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Final Year Project On

By:-

SONAL SAXENA
(Reg. ID- 201218225)

SONAL SAXENA
SYMBIOSIS CENTRE FOR DISTANCE LEARNING
ACADEMIC YEAR 2012-14
TABLE OF CONTENTS

Declaration i
Abstract ii

CHAPTER 1: INTRODUCTION
1.1 Company Profile 01
1.2 Industry Profile 07
1.3 Purpose of Study 24
1.4 Theoretical Framework 24
1.5 Definitions 40

CHAPTER 2: REVIEW OF LITERATURE 41

CHAPTER 3: RESEARCH METHODOLOGY AND PROCEDURES 49


3.1 Purpose of the study
3.2 Research Design
3.3 Data collection
3.4 Instruments used

CHAPTER 4: ANALYSIS AND INTERPRETATION 50

CHAPTER 5: CONCLUSION 76
5.1 Summary of findings
5.2 Limitations of research
5.3 Recommendations
5.4 Conclusion
ANNEXURE A- REFERENCES 78

ANNEXURE B- QUESTIONNAIRE 80

ANNEXURE C- LIST OF TABLES 86

ANNEXURE D- LIST OF FIGURES 87


DECLARATION

Mutual Funds
This is to declare that I have carried out this project work myself in partial fulfillment of the
Post Graduate Diploma in Business Management Program of SCDL. The work is original,
has not been copied from anywhere else and not been submitted to any other
University/Institute for an award of any degree/diploma.

Date:

Signature:

Place: Faridabad
Name: Sonal Saxena
ABSTRACT

A mutual fund (MF) is an investment company that pools the money of many
investors and determines an investment strategy that fits with the goals of the fund. Mutual
funds sell shares to the public.

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-1964-1987:

An act of parliament established Unit Trust of India (UTI) on 1963. 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.6700 cores of assets under management.

Second Phase-1987-1993 (Entry of Public Sector Funds):

1987 marked the entry of non-UTI public sector mutual funds setup 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 Canara Bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov 89) Bank of India (June 90), Bank of Baroda Mutual
Fund (Oct 92).LIC established its mutual fund in June 1989 while GIC had setup its Mutual
Fund in December 1990. At the end of 1993, the Mutual Fund industry had assets under
management of Rs.47, 004 corers.

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 in to being, under which all Mutual
Funds, except UTI were registered and governed. The erstwhile kothari pioneer (now merged
with Franklin Templeton) was the first private sector Mutual Fund registered in July 1993.In
the 1993 SEBI (Mutual Fund) Regulation 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 the total assets of 1, 21,805 corers. The Unit Trust of India with Rs.44,
541 corers of assets under management was way ahead of other Mutual Funds.

Fourth Phase-since February 2003:

In the 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 corers 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 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 October 31, 2010 there were 31 funds, which manage assets of Rs. 1, 26,726 crores
under 386 schemes.
Mutual fund industry today, is one of the most preferred investment avenues in India.
However, with a plethora of schemes to choose from, the retail investors face problems in
selecting funds. Factors such as investment strategy and management styles are qualitative,
but the funds record is another important indicator of fund performance and will facilitate the
investor to decide the mutual fund he should invest in. Though past performance alone cannot
be indicative of future performance, therefore, there is a need to correctly assess the past
performance of different mutual funds by the investor to decide which mutual fund to invest
in.

A mutual fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through these
investments and the capital appreciation realised are shared by its unit holders in proportion
to the number of units owned by them. Thus a mutual fund is the most suitable investment for
the common man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.
The objective of the study was to find out that how many customers of Indusind bank
invests in mutual fund and among those who invests in mutual fund what type of schemes
they prefer to invest in, the kind of return they prefer and the way of investment in mutual
funds ie lumpsum or systematic investment plan(SIP).
All the above objectives were achieved by conducting survey method with the use of
questionnaires and analysis were made according to the results obtained.
1

CHAPTER 1: INTRODUCTION

1.1 Company profile

Genesis
IndusInd Bank derives its name and inspiration from the Indus Valley
civilization -a culture described by National Geographic as 'one of the greatest of
the ancient world' combining a spirit of innovation with sound business and trade
practices.

Mr. Srichand P. Hinduja, a leading Non-Resident Indian businessman and head of


the Hinduja Group, conceived the vision of IndusInd Bank -the first of the new-
generation private banks in India -and through collective contributions from the
NRI community tsowards India's economic and social development, brought our
Bank into being.

The Bank, formally inaugurated in April 1994 by Dr. Manmohan Singh,


Honourable Prime Minister of India who was then the countrys Finance Minister,
started with a capital base of Rs.1,000 million (USD 32 million at the prevailing
exchange rate), of which Rs.600 million was raised through private placement
from Indian Residents while the balance Rs.400 million (USD 13 million) was
contributed by Non-Resident Indians.
A New Era
IndusInd Bank, which commenced its operations in 1994, caters to the
needs of both consumer and corporate customers. It has a robust technology
platform supporting multi-channel delivery capabilities. IndusInd Bank has 365
branches, and 674 ATMs spread across 254 geographic locations of the country as
on December 31, 2011.The Bank also has 2 Representative offices, one each in
London and Dubai.
The Bank believes in driving its business through technology. It has multi-
lateral tie-ups with other banks providing access to their ATMs for its customers.
2

It enjoys clearing bank status for both major stock exchanges - BSE and NSE -
and three major commodity exchanges in the country - MCX, NCDEX, and
NMCE. It also offers DP facilities for stock and commodity segments. The Bank
has been bestowed with the mandate of being a Settlement Banker for six tea
auction centres.
Ratings:
ICRA AA for Lower Tier II subordinate debt program and ICRA AA- for Upper Tier
II bond program by ICRA. CRISIL A1+ for certificate of deposit program by CRISIL. CARE
AA for Lower Tier II subordinate debt program by CARE. Fitch AA- for Long Term Debt
Instruments and Fitch A1+ for Short Term Debt Instruments by Fitch Ratings.

Brand

IndusInd Bank has been aggressive in its brand building program since last year.
As a part of the brand building exercise, the bank has taken many initiatives
which have helped the brand connect up with the customers & enhance the
visibility quotient. IndusInd Bank had launched its first ever mass media
campaign in May-June 2009 along with its punchline Makes you feel richer
and since then, the bank has been consistent in communication through
Television, Radio, and Outdoor & print advertising.
IndusInd Bank understands its customers money is not just money. It is
the vehicle to realise their dreams! Hence, the bank aims to ensure that the
3

customers experience with the bank is pleasant and enriching. That they get
value for their money, enabling them to lead a richer, fuller, content life...
The bank:
Offers a new level of banking better services, better
understanding of unique needs and better management of finances.
Demystifies the banking process and makes it more accessible.
Apart from fulfilling traditional banking responsibilities, advises
customers on how and where to use their money to get the best out of it.
Projects an image of being a young, energetic, modern bank with
values of dynamism, confidence and progression.
Further, as a banking partner, the bank also aims to help its
customers discover how they can do more things with their money.
.
1.1.1 Milestones

2011 - 2012
Awarded as the Best Bank Mid-sized in BusinessworldPwC Best Banks
Survey 2011
Awarded as the Best Mid-Sized Bank Bank in Business Today KPMG
Best Banks Survey 2011
Awarded M.IT.R- 50 Marketing & IT Recognition Program amongst top
50 brands organised by Paul Writer in association with IBM
Awarded the CII Environment Best Practice Award 2012 for the Most
Innovative Environmental Project
Awarded in the Business Enterprise Services category for running ATMs
on solar power Organised by Panasonic Green Globe Foundation
Awarded the status of Star Brand 2011 ICMR Star Brands of India Survey
Awarded the Best Bank in New Generation Category by the STATE
FORUM OF BANKERS CLUB KERALA
4

2010 2011

Most Improved Bank Performance of the Year awarded by Bloomberg


UTV Financial Leadership Awards 2011
Winner of Best Use of technology in training and e-Learning Initiatives
awarded by IBA Banking Technology Awards 2010
Runners up of Best Risk Management Initiatives awarded by IBA
Banking Technology Awards 2010
Silver winner of Excellence in Business Process Management and Work
flow in Australia and Asia Region Global awards by Workflow
Management Coalition and BPM.com, USA
Talisma User awards for Enterprise Adoption of CRM 2010
Ranked 2nd in the fastest growing Bank (mid-size) category published in
Indias Best Banks report by Business World and PWC
Excellence Award as the 2nd best New Generation Bank in Kerala for the
second consecutive year awarded by the State Forum of Bankers Clubs,
Kerala

2009 - 2010

Awarded the "Best Priority Sector Bank" amongst the private sector banks
by Duns & Bradstreet
Tier II Issue raised Rs. 4200 million in March 2010
Awarded the Technology Bank of the Year-2009 from IBA
Excellence Award, the 2nd best new generation bank in Kerala by the
State Forum of Bankers Clubs, Kerala
Recognized for 'Best Performance in Credit Quality' by financial Express
Received the prestigious ISO 27001 certification for IT operations

2008 - 2009

QIP Issue raised Rs. 4803 million in August 2009


Regulatory clearance for 113 new branches are in place (as of June
30,2010)
5

Appointed as Clearing & Settlement Bank at 6 major Tea Auction centers


(includes 2 which were added in 2010)
Tied up with BONY Mellon for on line remittances from United States to
India.

