium to long term.

These schemes normally invest a major part of their fund in equities and are

willing to bear short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of

these schemes is to provide regular and steady income to investors. These

schemes generally invest in fixed income securities such as bonds and corporate

debentures. Capital appreciation in such schemes may be limited.

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Balanced Schemes: Balanced Schemes aim to provide both growth and income

by periodically distributing a part of the income and capital gains they earn.

These schemes invest in both shares and fixed income securities, in the

proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy

liquidity, preservation of capital and moderate income. These schemes generally

invest in safer, short-term instruments, such as treasury bills, certificates of

deposit, commercial paper and inter-bank call money.

OTHER SCHEMES

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors

under tax laws prescribed from time to time. Under Sec.88 of the Income Tax

Act, contributions made to any Equity Linked Savings Scheme (ELSS) are

eligible for rebate.

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

weightage. And hence, the returns from such schemes would be more or less

equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the

securities of only those sectors or industries as specified in the offer documents.

e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),

Petroleum stocks, etc. The returns in these funds are dependent on the

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performance of the respective sectors/industries. While these funds may give

higher returns, they are more risky compared to diversified funds. Investors need

to keep a watch on the performance of those sectors/industries and must exit at

an appropriate time.

Types of returns

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.

Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are

professional managed, by well qualified professional. Investors purchase funds because

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they do not have the time or the expertise to manage their own portfolio. A mutual fund

is considered to be relatively less expensive way to make and monitor their

investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual

stocks or bonds, the investors risk is spread out and minimized up to certain extent. The

idea behind diversification is to invest in a large number of assets so that a loss in any

particular investment is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time,

thus help to reducing transaction costs, and help to bring down the average cost of the

unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to

liquidate their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other

available instruments in the market, and the minimum investment is small. Most AMC

also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with

just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as

their management is not dynamic enough to explore the available opportunity in the

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market, thus many investors debate over whether or not the so-called professionals are

any better than mutual fund or investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load

which they charge from an investors, at the time of purchase. The mutual fund

industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high

returns from a few investments often don't make much difference on the overall return.

Dilution is also the result of a successful fund getting too big. When money pours into

funds that have had strong success, the manager often has trouble finding a good

investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider

your personal tax situation. For example, when a fund manager sells a security, a

capital-gain tax is triggered, which affects how profitable the individual is from the

sale. It might have been more advantageous for the individual to defer the capital gains

liability.

Guidelines of the SEBI for Mutual Fund Companies :

To protect the interest of the investors, SEBI formulates policies and regulates the mutual

funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to

time.

SEBI approved Asset Management Company (AMC) manages the funds by making

investments in various types of securities. Custodian, registered with SEBI, holds the securities

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of various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of

trustees must be independent.

The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual

funds that the mutual funds function within the strict regulatory framework. Its objective is to

increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading

professional standards and in promoting best industry practices in diverse areas such as

valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :

1. Photo PAN card

2. In case of non-photo PAN card in addition to copy of PAN card any one of the following:

driving license/passport copy/ voter id/ bank photo pass book.

Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport,

latest bank passbook/bank account statement, latest Demat account statement, voter id, driving

license, ration card, rent agreement.

Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO).

Its advisable to every investor to ask for the offer document and read it before investing. An

offer document consists of the following:

Standard Offer Document for Mutual Funds (SEBI Format)

Summary Information

Glossary of Defined Terms

Risk Disclosures

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Legal and Regulatory Compliance

Expenses

Condensed Financial Information of Schemes

Constitution of the Mutual Fund

Investment Objectives and Policies

Management of the Fund

Offer Related Information.

