DISSERTATION REPORT

ON

MUTUAL FUNDS INDUSTRY IN INDIA

Submitted to Maharishi Dayanand University, Rohtak

In the partial fulfillment of degree of

Master of Business Administration (MBA)

(Session 2005-2007)

Under guidance of: Submitted By-

Ms Bhawna sharma YOGESH KHURANA

MBA (Final)

Reg. No: ________

____________________________________________________________

D.A.V. Institute of Management, Faridabad

ACKNOWLEDGEMENTACKNOWLEDGEMENT

Concentration, dedication, hard work and application are essential but not the only factor

to achieve the desired goal. Those must be supplemented by the guidance assistance and

cooperation of experts to make it success.

I am extremely grateful to my institute for providing me the opportunity to undertake this

research project in the prestigious field.

With profound pleasure, I extend my extreme sincere sense of gratitude and indebtedness

to my faculty for extensive and valuable guidance that was always available to me

ungrudgingly and instantly, which help me complete my project without difficulty.

I express my deep and sincere gratitude to Ms Bhawna Sharma, faculty member for

providing me first hand knowledge about other related subjects.

Last but not the least I am indebted to Mr. Sharma, Director of our institute without

whose sincere gratitude this project would not have been possible.

(YOGESH KHURANA)

PREFACEPREFACE

Practical exposure imbibes an integral part of management studies. One cannot rely

merely upon the theoretical knowledge. However class lectures make the functional

concepts clear, but these must be correlated with practical projects.

I consider myself lucky to get the project in India’s best bank. It was a great learning

experience. It helped me to get a practical insight into how to conduct research and to

make my concepts clearer.

In this project I have tried to give comprehensive picture of details of my project.

Learning is like eating. It is not how much one eat that matters, what counts is how much

you digest. Knowledge is potential power, wisdom is real power.

Today’s economy has caused business to rethink their technology decisions. Budgets

have been cut and priorities have been reset. Companies can impact their bottom line

tremendously by gathering necessary information. This dissertation is concerned with the

study mutual funds industry in India

During my tenure of dissertation I studied about mutual funds industry in India and

deeply analyzed its various aspects. This dissertation shows the very aspect undertaken in

context to “MUTUAL FUNDS INDUSTRY IN INDIA”

DECLARATIONDECLARATION

I, Yogesh Khurana Enrolment No. 05-DAVM-124 No. Class MBA of DAVIM hereby

declares that the project entitled “Mutual fund industry in India” is an original work and

the same has not been submitted to any other institution for the award of any other

Degree. The interim report was presented to the supervisor on 12th March 2007. The

feasible suggestions have been duly incorporated in consultation with the supervisor.

Countersigned

Signature of the supervisor signature of the candidate

Forwarded by:

Director/Principal of the institute

INTRODUCTION OF THE STUDY

MUTUAL FUNDS

A mutual fund is a form of collective investment that pools money from many investors

and invests the money in stocks, bonds, short-term money market instruments, and/or

other securities. In a mutual fund, the fund manager trades the fund's underlying

securities, realizing capital gains or loss, and collects the dividend or interest income.

Your search for Mutual Fund India information follows. The investment proceeds are

then passed along to the individual investors. The value of a share of the mutual fund,

known as the net asset value (NAV), is calculated daily based on the total value of the

fund divided by the number of shares purchased by investors.

Mutual funds are financial intermediaries, which collect the savings of investors and

invest them in a large and well diversified portfolio of securities such as money market

instruments, corporate and government bonds and equity shares of joint stock companies.

Mutual funds can survive and thrive only if they can live up to the hopes and trusts of

their individual members .The project deals with the structure of mutual funds industry in

India and its constituents. It also classified the mutual fund schemes and describes the

major players in the industry. The project includes the analysis of performance of 7

mutual fund companies. Which comprises of 3 private players, 3 public and UTI.The

Mutual fund companies have been selected on the basis of their AUM (ASSETS UNDER

MANGEMENT).

