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“A STUDY ON INVESTORS’ AWARENESS LEVEL ON MUTUAL FUND & PROMOTION OF SIP PLAN”
DONE FOR
Project report submitted in partial fulfillment of the requirement ofPondicherry University for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted ByBRIJESH PULAIYA
(Reg.No. 1095514)
Under the Guidance of
Dr. B.CHARUMATHI Mr. ALOK KUMAR SINGHReader, Relationship Manager,Department of Management Studies, Reliance Mutual Fund,Pondicherry University. Gwalior (M.P.)
DEPARTMENT OF MANAGEMENT STUDIESSCHOOLS OF MANAGEMENTPONDICHERRY UNIVERSITY
PUDUCHERRY 605014
MAY-JUNE 2010
DEPARTMENT OF MANAGEMENT STUDIES SCHOOL OF MANAGEMENT PONDICHERRY UNIVERSITY PUDUCHERRY-605014
CERTIFICATE
This is to certify that this project entitled “A STUDY ON INVESTORS’
AWARENESS LEVEL ON MUTUAL FUND & PROMOTION OF SIP PLAN”
done for Reliance Mutual Fund is submitted by Brijesh Pulaiya, MBA II year (Reg. No.
1095514) to the Department of Management Studies, School of Management,
Pondicherry University in partial fulfillment of the degree requirement for the award of
the degree Master of Business Administration and is certified to be an original and
bonafide work.
Dr. R.P.RAYA Dr. B.CHARUMATHIProfessor & Head of the Department, Reader,Department of Management Studies, Department of Management Studies, Pondicherry University. Pondicherry University.
Place: Puducherry Date:
DECLERATION
I, Brijesh Pulaiya, hereby declare that this Project Report entitled “ A STUDY ON
INVESTORS’ AWARENESS LEVEL ON MUTUAL FUND & PROMOTION
OF SIP PLAN” in Reliance Mutual Fund, Gwalior (M.P.) submitted in the
partial fulfillment of the requirement of Master of Business Administration (MBA)
of Department of Management Studies-School of Management, Pondicherry
University, Puducherry-605014 is based on primary & secondary data found by
me in various departments, books, magazines and websites & Collected by me in
under guidance of Mr. Alok Kumar Singh , Customer Relationship Manager,
Reliance Mutual Fund, Gwalior (M.P.).
Date: BRIJESH PULAIYAMBA (Second Year)Reg. No. 1095514
DMS, PU.
Page | 1
ACKNOWLEDGEMENT
I am indebted to the all powerful Almighty God for all the blessings he showered on me
and for being with me throughout the study.
I place on record my sincere gratitude and appreciation to my project guide
Dr.B.CHARUMATHI, Reader, Department of Management Studies, for her kind co-
operation and guidance which enabled me to complete this project.
I express my sincere thanks to Dr.R.P.RAYA, HOD, Department of Management
Studies, School of Management, Pondicherry University, who provided me an
opportunity to do this project.
I am deeply obliged to Mr. ALOK KUMAR SINGH, Customer Relationship Manager,
Reliance Mutual Fund, Gwalior (M.P.) for taking the role as my external guide and
guiding and supporting continuously in shaping my project, correcting errors, clearing
doubts throughout the project.
I would also like to extend my thanks to other members for their support especially
Mr. VAIBHAV DESHPANDEY, Branch Manager, Reliance Mutual Fund, Gwalior
(M.P.) and entire Reliance Mutual Fund Sales Team and Other Private Banks’ Sales
Team for their constant guidance and support.
Lastly, I would like to express my gratefulness to the parent’s for seeing me through it
all.
BRIJESH PULAIYA(Signature of the Candidate)
Page | 2
EXECUTIVE SUMMARY
In few years Mutual Fund has emerged as a tool for ensuring one’s financial well-
being. Mutual Funds have not only contributed to the India’s growth story but have
also helped families tap into the success of Indian Industry. As information and
awareness is rising more and more people are enjoying the benefits of investing in
mutual funds. The main reason the number of retail mutual fund investors remains
small is that nine in ten people with income in India do not know the benefits of
mutual funds. But once, people are aware of mutual fund investment opportunities
and benefits, the number of people who decide to invest in mutual funds increase to
as many as one in five people. The trick for converting a person with no knowledge
of mutual funds to a new mutual fund customer is to understand which of the
potential investors are more likely to buy mutual funds and to use the right
arguments in the sales process that customers will accept as important and relevant
to their decision.
This Project gave me a great learning experience and at the same time it gave me
enough scope to implement my analytical ability. The analysis and advice
presented in this Project Report is based on market research on the saving and
investment practices of the investors and preferences of the investors for investment
in Mutual Funds. This Report will help to know about the investors’ Preferences in
Mutual Fund means Are they prefer any particular Asset Management Company
(AMC), Which type of Product they prefer, Which Option (Growth or Dividend)
they prefer or Which Investment Strategy they follow (Systematic Investment Plan
or One time Plan). This Project as a whole can be divided into two parts.
The first part gives an insight about Mutual Fund and its various aspects, the
Company Profile, Objectives of the study, Research Methodology. One can have a
brief knowledge about Mutual Fund and its basics through the Project.
The second part of the Project consists of data and its analysis collected through
survey done on 100 people. For the collection of Primary data I made a
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questionnaire and surveyed of 100 people. I also taken interview of many People
those who were coming at the Reliance Mutual Fund Gwalior (M.P.) Branch where
I done my Project. I visited other AMCs and several Private and Government
Banks in Gwalior (M.P.) to get some knowledge related to my topic. I studied about
the products and strategies of other AMCs in Gwalior (M.P.) to know why people
prefer to invest in those AMCs. This Project covers the topic “A STUDY ON
INVESTORS’ AWARENESS LEVEL ON MUTUAL FUND & PROMOTION
OF SIP PLAN”. The data collected has been well organized and presented. I hope
the research findings and conclusion will be of use.
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TABLE OF CONTENTS
Chapter DESCRIPTION Page No.
ACKNOWLEDGEMENT 1EXECUTIVE SUMMARY 2
LIST OF TABLES 5LIST OF CHARTS 7
1 INTRODUCTION 81.1 Introduction to the topic 91.2 Need for the study 91.3 Statement of the problem 111.4 Objectives of the study 111.5 Research methodology 121.6 Limitations of the study 121.7 Chapterization 13
2 PROFILE OF THE MUTUAL FUND INDUSTRY AND THE COMPANY
14
2.1 Profile of the mutual fund industry 152.2 Profile of the Reliance Mutual Fund 28
3 FUNCTIONING OF MUTUAL FUND 364 ANALYSIS & INTERPRETATION 825 SUMMARY OF FINDINGS, SUGGESTIONS &
RECOMMENDATIONS108
BIBLIOGRAPHY 112QUESTIONNAIRE 114
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LIST OF TABLES
Table No.
Title Page No.
2.1 Total net asset in U.S. Dollars 17
2.2 Phase II. Entry of Public Sector Funds 21
2.3 Phase IV. Growth and SEBI Regulation 23
2.4 Latest AUM & Ranking for mutual funds 24
2.5 Reliance Capital Ltd financials 29
2.6 Reliance Capital Asset Management Ltd. Schemes summary 30
3.1 Snapshot of mutual fund schemes 53
3.2 Tax rules for mutual fund investors 603.3 R-squared 68
3.4 SIP returns 763.5 Investor type 1 77
3.6 Investor type 2 783.7 Investor type 3 793.8 Compare percentage change in returns of Reliance Growth Fund &
BSE-Sensex80
4.1 Profile of the respondents 83
4.2 Primary objective for investment 844.3 Knowledge about mutual fund 85
4.4 Relationship between mutual fund & Share market 864.5 Have you ever invested in mutual funds 874.6 Reason not to invest in mutual funds 884.7 Which mutual fund company 894.8 Reason for selecting Reliance mutual fund 914.9 Reason for investments in mutual fund 92
4.10 Rank primary sources of your knowledge about Mutual Funds 93
4.11 Prioritize reason for investment 944.12 Rank the various investments that you would invest 95
4.13 Rank factors affect your decision for investment in Mutual Fund 964.14 What kind of investment schemes you prefer in Mutual Fund 97
4.15 What is your Primary objective? *Age Cross-tab 98
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4.16 What is your primary objective for your investment? * Occupation
Cross-tab
98
4.17 What is your primary objective for your investment? * Income level
Cross-tab
99
4.18 What is your primary objective for your investment? * Marital Status
Cross-tab
100
4.19 Do you know about the Mutual Funds? * Age Cross-tab 1004.20 Do you know about the Mutual Funds? * Occupation Cross-tab 1014.21 Do you know about the Mutual Funds? * Income level Cross-tab 1014.22 Have you ever invested in mutual fund? * Age Cross-tab 1024.23 Have you ever invested in mutual fund? * Occupation Cross-tab 1024.24 Have you ever invested in mutual fund? * Income level Cross-tab 1034.25 If no: What is/are the reason? * Age Cross-tab 1034.26 If no: What is/are the reason? * Occupation Cross-tab 1044.27 If no: What is/are the reason? * Income level Cross-tab 104
4.28 If invested in Reliance Mutual Fund; what are the reasons? 1054.29 If Reliance Mutual Fund; what are the reasons?* Income level Cross
tab 105
4.30 Why do you prefer investment in mutual fund to other investment avenue? * Occupation Cross-tab
106
4.31 What kind of investment schemes you prefer in Mutual Fund? * Occupation Cross-tab
107
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LIST OF CHARTS
Chart No.
Title Page No.
2.1 Asset under Management till 30 April, 2010 203.1 Mutual fund operation flow chart 383.2 Mutual fund structure 403.3 Classification of mutual fund 423.4 Risk V/s Returns 643.5 Pass through certificate 73
3.6 SIP benefits chart 814.1 Primary objective for investment 84
4.2 Knowledge about mutual fund 85
4.3 Relationship between mutual fund & Share market 864.4 Have you ever invested in mutual funds? 874.5 Reason not to invest in mutual funds 884.6 Which mutual fund company 894.7 Reason for selecting Reliance mutual fund 914.8 Reason for investments in mutual fund 924.9 What kind of investment schemes you prefer in Mutual Fund 97
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CHAPTER 1
INTRODUCTION
Page | 9
INTRODUCTION TO THE TOPIC
In the last decade we have seen enormous growth in the size of mutual fund industry in
India. Especially the private sector has shown tremendous growth. With unmatched
advances on the information technology, increased role of the institutional investors in
the stock market and the SEBI still in its infancy, the mutual fund industry players gained
unparalleled and unchecked power. To ensure the safety of investment of small investors
against whims and fancies of professional fund managers have become the need of the
hour.
WHAT IS INVESTMENT?
Trade off between risk and reward while aiming for incremental gain and preservation of the invested amount (principal). In contrast, speculation aims at 'high gain or heavy loss,' and gambling at 'out of proportion gain or total loss.' Two main classes of investment are
Fixed income investment such as bonds, fixed deposits, preference shares Variable income investment such as business ownership (equities), property
ownership.
In economics, investment means creation of capital or goods capable of producing other goods or services. Expenditure on education and health is recognized as an investment inhuman capital, and research and development in intellectual capital. Return on investment (ROI) is a key measure of firm’s performance.
1.2 NEED FOR THE STUDY
100% growth in the last 6 years.
Numbers of foreign AMC’s are in the queue to enter the Indian markets like Fidelity
Investments, US based, with over US$1trillion assets under management worldwide.
Our saving rate is over 23%, highest in the world. Only channelizing these savings in
mutual funds sector is required.
We have approximately 37 mutual funds which are much less than US having more than
800. There is a big scope for expansion.
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'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are
concentrating on the 'A' class cities. Soon they will find scope in the growing cities.
Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.
SEBI allowing the MF's to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.
The Indian mutual funds business is expected to grow significantly in the coming years
due to a high degree of transparency and disclosure standards comparable to anywhere in
the world, though there are many challenges that need to be addressed to increase net
mobilization of funds in this sector, as said by Mr. A.P. Kurian, Chairman of the
Association of Mutual Funds of India (AMFI).
Indian Mutual fund industry exhibited 200% growth in the last 10 yrs from Rs.470 billion
to Rs1400 billion in terms of assets under management (AUM). The Mutual Funds
industry is expected to jump sharply from its present share of 6% of GDP to 40% in the
next 10yrs provided the country’s growth rate is consistently above 6%. The growing
investor preference for mutual funds has resulted in the assets under management of
mutual funds growing 8-folds in last 5 yrs. Number of foreign AMC's are in the queue to
enter the Indian markets like US based Fidelity Investments, with over US$1trillion
assets under management worldwide. Our saving rate is over 23%, highest in the world.
Only channeling these savings in mutual funds sector is required. There is a big scope for
expansion as we have 37 mutual funds which are much less than US having more than
800.
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1.3 STATEMENT OF THE PROBLEM
One of the lucrative investment avenues available for investors is mutual fund nowadays.
The problem at hand was to study and measure the awareness level of people regarding
mutual funds in the city. To find out Investors’ awareness about Mutual funds and
Promotion of SIP plan. The study includes analysis of the investors on the basis of their
investment objectives, age etc. It also examined the position of MF among investment
avenues available for the investors and the past performances of various schemes from
the active AMCs in Indian market on the basis of NAV & time. So that it can help the
advisors as well as investors to choose the correct portfolio.
1.4 OBJECTIVES OF THE STUDY
The major objective of the study was to determine the awareness about benefits of
Mutual funds and to impart information, knowledge and the functioning of mutual funds
among financial advisors.
Following are the specific objectives:
To know the awareness of mutual funds among Indian investors.
To evaluate the position of Mutual Fund among investment avenues available for
the investors in Indian market.
To promote the SIP Scheme (Systematic Investment Plan).
To come up with recommendations for investors and mutual fund companies in
India based on the above study.
Page | 12
1.5 RESEARCH METHODOLOGY
This is a descriptive study. Two types of data were taken into consideration i.e.
Secondary data & primary data. My major emphasis was on gathering the primary data.
The secondary data has been used to make things more clear.
(i) Primary Data: Direct collection of data from the source of information,
technology including personal interviewing, survey etc.
(ii) Secondary Data: Indirect collection of data from sources containing past or
recent past information like Bank’s Brochures, Annual publications, Books, Fact sheets
of mutual funds, Newspaper & Magazines etc. The secondary data was collected to
know the theoretical aspect of the mutual funds and also for the performance evaluation
of various mutual fund schemes.
A questionnaire was constructed for survey. Questionnaire consisting of a set of
questions made to be filled by various respondents. My area of the study was Gwalior
(M.P.). The sample consisted of 100 respondents. The sample was drawn from walk in
customers of Reliance Mutual Fund, Some private & government banks and offices,
College students. The selection of the respondents was done on the basis of convenient
sampling. The responses were taken through personal interviews, telephonic interview.
The next step is to extract the pertinent findings from the collected data. I have tabulated
the collected data & developed frequency distributions. Thus the whole data was grouped
aspect wise and was presented in tabular form. Thus, cross-tabulations, frequencies &
percentages were prepared to render impact of the study.
1.6 LIMITATIONS OF THE STUDY
Every research is incomplete without its own limitations. In this research too there were
some limitations. They are:
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Results are just an indication of the present scenario and may not be applicable in the
future.
As the study was conducted only in Gwalior (M.P.) only, so it can be said that the study
was regionally biased.
Since sampling was done under the simple random sampling method, where easily
approachable respondents were picked up. So this may not represent the whole universe.
Lack of time on the part of respondents for filling up the questionnaire.
Respondents may fill the partially correct information in questionnaire.
1.7 CHAPTERIZATION
Chapter 1 deals with the crisp introduction of topic. Along with this it deals with the
need for the study, statement of the study, objective of the study, period of the study,
research methodology used and limitations of the study.
Chapter 2 portrays the profiles of the mutual fund industry with history and Reliance
Mutual Fund.
Chapter 3 contains a detailed study of functioning of Mutual Fund and regulatory
authorities, tax planning for investors, SIP promotion and benefits of its.
Chapter 4 gives the analysis and interpretation of the data.
Chapter 5 suggests some suggestions and recommendation based on the study done.
