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TRAINING REPORT

ON
MUTUAL FUNDS INDUSTRY IN INDIA

Submitted to Maharishi Dayanand University, Rohtak


In the partial fulfillment of degree of
Bachelor of Business Administration (II)
(Session 2006-2009)

Submitted to: Submitted


By-

____________________________________________________________
D.A.V. INSTITUTE OF MANAGEMENT, FARIDABAD

ACKNOWLEDGEMENT

Concentration, dedication, hard work and application are essential


but not the only factor to achieve the desired goal. Those must be
supplemented by the guidance assistance and cooperation of experts to
make it success.
I am extremely grateful to my institute for providing me the opportunity
to undertake this research project in the prestigious field.
With profound pleasure, I extend my extreme sincere sense of
gratitude and indebtedness to my faculty for extensive and valuable
guidance that was always available to me ungrudgingly and instantly,
which help me complete my project without difficulty.
I express my deep and sincere gratitude to Ms Roma Sharma,
faculty member for providing me first hand knowledge about other related
subjects.
Last but not the least I am indebted to Mr. Sharma, Director of our
institute without whose sincere gratitude this project would not have been
possible.

PREFACE

Practical exposure imbibes an integral part of management studies.


One cannot rely merely upon the theoretical knowledge. However class
lectures make the functional concepts clear, but these must be correlated
with practical projects.
I consider myself lucky to get the project in India’s best bank. It was a
great learning experience. It helped me to get a practical insight into how
to conduct research and to make my concepts clearer.
In this project I have tried to give comprehensive picture of details
of my project. Learning is like eating. It is not how much one eat that
matters, what counts is how much you digest. Knowledge is potential
power, wisdom is real power.

- 2-
Today’s economy has caused business to rethink their technology
decisions. Budgets have been cut and priorities have been reset.
Companies can impact their bottom line tremendously by gathering
necessary information. This dissertation is concerned with the study
mutual funds industry in India
During my tenure of dissertation I studied about mutual funds industry in
India and deeply analyzed its various aspects. This dissertation shows the
very aspect undertaken in context to “MUTUAL FUNDS INDUSTRY IN
INDIA”

TABLE OF CONTENTS

S.No. PARTICULARS Page No.

1 INTRODUCTION OF THE STUDY


5-36

2 RESEARCH AND METHODOLOGY 37-44

3 DATA ANALYSIS AND INTERPRETATION 41-46

47-47
4 SUGGESTIONS AND RECOMMENDATIONS
48-48
5 OBJECTIVES OF THE STUDY
49-49
6 LIMITATIONS OF THE STUDY

50-50
7 CONCLUSION
ANNEXURES - 51-54
8 BIBLIOGRAPHY
QUESTIONNAIRE

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INTRODUCTION OF THE STUDY

MUTUAL FUNDS:
A mutual fund is a form of collective investment that pools money
from many investors and invests the money in stocks, bonds, short-term
money market instruments, and/or other securities. In a mutual fund, the
fund manager trades the fund's underlying securities, realizing capital
gains or loss, and collects the dividend or interest income. Your search for
Mutual Fund India information follows. The investment proceeds are then
passed along to the individual investors. The value of a share of the
mutual fund, known as the net asset value (NAV), is calculated daily
based on the total value of the fund divided by the number of shares
purchased by investors.

Mutual funds are financial intermediaries, which collect the savings


of investors and invest them in a large and well diversified portfolio of
securities such as money market instruments, corporate and government
bonds and equity shares of joint stock companies. Mutual funds can
survive and thrive only if they can live up to the hopes and trusts of their
individual members .The project deals with the structure of mutual funds
industry in India and its constituents. It also classified the mutual fund
schemes and describes the major players in the industry. The project
includes the analysis of performance of 7 mutual fund companies. Which
comprises of 3 private players, 3 public and UTI.The Mutual fund
companies have been selected on the basis of their AUM (ASSETS UNDER
MANGEMENT).

• COMPANIES HAVING PRIVATE OWNERSHIP


1. Birla Sun Life Mutual Fund
2. Franklin Templeton Mutual Fund
3. Prudential ICICI Mutual Fund
4. Axis Bank

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• COMPANIES HAVING PUBLIC OWNERSHIP
5. Canbank Mutual Fund
6. LIC Mutual Fund
7. SBI Mutual Fund

MUTUAL FUND-AN INTRODUCTION:

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 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. A mutual fund is simply a financial
intermediary that allows a group of investors to pool their money together
with a predetermined investment objective. The mutual fund will have a
fund manager who is responsible for investing the pooled money into
specific securities (usually stocks or bonds). When you invest in a mutual
fund, you are buying shares (or portions) of the mutual fund and become
a shareholder of the fund.

