Embed Size (px)
Citation preview
1
A REPORT
ON
“FUND SELECTION BEHAVIOR OF INVESTORS
&
SCOPE FOR GROWTH OF MUTUAL FUNDS IN INDIA”
By
SAURABH SHEKHAR(Enrollment No: 07BS3884)
NAME OF THE ORGANIZATION:
TATA MUTUAL FUND
2
Contract:
A REPORT
ON
“FUND SELECTION BEHAVIOR OF INVESTORS
&
SCOPE FOR GROWTH OF MUTUAL FUNDS IN INDIA”
By
SAURABH SHEKHAR(Enrollment No: 07BS3884)
A report submitted in partial fulfillment of
the requirements of MBA Program of
IBS, Hyderabad.
Distribution List:
1) PROF. P.V.MURALI KRISHNA (FACULTY GUIDE)
2) MS. NISCHALA SRIPATHI (COMPANY GUIDE)
(ASSISTANT MANAGER-BANKING, TATA ASSET MANAGEMENT LIMITED)
3
ACKNOWLEDGEMENTS
With great pleasure I take the privilege to acknowledge the people who have been involved in
completion of my project at different stages.
I acknowledge gratefully my indebtedness to my Company Guide; Ms. Nischala Sripathi,
Assistant Manager-Banking, Tata Asset Management Limited, for her patient help, valuable
suggestions, encouragement and guidance at every stage of my project.
I would like to thank Mr. Raghavendra , Regional Manager; Tata Mutual Fund (Hyderabad)
for providing information and suggestions for this project report. I am also grateful to all the
employees of Tata Mutual Fund; Somajiguda, Hyderabad, for helping me throughout the
tenure of this project.
I would give the credit of fruition of my project to Prof. P.V. Murali Krishna, my faculty
guide for the summer internship project who inspired me by his discussions and showed me
the right course to pursue. The successful completion of the project would not have been
possible without his constant support.
In the end, I express my thanks to all those who were directly or indirectly involved in this
project.
4
TABLE OF CONTENTS
Acknowledgements------------------------------------------------------------------------ 3
List of Illustrations ------------------------------------------------------------------------ 6
Abstract ------------------------------------------------------------------------------------- 8
1. Introduction------------------------------------------------------------------------------ 9
1.1 Purpose, Scope, and Limitations------------------------------------------ 10
1.2 Sources & Methodology----------------------------------------------------- 13
2. Industrial Analysis --------------------------------------------------------------------- 16
2.1 Mutual Funds: An Overview -------------------------------------------------17
2.2 Growth of Mutual Fund Industry in India---------------------------------- 18
2.3 Types of Mutual Fund Schemes--------------------------------------------- 22
2.4 Calculation of Risk------------------------------------------------------------ 29
2.5Role of AMFI------------------------------------------------------------------- 34
2.6 Advantages of Mutual Funds------------------------------------------------- 36
2.7 Risks Associated with Mutual Funds-----------------------------------------38
2.8 Marketing of Mutual Funds----------------------------------------------------41
3. Company Profile -------------------------------------------------------------------------- 46
3.1 Tata Mutual Fund: An Overview---------------------------------------------- 47
3.2 Distribution Channel ------------------------------------------------------------ 54
3.3 Competitors of Tata Mutual Fund --------------------------------------------- 56
5
3.4 Comparative Analysis of Tata Equity Opportunities Fund ----------------- 57
4. Methodology --------------------------------------------------------------------------------- 61
4.1 Project Objective ------------------------------------------------------------------ 62
4.2 Literature Review ----------------------------------------------------------------- 63
4.3 Data & Data Sources -------------------------------------------------------------- 66
4.4 Factor Analysis -------------------------------------------------------------------- 67
4.5 Descriptive Analysis --------------------------------------------------------------- 73
5. Scope for Growth of Mutual Funds in India----------------------------------------------- 76
6. Recommendations & Conclusions---------------------------------------------------------- 81
7. Appendix--------------------------------------------------------------------------------------- 84
8. References-------------------------------------------------------------------------------------- 97
6
LIST OF TABLES
1. Riskiness of Mutual Funds------------------------------------------------------- 26
2. Investment Options----------------------------------------------------------------- 27
3. Equity Products of Tata Mutual Fund-------------------------------------------- 50
4. Debt Products of Tata Mutual Fund---------------------------------------------- 52
5. Balanced Products of Tata Mutual Fund----------------------------------------- 53
6. Asset Allocation of Tata Equity Opportunities Fund--------------------------- 57
7. Profile of Tata Equity Opportunities Fund--------------------------------------- 57
8. CAGR of Tata Equity Opportunities Fund--------------------------------------- 59
9. Comparative Analysis of Tata Equity Opportunities Fund--------------------- 59
10. KMO & Bartlett’s Test-------------------------------------------------------------- 68
11. Communalities------------------------------------------------------------------------ 69
12. Total Variance Explained------------------------------------------------------------ 69
13. Component Matrix-------------------------------------------------------------------- 71
14. Rotated Component Matrix---------------------------------------------------------- 71
15. Variables & Factors------------------------------------------------------------------- 72
16. Correlation Matrix--------------------------------------------------------------------- 89
17. Rotated Component Matrix----------------------------------------------------------- 90
18. Component Transformation Matrix-------------------------------------------------- 90
19. Case Processing Summary------------------------------------------------------------ 91
20. Case Summaries------------------------------------------------------------------------ 92
7
LIST OF FIGURES
1. Working of Mutual Funds ------------------------------------------------------- 17
2. Growth in Asset Under Management------------------------------------------- 20
3. Structure of Mutual Funds-------------------------------------------------------- 21
4. Risk Return Trade Off------------------------------------------------------------ 28
5. Risk & Return----------------------------------------------------------------------- 29
6. Advantages of Mutual Funds------------------------------------------------------ 37
7. Distribution Channel---------------------------------------------------------------- 55
8. Sectoral Allocation of Tata Equity Opportunities Fund------------------------ 58
9. Scree Plot----------------------------------------------------------------------------- 70
10. Bar Chart: Age Group of Investors----------------------------------------------- 73
11. Pie Chart: Fund Preferences------------------------------------------------------- 74
12. Pie Chart: Preferred Source of Information------------------------------------- 75
13. Pie Chart: Expenses of Mutual Funds-------------------------------------------- 87
8
ABSTRACT
Mutual Fund industry is one of the fastest growing industries in India, with so many
investment options around giving an investor a wide range of choices to invest into; Mutual
Fund offers a specialized service where the funds of the investors are professionally managed
by the fund managers with various schemes offering all kinds of investors a product of their
choice.
The investors of the Mutual Funds are unique as a highly heterogeneous group. Hence their
fund/scheme selection widely differs. This necessitates the Mutual Fund Companies to
understand the fund selection behavior of the investors to design suitable products to meet the
financial needs of the investors.
This report has made an attempt to examine the aspects of fund selection behavior of
individual investor towards Mutual Funds. On the basis of the findings; this report also
intends to provide some suggestions regarding marketing of appropriate Mutual Fund
schemes to the investors and targeting new customers.
9
CHAPTER 1
INTRODUCTION
10
INTRODUCTION
Purpose, Scope, and Limitations
The purpose of the project is to study-- the fund selection behavior of the investors coupled
with gaining some practical knowledge about this financial market & their overall marketing
strategies and processes. The project also intends to analyze the marketing and distribution of
Mutual Funds in India.
As the aspects of this project is multidimensional so as its purpose. The project tries to
identify the level of awareness among the investors about mutual funds. In this light the
project analyzes the scope for growth of mutual fund industry in India.
Value-addition to the company ---
1) To promote their product portfolio not only among the existing customers base but
also among new customers.
2) To get an idea about their customer base – Their investment pattern & future
trends.
3) To know about the consumer behavior regarding the various products offered by Tata
Mutual Fund.
4) To get an idea about the new marketing strategies that can be applied in future to
compete with the competitors.
5) To analyze the efficiency of the existing distribution channels.
6) To explore the new avenues /channels to reach the customers.
Academic Benefits ---
1) To apply the functional knowledge and adopt multi functional approach to solve real
life business problems.
2) To gain firsthand experience of corporate world and to acquire social skills by coming
in to contact with real professionals.
11
3) To get acquainted with the overall financial market specifically the mutual
funds.
4) To know about the arena of financial products in the field of ‘investment
&services’ & to know about its marketing & selling strategies.
5) To know about the marketing & selling strategies of Tata Mutual Fund.
6) Real time experience of doing a market research & practical experience of interacting
with the investors.
7) To get acquainted with the distribution channels of mutual funds.
Scope
The scope of the project work is quite large in the sense that not only it has given me the
practical exposure to the Investment & Services sector but also it has provided an in-hand
experience of marketing of financial products. It has also given me the opportunity to interact
with the various types of customers as a representative of the company. Regarding the
promotion of the NFO- Tata Growing Economies Infrastructure Fund; the scope was much
larger as I worked under the guidance of the assistant manager (banking) & regional manager
(sales) of the company. Scope expanded to a greater extent in the sense that I got the
opportunity of interacting with the investors of Tata Mutual Fund in Hyderabad.
In this project, customers are the ultimate focal point and the whole research has been carried
out regarding their behavioral attitude towards the mutual funds.
The project involves a market research on the consumer behavior regarding the investment
patterns depending on various factors like past performance, visibility, brand name, broker’s
advice, expense ratio etc. The information obtained from individuals is noted down in a
systematic format and then using the market research tools and certain software like SPSS,
the information is analyzed as per the requirements of the project. Since, the project’s
objective is market research of investors’ fund selection behavior, the market research tools
are used to analyze the effect of different variables on the selection of particular funds.
12
Limitations
Although the project aims at making an in-depth market research but there are some practical
limitations regarding the methodology followed & the overall procedure. These can be
summed up under the following points ---
1. Due to time constraint the sample size of the survey is restricted to the extent of 105.
2. The sample taken for this research might not represent the whole population.
3. Since the survey is conducted exclusively on individual’s investment behavior, there
is ample scope of personal bias creeping in.
4. Some people do not want to give correct details of their income and saving habits as
required in the questionnaire. Some people even refused to disclose their occupation.
5. It is also possible that some people might have given false or misleading information.
6. Many people doubted the fact that the information given by them would be kept
strictly confidential.
7. Many people gave unauthentic information to hide their ignorance.
8. Obtaining required information from the investors was difficult but in the end I
managed to get data from one hundred individuals.
13
Sources & Methods
Source –
Primary source – Customers walking in Tata Mutual Fund office (Somajiguda), HDFC Bank
(S.R.Nagar), DCB (A.S.Rao Nagar) &DCB (Abids).
Secondary source –Various journals, fact sheets, and web-data, previous research works
mentioned in the reference section.
Methodology
This project follows a simple & systematic methodology. I have followed a phase by phase
approach to complete this project.
1 st Phase
In the 1st phase I got the product training to start away with the project with proper product
knowledge. Here formal training was provided by the organization. I received complete
product knowledge from my company guide Ms Nischala Sripathi, Asst.Manager (Banking)
Tata Asset Management Limited. In this stage I have gone through some of the research
works in this field. The company guided also provided me with some informative materials
about mutual funds and Tata Mutual Fund. These materials helped me a lot in understanding
the practical implications of the theories of Financial Management learned in the classroom.
In this phase the company guide also briefed me about the distribution channels and the
marketing strategies of Tata Mutual Fund. Now, I was able to correlate the marketing and
selling strategies with the theories of Marketing Management.
2 nd Phase
After getting product knowledge I was engaged in promotional activities. I used to go to
14
different banks and distributors to promote Tata Mutual Fund’s NFO--Tata Growing
Economies Infrastructure Fund. In this stage the company guide & the sales people helped
me a lot by sharing their practical experiences with me. I visited several distribution channels
of Tata Mutual Fund in Somajiguda (i.e. Banks & Distributors) and interacted with the
persons responsible for selling and promoting Tata Mutual Fund. It gave me an insight of the
marketing strategies adopted by the company. It also helped me to understand the network of
distribution channels.
3 rd Phase
In this phase I interacted with the investors as well as potential investors and tried to generate
productive lead for the company.
I used survey method of obtaining information based on the questioning of the respondents.
So, respondents were asked a variety of questions regarding their investment behavior,
intentions, attitudes, awareness, motivation and lifestyle characteristics. The questions were
asked verbally.
In this stage the company guide helped me a lot by sharing their practical experiences with
me. This in a way provided many points regarding how to prepare an effective questionnaire
which can reveal the consumer behavior with respect to investments & services.