1.1.2 Mission of Indusind Bank

We will consistently add value to all our stakeholders and emerge as the Best in class in the
chosen parameters amongst the comity of banks, by doubling our profits, clients and branches
within the next three years.

1.1.3 Vision of Indusind Bank

IndusInd Bank will be:


A relevant business and banking partner to its clients
Customer Responsive, striving at all times to collaborate with clients in
providing solutions for their Banking needs
A forerunner in the market place in terms of profitability, productivity and
efficiency
Engaged with all our stakeholders and will deliver sustainable and
compliant returns.
6

1.1.4 Ambition of Indusind Bank

No. 1
Leading by being customer responsive

2 In terms of Return on Asset, Return on Equity & Net Interest Margin

In next
3 years Doubling our Profits, Clients & Branches
7

1.2 Industry Profile


8

THE BEGINNING

The English traders that came to India in the 17th century could not make much use of
the indigenous bankers, owing to their ignorance of the language as well the inexperience
indigenous people of the European trade.

Therefore, the English Agency1 Houses in Calcutta and Bombay began to conduct
banking business, besides their commercial business, based on unlimited liability. The Europeans
with aptitude of commercial pursuit, who resigned from civil and military, organized these
agency houses. A type of business organisation recognizable as managing agency took form in a
period from 1834 to 1847

The primary concern of these agency houses was trade, but they branched out into
banking as aside line to facilitate the operations of their main business. The English agency
houses, that began to serve as bankers to the East India Company had no capital of their own,
and depended on deposits for their funds. They financed movements of crops, issued paper
money and established joint stock banks. Earliest of these was HINDUSTAN BANK,
established by one of the agency houses in Calcutta in 1770.

Banking in India originated in the last decades of the 18th century. The first bank in
India, though conservative, was established in 1786 in Calcutta by the name of bank of Bengal.
Indian banking system, over the years has gone through various phases. For ease of study
and understanding it can be broken into four phases
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other country functioned as an Indian substitute for a well-organized capital market and an
industrial banking system of western countries.

EARLY PHASE (1786 to 1935)

Banking in India originated in the last decades of the 18thcentury. The first banks were
The General Bank of India, which started in 1786, and the Bank of Hindustan, both of which are
now defunct.
The oldest bank in existence in India is the State Bank of India, which originated in the
Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their
successors. The East India Company established Bank of Bengal, Bank of Bombay and Bank of
Madras as independent units and called it Presidency Banks. The three banks merged in 1925 to
form the Imperial Bank of India, which, upon India's independence, became the State Bank
of India.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d Escompte de Paris opened a branch in Calcutta in 1860 and another in Bombay in 1862;
branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in
10

Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the
British Empire, and so became a banking centre.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in1848
because of the Economic Crisis of 1848-49. The Allahabad Bank, established in 1865 and still
functioning today, is the oldest Joint Stock bank in India.

Joint Stock Banks

American Civil War played a major role in the development of banking in India. The
next big thing unfolded in the early phase of banking was formation of joint stock companies,
with limited liability. The American Civil War cut off the supply of American cotton to England
caused an unprecedented boom in Indias cotton trade with England.

The first joint stock bank was Bank of Upper India, which was established in 1863, and
which survived until 1913, when it failed, with some of its assets and liabilities being transferred
to the Alliance Bank of Shimla.The first entirely Indian joint stock bank was the Oudh
Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab
National Bank, established in Lahore in 1895, which has survived to the present and is now one
of the largest banks in India

Stability & Growth

Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,
industrial and other infrastructure had improved. Indians had established small banks, most of
which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange
banks and a number of Indian joint stock banks. All these banks operated in different
segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on
11

financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the
experience and maturity to compete with the presidency and exchange banks. This segmentation
letLord Curzonto observe

"In respect of banking it seems we are behind the times. We are like some old fashioned
sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."

Swadeshi Movement
The Swadeshi movement inspired local businessmen and political figures to found banks
of and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank
and Central Bank of India.
AmmembalSubbaRaoPai founded Canara Bank Hindu Permanent Fund in1906.
Central Bank of India was established in 1911 by SirSorabjiPochkhanawala and was the first
commercial Indian bank completely owned and managed by Indians. In 1923, it acquired
the Tata Industrial Bank.
The fervor of Swadeshi movement lead to establishing of many private banks in
DakshinaKannadaandUdupi district which were unified earlier and known by the name South
Canara (South Kanara )district. Four nationalized banks started in this district and also a leading
private sector bank. Hence, undivided Dakshina Kannada district is known as Cradle of Indian
Banking

BANKS WITH YEAR OF START

Bank Of Bengal 1809


Bank Of Bombay 1840
Bank Of Madras 1843
Allahabad Bank 1865
Punjab National Bank Ltd. 1894
Canara Bank 1906
12

Indian Bank 1907


Bank Of Baroda 1908
Central Bank Of India 1911
Bank Of Mysore 1913
Union Bank Of India 1922

Failures in Early Phase

During the first phase, the growth was very slow and banks experienced periodic failures
during the Early Phase between. There were approximately 1100 banks, mostly small which
failed within the early phase

The first major bank failure took place in 1791, when General Bank Of India was
voluntarily liquidated, due to inability to earn profits following the currency difficulties in 1787.
Bengal Bank failed around 1791, due to a run on it caused by emergence of difficulties of a
related firm.

A large number 14 of banks failed within a short time, and public confidence in banks
was destroyed. The currency confusion during 1873-1893 caused trade uncertainties and also
played its role in creating an atmosphere unfavourable to establishment of new banks.

Due to war and uncertainty in Europe let to speculative activity, which eventually caused
bank failures. The depositors lost money and lost interest in keeping deposits with banks.
Subsequently, banking in India remained the exclusive domain of Europeans for next several
decades until the beginning of the20th century.
Development of banking, during this period, was mostly because very deregulated
(laissez fairepolicy). This also played a major role in failures. The deficiency of capital made
newly established banks almost wholly dependent on deposits. Keen rivalry among them to
attract deposits led to luring of depositors, with rates of interest much higher than they could
really afford.
13

During 1913, Indian Companies Act2 was passed. It contained a few sections related to
joint sector banks. While this act is significant, being the first legislation related to banks, it was
not adequate for regulation of banking activity. Many banks were left altogether free from
regulation.
The boom during the later part of World War I and after it gave another impetus to the
starting of new banks. A number of banks were established, some specially for financing
industries. But from 1922, the bank failures increased once again due to economic depression

PRE -NATIONALIZATION PHASE(1935 TO 1969)_

Organized banking in India is more than two centuries old. Until 1935 all, the banks were
in private sector and were set up by individuals and/or industrial houses, which collected
deposits from individuals and used them for their own purposes.
In the absence of any regulatory framework, these private owners of banks were at liberty
to use the funds in any manner, they deemed appropriate and resultantly, the bank failures were
frequent.

For many years the Presidency banks acted as Quasi-Central Bank as did their
successors. Bank of Bengal, Bank of Bombay and Bank of Madras merged in 1925 to form the
Imperial Bank Of India, which, upon India's independence, became the State Bank Of India.

Even though consolidation in banking was building trust among the investors but a
central regulatory, authority was much needed. British Government in India passed many trade
and commerce laws but acted little on regulating the banking industry.
14

Reserve Bank of India

Another breakthrough happened in this phase, which was Reserve Bank of India. The
Reserve Bank of India was set up on the recommendations Royal Commission on Indian
Currency and Finance3 also known as the Hilton-Young Commission. The commission
submitted its report in the year 1926, though the bank was not set up for nine years. Reserve
Bank of India (RBI) was created with the central task of maintaining monetary stability in India.
The Government on December 20, 1934 issued a notification and on January 14, 1935, the RBI
came into existence, though it was formally inaugurated only on April 1, 1935.

Main functions of RBI were:


1) Regulate the issue of banknotes
2) Maintain reserves with a view to securing monetary stability and
3) To operate the credit and currency system of the country to its advantage

The Bank began its operations by taking over from the Government the functions so far
being performed by the Controller of Currency and from the Imperial Bank of India. Offices of
the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.

Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank
continued to act as the Central Bank for Burma until Japanese Occupation of Burma and later
unto April 1947.

After the partition of India, the Reserve Bank served as the central bank of Pakistan up to
June 1948 when the State Bank of Pakistan commenced operations.

India Wins Freedom

The second milestone in history of Indian banking was India becoming a sovereign
republic. The Government of India initiated measures to play an active role in the economic life
15

of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged
a mixed economy. This resulted into greater involvement of the state in different segments of the
economy including banking and finance.

The banking sector also witnessed the benefits; Government took major steps in this
Indian Banking Sector Reform after independence.
1) First major step in this direction was nationalized of Reserve Bank in 1949
2) Enactment of Banking Regulation Act in 1949
3) Reserve Bank of India Scheduled Banks' Regulations, 1951
4) Nationalization of Imperial Bank of India in 1955, with extensive banking
facilities on a large scale especially in rural and semi-urban areas.
5) Nationalization of SBI subsidiaries in 1959

Government of India took many banking initiatives. These were aimed to provide
banking coverage toall section of the society and every sector of the economy.

1955 The Industrial Credit and Investment Corporation of India Limited


(ICICI) was incorporated at the initiative of World Bank, the Government of India and
representatives of Indian industry, with the objective of creating a development financial
institution for providing medium-term and long-term project financing to Indian businesses.

