A SUMMER TRAINING PROJECT REPORT

A Study of Capital Market Reforms with Focus on Mutual Fund

ATEDELWEISS BROKING LIMITED

Submitted By

Name : SHASHANK BARANWAL

Roll No : DM 1214175

Batch : 2012-2014

Industry Guide: Faculty Guide:

Name : Mr. Sujeet Deshwal Name: Prof. Vinay Jha

Designation: Sales Manager Designation: Professor

Company Name: Edelweiss Broking Limited

ACCURATE INSTITUTE OF MANAGEMENT & TECHNOLOGY, PLOT NO. 49,

KNOWLEDGE PARK 3, GREATER NOIDA- 201306 (UP)

July 2013

[I]

SUMMER TRAINING COMPLETION CERTIFICATE

This is to certify that Mr./Ms. ________________student of PGDM of Accurate Institute of

Management & Technology , Greater Noida, has undertaken the project titled “

______________________________ ____”at…………………………………………….from

…………………………………………….to……………………………… and has completed

the project successfully.

I wish him/her a success in all his/ her future career endeavors.

Industry Guide

Name:

Designation:

Organization’s Seal

[II]

___________________

Signature with Date

CERTIFICATE OF ORIGINALITY

(To be filled in by the student in his / her handwriting)

I_____________________________________ Roll No ________________________of

2013,is a fulltime bonafide student of first year of PGDM Program of Accurate Institute

of Management & Technology, Greater Noida. I hereby certify that this project work

carried out by me at _____________________________________________________

the report submitted in partial fulfillment of the requirements of the program is an

original work of mine under the guidance of the industry mentor __________________

and the faculty mentor ______________________________________________and is

not based or reproduced from any existing work of any other person or on any earlier

work undertaken at any other time or for any other purpose, and has not been submitted

anywhere else at any time

(Student's Signature)

Date: July, 2013

(Faculty Mentor's Signature)

Date: July 2013

[III]

ACKNOWLEDGEMENT

A project is never the work of an individual. It is moreover a combination of ideas, suggestions,

review, contribution and work involving many colleagues. It cannot be completed without

guidelines. First of all, I would like to give my special industry guide Mr. Sujeet Deshwal for

me giving good guideline and opportunity to make this report. the foremost I would like to thank

my heart feels to my mentor Prof. Vinay Jha for hissupport and guidance throughout the

evolution of the dissertation.

Shashank Baranwal

[IV]

DECLARATION

I, Shashank Baranwal, do hereby declare that this report titled “A Study On Capital Market

Reforms With Focus On Mutual Fund” has been carried out by me under the Industry guide

Mr. Sujeet Deshwal and Faculty guide Prof. Vinay Jha at Accurate Institute of Management

& Technology Gr. Noida. The Project is completed as per the norms prescribed by the college

and same work has not been copied from any source directly without acknowledging for the

part/section that has been adopted from Published/non published work.I further declare that the

information presented in this project is true and original to best of my knowledge.

Shashank Baranwal

[V]

CONTENT

Serial No Particulars Page No

1. Industry overview 1

2. Company profile 8

3. Capital market 10

4. Mutual funds as a part of capital market 19

5. Concepts of mutual funds 20

6. Categories of mutual funds 23

7. Investment strategies for mutual funds 26

8. Role of capital market in India 33

9. Factors affecting capital market in India 38

10. India stock exchange overview 41

11. Investor awareness programme by SEBI 44

12. Research methodology 47

12.1 Title of the study

12.2 Data sources

12.3 Duration of study

12.4 Sampling

(I) Sampling procedure

(II) Sample size

(III) Sample design

12.5 Limitation

13. Data analysis & interpretation 49

14. Findings 66

15. Conclusion 68

16. Suggestions & Recommendations 69

17. Bibliography 70

18. Questionnaire 71

[VI]

1. INDUSTRY OVERVIEW

1. Edelweiss broking ltd.

2. Religare

3. Angel broking

4. Share khan

5. Axis securities ltd.

[1]

1. Edelweiss Broking Ltd.

Edelweiss broking ltd. Is one of leading financial services company. Incorporated in 1995,

company provides wide range of services to corporations, institutional investors and high net-

worth individuals.

The company has a presence in investment banking, institutional equities, private client

broking, asset management, wealth management, insurance broking and mutual funds.

Currently, it employs over 2575 employees and operates from 327 offices spread across in 144

cities.

In October, 2009, Edelweiss Asset Reconstruction an associate company of Edelweiss capital

received the certificate of registration from the Reserve Bank of India to commence /carry on

the business of securitization or asset reconstruction.

In November 2009, Edelweiss capital has executed the joint venture agreement with Tokio

Marine Holdings, to carry on the Life Insurance Business in India, through a subsidiary of the

company. It got initial approval from IRDA on January 2011.

[2]

2. Religare securities ltd.

Religare Securities Ltd. is part of Religare Enterprises Ltd., the financial arm of Ranbaxy

Group and one of the leading integrated financial services groups in India. Religare Securities is

the security transaction arm with retail business & presence across India. The company has

more than 1,550 locations across 460 cities & towns throughout India.

Religare Securities Ltd. has been experiencing strong growth over the past year. As a result,

the company realized that it needed a new data center to support the company ’s growth.

However, the company did not have the internal resources required to consolidate its servers

and implement a new high density computing environment with virtualization capabilities. To

match its needs for a new server environment, Religare Securities also needed to implement

new data storage technology to replace its outdated EMC storage environment.

Religare Securities engaged IBM Global Technology Services - Integrated Technology

Services to utilize its data center specialization skills to provide end- to-end data center

consolidation and implementation services. The project consisted of the IBM services team

designing, planning, implementing, and managing the data center implementation. The project

management services include the in-depth integration and implementation of all sub-

components including: power, cooling,and fire and security equipment, along with electrical

panels, wiring, and civil and interior setup.

The IBM services team also implemented a new data storage environment with the IBM System

Storage DS4800 device at its core. The DS4800 device has a total storage capacity of four TB

and contains data related to the company ’s Oracle security transactions database. As Religare’s

business grows, the company’s storage environment will grow along with it.

The following is the product profile of the company.

Equity Broking – NSE & BSE

Internet Broking – Online Trading

Institutional Broking

Portfolio Management Services

Initial Public Offerings (IPO)

[3]

3. Angel broking

Angel Broking's tryst with excellence in customer relations began in 1987. Today, Angel has

emerged as one of the most respected Stock-Broking and Wealth Management Companies in

India. With its unique retail-focused stock trading business model, Angel is committed to

providing ‘Real Value for Money’ to all its clients. The Angel Group is a member of the

Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and the two leading

Commodity Exchanges in the country: NCDEX & MCX. Angel is also registered as a

Depository Participant with CDSL.

Our Business

Equity Trading

Commodities

Portfolio Management Services

Mutual Funds

Life Insurance

IPO

[4]

4. Share khanIncorporated in February 2000, Sharekhan is India's 2ndlargest stock broker providing

brokerage services through its online trading website Sharekhan.com and 1950 Share shops

which includes branches & Franchises in more than 575 cities across India. Sharekhan has seen

incredible growth over last 10+ years though it's very successful online trading platform and the

chain of franchises located in almost every part of India. Sharekhan has over 10 lakh retail and

institutional customers.

Sharekhan is the finest investment portal for India stock market. The well designed website

provides wide range on investment options, latest stock market updates and many tools for

investors.

Sharekhan also offers 'Sharekhan TradeTiger', one of the most popular trading terminals, for

retail investors. The TradeTiger is quite similar to Broker Terminal andallows frequent traders

to place and execute their orders at a high speed. It also provides live data and other tools on the

same screen to help the users with their trades.

Sharekhan's 'ShareMobile' platform offers trading facility though mobile application. Mobile

apps are available for popular iPhone, iPad, Blackberry, Android and other phones.

Services offered by Sharekhan include trading in equity, F&O and Commodity and investment

in IPO's, Mutual Funds, Insurance, Bonds and NCD's. Company also provide Sharekhan Demat

Account and registered as a depository participant with NSD and CDS.

Sharekhan offers verity of accounts to suite customer requirement. These accounts include

Sharekhan First Step Account, Share khan Classic Account, Sharekhan Trade Tiger Account

and Portfolio Mgmt Services (PMS) though Sharekhan Platinum Circle Account.

Sharekhan has its own research teams which regularly publishes investment advices, stock tips,

quarterly company result analysis and news alerts to its customer though email, SMS and on

Sharekhan.com. Sharekhan has an excellent knowledge center on its website to help stock and

commodity market investors of all kind. It also offers free online and classroom seminars /

workshops to investors. Each Sharekhan Accounts comes with online and in-person help from

Sharekhan representative.

[5]

Share khan Brokerage Charges 2013

Account Opening Fee & Annual Maintenance Charges –

Trading account opening charges (One time) Rs.750 (Classic account) Rs.1000 (Trade tiger A/c).

Trading annual maintenance charges Rs.400 (First year remains free).

Demat account opening charges (One time) included in trading account opening charges.

Demat account annual maintenance charge Rs. 400 (Free 1st year with trading account).

Trading Brokerages

Intra-day trades : 0.1% on the buy side & 0.1% on the sell side.

