Project Report

ON

A STUDY ON INVESTOR
PERCEPTION TOWARDS MUTUAL
FUNDS

Submitted in the partial fulfilment of the requirements for the degree

of
Master in Business Administration (integrated)

Under the Guidance of

Mr. Nerander kumar (Assistant professor)

Submitted To:
DEPARTMENT OF MANAGEMENT STUDIES, BHIMTAL

Submitted By:
Name

HIMANSHU

JOSHI

Enrolment no: 11111340

1

ACKNOWLEDGEMENT
Acknowledgement is not only a ritual, but also an expression of indebtedness to all those who
have helped in the completion process of the project. One of the most pleasant aspects in
collecting the necessary and vital information and compiling it is the opportunity to thank all
those who have actively contributed to it. I express my deepest and sincerest gratitude and
heart-felt thanks to my mentor Mr Nerander kumar( assistant professor) for the invaluable
guidance and constant encouragement which he extended to me throughout my research
project.

I would also like to express my sincere thanks to the authors whose works I have had the
privilege to consult and quote in my research project and to the faculty and staff of
department of management studies for their constant support.

I extend my gratitude to my respected parents, and my brothers who have been a constant
source of encouragement. I must not forget the generosity accorded by them.

Last, but by no means the least, we would like to pay obeisance to the Almighty God for
bestowing on us his blessings & also for being on our side when the challenge seemed
insurmountable & the going was tough. Our unshakeable faith in Him allowed us to take this
research to its logical conclusion.

DECLARATION
I, Himanshu joshi, the student of MBA(integrated) - Semester 10th (2011-16) here by
declare that the project work titled Investor perception towards mutual fund being
submitted in partial fulfillment for the award of Mba ( integrated ) is the original work
carried out by me. It has not formed the part of any other project University.

The information submitted is true & original to the best of my knowledge.

Himanshu joshi
Mba integrated (10th sem )

CERTIFICATE

This is to certify that Mr. Himanshu joshi MBA(integrated) (2011-2016 Batch) a student of
has DMS- Department of management studies , kumaun university bhimtal undertaken the
project on investor perception toward mutual funds . The questionnaire, data collection for
preparing the project has been carried out by the student in partial fulfillment of the
requirements for the award of MBA (integrated) under my guidance and supervision.
I am satisfied with the work of Mr. Himanshu Joshi

Date:

Mr. Nerander kumar

(Assistant professor)

EXECUTIVE SUMMARY
A mutual fund is a scheme in which several people invest their money for a common
financial cause. The collected money invests in the capital market and the money, which they
earned, is divided based on the number of units, which they hold.
The mutual fund industry started in India in a small way with the UTI Act creating
what was effectively a small savings division within the RBI. Over a period of 25 years this
grew fairly successfully and gave investors a good return, and therefore in 1989, as the next
logical step, public sector banks and financial institutions were allowed to float mutual funds
and their success emboldened the government to allow the private sector to foray into this
area.
The advantages of mutual fund are professional management, diversification, and economies
of scale, simplicity, and liquidity.
The disadvantages of mutual fund are high costs, over-diversification, possible tax
consequences, and the inability of management to guarantee a superior return.
The biggest problems with mutual funds are their costs and fees it include Purchase
fee, Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs.
There are some loads which add to the cost of mutual fund. Load is a type of commission
depending on the type of funds.
Mutual funds are easy to buy and sell. You can either buy them directly from the fund
company or through a third party. Before investing in any funds one should consider some
factor like objective, risk, Fund Managers and scheme track record, Cost factor etc.
There are many, many types of mutual funds. You can classify funds based Structure
(open-ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth,
income, money market) etc.
A code of conduct and registration structure for mutual fund intermediaries, which
were subsequently mandated by SEBI. In addition, this year AMFI was involved in a number
of developments and enhancements to the regulatory framework.

The most important trend in the mutual fund industry is the aggressive expansion of
the foreign owned mutual fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC
Mutual Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India.
Reliance mutual funding is considered to be most reliable mutual funds in India.
People want to invest in this institution because they know that this institution will never
dissatisfy them at any cost. You should always keep this into your mind that if particular
mutual funding scheme is on larger scale then next time, you might not get the same results
so being a careful investor you should take your major step diligently otherwise you will be
unable to obtain the high returns.