4 th Phase
Based on the unstructured data collection, I prepared a formal questionnaire to conduct the
market survey. The structured questionnaire was designed to elicit specific information from
the respondents. It was done among the customers walking in Tata Mutual Fund office,
HDFC Bank, DCB Bank in Hyderabad. I uploaded the questionnaire on internet and
responses were taken through internet also. Some of the respondents sent their responses
using email.
It was done on a regular basis for almost three weeks. I tried to cover people with diversified
portfolio, different kind of appetite & investment pattern.
15
5 th Phase
In this phase I was engaged in the promotional activities of SIP (Systematic Investment Plan)
plan of different schemes of Tata Mutual Fund. I went to DCB ASR Nagar branch & DCB
Abids branch for promotional activities. At these branches, I also tried to collect data for
market survey.
Here at this stage I tried to generate some productive lead for the company while promoting
SIP schemes. At the time of asking the questions for market survey, I tried to predict the
mind of the customer & approached them to go for the investments too. Actually the main
aim was to close the deal with the customer which will be beneficial for the company from
the commercial view-point & for me too, in the sense that it helps in increasing the
confidence level in true sense. It also helped me in understanding the importance of effective
marketing.
16
CHAPTER 2
INDUSTRIAL ANALYSIS
17
MUTUAL FUNDS: AN OVERVIEW
'Put your money in trust, not trust in money' entices the small investors, who generally lack
expertise to invest on their own in the securities market and prefer some kind of collective
investment vehicles, which can pool their marginal resources, invest insecurities and
distribute the returns there from among them on co-operative principles.
A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such
as shares, debentures and other securities. The income earned through these investments and
the capital appreciation realized is shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The investors benefit in terms of reduced risk, and higher
returns arising from professional expertise of fund managers employed by such investment
vehicle. This was the original appeal of mutual funds (MFs) which offer a path to stock
market far simpler and safer than the traditional call-a-broker-and-buy-securities route. This
caught the fancy of small investors leading to proliferation of MFs. In developed financial
markets, MFs have overtaken bank deposits and total assets of insurance funds.
The flow chart below describes broadly the working of a mutual fund:
FIGURE: 1
18
History of 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 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,
19
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.
20
Growth in Assets under Management
Figure: 2
Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the
Unit Trust of India effective from February 2003. The Assets under management of the
Specified Undertaking of the Unit Trust of India has therefore been excluded from the total
assets of the industry as a whole from February 2003 onwards.
21
Mutual Fund Structure
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management
Company (AMC) and custodian. The trust is established by a sponsor or more than one
sponsor who is like promoter of a company. The trustees of the mutual fund hold its property
for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI
manages the funds by making investments in various types of securities. Custodian, who is
registered with SEBI, holds the securities of various schemes of the fund in its custody. The
trustees are vested with the general power of superintendence and direction over AMC. They
monitor the performance and compliance of SEBI Regulations by the mutual fund.
The structure of a mutual fund house can be well understood with the example given below –
FIGURE: 3
22
Types of Mutual Fund Schemes
Mutual funds Schemes can be segregated into three heads –
1. Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related prices, which are declared
on a daily basis. The key feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is
open for subscription only during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at the time of the initial public issue and thereafter they
can buy or sell the units of the scheme on the stock exchanges where the units are listed. In
order to provide an exit route to the investors, some close-ended funds give an option of
selling back the units to the mutual fund through periodic repurchase at NAV related prices.
NOTE: SEBI Regulations stipulate that at least one of the two exit routes is provided to the
investor i.e. either repurchase facility or through listing on stock exchanges. These mutual
funds schemes disclose NAV generally on weekly basis.
23
2. Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long- term.
Such schemes normally invest a major part of their corpus in equities. Such funds have
comparatively high risks. These schemes provide different options to the investors like
dividend option, capital appreciation, etc. and the investors may choose an option depending
on their preferences. The investors must indicate the option in the application form. The
mutual funds also allow the investors to change the options at a later date. Growth schemes
are good for investors having a long-term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity markets. However,
opportunities of capital appreciation are also limited in such funds. The NAV’s of such funds
are affected because of change in interest rates in the country. If the interest rates fall, NAV’s
of such funds are likely to increase in the short run and vice versa. However, long-term
investors may not bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. These are appropriate for investors looking for moderate growth. They generally
24
invest 40-60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to
be less volatile compared to pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money, government securities, etc. Returns on these schemes fluctuate much less
compared to other funds. These funds are appropriate for corporate and individual investors
as a means to park their surplus funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to change in interest rates and other
economic factors as are the case with income or debt oriented schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,
S&P NSE 50 index (Nifty), etc these schemes invest in the securities in the same weight age
comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise
or fall in the index, though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.
There are also exchange traded index funds launched by the mutual funds which are traded
on the stock exchanges.
25
Sector specific funds/schemes
These are the funds/schemes, which invest in the securities of only those sectors or industries
as specified in the offer documents, e.g. Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time. They may also
seek advice of an expert.
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues, e.g.
Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also
offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities.
Their growth opportunities and risks associated are like any equity-oriented scheme.
3. Load or no-load Fund:
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time
one buys or sells units in the fund, a charge will be payable. This charge is used by the
mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If
the entry as well as exit load charged is 1%, then the investors who buy would be required to
pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only
Rs.9.90 per unit. The investors should take the loads into consideration while making
investment as these affect their yields/returns. A no-load fund is one that does not charge for
entry or exit. It means the investors can enter the fund/scheme at NAV and no additional
charges are payable on purchase or sale of units.
26
The table below summarizes the funds according to their nature of risk –
Nature of risk Categories of funds
Low risk Money market funds
G-Sec funds
Moderate risk Income funds
Short term plans
Balanced funds
High risk Index funds
Growth funds
Sector funds
TABLE: 1
Risk Return Matrix
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vice versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest
in capital protected funds and the profit-bonds that give out more return which is slightly
higher as compared to the bank deposits but the risk involved also increases in the same
proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesn’t
mean mutual fund investments risk free. This is because the money that is pooled in are not
invested only in debts funds which are less riskier but are also invested in the stock markets
27
This involves a higher risk but can expect higher returns. Hedge fund involves a very high
risk since it is mostly traded in the derivatives market which is considered very volatile.
The table below compares the investment options under the broad heads viz. return, safety,
volatility, liquidity and convenience.
Investment
Option
Convenience Return Safety Volatility Liquidity
Equity High High Low High High
FI Bonds Moderate Moderate High Moderate Moderate
CD’s Moderate Moderate Moderate Moderate Low
Company FD’s Moderate Moderate Low Low Low
Bank Deposits High Moderate High Low High
PPF Moderate Moderate High Low Moderate
Life Insurance Moderate Low High Low Low
Gold Moderate Low High Moderate Moderate
Real Estate Low High Moderate High Low
Mutual Funds High High High Moderate High
TABLE: 2
28
Risk vs. Return
In any financial market, risk and return are closely associated. All investors want to maximize
their return, while minimizing risk. Some investments are certainly more "risky" than others,
but no investment is risk free. Risk can never be eliminated, but it can be managed.
In the investing world, the definition of risk is the chance that an investment's actual return
will be different than expected. Technically, this is measured in statistics by standard
deviation.
Low levels of uncertainty (low risk) are associated with low potential returns. High levels of
uncertainty (high risk) are associated with high potential returns. The risk/return tradeoff is
the balance between the desire for the lowest possible risk and the highest possible return.
This is demonstrated graphically in the chart below. A higher standard deviation means a
higher risk and higher possible return.
FIGURE: 4
29
Calculation of Risk
Standard Deviation :
It reflects the degree to which returns fluctuate around their average. The higher the standard
deviation, the greater is the risk. The measure is typically calculated using monthly results
which are generally disclosed by Fund houses in their fund updates. A conservative equity
fund might have a number below 3.5% per month, whereas an extremely aggressive one
could have a value of 6% or more. About two thirds of the time a fund’s actual monthly
return will range within plus or minus “one standard deviation” of its monthly average. Its
return will vary within the two standard deviations about 95 % of the time.
To determine how well a fund is maximizing the return received for its volatility, one can
compare the fund to another with a similar investment strategy and similar returns. The fund
with the lower standard deviation would be more optimal because it is maximizing the return
received for the amount of risk acquired.
FIGURE: 5
30
With the S&P 500 Fund B, the investor would be acquiring a larger amount of volatility risk
than necessary to achieve the same returns as Fund A. Fund A would provide the investor
with the optimal risk/return relationship.
The Beta Measure :
Market risk is commonly measured by what’s known as the “beta coefficient”. It relates the
return on a stock or mutual fund to a market index. This is often done by taking returns for,
say, the past 3 years & correlating them with the index’s monthly results. Beta reflects the
sensitivity of the return to fluctuations in the market index. The beta for the average well-
diversified portfolio equals 1.0.
Betas greater than 1.0 indicate above average volatility- i.e. higher the beta, greater the risk.
If Beta is less than 1.0 it reflects below-average volatility. These include defensive portfolios
that invest primarily in slow moving stocks such as utilities. Money-market funds have a beta
of zero since their returns are independent of the stock market.
The Treynor Measure :
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free
rate of return (generally taken to be the return on securities backed by the government, as
there is no credit risk associated), during a given period and systematic risk associated with it
(beta).
Symbolically, it can be represented as
Treynor's Index (Ti) = (Ri - Rf)/Bi
Where, ‘Ri’ represents return on fund, ‘Rf’ is risk free rate of return and ‘Bi’ is beta of the
fund. All risk-averse investors would like to maximize this value. While a high and positive
31
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.
The Sharpe Measure :
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a
ratio of returns generated by the fund over and above risk free rate of return and the total risk
associated with it. According to Sharpe, it is the total risk of the fund that the investors are
concerned about. So, the model evaluates funds on the basis of reward per unit of total risk.
Symbolically, it can be written as:
Sharpe Index (Si) = (Ri - Rf)/Si
Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a
superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an
indication of unfavorable performance.
32
Comparison of Sharpe and Treynor Ratios:
Sharpe and Treynor measures are similar in a way, since they both divide the risk premium
by a numerical risk measure. The total risk is appropriate when we are evaluating the risk
return relationship for well-diversified portfolios.
On the other hand, the systematic risk is the relevant measure of risk when we are evaluating
less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the
total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and
systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the
total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher
on Treynor measure, compared with another fund that is highly diversified, will rank lower
on Sharpe Measure.
The Jenson Model :
Jenson's model proposes another risk adjusted performance measure. This measure was
developed by Michael Jenson and is sometimes referred to as the Differential Return Method.
This measure involves evaluation of the returns that the fund has generated vs. the returns
actually expected out of the fund given the level of its systematic risk. The surplus between
the two returns is called Alpha, which measures the performance of a fund compared with the
actual returns over the period. Required return of a fund at a given level of risk (Bi) can be
calculated as:
Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it, alpha can
be obtained by subtracting required return from the actual return of the fund. It compares the
actual results of a portfolio with what would have been expected given the fund’s beta & the
market’s behavior. If the fund fares better than predicted, it has a positive alpha & vice-versa.
33
Higher alpha represents superior performance of the fund and vice versa. Limitation of this
model is that it considers only systematic risk not the entire risk associated with the fund and
an ordinary investor can’t mitigate unsystematic risk, as his knowledge of market is
primitive.
Among the above performance measures, two models namely, Treynor measure and Jenson
model use systematic risk based on the premise that the unsystematic risk is diversifiable.
These models are suitable for large investors like institutional investors with high risk taking
capacities as they do not face paucity of funds and can invest in a number of options to dilute
some risks. For them, a portfolio can be spread across a number of stocks and sectors.
However, Sharpe measure that considers the entire risk associated with fund is suitable for
small investors, as the ordinary investor lacks the necessary skill and resources to diversify.
Moreover, the selection of the fund on the basis of superior stock selection ability of the fund
manager will also help in safeguarding the money invested to a great extent. The investment
in funds that have generated big returns at higher levels of risks leaves the money all the
more prone to risks of all kinds that may exceed the individual investors' risk appetite.
34
ROLE OF ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
The mutual fund industry has a trade association called Association of Mutual Funds in India
(AMFI) modeled on the lines of a Self Regulating Organization (SRO) with a view to
'promoting and protecting the interest of mutual funds and their unit-holders, increasing
public awareness of mutual funds, and serving the investor’s interest by defining and
maintaining high ethical and professional standards in the mutual funds industry'. AMFI
plays an important role in disciplining members and assist the regulatory authority in
protecting investors' interest.