Mutual funds can invest in many different kinds of securities (Mutual


Fund India). The most common are cash, stock, and bonds, but there are
hundreds of sub-categories. Stock funds, for instance, can invest primarily
in the shares of a particular industry, such as technology or utilities.
These are known as sector funds. Bond funds can vary according to risk
(high yield or junk bonds, investment-grade corporate bonds), type of
issuers (government agencies, corporations, or municipalities), or
maturity of the bonds (short or long term). Both stock and bond funds can

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invest in primarily US securities (domestic funds), both US and foreign
securities (global funds), or primarily foreign securities (international
funds). Most mutual funds' investment portfolios are continually adjusted
under the supervision of a professional manager, who forecasts the future
performance of investments appropriate for the fund and chooses the
ones which he or she believes will most closely match the fund's stated
investment objective. A mutual fund is administered through a parent
management company, which may hire or fire fund managers.

DEFINITION:

A mutual fund is a trust that pools the savings of a number of investors who
shares 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.

“…. A mutual fund is a company that brings together money from

many people and invest in a stock, bonds, or other asset the funds

owns are known as its portfolio. Each investor in the fund owns

share which represents a part of these holdings….”

- The U.S. Securities and Exchange Commission.

THE GOAL OF MUTUAL FUND:

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The goal of a mutual fund is to provide an individual to make
money. There are several thousand mutual funds with different
investments strategies and goals to chosen from.

Choosing one can be over whelming, even though it need not be


different mutual funds have different risks, which differ because of the
fund’s goals fund manager, and investment style. Money from a mutual
fund is made when the stocks, bonds or other securities increase in
value ( a capital gain ) issue dividends or make interest payments when
investing in a mutual fund the income you make it the result of income
received from dividend paying stocks, and interest from bonds. If the fund
sells a holding whose value is increased you make money even if the fund
does not sell that specific holding.

The fund itself will still increase in value, and in that way you may
also make money therefore the value of shares you hold in mutual fund
will increase in value when the holdings increases in value capital gains
and income or dividend payments are best reinvested for younger
investors. Retires often seek the income from dividend distribution to
augment their income with reinvestment of dividends and capital
distribution your money increase at a even greater rate. When you
redeem your shares what you receive is the value of the share.

MUTUAL FUND OPERATIONS FLOW CHART:


The flow chart below describes broadly the working of a Mutual Fund:

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ORGANISATION OF A MUTUAL FUND:
There are many entities involved and the diagram below
illustrates the organizational set up of a mutual fund:

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THE ADVANTAGES OF MUTUAL FUNDS:
The advantages of investing in a Mutual Fund are:
• Professional Management
• Diversification
• Convenient Administration
• Return Potential
• Low Costs
• Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
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Professional Management - The primary advantage of funds is the
professional management of your money. Investors purchase funds
because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is a relatively inexpensive way for a small
investor to get a full-time manager to make and monitor investments.

Diversification - By owning shares in a mutual fund instead of owning


individual stocks or bonds, your risk is spread out. 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.

Economies of Scale - Because a mutual fund buys and sells large


amounts of securities at a time, its transaction costs are lower than you
as an individual would pay.

Liquidity - Just like an individual stock, a mutual fund allows you to


request that your shares be converted into cash at any time.

Simplicity - Buying a mutual fund is easy! Pretty well any bank has its
own line of mutual funds, and the minimum investment is small.
Affordability: With many mutual funds, you can begin buying units with
a relatively small amount of money Some mutual funds also let you buy
more units on a regular basis with even smaller installments.

Flexibility: Many mutual fund companies administer several different


mutual funds and allow you to switch between funds within their 'fund
family' at little or no charge.

Performance Monitoring: The value of most mutual funds is reported


daily in the financial press and on many Internet sites, allowing you to
continually monitor the performance of your investment.

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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.

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.

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.