Key Information Memorandum: a key information memorandum, popularly known as KIM,

is attached along with the mutual fund form. And thus every investor get to read it. Its contents

are:

1 Name of the fund.

2. Investment objective

3. Asset allocation pattern of the scheme.

4. Risk profile of the scheme

5. Plans & options

6. Minimum application amount/ no. of units

7. Benchmark index

8. Dividend policy

9. Name of the fund manager(s)

10 . Expenses of the scheme: load structure, recurring expenses

11. Performance of the scheme (scheme return v/s. benchmark return)

12. Year- wise return for the last 5 financial year.

Costs associated:

Expenses:

AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,

advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges

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Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the

size of the funds under management and not to the returns earned. Normally, the costs of

running a fund grow slower than the growth in the fund size - so, the more assets in the fund,

the lower should be its expense ratio

Loads:

Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying

the fund to cover the cost of selling, processing etc.

Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an

investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to

zero with increase in holding period.

Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the

market flooded with a variety of investment options which includes mutual funds, equities,

fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life

insurance, gold, real estate etc. all these investment options could be judged on the basis of

various parameters such as- return, safety convenience, volatility and liquidity. measur

Return  Safety  Volatility  Liquidity  Convenienc

e 

Equity  High  Low  High  High  Moderate 

Bonds  Moderate  High  Moderate  Moderate  High 

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Co.

Debentures 

Moderate  Moderate  Moderate  Low  Low 

Co. FDs  Moderate  Low  Low  Low  Moderate 

Bank

Deposits 

Low  High  Low  High  High 

PPF  Moderate  High  Low  Moderate  High 

Life

Insurance 

Low  High  Low  Low  Moderate 

Gold  Moderate  High  Moderate  Moderate  Gold 

Real Estate  High  Moderate  High  Low  Low 

Mutual

Funds 

High  High  Moderate  High  High 

We can very well see that mutual funds outperform every other investment option. On three

parameters it scores high whereas it’s moderate at one. comparing it with the other options, we

find that equities gives us high returns with high liquidity but its volatility too is high with low

safety which doesn’t makes it favourite among persons who have low risk- appetite. Even the

convenience involved with investing in equities is just moderate.

Now looking at bank deposits, it scores better than equities at all

fronts but lags badly in the parameter of utmost important ie; it scores low on return , so it’s

not an happening option for person who can afford to take risks for higher return. The other

option offering high return is real estate but that even comes with high volatility and moderate

safety level, even the liquidity and convenience involved are too low. Gold have always been a

favourite among Indians but when we look at it as an investment option then it definitely

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doesn’t gives a very bright picture. Although it ensures high safety but the returns generated

and liquidity are moderate. Similarly the other investment options are not at par with mutual

funds and serve the needs of only a specific customer group. Straightforward, we can say that

mutual fund emerges as a clear winner among all the options available.

The reasons for this being:

I)Mutual funds combine the advantage of each of the investment products: mutual fund is

one such option which can invest in all other investment options. Its principle of diversification

allows the investors to taste all the fruits in one plate. just by investing in it, the investor can

enjoy the best investment option as per the investment objective.

II)dispense the shortcomings of the other options: every other investment option has more

or les some shortcomings. Such as if some are good at return then they are not safe, if some are

safe then either they have low liquidity or low safety or both….likewise, there exists no single

option which can fit to the need of everybody. But mutual funds have definitely sorted out this

problem. Now everybody can choose their fund according to their investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are managed by

experts so they are ready to switch to the profitable option along with the market movement.

Suppose they predict that market is going to fall then they can sell some of their shares and

book profit and can reinvest the amount again in money market instruments.

IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one

more reason which has established mutual funds as one of the largest financial intermediary

and that is the flexibility that mutual funds offer regarding the investment amount. One can

start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100

in some cases.

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How do investors choose between funds?

