Gururaj S-0373-Risk & Return of Investors

8/12/2019 Gururaj S-0373-Risk & Return of Investors

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M.P.BIRLA INSTITUTE OF MANAGEMENT 1

A STUDY ON

RISK AND RETURN OF INVESTORS IN MUTUAL FUNDS AT BANGALORE

CITY

Submitted in Partial Fulfillment of the Requirements of

Bangalore University for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

By

Mr. GURURAJ. S

Reg. No.: 03XQCM6039

Under the Guidance of

Dr. N.S. Vishwanath

M P Birla Institute of Management

Associate Bharatiya Vidya Bhavan

# 43, Race Course Road, Bangalore 560 001

2003-2005


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DECLARATION

I, GURURAJ S,here by declare that this Dissertation titledRisk and return of

investors in mutual funds at Bangalore City is based on original project study

conducted by me under the guidance of Dr. N.S. Vishwanath.

This has not been submitted earlier for the award of any other degree/Diploma

to Bangalore University or any other University.

Place: Bangalore Students signature

Date: 16 / 06 / 2005 (GURURAJ. S)


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CERTIFICATE FROM GUIDE

Certified that this dissertation titled RISK AND RETURN OF INVESTORS IN

MUTUAL FUNDS AT BANGALORE CITY is based on the original project

Study conducted by Mr. GURURAJ.S of the IV semester MBA under my

guidance.

This dissertation has not formed the basis for the award of any other

degree/diploma by Bangalore University or any other University.

Place: Bangalore.

Date: 16 / 06 / 2005 (Dr. N.S. Vishwanath)


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PRINCIPAL CERTIFICATE

Certified that this dissertation titledRisk and return of investors in mutual funds

at Bangalore City is based on original project study conducted by Mr.

GURURAJ. Sof IV semester MBA under the guidance ofDr. N.S. Vishwanath.

This dissertation Report is based on the training undergone by the student and

has not formed the basis for the award of any other Degree / Diploma by

Bangalore University or any other University.

Place: Bangalore Dr. Nagesh Malavalli

Date: 16 / 06 / 2005 Principal


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ACKNOWLEDGMENT

I am grateful to every one who have helped me throughout this project

work and made the project report a successful one. It gives me great

pleasure to extend my sincere thanks and gratitude to all those who have

been instrumental in the completion of this project.

I express my sincere thanks to Dr. N.S. Vishwanath Faculty of

M.P. Birla Institute of Management under whose guidance the project

was done and for all his support and invaluable suggestions provided

during the time of my project.

I shall be thankful to Dr. N.S. Malavalli, Principal, M.P. Birla

Institute of Management and other faculty members of M.P. Birla

Institute of Management for their kind co-operation.

I am also grateful to the staff members of various departments of

HDFC BANK, for their kind Co-operation for the completion of the

report.

Last but not the least, I wish to express my gratitude to my Parents

and also to my friends without whom this study would not have been

possible.


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(GURURAJ.S)

INTRODUCTION TO FINANCE

It is rightly said that finance is the lifeblood of any business. Besides being one of the

scare set elements it is also the most indispensable requirement. Finance is one of the

basic foundations of all kinds of economic activities. It is the master key, which

provides access to all the sources for being employed in manufacturing and

merchandising activities.

It is true that money gets more money, but it is so only when it is properly rotated and

managed. Hence efficient management of every business enterprise is closely linked

with efficient management of its finance.

FINANCIAL MANAGEMENT

Financial management emerged as a distinct field of study at turn of the country. Its

evolution may be divided into three broad phases: the traditional phase, the

transitional phase and the modern phase. Since the beginning of the modern phase

many significant and seminal developments have occurred in the fields of capital

budgeting, capital structure theory, efficient market theory, option pricing theory,

agency theory, arbitrage pricing theory, valuation models, dividend policy, working

capital management, and behavioral finance.

KEY ACTIVITIES OF FINANCIAL MANAGEMENT

Financial analysis, planning and control


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Management of firms assets structure

Management of firms financial structure

SCOPE OF FINANCE FUNCTION:

Estimating financial requirement

Deciding capital structure

Selecting a source of finance

Proper cash management

Selecting a pattern of investment

Implementing financial controls

THREE MAIN FINANCIAL DECISIONS

Investment decision

Financing decision

Dividend decision

Having discussed key activities of financial management, scope of finance functions

and three main financial decisions it is necessary to concentrate on THE INDIAN

FINANCIAL SYSTEMwhich is a back bone to all the above.


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Financial Institutions

Commercial Banks

Insurance Companies

Mutual Funds

Provident Funds

Non-Banking Financial

Companies

Private

Placement

Suppliers ofFunds

Individual

Businesses

Governments

Demanders ofFunds

Individual

Businesses

Governments

Financial

Markets

Money Market

Capital Market

Funds

Deposits/shares

Funds


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Securities

THE FINANCIAL SYSTEM

FUNCTIONS OF FINANCIAL SYSTEM:

It provides a payment system for the exchange of goods and services

It enables the polling of funds for undertaking large-scale enterprise

It provides a mechanism for spatial and temporal transfer of resources

It provides a way for managing uncertainty and controlling risk

It generates information that helps in co ordinate decentralized decision

making

It helps in dealing with the problem of informational asymmetry


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INTRODUCTION TO INVESTMENT:

Investment is a postponed consumption; only in response to a rate of return which

must be suitably adjusted for inflation and risk.

When considering inflation, time value of money or expected rate of return is taken

into account.

When considering risk, the following are some of the risk faced by; an investor:

1. Inflation risk

2. Interest risk

3. Default risk: systematic and unsystematic risk

4. Environment risk: political, social etc.,

Hence basic investment decision is concentrated on TRADE-OFFbetween risk and

return.

RISK AND RETURN TRADE OFF:

We all know the term HIGH RISK HIGH RETURN.

But the dream of every investor is LOW RISK AND HIGH RETURN.

Other variables that bother investors are liquidity, tax savings etc.,


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Hence an investor tries to blend the above-mentioned variables in the investment that

he/she makes.

However many a times, in the fear of risks such as default risk, interest risk, the

investor may end up in investing in such kind of investments, the returns of which

area neither sufficient to cover up the inflation risk nor the cost of capital.

It is here the magic of portfolio works investors tries to manage the portfolio in such a

way that risk is distributed and fairly good returns are assured through a mix of debt

and equity.

GENERALLY INVESTMENT PROCESS OF AN INDIVIDUAL INCLUDES

THE FOLLOWING

1. Determine the investors objective policy

2. Undertake security analysis (fundamental and technical)

3. Construction of portfolio

4. Review

5. Evaluate the performance of the portfolio

An individual is also unlikely to have the knowledge, skills, inclination and time to

keep track; of events, understand their implication and act speedily. He/she finds it

difficult to keep track of ownership of his assets, investments, and brokerage dues and

bank transaction etc., He/she is however risk averse, preferring safer investment with

regular returns to capital appreciation and risk aggression. The investor is bound to be


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cautious, having lost considerable saving in the equity market and also in equity

linked fund schemes.

Hence a MUTUAL FUND is the ideal investment for individuals, especially for those

who want to avail the investment benefits but unable to understand the intricacies of

the capital market operation.

A Mutual Fund appoints professional qualified and experienced staff that manages

each of these functions on full time basis. The large pool of money collected in the

fund allows it to hire such staff at a very low cost of each investor. In effect the

Mutual Fund vehicle exploits economics of scale in all three areas-research,

investment and transaction processing. While the concept of individual coming

together to invest money collectively is not new, the mutual fund as we know is a 20th

Century phenomenon.


