ANALYSIS OF MUTUAL FUNDS IN INDIA

Dissertation Submitted to the

Padmashree Dr. D.Y. Patil University
in partial fulfillment of the requirements for the award of the
Degree of
MASTERS IN BUSINESS ADMINISTRATION

Submitted by:
DINESH RAJPUT
(Roll No.MBA-CORE-012191)

Research Guide:

Ms. AMINA MOMIN

Department of Business Management
Padmashree Dr. D.Y. Patil University
CBD Belapur, Navi Mumbai

March 2014
 DECLARATION

I hereby declare that the dissertation “ ANALYSIS OF

MUTUAL FUNDS IN INDIA submitted for the MBA
Degree at Padmashree Dr. D.Y. Patil University’s Department of
Business Management is my original work and the dissertation has not
formed the basis for the award of any degree, associate ship, fellowship
or any other similar titles.

Place: Mumbai

Date: DINESH RAJPUT

 CERTIFICATE

This is to certify that the dissertation entitled “ ANALYSIS OF

MUTUAL FUNDS IN INDIA” the bonafide research

work carried out by Dinesh Rajput student of MBA, at Padmashree Dr.
D.Y. Patil University’s Department of Business Management during the
year 2012 -2014, in partial fulfillment of the requirements for the award
of the Degree of Master in Business Management and that the
dissertation has not formed the basis for the award previously of any
degree, diploma, associate ship, fellowship or any other similar title.

Dr. R. Gopal Ms. AMINA MOMIN

(Dean,Director,HOD) (Asst. Proffesor)
Department of Business Mgt Department of Buisness Mgt
Padmashree Dr. D.Y. Patil University Padmashree Dr. D.Y.Patil University
 ACKNOWLEDGEMENT

In the first place I thank the Padmashree Dr. D. Y. Patil University,

Department of Business Management, Navi Mumbai for giving me an
opportunity to work on this project. I would also like to thank Ms.
Amina, Department of Business Management, Padmashree Dr. D.Y.
Patil University, and Navi Mumbai for having given me her valuable
guidance for the project. Without her help it would have been impossible
for me to complete the project.

I would be failing in my duty if I do not acknowledge with a deep sense

of gratitude the sacrifices made by my parents and thus have helped me
in completing the project work successfully .Last but not the least I
would like to thank my friends and all the people who helped me in
successful completion of this project.

Place: Navi Mumbai Dinesh Rajput

Date: Finance - B
 PREFACE

“Experience is the best teacher.” This saying is very well

applicable in everyone’s life. Therefore as a student of management
it must apply to me also. Then the question arises that from where
we can get this experience. Obviously we must undergo study
Mutual fund on. To serve this purpose I have done analysis Mutual
fund through the various sources available and as an outcome I have
prepared this project report.

In today’s corporate and competitive world, I find that Mutual fund.

has the good growth and potential.. study of Mutual fund has given
me the opportunity to work and get experience in a highly
competitive and enhancing sector.

The success story of good market share of different Mutual fund

depends upon the returns of the Mutual fund.
 TABLE OF CONTENTS

Chapter
No Title Page No

A List of Graph 8

B List of Table 9

C List of Abbreviations 10

1 Executive Summary 11

2 Objective of the Study 13

3 Hypothesis 13

4 Limitation of the study 15

5 Research Methodology 17 - 22

5.1 Sampling plan 21

5.2 Data collection method 22

6 Review of Literature 23 - 26

7 Introduction 27 - 33

8 History of Mutual Fund 34 – 38

9 Growth of Mutual Fund 39 - 40

10 History of the Indian Mutual Fund Industry 41 – 45

11 Mutual Fund and its classification 46 - 48

12 Types of Mutual FUND 49 – 52

13 Mutual Fund scheme by Investment Objective 53 - 59

14 Advantages of Investment in Mutual Fund 60 - 61

15 Disadvantages of Investment in Mutual Fund 62 - 64

16 Structure of Indian Mutual Fund Industry 65 - 66
 TABLE OF CONTENTS (Cont…)

Chapter No Title Page No

17 Mutual Fund in India 67 - 77
Some Facts for the growth of Mutual
Fund
Tax aspect of Mutual
Terms Related to Mutual Fund
18 Asset Management Company 78 -81
19 How to invest in Mutual Fund 82 - 86

20 Growth in Mutual fund Industry 87 - 91

21 Arbitrage between debt vs. Fund 92 – 95

21.1 New Fund Offer

Comparison of Mutual Fund With
22 Other deposits 96 – 99

23 Others funds 100 – 104

24 Current Mutual Fund Schemes 105 – 107

25 Market Trends 108 – 110

26 Lack Of Proper Guidance 111 – 112

27 Data Analysis 113 – 129

28 Conclusion 130 – 131

29 Glossary 132 – 139

30 Bibliography 140 – 141

31 Annexure 142 – 146

 LIST OF GRAPHS

Fig No. Tittle

Graph A1 Source of Income

Graph A2 Annual Income
Graph A3 Investments in any of the Mutual Funds

Graph A4 Rank in order of preference of savings

Graph A5 Satisfied as a Mutual Fund Investor

 LIST OF TABLE

Fig No. Tittle

Graph Source of Income
A-1

Graph Annual Income

A-2

Graph Investment in any of the Mutual Funds

A-3

Graph Ranking Order of Preference Saving

A-4

Graph Satisfied as a Mutual Fund Investor

A-5
 LIST OF ABBREVIATIONS

MF Mutual Fund

PA Per Annum

PM Per Month

A/C Account

VAT Value Added Tax

ST Sales Tax

O/D Over draft

YRS Year

NRI Non Resident Indian

Max Maximum

Rs Rupees

GDP Gross Domestic Product

NAV Net asset value

 Chapter-1

EXECUTIVE SUMMARY
 EXECUTIVE SUMMARY

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 main purpose of doing this project was to know about mutual fund
and its functioning. This helps to know in details about mutual fund
industry right from its inception stage, growth and future prospects.

It also helps in understanding different schemes of mutual funds.

Because my study depends upon prominent funds in India and their
schemes like equity, income, balance as well as the returns associated
with those schemes.

The project study was done to ascertain the asset allocation, entry
load, exit load, associated with the mutual funds. Ultimately this would
help in understanding the benefits of mutual funds to investors
 CHAPTER - 2
OBJECTIVES OF THE STUDY
OBJECTIVES OF THE STUDY

. To study the risk and return relationship with reference to mutual fund

and other investment.

.To study the purpose and performance and of investment in mutual fund.

• To study the form of return on investment.

• To study some of the mutual fund schemes and analyse them.

• Observe the fund management process of mutual funds .

• Explore the recent developments in the mutual funds in India.

HYPOTHESIS

Ho: There is no relationship between risk & return of mutual fund.

H1: There is a relationship between risk & return of mutual fund.

H0: Risk & Return is the mutual fund are not directly proportional.

H1: The risk & return of mutual fund are direct proportional.

H0: The mutual fund are not risk averse.

H1: The mutual funds are risk averse.

 CHAPTER - 3
LIMITATION OF THE STUDY
 LIMITATIONS

• The time constraint was one of the major problems.

• The study is limited to the different schemes available under the

mutual funds selected.

• The study is limited to selected mutual fund schemes.

• The lack of information sources for the analysis part.

I tried to overcome on these limitations with my best & maximum

effort
 CHAPTER - 4
RESEARCH METHODOLOGY
 RESEARCH METHODOLOGY

To achieve the objective of studying the stock market data has

been collected.

Research methodology carried for this study can be two types

Primary, Secondary

PRIMARY:
The data, which has being collected for the first time and it is the
original data.

SECONDARY:
The secondary information is mostly taken from websites, books,
journals, etc.
 SOURCES OF DATA

The gathering of data may range from a simple observation at

one location to a grandiose survey of multinational corporations at
sites in different parts of the world. The method selected will largely
determine how the data are collected. DATA is the facts presented to
the researcher from the study’s environment. Characteristics of the
data are as follows:

 Data are more metaphorical than real 


 Data are processed by our senses-often limited in
comparison the senses of other living organisms. 
 Capturing data are said to be trustworthy because they
may be verified. 

 Data classify their verity by closeness to the
phenomena. 

There are two kinds of data that can be collected for research purpose.
Based on the requirement in the research appropriate data is collected.
Both the kinds of data are shown below in the figure:

Data

Primary Data Secondary Data

1) Primary data source:
Primary data are collected and gathered for the first time.
Primary data are sought for their proximity to the truth and controls
over error. Advantages of primary data are:

• Researchers can collect precisely the information they want.

• They usually can specify the operational definitions used and
can eliminate, or at least monitor and record the extraneous
influences on the data as they are gathered.
• Our sample size is 30 for employees and 30 for
customer.

2) Secondary data source

Someone else collects secondary data. So, it becomes
secondary information for the research. Secondary data have had
least one level of interpretation inserted between the event and its
recording. Reasons for using the secondary data are listed below:

• They fill a need for specific reference or citation on some point

• Secondary data are an integral part of a larger research study
• Secondary data may be used as the sole basis for a research study,
since in many research situations one cannot conduct primary
research because of physical, legal, or cost influences.

Analyzing the requirement of data, it was found that primary data is

more important for achieving Research Objective. Primary data is
collected with the help of interviews through Questionnaire.
 SAMPLING PLAN

Collecting the required information from the right source is very

important. Sources from which the data are collected differ as per the
required of researcher.
Basically there are two types of data collection sources:

1) Sampling Unit:
The sampling unit primarily consisted of customer and employees of
bank. The sample unit is taken from the various branches located in
Mumbai city.

2) Sample Size:

Though large sample give more reliable results than small samples but
increases the cost, time and non-sampling error. Keeping in view these
constraints 30 respondents as customer and 30 employees of the bank
were chosen. Attempts have been made to see that samples are
chosen from different areas of Mumbai.
 DATA COLLECTION METHOD

“This step involves making a very specific plan about how you will
conduct your research and collect your data.”

1) Surveys & Questionnaires

Survey: The means by which quantitative research is conducted.

Questionnaire: A prepared set of questions designed to generate

data necessary for accomplishing the objectives of the research
project.

I used survey method for data collection. Information was collected by

personal interviews through questionnaire.

