Limitation of the study

Apart from Details about mutual funds it has some limitations due to that all the
details could not be published & displayed. It has been done on the basis of
secondary sources like Journals, Websites & like resources.
ADVANTAGES OF MUTUAL FUND

 Portfolio Diversification

 Professional management

 Reduction / Diversification of Risk

 Liquidity

 Flexibility & Convenience

 Reduction in Transaction cost

 Safety of regulated environment

 Choice of schemes

 Transparency

DISADVANTAGE OF MUTUAL FUND

 No control over Cost in the Hands of an Investor

 No tailor-made Portfolios

 Managing a Portfolio Funds

 Difficulty in selecting a Suitable Fund Scheme

 Introduction

Mutual funds are financial intermediaries, which collect the savings of investors &
invest them in a large & well diversified portfolio of securities such as money market
instruments, corporate & government bonds & equity shares of joint stock
companies. A Mutual fund is a pool of common funds invested by different investors,
who have no contact with each other. Mutual funds are conceived as institutions for
providing small investors with avenues of investments in the capital market. Since
small investors generally do not have adequate time knowledge, experience &
resources for directly accessing the capital market, they have to rely on an
intermediary which undertakes informed investment decisions & provides
consequential benefits of professional expertise. The advantages for the investors are
reduction in risk, expert professional management, diversified portfolios, & liquidity
of investment & tax benefits. By pooling their assets through mutual funds, investors
achieve economies of scale. The interests of the investors are protected by the SEBI,
Which acts as a watchdog. Mutual funds are governed by the SEBI (Mutual funds)
regulations, 1993. From its inception the growth of mutual funds is very slow and it
took really long years to evolve the modern day mutual funds. Mutual Funds
emerged for the first time in Netherlands in the18th century and then got introduced
to Switzerland, Scotland and then to United States in the 19th century. The main
motive behind mutual fund investments is to deliver a form of diversified investment
solution. Over the years the idea developed and people received more and more
choices of diversified investment portfolio through the mutual funds. In India, the
mutual fund concept emerged in 1960. The credit goes to UTI for introducing the first
mutual fund in India. Monetary Funds benefited a lot from the mutual funds. Earlier
investors used to invest directly in the stock market and many times suffered from
loss due to wrong speculation. But with the coming up of mutual funds, which were
handled by efficient fund managers, the investment risks were lowered by a great
extent.
Limitation of the study

Apart from Details about mutual funds it has some limitations due to that all the
details could not be published & displayed. It has been done on the basis of
secondary sources like Journals, Websites & like resources. Limitations of the study
can be
 pointed out as follows Time constraints: - Due to shortage or less availability of time
it may be possible that all the related & concerned aspects may not be covered in
the project. Analysis done is limited to the availability of data.
It is very difficult to evaluate the accuracy of secondary data.

Before using secondary data. The quality of internal secondary data may be
exaggerated or biased Mismatch between purpose collected and purpose used.
Desired information may be unavailable or out-of-date. The conclusions derived
from the report cannot be generalized.
Scope of research

From the various mutual funds operated in India Three mutual funds organizations
has been identified based on convenient sampling. Selected equity funds of these
organizations are taken up for research .The financial details reflecting performance
of mutual funds for the financial year 2012-13 is considered as an academic project.
It is executed during a period of one month , conclusions arrived at are influenced by
economic and business environment of the year 2012- 13. The research is based on
different investment & saving schemes so there is lots of opportunities to choose an
investment schemes which is beneficial to investor as well as the companies in the
market. Choosing a right research technique lead to better profits & investment
decisions.

Research objectives

a) To examine the penetration of mutual funds among Indian investors.

b) To examine the various mutual fund investments available to investors in India.

c) Finally to assess the perception of investors towards mutual funds schemes.

Research methodology

Sources of data

Introduction: This report is based on secondary data. All the data required for this
analytical study has been obtained mainly from secondary sources. The secondary
data has been collected through various journals & websites. Secondary data is based
on information gleaned from studies previously performed by various journals.

The objectives of the study are as following:

 Awareness of mutual funds in Indian market.