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LITERATURE REVIEW

This dissertation provides an overview of mutual funds investment vehicles that

pool the money of thousands of investors to invest in a wide variety of securities with

a specific objective. It discusses how mutual funds provide professional management

and diversification and because of this, are safer and less volatile than individual

stocks and bonds. It examines how different classes of mutual funds have different

objectives, such as growth, income, growth and income, etc. and how the mutual fund

or funds those investors select reflect their objectives and tolerance for risk.

Generally there are two types of mutual funds. The first type is called an open -

ended fund . In an open-ended fund, the fund does not have a set number of shares. It

will continue to issue shares as long as investors will buy them. Investors can also

redeem shares. At the end of each trading day, the fund manager will calculate the net

asset value of the fund. The NAV is the total value of the assets held by the fund

divided by the total number of fund shares. Shares are purchased or redeemed on the

basis of the NAV.


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INTRODUCTION TO MUTUAL FUND

A MUTUAL FUND is a pool of money, collected from investors, and is invested

according to certain investment objectives.

A Mutual fund is created when investors put their money together. It is therefore a

pool of the investors funds. The most important characteristic of a mutual fund is

that the contributors and the beneficiaries; of the fund are the same class of people,

namely the investors. The term mutual means that investors contribute to the pool,

and also benefit from the pool. The pool of funds held mutually by investors is the

mutual fund.

A mutual funds business is to invest the fund thus collected, according to the wishesof the investors who created the pool. In many markets these wishes area articulated

as investment mandates. Usually, the investors appoint professional inves tment

managers, to manage their fund. The same objective is achieved when professional

investment managers create a product, and offer it for investment to the investors.

This product represents a share in the pool and prestates investment objective. For

example, a mutual fund, this sells money market mutual fund, is actually seeking

investors willing to invest in a pool that would invest predominantly in money market

instruments.

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

an opportunity to invest in diversified, professional managed portfolio at a relatively


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low cost. Anybody with a minute surplus of even a few thousand rupees can invest in

Mutual Fund. Each mutual fund has a defined investment objective and strategies.

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

a) A mutual fund actually belongs to the investors who have pooled their funds.

The ownership of the mutual fund is in the hands of investors.

b) Investment professionals and other service providers, who earn a fee for their

services, for the fund, manage a mutual fund.

c) The pool of funds is invested in a portfolio of marketable investments. The

value of the portfolio is updated every day.

d) The investors share in the fund is dominated by units. The va lue of the units

changes with the change in the portfolios value, every day. The value of one

unit of investment is called as the Net Asset Value or NAV.

ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favourite investment vehicle, it is because of

the many advantages they have over other forms and avenues of investing,

particularly for the investor who has limited resources available in terms of capital

and ability to carry out detailed research and market monitoring. The following

are major advantages offered by mutual funds to all investors:


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PORTFOLIO DIVERSIFICATION: each investor in a fund is part

owner of all of the funds assets, thus enabling him to hold a diversified

investment portfolio even with a small amount of investment that would

otherwise require big capital.

PROFESSIONAL MANAGEMENT: Even if an investor has a big

amount of capital available to him, he benefits from the professional

management skills brought in by the fund in the management of the

Investors portfolio. The investment management skills, along with the

needed research into available investment options, ensure a much better

research than what the investor can manage on his own. Few investors

have the skills and resources of their own to succeed in todays fast

moving, global and sophisticated markets.

REDUCTION/DIVERSIFICTAIONOF RISK: when an investor invest

directly, all the risks of potential loss is his own, whether he places a

deposit with a company or a bank, or buys a share or debenture on his own

or in any form. While investing in pool of funds with other investors, the

potential losses are also shared with other investors. The risk reduction is

one of the most important benefits of a collective investment vehicle like

the mutual fund.

REDUCTION OF TRANSACTION COSTS: What is true of risk is

also true of the transaction costs. The investors bear all the costs of

investing such as brokerage or custody of securities. When going through

a fund, he has the benefit of economics of scale; the funds pay lesser costs

because of larger volumes, a benefit passes on to investors.

LIQUIDITY: Often, investors hold shares or bonds they cannot directly,

easily and quickly sell. When they invest in their units of a fund, they can

generally cash their investment any time, by selling their units to fund if

open-ended, or selling them in a market if the fund is closed-end.

Liquidity pf investment is clearly a big benefit.


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CONVENIENCE AND FLEXIBILITY: Mutual fund management

companies offer many investor services that a direct market investor

cannot get. Investors can easily transfer their holdings from one scheme to

the other; get updated market information, and so on.

TYPES OF FUNDS

There are many types of mutual funds available to the investor. However, these

different types of funds can be grouped into certain classifications for better

understanding. From the investors perspective, we would follow three basic

classifications.

Firstly, funds are usually classified in their constitution as closed-end or open-end.

The distinction depends upon whether they give the investors the option to redeem

and buy units at any time from the fund itself (open end) or whether the investorshave to await a given maturity before they can redeem their units to the fund (closed

end).

Funds can also be grouped in terms of whether they collect from investors any

charges at the time of entry or exit or both, thus reducing the investible amount or the

redemption proceeds. Funds that make these charges are classified as loadfunds, and

funds that do not make any of these charges are termed no-load funds

Finally, funds can also be classified as being tax exempt or non tax- exempt,

depending on whether they invest in securities that give tax-exempt returns or not.

Currently in India, this classification may be somewhat less important, given the


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recent tax exemption given to investors receiving dividends from virtually all mutual

funds.

By Structure:

Open ended funds

An open-end fund is one that is available for subscription all through the year. These

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

value related prices. The key feature of open-end schemes is liquidity.

Closed-ended funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to

15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchange where they are listed. In

order to provide an exit route to the investors, some close-ended funds give an option

of selling back the units to the mutual fund through periodic repurchase at NAV

related prices. SEBI regulations stipulate that at least one of the two exit routes is

provided to the investor.

Interval funds


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fixed income securities in the proportion indicated in their offer documents. In a

rising stock market, the NAV of these schemes may not normally keep pace, or fall

equally when the market falls. These are ideal for investors looking for a combination

of income and moderate growth.

MONEY MARKET FUNDS

The aim of money market funds is to provide easy liquidity, preservation of capital

and moderate income. These schemes generally invest in safer short-term instruments

such as treasury bills, certificates of deposit, commercial paper and inter-bank call

Money. Returns on these schemes may fluctuate depending upon the interest rates

prevailing in the market. These are ideal for corporate and individual investors as a

means to park their surplus funds for short periods.

LOAD FUNDS

A load fund is one that charges a commission for entry or exit. That is, each time you

buy or sell units in the fund, a commission will be payable. Typically entry and exit

loads range from 1% to 2%. It could be worth paying the load, if the fund has a good

performance history.

NO-LOAD FUNDS

A no-load fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no

load fund is that the entire corpus is put to work.


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Index funds attempt to replicate the performance of a particular index

such as the BSE SENSEX or the NSE 50.

Sectoral schemes

Sect oral funds are those, which invest exclusively in a specified

industry or a group of industries or various segments such as A group shares or

initial public offerings.

STRUCTURE OF MUTUAL FUNDS IN INDIA

Like other countries, India has a legal framework within which mutual funds must be

constituted. Unlike in the UK, where distinct trust and corporate approaches are

followed with separate regulation, in India, open and closed-end funds operate under

the same regulatory structure, i.e. in India, all mutual funds are constituted along one

unique structure-as unit trusts. A mutual fund in India is allowed to issue open-end

and close-end schemes under a common legal structure. Therefore, a mutual fund

may have several different schemes (open and close end) under it i.e. under one unittrust, at any point of time.