Delivery based trades : 0.5% or 10 paise per share of Rs. 16/- per scrip which ever is higher.

Options trades : Rs.100/- per contract or 2.5 % on the premium (which ever is higher).

[6]

5. Axis securities ltd…

ASL is a subsidiary company of Axis Bank Ltd. The company has a wide range of products

catered to meet the needs of the customer. Customers can open a single account to invest in

Equities, Mutual Fund, SIPs, IPOs, Derivatives, Bonds, & company fixed deposits. Customers

can also avail other financial solutions through ASL such as – Home loans,Auto loans, Personal

loans, Loan against property, Loan against shares , Credit & Prepaid cards. ASL is engaged in

the business of marketing & selling financial products of the Axis Bank Ltd.

Axis Capital Limited provides financial services in India. It offers services in the areas of equity

capital markets, mergers and acquisitions, institutional equities, structured finance, investment

solutions, initial public offerings, qualified institutional placements, blocks, private equity, and

financial advice. The company has a strategic alliance with Baird.

Axis Capital Limited was formerly known as Axis Securities and Sales Limited and changed its

name to Axis Capital Limited in October 2012. The company was founded in 2005 and is based

in Mumbai, India. Axis Capital Limited operates as a subsidiary of AXIS Bank Limited.

[7]

[8]

2. COMPANY PROFILE

2.1 Edelweiss Broking Ltd.

Edelweiss Capital Limited incorporated on 21st November 1995, today has emerged as one of

India‟s leading diversified financial services group. The Edelweiss Group offers one of the

largest range of products and services spanning varied asset classes and diversified consumer

segments. The Group’s product offerings are broadly divided into Investment Banking,

Brokerage Services, Asset Management and Financing. The company’s research driven approach

and consistent ability to capitalize on emerging market trends has enabled it to foster strong

relationships across corporate, institutional and HNI clients. Edelweiss Group now employs

around 2575 employees after Anagram acquisition, leveraging a strong partnership culture and

unique model of employee ownership. It now operates through 327 offices, 33 franchise led

offices and over 1300 subbrokers in all major cities in India after the recent acquisition of

Anagram Capital. The Edelweiss Group is a conglomerate of 48 entities including 43

Subsidiaries and 4 Associate companies (December ‟10), which are engaged in the business of

providing diverse financial services. It is a listed company since December 2007 under the

symbols NSE: EDELWEISS, BSE: 532922 and Bloomberg: EDEL.IN.

Chairman – Rashesh Shah

[9]

2.2 EDELWEISS SERVICES :

Buy and Sell shares online on both BSE and NSE. Access information for all listed companies,

mutual funds, commodities and other asset classes. Read various research reports from the award

winning research desk at Edelweiss. Experience the power of customized and actionable

strategies with single click execution. Track your portfolio across asset classes and measure its

performance on various parameters. Do your own research with multiple data tools and stock

screeners. World class customer service through a dedicated relationship manager and a

Customer Service desk.

We have tie up with six banks for online fund transferring-

Axis Bank

HDFC Bank

ICICI Bank

Kotak Bank

Yes Bank

Citibank

The following is the product profile of the company.

Equity Broking - BSE and NSE

Derivatives Futures and Options

Internet Broking- Online Trading

Commodities Trading - NCDEX & MCX

Institutional Broking

Depository Services - NSDL & CDSL

Portfolio Management Services

NRI Investments

Initial Public Offerings (IPO)

Mutual Fund Investment

[10]

[11]

3. CAPITAL MARKET

The capital market is the market for securities, where Companies and governments can raise

long-term funds. It is a market in which money is lent for periods longer than a year. A nation's

capital market includes such financial institutions as banks, insurance companies, and stock

exchanges that channel long-term investment funds to commercial and industrial borrowers.

Unlike the money market, on which lending is ordinarily short term, the capital market typically

finances fixed investments like those in buildings and machinery. Nature and Constituents: The

capital market consists of number of individuals and institutions (including the government) that

canalize the supply and demand for long term capital and claims on capital. The stock exchange,

commercial banks, co-operative banks, saving banks, development banks, insurance companies,

investment trust or companies, etc., are important constituents of the capital markets. The capital

market, like the money market, has three important Components, namely the suppliers of loan

able funds, the borrowers and the Intermediaries who deal with the leaders on the one hand and the Borrowers on the other. The demand for capital comes mostly from agriculture, industry,

trade The government. The predominant form of industrial organization developed Capital

Market becomes a necessary infrastructure for fast industrialization Capital market not

concerned solely with the issue of new claims on capital, But also with dealing in existing

claims.

+

[12]

Debt or Bond Market

Equity or Stock Market

CAPITAL MARKET

3.1 Equity Market In India :

The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian

equity market has become the third biggest after China and Hong Kong in the Asian region.

According to the latest report by ADB, it has a market capitalization of nearly $600 billion.

As of March 2009, the market capitalization was around $598.3 billion (Rs 30.13 lakh crore)

which is one-tenth of the combined valuation of the Asia region. The market was

slow since early 2007 and continued till the first quarter of 2009.

Stock Exchange: Stock Exchange is an Organized and regulated financial market where

securities (bonds, notes, shares) are bought and sold at prices governed by the forces of

demand and supply.

The Role of Stock Exchanges : Stock exchanges have multiple roles in the economy. This

may include the following :

Raising Capital For Businesses : The Stock Exchange provide companies with the facility

to raise capital for expansion through selling shares to the investing public.

Facilitating Company Growth : A takeover bid or a merger agreement through the stock

market is one of the simplest and most common ways for a company to grow by acquisition.

Creating Investment Opportunities For Small Investors : As opposed to other businesses that

require huge capital outlay, investing in shares is open to both the large and small stock investors

because a person buys the number of shares they can afford. Therefore the Stock Exchange

provides the opportunity for small investors to own shares of the same companies as large

investors.

Barometer of the Economy : At the stock exchange, share prices rise and fall depending,

largely, on market forces. Share prices tend to rise or remain stable when companies and

the economy in general show signs of stability and growth. An economic recession, depression,

or financial crisis could eventually lead to a stock market crash. Therefore the

movement of share prices and in general of the stock indexes can be an indicator of the

general trend in the economy.

Speculation : The stock exchanges are also fashionable places for speculation. In a financial

context, the terms "speculation" and "investment" are actually quite specific. For instance,

although the word "investment" is typically used, in a general sense, to mean any act of placing

money in a financial vehicle with the intent of producing returns over a period of time, most

[13]

ventured money—including funds placed in the world's stock market is actually not investment

but speculation. The Indian market has 22 stock exchanges. The larger companies are enlisted

with BSE and NSE. The smaller and medium companies are listed with OTCEI .

Bombay Stock Exchange (BSE) : BSE is the oldest stock exchange in Asia. The extensiveness

of the indigenous equity broking industry in India led to the formation of the Native Share

Brokers Association in 1875, which later became BSE. BSE is widely recognized due to its

pivotal and pre-eminent role in the development of the Indian Capital Market. In 1995, the

trading system transformed from open outcry system to an online screen based order-driven

trading system.

The exchange opened up for foreign ownership (foreign institutional investment).

Allowed Indian companies to raise capital from abroad through ADRs and GDRs.

Expanded the product range (equities/derivatives/debt).

Introduced the book building process and brought in transparency in IPO issuance.

Depositories for share custody (dematerialization of shares).

Internet trading (e-broking).

BSE has a nation-wide reach with a presence in more than 450 cities and towns of India.

BSE has always been at par with the international standards. It is the first exchange in

India and the second in the world to obtain an ISO 9001:2000 certifications. The equity

market capitalization of the companies listed on the BSE was US$1.63 trillion as of

December 2010, making it the 4th largest stock exchange in Asia and the 8th largest in the

world. The BSE has the largest number of listed companies in the world. As of June 2011,

there are over 5,085 listed Indian companies and over 8,196 scrips on the stock exchange,

the Bombay Stock Exchange has a significant trading volume. Though many other exchanges

exist, BSE and the National Stock Exchange of India account for the majority of the equity

trading in India.

National Stock Exchange (NSE) : With the liberalization of the Indian economy, it was found

inevitable to lift the Indian stock market trading system on par with the international standards.

On the basis of the recommendations of high powered Pherwani Committee, the National Stock

Exchange was incorporated in 1992 by IDBI (Industrial Development Bank of India), ICICI

(Industrial Credit and Investment Corporation of India), IFCI (Industrial Finance Corporation of

India) , all Insurance Corporations, selected commercial banks and others.

[14]

Trading at NSE takes place through a fully automated screen-based trading mechanism which

adopts the principle of an order-driven market. Trading members can stay at their offices and

execute the trading, since they are linked through a communication network. The prices at which

the buyer and seller are willing to transact will appear on the screen. When the prices match the

transaction will be completed and confirmation slip will be printed at the office of the trading

number.

NSE has several advantages over the traditional trading exchanges. They are as follows :

NSE brings an integrated stock market trading network across the nation.

Investors can trade at the same price from anywhere in the country since inter-market

operations are streamlined coupled with the countrywide access to the securities.