 To identify the investor behavior while selecting a fund.
 To identify the investor‘s perception about mutual funds.
RISK V/S. RETURN:
MUTUAL FUND CONCEPT:-

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 equities, debentures and other securities. The income earned
through these investments and the capital appreciation realized (after deducting the
expenses and profits of mutual fund managers) is shared by its unit holders in
proportion to the number of units owned by them. Thus a Mutual Fund strives to
meet the investment needs of the common man by offering him or her opportunity
to invest in a diversified, professionally managed basket of securities at a relatively
low cost. The small savings of all the investors are put together to increase the buying
power and hire a professional manager to invest and monitor the money. Anybody
with a surplus of as little as a few thousand rupees can invest in Mutual Funds.
ADVANTAGES OF MUTUAL FUND

Number of options available

Mutual funds invest according to the underlying investment objective as specified at

the time of launching a scheme. Mutual fund has equity funds, debt funds, gilt funds
& many others that cater to the different needs of the investor. While equity funds
can be as risky as the stock markets themselves, debt funds offer the kind of security
that is aimed for at the time making investments. The only pertinent factor here is
that the fund has to be selected keeping the risk profile of the investor in mind
because the products listed above have different risks associated with them.

Diversification:

Diversification reduces the risk because all stocks don‘t move in the same direction at
the same time. One can achieve this diversification through a mutual fund with far
less money that one can on his own.

Professional management:

Mutual fund employ the services of the skilled professionals who have years of
experience to back them up. They use intensive research techniques to analyze each
investment option for the potential of returns along with their risk levels to come up
with the figures for the performance that determine the suitability of any potential
investment.

Potential of returns:

Return‘s in the mutual are generally better than any avenue over a reasonable period
of time. People can pick their investment horizon & stay put in the chosen fund for
the duration.

Liquidity:

The investors can withdraw or redeem money at the net asset value related prices in
the open end schemes in the close ended schemes. In the close end schemes, the
units can be transacted at the prevailing market price on a stock exchange. Mutual
funds also provide the facility of direct repurchase at NAV related prices.
Well regulated:

The mutual fund industry is very well regulated. All investment has to be accounted
for, decision judiciously taken. SEBI acts as a true watch dog in this case & can impose
penalties on the AMC‘s at fault. The regulations designed to protect the investors
interests are implemented effectively.

Transparency:

Being under a regulatory framework, mutual funds have to disclose their holdings,
investment pattern & all the information that can be considered as material, before
all investors. This means that investment strategy, outlooks of the markets & scheme
related details are disclosed with reasonable frequency to ensure that transparency
exists in the system.

Convenient Administration:

Investment in the mutual fund reduces paperwork & helps you avoid many problems
such as bad deliveries, delayed payments & follow up with brokers & companies.
Mutual funds save your time & make investing easy & convenient.

Taxation on mutual funds:

An Indian mutual fund registered with SEBI, or schemes sponsored by specified public
sector banks/financial institutions & approved by the central government or
authorized by the RBI are tax exempt as per the provisions of section 10(23D) of the
income tax act. The mutual fund will receive all income without any deduction of tax
at source under the provisions of section 196(iv), of the income tax act.

DISADVANTAGE OF MUTUAL FUND

 No control over Cost in the Hands of an Investor

 No tailor-made Portfolios
 Managing a Portfolio Funds
 Difficulty in selecting a Suitable Fund
How do investors choose between funds?

When the market is flooded with mutual funds, it’s a very tough job for the investors
to choose the best fund for them. Whenever an investor thinks of investing in mutual
funds, he must look at the investment objective of the fund. Then the investors sort
out the funds whose investment objective matches with that of the investor’s. Now
the tough task for investors start, they may carry on the further process themselves
or can go for advisors like SBI . Of course the investors can save their money by going
the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry
load) but could cost the investors in terms of returns if the investor is not an expert.
So it is always advisable to go for MF advisors. The mf advisors’ thoughts go beyond
just investment objectives and rate of return. Some of the basic tools which an
investor may ignore but an mf advisor will always look for are as follow:

1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer
Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost
averaging allows an investor to bring down the average cost of buying a scheme by
making a fixed investment periodically, like Rs 5,000 a month and nowadays even as
low as Rs. 500 or Rs. 100. In this case, the investor is always at a profit, even if the
market falls. In case if the NAV of fund falls, the investors can get more number of
units and vice-versa. This results in the average cost per unit for the investor being
lower than the average price per unit over time.