When the market is flooded with mutual funds, it’s a very tough job for the investors to choose

the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look

at the investment objective of the fund. Then the investors sort out the funds whose investment

objective matches with that of the investor’s. Now the tough task for investors start, they may

carry on the further process themselves or can go for advisors like SBI . Of course the

investors can save their money by going the direct route i.e. through the AMCs directly but it

will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the

investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors’

thoughts go beyond just investment objectives and rate of return. Some of the basic tools

which an investor may ignore but an mf advisor will always look for are as follow:

1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP)

may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an

investor to bring down the average cost of buying a scheme by making a fixed investment

periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this

case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls,

the investors can get more number of units and vice-versa. This results in the average cost per

unit for the investor being lower than the average price per unit over time.

The investor needs to decide on the investment amount and the frequency. More frequent the

investment interval, greater the chances of benefiting from lower prices. Investors can also

benefit by increasing the SIP amount during market downturns, which will result in reducing

the average cost and enhancing returns. Whereas STP allows investors who have lump sums to

park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund

to take advantage of rupee cost averaging. 

2. Rebalancing:

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Rebalancing involves booking profit in the fund class that has gone up and investing in the

asset class that is down. Trigger and switching are tools that can be used to rebalance a

portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs.

The trigger could be the value of the investment, the net asset value of the scheme, level of

capital appreciation, level of the market indices or even a date. The funds redeemed can be

switched to other specified schemes within the same fund house. Some fund houses allow such

switches without charging an entry load. 

To use the trigger and switch facility, the investor needs to specify the event, the amount or the

number of units to be redeemed and the scheme into which the switch has to be made. This

ensures that the investor books some profits and maintains the asset allocation in the portfolio. 

3. Diversification:

Diversification involves investing the amount into different options. In case of mutual funds,

the investor may enjoy it afterwards also through dividend transfer option. Under this, the

dividend is reinvested not into the same scheme but into another scheme of the investor's

choice.

For example, the dividends from debt funds may be transferred to equity schemes. This gives

the investor a small exposure to a new asset class without risk to the principal amount. Such

transfers may be done with or without entry loads, depending on the MF's policy. 

4. Tax efficiency:

Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final decision of

any investor before investing. The investors gain through either dividends or capital

appreciation but if they haven’t considered the tax factor then they may end loosing.

Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and

education cess) on dividends paid out. Investors who need a regular stream of income have to

choose between the dividend option and a systematic withdrawal plan that allows them to

redeem units periodically. SWP implies capital gains for the investor.

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If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket.

Investors in higher tax brackets will end up paying a higher rate as short-term capital gains . 

Objectives and scope

1. To find out the Preferences of the investors for Asset Management

Company.

2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in SBI Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large

number of new players have entered the market and trying to gain market share in this

rapidly improving market.

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The research was carried on in Pune. The study will help to know the preferences of

the customers, which company, portfolio, mode of investment, option for getting return

and so on they prefer. This project report may help the company to make further

planning and strategy

Research Methodology

Objective of research ;

The main objective of this project is concerned with getting the opinion of people regarding

mutual funds and what they feel about availing the services of financial advisors.

I have tried to explore the general opinion about mutual funds. It also covers why/ why not

investors are availing the services of financial advisors.

Scope of the study:

The research was carried on in the Pune Region of India. I have visited people randomly nearby my

locality, different shopping malls, small retailers etc.

Data sources:

Research is totally based on primary data. Secondary data can be used only for the reference.

Research has been done by primary data collection, and primary data has been collected by

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interacting with various people. The secondary data has been collected through various journals and

websites and some special publications of Anandrathi.

Sampling:

Sampling procedure:

The sample is selected in a random way, irrespective of them being investor or not or availing

the services or not. It was collected through mails and personal visits to the known persons, by

formal and informal talks and through filling up the questionnaire prepared. The data has been

analyzed by using the measures of central tendencies like mean, median, mode. The group has

been selected and the analysis has been done on the basis statistical tools available.

Sample size:

The sample size of my project is limited to 200 only.

Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

Limitation:

Time limitation.

Research has been done only at Pune.

Some of the persons were not so responsive.

Possibility of error in data collection.

