Finance Understanding Investment Pattern in Mutual Funds and Advisory Services Final

7/31/2019 Finance Understanding Investment Pattern in Mutual Funds and Advisory Services Final

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Summer Internship Report

For the partial fulfillment of the requirement for the degree

of

MASTER OF BUSINESS ADMINISTRATION

UNDERSTANDING INVESTMENT PATTERN IN

MUTUAL FUNDS AND ADVISORY SERVICES

At

Under The SupervisionOf

Mr. Mohsin ShamimAssistant Manager- II

ICICI bank,GK-II,New Delhi

By

YASIR MOHEET

MBA (2007-08)

Department of Business StudiesJAMIA HAMDARD

New Delhi


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ACKNOWLEDGEMENT

I would like to thank Mr. Mohsin Shamim (AM-II , ICICI

Bank), for giving me an opportunity to work on this project

and help me increase my knowledge about the subject and

get the first hand experience about the product. Without his

panegyric support it would have been difficult for me to

imbibe such skills required for completing the project.

I would also like to thankMr. Shahid Siddiqui(AM-I ,

ICICI Bank), for his valuable help without whom it would not

have been easier for me to work on this project.

(Md. Anwar Khan)

06 MBA-26

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TABLE OF CONTENTS

ACKNOWLEDGEMENT.2

EXECUTIVE SUMMARY

COMPANY OVERVIEW. 4

SERVICES PROVIDED BY ICICI BANK.7

INVESTMENT OPTIONS9

COMPARISION OF MODERN AND TRADITIONAL METHODS OF

INVESTMENTS..13

HISTORY OF INDIAN MUTUAL FUND INDUSTRY..14

CONCEPT OF MUTUAL FUNDS..16

ORGANIZATIONAL STRUTURE OF MUTUAL FUND.19

TYPES OF MUTUAL FUNDS.....20

CLASSIFICATION OF MUTUAL FUNDS22

RISKS ASSOCIATED WITH MUTUAL FUNDS.26

ADVANTAGES OF INVESTING IN MUTUAL FUNDS.28

TAX BENEFITS OF INVESTING IN THE MUTUAL FUND.30CUSTOMER PROFILING OF MUTUAL FUNDS44

OBJECTIVES OF THE STUDY

RESEARCH METHODOLOGY

FINDINGS AND INTERPRETATIONS

CONCLUSIONS DRAWN

RECOMMENDATIONS

LIMITATIONS OF THE STUDY

SWOT ANALYSIS OF MUTUAL FUND BASED ON THE STUDY..54

BIBLIOGRAPHY

QUESTIONAIRRE

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COMPANY OVERVIEW

I C I C I B A N K

ICICI Bank is India's second-largest bank with total assets of about

Rs.146, 214 crore at December 31, 2004 and profit after tax of Rs. 1,391 crore in

the nine months ended December 31, 2004.

ICICI Bank has a network of about 505 branches and extension countersand about 1,850 ATMs. ICICI Bank offers a wide range of banking products and

financial services to corporate and retail customers through a variety of delivery

channels and through its specialized subsidiaries and affiliates in the areas of

investment banking, life and non-life insurance, venture capital and asset

management. ICICI Bank has a global presence with subsidiaries.

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http://www.iciciventure.com/http://www.icicilombard.com/http://www.icicibank.com/http://www.iciciprulife.com/http://www.iseconline.com/


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In the United Kingdom and Canada, branches in Singapore and Bahrain and

representative offices in the United States, China, United Arab Emirates and

Bangladesh.

ICICI Bank's equity shares are listed in India on the Stock Exchange,

Mumbai and the National Stock Exchange of India Limited and its American

Depositary Receipts (ADRs) are listed on the New York Stock Exchange

(NYSE).

As required by the stock exchanges, ICICI Bank has formulated a Code of

Business Conduct and Ethics for its directors and employees.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian

financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in

ICICI Bank was reduced to 46% through a public offering of shares in India in

fiscal 1998,

An equity offering in the form of ADRs listed on the NYSE in fiscal 2000,

ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation

in fiscal 2001, and secondary market sales by ICICI to institutional investors in

fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the

World Bank, the Government of India and representatives of Indian industry. The

principal objective was to create a development financial institution for providing

medium-term and long-term project financing to Indian businesses. In the 1990s,

ICICI transformed its business from a development financial institution offering

only project finance to a diversified financial services group offering a wide

variety of products and services, both directly and through a number of

subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian

company and the first bank or financial institution from non-Japan Asia to be

listed on the NYSE.