MUTUAL FUND INDUSTRY IN INDIA:

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

First Phase – 1964-87

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

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

1987 marked the entry of non- UTI, public sector mutual funds set
up by public sector banks and Life Insurance Corporation of India (LIC)
and General Insurance Corporation of India (GIC). SBI Mutual Fund was
the first non- UTI Mutual Fund established in June 1987 followed by Can
bank 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)

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

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


more comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many


foreign mutual funds setting up funds in India and also the industry has
witnessed several mergers and acquisitions. As at the end of January
2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.
The Unit Trust of India with Rs.44,541 crores of assets under management
was way ahead of other mutual funds.

Fourth Phase – since February 2003

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In February 2003, following the repeal of the Unit Trust of India Act
1963 UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and
does not come under the purview of the Mutual Fund Regulations

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB
and LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76,000 crores of assets under management and with
the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund
Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current
phase of consolidation and growth. As at the end of September, 2004,
there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.

GROWTH IN ASSETS UNDER MANAGEMENT:


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The graph indicates the growth of assets over the years:

FUTURE OF MUTUAL FUNDS IN INDIA:

By December 2004, Indian mutual fund industry reached Rs


1,50,537 crore. It is estimated that by 2010 March-end, the total assets of
all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the


rest of the decade. In the last 5 years we have seen annual growth rate of
9%. According to the current growth rate, by year 2010, mutual fund
assets will be double.

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SOME FACTS FOR THE GROWTH OF MUTUAL FUNDS IN
INDIA

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the que to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets
under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channelizing
these savings in mutual funds sector is required.

• We have approximately 29 mutual funds which is much less than US


having more than 800. There is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly. Today most of the mutual
funds are concentrating on the 'A' class cities. Soon they will find
scope in the growing cities.

• Mutual fund can penetrate rurals like the Indian insurance industry
with simple and limited products.

• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

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TYPES OF MUTUAL FUND SCHEMES:

• By Structure
o Open - Ended Schemes
o Close - Ended Schemes
o Interval Schemes

• By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
o Money Market Schemes

• Other Schemes
o Tax Saving Schemes
o Special Schemes
 Index Schemes
 Sector Specfic Schemes

Equity funds: These funds involve only common stock investments. They
can earn a lot of profit, but are also very risky.

- 16-
Fixed income funds: They include corporate and government securities.
These funds offer fixed returns at a low risk.

Balanced funds: This is the combination of bonds and stocks with a low
risk. However, the investment does not earn a lot through these funds.

How it works?

Mutual fund shares can be purchased from the company itself or a


broker. There are secondary market investors also, like the New York
Stock Exchange. Per share net asset value of the funds or NAV is the price
that you pay for buying a mutual fund share. It also includes the
shareholder fee that is imposed by the fund, at time of purchase. The best
feature of mutual funds is that these shares are ‘redeemable’. You, as an
investor, can sell your shares back to the broker. In order to
accommodate new investors, mutual fund companies generally create
new shares and sell them. They keep selling their shares continuously till
they become large. Investment advisers act as separate entities and are
responsible for managing the investment portfolio of the mutual funds.
Investing in mutual funds tends to lower the risk factor because they are
the result of diverse investments. Since someone else manages your
investments, you need not worry about keeping constant tabs on the
investment, though a periodical check enhances your personal book of
accounts. Managing funds is the full time job of the fund manager and he
is responsible for the performance and health of the investment.

The rate of returns in mutual funds is based on the increase or


decrease of the value, during a specific period. Returns of a fund indicate
the track record. It is important to remember that the past performance
cannot guarantee future results.

As in the case of any investment or business, mutual funds also have risks
associated with the returns. It is essential to set your financial goals and
requirements, before investing in a mutual fund.

TRENDS AND STRUCTURE OF THE INDIAN


MUTUAL FUND INDUSTRY:

Though young, the industry has made significant strides in terms of


its variety, sophistication and regulation. The mutual fund industry's
existence in India is divided into four phases.

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The first phase which spanned across 1963-1987 saw UTI
consolidating its position by offering a host of products and extending its
reach throughout the country.

The next phase (1987-93) marked the arrival of mutual funds


sponsored by public sector banks and financial institutions.
With the arrival of private sector players, both Indian and foreign, began
the third phase (1993-1996).1996 marks yet another milestone in the
history of the mutual fund industry in the country as SEBI (Mutual Funds)
Regulations came into being.