QUESTIONNAIRE

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1. Personal Details:

(a). Name:- (b). Add: - Phone:- (c). Age:- (d). Qualification:-

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (√).

Up to Rs.10,000

Rs. 10,001 to 15000

Rs. 15,001 to 20,000

Rs. 20,001 to 30,000

Rs. 30,001 and above

2. What kind of investments you have made so far? Pl tick (√). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund

e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer? .

(a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

5. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No

Graduation/PG Under Graduate Others

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7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.

a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. Specify

9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable).

a. SBIMF is associated with State Bank of India.

b. They have a record of giving good returns year after year.

c. Agent’ Advice

10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable).

a. You are not aware of SBIMF.

b. SBIMF gives less return compared to the others.

c. Agent’ Advice

11. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.

a. SBIMF

b. UTI

c. Reliance

d. HDFC

e. Kotak

f. ICICI

12. Which Channel will you prefer while investing in Mutual Fund?

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(a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose?

a. Having only debt portfolio

b. Having debt & equity portfolio.

c. Only equity portfolio.

15. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re-investment c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (√). Yes No

Data analysis:

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Have you ever invested/ interested to invest in mutual funds?

YES 135

NO 65

.what is the most important reason for not investing in mutual funds? (only for above 65 participants)

Lack of knowledge about mutual funds 25

Enjoys investing in other options 10

Its benefits are not enough to drive you

for investment

18

No trust over the fund managers 12

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.where do you find yourself as a mutual fund investor?

Totally ignorant 28

Partial knowledge of MFs 37

Aware of only scheme in which invested 46

Good knowledge of MFs 24

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.where from you purchases mutual funds?

Directly from the AMCs 33

Brokers only ( large intermediaries) 28

Broker/ sub-brokers 59

Other sources 15

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Data Analysis &

Interpretation

(a). Educational Qualification of investors of Pune

Educational Qualification Number of Investors

Graduate/ Post Graduate 95

Under Graduate 28

Others 12

Total 135

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Interpretation:

Out of 135 Mutual Fund investors 71% of the investors in pune are Graduate/Post

Graduate, 23% are Under Graduate and 6% are others .

b). Occupation of the investors of pune

Occupation No. of Investors

Govt. Service 20

Pvt. Service 65

Business 35

Agriculture 4

Others 11

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.

Interpretation:

In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are

Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in

others.

(c) . Preference of factors while investing

Interpretation:

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Out of 135 People, 32% People prefer to invest where there is High Return, 30% prefer

to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust

(d) Source of information for customers about Mutual Fund

Source of information No. of Respondents

Advertisement 18

Peer Group 25

Bank 30

Financial Advisors 62

Interpretation:

From the above chart it can be inferred that the Financial Advisor is the most

important source of information about Mutual Fund. Out of 135 Respondents, 46%

know about Mutual fund Through Financial Advisor, 22% through Bank, 19%

through Peer Group and 13% through Advertisement.

(e). Channel Preferred by the Investors for Mutual Fund Investment

Channel Financial Advisor Bank AMC

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No. of Respondents 80 19 36

Interpretation:

Out of 135 Investors 60% preferred to invest through Financial Advisors, 25% through

AMC and 15% through Bank.

(f). Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan (SIP)

No. of Respondents 88 47

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Interpretation:

Out of 135 Investors 65% preferred One time Investment and 35 % Preferred through

Systematic Investment Plan.

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Findings and Conclusion

In Pune most of the Investors were Graduate or Post Graduate and

below HSC there were very few in numbers.

In Occupation group most of the Investors were pvt. employees, the

second most Investors were govt. employees and the least were

associated with Agriculture.

In family Income group, between Rs. 20,001- 30,000 were more in

numbers, the second most were in the Income group of more than

Rs.30,000 and the least were in the group of below Rs. 10,000..

Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred

Trust.

Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

Most of the Investors had invested in Reliance or UTI Mutual Fund,

ICICI Prudential has also good Brand Position among investors,

SBIMF places after ICICI Prudential according to the Respondents.