Following types of measurement scales were used in the

questionnaire.
 Simple category scale: - (Q-2, Q-4, Q-8, Q-9) 

 Multiple choice single response scales: - (Q-6) 

 Multiple choice multiple réponse scale:-(Q-1, Q-3, Q-5, Q7) 

CHAPTER - 5 REVIEW OF
LITERATURE
 LITERATURE REVIEW

To conduct a systematic, research we have to approach different

research article, magazines, newspapers, etc. The following were used
for studying this topic.

“Indian Capital Markets” Uma Shashikant & S. Arumugam

Publication: TATA Mc-Graw Hill.

This book reveals how Indian capital markets have changed in

the last decades. Stock markets today are fully electronic; settlement
cycles have been compressed, clearing corporations that guarantee
settlement of transactions, nearly eliminating risk.
The growth in the number of foreign institutional investor’s & mutual
funds; the changing investment profile of provident funds & the
privatization initiatives in the insurance sector. Change processes bring
along with them immense challenges. One of them is the need for
analytical insights into the impact and implications of the processes
themselves. The financial markets in India have been at the forefront of
what we can term as a paradigm shift in the economy.
“Capital Market – The Indian Financial Scene” N. Gopalsamy
Publication: MacMillan India Pvt. Ltd.

This book speaks that the capital markets are the barometer of
the health of the economy. Indian capital markets have begun to
transform rapidly in order to provide world class services to the
investors. The key to better corporate governance in India today lies in
a more efficient and vibrant capital market. A variety of developmental
measures such as deregulation and economic reforms,
disintermediation and financial sector reforms, institutionalization of
capital markets investors preference for higher standards of
disclosures and corporate governance measures to those followed in
developed markets, globalization and tax reforms, etc have all
contributed to bring about the required changes in the capital market
scene. These changes and reforms have been taken up in the best
interest of all stakeholder of capital market. SEBI’s aim is also
remarkable to make the Indian financial market a truly world-class and
a respectable institution. To achieve its objectives it has also drawn
strategic action plans.
“Finance & Financial Markets” Keith Pilbeam, Publication:
Palgrave MacMillan.

This book is focused on the importance of financial markets,

institutions and instruments to the successful operation of a modern
economy have grown markedly during the last two decades. Markets
are less segmented, with changes in money markets, foreign
exchanges bond markets, stocks markets and derivatives markets

becoming ever more inextricably linked. Moreover, domestic and

foreign markets are increasingly interdependent with movements in
foreign financial markets exerting significant impacts on domestic
markets. The range of international financial markets has increased
with developing countries such as china and India experiencing very
high rates of economic growth and attempting to improve the
functioning of their financial institutions and markets.
“The Global Financial Systems” Crane, Froot, Mason, Perold,
Merton, Bodie, Tufano And Publication: Harvard Business School,
Press.

This book explains the functional perspective and puts it to work,

testing its usefulness as a new tool for understanding the fundamental
changes underway in the financial system. Some parts of the book
emphasize an historical perspective providing an understanding of why
institutional arrangements took in the form they did in the past. Other
sections look at the present situation, using a functional perspective to
develop a different or deeper understanding of current changes in the
financial markets. It gives an explanation of functional framework for
studying the financial system and a discussion of the major functions
the system performs.
 CHAPTER - 6

INTRODUCTION
 Introduction

A Mutual Fund is an ideal investment vehicle where a number of

investors come together to pool their money with common investment
goal. Respective Asset Management Company (AMC) manages each
Mutual Fund with different type of schemes. An investor can invest his
money in one or more schemes of Mutual Fund according to his choice
and becomes the unit holder of the scheme. Fund manager in different
types of suitable stock and securities, bonds and money market
instruments then invests the invested money in a particular scheme of
a Mutual Fund. Each Mutual Fund is managed by qualified
professional men, who use this money to create a portfolio, which
includes stock and shares, bonds, gilt, money-market instruments or
combination of all. Thus Mutual Fund will diversify your portfolio over a
variety of investment vehicles. Mutual Fund offers an investor to invest
even a small amount of money. A security that gives 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.
Shares are issued and can be redeemed as needed. The fund's net
Assets value (NAV) is determined each day. Each mutual fund portfolio
is invested to match the objective stated in the prospectus.

Respective Asset Management Companies sponsored by financial

institutions, banks, private companies or international firms manages
Mutual Funds schemes. The biggest Indian AMC is UTI while Alliance,
Franklin Templeton etc are international AMC's

Mutual Fund offers several benefits to an investor such as potential

return, liquidity, transparency, income growth, good post tax return and
reasonable safety. There are number of options available for an
investor offered by a mutual fund

A draft offer document is to be prepared at the time of launching the

fund. Typically, it pre specifies the investment objectives of the fund,
the risk associated, the costs involved in the process and the board
rules for entry into and exit from the fund and other areas of operation.
In India, as in most countries, these sponsors need approvals from a
regulator, SEBI (securities Exchange Board of India) in our case. SEBI
looks at track records of the sponsor and its financial strength in
granting approval to the fund for commencing operations.

A sponsor then hires an Asset Management Company to invest the

funds according to the investment objectives. It also hires another
entity to be the custodian of the asset of the fund and perhaps a third
one to handle registry work for the unit holder (subscriber) of the fund,
in the Indian context, the sponsor promote the Asset Management
Company also, in which it holds a majority stake. In many cases
asponsor can hold a 100% stake in the Asset Management Company
(AMC).
A mutual fund is like a big pizza cut into slices. Each slice is called a
share. The share price is called the Net Asset Value (NAV). Unlike a
stock price that will fluctuate all day long, the mutual fund price
changes only once a day, at the close of the stock market
Each Mutual Fund has a specific stated objective

The fund’s objective is laid out in the fund’s prospectus, which is the
legal document that contains information about the fund, its history, its
officers and its performance.
 Some popular objectives of
a mutual fund are:

FUND OBJECTIVE WHAT THE FUND

WILL INVEST IN
Equity (growth) Only in stocks
Debt (income) Only in fixed-income securities
Money Market (including Gilt) In short-term money market
instrument (including government
securities)
Balanced Partly in stocks and partly in fixed-
income securities, in order to
maintain a 'balance' in return and
risk

Flow chart of how mutual fund works

The company that puts together a mutual fund is called an AMC.
An AMC may have several mutual fund schemes with similar or
varied investment objectives.

The AMC hires a professional money manager, who buys and sells
securities in line with the fund’s stated objective.

All AMCs regulated by SEBI, funds governed by board of directors

Organisation of mutual work

The securities and exchange Board of India (SEBI) mutual fund
regulations require that the fund’s objectives are clearly spelt out in
the prospectus.

In addition, every mutual fund has a board of directors that is supposed

to represent the shareholder’s interest, rather than the AMC’s

A mutual fund is a company that combines, or pools, investors' money

and, generally, purchases stocks or bonds. Ideally, a fund's size and
resultant efficiency, combined with experienced management, provide

advantages for investors that include diversification, expert stock

and bond selection, low cost, and convenience.

In terms of legal structure, a mutual fund is a corporation that receives

preferential tax treatment under the U.S. Internal Revenue Code. The
assets of a mutual fund consist almost entirely of the securities it holds
in its portfolio. The most common type of mutual fund, called an open-
end fund, allows investors to buy and sell stock in it on an ongoing
basis.
CHAPTER - 7 HISTORY OF
MUTUAL FUND
 HISTORY OF MUTUAL FUND

When three Boston securities executives pooled their money together

in 1924 to create the first mutual fund, they had no idea how popular
mutual funds would become.

The idea of pooling money together for investing purposes started in

Europe in the mid-1800s. The first pooled fund in the U.S. was created
in 1893 for the faculty and staff of Harvard University. On March 21st,
1924 the first official mutual fund was born. It was called the
Massachusetts Investors Trust.

After one year, the Massachusetts Investors Trust grew from $50,000
in assets in 1924 to $392,000 in assets (with around 200
shareholders). In contrast, there are over 10,000 mutual funds in the
U.S. today totaling around $7 trillion (with approximately 83 million
individual investors) according to the Investment Company Institute.
The stock market crash of 1929 slowed the growth of mutual funds. In
response to the stock market crash, Congress passed the Securities
Act of 1933 and the Securities Exchange Act of 1934. These laws
require that a fund be registered with the SEC and provide prospective
investors with a prospectus. The SEC (U.S. Securities and Exchange
Commission) helped create the Investment Company Act of 1940
which provides the guidelines that all funds must comply with today

With renewed confidence in the stock market, mutual funds began to

blossom.
In 1976, John C. Bogle opened the first retail index fund called the
First Index Investment Trust. It is now called the Vanguard 500 Index
fund and in November of 2000 it became the largest mutual fund ever
with $100 billion in assets.
One of the largest contributors of mutual fund growth was Individual
Retirement Account (IRA) provisions made in 1981, allowing
individuals (including those already in corporate pension plans) to
contribute $2,000 a year. Mutual funds are now popular in employer-
sponsored defined contribution retirement plans (401k), IRAs and Roth
IRAs.

Mutual funds are very popular today, known for ease-of-use, liquidity,
and unique diversification capabilities
Mutual funds are not an American invention.

The first was started in the Netherlands in 1822, and the second in
Scotland in the 1880's.

Originally called investment trusts, the first American one was the New
York Stock Trust, established in 1889. Most that followed were begun
in Boston in the early 1920's, including the State Street Fund,
Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder,
Pioneer, and the Putnum Fund. The Wellington Fund, the first

balanced fund that included both stocks and bonds, was founded in
1928, and today is part of the giant Vanguard Funds Group.
In the 1960's there was a phenomenal rise in aggressive growth funds
(with very high risk). Sometimes called "go-go" or "hot-shot" funds,
they received the majority of the billions of dollars flowing into mutual
funds at that time. In 1968 and 1969, over 100 of these new
aggressive growth funds were established.

A severe bear market began in the autumn of 1969. People became

disillusioned with stocks and mutual funds. "The market's toast will
never get back to where it was!" was echoed by panicked investors.

Unemployment grew; inflation went crazy, and investors pulled billions

back out of the funds. They should have hung in there! Many funds
have risen 9,000% since then.