Industrial Development Bank of India Limited (IDBI) was established in 1964 by


an Act of Parliament to provide credit and other facilities for the development of the fledgling
Indian industry. Some of the institutions built by IDBI are The National Stock Exchange of India
(NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding
Corporation of India (SHCIL) IDBI BANK, as a private bank after government policy for
new generation private banks.
16

This phase of Indian banking was eventful and was a phase of restructuring, regulation.
However, despite these provisions, control and regulations, banks in India except the State Bank
of India, continued to be owned and operated by private persons

POST-NATIONALIZATION PHASE(1969 to 1990)

Nationalization of banks in India was an important phenomenon. On July 19, 1969.


- The erstwhile government of India nationalized 14 major private banks. Nationalization
of bank in India was not new or happening first time. From 1955 to 1960, State Bank of India
and other seven subsidiaries were nationalized under the SBI Act of 1955

1.2.1 LIST OF NATIONALIZED BANKS IN 1969

1 Central Bank of India 8 Indian Overseas Bank


2 Bank of Maharashtra 9 Bank of Braoda
3 Dena Bank 10 Union Bank
4 Punjab National Bank 11 Allahabad Bank
5 Syndicate Bank 12 United Bank of India
6 Canara Bank 13 UCO Bank
7 Indian Bank 14 Bank Of India

It was not a step taken at random or because of the whims of the leadership of the time,
but reflected a process of struggle and political change which had made this an important
demand of the people. Nationalisation took place in two phases, with a first round in 1969
covering 14 banks followed by another in 1980 covering seven banks. Currently there are 27
nationalized commercial banks.
17

Reasons for Nationalization

1) The need for the nationalization was felt mainly because private commercial
banks were not fulfilling the social and developmental goals of banking, which are so essential
for any industrializing country. Despite the enactment of the Banking Regulation Act in 1949
and the nationalization of the largest bank, the State Bank of India, in 1955, the expansion
of commercial banking had largely excluded rural areas and small-scale borrowers.
2) The developmental goals of financial intermediation were not being achieved
other than for some favoured large industries and established business houses. Whereas
industrys share in credit disbursed by commercial banks almost doubled between 1951 and
1968, from 34 percent to 68 per cent, agriculture received less than 2 per cent of total credit.
3) The stated purpose of bank nationalization was to ensure that credit allocation
occur in accordance with plan priorities.
4) Reduce the hold of moneylenders and make more funds available for agricultural
development. Nationalization of bank was to actively involve in poverty alleviation and
employment generation programs..

MODERN PHASE FROM 1991 TILL DATE

This is the phase of New Generation tech-savvy banks. This phase can be called as
The Reforms Phase. Starting of the modern and current phase of Indian Banking is marked by
two important events

Narasimhan Committee

The Banking sector Reforms committeeheaded by Mr. M. Narasimhan, it is also known


as Narasimhan Committee. The Committee, headed by former Reserve Bank of India governor
M Narasimhan, was appointed by the United Front government to review the progress in banking
sector reforms.
18

The committee submitted its recommendations7 to union Finance


Minister YashwantSinha in November of 1991.The Committee was required to review the
progress in the reforms in the banking sector over the past six years with and to chart a
programme on Financial Sector Reforms necessary to strengthen the Indias financial system and
make it internationally competitive taking into account the vast changes in the international and
financial markets, technological advances.

Economic Liberalization in India


The second major turning point in this phase was Economic Liberalization in India. After
Independence in 1947, India adhered to socialist policies. The extensive regulation was
sarcastically dubbed as the "License Raj.

The Government of India headed by NarasimhaRao decided to usher in several reforms


that are collectively termed as liberalization in the Indian media with Manmohan Singh whom he
appointed Finance Minister.

Dr. Manmohan Singh, an acclaimed economist, played a central role in implementing


these reforms. New research suggests that the scope and pattern of these reforms in India's
foreign investment and external trade sectors followed the Chinese experience with external
economic reforms.

Reasons for the Reforms


A Balance of Payments crisis in 1991 pushed the country to near bankruptcy. In return
for an IMF bailout, gold was transferred to London as collateral, the Rupee devalued and
economic reforms were forced upon India. That low point was the catalyst required to transform
the economy through badly needed reforms to unshackle the economy. Controls started to be
dismantled, tariffs, duties and taxes progressively lowered, state monopolies broken, the
economy was opened to trade and investment, private sector enterprise and competition were
encouraged and globalisation was slowly embraced.
19

Impact of Economic Liberalization on Finance & Banking


Post nationalization now Indian banking sector was unshackled, and along with the
government banks a thick layer of private and foreign banks was taking shape. The first of such
new generation banks to be set up was Global Trust Bank, which later amalgamated with
Oriental Bank of Commerce, ICICI Bank, HDFC Bank and Axis Bank.
This move, along with the rapid growth in the economy of India, revitalized the banking
sector in India. The next stage for the Indian banking has been setup with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given
voting rights, which could exceed the present cap of 10%, at present it has gone up to 49% with
some restrictions.
The new wave ushered in a modern outlook and tech-savvy methods of working for
traditional banks. All this led to the retail boom in India. People not just demanded more from
their banks but also received more.

1.2.2 Banking structure in India


20

Banks in India can be categorized into Scheduled and Non-scheduled Banks

Scheduled Banks
Scheduled Banks in India constitute those banks, which have been included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in
this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.

Non-Schedule Banks
Non-scheduled bank in India" means a banking company as defined in clause (c)
of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank".

Scheduled Banks can be further categorized into-


Commercial Bank
A financial institution that provides services, such as accepting deposits, giving business
loans and auto loans, mortgage lending, and basic investment products like savings accounts and
certificates of deposit. The traditional commercial bank is a brick and mortar institution with
tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any
physical branches and require consumers to complete all transactions by phone or Internet. In
exchange, they generally pay higher interest rates on investments and deposits, and charge lower
fees.

Co-Operative Bank:
Co-operative bank is an autonomous association of persons united voluntarily to meet
their member's financial (loans, deposits, other services), economic, social, and cultural needs
and aspirations through a democratically controlled way.
21

1.2.3 LIST OF BANKS IN INDIA 2012:-

Public Sector Banks


S.no Banks Name S.no Banks Name
1 Allahabad Bank 11 Indian Overseas Bank
2 Andhra Bank 12 Oriental Bank of Commerce
3 Bank of Baroda 13 Punjab & Sind Bank
4 Bank of India 14 Punjab National Bank
5 Bank of Maharashtra 15 Syndicate Bank
6 Canara Bank 16 UCO Bank
7 Central Bank of India 17 Union Bank of India
8 Corporation Bank 18 United Bank Of India (UBI)
9 Dena Bank 19 Vijaya Bank
10 Indian Bank 20 IDBI Bank Limited (It is a new
generation bank with majority
government holding)

State Bank Group Banks:-


1 State Bank of India

2 State Bank Of Bikaner & Jaipur

3 State Bank of Hyderabad

4 State Bank of Mysore

5 State Bank of Patiala

6 State Bank of Travancore


22

Private Sector Banks


List of Old Private Sector Banks in India
1 Catholic Syrian Bank 9 Lakshmi Vilas Bank
2 City Union Bank 10 The Ratnakar Bank
3 Dhanalakshmi Bank 11 Nanital Bank
4 The Federal Bank 12 SBI Commercial & International
Bank
5 ING Vysya Bank Ltd 13 South India Bank
6 Jammu & Kashmir Bank 14 Tamilnadu Mercantile Bank
7 Karnataka Bank 15 United Western Bank
8 KarurVysya Bank

List of Old Private Sector Banks Since Merged :-


The Nedungadi Bank (merged with PNB)
The Bank Of Rajasthan (merged with ICICI in 2010)
Bharat Overseas Bank (Merged with Indian Overseas Bank)
Lord Krishna Bank (Merged with Centurion Bank of Punjab, which was merged with HDFC
Bank)
The Sangli Bank (merged with ICICI Bank in 2006)
The Ganesh Bank of Kurundwad (merged with Federal Bank)

List of New Private Sector Banks in India


1 Axis Bank (Ealier UTI) 5 IndusInd Bank
2 Development Credit Bank (DCB Bank) 6 Kotak Mahindra Bank
3 HDFC Bank 7 Yes Bank
4 ICICI Bank
23

Foreign Banks

1 ABN-AMRO Bank NV 23 Dresdner Bank AG


2 Abu Dhabi Commercial Bank 24 HSBC
3 Amercian Express Bank 25 ING Bank NV
4 ANZ Grindlays Bank 26 KBC Bank NV
5 Arab Bangladesh Bank 27 Krung Thai Bank Public Co
6 Bank International Bank 28 Mashreq Bank
7 Bank Muscat Saog 29 Morgan Guanty Bank
8 Bank Of America NV 30 Oman International Bank SAOG
9 Bank Of Bahrain & Kuwait BSC 31 Overseas-Chinese Banking
Corporation
10 Bank Of Ceylon 32 The Sanwa Bank
11 Bank Of Nova Scotia 33 The Slam Commercial Bank
12 Bank Of Tokyo-Mitsubish 34 SocieteGenerale
13 Barclays Bank PLC 35 Sonali Bank
14 BNP Paribas 36 Standard Chartered Bank
15 China Trust Commercial Bank 37 Standard Chartered Grindlays Bank
16 Cho Hung Bank 38 State Bank Of Mauritius
17 Citi Bank 39 The Sumitomo Bank
18 Commerz Bank AG 40 The Chase Manhattan Bank
19 Credit Agricole Indosuez 41 The Fuji Bank
20 Credit Lyonnais 42 The Sakura Bank
21 Deutsche Bank AG 43 The Toronto-Dominion Bank
22 Development Bank Of Singapore
24

1.3 Purpose of study

Objectives:
Main objective is to analyse how many indusind bank customers invest
in mutual funds.
Sub-objectives:
To find out which mutual fund they prefer to invest in.
To find out which way investors like investing in mutual funds.