The fourth phase, which is in vogue now, begun in 2003, marks,


perhaps, the most significant event in the history of the mutual fund
industry restructuring of UTI. There was the rush of players into the
mutual fund industry during the last decade could be attributed to low
entry barriers, both regulatory and competitive, and the desire of the
existing financial players to broad-base their activities in the financial
sector. The period is also characterized by significant developments such
as standardization of operations, increased influence of technology, best
practices, product innovation, and improved regulatory environment.

EVOLVING DISTRIBUTION MODELS:


The growing need for a strong distribution network and models for
the mutual fund industry in India to serve the huge untapped market in
the country. It observes that the intensifying competition and the need to
attain economies of scale are forcing industry players to increase their
reach in non-metro cities and small towns, where the potential is high,
but, penetration is low.

This is resulting in fund houses exploring innovative distribution


channels like Depository and Distributor models along with the traditional
ones like Collection Center model.

Further, increasing commoditization and growing needs of the


customers are forcing players to shift to solution-based models from the
product-based ones.

In either model, the role of the distribution channel remains critical


as it helps stave off competition by maintaining relationships, providing
advisory services and customizing need-based solutions.

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INDIAN MUTUAL FUND INDUSTRY:
OPPORTUNITIES AND CHALLENGES:
There are various challenges and opportunities before the industry.
It suggests that a major challenge before the industry is how to attract
retail investors, who are the backbone of the industry and who provide
stability for the growth of the mutual fund industry. Further, to fuel its
growth, the mutual fund industry needs to emphasize creating greater
awareness among investors. Also, it is imperative that the mutual fund
industry addresses the problem of size and its impact on the investors. A
large size does not provide best returns to the investors as the cost of
operations is high on account of high turnover.

MUTUAL FUND INDUSTRY IN INDIA: DEVELOPMENT AND


GROWTH
The Indian mutual fund industry is one of the fastest growing
sectors in the Indian capital and financial markets. The mutual fund
industry in India has seen dramatic improvements in quantity as well as
quality of product and service offerings in recent years. Mutual funds
assets under management grew by 96% between the end of 1997 and
June 2003 and as a result it rose from 8% of GDP to 15%. The industry has
grown in size and manages total assets of more than $30351 million. Of
the various sectors, the private sector accounts for nearly 91% of the
resources mobilised showing their overwhelming dominance in the
market. Individuals constitute 98.04% of the total number of investors
and contribute US $12062 million, which is 55.16% of the net assets
under management.

TOP INDIAN MUTUAL FUNDS:


ABN AMRO Mutual Fund

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Axis Bank

Bank of Baroda Mutual Fund

Benchmark Mutual Fund

Birla Sunlife Mutual Fund

Canbank Mutual Fund

DBS Chola Mutual Fund

Deutsche Mutual Fund

DSP Merrill Lynch Mutual Fund

Escorts Mutual Fund

Fidelity Mutual Fund

Franklin Templeton

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

JM Mutual Fund

INVESTMENT TIPS
INVEST IN THE MUTUAL FUND, NOT ITS NAV

What is NAV? Simply put, NAV is the sum total of all the assets of
the mutual fund (at market price) less the expenses (fund manager fees,
audit fees, registration fees among others); divide this by the number of

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units and you arrive at the NAV per unit of the mutual fund. An illustration
should help us better understand the same.

NAV calculation
Net Assets 51,00
(Rs) 0
Expenses (Rs) 1,000
No. of Units 5,000
NAV (Rs) 10

The following illustration will clearly establish the irrelevance of NAV while
making an investment decision.

NAV: Does size matter?

Open-ended large cap NAV 1-Yr


equity funds (Rs) (%)
Franklin Prima Plus (G) 146.17 43.57
Franklin Bluechip (G) 138.10 39.09
Pru ICICI Power (G) 84.51 38.67
HSBC Equity (G) 74.42 37.63
Kotak 30 (G) 72.06 36.54
HDFC Equity (G) 153.79 35.50

It is evident that the fund's current NAV and its expected performance are
unrelated and therefore making an investment decision based on the NAV
would be misguided. As an investor you need to consider factors like your
own risk profile, the fund's management style and performance.

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1. Risk profile
Investors have a risk profile that dictates how much risk they can
take on to achieve their investment objective. In this backdrop, they must
identify mutual funds that can help them meet their investment
objectives at the desired risk level. For instance, some equity funds
adhere to the growth style of investment (aggressively managed funds),
while others follow the value style of investment (conservatively managed
funds). So it is important for investors to select a fund that takes on risk in
line with their own risk appetite.