The 1970's saw a new kind of fund innovation: funds with no sales
commission called "no load" funds. The largest and most successful no
load family of funds is the Vanguard Funds, created by John Bogle in
1977.

At the end of the 1920's there were only 10 mutual funds. At the end of
the 1960's there were 244. Today there are more than 6,500 unique
funds and even thousands more that differ only by their share class
(how they are sold, and how their expenses are charged).

Before we continue with all you need to know about mutual funds, here
is something that merits your attention.

Since 1940, no mutual fund

has gone bankrupt. You sure
can't say that about banks and
savings and loans!
 CHAPTER – 8
GROWTH OF MUTUAL FUNDS SINCE IT’S
INCEPTION
 GROWTH OF MUTUAL FUNDS SINCE IT’S
INCEPTION

Just 76 years ago the mutual fund industry was born in the United
States. The first open-end mutual fund, Massachusetts Investors Trust
was founded on March 21, 1924 and after one year had 200
shareholders and $392,000 in assets. The entire industry, which
included a few closed-end funds, represented less than $10 million in
1924. At the end of December 1999, the industry's explosive growth
includes more than 8,000 mutual funds with over $6.8 trillion in assets.

First 27 Years Experienced Slow Growth

Growth for the industry during the first 27 years was slow. In 1951, the
number of funds surpassed 100 and the number of shareholders
exceeded 1 million. It wasn't until 1954 that the stock market finally
rose above its 1929 peak and by the end of the fifties there were 155
mutual funds with $15.8 billion in assets. In 1967 funds hit their best
year, one quarter earning at least 50% with an average return of 67%,
but it was done by cheating using borrowed money, risky options, and
pumping up returns with privately traded "letter stock." By the end of
the 60's there were 269 funds with a total of $48.3 billion.
Index Funds are Born in 1970s

In 1976, John C. Bogle opened the first retail index fund - First Index
Investment Trust (now the largest index fund - Vanguard 500 Index)
and the next year Peter Lynch took over at Fidelity Magellan, now the
largest stock mutual fund. The two funds are battling for top spot and
some think the Vanguard 500 Index will surpass Fidelity Magellen by
the year 2000. By the end of the 70s there were 524 funds with $94.5
billion in assets.

Major Growth after IRA Introduced

In 1981, Congress created the Individual Retirement Account and by

the end of the 80s there were 2,917 funds and $982 billion in assets.
The next big change for the industry was in 1991 when Morningstar
introduced its "star ratings." By 1994, 75% of all new investments were
in funds with a rating of four or five stars. In 1992, Charles Schwab
started One Source, the first "fund supermarket."
As of December 1998, stock mutual funds account for $2.981 trillion or
53.9% of total mutual fund industry assets. Money market funds
account for 24.5% ($1.353 trillion), bond funds comprise 15.0%
($830.5 billion), and hybrid funds hold 6.6% ($365.1 billion). Mutual
funds held about 20% of all publicly traded U.S. stocks in 1998. The
remaining 80% was held by households, private pension funds, state
and local government retirement funds, insurance companies, private
trusts, residents of foreign countries, and other investors. These
numbers are gathered by the Investment Company Institute.
 CHAPTER - 9
HISTORY OF THE INDIAN MUTUAL FUND
INDUSTRY
 HISTORY OF THE INDIAN MUTUAL FUND
INDUSTRY

The mutual fund industry in India started in 1963 with the formation of
the Unit Trust Of India, at the initiative of the government of India and
Reserve Bank. The history of mutual funds in India can be broadly
divided into four distinct phases, which are as follows:

Phase I (Monopoly of UTI) 1964-87:

This period was marked by the operational of a single institution, UTI,

which prepared ground for the future mutual fund industry.
The first and still most popular, product launched by UTI was unit64.
Due to the immense popularity of unit64, UTI launched was unit64.
Another popular scheme, Unit Linked Insurance Plan (ULIP), was
launched in 1971. By the end of June 1974 there were 6-lakh unit
holder with UTI.

An act of parliament established Unit Trust of India (UTI) in 1963. It

was set up by the Reserve Bank of India and functioned under the
regulatory and administrative control of the Reserve Bank of India. In
1978 UTI was delinked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control
in place of RBI. The first scheme launched by UTI was Unit Scheme
1964. At the end of 1988 UTI had Rs 6700 crores of assets
management.

Phase II (Public Sector Competition) 1987-199

This period was marked by the entry of non-UTI public Sector mutual
funds in the market, bringing in competition. With the opening up of the
economy many public sector financial institutions established mutual
funds in India. However, the mutual funds industry remained the
exclusive domain of public sector in this period.

1987 marked the entry of non-UTI, public sector mutual funds set up
by public sector banks and Life Insurance Corporation of India (LIC)
and General Insurance corporation of India (GIC). SBI mutual fund was
the first non-UTI mutual fund established in June 1987 followed by Can
bank Mutual fund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jan 90), Bank
of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in
June 1989 while GIC had set up its mutual fund in December 1990. At
the end of 1993, the mutual fund industry had assets under
management of Rs 4700 crores.

Phase III (Entry of Private Sector Fund) 1993-2003:

A new era in the mutual fund industry began with entry of private
sector funds in 1993, posing a serious competition to the existing
public sector funds. The first private sector mutual fund to launch a
scheme was the Madras based Kothari pioneer Mutual fund. It
launched the open-ended prima fund in November 1993.
With the entry of private funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also,1993 was the year in which the first mutual fund
Regulations came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari pioneer
(now merged with Franklin templton) was the private sector mutual
fund registered in July 1993. The 1993 SEBI (mutual Fund)
Regulations were substituted by a more comprehensive and revised
mutual fund regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) regulations 1996. The number of mutual fund
houses went on increasing, with many foreign mutual funds setting up
funds in India and also the industry was witnessed several mergers
and acquisitions. As at the end of January 2003, there were 33 mutual
funds with total asset of Rs 1, 21,805 crores.

PHASE IV (Since February 2003):

In February 2003, following the repeal of the Unit Trust of India Act
1963 UTI was bifurcated into two separate entities. One is the
specified undertaking of the Unit Trust of India with assets under
management of Rs 29,835 crores as at the end of January 2003.

The second is the UTI mutual fund LTD, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the mutual fund
regulations. At the end of October 31,2003, there were 31 funds, which
manage asset of Rs 126726 crores under 386 scheme.
 CHAPTER - 10
MUTUAL FUND AND ITS CLASSIFICATION
MUTUAL FUND AND ITS CLASSIFICATION:

Income Funds

These are also known as debt funds since they invest in debt
instruments issued by the government, private companies’ banks and
financial institutions. By investing in debt, these funds target low risk
and stable income to the investors. While returns in these funds may
be regular, their scale may fluctuate depending on the prevailing
interest rates and the credit quality of the debt securities.

Liquid Funds

Also know as Money market funds as they invest in securities of short

term nature, typically securities of less than one-year maturity like
Treasury Bills issued by the government, Certificate of Deposits issued
by banks and Commercial Paper issued by companies as well as in
the inter- bank call money market. These funds are considered to be at
the lowest rung in the hierarchy of risks

Equity Funds

As the name suggests these funds invest in stock market securities.

They are exposed to the equity price fluctuation risk at the market
level, industry level and also the specific company level. These price
movements are caused by external factors, political and social as well
as economic factors. Thus the Net Asset values of these funds
fluctuate with all price movements. Equity investments are for a longer
time horizon and a well managed equity fund can get you higher
returns but also carries higher risks.

Gilt Funds

These funds invest in government paper called dated securities. As the

investments are in government paper these funds have little risk of
default and hence offer better protection of principal. However, one
must recognize the potential changes in values of debt securities held
by the funds that are caused by changes in the market price of these
securities as a result of change in the market price of these debt
securities.

Balanced Funds

These funds, as the name suggests, are a mix of both equity and debt
funds. They invest in both equities and fixed income securities in line
with pre-defined investment objectives. The aim at providing a
balanced mix of capital appreciation through investments in equities
coupled with investments in stable instruments like bonds etc.
 CHAPTER – 11
TYPES OF MUTUAL FUNDS
TYPES OF MUTUAL FUNDS

A Mutual Fund may float several schemes, which may be classified on

the basis of its structure, its investment objectives and other objectives.

Types of Schemes
MUTUAL FUND SCHEME BY STRUCTURE

Open-Ended Funds:

Open-Ended fund scheme is open for subscription all through year. An

investor can buy or sell the units at "NAV" (Net Asset Value) related
price at any time.
The investments of these schemes will predominantly be in the stock
markets and endeavor will be to provide investors the opportunity to
benefit from the higher returns which stock markets can provide.
However they are also exposed to the volatility and attendant risks of
stock markets and hence should be chosen only by such investors who
have high risk taking capacities and are willing to think long term.
Equity Funds include diversified Equity Funds, Sectoral Funds and
Index Funds. Diversified Equity Funds invest in various stocks across
different sectors while sectoral funds which are specialized Equity
Funds restrict their investments only to shares of a particular sector
and hence, are riskier than Diversified Equity Funds. Index Funds
invest passively only in the stocks of a particular index and the
performance of such funds move with the movements of the index

Close-Ended Funds:

A Close-Ended fund is open for subscription only during a specified

period, generally at the time of initial public issue that generally ranges
from 3 to 15 years.. The Close-Ended fund scheme is listed on the
some stock exchanges where an investor can buy or sell the units of
this type of scheme.

SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor.

Interval Funds:

Interval Funds combines both the features of Open-Ended funds and

Close-Ended funds.
 Chapter – 12
Mutual fund Scheme by Investment
Objectives
Mutual fund scheme by investment
objectives:

Growth Funds:

The objective of Growth Fund scheme is to provide capital appreciation

over the medium to long term. This type of scheme is an ideal scheme
for the investors seeking capital appreciation for a long period.

Income Funds:

The Income Fund schemes objective is to provide regular and steady

income to investors.
BALANCED FUND

The objective of Balanced Fund schemes is to provide both growth and

regular income to investors.

Money Market Funds

The objective of Money market funds is to provide easy liquidity,
regular income and preservation of income.