1.4 Theoretical framework

1.4.1 What is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these investments
and the capital appreciations realized are shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed basket of securities
at a relatively low cost.

The beauty of mutual funds is that anyone with an investible surplus of a few hundred
rupees can invest and reap returns as high as those provided by the equity markets or have a
steady and comparatively secure investment as offered by debt instruments.
25

1.4.2 History of mutual fund industry

The Evolution
The formation of Unit Trust of India marked the evolution of the Indian mutual fund
industry in the year 1963. The primary objective at that time was to attract the small investors
and it was made possible through the collective efforts of the Government of India and the
Reserve Bank of India. The history of mutual fund industry in India can be better understood
divided into following phases:

Phase 1. 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.
26

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors.
It launched ULIP in 1971, six more schemes between 1981-84, Childrens Gift Growth Fund and
India Fund (Indias first offshore fund) in 1986, Master share (Indias first equity diversified
scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the
end of 1987, UTIs 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

Amount Assets Under Mobilization as % of gross


1992-93
Mobilized Management Domestic Savings
UTI 11,057 38,247 5.2%
Public
1,964 8,757 0.9%
Sector
Total 13,021 47,004 6.1%

80% market share.


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 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.
27

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.

Inventors' 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
mobilization of funds from investors and assets under management which is supported by the
following data:
28

GROSS FUND MOBILISATION (RS. CRORES)


PRIVATE
FROM TO UTI PUBLIC SECTOR TOTAL
SECTOR
01-April-
31-March-99 11,679 1,732 7,966 21,377
98
01-April-
31-March-00 13,536 4,039 42,173 59,748
99
01-April-
31-March-01 12,413 6,192 74,352 92,957
00
01-April-
31-March-02 4,643 13,613 1,46,267 1,64,523
01
01-April-
31-Jan-03 5,505 22,923 2,20,551 2,48,979
02
01-Feb.-03 31-March-03 * 7,259* 58,435 65,694
01-April-
31-March-04 - 68,558 5,21,632 5,90,190
03
01-April-
31-March-05 - 1,03,246 7,36,416 8,39,662
04
01-April-
31-March-06 - 1,83,446 9,14,712 10,98,158
05

ASSETS UNDER MANAGEMENT (RS. CRORES)1


PUBLIC PRIVATE
AS ON UTI TOTAL
SECTOR SECTOR
31-March-99 53,320 8,292 6,860 68,472
29

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 29
funds as at the end of March 2006. This is a continuing phase of growth of the industry through
consolidation and entry of new international and private sector players.
1.4.3 Organization structure of mutual funds

The structure consist of


Sponsor: Sponsor is the First tier, who thinks of starting a mutual fund. The Sponsor
approaches the Securities & Exchange Board of India (SEBI), which is the market regulator
30

and also the regulator for mutual funds. sponsor must contribute atleast 40% of the net
worth of the investment managed and meet the eligibility criteria prescribed under the SEBI.
TRUST: A trust deed is often used when mutual funds are set up as a trust. Information
that may be documented includes the powers of the trustee and any restrictions on investment
vehicles. The trust deed is registered under the Indian registration act,1908.
TRUSTEE: An individual who holds or manages assets for the benefit of another.
Trustees make decisions based on due diligence and in the best interest of the beneficiary, and
can be held personally liable for their actions if the beneficiary deems there was a breach of trust

Asset management company: A company that invests its clients' pooled fund into securities that
match its declared financial objectives. Asset management companies provide investors with
more diversification and investing options than they would have by themselves. AMCs offer
their clients more diversification because they have a larger pool of resources than the individual
investor. Pooling assets together and paying out proportional returns allows investors to avoid
minimum investment requirements often required when purchasing securities on their own, as
well as the ability to invest in a larger set of securities with a smaller investment. Mutual funds,
hedge funds and pension plans are all run by asset management companies. These companies
earn income by charging service fees to their clients.

1.4.4 The way and type to invest in mutual funds

Systematic Investment Plan:


This is a plan where investors make regular, equal payments into a mutual fund, trading
account or retirement account, such as a 401k. By using a systematic investment plan (SIP),
investors are benefitting from the long-term advantages of dollar-cost averaging and the
convenience of saving regularly without taking any actions except the initial setup of the SIP.
Lump sum:
A one-time payment for the total or partial value of an asset. A lump-sum payment is
usually taken in lieu of recurring payments that would otherwise be received over a period of
time. The value of a lump-sum payment is generally less than the sum of all payments that the
party would otherwise receive, since the party paying the lump-sum payment is being asked to
31

provide more funds up front than it otherwise would have been required to

1.4.5 Regulatory of mutual fund in India

SEBI
To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to
time. MF either promoted by public or by private sector entities including one promoted by
foreign entities is governed by these Regulations.

SEBI approved Asset Management Company (AMC) manages the funds by making investments
in various types of securities. Custodian, registered with SEBI, holds the securities of various
schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry
32

1.4.6 Types of Mutual fund schemes

Open-ended Funds

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

Closed-ended Funds

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest in
the scheme at the time of the initial public issue and thereafter they can buy or sell the units of
33

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.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a majority of their corpus in equities. It has been proven that
returns from stocks, have outperformed most other kind of investments held over the long term.
Growth schemes are ideal for investors having a long-term outlook seeking growth over a period
of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures and
Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities 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. These are
ideal for investors looking for a combination of income and moderate growth.
34

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer short-term instruments such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on
these schemes may fluctuate depending upon the interest rates prevailing in the market. These
are ideal for Corporate and individual investors as a means to park their surplus funds for short
periods.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax laws as the Government offers tax incentives for investment in specified avenues.
Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed
as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to
investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document.
The investment of these funds is limited to specific industries like InfoTech, FMCG,
Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50

Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a group of
industries or various segments such as 'A' Group shares or initial public offerings.
35

A summary is presented in the table below of the various funds and their investment objectives.

Scheme type Time Risk Typical Investment Pattern


998 Horizon Profile
Objective Open Close Equity Debt Money Market
(%) (%) Inst./Others (%)
Money Yes No Short-Term Low 0 0-20 80-100
Market
Income Yes Yes Medium - Low to 0 80- 0-20
Long Term Medium 100
Growth Yes Yes Long Term High 80-100 0-20 0-20
Balanced Yes Yes Long term Medium to 0-60 0-40 0-20
high
Tax Saving Yes Yes Long term High 80-100 80- 0-20
100

Some of the popular firms that deal in mutual funds in India are:

Reliance Mutual Funds


HDFC
ABN Amro
AIG
Bank of Baroda
Canara Bank
Birla Sun Life
DSP Merrill Lynch
DBS CholaMandalam AMC
Escorts Mutual
Deutsche Bank
ING
HSBC
36

ICICI Prudential
LIC
JP Morgan
Kotak Mahindra
Lotus India
JM Financial
Morgan Stanley
State Bank of India (SBI)
Sahara Mutual Funds
Sundaram BNP Paribas
Taurus Mutual Funds
Tata
UTI
Standard Chartered

1.4.6 How to measure mutual fund performance

1) Alpha:

Alpha basically is the difference between the returns an investor expects from a fund,
given its beta, and the return it actually produces. A positive alpha means the fund has
outperformed its benchmark index. Whereas, a negative alpha indicates an underperformance of
the fund.

2)Beta:

Beta is a measure of the volatility of a particular fund in comparison to


the market as a whole, that is, the extent to which the fund's return is impacted
by market factors. Beta is calculated using a statistical tool called regression
analysis.
37

3)R-Squared:

It measures the correlation between beta and its benchmark index. The beta of a fund has
to be seen in conjunction with the R-squared for better understanding the risk of the fund. R-
squared values range between 0 and 1, where 0 represents no correlation and 1 represents full
correlation. If a fund's beta has an R-squared value that is between 0.75 and 1, the beta of that
fund should be trusted. On the other hand, an R-squared value that is less than 0.75 than it
indicates the beta is not particularly useful because the fund is being compared against an
inappropriate benchmark index.

4) Standard Deviation (SD):

The total risk (market risk, security-specific risk and portfolio risk) of a mutual fund is
measured by Standard Deviation (SD). In mutual funds, the standard deviation tells us how
much the return on a fund is deviating from the expected returns based on its historical
performance. In other words can be said it evaluates the volatility of the fund. In other words, it
is a measure of the consistency of a mutual fund's returns. A higher SD number indicates that the
net asset value (NAV) of the mutual fund is more volatile and, it is riskier than a fund with a
lower SD.

5) Sharpe Ratio:

Sharpe ratio (SR) is another important measure that evaluates the return that a fund has
generated relative to the risk taken. Risk here is measured by SD. It is used for funds that have
low correlation with benchmark index. This ratio helps an investor to know whether it is a safe
bet to invest in this fund by taking the quantum of risk.