The structure that is required to be followed by mutual funds in India is laid down

under SEBI (mutual fund) regulations, 1996. in the following paragraphs, we take a

look at the structure of each of the fund constituents.

THE FUND SPONSOR

Sponsor is defined under SEBI regulations as any person who, acting alone or in

combination with another body corporate, establishes a mutual fund. The sponsor of a


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TRUSTEES

A board of Trustees - a body of individuals, or a Trust company a corporate body,

may manage the trust -the mutual fund -. Most of the funds in India are managed by

Boards of Trustees. While the provisions of the Indian Trust Act, will govern the

board of Trustees where the trustee is a corporate body, it would also be required to

comply with the provisions of the companies Act, 1956. The Board or the Trustee

Company, as an independent body, acts as protector of the unit-holders interests. The

Trustees do not directly manage the portfolio of securities. For his specialist function,

They appoint an asset management company. They ensure that the unsure that the

fund is managed by the AMC as per the defined objectives and in accordance with the

Trust deed and SEBI regulations.

The trust is created through a document called the TRUST DEED that is executed by

the fund sponsor in favour of the Trustees. The Trust Deed is required to be stamped

as registered under the provisions of the Indian Registration Act and registered with

SEBI. Clauses in the Trust Deed, inter alia, deal with the establishment of the Trust,

the appointment of Trustees, their powers and duties, and the obligations of the

Trustees towards the unit-holders and the AMC, and these clauses also specify

activities that the fund /AMC cannot undertake. The third schedule of the SEBI (MF)

Regulations, 1996 specifies the contents of the Trust Deed.

The Trustees being the primary guardians of the unit holders funds and assets, a

Trustee has to be a person of high repute and integrity. SEBI has laid down a set of

conditions to be fulfilled by the individuals being proposed as trustees of mutual

funds-both independent and non-independent. Besides specifying the

disqualifications, SEBI has also set down the Rights and obligations of the

Trustees. Broadly, the Trustees must ensure that the investors interests are

safeguarded and that the AMCs operations are alo ng professional lines. They must


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also ensure that the management of the fund is in accordance with SEBI regulations.

Some important rights and obligations are listed below.

SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996

1. Mutual fund schemes should not be organized, operated, managed or

the portfolio of securities selected, in the interest of sponsors, directors

of asset management companies, members of Board of trustees or

directors of trustee company, associated persons as in the interest of

special class of unit holders rather than in the interest of all classes of

unit holders of the scheme.

2. Trustees and asset management companies should avoid excessive

concentration of business with broking firms, affiliates and also

excessive holding of units in a scheme among a few investors.

3. Trustees and asset management companies shall carry out the business

and invest in accordance with the investment objectives stated in the

offer documents and take investment decision solely in the interest of

unit holders.

4. Trustees and asst management companies must avoid conflicts of

interest in managing the affairs of the schemes and keep the interest of

all unit holders paramount in all matters.


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5. Trustees and the asset management company shall maintain high

standards of integrity and fairness in all their dealings and in the

conduct of their business.

6. The sales literature may contain only information, the substance of

which is included in the funds current advertisements in accordance

with this code.

7. All advertisements shall also make a clear statement to the effect that

all mutual funds and securities investment are subject to market risks,

and there can be no assurance that the funds objective will be

achieved.

8. If however, in any Advertisement a mutual fund guarantees or assures

any minimum rate of return or yield to prospective investors, resources

to back such a guarantee shall also be indicated.

9. Advertisements on the performance of a mutual fund or its Asset

management company shall compare the past performances only on

the basis of per unit of statistics as per these regulations.

Advertisements for NAVs must indicate the past as well as the latest

NAV of a scheme. The yield calculations will be made as provided in

these regulations.

10. An advertisement shall be truthful, fair and clear and shall not contain

a statement, promise or forecast which is untrue of misleading.

11. The advertisement shall not be so designed in content and format or in

print as to be likely to be misunderstood, or likely to disguise the

significance of any statement. Advertisements shall not contain

statement that directly or by implication or by omission may mislead

the investor.

12. The advertisement shall not compare one fund with another, implicitly

or explicitly, unless the comparison is fair and all information relevant

to the comparison is included in the advertisement.


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13. The fund that advertises yield must use standardized computations

such as annual dividend on face value, annual yield on the purchase

price, and annual compounded rate of return.

14. A mutual fund scheme shall not invest more than 15% of its NAV in

debt instruments issued by a single issuer that are rated not below

investments grade by a credit rating agency authorized to carry out

such activity under the Act. Such investment limit may be extended to

20% of the NAV of the scheme with the prior approval of the Board of

Trustees and the Board of Asset Management Company. Provided that

such limit shall not be applicable for investments in government

securities and money market instruments.

15. The initial issue expenses in respect of any scheme may not exceed six

percent of the funds raised under that scheme.

16. Every mutual fund shall buy and sell securities on the basis of

deliveries and shall in all cases of sale, deliver the securities and shall

in no case put itself in a position whereby it has to make short sale or

carry forward transaction or engage in badla finance. Provided that

mutual funds shall enter into derivatives transactions in a recognized

stock exchange for the purpose of hedging and portfolio balancing, in

accordance with the guidelines issued by the Board.

17. No mutual fund under all its schemes should own more than 10% of

any companys paid up capital carrying voting rights.

18. A scheme may invest in another scheme under the same asset

management company or any other mutual fund without charging fees,

provided that aggregate inter scheme investment made by all schemes

under the management of any other asset management company shall

not exceed 5% of the net asset value of the mutual fund.

19. Every mutual fund shall, get the securities purchased or transferred in

the name of the mutual fund on account of the concerned scheme,

wherever investments are intended to be of long-term nature.


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20. No mutual fund scheme shall invest more than 10% of its NAV in the

equity shares or equity related instruments of any company

Mutual fund in India is not very well established because very well established

because very few know about the existence of the scheme and its benefits. Those who

know are also hesitant to invest because of the fear involved attributable to the

absence of complete transparency.

The present work involves the problems faced by investors in mutual fund and the

ways, means to overcome them. The study is also done to express that those

interested in shares can do so through mutual funds there by reducing the risk of

direct exposure of the investors to security market.

SCOPE OF STUDY

This study draws its parameters on the investors knowledge of investment in g eneral

with prominence to mutual funds. An attempt is also made to deduce the mindset of

the investors to know their requirement and expectations from these investments.

To analyze the opinion of investors about mutual fund, where do they place them

among the various other investment alternative. What is that they would like mutual

funds to provide them, and what steps do they feel is necessary to rank the mutual

fund as one of the best investment alternative

TOOLS AND TECHNIQUES FOR DATA COLLECTION


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The method of data collection will be through a questionnaire, for the above study

primary data and secondary data are considered.

Primary data: The data collected through the questionnaire.

Secondary data: The data collected from published reports, newspaper like economic

times, business standard and journals.

TITLE: A STUDY ON RISK AND RETURN OF INVESTORS IN

MUTUAL FUNDS AT BANGALORE CITY

The study is concentrated on the interest related areas of investors, in risk and return

such as:

1. What is their trade-off between risk and return?

2. What is that they see in mutual fund compared to other available

alternative sources of investment?

3. What is that they would expect from their investment?

Data collected from the investors, brokers would be used to analyze.