COMPANIES HAVING PRIVATE OWNERSHIP

1. Birla Sun Life Mutual Fund 

2. Franklin Templeton Mutual Fund 

3. Prudential ICICI Mutual Fund 

COMPANIES HAVING PUBLIC OWNERSHIP

4. Canbank Mutual Fund 

5. LIC Mutual Fund 

6. SBI Mutual Fund 

OBJECTIVES OF STUDYOBJECTIVES OF STUDY

.

To study about various schemes of mutual funds in India.

To study the recent and emerging trends in Mutual Fund Market.

To analyze the performance of major private and public players in Mutual Funds

Industry during 2005-06.

RESEARCH METHODOLGYRESEARCH METHODOLGY

The whole study is based upon primary data. Therefore, information has been collected

from various magazines, journals, websites, and bulletins.

RESEARCH DESIGN

Scope of study:

The scope of any study should be to cover as large a population as possible to

cover any errors. But due to time and money constraints, this study is limited to

Ambala only. The study involves an interaction with the consumers An effort was

put to cover every dealer in the city and obtain correct and relevant information

DATA COLLECTION

Collection of data is the critical point in the research process. There are two basic

methods of data collection:

Primary method

Secondary method

For my analysis I have selected the primary method of data collection i.e.

i. Questionnaire

ii. Interview method

iii. Telephone interview

DATA COLLECTION TECHNIQUE :

QUESTIONNAIRES

INTERVIEWS

SAMPLING DESIGN

Sampling unit:

INDIVIDIUAL INVESTORS

Sampling size:

100

Sampling techniques:

I use many sampling techniques like

Simple random sampling

Stratified random sampling

Judgment sampling

MUTUAL FUND-AN INTRODUCTION

A Mutual Fund is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities. The income earned through

these investments and the capital appreciation realised are shared by its unit holders in

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

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

diversified, professionally managed basket of securities at a relatively low cost. A mutual

fund is simply a financial intermediary that allows a group of investors to pool their

money together with a predetermined investment objective. The mutual fund will have a

fund manager who is responsible for investing the pooled money into specific securities

(usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or

portions) of the mutual fund and become a shareholder of the fund.

Mutual funds can invest in many different kinds of securities (Mutual Fund India). The

most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock

funds, for instance, can invest primarily in the shares of a particular industry, such as

technology or utilities. These are known as sector funds. Bond funds can vary according

to risk (high yield or junk bonds, investment-grade corporate bonds), type of issuers

(government agencies, corporations, or municipalities), or maturity of the bonds (short or

long term). Both stock and bond funds can invest in primarily US securities (domestic

funds), both US and foreign securities (global funds), or primarily foreign securities

(international funds). Most mutual funds' investment portfolios are continually adjusted

under the supervision of a professional manager, who forecasts the future performance of

investments appropriate for the fund and chooses the ones which he or she believes will

most closely match the fund's stated investment objective. A mutual fund is administered

through a parent management company, which may hire or fire fund managers.

DEFINITION :

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

shares a common financial goal. The money thus collected is then invested in

capital market instruments such as shares, debentures and other securities. The

income earned through these investments and the capital appreciations realized

are shared by its unit holders in proportion to the number of units owned by them.

“…. A mutual fund is a company that brings together money from

many people and invest in a stock, bonds, or other asset the funds

owns are known as its portfolio. Each investor in the fund owns

share which represents a part of these holdings….”

- The U.S. Securities and Exchange Commission.

THE GOAL OF MUTUAL FUND

The goal of a mutual fund is to provide an individual to make money. There are several

thousand mutual funds with different investments strategies and goals to choosen from.

Choosing one can be over whelming, even though it need not be different mutual funds

have different risks, which differ because of the fund`s goals fund manager, and

investment style. Money from a mutual fund is made when the stocks, bonds or other

securities increase in value ( a capital gain ) issue dividends or make interest payments

when investing in a mutual fund the income you make it the result of income received

from dividend paying stocks, and interest from bonds. If the fund sell a holding whose

value is increased you make money even if the fund does not sell that specific holding.

