Analysis on Mutual Fund

EXECUTIVE SUMMARY
Role of financial system is to enthusiast economic development. As investors are getting more
educated, aware and prudent they look for innovative investment instruments so that they are
able to reduce investment risk, minimize transaction costs, and maximize returns along with
certain level of convenience as a result there has been as advent of numerous innovative financial
instrument such as bonds, company deposits, insurance, and mutual finds. All of which could be
matched with individuals investment needs. Mutual funds score over all other investment
options in terms of safety, liquidity, returns, and are as transparent, convenient as it can get. Goal
of a mutual fund is to provide an efficient way to make money .In India there are 36 mutual
funds with different Investment strategies and goals to choose from .different mutual funds have
different risks, which differ because of funds goals, funds manager, and investment styles.

A mutual fund is an investment company that collects money from many people
and invests it in a variety of securities .the company then manages the money on an ongoing
basis for individuals and businesses. Mutual funds are an efficient way to invest in stocks, bonds,
and other securities for three reasons:

The securities purchased are managed by professional managers.

Risk is spread out or diversified, because you have a collection of different stocks and bonds.
Costs usually are lower than what you would pay on your own, since the funds buy in large
quantities.
HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

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. Though the growth was slow, but it accelerated

from the year 1987 when non-UTI players entered the Industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as

well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under

Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to

Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion.

The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry

can be broadly put into four phases according to the development of the sector. Each phase is briefly

described as under.

First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of

India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In

1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over

the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit

Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life

Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual

Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund
(Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989

while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry

had assets under management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual

funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with

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

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

Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund)

Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.

1,21,805 crores.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two

separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under

management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US

64 scheme, assured return and certain other schemes

The 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. consolidation and growth. As at the end of

September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
INTRODUCTION
What is a Mutual fund?

Mutual fund is an investment company that pools money from shareholders and invests in a
variety of securities, such as stocks, bonds and money market instruments. Most open-end
Mutual funds stand ready to buy back (redeem) its shares at their current net asset value, which
depends on the total market value of the fund's investment portfolio at the time of redemption.
Most open-end Mutual funds continuously offer new shares to investors. Also known as an open-
end investment company, to differentiate it from a closed-end investment company. Mutual
funds invest pooled cash of many investors to meet the fund's stated investment objective.
Mutual funds stand ready to sell and redeem their shares at any time at the fund's current net
asset value: total fund assets divided by shares outstanding.

In Simple Words, Mutual fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread across a wide cross-section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not
move in the same direction in the same proportion at the same time. Mutual fund issues units to
the investors in accordance with quantum of money invested by them. Investors of Mutual funds
are known as unit holders. The profits or losses are shared by the investors in proportion to their
investments. The Mutual funds normally come out with a number of schemes with different
investment objectives which are launched from time to time. In India, A Mutual fund is required
to be registered with Securities and Exchange Board of India (SEBI) which regulates securities
markets before it can collect funds from the public. In Short, a Mutual fund is a common pool of
money in to which investors with common investment objective place their contributions that are
to be invested in accordance with the stated investment objective of the scheme. The investment
manager would invest the money collected from the investor in to assets that are defined/
permitted by the stated objective of the scheme. For example, an equity fund would invest equity
and equity related instruments and a debt fund would invest in bonds, debentures, gilts etc.
Mutual fund is a 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.

OBJECTIVES OF THE STUDY

The objective of the research is to study and analyze the awareness level of investors of
mutual funds.
To measure the satisfaction level of investors regarding mutual funds.
An attempt has been made to measure various variables playing in the minds of investors in
terms of safety, liquidity, service, returns, and tax saving.
To know the mutual funds performance levels in the present market
To analyze the comparative study between other leading mutual funds in the present market.
To know the awareness of mutual funds among different groups of investors.
ADVANTAGES OF MUTUAL FUNDS

Professional Management.
The major advantage of investing in a mutual fund is that you get a professional money
manager to manage your investments for a small fee. You can leave the investment
decisions to him and only have to monitor the performance of the fund at regular
intervals.

Diversification.
Considered the essential tool in risk management, mutual funds make it possible for even
small investors to diversify their portfolio. A mutual fund can effectively diversify its
portfolio because of the large corpus. However, a small investor cannot have a well-
diversified portfolio because it calls for large investment. For example, a modest portfolio
of 10 bluechip stocks calls for a few a few thousands.

Convenient Administration.
Mutual funds offer tailor-made solutions like systematic investment plans and systematic
withdrawal plans to investors, which is very convenient to investors. Investors also do not
have to worry about investment decisions, they do not have to deal with brokerage or
depository, etc. for buying or selling of securities. Mutual funds also offer specialized
schemes like retirement plans, childrens plans, industry specific schemes, etc. to suit
personal preference of investors. These schemes also help small investors with asset
allocation of their corpus. It also saves a lot of paper work.