The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian
Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain
standards in all areas with a view to protecting and promoting the interests of mutual funds
and their unit holders.
AMFI works through a number of committees, some of which are standing committees to
address areas where there is a need for constant vigil and improvements and other which are
ad hoc committees constituted to address specific issues. These committees consist of
industry professionals from among the member mutual funds.
Objectives of AMFI
To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry.
To recommend and promote best business practices and code of conduct to be
followed by members and others engaged in the activities of mutual fund and asset
management including agencies connected or involved in the field of capital markets
and financial services.
To interact with the Securities and Exchange Board of India (SEBI) and to represent
to SEBI on all matters concerning the mutual fund industry.
35
To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
To develop a cadre of well trained Agent distributors and to implement a program me
of training and certification for all intermediaries and other engaged in the industry.
To undertake nationwide investor awareness programs me so as to promote proper
understanding of the concept and working of mutual funds.
To disseminate information on Mutual Fund Industry and to undertake studies and
research directly and/or in association with other bodies.
Advantages of investing in a Mutual Fund
36
The benefits of investing in mutual funds can summarized in the following points -
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the
investment objective of the scheme. An investor can buy in to a portfolio of equities, which
would otherwise be extremely expensive. Each unit holder thus gets an exposure to such
portfolios with an investment as modest as Rs.500/-.
Diversification
We must spread our investment across different securities (stocks, bonds, money market
instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information
technology etc.). This kind of a diversification may add to the stability of our returns, for
example during one period of time equities might underperforms but bonds and money
market instruments might do well enough to offset the effect of a slump in the equity
markets.
Variety
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways:
first, it offers different types of schemes to investors with different needs and risk appetites;
secondly, it offers an opportunity to an investor to invest sums across a variety of schemes,
both debt and equity. For example, an investor can invest his money in a Growth Fund
(equity scheme) and Income Fund (debt scheme) depending on his risk appetite and thus
create a balanced portfolio easily or simply just buy a Balanced Scheme.
Professional Management
Qualified investment professionals who seek to maximize returns and minimize risk monitor
investor's money. When we buy in to a mutual fund, we are handing our money to an
investment professional that has experience in making investment decisions. It is the Fund
Manager's job to (a) find the best securities for the fund, given the fund's stated investment
37
objectives; and (b) keep track of investments and changes in market conditions and adjust the
mix of the portfolio, as and when required.
Transparency
Being under a regulatory framework, mutual funds have to disclose their holdings,
investment pattern and all the information that can be considered as material, before all
investors. SEBI acts as a watchdog and safeguards investors’ interests.
Securities Exchange Board of India (“SEBI”), the mutual funds regulator has clearly defined
rules, which govern mutual funds. These rules relate to the formation, administration and
management of mutual funds and also prescribe disclosure and accounting requirements.
Such a high level of regulation seeks to protect the interest of investors.
FIGURE: 6
Liquidity
A distinct advantage of a mutual fund over other investments is that there is always a market
for its unit/ shares. It's easy to get one’s money out of a mutual fund. Redemptions can be
made by filling a form attached with the account statement of an investor.
Risks Associated with Mutual Funds
38
The risks associated with the investments in mutual funds can be termed as disadvantages of
the mutual funds, which are as followings:
1) Professional Management- Some funds don’t perform in the market, as their
management is not dynamic enough to explore the available opportunity in the
market, thus many investors debate over whether or not the so-called professionals are
any better than mutual fund or investor himself, for picking up stocks.
2) Costs – The biggest source of AMC income is generally from the entry & exit load
which they charge from investors, at the time of purchase. The mutual fund industries
are thus charging extra cost under layers of jargon.
3) Dilution - Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the overall
return. Dilution is also the result of a successful fund getting too big. When money
pours into funds that have had strong success, the manager often has trouble finding a
good investment for all the new money.
4) Taxes - when making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-
gain tax is triggered, which affects how profitable the individual is from the sale. It
might have been more advantageous for the individual to defer the capital gains
liability.
Taxing in Mutual Funds
39
Since, April 1, 2003, all dividends, declared by debt-oriented mutual funds (i.e. mutual funds
with less than 50% of assets in equities), are tax-free in the hands of the investor. A dividend
distribution tax of 12.5% (including surcharge) is to be paid by the mutual fund on the
dividends declared by the fund. Long-term debt funds, government securities funds
(G-sec/gilt funds), monthly income plans (MIPs) are examples of debt-oriented funds.
Dividends declared by equity-oriented funds (i.e. mutual funds with more than 50% of assets
in equities) are tax-free in the hands of investor. There is also no dividend distribution tax
applicable on these funds under Section115R. Diversified equity funds, sector funds,
balanced funds are examples of equity-oriented funds.
Amount invested in tax-saving funds (ELSS) would be eligible for deduction under Section
80C; however the aggregate amount deductible under the said section cannot exceed Rs
100,000.
Section 2(42A):
Under Section 2(42A) of the Act, a unit of a mutual fund is treated as short-term capital asset
if the same is held for less than 12 months. The units held for more than twelve months are
treated as long-term capital asset.
Section 10(38):
Under Section 10(38) of the Act, long term capital gains arising from transfer of a unit of
mutual fund is exempt from tax if the said transaction is undertaken after October 1, 2004 and
the securities transaction tax is paid to the appropriate authority. This makes long-term capital
gains on equity-oriented funds exempt from tax from assessment year 2005-06.
Short-term capital gains on equity-oriented funds are chargeable to tax @10% (plus
education cess, applicable surcharge). However, such securities transaction tax will be
40
allowed as rebate under Section 88E of the Act, if the transaction constitutes business
income.
Long-term capital gains on debt-oriented funds are subject to tax @20% of capital gain after
allowing indexation benefit or at 10% flat without indexation benefit, whichever is less.
Short-term capital gains on debt-oriented funds are subject to tax at the tax bracket applicable
(marginal tax rate) to the investor.
Section 112:
Under Section 112 of the Act, capital gains, not covered by the exemption under Section
10(38), chargeable on transfer of long-term capital assets are subject to following rates of tax:
Resident Individual & HUF -- 20% plus surcharge, education cess.
Partnership firms & Indian companies -- 20% plus surcharge.
Foreign companies -- 20% (no surcharge).
Capital gains will be computed after taking into account the cost of acquisition as adjusted by
Cost Inflation Index, notified by the central government.
'Units' are included in the proviso to the sub-section (1) to Section 112 of the Act and hence,
unit holders can opt for being taxed at 10% (plus applicable surcharge, education cess)
without the cost inflation index benefit or 20% (plus applicable surcharge) with the cost
inflation index benefit, whichever is beneficial.
Under Section 115AB of the Income Tax Act, 1961, long term capital gains in respect of
units, purchased in foreign currency by an overseas financial, held for a period of more than
12 months, will be chargeable at the rate of 10%. Such gains will be calculated without
indexation of cost of acquisition. No surcharge is applicable for taxes under section 115AB,
in respect of corporate bodies.
MARKETING OF MUTUAL FUNDS
41
Mutual Fund industry in India has undergone the most dramatic transformation in the post-
liberalization era of the nineties. There has been a paradigm change in the quality and
quantity of product and service offerings. After being serviced by monopoly players for
decades with hardly any choice in product offerings, the Indian investor today is being wooed
by virtually the who's who of global and Indian players with a choice that was unimaginable
a decade back. In this backdrop, it is interesting to know the strategic marketing approach
adopted by the mutual fund companies to survive and thrive in this highly promising
industry.
The changing marketing trends in the mutual fund industry in India can be easily linked and
traced to its history of growth. The changes in marketing strategies can be characterized by
different stages, which have evolved along with the growth and evolution of the industry.
Marketing today has various options to offer and no doubt in the case of investment business
also marketing plays an important role since it starts from tracing a potential customer who
will buy into the scheme/fund and ends when the scheme/fund is finally sold to him.
Product Focus:
In the beginning the only focus of the marketing strategy was different product offerings. As
the concept was new so the companies made things a little simple for the investors so the
categorization was primarily based on two factors; one was the way the schemes were traded
and the other through different composition of debt and equity securities in the scheme.
In the Product Focus stage, the aim of the mutual fund companies was to introduce a wide
variety of products and the only way in which a fund used to outperform other fund was:
a). the performance of the fund in giving returns to its investors.
b). the way in which that particular fund was marketed.
Customer Ownership Focus:
42
Next stage was customer ownership stage, in this stage mutual fund companies began to
segment big and small investors with equal focus. The target segment was broadly divided
into institutional segment and individual investor segment. The institutional segment
consisted of treasury departments of Corporate and Trusts etc., and suitable products such as
Institutional Income schemes and Money Market schemes were targeted at them.
The individual investor was in turn divided into various segments such as young families
with small or no children, middle-aged People saving for retirement and retired People
looking for steady income. Suitable products such as Growth and Balanced schemes for
young families and Income schemes for retired people were marketed.
Specialized Product & Service Focus:
Now the product is offered according to the needs of the individual investor. As awareness
levels of individual investors go up, focus is on identifying one's investment needs depending
on one's financial goals, ability to handle risks, the time horizon individual is ready to be
invested. Investors chose companies, which help them in the above through specialized
products and services. To sustain in the industry, proper and efficient marketing is vital now.
Marketing Strategies Adopted by Mutual Funds
43
The present marketing strategies of mutual funds can be divided into three main headings:
Direct marketing
Selling through intermediaries
Joint Calls
Direct Marketing:
Personal Selling: In this case the customer support officer of the fund at a particular
branch takes appointment from the potential prospect. Once the appointment is fixed,
the branch officer, also called Business Development Associate (BDA), then meets
the prospect and gives him all details about the various schemes being offered by his
fund.
Telemarketing: In this case the emphasis is to inform the people about the fund. The
names and phone numbers of the people are picked at random from telephone
directory. Sometimes people belonging to a particular profession are also contacted
through phone and are then informed about the fund.
Direct mail: This is one of the most common methods followed by all mutual funds.
Addresses of people who want to get information about mutual funds are provided by
support system. The customer support officer (CSO) then mails the literature of the
schemes offered by the fund. The follow up starts after 3 – 4 days of mailing the
literature. The CSO calls on the people to whom the literature was mailed. Answers
their queries and is generally successful in taking appointments with those people. It
is then the job of BDA to try his best to convert that prospect into a customer.
Advertisements in newspapers and magazines: The funds regularly advertise in
business newspapers and magazines besides in leading national dailies. The purpose
to keep investors aware about the schemes offered by the fund and their performance
in recent past.
Hoardings and Banners: In this case the hoardings and banners of the fund are put at
important locations of the city where the movement of the people is very high.
44
Internet: Advertisements of new funds and schemes are also posted on popular web
sites to spread the awareness. Internet advertisements are generally aimed at younger
investors.
Selling through intermediaries :
Intermediaries are the distributors who are in direct touch with the investors. They perform an
important role in attracting new customers. Most of these intermediaries are also involved in
selling shares and other investment instruments. They do a commendable job in convincing
investors to invest in mutual funds. A lot depends on the after sale services offered by the
intermediary to the customer. Customers prefer to work with those intermediaries who give
them right information about the fund and keep them abreast with the latest changes taking
place in the market especially if they have any bearing on the fund in which they have
invested.
Most of the funds conduct monthly/bi-monthly meetings with their distributors. The objective
is to hear their complaints regarding service aspects from funds side and other queries related
to the market situation. Sometimes, special training programs are also conducted for the new
agents/ distributors. Training involves giving details about the products of the fund, their
present performance in the market, what the competitors are doing and what they can do to
increase the sales of the fund.
Joint Calls :
This is generally done when the prospect seems to be a high net worth investor. The BDA
and the agent (who is located close to the HNIs residence or area of operation) together visit
the prospect and brief him about the fund. The conversion rate is very high in this situation,
generally, around 60%. Both the fund and the agent provide even after sale services in this
particular case. Whenever a top official visits a particular branch office, he devotes at least
one to two hours in meeting with the HNIs of that particular area. This generally develops a
faith among the HNIs towards the fund.
CHALLENGES AND OPPORTUNITIES:
45
The mutual fund industry in India presents huge challenges as well as opportunities to the
marketer. The main aspects of these challenges and opportunities are as followings:
Assessing the needs of the investors;
Expanding the customer base;
Responding to investors needs;
Studying the macro environment;
Choosing the distribution network;
Finalizing strategies for publicity and advertisement;
Preparing offer documents and other literature;
Getting feedback about sales;
Studying performance indicators about fund performance like NAV;
Sending certificates in time and other after sales activities;
Honoring the commitments made for redemptions and repurchase;
Paying dividends and other entitlements;
Creating positive image about the fund;
Spreading awareness about mutual funds;
Creating new markets for mutual funds.