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After consideration of various corporate structuring alternatives in thecontext of the emerging competitive scenario in the Indian banking industry, and

the move towards Universal banking, the managements of ICICI and ICICI Bank

formed the view that the merger of ICICI with ICICI Bank would be the optimal

strategic alternative for both entities, and would create the optimal legal structure

for the ICICI group's universal banking strategy. The merger would enhance

value for ICICI shareholders through the merged entity's access to low-cost

deposits, greater opportunities for earning fee-based income and the ability to

participate in the payments system and provide transaction-banking services.

The merger would enhance value for ICICI Bank shareholders through a large

capital base and scale of operations, seamless access to ICICI's strong

corporate relationships built up over five decades, entry into new business

segments, higher market share in various business segments, particularly fee-

based services, and access to the vast talent pool of ICICI and its subsidiaries.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved

the merger of ICICI and two of its wholly-owned retail finance subsidiaries,

ICICI Personal Financial Services Limited and ICICI Capital Services Limited,

with ICICI Bank.

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SERVICES PROVIDED BY ICICI BANK

1. DEPOSITS

SAVING BANK

SPECIAL SAVING ACCOUNT

SENIOR CITIZEN SERVICE

ROAMING CURRENT ACCOUNT

PRIVATE BANK

SALARY ACCOUNT

WOMENS ACCOUNT

FIXED DEPOSITS

EASY FD

RECURRING DEPOSIT

YOUNG STAR

EEFC ACCOUNT

RFC ACCOUT

2. LOAN

HOME LOAN

CAR LOAN

PERSONAL LOAN

TWO WHEELERS LOAN

LOAN AGAINST SECURITY

FARM EQUIPMENTS LOAN

COMMERCIAL VEHICLE LOAN

CONSTRUCTION EQUIPMENTS LOAN

OFFICE EQUIPMENTS LOAN

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MEDICAL EQUIPMENTS LOAN

3. INVESTMENTS

ICICI BANK BONDS

MUTUAL FUNDS

PURE GOLD

INITIAL PUBLIC OFFER

GOVERNMENT OF INDIA BOND

4. DEMAT

5. CARDS

CREDIT CARD

DEBIT CARD

TRAVEL CARD

6. YOUNG STAR LOGIN

7. MOBILE BANKING

8. ONLINE SERVICES

BILL PAY

SHOPPING

TICKETING

CHARITY

SHARE TRADING

9. NRI SERVICES

NRI HOME

BANKING PRODUCTS

MONEY TO INDIA

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INVESTMENT OPTIONS

MODERN INVESTMENT OPTIONS

Along with Deposit products and Loan offerings, ICICI Bank assists you to

manage your finances by providing various investment options ranging from

ICICI Bank Tax Saving Bonds to Equity Investments through Initial Public Offers

and Investment in Pure Gold. ICICI Bank facilitates following investment

products:

ICICI Bank Tax Saving Bonds

Government of India Bonds

Investment in Mutual Funds

Initial Public Offers by Corporate

Investment in "Pure Gold"

TRADITIONAL INVESTMENT OPTIONS

ICICI Bank offers wide variety of Deposit Products to suit Investors

requirements. Coupled with convenience of networked branches with over 1800

ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank

brings banking at Customers doorstep. There are three Options available to the

investors.