Delays in communication, late payments and the malpractice’s prevailing in the

traditional trading mechanism can be done away with greater operational efficiency

and informational transparency in the stock market operations, with the support of total

computerized network.

3.2 Over The Counter Exchange of India (OTCEI) : The traditional trading mechanism

prevailed in the Indian stock markets gave way to many functional inefficiencies, such as,

absence of liquidity, lack of transparency, unduly long settlement periods and benami

transactions, which affected the small investors to a great extent. To provide improved services

to investors, the country's first ring less, scrip less, electronic stock exchange OTCEI - was

created in 1992 by country's premier financial institutions – UTI (Unit Trust of India), ICICI

(Industrial Credit and Investment Corporation of India), IDBI (Industrial Development Bank of

India), SBI Capital Markets, IFCI (Industrial Finance Corporation of India) , General Insurance

Corporation and its subsidiaries and Can Bank Financial Services.

Compared to the traditional Exchanges, OTC Exchange network has the following advantages :

OTCEI has widely dispersed trading mechanism across the country which provides

greater liquidity and lesser risk of intermediary charges.

Greater transparency and accuracy of prices is obtained due to the screen-based scrip

less trading.

Since the exact price of the transaction is shown on the computer screen, the investor

gets to know the exact price at which she/he is trading.

Faster settlement and transfer process compared to other exchanges.

[15]

3.3 Debt Market In IndiaDebt market refers to the financial market where investors buy and sell debt securities,mostly in

the form of bonds. These markets are important source of funds, especially in a developing

economy like India. India debt market is one of the largest in Asia. The most distinguishing

feature of the debt instruments of Indian debt market is that the return is fixed. This means,

returns are almost risk-free. This fixed return on the bond is often termed as the 'coupon rate' or

the 'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a fixed interest rate,

which equals to the coupon rate.

Classification of Indian Debt MarketIndian debt market can be classified into two categories :

Government Securities Market (G-Sec Market) : It consists of central and state government

securities. It means that, loans are being taken by the central and state government. It is also the

most dominant category in the India debt market.

Bond Market : It consists of Financial Institutions bonds, corporate bonds and debentures and

Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost

and hence remove uncertainty in financial costs.

Advantages : The biggest advantage of investing in Indian debt market is its assured returns.

The returns that the market offer is almost risk-free (though there is always certain amount of

risks, however the trend says that return is almost assured). Safer are the government securities.

On the other hand, there are certain amounts of risks in the corporate, FI and PSU debt

instruments. However, investors can take help from the credit rating agencies which rate those

debt instruments. Another advantage of investing in India debt market is its high liquidity. Banks

offer easy loans to the investors against government securities.

Disadvantages : As there are several advantages of investing in India debt market, there are

certain disadvantages as well. As the returns here are risk free, those are not as high as the

equities market at the same time. So, at one hand we are getting assured returns, but on the other

hand, we are getting less return at the same time. Retail participation is also very less here,

though increased recently.

Debt Instruments : There are various types of debt instruments available that one can find in

Indian debt market.

[16]

Government Securities : It is the Reserve Bank of India that issues Government Securities or

G-Secs on behalf of the Government of India. These securities have a maturity period of 1 to 30

years. G-Secs offer fixed interest rate, where interests are payable semi-annually.

Corporate Bonds : These bonds come from PSUs and private corporations and are offered for

an extensive range of tenures up to 15 years. Comparing to G-Secs, corporate bonds carry higher

risks, which depend upon the corporation, the industry where the corporation currently

operating, the current market conditions, and the rating of the corporation. However, these bonds

also give higher returns than the G-Secs.

Certificate of Deposit : These are negotiable money market instruments. Certificate of Deposits

(CDs), which usually offer higher returns than Bank term deposits, are issued in

Demat form and also as a Usance Promissory Notes. There are several institutions that can

issue CDs. Banks can offer CDs which have maturity between 7 days and 1 year. CDs from

financial institutions have maturity between 1 and 3 years.

Commercial Papers : There are short term securities with maturity of 7 to 365 days. CPs

is issued by corporate entities at a discount to face value.

Zero Coupon bonds (ZCBs) : ZCBs are available at a discount to their face value. There

is no interest paid on these instruments but on maturity the face value is redeemed from the

RBI. A bond of face value 100 will be available at a discount say at Rs 80 and the date of

maturity is after two years. This implies an interest rate on the instrument. When the bonds are

redeemed Rs 100 will be paid. The securities do not carry any coupon or interest rate i.e. unlike

dated securities no interest is paid out every year. When the bond matures the face value is

returned. The difference between the issue price (discounted price) and face value is the return

on this security.

[17]

Primary Market

Also called the new issue market, is the market for issuing new securities. Many companies,

especially small and medium scale, enter the primary market to raise money from the public to

expand their businesses. They sell their securities to the public through an initial public offering.

The securities can be directly bought from the share holders, which is not the case for the

secondary market. The primary market is a market for new capitals that will be traded over a

longer period. In the primary market, securities are issued on an exchange basis.

[18]

The underwriters, that is, the investment banks, play an important role in this market: they set the

initial price range for a particular share and then supervise the selling of that share. Investors can

obtain news of upcoming shares only on the primary market. The issuing firm collects money,

which is then used to finance its operations or expand business, by selling its shares.

Before selling a security on the primary market, the firm must fulfill all there quirements

regarding the exchange. After trading in the primary market the security will then enter the

secondary market, where numerous trades happen every day. The primary market accelerates the

process of capital formation in a country's economy. The primary market categorically excludes

several other new long-term finance sources, such as loans from financial institutions. Many

companies have entered the primary market to earn profit by converting its capital, which is

basically a private capital, into a public one, releasing securities to the public. This phenomena is

known as "public issue" or "going public." There are three methods though which securities can

be issued on the primary market: rights issue, IPO (Initial Public Offer), and preferential issue. A

company's new offering is placed on the primary market through an initial public offer.

Functioning of Primary Market

Primary Mortgage Market

Primary Target Market

Transaction Costs In Primary Market

PL in Primary Market

Revival Of Indian Primary Market

Primary Securities Market

Problems Of Indian Primary Market

Investment In Primary Market

Primary Money market

International Primary Market Association

Secondary Market

is the market where, unlike the primary market, an investor can buy a security directly from

another investor in lieu of the issuer. It is also referred as "after market". The securities initially

are issued in the primary market, and then they enter into the secondary market.

[19]

All the securities are first created in the primary market and then, they enter into the secondary

market. In the New York Stock Exchange, all the stocks belong to the secondary market. In other

words, secondary market is a place where any type of used goods is available. In the secondary

market shares are maneuvered from one investor to other, that is, one investor buys an asset from

another investor instead of an issuing corporation. So, the secondary market should be liquid.

Importance of Secondary Market

Secondary Market has an important role to play behind the developments of an efficient

capital market. Secondary market connects investors' favoritism for liquidity with the capital

users' wish of using their capital for a longer period. For example, in a traditional partnership, a

partner cannot access the other partner's investment but only his or her investment in that

partnership, even on an emergency basis. Then if he or she may breaks the ownership of equity

into parts and sell his or her respective proportion to another investor. This kind of trading is

facilitated only by the secondary market.

[20]

4. Mutual Funds as a Part of Capital Market

INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS

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

financial goal. This pool of money is invested in accordance with a stated objective. The joint

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

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

securities. The income earned through these investments and the capital appreciations realized

are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual

Fund is the most suitable investment for the common man as it offers an opportunity to invest in

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

is an investment tool that allows small investors access to a well-diversified portfolio of

equities,bonds and other securities. Each shareholder participates in the gain or loss of the fund.

Units are issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is

determined each day.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

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

accordance with quantum of money invested by them. Investors of mutual funds are known as

unit holders.

[21]

5. Concepts of Mutual Funds

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 appreciations realized are shared by its unit holders in proportion to the number of units

owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it

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

relatively low cost. The flow chart below describes the working of a mutual fund.

Mutual funds are considered as one of the best available investments as compare to others. They

are very cost efficient and also easy to invest in, thus by pooling money together in a mutual

fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to

do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing

risk & maximizing returns.

Mutual fund operation flow chart-

[22]

[23]

ADVANTAGES OF MUTUAL FUND

Portfolio Diversification

Professional management

Reduction / Diversification of Risk

Liquidity

Flexibility & Convenience

Reduction in Transaction cost

Safety of regulated environment

Choice of schemes

Transparency

DISADVANTAGE OF MUTUAL FUND

No control over Cost in the Hands of an Investor

No tailor-made Portfolios

Managing a Portfolio Funds

Difficulty in selecting a Suitable Fund Scheme

6. Categories of Mutual Fund

[24]

Mutual funds can be classified as follow :

Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.

Close-ended funds: These funds raise money from investors only once. Therefore, after the offer

period, fresh investments can not be made into the fund. If the fund is listed on a stocks

exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently,

most of the New Fund Offers of close-ended funds provided liquidity window on a periodic

basis such as monthly or weekly. Redemption of units can be made during specified intervals.

Therefore, such funds have relatively low liquidity.

