Stock market plays a very vital role in developing economy like India and also attracting the rural people in recent years. Investors usually perceive that all capital market investment avenues are risky. Based on objectives and risk bearing capacities, investors go for different investment alternatives. Among the various investment possibilities, mutual fund seems to be viable for all kind of investors as it is considered to be a safer mode of investment. This study is an attempt to understand the performance of share market and to analyse the correlation of performance of mutual funds with market indices like Sensex and Nifty. As a part of this study, data is collected regarding performance of mutual funds and stock market for the financial year 2009 - 10, 2010 - 11 and 2011 - 12. Two mutual fund (growth) and two index funds are taken as sampling. The first few pages talk about the introduction of the subject and also of the industry. This is followed by literature review followed by the objectives of the study and research methodology. Then comes real part of the study in which the researcher have written all what had analyzed through the questionnaire filled by investors and brokers. The 1
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An empirical study on performance of mutual fund in india
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Stock market plays a very vital role in developing economy like India and also
attracting the rural people in recent years. Investors usually perceive that all capital market
investment avenues are risky. Based on objectives and risk bearing capacities, investors go
for different investment alternatives. Among the various investment possibilities, mutual fund
seems to be viable for all kind of investors as it is considered to be a safer mode of
investment. This study is an attempt to understand the performance of share market and to
analyse the correlation of performance of mutual funds with market indices like Sensex and
Nifty. As a part of this study, data is collected regarding performance of mutual funds and
stock market for the financial year 2009 - 10, 2010 - 11 and 2011 - 12. Two mutual fund
(growth) and two index funds are taken as sampling.
The first few pages talk about the introduction of the subject and also of the industry.
This is followed by literature review followed by the objectives of the study and research
methodology. Then comes real part of the study in which the researcher have written all what
had analyzed through the questionnaire filled by investors and brokers. The last part consists
of findings, recommendations, limitations, conclusion and bibliography.
The objectives of the study which the researcher undertook are to study the return on
investment in share market. One of the another objective is to know how far the mutual fund
schemes are able to win the confidence of the investors, for this the researcher have made
structure questionnaire and interpretation for the same has been done and also in order to
make it more effective the researcher have used bar charts.
From this study the researcher have found that investment in mutual funds provides
better returns on investment
1
LITERATURE REVIEW:
It is bound to adapt the rich books, journals, periodicals, reports, etc. to measure with
quantity of collections. Lots of books, national and international level magazines, websites
are referred for the study. The previous research studies are also be used as a guideline in
preparing and designing the research work.
The project also includes the various schemes and history of mutual fund in India and world.
Dr. K Ravichandran in his Research Article titled “A study on Investors preference
towards various Derivatives market, published in the Journal of Contemporary Research in
Management a Quarterly journal, Vol3, Sept.-2012. The objective of the study was to know
the various investment avenues and the investors risk preference towards it and to find out the
preference level of investors on various capital market instruments. The research article
found few things like; 44% of investors are between age group of 31 – 40, and they are
influenced by their friend and relatives. It is concluded with the point that, though the stock
market is subjected to high risk, by using derivatives the loss can be minimized to an extent.
2
INTRODUCTION:
We have seen many of the investors across the world becoming billionaire within a
short span of time by investing in share market, at the same time some investors lost amount
in the same market also. In the year 1992, 2001 and 2008 reports reveals, few investors lost
their wealth and some of them committed suicide because of share market scandals. The
famous investor Mr.Warren Buffet became the richest person because of his wise investment
strategies, however it is not an alternative way to make money as it has huge amount of risk.
An Investor has various investment options like debentures, shares, bank deposits, real estate
etc. but choice of option is very essential. Mutual funds give higher returns because of
professional management of fund. When we look at the risk and return pattern of investment,
mutual funds have yielded good return over the past years compared to direct capital market.
The investment in stock market is increasing at a faster rate in the recent years
because of FIIs, FDIs, Stock market awareness etc. Investment in Debentures, Bank Deposits
are not so attractive because of less amount of interest, as in real terms the value of money
decreases over a period of time. The other option is to invest money in stock market, but a
common man is not much aware of market and he is not much competent enough to
understand the functions of stock market and also it is an expansive proposal. The question to
be answered is: what investment alternative should a small investor adopt? So obviously,
mutual funds come to the rescue.