Money market funds also come in two varieties, taxable and tax-free.
Taxable funds buy the best-yielding short-term corporate, agency, or
government issues available, while tax-free funds are limited to buying
primarily municipal debt. Taxable funds pay slightly higher income than
tax-free funds, but you must pay tax on any distributions they make. In
either case, the rate a fund pays is roughly the same as bank money
market accounts or CDs.

Load Funds:

A load fund is one that charges a commission for entry or exit. That is,
each time you buy or sell units in the fund, a commission is payable.
Typically entry and exit loads range from 1% to 2%. It could be worth
paying the load, if the fund has a good performance history.

• No Load Funds:

A No Load Fund is one that does not charge a commission for the
entry or exit. That is, no commission is payable on purchase or sale of
units in the fund. The advantage of a no load fund is that the entire
corpus is put to work.
 Other fund
• Tax Saving Schemes:

The objective of Tax Saving schemes is to offer tax rebates to the

investors under specific provisions of the Indian Income Tax Laws.
Investment made under some schemes are allowed as deduction u/s
88 of the Income Tax Act.

• Industry specific Schemes:

Industry specific schemes invest only in the industries specified in the

offer document of the schemes.

• Sectorial Schemes:

The schemes invest particularly in a specified industries or initial public

offering.

• Index schemes:

Such schemes link with the performance of BSE sensex or NSE.

 CHAPTER - 13
ADVANTAGES OF INVESTMENT IN MUTUAL
FUND
Advantages of Investment in Mutual Fund

Mutual Funds offer several benefits to an investor that unmatched by

the other investment options. The major benefits are good post-tax
returns and reasonable safety, the other benefits in investing in Mutual
Funds are

• Professional Management:

Mutual Funds employ the services of experienced and skilled

professionals and dedicated investment research team. The whole
team analyses the performance and balance sheet of companies and
selects them to achieve the objectives of the scheme.

• Potential Return:

Mutual Funds have the potential to provide a higher return to an

investor than any other option over a reasonable period of time.

• Diversification:

Mutual Funds invest in a number of companies across a wide cross

section of industries and sectors.
 • Liquidity:

The investor can get the money promptly at the net asset value related
prices from the Mutual Funds open-ended schemes. In close-ended
schemes, the units can be sold on a stock exchange at the prevailing
market price.

• Low Cost:

Investment in Mutual Funds is a less expensive way in comparison to a

direct investment in capital market.

• Transparency:

Mutual Funds have to disclose their holdings, investment pattern and

the necessary information before all investors under a regulation
framework.

• Flexibility:

Investment in Mutual Funds offers a lot of flexibility with features of

schemes such as regular investment plan, regular withdrawal plans
and dividend reinvestment plans enabling systematic investment or
withdrawal of funds.
 • Affordability:

Small investors with low investment fund are unable to high-grade or

blue chip stocks. An investor through Mutual Funds can be benefited
from a portfolio including of high priced stock.

• Well regulated:

All Mutual Funds are registered with SEBI, and SEBI acts a watchdog,
so the Mutual Funds are well regulated
 CHAPTER -14

DISADVANTAGES OF MUTUAL FUNDS

Disadvantages of Mutual Funds

• Fluctuating Returns:

Mutual funds are like many other investments without a guaranteed

return. There is always the possibility that the value of your mutual
fund will depreciate. Unlike fixed-income products, such as bonds and
Treasury bills, mutual funds experience price fluctuations along with
the stocks that make up the fund.

• Diversification:

Although diversification is one of the keys to successful investing,

many mutual fund investors tend to over diversify. The idea of
diversification is to reduce the risks associated with holding a single
security; over diversification (also known as diworsification) occurs
when investors acquire many funds that are highly related and so don't
get the risk reducing benefits of diversification.

• Cash, Cash and More Cash:

Mutual funds pool money from thousands of investors, so everyday

investors are putting money into the fund as well as withdrawing
investments. To maintain liquidity and the capacity to accommodate
withdrawals, funds typically have to keep a large portion of their
portfolio as cash. Having ample cash is great for liquidity, but money

sitting around as cash is not working for you and thus is not very
advantageous.
Costs:

In mutual funds the fees are classified into two categories:

shareholder fees and annual fund-operating fees.

The shareholder fees, in the forms of loads and redemption fees are
paid directly by shareholders purchasing or selling the funds. The
annual fund operating fees are charged as an annual percentage -
usually ranging from 1-3%. These fees are assessed to mutual fund
investors regardless of the performance of the fund. When the fund
doesn't make money these fees only magnify losses.

• Misleading Advertisements:

The misleading advertisements of different funds can guide investors

down the wrong path. Some funds may be incorrectly labeled as
growth funds, while others are classified as small-cap or income.

EVALUATING COST

Another disadvantage of mutual funds is the difficulty they pose for

investors interested in researching and evaluating the different funds.
Unlike stocks, mutual funds do not offer investors the opportunity to
compare the P/E ratio, sales growth, earnings per share, etc
 CHAPTER - 15

STRUCTURE OF INDIAN MUTUAL FUND

INDUSTRY
STRUCTURE OF INDIAN MUTUAL FUND
INDUSTRY
 CHAPTER - 16

Mutual Funds in India

MUTUAL FUNDS IN INDIA

Mutual funds have been a significant source of investment in both

government and corporate securities. It has been for decades the
monopoly of the state with UTI being the key player, with invested
funds exceeding Rs.300bn. (US$ 10bn.). The state-owned insurance
companies also hold a portfolio of stocks. Presently, numerous
mutual funds exist, including private and foreign companies. Banks---
mainly state-owned too have established Mutual Funds (MFs).
Foreign participation in mutual funds and asset management
companies is permitted on a case by case basis.

UTI, the largest mutual fund in the country was set up by the
government in 1964, to encourage small investors in the equity market.
UTI has an extensive marketing network of over 35, 000 agents spread
over the country. The UTI scrip’s have performed relatively well in the
market, as compared to the Sensex trend. However, the same cannot
be said of all mutual funds.

All MFs are allowed to apply for firm allotment in public issues. SEBI
regulates the functioning of mutual funds, and it requires that all MFs
should be established as trusts under the Indian Trusts Act. The actual
fund management activity shall be conducted from a separate asset
management company (AMC). The minimum net worth of an AMC or its
affiliate must be Rs. 50 million to act as a manager in any other fund.
MFs can be penalized for defaults including non-registration and failure to
observe rules set by their AMCs. MFs dealing exclusively with

money market instruments have to be registered with RBI. All other

schemes floated by MFs are required to be registered with SEBI.
In 1995, the RBI permitted private sector institutions to set up
Money Market Mutual Funds (MMMFs). They can invest in
treasury bills, call and notice money, commercial paper,
commercial bills accepted/co-accepted by banks, certificates of
deposit and dated government securities having unexpired
maturity upto one year.
Before investing in a Mutual Fund an investor must identify his needs
and preferences. While selecting a Mutual Fund's schemes he should
consider the effect of inflation rate, diversification of investment, the
time period of investment and the risk factors. There are various type
of risk factors as:

• Market Risk
• Credit Risk
• Interest Rate Risk
• Inflation Risk
• Political Environment

CRISIL's composite performance ranking (CPR) measures the

performance for each of the open-ended scheme of Mutual Fund.
There are four parameters considered to measure the performance
of a mutual fund such as Risk-adjusted returns of the scheme's NAV,
Diversification of Portfolio, Liquidity and Asset Size.
By December 2004, Indian mutual fund industry reached Rs 1,
50,537 crore. It is estimated that by 2010 March-end, the total assets
of all scheduled commercial banks should be Rs 40, 90,000 crore.
The annual composite rate of growth is expected 13.4% during the rest
of the decade. In the last 5 years we have seen annual growth rate.
Some facts for the growth of mutual funds in
India:

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the que to enter the Indian

markets like Fidelity Investments, US based, with over
US$1trillion assets under management worldwide.

• Our saving rate is over 23%, highest in the world. Only

channelizing these savings in mutual funds sector is required.

• We have approximately 29 mutual funds which is much less than

US having more than 800. There is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly. Today most of the
mutual funds are concentrating on the 'A' class cities. Soon
they will find scope in the growing cities.
• Mutual fund can penetrate rural like the Indian insurance industry
with simple and limited products.

• SEBI allowing the Mutual Fund's to launch commodity

mutual funds.

• Emphasis on better corporate governance.

 • Trying to curb the late trading practices.

• Introduction of Financial Planners who can provide need based

advice.

Tax aspect of Mutual fund

• Dividend Made Tax-free

Dividend received from a domestic company and income distributed

by UTI-I or any MF, to its unit holders has been made tax-free from
1.4.03 onwards. However, dividend declared, distributed or paid by
such sources shall be charged a distribution tax of @12.8125% flat.
This distribution tax is in addition to the normal income tax payable by
them.
• Capital Gain Tax:

Capital gains are generated through the sale of stocks, bonds and
other investments, which have appreciated in value, from the fund’s
portfolio. Net capital gains are taxed at the 15% cap.

• LTCG on Equities Exempt

Long-term capital gains arising from transfer of shares purchased

through a recognized stock exchange, on or after 1.3.03 but before
 1.3.04 are exempt from income tax. This exemption is restricted to
only those shares figuring in the BSE-500 index as on 1.3.03. If
during the course of the year, any of these shares are replaced with
another stock in the index, investors who had purchased the share
prior to its replacement will continue to enjoy the benefit.
The benefit is also extended to shares of companies making
Initial Public Offers during the year.

Income received from Mutual Fund:

The Internal Revenue Service might depend upon the nature of

your mutual fund investment. Generally, most income generated
from a mutual fund account, with the exception of tax-exempt
money market or municipal bond funds, is subject to federal taxes
as ordinary income or capital gains

• Wealth Tax:

Under sec 21(e), Wealth tax is not treated as an asset. Therefore

this is exempted from tax liability.
• Gift Tax:

Mutual Fund may be given as a gift and no tax is applicable by

donor or donee.

• TDS on Redemption:

No TDS is required to be deducted from capital gain at the time of

redemption in case of mutual fund.

Tax benefits on investment in Mutual Fund:

100% Income Tax Exemption on all Mutual Fund dividends.

• Capital Gains tax to be lower of –

10% on the capital gains without factoring indexation

benefits and
20% on the capital gains after factoring indexation benefits.