Based on their Investment Objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating

share prices, such funds show volatile performance, even losses. However, short term

fluctuations in the market, generally smoothens out in the long term, thereby offering higher

returns at relatively lower volatility. At the same time, such funds can yield great capital

appreciation as, historically, equities have outperformed all asset classes in the long term. Hence,

investment in equity funds should be considered for a period of at least 3-5 years. It can be

further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty

is tracked. Their portfolio mirrors the benchmark index both in terms of

composition and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading

across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that

they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related

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through some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking

sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the

risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual

funds vehicle for investors who prefer spreading their risk across various instruments. Following

are balanced funds classes:

i)Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors averse to

idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income

instruments like bonds, debentures, Government of India securities; and money market

instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put

your money into any of these debt funds depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being

invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments

which have variable coupon rate.

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iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing

between cash market and derivatives market. Funds are allocated to equities, derivatives and

money markets. Higher proportion (around 75%) is put in money markets, in the absence of

arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term

debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of

10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the

fund.

7. Investment Strategies for Mutual Funds

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Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of

a month. Payment is made through post dated cheques or direct debit facilities. The investor

gets fewer units when the NAV is high and more units when the NAV is low. This is called as

the benefit of Rupee Cost Averaging

Systematic Transfer Plan: under this an investor invest in debt oriented fund and give

instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual

fund.

Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then

he can withdraw a fixed amount each month.

By Investment Objective:

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these

schemes is to provide capital appreciation over medium to long term. These schemes normally

invest a major part of their fund in equities and are willing to bear short-term decline in value

for possible future appreciation.

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

is to provide regular and steady income to investors. These schemes generally invest in fixed

income securities such as bonds and corporate debentures. Capital appreciation in such schemes

may be limited.

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

distributing a part of the income and capital gains they earn. These schemes invest in both

shares and fixed income securities, in the proportion indicated in their offer documents.

Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation

of capital and moderate income. These schemes generally invest in safer, short-term

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

money.

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Other Schemes

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

prescribed from time to time. Under Sec.80C of the Income Tax Act, contributions made to any

Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such

as the BSE Sensex or the Nifty 50. The portfolio of these schemes will consist of only those

stocks that constitute the index. The percentage of each stock to the total holding will be

identical to the stocks index weightage. And hence, the returns from such schemes would be

more or less equivalent to those of the Index.

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

those sectors or industries as specified in the offer documents. Ex- 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.

RISK V/S. RETURN:

Every type of investment, including mutual funds, involves risk.  Risk refers to the possibility

that you will lose money (both principal and any earnings) or fail to make money on an

investment.  A fund's investment objective and its holdings are influential factors in determining

how risky a fund is. Reading the prospectus will help you to understand the risk associated with

that particular fund. 

Generally speaking, risk and potential return are related. This is the risk/return trade-off. 

Higher risks are usually taken with the expectation of higher returns at the cost of increased

volatility.  While a fund with higher risk has the potential for higher return, it also has the

greater potential for losses or negative returns.  The school of thought when investing in mutual

funds suggests that the longer your investment time horizon is the less affected you should be

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by short-term volatility.   Therefore, the shorter your investment time horizon, the more

concerned you should be with short-term volatility and higher risk.  

Defining Mutual Fund Risk :

Different mutual fund categories as previously defined have inherently different risk

characteristics and should not be compared side by side. A bond fund with below-average risk,

for example, should not be compared to a stock fund with below average risk. Even though both

funds have low risk for their respective categories, stock funds overall have a  higher risk/return

potential than bond funds.

Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stability

but have yielded the lowest long-term returns. Bonds typically experience more short-term price

swings, and in turn have generated higher long-term returns. However, stocks historically have

been subject to the greatest short-term price fluctuations—and have provided the highest long-

term returns.  Investors looking for a fund which incorporates all asset classes may consider a

balanced or hybrid mutual fund.  These funds can be very conservative or very aggressive. 

Asset allocation portfolios are mutual funds that invest in other mutual funds with different

asset classes.  At the discretion of the manager(s), securities are bought, sold, and shifted

between funds with different asset classes according to market conditions.

Mutual funds face risks based on the investments they hold. For example, a bond fund faces

interest rate risk and income risk.  Bond values are inversely related to interest rates.  If interest

rates go up, bond values will go down and vice versa.  Bond income is also affected by the

change in interest rates.  Bond yields are directly related to interest rates falling as interest rates

fall and rising as interest rise.  Income risk is greater for a short-term bond fund than for a long-

term bond fund.

Similarly, a sector stock fund (which invests in a single industry, such as telecommunications)

is at risk that its price will decline due to developments in its industry. A stock fund that invests

across many industries is more sheltered from this risk defined as industry risk.

Following is a glossary of some risks to consider when investing in mutual funds.

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Call Risk. The possibility that falling interest rates will cause a bond issuer to redeem—or call

—its high-yielding bond before the bond's maturity date

Country Risk. The possibility that political events (a war, national elections), financial

problems (rising inflation, government default), or natural disasters (an earthquake, a poor

harvest) will weaken a country's economy and cause investments in that country to decline.

Credit Risk. The possibility that a bond issuer will fail to repay interest and principal in a

timely manner. Also called default risk.

Currency Risk. The possibility that returns could be reduced for Americans investing in

foreign securities because of a rise in the value of the U.S. dollar against foreign currencies.

Also called exchange-rate risk.

Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of

falling overall interest rates.

Industry Risk. The possibility that a group of stocks in a single industry will decline in price

due to developments in that industry.

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How To Pick The Right Mutual Fund

Identifying Goals and Risk Tolerance

[32]

Before acquiring shares in any fund, an investor must first identify his or her goals and desires

for the money being invested. Are long-term capital gains desired, or is a current income

preferred? Will the money be used to pay for college expenses, or to supplement a retirement

that is decades away. One should consider the issue of risk tolerance. Is the investor able to

afford and mentally accept dramatic swings in portfolio value? Or, is a more conservative

investment warranted? Identifying risk tolerance is as important as identifying a goal. Finally,

the time horizon must be addressed. Investors must think about how long they can afford to tie

up their money, or if they anticipate any liquidity concerns in the near future. Ideally, mutual

fund holders should have an investment horizon with at least five years or more.

Style and Fund Type :

If the investor intends to use the money in the fund for a longer term need and is willing to

assume a fair amount of risk and volatility, then the style/objective he or she may be suited  for is

a fund. These types of funds typically hold a high percentage of their assets in common stocks,

and are therefore considered to be volatile in nature. Conversely, if the investor is in need of

current income, he or she should acquire shares in an income fund. Government and corporate

debt are the two of the more common holdings in an income fund. There are times when an

investor has a longer term need, but is unwilling or unable to assume substantial risk. In this

case, a balanced fund, which invests in both stocks and bonds, may be the best alternative.

Charges and Fees :

Mutual funds make their money by charging fees to the investor. It is important to gain an

understanding of the different types of fees that you may face when purchasing an investment.

Some funds charge a sales fee known as a load fee, which will either be charged upon initial

investment or upon sale of the investment. A front-end load/fee is paid out of the initial

investment made by the investor while a back-end load/fee is charged when an investor sells his

or her investment, usually prior to a set time period. To avoid these sales fees, look for no-load

funds , which don't charge a front- or back-end load/fee.

However, one should be aware of the other fees in a no-load fund, such as the

management expense ratio and other administration fees, as they may be very high.

The investor should look for the management expense ratio. The ratio is simply the total

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percentage of fund assets that are being charged to cover fund expenses. The higher the ratio, the

lower the investor's return will be at the end of the year.

Evaluating Managers/Past Results :

Investors should research a fund's past results. The following is a list of questions that

perspective investors should ask themselves when reviewing the historical record:

Did the fund manager deliver results that were consistent with general market returns?

Was the fund more volatile than the big indexes (it means did its returns vary

dramatically throughout the year)?

This information is important because it will give the investor insight into how the portfolio

manager performs under certain conditions, as well as what historically has been the trend in

terms of turnover and return. Prior to buying into a fund, one must review the investment

company's literature to look for information about anticipated trends in the market in the years

ahead.

Size of the Fund :

Although, the size of a fund does not hinder its ability to meet its investment objectives.

However, there are times when a fund can get too big. For example - Fidelity's Magellan Fund.

Back in 1999 the fund topped $100 billion in assets, and for the first time, it was forced to

change its investment process to accommodate the large daily (money) inflows. Instead of being

nimble and buying small and mid cap stocks, it shifted its focus primarily toward larger

capitalization growth stocks. As a result, its performance has suffered.

8. Role Of Capital Market In India

[34]

The primary role of the capital market is to raise long-term funds for governments, banks, and

corporations while providing a platform for the trading of securities. This fundraising is

regulated by the performance of the stock and bond markets within the capital market. The

member organizations of the capital market may issue stocks and bonds in order to raise funds.

Investors can then invest in the capital market by purchasing those stocks and bonds. The capital

market, however, is not without risk. It is important for investors to understand market trends

before fully investing in the capital market. To that end, there are various market indices

available to investors that reflect the present performance of the market.

Regulation of the Capital Market

Every capital market in the world is monitored by financial regulators and their respective

governance organization. he purpose of such regulation is to protect investors from fraud and

deception. Financial regulatory bodies are also charged with minimizing financial losses, issuing

licenses to financial service providers, and enforcing applicable laws.