1.4.7 Investments in Mutual Fund

Mutual Funds are a popular investment tool for investors because it offers a convenient and cost-
effective way to invest in the financial markets. Mutual fund industry in India came with the
concept of Mutual Fund in the year 1963 at the initiative of the Government of India and Reserve
38

Bank of India. The growth was slow initially but it accelerated from the year 1987 when non-
UTI players entered the industry. The industry witnessed a compounded annual growth rate of
31.25% from March 2003 to March 2011. The figure for March 2011 is the quarterly average for
the first calendar quarter as the regulator stopped providing monthly average asset under
management (AAUM) from September 2010 onwards.

Advantages of investing in mutual fund:

1.Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have
the time or the expertise to manage their own portfolio. A mutual fund is considered to be
relatively less expensive way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or


bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular
investment is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for
their investors.
39

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate
their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other


available instruments in the market, and the minimum investment is small. Most AMC also
have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50
per month basis

Disadvantages of investing in Mutual Funds:

1.Professional Management- Some funds doesnt perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus
many investors debate over whether or not the so-called professionals are any better than
mutual fund or investor him self, for picking up stocks.

2. Costs The biggest source of AMC income, is generally from the exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus
charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns
from a few investments often don't make much difference on the overall return. Dilution is
also the result of a successful fund getting too big. When money pours into funds that have
had strong success, the manager often has trouble finding a good investment for all the new
money.

4. Taxes - when making decisions about your money, fund managers don't consider your
personal tax situation. For example, when a fund manager sells a security, a capital-gain tax
is triggered, which affects how profitable the individual is from the sale. It might have been
more advantageous for the individual to defer the capital gains liability.
40

1.5 Definitions

Net AssetValue (NAV)


Net Asset Value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the valuation date.

Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It may include
a sales load.

Repurchase Price
Its the price at which units under open-ended schemes are repurchased by the Mutual Fund.
Such prices are NAV related.

Redemption Price
Is the price at which close-ended schemes redeem their units on maturity. Such prices are
NAV related.

Sales Load
Is a charge collected by a scheme when it sells the units. Also called, Front-end load.Schemes
that do not charge a load are called No Loadschemes.

Repurchase orBack-endLoad
Is a charge collected by a scheme when it buys back the units from the unitholders.
41

CHAPTER 2: LITERATURE REVIEW

2.1 The Wharton School of Finance and Commerce (1962) carried out the first
comprehensive study covering various aspects of U.S. mutual fund industry for the period 1953-
1958. The various aspects included: fund activity and stock prices, problems faced by mutual
funds and their performance evaluation.

The study reported that mutual funds diversified their investment among many industries.
The concentration of their common stock portfolios in a few industries had declined over time.
The study also reported that the smallest funds had the highest turnover rate in the five-year
period of the study. A major finding of the study was that the average performance by mutual
funds was not appreciably better than what would have been achieved by a completely
unmanaged portfolio with the same distribution between common stocks and other assets. About
half the funds performed better and the other half worse than the unmanaged portfolio. When
funds were grouped by the number of years in which they topped the average performance, the
results appeared completely random. Further, the study also measured the effect of fund
purchases on monthly and even daily movements in the stock market as a whole and in specific
securities. Some fairly strong indications of short run effects of fund purchases were found,
although the results were not conclusive. Stepped-up purchases were linked with higher prices,
both on a monthly and daily basis. An analysis of thirty of the funds favorite issues between
1953 and 1958, showed that the funds would usually buy them in two months just before their
cyclical rise and would usually sell them in the two months just before a similar downswing.
However, the study did not make a distinction between the actual impact of fund activities and
their forecasting ability.

2.2 Brown and Douglas [1963] examined the inter-relationships between fund activity
and their performance; and also between fund activity and their impact on the stock market. In
other words, the study examined the questions as to what extent the potential economic benefits
of pooling investment funds in the hands of institutional investors are actually realized. For this
purpose, the study used data for 30 mutual fund favourite stocks. It compared fund net purchases
with (a) average increase in per share earnings, and (b) the ratio of 1953 prices to1958 earnings.
42

None of the results showed statistically significant differences between the issues in which the
funds invested more heavily and those in which the funds made smaller investments.

The study reported that variations in fund portfolio turnover rates were not associated
with variations in fund performance: i.e. high levels of portfolio activity had worked neither to
the advantage nor to the disadvantage of the shareholder. Similarly, the shifting of portfolio
structures by fund managers had, on an average, resulted in no better (and also no worse)
performances than those that would have been achieved by a constant portfolio. The study also
found that fund portfolio activity had influenced market prices. The impact of fund activity had
not been found to be uniform in stabilizing or destabilizing prices. However, it had contributed
both to the prolonging of market movements and to the reversals or turning points of these
movements.

2.3 Treynor [1965] developed a methodology for evaluating mutual fund performance
that is popularly referred to as reward to volatility ratio. This measure has been frequently used
both by researchers and practitioners for performance evaluation of mutual funds. The approach
developed by Treynor takes beta or systematic risk to assess the premium per unit of risk.

2.4 Sharpe [1966] carried out a well acknowledged and widely quoted work on
performance evaluation. He not only developed a composite measure for performance evaluation
(Sharpes reward to variability ratio) that considers both return and risk but also tested the same
in evaluating the performance of 34 open-ended mutual funds during the period 1944-63. He
found the performance of 11 funds superior to that of Dow Jones Industrial Average (DJIA). The
reward to variability ratio for bulk of the funds was less than that for the benchmark portfolio.
On the basis of these results, Sharpe concluded that average mutual fund performance was
markedly inferior to that of DJIA. An analysis of relationship between fund performance and its
expense ration indicated that good performance was associated with low expense ratio. However,
a low relationship was discovered between size and performance.
43

2.5 In another study, Gill and Reed [1966] examined the investment performance of
selection common trust funds during the period 1960 to 1964. The elements of performance that
they considered were appreciation, yield and stability. They first compared the composite
performance of trust funds with Standard and Poors 500 Stock Index and with several other
mutual fund indices. They then analyzed the relative performance among these trust funds by
estimating coefficients of correlation between measures of appreciation, yield and stability. The
necessary data for the study were collected through questionnaires from 146 respondents.

They reported that during the study period, the average performance of sample trust funds
was equivalent to that of the general market as measured by the Standard & Poors 500 Stock
Index. However, during the four-year period through the end of 1964 and the three-year period
through the end of 1964, the average performance of trust funds was superior to that of common
stock mutual funds as measured by Wiesenbergers Indices. Lastly, during the four-year period
ending January 31, 1965, the common stock common trust funds, which appreciated most, were
also the most stable and produced yields equal to those of the slower growing, less-stable funds.

2.6 Jensens classic study [1968] developed an absolute measure of performance based
upon the Capital Asset Pricing Model. The excess fund returns were regressed upon the excess
market returns to estimate the characteristic line of the regression model. Jensen then examined
the performance of 115 open-end mutual funds over the period 1945-1964. He reported that
mutual funds did not appear to achieve abnormal performance (in the sense of his risk/return
measure) when transaction costs were taken into account. Thus, the result of the study lent
support to the strong form of efficient market hypothesis. He reported that the estimated values
of the parameters remained constant over the estimation period. Jensens estimated alpha values
were used to draw inferences for superior performance of mutual funds.

He reported that 76 out of 115 mutual funds in his sample realized negative risk-adjusted
returns after accounting for management fees and transaction costs. Thus, he concluded that
evidence on mutual fund performance indicated not only that these 115 mutual funds were on an
average not able to predict security prices well enough to outperform a buy-the market-and-hold
policy, but also, that there was very little evidence that any individual fund was able to do
significantly better than that which he expected from mere random chance. He further observed
44

that these conclusions hold even when fund returns were measured gross of management
expenses. Thus, Jensen concluded that on an average the funds apparently were not quite
successful enough in their trading activities to recoup even their brokerage expenses.

2.7 Smith and Tito [1969] reviewed three widely used composite measures of
investment performance and examined their inter-relationships and put forward another
alternative measure which was then compared empirically. While ranking the funds on the basis
of ex-post performance, the alternative measure produced little difference in performance. In
contrast, when performance comparisons were made with the market, their conclusions differed
significantly. In view of this, the alternative measure suggested by them was referred to as the
modified Jensen measure.

2.8 Carlson [1970] examined the overall performance of mutual funds during the period
1949-1967. However, he laid emphasis on analyzing the effect of using different indices as a
proxy for the market over different time periods. He reported that fund performance relative to
the market varied depending upon which index was used for the market viz., S&P 500, NYSE
Composite, or OJIA. For the total period, almost all fund groups outperformed DJIA but only a
few had gross returns that were better than those did for S&P 500 or NYSE Composite.
Although there was consistency over time when risk and return were taken in isolation.
However, there was no consistency in the risk adjusted performance measures. He also analyzed
performance relative to size, expense-ratio, and a new-funds factor. The results indicated no
relationship with size or expense ratio, although there was a relationship between performance
and a measure of new funds factor.

2.9 Klemosky [1973] analysed investment performance of mutual funds using quarterly
returns for 40 funds during the period 1966-1971. He identified some bias in Sharpe. Treynor,
and Jensen measures. He suggested that these could be removed by using mean absolute
deviation and semi-standard deviation as risk surrogates. In his opinion, the resultant
45

performance measure was found to be a better measure of risk adjusted performance measure
than the composite measures derived from the capital asset pricing model.

2.10 In another study, McDonald [1974] examined the performance of 123 mutual funds
in relation to the stated objective of each fund. The results indicated a positive relationship
between fund objectives and risk measures thereby implying that a funds risk increases when it
becomes more aggressive. As expected, a positive relationship between return and risk was
found. The relationship between fund objective and risk-adjusted performance indicated that
funds that are more aggressive experienced better returns, although only one third of the funds
did better than the aggregate market.