A mutual fund is a very simple concept which is combination of savings of investors.
Mutual Funds are highly cost efficient and very easy to invest in. Considering the state of
mind of the general investor, the research figures out to know how mutual fund is better than
stock market, identify the most popular MF among individual investors and analyse how far
the mutual fund schemes are able to win the confidence of the investors.
3
Introduction to Equity Capital and Mutual Fund
Issue of shares is the most important
method of raising capital. Finance raised by the
issue of shares serves as a financial floor to the
company’s capital structure. Shares indicate the
ownership or equity interest in the assets of the
company. Shares are of different nominal or face
values and of different kinds to attract different
kinds of investors. The maximum amount of
capital to be raised by the issue of shares is mentioned in the memorandum of association.
During 1990-91 and 1991-92, equity accounts for 35 to 39 percent of the total capital
raised respectively. This proportion was reversed in 1992-93, the first year of free pricing,
when the share of equity increased to 62 percent. However, in 1995-96 there is a rise in the
importance of debt largely due to the high interest rates in the economy and negative returns
form the secondary market.
Mutual Funds
The first mutual funds were established in Europe. One researcher credits a Dutch
merchant with creating the first mutual fund in 1774. The first mutual fund outside the
Netherlands was the Foreign & Colonial Government Trust, which was established in
London in 1868. It is now the Foreign & Colonial Investment Trust and trades on the London
stock exchange.
Mutual funds were introduced into the United States in the 1890s. They became
popular during the 1920s. These early funds were generally of the closed-end type with a
fixed number of shares which often traded at prices above the value of the portfolio.
The first open-end mutual fund with redeemable shares was established on March 21,
1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds.
However, closed-end funds remained more popular than open-end funds throughout the
1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total
assets.
After the stock market crash of 1929, Congress passed a series of acts regulating the
securities markets in general and mutual funds in particular. The Securities Act of
The above data shows the returns of respective equities for the period. So consider if
an investor has invested is these two companies then on 1st financial year his investment of
‘X’ amount will increase by 59.03% and on 2nd financial year his investment value will
increase by 18.54% and on 3rd financial year his investment value will reduce by 49.35%.
And if investor keep invested his money for 3yrs then his investment value at end of
3rd financial year will increase by 19.39% only which is less as he can get more than 20% of
returns by keeping fixed deposits in the bank.
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2009-10 2010-11 2011-12 2009-2012
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
-40.38%
1.48%
-26.18%
-59.79%
99.41%
17.06%
-23.17%
79.18%
RELIANCE INDUSTRIES LTDICICI BANK LTD
ANALYSIS OF MUTUAL FUND
MUTUAL FUND 2009-10 2010-11 2011-12 2009-2012
SBI MSFU CONTRA 63.31% -1.26% -9.63% 48.46%
RELIANCE EQUITY OPPOURTUNITIES FUND
105.35% 10.89% -1.91% 135.13%
The above data shows the returns of respective mutual funds for the period. So
consider if an investor has invested is these two funds then on 1st financial year his
investment of ‘X’ amount will increase by 168.66% and on 2nd financial year his investment
value will increase by 9.63% and on 3rd financial year his investment value will reduce by
11.54%.
And if investor keep invested his money for 3yrs then his investment value at end of
3rd financial year will increase by 183.59% which is far better than the returns of equity
investment returns.
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2009-10 2010-11 2011-12 2009-2012
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
63.31%
-1.26%
-9.63%
48.46%
105.35%
10.89%
-1.91%
135.13%
Mutual Funds
SBI MSFU CONTRARELIANCE EQUITY OPP OUR-TUNITIES FUND
ANALYSIS:
(As from analysing the above data and also from questionnaire we
can say that Hypothesis is being proved.)
Among 100% sample, 67% respondents agree that mutual funds are safer than any other investment option.
Among 3yrs data of returns of equity and mutual fund, it shows that mutual fund provides more return than the equity market.
Among 100% sample, 49% respondents says that one should invest in mutual funds, which shows the increasing preference for mutual fund.
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FINDINGS OF THE STUDY:
The First question asked was about the investment factor and among the 100% sample
size, 73% respondents said that they do invest in markets.
Among the 100 sample size, 24% of investors were wish to invest for short term period (0-1 year) whereas 41% of investors were willing to invest their money for medium term (1–5 years)and 35% of investors for long term investment (more than 5 year).