The Capital Market’s Influence on International Trade

Capital market investment is no longer confined to the boundaries of a single nation. Today’s

corporations and individuals are able, under some regulation, to invest in the capital market of

any country in the world. Investment in foreign capital markets has caused substantial

enhancement to the business of international trade.

The Primary and Secondary Markets

The capital market is also dependent on two sub-markets – the primary market and the secondary

market. The primary market deals with newly issued securities and is responsible for generating

new long-term capital. The secondary market handles the trading of previously-issued securities,

and must remain highly liquid in nature because most of the securities are sold by investors. A

capital market with high liquidity and high transparency is predicated upon a secondary market

with the same qualities. India’s growth story has important implications for the capital market,

which has grown sharply with respect to several parameters amounts raised number of stock

exchanges and other intermediaries, listed stocks, market capitalization, trading volumes and

turnover, market instruments, investor population, issuer and intermediary profiles. The capital

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market consists primarily of the debt and equity markets. Historically, it contributed significantly

to mobilizing funds to meet public and private companies’ financing requirements. The

introduction of exchange-traded derivative instruments such as options and futures has enabled

investors to better hedge their positions and reduce risks. India’s debt and equity markets rose

from 75 per cent in 1995 to 130 per cent of GDP in 2005. But the growth relative to the US,

Malaysia and South Korea remains low and largely skewed, indicating immense latent potential.

India’s debt markets comprise government bonds and the corporate bond market (comprising

PSUs, corporates, financial institutions and banks). India compares well with other emerging

economies in terms of sophisticated market design of equity spot and derivatives market,

widespread retail participation and resilient liquidity. SEBI’s measures such as submission of

quarterly compliance reports, and company valuation on the lines of the Sarbanes-Oxley Act

have enhanced corporate governance. But enforcement continues to be a problem because of

limited trained staff and companies not being subjected to substantial fines or legal sanctions.

Given the booming economy, large skilled labour force, reliable business community, continued

reforms and greater global integration vindicated by the investment-grade ratings of Moody’s

and Fitch, the net cumulative portfolio flows from 2003-06 (bonds and equities) amounted to

$35 billion. The number of foreign institutional investors registered with SEBI rose from none in

1992-93 to 528 in 2000-01, to about 1,000 in 2006-07. India’s stock market rose five-fold since

mid-2003 and outperformed world indices with returns far outstripping other emerging markets,

such as Mexico (52 per cent), Brazil (43 per cent) or GCC economies such as Kuwait (26

percent) in FY-06. In 2006, Indian companies raised more than $6 billion on the BSE, NSE and

other regional stock exchanges. Buoyed by sinternal economic factors and foreign capital flows,

Indian markets are globally competitive, even in terms of pricing, efficiency and liquidity.

The Question Arises: Why has this happened?

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Besides the cyclical crisis of capitalism, there are some recent factors which have contributed

towards this crisis. Under the so-called “innovative” approach, financial institutions

systematically underestimated risks during the boom in property prices, which makes such boom

more prolonged. This relates to the shortsightedness of speculators and their unrestrained greed,

and they, during the asset price boom, believed that it would stay forever. This resulted in

keeping the risk aspects at a minimum and thus resorting to more and more risk taking financial

activities. Loans were made on the basis of collateral whose value was inflated by a bubble. And

the collateral is now worth less than the loan. Credit was available up to full value of the

property which was assessed at inflated market prices. Credits were given in anticipation that

rising property prices will continue. Under looming recession and uncertainty, to pay back their

mortgage many of those who engaged in such an exercise are forced to sell their houses, at a

time when the banks are reluctant to lend and buyers would like to wait in the hope that property

prices will further come down. All these factors would lead to a further decline in property

prices.

Effect Of the Subprime Crisis on India:

Globalization has ensured that the Indian economy and financial markets cannot stay insulated

from the present financial crisis in the developed economies. In the light of the

fact that the Indian economy is linked to global markets through a full float in current account

(trade and services) and partial float in capital account (debt and equity), we need

to analyze the impact based on three critical factors: Availability of global liquidity; demand for

India investment and cost thereof and decreased consumer demand affecting Indian exports. The

concerted intervention by central banks of developed countries in injecting liquidity is expected

to reduce the unwinding of India investments held by foreign entities, but fresh investment flows

into India are in doubt. The impact of this will be three-fold: The element of GDP growth driven

by off-shore flows (along with skills and technology) will be diluted; correction in the asset

prices which were hitherto pushed by foreign investors and demand for domestic liquidity

putting pressure on interest rates. While the global financial system takes time to “nurse its

wounds” leading to low demand for investments in emerging markets, the impact will be on the

cost and related risk premium.

The impact will be felt both in the trade and capital account. Indian companies which had access

to cheap foreign currency funds for financing their import and export will be the worst hit. Also,

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foreign funds (through debt and equity) will be available at huge premium and would be limited

to blue-chip companies. The impact of which, again, will be three-fold: Reduced capacity

expansion leading to supply side pressure; increased interest expenses to affect corporate

profitability and increased demand for domestic liquidity putting pressure on the interest rates.

Consumer demand in developed economies is certain to be hurt by the present crisis, leading to

lower demand for Indian goods and services, thus affecting the Indian exports. The impact of

which, once again, will be three-fold: Export-oriented units will be the worst hit impacting

employment; reduced exports will further widen the trade gap to put pressure on rupee exchange

rate and intervention leading to sucking out liquidity and pressure on interest rates.

The Impact on the Financial Markets will be the Following:

Equity market will continue to remain in bearish mood with reduced off-shore flows, limited

domestic appetite due to liquidity pressure and pressure on corporate earnings; while the

inflation would stay under control, increased demand for domestic liquidity will push interest

rates higher and we are likely to witness gradual rupee depreciation and depleted currency

reserves. Overall, while RBI would inject liquidity through CRR/SLR cuts, maintaining growth

beyond 7% will be a struggle. The banking sector will have the least impact as high interest

rates, increased demand for rupee loans and reduced statutory reserves will lead to improved

NIM while, on the other hand, other income from cross-border business flows and distribution of

investment products will take a hit. Banks with capabilities to generate low cost CASA and zero

cost float funds will gain the most as revenues from financial intermediation will drive the

banks’ profitability. Given the dependence on foreign funds and off-shore consumer demand for

the India growth story, India cannot wish away from the negative impact of the present global

financial crisis but should quickly focus on alternative remedial measures to limit damage and

look in-wards to sustain growth!

Role of Capital Market During the Present Crisis:

[38]

In addition to resource allocation, capital markets also provided a medium for risk management

by allowing the diversification of risk in the economy. The well-functioning

capital market improved information quality as it played a major role in encouraging the

adoption of stronger corporate governance principles, thus supporting a trading environment,

which is founded on integrity. liquid markets make it possible to obtain financing for capital-

intensive projects with long gestation periods.. For a long time, the Indian market was

considered too small to warrant much attention. However, this view has changed rapidly as vast

amounts of international investment have poured into our markets over the last decade. The

Indian market is no longer viewed as a static universe but as a constantly evolving market

providing attractive opportunities to the global investing community. Now during the present

financial crisis, we saw how capital market stood still as the symbol of better risk management

practices adopted by the Indians. Though we observed a huge fall in the sensex and other stock

market indicators but that was all due to low confidence among the investors. Because balance

sheet of most of the Indian companies listed in the sensex were reflecting profit even then people

kept on withdrawing money. While there was a panic in the capital market due to withdrawal by

the FIIs, we saw Indian institutional investors like insurance and mutual funds coming for the

rescue under SEBI guidelines so that the confidence of the investors doesn’t go low. SEBI also

came up with various norms including more liberal policies regarding participatory notes,

restricting the exit from close ended mutual funds etc. to boost the investment. While talking

about currency crisis, the rupee kept on depreciating against the dollar mainly due to the

withdrawals by FIIs. So , the capital market tried to attract FIIs once again. SEBI came up with

many revolutionary reforms to attract the foreign investors so that the depreciation of rupee

could be put to hault.

[39]

9. Factors Affecting Capital Market In India

The capital market is affected by a range of factors . Some of the factors which influence

capital market are as follows:-

A) Performance of domestic companies:-

The performance of the companies or rather corporate earnings is one of the factors which has

direct impact or effect on capital market in a country. Weak corporate earnings indicate that the

demand for goods and services in the economy is less due to slow growth in per capita income of

people . Because of slow growth in demand there is slow growth in employment which means

slow growth in demand in the near future. Thus weak corporate earnings indicate average or not

so good prospects for the economy as a whole in the near term. In such a scenario the investors

( both domestic as well as foreign ) would be wary to invest in the capital market and thus there

is bear market like situation. The opposite case of it would be robust corporate earnings and it’s

positive impact on the capital market. The corporate earnings for the April – June quarter for the

current fiscal has been good. The companies like TCS, Infosys,Maruti Suzuki, Bharti Airtel,

ACC, ITC, Wipro,HDFC,Binani cement, IDEA, Marico Canara Bank, Piramal Health, India

cements , Ultra Tech, L&T, Coca- Cola, Yes Bank, Dr. Reddy’s Laboratories, Oriental Bank of

Commerce, Ranbaxy, Fortis, Shree Cement ,etc have registered growth in net profit compared to

the corresponding quarter a year ago. Thus we see companies from Infrastructure sector,

Financial Services, Pharmaceutical sector, IT Sector, Automobile sector, etc. doing well . This

across the sector growth indicates that the Indian economy is on the path of recovery which has

been positively reflected in the stock market( rise in sensex & nifty) in the last two weeks. (July

13-July 24).