The fund itself will still increase in value, and in that way you may also make money

therefore the value of shares you hold in mutual fund will increase in value when the

holdings increases in value capital gains and income or dividend payments are best

reinvested for younger investors. Retires often seek the income from dividend

distribution to augment their income with reinvestment of dividends and capital

distribution your money increase at a even greater rate. When you redeem your shares

what you receive is the value of the share.

MUTUAL FUND OPERATIONS FLOW CHART

The flow chart below describes broadly the working of a Mutual Fund:

ORGANISATION OF A MUTUAL FUND

There  are  many  entities  involved  and  the  diagram  below  illustrates  the 

organisational set up of a mutual fund:

THE ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

Professional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

Flexibility

Choice of schemes

Tax benefits

Professional Management - The primary advantage of funds is the professional

management of your money. Investors purchase funds because they do not have the time

or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive

way for a small investor to get a full-time manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning individual stocks

or bonds, your risk is spread out. The idea behind diversification is to invest in a large

number of assets so that a loss in any particular investment is minimized by gains in

others.

Economies of Scale - Because a mutual fund buys and sells large amounts of securities

at a time, its transaction costs are lower than you as an individual would pay.

Liquidity - Just like an individual stock, a mutual fund allows you to request that your

shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its own line of

mutual funds, and the minimum investment is small. Affordability : With many mutual

funds, you can begin buying units with a relatively small amount of money Some mutual

funds also let you buy more units on a regular basis with even smaller installments.

Flexibility : Many mutual fund companies administer several different mutual funds and

allow you to switch between funds within their 'fund family' at little or no charge.

Performance Monitoring : The value of most mutual funds is reported daily in the

financial press and on many Internet sites, allowing you to continually monitor the

performance of your investment.

DISADVANTAGES OF MUTUAL FUNDS :

Professional Management- Did you notice how we qualified the advantage of

professional management with the word "theoretically"? Many investors debate over

whether or not the so-called professionals are any better than you or I at picking stocks.

Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a

profit. The mutual fund industry is masterful at burying costs under layers of jargon.

Dilution - It's possible to have too much diversification (this is explained in our article

entitled "Are You Over-Diversified?"). Because funds have small holdings in so many

different companies, high returns from a few investments often don't make much

difference on the overall return.

MUTUAL FUND INDUSTRY IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the Government of India and Reserve Bank the. The history of

mutual funds in India can be broadly divided into four distinct phases

 

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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 de-linked 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.6,700 crores of assets under management

Second Phase – 1987-1993 (Entry of Public Sector Funds)

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 Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 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.47,004

crores

Third Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector 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 Templeton) was the first 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 has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets

of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phase – 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,

representing broadly, the assets of US 64 scheme, assured return and certain other

schemes. The Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does not come

under the purview of the Mutual Fund Regulations

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. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of

assets under management and with the setting up of a UTI Mutual Fund, conforming to

the SEBI Mutual Fund Regulations, and with recent mergers taking place among

different private sector funds, the mutual fund industry has entered its current phase of

consolidation and growth. As at the end of September, 2004, there were 29 funds, which

manage assets of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

The graph indicates the growth of assets over the years:

FUTURE OF MUTUAL FUNDS IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is esti-

mated 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 of 9%. According to the current growth

rate, by year 2010, mutual fund assets will be double.

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 rurals like the Indian insurance industry with simple

and limited products.

SEBI allowing the MF's to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

TYPES OF MUTUAL FUND SCHEMES

By Structure

o Open - Ended Schemes

o Close - Ended Schemes

o Interval Schemes

By Investment Objective

o Growth Schemes

o Income Schemes

o Balanced Schemes

o Money Market Schemes

Other Schemes

o Tax Saving Schemes

o Special Schemes

Index Schemes

Sector Specfic Schemes

Equity funds: These funds involve only common stock investments. They can earn a lot

of profit, but are also very risky.

Fixed income funds: They include corporate and government securities. These funds

offer fixed returns at a low risk.