Page | 14
CHAPTER 2
Profile ofMutual fund
industry&
company
Page | 15
PROFILE OF THE MUTUAL FUND INDUSTRY
2.1.1. BEGINNING OF THE MUTUAL FUND INDUSTRY
Historians are uncertain of the origins of investment funds; some cite the closed-end
investment companies launched in the Netherlands in 1822 by King William I as the first
mutual funds, while others point to a Dutch merchant named Adrian van Ketwich whose
investment trust created in 1774 may have given the king the idea. Van Ketwich probably
theorized that diversification would increase the appeal of investments to smaller
investors with minimal capital. The name of van Ketwich's fund, EENDRAGT MAAKT
MAGT, translates to "unity creates strength". The next wave of near-mutual funds
included an investment trust launched in Switzerland in 1849, followed by similar
vehicles which is followed by many kind of companies created in Scotland in the 1880s.
The idea of pooling resources and spreading risk using closed-end investments soon took
root in Great Britain and France, making its way to the United States in the 1890s. The
Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S.
The creation of the Alexander Fund in Philadelphia, Pennsylvania, in 1907 was an
important step in the evolution toward what we know as the modern mutual fund. The
Alexander Fund featured semi-annual issues and allowed investors to make withdrawals
on demand.
2.1.2. THE ARRIVAL OF THE MODERN FUND
The creation of the Massachusetts Investors' Trust in Boston, Massachusetts, heralded the
arrival of the modern mutual fund in 1924. The fund went public in 1928, eventually
spawning the mutual fund firm known today as MFS Investment Management. State
Street Investors' Trust was the custodian of the Massachusetts Investors' Trust. Later,
State Street Investors started its own fund in 1924 with Richard Paine, Richard Saltonstall
and Paul Cabot at the helm. Saltonstall was also affiliated with Scudder, Stevens and
Page | 16
Clark, an outfit that would launch the first no-load fund in 1928. A momentous year in
the history of the mutual fund, 1928 also saw the launch of the Wellington Fund, which
was the first mutual fund to include stocks and bonds, as opposed to direct merchant bank
style of investments in business and trade.
2.1.3. REGULATIONS AND EXPANSION
By 1929, there were 19 open-end mutual funds competing with nearly 700 closed-end
funds. With the stock market crash of 1929, the dynamic began to change as highly-
leveraged closed-end funds were wiped out and small open-end funds managed to
survive.
Government regulators also began to take notice of the fledgling mutual fund
industry. The creation of the Securities and Exchange Commission (SEC), the passage of
the Securities Act of 1933 and the enactment of the Securities Exchange Act of 1934 put
in place safeguards to protect investors: mutual funds were required to register with the
SEC and to provide disclosure in the form of a prospectus. The Investment Company Act
of 1940 put in place additional regulations that required more disclosures and sought to
minimize grievance of investor of different categories conflicts of interest.
The mutual fund industry continued to expand. At the beginning of the 1950s, the
number of open-end funds topped 100. In 1954, the financial markets overcame their
1929 peak, and the mutual fund industry began to grow in earnest, adding some 50 new
funds over the course of the decade. The 1960s saw the rise of aggressive growth funds,
with more than 100 new funds established and billions of dollars in new asset inflows.
Hundreds of new funds were launched throughout the 1960s until the bear market
of 1969 cooled the public appetite for mutual funds. Money flowed out of mutual funds
as quickly as investors could redeem their shares, but the industry's growth later resumed.
Page | 17
Massachusetts Investors Trust (now MFS Investment Management) was founded
on March 21, 1924, and, after one year, had 200 shareholders and $392,000 in assets. The
entire industry, which included a few closed-end funds, represented less than $10 million
in 1924.
The stock market crash of 1929 slowed the growth of mutual funds. In response to
the stock market crash, Congress passed the Security Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the SEC.
2.1.4. Introduction of Mutual Fund Industry – Global Perspective
The U.S. mutual fund market, with $9.6 trillion in assets under management as of year-
end 2008, remained the largest in the world, accounting for 55 percent of the $19.0
trillion in mutual fund assets worldwide.
Table 2.1 TOTAL NET ASSETS IN U.S. DOLLARS
(Millions, end of period)
COUNTRY 2005 2006 2007 2008 2009
WORLD 17,771,027 21,823,455 26,150,936 18,917,499 22,882,716
AMERICA 9 ,763,921 11,485,012 1 3,442,521 1 0,579,430 1 2,515,691
EUROPE 6,002,261 7,803,906 8,934,864 6,231,116 7,545,531
ASIA & PACIFIC
1,939,251 2,456,511 3,678,330 2,037,536 2,715,233
Australia 700,068 864,254 1,192,992 841,133 1,198,838
China 434,063 276,303 381,207
Hong Kong 460,517 631,055 818,421
India 40,546 58,219 108,582 62,805 130,284
Japan 470,044 578,883 713,998 575,327 660,666
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Korea 198,994 251,930 329,979 221,992 264,573
New Zealand
10,332 12,892 14,924 10,612 17,657
Pakistan 2,164 4,956 1,985 2,224
Philippines 1,449 1,544 2,090 1,263 1,488
Taiwan 57,301 55,571 58,323 46,116 58,297
AFRICA(South Africa)
65,594 78,026 95,221 69,417 106,261
Note: Components may not sum to total because of rounding.
Source: National mutual fund associations; European Fund and Asset Management Association (EFAMA)
provide data for all European countries except Russia.
1 Funds of funds are not included, except for France, Germany, Italy, and Luxembourg. Home-domiciled
funds, except for Hong Kong, New Zealand and Trinidad & Tobago, which include home and foreign-
domiciled funds.
Mutual fund assets worldwide increased 2.3 percent to $22.88 trillion at the end of 2009.
Net cash flow to all funds was $77 billion in the fourth quarter, marking the fifth
consecutive quarter with positive net flows. Net inflows to long-term funds slowed to
$283 billion in the fourth quarter of 2009, from $351 billion in the third quarter. Net
outflows from money market funds also decelerated, with $206 billion of net outflows,
from $283 billion in outflows in the previous quarter. For the year as a whole, net cash
flows into all mutual funds worldwide were $275 billion, on par with the $280 billion of
net inflows experienced in 2008. However, the composition of flows was considerably
different. Long-term funds had net inflows of $912 billion in 2009, compared to net
outflows of $610 billion in 2008. Money market funds had net outflows of $638 billion
in 2009, compared to net inflows of $891 billion in 2008.
The Investment Company Institute compiles worldwide statistics on behalf of the
International Investment Funds Association, an organization of national mutual fund
associations. The collection for the fourth quarter of 2009 contains statistics from 44
countries.
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2.1.5 INDIAN MUTUAL FUND INDUSTRY- AN INSIGHT
The concept of mutual funds in India dates back to the year 1963. The era between 1963
and 1987 marked the existence of only one mutual fund company in India with Rs. 67bn
assets under management (AUM), by the end of its monopoly era, the Unit Trust of India
(UTI). By the end of the 80s decade, few other mutual fund companies in India took their
position in mutual fund market.
The new entries of mutual fund companies in India were SBI Mutual Fund,
Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund,
Bank of India Mutual Fund.
The succeeding decade showed a new horizon in Indian mutual fund industry. By
the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector
funds started penetrating the fund families. In the same year the first Mutual Fund
Regulations came into existence with re-registering all mutual funds except UTI. The
regulations were further given a revised shape in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which
has now merged with Franklin Templeton. Just after ten years with private sector players’
penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 37 mutual fund
companies in India.
2.1.6 AT THE BEGINNING
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank of India.
Though the growth was slow, but it accelerated from the year 1987 when Non-UTI
players entered into the Industry.
In the past decade, Indian mutual fund industry had seen a dramatic
improvement, both qualities wise as well as quantity wise. In March 1987, the
Page | 20
Asset under Management (AUM) was Rs.4564 crores. The private sector entry to
the fund family raised the AUM to Rs. 47000 crores in March 1993 and till April
30, 2010; it has reached the height of Rs. 7, 19,133 crores.
Source: www.amfiindia.com
The Mutual Fund Industry is obviously growing at a tremendous space with the
mutual fund industry can be broadly put into four phases according to the
development of the sector. Each phase is briefly described as under.
Phase I. Establishment and Growth of Unit Trust of India - 1964-87
Unit Trust of India enjoyed complete monopoly when it was established in the year 1963
by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to
operate under the regulatory control of the RBI until the two were de-linked in 1978 and
the entire control was transferred in the hands of Industrial Development Bank of India
(IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64),
which attracted the largest number of investors in any single investment scheme over the
years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of
25 456447000
79464
326388
505152 417300
719133
0
100000
200000
300000
400000
500000
600000
700000
800000
1965 Phase I 1987 Phase II
1993 Phase III
2003 Phase IV
2007 2008 2009 30-Apr
Asset Under Management (In Rs. Crores)
Asset Under Management (In Rs. Crores)
Page | 21
different investors. It launched ULIP in 1971, six more schemes between 1981 and 1984,
Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master
share (India’s first equity diversified scheme) in 1987 and Monthly Income Schemes
(offering assured returns) during 1990s. By the end of 1987, UTI's assets under
management grew ten times to Rs. 6700 crores.
Phase II. Entry of Public Sector Funds - 1987-1993
The Indian mutual fund industry witnessed a number of public sector players entering the
market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of
India became the first non-UTI mutual fund in India. SBI Mutual Fund was later
followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank
of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets
under management of the industry increased seven times to Rs. 47,004 crores. However,
UTI remained to be the leader with about 80% market share.
Table 2.2
1992-93
Amount
Mobilized
(In Rs.
crores)
Assets Under
Management
(In Rs. crores)
Mobilization
as % of
Gross
Domestic
Savings
UTI 11,057 38,247 5.2%
Public
Sector1,964 8,757 0.9%
Total 13,021 47,004 6.1%
Phase III. Emergence of Private Sector Funds - 1993-96
The permission given to private sector funds including foreign fund management
companies (most of them entering through joint ventures with Indian promoters) to enter
the mutual fund industry in 1993, provided a wide range of choice to investors and more
Page | 22
competition in the industry. Private funds introduced innovative products, investment
techniques and investor-servicing technology. By 1994-95, about 11 private sector funds
had launched their schemes.
Phase IV. Growth and SEBI Regulation - 1996-2004
The mutual fund industry witnessed robust growth and stricter regulation from the SEBI
after the year 1996. The mobilization of funds and the number of players operating in the
industry reached new heights as investors started showing more interest in mutual funds.
Investors' interests were safeguarded by SEBI and the Government offered tax benefits to
the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was
introduced by SEBI that set uniform standards for all mutual funds in India. The Union
Budget in 1999 exempted all dividend incomes in the hands of investors from income
tax. Various Investor Awareness Programs were launched during this phase, both by
SEBI and AMFI, with an objective to educate investors and make them informed about
the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was
stripped of its Special legal status as a trust formed by an Act of Parliament. The primary
objective behind this was to bring all mutual fund players on the same level.
UTI was re-organized into two parts:
1. The Specified Undertaking
2. The UTI Mutual Fund
Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past
schemes (like US-64, Assured Return Schemes) are being gradually wound up.
However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a
significant growth in mobilizations of funds from investors and assets under management
which is supported by the following data:
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Table 2.3
ASSETS UNDER MANAGEMENT (Rs. CRORES)
AS ON UTIPUBLIC
SECTOR
PRIVATE
SECTORTOTAL
31-
March-
99
53,320 8,292 6,860 68,472
Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions recently, examples of
which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C
Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more
international mutual fund players have entered India like Fidelity, Franklin Templeton
Mutual Fund etc. There were 38 funds as at the end of April 2010. This is a continuing
phase of growth of the industry through consolidation and entry of new international and
private sector players.
2.1.7 INDIAN MUTUAL FUND INDUSTRY- TODAY
Thirteen out of 37 fund houses witnesses a growth in average AUM in January, 2010,
with Reliance Mutual Fund continuing the largest fund house by asset at Rs. 1.17 trillion.
HDFC was at the second spot at Rs. 948 billion, followed by ICICI Prudential Mutual
Fund at Rs. 784 billion. UTI Mutual Fund and Birla Sun Life Mutual Fund followed with
an average AUM of Rs. 745 billion and Rs. 626 billion, respectively. The share of top 5
MF’s in the industry’s asset was at 56% while that of top 10 funds’ asset was close to
80% in January 2010.
As per AMFI data, UTI Mutual Fund had the highest number of investor folios at
10 million as of December 2009. The total number of investor folios for the mutual fund
industry stood at 48 million as of December 2009.
Page | 24
The average AUM data analyzed for equity oriented schemes showed that Reliance
Growth Fund held the highest corpus of around Rs. 70 billion, followed by HDFC top
200 fund, Reliance diversified Power Sector fund, HDFC equity fund and SBI magnum
Tax Gain Scheme1993 with an average AUM Rs. 61billion, Rs.58 billion, Rs. 55 billion,
Rs. 54 billion, respectively.
Table 2.4
Latest Average Asset Under Management for all Mutual Fund houses & Ranking
according to the AAUM
MUTUAL FUND NAME
NO. OF SCHEMES*
ASSET UNDER MANAGEMENT (AMOUNT IN RS. CRORE)
AS ON CORPUS AS ON CORPUS NET INC/DEC IN CORPUS
AIG GLOBAL INVESTMENT GROUP MUTUAL FUND
44 MAY 31, 2010
1,030.86 APR 30, 2010
1,093.24 -62.378
AXIS MUTUAL FUND
58 MAY 31, 2010
4,715.89 APR 30, 2010
3,477.98 1237.912
BARODA PIONEER MUTUAL FUND
31 MAY 31, 2010
4,759.53 APR 30, 2010
4,362.69 396.845
BENCHMARK MUTUAL FUND
14 MAY 31, 2010
2,263.15 APR 30, 2010
1,930.53 332.628
BHARTI AXA MUTUAL FUND
45 MAY 31, 2010
724.17 APR 30, 2010
595.35 128.819
BIRLA SUN LIFE MUTUAL FUND
(RANK 4)
219 MAY 31, 2010
73,828.03 APR 30, 2010
69,508.69 4319.346
CANARA ROBECO MUTUAL FUND
87 MAY 31, 2010
10,661.95 APR 30, 2010
10,050.84 611.109
Page | 25
DEUTSCHE MUTUAL FUND
116 MAY 31, 2010
10,102.46 APR 30, 2010
10,111.61 -9.149
DSP BLACKROCK MUTUAL FUND
96 MAY 31, 2010
21,884.95 APR 30, 2010
21,948.76 -63.814
EDELWEISS MUTUAL FUND
40 MAY 31, 2010
261.09 APR 30, 2010
216.16 44.932
ESCORTS MUTUAL FUND
30 MAY 31, 2010
198.23 APR 30, 2010
205.46 -7.237
FIDELITY MUTUAL FUND
61 MAY 31, 2010
7,457.84 APR 30, 2010
7,684.70 -226.865
FORTIS MUTUAL FUND
472 MAY 31, 2010
7,537.44 APR 30, 2010
6,902.15 635.297
FRANKLIN TEMPLETON MUTUAL FUND
173 MAY 31, 2010
35,774.79 APR 30, 2010
34,107.00 1667.789
HDFC MUTUAL FUND
(RANK 2)
162 MAY 31, 2010
101,863.31 APR 30, 2010
94,702.79 7160.526
HSBC MUTUAL FUND
88 MAY 31, 2010
5,851.11 APR 30, 2010
6,005.03 -153.926
ICICI PRUDENTIAL MUTUAL FUND
(RANK 3)
317 MAY 31, 2010
87,709.81 APR 30, 2010
83,035.51 4674.3
IDFC MUTUAL FUND
170 MAY 31, 2010
26,614.77 APR 30, 2010
25,177.28 1437.488
ING MUTUAL FUND
92 MAY 31, 2010
1,645.42 APR 30, 2010
1,652.84 -7.423
JM FINANCIAL MUTUAL FUND
90 MAY 31, 2010
8,950.43 APR 30, 2010
8,568.80 381.625
Page | 26
JPMORGAN MUTUAL FUND
31 MAY 31, 2010
3,784.98 APR 30, 2010
4,114.75 -329.768
KOTAK MAHINDRA MUTUAL FUND
119 MAY 31, 2010
40,657.52 APR 30, 2010
33,743.49 6914.032
L&T MUTUAL FUND
61 MAY 31, 2010
5,170.69 APR 30, 2010
4,125.69 1045.009
LIC MUTUAL FUND 62 MAY 31, 2010
38,962.82 APR 30, 2010
40,507.21 -1544.388
MIRAE ASSET MUTUAL FUND
37 MAY 31, 2010
236.50 APR 30, 2010
245.06 -8.562
MORGAN STANLEY MUTUAL FUND
11 MAY 31, 2010
2,253.67 APR 30, 2010
2,305.89 -52.226
PEERLESS MUTUAL FUND
22 MAY 31, 2010
823.38 APR 30, 2010
496.26 327.119
PRINCIPAL MUTUAL FUND
85 MAY 31, 2010
7,647.76 APR 30, 2010
7,470.15 177.605
QUANTUM MUTUAL FUND
11 MAY 31, 2010
101.72 APR 30, 2010
101.34 0.381
RELIANCE MUTUAL FUND
(RANK 1)
185 MAY 31, 2010
118,973.14 APR 30, 2010
111,819.33 7153.812
RELIGARE MUTUAL FUND
87 MAY 31, 2010
15,464.10 APR 30, 2010
13,829.25 1634.85
SAHARA MUTUAL FUND
44 MAY 31, 2010
765.23 APR 30, 2010
804.57 -39.335
SBI MUTUAL FUND 116 MAY 31, 2010
36,235.76 APR 30, 2010
39,826.35 -3590.585
Page | 27
SHINSEI MUTUAL FUND
11 MAY 31, 2010
323.71 APR 30, 2010
222.28 101.433
SUNDARAM BNP PARIBAS MUTUAL FUND
143 MAY 31, 2010
13,976.11 APR 30, 2010
14,361.18 -385.076
TATA MUTUAL FUND
168 MAY 31, 2010
22,673.43 APR 30, 2010
22,051.27 622.154
TAURUS MUTUAL FUND
47 MAY 31, 2010
3,056.16 APR 30, 2010
2,347.23 708.928
UTI MUTUAL FUND
(RANK 5)
203 MAY 31, 2010
78,617.15 APR 30, 2010
79,456.70 -839.544
* indicates currently in operation
Page | 28
2.2 PROFILE OF THE RELIANCE MUTUAL FUND
2.2.1 INTRODUCTION:
The Reliance group - one of India's largest business houses with revenues of Rs. 990
billion ($22.6 billion) that is equal to 3.5 percent of the country's gross domestic product
was split into two.