RESEARCH METHODOLOGY

Research is a systematic study. It is a search means an intensive a powerful search

for knowledge and understanding social, physical phenomenon. It is a method for the

discovery of true value in scientific way.


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SAMPLING PLAN:

Sample unit: Investors

Sample size: 50

Sampling method: Random Sampling

OBJECTIVE OF THE STUDY:

1. To determine the causes for the investments in mutual fund slowing down.

2. To determine expectations of mutual fund investors.

3. To study how distributors may become more effective in promoting the culture

of mutual funds as viable investment opportunity.

4. To reduce how mutual funds might reduce portfolio risk.

STATEMENT OF THE PROBLEM

The first and the foremost thing the investors should know about the product.

Product awareness plays a very crucial role in selecting the right kind of product.

The investor should be convinced and comfortable, where is being money isinvested.

Selecting a scheme that suits the investor needs, and will also maximizes his

returns. An investor not only needs advice on how to choose from this variety of


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investment options available, but also a proper investment strategy that is suitable to

his situation and needs.

Mutual fund investor has to time his investment properly, that can be done only by

proper advice of a sound financial advisor. The investor should exit at the right time

after booking profits, staying longer might affect his returns.

The investor has a herd mentality. They blindly follow the market trend. For ex-

heavy investment in technology sector funds during recent years. To ensure

adequate returns the investors must diversify his risk and returns.

PROBLEMS FACED BY INVESTORS:

1. In risk and return trade off and its implications on mutual fund companies

2. Availability of alternative investment opportunities and their relative

benefits.

Limitations:

1. The study was restricted only at Bangalore City.

2. Number of Sample selected was 50.

3. The analysis of investors was restricted to HDFC.

4. Detailed study of Mutual Funds Products could not be accomplished.

5. The study was limited for 40 days.


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INDUSTRY PROFILE:

The Indian mutual fund industry began with the formation of the unit trust of India

(UTI) in 1964 by the government. UTI was formed as a non-profit organizationgoverned under a special legislation, the unit trust of India act, 1963. it had a

monopoly up to 1987 and during this period UTI launched a series of equity and debt

schemes and established itself as a household name with assets under management of

rupees 4563 crores and unit holders accounts of slightly under 3 million by mid 1987.

UTI growth continued up to 1986 when the strong entry of private sector players saw

its share of the market reducing sharply although UTI continues to be a dominant

force in the Indian financial services industry with assets of over rs.67000 crores as of

December 31st, 1999.

In 1987, the industry saw the entry of public sector mutual funds, that is funds

promoted by public sector banks and financial institutions, such as SBI, CANARA

BANK, LIC and IDBI. Predictably they were given the brand of their promoters such


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as SBI mutual fund, can bank mutual fund, LIC mutual fund and IDBImutual fund.

Other public sector mutual funds also entered the market but UTIcontinued to remain

the dominant player with a share of 84% in 1991-1992.

In 1993 private and foreign fund houses were allowed to operate in India. Today

about 36 fund houses private, state and foreign owned operate in the country, but the

Indian mutual fund industries pace off growth can be hardly be described as frenetic.

On June 30, 2004 Indian mutual funds commanded assets of Rs. 1,04,762 crore, 8%

of the retail deposit of scheduled commercial banks.

The industry over 550 schemes in equity, debt, gilt and balanced funds offered by 36

fund houses. They include prudential ICICI, HDFC, Franklin Templeton, Birla sunlife

mutual funds, sundaram mutual funds, etc.,

Prudential ICICI is the largest is the operating private sector in the mutual fund

industry followed by HDFCmutual fund after it took over Zurich India mutual funds.

The share of private players in the Indian mutual fund industry has going up steadily.

Prudential icici is poised to overtake uti asset management in terms of assets under

management (AUM). PRUDENTIAL ICICI has asset of Rs.12,637 crore as against

uti AMCS Rs.16, 015 crore at the end of June 2004. Other private funds are also

catching up with hdfc mutual fund and Franklin Templeton at Rs.11, 961 and

Rs.11,152 crore respectively.

INDIAN MUTUAL FUND INDUSTRY


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UTI

PUBLIC SECTOR

PRIVATE SECTOR

UTI commenced its operations from July 1964 with a view to encouraging savings

and investment and participation in the income, profits and gains accruing to the

corporation from the acquisition, holding, management and disposal of securities.

Different provisions of the uti Act laid down the structure of management, scope of

business, powers and functions of the trust as well as accounting, disclosures and

regulatory requirements for the Trust.

One thing is certain the fund industry is hero to stay. The industry was one-entity

show till 1986 when the uti monopoly was broken when SBI and Can bank mutual

fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC,

etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25 bn in

1964 the industry has grown at a compounded average growth rate of 26.34% to its

current size of Rs 1130 bn.

The period 1986-1993 can be termed as the period of public sector mutual funds.

From one player in 1985 the number increased to 8 in 1993. The party did not last

SBI MFLIC MF

GIC MF

SUN F&C

BIRLA SUN LIFE

ALLIANCE CAPITAL

PRUDENTIAL ICICI


35/100


long. When the private sector made its debut in 1993-1994, the stock market was

booming.

The opening up of the asset management business to private sector in1993 saw

international players like Morgan Stanley, Jordan Fleming, jpmorgan, George soros

and capital international along with the host of domestic players join the party. But

for the equity funds, the period 1994-1996 was one of the worst in the history of

Indian mutual funds.

1999-2000 year of the funds

Mutual funds have been around for a long period of time to be precise for 36 years

but the year of 1999 saw immense future potential and developments in the sector.

This year signaled the year of resurgemes the revival of the funds the AMCS, the unit

Holders, the other related parties. However the sole factor that gave life to the revival

of the funds was the union budget. The budget bought about a large number of

changes in one stroke. An insight of the union budget on mutual fund taxation

benefits is provided later.

It provided center stage to the mutual funds, made them more attractive and provides

acceptability among the investors. The union budget exempted mutual funds dividend

given out by equity-oriented schemes from tax, both at the hands of investors as well

as the mutual funds. No longer were the mutual funds interested in selling the concept

of mutual find they wanted to talk business, which would mean to increase asset base,

and to get asset base, and investor base they had to fully arm with a whole lot of

schemes for every investor. So new schemes for new IPOs was inevitable. The quest

to attract investors extended behind just new schemes. The finds started to regulate

themselves and were all out on winning the trust and confidence of the investors

under the aegis of the association of the mutual funds of India.


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One can say that the industry is moving from infancy to adolescence, the industry is

maturing and the investors and funds are frankly and openly discussing difficulties

and opportunities and compulsion.

MERGERS IN THE INDIAN MUTUAL FUND INDUSTRY

During the last couple of years the Indian mutual fund industry has witness to a spate

of mergers and acquisition. The most recent of these being principal mutual

agreement to buy out sun F & C mutual fund scheme.

Sun F & C mutual fund itself had acquired the schemes of jordine Fleming mutual

fund in June 2002, while template on bought out pioneer ITI mutual fund. Zurich

India was acquired by HDFC during the same year.

REASEONS FOR MERGER

To generate a reasonable return on investment as to meet the fixed cost.

To fight stiff competition from larger firms

To increase the size of the asset base

To increase the return on investment.