2. Fund management style

Fund houses have varying fund management styles and processes.


Some pursue the individualistic style, where the fund manager rather
than the investment process plays a dominant role in the investment
process. As opposed to this, there are fund houses that pursue a team-
based investment approach where the investment process holds sway
over the individual. Our preference is for the team-based style of
investing since it is more stable and the mutual fund (and its investors) is
not over-dependent on an individual.

3. Mutual fund performance

It is imperative for investors to evaluate a mutual fund on


parameters related to risk like Standard Deviation and Sharpe Ratio as
also NAV appreciation. The risk parameters evaluate the volatility in
performance (Standard Deviation) and returns generated by the fund per
unit of risk borne (Sharpe Ratio). The best deal for an investor will come
from a mutual fund that has higher NAV appreciation and Sharpe Ratio
and lower Standard Deviation.

Hopefully, we have resolved the debate on the NAV and have given the
investor more relevant points to inquire about before considering
investing in a mutual fund. So the next time your mutual fund distributor
advances the low NAV or Rs 10 NAV argument, demand a detailed
analysis of the mutual fund based on the parameters we have listed.

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DON'T IGNORE THE RISK FACTOR:

Investors would do well not to lose sight of the risk-return trade off
while making investment decisions. Our advice to investors - always
invest in line with your risk appetite and investment objectives. Chasing
higher returns and turning a blind eye to risk in the process could prove
hazardous to your finances.

Schemes like NSC and PPF (offering an assured return of 8% per


annum) and market-linked avenues like tax-saving funds are about as
similar as chalk and cheese. Sure tax-saving funds can offer higher
returns than NSC and PPF. But the differential should be seen as a reward
for having taken on higher risk. Unlike NSC and PPF, wherein returns are
assured and capital protected, investors in tax-saving funds take on the
risk of even losing the capital invested, depending on market conditions.

The investment advisor's rationale was fairly simple (and


completely incorrect) - investors should only be concerned about the
returns and opt for avenues that are equipped to offer the highest
returns. A vital factor i.e. risk didn't feature in his scheme of things at all.

FAQS ON MUTUAL FUNDS:

What is a Mutual Fund?


A Mutual Fund is a body corporate registered with the Securities
and
Exchange Board of India (SEBI) that pools up the money from
individual / corporate investors and invests the same on behalf of the
investors /unit holders, in equity shares, Government securities,
Bonds, Call money markets etc., and distributes the profits.
- 23-
Which was the First Mutual Fund to be set up in India?

Unit Trust of India is the first Mutual Fund set up under a separate
act, UTI Act in 1963, and started its operations in 1964 with the issue of
units under the scheme US-64

Which are the other institutions that have floated Mutual Funds
in India?

Currently public sector banks like SBI, Canara Bank, Bank of India,
institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan
Stanley, Templeton and Private financial companies like HDFC, Prudential
ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their
own mutual funds

What is the Regulatory Body for Mutual Funds?


Securities Exchange Board of India (SEBI) is the regulatory body for
all the mutual funds mentioned above. All the mutual funds must get
registered with SEBI. The only exception is the UTI, since it is a
corporation formed under a separate Act of Parliament.

Why should I choose to invest in a mutual fund?

• Mutual Funds provide the benefit of cheap access to expensive


stocks
• Mutual funds diversify the risk of the investor by investing in a
basket of assets
• A team of professional fund managers manages them with in-
depth research inputs from investment analysts.

How do mutual funds diversify their risks?

Financial theory states that an investor can reduce his total risk by
holding a portfolio of assets instead of only one asset. By creating a
portfolio of a variety of assets, this risk is substantially reduced.

Can mutual funds be viewed as risk-free investments?

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No. Mutual fund investments are not totally risk free. In fact,
investing in mutual funds contains the same risk as investing in the
markets, the only difference being that due to professional management
of funds the controllable risks are substantially reduced.

What are the risks involved in investing in mutual funds?

A very important risk involved in mutual fund investments is the


market risk. When the market is in doldrums, most of the equity funds will
also experience a downturn.

What are the parameters on which a Mutual Fund scheme should


be evaluated?

Performance indicators like total returns given by the fund on


different schemes, the returns on competing funds, the objective of the
fund and the promoters’ image are some of the key factors to be
considered while taking decision regarding mutual funds.