Costs Effectiveness
A small investor will find that the mutual fund route is a cost-effective method (the AMC
fee is normally 2.5%) and it also saves a lot of transaction cost as mutual funds get
concession from brokerages. Also, the investor gets the service of a financial professional
for a very small fee. If he were to seek a financial advisor's help directly, he will end up
 paying significantly more for investment advice. Also, he will need to have a sizeable
corpus to offer for investment management to be eligible for an investment advisers
services.

Liquidity.
You can liquidate your investments within 3 to 5 working days (mutual funds dispatch
redemption cheques speedily and also offer direct credit facility into your bank account
i.e. Electronic Clearing Services).

Transparency.
Mutual funds offer daily NAVs of schemes, which help you to monitor your investments
on a regular basis. They also send quarterly newsletters, which give details of the
portfolio, performance of schemes against various benchmarks, etc. They are also well
regulated and Sebi monitors their actions closely.

Tax benefits.
You do not have to pay any taxes on dividends issued by mutual funds. You also have the
advantage of capital gains taxation. Tax-saving schemes and pension schemes give you
the added advantage of benefits under section 88.

Affordability
Mutual funds allow you to invest small sums. For instance, if you want to buy a portfolio
of blue chips of modest size, you should at least have a few lakhs of rupees. A mutual
fund gives you the same portfolio for meager investment of Rs.1,000-5,000. A mutual
fund can do that because it collects money from many people and it has a large corpus.
DISADVANTAGES OF MUTUAL FUNDS:
Professional Management- Did you notice how we qualified the advantage of professional
management with the word "theoretically"? Many investors debate over whether or not the
so-called professionals are any better than you or I at picking stocks. Management is by no
means infallible, and, even if the fund loses money, the manager still takes his/her cut. We'll
talk about this in detail in a later section.

Costs - Mutual funds don't exist solely to make your life easier--all funds are in it for a profit.
The Mutual fund industry is masterful at burying costs under layers of jargon. These costs are
so complicated that in this tutorial we have devoted an entire section to the subject.

Dilution - It's possible to have too much diversification (this is explained in our article
entitled "Are You Over-Diversified?"). Because funds have small holdings in so many
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.

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.
 TYPES OF MUTUAL FUND SCHEMES

1. BY STRUCTURE
Open Ended Schemes.
Close Ended Schemes.
Interval Schemes.

2. BY INVESTMENT OBJECTIVE
Growth Schemes.
Income Schemes.
Balanced Schemes.

3. OTHER SCHEMES
Tax Saving Schemes.
Special Schemes.
Index Schemes.
Sector Specific Schemes.

1. OPEN ENDED SCHEMES

The units offered by these schemes are available for sale and repurchase on any business day at
NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such
schemes thus offer very high liquidity to investors and are becoming increasingly popular in
India. Please note that an open-ended fund is NOT obliged to keep selling/issuing new units at
all times, and may stop issuing further subscription to new investors. On the other hand, an open-
ended fund rarely denies to its investor the facility to redeem existing units.
2. CLOSED ENDED SCHEMES

The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of
units. These schemes are launched with an initial public offer (IPO) with a stated maturity period
after which the units are fully redeemed at NAV linked prices. In the interim, investors can buy
or sell units on the stock exchanges where they are listed. Unlike open-ended schemes, the unit
capital in closed-ended schemes usually remains unchanged. After an initial closed period, the
scheme may offer direct repurchase facility to the investors. Closed-ended schemes are usually
more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV.
This discount tends towards the NAV closer to the maturity date of the scheme.

3. INTERVAL SCHEMES

These schemes combine the features of open-ended and closed-ended schemes. They may be
traded on the stock exchange or may be open for sale or redemption during pre-determined
intervals at NAV based prices.

4. GROWTH SCHEMES

These schemes, also commonly called Equity Schemes, seek to invest a majority of their funds in
equities and a small portion in money market instruments. Such schemes have the potential to
deliver superior returns over the long term. However, because they invest in equities, these
schemes are exposed to fluctuations in value especially in the short term.

5. INCOME SCHEMES

These schemes, also commonly called Debt Schemes, invest in debt securities such as corporate
bonds, debentures and government securities. The prices of these schemes tend to be more stable
compared with equity schemes and most of the returns to the investors are generated through
dividends or steady capital appreciation. These schemes are ideal for conservative investors or
those not in a position to take higher equity risks, such as retired individuals. However, as
compared to the money market schemes they do have a higher price fluctuation risk and
compared to a Gilt fund they have a higher credit risk.
6. BALANCED SCHEMES

These schemes are commonly known as Hybrid schemes. These schemes invest in both equities
as well as debt. By investing in a mix of this nature, balanced schemes seek to attain the
objective of income and moderate capital appreciation and are ideal for investors with a
conservative, long-term orientation.