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housing. It also provides property related services (e.g. property

identification, sales services and valuation),

Training and consultancy. Of these activities, housing finance remains the

dominant activity. HDFC currently has a client base of over 500000

borrowers, 1300000 depositors, 100000shareholders and 52000 deposit

agents. HDFC raises funds from international agencies such as the World

Bank, IFC (Washington), USAID, CDC, ADB and bonds and deposits

program for the eighth year in succession. HDFC standard life insurance

company limited, promoted by HDFC was the first life insurance company in

the private sector to be granted a certificate of registration (on October

23,2000) by the insurance regulatory and development authority to transact

life insurance business in India.

THE STANDARD LIFE ASSURANCE COMPANY

The standard life assurance company was established in 1825 and has considerable

experience in global financial markets. In 1998, a standard life investment limited

became the dedicated investment management company of the standard life group

and is owned 100% by the standard life assurance company. With global assets undermanagement of approximately US$126 billion as at may 15 2004, standard life

investments limited is one of the worlds major investment companies and is

responsible for investing money on behalf of five million retail and institutional

clients dia worldwide. With its headquarters in Edinburgh, standard life investments

limited has an extensive and developing global presence with operations in the united

Kingdom, Ireland, Canada, USA and Hong Kong. In order to meet the different

needs and risk profiles of its clients, standard life investments limited manages a

diverse portfolio covering all of the major markets worldwide, which includes a range

of private and public equities, government and company bonds, property investments

and various derivative instruments. The companys current holdings in UK equities

account for approximately 2% of the market capitalization of the London stock


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exchange. The standard life assurance company was present in the Indian life

insurance market from 1847 to 1938 when agencies were setup in kolkata and

Mumbai. The standard life insurance company was therefore keen to re-enter the

Indian market and in 1995, signed an agreement with HDFC to launch an insurance

joint venture. HDFC and standard life investments limited are neither responsible nor

liable for any loss resulting from the operation of the schemes beyond their

contribution of an amount of Rs. 1 lakh each made by them towards the corpus of the

mutual fund.

MISSION:

To be a world class financial institution -benchmarking themselves against

international standards and best practices.

OBJECTIVES:

To build sound customer franchises across distinct business so as to be preferred

provider of financial services to achieve a healthy growth in profitability and

customer base. To be committed to do this while ensuring the highest levels of

ethical standards, professional integrity and regulatory compliance.

VISION:

To be a dominant player in the Indian mutual fund space recognized for its high

levels of ethical and professional conduct and a commitment towards enhancing

investor interest.


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MUTUAL FUNDS FY 2004

The financial year ended 30 March 2004 was very volatile for the stock as well as the

debt markets. Investors se ntiment was shattered by scams, terrorist attack, political

uncertainties, economic slowdown and budget 2004. With the stock markets proving

to be volatile, investors shifted to safer to safer havens like bank deposits or low risk

debt schemes of mutual funds. Mobilization of mutual funds jumped up by 77% from

Rs. 92,957 crore in FY 2003-04.private sector players mopped up 89% of the funds.

Debt schemes accounted for Rs. 162944 crore, as against Rs. 67,054 crore in FY

2002-03, a jump of 143.09% and a share of 99% in the total mobilizations reflecting

the turmoil in the stock market, pure equity schemes posted an average 10.07%

returns. Debt schemes, riding piggyback on falling interest rates, posted 13.06%

returns on an average, which were 4.50% above the 8.50% SBI one year deposit rate

and 3% higher than the one year NBFC fixed deposit rate of 10% at the beginning of

the fiscal 2001-02. Among the 200 open-ended equity analyzed (including sub-

options), 179 outperformed the benchmark sensex, while 164 schemes posted positive

returns.

Among the 236 open-ended debt schemes analyzed (including sub-options), 171 out

formed the benchmark 1-year SBI deposit rate of 8.50% as in March 2001. Only 3

schemes posted returns.

The best performing categories were debt-medium term and debt-gilt 13.67% and

19.51%, respectively. As against that, Equity-tax planning schemes posted 15.09%

Returns, while Equity-Balanced schemes posted 9.73%. Diversified equity schemes

returned 10.23% on an average.


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Improving market share

Earning momentum superior to peer group

VALUATION CRITERIA

The current share price should not discount growth beyond 2 years.

If debt equity ratio is more than 1.5, increase valuation discount

The company should exhibit positive trend in EVA generation

We also look at other valuation measures like P/BV, Market Cap/Sales &

nbsp

KOTAK MAHINDRA MUTUAL FUND

The kotak mahindra group was born in 1985 as kotak capital management finance

limited. Uday Kotak, S.A.A. pinto and Kotak & Company Promoted this company.

Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and thats

when the company changed its name to Kotak Mahindra Finance Limited (KMFL).


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Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMFL, is the asset manager for Kotak Mahindra Mutual Fund

(KMMF). KMAMC started operations in December 1998 and has over 1, 15,000

investors in various schemes. KMMF offers schemes catering to investors with

varying risk-return profiles and was the first fund house in the country to launch a

dedicated gilt scheme investing only in government securities.

SCHEME PHILOSOPHY

K Gilt is a scheme that allows the retail investor to invest in the otherwise wholesale

government securities market. K Gilt invests in the gilt-edged government securities

giving you a zero credit risk investment option. It recognizes that for you, Safety is

prime, giving you the liquidity of a saving account with attractive returns.

K Gilt scheme offers several plants to choose from:

Savings plan: ideal if you are a short-term investor, this plan invests in a portfolio of

securities with Weighted Average Maturity of less than two years. Investors can

choose the monthly dividend option or the growth option.

Investment plan: ideal for long-term investors, this plan aims to enhance returns by

investing in longer maturity instruments. The portfolio has no restriction on the

maturity of the security. Investors can choose the quarterly dividend option*.

SERIAL PLANS: several plans maturing at 2 years intervals starting on December

31,2001 up to December 31,2019 that allow investors to nearly estimated their returns


44/100


if the investment is held till maturity. The ideal alternative to fixed deposits of similar

maturity with the safety of government Securities. Investors can choose quarterly

dividend option or the growth option. Payable subject to availability and adequacy of

distributable surplus.

INVESTMENT OBJECTIVE

K Balance seeks to exploit the capital appreciation of equity and the stable returns of

debt. By investing a substantial amount in debt and money market instruments, the

scheme aims to minimize the risk that arises out of even the most carefully picked

equity stocks.

The scheme usually has an exposure of about 51% to 55% on equity and the rest in

debt instruments. A combination that in our opinion gives you a perfect balance

between stability and growth.

K Balance is ideally suited for first time investors in equity schemes

DSP MERRILL LYNCH

DSP Merrill Lynch Limited (DSP ML) DSP ML is a leading financialservice

provider in India. It has been formed by the culmination of a long-standing

relationship between DSP financial consultants Limited (DSP), and Merrill Lynch

and co. (ML), the leading international capital raising, financial management and


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advisory company. Merrill lynch has a40% equity stake in DSP ML. In addition, ML

has also invested in a separate joint venture with DSP ML DSP Merrill lynch

investment managers Limited (DSPMLIM)

In India, DSP ML is leading underwriter and broken for debt and equity securities

and a leading advisor to corporations, institutions and state governments. For private

customers, our platform of products and service provides access to a robust range of

investing and wealth building tools with the personal guidance of financial

consultants. DSPML is also among the first firms to set up a full- fledged research

team in India. The Company is among the major players in the debt and equity

markets and is also a primary dealer of government securities.

DSP Merrill Lynchs credentials are best supported with accolades received DSP ML as the

Best Local Equity House in India for the same period. Additi onally, Euro money magazine

voted DSP ML Best Domestic equity Houses in India in their Awards of Excellence for

2002.