Balanced funds: This is the combination of bonds and stocks with a low risk. However,

the investment does not earn a lot through these funds.

How it works?

Mutual fund shares can be purchased from the company itself or a broker. There are

secondary market investors also, like the New York Stock Exchange. Per share net asset

value of the funds or NAV is the price that you pay for buying a mutual fund share. It

also includes the shareholder fee that is imposed by the fund, at time of purchase. The

best feature of mutual funds is that these shares are ‘redeemable’. You, as an investor,

can sell your shares back to the broker. In order to accommodate new investors, mutual

fund companies generally create new shares and sell them. They keep selling their shares

continuously till they become large. Investment advisers act as separate entities and are

responsible for managing the investment portfolio of the mutual funds. Investing in

mutual funds tends to lower the risk factor because they are the result of diverse

investments. Since someone else manages your investments, you need not worry about

keeping constant tabs on the investment, though a periodical check enhances your

personal book of accounts. Managing funds is the full time job of the fund manager and

he is responsible for the performance and health of the investment.

The rate of returns in mutual funds is based on the increase or decrease of the value,

during a specific period. Returns of a fund indicate the track record. It is important to

remember that the past performance cannot guarantee future results.

As in the case of any investment or business, mutual funds also have risks associated with

the returns. It is essential to set your financial goals and requirements, before investing in

a mutual fund.

TRENDS AND STRUCTURE OF THE INDIAN MUTUAL FUND

INDUSTRY

Though young, the industry has made significant strides in terms of its variety,

sophistication and regulation. The mutual fund industry's existence in India is divided

into four phases.

The first phase which spanned across 1963-1987 saw UTI consolidating its position by

offering a host of products and extending its reach throughout the country.

The next phase (1987-93) marked the arrival of mutual funds sponsored by public sector

banks and financial institutions.

With the arrival of private sector players, both Indian and foreign, began the third phase

(1993-1996).1996 marks yet another milestone in the history of the mutual fund industry

in the country as SEBI (Mutual Funds) Regulations came into being.

The fourth phase, which is in vogue now, begun in 2003, marks, perhaps, the most

significant event in the history of the mutual fund industryrestructuring of UTI. There

was the rush of players into the mutual fund industry during the last decade could be

attributed to low entry barriers, both regulatory and competitive, and the desire of the

existing financial players to broad-base their activities in the financial sector. The period

is also characterized by significant developments such as standardization of operations,

increased influence of technology, best practices, product innovation, and improved

regulatory environment.

EVOLVING DISTRIBUTION MODELS

The growing need for a strong distribution network and models for the mutual fund

industry in India to serve the huge untapped market in the country. It observes that the

intensifying competition and the need to attain economies of scale are forcing industry

players to increase their reach in non-metro cities and small towns, where the potential is

high, but, penetration is low.

This is resulting in fund houses exploring innovative distribution channels like

Depository and Distributor models along with the traditional ones like Collection Center

model.

Further, increasing commoditization and growing needs of the customers are forcing

players to shift to solution-based models from the product-based ones.

In either model, the role of the distribution channel remains critical as it helps stave off

competition by maintaining relationships, providing advisory services and customizing

need-based solutions.

INDIAN MUTUAL FUND INDUSTRY: OPPORTUNITIES AND

CHALLENGES

There are various challenges and opportunities before the industry. It suggests that a

major challenge before the industry is how to attract retail investors, who are the

backbone of the industry and who provide stability for the growth of the mutual fund

industry. Further, to fuel its growth, the mutual fund industry needs to emphasize creating

greater awareness among investors. Also, it is imperative that the mutual fund industry

addresses the problem of size and its impact on the investors. A large size does not

provide best returns to the investors as the cost of operations is high on account of high

turnover.