What are the different types of plans that any mutual fund
scheme offers?

That depends on the strategy of the concerned scheme. But


generally there are 3 broad categories. A dividend plan entails a regular
payment of dividend to the investors. A reinvestment plan is a plan where
these dividends are reinvested in the scheme itself. A growth plan is one
where no dividends are declared and the investor only gains through
capital appreciation in the NAV of the fund.

What is NAV and how it is calculated?


NAV is the net asset value of the fund. Simply put it reflects what
the unit held by an investor is worth at current market prices.

What is Switch?

- 25-
Some Mutual Funds provide the investor with an option to shift his
investment from one scheme to another within that fund. For this option
the fund may levy a switching fee. Switching allows the Investor to alter
the allocation of their investment among the schemes

What is the difference between mutual funds and portfolio


management schemes?

While the concept remains the same of collecting money from


investors, the target investors are different. In the case of portfolio
management the target investors are high net worth investors while in
case of mutual funds the target investors are the retail investors.

How does the concept of entry load work in case of unit


purchases?

An entry load is an additional cost that an investor pays at the point


of entry. Assume that your proposed investment is Rs.10,000/-. Also
assume that the current NAV of the fund is Rs.12.00 and that the entry
load is Rs.0.50. Then you will receive 10000/12.50 = 800 units. The entry
load could be different for each scheme.

What are the broad guidelines issued for a MF?

SEBI is the regulatory authority of MFs. SEBI has the following broad
guidelines pertaining to mutual funds:

• MFs should be formed as a Trust under Indian Trust Act and should
be operated by Asset Management Companies (AMCs).
• MFs need to set up a Board of Trustees and Trustee Companies.
They should also have their Board of Directors.
• The net worth of the AMCs should be at least Rs.5 crore.
• The AMC or any of its companies cannot act as managers for any
other fund.
• All MF schemes should be registered with SEBI.

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• MFs should distribute minimum of 90% of their profits among the
investors.
There are other guidelines also that govern investment strategy,
disclosure norms and advertising code for mutual fund

FREQUENTLY USED TERMS

Net Asset Value (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
Is the price at which a close-ended scheme repurchases its units
and it may include a back-end load? This is also called Bid Price.

Redemption Price
Is the price at which open-ended schemes repurchase their units
and 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
Load’ schemes.

Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the
unit holders.

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RESEARCH METHODOLGY:

The whole study is based upon primary data. Therefore, information


has been collected from various magazines, journals, websites, and
bulletins.

RESEARCH DESIGN

Scope of study:

The scope of any study should be to cover as large a population as possible to


cover any errors. But due to time and money constraints, this study is limited to
Ambala only. The study involves an interaction with the consumers An effort was
put to cover every dealer in the city and obtain correct and relevant information

DATA COLLECTION

Collection of data is the critical point in the research process. There are
two basic methods of data collection:
• Primary method

• Secondary method

For my analysis I have selected the primary method of data collection i.e.

i. Questionnaire
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ii. Interview method

iii. Telephone interview

DATA COLLECTION TECHNIQUE:

 QUESTIONNAIRES

 INTERVIEWS

SAMPLING DESIGN

Sampling unit:

 INDIVIDIUAL INVESTORS

Sampling size:

 100

Sampling techniques:

 I use many sampling techniques like

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• Simple random sampling

• Stratified random sampling

• Judgment sampling

Data Analysis
and
Interpretation

PEOPLE CONSIDERS VARIOUS FACTORS WHILE INVESTING IN MUTUAL


FUND

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Options Responses Percentages (%)

Returns 49 49

Tax saving 26 26

Liquidity 16 16

Risk free 9 9

People consider various factor while investing in


mutual fund

60
50
% of response

40
30 Series1
20
10
0
1 2 3 4 5
options

PEOPLE CONSIDER VARIOUS BASES FOR INVESTING IN ANY


PARTICULAR FUND

OPTIONS RESPONSES RESPONSES IN %

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Past performance of fund
64 64

Portfolio of fund 36 36

people consider various bases while investing in any


particular fund

64

36

S1 responses in
1 %
2
options

PREFERENCE OF VARIOUS MUTUAL FUNDS OF DIFFERENT PEOPLES

Options Responses Responses in %


Franklin Templeton 17 17
Axis 19 19
Reliance 11 11
ICICI 18 18
SBI 29 29
Any other 8 8