MERRILL LYNCH

Merrill Lynch is one of the worlds leading financial management and advisory

companies with offices in 37 countries and total client assets of approximately $1.4

trillion. As an investment bank, it is a leading global under writer of debt and equity

securities and strategic advisor to corporations, governments, institutions, and


46/100


Individuals worldwide. Through Merrill Lynch Investment managers, the company is

one of the worlds largest managers of financial assets.

OUR PRINCIPLES

Client Focus The client is the driving force behind what we do.

Respect for the Individual We respect the dignity of each individual, whether an

employee, shareholder, client or member of the general public.

Teamwork We strive for seamless integration of services.

Responsible Citizenship We seek to improve the quality of life in the communities

where our employees live and work.

Integrity No ones personal bottom line is more important than the reputation of our

firm.

PIONEER ITI MUTUAL FUND

Right from 1993 they were the first to traverse the pathway of mutual fund in the

private sector, they done very many exiting and innovative things. Indias first world

class open end fund, indias first private pension fund, indias first technology fund,

indias first online payment gateway for funds, and many more.


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More than these innovations themselves, its where these speak of creativity spring

from that gives a real insight into what drives us the desire to provide the very best

to investors. Intense research and superior investment results, service that delights,

being accessible, and straight talking and openness on how your funds are being

managed.

We are professional in the way we work, but with a personal touch. Towards this

end, we look forward to hearing from you on what you feel about us and how we can

do more for you.

Who We Are

Pioneer ITI is Indias fir st mutual fund in the private sector. Today, we manage

Rs.3647 crores in assets for over 745,000* investors across a range of growth,

balanced, income, liquid and tax saving funds. In the open- end equity funds

category, we lead in terms of assets, and have emerged as the most preferred fund

house in India.

Ever since we launched our first two funds, Blue-chip and prima, in October 1993,

we have been recognized as an innovative fund that provides superior investment

results, exemplary service, complete product choice and total transparency in the way

we operate and invest.

Pioneer ITI is a joint venture between pioneer one of Americas oldest mutual funds

and ITI, one of Indias established finance companies. Pioneer helped found the

modern mutual fund industry in the US in 1928, and has operations in several

countries across the globe.


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The joint venture was formed with the key objective of providing the Indian investor

mutual fund products to suit a variety of investment needs, the AMC has already

launched a range of products to suit different risk and maturity profiles.

Prudential ICICI Assets Management Company Limited has a net worth of about

Rs.78.13 crores as of March 31,2002. Both prudential and ICICI have a strategic

long-term commitment to the rapidly expanding financial services sector in India.

Key Indicators

As of May 2000 As on June 30,2002

Assets under

Management

Rs.160 crore Rs.7748.31 crore

Number of Funds

Managed

2 14

GUIDING PRINCIPLES

Prudential ICICI will conduct its business with

Honesty and trustworthiness in all interactions.

A pioneer spirit and excellence in action

Collaboration and teamwork.


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An understanding of customer needs and the desire to satisfy them.

The highest service standards.

A consistency above average performance.

FRANKLIN TEMPLETON MUTUAL FUND

Franklin Templeton Investments is one of the largest financial services groups in the

world based at San Mateo, California USA. The group has over US $ 270 billion

(over Rs. 1,315,000 crores) in assets under management globally (as of June 30,

2002) in mutual funds and other investment vehicles for individuals, institutions,

pension plans, trusts, partnerships and other clients. Franklin Templeton offers over


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240 investment products, available under the Franklin Templeton and Mutual Series

brand names, serviced and supported by 6,400 employees in more than 29 countries.

With over 50 years of experience in international investment management and offices

in Franklin Templeton has achieved the Dalbar Service Award in the US six times

in the past ten years for superior customer service and back office support.

Franklin Templeton in India

As part of Franklin Templetons thrust in expanding business in key interna tional

markets, Franklin Templeton set-up an office in Mumbai, India in January 1996. The

firm now has offices in Ahmedabad, Bangalore, Calcutta, Chennai, Delhi, Hydrabad,

Kochi, Lacknow, Mangalore and Pune and manages assets of over Rs.4000 crores as

an June 30, 2002.

At Franklin Templeton we believe that individuals differ in their investment needs

depending on their financial goals, risk taking ability and time horizon available to

meet those goals. To cater to these different needs, mutual funds provide individuals

the flexibility to create an investment plan, based on ones individual financial goals.

SUN F& C MUTUAL FUND

SUN F & C was incorporated in 1995. The sponsors principle objective in

establishing the company is to create amongst Indias leading asset management

organizations through an uncompromising focus on quality in all aspects of product

innovation, investment management and investment execution. The sponsors of SUN


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F& C are the F & c Emerging Markets Limited, a part of the F & C Group and SUN

securities (India) Pvt Limited, the Indian financial services arm of the SUN Group

Investment philosophy

It is this philosophy, which guides the day-to-day investment management in all its

schemes. The equity investment philosophy guides investment decisions in the Value

Fund and the equity portion of the Balanced Fund, while the debt investment

philosophy guides investment decisions in the Money Value Fund and the debt

portion of the Monthly Income plan.

SUN F& Cs investment philosophy consists of two elements Investment Approach

& Investment Style.

Investment Approaches

Typically there are two common approaches used by fund managers for their

investment philosophy

1. Top-down Approach

Focuses on key macro economic indicators and trends, followed by a study of

individual sectors in the economy to form an outlook on their future prospects.

Thought this process, business opportunities in different sectors are identified

and accordingly the best stocks within the identified sectors are selected for

investment. Hence, attractive industries are identified first and then

attractive stocks are identified within those industries

2. Bottom-up-Approach

This approach focuses on identifying individual high-performing companies

with outstanding management whose business is growing faster than any of its

peers within or outside their industry.


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INVESTMENT STYLES

The common styles used by fund mangers for their investment philosophy are:

1. Value Investing

Fund managers employing the value approach look for companies trading at a

discount to their intrinsic worth. Simply put, these companies are quoting at a price

earnings (P/E) multiple lower than what it should be their management, industry

outlook and balance sheet indicators. Hence, there exists a potential for the P/E of

these companies being adjusted upwards over time as the markets realize their

intrinsic worth. Such a change P/E is also called re rating of stock.

2. Growth Investing

Growth involves investing in stocks of companies whose businesses are expected to

show healthy growth in future earnings. Here, the companys price will move up not

because the P/E will improve (no re rating) but because the EPS will go up. This is

because, the price of a share is a function of the P/E multiplied by the EPS.

3. Momentum Investing

Fund managers using momentum investing use technical indicators to buy low and

sell high in the short run. This means that they do not rely on indicators such as P/E

or EPS but buy/sell decisions purely on price movements of that share, however good

or bad the company may be. This approaches is commonly used for stocks that are

highly volatile and where profits opportunities exist in short term trading of these

stocks.

It may also be worth explaining here the difference between investment philosophy

and investment objective, since these two terms are often used and are confusing to

most investors. While investment objectives is usually associated with a particular

scheme investment objective of the SUN F& C Value Fund is to generate long-term

capital growth from a portfolio substantially consisting of equity and related


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securities. On the other hand, investment philosophy defines how investment

decisions should be made, i.e., the Value Fund is guided by the philosophy of value

oriented investing. This long-term style of investing tries to locate, in a disciplined

manner, shares, which for a variety of reasons, are selling at prices, which are lower

than the companys actual business value or future earnings potenti al.

Market Trends

A lone UTI with just one scheme in 1964 now competes with as many as 550 odd

products and 36 players in the market. In spite of the stiff competition and losing

market share, UTI still remains a formidable force to reckon with.