TABLE OF CONTENTS
Introduction
Research Design

36- 41

Literature Rev

29

Need for the Study

36

Objectives of the Study

37

Research Methodology

38

a. measurement of variables
b. Sample Design
c. Data Collection
d. Data analysis method
Limitations of the Study

44

Analysis and Interpretation

45-67

Demographic Profile of the Respondents

46

Data Analysis

48

Findings and Suggestions

68-70

Findings

69

Managerial Recommendations

70

Bibliography

71

Annexures
Appendix-I

72-75
Questionnaire

74

INTRODUCTION

INTRODUCTION OF MUTUAL
FUND

There are a lot of investment avenues available today in the financial market for an investor
with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds
where there is low risk but low return. He may invest in Stock of companies where the risk is
high and the returns are also proportionately high. The recent trends in the Stock Market have
shown that an average retail investor always lost with periodic bearish tends. People began
opting for portfolio managers with expertise in stock markets who would invest on their
behalf. Thus we had wealth management services provided by many institutions. However
they proved too costly for a small investor. These investors have found a good shelter with
the mutual funds.

CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their
contributions that are to be invested in accordance with a stated objective. The ownership of
the fund is thus joint or mutual; the fund belongs to all investors. A single investors

ownership of the fund is in the same proportion as the amount of the contribution made by
him or her bears to the total amount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same in
diversified financial instruments in terms of objectives set out in the trusts deed with the view
to reduce the risk and maximize the income and capital appreciation for distribution for the
members. A Mutual Fund is a corporation and the fund managers interest

is to

professionally manage the funds provided by the investors and provide a return on them after
deducting reasonable management fees.
The objective sought to be achieved by Mutual Fund is to provide an opportunity for
lower income groups to acquire without much difficulty financial assets. They cater mainly to
the needs of the individual investor whose means are small and to manage investors portfolio
in a manner that provides a regular income, growth, safety, liquidity and diversification
opportunities.

DEFINITION:

Mutual funds are collective savings and investment vehicles where savings of small
(or sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately.

A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each own shares
of the fund. The fund's assets are invested according to an investment objective into the fund's
portfolio of investments. Aggressive growth funds seek long-term capital growth by investing
primarily in stocks of fast-growing smaller companies or market segments. Aggressive
growth funds are also called capital appreciation funds.

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Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest
in capital protected funds and the profit-bonds that give out more return which is slightly
higher as compared to the bank deposits but the risk involved also increases in the same
proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual
funds provide professional management, diversification, convenience and liquidity. That
doesnt mean mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which
are less riskier but are also invested in the stock markets which involves a higher risk but can
expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the
derivatives market which is considered very volatile.

RETURN RISK MATRIX

HIGHIER RISK
MODERATE RETURNS

HIGHER RISK
HIGHIER RETURNS

Ventur
e
Capita
l

Equi
ty

Bank
FD

Mutu
al
Funds

Postal
Savings

LOWER RISK
HIGIER RETURNS

LOWER RISK
LOWER RETURNS

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HISTORY OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The history of mutual
funds in India can be broadly divided into four distinct phases

FIRST PHASE 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end
of 1988 UTI had Rs.6,700 crores of assets under management.

SECOND PHASE 1987-1993 (ENTRY OF PUBLIC SECTOR

FUNDS):
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund
(Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund
in December 1990.
At the end of 1993, the mutual fund industry had assets under management of
Rs.47004 crores.

THIRD PHASE 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS):

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now

12

merged with Franklin Templeton) was the first private sector mutual fund registered in July
1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions
under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of
Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under
management was way ahead of other mutual funds.

FOURTH PHASE SINCE FEBRUARY 2003 to Till now:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores
under 421 schemes.

13

The graph indicates the growth of assets under management over the years.
GROWTH IN ASSETS UNDER MANAGEMENT

(Source: www.amfiindia.com)

14

ADVANTAGES OF MUTUAL FUNDS:

If mutual funds are emerging as the favorite investment vehicle, it is because of the
many advantages they have over other forms and the avenues of investing, particularly for the
investor who has limited resources available in terms of capital and the ability to carry out
detailed research and market monitoring. The following are the major advantages offered by
mutual funds to all investors:
1. Portfolio Diversification:
Each investor in the fund is a part owner of all the funds assets, thus enabling him to
hold a diversified investment portfolio even with a small amount of investment that would
otherwise require big capital.
2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits from the
professional management skills brought in by the fund in the management of the investors
portfolio. The investment management skills, along with the needed research into available
investment options, ensure a much better return than what an investor can manage on his
own. Few investors have the skill and resources of their own to succeed in todays fast
moving, global and sophisticated markets.
3. Reduction/Diversification Of Risk:
When an investor invests directly, all the risk of potential loss is his own, whether he
places a deposit with a company or a bank, or he buys a share or debenture on his own or in
any other from. While investing in the pool of funds with investors, the potential losses are
also shared with other investors. The risk reduction is one of the most important benefits of a
collective investment vehicle like the mutual fund.
4. Reduction Of Transaction Costs:
What is true of risk as also true of the transaction costs. The investor bears all the
costs of investing such as brokerage or custody of securities. When going through a fund, he
has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a
benefit passed on to its investors.
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5. Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When
they invest in the units of a fund, they can generally cash their investments any time, by
selling their units to the fund if open-ended, or selling them in the market if the fund is
close-end. Liquidity of investment is clearly a big benefit.
6. Convenience And Flexibility:
Mutual fund management companies offer many investor services that a direct market
investor cannot get. Investors can easily transfer their holding from one scheme to the other;
get updated market information and so on.
7. Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the assessment
of all Unit holders. However, as a measure of concession to Unit holders of open-ended
equity-oriented funds, income distributions for the year ending March 31, 2003, will be taxed
at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from
the Total Income will be admissible in respect of income from investments specified in
Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not
subject to Wealth-Tax and Gift-Tax.
8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.
10. Transparency:
You get regular information on the value of your investment in addition to disclosure on
the specific investments made by your scheme, the proportion invested in each class of
assets and the fund manager's investment strategy and outlook.
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DISADVANTAGES OF INVESTING THROUGH

MUTUAL FUNDS:
1.

No Control Over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The

investor pays investment management fees as long as he remains with the fund, albeit in
return for the professional management and research. Fees are payable even if the value of his
investments is declining. A mutual fund investor also pays fund distribution costs, which he
would not incur in direct investing. However, this shortcoming only means that there is a cost
to obtain the mutual fund services.

2.

No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolios of shares and bonds

and other securities. Investing through fund means he delegates this decision to the fund
managers. The very-high-net-worth individuals or large corporate investors may find this to
be a constraint in achieving their objectives. However, most mutual fund managers help
investors overcome this constraint by offering families of funds- a large number of different
schemes- within their own management company. An investor can choose from different
investment plans and constructs a portfolio to his choice.

3. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for the
investor. He may again need advice on how to select a fund to achieve his objectives, quite
similar to the situation when he has individual shares or bonds to select.

4. The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better at
picking stocks than the average nonprofessional, but charges fees.

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5.

No Control:
Unlike picking your own individual stocks, a mutual fund puts you in the passenger

seat of somebody else's car.

6. Dilution:
Mutual funds generally have such small holdings of so many different stocks that
insanely great performance by a fund's top holdings still doesn't make much of a difference in
a mutual fund's total performance.

7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen who do
not make those costs clear to their clients.

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TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors,
Being a collection of many stocks, an investors can go for picking a mutual fund might be
easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of
mutual funds in categories, mentioned below.

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BY STRUCTURE

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value
("NAV") related prices. The key feature of open-end schemes is liquidity.

2. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to
15 years. The fund is open for subscription only during a specified period. Investors can
invest in the scheme at the time of the initial public issue and thereafter they can buy or sell
the units of the scheme on the stock exchanges where they are listed. In order to provide an
exit route to the investors, some close-ended funds give an option of selling back the units to
the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations
stipulate that at least one of the two exit routes is provided to the investor.

3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and
close-ended schemes. The units may be traded on the stock exchange or may be open for sale
or redemption during pre-determined intervals at NAV related prices.

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BY NATURE
1. Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund managers outlook
on different stocks. The Equity Funds are sub-classified depending upon their investment
objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high

on the risk-return matrix.

2. Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers of debt
papers. By investing in debt instruments, these funds ensure low risk and provide stable
income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known
as Government of India debt papers. These Funds carry zero Default risk but are
associated with Interest Rate risk. These schemes are safer as they invest in papers
backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. These
scheme ranks slightly high on the risk-return matrix when compared with other debt
schemes.