B) Environmental Factors :-

Environmental Factor in India’s context primarily means- Monsoon . In India around 60 % of

agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon.

The major chunk of agricultural production comes from the states of Punjab , Haryana & Uttar

Pradesh. Thus deficient or delayed monsoon in this part of the country would directly affect the

agricultural output in the country. Apart from monsoon other natural calamities like Floods,

tsunami, drought, earthquake, etc.also have an impact on the capital market of a country. The

Indian Met Department (IMD) on 24th June stated that India would receive only 93 % rainfall of

Long Period Average (LPA). This piece of news directly had an impact on Indian capital market

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with BSE Sensex falling by 0.5 % on the 25th June .The major losers were automakers and

consumer goods firms since the below normal monsoon forecast triggered concerns that demand

in the crucial rural heartland would take a hit. This is because a deficient monsoon could

seriously squeeze rural incomes, reduce the demand for everything from motorbikes to soaps and

worsen a slowing economy.

C) Macro Economic Numbers :-

The macroeconomic numbers also influence the capital market. It includes Index of Industrial

Production (IIP) which is released every month, annual Inflation number indicated by Wholesale

Price Index (WPI) which is released every week, Export – Import numbers which are declared

every month, Core Industries growth rate ( It includes Six Core infrastructure industries – Coal,

Crude oil, refining, power, cement and finished steel) which comes out every month, etc. This

macroeconomic indicators indicate the state of the economy and the direction in which the

economy is headed and therefore impacts the capital market in India. A case in the point was

declaration of core industries growth figure. The six Core Infrastructure Industries – Coal, Crude

oil, refining, finished steel, power & cement –grew 6.5% in June , the figure came on the 23 rd

of July and had a positive impact on the capital market with the Sensex and nifty rising by 388

points & 125 points respectively.

D) Global Cues :-

In this world of globalization various economies are interdependent and interconnected. An

event in one part of the world is bound to affect other parts of the world , however the magnitude

and intensity of impact would vary. Thus capital market in India is also affected by

developments in other parts of the world i.e. U.S. ,Europe, Japan , etc. Global cues includes

corporate earnings of MNC’s, consumer confidence index in developed countries, jobless claims

in developed countries, global growth outlook given by various agencies like IMF, economic

growth of major economies, price of crude –oil, credit rating of various economies given by

Moody’s, S& P, etc. An obvious example at this point in time would be that of subprime crisis &

recession. Recession started in U.S. and some parts of the Europe in early 2008 .Since then it has

impacted all the countries of the world developed, developing, less-developed and even

emerging economies.

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E) Political Stability and Government Policies:-

For any economy to achieve and sustain growth it has to have political stability and pro-

growth government policies. This is because when there is political stability there is stability and

consistency in government’s attitude which is communicated through various government,

policies. The vice- versa is the case when there is no political stability .So capital market also

reacts to the nature of government, attitude of government, and various policies of the

government. The above statement can be substantiated by the fact the when the mandate came in

UPA government’s favor (Without the baggage of left party) on May 16 2009, the stock markets

on Monday , 18th May had a bullish rally with Sensex closing 800 point higher over the previous

day’s close. The reason was political stability. Also without the baggage of left part government

can go ahead with reforms.

F) Growth prospectus of an economy:-

When the national income of the country increases and per capita income of people increases it

is said that the economy is growing. Higher income also means higher expenditure and higher

savings. This augurs well for the economy as higher expenditure means higher demand and

higher savings means higher investment. Thus when an economy is growing at a good pace

capital market of the country attracts more money from investors, both from within and outside

the country and vice -versa. So we can say that growth prospects of an economy do have an

impact on capital markets.

G) Investor Sentiment and Risk Appetite :-

Another factor which influences capital market is investor sentiment and their risk appetite. Even

if the investors have the money to invest but if they are not confident about the returns from their

investment , they may stay away from investment for some time. At the same time if the

investors have low risk appetite , which they were having in global and Indian capital market

some four to five months back due to global financial meltdown and recessionary situation in

U.S. & some parts of Europe , they may stay saway from investment and wait for the right time

to come.

[42]

10. India Stock Exchange Overview

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago.

The earliest records of security dealings in India are meagre and obscure. The East India

Company was the dominant institution in those days and business in its loan securities used to be

transacted towards the close of the eighteenth century. By 1830's business on corporate stocks

and shares in Bank and Cotton presses took place in Bombay. Though the trading list was

broader in 1839, there were only half a dozen brokers recognized by banks and merchants during

1840 and 1850. The 1850's witnessed a rapid development of commercial enterprise and

brokerage business attracted many men into the field and by 1860 the number of brokers

increased into 60. In 1860-61 the American Civil War broke out and cotton supply from United

States of Europe was stopped; thus, the 'Share Mania' in India begun. The number of brokers

increased to about 200 to 250. However, at the end of the American Civil War, in 1865, a

disastrous slump began (for example, Bank of Bombay Share which had touched Rs 2850 could

only be sold at Rs.87). At the end of the American Civil War, the brokers who thrived out of

Civil War in 1874, found a place in a street (now appropriately called as Dalal Street) where they

would conveniently assemble and transact business. In 1887, they formally established in

Bombay, the "Native Share and Stock Brokers' Association" (which is alternatively known as "

The Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it

was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.

Other Leading Cities in Stock Market Operations :

Ahmedabad gained importance next to Bombay with respect to cotton textile industry. After

1880, many mills originated from Ahmedabad and rapidly forged ahead. As new mills were

floated, the need for a Stock Exchange at Ahmedabad was realized and in 1894 the brokers

formed "The Ahmedabad Share and Stock Brokers' Association". What the cotton textile

industry was to Bombay and Ahmedabad, the jute industry was to Calcutta. Also tea and coal

industries were the other major industrial groups in Calcutta. After the Share Mania in 1861-65,

in the 1870's there was a sharp boom in jute shares, which was followed by a boom in tea shares

in the 1880's and 1890's; and a coal boom between 1904 and 1908. On June 1908, some leading

brokers formed "The Calcutta Stock Exchange Association". In the beginning of the twentieth

[43]

century, the industrial revolution was on the way in India with the Swadeshi Movement; and

with the inauguration of the Tata Iron and Steel Company Limited in 1907, an important stage in

industrial advancement under Indian enterprise was reached. Indian cotton and jute textiles, steel,

sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity, due to

the First World War. In 1920, the then demure city of Madras had the maiden thrill of a stock

exchange functioning in its midst, under the name and style of "The Madras Stock Exchange"

with 100 members. However, when boom faded, the number of members stood reduced from

100 to 3, by 1923, and so it went out of existence. In 1935, the stock market activity improved,

especially in South India where there was a rapid increase in the number of textile mills and

many plantation companies were floated. In 1937, a stock exchange was once again organized in

Madras - Madras Stock Exchange Association (Pvt) Limited. (In 1957 the name was changed to

Madras Stock Exchange Limited). Lahore Stock Exchange was formed in 1934 and it had a brief

life. It was merged with the Punjab Stock Exchange Limited, which was incorporated in 1936.

Indian Stock Exchanges - An Umbrella Growth

The Second World War broke out in 1939. It gave a sharp boom which was followed by a slump.

But, in 1943, the situation changed radically, when India was fully mobilized as a supply base.

On account of the restrictive controls on cotton, bullion, seeds and other commodities, those

dealing in them found in the stock market as the only outlet for their activities. They were

anxious to join the trade and their number was swelled by numerous others. Many new

associations were constituted for the purpose and Stock Exchanges in all parts of the country

were floated. The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange

Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated. In Delhi two

stock exchanges - Delhi Stock and Share Brokers' Association Limited and the Delhi Stocks and

Shares Exchange Limited - were floated and later in June 1947, amalgamated into the Delhi

Stock Exchange Association Limited.

[44]

Post-independence Scenario

Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was

closed during partition of the country and later migrated to Delhi and merged with Delhi Stock

Exchange.Bangalore Stock Exchange Limited was registered in 1957 and recognized in

1963.Most of the other exchanges languished till 1957 when they applied to the Central

Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only

Bombay, Calcutta,Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well-established

exchanges, were recognized under the Act. Some of the members of the other Associations were

required to be admitted by the recognized stock exchanges on a concessional basis, but acting on

the principle of unitary control, all these pseudo stock exchanges were refused recognition by the

Government of India and they thereupon ceased to function. Thus, during early sixties there

were eight recognized stock exchanges in India (mentioned above). The number virtually

remained unchanged, for nearly two decades. During eighties, however, many stock exchanges

were established: Cochin Stock Exchange (1980), Uttar Pradesh Stock Exchange Association

Limited (at Kanpur, 1982), and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange

Association Limited (1983), Gauhati Stock Exchange Limited (1984), Kanara Stock Exchange

Limited (at Mangalore, 1985), Magadh Stock Exchange Association (at Patna, 1986), Jaipur

Stock Exchange Limited (1989), Bhubaneswar Stock Exchange Association Limited (1989),

Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited

(at Baroda, 1990) and recently established exchanges -Coimbatore and Meerut. Thus, at present,

there are totally twenty one recognized stock exchanges in India excluding the Over The Counter

Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited

(NSEIL). The Table given below portrays the overall growth pattern of Indian stock markets

since independence. It is quite evident from the Table that Indian stock markets have not only

grown just in number of exchanges, but also in number of listed companies and in capital of

listed companies. The remarkable growth after 1985 can be clearly seen from the Table, and this

was due to the favoring government policies towards security market industry.