Fixed Deposits

Savings Account

Recurring Deposit

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Comparison of Traditional & Modern invest ment

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and the Reserve Bank

S.No. Options Risk Return Tax

1

TRADITIONAL

METHODS

Fixed Deposit LOW Less Than 6%

p.a

Taxable

2 Recurring

Deposit

LOW Less than 6%

p.a

Taxable

3 Savings LOW 3.5% p.a Taxable

4

MODERN

METHODS

ICICI Bank

Tax Saving

Bonds

LOW 8% Deductible

From Taxa

Income

5 Government

of India

Bonds

No Risk 8% Tax Free

6 Investment in

Mutual Funds

Moderate Average

returns

Depend On

Market

Fluctuations

Funds Und

ELSS

Deductible

From Taxa

Income

7 Initial Public

Offers by

Corporate

High High or Low

Depends on

Market

Conditions

Returns Af

One Year a

Tax Free

8 Investment in

Pure Gold

Low Depends on

the Growth in

the Market

Taxable

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of India. The history of mutual funds in India can be broadly divided into four

distinct phases.

First Phase: 1964 1987

An Act of Parliament established Unit Trust of India (UTI) in 1963. It was

set up by the Reserve Bank of India and functioned under the Regulatory andadministrative 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

(December 87), Punjab National Bank Mutual Fund (August 89), Indian Bank

Mutual Fund (November 89), Bank of India (June 90), Bank of Baroda Mutual

Fund (October 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

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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 withtotal 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

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 October 31, 2003, there were 31 funds, which manage assets of

Rs.126726 crores under 386 schemes.

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CONCEPT OF MUTUAL FUNDS

A mutual fund is an investment vehicle which allows investors with similar

(one could say mutual) investment objectives, to pool their resources and

thereby achieve economies of scale and diversification in their investing.

Economies of Scale mean lower costs on a per unit basis by doing things "in

bulk" which spreads fixed costs over greater volume. A mutual fund achieves

lower per unit costs for professional money management and for transaction

charges, than small investors could achieve on their own. This can increase

return to the investor. Diversification is just another way of saying "Dont put all

your eggs in one basket." A mutual fund allows its investors to a small

percentage of many different investments. So in a well-diversified mutual fund no

one particular investment dominates its performance. Poor results from some

investments are likely to be offset by good results from other investments.Therefore, the unit value of a mutual fund will not fluctuate as sharply as the

value of any one of its investments. This can reduce risk to the investor.

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.

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

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funds collectively manage almost as much as or more money as compared to

banks.

Despite these advantages mutual funds do not guarantee do not return,

nor do they eliminate risk to investors. The return and risk of a mutual fund

depend primarily on the type of securities instruments in which it invests, and

secondarily on how well it is managed by the company offering it.Typically a mutual fund scheme is initiated by asponsorwho recognizes

and markets the fund. It pre specifies the investment objective of the fund and

the risks associated with the costs involved in the process and broad rules for

entry into and exit from the fund and other areas of operation. In India as in most

nations the sponsors need approval from the regulator viz. SEBI. A sponsor then

hires an asset management company to invest the funds according to the

investment objective. It also hires another entity to the custodian of the assets of

the funds and perhaps a third one to handle registry work.

In the Indian context, the sponsors promote theAsset Management

Companyalso, in which it holds a majority stake. In many cases a sponsor can

hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global

Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd.,

which has floated different mutual funds schemes and also acts as an asset

manager for the funds collected under the schemes.

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 appreciations

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.

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The flow chart below describes broadly the working of a mutual

fund

Mutual fund Investment Flow-chart

Organization of Mutual Funds

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ORGANIZATIONAL STRUTURE OF MUTUAL FUND

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Sponsor Company

(For eg. Prudential icici)

Managed by the board of

trustee

Hold unit holders fund in MF

Enter into an agreement with SEBI

and ensure compliance

Mutual Fund

(For eg prudential icici

mutual fund)

Float MF funds,

Manages the fund as SEBI

Guidelines and AMC agreement

AMC

(eg. Prudential ICICI

AMC)

Provides custodial services

REGISTERProvides registrar and transfer

service

CUSTODIAN

Established MF as the trust

Register the MF under SEBI

DISTRIBUTORS

Provides the network for

distribution of the schemes to the

investor


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TYPES OF MUTUAL FUNDS

Most mutual funds are open-ended funds. This means you can subscribe

to one at any time of the year. Open-ended funds are not listed on stock

exchanges.

A converse set of rules apply to closed ended funds. Closed ended funds

have a fixed number of shares, are open for subscription during a specified

period and operate for a fixed period of time. For example, five years and so,

the number of buyers and sellers are exact someone would have to sell for you

to be able to buy. Closed ended funds are generally listed on stock exchanges.