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Short Term Plans (STPs): Meant for investment horizon for three to six months.
These funds primarily invest in short term papers like Certificate of Deposits (CDs)
and Commercial Papers (CPs). Some portion of the corpus is also invested in
corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term instruments
like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are
meant for short-term cash management of corporate houses and are meant for an
investment horizon of 1day to 3 months. These schemes rank low on risk-return
matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both
equities and fixed income securities, which are in line with pre-defined investment objective
of the scheme. These schemes aim to provide investors with the best of both the worlds.
Equity part provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment parameter
viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the
objectives of the fund. The investor can align his own investment needs with the funds
objective and invest accordingly.

22

BY INVESTMENT OBJECTIVE:

Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally invest a
major part of their fund in equities and are willing to bear short-term decline in value for
possible future appreciation.

Income Schemes:
Income Schemes are also known as debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest in fixed
income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.

Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn. These schemes invest in both
shares and fixed income securities, in the proportion indicated in their offer documents
(normally 50:50).

Money Market Schemes:

Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Load Funds:
A Load Fund is one that charges a commission for entry or exit. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and exit loads
range from 1% to 2%. It could be worth paying the load, if the fund has a good performance
history.

23

No-Load Funds:
A No-Load Fund is one that does not charge a commission for entry or exit. That is,
no commission is payable on purchase or sale of units in the fund. The advantage of a no load
fund is that the entire corpus is put to work.

OTHER SCHEMES
Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from
time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked
Savings Scheme (ELSS) are eligible for rebate.

Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks
that constitute the index. The percentage of each stock to the total holding will be identical to
the stocks index weightage. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.

Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or industries
as specified in the offer documents. E.g. Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors need to keep a watch on the
performance of those sectors/industries and must exit at an appropriate time.

24

25

NET ASSET VALUE (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish the
value of his part. In other words, each share or unit that an investor holds needs to be
assigned a value. Since the units held by investor evidence the ownership of the funds assets,
the value of the total assets of the fund when divided by the total number of units issued by
the mutual fund gives us the value of one unit. This is generally called the Net Asset Value
(NAV) of one unit or one share. The value of an investors part ownership is thus determined
by the NAV of the number of units held.

Calculation of NAV:

Let us see an example. If the value of a funds assets stands at Rs. 100 and it has 10
investors who have bought 10 units each, the total numbers of units issued are 100, and the
value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value
of his ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the funds
investments will keep fluctuating with the market-price movements, causing the Net Asset
Value also to fluctuate. For example, if the value of our funds asset increased from Rs. 1000
to 1200, the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The
investment value can go up or down, depending on the markets value of the funds assets.

26

SELECTION PARAMETERS FOR MUTUAL FUND

Investors are selecting the mutual funds on the basis of following aspects of investment:-

Net assets

Portfolio composition

Income composition

Gross income as percentage of net assets

Expenses ratio

Realized gain per unit

Unrealized appreciation per unit

MUTUAL FUND CONSTITUENTS:-

Fig:-5

27

All mutual funds comprise four constituents Sponsors, Trustees, Asset Management
Company (AMC) and Custodians.

Sponsors:
The sponsors initiate the idea to set up a mutual fund. It could be a registered company,
scheduled bank or financial institution. A sponsor has to satisfy certain conditions, such as
capital, record (at least five years operation in financial services), and de-fault free dealings
and general reputation of fairness. The sponsors appoint the Trustee, AMC and Custodian.
Once the AMC is formed, the sponsor is just a stakeholder.

Trust/ Board of Trustees:

Trustees hold a fiduciary responsibility towards unit holders by protecting their interests.
Trustees float and market schemes, and secure necessary approvals. They check if the
AMCs investments are within well-defined limits, whether the funds assets are protected,
and also ensure that unit holders get their due returns. They also review any due diligence by
the AMC. For major decisions concerning the fund, they have to take the unit holders
consent. They submit reports every six months to

SEBI:
Investors get an annual report. Trustees are paid annually out of the funds assets 0.5
percent of the weekly net asset value.

Fund Managers/ AMC:

They are the ones who manage money of the investors. An AMC takes decisions,
compensates investors through dividends, maintains proper accounting and information for
pricing of units, calculates the NAV, and provides information on listed schemes. It also
exercises due diligence on investments, and submits quarterly reports to the trustees. A
funds AMC can neither act for any other fund nor undertake any business other than asset
28

management. Its net worth should not fall below Rs. 10 crore. And, its fee should not exceed
1.25 percent if collections are below Rs. 100 crore and 1 percent if collections are above Rs.
100 crore. SEBI can pull up an AMC if it deviates from its prescribed role.