The group - which claims to contribute nearly 10 per cent of the country's indirect
tax revenues and over six percent of India's exports - was divided between Mukesh
Ambani and his younger brother Anil on June 18, 2005.
Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with
Average Assets under Management (AAUM) of Rs. 1, 18,973 Crores and an
investor count of over 74 Lakh folios. (AAUM and investor count as of May 2010).
Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is
one of the fastest growing mutual funds in the country. RMF offers investors a well-
rounded portfolio of products to meet varying investor requirements and has presence in
159 cities across the country. Reliance Mutual Fund constantly endeavors to launch
innovative products and customer service initiatives to increase value to investors.
"Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management
Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up
capital of RCAM, the balance paid up capital being held by minority shareholders."
2.2.2 Sponsor
Reliance Capital Limited
Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management
Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up
capital of RCAM, the balance paid up capital being held by minority shareholders.
Reliance Mutual Fund (RMF) has been sponsored by Reliance Capital Ltd (RCL). The
promoter of RCL is AAA Enterprises Private Limited. Reliance Capital Limited is a Non
Banking Finance Company. Reliance Capital Limited is one of the India’s leading and
Page | 29
fastest growing financial services companies, and ranks among the top three private
sector financial services and banking companies, in terms of net worth.
Reliance Capital has interests in asset management and mutual funds, life and
non-life insurance, private equity and proprietary investments, stock broking and other
activities in the financial services sector. The net worth of RCL is Rs. 6086 crores as on
March 31, 2008. Given below is a summary of RCL’s financials:
Table 2.5
Particulars (Rs. in crores)
2007-08 2006-07 2005-06
Total Income 2079.79 883.86 652.02Profit Before Tax 1171.45 733.18 550.61Profit After Tax 1025.45 646.18 537.61Reserves & Surplus 5779.06 4915.07 3849.58Net Worth 5927.50 5161.23 4122.46Earnings per Share (Rs.)
41.75(Basic + Diluted)
28.39(Basic + Diluted)
29.74(Basic + Diluted)
Dividend (%) 55% 35% 30%Paid up Equity Capital
246.16 246.16 223.40
Reliance Capital Ltd. has contributed Rupees One Lac as the initial contribution to the
corpus for the setting up of the Mutual Fund. Reliance Capital Ltd. is responsible for
discharging its functions and responsibilities towards the Fund in accordance with the
Securities and Exchange Board of India (SEBI) Regulations.
2.2.3 The Asset Management Company
Reliance Capital Asset Management Ltd.
Reliance Capital Asset Management Ltd. (RCAM) is an unlisted Public Limited
Company incorporated under the Companies Act, 1956 on February 24, 1995.
Page | 30
Vision Statement:
“To be a globally respected wealth creator, with an emphasis on customer care and a
culture of good corporate governance”.
Mission Statement:
“To create and nurture a world-class, high performance environment aimed at delighting
their customers”.
Pursuant to this IMA, RCAM is authorized to act as Investment Manager of the Mutual
Fund. The net worth of the Asset Management Company based on audited accounts as on
March 31, 2009 is Rs. 841.32 Crore. Table 2.6
No. of schemes 57
No. of schemes including
options
185
Equity Schemes 60
Debt Schemes 100
Short term debt Schemes 15
Equity & Debt 2
Money Market 0
Gilt Fund 6
Corpus under management Rs. 109485.69 crores as on May 31, 2010
Page | 31
2.2.4 MANAGEMENT TEAM
1. Sundeep Sikka (CEO),
2. Madhusudan Kela (Hd-Equity),
3. Rajesh Derhgawen (Hd-HRD),
4. Himanshu Vyapak (Sales & Dist),
5. Milind Nesarikar (IRO),
6. Suresh T Viswanathan (Compliance),
7. Muneesh Sud (Legal)
2.2.5 FUND MANAGERS
1. Amit Tripathy,
2. Hiren Chandaria ,
3. Krishan Daga ,
4. Omprakash Kuckien ,
5. Sailesh Raj Bhan ,
6. Sunil Singhania
2.2.6 INVESTMENT OBJECTIVES OF THE SCHEMES
Reliance Monthly Income Plan aims to generate regular income in order to make
regular dividend payments to unit holders and the secondary objective is growth of
capital.
Reliance Income Fund aims to generate optimal returns consistent with moderate levels
of risk. This income may be complemented by capital appreciation of the portfolio.
Accordingly, investments shall predominantly be made in Debt and Money Market
Instruments.
Reliance Medium Term Fund aims to generate regular income in order to make regular
dividend payments to unit holders and the secondary objective is growth of capital.
Page | 32
Reliance Liquid Fund aims to generate optimal returns consistent with moderate levels
of risk and high liquidity. Accordingly, investments shall predominantly be made in Debt
and Money Market Instruments.
Reliance Liquidity Fund aims to generate optimal returns consistent with moderate
levels of risk and high liquidity. Accordingly, investments shall predominantly be made
in Debt and Money Market Instruments
Reliance Short Term Fund aims to generate stable returns for investors with a short
term investment horizon by investing in fixed income securities of a short term maturity.
Reliance Gilt Securities Fund aims to generate optimal credit risk free returns by
investing in a portfolio of securities issued and guaranteed by the Central Government
and State Governments
Reliance Floating Rate Fund aims to generate regular income through investment in a
portfolio comprising substantially of Floating Rate Debt Securities (including floating
rate securitized debt and Money Market Instruments and Fixed Rate Debt Instruments
swapped for floating rate returns).
Reliance Regular Savings Fund Debt Option: The primary investment objective of this
plan is to generate optimal returns consistent with moderate level of risk. This income
may be complemented by capital appreciation of the portfolio. Accordingly investments
shall predominantly be made in Debt & Money Market Instruments.
Reliance Regular Savings Fund Equity Option: The primary investment objective is to
seek capital appreciation and or consistent returns by actively investing in equity / equity
related securities.
Reliance Regular Savings Fund Hybrid Option: The primary investment objective is
to generate consistent return by investing a major portion in debt & money market
securities and a small portion in equity & equity related instruments.
Reliance Growth Fund aims to achieve long term growth of capital by investment in
equity and equity related securities through a research based investment approach.
Reliance Vision Fund aims to achieve long term growth of capital by investment in
equity and equity related securities through a research based investment approach.
Page | 33
Reliance Equity Opportunities Fund aims to generate capital appreciation & provide
long term growth opportunities by investing in a portfolio constituted of equity securities
& equity related securities
Reliance Banking Fund aims to generate continuous returns by actively investing in
equity / equity related or fixed income securities of banks.
Reliance Diversified Power Sector Fund seek to generate consistent returns by
investing in equity / equity related or fixed income securities of Power and other
associated companies
Reliance Pharma Fund aims generate consistent returns by investing in equity / equity
related or fixed income securities of Pharma and other associated companies.
Reliance Media & Entertainment Fund to generate consistent returns by investing in
equity / equity related or fixed income securities of media & entertainment and other
associated companies.
Reliance Index Fund-Sensex Plan aims to replicate the composition of the Sensex, with
a view to endeavor to generate returns, which could approximately be the same as that of
Sensex.
Reliance Index Fund-Nifty Plan aims to replicate the composition of the Nifty, with a
view to endeavor to generate returns, which could approximately be the same as that of
Nifty.
Reliance NRI Equity Fund aims to generate optimal returns by investing in equity and
equity related instruments primarily drawn from the Companies in the BSE 200 Index.
Reliance Equity Fund: The primary investment objective of the scheme is to seek to
generate capital appreciation & provide long-term growth opportunities by investing in a
portfolio constituted of equity & equity related securities of top 100 companies by market
capitalization & of companies which are available in the derivatives segment from time
to time and the secondary objective is to generate consistent returns by investing in debt
and money market securities.
Page | 34
2.2.7 CUSTODIAN
Deutsche Bank, AG
Deutsche Bank AG, the Custodian shall, inter alia:
Provide post-trading and custodial services to the Mutual Fund.
Keep Securities and other instruments belonging to the Scheme in safe custody.
Ensure smooth inflow/outflow of securities and such other instruments as and when
necessary, in the best interests of the unit holders.
Ensure that the benefits due to the holdings of the Mutual Fund are recovered and
Be responsible for loss of or damage to the securities due to negligence on its part on the
part of its approved agents.
2.2.8 REGISTRAR
M/s. Karvy Computershare Pvt. Limited
The Registrar is responsible for carrying out diligently the functions of a Registrar and
Transfer Agent and will be paid fees as set out in the agreement entered into with it and
as per any modification made thereof from time to time.
2.2.9 TRUSTEE
Reliance Capital Trustee Co. Limited
Reliance Capital Trustee Co. Limited (RCTC), a company incorporated under the
Companies Act, 1956, has been appointed as the Trustee to the Fund vide the Trust Deed
dated April 25, 1995 executed between the Sponsor and the Trustee.
Page | 35
2.2.10 BANKERS TO THE SCHEMES OF RELIANCE CAPITAL ASSET
MANAGEMENT
ABN AMRO Bank
Axis Bank
Citibank N. A.
Deutsche Bank AG
Development Bank of Singapore - only for online investors
HDFC Bank Limited
HSBC Bank
ICICI Bank Limited
IDBI Bank
ING Vysya Bank
Kotak Mahindra Bank
State Bank of India
Standard Chartered Bank
Yes Bank
Page | 36
CHAPTER 3
FUNCTIONING
OF
MUTUAL FUND
Page | 37
3.1 WHAT IS MUTUAL FUND?
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.
Page | 38
Source: www.jmfinancial.com
When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the Corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.
Any change in the value of the investments made into capital market
instruments (such as shares, debentures etc) is reflected in the Net Asset Value
(NAV) of the scheme. NAV is defined as the market value of the Mutual Fund
scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the
market value of scheme's assets by the total number of units issued to the investors.
Page | 39
NAV = Market Value of the scheme / Number of unit-holders
Where, Numerator= Market value of investment+receivables+other Accrued Income
+Other Assets- Accrued Expenses-Other Payables-Other Liabilities.
3.1.1. SET-UP OF MUTUAL FUNDS:
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian. The trust is established by a sponsor or
more than one sponsor who is like promoter of a company. The trustees of the mutual
fund hold its property for the benefit of the unit holders.
Asset management company (AMC) approved by SEBI managers the fund by
making investments in various schemes of the in its custody. The trustees are vested with
the general power of superintendence and direction over AMC. They monitor the
performance and compliance of SEBI regulations by the mutual fund.
SEBI regulations require that at least two thirds of the directors of trustee
company or board of trustees must be independent i.e., they should not be associated with
the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds
are required to be registered with SEBI before they launch any scheme. The performance
of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).
3.1.2. MUTUAL FUND STRUCTURE
In India, the following are involved in mutual fund operations: the sponsor, the
mutual fund, the trustees, the asset management company, the custodian, and the
registrars and transfer agents.
1. Fund Sponsor:
The sponsor of a mutual fund is like the promoter of a company. The sponsor may be a
bank, a financial institution, or a financial service company. It may be Indian or foreign.
The sponsor is responsible for setting up and establishing th
the settler of the mutual fund trust. The sponsor delegates the trustee functions to the
trustees.
2. Mutual fund :
The mutual funds constituted as a trust under the Indian trust act, 1881, and registered
with SEBI.
Fund Sponsor:
The sponsor of a mutual fund is like the promoter of a company. The sponsor may be a
bank, a financial institution, or a financial service company. It may be Indian or foreign.
The sponsor is responsible for setting up and establishing the mutual fund. The sponsor is
the settler of the mutual fund trust. The sponsor delegates the trustee functions to the
Mutual fund :
The mutual funds constituted as a trust under the Indian trust act, 1881, and registered
Page | 40
The sponsor of a mutual fund is like the promoter of a company. The sponsor may be a
bank, a financial institution, or a financial service company. It may be Indian or foreign.
e mutual fund. The sponsor is
the settler of the mutual fund trust. The sponsor delegates the trustee functions to the
The mutual funds constituted as a trust under the Indian trust act, 1881, and registered
Page | 41
3. Trustees:
A trust is a notional entity that cannot contract in its own name. so, the trust enters into
contracts in the name of the trustees. Appointment by the sponsor, the trustees can be
either individuals or a corporate body. Typically it is the latter. The trustees appoint the
asset management company (AMC), secure necessary approval, periodically monitor
how the AMC functions, and hold the properties of the various schemes in trust for the
benefits of investors.
4. Asset Management Company:
It also referred to as the investment manager, is a separate company appointed by the
trustees to run the mutual fund. The AMC should have a certificate from SEBI to act as
portfolio manager under SEBI rules and regulations, 1993.
5. Custodian:
The custodian handles the investment back office operations of a mutual fund. It looks
after the receipt and delivery of securities, collection of income, distribution of dividends,
and segregation of assets between schemes. The sponsor of a mutual fund cannot act as
its custodian.
6. Registrars and Transfer Agents:
The registrars and transfer agents handle investor related services such as issuing units,
redeeming units, sending fact sheets and annual reports, and so on. Some funds handle
such functions in house, while others outsource it to be SEBI approved registrars and
transfer agents like Karvy and CAMS. The legal structure and organization of mutual
funds as laid down by SEBI guidelines is as follows.
3.2 CLASSIFICATION OF MUTUAL FUNDS
Return based
Income funds
Growth funds
Conservative funds
Equity funds
Market cap funds
Opportunities funds
Theme based funds
Index funds
Fund of Funds
Conventional diversified funds
CLASSIFICATION OF MUTUAL FUNDS
Mutual Funds
Investment based
Market cap funds
Opportunities funds
Theme based funds
Index funds
Fund of Funds
Conventional diversified funds
Debt funds
Long & short term Debt funds
Liquid funds
Long & short term Gilt funds
Dynamic funds
Long & short term floating
rate funds
Fixed maturity funds
MIPs
Balanced funds
Sector based
IT industry
Pharmaceutical industry
Power sector
Page | 42
Sector based
IT industry
Pharmaceutical industry
Power sector
Others
Commodity funds
Exchange traded funds
Real estate funds
TAX saving schemes
Page | 43
CLASSIFICATION- I
1. Return based classification:
The investors of the mutual fund schemes are made to enjoy a good return in form of
regular dividends or capital appreciation or a combination of these both.
a) Income Funds
Income funds are floated for the interest of investors who want to maximize current
income. These funds distribute periodically the income earned by them, in the form of
either a constant income at relatively low risk or in the form of maximum income
possible with higher risk by the use of leverage.
b) Growth Funds
These Schemes have the objective to achieve an increase in the value of the underlying
investments through capital appreciation, and they invest in growth oriented securities.
c) Conservative Funds
These funds offer a blend of good average returns and reasonable capital appreciation.
