SYNOPSIS OF RESEARCH REPORT ON

MUTUAL FUND INDUSTRY IN INDIA

Submitted for the partial fulfillment towards the award of the degree in Master of Business Administration of U. P. Technical University, Lucknow SHASHISHEKHAR MAURYA Roll No. -10133DM031 Under the Supervision of Dr.Amit Agarwal

Department of Management Studies Noida Institute of Engineering & Technology

ABSTRACT

Indian mutual fund industry now represents perhaps the most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. There are various choices available to the investor of today. One however needs to invest carefully, and work out various investment options and decide on how to make best of the investment in terms of monetary benefits. A mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus join or mutual; the fund belongs to all investors. A single investors ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of fund. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective. Thus, an equity fund would buy mainly equity assetsordinary shares, preference shares, warrants etc. It is these assets which are owned by the investors in the same proportion as their contribution bears to the total contributions of all investors put together.

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

WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an inventible surplus of as little as a few

thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

MUTUAL FUND OPERATION FLOW CHART

A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by

global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc.

A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks.

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease

in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value.

Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell.

Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud.

Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash.

Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.

Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index

Transparency

Flexibility Choice of schemes Tax benefits Well regulated

DRAWBACKS OF MUTUAL FUNDS:

Mutual funds have their drawbacks and may not be for everyone:

No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money.

Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund.

Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made.

Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped,

you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.

RESEARCH METHODOLOGY

Investment in mutual fund is not a one-time activity. It is a continuous activity. The same investor, if satisfied, will come to the fund again and again. When the investor sends his application, it is not only an application, but it also contains vital information. Most of this information if tabulated and analyzed, would provide important insights into investor needs, preferences and behavior and enables us to target customers need more accurately, to achieve better penetration, deeper loyalty and reduced costs. It

is in this context that direct marketing will assume increased importance. Knowing the customer thoroughly is of utmost importance. Unlike the consumer goods industry, it is not possible for mutual fund industry to test market and have pilot projects before launch. At the same time, focusing and concentrating on a particular geographic area where the fund has a strong presence and proven marketing network, can help reduce network, can help reduce issue expenses and ultimately translate into higher returns for the investor. Very little research on investor preference is available, but the

industry can collectively have a data bank, and share the information for appropriate use. This study on Mutual funds in India has been based on primary as well as secondary data sources. The primary data is collected by the getting the questionnaire filled from the common investor above the age of 25. For this research, I have made use of a questionnaire for ascertaining the investment pattern of a common investor. The questionnaire consisted of 13 questions in total, each question having various multiple choices. Depending upon the choice selected by the respondent, each respondent gets a total score which represents his degree of favorability towards the kind of investment he makes and his knowledge about the investments. The main aim of conducting the survey using a questionnaire was to

understand the perception of small investors, who are the most exploited in Indian capital Market, analyze the type of funds available for the investor, understand the investment pattern of a common investor, importance of marketing Strategies in mutual funds. This was done by ascertaining the average response of all the samples for the total 13 questions asked in the questionnaire. The results for the 13 questions asked were further graphically represented, showing the favorability towards different parameters.

The secondary resources used in the study are: Books Journals Magazine Articles Internet Websites.

DATA SOURCE:

Both primary and secondary data are collected for the study, both play vital role at the time of analysis. to give a suitable recommendation to the existing problems, primary data played a major role, also secondary data is necessary to give proper support to the primary data.

SAMPLE SIZE-100 Primary data: has been collected from the east and central, Delhi region with the help of questionnaire Secondary data: has been collected from the internet, print media& investor.

METHOD OF DATA COLLECTION:

Several alternative media are available for obtaining information from respondent through communication .respondent may be interviewed in person or interviewed by telephone, or they may be mailed a questionnaire to which they are asked to respond. Primary data has been collected by personal interview of investor. in few cases the concerned person refused to give an appointment and has to collect information through phone

1. Rate the familiarity and experience with investments

a) Familiar and experienced b) Familiar but not experienced c) Not familiar and inexperienced 2. How would you describe your investment knowledge? a) You rarely have financial discussions, because you do not understand any of the concepts. b) You understand how different types of mutual funds work and are confident in selecting the right ones for you. c) You understand investment basics such as stocks, bonds, and money markets and could explain how they work. a) You are a knowledgeable investor and understand concepts such as standard deviation and beta. 3. Which of the following are possible investment motives for you with regard to a portfolio?
a) Keeping aside money generated from business / profession, to

specifically generate alternate source of income / wealth

b) Wealth creation, with no alternative uses for the money in the

foreseeable future
c) Preserving wealth, after accounting for inflation and taxes d) Regular income to meet present commitments and expenses e) Building a corpus to meet specific future requirements

4. What is your anticipated Investment time frame?

a) Long term - more than 7 years b) Medium term - 4 to 7 years c) Short-medium term - 1 to 3 years d) Short term - less than 1 year

5. How would you like to classify your investment style?

a) Conservative b) Moderate c) Aggressive

6. My experience with investing so far has been

a) Mainly low-risk debt investments - can't remember anything adverse b) Mainly debt investments - some discomfort with interest rate risk c) Mainly debt investments - comfortable experience so far d) I am wary of equity investing - it has been a losing experience e) I want to be in equities - have not got it right so far f) I invest in equities - I know what it takes 7. Assume that you have invested Rs. 10,000 in a mutual fund and the value of the investment dropped to Rs. 8,500 after six months. What would you be most likely to do?

a) I would move the money to a bank fixed deposit. b) I would wait till the value reached 10,000 and then move to another fund. c) I would not do anything. d) I would invest more in the fund to bring down my average cost of acquisition 8. Your existing portfolio consists most of?

a) Cash only (time deposits and savings accounts) b) Mainly cash (as above plus some blue chip stocks, bonds or equivalent investments) c) A blend (blue chip and other speculative stocks/mutual funds, property and cash) d) Speculative (Technology/Biomedical stocks, high risk funds, derivative based investments) 9. Your key objective when considering an investment vehicle is? a) Income only b) Income and some Capital Growth c) Balance of Capital Growth and Income d) Capital Growth and some Income e) Capital Growth Only

10. You would like to invest in? a) Bank accounts, Debt and Debt Mutual Funds b) Equities and Mutual Funds c) Real Estate and Real Estate Funds d) Commodities and Commodity Funds 11. Which type of mutual funds do you prefer?

a) By Structure: i. ii. Open-ended Funds Closed-ended Funds

b) By Investment Objective: i. ii. iii. iv. Growth Funds Income Funds Balanced Funds Money Market Funds

d) Other Schemes:

i. ii. iii. iv.

Tax Saving Schemes Industry Specific Schemes Index Schemes Sectoral Schemes

12. Are you aware of the tax saving benefits available in investment of mutual funds? a) Yes
No 11%

b) No

13. Do you think that advertising plays an important role in spreading the awareness amongst investors for investing in mutual funds? a) Yes b) No
Yes 89%