MUTUAL FUND INDUSTRY IN INDIA: DEVELOPMENT AND

GROWTH

The Indian mutual fund industry is one of the fastest growing sectors in the Indian capital

and financial markets. The mutual fund industry in India has seen dramatic improvements

in quantity as well as quality of product and service offerings in recent years. Mutual

funds assets under management grew by 96% between the end of 1997 and June 2003

and as a result it rose from 8% of GDP to 15%. The industry has grown in size and

manages total assets of more than $30351 million. Of the various sectors, the private

sector accounts for nearly 91% of the resources mobilised showing their overwhelming

dominance in the market. Individuals constitute 98.04% of the total number of investors

and contribute US $12062 million, which is 55.16% of the net assets under management.

TOP INDIAN MUTUAL FUNDS

ABN AMRO Mutual Fund

Bank of Baroda Mutual Fund

Benchmark Mutual Fund

Birla Sunlife Mutual Fund

Canbank Mutual Fund

DBS Chola Mutual Fund

Deutsche Mutual Fund

DSP Merrill Lynch Mutual Fund

Escorts Mutual Fund

Fidelity Mutual Fund

Franklin Templeton

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

JM Mutual Fund

INVESTMENT TIPS

INVEST IN THE MUTUAL FUND, NOT ITS NAV

What is NAV? Simply put, NAV is the sum total of all the assets of the mutual fund (at

market price) less the expenses (fund manager fees, audit fees, registration fees among

others); divide this by the number of units and you arrive at the NAV per unit of the

mutual fund. An illustration should help us better understand the same.

NAV calculation

Net Assets (Rs) 51,000

Expenses (Rs) 1,000

No. of Units 5,000

NAV (Rs) 10

The following illustration will clearly establish the irrelevance of NAV while making an

investment decision.

NAV: Does size matter?

Open-ended large cap equity funds NAV (Rs) 1-Yr (%)

Franklin Prima Plus (G) 146.17 43.57

Franklin Bluechip (G) 138.10 39.09

Pru ICICI Power (G) 84.51 38.67

HSBC Equity (G) 74.42 37.63

Kotak 30 (G) 72.06 36.54

HDFC Equity (G) 153.79 35.50

It is evident that the fund's current NAV and its expected performance are unrelated and

therefore making an investment decision based on the NAV would be misguided. As an

investor you need to consider factors like your own risk profile, the fund's management

style and performance.

1. Risk profile

Investors have a risk profile that dictates how much risk they can take on to achieve their

investment objective. In this backdrop, they must identify mutual funds that can help

them meet their investment objectives at the desired risk level. For instance, some equity

funds adhere to the growth style of investment (aggressively managed funds), while

others follow the value style of investment (conservatively managed funds). So it is

important for investors to select a fund that takes on risk in line with their own risk

appetite.

2. Fund management style

Fund houses have varying fund management styles and processes. Some pursue the

individualistic style, where the fund manager rather than the investment process plays a

dominant role in the investment process. As opposed to this, there are fund houses that

pursue a team-based investment approach where the investment process holds sway over

the individual. Our preference is for the team-based style of investing since it is more

stable and the mutual fund (and its investors) is not over-dependent on an individual.

3. Mutual fund performance

It is imperative for investors to evaluate a mutual fund on parameters related to risk like

Standard Deviation and Sharpe Ratio as also NAV appreciation. The risk parameters

evaluate the volatility in performance (Standard Deviation) and returns generated by the

fund per unit of risk borne (Sharpe Ratio). The best deal for an investor will come from a

mutual fund that has higher NAV appreciation and Sharpe Ratio and lower Standard

Deviation.

Hopefully, we have resolved the debate on the NAV and have given the investor more

relevant points to inquire about before considering investing in a mutual fund. So the next

time your mutual fund distributor advances the low NAV or Rs 10 NAV argument,

demand a detailed analysis of the mutual fund based on the parameters we have listed.

Don't ignore the risk factor

Investors would do well not to lose sight of the risk-return trade off while making

investment decisions. Our advice to investors - always invest in line with your risk

appetite and investment objectives. Chasing higher returns and turning a blind eye to risk

in the process could prove hazardous to your finances.