These funds are very popular and are ideal for the investors who want both growth and
income from their investment.
2. Investment Based Classification:
Mutual funds may also be classified on the basis of the kind of securities that they invest
in.
Equity Funds:
Equities are a high risk-high return asset class; the same risk profile spills over to equity
funds as well. However investors must take note of the fact that a large number of
variations exist within the 'high risk' equity funds segment. For example a sector fund
would be on the relatively higher scale in the risk-return paradigm when compared to an
index fund, which simply tracks the movements in a chosen benchmark index. These
funds invest most of their investible shares in equity shares of companies and undertake
Page | 44
the risk associated with the investment in equity shares. In a developed market, Equity
funds can be of different categories. For example, ‘Blue Chip’, FMCG, PSUs, etc.
The equity funds category can be further differentiated as follows:
i. Market capitalization-based funds
Market capitalization is defined as the number of shares issued by a company multiplied
by the price of each share. Companies are generally divided into the large cap, mid cap
and small cap segments respectively on the basis of their market capitalization. Some
diversified equity funds are launched with the mandate to invest in stocks from one or
more of the stated segments i.e. the company's market capitalization becomes the
governing force.
ii. Opportunities funds
Fund managers handling opportunities funds have perhaps the most flexible investment
mandates. Opportunities funds can invest in stocks across market segments, sectors and
some are even permitted to invest a significant portion of their corpus in debt. As the
name suggests, the idea is to seek opportunities for clocking gains from any sector/market
segment.
iii. Theme-based funds
Theme based funds are fairly similar to sector funds, however the differentiating factor is
the level of diversification they offer. Instead of concentrating on stocks from a single
sector/industry, their focus lies on a specific theme like globally competitive Indian
companies or multinational corporations operating in India. In terms of diversification
and risk profiles, these companies tread the path between a sector fund and a
conventional diversified equity fund.
iv. Index funds
Index funds are launched with the mandate of tracking benchmark indices like the BSE
Sensex or S&P CNX Nifty. These funds invest in stocks from the index in the same
Page | 45
proportion as the benchmark, thereby offering investors the opportunity to capture the
growth in the chosen index. Index funds are generally more popular in developed markets
where actively managed funds find it difficult to outperform the benchmark indices as
markets are relatively better researched; also their expenses (fees, charges) tend to be
lower vis-à-vis actively managed funds.
v. Fund of Funds
A regular mutual fund invests in equities, bonds and fixed income securities depending
on its objective. Fund of Funds (FoF) extend this concept by investing in units of other
mutual fund schemes. By investing in more than one mutual fund they take
diversification to a new level For example an FoF could invest in five top performing
equity funds and offer a highly diversified portfolio to the investor. Similarly others could
invest in equity and debt funds simultaneously, thereby offering a portfolio that is
diversified across asset classes. On the flipside, FoF investors must be wary of higher
expenses on account of overlapping of costs. FT India Life Stage Fund is the example of
a FoF.
vi. Conventional diversified equity funds
We have used the term "conventional" diversified equity funds at various places during
the course of this discussion. This is not a variant; instead these are equity funds in their
purest form and might seem rather lackluster in the present scenario. Typically, a
diversified equity fund invests in a number of equity/ equity related instruments from
various sectors thereby enabling investors to benefit from diversification. HDFC Equity
Fund and Sundaram Growth Fund can be classified as conventional diversified equity
funds.
Debt Funds:
These Funds have their portfolio comprising of bonds and debentures (Debt Instruments).
These funds are considered to be very secure with a steady income.
Page | 46
i. Long-term debt funds
Long-term debt funds are conventional debt/bond funds that have been in existence for as
long as equity funds. Investors prefer to invest in debt funds for the same reasons they
choose to invest in equity funds viz. they get benefits of diversification across debt
instruments and the services of a professional fund manager. In fact, for retail investors,
debt funds are one of the most important avenues for investing in debt securities like
corporate bonds and government securities, chiefly because individual transactions in
debt are of a very high value (running in millions of rupees) and beyond most retail
investors. This is unlike equities for instance, where retail investors can invest on their
own in smaller lots.
Debt funds invest across a range of debt/fixed income securities. The corpus of
long-term debt funds comprises mainly of corporate bonds and government securities
(gilts/G-secs).
When these securities have a residual maturity of at least 12 months, they are
classified as long-term debt or longer-dated paper. Debt funds also invest in shorter-dated
paper like treasury bills, certificate of deposit (CDs) and commercial paper to name a
few.
ii. Short-term debt funds
There is a category of investors who have two critical needs that short-term debt funds
help achieve. One – they want to be invested for the short-term - less than 6 months. Two
- over this time frame, they are looking at preserving capital with a return that is superior
to that of a fixed deposit of a comparable tenure. The reason why short-term debt funds
can preserve capital better than long term debt funds is because they are invested in debt
instruments of a shorter tenure.
a) Liquid funds
Liquid funds invest in very short-term debt instruments maturing in 30-45 days.
Typically this includes Treasury bills and call money. Liquid funds serve needs quite
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similar to that of short-term debt funds, only difference is that liquid fund investors have
an even shorter investment time frame, at times as short as one day. If investors are
looking at being invested for more than a month, they can consider short-term debt funds
for a marginally higher return.
b) Gilt Funds
Long-term gilt funds:
A long-term government securities and invests primarily in government paper (gilt/G-
Sec) with a residual maturity of over 12 months. Gilt funds have a higher risk profile than
conventional debt funds because their investments are limited to a particular segment of
the debt market and they cannot diversify across other segments like corporate bonds.
Short-term gilt funds:
A short-term gilt fund invests primarily gilts of a shorter tenure (less than 12 months).
The rationale for investing in short-term gilt funds is similar o that of short-term debt
funds. The reason investors choose short-term gilt funds over short-term debt funds is
because gilts can provide a higher capital appreciation vis-à-vis bonds.
Dynamic debt funds
Dynamic debt funds attempt to combine the benefits of debt funds and gilt funds. They
can invest across corporate bonds and gilts without any restrictions. They are distinct
from conventional debt funds that invest in gilts and corporate bonds because these funds
usually maintain a cap on their gilt investments. Dynamic debt funds tend to increase
their gilt investments in times of economic stability as gilt prices tend to have a more
lucrative spread (i.e. difference between the buy and sell prices). Investments in dynamic
debt funds should be made with a time frame of at least 12 months.
c) Long-term floating rate funds
Floating rate funds invest in debt instruments that have their coupon rates adjusted at
periodic intervals. These instruments are called 'floating rate instruments'. The floating
rate paper is benchmarked against a reference point like the MIBOR (Mumbai Inter-bank
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Offered Rate) for instance. Changes in the MIBOR are a cue for the coupon rate on the
floating rate paper to be reset accordingly.
Short-term floating rate funds
Short-term floating rate funds work on the same lines as long-term floating rate funds
except that they invest in floating rate paper of shorter tenure (less than 12 months). If
investors are looking to be invested across a shorter time frame of 1-6 months, short-term
floating rate funds should be preferred over their long-term counterparts. Templeton
Floating Rate Fund (Short Term) is an example of a short-term floating rate fund.
d) Fixed Maturity Plans (FMP)
Fixed maturity plans (FMPs) are another 'invention' that became a 'necessity' to counter
interest rate instability, a problem that has become acute over the last two years.
Typically, FMPs are close-ended funds. They invest across debt instruments to arrive at a
pre-determined yield, Pre-determined because the yield is announced beforehand to
investors. So FMPs have defined investment tenure. The benefit of investing in FMP is
that the investor knows in advance the return that he will generate on his investment.
FMPs have investment tenures ranging from less than a year to more than 10 years.
e) Monthly Income Plan (MIP)
As a mutual fund category, monthly income plans (MIPs) are a relatively recent
phenomenon. MIPs are hybrid funds that invest predominantly in debt instruments with a
small portion of assets invested in equities. The equity component is expected to act as a
'kicker' that will make the MIP outperform a conventional debt fund. The rationale for a
hybrid product like an MIP came to the fore because debt funds weren't adding a lot of
value to the risk-averse investor's portfolio. So we had MIPs being launched that gave the
fund manager a mandate to invest 5-30% of assets in equities. Conventional MIPs invest
about 5- 15% of assets in equities with their aggressive counterparts investing as high as
20-30% in equities. Several fund houses have two distinct MIPs catering to different
investor groups
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Balanced Fund:
These funds have their portfolio consisting of a balanced mix of equity and bonds. The
composition of these funds may vary depending upon the outlook of the market.
Balanced funds invest their corpus in both equity and debt instruments in a pre-
determined ratio, say 60:40. An aggressive balanced fund would typically hold a higher
portion of its assets in equities maybe as high as 70% of the total assets. On the other
hand, a 'disciplined' balanced fund would maintain a conservative equity allocation
during most times.
a) Sector Based Funds
There are funds that invest in a specified sector of economy and they specialize in the
said sector. However, they run the risk of not being able to diversify. Sector based
funds are aggressive growth funds which make investments on the basis of assessed
bright future for a particular sector. The specialty of sector funds rather oddly lies in
the fact that they go against the very grain of mutual fund investing i.e. holding a
diversified portfolio. That is why you will find some Asset Management Companies
that swear against sector funds. Sector funds are launched with the intention of
capitalizing on opportunities in a single sector.
b) Commodity Funds
It will invest directly in commodities or through shares of the commodity companies or
through commodity futures contract .Most common example of such fund is precious-
metal fund, Gold funds invest in Gold, Gold futures or shares of gold mines
c) Exchange Traded Funds
It combines the best features of open end and closed structure. It tracks a market index
and trades like a stock on the stock market. ETFs are not the index funds.
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d) Real Estate Funds
It can invest in real estate, Fund real estate developers, Buy shares of housing finance
companies, Buy securitized assets.
Classification II
A. Based on their investment objective:
1. Growth Schemes –
Aim to provide capital appreciation over the medium to long term. These schemes
normally invest a majority of their funds in equities and are willing to bear short term
decline in value for possible future appreciation. These schemes are not for investors
seeking regular income or needing their money back in the short term.
Ideal for:
Investors in their prime earning years.
Investors seeking growth over the long term.
2. Income Schemes -
Aim 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.
Ideal for:
Retired people and others with a need for capital stability and regular income.
Investors who need some income to supplement their earnings.
3. Balanced Schemes -
Aim to provide both growth and income by periodically distributing a part of the
income and capital gains they earn. They invest in both shares and fixed income
securities in the
proportion indicated in their offer documents. In a rising stock market, the NAV of these
schemes may not normally keep pace or fall equally when the market falls.
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Ideal for:
Investors looking for a combination of income and moderate growth.
4. Money Market / Liquid 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 interbank call money. Returns on these
schemes may fluctuate, depending upon the interest rates prevailing in the market.
Ideal for:
Corporate and individual investors as a means to park their surplus funds for short
period or awaiting a more favorable investment alternative.
B. Other Schemes:
Capital Protection Oriented Schemes –
Capital Protection Oriented Schemes are the schemes that endeavour to
protect the capital as the primary objective by investing in high quality fixed
income securities and generate capital appreciation by investing in equity/equity
related instruments as a secondary objective. The first Capital Protection Oriented
Fund in India, Franklin Templeton Capital Protection Oriented Fund opened for
subscription on October 31, 2006.
Gold Exchange Traded Fund (GETF) –
Gold Exchange Traded Fund offers investors an innovative, cost efficient
and secure way to access the gold market. Gold Exchange Traded Fund are
intended to offer investors a means of participating in the gold bullion market by
buying and selling units on the Stock Exchanges, without taking physical delivery
of gold. The first Gold ETF in India, Benchmark GETF, opened for subscription on
February 15, 2007 and listed on the NSE on April 17, 2007.
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Quantitative Funds –
A quantitative fund is an investment fund that selects securities based on
quantitative analysis. The managers of such funds build computer based models to
determine whether or not an investment is attractive. In a pure "quant shop" the final
decision to buy or sell is made by the model. However, there is a middle ground where
the fund manager will use human judgment in addition to a quantitative model. The first
Quant based Mutual Fund Scheme in India, Lotus Agile Fund opened for subscription on
October 25, 2007.
Funds Investing Abroad –
With the opening up of the Indian economy, Mutual Funds have been permitted to
invest in foreign securities/ American Depository Receipts (ADRs) / Global Depository
Receipts (GDRs). Some of such schemes are dedicated funds for investment abroad while
others invest partly in foreign securities and partly in domestic securities. While most
such schemes invest in securities across the world there are also schemes which are
country-specific in their investment approach.
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SNAPSHOT OF MUTUAL FUND SCHEMES (Table 3.1)
Mutual Fund Type
Objective Risk Investment Portfolio
Who should invest
Investment horizon
Money Market
Liquidity + Moderate Income +
Reservation of Capital
Negligible Treasury Bills, Certificate of
Deposits, Commercial Papers, Call
Money
Those who park their funds in current
accounts or short-term
bank deposits
2 days - 3 weeks
Short-term Funds
(Floating -short-term)
Liquidity + Moderate Income
Little Interest Rate
Call Money, Commercial
Papers, Treasury Bills,
CDs, Short-term
Government securities.
Those with surplus
short-term funds
3 weeks -3 months
Bond Funds
(Floating -Long-term)
Regular Income
Credit Risk & Interest Rate Risk
Predominantly Debentures, Government securities, Corporate
Bonds
Salaried & conservative
investors
More than 9 - 12 months
Gilt Funds Security & Income
Interest Rate Risk
Government securities
Salaried & conservative
investors
12 months & more
Equity Funds
Long-term Capital
Appreciation
High Risk Stocks Aggressive investors with
long term outlook.
3 years plus
Index Funds To generate returns that are commensurate with returns of
respective indices
NAV varies with index
performance
Portfolio indices like
BSE, NIFTY etc
Aggressive investors.
3 years plus
Balanced Funds
Growth & Regular Income
Capital Market Risk and Interest Rate Risk
Balanced ratio of equity and debt funds to ensure higher
returns at lower risk
Moderate & Aggressive
2 years plus
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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
3.3 COST INVOLVED IN MUTUAL FUNDS
As with any business, running a mutual fund involves costs — including
shareholder transaction costs, investment advisory fees, and marketing and distribution
expenses. Funds pass along these costs to investors by imposing fees and expenses. It is
important that you understand these charges because they lower your returns. Some funds
impose "shareholder fees" directly on investors whenever they buy or sell shares. In
addition, every fund has regular, recurring, fund-wide "operating expenses." Funds
typically pay their operating expenses out of fund assets — which mean that investors
indirectly pay these costs.
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An investor must know that there are certain costs involved while investing in mutual
funds.
1. OPERATING EXPENSES/EXPENSE RATIO
These refer to cost incurred to operate a mutual fund. Advisory fee is paid to investment
managers, audit fees to charted accountant, custodial fees, register and transfer agent fees,
trustee fees, agent commission. Operating expenses also known as expenses ratio which
is annual expenses expressed as a percentage of these expenses is required to be reported
in the schemes offer document or prospectus.
Expenses ratio =
For instant, if funds Rs. 100 crores and expenses Rs. 20 Lakh. Then expenses ratio is 2%
expenses ratio is available in the offer document and fro historical per unit statistics
included in the financial results of the fund which are published by annually, un audited
for the half year ending September 30th and audited for the physically year end 1st March
30th .
Depending upon scheme and net asset, operating expenses are determined by limits
mandated by SEBI mutual funds regulation act. Any excess over specified limits as to
borne by Management Company, the trustees or sponsors.
2. SALES CHARGES:
These are known commonly sale loads; these are charged directly to investor. Sales
loads are used by mutual fund for the payment of agent’s commission, distribution and
marketing expenses. These charges have no effect on the performance of the scheme.