46
CHAPTER 3
COMPANY PROFILE
47
TATA MUTUAL FUND
Tata Mutual Fund (TMF) has been constituted as a Trust in accordance with the provisions of
The Indian Trusts Act, 1882 (2 of1882) and is registered as a Trust under The Indian
Registration Act,1908.TMF was registered with Securities & Exchange Board of India(SEBI)
and commenced operation by launching its first scheme on 30th August 1995. The Trustee
Company has appointed Tata Asset Management Limited (TAML) as the Asset Management
Company.
Tata Asset Management Ltd is a part of the Tata group, one of India's largest and most
respected industrial groups, renowned for its adherence to business ethics.
The Group has always believed in returning wealth to the society that it serves. Thus, nearly
two-thirds of the equity of Tata Sons, the Group's promoter company, is held by
philanthropic trusts, which have created a host of national institutions in the natural sciences,
medical care, energy and the arts. The trusts also give substantial annual grants and
endowments to deserving individuals and institutions in the areas of education, healthcare
and social uplift.
By combining ethical values with business acumen, globalization with national interests and
core businesses with emerging ones, the Tata Group aims to be the largest and most respected
48
global brand from India. This way, it fulfills its long-standing commitment to improving the
quality of life of its stakeholders.
Incorporated in 1994, Tata Asset Management Limited is one of the oldest fund houses in
India. Registered with and regulated by the Securities Exchange Board of India, Tata Asset
Management Limited manages an asset base of about Rs27,938.11 crore as on 30 April
2008, and serves an investor base of over one million investors.
A leading player in the mutual fund arena, Tata Asset Management Limited offers a wide
array of products for institutional and individual investors at various life stages across the
risk-reward spectrum. The core strength of Tata Asset Management Limited stems not only
from its sound systems and processes but also from the quality of its intellectual capital,
which is made up of the best and brightest minds. At the same time, the company provides a
robust risk management framework with in-built controls and balances.
The Tata Asset Management philosophy is centered on seeking consistent, long-term results.
Tata Asset Management aims at overall excellence, within the framework of transparent and
rigorous risk controls. Backed by one of the most trusted and valued brands in India, Tata
Mutual Fund has earned the trust of lakhs of investors with its consistent performance and
world-class service.
49
PRODUCTS OFFERED BY TATA MUTUAL FUND
Equity Products
Schemes Objectives
Tata Pure Equity Fund To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
Tata Tax Saving Fund To provide medium to long term capital gains along with income tax relief to its unit holders while emphasizing the importance of capital appreciation.
Tata Select Equity Fund To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
Tata Life Sciences &Tech. Fund To provide medium to long term capital gains and/or income distribution along with capital gains tax relief to its unit holders, while at all times emphasizing the importance of capital appreciation.
Tata Equity Opportunities Fund To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
50
Tata Index Fund To provide medium to long term capital gains to its Unit holders.
Tata Growth Fund To provide reasonable and regular income along with possible capital appreciation to its unit holder.
Tata Equity P/E Fund To provide reasonable and regular income along with possible capital appreciation to its unit holder.
Tata Dividend Yield Fund To provide income distribution and / or medium to long term capital gains by investing predominantly in high dividend yield stocks.
Tata Infrastructure Fund To provide income distribution and / or medium to long term capital gains by investing predominantly in equity or equity related instrument of companies in infrastructure sector.
Tata Service Industries Fund to provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instrument of companies in the service sector
Tata Mid Cap Fund To provide income distribution and / or medium to long term capital gains by investing predominantly in equity / equity related instrument of mid cap companies.
Tata Contra Fund To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation. Contrarian investing refers to buying into fundamentally sound scripts that have been overlooked by the market (for reasons of short term trend) and waiting for the market to give these stocks their real value in course of time.
Tata Tax Advantage Fund- 1 To provide income distribution and/or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
Tata Equity Management Fund To seek to generate capital appreciation &
51
provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related instruments and the secondary objective is to generate consistent returns by investing in debt and money market securities.
Tata Capital builder Fund Seeks to generate capital appreciation over a period of 3 years by investing predominantly in equity & equity related instruments of companies across large, mid and small market capitalizations.
Tata Indo-Global Infrastructure To generate long term capital appreciation by investing predominantly in equity and equity related instruments of companies engaged in infrastructure and infrastructure related sectors and which are incorporated to have their area of primary activity, in India and other parts of the World.
Tata Growing Economies Infrastructure Fund
to generate capital appreciation / income by investing predominantly in equities of companies in infrastructure and other related sectors in the growing economies of the world and in India
Table: 3
Debt Products
Schemes Objectives
Tata Short Term Bond Fund To provide reasonable returns and high level of liquidity by investing in short- term debt instruments.
Tata Gilt Securities Fund To generate risk-free return and thus provide medium to long term capital gains and income distribution to its unit holders, while at all times emphasizing the importance of capital preservation.
52
Tata Income Fund To provide income distribution and/ or medium to long term capital gains while at all times emphasizing the importance of safety and capital appreciation.
Tata Income Plus Fund To provide income/ bonus distribution and / or medium to long-term capital gains while at all times emphasizing the importance of safety and capital appreciation.
Tata Fixed Horizon Fund To generate regular returns by investing in fixed income securities normally maturing in line with the maturity of the respective plans.
Tata Monthly Income Fund To provide reasonable and regular monthly income along with possible capital appreciation to its unit holders.
Tata Dynamic Bond Fund To provide reasonable returns and liquidity to the unit holders.
Tata Floating Rate Fund To generate stable returns with a low risk strategy by creating a portfolio that is substantially invested in good quality floating rate debt or money market instruments, fixed rate debt or money market instruments swapped for floating returns and fixed rate debt and money market instruments.
Tata Liquid Fund To create a highly liquid portfolio of good quality debt as well as money market instruments so as to provide reasonable returns and high liquidity to the unit holders.
Tata MIP Plus Fund To provide reasonable and regular income along with possible capital appreciation to its unit holders
53
Tata Floater Fund To generate stable returns with a low interest rate risk strategy by creating a portfolio that is predominantly invested in good quality floating rate debt instruments, money market instruments and in fixed rate debt instruments which can also be swapped for floating rate returns
Tata Liquidity Management Fund To generate reasonable returns along with high liquidity and safety by investing in a portfolio of money market and other short term debt instruments.
Tata Treasury Manager Fund To generate reasonable returns along with liquidity by investing predominantly in a portfolio of money market and other short term debt instruments.
Tata Fixed Income Portfolio Fund To generate returns and / or capital appreciation along with minimization of interest rate risk. In order to achieve its investment objective, the scheme will invest predominantly in a portfolio of Debt & Money market instruments
Tata Fixed Investment Plan – 1 To generate income and / or capital appreciation by investing in wide range of Debt and Money Market Instruments.
Table: 4
54
Balanced Products
Schemes Objective
Tata Balanced Fund To provide income distribution and / or medium to long term capital gains while at all times emphasizing the importance of capital appreciation.
Tata Young Citizens' Fund To provide long-term capital growth along with steady capital appreciation to its unit holders, while at all times emphasizing the importance of capital preservation.
Tata SIP Fund Scheme To achieve a long term growth. The scheme seeks to achieve its investment objective by investing systematically in Equity / Equity related instruments.
Table: 5
Distribution Channels
55
Tata Mutual Fund operates by the use of five types of distribution channels:
Banks
Private Banks – The Tata Mutual Fund products are pushed by the private
banking organizations to its customers, like DCB, HDFC Bank.
Public Banks -- with which Tata Mutual Fund has tie-ups. Like SBI, Indian
Overseas Bank.
Distribution Houses –
National Level Distributors – Tie-ups exist with distributors who have a
national presence to promote and sell Tata Mutual Fund products to their
clients. Like Karvy, ICICI Direct.
Local Level Distributors – There also exists distributors who are region
specific and they sell to the prospective investors.
Independent Financial Advisors –
Independent Financial Advisors are Association of Mutual Fund in India (AMFI)
certified agents who work as freelancers. They get registered with Tata Mutual Fund
and advice their clients into investing in Tata Mutual Fund products according to their
needs.
Direct Selling –
Tata Mutual Fund sells its products directly to the walk in customers also. As per
SEBI Circular dated 31 st December,2007 no entry load shall be charged on the direct
purchase/switch –in applications accepted by the AMC. So, now it is beneficial for
the investors who prefer to directly purchase from Tata Mutual Fund.
Internet –
56
Internet is also used as a medium of direct selling by Tata Mutual Fund. An investor
of Tata Mutual Fund can purchase any product using the portal of Tata Mutual Fund.
All transactions done through this channel are safe and secure.
Overview of Distribution Channels
Figure: 7
AMCAMC
Direct Sales
Sales
es
BrokersBanks Distribution
HousesInternet
Institutional Brokers
Independent
Financial
Advisors
Retail
Customers
High Net worth Customers
CorporateLarge
Corporate
Customer Segment
57
The Customer Segment shown in the above diagram is not sacrosanct, sometimes there is
overlapping one segment being catered by more than one intermediary. For a country as
diverse and widespread as India, the banks are the ideal medium to tap the huge base of
investors; it will also provide the necessary push to transform the huge amount of money
lying in savings account to be transformed into investments.
Tata Mutual Fund’s tie up with Public Sector Banks, like State Bank of India helps not only
in targeting newer customer classes but also in reaching areas that are far-flung and where
few intermediaries will care to set up offices.
C O M P E T I T O R S O F T A T A M U T U A L F U N D
The major competitors of Tata Mutual Fund are the private sector Mutual Funds like
Reliance, ICICI, Franklin Templeton and HDFC. Also the public sector Mutual Funds that
have huge AUM like UTI, LIC, SBI and GIC are threats for Tata Mutual Fund. But if we
consider the performance based on the returns generated by the funds then the private sector
Mutual Funds out-perform their public sector counterparts by huge margins except for SBI
whose fund management for the last couple of years has been one of the best. Also, the
promotional campaigns of the private players are more aggressive and they frequently come
up with NFOs (New Fund Offering) thus posing an imminent threat to Tata Mutual Fund.
But the Mutual Fund Industry as a whole has competition from the equity and debt market of
which the investors are more aware. The unawareness of the MF Industry can also be
attributed to the fact that the industry is in its nascent state. And the tax planning Mutual
Fund schemes have competition from the Insurance schemes, NSCs (National Savings
Certificate), PFs (Provident Fund) and Post Office Savings schemes. Even when an investor
invests in a tax planning Mutual Fund his main motive remains tax saving and not the returns
that he gets in due course of time. And when the investor thinks of returns, he turns towards
the equity market which is much more risky and volatile. Therefore the psyche or the
perception of the investor needs to be changed; the investor needs to be educated about the
benefits of a diversified portfolio and calculated risks of Mutual Funds.
It is one of the objectives of Tata Mutual Fund to educate the investors about the benefits of
mutual funds. Tata Mutual Fund has been very much successful in this endeavor.
58
TATA EQUITY OPPORTUNITIES FUND: A Comparative Analysis
Fund Objective:
The fund positioned as “stock picker’s delight”, follows a proactive fund management
strategy. The scheme aims to pick up stocks ahead of the market and on an ongoing basis
book profits to enter new opportunities. Thus it is focused on capitalizing on opportunities
offered by equity markets from time to time. Investments under this scheme will be made in
equities of growth value stocks, and there will be an exposure to debt and money market
instruments also.