Schemes like NSC and PPF (offering an assured return of 8% per annum) and market-

linked avenues like tax-saving funds are about as similar as chalk and cheese. Sure tax-

saving funds can offer higher returns than NSC and PPF. But the differential should be

seen as a reward for having taken on higher risk. Unlike NSC and PPF, wherein returns

are assured and capital protected, investors in tax-saving funds take on the risk of even

losing the capital invested, depending on market conditions.

The investment advisor's rationale was fairly simple (and completely incorrect) -

investors should only be concerned about the returns and opt for avenues that are

equipped to offer the highest returns. A vital factor i.e. risk didn't feature in his scheme of

things at all.

FAQS ON MUTUAL FUNDS

What is a Mutual Fund?

A Mutual Fund is a body corporate registered with the Securities and

Exchange Board of India (SEBI) that pools up the money from

individual / corporate investors and invests the same on behalf of the

investors /unit holders, in equity shares, Government securities,

Bonds, Call money markets etc., and distributes the profits.

Which was the First Mutual Fund to be set up in India?

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963,

and started its operations in 1964 with the issue of units under the scheme US-64

Which are the other institutions that have floated Mutual Funds in India?

Currently public sector banks like SBI, Canara Bank, Bank of India, institutions like

IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton and

Private financial companies like HDFC, Prudential ICICI, DSP Merrill Lynch, Sundaram,

Kotak Mahindra etc. have floated their own mutual funds

What is the Regulatory Body for Mutual Funds?

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds

mentioned above. All the mutual funds must get registered with SEBI. The only

exception is the UTI, since it is a corporation formed under a separate Act of Parliament.

Why should I choose to invest in a mutual fund?

Mutual Funds provide the benefit of cheap access to expensive stocks

Mutual funds diversify the risk of the investor by investing in a basket of

assets

A team of professional fund managers manages them with in-depth research

inputs from investment analysts.

How do mutual funds diversify their risks?

Financial theory states that an investor can reduce his total risk by holding a portfolio of

assets instead of only one asset. By creating a portfolio of a variety of assets, this risk is

substantially reduced.

Can mutual funds be viewed as risk-free investments?

No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds

contains the same risk as investing in the markets, the only difference being that due to

professional management of funds the controllable risks are substantially reduced.

What are the risks involved in investing in mutual funds?

A very important risk involved in mutual fund investments is the market risk. When the

market is in doldrums, most of the equity funds will also experience a downturn.

What are the parameters on which a Mutual Fund scheme should be evaluated?

Performance indicators like total returns given by the fund on different schemes, the

returns on competing funds, the objective of the fund and the promoters’ image are some

of the key factors to be considered while taking decision regarding mutual funds.

What are the different types of plans that any mutual fund scheme offers?

That depends on the strategy of the concerned scheme. But generally there are 3 broad

categories. A dividend plan entails a regular payment of dividend to the investors. A

reinvestment plan is a plan where these dividends are reinvested in the scheme itself. A

growth plan is one where no dividends are declared and the investor only gains through

capital appreciation in the NAV of the fund.

What is NAV and how it is calculated?

NAV is the net asset value of the fund. Simply put it reflects what the unit held by an

investor is worth at current market prices.

What is Switch?

Some Mutual Funds provide the investor with an option to shift his investment from one

scheme to another within that fund. For this option the fund may levy a switching fee.

Switching allows the Investor to alter the allocation of their investment among the

schemes

What is the difference between mutual funds and portfolio management schemes?

While the concept remains the same of collecting money from investors, the target

investors are different. In the case of portfolio management the target investors are high

net worth investors while in case of mutual funds the target investors are the retail

investors.

How does the concept of entry load work in case of unit purchases?

An entry load is an additional cost that an investor pays at the point of entry. Assume that

your proposed investment is Rs.10,000/-. Also assume that the current NAV of the fund

is Rs.12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800

units. The entry load could be different for each scheme.

What are the broad guidelines issued for a MF?

SEBI is the regulatory authority of MFs. SEBI has the following broad guidelines

pertaining to mutual funds:

MFs should be formed as a Trust under Indian Trust Act and should be operated

by Asset Management Companies (AMCs).