Among the 100 sample size, 74% investors invest money with the preference of rate of return on their investment and 26% investors invest money with the preference of flexible investment terms.
The investors have given almost same weightage to the question of According to you
among these products in which one should invest now? As 51% of investors suggest investing in Equities and 49 % of investors suggests for Mutual funds. So here it can be said that mutual funds are gaining its importance in the finance industry.
When asked about the reason for selecting the respective product of investment then the preference was given to the factor of secure investment, i.e. by 52% of investors.
It is noted that investors give 1st importance to performance of the equity or mutual
fund and then brand name and at last give importance to management team while making the decision in which they would prefer to invest their money.
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RECOMMENDATIONS OF THE STUDY:
As it has been found from the above findings that mutual funds are providing better
returns and gaining its importance in the finance industry. Therefore, the mutual fund
companies in India should make vice decisions while making investments and provide
more benefits to investors.
As many investors get fooled by some mutual fund companies which gives false
promises to investors for investing their money in their mutual fund. So government
should make strict rules for all the mutual fund companies in order to safe guard the
investment of all investors.
The charges should be reduced to minimum and also the lock in period factor should
be minimised, which will attract more investors from the market.
Key features of mutual funds should be mentioned in the advertisement. Features like
Diversification, Systematic Investment Plans (SIP), Tax benefits should be mentioned
in the advertisements. Otherwise, people will see mutual funds as normal shares in
which we invest money.
Many fund firms themselves have provided assurances regarding restitution for losses
to shareholders i.e., reassuring. However, these promises have been short on specifics
indicating how those losses will be measured and how the compensation will be
provided.
Mutual funds should use appropriate and simple names for the schemes, which match
the features of the schemes, so that the investors are not confused and not feel cheated
after investing.
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CONCLUSION
The Indian mutual funds industry has transformed totally for good since last decade
and has shown growth and potential. Though the Asset under Management and number of
schemes has increased significantly, but it is yet to be a household product, and needs to
cover the retail segment effectively. Moreover, there are still many remote and potential areas
which lack the required knowledge and infrastructure of mutual funds.
Mutual fund is an excellent product offering great flexibility and liquidity, which can
be tailored to suit any investor’s objective and it is affordable for the all people of different
income levels and saving habits
After doing study it is concluded that yes mutual funds are much better investment
option but as future is uncertain so no one can give a sure guarantee of good returns, no
matter whether it is equity or a mutual fund.
Investors can minimise their risk by doing little research before investing in the
markets which will help them to decide the right investment plan or product.
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BIBLIOGRAPHY
Books
Jaydev, M. 1998, Investment policy and performance of
mutual funds, Kanishka Pub., India.
Gupta, A. 2002, Mutual funds in India: a study of investment management, Anmol
Publications PVT. LTD., India.
Business world
C.R. Kothari – Research Methodology
Websites
http://www.amfiindia.com
http://search.proquest.com
http://articles.economictimes.indiatimes.com
http://www.google.com
http://www.moneycontrol.com
http://www.bseindia.com
http://www.nseindia.com
http://www.icicibank.com
http://www.sbi.co.in
http://www.sebi.gov.in
http://www.finance.yahoo.com
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ANNEXURE
QUESTIONNAIRE
This questionnaire is prepared for a research project
An Empirical Study on Performance of Mutual Fund in India
Name:
Age:
Income Category: a. 1, 80,000-5, 00,000 b.5, 00,000-8, 00,000 c. above 8, 00,000
1. Do you invest in Markets?
a. Yes b. No
2. What type of investment do you make?
a. Short Term (0-1 year period)
b. Medium Term (1-5 year period)
c. Long Term (More than 5 year period)
3. Give your ratings on the following financial investment?
a. Equities
b. Mutual Funds
4. State the reason for your preference?
a. Rate of Return
b. Flexible Investment Terms
5. Investing in Mutual Funds is far safer than Investing in other avenues”. Do you agree?
a. Yes b. No
6. According to you among these products in which one should invest now?
a. Equity Market
b. Mutual Funds
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7. State the reason for your preference with reference to above questions answer?
a. Secure Investment
b. Expected High Rate of Returns
8. Which factor of a Mutual Fund or of a equity plays an important role to invest in