Asset Allocation: Tata Equity Opportunities Fund
Min Max
Equity & Equity Related 80% 100%
Debt (Including Money Market) 0% 20%
Table: 6
Latest Statistics and Profile: Tata Equity Opportunities Fund
Latest NAV (Rs) 74.52 (09/05/08)
52 –week high (Rs) 85.31
52-week low (Rs) 51.49
Fund category Equity diversified
Type Open ended
Launch date March 2003
Net assets (Rs cr) 495.42
Benchmark Sensex
Table: 7
59
Sectoral Allocation: Tata Equity Opportunities Fund
Figure: 8
60
Performance at a Glance (%) CAGR (as on 30th November, 2007)
Scheme Vs. Benchmark Last 1 Year Last 3 Years Last 5
Years
Since
Inception
Tata Equity Opportunities
Fund
62.59% 54.10% 65.08% 16.30%
BSE Sensex 41.38% 45.90% 43.05% 13.99%
Table: 8
Comparative Analysis: Tata Equity Opportunities Fund vs. Competitors
Scheme Scheme Returns* Index
Returns**
Tata Equity Opportunity Fund 41.97 41.45
Reliance Equity Opportunity Fund 31.89 41.45
Franklin Opportunities Fund 38.73 41.45
ING Vysya Domestic Opportunities Fund 34.31 41.45
Kotak Opportunities Fund 41.20 41.45
DBS Chola Opportunities Fund 39.66 41.45
Birla India Opportunities Fund 20.07 41.45
*return over 3 years
**BSE Sensex
Table: 9
61
Tata Equity Opportunities Fund has been a constant performer in its category. The fund’s
past performance has been very good and the fund manager’s stock picking abilities have
worked well. In the past, the fund has been successful in overcoming difficulties thrown by
unprecedented market fluctuations and the fund manager’s decision on aggressive equity
allocation has paid rich dividends.
Tata Equity Opportunities Fund has outperformed its benchmark index consistently. In
comparison, very few funds launched by its competitors are able to match its performance.
Therefore, ET Quarterly MF Tracker included this fund into Platinum Funds category in
Nov 2007.
62
CHAPTER 4
METHODOLOGY
63
METHODOLOGY
Defining the Project Objective:
Background
It is widely known that the “expectations” of the investors play a vital role in the financial
markets. The “expectations” influence the volume of trade, the value of indices and the prices
of securities. Hence the beliefs and actions of the investors are crucial for the financial
markets.
Much of economic and financial theory is based on the notion that individuals act rationally
and consider all available information in the decision making process. Investor behavior does
not; however, conform to such norms. In practical situations, it is very difficult to explain the
effect of “beliefs” and “perception” on decision making process of the investors. Investor
behavior may also change from time to time, even if other variables influencing investor’s
behavior remain constant. However, with the help of “Consumer Behavior”, we can
understand the “why” and “how” aspect of investor behavior; which can have managerial
implications.
Thus, with this background, this study attempts to analyze the behavioral aspects of fund
selection strategy of individual investors. At the same time this study also tries to assess the
level of awareness of Mutual Funds among the investors.
64
Literature Review
Mutual Funds have attracted lots of attention and interest of financial analysts. Several
studies have been done to understand the financial behavior of the investors.
A study done by Brad M. Barber, Terrance Odean and Lu Zheng,” The Behavior of Mutual
Fund Investors”(2000)1,in which they analyzed the mutual fund purchase and sale decisions
of over 30,000 households with accounts at a large U.S. discount broker for the six years
ending in 1996. They documented three primary results. First, investors buy funds with
strong past performance; over half of all fund purchases occur in funds ranked in the top
quintile of past annual returns. Second, investors sell funds with strong past performance and
are reluctant to sell their losing fund investments; they are twice as likely to sell a winning
mutual fund rather than a losing mutual fund and, thus, nearly 40 percent of fund sales occur
in funds ranked in the top quintile of past annual returns. Third, investors are sensitive to the
form in which fund expenses are charged; though investors are less likely to buy funds with
high transaction fees (e.g., broker commissions or front-end load fees), their purchases are
relatively insensitive to a fund’s operating expense ratio.
Another study done by CashmanGeorge D, Deli Daniel N,Nardari Federicko,Villupuram
Shriram V,” Investor Behavior in the Mutual Fund Industry: Evidence from Gross
Flows”(2007),2 using a large sample of monthly gross flows from 1997 to 2003, they have
uncovered several previously undocumented regularities in investor behavior. First investor
purchases and sales produce fund-level gross flows that are highly persistent. Persistence in
fund flows dominates performance as a predictor of future fund flows. Also, failing to
account for flow persistence leads to incorrect inferences with respect to the relation between
performance and flows.
Second, they have documented that investors react differently to performance depending on
the type of fund, and that investor trading activity produces meaningful differences in the
persistence of fund flows across mutual fund types.
Third, at least some investors appear to evaluate and respond to mutual fund performance
over much shorter time spans than previously assessed. Additionally, they documented
1 http://faculty.haas.berkeley.edu/odean/papers/MutualFunds/mfund.pdf2 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=966360
65
differences in the speed and magnitude of investors' purchase and sales responses to
performance.
DALBAR's 2003 update to the Quantitative Analysis of Investor Behavior (QAIB) 3shows that
investors continue to chase investment returns to the detriment of their pocket books.
Motivated by fear and greed, investors pour money into equity funds on market upswings and
are quick to sell on downturns. Most investors are unable to profitably time the market and
are left with equity fund returns lower than inflation. Thus, according to this study, market
Chasing Mutual Fund Investors earn less than inflation.
L. Franklin Fant,” Investment behavior of mutual fund shareholders: The evidence from
aggregate fund flows”(1999)4.According to this study the relationship of stock market returns
with components of aggregate equity mutual fund flows (new sales, redemptions, exchanges-
in, and exchanges-out) is examined. Vector auto regressions and tests of linear feedback
show that the flow-return relationship exists solely between returns and exchanges-in and -
out. Further, only exchanges-out is responsible for the contrarian flow behavior noted by
Warther (1995). The evidence suggests that the various components reflect different investor
objectives and information.
The study,” Investors Behaving Badly-An Analysis Of Investors Trading Pattern In Mutual
Funds”5 commissioned by Phoenix Investment Partners, a leading US investment
management company ; examines trading patterns in the mutual fund industry and the impact
of behavioral finance on investors’ returns during the 1990s.The research concludes that
investor behavior is often detrimental to the long term success of financial plans. The
findings expose the negative influence of psychological, emotional, and behavioral drivers on
trading activity in mutual funds. The study also finds that investors who use financial
advisors tend to experience slightly better results than those who don’t rely on professional
advice.
3 http://www.dalbarinc.com/content/printerfriendly.asp?page=20030716014 http://www.ingentaconnect.com/content/els/13864181/1999/00000002/00000004/art000065 Gregory Elmiger, Greg Elmiger, Steve S. Kim,” Risk Grade Your Investments: Measure Your Risk & Create Wealth”,p. 59.
66
Research Objective
The research objective is defined as a market research on fund selection behavior of
individual investors. The study aims to analyze the following major issues:
To assess the level of awareness of mutual fund among the investors.
To assess fund/scheme preference of investors.
To evaluate fund/scheme qualities that would affect the selection of Mutual Funds.
To understand the preferential feature in the funds among individual investors.
To know the importance of various source of information and marketing channels in
purchasing investment products.
To establish a relationship between types of investors and MF qualities that influence
Fund/Scheme selection.
To identify the information sources influencing the scheme selection decision of
investors.
To assess the influence of personal variables on the mutual fund conceptual awareness
level of individual investors.
To evaluate investor related services that would affect the selection of Mutual funds.
To establish a relationship between types of investors and fund qualities that influence
Fund/scheme selection.
67
Data and Data Sources
Since this is an exploratory research, no specific hypothesis is formulated. To collect the data
for exploratory study; survey method is used.
A questionnaire was designed to collect the responses from the investors. After designing the
questionnaire a pilot study was done on a sample of 20 people. The various reliability tests
and sample adequacy tests were performed to check whether I was moving in the right
direction. I also had discussions with my Company Guide and Faculty Guide and the changes
suggested were incorporated in the questionnaire.
After the final draft of the questionnaire was developed; I went ahead with conducting the
survey. For data collection questionnaires were filled up during individual interaction. The
responses were collected from walk- in customers at Tata Mutual Fund Office at Somajiguda;
HDFC (SR Nagar), DCB (ASRao Nagar) & DCB (Abids).The questionnaire was also
uploaded on internet to collect the responses. The sample size chosen is round about 105.
After data were collected, evaluation of data was done using research methods and software
like SPSS & MS Excel. For evaluation, coding of the questions was done and “Factor
Analysis” test was run to obtain the results.
Limitations of the Study:
The sample size of 105 may not represent the whole population.
Simple Random and judgmental sampling techniques have been adopted due to time
and financial constraints; but these are not always perfect.
This study has not been conducted over an extended period of time; so it may not
capture the market sentiments perfectly.
68
Factor Analysis
The analysis of the project is done with the help of the software SPSS with the module –
Factor Analysis. It is so because factor analysis is the most appropriate method for the
analysis of the project with the obtained primary data from investors to meet the project
objective. Factor analysis is a technique for discovering patterns among the variables to
determine if an underlying combination of the original variables (a factor) can summarize the
original set.
This tool of SPSS was extensively used to classify a large number of variables into smaller
number of factors. Factor Analysis was used to determine whether there was any common
constructs that represented investor concerns. 13 variables were analyzed using the Varimax
Algorithm of Orthogonal Rotation, the most commonly used method. Evaluation of the
resulting constructs and naming of the factors is largely subjective. Hence, to identify
investors’ underlying Fund/Scheme selection criteria, so as to group them into specific
factors, which would further identify Investor types, to enable the designing of appropriate
marketing strategies. Principal Component Analysis method was used for Factor Analysis.
69
Explanation of the Analysis
In the Fund/Scheme related qualities, 13 variables were analyzed to extract the factors using
Factor Analysis tool of data reduction in SPSS.
Bartlett’s test of sphericity and Kaiser –Meyer- Olkin (KMO) measure of sampling adequacy
were used to measure the appropriateness of factor analysis.
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling
Adequacy..550
Bartlett's Test of
Sphericity
Approx. Chi-Square 161.448
df 78
Sig. .000
Table: 10
The approximate chi-square statistic is 161.448 with 78 degrees of freedom, which is
significant at .000 levels. The KMO statistic (0.550) is also large (>0.5). Hence factor
analysis is considered an appropriate technique for further analysis of data.
The table of communalities shown below gives the extent to which the variance in the
variables has been accounted for by the extracted factors. As the table clearly shows, 67% of
the variance in broker’s advice is taken into consideration. Similarly 72% of the variance in
after sales service has been taken into consideration.
70
Communalities
Initial Extractionbrand 1.000 .584record 1.000 .320broker's advice 1.000 .676expense ratio 1.000 .629theme 1.000 .495min. investment 1.000 .513tax benefits 1.000 .696portfolio 1.000 .716visibility 1.000 .619credit ratings 1.000 .681lock in period 1.000 .625prompt redemptions 1.000 .596after sales 1.000 .725
Extraction Method: Principal Component Analysis.
Table: 11
Total Variance Explained
Component Initial Eigen values
Extraction Sums of Squared Loadings
Rotation Sums of Squared Loadings
Total
% of Varianc
eCumulati
ve % Total
% of Varianc
eCumulat
ive % Total
% of Varianc
eCumulat
ive %1 2.120 16.306 16.306 2.120 16.306 16.306 1.941 14.930 14.9302 1.789 13.759 30.065 1.789 13.759 30.065 1.793 13.792 28.7233 1.531 11.779 41.844 1.531 11.779 41.844 1.458 11.212 39.9344 1.346 10.351 52.195 1.346 10.351 52.195 1.434 11.032 50.9675 1.089 8.380 60.574 1.089 8.380 60.574 1.249 9.607 60.5746 .953 7.330 67.9047 .845 6.499 74.4038 .764 5.873 80.2779 .694 5.336 85.61310 .573 4.406 90.01911 .469 3.606 93.62512 .454 3.495 97.12013 .374 2.880 100.000
Extraction Method: Principal Component Analysis.
Table: 12
71
The total variance explained in the table shows the Eigen values which represent the extent of
coverage of the critical factors included in the factor analysis. As the table clearly shows; the
first factor has the highest significance.
13121110987654321
Component Number
2.0
1.5
1.0
0.5
Eig
enva
lue
Scree Plot
Figure: 9
The Scree Plot shown above helped in deciding the number of factors that should be retained.
It is evident from the above plot that the curve begins to even out after the extraction of the
fifth factor. Therefore only five factors are kept.
The Component Matrix given in the table below shows the loadings of the variables on the
five extracted factors. The loading value tells about the extent to which the factor contributes
to the variable. Loadings less than 0.5 are not shown as the “suppress loading less than 0.5”
value was entered for factor analysis in SPSS.
72
Component Matrix (a)
Component
1 2 3 4 5brand record broker's advice .624 expense ratio theme min. investment .510 tax benefits -.568 portfolio -.694 visibility credit ratings .798 lock in period .529 prompt redemptions .537 -.543 after sales -.640
Extraction Method: Principal Component Analysis.a 5 components extracted.