Custodian:
Often an independent organization, it takes custody of securities and other assets of mutual
fund. Its responsibilities include receipt and delivery of securities, collecting incomedistributing dividends, safekeeping of the units and segregating assets and settlements
between schemes. Their charges range between 0.15-0.2 percent of the net value of the
holding. Custodians can service more than one fund.

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be
enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain.
Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.

29

SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:
The first point to note before investing in a fund is to find out whether your objective
matches with the scheme. It is necessary, as any conflict would directly affect your
prospective returns. Similarly, you should pick schemes that meet your specific needs.
Examples: pension plans, childrens plans, sector-specific schemes, etc.

Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt
schemes, as they are relatively safer. Aggressive investors can go for equity investments.
Investors that are even more aggressive can try schemes that invest in specific industry or
sectors.

Fund Managers and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is
imperative that he manages it well. It is also essential that the fund house you choose has
excellent track record. It also should be professional and maintain high transparency in
operations. Look at the performance of the scheme against relevant market benchmarks and
its competitors. Look at the performance of a longer period, as it will give you how the
scheme fared in different market conditions.

Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund
before investing. This is because the money is deducted from your investments. A higher
entry load or exit load also will eat into your returns. A higher expense ratio can be justified
only by superlative returns. It is very crucial in a debt fund, as it will devour a few
percentages from your modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list
the year's best performing mutual funds. Naturally, very eager investors will rush out to

30

purchase shares of last year's top performers. That's a big mistake. Remember, changing
market conditions make it rare that last year's top performer repeats that ranking for the
Current year. Mutual fund investors would be well advised to consider the fund prospectus,
the fund manager, and the current market conditions. Never rely on last year's top performers.

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be
enjoyed by investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain.
Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.

31

RISK FACTORS OF MUTUAL FUNDS:

1. The Risk-Return Trade-Off:
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.

2. 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.

3. 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.
AAA rating is considered the safest whereas a D rating is considered poor credit quality. A
well-diversified portfolio might help mitigate this risk.

4. Inflation Risk:
Things you hear people talk about:
"Rs. 100 today is worth more than Rs. 100 tomorrow."
"Remember the time when a bus ride costed 50 paise?"
"Mehangai Ka Jamana Hai."
The root cause, Inflation. 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.

32

5. 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.

6. Political / Government Policy Risk:

Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice versa.

7. 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.

33

SEBI REGULATIONS:

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual
funds to protect the interest of the investors.

SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.

The regulations were fully revised in 1996 and have been amended thereafter from time
to time.

SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.

All mutual funds whether promoted by public sector or private sector entities including
those promoted by foreign entities are governed by the same set of Regulations. The risks
associated with the schemes launched by the mutual funds sponsored by these entities are
of similar type. There is no distinction in regulatory requirements for these mutual funds
and all are subject to monitoring and inspections by SEBI.

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.

Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in any
scheme and that each scheme is subject to 20: 25 condition [I.e. Minimum 20 investors
per scheme and one investor can hold more than 25% stake in the corpus in that one
scheme].

34

Also SEBI has permitted MFs to launch schemes overseas subject various restrictions and
also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.

OBJECTIVE OF STUDY
Primary objective: The primary objective of the study is to understand the mutual fund and understand
the different aspects of mutual funds and their functioning in market.
To understand the investment pattern of mutual fund in different type of schemes
and how these schemes are able to serve the needs of the customer.
To understand how a customer looks at the scheme and what kind of benefit they
want from any scheme.
To understand the customer perception towards making investment in any kind of
stock and in mutual fund.

Secondary objective:-

To understand the customer perception towards making investment in any kind of

mutual fund.

How the mutual funds where issued to customer.

Where these mutual funds are traded.

35

SCOPE OF STUDY:-

This study will help in understanding the growing mutual fund market in India and this
will also help us to understand the fast changes in nature of mutual fund.

This study is quite helpful in understanding the functioning of any mutual fund company
in recent loomy market condition.

This study will help in understanding the investment pattern of the mutual fund and help
the customer to choose a particular pattern.

The study will help to understand the organization to understand the changing needs of
the customer and that will the organization to track the customer in future.