2.11 In his study, Cornell [1979] contested Mayers and Rice [1979] methodology that
was based on CAPM to detect superior performance in a world of asymmetric information. He
pointed out that CAPM could not be resurrected as a practical tool for performance
measurement. He suggested an alternative measure that was found to be robust in that it was
capable of correctly designing superior performance in the context of CAPM, Arbitrage Pricing
Theory (APT), and many other equilibrium models of security prices.

.2.12 Kon and Jen [1979] evaluated mutual fund stock selectivity performance and the
implications for efficient market hypothesis (EMH) when management was simultaneously
engaged in market timing activities. They employed both the Sharp-Lintner-Mossin and Black
models of market-equilibrium as benchmarks. The data set employed in the study consisted of
monthly returns from January 1960 to December 1971 pertaining to 48 mutual funds. They
reported that many of the funds in the sample significantly changed their risk levels during the
measurement interval. This resulted in significantly different stock selectivity performance and
portfolio diversification. The empirical results on selectivity performance provided evidence
both for and against the EMH. The evidence against the EMH was that many individual funds
were able to generate significant superior selectivity performance for a subset of observations in
46

the measurement interval. Further, the estimates of overall selectivity performance indicated that,
on an average, the sample reflected some superior performance.

The evidence in support of the EMH was based on the bias in favour of low-risk
securities using the SLM benchmark. They found evidence that was not inconsistent with the
joint hypothesis of Black [1972] model (Cited in Anderson & Ahmed, 2005). They reported that
mutual fund managers individually and, on an average, were unable to consistently forecast the
future prices of individual securities well enough to recover their research expenses,
management fees, and commission expenses.

2.13 Fabozzi, et al., [1980] empirically identified a more general form of mutual fund
rates of return-generating model for 85 funds during 73 months period from December 1965 to
December 1971. They reported that a significant number of funds exhibited a functional form
that differed significantly form traditional linear and logarithmic like rates of return generating
process. Thus, this resulted in a specification bias for the systematic risk estimate. However, the
bias was not found material when monthly data were examined. They also tested whether the
betas for open-ended mutual funds differ in bull and bear market periods. The sample included
funds with different objectives to remove any misgiving that any particular type of fund or size
of fund was more likely to change its beta. The study found evidence that mutual fund manager
did not shift their funds beta to take advantage of market movements.

2.14 Reilly [1982] studied performance of 20 open-end mutual funds over 15 years
period, 1966-80. He found that mean return of the sample funds was quite close to that of the
market. However, in terms of fund return, 12 funds outperformed the market. The study noted
large range of fund returns indicating inadequacy of portfolio diversification. Likewise, the two
risk measures (standard deviation and beta) exhibited a wide range, but generally consistent with
expectations. Specifically, 14 funds had a standard deviation larger than that of the market that
was found consistent with the lack of complete diversification. The performance of individual
funds was consistent for alternative performance evaluation models. In terms of Sharpe model,
13 funds showed a higher value than that for the market. Similarly, in terms of Treynor measure,
14 funds had a higher value in comparison to the market. He reported that in terms of Jensen
47

model 13 of the 20 funds exhibited positive intercepts. However, he found only one of positive
intercepts being statistically significant. These results seem to indicate that, on an average,
sample funds outperformed the market during the period of study.

2.15 IP and HO [1989] examined the performance of mutual funds in the Asian Pacific
markets, viz., Japan, Singapore and Hong Kong. The data consisted of all the 51 mutual funds
registered in Hong Kong and investing in the Asian Pacific equity markets for the period January
1, 1983 to December 31, 1987. They examined the investment performance by comparing the
reward-to-variability ratios within each market as well as across markets. The study further
examined the performance of management in terms of diversification. They reported that many
of the funds performed worse than a random portfolio on risk-adjusted basis. The study also
found that the mutual funds did particularly poorly in diversification, thereby, bearing very high
proportion of market risk. They concluded that investors should be cautious in selecting mutual
funds. The study lent support to the findings of Fama, Guy, McDonald and Sharpe that mutual
funds in the US and major European countries were generally found to perform worse than some
nave-buy-and-hold investment strategy or the market portfolio, hold true for the Asian Pacific
markets.

2.16 Ariff and Johnson [1990] analyzed the performance of fourteen Singapore unit
trusts during the period 1984 to September 1989 using weekly returns. The market proxy used
was adjusted weekly returns on the Singapore equity market calculated from the Straits Times
Industrial Index (STH). The study measured the extent of diversification by determining the
value of coefficient of determination, which measures the extent to which the mutual fund
returns co-vary with the market. It was observed that, in general, the extent of diversification
appeared to be low for the Singapore unit trusts. The average value of coefficient of
determination was 0.49 (49 percent), which implied that the mutual funds had about 50 per cent
diversification. The study concluded that majority of funds had moderate amounts of
diversification. With regards to market risk of Singapore unit trusts, the study estimated values
of the funds and reported that except for 3 out of 14 (21 percent) funds with very low risk of
about 0.26, the rest of the funds had a risk ranging from 0.70 to 0.90. Thus, the study concluded
48

that most unit trust portrayed similar characteristics despite having differences in their
investment objectives. Further, it was found that fund managers appeared to select low beta
stocks thereby implying that they emphasized more on safety.

They further examined the performance of mutual funds by using the Sharpe Index. They
reported that the Sharpe ratio for the market over the study period was 0.094. The individual unit
trusts scored a value between 0.091 to 0.323 on the same index. Six out of fourteen (43 per
cent) of the funds scored a performance value about equal or more than the market score of
0.094. The study concluded that the performance of Singapore unit trusts spread around the
market performance with approximately half of the funds performing below the market and
another half performing above the market on a risk adjusted basis.
49

CHAPTER 3: RESEARCH METHODS AND PROCEDURES

3.1 Purpose of the study

The purpose of my study is to find out how many customers of Indusind bank are aware of
mutual funds and how many among them invests ,

Objective: Main objective is to analyse how many indusind bank customers invest in
mutual funds.
Sub-objective: To find out which mutual fund they prefer to invest
To find out which way investors like investing in mutual funds.

.3.2Research design

Research design is considered as a "blueprint" for research, dealing with at least four problems:
which questions to study, which data are relevant, what data to collect, and how to analyze the
results.
3types:
1) Exploratory
2) Descriptive
3) Conclusive
For the purpose of my study I performed descriptive analysis.

3.3 Data collection


Primary source: survey method
Secondary source: journals, magazines, internet, newspapers

3.4 Instruments used


For the purpose of my study I used convenience sampling and Sample size is 52
50

CHAPTER 4: DATA ANALYSIS

Q1. Have you ever invested your money in mutual fund?

Valid Cumulative
Frequency Percent Percent Percent
Valid yes 39 75.0 75.0 75.0
no 13 25.0 25.0 100.0
Total 52 100.0 100.0
Table 1: Investment in Mutual funds

Figure 1: Investment in Mutual funds

Inference
From all the respondents it is found that 75 percent among them invest in mutual funds and 25
percent does not.
51

Q2.Where do you find yourself as a mutual fund investor?

Cumulative
Frequency Percent Valid Percent Percent
Valid partial knowledge of mutual 18 34.6 46.2 46.2
funds
aware of any specific 16 30.8 41.0 87.2
scheme in which you
invested
fully aware 5 9.6 12.8 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 2: Position of mutual fund investor

Figure 2: Graph showing Position of mutual fund investor

Inference
Among the respondents who invests in mutual funds approximately 46 percent have partial
knowledge of mutual funds 41 percent are aware of the specific scheme they have invested and
13 percent are fully aware about mutual funds.
52

Q3.How do you come to know about mutual fund?

Cumulative
Frequency Percent Valid Percent Percent
Valid advertisement 5 9.6 12.8 12.8
peer group 4 7.7 10.3 23.1
banks 20 38.5 51.3 74.4
financial advisors 10 19.2 25.6 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 3: Awareness of mutual funds

Figure 3: Graph showing Awareness of mutual funds

Inference
From all the respondents most of them are aware about mutual funds through banks and rest
through other sources such as advertisement, peer group and financial advisors.
53

Q4.Which mutual fund scheme have you used?

Cumulative
Frequency Percent Valid Percent Percent
Valid open ended 14 26.9 36.8 36.8
close ended 3 5.8 7.9 44.7
liquid fund 3 5.8 7.9 52.6
mid cap 3 5.8 7.9 60.5
growth fund 11 21.2 28.9 89.5
regular income 4 7.7 10.5 100.0
fund
Total 38 73.1 100.0
Missing System 14 26.9
Total 52 100.0

Table 4: Mutual fund schemes

Figure 4: Graph showing Mutual fund schemes


54

Inference
From the above diagram we find that respondents who invest in mutual funds
prefer to invest in open ended funds followed by growth fund and regular
income fund.

Q5.Which feature of mutual funds allure you most?

Cumulati
Valid ve
Frequency Percent Percent Percent
Valid diversification 4 7.7 10.3 10.3
Better return and safety 13 25.0 33.3 43.6
Reduction in risk and 5 9.6 12.8 56.4
transaction cost
Regular income 16 30.8 41.0 97.4
Tax benefit 1 1.9 2.6 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 5: Features of mutual funds
55

Figure 5:Graph showing features of mutual funds

Inference
From the above diagram we find that the respondents who invest in mutual funds 41 percent
allure regular income as the most attractive one followed by better safety and returns.