Table: 13
Rotated Component Matrix (a)
Component
1 2 3 4 5brand -.566 record broker's advice -.804 expense ratio .758 theme min. investment .553 tax benefits .704 portfolio .609 visibility .754 credit ratings .709 lock in period .742 prompt redemptions .727 after sales .849
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.a Rotation converged in 10 iterations.
Table: 14
73
On the basis of Varimax rotation with Kaiser Normalization, 5 factors have emerged. Each
factor is constituted of all those variables that have factor loadings greater than or equal to
0.5. The clubbing of the variables into Factors is given below:
Variables Factors
Broker’s advice, Tax benefits, Portfolio of
the fund.
Fund Performance
Visibility of the fund, Credit rating by the
agencies.
Brand Strength
Lock in period, Expense ratio. Initial Cost
Brand, Minimum investment, Prompt
redemptions.
Intrinsic Fund Qualities
After sales support After Sales Service
Table: 15
The factors, which investors take into account while selecting a fund or scheme, as given in
the table are Fund Performance, Brand Strength, Initial Cost, Intrinsic Fund Qualities and
After Sales Service .
74
Descriptive Analysis
Age group of Investors
625958565554525150494847464544434241403938373635343332302928
age
10
8
6
4
2
0
Pe
rce
nt
age
Figure: 10
From the above figure, it is quite clear that maximum number of investors falls in the age
group of 35-45 while the least in the age bracket of 25-30. The most probable reason behind
such an investment pattern can be due to the fact that the youngsters of this generation do not
believe much in saving for tomorrow. They spend life lavishly without thinking much for
tomorrow. They do not have as such more burden on them or any kind of financial liability
towards others. As we can see that maximum is in 35-45 age group it is just because the
investors at this stage are generally married & thus have many financial responsibilities
towards their family. Though the maximum investment should have been in the age bracket
of 25 -35 but it is not so may be due to late marriages that are quite prevalent today.
75
Mutual Fund Scheme Preference among Individual Investor
1
2
3
type
Pies show counts
71.88%
12.50%
15.63%
Type of Funds
Figure: 11
Investors have a plethora of options ranging from Equity funds to Balance funds. Now
investors are not offered just plain vanilla schemes but an assorted basket to tune with their
risk appetite. Mutual Fund preference for majority of investors is ‘Equity Funds’. The
preference for growth or any other scheme is also influenced by stock market conditions
prevailing at the time of investment decision.
As the pie chart shows; around 72% of investors preferred equity funds over debt funds and
balance funds. Equity funds are clearly more popular among the investors.
1=Equity Funds
2=Debt Funds
3=Balance Funds
76
1
2
3
4
5
6
information medium
Pies show counts46.60%
25.24%
12.62%
6.80%
6.80%1.94%
Source of Information
Figure: 12
Investors use some sources to gain awareness regarding investing in Mutual Funds. The
sources in the present study are confined to Newspapers – General& Business, Financial
Magazines, Television, Brokers/ Agents, Friends and Internet. As the above pie chart clearly
shows; around 47% of investors depend on newspapers to get information about mutual
funds. Next came, Magazines- which is used by 25% investors to get information about
Mutual Funds.
Findings of the study reveal that investors attach high priority to published information,
thereby preferring Newspapers – General& Business and Financial Magazines. This throws
light on the possibility that Mutual Fund investors spend time analyzing and examining
relevant information before taking any crucial decision.
1=Newspaper, 2=Magazines,
3=Internet, 4= Television
5=Agents, 6=Friends, 7=Others
77
Chapter 5
Scope
78
Scope for Development of Mutual Fund Business in India
Mutual funds have opened new vistas to millions of small investors by virtually taking
investment to their doorstep. In India, a small investor generally goes for bank deposits,
which do not provide hedge against inflation and often have negative real returns. He has
limited access to price sensitive information and if available, may not be able to comprehend
publicly available information couched in technical and legal jargons. He finds himself to be
an odd man out in the investment game. Mutual funds have come, as a much needed help to
these investors. Mutual Funds are looked upon by individual investors as financial
intermediaries/ portfolio managers who process information, identify investment
opportunities, formulate investment strategies, invest funds and monitor progress at a very
low cost.
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. India has a burgeoning population of middle class now estimated around
300 million. Investments in Banks are liquid and safe, but with the falling rate of interest
offered by banks on deposits, it is no longer attractive. Mutual Funds provide the best
alternative to fixed deposit schemes if the rate of inflation is adjusted. Viewed in this sense
globally India is one of the best markets for Mutual Fund Business.
The Indian mutual fund industry has traditionally been faced with an unstable asset
composition, a small geographically skewed retail investor base, and a relatively insignificant
share of household savings. Till a few years ago, for example, the incomes of most Indians
were at levels too modest for mutual funds to be of active interest. This has rapidly receded
into history as India seems set to shoulder its way into a more prosperous future and with
average incomes in India rising by nearly 30 per cent from the 2004-05 levels.
Another reason is that smaller retail investors traditionally have been offered a limited range
of investment options and most household savings have been channeled into either low
yielding bank deposits or to life insurance policies. This has produced a low risk appetite in
the minds of many small investors.
79
Interest rate subsidies offered by the government as a back door method of selling
government paper through various savings schemes offered by India Post have not helped the
cause of Mutual Funds as they have parked a significant share of household savings in that
direction. In addition to it, the mandatory publicly managed pension and provident funds
have consumed over US $50 billion of stable and long-term household savings.
The awareness of mutual funds is also very low in India. According to a survey conducted by
Invest India Incomes and Savings Survey 2007; 90 percent of individuals with incomes in India
do not know that mutual funds exist. Of those who are aware, over 30 per cent are unable to
recall even a single mutual fund brand. An important part of this survey is that the existing
retail mutual fund investor base represents some 18 per cent of the "aware" population.
This suggests that the mutual fund investor base can be grown significantly if visibility level
among the larger audience, where visibility does not exist, is raised. Therefore, fund houses
need to create a mass market for Mutual Funds to increase the base of investors.
According to new research posted by IIMS Data works, the mutual fund retail investor base is
today at 5.3 million. At a conservative estimate, an additional 34 million individuals, with the
capacity and interest to invest up to US $14 billion annually in mutual fund type products
already exists in India. However, over 57 per cent (19.6 million) of this population lives in
rural areas.
For the Mutual Fund industry as a whole, it is penetration rather than performance that has
been the bigger challenge. The customer base has grown by almost 300 per cent over the past
three years. But this growth has been on a very small base and penetration is still below 3 per
cent.
In three years, assets under management (AUM) in the Mutual Fund industry have grown at a
compounded annual growth rate (CAGR) of 37 per cent from Rs 1,39,616 crore in March
2004 to Rs 3,26,388 crore in March 2007. In the same period, the AUM for equity schemes
has grown from Rs 29,362 crore in March 2004 to Rs 132,707 crore in March 2007, a CAGR
of 65 per cent. During this period, the Sensex has grown at a CAGR of 35 per cent. This
shows that the mutual fund industry has grown faster — which is good for now. But there is
still huge scope for growth, given the low penetration levels.
80
Creating a mass market for mutual funds
Traditionally, most investments in mutual funds have come from the top 20-30 towns. The
Mutual Fund industry needs to reach out to new investors to expand the market.
Therefore, while most of the new demand from existing mutual fund investors will naturally
come from middle and higher income earners, most of the potential mass market for mutual
funds is likely to be found mainly among the lower and lower middle income groups. For
obvious reasons, this population is unlikely to be of much interest to the existing sales and
distribution channels for mutual funds.
Therefore most of these potential investors can instead be reached through the
banking and postal networks. On the ground, promotional activities by the mutual
fund industry at a bank or postal branch level also may reap rich dividends as three in
four of these customers usually visit their bank at least once a month. It will also help
in spreading the awareness of Mutual Funds.
To grow big, Mutual Funds need to turn to small investors. Small investors can be
effectively attracted towards mutual funds by promoting the Systematic Investment
Plan ( SIP ) approach; wherein smaller investors can more easily participate, and in the
process spread risks more effectively when doing so.
Some fund houses have taken innovative steps in this direction. ICICI Prudential
Mutual Fund lowered the minimum limit for its systematic investment plan (SIP) to
Rs 50 per month in April 2007. In the same year, Reliance Mutual Fund lowered its
SIP limit to Rs 100 per month. Earlier, investors in smaller towns used to stay away
from the mutual fund industry because of the higher threshold. By lowering the
threshold limit, these SIP schemes have provided an entry point to retail
investors in smaller towns.
81
Prudential ICICI intends to use its existing microfinance infrastructure and customer
base of ICICI to educate the investors.
Reliance Mutual Fund is planning to use its web world outlets to reach out to the
investors in smaller towns.
If the mutual fund industry manages to mobilize the necessary effort to bring the huge
number of potential investors for whom mutual fund investments are not yet on the radar, the
sky could literally be the limit.
82
CHAPTER 6
RECOMMENDATIONS
&
CONCLUSIONS
83
Recommendations:
Mutual Fund houses should continuously design suitable schemes to meet the needs
of the investors. They should also develop the infrastructure to reach to the investors.
More investor service branches should be opened to provide prompt and effective
service .In addition to it, arrangements should be made with banks to provide over-
the-counter redemption facility across the country through their banking network.
Mutual fund companies should segment their target customers and position their
various products based on the target segment they propose to address. By proper
segmentation and by targeting the right product to the right customer, Mutual Fund
companies can hope to win the confidence of their customers.
AMFI should effectively convey the message that among the multitude of investment
options available, Mutual Funds are better geared to offer the balanced mix of return,
safety and liquidity to the investors. Negative perceptions about Mutual Funds require
to be tackled through appropriate investor education measures. It is suggested that
AMFI may set aside a percentage of membership fee that it collects from the
AMCs and create a fund for investor education programmes.
Mutual Funds should adopt the technology that reduces the turnaround time for
services like investments, redemptions and transfers and bring them on par with banks
in turnaround time.
Mutual Funds should establish friendlier and easily accessible Automated Response
Systems to convey information on products and services. It can be used for grievance
redressal also.
84
Conclusion:
There is great opportunity for Mutual Fund companies as there is a rise in number of people
who want to invest in share market but don’t have time and knowledge to do so, also these
people want to take less risk. With booming market and falling interest rate of bank deposits,
people see mutual funds as an attractive financial tool which provide a high return rate at
lower risk as compared to equity market. But, people are still ignorant about mutual funds
and different schemes about mutual funds; hence it is very necessary to educate them about
mutual funds.
Mutual Fund business requires complete understanding of the peculiarities of the Indian stock
market and also the psyche of the small investor. This study has made an attempt to
understand the financial behavior of Mutual Fund investors in connection with the scheme
preference and selection. It is hoped that the survey findings will have some useful
managerial implication for the Mutual Fund Companies in their product designing and
marketing.
Mutual Fund industry in India has a large untapped market in urban areas besides the virgin
markets in semi-urban and rural areas. This market potential can be tapped by scrutinizing
investor behavior to identify their expectations and articulate investor's own situation and risk
preference.
85
CHAPTER 7
APPENDIX
86
Tata Mutual Fund’s NFO— Tata Growing Economies Infrastructure Fund
The new fund offer of Tata Mutual Fund opened on February 18, 2008 and closed on March
18, 2008. The fund aims to invest predominantly in listed equities of companies in
infrastructure in growing economies of the world and in India. Tata Growing Economies
Infrastructure Fund is India's first infrastructure mutual fund scheme with an option to invest
a majority of its assets overseas under Plan A.
Infrastructure — A Global Perspective
An important learning of this era of economic globalization has been the role of quality
infrastructure in economic success. It is now evident that building high-quality infrastructure
is a pre-requisite for building a globally competitive economy.
The success stories built on investment in infrastructure in developed countries and more
recently in South East Asia, Middle East and China etc are for all to see. The learning from
other countries is helping to focus attention on building quality roads, airports,
communication and power networks.
Closer home we have witnessed success stories in the Golden Quadrilateral / Delhi Metro /
Telecom projects through public-private partnerships. New success stories in the areas of
airports, power generation and distribution / SEZs are in the process of taking shape.
Thus the infrastructure phenomenon is happening in India and other growing economies. As
we have seen economies in their growth phase show a much higher appetite and need for
rapid infrastructure development, this has been chosen as the investment theme.
The wheels of growing economies move on its infrastructure. Tata Growing Economies
Infrastructure Fund offers new opportunities presented by the infrastructure sector across
growing economies of the world. The investment focus would be guided by the growth
potential and economic factors of growing economies in the infrastructure sector.