Mutual funds can also be broadly classified into four distinguishable types:

Equity funds

Debt or Income funds

Balanced funds

Money Market funds

Debt or Income Funds

The aim of debt or income funds is to make regular payments to its

investors, although dividends can be reinvested to buy more units of the fund. To

provide you with a steady income, these funds generally invest in fixed income

securities such as bonds, corporate debentures, government securities (gilts)

and money market instruments. Opportunities for capital appreciation are limited

and the downside is that as interest rates fluctuate, the net asset value or NAV of

the fund could follow suit if interest rates fall, the NAV is likely to increase and

vice versa. There is also a risk that a company issuing a bond may default on its

payment, if it is not financially healthy. However, if the fund invests in

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government securities there is little risk of the government defaulting on its

payment.

Equity Funds

Equity funds (often described as growth funds) aims to provide capital

growth by investing in the shares of individual companies. Depending on the

funds objective, this could range from large blue-chip organizations to small and

new businesses. Any dividends received by the fund can be reinvested by the

fund manager to provide further growth or paid to investors. Both risk and returnsare high but they could be a good investment if you have a long-term perspective

and can stay invested for at least five years.

Balanced funds - The best of both the worlds

As the name suggests, these funds aim for balance, so they are made up

of a mixture of equities and debt instruments. They match the goals of investors

who seek to grow their capital and get regular income, while retaining relatively

low risk.

The debt or bond element of the fund provides a level of income and acts

as the safety net during dynamic periods in the market, while equities provide the

potential for capital appreciation.

Balanced funds could be suitable for investors who are looking for moderate

capital appreciation.

Money market funds

Money market or liquid funds are an appealing alternative to bank

deposits because they aim to provide stability, liquidity, capital preservation and

slightly higher interest rates than bank accounts. When you invest in a money

market fund, the fund manager invests in cash assets such as treasury bills,

certificates of deposit and commercial paper. Returns on these funds fluctuate

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much less compared to other funds, but they are not guaranteed. They are

appropriate for corporate and individual investors who wish to park their surplus

money in a fund for a short period.

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CLASSIFICATION OF MUTUAL FUNDS

There are varied ways in which funds can be classified. From the

investors perspective funds are usually classified in terms:

Constitution Structure

Collection entry or

exit charges from

investors

Close ended Load funds

Open ended No-Load funds

Under each broad classification, there are several types of funds,

depending on the basis of the nature of their portfolio. Every fund has unique

risk-profiles that are determined by its portfolio.

Open-ended Funds

An open-end fund is one that has units available for sale and repurchase

at all the times at a price based on the NAV per unit. Such funds are open for

subscription the whole year. Capitalization/corpus is continuously changing.

Fund size and the total investment amount goes up if more new subscription

comes in from new investors than redemption by exiting investors, the fund

shrinks when redemption of units exceeds fresh subscription. Theres no fixed

maturity.

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Shares or units of such funds are normally not traded on the stock

exchange but are repurchased by the fund at announced rates. They provide

better liquidity even though not listed as investors can any time approach mutual

funds for sale of such units.

Dividend reinvestment option is also available in case of such funds.

Since there is always a possibility of withdrawals, management of such fundsbecomes more tedious as managers have to work from crises to crises. Crises

may be two fronts:

Unexpected withdrawals require funds to maintain a high level of cash

available every time implying thereby idle cash.

By virtue of this situation such funds may fail to grab favorable

opportunities. Further to match quick cash payments, funds cannot have

matching realization from their portfolio due to intricacies of the stock market.

Close-ended Funds

Close end funds can be subscribed to, only during the initial public offer.

Thereafter the units of such funds can be bought and sold on the stock exchange

on which they are listed through a broker. Such funds have a stipulated maturity

period. The duration of such funds is generally 2 to 15 years.

The funds units may be traded at the discount or premium to NAV based

on the investors perception about the funds future performance and other

market factors affecting the demand for a supply of the funds units. An important

point to note here is that the number of outstanding units of such fund doesnt

vary on account of trading in the funds units at the stock exchange. From

management point of view, managing close ended schemes is comparatively

easy since fund managers can evolve and adopt long term investment strategies

depending on the life of the scheme.