LIMITATION OF THE STUDY:-

This study was limited to sample size of 80.

The time has constraint of 1 month.

The customer was not providing right information.

Non-availability of past data, Balance Sheet etc.

This study has been limited by time and cost factors

36

RESEARCH DESIGN

37

RESEARCH METHODOLOGY:Research methodology define as the systematic plan, design, collection, analysis and
reporting of data and findings relevant to a specific marketing situation facing the company.

RESEARCH DESIGN:The research requires developing the most efficient plan for gathering the needed
information. this involves decision on the data sources, research approaches, research
instrument, sampling plan and contact method.

There are three types of research design as follows:-

EXPLORATORY RESEARCH:Exploratory research is conducted when researcher does not know how and why certain
phenomenon occurs. The prime goal for this research is to know unknown, this research is
unstructured.

DESCRIPTIVE RESEARCH:Descriptive research is carried out to describe the phenomenon or market characteristics. This
study is done to understand buyer behavior and describe characteristics of the target market.
This study is done for evaluation of the customer preference.

CAUSATIVE RESEARCH:Causative research is done to establish the cause and effect relationship.
I use the descriptive research for my study.

38

DATA SOURCES:PRIMARY DATA:Primary data are collected by a study specifically to fulfill the data needs of the problem at
hand. such data are original in character and are generated in large number of surveys
conducted mostly by government and also by individual, institution, and research bodies.
METHODS OF COLLECTING PRIMARY DATA:

Direct personal interviews.

Indirect oral interviews.

Information from correspondence.

Mail questionnaire method.

SECONDARY DATA:Data which are not originally collected but rather obtained from published and unpublished
sources are known as secondary data.
SOURCES OF SECONDARY DATA:

Published sources

Unpublished sources

SAMPLE:When secondary data are not available for the problem under study, a decision may be made
to collect primary data by different methods for information. The information may be
collected by either the census method or sample method.
The sample is a portion of universe.

39

SAMPLING METHODS:1.

Non probability sampling method.

2.

Probability sampling method.

Non probability sampling method:
Judgment sampling:In this method of sampling the choice of sample items depends on judgment of the
investigator. In other words, the investigator exercises his judgment in the choice and
includes those items in sample which he thinks are most typical of universe with
regard to characteristics under investigation.

Quota sampling:In a quota sample, quotas are set up according to some specified characteristics such
as so many in each of several income groups, so many in each age group etc.

Convenience sampling:A convenient sampling is obtained by convenient population. This is also called as
chunk.

Probability sampling method:

Sampling or unrestricted random samples:-simple or restricted random sampling

technique refers to that sampling in which each and every unit of the population has an equal
opportunity of being selected in the sample.
Restricted random sampling:o Stratified sampling:- Stratified random sampling or simply stratified
sampling is one of the random methods which, by using the available
information concerning the population, attempt to design a more efficient
sample than obtained by the simple random procedure.

40

o Systematic sampling:- A systematic sample is formed by selecting one unit at

random and then selecting additional unit at evenly spaced intervals until the
samples has been formed.
o Multi stage or cluster sampling:- Under this method, the random selection is
made of primary, intermediate and final (the ultimate) units given from a given
population or stratum
SAMPLE SIZE:- 80

MATHEMATICAL & STATICAL TOOLS USED FOR DATA ANALYSIS

Percentage method

Average method
LITERATURE REVIEW:The Indian mutual funds industry is witnessing a rapid growth as a result of infrastructural
development, increase in personal financial assets, and rise in foreign participation. With the
growing risk appetite, rising income, and increasing awareness, mutual funds in India are
becoming a preferred investment option compared to other investment vehicles like Fixed
Deposits (FDs) and postal savings that are considered safe but give comparatively low
returns, according to Indian Mutual Fund Industry.
This report provides a detailed analysis along with current and future outlook of the Indian
mutual fund industry and explores the market development and potential. The forecasts and
estimations given in this report are not based on a complex economic model, but are intended
as a rough guide to the direction in which the industry is likely to move.

41

Key Issues & Facts Analyzed in the Report

- What are the key factors fueling growth into the Indian mutual fund market?
- Which are the fastest growing products?
- What are the key growth prospects?
- What are the key challenges for the market?
- How the market is likely to move in future?

Key Players
This section provides business analysis of key players in the Indian mutual fund market,
including Reliance Capital, BOB and HDFC, Standard chartered.