Q6 .When you invest in Mutual Funds which mode of investment will you prefer?

Cumulative
Frequency Percent Valid Percent Percent
Valid lump sum 18 34.6 45.0 45.0
systematic investment plan 22 42.3 55.0 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 6: Mode of investment in mutual funds.
56

Figure 6 : Graph showing mode of investment in mutual funds.

Inference
From all the respondents who invest in mutual funds 45 percent prefer lumpsum as their mode
of investment and 55 percent prefer systematic investment plan(SIP).

Q7. Which AMC will you prefer to invest?

Which AMC will you prefer to invest?-SBIMF

Cumulative
Frequency Percent Valid Percent Percent

Valid yes 16 30.8 40.0 40.0

no 24 46.2 60.0 100.0

Total 40 76.9 100.0

Missing System 12 23.1

Total 52 100.0
Table 7: AMC preference
57

Figure 7: Graph showing SBIMF preference

Which AMC will you prefer to invest?-UTI

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 13 25.0 32.5 32.5
no 27 51.9 67.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 8: AMC preference
58

Figure 8:Graph showing UTI preference

Which AMC will you prefer to invest?-RELIANCE

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 21 40.4 52.5 52.5
no 19 36.5 47.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0

Table 9:: AMC preference


59

Figure 9:Graph showing RELIANCE preference

Which AMC will you prefer to invest?-HDFC

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 30 57.7 75.0 75.0
no 10 19.2 25.0 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 10: AMC preference
60

Figure 10:Graph showing HDFC preference

Which AMC will you prefer to invest?-KOTAK


Cumulative
Frequency Percent Valid Percent Percent
Valid yes 13 25.0 32.5 32.5
no 27 51.9 67.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 11:AMC preference
61

Figure 11:Graph showing KOTAK preference

Which AMC will you prefer to invest?-ICICI

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 19 36.5 47.5 47.5
no 21 40.4 52.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 12: AMC preference

Figure 12:Graph showing ICICI preference

Which AMC will you prefer to invest?-JM finance


Cumulative
Frequency Percent Valid Percent Percent
Valid yes 7 13.5 17.5 17.5
no 33 63.5 82.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
62

Table 13: AMC preference

Figure 13:Graph showing JMfinance preference

Statistics
Which
Which Which AMC will Which Which Which Which
AMC will AMC will you prefer AMC will AMC will AMC will AMC will
you prefer you prefer to invest?- you prefer you prefer you prefer you prefer
to invest?- to invest?- RELIANC to invest?- to invest?- to invest?- to invest?-
SBIMF UTI E HDFC KOTAK ICICI JM finance
N Valid 40 40 40 40 40 40 40
Missin 12 12 12 12 12 12 12
g
Table 14: Cumulative AMC preference

Inference
From the above diagrams we find that respondents prefer to invest mostly in Reliance AMC
followed by Hdfc AMC
63

Q8.Which mutual fund sector you invest in?

Which mutual fund sector you invest in?-banking sector


Cumulative
Frequency Percent Valid Percent Percent
Valid yes 21 40.4 53.8 53.8
no 18 34.6 46.2 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 15: mutual fund sector-banking sector

Figure 14:Graph showing investment in banking sector


64

Which mutual fund sector you invest in?-infrastructure

Frequency Percent Valid Percent Cumulative Percent

Valid yes 17 32.7 43.6 43.6

no 22 42.3 56.4 100.0

Total 39 75.0 100.0

Missing System 13 25.0

Total 52 100.0
Table 16: Mutual fund sector-infrastructure

Figure15:Graph showing investment in infrastructure sector


65

Which mutual fund sector you invest in?-automobile

Cumulative
Frequency Percent Valid Percent Percent

Valid yes 22 42.3 56.4 56.4

no 17 32.7 43.6 100.0

Total 39 75.0 100.0

Missing System 13 25.0

Total 52 100.0
Table 17: Mutual fund sector-automobile

Figure 16: Graph showing investment in automobile sector


66

Which mutual fund sector you invest in?-power sector

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 17 32.7 43.6 43.6
no 22 42.3 56.4 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 18: Mutual fund sector-power sectorr

Figure 17: Graph showing investment in power sector


67

Which mutual fund sector you invest in?-pharmaceuticals

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 19 36.5 48.7 48.7
no 20 38.5 51.3 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 19: : Mutual fund sector-pharmaceuticals

Figure 18: Graph showing investment in pharmaceuticals


68

Which mutual fund sector you invest in?-others

Cumulative
Frequency Percent Valid Percent Percent
Valid yes 14 26.9 35.9 35.9
no 25 48.1 64.1 100.0
Total 39 75.0 100.0
Missing System 13 25.0
Total 52 100.0
Table 20: Mutual fund sector-others

Figure 19: Graph showing investment in other sector

Inference
From the above diagrams we find that respondents who invest in mutual funds mostly prefer
banking sector followed by automobile sector.
69

Q9.In which mutual fund you mostly invest in?

Cumulative
Frequency Percent Valid Percent Percent
Valid debt fund 16 30.8 40.0 40.0
equity fund 13 25.0 32.5 72.5
money market fund 6 11.5 15.0 87.5
balanced fund 5 9.6 12.5 100.0
Total 40 76.9 100.0
Missing System 12 23.1
Total 52 100.0
Table 21: Types of mutual fund

Figure 20: Graph showing types of mutual fund

Inference
From the above diagram we find that the respondents who invest in mutual funds 40 percent
prefer to invest in debt fund ,approx 33 percent in equity fund followed by money market fund
and balanced fund.
70

Q10.How would like to receive the returns every year?

Cumulative
Frequency Percent Valid Percent Percent
Valid dividend payout 10 19.2 25.0 25.0
dividend re- 14 26.9 35.0 60
investment
growth in NAV 16 30.8 40.0 100

Total 40 76.9 100.0


Missing System 12 23.1
Total 52 100.0
Table 22: Preference of returns

Figure 21:Graph showing preferences of returns

Inference
From the above diagram we find that the respondents who invest in mutual fund prefer most
growth in NAV as the form of returns followed by dividend reinvestment.
71

Hypothesis 1: Age and investment regarding mutual fund


HO: Age of investors does not have impact on investment in mutual fund
H1: Age of investors have impact on investment in mutual fund.

Chi-Square Tests

Asymp. Sig. (2-


Value df sided)

Pearson Chi-Square 1.449a 3 .694

Likelihood Ratio 1.427 3 .699

. .

Table 23:Chi-Square test between Age and Investment

Figure 22 :Graph showing cross tab between Age and Investment


72

Inference
From the above chart and chi-square test value(.694> .05) we infer that age does not have impact
on investment in mutual funds because from the age group 20-30 till age group50&above ,people
prefer to invest.

HYPOTHESIS2: Occupation and investment regarding mutual fund


H0: Occupation of investors have impact on investment in mutual fund
H1: Occupation of investors does not have impact on investment in mutual fund

Chi-Square Tests
Asymp. Sig.
Value df (2-sided)
Pearson Chi-Square 1.600a 4 .809
Likelihood Ratio 1.502 4 .826

Table 24 :Table showing chi-square test between occupation and


Investment

Figure 23:Graph showing crosstab between Occupation &investment


73

Inference
From the above chart and chi square value(.809> .05) we infer that occupation affects the nature
of investment in mutual funds since businessman and service people invest in higher proportion
as compared to students,preofessionals and others.

HYPOTHESIS 3:Monthly income and investment regarding mutual fund


H0: Income of investors have impact on investment in mutual fund
H1: Income of investors does not have impact on investment in mutual fund.

Chi-Square Tests
Asymp. Sig.
Value df (2-sided)
Pearson Chi-Square 6.308a 3 .098
Likelihood Ratio 5.885 3 .117

Table 25: Table showing chi-square test between monthly income


and Investment

Figure 24: Graph showing crosstab between monthly income &investment


74

Inference
From the above chart and chi square value(.098> .05) we infer that monthly income affects the
nature of investment in mutual funds since respondents who hold salary Rs.500000&above
prefer to invest in mutual funds followed by the respondents having salary between 300000-
500000.

HYPOTHESIS 4:Way of investment and occupation of investors.


H0: occupation has an impact on way of investment of investors
H1: occupation does not has an impact on way of investment of investors

Chi-Square Tests
Asymp. Sig. (2-
Value df sided)

Pearson Chi-Square 3.662a 4 .454

Likelihood Ratio 3.884 4 .422

Table showing chi-square test between occupation and


Table 26:
way of Investment
75

Figure 25: Graph showing crosstab between Occupation &way of investment

Inference
From the above chart and chi square value(.454 > .05) we infer that occupation has an impact on
way of investment of investors since respondents whose occupation is service ,they prefer SIP as
preferable mode of investment while business man prefer lumpsum mode.
76

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS

5.1Summary of findings

Among all the respondents 75% invest in the mutual funds and 25% does not invest.
Among the respondents who invest 37% prefer to invest in open ended funds followed by 29% in
growth funds.
41% people consider regular income as important feature of investing in mutual funds followed
by 33% prefer better safety of their funds.
51% of the respondents are aware about the mutual funds through banks and 13% through
advertisement.
40% people prefer to invest in debt fund followed by investing in equity fund.
45 percent prefer lump sum as their mode of investment and 55 percent prefer systematic
investment plan(SIP).
Respondents prefer to invest mostly in Reliance AMC followed by HDFC AMC

5.2 Limitations of research

Due to very small sample size ,it was not possible to analyze the investing behavior of entire
customers of Indusind Bank.
Respondents were not interested in filling the questionnaire.
Due to choice of sampling as convenient sampling, data resulted in personal bias.