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preference of various funds of different peoples

8% 17%

1
2
27% 3
19% 4
5
6

11%
18%

PEOPLE INVEST THE DIFFERENT % OF SAVING IN MUTUAL FUNDS

Sr.no Options Responses Responses in %


1 10-20% 46 46
2 20-30% 33 33
3 50% 15 15
4 More than 50%
6 6

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peoples invest the different % of savings in
mutual funds

50 46
45
40
33
responses in %

35
30
25
20
15
15
10 6
5
0
1 2 3 4
options

PEOPLE EXPECTATIONS OF RETURN FROM DIFFERENT FUNDS

Sr.no Options Responses Responses in %


1 10-20% 32 32
2 20-30% 45 45
3 50% 9 9
4 More than 50%
4 4

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people expectations of returns from different
funds

50
45
45
40
35 32
returns in %

30
25
20
15
9
10
4
5
0
1 2 3 4
options

SUGGESTIONS
AND
RECOMMENDATION
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SUGGESTIONS

 The purpose of performance appraisal is to reward the employees,


give them recognition, and help them in career growth. So, the
employees should know the basis on which they are evaluated. For
this, company should arrange special classes like once in a year for
getting the employees aware about the whole performance
appraisal process.

 The production managers or the personnel managers should


interact more directly with their subordinates and try to know their
needs, their problems and help or suggest them to overcome those
difficulties.

 The company should invite suggestions from employees about


changes or improvements they want in the appraisal system.

 The feedback process should be made more sound and effective so


that the employees could know the areas where their performance
is low so that they could make it better in the future.

 Special training sessions should be organized besides regular


training programmes for low performance areas.

 There should be more transparency in awarding marks to the


employees. It should be effectively based on the merit and
performance of the employees and not on the basis of any personal
contacts, blood relation or any affection.

A small committee should be found that will keep a close watch on the whole exercise and
make ensure that it should be a fair process.

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OBJECTIVES OF STUDY

 To study about various schemes of mutual funds in India.


 To study the recent and emerging trends in Mutual Fund Market.
 To analyze the performance of major private and public players in
Mutual Funds Industry during 2009-10.

LIMITATIONS OF THE STUDY

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 Total number of mutual funds in the market is so large that it needs

lot of resources to analyze them all. There are 34 Mutual fund

Companies providing more than 750 funds. They fall into large

categories. Handling and analyzing such a varied and diversified

data needs more time and resources.

 As the project is based on secondary data, possibility of

unauthenticated information can not be avoided.

The information about same scheme differ from one source to another

CONCLUSIONS

Indian mutual fund industry possesses great potential for growth. The
drivers for growth are
• Structural changes in the financial sector

• An increasing awareness of mutual funds as a savings vehicle

Development and trends of mutual funds in India are

• The private sector has grown by 51.84% since 1999,.

• The growth has been primarily in open-ended products.

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• Development in the previous three years was dominated by the

growth of debt products.

• But with the positive outlook for equity markets, there have been

increasing flows into equity products.

ANNEXURE

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Annexure

 Questionnaire

 Bibliography

QUESTIONNAIRE
1. Do you invest in mutual fund?
a) Yes b) no

2. What are the factors you consider while investing in mutual fund?
a) Returns b) tax saving c) liquidity d) risk free

3. On what basis you invest in any particular fund?


a) Past performance of fund b) portfolio of fund c) fund manager

4. How you get information regarding mutual fund?


a) Advertisement b) company sales force c) friends/relatives

5. Which mutual fund you prefer to invest?


a) Franklin Templeton b) AXIS c) Reliance d) ICICI e) SBI f) any other
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6. How long you prefer to keep your money in mutual fund?
a) Short term b) long term

7. How much of your saving you invest in mutual fund?


a) 10-20% b) 20-30% c) 50% d) more than 50%

8. How much return do you expect from a mutual fund?


a) 10-20% b) 20-30% c) 50% d) more than 50%

9. Which option in a mutual fund you like to choose?


a) Growth b) dividend

10. What type of fund you like to invest?


a) Debt based b) equity based c) balanced fund

BIBLIOGRAPHY

Mutual Fund in India by V.A. Avdhani

Money Outlook

Business India

Business world

Business Today

Websites use:

www.amfiindia.com

www.mutualfundsindia.com

www.valueresearchonline.com

www.moneypore.com

www.valuenotes.com

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