7. TAX SAVING SCHEMES

Investors are being encouraged to invest in equity markets through Equity Linked Savings
Scheme (ELSS) by offering them a tax rebate. Units purchased cannot be assigned /
transferred/ pledged / redeemed / switched out until completion of 3 years from the date of
allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations,
1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs),
Government of India regarding ELSS.

Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,
1961.

8. INDEX SCHEMES

The primary purpose of an Index is to serve as a measure of the performance of the market as a
whole, or a specific sector of the market. An Index also serves as a relevant benchmark to
evaluate the performance of mutual funds. Some investors are interested in investing in the
market in general rather than investing in any specific fund. Such investors are happy to receive
the returns posted by the markets. As it is not practical to invest in each and every stock in the
market in proportion to its size, these investors are comfortable investing in a fund that they
believe is a good representative of the entire market. Index Funds are launched and managed for
such investors.
9. SECTOR SPECIFIC SCHEMES.

Sector Specific Schemes generally invests money in some specified sectors for example: Real
Estate Specialized real estate funds would invest in real estates directly, or may fund real estate
developers or lend to them directly or buy shares of housing finance companies or may even buy
their securitized assets.
Structure of the Indian mutual fund industry:

The Indian mutual fund industry is dominated by the Unit Trust of India and which has a total

corpus of Rs 700bn collected from more than 20 million investors .The UTI has many fund

/schemes in all categories i.e. equity, balanced, income etc with some being open ended and

some being closed ended. The United Scheme 1964 commonly referred to as US64, which is a

balanced fund, is the biggest scheme with a corpus of about Rs 200bn URI was floated by

financial institution and is governed by a special act of the parliament. Most of its investors

believe that the UTI is government owned and controlled, which, while legally incorrect, is true

for all practical purposes.

The second largest categories of mutual funds are the ones floated by nationalized banks. Can

bank Asset management floated by Canara Bank and SBI Funds Management floated by the

State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation

and Jeevan Bima Sahayog AMC floated by the LIC are some of the prominent ones. The

aggregate corpus of funds managed by this category of AMCs is about Rs 150 billion

The third largest categories of the mutual funds are the once floated by the private sector and by

the foreign asset management companies. The largest of these are Prudential ICICI AMC and

Birla SUN LIFE AMC. The aggregate corpus of the asset managed by this category of AMC s is

in excess of Rs 250bn.

Recent trends in the mutual fund industry:

The most important in the mutual fund industry is the aggressive expansion of the foreign

owned mutual fund companies and the decline of the companies floated by the nationalized
bank and smaller private sector players. Many nationalized banks got into the mutual fund

business in the early nineties and go off to a good start due to the stock market boom prevailing

then. These banks did not really understand the mutual fund business and they just viewed it as

another kind of banking activity. Few hired specialized staff and generally choose to transfer

staff from the parent organization. Some schemes had offered guaranteed returns and their

patent organization had to bail out these AMCs by paying large amount of money the

difference between the guaranteed and actual returns. The service level was also bad. Most of

these AMCs have not been able to retain staffs, float, and new schemes etc. and it is doubtful

whether barring a few expectations, they have serious plans of continuing the activity in a

major way.

The experience of some of the AMCs floated by private sector Indian companies was also very

similar. They quickly realized that the AMCs business is a business, which makes money in the

long term and requires deep pocketed support in the intermediate years. Some have sold out to

foreign owned companies, some have merged with the others and there is general restructuring

going on.

The foreign owned companies have deep pockets and have come in here with the expectation

of a long haul. They can be credited with introducing many new practices such as new product

innovation, sharp improvement in the service standards and disclosure, usage of technology,

broker education etc. In fact, they have forced the industry to upgrade itself and service levels

of the organization like UTI have improved dramatically in the last few years in response to the

competition provided by these.

Future scenario:

The asset base will continue to grow at an annual rate of about 30 to 35% over the next few

years as investors shift their asset from banks and other traditional avenues. Some of the older

public and private sector players will either close or be taken over.Out of ten public sectors

players five will sell out, close down or merge with strong players in three to four years. In the

private sector this trend has already started with two mergers and one takeover. Here too some

of them will down their shutter in the near future to come.

But this does not mean there is no room for other players. The market will witness a flurry of

new players entering the area. There will be a large number of offers from various asset

management companies in times to come. Some big names like Fidelity, Principal and Old

Mutual etc. are looking at Indian market seriously.