[45]

11. Investor Awareness Programme by SEBI

Investor confidence can be better enhanced through investor protection and in this regard

emphasis has been given on investor protection through investor education. This would help in

developing wide and deep markets aimed at increasing base of investors and help in achieving

financial inclusion for the investors in the country. As part of the strategy for Investor Education,

SEBI decided to begin campaign through mass media giving important message to investors.

Basic objective behind the campaign is to reach out maximum people across the prospective

investors, and generate general awareness regarding securities market, as also to bring specific

issues to the fore, such as investor grievances, mutual funds and CIS schemes, rights of investors

etc. The media plan covering suitable mix of media vehicles to reach maximum people in the

target group / audience across the nation in 13 major Indian languages is already in place. SEBI

has also started the campaign and advertisement related to topic “Investor Grievance Redressal

Mechanism” being broadcast / published in mass media since Mid-December, 2012.

Securities and Exchange Board of India (SEBI)

The Government of India constituted Securities and Exchange Board of India, by an Act of

Parliament in 1992, the apex regulator of all entities that either raise funds in the capital markets

or invest in capital market securities such as shares and debentures listed on stock exchanges.

Mutual funds have emerged as an important institutional investor in capital market securities.

Hence they come under the purview of SEBI. SEBI requires all mutual funds to be registered

with them. It issues guidelines for all mutual fund operations including where they can invest,

what investment limits and restrictions must be complied with, how they should account for

income and expenses, how they should make disclosures of information to the investors and

generally act in the interest of investor protection.

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

MF either promoted by public or by private sector entities including one promoted by foreign

entities are governed by these Regulations. SEBI approved Asset Management Company (AMC)

manages the funds by making investments in various types of securities. Custodian, registered

with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI

[46]

Regulations, two thirds of the directors of Trustee Company or board of trustees must be

independent.

Association of Mutual Funds in India (AMFI)

With the increase in  mutual fund players in India, a need for mutual fund association in

India was generated to function as a non-profit organisation. Association of Mutual Funds in

India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset   Management   Companies (AMC) which has been

registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its

member. It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry

to a professional and healthy market with ethical line enhancing and maintaining standards. It

follows the principle of both protecting and promoting the interests of mutual funds as well as

their unit holders.

The Objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country.

It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The

objectives are as follows:

This mutual fund association of India maintains high professional and ethical standards in all

areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct which is

followed by members and related people engaged in the activities of mutual fund and asset

management. The agencies who are by any means connected or involved in the field

of capital   markets  and financial services also involved in this code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.

[47]

Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of

India and other related bodies on matters relating to the Mutual Fund Industry.

It develops a team of well qualified and trained Agent distributors. It implements a program of

training and certification for all intermediaries and other engaged in the mutual fund industry.

AMFI undertakes all India awareness program for investors in order to promote proper

understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate information on

Mutual Fund Industry and undertakes studies and research either directly or in association with

other bodies.

[48]

12.Research Methodology

This report is based on primary as well secondary data, however primary data collection was

given more importance since it is overhearing factor in attitude studies. One of the most

important users of research methodology is that it helps in identifying the problem, collecting,

analyzing the required information data and providing an alternative solution to the problem .It

also helps in collecting the vital information that is required by the top management to assist

them for the better decision making both day to day decision and critical ones.

12.1 Title of the study :

“ A study of capital market reforms with focus on mutual fund ”

12.2 Data sources :

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

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

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

and websites.

12.3 Duration of study :

The study was carried out for a period of two months, from 6th May 2013 to 5th July 2013.

12.4 Sampling :

I )Sampling procedure –

The sample was selected of them who are the customers/visitors of Edelweiss, HDFC Mutual

fund New Delhi (C.P. Branch), irrespective of them being investors or not or availing the

services or not. It was also collected through personal visits to persons, by formal and informal

talks and through filling up the questionnaire prepared. The data has been analyzed by using

mathematical Statistical tool.

[49]

II ) Sample size –

The sample size of my project is limited to 200 people only. Out of which only120 people

had invested in Mutual Fund. Other 60 people did not have invested in Mutual Fund.

III) Sample design-

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

12.5 Limitation :

Some of the persons were not so responsive.Possibility of error in data collection because many

of investors may have not given actual answers of my questionnaire. Sample size is limited to

200 visitors of HDFC mutual funds New Dehli (C.P.Branch) out of these only 120 had invested

in Mutual Fund. The sample size may not adequately represent the whole market.Some

respondents were reluctant to divulge personal information which can affect the validity of all

responses.The research is confined to a certain part of New delhi.

[50]

13. Data Analysis & Interpretation

Analysis & Interpretation Of The Data

1. (a) Age distribution of the Investors of New Delhi.

Age Group <=30 31-35 36-40 41-45 46-50 >50

No. of Investors

12 18 30 24 20 16

<=30 31-35 36-40 41-45 46-50 >500

5

10

15

20

25

30

35

12

18

30

24

20

16

No. of investors

No. of investors

Interpretation:

According to this chart out of 120 Mutual Fund investors of New Delhi the most

are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the

age group of 41-45yrs i.e. 20% and the least investors are in the age group of

below 30 yrs.

[51]

(b). Educational Qualification of Investors of New Delhi .

Educational Qualification Number of Investors

Graduate/ Post Graduate 88

Under Graduate 25

Others 7

Total 120

88

25 7

Number of Investors

Graduate/ Post GraduateUnder GraduateOthers

Interpretation:

Out of 120 Mutual Fund investors 71% of the investors

in New Delhi are Graduate/Post Graduate, 23% are Under Graduate and 6%

are others (under HSC).

[52]

(c). Occupation of the Investors of New Delhi.

Occupation No. of InvestorsGovt. Service 30

Pvt. Service 45

Business 35

Agriculture 4

Others 6

govt.service pvt. Service business agriculture others0

5

10

15

20

25

30

35

40

45

50

30

45

35

4 6

Ocupation of Investors

ocupation of investors

Interpretation:

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

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

5% are in others.

[53]

(d). Monthly Family Income of the Investors of New Delhi.

Income Group No. of Investors<=10,000 5

10,001-15,000 12

15,001-20,000 28

20,001-30,000 43

>30,000 32

<=10000 10001-15000

15001-20000

20001-30000

>300000

5

10

15

20

25

30

35

40

45

5

12

28

43

32

Monthly Family Income

Monthly Family Income

Interpretation:

In the Income Group of the investors of New Delhi, out of 120 investors, 36% investors

that is the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000,

Second one i.e. 27% investors are in the monthly income group of more than Rs. 30,000

and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000

[54]

2. Investors Invested in Different Kind of Investments.

Kind of Investments No. of RespondentsSaving A/C 195

Fixed deposits 148Insurance 152

Mutual Fund 120Post office (NSC) 75Shares/Debentures 50

Gold/Silver 30Real Estate 65

Saving A

/C

Fixed

deposits

Insurance

Mutual Fund

Post office

(NSC

)

Share

s/Deb

entures

Gold/Silve

r

Real Es

tate

020406080

100120140160180200

195

148 152

120

75

5030

65

No. of Respondents

No. of Respondents

Interpretation: From the above graph it can be inferred that out of 200 people,

97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed

Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or

Debentures,15% in Gold/Silver and 32.5% in Real Estate.

[55]

3. Preference of factors while investing .

Factors (a) Liquidity (b) Low Risk (c) High Return

(d) Trust

No. ofRespondents

40 60 64 36

40

6064

36

No. ofRespondents

LiquidityLow RiskHigh ReturnTrust

Interpretation:

Out of 200 People, 32% People prefer to invest where there is High Return, 30%

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

prefer Trust

[56]

4. Awareness about Mutual Fund and its Operations.

Response Yes NoNo. of Respondents 135 65

135

65

No. of Respondents

YesNo

Interpretation:

From the above chart it is inferred that 67% People are aware of Mutual Fund and

its operations and 33% are not aware of Mutual Fund and its operations.

[57]

5. Source of Information For Customers about Mutual Fund.

Source of information No. of RespondentsAdvertisement 18

Peer Group 25Bank 30

Financial Advisors 62

Advertisement Peer Group Bank Financial Advisors0

10

20

30

40

50

60

70

18

2530

62

No. of Respondents

No. of Respondents

Interpretation:

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

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

46% know about Mutual fund Through Financial Advisor, 22% through Bank,

19% through Peer Group and 13% through Advertisement

[58]

6. Investors Invested in Mutual Fund .

Response No. of RespondentsYES 120NO 80

Total 200

120

80

200

No. of Respondents

yesnototal

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have

invested in Mutual Fund.