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Last six years have been the most turbulent as well exiting ones for the industry.

New players have come in, while others decided to close shop by either selling off or

merging with others. Product innovation is now passing with the game shifting to

performance delivery in fund management industry like distributors, more mature and

responsible.

The industry is also having a profound impact on financial markets. While UTI has

always been a dominant player on the bourses as well as the debt markets, the new

generations of private funds that have gained substantial mass are now seen flexing

their muscles. Fund managers by their selection criteria for stocks have forced

corporate governance on the industry. By rewarding honest and transparent

management with higher valuations, a system of risk-reward has been created where

the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals,

FMCG and technology sector. Funds performances are improving. Funds collection,

which averaged at less than Rs.100 billion per annum over five year period spanning

1993-98 doubled to Rs.210 billion in 1998-99. in the current year mobilization till

now have exceeded Rs.300 billion. Total collection for the current financial year

ending is expected to reach Rs.450 billion.

What is particularly noteworthy is that bulk of the mobilization has been by the

private sector mutual funds rather than public sector mutual funds. Indeed private

Mutual Funds saw a net inflow of Rs.7819.34 crore during the first nine months of

the year as against a net inflow of Rs.604.40 crore in the case of public sector funds.


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Mutual funds are now also competing with commercial banks in the race for retail

investors savings and corporate float money. The power shift towards mutual funds

has become obvious. The coming few years will show that the traditional saving

avenues are losing out in savings accounts are as good as locking up their deposits in

a closet. The fund mobilization trend by mutual funds in the current year indicates

that money is going to mutual funds in a big way. The collection in the first half of

the financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. the U.S.

boasts of an asset base that is much higher than its bank deposits. In India, mutual

fund assets are not even 10% of the bank deposits, but this trend is beginning to

change. Recent figures indicate that in the first quarter of the current fiscal year

mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This

is forcing a large number of banks to adopt the concept of narrow banking wherein

the deposits are kept in Gilts and some other assets, which improves liquidity and

reduces risk. The basic fact lies that banks cannot be ignored and they will not close

down completely. Their role as intermediaries cannot be ignored. It is just that

Mutual Funds are going to change the way banks do business in the future.

Bank v/s Mutual Funds

BANKS MUTUAL

FUNDS

Returns Low Better

Administrative High Low


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expenses

Risk Low Moderate

Investment option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculations Min bal b/w 10th

& 30th

of

every month

Every day

Guarantee Max Rs.1 lakh on deposits None

DATA ANALYSIS

The data was collected from both primary and secondary sources.

The data was collected thought administrating structured questionnaire to prospective

and current investors. The secondary data was collected from published reports in


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Newspaper, Magazines etc., and the data after collection need to be processed and

analyzed in accordance with the outline laid down for the purpose at the time of

developing the research plan. The samples were processed and classified according

to their response.

Data analysis process involves:

Editing

Coding

Classification

Tabulation of collected data

EDITING:

Data collected though questionnaire will be in crude form and not ready for analysis.

Editing is done to correlate the data collected with the purpose, plan of the research

and facilitate coding and tabulation.

CODING:

Coding is done for efficient analysis of data collected.

CLASSIFICATION:

Classification of raw data collected was done to reduce the large volume of

homogeneous group to arrive at a meaningful relationship.

TABULATION:


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The process of tabulation involved combining and totaling of the collected data. Since

the questionnaire involved in the study was only 50, manual tabulation was done and

also due to the limited scope of use of statistical tools.

INTERPRETATION OF DATA:

The primary data collected in the form of questionnaire is tabulated in the form of

table. Pie chart and graphs, given in succeeding pages. Also the tabular column are

given a number, each of which bears a header.

ANALYSISOF DATA OBTAINED FROM INVESTORS

NO OFRESPONDENTS: 50

SOCIO ECONOMIC STATUS OF RESPONDENTS


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Sl

No.

Status Description No of

respondents

%age

1 Sex

Male

FemaleTotal

41

950

82

18100

2

Age

Below 25yrs

26-35 yrs

36-50yrs

51-60yrs

>61yrs

Total

8

11

24

3

4

50

16

22

48

6

8

100

3

Educational level

Under Graduate

Graduate

Post Graduate

Others

Total

8

17

20

5

50

16

34

40

10

100

4

Occupation

Govt.Service

Private Sector

Public Sector

Business

Retired Person

Others (Self emp)

Total

4

18

3

1

5

19

50

8

36

6

2

10

38

100

5

Income per annum

300000

Total

0

17

19

15

8

50

0

214

38

30

16

100

6

Annual Savings


61/100


82%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Male FemaleGender

%

ageodrespondents

GRAPH SHOWING THE DISTRIBUTION OF RESPONSENTS

BASED ON GENDER


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GRAPH SHOWING THE DISTRIBUTION OF RESPONDENTS

BASED ON GENDER

0%

10%

20%

30%

40%

50%

60%

61

Age

%ageofrespo

ndents


63/100


64/100



BASED ON OCCUPATION

8%

36%

6%2%

10%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

GovtS

ervice

PrivateSe

ctor

Public

Secto

r

Busine

ss

Retir

edPerso

n

Oth

ers(Self

emp)

Occupation

%ageofrespondents


65/100


66/100



BASED ON SAVINGS

0%

10%

20%

30%

40%

50%

60%


67/100


68/100


69/100


TABLE SHOWING THE INVESTORS OPINION ABOUT

MUTUAL FUND

NO OF RESPONDENTS: 50

Particulars

Description No of

Respondents

%age of

Respondents

Absolutely Yes 7 14%

Partially Yes 30 60%

Cant say 4 8%Partially No 2 4%

Absolutely No 7 14%

Mutual fund is

fast emerging

investment

alternative

Total 50 100%

Data analysis:

Do investors think mutual fund is fast emerging alternative instrument?

60% of respondents felt partially yes

14% of respondents felt absolutely yes

8% of respondents felt cant say

4% of the respondents felt partially no

14% of the respondents felt absolutely no


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GRAPH SHOWING THE INVESTORS OPINION OF MUTUAL

FUNDS

14%

60%

8%

4%

14%

Absolutely yes

Partially yes

Can't sayPartially No

Absolutely No


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TABLE SHOWING THE TENURE OF INVESTMENT

PREFFERED


Tenure

No of respondents %age of respondents

5 year 7 14%

Total 50 100%

Interpretation:

There is almost near consistency in the tenure of investment preferred by the

investors, however the most preferredtenure is

1-3 &3-5 years

There is a mixed preference of both short term and long-term investment in risk and

return.


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GRAPH SHOWING THE TENURE OF INVESTMENT

PREFERRED

34%

26% 26%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

< 1 year 1-3 year 3-5 year > 5 years

Tenure if Investment

%ageofrespondents


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TABLE SHOWING THE RESPONDENTS PREFERENCE FOR

THE TYPE OF MUTUAL FUND


Particulars

Description No of

Respondents

%age of

Respondents

Open end

Scheme

30 60%

Close end

Scheme

10 20%

No response 10 20%Total 50 100%

Growth 9 18%

Income 5 10%

Balanced 15 30%

Money Market 1 2%

Tax saving - -

Others 4 8%

Investors

Selection of type

Of mutual fund

Investors

selection

Of type

Of mutual fund

No response 16 32%

Total 50 100%

Data analysis:

Investors selection of type of mutual fund

60% of respondents opted for open-end scheme

20% of respondents opted for close-end scheme

20% did not respond


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Investors selection of type of mutual fund scheme

38% of respondents opted for balanced scheme

18% of respondents opted for growth scheme

10% of respondents opted for income scheme

2% of respondents opted for money market scheme

32% did not respond

Interpretation:

Majority of the respondents pre ferred balanced scheme 32% of the respondents not

responding implies that either they are ignorant of mutual fund or they are not

interested in them.