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Load Funds

Marketing of new mutual fund scheme involves initial expenses. Charges

made to the investor to cover distribution/sales/marketing expenses are often

called loads. These expenses may be recovered from the investors in different

ways at different times.Typically entry and exit loads range from 1% to 2%. Three usual ways in

which funds sales expenses may be recovered from the investor are:

At the time of entry into the fund, by deducting a specific amount from his

initial expenses. The load charges to the investor at the time of his entry into the

scheme are called a front-end or entry load.

By charging the fund/scheme with a fixed amount each year, during the

stated number of years. The load amount charged to the scheme over a period

of time is called deferred load.

At the time of investors exit from the scheme, by deducting a specified

amount from the redemption precedes payable to the investor. The load that the

investors pay at the time of his exit is called a back-end or exit load.

Some funds may also charge different amounts of load to the investor

depending upon how many years the investors has stayed with the fund, the

longer the investor stays with the fund less the amount of exit load, he is

charged. This is called as contingent deferred sales charge. The schemes NAV

would reflect the net amount after the deferred load.

Loads are charged not only by an open-ended fund but even a close-ended

fund can charge a load to cover the initial issue expense.

No-Load Funds

Funds that make no such charges or loads for sales expenses are calledas no load funds.

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OPTIONS AVAILABLE TO THE INVESTORS

Each plan of every mutual fund has three options Growth, Dividend and

dividend reinvestment. Separate NAV are calculated for each scheme.

Dividend Option

Under the dividend plan dividend are usually declared on quarterly or

annual basis. Mutual fund reserves the right to change the frequency of dividend

declared.

Dividend reinvestment option

Instead of remittances of units through payouts, Units holder may choose

to invest the entire dividend in additional units of the scheme at NAV related

prices of the next working day after the record date. No sales or entry load is

levied on dividend reinvest.

Dividend Payout option

Dividend declared by the fund manager is remitted to the investors and

NAV is reduced by that value.

Growth Option

Under this plan returns accrue to the investor in the form of capital

appreciation as reflected in the NAV. The scheme will not declare the dividend

under the Growth plan and investors who opt for this plan will not receive any

income from the scheme. Instead of income earned on their units will remain

invested within the scheme and will be reflected in the NAV.

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Calculation of NAV

RISKS ASSOCIATED WITH MUTUAL FUNDS

Mutual funds and securities investment are subject to various risks and

there is no assurance that a scheme objective will be achieved. These risks

should be properly understood by investors so that they can understand how

much risky their investment avenue is. Equity and fixed income bearing

securities have different risks associated with them. Various risks associated

with mutual funds can be described as below.

Risk associated to fixed income bearing securities are

Interest rate risk

As with all the securities, changes in interest rates may affect the

schemes Net Asset Value (NAV) as the prices of the securities generally

increase as interest rates decline and generally decrease as interest rates rise.

Prices of long-term securities generally fluctuate more in response to interest

rates changes than short term securities do. Indian Debt markets can be volatile

leading to the possibility of price movements up or down in the fixed income

securities and thereby to the possible movements in the NAV.

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Liquidity or marketable risk

This refers to the ease with which a security can be sold at near to its

valuation yield to maturity. The primary measure of liquidity risk is the spread

between the bid price and the offer price quoted by the dealer. Liquidity risk isinherent to the Indian Debt market.

Credit risk

Credit risk or default risk refers to the risk that an issuer of fixed income

security may default (i.e., will be unable to make timely principal and interest

payments on the security). Because of this risk corporate debentures are sold at

a yield above those offered on Government securities, which are sovereign

obligations and free of credit risk. Normally the value of fixed income security will

fluctuate depending upon the perceived level of credit risks well as the actual

event of default. The greater the credit risk the greater the yield require for

someone to be compensated for increased risk.

Risk associated to equities

Market risk

The NAV of the scheme investing in equity will fluctuate as the daily prices

of the individual securities in which they invest fluctuate and the units when

redeemed may be worth more or less than the original cost.