Sales loads are usually expression percentage and or of two types-
1. Front-end load
2. Back-end load
Operating expenses
Average net assets
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FRONT-END LOAD:
It is a onetime fixed fee paid by an investor when buying a Mutual funds scheme.
It determines public offer price which intern decides how much of your initial investment
actually get invested the standard practice of arriving a public offer price is as follows.
Public offer price =
Let us assume, an investor invests Rs. 10,000 in a scheme that charges it 2% front end
load at a NAV per unit Rs. 10 using the formula public offer price = 10/(1-0.02) is Rs.
10,20. So only 980 units are allowed to the investor.
Number of units allotted =
10,000/10.20= 980 units at a NAV of Rs. 10.
This means units worth 9800 are allotted to him an initial investment Rs.10,000 front end
loads tend to decrease as initial investment amount increase.
BACK END LOAD:
May be fixed fee redemption or a contingent differed sales charged a redemption
so load continues so long as the redeeming or selling of the units of a fund does not take
place in the event of a back end load is applied. The redemption price is arrive or using
following formula.
Redemption price =
Net asset value
(1-front end load)
Amount invested
Public offer price
Net asset value
(1+back end load)
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Let us assume an investor redeems units valued at Rs. 10,000 in a scheme that charges a
2% back, end load at a NAV per units of Rs. 10 using the formula Redemption price
10/(1+0.02)= Rs. 9.8 s, what the investor gets in hand is 9800(9.8*1000).
3. CONTINGENT DEFERRED SALES CHARGES (CDSC):
Contingent differed sales charges of a structured back end load. It is paid when
the units are reading during the initial years of ownership. It is for a predetermined
period only and reduced over the time you invested for a fund, the longer remains in a
fund the lower the CDSC.
The SEBI stipulate the a CDSC may be charge only for first four years after
purchase of units and also stipulate the maximum CDSC that can we charge every year.
This is the SEBI mutual funds regulations 1996 do not allow either the front end load or
back end load to any combination is higher than 7%.
4. TRANSACTION COST:
Some funds may also impose a switch over fee which is charge on transfer of
investment from one scheme to another within a same mutual funds family and also to
switch from one plan to another within same scheme. The real estate mutual funds sector
is now being considered as the engine of economic growth.
The AMC reports to the trustees who safeguard the interests of investors in the
mutual fund and also ensure compliance of the operations of the und with SEBI
guidelines. They not only monitor performance of the AMC but also oversee operations
of the custodian and transfer agent. The AMC receives a fee for its services. Currently,
SEBI permits a maximum fee of 1.25%p.a. of the asset value of the fund size less than
Rs.1bn. As the asset size of the fund increases, this falls progressively to 0.75%p.a. of the
incremental asset value. In addition, SEBI also permits AMCs to charge expense related
to the management of the fund up to certain limits. These are of two kinds of as follows:
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Up front expenses related to fund marketing and initial account opening – up to
maximum of 6%of the investment amount (termed as “load”).
Recurring expenses, which together with the management fees should not exceed certain
limits. The maximum is 2.5% per year for equity funds and 2.25% per year for debt
funds. As the asset size increases, the maximum limit falls progressively to 1.75% of the
incremental assets
First 1bn. Next 3 bn. Next 3 bn. Over 7 bn.
2.5% 2.25% 2.00% 1.75%
Both the management fee and the expenses are charged directly to the mutual fund
scheme.
3.4 TAX SAVING ON MUTUAL FUND
There are two types of Tax-saving funds,
1. Equity-linked savings schemes (ELSS)
2. Pension funds
Equity-linked savings schemes (ELSS)
ELSS schemes are basically diversified equity schemes, which have a three-year
lock-in. Investments here—subject to a maximum of Rs 10,000—receive a tax rebate of 0
to 20 per cent depending on the income slab. As these are equity instruments they have
the maximum risk-return potential among all asset classes. What this means is that return
has a propensity to vary with great intensity. Although an average tax-saving mutual fund
delivered 16.36 per cent in 2002, the range of returns was extreme. Thus, in that year, the
best tax-saving fund delivered 42.61 per cent and the worst was down 3.16 per cent. The
best way to overcome the vagaries of stock markets is to diversify. Diversification can be
across funds and, more importantly, across time periods. By investing regularly every
year in these funds one can set up a long-term systematic investment plan.
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Pension funds
The other route for saving taxes is pension funds, even though there are currently
only two such funds in operation, Franklin Templeton's Templeton India Pension Fund
and UTI's Retirement Benefit Plan. Introduced for the first time in 1997, pension funds
are hybrid schemes, which have a debt orientation, and carry the same tax benefit as
ELSS.
From the tax point of view, bonus units are conceptually similar to dividend
stripping, but somewhat more complex. Bonus units that a fund issue is deemed to have
been acquired at zero cost. Thus, whenever they are sold, the entire sale price is treated as
capital gains. However, at the time of issue of bonus, the NAV of the fund drops in a
proportion that is identical to the ratio at which bonus funds are issued. This fall in the
NAV is a capital loss as far as the original units are concerned and it is here that tax
benefits can be realized. The original units can be sold off with a capital loss, which can
be used to set off other capital gains. The bonus units carry a high tax liability though
since you will pay taxes on the entire sale price.
Here's an example. Suppose you hold 10,000 units of a fund whose NAV is Rs
15. You made the purchase less than a year ago at an NAV of Rs 12. If today you decide
to sell these units, you will fetch Rs 1.5 Lakh, out of which Rs 30,000 will be short-term
capital gain. On this, you are likely to pay a tax of Rs 9,000—30 per cent of gains.
Tax Benefits of Mutual Fund
ELSS ( Equity linked saving scheme ) 3 year lock in period Minimum investment of 90% in equity markets at all times So ELSS investment automatically leads to investment in equity shares Open or closed ended Eligible under Section 80 C up to Rs.1 Lakh allowed Dividends are tax free Benefit of Long term Capital gain taxation
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3.5 TAX RULES FOR MUTUAL FUND INVESTORS (Table 3.2)
PARTICULARS INDIVIDUALS CORPORATES NRI*
DIVIDEND (In the hands of investors)Equity Schemes Tax Free Tax Free Tax FreeDebt Schemes Tax Free Tax Free Tax Free
DIVIDEND DISTRIBUTION TAX (by the scheme)Equity Schemes** Nil Nil NilDebt Schemes 12.5% + 10%
surcharge + 3% cess =14.163%
20% + 10% surcharge + 3% cess=22.66%
12.5% + 10% surcharge + 3% cess =14.163%
Money Market & Liquid Schemes
25% + 10% surcharge + 3% cess = 28.325%
LONG TERM CAPITAL GAINSEquity Schemes** NilDebt Schemes 10% Without Indexation Or 20% With Indexation, Whichever is
lower + 10% surcharge + 3% cessWithout Indexation 11.33%With Indexation 22.66%
SHORT TERM CAPITAL GAINSEquity Schemes** 15% Flat + 10% surcharge + 3% cess = 16.995%Debt Schemes^^ 30% + 10% + 3% = 33.99%
Note: The short term/long term capital gain tax will be deducted at the time of redemption of units in case of NRI investors only. **STT @ 0.25% will be deducted on equity funds at the time of redemption and switch to the other schemes. ^^ assuming highest tax slab rate
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3.6 VARIOUS INVESTMENT OPTIONS IN MUTUAL FUNDS OFFER
To cater to different investment needs; Mutual Funds offer various investment options.
Some of the important investment options include:
1. Growth Option:
Dividend is not paid-out under a Growth Option and the investor realizes only the capital
appreciation on the investment (by an increase in NAV).
2. Dividend Payout Option:
Dividends are paid-out to investors under the Dividend Payout Option. However, the
NAV of the mutual fund scheme falls to the extent of the dividend payout.
3. Dividend Re-investment Option:
Here the dividend accrued on mutual funds is automatically re-invested in purchasing
additional units in open-ended funds. In most cases mutual funds offer the investor an
option of collecting dividends or re-investing the same.
4. Retirement Pension Option:
Some schemes are linked with retirement pension. Individuals participate in these options
for themselves, and corporate participate for their employees.
5. Insurance Option:
Certain Mutual Funds offer schemes that provide insurance cover to investors as an
added benefit.
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3.7 RISKS ASSOCIATED WITH MUTUAL FUNDS
The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns/loss and lower the risk lesser the returns/loss.
Hence it is up to you, the investor to decide how much risk you are willing to take. In
order to do this you must first be aware of the different types of risks involved with your
investment decision.
MARKET RISK
Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be big
corporations or smaller mid-sized companies. This is known as Market Risk. A
Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging
(“RCA”) might help mitigate this risk.
CREDIT RISK
The debt servicing ability (may it be interest payments or repayment of principal)
of a company through its cash flows determines the Credit Risk faced by you. This credit
risk is measured by independent rating agencies like CRISIL who rate companies and
their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered
poor credit quality. A well-diversified portfolio might help mitigate this risk.
INFLATION RISK
Inflation is the loss of purchasing power over time. A lot of times people make
conservative investment decisions to protect their capital but end up with a sum of money
that can buy less than what the principal could at the time of the investment. This
happens when inflation grows faster than the return on your investment. A well-
diversified portfolio with some investment in equities might help mitigate this risk.
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INTEREST RATE RISK
In a free market economy interest rates are difficult if not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise
the prices of bonds fall and vice versa. Equity might be negatively affected as well in a
rising interest rate environment. A well-diversified portfolio might help mitigate this risk.
POLITICAL RISK
Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.
LIQUIDITY RISK
Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid securities.
You have been reading about diversification above, but what is it? Diversification the
nuclear weapon in your arsenal for your fight against Risk. It simply means that you must
spread your investment across different securities (stocks, bonds, money market
instruments, real estate, fixed deposits etc.) and different sectors (auto, textile,
information technology etc.). This kind of a diversification may add to the stability of
your returns, for example during one period of time equities might underperform but
bonds and money market instruments might do well enough to offset the effect of a
slump in the equity markets. Similarly the information technology sector might be faring
poorly but the auto and textile sectors might do well and may protect you principal
investment as well as help you meet your return objectives.
RISK V/S RETURN
3.8 INVESTMENT STRATEGIES
1. Systematic Investment Plan (SIP):
month on a fixed date of a month. Payments are made through post dated cheques
or direct/auto 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 (RCA)
2. Systematic Transfer Plan (STP):
fund and gives instructions to transfer a fixed sum, at a fixed interval, to
scheme of the same mutual fund.
3. Systematic Withdrawal Plan (SWP):
mutual fund then he can withdraw a fixed amount each month.
RISK V/S RETURN
INVESTMENT STRATEGIES IN MUTUAL FUNDS
1. Systematic Investment Plan (SIP): under this a fixed sum is invested each
month on a fixed date of a month. Payments are made through post dated cheques
or direct/auto 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
2. Systematic Transfer Plan (STP): under this an investor invests in debt oriented
fund and gives instructions to transfer a fixed sum, at a fixed interval, to
scheme of the same mutual fund.
3. Systematic Withdrawal Plan (SWP): if someone wishes to withdraw from a
mutual fund then he can withdraw a fixed amount each month.
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under this a fixed sum is invested each
month on a fixed date of a month. Payments are made through post dated cheques
or direct/auto 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
under this an investor invests in debt oriented
fund and gives instructions to transfer a fixed sum, at a fixed interval, to an equity
if someone wishes to withdraw from a
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3.9 VOLATILITY MEASURES FOR EQUITY RELATED FUNDS
With the increasing number of mutual fund schemes, it becomes very difficult for an
investor to choose the type of funds for investment. By using some of the portfolio
analysis tools, he can become more equipped to make a well informed choice. There are
many financial tools to analyze mutual funds. Each has their unique strengths and
limitations as well. Therefore, one needs to use a combination of these tools to make a
thorough analysis of the funds.
One can make a judgment on the quality of a fund from various ratios such as standard
deviation, Sharpe ratio, beta, Treynor measure, R-squared, alpha, portfolio turnover
ratio, total expense ratio etc.
PORTFOLIO TURNOVER
A measure of how frequently assets within a fund are bought and sold by the managers.
Portfolio turnover is calculated by taking either the total amount of new securities
purchased or the amount of securities sold - whichever is less - over a particular period,
divided by the total net asset value (NAV) of the fund. The measurement is usually
reported for a 12-month time period.
The portfolio turnover measurement should be considered by an investor before deciding
to purchase a given mutual fund or similar financial instrument. After all, a firm with a
high turnover rate will incur more transaction costs than a fund with a lower rate. Unless
the superior asset selection renders benefits that offset the added transaction costs they
cause, a less active trading posture may generate higher fund returns.
SHARPE RATIO
A ratio developed by Nobel laureate William F. Sharpe to measure risk-adjusted
performance. The Sharpe ratio is calculated by subtracting the risk-free rate - such as that
of the 10-year U.S. Treasury bond - from the rate of return for a portfolio and dividing
the result by the standard deviation of the portfolio returns. The Sharpe ratio formula is:
The Sharpe ratio tells us whether a portfolio's returns
decisions or a result of excess risk. This measurement is very useful because
one portfolio or fund can reap higher retur
those higher returns do not come with too much additional risk. The greater a portfolio's
Sharpe ratio, the better its risk
indicates that a risk-less
TREYNOR RATIO
A ratio developed by Jack Treynor that measures returns earned in excess of that which
could have been earned on a riskless investment per each unit of market risk.
The Treynor ratio is calculated as:
= (Average Return of the Portfolio
Portfolio
In other words, the Treynor ratio is a risk
risk. It is similar to the Sharpe r
beta as the measurement of volatility.
JENSEN'S MEASURE
A risk-adjusted performance measure that
over and above that predicted by the capital asset p
portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the
concept is sometimes referred to
The Sharpe ratio tells us whether a portfolio's returns are due to smart investment
decisions or a result of excess risk. This measurement is very useful because
one portfolio or fund can reap higher returns than its peers, it is only a good investment if
those higher returns do not come with too much additional risk. The greater a portfolio's
Sharpe ratio, the better its risk-adjusted performance has been. A negative Sharpe ratio
less asset would perform better than the security being analyzed.
A ratio developed by Jack Treynor that measures returns earned in excess of that which
could have been earned on a riskless investment per each unit of market risk.
ratio is calculated as:
the Portfolio - Average Return of the Risk-Free Rate)
In other words, the Treynor ratio is a risk-adjusted measure of return based on systematic
similar to the Sharpe ratio, with the difference being that the Treynor ratio uses
beta as the measurement of volatility.
JENSEN'S MEASURE
adjusted performance measure that represents the average return on a portfolio
over and above that predicted by the capital asset pricing model (CAPM), given the
portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the
referred to as "Jensen's alpha."
Page | 66
are due to smart investment
decisions or a result of excess risk. This measurement is very useful because although
ns than its peers, it is only a good investment if
those higher returns do not come with too much additional risk. The greater a portfolio's
adjusted performance has been. A negative Sharpe ratio
asset would perform better than the security being analyzed.
A ratio developed by Jack Treynor that measures returns earned in excess of that which
could have been earned on a riskless investment per each unit of market risk.
Free Rate) / Beta of the
adjusted measure of return based on systematic
atio, with the difference being that the Treynor ratio uses
represents the average return on a portfolio
ricing model (CAPM), given the
portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the
If the definition above makes your head spin, don't worry: you aren't
technical term that has its roots in financial theory.
The basic idea is that to analyze the performance of an investment manager you must
look not only at the overall return of a portfolio, but also at the risk of that portfolio. For
example, if there are two mutual funds that both have a 12% return, a rational investor
will want the fund that is less risky. Jensen's measure is one of the ways to help
determine if a portfolio is earning the proper return for its level of risk. If the
positive, then the portfolio is earning excess returns. In other words, a positive value for
Jensen's alpha means a fund manager has "beat the market" with his or her stock picking
skills.
ALPHA (α)
A measure of performance on a risk
of a mutual fund and compares
excess return of the fund relative to the return of the benchmark index is a fund's alpha.
A positive alpha of 1.0 means th
Correspondingly, a similar negative alpha would indicate an
BETA (β)
A measure of the volatility, or systematic risk,
to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model
that calculates the expected return of an asset based on its beta and expected market
returns.
If the definition above makes your head spin, don't worry: you aren't
that has its roots in financial theory.