Open-end funds with equity exposure of more than 50% are exempt of
dividend tax for a period of 3 years from 1999-2000.

Another Investment Avenue featuring in the list of “eligible” instruments

is the Equity Linked Saving Scheme or tax saving funds. Simply put,
these are mutual fund schemes wherein investment upto Rs 10,000
qualify for Section 88 benefits. Investors are given the unique
opportunity to invest in an equity-linked product and still claim tax
benefits on the same; which is quite a departure from conventional tax
saving instruments. Tax saving funds has a mandatory 3-Yr lock in
period, which distinguishes them from conventional equity-oriented
funds, which have no constraints on liquidity.

Tax saving funds: Smart long-term performers!

Tax Saving Funds NAV (Rs) 1-Yr 3-Yr 5-Yr SD SR

HDFC LONG TERM ADV. 46.63 41.52 68.36 - 6.17% 0.76%
% %
BIRLA EQUITY PLAN 35.50 19.55 55.01 12.10 7.23% 0.62%
% % %
MAGNUM TAXGAIN 32.45 47.12 51.95 0.13% 7.96% 0.64%
% %
PRU ICICI TAX 41.91 30.89 51.93 15.76 7.93% 0.59%
% % %
HDFC TAX SAVER 61.15 42.46 51.40 - 5.72% 0.78%
% %

(Source: Credence Analytics. NAV data as on Jan 7, 2014.

Growth over 1-Yr is compounded annualized)

(The Sharpe Ratio is a measure of the returns offered by the fund

vis-à-vis those offered by a risk-free instrument) (Standard deviation
highlights the element of risk associated with the fund.)
Terms related to mutual fund

• Net Asset Value

"Net asset value," or "NAV," of an investment company is the

company’s total assets minus its total liabilities. For example, if an
investment company has securities and other assets worth $100
million and has liabilities of $10 million, the investment company’s NAV
will be $90 million. Because an investment company’s assets and
liabilities change daily, NAV will also change daily. NAV might be $90
million one day, $100 million the next, and $80 million the day after.

Mutual funds and Unit Investment Trusts (UITs) generally must

calculate their NAV at least once every business day, typically after the
major U.S. exchanges close .A closed-end fund, whose shares
generally are not "redeemable"—that is, not required to be
repurchased by the fund—is not subject to this requirement.

An investment company calculates the NAV of a single share (or the "per
share NAV") by dividing its NAV by the number of shares that are
outstanding. For example, if a mutual fund has an NAV of $100 million,
and investors own 10,000,000 of the fund’s shares, the funds per

share NAV will be $10. Because per share NAV is based on NAV,
which changes daily, and on the number of shares held by investors,
which also changes daily, per share NAV also will change daily. Most

mutual funds publish their per share NAVs in the daily newspapers.

The share price of mutual funds and traditional UITs is based on their
NAV. That is, the price that investors pay to purchase mutual fund and
most UIT shares is the approximate per share NAV, plus any fees that
the fund imposes at purchase (such as sales loads or purchase fees).
The price that investors receive on redemptions is the approximate per
share NAV at redemption, minus any fees that the fund deducts at that
time (such as deferred sales loads or redemption fees).

Example:

You invest $1,000 in a mutual fund with an NAV of $10.00. You will
therefore own 100 shares of the fund. If the NAV drops to $9.00
(because the value of the fund's portfolio has dropped), you will still
own 100 shares, but your investment is now worth $900. If the
NAV goes up to $11.00, your investment is worth $1,100. (This
example assumes no sales charge.)

.Sale Price

Is the price you pay when you invest in a scheme.Also called Offer
Price. It may include a sales load.
 • Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it

may include a back-end load. This is also called Bid Price.

• Redemption Price

Is the price at which open-ended schemes repurchase their units and

close-ended schemes redeem their units on maturity. Such prices are
NAV related.

• Sales Load

Is a charge collected by a scheme when it sells the units. Also called,

‘Front-end’ load. Schemes that do not charge a load are called ‘No
Load’ schemes.

• Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the
unit holders.
 CHAPTER – 17

ASSET MANAGEMENT COMPANY

Asset Management Company

In an endeavor to enlarge the range of services available to our

customers, PNB has been distributing the products of Principal PNB
Asset Management Company Pvt. Ltd. from its designated branches.
In recent times Mutual funds have gained rapid popularity as a good
investment vehicle. The variety of schemes and income options offered
by Mutual Funds can suit the financial preferences of all classes of
investors, be it Retail, Corporate or Institutional.

The following benefits, intrinsic to investments in Mutual Funds have

inspired greater confidence amongst the investors:

• Transparency
• Efficient Performance
• Liquidity
• Convenience
• Tax benefits

Range of schemes:

Mutual Funds offer schemes keeping in view the risk profile and risk-
return preferences of investors. For an aggressive investor with
appetite for risk, Equity oriented schemes are available which have a

Higher potential for capital appreciation. For a conservative

investor with expectations of stable returns and low
risk, Income Schemes are available. To suit various type of
requirements of the investors, following is the range of
schemes offered by PRINCIPAL PNB AMC:
Principal Growth Scheme: Open-ended equity fund with an investment
portfolio of stocks diversified across different sectors of the economy.

• Principal balanced Fund:

Open ended fund with an equity (diversified) component of 51% to

70% and Debt component (including Money Market) 30% to 49%.
Principal Income Fund: Open-ended fund with up to 100%
investment in Debt instruments (including Money Market instruments
and securitized debt)

• Principal Income Fund –

Short Term Debt: Open-ended short term maturity debt fund aimed at
providing stable returns with lower to negligible risks. Fund invests in
debt securities, predominantly 100% money market instruments and
securitized debt.

• Principal Cash management Fund:

Open-ended fund that invests 100% of its corpus in Money Market

instruments and seeks to provide an excellent avenue to park very

Short term cash surpluses and earn returns linked to the call
money market rates.
• Principal Index Fund:

Open-ended fund that tracks S&P CNX Nifty (NSE) closely. The aim of
the fund is to provide its investors returns commensurate with the Nifty.

• Principal Government Securities Fund:

Open-ended dedicated Gilt scheme investing in Government

Securities.

Innovative options to facilitate greater control over investments:

Mutual Funds have options such as Systematic Investment Plans,
Systematic withdrawal plan, Trigger Option, Automatic Rebalancing,
Dividend Re-investment, etc that enable you to get the most out of
your investment in Mutual Funds.

• Distribution Reach

The distribution services of Mutual Fund products are available at

selected branches of all the zones except Bihar, Chhatisgarh and
Jharkhand.
Risk Profile

Mutual Fund investments are subject to market risks. Please read the
offer document of the scheme carefully for details on risk factors before
investment. Punjab National Bank does not guarantee any assured
returns for your investments through Mutual Fund.
 CHAPTER -18
HOW TO INVEST IN MUTUAL FUND
HOW TO INVEST IN MUTUAL FUND

Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, and level of income and expenses
among many other factors. Therefore, the first step is to assess your
needs. You can begin by defining your investment objectives and
needs which could be regular income, buying a home or finance a
wedding or educate your children or a combination of all these needs,
the quantum of risk you are willing to take and your cash flow
requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which
suits your requirements. The offer document of the scheme tells you its
objectives and provides supplementary details like the track record of
other schemes managed by the same Fund Manager. Some factors to
evaluate before choosing a particular Mutual Fund are the track record
of the performance of the fund over the last few years in relation to the
appropriate yardstick and similar funds in the same category. Other
actors could be the portfolio allocation, the dividend yield and the
degree of transparency as reflected in the frequency and quality of
their communications.
Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your
investment needs. You may consider investing in a combination
of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals,

say every month. By investing a fixed sum each month, you buy fewer
units when the price is higher and more units when the price is low,
thus bringing down your average cost per unit. This is called rupee
cost averaging and is a disciplined investment strategy followed by
investors all over the world. You can also avail the systematic
investment plan facility offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment

plan. If you start now, you will make more than if you wait and invest
later. The power of compounding lets you earn income on income and
your money multiplies at a compounded rate of return.
Step Six - The final step

All you need to do now is to Click here for online application forms of
various mutual fund schemes and start investing. You may reap the
rewards in the years to come. Mutual Funds are suitable for every kind
of investor - whether starting a career or retiring, conservative or risk
taking, growth oriented or income seeking

Things kept in mind before investing

Prospectus

By law, you should receive a prospectus from the fund company before
you invest in it. Many investors ignore the prospectus, but this is a
must read. The mutual fund's objectives are displayed in the
prospectus. It tells you the goals of the fund and how it intends to
achieve them. You will also find information about the fund's past
performance and fees.
• Mutual Fund Families
• Mutual Fund Glossary
• Mutual Fund Fees
The fees are displayed in the prospectus as well as on many mutual
fund research sites. Try to buy funds with low expense ratios and
certainly avoid 12b-fees. I have yet to hear a valid argument on why
you should ever buy a loaded fund. A loaded fund is a fund that carries
front-end loads, back-end loads or deferred loads. These loads are
basically sales charges. There are plenty of no-load funds to meet your
objectives.
 CHAPTER - 19
GROWTH IN MUTUAL FUNDS SECTOR
GROWTH IN MUTUAL FUNDS SECTOR

“Mutual funds are shuddering at the prospect of an economic recovery.

But they have enough time to consolidate their client base.”

The Smart Investor Team

Normally a recovery means good news for all, consumers,

manufacturers and service providers. But hold on. Mutual funds aren't
very enthusiastic, though. Why? Because, the biggest investors in the
domestic mutual fund industry today are large corporates and banks.

These investors have put in more than 50 per cent of total assets of
the industry. And, a recovery means that corporates may pull out their
money to invest in their core activities. Similarly, a revival in credit
demand on the back of a recovery means that banks may need to pull
out their investments from mutual funds to meet the demand.

That's perhaps why mutual funds are pulling such long faces at the
prospect of a recovery. What if the economy recovers and corporates
go on a spending spree? Capacity expansions, merger and acquisition
activity and better credit demand would require corporates and banks
to encash their existing investments to plough back in their core
business.

Obviously, there is a strong possibility of large scale redemptions.

While fund companies see this issue as a matter of concern, they are
optimistic about guarding their current assets.