42

DATA
ANALYSIS &
INTREPRETATION

43

DATA ANALYSIS & INTREPRETATION:TABLE:-1

1. Occupation wise classification:Occupation

No. of respondents

Professional
Business man
Employee
Govt.employees
Student
Total

20
26
15
10
09
80

Percentage
25%
32.5%
18.75%
12.5%
11.25%
100%

Inference:-

businessman
32.5% of respondent were belonging to
category.
students4%category.
of respondent

were belonging to

TABLE NO 2.
Income wise classification:Income level

NO. of respondents

Percentage

5000-10000
10000-15000
15000-20000
More than 20000
Total

18
30
15
17
80

22.5%
37.5%
18.75%
21.5%
100%

Inference:-

18.75% of respondent are having

income of 15000-20000

22.5% of respondents are having

income of 5000-10000
44

TABLE NO.-3
Savings:-

Saving
1000-4000
4000-7000
7000-10000
More than 10000
Total

No. of respondents
30
25
10
15
80

Percentage
22.5%
31.5%
12.5%
18.75%
100%

Inference:-

12.5% of respondent are

saving 7000-10000
25% of respondents are
saving 4000-7000

TABLE NO.-4

Awareness of mutual fund

among General mass:-

Attributes
Yes
No
Total

No. of respondent
55
25
80

Inference:-

68.75% of respondents
was aware of mutual fund
31.25% was not aware of
mutual fund

45

Percentage
68.75%
31.25%
100%

46

TABLE NO.-5
Where do you want to invest most:-

Investment alternatives

No. of respondents

Percentage

Bank deposits

40

50%

Stock market

10

12.5%

Insurance

15

18.75%

Mutual fund

10

12.5%

Derivatives

6.25%

Total

80

100%

Inference:50% of respondents liked to invest

in bank deposit.

funds.

10% liked to invest in mutual

TABLE NO.-6
Do you want to invest?

Attributes

No. of respondents

Percentage

Yes

50

62.5%

No

30

37.5%

Total

80

100%

Inference:-

62.5% of respondents want to invest.

37.5% dont want to invest

TABLE NO.-7

Reason to invest in mutual fund:-

Reason

No. of respondents

Percentage

More return

35

43.75%

Safety

10

12.25%

Limited risk

15

18.75%

Capital appreciation

6.25%

Systematic investment

15

15.5%

Total

80

100%

Inference:-

6.25% of respondent would like to invest in mutual fund because of capital

appreciation.

15.5% of respondents would like to invest in mutual fund for systematic

investment.

TABLE NO.-8
Investment amount in Mutual fund:Amount

No. of respondents

Percentage

1000-4000

50%

4000-10000

50%

Total

10

100%

Inference:-

50% of respondents wants

to invest 4000-10000
50% respondents wants to
invest 1000-4000

4.1) FINDINGS:-

32.5% of respondent were belonging to businessman category. (refer Table no.1)

18.5% of respondent are having income of 15000-20000 (refer Table no.2)

12.5% of respondent are saving 7000-10000 (refer Table no.3)
68.75% of respondents was aware of mutual fund (refer Table no.4)
50% of respondents liked to invest in bank deposits. (refer Table no.5)
62.5% of respondents want to invest. (refer Table no.6)
35% of respondent would like to invest in mutual fund because of more
return. (refer Table no.7)
50% of respondents want to invest 7000-10000. (refer Table no.8)
80% of respondent would like to suggest to others to invest in Mutual fund.

4.2) PERSONAL OBSERVATION:My personal observations/learnings are as follows:

I understood the different schemes of mutual fund how these schemes were launched
and designed for customer.

I understood the behavior of the investors how investors are choosing the schemes of
mutual fund.

What were the criteria for selecting the mutual funds

Through personal observation of small market place, I learnt that investor like a
uniform yield from their investment so they were keen interested in Mutual funds.


In this loomy scenario the investor didnt want to take any more risk in investment so
they like to invest in mutual fund.

Because of less risk in mutual fund the new investor would like invest in mutual
funds schemes.

Mutual fund becomes strong investment alternative for existing and new investors.

There will be a wide market place for mutual fund in future.

SUGGESTION:-

They should provide more information about their investment product and services

mean they should also concentrate on promotion of their schemes.

Basically the equity schemes were performing well in market and rest of the schemes

were performing comparative less so they should also change their strategy for other schemes
like debt fund, children gilt fund, and liquid funds.