The mutual fund industry is awaiting the derivation in India as this would enable it to hedge its

risk and this in turn would be reflected in its Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund scheme to trade in

derivatives. Importantly, many market players have called on the Regulator to initiate the

process immediately, so that the mutual funds can implement the changes that are required to

trade in derivates.
Role of SEBI in mutual fund:

In the year 1992 SEBI act was passed. The objectives of SEBI are to protect the interest of

investors in securities, to promote the development of, and to regulate the securities market. As

far as mutual are concerned, SEBI formulates policies and regulation the mutual fund to protect

the interest of the investors. SEBI notified regulation for mutual funds in 1993. Thereafter

mutual fund sponsored by private sector entities were allowed to enter the capital market. The

regulations were fully revised in 1996 and been amended. Therefore, from time to time SEBI

has also issued guidelines to the mutual fund from time to time to protect the interest of the

investors.

All mutual funds whether promoted by public sector or private sector entities including those

promoted by foreign entities are governed by the same set of regulation. There is no distinction

in regulatory requirement of the mutual fund and all are subject to monitoring and inspecting

by SEBI. The risks associated with the scheme launched by mutual funds sponsored by these

entities are of similar type.

Top 10 Mutual Fund Companies in India:
Birla Sun Life Mutual Fund
Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life
Financial is a global organisation evolved in 1871 and is being represented in Canada, the US, the
Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a
conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development
Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India)
Private Limited as the sponsor.

Prudential ICICI Mutual Fund

Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. The mutual
fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance
companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two
sponsor, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and
the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund, the
India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored
Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded
handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM.
Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual
Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset
Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is
one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.
 Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently
having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December
1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return
profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual
Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management Company
presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of
Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation
of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management
Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of
RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was
registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004.
Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the
Public with a view to contribute to the capital market and to provide investors the opportunities to make
investments in diversified securities.

Franklin Templeton India Mutual Fund

The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of
US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world.
Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their
website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end
Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end
Income schemes and Open end Fund of Funds schemes to offer.
SWOT Analysis
Strengths:

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.

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.

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

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.

Weakness:

Professional Management- Some funds doesn't 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.

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

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.
 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.

Threats:

Lack of Investor Awareness - Retail investors had a wrong notion about mutual funds as an
investment avenue. The benefits of risk diversification, professional management and ease of
administration involved while investing in mutual funds are not clearly understood. Knowledge of
financial products is ingrained in school and college curriculum in countries like UK, US and France.

Investor Risk Appetite -Equity funds account for 30% of the total AUM in India. This figure is more
than 50% in most developed countries. Frequent stock market scams and the bust of tech sector
specific MFs have contributed to this apprehension. The growth in mutual funds has come through
the growth in investments in short term instrument like Money Market Mutual Funds which account
for 40% of AUM.
Higher Returns of Alternative Debt Instruments -Government guaranteed schemes provide risk free
returns at competitive rates of returns. This is why mutual funds have difficulty competing retail
business.
Distribution - One of the major factors impacting the growth of mutual fund industry is the absence of
any regulation in distribution of mutual funds. Mutual fund investors need distributors who are able to
inform them about the efficacy of distribution product for a particular risk profile and stage in life
cycle. Lack of distributor awareness and the absence of any disclosures from distributors make selling
of MF products commonplace. Also penetration in rural areas is a problem. Only 3% of rural
households own mutual funds. For mutual funds to set up a distribution network in these centres can
be very expensive.

Opportunities:

Penetration of Mutual funds - In India it is estimated that 6.7% of the households hold mutual funds.
This figure is close to 50% in case of the US and 17% in case of UK. Mutual funds account for only
 0.73% of total financial assets in India (11% of bank deposits). AUM for Mutual funds had exceeded
the bank deposits in US in as early as 1998.
Growing Economy - Indian economy in a resilient mode in terms of GDP growth is positioned as the
fourth largest economy in terms of purchasing power parity and has the benefit of low inflation along
with rising forex rate and reserves
Opening up of sectors for investment in India service sector is also growing at a fast rate because
government has opened up investment in the sector.
Promising consumer markets
Significant investment in infrastructure creation for industry.
RESEARCH METHODOLOGY

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

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

research methodology is that it helps in identifying the problem, collecting, analyzing the required

information data and providing an alternative solution to the problem .It also helps in collecting the

vital information that is required by the top management to assist them for the better decision making

both day to day decision and critical ones.

Data sources:

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

has been done by primary data collection, and primary data has been collected by interacting with

various people. The secondary data has been collected through various journals and websites.

Duration of Study:

The study was carried out for a period of two months

Sampling:

Sampling procedure:

The sample was selected of them who are the Businessman/govt. employee, irrespective of them being

investors or not or availing the services or not. It was also collected through personal visits to persons,

by formal and informal talks and through filling up the questionnaire prepared. The data has been

analyzed by using mathematical/Statistical tool.

Sample size:
The sample size of my project is limited to 100 people only. Out of which only 10 people had invested

in Mutual Fund. Other 90 people did not have invested in Mutual Fund.
 Bibliography

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