The basic idea is that to analyze the performance of an investment manager you must
look not only at the overall return of a portfolio, but also at the risk of that portfolio. For
example, if there are two mutual funds that both have a 12% return, a rational investor
will want the fund that is less risky. Jensen's measure is one of the ways to help
determine if a portfolio is earning the proper return for its level of risk. If the
positive, then the portfolio is earning excess returns. In other words, a positive value for
Jensen's alpha means a fund manager has "beat the market" with his or her stock picking
A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk)
of a mutual fund and compares its risk-adjusted performance to a benchmark index. The
excess return of the fund relative to the return of the benchmark index is a fund's alpha.
alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, a similar negative alpha would indicate an underperformance of 1%.
A measure of the volatility, or systematic risk, of a security or a portfolio in comparison
whole. Beta is used in the capital asset pricing model (CAPM), a model
that calculates the expected return of an asset based on its beta and expected market
Page | 67
If the definition above makes your head spin, don't worry: you aren't alone! This is a very
The basic idea is that to analyze the performance of an investment manager you must
look not only at the overall return of a portfolio, but also at the risk of that portfolio. For
example, if there are two mutual funds that both have a 12% return, a rational investor
will want the fund that is less risky. Jensen's measure is one of the ways to help
determine if a portfolio is earning the proper return for its level of risk. If the value is
positive, then the portfolio is earning excess returns. In other words, a positive value for
Jensen's alpha means a fund manager has "beat the market" with his or her stock picking
basis. Alpha takes the volatility (price risk)
adjusted performance to a benchmark index. The
excess return of the fund relative to the return of the benchmark index is a fund's alpha.
outperformed its benchmark index by 1%.
underperformance of 1%.
of a security or a portfolio in comparison
whole. Beta is used in the capital asset pricing model (CAPM), a model
that calculates the expected return of an asset based on its beta and expected market
Page | 68
Beta is calculated using regression analysis, and you can think of beta as the tendency of
a security's returns to respond to swings in the market. A beta of 1 indicates that the
security's price will move with the market. A beta of less than 1 means that the security
will be less volatile than the market. A beta of greater than 1 indicates that the security's
price will be more volatile than the market. For example, if a stock's beta is 1.2, it's
theoretically 20% more volatile than the market.
R-SQUARED
R squared is the square of ‘R’ (i.e.; Coefficient of Correlation). It describes the level of
association between the fun’s market volatility and market risk. The value of R- squared
ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a
reliable measure to analyze the performance of a fund. Beta should be ignored when the
r-squared is low as it indicates that the fund performance is affected by factors other than
the markets.
R-squared values range from 0 to 100. An R-squared of 100 means that all movements of
a security are completely explained by movements in the index. A high R-squared
(between 85 and 100) indicates the fund's performance patterns have been in line with the
index. A fund with a low R-squared (70 or less) doesn't act much like the index.
Table 3.3
For Example
Case 1 Case 2
R2 0.65 0.88
B 1.2 0.9
Page | 69
In the above tableR2 is less than 0.80 in case 1 implies that it would be wrong to mention
that the fund is aggressive on account of high beta. In case 2, the R- squared is more than
0.85 and beta value is 0.9. It means that this fund is less aggressive than the market.
A higher R-squared value will indicate a more useful beta figure. For example, if a fund
has an R-squared value of close to 100 but has a beta below 1, it is most likely offering
higher risk-adjusted returns. A low R-squared means you should ignore the beta.
STANDARD DEVIATION
In simple terms standard deviation is one of the commonly used statistical parameter to
measure risk, which determines the volatility of a fund. Deviation is defined as any
variation from a mean value (upward & downward). Since the markets are volatile, the
returns fluctuate every day. High standard deviation of a fund implies high volatility and
a low standard deviation implies low volatility.
TOTAL EXPENSE RATIO
A measure of the total costs associated with managing and operating an investment fund
such as a mutual fund. These costs consist primarily of management fees and
additional expenses such as trading fees, legal fees, auditor fees and other operational
expenses. The total cost of the fund is divided by the fund's total assets to arrive at a
percentage amount, which represents the TER:
Total Expense Ratio = (Total Fund Costs/ Total Fund Assets)
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3.10 MEASURES FOR DEBT FUNDS
YIELD TO MATURITY - YTM
The rate of return anticipated on a bond if it is held until the maturity date. YTM is
considered a long-term bond yield expressed as an annual rate. The calculation of YTM
takes into account the current market price, par value, coupon interest rate and time to
maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes
this is simply referred to as "yield" for short.
An approximate YTM can be found by using a bond yield table. However, because
calculating a bond's YTM is complex and involves trial and error, it is usually done by
using a programmable business calculator.
WEIGHTED AVERAGE MATURITY (WAM)
The weighted average of the time until all maturities on mortgages in a mortgage-backed
security (MBS). The higher the weighted average to maturity, the longer the mortgages in
the security have until maturity. Also known as "average effective maturity".
The measure is calculated by totaling each mortgage value represented by the MBS. The
weights of each mortgage are found by dividing the value of each into the total of all. To
arrive at the WAM number the weight of each security is multiplied by the time until
maturity of each mortgage, and then all the values are added together. For example say an
MBS has three mortgages valued at $1,000, $2,000 and $3,000 (a total of $6,000) and
mature in one, two and three years respectively. The weights of these are 1/6
(1,000/6,000), 1/3 (2,000/6,000) and 1/2 (3,000/6,000). The WAM is 2 1/3 years (1/6 x 1
year + 1/3 x 2 years + 1/2 x 3 years).
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3.11 DEBT OPTIONS
CERTIFICATE OF DEPOSIT (CD)
A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a
specified fixed interest rate and can be issued in any denomination. CDs are generally
issued by commercial banks and are insured by the FDIC. The term of a CD
generally ranges from one month to five years.
A certificate of deposit is a promissory note issued by a bank. It is a time deposit
that restricts holders from withdrawing funds on demand. Although it is still possible to
withdraw the money, this action will often incur a penalty.
COMMERCIAL PAPER
An unsecured, short-term debt instrument issued by a corporation, typically
for the financing of accounts receivable, inventories and meeting short-term liabilities.
Maturities on commercial paper rarely range any longer than 270 days. The
debt is usually issued at a discount, reflecting prevailing market interest rates.
Commercial paper is not usually backed by any form of collateral, so only firms
with high-quality debt ratings will easily find buyers without having to offer a substantial
discount (higher cost) for the debt issue.
DEBENTURE
In law, a debenture is a document that either creates a debt or acknowledges it.
In corporate finance, the term is used for a medium- to long-term debt instrument used by
large companies to borrow money. In some countries the term is used interchangeably
with bond, loan stock or note. Debentures are generally freely transferable by the
debenture holder. Debenture holders have no voting rights and the interest paid to them is
a charge against profit in the company's financial statements.
Page | 72
CONVERTIBLE DEBENTURES
A type of loan issued by a company that can be converted into stock by the holder and,
under certain circumstances, the issuer of the bond. By adding the convertibility option
the issuer pays a lower interest rate on the loan compared to if there was no option to
convert. These instruments are used by companies to obtain the capital they need to grow
or maintain the business.
Convertible debentures are different from convertible bonds because debentures
are unsecured; in the event of bankruptcy the debentures would be paid after other fixed
income holders. The convertible feature is factored into the calculation of the diluted per-
share metrics as if the debentures had been converted. Therefore, a higher share count
reduces metrics such as earnings per share, which is referred to as dilution.
NON CONVERTIBLE DEBENTURES
Non-convertible debentures, which are simply regular debentures, cannot be converted
into equity shares of the liable company. They are debentures without the convertibility
feature attached to them. As a result, they usually carry higher interest rates than their
convertible counterparts.
ZERO-COUPON BOND
A debt security that doesn't pay interest (a coupon) but is traded at a deep discount,
rendering profit at maturity when the bond is redeemed for its full face value.
Also known as an "accrual bond".
Some zero-coupon bonds are issued as such, while others are bonds that have
been stripped of their coupons by a financial institution and then repackaged as zero-
coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend
to fluctuate in price much more than coupon bonds.
PASS THROUGH CERTIFICATE
Pass-Through Certificates
more Equipment Trust Certificates
bundled into a pass-through structure as a means of diversifying the asset pool and/or
increasing the size of the offering. The principal and interest payments on the
Trust Certificates are "passed through" to certificate holders.
TREASURY BILL
Treasury bills (or T-Bills
not pay interest prior to maturity; instead they are
create a positive yield to maturity
Regular weekly T-
weeks, about a month), 91 days (or 13 weeks, about 3 months), 182 days (or
about 6 months), and 364 days (or 52 weeks, about 1 year). Treasury bills are sold
by auctions held weekly.
PASS THROUGH CERTIFICATE
Through Certificates (PTCs) are instruments that evidence the ownership of two or
Equipment Trust Certificates. In other words, Equipment Trust Certificates
through structure as a means of diversifying the asset pool and/or
increasing the size of the offering. The principal and interest payments on the
are "passed through" to certificate holders.
Bills) mature in one year or less. Like zero-coupon bonds
prior to maturity; instead they are sold at a discount
yield to maturity.
-Bills are commonly issued with maturity dates of 28 days (or 4
weeks, about a month), 91 days (or 13 weeks, about 3 months), 182 days (or
about 6 months), and 364 days (or 52 weeks, about 1 year). Treasury bills are sold
weekly.
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(PTCs) are instruments that evidence the ownership of two or
pment Trust Certificates may be
through structure as a means of diversifying the asset pool and/or
increasing the size of the offering. The principal and interest payments on the Equipment
coupon bonds, they do
discount of the par value to
Bills are commonly issued with maturity dates of 28 days (or 4
weeks, about a month), 91 days (or 13 weeks, about 3 months), 182 days (or 26 weeks,
about 6 months), and 364 days (or 52 weeks, about 1 year). Treasury bills are sold
Page | 74
3.11 REGULATION OF MUTUAL FUNDS IN INDIA
The Indian mutual fund industry witnessed robust growth and stricter regulation from
SEBI since 1996. The mobilization of funds and the number of players operating in the
industry reached new heights as investors started showing more interest in mutual funds.
Safeguarding the interest of investors is one of the duties of SEBI. Consequently SEBI
(Mutual Fund) Regulations, 1996 and certain other guidelines have been issued by SEBI
that sets uniform standards for all mutual funds in India.
ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
The mutual fund industry has a trade association called Association of Mutual Funds in
India (AMFI) modeled on the lines of a Self Regulating Organization (SRO) with a view
to 'promoting and protecting the interest of mutual funds and their unit-holders,
increasing public awareness of mutual funds, and serving the investor’s interest by
defining and maintaining high ethical and professional standards in the mutual funds
industry'. AMFI plays an important role in disciplining members and assist the regulatory
authority in protecting investors' interest.
AMFI works through a number of committees, some of which are standing committees to
address areas where there is a need for constant vigil and improvements and other which
are ad-hoc committees constituted to address specific issues. These committees consist
of industry professionals from among the member mutual funds. AMFI has now decided
to become a self-regulatory organization since it has worked very effectively as an
industry body.
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.
Page | 75
3.12 PROMOTION OF SIP SCHEME (Systematic Investment Plan)
Periodic investments are referred to as a SIP.
That means that, every month, you commit to investing, say, Rs 1,000 in your fund. At the end of a year, you would have invested Rs 12,000 in your fund.
Let's say the NAV on the day you invest in the first month is Rs 20; you will get 50 units.
The next month, the NAV is Rs 25. You will get 40 units.
The following month, the NAV is Rs 18. You will get 55.56 units.
So, after three months, you would have 145.56 units. On an average, you would have paid around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs 1,000. When the NAV falls, you get more units per Rs 1,000.
Table3.4
Page | 76
Page | 77
6.2 SIP CASE STUDY Market hit a high of 5450 in Mar 2000.
Market crashed to lows of 2600.
It took almost 4.5 years for the market to scale back the level of 5400 in Sep
2004.
Let’s see how the SIP investors fared in that scenario.
INVESTOR 1 – PANIC INVESTORS (Table 3.5)
These investors had started their SIP of Rs. 2000 in Mar 2000 peak. With the decline in
the market they panicked & stopped their SIP in a span of 13 months.
SIP Start Date Mar-00
SIP End Date Mar-01
No. of installments 13
Scheme Name InvestmentValue in Mar 01 Returns
Reliance Growth 26,000 18,846 -46.1%
HDFC Equity Fund 26,000 20,870 -33.9%
ICICI Technology Fund 26,000 14,944 -67.3%
Birla New Millennium 26,000 14,596 -69.0%
These investors actually made a loss on their SIPs by stopping it in the downturn.
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INVESTOR 2 – SMART INVESTORS (Table 3.6)
These investors had started their SIP of Rs. 2000 in Mar 2000 peak. They continued their
SIP and kept on investing in the SIPs.
SIP Start Date Mar-00
No. of installments 55
Scheme Name InvestmentValue in Sep 04 Returns
Reliance Growth 1,10,000 3,25,736 50.5%
HDFC Equity Fund 1,10,000 2,53,337 38.1%
ICICI Technology Fund 1,10,000 1,74,300 20.5%
Birla New Millennium 1,10,000 1,64,224 17.8%
These investors have made phenomenal returns even though market has delivered no return (From 5400 level in Mar 2000 to 5400 level in Sep 2004)
Page | 79
INVESTOR 3 – NEW INVESTORS (Table 3.7)
These investors started their SIP of Rs. 2000 in Mar 2001, 1 year after the fall in the market
SIP Start Date Mar-01
No. of installments 43
Scheme Name InvestmentValue in Sep
04 Returns
Reliance Growth 86,000 2,48,528 66.8%
HDFC Equity Fund 86,000 1,90,341 48.3%
ICICI Technology Fund 86,000 1,50,844 33.2%
Birla New Millennium 86,000 1,43,954 30.3%
Investors who have started SIP in lean period have made fantastic returns
6.3 DO WE REALLY NEED TO BE AFRAID WHILE INVESTING IN SIP?
Investments of Rs.10000/
during the period of 13 Years.
And finally, with the current correction, its NAV has fallen by 50% 3 times over the
period of past 14 years.
Even after the current fall, the fund is still delivering a CAGR of 29% widely beating the
index which has given 8.3% returns.
The Absolute returns from the fund even after the current fall are staggering 3529.72%.
Equity investments through Mutual Funds deliver 15
Bull and bear market cycles are nature of Equity markets and are going to continue in
future also.
DO WE REALLY NEED TO BE AFRAID WHILE INVESTING IN SIP?
Investments of Rs.10000/- becomes Rs.276947/- even after several falls in the NAV
during the period of 13 Years.
And finally, with the current correction, its NAV has fallen by 50% 3 times over the
period of past 14 years.
Even after the current fall, the fund is still delivering a CAGR of 29% widely beating the
index which has given 8.3% returns.
urns from the fund even after the current fall are staggering 3529.72%.
Equity investments through Mutual Funds deliver 15-20% of returns over Long term.
Bull and bear market cycles are nature of Equity markets and are going to continue in
Page | 80
DO WE REALLY NEED TO BE AFRAID WHILE INVESTING IN SIP? (Table 3.8)
even after several falls in the NAV
And finally, with the current correction, its NAV has fallen by 50% 3 times over the
Even after the current fall, the fund is still delivering a CAGR of 29% widely beating the
urns from the fund even after the current fall are staggering 3529.72%.
20% of returns over Long term.
Bull and bear market cycles are nature of Equity markets and are going to continue in
Page | 81
Page | 82
CHAPTER 4
ANALYSISAND
INTERPRETATION
Page | 83
PROFILE OF THE RESPONDENTS (Table 4.1)
Gender Male 75Female 25
Age <30 Years 2530-40 Years 2840-50 Years 1550-60 Years 20>60 Years 12
Occupation Service 60Business 10Student 15Professional 5Retired 10
Income Level <2 Lakhs 202-5 Lakhs 605-8 Lakhs 138-12 Lakhs 5>12 Lakhs 2
Savings Yearly 5% 365%-10% 2410%-15% 2615%-20% 11>20% 3
Education <=8 Standards 5<=12 Standards 15Graduate 55Post Graduate 20Doctorate & Others 5
Marital Status Married 65Single 35
What is your primary objective for your investment?