5.3 Recommendations
Indusind bank needs to improve its customer service since they were not providing
on- time services.
Investors should focus on investing in mutual funds like HDFC and RELIANCE since they are
growing funds.
Each branch should have standard timings for the employees.
77

Indusind bank focus only on selling third party products like Aviva life insurance, mutual funds
etc which actually reduces its scope.

5.4 Conclusion

After making whole report I conclude that this study on mutual funds measures the number of
customers of Indusind bank who invest in mutual funds. As mutual funds has good options and
schemes so more people should invest in it as it assures good returns. For the only thing one
needs is to give time to their money to grow,they will surely give returns and the other thing is
the knowledge of the products and the schemes available in the market.
The industry can make people aware to the non informed people through
seminars,advertisements etc and the investors who are aware about mutual fund should invest
according to their risk profile and age.
Hence investors should be wise enough to park their unused funds in mutual funds.
78

ANNEXURE A- REFERENCES

BIBLIOGRAPHY

1. Carlson, R.S., (1970), "Aggregate Performance of Mutual Funds: 1948-1967", Journal of


Financial and Quantitative Analysis, Vol. 5, (1), pp.1-32.

2. Cornell, B., (1979), Asymmetric information and portfolio performance


measurement,Journal of Financial Economics, Vol. 7(4), pp. 381-390.

3.Fabozzi, F., J. Francis, and C. Lee (1980), Generalized functional form for mutual fund
returns, Journal of Financial and Quantitative Analysis, Vol. 15(5), pp.1107-1120.

4. Brown and Douglas ., (1963), The Performance of Bond Mutual Funds, Journal of
Business, Vol.66(3), pp.371-403

5. Gill and Reed ,. (1966) Mutual Fund Industry Handbook: A Comprehensive Guide for
Investment Professionals, Wiley, John & Sons, UK

6. Klemosky ., (1973), Another Puzzle: The Growth in Actively Managed Mutual Funds,
Journal of Finance, Vol. 51(3), pp.783-810

7. Elton, E., Gruber, M., and Blake, C., (1996a), The Persistence of Risk-Adjusted Mutual Fund
Performance, Journal of Business, Vol.69 (2), pp.133-157, US

8. Khan M.Y., Jain P.K.(2007). Financial management. India: Tata McGraw Hills

9. Pandey I.M.(2009). Financial management. India:Vikas publishing House.


79

WEBSITES
www.Investopedia.com
www.indusindbank.com
www.mutualfundsonline.com
www.valueresearch.com
www.amfiindia.com
80

ANNEXURE B- QUESTIONNAIRE
Survey on Mutual funds

1. What kind of investments you prefer most? Pl tick (). All applicable
a) Saving Account
b) Fixed deposit
c) Insurance
d) Mutual fund
e) Post office NSC etc
f) Shares / Debentures
g) Gold / Silver
h) Real Estate
i) PPF
j) PF

2. While investing your money, which factor you prefer most? Any one
a) Liquidity
b) Low risk
c) High return
d) Company reputation

3. Have you ever invested your money in mutual fund?


a) Yes
b) No

If yes,
81

a) Where do you find yourself as a mutual fund investor?


i. Totally ignorant
ii. Partial knowledge of mutual funds
iii. Aware only of any specific scheme in which you invested
iv. Fully aware

b) How do you come to know about mutual fund?


i. Advertisement
ii. Peer group
iii. Banks
iv Financial advisors

c) Which mutual fund scheme mostly have you used?

1.Open ended 5.Growth scheme


2.Close ended 6. Income scheme
3.Money market 7.Long cap
scheme
4.Mid cap 8.Balanced scheme

If no,
a) If not invested in mutual fund then why?
i. Not aware of mutual fund
ii. Higher risk
iii. Not any specific reason

4. Which feature of mutual funds allure you most?


a) Diversification
b) Better return and safety
c) Reduction in risk and transaction cost
d) Regular income
82

e) Tax benefit

5.In which scenario would you like to invest?

Best possible return Worst possible return


1 +7% 0%
2 +10% -3%
3 +15% -8%
4 +25% -20%
5 +50% -50%

6.When you invest in Mutual Funds which mode of investment will you prefer?
a) Lumpsum
b) Systematic investment plan (SIP)

7.Where do you purchase mutual funds from?


a) Direct from the AMCs
b) Brokers only
c) Brokers / sub brokers
d) Other sources

8.Which AMC will you prefer to invest?( Please tick (). All applicable)

Asset Management co.


1 SBIMF
2 UTI
3 Reliance
4 HDFC
83

5 Kotak
6 ICICI
7 JM finance

9.Which mutual fund sector you invest in?( Please tick (). All applicable)
a) Banking sector
b) Infrastructure
c) Automobile
d) Power sector
e) Pharmaceuticals
f) others

10. In which mutual fund you mostly invest in?

a) Debt fund
b) Equity fund
c) Money market fund
d) Balanced fund

11. How would like to receive the returns every year?

a) Dividend payout
b) Dividend re-investment
c) Growth in NAV
84

DEMOGRAPHIC DETAILS

This survey is for academic purposes only. Your details will be kept highly confidential.

12.Age Group: Age Group


20-30
31-40
41-50
51and Above

13.Qualification:
a) Under graduate
b) Graduate
c) Post Graduate
d) others

14.Occupation
a) Student
b) Business
c) Service
d) Profession
e) others
15.What is your monthly income approximately? Please tick ()
a) Below 100000
b) 100001-300000
c) 300001-500000
d) 500001&ABOVE
85

NAME: _________________________________________________
ADDRESS: _______________________________________________
CONTACT: _____________________

THANK YOU
86

ANNEXURE C- LIST OF TABLES

Table 1: Investment in Mutual funds........................................................................................................... 50


Table 2: Position of mutual fund investor ................................................................................................... 51
Table 3: Awareness of mutual funds ........................................................................................................... 52
Table 4: Mutual fund schemes .................................................................................................................... 53
Table 5: Features of mutual funds .............................................................................................................. 54
Table 6: Mode of investment in mutual funds. ........................................................................................... 55
Table 7: AMC preference............................................................................................................................ 56
Table 8: AMC preference............................................................................................................................ 57
Table 9:: AMC preference .......................................................................................................................... 58
Table 10: AMC preference.......................................................................................................................... 59
Table 11:AMC preference ........................................................................................................................... 60
Table 12: AMC preference.......................................................................................................................... 61
Table 13: AMC preference.......................................................................................................................... 62
Table 14: Cumulative AMC preference ...................................................................................................... 62
Table 15: mutual fund sector-banking sector ............................................................................................. 63
Table 16: Mutual fund sector-infrastructure .............................................................................................. 64
Table 17: Mutual fund sector-automobile .................................................................................................. 65
Table 18: Mutual fund sector-power sectorr .............................................................................................. 66
Table 19: : Mutual fund sector-pharmaceuticals ........................................................................................ 67
Table 20: Mutual fund sector-others .......................................................................................................... 68
Table 21: Types of mutual fund .................................................................................................................. 69
Table 22: Preference of returns .................................................................................................................. 70
Table 23:Chi-Square test between Age and Investment .............................................................................. 71
Table 24 :Table showing chi-square test between occupation and Investment .......................................... 72
Table 25: Table showing chi-square test between monthly income and Investment .................................. 73
Table 26: Table showing chi-square test between occupation and way of Investment............................... 74
87

ANNEXURE D- LIST OF FIGURES

Figure 1: Investment in Mutual funds ......................................................................................................... 50


Figure 2: Graph showing Position of mutual fund investor ....................................................................... 51
Figure 3: Graph showing Awareness of mutual funds ............................................................................... 52
Figure 4: Graph showing Mutual fund schemes ....................................................................................... 53
Figure 5:Graph showing features of mutual funds ..................................................................................... 55
Figure 6 : Graph showing mode of investment in mutual funds. ................................................................ 56
Figure 7: Graph showing SBIMF preference ............................................................................................. 57
Figure 8:Graph showing UTI preference ................................................................................................... 58
Figure 9:Graph showing RELIANCE preference ....................................................................................... 59
Figure 10:Graph showing HDFC preference ............................................................................................. 60
Figure 11:Graph showing KOTAK preference ........................................................................................... 61
Figure 12:Graph showing ICICI preference .............................................................................................. 61
Figure 13:Graph showing JMfinance preference ....................................................................................... 62
Figure 14:Graph showing investment in banking sector ............................................................................ 63
Figure15:Graph showing investment in infrastructure sector.................................................................... 64
Figure 16: Graph showing investment in automobile sector ...................................................................... 65
Figure 17: Graph showing investment in power sector .............................................................................. 66
Figure 18: Graph showing investment in pharmaceuticals ........................................................................ 67
Figure 19: Graph showing investment in other sector .............................................................................. 68
Figure 20: Graph showing types of mutual fund ........................................................................................ 69
Figure 21:Graph showing preferences of returns ...................................................................................... 70
Figure 22 :Graph showing cross tab between Age and Investment............................................................ 71
Figure 23:Graph showing crosstab between Occupation &investment ..................................................... 72
Figure 24: Graph showing crosstab between monthly income &investment .............................................. 73
Figure 25: Graph showing crosstab between Occupation &way of investment ......................................... 75