Tata TDW Mutual Fund, "Despite an economic recovery, the fund

industry should be able to retain and in fact, grow its assets."

Is a economic recovery underway? The outlook on the economy is

pretty much positive and economists are predicting a wide-ranging
recovery led by an increase in domestic consumer demand.

According to the latest data released by the Central Statistical

Organization (CSO), the Indian economy grew 4.3 per cent in 2002-03.
With the manufacturing and services sectors growing at 6.0 per cent
and 7.1 per cent respectively, the poor performance of the agriculture
sector dragged down the overall growth. Growth in the agricultural
sector declined 3.2 per cent last fiscal. The growth in manufacturing
industry was led by buoyant exports and a boost to construction
activity.

This year, again, the manufacturing sector is expected to grow at a

faster clip. The overall manufacturing outsourcing story should mean
more business for Indian manufacturing companies too.
Construction is again going to be a key driver. So sectors like steel and
cement have already seen a quantum jump in demand and many loss-
making companies such as Ispat, Essar, and the Jindal group have
turned profitable. Similarly, many other sectors such as consumer
durables and textiles are seeing demand-led growth. Many of these
Corporate houses are thus focusing on the longer-term targets. Some
sectors like steel are already talking of capacity expansion and green
field projects. Others like cement have been seeing consolidation.
However, as Sanjeev Bafna, senior vice-president Corporate finance,
Grasim Industries says "It will take 1-2 years for the Indian industry to
start committing funds into expansions."
But whenever it happens, will corporate queue up for redemptions?
And secondly, will banks and financial institutions, which have invested
their surplus funds in mutual funds on the back of poor credit off take in
the last couple of years, divert their money into lending?

The latter, of course, is a definite possibility. Last year, lending

behemoth IDBI was among the biggest investors in mutual funds.
Others such as ICICI bank and HDFC also figured in the list of biggest
investors.

While Reliance Industries was one of the largest investors in mutual

funds, mutual fund sources say that some of the other big investors are
from the banking industry. For instance, both IDBI and SIDBI are said
to have a considerable exposure in rolling over surplus funds in mutual
funds. Other big players in the sector include the Finolex Group, ICICI
Bank, Bank of India, Central bank and LIC Housing Finance.

Clearly, a lot depends on the outlook for the economy. Any revival will
result in an increase in credit off take and thus, funds will have to be
redirected from the market to industry. But the probability of that
happening in the near-term is bleak: there is a huge amount of liquidity
in the banking sector, and further rate cuts will only add to it.
But corporate money pulling out may not be that big a threat. Here is
why. Companies typically park their surplus cash in treasury
instruments (liquid fund schemes). And, they deploy money considered
surplus in a slightly longer horizon into medium term funds. As a matter
of fact, improved cash flow for corporate will only increase the
popularity of liquid funds. Even more, they say that today financially
healthy corporate will find it less prudent to pull out money from
investments like mutual funds to fund expansions because borrowed
funds are so cheap, Also, capital expenditure is never lumped together
but is spread over a period of time and prudence requires a judicious
mix of debt and equity depending on the project size, horizon of
returns, gestation period etc. Hence there will not be any sudden
withdrawal of funds from the market. Such expenditure is planned in
advance and as result, a company cannot take the risk of a sudden
withdrawal of its investment.

Opportunity cost of money

To get a feel of this, look at the opportunity cost of money. Currently,
companies have witnessed around a 500-600 basis points reduction in
interest costs on long-term debt from about 16 per cent-plus in 1998-
99 to about 10 per cent now, and even lesser for top rated corporates,
which can raise money at around 5.5-6.0 per cent per annum. As a
result, it is much more attractive to fund investments by taking on
additional debt while continuing to earning a higher return from
deploying internal cash into market instruments such as mutual funds.
 CHAPTER - 20
ARBITRAGE BETWEEN DEBT VS. FUNDS
Arbitrage between debt vs. funds

But the main reason that the companies prefer raising debt is two-fold.
Firstly, debt is available at historically low costs and secondly, tax
considerations favor debt. These include a tax benefit on the interest
costs, a dividend distribution tax on dividend income and capital gains
tax on long-term capital gains. As a result, while effective cost of debt
is less than 4 per cent, the effective tax-adjusted return on mutual fund
investment is around 5-6 per cent.

Grasim's Bafna says "the biggest factor that will determine an outflow
of funds is the any change in the tax status of dividends and capital
gains tax on long-term capital gains". Currently, dividends from mutual
funds are tax-free in the hands of the investors except for a dividend
distribution tax of 12.81 per cent. Long-term capital gains are taxed at
10.25 per cent with indexation benefits, and at 20.5 per cent without
indexation benefits.

The banking sector, with the considerable amount of liquidity in the

system, has also been a significant investor in mutual funds. For
instance, HDFC had investments of around Rs 1500 crore in liquid
funds. According to MA Ravi Kumar, Regional

Head - Global Markets, Stanchart Grindlays "The corporate sector

accounts for a reasonable chunk of the investments in mutual funds.
NEW FUND OFFER

In the last one-year we have seen surge in the number of Equity IPOs
& Mutual Fund NFOs launched. This is because there is a significant
jump in profits of small & medium sized companies & so many loss-
making companies have been restructured and now making profits.
These companies are looking for expansion & to support their future
plans these companies are looking at IPO option. This has created
good opportunity to invest in the new companies, which are growing at
fast rate. New Mutual Fund schemes launched also got the more
options to invest collected money in various old as well as new
companies. This year so many Mutual Fund NFOs have collected
money in excess of Rs1000Cr & some of them had even crossed
Rs2000Cr mark. Some of the existing schemes with highest AUMs are
looking small if we look at these collections by MF NFOs.
Collection of Mutual Fund NFOs launched in 2014

Scheme NFO Collection (Rs Cr)

SBI Magnum Multi Cap Fund 2202
Franklin India Flexi Cap Fund 1850
Reliance Equity Opportunities Fund 1761
Fidelity Equity Fund 1695
Prudential ICICI Infrastructure Fund 1418
HDFC Premier Multi - Cap Fund 1328
Standard Chartered Classic Equity Fund 1043
Floating a NFO at the right time when markets are in correction phase
& investing the collected money on correction is proved as very
successful strategy in the last one year. This is evident as newly
launched Mutual Fund NFOs have outperformed various indices & able
to generate good returns. The below table indicates good performance
given by MF NFOs. Therefore It’s a good idea to invest in NFO’s which
could create wealth for investors like you.

Current Scenario of Mutual Fund

India is at the first stage of a revolution that has already peaked in the
U.S. the U.S. boasts if an asset base that are much higher than its
deposits. In India, mutual fund assets are not even 10% of the bank
deposits, but this trend is beginning to change. Recent figures indicate
that in the first quarter of the current fiscal year mutual fund asset went
up by 115% whereas bank deposit rose up only 17%. This is forcing a
large number of banks to adopt the concept of narrow banking wherein
the deposits are kept in Gilts and some other assets. This improves
liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and they will not completely. Their role closes down as
intermediaries cannot be ignored. It is just mutual Funds are going to
change the way banks do business in the future.
 CHAPTER - 21
COMPARISONS OF MUTUAL FUND WITH
OTHER DEPOSITS
COMPARISONS OF MUTUAL FUND WITH OTHER
DEPOSITS

BANKS V/S MUTUAL FUNDS

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS
Returns Low Better
Administrative High Low
exp.
Risk Low Moderate
Investment Less More
Options
Network High Penetration Low put improving
Liquidity At a cost Better
Quality of Not Transparent Transparent
assets
Interest Min. bal. between 10th & 30th Everyday
calculation of every month
Guarantee Max. Rs. 1Lakh on deposit None
SHARES V/S MUTUAL FUNDS

SHARES MUTUAL FUNDS

Know-how is needed Superficial know. Is sufficient
High cost involved Low Cost
Time needed one can sleep over
Professional Management.

Insurance Vs Mutual Funds

Both these instruments are designed to serve different purposes and

are not comparable. A unit-linked plan from an insurance company is
an insurance policy designed to pay a lump sum on maturity or on
death if earlier. Premium paid under these plans is eligible for tax
deduction under Section 88 of the Income Tax Act. On the other
hand, mutual funds are investment avenues to participate in the
growth of financial markets and do not provide any tax deduction
(except ELSS and pension funds).

For a unit-linked insurance plan, providing life cover is the most

important function; returns are just an added benefit, which gets
magnified, given the tax rebates. Though unit-linked plans offer
transparency in returns in terms of net asset value and flexibility in
investment options in debt, equity or mixes of both, these advantages
remain secondary, whereas for a mutual fund, the main objective is to
provide returns.

Moreover, unit-linked plans are not as liquid as mutual

 funds. There is a lock-in of three years. Even if one
redeems after three years, you would be at a loss
because of higher initial administrative charges. For
example, the upfront charges for the first two premium
amounts are as high as 20-27 per cent. Then there is an
annual management fee of 0.8-1.25 per cent and a flat
fee of Rs 15-20 per month. Finally, there is a deduction
for risk cover. This goes towards contribution to the sum
assured or the life insurance cover, which is based on
mortality rates as calculated by actuaries. Though mutual
funds too have entry and exit loads (maximum 2 per cent)
and expenses (maximum 2.5 per cent), these costs are
lower than unit-linked plans.