Frequency
Preservation of PrincipalRegular IncomeGrowth and IncomeConservative Growth
Aggressive GrowthTax BenefitTotal
15% investors are more interested in tax benefit in their
15% investors look for aggressive growth in their primary objective for investment
10% investors look for conservative growth in their primary objective for investment
35% investors look for growth & income both in their p
15% investors look for regular income in their primary objective for investment
10% investors look for preservation of principal in their primary objective for investment
So the majority of respondents
investment.
0
Preservation of Principal
Regular Income
Growth and Income
Conservative Growth
Aggressive Growth
Tax Benefit
Primary Objective for Investment
What is your primary objective for your investment? (Table 4.2)
Frequency Percent Valid Percent
Cumulative Percent
10 10.0 10.0 10.0
15 15.0 15.0 25.035 35.0 35.0 60.010 10.0 10.0 70.0
15 15.0 15.0 85.015 15.0 15.0 100.0
100 100.0 100.0
15% investors are more interested in tax benefit in their primary objective for investment
15% investors look for aggressive growth in their primary objective for investment
10% investors look for conservative growth in their primary objective for investment
35% investors look for growth & income both in their primary objective for investment
15% investors look for regular income in their primary objective for investment
10% investors look for preservation of principal in their primary objective for investment
respondents look for growth & income as a primary objective for
10 20 30 40
10
15
35
10
15
15
Primary Objective for Investment
Primary Objective for Investment
Page | 84
primary objective for investment
15% investors look for aggressive growth in their primary objective for investment
10% investors look for conservative growth in their primary objective for investment
rimary objective for investment
15% investors look for regular income in their primary objective for investment
10% investors look for preservation of principal in their primary objective for investment
me as a primary objective for
Page | 85
Do you know about the Mutual Funds? (Table 4.3)
Frequency Percent Valid Percent
Cumulative Percent
Yes 33 33.0 33.0 33.0No 67 67.0 67.0 100.0Total 100 100.0 100.0
There are 33% investors have knowledge about MFs
There are 67% investors don’t have knowledge about MFs
So the majority of respondents don’t know about MFs.
33
67
Knowledge about MF
Yes
No
Do you know that mutual fund is related to share market?
Frequency Percent
Yes 50No 30Don’t Know
20
Total 100 100.0
50% investors have knowledge about the relationship of MFs & Stock Exchange
30% investors don’t have knowledge about the relationship of MFs &
20% investors ticked no idea.
So the majority of respondents
05
101520253035404550
Yes
50
Relationship between MF & Stock
Do you know that mutual fund is related to share market? (Table 4.4)
Percent Valid Percent
Cumulative Percent
50.0 50.0 50.030.0 30.0 80.020.0 20.0 100.0
100.0 100.0
50% investors have knowledge about the relationship of MFs & Stock Exchange
30% investors don’t have knowledge about the relationship of MFs &
20% investors ticked no idea.
y of respondents know about the relationship of MFs & Stock Exchange
No Dont Know
30
20
Relationship between MF & Stock Exchange
Relationship between MF & Stock Exchange
Page | 86
50% investors have knowledge about the relationship of MFs & Stock Exchange
30% investors don’t have knowledge about the relationship of MFs & Stock Exchange
know about the relationship of MFs & Stock Exchange
Relationship between MF & Stock
Relationship between MF & Stock Exchange
Page | 87
Have you ever invested in mutual fund? (Table 4.5)
Frequency Percent Valid Percent
Cumulative Percent
Yes 30 30.0 30.0 30.0no 70 70.0 70.0 100.0Total 100 100.0 100.0
30% investors invested in MFs
70% investors never invested in MFs
So the majority of respondents never invested in MFs.
30
70
Have you ever invested in MFs
Yes
no
If no: What is (are) the reason?
Never Thought about itLack of KnowledgeRisky
Do not have enough savingsTotal
5% investors say that they never thought about
45% investors say that they have very less knowledge about MFs
35% investors say that it’s very risky to invest in MFs
15% investors don’t have enough savings for investing in MF
So the majority of respondents
5
35
15
Reason not to invested in MFs
If no: What is (are) the reason? (Table 4.6)
Frequency Percent Valid Percent
Cumulative Percent
5 5.0 5.045 45.0 45.035 35.0 35.0
15 15.0 15.0100 100.0 100.0
5% investors say that they never thought about investing in MFs
45% investors say that they have very less knowledge about MFs
35% investors say that it’s very risky to invest in MFs
15% investors don’t have enough savings for investing in MF
So the majority of respondents have very less knowledge about MFs
45
Reason not to invested in MFs
Never Thought about it
Lack of Knowledge
Risky
Do not have enough savings
Page | 88
Cumulative Percent
5.050.085.0
100.0
Page | 89
If yes, which company/companies? (Table 4.7)
Frequency Percent Valid Percent
Cumulative Percent
Franklin Templeton
10 10.0 10.0 10.0
Reliance M.F 30 30.0 30.0 40.0Birla sun life 6 6.0 6.0 46.0ICICI M.F. 3 3.0 3.0 49.0
Sundaram Finance
2 2.0 2.0 51.0
LIC mutual fund 5 5.0 5.0 56.0UTI mutual fund 6 6.0 6.0 62.0SBI M.F. 8 8.0 8.0 70.0Kotak Mahindra 8 8.0 8.0 78.0
Tata mutual fund 10 10.0 10.0 88.0Others 12 12.0 12.0 100.0Total 100 100.0 100.0
1030
63
2
56
88
1012
0 5 10 15 20 25 30 35
Franklin Templeton
Reliance M.FBirla sun life
ICICI M.F.Sundaram Finance
LIC mutual fund
UTI mutual fundSBI M.F.
Kotak MahindraTata mutual fund
Others
Which MF company
Which MF company
Page | 90
10% investors invested in Franklin Templeton
30% investors invested in Reliance Mutual Fund
6% investors invested in Birla Sun Life Mutual Fund
3% investors invested in ICICI Mutual Fund
2% investors invested in Sundaram Finance Mutual Fund
5% investors invested in LIC Mutual Fund
6% investors invested in UTI Mutual Fund
8% investors invested in SBI Mutual Fund
8% investors invested in Kotak Mahindra Mutual Fund
10% investors invested in TATA Mutual Fund
12% investors invested in Other Mutual Funds
So the majority of respondents have invested in Reliance Mutual Fund
If Reliance Mutual Fund; what are the reasons?
Brand nameVarietiesAvailabilityGood ServicePast Performance of fund
Total
20% investors say that they invested because of Brand Name
15% investors say that they invested because of Varieties of
10% investors say that availability is the main reason to invest
10% investors say that good service is the main reason to invest in Reliance MF
45% investors say that past performance of fund is the main reason to invest in Reliance
MF
So the majority of respondents
important reason to invest in Reliance MF
2015
Reason for selecting Reliance MFReason for selecting Reliance MF
al Fund; what are the reasons? (Table 4.8)
Frequency Percent Valid Percent
Cumulative Percent
20 20.0 20.0 20.015 15.0 15.0 35.010 10.0 10.0 45.010 10.0 10.0 55.045 45.0 45.0 100.0
100 100.0 100.0
20% investors say that they invested because of Brand Name
15% investors say that they invested because of Varieties of schemes
10% investors say that availability is the main reason to invest
10% investors say that good service is the main reason to invest in Reliance MF
45% investors say that past performance of fund is the main reason to invest in Reliance
ority of respondents believe that Past Performance is the main & the most
important reason to invest in Reliance MF
10 10
45
Reason for selecting Reliance MFReason for selecting Reliance MF
Page | 91
Cumulative Percent
20.035.045.055.0
100.0
schemes
10% investors say that good service is the main reason to invest in Reliance MF
45% investors say that past performance of fund is the main reason to invest in Reliance
believe that Past Performance is the main & the most
Why do you prefer investment in mutual fund to other investment avenue?
Frequency
Lack of expertise in stock marketBetter return over a long period of timeLiquidity
Tax efficiencyTransparencyTotal
20% investors prefer MF because of Lack of expertise in Stock Market
25% investors prefer MF because of Better returns over a long period of time
18% investors prefer MF because of Liquidity
25% investors prefer MF because of Tax efficiency of MF
12% investors prefer MF
So the majority of respondents
& its Tax efficiency
18
2512
Reason for investment in MFsLack of expertise in stock market
Better return over a long period of time
Liquidity
Tax efficiency
Transparency
Why do you prefer investment in mutual fund to other investment avenue?
Frequency Percent Valid Percent
Cumulative Percent
20 20.0 20.0 20.0
25 25.0 25.0 45.0
18 18.0 18.0 63.0
25 25.0 25.0 88.012 12.0 12.0 100.0
100 100.0 100.0
prefer MF because of Lack of expertise in Stock Market
25% investors prefer MF because of Better returns over a long period of time
18% investors prefer MF because of Liquidity
25% investors prefer MF because of Tax efficiency of MF
12% investors prefer MF because of Transparency in MF
So the majority of respondents prefer MF because of Better returns over a long period of time
20
25
Reason for investment in MFsLack of expertise in stock market
Better return over a long period of time
Tax efficiency
Transparency
Page | 92
Why do you prefer investment in mutual fund to other investment avenue? (Table 4.9)
prefer MF because of Lack of expertise in Stock Market
25% investors prefer MF because of Better returns over a long period of time
prefer MF because of Better returns over a long period of time
Page | 93
Which are the primary sources of your knowledge about Mutual Funds as an investment
option? Corresponding to your choices how would you rate their influence on your final
Mutual Fund purchase decision? (Table 4.10)
Source Least
Influential
Less
Influential
Neutral More
Influential
Most
Influential
Total
out
of
500
Rank
TV 27 66 63 40 45 241 4
Internet 40 44 48 44 55 231 6
Newspaper 10 58 87 80 60 295 3
Scholarly
Journals/Article
31 64 48 48 45 236 5
Friends/Relative 10 30 33 172 105 350 1
Financial
Advisor/CA
13 62 42 104 80 301 2
Table-1 is clearly showing that friends & relatives have greater impact on the decision of
investment after that financial advisors & CA make the difference in investment decision.
Hence it is concluded that the majority of the respondents prefer suggestions from
friends/relatives while selecting any investment in mutual funds.
Page | 94
How do you prioritize the reason for investment? (Table 4.11)
Source Least
Influential
Less
Influential
Neutral More
Influential
Most
Influential
Total
out
of
500
Rank
Savings for
Future
10 40 69 76 140 335 4
Tax incentives 18 34 48 100 120 320 6
Returns 6 28 78 64 190 366 1
Future Outlook 8 24 48 148 135 363 2
Brand Value 14 24 51 116 140 345 3
Risk Factor 17 30 57 100 120 324 5
Table-2 clearly portrays ranking for the reasons for investment by respondents. Majority of
respondents prioritize their investment according to the returns of investment avenues then
after the second reason behind the investment is future outlook about the needs & wants of
individual.
Page | 95
Rank the various investments that you would invest your sum in? (Table 4.12)
Source Least
Influential
Less
Influential
Neutral More
Influential
Most
Influential
Total
out
of
500
Rank
Stocks 22 28 54 84 125 313 4
RBI Bonds 23 18 141 48 45 275 7
Company
Debentures
18 14 168 48 35 283 6
Mutual Funds 30 24 48 80 110 292 5
Insurance
Products
19 20 36 160 95 330 3
Fixed Deposits 5 30 42 100 205 382 1
Post Office
Scheme
15 8 72 156 90 341 2
Table-3 is clearly showing ranking for the various investment avenues. Majority of
respondents prefer fixed deposits as the most preferred investment avenue because of the less
risk & more security in nationalized banks and the second most preferred avenue is post office
schemes.
Page | 96
What factors affect your decision for investment in Mutual Fund? (Table 4.13)
Source Least
Influential
Less
Influential
Neutral More
Influential
Most
Influential
Total
out
of
500
Rank
Economic
Scenario
20 26 66 132 60 304 5
Company Image 8 22 48 116 180 374 2
Fund Manager’s
Image
20 26 75 84 105 310 4
Tax Incentive 9 52 30 60 200 351 3
Fund
Performance
2 6 39 116 265 428 1
Table-4 shows that ranking for the factors affect the decision for investment in mutual
fund. Majority of respondents see fund performance as the first & foremost factor while
investing in mutual fund.
What kind of investment schemes you prefer in Mutual Fund?
Frequency
Growth schemesBalanced schemesELSS
Sector specific schemesIncome schemesTotal
51% investors prefer growth schemes
10% investors prefer balanced schemes
12% investors prefer ELSS schemes
17% investors prefer sector specific schemes
10% investors prefer income
So the majority of respondents
0102030405060 51
10 12
MF Schemes Preference
What kind of investment schemes you prefer in Mutual Fund? (Table 4.14)
Frequency Percent Valid Percent
Cumulative Percent
51 51.0 51.0 51.010 10.0 10.0 61.012 12.0 12.0 73.0
17 17.0 17.0 90.010 10.0 10.0 100.0
100 100.0 100.0
51% investors prefer growth schemes
10% investors prefer balanced schemes
12% investors prefer ELSS schemes
17% investors prefer sector specific schemes
10% investors prefer income schemes
So the majority of respondents prefer growth schemes.
1710
MF Schemes Preference
MF Schemes Preference
Page | 97
(Table 4.14)
Cumulative
51.061.073.0
90.0100.0
Page | 98
(Table 4.15): what is your Primary objective? *Age Cross-tab
S.No. What is your primary objective for your investment?/ Age
<30 years
30-40years
40-50years
50-60years
>60years Total
1. Preservation of Principal 10.0% 10.0%2 Regular Income 15.0% 15.0%3. Growth and Income 28.0% 7.0% 35.0%4. Conservative Growth 8.0% 2.0% 10.0%5. Aggressive Growth 15.0% 15.0%6. Tax Benefit 3.0% 12.0% 15.0%Total 25.0% 28.0% 15.0% 20.0% 12.0% 100.0%
Interpretation-
35% respondents prefer Growth & Income option and that group belong to the age group
of 30-40 years.
25% respondents belong to the age group of less than 30 years and those respondents
prefer two kind of objective in their investment i.e. preservation of principle and regular income.
(Table 4.16): What is your primary objective for your investment? * Occupation Cross-tab
S.No. What is your primary objective for your investment ?/ Occupation
Service Business Student Professional Retired Total
1. Preservation of Principal
10.0% 10.0%
2. Regular Income 15.0% 15.0%3. Growth and Income 35.0% 35.0%4. Conservative Growth 10.0% 10.0%5. Aggressive Growth 15.0% 15.0%6. Tax Benefit 5.0% 10.0% 15.0%Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0%
Page | 99
Interpretation-
35% respondents prefer growth & income as their primary objective of investment and
that falls under service sector based respondents.
Service sector based respondents prefer only preservation of principle, regular income
and growth & income as their primary objective for their investment.
(Table 4.17): What is your primary objective for your investment? * Income level Cross-
tab
S.No. What is your primary objective for your investment?/ Income level
<2 Lacs
2-5Lacs
5-8Lacs
8-12Lacs
>12Lacs Total
1. Preservation of Principal 10.0% 10.0%2 Regular Income 10.0% 5.0% 15.0%3. Growth and Income 35.0% 35.0%4. Conservative Growth 10.0% 10.0%5. Aggressive Growth 10.0% 5.0% 15.0%6. Tax Benefit 8.0% 5.0% 2.0% 15.0%Total 20.0% 60.0% 13.0% 5.0% 2.0% 100.0%
Interpretation-
60% of the investment comes from the 2-5 lakhs per annum income level group of respondents.
These respondents prefer regular income, growth & income, conservative growth and also
aggressive growth as their primary objective for investment.
Page | 100
(Table 4.18): What is your primary objective for your investment? * Marital StatusCross-tab
S.No. What is your primary objective for your investment ?/ Marital Status
Single Married Total
1. Preservation of Principal 10.0% 10.0%2 Regular Income 15.0% 15.0%3. Growth and Income 10.0% 25.0% 35.0%4. Conservative Growth 10.0% 10.0%5. Aggressive Growth 15.0% 15.0%6. Tax Benefit 15.0% 15.0%Total 35.0% 65.0% 100.0%
Interpretation-
65% respondents are married and they prefer growth & income, conservative growth, aggressive
growth and tax benefits also as their primary objective for investment.