The investor needs to decide on the investment amount and the frequency. More
frequent the investment interval, greater the chances of benefiting from lower
prices. Investors can also benefit by increasing the SIP amount during market
downturns, which will result in reducing the average cost and enhancing returns.
Whereas STP allows investors who have lump sums to park the funds in a low-risk
fund like liquid funds and make periodic transfers to another fund to take advantage
of rupee cost averaging.

2. Rebalancing:

Rebalancing involves booking profit in the fund class that has gone up and investing
in the asset class that is down. Trigger and switching are tools that can be used to
rebalance a portfolio. Trigger facilities allow automatic redemption or switch if a
specified event occurs. The trigger could be the value of the investment, the net
asset value of the scheme, level of capital appreciation, level of the market indices or
even a date. The funds redeemed can be switched to other specified schemes within
the same fund house. Some fund houses allow such switches without charging an
entry load.

To use the trigger and switch facility, the investor needs to specify the event, the
amount or the number of units to be redeemed and the scheme into which the
switch has to be made. This ensures that the investor books some profits and
maintains the asset allocation in the portfolio.

3. Diversification:

Diversification involves investing the amount into different options. In case of mutual
funds, the investor may enjoy it afterwards also through dividend transfer option.
Under this, the dividend is reinvested not into the same scheme but into another
scheme of the investor's choice.

For example, the dividends from debt funds may be transferred to equity schemes.
This gives the investor a small exposure to a new asset class without risk to the
principal amount. Such transfers may be done with or without entry loads,
depending on the MF's policy.

4. Tax efficiency:

Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final
decision of any investor before investing. The investors gain through either dividends
or capital appreciation but if they haven’t considered the tax factor then they may
end loosing.

Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge
and education cess) on dividends paid out. Investors who need a regular stream of
income have to choose between the dividend option and a systematic withdrawal
plan that allows them to redeem units periodically. SWP implies capital gains for the
investor.

If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax
bracket. Investors in higher tax brackets will end up paying a higher rate as short-
term capital gains and should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than
one year), the growth option is more tax efficient for all investors. This is because
investors can redeem units using the SWP where they will have to pay 10 per cent as
long-term capital gains tax against the 12.50 per cent DDT paid by the MF on
dividends.

All the tools discussed over here

Comparison between various ways of investment

Mutual funds vs. other investments

From investor‘s viewpoint mutual funds have several advantages such as

Professional management & research to select quality securities.

Spreading risk over a larger quantity of stock whereas the investor has limited to but
only a hand full of stocks. The investor is not putting all his legs in one basket.

Ability to add funds at set amounts & smaller quantities such as Dollar 100 per
month.

Ability to take advantage of the stock market which has generally outperformed
other investment in the long run.

Fund manager are able to but securities in large quantities thus reducing brokerage
fees.

However there are some disadvantages with mutual funds such as

The investor must rely on the integrity of the professional fund manager. Fund
management fees may be unreasonable for the services rendered. The fund manager
may not pass transaction saving to the investor. The fund manager is not liable for
poor judgment when the investor‘s fund loses value. There may be too many
transactions in the fund resulting in higher fee/cost to the investor. Prospectus &
annual report are hard to understand. Investor may feel a loss of control of his
investment dollars.

Company fixed deposits versus Mutual funds

Fixed deposits are unsecured borrowings by the company accepting the deposit.
Credit rating of the fixed deposit program is an indication of the inherent default risk
in the investment.