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For Future investment the maximum Respondents preferred Reliance

Mutual Fund, the second most preferred ICICI Prudential, SBIMF

has been preferred after them.

60% Investors preferred to Invest through Financial Advisors, 25%

through AMC (means Direct Investment) and 15% through Bank.

65% preferred One Time Investment and 35% preferred SIP out of

both type of Mode of Investment

The most preferred Portfolio was Equity, the second most was

Balance (mixture of both equity and debt), and the least preferred

Portfolio was Debt portfolio.

Maximum Number of Investors Preferred Growth Option for returns,

the second most preferred Dividend Payout and then Dividend

Reinvestment.

Most of the Investors did not want to invest in Sectoral Fund, only

21% wanted to invest in Sectoral Fund.

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Conclusion

Running a successful Mutual Fund requires complete understanding of the

peculiarities of the Indian Stock Market and also the psyche of the small

investors. This study has made an attempt to understand the financial

behavior of Mutual Fund investors in connection with the preferences of

Brand (AMC), Products, Channels etc. I observed that many of people

have fear of Mutual Fund. They think their money will not be secure in

Mutual Fund. They need the knowledge of Mutual Fund and its related

terms. Many of people do not have invested in mutual fund due to lack of

awareness although they have money to invest. As the awareness and

income is growing the number of mutual fund investors are also growing.

“Brand” plays important role for the investment. People invest in those

Companies where they have faith or they are well known with them. There

are many AMCs in Pune but only some are performing well due to Brand

awareness. Some AMCs are not performing well although some of the

schemes of them are giving good return because of not awareness about

Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known

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Brand, they are performing well and their Assets Under Management is

larger than others whose Brand name are not well known.

Distribution channels are also important for the investment in mutual fund.

Financial Advisors are the most preferred channel for the investment in

mutual fund. They can change investors’ mind from one investment option

to others. Many of investors directly invest their money through AMC

because they do not have to pay entry load. Only those people invest

directly who know well about mutual fund and its operations and those

have time.

Suggestions

And

Recommendations

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The most vital problem spotted is of ignorance. Investors should be

made aware of the benefits. Nobody will invest until and unless he

is fully convinced. Investors should be made to realize that

ignorance is no longer bliss and what they are losing by not

investing.

Mutual funds offer a lot of benefit which no other single option

could offer. But most of the people are not even aware of what

actually a mutual fund is? They only see it as just another

investment option. So the advisors should try to change their

mindsets. The advisors should target for more and more young

investors. Young investors as well as persons at the height of their

career would like to go for advisors due to lack of expertise and

time.

Mutual Fund Company needs to give the training of the Individual

Financial Advisors about the Fund/Scheme and its objective,

because they are the main source to influence the investors.

Before making any investment Financial Advisors should first

enquire about the risk tolerance of the investors/customers, their need

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and time (how long they want to invest). By considering these three

things they can take the customers into consideration.

Younger people aged under 30 will be a key new customer group

into the future, so making greater efforts with younger customers

who show some interest in investing should pay off.

Customers with graduate level education are easier to sell to and

there is a large untapped market there. To succeed however,

advisors must provide sound advice and high quality.

Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the

industry. SIP is easy for monthly salaried person as it provides the

facility of do the investment in EMI. Though most of the prospects

and potential investors are not aware about the SIP. There is a large

scope for the companies to tap the salaried persons.

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BIBLIOGRAPHY

OUTLOOK MONEY

TELEVISION CHANNEL (CNBC AAWAJ)

MUTUAL FUND HAND BOOK

FACT SHEET AND STATEMENT

WWW.SBIMF.COM

WWW.MONEYCONTROL.COM

WWW.AMFIINDIA.COM

WWW.ONLINERESEARCHONLINE.COM

WWW. MUTUALFUNDSINDIA.COM

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