(Table 4.19): Do you know about the Mutual Funds? * Age Cross-tab
S.No. Do you know about the Mutual Funds?/ Age
<30 years
30-40years
40-50years
50-60years
>60years Total
1. Yes 25.0% 8.0% 33.0%2 No 20.0% 15.0% 20.0% 12.0% 67.0%Total 25.0% 28.0% 15.0% 20.0% 12.0% 100.0%
Interpretation-
67% of respondents are not aware about the mutual funds, functioning of it and the benefits of it.
Most of them fall under the 30-40 years and in this age group out of 28% respondents 20% are
not aware about mutual fund’s benefits.
Page | 101
(Table 4.20): Do you know about the Mutual Funds? * Occupation Cross-tab
S.No. Do you know about the Mutual Funds?/ Occupation
Service Business Student Professional Retired Total
1.2
Yes 33.0% 33.0%No 27.0% 10.0% 15.0% 5.0% 10.0% 67.0%
Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0%
Interpretation-
Out of 60% service sector based respondents 27% respondents are not aware about the mutual
funds, functioning of it and the benefits of it.
(Table 4.21): Do you know about the Mutual Funds? * Income level Cross-tab
S.No. Do you know about the Mutual Funds? / Income level
<2 Lacs 2-5Lacs 5-8Lacs 8-12Lacs
>12Lacs Total
1. Yes 20.0% 13.0% 33.0%2. No 47.0% 13.0% 5.0% 2.0% 67.0%Total 20.0% 60.0% 13.0% 5.0% 2.0% 100.0%
Interpretation-
Out of 60% 2-5 lakhs per annum income level respondents 47% respondents are not aware about
the mutual funds, functioning of it and the benefits of it.
Page | 102
(Table 4.22): Have you ever invested in mutual fund? * Age Cross-tab
S.No. Have you ever invested in mutual fund?/ Age
<30 years
30-40years
40-50years
50-60years
>60years Total
1. Yes 25.0% 5.0% 30.0%2. no 23.0% 15.0% 20.0% 12.0% 70.0%Total 25.0% 28.0% 15.0% 20.0% 12.0% 100.0%
Interpretation-
Young generation is quick in response and investing in mutual fund in very early age as they get
a job but the main age group of 30-40 years, out of 28% respondents 23% respondents never
invested their money in mutual fund.
(Table 4.23): Have you ever invested in mutual fund? * Occupation Cross-tab
S.No. Have you ever invested in mutual fund?/ Occupation
Service Business Student Professional Retired Total
1.2.
Yes 30.0% 30.0%no 30.0% 10.0% 15.0% 5.0% 10.0% 70.0%
Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0%
Interpretation-
Service sector based respondents; out of 60% respondents 30% respondents never invested their
money in mutual fund.
Page | 103
(Table 4.24): Have you ever invested in mutual fund? * Income level Cross-tab
S.No. Have you ever investedin mutual fund?/ Income level
<2 Lacs 2-5Lacs 5-8Lacs 8-12Lacs
>12Lacs Total
1.2.
Yes 20.0% 10.0% 30.0%no 50.0% 13.0% 5.0% 2.0% 70.0%
Total 20.0% 60.0% 13.0% 5.0% 2.0% 100.0%
Interpretation-
In the 2-5 Lakhs per annum income level group; Out of 60% respondents 50% respondents never
invested their money in mutual fund.
(Table 4.25): If no: What is/are the reason? * Age Cross-tab
S.No. If no: What is/are the reason?/ Age
<30 years
30-40years
40-50years
50-60years
>60years Total
1. Never Thought about it 5.0% 5.0%2. Lack of Knowledge 20.0% 25.0% 45.0%3. Risky 3.0% 15.0% 17.0% 35.0%4. Do not have enough savings 3.0% 12.0% 15.0%Total 25.0% 28.0% 15.0% 20.0% 12.0% 100.0%
Interpretation-
The main age group 30-40 years say that lack of knowledge about mutual fund and its benefits is
the main reason of not to invest in mutual fund. Lack of the knowledge is the most important
reason of not to invest in mutual fund.
Page | 104
(Table 4.26): If no: What is/are the reason? * Occupation Cross-tab
S.No. If no: What is/are the reason?/ Occupation
Service Business Student Professional Retired Total
1. Never Thought about it
5.0% 5.0%
2. Lack of Knowledge 45.0% 45.0%3. Risky 10.0% 10.0% 15.0% 35.0%4. Do not have enough
savings5.0% 10.0% 15.0%
Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0%
Interpretation-
The main group of service sector based respondents also believe that lack of knowledge about
mutual fund and its benefits is the main reason of not to invest in mutual fund. Lack of the
knowledge is the most important reason of not to invest in mutual fund.
(Table 4.27): If no: What is/are the reason? * Income level Cross-tab
S.No. If no: What is/are the reason? / Income level
<2 Lacs
2-5Lacs
5-8Lacs
8-12Lac
s
>12Lacs Total
1. Never Thought about it 5.0% 5.0%2. Lack of Knowledge 15.0% 30.0% 45.0%3. Risky 30.0% 5.0% 35.0%4. Do not have enough savings 8.0% 5.0% 2.0% 15.0%Total 20.0% 60.0% 13.0% 5.0% 2.0% 100.0
%
Interpretation-
The main group of 2-5 lakhs per annum income level respondents also believe that lack of
knowledge about mutual fund and its benefits & risk involved in mutual funds are the main
reason of not to invest in mutual fund. Lack of the knowledge and Risk associated with mutual
fund are the most important reason of not to invest in mutual fund.
Page | 105
(Table 4.28): If invested in Reliance Mutual Fund; what are the reasons?
* Occupation Cross-tab
S.No. If Reliance Mutual Fund; What are the reasons?/ Occupation
Service Business Student Professional Retired Total
1. Brand name 20.0% 20.0%2. Varieties 15.0% 15.0%3. Availability 10.0% 10.0%4. Good Service 10.0% 10.0%5. Past Performance of
fund5.0% 10.0% 15.0% 5.0% 10.0% 45.0%
Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0%
Interpretation-
The main service based respondents believe brand name is the most important factor/reason to
invest in RMF but the second most important reason to invest in RMF is varieties of product
provided by RMF.
(Table 4.29): If Reliance Mutual Fund; what are the reasons?
* Income level Cross-tab
S.No. If Reliance Mutual Fund; What are the reasons?/ Income level
<2 Lacs
2-5Lacs
5-8Lacs
8-12Lacs
>12Lacs Total
1. Brand name 20.0% 20.0%2. Varieties 15.0% 15.0%3. Availability 10.0% 10.0%4. Good Service 10.0% 10.0%5. Past Performance of fund 25.0% 13.0% 5.0% 2.0% 45.0%Total 20.0% 60.0% 13.0% 5.0% 2.0% 100.0%
Page | 106
Interpretation-
The main 2-5 lakhs per annum income level respondents believe past performance of the fund is
the most important factor/reason to invest in RMF but the second most important reason to invest
in RMF is varieties of product provided by RMF.
(Table 4.30): Why do you prefer investment in mutual fund to other investment avenue? *
Occupation Cross-tab
S.No. Why do you prefer investment in mutual fund to other investment avenue? / Occupation
Service Business Student Professional Retired Total
1. Lack of expertise in stock market
20.0% 20%
2. Better return over a long period of time
25.0% 25%
3. Liquidity 15.0% 3.0% 18%4. Tax efficiency 7.0% 15.0% 3.0% 25%5. Transparency 2.0% 10.0% 12%Total 60.0% 10.0% 15.0% 5.0% 10.0% 100%
Interpretation-
The main reason to invest in mutual fund are lack of expertise in stock market, better returns
over a long period of time and liquidity believed by the service sector based respondents.
Page | 107
(Table 4.31): What kind of investment schemes you prefer in Mutual Fund? * Occupation
Cross-tab
S.No. What kind of investment schemes you prefer in Mutual Fund?/ Occupation
Service Business Student Professional Retired Total
1. Growth schemes 51.0% 51.0%2. Balanced schemes 9.0% 1.0% 10.0%3. ELSS 9.0% 3.0% 12.0%4. Sector specific
schemes12.0% 5.0% 17.0%
5. Income schemes 10.0% 10.0%Total 60.0% 10.0% 15.0% 5.0% 10.0% 100.0
%
Interpretation-
Service sector based respondents prefer growth schemes. Businessmen prefer ELSS schemes.
Page | 108
CHAPTER 5
SUMMARYOF
FINDINGS,SUGGESTIONS
ANDRECOMMENDATIONS
Page | 109
GENERAL FINDINGS
Financial advisors know less about benefits of MF and its business. They are not much
able to tell the investors about the potential earning in MF business.
Investors of younger age invest generally in equity funds whereas older age investors
invest in debt funds.
Investing through MF is best way for capital appreciation within protection in
comparison to investing directly in equity market and other investment avenues.
Some schemes of each AMC perform well which have a good Fund Manager and well
designed Portfolio.
SPECIFIC FINDINGS
Majority of respondents look for growth & income as a primary objective for investment.
Majority of respondents don’t know about MFs.
Majority of respondents know about the relationship of MFs & Stock Exchange.
Majority of respondents never invested in MFs.
Majority of respondents have very less knowledge about MFs.
Majority of respondents have invested in Reliance Mutual Fund.
Majority of respondents believe that Past Performance is the main & the most important
reason to invest in Reliance MF.
Majority of respondents prefer MF because of Better returns over a long period of time &
its Tax efficiency.
Majority of the respondents prefer suggestions from friends/relatives while selecting any
investment in mutual funds.
Majority of respondents prioritize their investment according to the returns of investment
avenues.
Majority of respondents prefer fixed deposits as the most preferred investment avenue
because of the less risk & more security in nationalized banks.
Page | 110
Majority of respondents see fund performance as the first & foremost factor while
investing in mutual fund.
Majority of respondents prefer growth schemes.
GENERAL RECOMMENDATIONS AND SUGGESTIONS
Customer education of the salaried class individuals is far below standard. Thus Asset
Management Company’s need to create awareness so that the salaried class people
become the prospective customer of the future.
Early and mid earners bring most of the business for the Asset Management Company’s.
Asset Management Company’s thus needed to educate and develop schemes for the
person’s who are at the late earning or retirement stage to gain the market share.
Return’s record must be focused by the sales executives while explaining the schemes to
the customer. Pointing out the brand name of the company repeatedly may not too
fruitful.
The target market of salaried class individual has a lot of scope to gain business, as they
are more fascinated to Mutual Funds than the self employed.
Schemes with high equity level need to be targeted towards self employed and
professionals as they require high returns and are ready to bear risk.
Salary class individuals are risk averse and thus they must be assured of the advantage of
“risk – diversification” in Mutual Funds.
There should be given more time & concentration on the Tier-3 distributors.
The resolution of the queries should be fast enough to satisfy the distributors
Time to time presentation/training classes about the products should be there.
There should be more number of Relationship Managers (RM) in different regions
because one RM can handle a maximum of 100 distributors efficiently and also to cover
untapped market.
Regular activities like canopy should be done so as to get more interaction with the
distributors.
Page | 111
SPECIFIC RECOMMENDATIONS AND SUGGESTIONS
Company should focus on 35-40 years age group most.
Company should focus on service sector based clients and focus on 2-5 lakhs per annum
income level group of clients because they contribute more mutual fund investment.
Company should focus more on married clients because they have more liabilities than
single individuals.
Though people are becoming aware about mutual funds because of media and due to
excess use of IT but company needs to educate and aware them and focus on 30-40 years
age group, service sector based clients, 2-5 lakhs per annum income level group because
India still has a huge opportunity in mutual fund investment area. Still it has to grow
rapidly.
Page | 112
BIBLIOGRAPHY
Page | 113
PRIME REFFERENCE
Fact Sheet of the Reliance Mutual FundMutual Fund Mentor Pocket books of Reliance Mutual FundCompany Website- www.reliancemutual.com“EDGE”- The Learning Academy of Reliance Mutual Fund
OTHER WEBSITES
www.ici.orgwww.google.co.inwww.amfiindia.comwww.books.global-investor.comwww.moneycontrol.comwww.nseindia.comwww.jmfinancial.comwww.valueresearchonline.comwww.bseindia.comwww.rbi.org.inwww.economictimes.indiatimes.comwww.yahoofinance.comwww.mutualfundsindia.comwww.investopedia.comwww.wikipedia.orgwww.thehindu.comwww.indiastudychannel.comwww.oppapers.comwww.sebi.gov.inwww.managemetparadise.comwww.scribd.comwww.ssrn.comwww.citehr.com
Page | 114
Questionnaire
1. Name :
2. Gender: MALE FEMALE
3. Age: < 30 Years 30-40 40-50
50-60 > 60 Years
4. Occupation: Service Business Student
Professional Retired Others
5. Your Income Level: < 2 Lacs 2-5 Lacs 5-8 Lacs
8-12 Lacs > 12 Lacs
6. How much do you save annually? 5% 5-10% 10-15%
15-20% > 20%
7. Education Level: ≤ 8 Standard ≤ 12 Standard Graduate
Post Graduate Doctorate & Others
8. Marital Status: Single Married
9. What is your primary objective for your investment?
Preservation of Principal Regular Income Growth and Income
Conservative Growth Aggressive Growth Tax Benefit
10. Do you know about the Mutual Funds? Yes No
11. Do you know that mutual fund is related to share market?
Yes No Don’t Know
12. Have you ever invested in mutual fund?
Yes No
If no: 13.What is/are the reason?
Never Thought about it Lack of Knowledge
Page | 115
Risky Do not have enough savings
If others (please specify)_____________________________________________________
If yes: (please tick all applicable options)
14. Which company/companies?
Franklin Templeton Reliance M.F Birla sun life ICICI M.F.
Sundaram Finance LIC mutual fund UTI mutual fund SBI M.F.
Kotak Mahindra Tata mutual fund
Any other (please specify)____________
If Reliance Mutual Fund:
15. What are the reasons?
Brand name Variety Availability
Good service Past performance of funds Other (Please specify) ____________
16. Why do you prefer investment in mutual fund to other investment avenue?
Lack of expertise in stock market Better return over a long period of time
Liquidity Tax efficiency
Transparency Other (Please Specify) __________________________
17. Which are the primary sources of your knowledge about Mutual Funds as an investment option? Corresponding to your choices how would you rate their influence on your final Mutual Fund purchase decision? Please rank them on a scale of 1-5 with 1 representing minimal influence and 5 representing Strong influence.
Source: Television Least Influential 1 2 3 4 5 Most Influential
Source: Internet Least Influential 1 2 3 4 5 Most Influential
Source: Newspaper Least Influential 1 2 3 4 5 Most Influential
Source: Scholarly Journals / Articles Least Influential 1 2 3 4 5 Most Influential
Source: Friends / Relations Least Influential 1 2 3 4 5 Most Influential
Page | 116
Source: Financial Advisor /CA Least Influential 1 2 3 4 5 Most Influential
18. How do you prioritize the reason for investment?
Saving for future Least Influential 1 2 3 4 5 Most Influential
Tax incentives Least Influential 1 2 3 4 5 Most Influential
Returns Least Influential 1 2 3 4 5 Most Influential
Future outlook Least Influential 1 2 3 4 5 Most Influential
Brand value Least Influential 1 2 3 4 5 Most Influential
Risk factor Least Influential 1 2 3 4 5 Most Influential
19. Rank the various investments that you would invest your sum in
Stocks Least Influential 1 2 3 4 5 Most Influential
RBI Bonds Least Influential 1 2 3 4 5 Most Influential
Company Debentures Least Influential 1 2 3 4 5 Most Influential
Mutual Funds Least Influential 1 2 3 4 5 Most Influential
Insurance products Least Influential 1 2 3 4 5 Most Influential
Fixed Deposits Least Influential 1 2 3 4 5 Most Influential
Post Office Schemes Least Influential 1 2 3 4 5 Most Influential
20. What factors affect your decision for investment in Mutual Fund?
Economic scenario Least Influential 1 2 3 4 5 Most Influential
Company image Least Influential 1 2 3 4 5 Most Influential
Fund performance Least Influential 1 2 3 4 5 Most Influential
Fund manager’s image Least Influential 1 2 3 4 5 Most Influential
Tax incentive Least Influential 1 2 3 4 5 Most Influential
21. What kind of investment schemes you prefer in Mutual Fund?
Growth schemes Balanced schemes ELSS
Sector specific schemes Income schemes Liquid schemes