[59]

7. Reason for not Invested in Mutual Fund .

Reason No. of RespondentsNot Aware 65Higher Risk 5

Not any Specific Reason 10

65

5 10

No. of Respondents

Not AwareHigher RiskNot any Specific Reason

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of

Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any

specific reason.

[60]

8. Investors Invested in Different Assets Management Co. (AMC)

Name of AMC No. of InvestorsEDELWEISS 55RELIGARE 75

ANGEL BROKING 30SHARE KHAN 75

AXIS SECURITIES 56KOTAK 45Others 70

EDELWEISS

RELIGARE

ANGEL BROKING

SHARE KHAN

AXIS SECURITIES

KOTAK

Others

0 10 20 30 40 50 60 70 80

55

75

30

75

56

45

70

No. of Investors

No. of Investors

Interpretation:

In New Delhi most of the Investors preferred Religare and Share khan. Out

of 120 Investors 62.5% have invested in each of them, only 46% have invested in

Edelweiss, 47% in Axis securities, 37.5% in Kotak and 25% in Angel broking.

[61]

9. Preference of Investors for Future Investment in Mutual Fund.

Name of AMC No. of InvestorsEDELWEISS 76RELIGARE 45

ANGEL BROKING 35SHARE KHAN 82

AXIS SECURITIES 80Kotak 60Others 75

EDELWEISS

RELIGARE

ANGEL BROKING

SHARE KHAN

AXIS SECURITIES

KOTAK

OTHERS

0 10 20 30 40 50 60 70 80 90

76

45

35

82

80

60

75

No. of Investors

No. of Investors

Interpretation:

Out of 120 investors, 68% prefer to invest in Share khan, 67% in Axis securities, 63% in

Edelweiss, 62.5% in Others, 50% in Kotak, 37.5% in Religare and 29% in Angel

broking.

[62]

10. Channel Preferred by the Investors for Mutual Fund Investment.

Channel Financial Advisor Bank AMC

No. of Respondents 72 18 30

72

18

30

No. of Respondents

Financial AdvisorBankAMC

Interpretation:

Out of 120 Investors 60% preferred to invest through Financial Advisors, 25%

through AMC and 15% through Bank.

[63]

11.Mode of Investment Preferred by the Investors.

Mode of Investment One time Investment Systematic InvestmentPlan (SIP)

No. of Respondents 78 42

78

42

No. of Respondents

One time InvestmentSystematic Investment (SIP)

Interpretation:

Out of 120 Investors 65% preferred One time Investment and 35 % Preferred

through Systematic Investment Plan.

[64]

12.Preferred Portfolios by the Investors.

Portfolio No. of InvestorsEquity 56Debt 20

Balanced 44

56

20

44

No. of Investors

EquityDebtBalanced

Interpretation:

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and

17% preferred Debt portfolio.

[65]

13.Option for getting Return Preferred by the Investors.

Option Dividend Payout DividendReinvestment

Growth

No. of Respondents 25 10 85

25

10

85

No. of Respondents

Dividend PayoutDivident ReinvestmentGrowth

Interpretation:

From the above graph 71% preferred Growth Option, 21% preferred Dividend

Payout and 8% preferred Dividend Reinvestment Option.

[66]

14.Preference of Investors whether to invest in Sectorial Funds.

Response No. of RespondentsYes 25No 95

25

95

No. of Respondents

YesNo

Interpretation:

Out of 120 investors, 79% investors do not prefer to invest in Sectorial Fund

because there is maximum risk and 21% prefer to invest in Sectorial Fund.

[67]

14. Findings

In New Delhi in the Age Group of 36-40 years were more in numbers. The second most

Investors were in the age group of 41-45 years and the least were in the age group of below 30

years.

In New Delhi most of the Investors were Graduate or Post Graduate and below HSC there were

very few in numbers.

In Occupation group most of the Investors were Govt. employees, the second most Investors

were Private employees and the least were associated with agriculture.

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

were in the Income group of more than Rs.30,000 and the least were in the group of below

Rs.10,000.

About all the Respondents had a Saving A/c in Bank,76% Invested in Fixed Deposits, Only

60% Respondents invested in Mutual fund.

Mostly Respondents preferred High Return while investment, the second most preferred Low

Risk then liquidity and the least preferred Trust.

Only 67% Respondents were aware about Mutual fund and its operations and 33% were not.

Among 200 Respondents only 60% had invested in Mutual Fund and 40% did not have invested

in Mutual fund.

[68]

Out of 80 Respondents 81% were not aware of Mutual Fund, 13% told there is not any specific

reason for not invested in Mutual Fund and 6% told there is likely to be higher risk in Mutual

Fund.

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

(means Direct Investment) and 15% through Bank.

The most preferred Portfolio was Equity, the second most was Balance (mixture of both equity

and debt), and the least preferred Portfolio was Debt portfolio.

Most of the Investors did not want to invest in Sectoral Fund, only 21% wanted to invest in

Sectoral Fund.

[69]

[70]

15. Conclusion

Running a successful Mutual Fund requires complete understanding of the peculiarities of the

Indian Stock Market and also the psyche of the small investors. This study has made an attempt

to understand the financial behavior of Mutual Fund investors in connection with the preferences

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

Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of

Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to

lack of awareness although they have money to invest. As the awareness and income is growing

the number of mutual fund investors are also growing.

Brand plays important role for the investment. People invest in those Companies where they

have faith or they are well known with them. There are many AMCs in Punjab but only some are

performing well due to Brand awareness. Some AMCs are not performing well although some of

the schemes of them are giving good return because of not awareness about Brand.

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

are the most preferred channel for the investment in mutual fund. They can change investors’

mind from one investment option to others. Many of investors directly invest their money

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

who know well about mutual fund and its operations and those have time.

[71]

16. Suggestion & Recommendations

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits.

Nobody will invest until and unless he is fully convinced. Investors should be made to realize

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

Mutual funds offer a lot of benefit which no other single option could offer. But most of the

people are not even aware of what actually a mutual fund is? They only see it as just another

investment option. So the advisors should try to change their mindsets. The advisors should

target for more and more young investors. Young investors as well as persons at the height of

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

Mutual Fund Company needs to give the training of the Individual Financial Advisors about the

Fund/Scheme and its objective, because they are the main source to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of

the investors/customers, their need and time (how long they want to invest). By considering

these three things they can take the customers into consideration.

Younger people aged under 35 will be a key new customer group into the future, so making

greater efforts with younger customers who show some interest in investing should pay off.

Customers with graduate level education are easier to sell to and there is a large untapped market

there. To succeed however, advisors must provide sound advice and high quality.

Systematic Investment Plan (SIP) is one the innovative products launched byAssets Management

companies very recently in the industry. SIP is easy for monthly salaried person as it provides

the facility of do the investment in EMI. Though most of the prospects and potential investors

are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.

[72]

17. Bibliography

www.edelweiss.in

www.nseindia.in

www.bseindia.in

www.moneycontrol.com

www.mutual funds india.com

www.religare.com

www.angel broking.in

www.axis securities .in

Sebi guidelines

[73]

Annexure18 Questionnaire

“A study of capital market reforms with focus on Mutual Fund”

1. Personal Details :

(a) Name :

(b) Add : Mob. No :

(c) Age :

(d) Qualification :

Graduation/PG Under Graduate Others

(e) Occupation. Pl tick (√)

Govt. Ser. Pvt. Ser. Business Agriculture Others

(f) What is your monthly family income average? Pl tick (√)

Up to Rs.10,000

Rs.10,001 to Rs. 15,000

Rs.15,001 to Rs. 20,000

Rs.20,001 to Rs. 30,000

Rs.30,001 & above

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

a. Saving account b. Fixed deposits c. Insurance d. Mutual Funde. Post Office-NSC,etc

b. Fixed deposits g. Gold/ Silver h. Real Estate

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

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

4. Are you aware about Mutual Funds and their operations? Pl tick (√)

Yes No

[74]

[75]

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

(a) Advertisement (b)Peer Group (c) Banks (d) Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√).

Yes No

7. If not invested in Mutual Fund then why?(a)Not aware of Mf (b)Higher risk (c)Not specific reason

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

(a)Edelweise (b)Religare (c)Angel broking

(d)Share khan

(e)Axis securities

(f)Kotak (g)Others

9. When you plan to invest your money in asset management co. which AMC

Will you prefer?

Assets Management Co.(a)Edelweise(b)Religare(c)Angelbroking(d)Share khan(e)Axis securities(f)Kotak(g)Others

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

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

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

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

[76]

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

(a)Having only debtportfolio

(b)Having debt & equityPortfolio

(c) Only equity portfolio

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

(a) Dividend payout (b)Dividend reinvestment (c)Growth

14. Instead of general Mutual Funds, would you like to invest in sectorial Funds? Pl. tick (√)

Yes No

Any suggestions……………………………………………………………………………. ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ………………………………………………………………………………………………

[77]