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GRAPH SHOWING THE RESPONDENTS PREFFERENCE FOR

THE TYPE OF MUTUAL FUND

60%20%

20%

open endscheme

close endscheme

No response


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GRAPH SHOWING THE PREFERENCE OF MUTUAL FUND

SCHEME

18%

10%

30%

2%8%

32%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Growth

Inco

me

Balan

ced

Mon

eyMarket

TaxSa

ving

Oth

ers

Noresp

onse

Types of schemes

%ageofrespondents


77/100


INVESTMENT OBJECTIVE OF INVESTORS


Objective

Most

Important

Partially

Important

Not

Important

High

Returns

27 19 3

Tax Saving 20 28 1

Safety 29 18 1

Liquidity 22 14 12

Interpretation:

The investment objectives of the respondents were almost consistent. Even though

there were 22 respondents who aspired for high liquidity 12 did not give any

importance.

54% of the respondents gave the importance to high returns

40% to Tax Savings

58% to safety

44% to liquidity


78/100


TABLE SHOWING THE EXTENT OF KNOWLEDGE AND

INVESTMENT MADE BY THE RESPONDENTS IN THE

FOLLOWING MUTUAL FUNDS

Mutual fund Having

heard of

(in no)

%age of

respondents

Having

Invested

in (in no)

%age of

respondents

Alliance Mutual Fund 30 60% 9 18%

Birla Mutual Fund 34 64% 4 8%

Kothari Pioneer 25 50% 5 10%

Prudential Mutual fund 37 74% 7 14%

Franklin Templeton 27 54% 3 6%

HDFC Mutual Fund 23 46% 3 6%

Sundaram Mutual Fund 32 64% 2 4%

Grindlays Mutual Fund 22 44% - -

Zurich Mutual Fund 24 48% - -

UTI Mutual Fund 38 76% 5 10%

Findings:

Some of the respondents replied that they had earlier invested in mutual fund

but got burnt their finger by receiving very low returns and also the NAV

falling very low. They would invest further in mutual fund only after

companies showed good performance and maintained consistency.

Come of them were interested in investing but were unaware of the route

through which the investment could be done.

Few of them even didnt know that a mutual fund was one of the investment

instruments.

One of the opinions of the respondents was that mutual fund were for

employed ones and not for businessmen. Businessmen expect return of 100%

or more and not less that that.

Of 50 respondents none of them had ever invested in Grindleys and Zurich

Mutual Fund.


79/100


GRAPH SHOWING THE %AGE OF RESPONDENTS HAVING

HEARD OF SPECIFIED MUTUAL FUND

60%64%

50%

74%

54%46%

64%

76%

44%48%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Alli

ance

Birl

a

Kotha

ri

Prud

entia

l

Tem

plet

on

Zuric

h

Sund

aram U

TI

Grin

dley

s

HD

FC

Mutual Fund

%ageofrespondents


80/100


GRAPH SHOWING THE %AGE OF RESPONDENTS HAVING

INVESTED IN MUTUAL FUND

18%

8%10%

14%

6% 6% 4%

10%

0 00%

5%

10%

15%

20%

25%

AllianceBirla

Pioneer

Prudential

Templeton

HDFC

Sundaram UTI

Grindlays

Zurich

Respondents invested

%ageofrespond

ents


81/100


TABLE SHOWING THE EXPECTED RATE OF RETURN OF

INVESTORS FROM THEIR INVESTMENT


Rate of Return No of respondents %age of respondents

0-7% 5 10%

7-10% 8 16%

10-15% 30 64%

15% and above 5 10%

Interpretation:

64% of 50 respondents expected a rate of return, which was between 0% to 15%.


82/100


GRAPH SHOWING THE EXPECTED RATE OF RETURN OF

INVESTORS FROM THEIR INVESTMENT PER ANNUM

10% 16%

64%

10%0%

10%

20%

30%

40%

50%

60%

70%

80%

0-7% 7-10% 10-15% >15%

Rate of Return expected

%ageofrespondents


83/100


REASONS THAT INVESTORS ATTRIBUTE FOR FALLING

IMPORTANCE OF MUTUAL FUND


Attributes

No of respondents %age of respondents

Inadequate information 22 44%

Rational behavior 7 14%

Failure of Mutual Fund 27 54%

Availability of other

lucrative & safer

investment

13 26%

Lack of transparency 17 34%

Conservative investor 7 14%

Priority of consumption

to saving & investment

1 2%

Priority to safety 6 12%

Findings:

Respondents felt sliding sensex, unassured profit and the greater amount of

chances to incur loss were the reasons, which detracted them from investing in

mutual fund.

Respondents even felt the mutual fund companies were very careless in

utilizing the funds mobilized by them for further investment.

The majority of investors felt that poor past performance and failure of mutual

fund were the reasons for failing preference of mutual funds as an investment

alternative.


84/100


85/100


INVESTORS EXPECTATIONS FROM MUTUAL FUND


Particulars

Description No of

respondents

%age of

respondents

Greater

Transparency

40 80%

Investors

Education

30 60%

Prudentmanagement

23 46%

Strict guideline

from SEBI

24 48%

Revival of

Economy

17 34%

Expectations of

investors from

mutual fund

Greater safety of

capital

30 60%

Findings:

Investors expressed that assured returns and greater safety were the ones most

preferred for any investment.

They also felt that the returns given by mutual fund must be at least equal to

or greater than what is given by banks.


86/100


TABLE SHOWING INVESTORS PREFERANCE FOR THE

INVESTMENT AVENUES

Investment avenues

No of respondents

%age of respondents

Insurance policies 38 76%

Govt Saving Schemes 25 50%

Mutual Funds 22 44%

Bank Fixed Deposits 45 90%

Share and debentures 24 48%

Post office savingschemes

43 86%

Interpretation

From the data analysis it was found that majority of the respondents opted the

following investment avenues for the following corresponding objective

Insurance Policies Safety and Tax savings

Govt Saving schemes Tax savings

Mutual Fund High returns

Bank fixes deposits Fixed return and liquidity

Shares and Debentures High returns

Post office savings schemes Safety, fixed return and tax

Most of the respondents expected complete transparency of the operations

immediately proceeded by the respondents expecting investors education and greatersafety and capital.


87/100


GRAPH SHOWING THE INVESTORS PREFERANCE FROM

THE INVESTMENT AVENUES


76%

50% 44%

90%

48%

26%

0%

10%

20%

30%

40%

50%

60%

70%

80%90%

100%

Insuranc

epo

licies

Govt

Saving

schem

es

Mutua

lFun

ds

Ban

kfix

eddep

osits

Shares

and

deb

enture

s

Post

office

savin

gsche

mes

Investors preference

%a

geofrespondents


88/100


Testing of hypothesis

RESEARCH OBJECTIVE

To know whether more than 50% of respondents would like to invest in mutual fund.

H0: 50% or less is interested in mutual fund investment.

HA: more than 50% are interested in mutual fund investment.

Conclusion: yes more than 50% of respondents are interested in mutual

fund investment. Because low ri

Documents

Gururaj S-0373-Risk & Return of Investors