COMPARISON AMONG DIFFERENT

INVESTMENT AVENUES
INVESTMENT FD Real Busine Asset MF Shares RBI PPF NSC Post
AVENUES Estate ss Bonds Offic
e
RETURNS * 5.25% V V DEP V V 8% 9.50% 8% 8%
POST TAX 3.63% V V - V V 5.60% 6- 5.60% 5.60
YIELD 6.5% %
INFLATION 6% - - - - - - - - -
RRR -2.50% V V - V V -0.40% 0.65% -0.40% -
0.40
%
Pos RRR - Pos Pos - Pos Pos - - - -
LIQUIDITY - LOW LOW - HIGH HIGH LOW LOW LOW LOW
CHAPTER - 22
OTHER FUNDS
 PUBLIC PROVIDENT FUND

Scheme: Public Provident Fund

15 years and then optional extension in blocks of 5
Tenure:
years
Issue date: Perpetually Open
Closure date: At the end of the 15th year
Interest: 9.5%
Interest Payment: Yearly (Computed on monthly balance)
Effective interest rate: 9.9%
Minimum investment: Rs.100
Maximum Investment: Rs.60000 per financial year
Tax benefits: Sec.88 and Sec.10
Available. Loans can be obtained upto 25% of the
balance at the end of the 2nd preceding financial
year in the 3rd year of opening at an interest rate
1% above the prevalent PPF rate. Thus the
Loan Facility: repayment rate is now 12%. After the repayment of
the first loan is affected, a second loan can be
taken. This loan facility ceases after the end of the
th
6 financial year as after that the withdrawal facility
starts.
Available.
From the 7th year and every year thereafter, the
account holder is allowed to withdraw a maximum of
Withdrawal: 50% of the balance that is to his/her credit at the
end of the 4th or the 1st previous financial year,
whichever is lower.
1. Benefits are two fold, 20% of the amount paid
each year in the account is available as a tax rebate
Remarks: and interest earned is tax free.
2. The account can be opened even at any of the
select few nationalized banks also.
Scheme: National Savings Certificate
Tenure: 6 years
Issue date: Perpetually Open

Closure date: End of tenure

Interest: 9.5%

Interest Payment: Half-Yearly

Effective interest rate: 9.7%

Minimum investment: Rs.100

Maximum Investment: No Limit

Tax benefits: Sec. 88 and Sec.80L

Not available. However can be pledged in
Loan Facility:
a bank
Withdrawal: Not available

Remarks: None
 KISAN VIKAS PATRA

Scheme: Kisan Vikas Patra

Tenure: 6.5 years (en cashable after 2.5 years)

Issue date: Perpetually Open

Closure date: End of tenure

Interest: 9.5%

Interest Payment: Cumulative compounding

Effective interest rate: 9.5%

Minimum investment: Rs.100

Maximum Investment: No Limit

Tax benefits: Nil

Not Available. However can be pledged
Loan Facility:
in a bank.
Withdrawal: Not Available
 POST OFFICE SCHEME

Scheme: Monthly Income Scheme

Tenure: 6 years
Issue date: Perpetually Open
Closure date: Anytime after 3rd year
Interest: 11%
Interest Payment: Monthly
Effective interest rate: 11.57%
Minimum investment: Rs.6000
Rs.300000 - Individual name
Maximum Investment:
Rs.600000 - Joint Name
Tax benefits: Sec.80L
After completion of 1st year, but 5% of
Loan Facility:
the amount deposited is deducted.
After 3rd year full deposit amount can be
Withdrawal:
withdrawn without any penalties.
At the end of the 6th year, the amount
Remarks:
his repaid with 10% bonus.
 CHAPTER - 23
Current Mutual Fund Schemes
Current Mutual Fund Schemes:

One can select specific Investment Avenue from among the

products offered by the following fund houses:

Alliance Capital Mutual Fund

Benchmark Mutual Fund
Birla Sun Life Mutual Fund
BOB Mutual Fund
Can bank Mutual Fund
Chola Mutual Fund
Deutsche Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
GIC Mutual Fund
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
J M Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Morgan Stanley Mutual Fund
PRINCIPAL Mutual Fund
Prudential ICICI Mutual Fund
Reliance Mutual Fund

Sahara Mutual Fund

SBI Mutual Fund
Standard Chartered Mutual Fund
Sundaram Mutual Fund
Tata Mutual Fund
Taurus Mutual Fund
Templeton Mutual Fund UTI Mutual Fund
 CHAPTER - 24
MARKET TRENDS
MARKET TRENDS

Alone UTI with just one scheme in 1964 now competes with as many
as 400 odd products and 34 players in the market. Now with increasing
competition and losing market share, UTI no longer remains a
formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for
the industry. New players have come in, while others have decided to
close shop by either selling off or merging with others. Product
innovation is now passed with the game shifting to performance
delivery in fund management as well as service. Those directly
associated with the fund management industry like distributors,
registrars and transfer agents, and even the regulator have become
more mature and responsible.

The industry is also having a profound impact on financial market. UTI

has once been a dominant player on the bourses as well as the debt
market, but now, new generations of private funds, has gained
substantial mass, and are flexing their muscles. Fund managers by
their selection criteria for stocks have forced corporate governance on
the industry. By rewarding honest and transparent management with
higher valuations, a system of risk reward has been created where the
corporate sector is more transparent than before.

Funds have shifted their focus to the recession free sector like
pharmaceutical, FMCG and technology sector, funds performances are
improving. Funds collection, which averaged at less than Rs 100 bn
per annum over five-year period spanning 1993-1998 doubled to Rs
210 by in 1998-1999. In the financial year ending march2000 was
mobilization was above Rs 300 bn. Total collections for the financial
year march 2000 was around Rs 450 bn.
What is particularly noteworthy is that bulk of the mobilization has been
by the private sector mutual funds rather than public sector mutual
funds. Indeed private MFs saw a net inflow of Rs 7819.43 crores
during the first nine months of the year as against a net inflow of Rs
604.40 crores in case of public sector funds.
Mutual funds are now also competing with commercial banks in race
for retail investor’s savings and corporate float money. The power shift
towards mutual funds has become obvious. The coming few years will
show that the traditional saving avenues are losing out in the current
scenario. Many investors are realizing that investments in saving
account are good as locking up their deposits in a closet. The fund
mobilization trends by mutual funds in the current year indicate that
money is going to mutual funds in a big way.
 Chapter 25

LACK OF PROPER GUIDANCE

110 want to buy only sacred assets. Unless this mindset changes, it
will be difficult to get investors interested in mutual funds. Government
securities and post-office investments offer 8 per cent assured returns,
while banks offer 6 per cent. So, competition is very high. Only
sustained efforts by a trained and qualified distributor class can bring
success.
 Chapter 26
DATA ANALYSIS
 DATA ANALYSIS

Dear Sir/Madam,
I am currently engaged in a study on “Investor Perception
of Mutual Funds”. In this connection I request you to read the following
items carefully & answer them .The answers you give will be held
confidential & used purely for academic purposes.

Indicate your response by tick marking when applicable.

1.) Name:-

2.) Sex:- Male Female

3.) Age:- Below 30 31 – 40 years

41 – 50 years Above 50 years.

Academic Qualification (Last Qualification):-

Table No: 1 Source of Income

Employment Percentage of
respondents
Government 20%
employee

Private employee 45%

Self employed 35%

Source: Questionnaire
Figure:1

S ourc e of Inc ome

16
45%
14
12
35%
10
8
20%
6 S ource
of
4 Income
2
0
G overnment emoployee P rivate employee S elf employed
Interpretation 1:

The sample drawn on the probability basis clearly shows that the
source of income for 20% (6 respondents) are government employees,
45% (13 respondents) of them are private employees & 35% (10
respondents) are self employed.

Observation:

Majority of the respondents are private employees who invest in

mutual funds.
Table No: 2 Annual Income

Income Group Percentage

Below 1 Lakh 5%
1 - 3 Lakhs 10%
3- 5 Lakhs 25%
Above 5 Lakhs 60%

Source: Questionnaire

Figure: 2

Inc ome G roup

20 60%
18
16
14
12
10
8 25%
6 Income G roup
4 10%
5%
2
0
Below 1 L akh 1 - 3 L akhs 3- 5 L akhs Above 5
L akhs
Interpretation 2:

60% of the respondents approached were earned annual income more

than Rs.5 lakhs. Followed by 25% earned annual income between
Rs.3-5 lakhs, 10% annually earned somewhere between Rs.1-3 lakhs
and rest of the 5% earned less than Rs.1 lakh.

Observation:

As majority of the respondents belong to the income group earning

more than Rs.5 lakhs annually, the company should maintain the same
standard and it is suggested to come up with suitable measure to
encourage people belonging to lower income groups to invest in
mutual funds.
Table No: 3 Investments in any of the Mutual Funds.

Yes No
75% 25%

Source: Questionnaire

Figure: 3

Mutual F und Inves tments

25 75%

20

15

10
7%
Mutual F und
5 Investments

0
Y es No
Interpretation 3:

Out of 100% of the respondents 75% of the respondents

approached invested in mutual funds. Followed by 23% of the
respondents did not invest in any mutual funds.

Observation:

As majority of the respondents invested in mutual funds, the

company should maintain the same standard and it is suggested to
come up with suitable measure to reduce the negative opinion among
the respondents who did not invest in mutual funds.
Table No: 4 Rank in order of preference of savings avenue (Highest
being given 1st rank & the lowest being given 9th rank).

Factor Rank
Gold 1
Pension & Provident 2
Fund
Bank Deposits 3
Real Estate 4
Life Insurance 5
Mutual Bonds 6
Postal Savings 7
Shares 8
Currency 9

Source: Questionnaire
Interpretation 4:

The preference of the respondents approached started with raking

Gold at no. 1 as the preference of the saving avenue. Followed by
Pension & Provident Fund & Currency was ranked at last as the
preference of savings avenue.

Observation:

As Gold is ranked 1 as the source of savings avenue, the company

should be able to encourage the customers to invest in Mutual Funds
because it is far more better option for investment rather than gold.
Table No: 5 Satisfied as a Mutual Fund Investor.

Yes No
75% 25%

Source: Questionnaire

Figure: 5

S atis fac tion

25 75%

20

15

10
7%
S atisfaction
5

0
Y es No
Interpretation 5:

The sample drawn on the probability basis shows that out of

100% of respondents 75% of the respondents approached were
satisfied with the Mutual Fund investments and 25% are dissatisfied
with the investments.

Observation:

As 75% of the respondents are satisfied with the mutual fund

investments, it can be conducted that the company has undertaken
proper R&D in this aspect. The 25% of the respondents who have
answered negatively are the one who have not invested in mutual
funds.
Table No: 6 Rank the Reasons for Preference of Mutual Funds
(Highest being given 1st rank & the lowest being given 9th rank.)

Factor Rank
Safety 1
Professional 2
Management
Tax Benefit 3
Diversification 4
Good Return 5
Liquidity 6

Source: Questionnaire

Interpretation 6:

The sample drawn on the probability basis shows that the

respondents ranked Safety as the first reason & Liquidity as the last
reason for preferring the mutual funds.