Timing the market

It is difficult to identify which is the right time to invest and which is the

right time to take out the money. There may be situations where stocks may not

be rightly timed according to the market leading to loss in the value of scheme.

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Liquidity

Investment made in unlisted equities or equity related securities might

only be realizable upon the listing of the securities. Settlement problems could

cause the scheme to miss certain investment opportunities.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS

Professional Management

Mutual Funds provide the services of experienced and skilled

professionals, backed by a dedicated investment research team that analyses

the performance and prospects of companies and selects suitable investments to

achieve the objectives of the scheme.

Diversification

Mutual Funds invest in a number of companies across a broad cross-

section of industries and sectors. This diversification reduces the risk because

seldom do all stocks decline at the same time and in the same proportion. You

achieve this diversification through a Mutual Fund with far less money than you

can do on your own.

Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid many

problems such as bad deliveries, delayed payments and follow up with brokers

and companies. Mutual Funds save your time and make investing easy and

convenient.

Return Potential

Over a medium to long-term, Mutual Funds have the potential to provide a

higher return as they invest in a diversified basket of selected securities.

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Low Costs

Mutual Funds are a relatively less expensive way to invest compared to

directly investing in the capital markets because the benefits of scale in

brokerage, custodial and other fees translate into lower costs for investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at net

asset value related prices from the Mutual Fund. In closed-end schemes, the

units can be sold on a stock exchange at the prevailing market price or the

investor can avail of the facility of direct repurchase at NAV related prices by the

Mutual Fund.

Transparency

You get regular information on the value of your investment in addition to

disclosure on the specific investments made by your scheme, the proportion

invested in each class of assets and the fund manager's investment strategy and

outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal

plans and dividend reinvestment plans, you can systematically invest or withdraw

funds according to your needs and convenience.

Affordability

Investors individually may lack sufficient funds to invest in high-grade

stocks. A mutual fund because of its large corpus allows even a small investor to

take the benefit of its investment strategy.

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Choice of Schemes

Mutual Funds offer a family of schemes to suit your varying needs over a

lifetime.

Well Regulated

All Mutual Funds are registered with SEBI and they function within the

provisions of strict regulations designed to protect the interests of investors. The

operations of Mutual Funds are regularly monitored by SEBI.

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TAX BENEFITS OF INVESTING IN THE MUTUAL FUND

A. TO THE UNITHOLDERS

INCOME RECEIVED FROM MUTUTAL FUND

Any income received in respect of units of Mutual Fund under clause

(23D) of Section 10, in respect of Assessment Year 2004-2005, will be exempt

from income tax in the hands of the unit holders. Further, it has been clarified

that income arising from transfer of units of Mutual Fund shall not be exempt

under section10 (35).

No tax would be payable by unit holders in respect of income distributed

by the Fund and no tax needs to be deducted at source thereon by the Fund.

B. LONG TERM CAPITAL GAINS ON TRANSFER OF UNITS

For Individuals and HUFs

Long-term Capital Gain tax is not applicable if the Units are held for more

than 12 months.

For Non-resident Indians

Under section 115E of the Act for non-resident Indians, income by way of

long-term capital gains in respect of Units is chargeable at the rate of 20% plus

applicable surcharge.

C. SHORT TERM CAPITAL GAINSShort term Capital Gains in respect of Units held for a period of not more

than 12 months is added to the total income. Total income including short-term

capital gains is chargeable to tax as per the relevant slab rates Income Tax

Rates

The maximum taxes rates applicable to different categories of assess are as

follows:

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Resident individuals and HUF 30% plus surcharge

Partnership Firms 35% plus surcharge

Indian companies 35% plus surcharge

Non Resident Indians 30% plus surcharge

Foreign Companies 40% plus surcharge

As per the Finance Act 2003, a surcharge of 2.5% on the income tax

would be applicable for all categories of assesses except in the case of

individuals and HUF.

TAX DEDUCTION AT SOURCE

For Income in respect of units

As per section 10(35), section 194K and section 194A, no tax shall be

deducted in respect of any income credited or paid on or after April 1, 2003 in

respect of units of the Fund.