The moneys of the investors in a mutual fund scheme are invested by the amc in
specific investments under that scheme. These investments are held & management
in trust for the benefit of scheme‘s investors. On the other hand, there is no such
direct correlation between a company‘s deposit mobilization, and the avenues where
these sources are deployed.
A corollary of such linkage between mobilization & investment is that the gains &
losses from the mutual fund scheme entirely flow through to the investors.
Therefore, there can be no certainty of yield, Unless a named guarantor assures a
return or, to a lesser extent, If the investment is in a serial gilt scheme. On the other
hand, The return under a fixed deposit is certain only to the default risk of the
borrower.
are used by all the advisors and have helped investors in reducing risk, simplicity and
affordability. Even then an investor needs to examine costs, tax implications and
minimum applicable investment amounts before committing to a service.
 MUTUAL FUND VS OTHER INVESTMENT

 Mutual funds vs Gold

The allure of gold has captivated Indians for centuries. Every family buys and
invests in the yellow metal in the form of jewellery and gold coins. However, gold
Exchange Traded Funds (ETFs) are a good alternative to physical gold.

Gold Gold ETFs

Pricing is not uniform. It varies from Pricing and transaction of gold ETFs
one jeweller to another are completely transparent

Making charges (20-30%) form a Brokerage charges (around 0.5%) and

significant expense expense ratio (1%) are much lower

Safety issues: loss or theft of physical No danger of theft since they are
gold is possible traded in demat form

Tough to liquidate physical gold for Easy to sell gold ETFs when required
cash in short time

 Mutual funds vs. Fixed deposits

Fixed Deposits Debt mutual funds

2 reasons for investing in FDs: Debt mutual funds offer similar

1) Capital preservation benefits to investors
2) Good returns

Constant returns Returns can vary but they help to beat

inflation
Less liquid: you cannot exit an FD any Highly liquid. You can exit a debt
time you wish fund any time you wish

Capital preservation and regular returns: two of the biggest reasons why people put
their money in FDs. Debt mutual funds offer similar benefits to the investor.

For instance, they are considered relatively safe investments. And while the returns
can vary, they can help beat inflation. In addition, mutual funds are more liquid
compared to FDs. You can exit a fund any time you want to. FDs don’t provide you
that facility.

BOND AND DEBENTURE VS MUTUAL FUND

As in the case of fixed deposits, credit rating of the bond/debenture is an indication of the inherent
default risk in the investment. However unlike FD, bond and debenture are transferable securities.

While an investor may have an early encashment option from the issuer(for instance through a put
option) generally liquidity is through a listing in the market .

 If the security does not get traded in the market, then the liquidity remains on paper. In this
respect, an open end scheme offering continuous sale/ re purchase option is superior.
 The value that the investor would realise in an early exist is subjected to market risk. The
investor could have capital gain or capital loss. This aspect is similar to a MF scheme.

EQUITY VS MUTUAL FUND

Investment in both equity and mutual funds are subjected to marketrisk.

An investor holding an equity security that is not treaded in market place has a problem in realising
value from it. But investment in an open end mutual fund eliminate this direct risk of not being
able to sell the investment in the market. An indirect risk remains , because the scheme has to
relise its investment to pay investors. The amc is however in a better position to handel the
situation.

Another benefit of equity benefit schemes is that they give investor the benefit of portfolio
diversification through a small investment . for instance, an investor can take an exposure to the
index by investing a mere Rs 5000 in an index fund.
ADVANTAGES OF MUTUAL FUND OVER STOCK

 A mutual fund offer a great deal of diversification starting with the very first dollar invested,
because a mutual fund may own tens or hundreds of different securities. This diversification
helps reduce the risk of loss because if any one holding tanks, the overall value doesnot
drop by much. If you are buying individual stocks, you cant gate much diversity unless you
have $10k or so
 Small sum of money get you much further in mutual funds than in stock. First, you can set
up an automatic investment plan with many fund company that let you put in as little as $50
per month. Second, the commission for stock purchases will be higher than the cost of
buying no load funds (of course, the funds various expenses like commissions are already
taken out of the NAV) smaller size purchase of the stock will have relatively high commission
on a percentage basis , although with $10 trade becoming common, this is a bit less of a
concern that in once was.

RETURN RISK MATRIX