87
Advantages of Tata Growing Economies Infrastructure Fund
Advantage of past experience: Tata Mutual Fund has experience in the
infrastructure sector through managing the Tata Infrastructure Fund.
A pioneering fund: India's first infrastructure mutual fund scheme which can invest a
majority of its assets in overseas infrastructure securities under Plan A.
Spends on infrastructure in growing economies: Investors can now benefit from
wealth creation opportunities through infrastructure projects in growing global
economies.
Diversification: Investments made in various growing economies resulting in
portfolio diversification and reduction in country specific risks.
88
Important Terms in Mutual Funds
Net Asset Value (NAV)
Net Asset Value (NAV) denotes the performance of a particular scheme of a mutual fund.
Mutual funds invest the money collected from the investors in securities markets. In simple
words, Net Asset Value is the market value of the securities held by the scheme. Since market
value of securities changes every day, NAV of a scheme also varies on day-to-day basis. The
NAV per unit is the market value of securities of a scheme divided by the total number of
units of the scheme on any particular date. NAV is required to be disclosed by the mutual
funds on a regular basis - daily or weekly - depending on the type of scheme.
Expenses
Mutual fund investors incur the annual fees and expenses associated with managing a fund.
These costs pay for portfolio management, fund administration, daily fund accounting and
pricing, and other basic services that funds provide. Other fees and expenses pay for more
direct services that make fund investing more convenient for shareholders, such as call
centers and websites. All funds incur these two types of operating expenses, which vary from
fund to fund depending on many factors, including the type of fund, size of fund, and average
amount in a fund’s shareholder accounts.
The expenses proportion under various heads is shown below –
Figure: 13
89
Entry load
The costs of the fund management process that includes marketing and initial costs are
charged when you enter the scheme. These charges are termed the entry load, the additional
charge we pay when we join a scheme. And if there is no load, the bold font in the new
scheme's ad says `No entry load'.
Exit load
Just like entry load some funds impose a fee when we leave the scheme, i.e., redeem our
units, called the exit load. Loads are usually not flat amounts but have a structure. Needless to
say, loads if any are only applicable to open schemes and not close-ended schemes because
we can only buy such units from the fund only when the scheme is launched.
Note: The maximum entry load a fund house can charge is 6% while the maximum exit load
is 4%. But AMCs cannot charge over 7% from investors when entry and exit loads are
totaled. (As per SEBI guidelines)
90
SPSS Output
Correlation Matrix
Correlation Matrix(a)
brand
record
broker's
advice
expense
ratio
theme
min. investm
ent
tax benef
its
portfolio
visibility
credit
ratings
lock in
period
prompt redemp
tions
after sales
Correlation
brand1.00
0.152 .155 -.067 .017 -.036 -.212 -.233 .189 .101 .086 -.230 -.084
record .1521.00
0.163 -.003
-.182
.119 -.114 -.079 .059 .112 -.051 .018 -.086
broker's advice
.155 .163 1.000 -.073-.18
1-.018 -.458 -.292 .060 -.106 -.022 .114 .005
expense ratio
-.067
-.003 -.073 1.000 .079 -.041 -.017 -.015 .034 -.299 .229 .076 .056
theme .017 -.182 -.181 .0791.00
0-.189 .048 .275 -.152 -.164 -.137 -.123 .070
min. investment
-.036
.119 -.018 -.041-.18
91.000 .168 .133 .153 .196 .010 .173 .014
tax benefits
-.212
-.114 -.458 -.017 .048 .168 1.000 .237 .066 .155 -.146 -.020 .220
portfolio-.23
3-.079 -.292 -.015 .275 .133 .237 1.000 -.246 .000 -.281 .005 -.187
visibility .189 .059 .060 .034-.15
2.153 .066 -.246 1.000 .375 .157 .010 .009
credit ratings
.101 .112 -.106 -.299-.16
4.196 .155 .000 .375 1.000 -.129 -.098 -.098
lock in period
.086 -.051 -.022 .229-.13
7.010 -.146 -.281 .157 -.129
1.000
.151 .074
prompt redemptions
-.230
.018 .114 .076-.12
3.173 -.020 .005 .010 -.098 .151 1.000 .016
after sales
-.084
-.086 .005 .056 .070 .014 .220 -.187 .009 -.098 .074 .0161.00
0
a Determinant = .166
Table: 16
91
Rotated Component Matrix
Rotated Component Matrix (a)
Component
1 2 3 4 5brand -.566 record broker's advice -.804 expense ratio .758 theme min. investment .553 tax benefits .704 portfolio .609 visibility .754 credit ratings .709 lock in period .742 prompt redemptions .727 after sales .849
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 10 iterations.
Table: 17
Component Transformation Matrix
Component Transformation Matrix
Component 1 2 3 4 51 -.855 .463 .216 -.045 -.0742 .313 .792 -.471 .182 -.1443 .183 .200 .574 .642 .4304 .241 .322 .274 -.732 .4765 .282 .122 .572 -.127 -.750
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization.
Table: 18
92
Case Processing Summary
Case Processing Summary
Cases
Included Excluded Total
N Percent N Percent N PercentCase ID 105 100.0% 0 .0% 105 100.0%
awareness 105 100.0% 0 .0% 105 100.0%
invested 105 100.0% 0 .0% 105 100.0%
reason 105 100.0% 0 .0% 105 100.0%
intend to invest 105 100.0% 0 .0% 105 100.0%
type 105 100.0% 0 .0% 105 100.0%
brand 105 100.0% 0 .0% 105 100.0%
record 105 100.0% 0 .0% 105 100.0%
broker's advice 105 100.0% 0 .0% 105 100.0%
expense ratio 105 100.0% 0 .0% 105 100.0%
theme 105 100.0% 0 .0% 105 100.0%
min. investment 105 100.0% 0 .0% 105 100.0%
tax benefits 105 100.0% 0 .0% 105 100.0%
portfolio 105 100.0% 0 .0% 105 100.0%
visibility 105 100.0% 0 .0% 105 100.0%
credit ratings 105 100.0% 0 .0% 105 100.0%
lock in period 105 100.0% 0 .0% 105 100.0%
prompt redemptions 105 100.0% 0 .0% 105 100.0%
after sales 105 100.0% 0 .0% 105 100.0%
information medium 105 100.0% 0 .0% 105 100.0%
Tata ad 105 100.0% 0 .0% 105 100.0%
age 105 100.0% 0 .0% 105 100.0%
sex 105 100.0% 0 .0% 105 100.0%
marital status 105 100.0% 0 .0% 105 100.0%
academic qualification 105 100.0% 0 .0% 105 100.0%
occupation 105 100.0% 0 .0% 105 100.0%
annual income 105 100.0% 0 .0% 105 100.0%
Table: 19
93
Case Summaries
Case ID
Q1
Q2
Q3
Q4
Q5
Q6a
Q6b
Q6c
Q6d
Q6e
Q6f
Q6g
Q6h
Q7a
Q7b
Q7c
Q7d
Q7e
Q8
Q9
Q10
Q11
Q12
Q13
Q14
Q15
1 1 1 1 0 0 1 2 2 3 3 2 2 1 1 2 2 1 1 1 1 1 50 1 1 3 3 2
2 2 1 1 0 0 1 3 3 2 3 5 1 1 5 2 1 1 2 1 2 1 56 1 1 3 2 4
3 3 1 2 2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 2 48 1 1 2 2 2
4 4 1 1 0 0 1 1 1 1 3 3 3 1 2 1 1 4 3 1 1 1 59 1 1 4 3 2
5 5 1 2 3 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 49 1 1 3 2 2
6 6 1 1 0 0 1 1 2 1 5 1 5 3 2 5 2 5 3 2 2 2 52 1 1 2 2 3
7 7 1 1 0 0 3 2 2 4 1 4 3 1 2 2 1 1 2 1 1 1 59 1 1 2 1 2
8 8 1 1 0 0 3 1 1 5 2 4 2 1 1 2 1 1 2 2 3 1 49 1 1 2 3 2
9 9 1 2 3 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4 2 46 1 1 3 4 1
10 10 1 2 3 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6 2 52 1 1 3 3 3
11 11 1 1 0 0 1 1 1 1 3 3 2 2 2 2 3 2 2 2 1 2 41 1 1 2 2 2
12 12 1 1 0 0 1 1 1 1 2 2 1 1 2 1 1 1 1 2 5 2 38 1 1 2 2 2
13 13 1 2 4 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6 1 37 1 1 4 5 1
14 14 1 2 1 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 32 1 2 4 5 1
15 15 1 2 3 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4 2 34 1 2 2 1 2
16 16 1 1 0 0 3 3 2 3 3 3 2 2 2 3 2 2 3 3 3 1 35 2 2 4 1 2
17 17 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 41 2 1 2 3 3
18 18 1 1 0 0 3 1 2 2 3 4 1 1 3 2 1 3 2 2 3 1 47 2 1 2 1 3
19 19 1 1 0 0 1 1 1 2 5 4 1 1 4 2 1 2 2 2 3 1 38 1 1 2 1 3
20 20 1 1 0 0 1 2 1 2 3 3 2 2 4 2 1 3 2 2 3 2 44 1 1 3 3 3
21 21 1 1 0 0 1 2 2 2 3 2 1 2 3 1 1 2 1 1 1 2 51 1 1 2 1 2
22 22 1 1 0 0 1 2 2 2 3 2 1 2 3 1 2 1 1 1 1 2 39 3 1 2 1 2
23 23 1 1 0 0 1 1 1 2 2 2 2 2 1 3 2 2 2 2 5 2 48 1 1 3 2 3
24 24 1 1 0 0 1 1 2 3 2 1 2 2 3 2 1 3 3 3 1 1 44 1 1 2 3 2
25 25 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 49 2 1 2 1 3
26 26 1 1 0 0 1 2 2 2 4 4 2 1 4 1 1 2 3 1 5 1 45 1 1 2 1 3
27 27 1 1 0 0 1 2 1 2 2 4 2 1 3 2 1 2 1 1 1 2 47 1 1 2 3 3
28 28 1 1 0 0 2 2 1 2 3 4 2 2 3 2 1 3 1 1 1 2 39 1 1 2 3 3
29 29 1 1 0 0 2 2 1 2 3 3 1 2 3 2 1 4 1 1 1 2 40 1 1 2 2 3
30 30 1 1 0 0 2 1 1 1 3 2 1 2 3 2 1 4 2 1 2 1 42 1 1 2 2 4
31 31 1 1 0 0 2 1 1 1 3 3 1 2 3 2 1 3 2 1 2 2 40 1 1 2 3 3