Observation:

The majority of the customers preferred Mutual Funds as a Safety

measure for their inves
Table No: 7 Source of awareness about Mutual Funds.

Source Awareness
News Paper 20%
Financial Magazines 15%
Brokers/Agents 10%
T.V. 25%
Reference Groups 30%

Source: Questionnaire

Figure: 7

Source of Awareness
12
30%
10
25%
8
20%
6
15% Source of
4 Awareness
10%
2

0
News Paper Financial Brokers/Agents T.V. Reference
Magazines Groups
Interpretation 7:

Out of 100% of respondents, majority of the respondents approached

were aware of the mutual funds due to their Reference Groups,
followed by the various source of media.

Observation:

Most of the respondents approached were aware of mutual funds

because of the reference groups to which they belonged or were in
contact with.

Table No: 8 Factors affecting the decision regarding investment in

Mutual Funds

Factor Percentage
Economic Scenario 10%
Company’s Image 35%
Fund Performance 25%
Fund Management 20%
Image
Tax Incentives 10%
Source: Questionnaire

Figure: 8

F ac tors affec ting Dec is ion Making

12
35%
10
25%
8
20%
6
F actors affecting
4 10% 10% Decision Making
2

0
E conomic C ompany’s F und F und T ax
S cenario Image P erformance Management Incentives
Image
Interpretation 8:

The sample drawn on the probability basis shows that out of 100% of
respondents 35% of the respondents invested in mutual funds depending
on the company’s image, 25% on the fund’s performance, 20% on fund
management image and 10% each on economic scenario & tax incentives.

Observation:

As 35% of the respondents are satisfied with the company’s name for
investing in the mutual funds, the customer satisfaction levels are high. If
the company were to identify the pitfalls in their product and undertake
remedial measure, thus it will lead to more good word of mouth publicity.
 CHAPTER - 27
RECOMMENDATIONS & CONCLUSIONS
RECOMMENDATIONS & CONCLUSIONS

Tapping the up coming market - Semi Urban Market as there is a lot of

opportunity. Most of the Mutual Funds are operating in the metros and big
cities as per their present branch office locations. If they have to increase
their market size they have to open more distribution centers at the various
urban and semi-urban markets.

To create the awareness about the different products of Mutual Fund and
not about the generic product. Various respondents were not aware of the
mutual fund products and the type of mutual fund schemes and the risk
associated with mutual fund products.

To provide some kind of curriculum at the school/college level to create

awareness regarding Mutual Fund.

The shift of preference may change the market leadership in terms of AUM
in years to come. Therefore, the change of strategy and tactics is required
to maintain their market position, those who are holding today and those
who want to hold in future.
Chapter 28
GLOSSARY
GLOSSARY

• Advisor
The organization employed by a mutual fund to give professional advice
on the fund’s investment and to supervise the management of its assets.

• Asset Allocation Fund

A fund that spreads its portfolio among a wide variety of investment,
including domestic and foreign stocks and bonds, government securities,
gold bullion and real estate stocks. This gives small investors far more
diversification than they could get allocating money on their own. Some of
these funds keep the proportions allocated between different sectors
relatively constant, while others alter the mix as market conditions change.

• Alpha
A percentage that is a measure of the returns of a fund with its risk
adjusted for. Alpha is calculated from the difference between a fund's
actual returns and its expected returns given its market risk level as
measured by its beta. It is also a measure of the value added or deducted
by the fund's manager. An alpha of 1 means the fund produced a return 1%
higher than what its beta would predict. An alpha of –1 means the fund
produced a return 1% lower. Naturally, higher the alpha the better it is for
the investor. No, not always. For a high alpha to be better,

Simultaneously, another number called the R-squared should be high

enough too. Normally, with R-squared anywhere below 50, never trust the
alpha however high. Alpha depends entirely on the accuracy of beta. And
beta again, is calculated by the R-squared. So if you believe that beta is
the definite value for risk then any positive alpha would be a sufficient
condition for a fund's good performance.

• Balanced fund
A mutual fund scheme that invest half in corpus in equity and the other half
in debt instruments. A balanced fund is less risky than an equity fund but
at the same time gives better returns than an debt fund.

• Beta
It is a measure of a securities risk. Each security has a certain amount of
risk attached to it. Beta tries to measure the risk involved with each
security. Thus an investor should choose a security which gives the
highest return for a given risk level

• Bonds
A debt instrument issued for a period of more than one year with the
purpose of raising capital by borrowing Bond is a promise to pay the
principal along with the interest after a specified period of time.

• Capital Gains
It is the profit earned on selling capital assets. Capital gains are
calculated by subtracting from the selling price the following
1. Indexed cost of Acquisition
2. Indexed cost of Improvement
3. And any other holding cost.

• Custodian
The bank or trust company that maintains a mutual fund’s assets, including
its portfolio of securities or some records of them. Provides safekeeping of
securities but has no role in portfolio management.

• Corpus
The amount of money available with a scheme for investment.

• Debenture
They are bonds issued by a company to raise capital There are
various kinds of debentures. They could be secured or unsecured,
convertible or non-convertible.
• Debt/Equity
Determined by dividing long-term debt by common stockholder’s equity.
It is one of the most useful financial ratios. Creditors use it to see
whether it is safe to lend money to the particular company. The ratio
should ideally be around 2.

• Distributor
The individual or a corporation serving as principal underwriter of a
mutual fund’s shares, buying shares directly from the fund, and
reselling them to other investor.

• Dividends
Income distributed to share holders. Dividends can be received from the
ownership of stock or from mutual funds. Mutual fund shareholders have
the option to reinvest dividends automatically in order to purchase more
shares.

• Gilts
Gilts are government-based securities. The name signifies that the
security is very safe and is as sound as gold itself.

• Growth and income funds

Growth funds are mutual fund schemes,
which invest in the equity market while income funds invest in fixed
income securities.
 • Growth fund
Growth funds are Mutual funds that invest in equities market.

• Hedging
A strategy designed to reduce investment risk hedging techniques
uses call options, put options, short selling, or futures contracts. A
hedge can help lock in existing profits. Its purpose is to reduce the
volatility of a portfolio, by reducing the risk of loss.

• Instrument
Any tradable commodity whose price can be obtained from a Financial
Market is called as an instrument.

• Net assets
Net assets are the total amount of money that comprises the mutual
fund's holdings. Small funds have millions of dollars while large funds
may have over 50 billion dollars. Sometimes a manager may close a fund
to new investors if its size is large

• P/E ratio
Ratio of the price of a stock to the total earnings of the company is called
as P/E ratio. Companies with very high ratios of greater than 30 are
considered to be overpriced. Company stock with a low ratio is considered
to be undervalued and potentially good investments. Mutual funds with a
value type of investment strategy seek a portfolio consisting of stocks with
low ratios with the expectation that they will increase in price.
• Portfolio
The collection of all the holdings of a mutual fund, such as bonds, and
stocks is called as portfolio. In a mutual fund's annual report, a list of the
fund's current portfolio will usually be contained.

• Preferred stock
Preferred stock is a type of shares offered by a company, which pay a pre-
stated dividend, before common stock dividends are issued. The benefits of
owning preferred stock are realized if the company ever goes bankrupt. If
this occurs, preferred stock share holders receive their money first.
Common stock holders may not receive any money, if none is remaining
after paying preferred stock holders.

• Prospectus
A document, usually in the form of a booklet, that provides information
about a specific mutual fund; such as the funds investment and redemption
policies. The prospectus, according to law, must always be accompanied
with the application. Prospective investors should always read the mutual
fund's prospectus before sending money.

• Volatility
The degree to which a mutual fund's share price will change in value
 • Withdrawal
To redeem shares of a mutual fund or stock is called as withdrawal. In a
mutual fund, partial or full redemptions may be made over the phone.
Some funds may impose an extra redemption fee to discourage market
timers from pulling their money immediately after investing. If this is a
fund's policy, it will be stated in the prospectus.

• Yield
Income or dividends received from a security or mutual fund.
 Chapter 29
BIBLIOGRAPHY
BIBLIOGRAPHY

AMFI –Mutual Fund Testing Programme for Distributors & Employees of

Mutual Funds in India.

Fact Sheets of various Mutual Funds

Economic Times

Web sites:-

• www.mutualfundindia.com

• www.mutualfund.com

• www.moneycontrol.com
 Chapter 30
ANNEXTURE
 ANNEXURE

Dear Sir/Madam,
I am currently engaged in a study on “Investor
Perception of Mutual Funds”. In this connection I request you to
read the following items carefully & answer them .The answers you
give will be held confidential & used purely for academic purposes.

Indicate your response by tick marking when applicable.

1.) Name:-

2.) Sex:- Male Female

3.) Age:- Below 30 31 – 40 years

41 – 50 years Above 50 years.

Academic Qualification (Last Qualification):-

1) Which of the following is your source of income?

Government employee
Private employee Self

employed
2) Annual Income In Rs.

Below 1 Lakh 1 - 3 Lakhs

3- 5 Lakhs Above 5 Lakhs

3) Have you ever invested in any of the Mutual Funds?

Yes No

4) Rank in order of preference of savings avenue (Highest being

given 1st rank & the lowest being given 9th rank)

___ Currency ___ Real Estate

___ Units of UTI ___ Life Insurance

& Mutual Bonds

___ Bank Deposits ___ Shares

___ Postal Savings ___ Pension &

Provident Fund
___ Gold
5) Are you satisfied as a mutual Fund investor?

Yes No

6) Reasons For Preference Of Mutual Funds(Please Tick mark in the

box provided.)

Professional Management Liquidity

Good Return Tax Benefit

Good Return Diversification

Safety

7) What Are the Decision Affecting Factors:-

Economic Scenario Company's Image

Fund Performance Fund Managers

Image
Tax Incentive Minimum Initial
Investment
 8) How did you come to know about Mutual Fund investments
schemes?

News Paper T.V.

Financial Magazines Reference

Groups

Brokers/Agents

9) What effects your decision regarding of investment in

Mutual Funds?

Economic Scenario Company’s Image

Fund Performance Fund Management

Tax Incentives

Thanks you very much for your kind co-operation & for taking
time to complete this questionnaire.