MFs need to set up a Board of Trustees and Trustee Companies. They should also

have their Board of Directors.

The net worth of the AMCs should be at least Rs.5 crore.

The AMC or any of its companies cannot act as managers for any other fund.

All MF schemes should be registered with SEBI.

MFs should distribute minimum of 90% of their profits among the investors.

There are other guidelines also that govern investment strategy, disclosure norms and

advertising code for mutual fund

FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The

per unit NAV is the net asset value of the scheme divided by the number of units

outstanding on the Valuation Date.

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.

Analysis

and

interpretation

PEOPLE CONSIDERS VARIOUS FACTORS WHILE INVESTING IN MUTUAL FUND

Options responses Percentages(%)

Returns 49 49

Tax saving 26 26

Liquidity 16 16

Risk free 9 9

PEOPLE CONSIDER VARIOUS BASES FOR INVESTING IN ANY PARTICULAR FUND

OPTIONS RESPONSES RESPONSES IN %

Past performance of fund 64 64

Portfolio of fund 36 36

PREFERENCE OF VARIOUS MUTUAL FUNDS OF DIFFERENT PEOPLES

Options Responses Responses in %Franklin Templeton 17 17HDFC 19 19Reliance 11 11ICICI 18 18SBI 29 29Any other 8 8

PEOPLE INVEST THE DIFFERENT % OF SAVING IN MUTUAL FUNDS

Sr.no Options Responses Responses in %1 10-20% 46 462 20-30% 33 333 50% 15 154 More than 50% 6 6

PEOPLE EXPECTATIONS OF RETURN FROM DIFFERENT FUNDS

Sr.no Options Responses Responses in %1 10-20% 32 322 20-30% 45 453 50% 9 94 More than 50% 4 4

SUGGESTIONS

CONCLUSIONS

Indian mutual fund industry possess great potential for growth. The drivers for growth

are

• Structural changes in the financial sector

• An increasing awareness of mutual funds as a savings vehicle

Development and trends of mutual funds in India are

• The private sector has grown by 51.84% since 1999,.

• The growth has been primarily in open-ended products.

• Development in the previous three years was dominated by the growth of debt

products.

• But with the positive outlook for equity markets, there have been increasing flows

into equity products.

LIMITATIONS OF THE STUDY

Total number of mutual funds in the market is so large that it needs lot of

resources to analyze them all. There are 34 Mutual fund Companies providing

more than 750 funds. They fall into large categories. Handling and analyzing such

a varied and diversified data needs more time and resources.

As the project is based on secondary data, possibility of unauthenticated

information can not be avoided.

The information about same scheme differ from one source to another

Annexure

Questionnaire

Bibliography

QUESTIONNAIRE

1. Do you invest in mutual fund?a) Yes b) no

2. What are the factors you consider while investing in mutual fund?a) Returns b) tax saving c) liquidity d) risk free

3. On what basis you invest in any particular fund?a) Past performance of fund b) portfolio of fund c) fund manager

4. How you get information regarding mutual fund?a) Advertisement b) company sales force c) friends/relatives

5. Which mutual fund you prefer to invest?a) Franklin Templeton b) HDFC c) Reliance d) ICICI e) SBI f) any other

6. How long you prefer to keep your money in mutual fund?a) Short term b) long term

7. How much of your saving you invest in mutual fund?a) 10-20% b) 20-30% c) 50% d) more than 50%

8. How much return do you expect from a mutual fund?a) 10-20% b) 20-30% c) 50% d) more than 50%

9. Which option in a mutual fund you like to choose?a) Growth b) dividend

10. What type of fund you like to invest?a) Debt based b) equity based c) balanced fund

11. What type of plan you like to invest? a) One time investment b) Mip plan c) Sip plan

BIBLIOGRAPHY

Mutual Fund in India by V.A. Avdhani

Money Outlook

Business India

Business world

Business Today

www.amfiindia.com

www.mutualfundsindia.com

www.valueresearchonline.com

www.moneypore.com

www.valuenotes.com

www.karvy.com