32 32 1 1 0 0 3 2 1 1 3 4 1 2 3 2 1 3 2 1 1 1 46 1 1 2 2 3
33 33 1 1 0 0 3 2 1 1 3 3 1 2 2 2 1 3 1 1 1 2 38 1 1 2 3 3
94
34 34 1 1 0 0 3 3 1 2 3 3 1 1 2 2 1 3 1 1 2 2 35 1 2 2 2 3
35 35 1 1 0 0 3 3 3 2 3 3 2 1 2 3 2 4 1 1 1 1 43 1 1 2 3 3
36 36 1 1 0 0 3 3 2 3 3 3 2 1 2 3 2 2 1 1 1 1 37 1 1 4 1 3
37 37 1 1 0 0 1 2 2 3 3 3 2 1 2 3 2 1 1 1 1 1 46 1 1 4 1 3
38 38 1 1 0 0 1 2 2 2 2 1 2 1 4 3 2 2 1 2 1 2 34 1 2 4 1 3
39 39 1 1 0 0 1 2 1 2 2 1 2 2 4 3 2 1 1 1 1 2 46 1 1 4 1 3
40 40 1 1 0 0 1 2 1 3 2 3 2 2 4 2 3 2 1 1 1 1 44 1 1 4 1 3
41 41 1 1 0 0 1 2 2 1 2 4 2 2 4 2 3 1 1 1 1 1 40 1 1 4 1 3
42 42 1 1 0 0 1 2 1 1 2 4 2 2 4 2 2 2 1 1 1 2 38 1 1 4 1 3
43 43 1 1 0 0 1 2 2 1 1 4 1 3 4 2 3 2 1 2 1 1 39 1 1 4 1 3
44 44 1 1 0 0 1 1 1 2 2 5 1 3 5 3 2 2 1 2 1 1 28 1 1 4 1 3
45 45 1 1 0 0 1 1 1 1 1 5 1 3 5 3 3 2 2 1 1 1 48 1 1 4 1 3
46 46 1 1 0 0 1 1 1 1 2 3 3 3 5 2 1 2 2 2 2 2 52 1 1 3 3 3
47 47 1 1 0 0 1 1 2 1 3 5 2 3 5 2 1 1 1 2 1 2 32 1 2 3 1 3
48 48 1 1 0 0 1 1 2 1 3 5 2 3 5 2 1 1 1 1 1 1 43 1 1 3 2 3
49 49 1 1 0 0 1 1 1 2 3 4 2 3 5 1 1 1 2 2 2 2 38 1 1 4 3 3
50 50 1 1 0 0 1 1 2 2 3 2 3 2 5 1 1 1 2 1 2 2 33 1 2 4 1 2
51 51 1 1 0 0 1 1 2 2 3 3 3 2 5 1 1 1 1 1 1 2 45 1 1 4 1 3
52 52 1 1 0 0 1 1 1 2 3 5 1 2 5 1 1 1 2 1 1 1 38 1 1 4 1 3
53 53 1 1 0 0 1 1 1 1 3 2 2 2 5 1 1 1 1 1 2 2 37 1 1 4 1 3
54 54 1 1 0 0 1 1 1 1 1 4 2 2 5 1 1 1 2 1 1 1 42 1 1 4 1 3
55 55 1 1 0 0 1 1 1 1 2 4 3 2 5 2 2 1 2 2 2 1 39 1 1 4 1 2
56 56 1 1 0 0 1 1 2 1 3 4 3 2 5 2 2 1 1 1 1 1 38 1 1 4 1 2
57 57 1 1 0 0 1 2 1 1 3 5 3 2 5 2 2 1 2 1 1 1 36 1 1 4 1 3
58 58 1 1 0 0 1 2 1 1 3 5 2 2 5 1 2 2 1 2 1 1 37 1 1 3 3 3
59 59 1 1 0 0 1 2 1 1 3 5 3 2 5 1 2 2 2 2 1 2 29 1 1 3 3 3
60 60 1 1 0 0 1 2 1 1 2 5 2 2 5 1 2 2 1 1 2 1 44 1 1 3 3 3
61 61 1 1 0 0 1 2 1 1 2 5 2 2 5 1 1 2 2 1 2 2 40 1 1 2 3 3
62 62 1 1 0 0 1 2 1 2 3 5 1 2 3 2 1 2 2 2 3 1 42 1 1 3 3 2
63 63 1 1 0 0 1 1 2 2 3 5 1 2 3 2 1 1 2 1 1 2 51 1 1 3 3 3
64 64 1 1 0 0 2 1 1 2 3 4 2 2 3 2 1 1 2 2 3 1 35 2 2 4 3 2
65 65 1 1 0 0 2 1 1 2 2 4 2 2 3 3 2 1 1 1 3 2 41 1 1 4 1 3
66 66 1 1 0 0 2 2 1 2 2 4 2 2 3 3 2 2 1 2 2 1 38 1 1 4 1 3
67 67 1 1 0 0 2 2 1 2 2 2 2 2 3 3 2 2 1 1 3 2 52 1 1 3 2 2
68 68 1 1 0 0 2 2 2 2 2 3 2 2 3 3 2 2 1 2 1 1 42 1 1 3 2 2
69 69 1 1 0 0 2 2 1 2 2 2 3 2 4 3 2 2 1 1 1 2 44 1 1 2 2 3
70 70 1 1 0 0 3 2 1 1 2 5 3 2 4 3 2 2 1 2 1 1 47 1 1 3 2 3
95
71 71 1 1 0 0 3 2 2 1 3 3 3 3 4 3 2 1 1 1 1 2 62 1 1 4 1 2
72 72 1 1 0 0 1 2 1 1 3 2 2 3 4 3 2 1 2 1 1 2 42 1 1 3 1 3
73 73 1 1 0 0 1 2 1 1 3 4 2 3 4 3 2 1 2 2 4 2 44 1 1 3 2 3
74 74 1 1 0 0 1 2 1 1 3 4 2 3 2 2 2 1 1 1 4 2 56 1 1 4 2 2
75 75 1 1 0 0 1 2 1 1 3 5 1 3 2 2 1 1 1 3 2 1 45 1 1 4 1 2
76 76 1 1 0 0 1 2 1 1 3 4 3 3 4 2 1 1 1 3 4 1 55 1 1 4 1 2
77 77 1 1 0 0 1 2 1 1 3 5 2 3 4 2 1 1 1 2 5 2 51 1 1 3 2 3
78 78 1 1 0 0 1 2 1 1 3 5 1 3 2 2 1 2 1 3 4 2 52 2 1 4 1 3
79 79 1 1 0 0 1 2 2 1 3 5 3 3 2 2 1 2 1 2 3 1 42 1 1 4 1 3
80 80 1 1 0 0 1 1 1 1 3 4 1 3 3 3 1 2 2 2 1 2 39 1 1 4 1 3
81 81 1 1 0 0 1 1 2 1 3 4 2 2 4 3 3 1 2 1 2 2 48 1 1 4 1 3
82 82 1 1 0 0 1 2 1 2 3 4 2 2 4 2 1 1 2 1 2 1 44 1 1 3 3 3
83 83 1 1 0 0 1 1 2 1 3 3 1 2 4 2 2 1 1 3 1 1 54 1 1 2 5 1
84 84 1 1 0 0 1 2 1 2 2 3 1 2 2 2 1 2 1 3 2 1 52 1 1 2 5 1
85 85 1 1 0 0 1 1 2 1 3 5 1 2 2 2 1 2 1 2 3 1 49 1 1 2 2 3
86 86 1 1 0 0 1 2 1 2 3 4 3 2 2 2 2 3 1 3 5 2 58 1 1 2 1 3
87 87 1 1 0 0 1 1 2 1 2 4 2 2 2 1 2 3 1 2 5 1 51 1 1 2 5 1
88 88 1 1 0 0 1 1 1 2 3 4 2 1 4 1 1 3 2 2 3 2 47 1 1 2 3 2
89 89 1 1 0 0 1 2 2 3 2 4 2 1 4 3 1 3 2 1 4 1 40 1 1 2 3 3
90 90 1 1 0 0 1 2 1 2 3 5 2 1 4 3 1 2 1 1 2 1 30 1 2 4 1 3
91 91 1 1 0 0 1 2 1 3 3 5 2 1 3 2 1 3 1 3 2 2 43 1 1 3 2 2
92 92 1 1 0 0 1 2 1 2 3 4 1 1 3 2 1 2 1 3 3 1 42 1 1 4 1 3
93 93 1 1 0 0 1 2 1 1 3 4 1 1 3 3 1 1 1 1 2 1 45 1 1 4 1 3
94 94 1 1 0 0 2 2 1 1 3 5 1 1 3 3 2 3 1 1 1 2 37 1 1 3 3 3
95 95 1 1 0 0 1 2 2 2 3 4 1 1 3 2 1 2 1 1 2 2 49 1 1 3 5 1
96 96 1 1 0 0 1 2 1 2 3 4 1 1 3 2 1 1 2 1 2 2 51 1 1 2 3 3
97 97 1 1 0 0 1 2 1 3 3 4 2 1 3 3 2 2 2 1 1 1 37 1 1 2 2 4
98 98 1 1 0 0 1 2 1 1 3 5 1 2 3 3 1 3 2 1 1 2 38 1 1 4 1 3
99 99 1 1 0 0 3 2 1 1 3 5 2 1 3 3 2 2 1 1 1 1 42 1 1 3 5 2
100100
1 1 0 0 1 1 1 2 3 3 1 2 3 3 3 1 2 1 2 2 48 1 1 3 2 3
101101
1 1 0 0 2 1 1 2 5 4 2 3 5 2 1 3 1 1 2 2 28 1 1 3 3 3
102102
1 1 0 0 3 1 1 2 3 5 1 1 5 1 1 2 1 1 1 2 43 1 1 2 1 2
103103
1 1 0 0 3 1 1 3 5 5 1 2 4 2 1 2 1 2 1 1 38 1 1 2 2 4
104104
1 1 0 0 3 2 1 1 5 4 1 2 3 2 1 3 1 2 1 1 42 1 1 4 3 3
96
105105
1 1 0 0 1 1 1 1 4 5 2 1 5 3 1 2 1 2 2 1 48 1 1 4 2 3
Total
N105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
105
Table: 20
Survey Questionnaire
Dear Sir / Madam,This survey asks some questions about Mutual Funds.Your co-operation in answering these questions is greatly appreciated.
Part A : Please read the following and give your views by putting a tick mark in the appropriate square.
1. Are you aware of Mutual Funds?1. Yes 2.No
2. Do you invest in Mutual Funds?1. Yes 2.No
(If “Yes”, please skip to question number 5 below)
3. If “No”, what is your reason behind not investing in Mutual Funds?1. Lack of guidance 3.Risky investment 2. Lack of knowledge 4.others (please specify) __________
4. Do you intend to invest in Mutual Funds within the next six months?1. Yes 2.No
5. In which type of funds do you prefer to invest?1. Equity Funds 2.Debt Funds 3. Balance Funds
6. There are many qualities that could affect your selection of Mutual funds and Specific Schemes. Please indicate importance of the following in your decision.
ExtremelyImportant
1
VeryImportant
2
SomewhatImportant
3
SomewhatUnimportant
4
Not ImportantAt All 5
97
a) Fund’s reputation or brand
b) Fund performance record
c) Broker’s advice
d) Scheme’s expense ratio
e) Scheme’s theme of investment
f) Minimum initial investment
g) Tax benefits
h) Portfolio of the Fund
7. Apart from above factors what else influence your decision? Rate on a scale of 1-5
ExtremelyImportant
1
VeryImportant
2
SomewhatImportant
3
SomewhatUnimportant
4
Not ImportantAt All 5
a) Visibility of the Fund
b) Credit Rating by Agencies
c) Lock in periodd) Prompt Redemptions
e) After Sales Support
8. How did you come to know about Mutual fund investment schemes?1. Newspapers 2.Magazines 3.Internet 4.Television 5. Agents 6.Friends 7.Others
9. Have you seen the advertisement of Tata Mutual Fund’s recently launched NFO—“TATA GROWING ECONOMIES INFRASTRUCTURE FUND”?
1. Yes 2.No
Part B: Demographics
Name ________________________________________Phone:___________________
10. Age : __________ 11.Sex: 1.Male 2.Female
12. Marital Status: 1. Married 2. Unmarried
13. Academic Qualifications:
1. High School 2.Graduate 3.Post – Graduate 4.Professional Degree
98
14. Occupation:
1. Professional 2.Business 3.Salaried 4.Retired 5. Others
15. Annual Income:
1. below Rs.1, 00,000 3.Rs.1, 00,000 – 3, 00,000
2. Rs.3, 00,001-5, 00,000 4.Above Rs.5, 00,000
Thank you very much for your kind co-operation and for taking time to complete this
Questionnaire.
REFERENCES
i. Khan, M.Y. Indian Financial System, 2nd Ed. New Delhi: Tata McGraw Hill, 2002.
ii. Malhotra, Naresh K, Marketing Research, 5th Ed. New Delhi: Prentice –Hall India,
2006.
iii. Zikmund, William G, Exploring Marketing Research, 8th ed. Ohio: Thomson South
Western, 2002.
iv. “How to create a mass market for mutual funds” Rediff Money, Sep 29 2007
available on http://www.rediff.com/money/2007/sep/29guest2.htm
v. http://www.tatamutualfund.com/about-us/overview.asp
vi. http://www.amfiindia.com/
vii. http://www.indianexpress.com/printerFriendly/29575.html
viii. http://www.sec.gov/investor/pubs/inwsmf.htm
ix. http://209.85.175.104/search?q=cache:Q2Xe0eGem_QJ:faculty.haas.berkeley.edu/
odean/papers/MutualFunds/
mfund.pdf+behavior+of+mutual+fund+investors+india&hl=en&ct=clnk&cd=2&gl=i
n
x. http://www.ingentaconnect.com/content/els/13864181/1999/00000002/00000004/
art00006
xi. http://www.dalbarinc.com/content/printerfriendly.asp?page=2003071601
xii. http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VHN-3XXCYVG-
3&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C00005022
1&_version=1&_urlVersion=0&_userid=10&md5=95dabf6395e4d9d3f9d96a144000
99
3d28
xiii. http://www.fma.org/Chicago/Papers/Bollen_SRI.pdf
xiv. http://moneytoday.digitaltoday.in/content_mail.php?
option=com_content&name=print&id=3122