Retailers to give the right kind of investment pattern for the investors with the value

added services that in fact help the fund house to pull the investors than to push the products
to them.

Demonstrations about the products should be given to the investors, as it helps to

suggest the right product to the right investors.

The retailers need to send the personal mails to the prospects, this can done by

acquiring the database of the customers of home loan, this helps it penetrating.

MUTUAL FUNDS Companies can reduce the initial amount for all the mutual fund

schemes; hence they can cover huge customers.

For effective relationship, companies can provide sufficient information about these

schemes, stock market, others information in local languages.

CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for
most investors. As financial markets become more sophisticated and complex, investors need
a financial intermediary who provides the required knowledge and professional expertise on
successful investing. As the investor always try to maximize the returns and minimize the
risk. Mutual fund satisfies these requirements by providing attractive returns with affordable
risks. The fund industry has already overtaken the banking industry, more funds being under
mutual fund management than deposited with banks. With the emergence of tough
competition in this sector mutual funds are launching a variety of schemes which caters to the
requirement of the particular class of investors. Risk takers for getting capital appreciation
should invest in growth, equity schemes. Investors who are in need of regular income should
invest in income plans.
The stock market has been rising for over three years now. This in turn has not only
protected the money invested in funds but has also to helped grow these investments.
This has also instilled greater confidence among fund investors who are investing
more into the market through the MF route than ever before.
India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also,
the mutual fund industry as a whole gets less than 2 per cent of household savings against the
46 per cent that go into bank deposits.

The mutual fund is one of the safe investment alternative in which the new investor, who
belong to limited salaried group, like to invest in these kind of mutual for steady and limited
yield with limited risk, tax benefit.

From the above responses of questionnaire we can say that

Investors are still not very much aware about mutual fund.
Equity fund is most preferable fund.

Advertisement is one of the ways to explore mutual fund.

AMC should be more focuses on fund performance.
The tax benefits on mutual funds made a turning point to its investors.

Company should reduce the initial amount of mutual fund schemes so, it covers lot of
customers.

Banks is most preferable investment on the basis of safety.

BIBLIOGRAPHY

BIBLIOGRAPHY
Websites:
www.mutualfundsindia.com
www.amfi.com
www.mutualfunds.com
www.bseindia.com
www.sebi.com
www.sebi.gov.in
www.capitalmarket.com
www.moneycontrol.com
www.alliancecapitalindia.com

Books
1.

C.R.Kothari (2003), New Age International (p) Ltd, Research methodology

2. V.A. Avadhani (2003). Himalaya Publishers, Security Analysis and Portfolio

Management.
3.

Philip kotler, marketing management

4.

G.C.beri, Business statistics.

5.

Security analysis, Prasanna Chandra.

6.

Mutual funds- management and working by: - lalit k. Bansal

Questionnaire:1) Name:2) Occupation:3) Your monthly income:a)

5000-10000

b)

10000-15000

c)

15000-20000

d)

More than 20000

4) How much are you saving?

a)

1000-4000

b)

4000-7000

c)

7000-10000

d)

More than 10000

5) Do you want to invest?

a)

Yes

b)

No

c)

Can not say

6) Do you know about mutual fund?

a)

Yes

b)

No

7) Where do you want to invest?

a)

Bank deposit

b)

Stock market

c)

Insurance

d)

Mutual fund

e)

debenture

f)

Derivatives

g)

Bonds

8) If you want to invest in mutual fund, why ?

a)

More return

b)

Safety

c)

Limited risk

d)

Capital appreciation

e)

Systematic investment

9) How much do you want to invest in mutual fund?

a)

1000-4000

b)

4000-7000

c)

7000-10000

d)

More than 10000

10) Have you invested in Mutual fund?

a)

Yes

b)

No

11) If yes, why have you invested in mutual fund?

a)

For better return

b)

For minimum risk

c)

For tax benefit

d)

For Capital appreciation

14) What attracts you most in Mutual fund?

a)

Systematic investment plan(SIP)

b)

Limited investment

c)

Proficiency

d)

Better fund allocation

e)

Diversification of Your fund

15) In which scheme of Mutual fund would you like to invest?

a)

Equity/growth fund Scheme

b)

Debt fund

c)

Children gilt fund Scheme

d)

Liquidfund

THANK YOU

5
8