For Capital Gains

In respect of Resident Unit holders:

No tax is required to be deducted at source on capital gains arising to any

resident unit holder (under section 194K)

In respect of Non- Resident Unit holders

Under section 195 of the Income Tax Act, 1961, tax shall be deducted at

source in respect of capital gains as under:

In case of non resident other than a company

Long term capital gains 20% plus surcharge

Short term capital gains 30% plus surcharge

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EXEMPTION FROM TAX ON CAPITAL GAINS ARISING ON TRANSFER OF

UNITS HELD FOR MORE THAN 12 MONTHS

Under section 54EC of the Act the Income Tax Act, 1961, where an

assesses has made capital gains from the transfer of units held in Mutual Fund

Scheme for a period exceeding 12 months, such capital gains shall be exempted

from tax on capital gains under section 54EC of the Income Tax Act 1961.

WEALTH TAX

Units held under the Mutual Fund Scheme are not treated as assets within

the meaning of section 2(ea) of the Wealth Tax Act, 1957 and are, therefore, not

liable to Wealth-Tax.

GIFT TAX

Units of the Mutual Fund may be given as a gift and no gift tax will be

payable either by the donor or the done, as the Gift Tax Act has been abolished.

CUSTOMER PROFILING OF MUTUAL FUNDS

We plan to do customer profiling of mutual funds investors that would help

us to know their investment behavior and their risk taking ability. This would

involve questionnaire filling and interviewing them.

PROBLEM STATEMENT

Analysis of the Investment pattern in Mutual Funds.

RESEARCH PROBLEM

There are myriad choices available to the investor of today. Investment

avenues are Galore. There are different investment vehicles such as stocks and

bonds. We however need to invest carefully, and work out various investment

options and decide on how to make best of our investment in terms of monetary

benefits.

The key questions on mutual funds are:

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What are the selection criteria for customers in buying of mutual funds?

What is the buying behavior of mutual fund customers?

What is the level of awareness about mutual funds among investor?

What percentage of investors invests in mutual funds in proportion of their

investments?

What is the most preferred mutual fund among various mutual funds?

What are the customers objectives of investing in mutual funds?

What is the level of satisfaction of investors from their mutual funds?

Objectives of the Study

To understand the investment behavior of the investors

To analyze the risk appetite of the investors

Role of a distributor in investment decisions of the investors and to

identify the areas for improvement

To find out the major factor influencing the investment decision of

an investor

Research Methodology

Research design: Exploratory research

Data source : Primary & Secondary

Sampling Method: Simple Random Sampling

Sample Size: 150

Sampling Unit: Investors above 20 yrs of age

Area covered: DelhiTime period: 2 Months (20/5/2008-30/6/2008)

How research was conducted: 150 questionnaires were distributed and filled up

by the target sample.

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DEFINE POPULATION

The population of our research consists of people residing in DELHI.

All the age groups above the age of 20 form the elements of our

population.

DEFINING SAMPLE

Our sample size consists of 150 respondents, consisting of people from

the age range of 20 and above.

We have chosen this sample because the investors in this age group are

adults and they are ready to invest there savings in financial instruments.

HOW THE SAMPLE SIZE IS CHOSEN

The sample size of 150 people has been chosen by the process of simple

random sampling technique where each element of the population has an

equal and likely chance to get selected.

WHERE THE SURVEY WAS CONDUCTED

Our sample selection target places have been mostly malls and few

financial institutions like ICICI bank. We choose these places because the

respondents that we would get at these places would be mostly of our

requirement, who usually invest in these financial instruments.

RESEARCH DESIGN

Our study is mainly Exploratory in nature.

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Findings & Interpretations

Age-wise distribution

Majority of the MF investors fall in age bracket of 35-50 yrs.This shows that

middle aged persons are quite liberal in investing in Mutual Funds.

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Educational background

Aa

A large number of investors are post graduates and graduates. It shows that MF

investments are hotter among the educated class. Less qualified persons are a

bit hesitant in investing in MFs. This may be due to the lack of knowledge and

expertise about the Mutual Funds.

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Nature of occupation

Majority of the investors are either Professionals, Businessmen or Private sector

employees.

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Types of investment(s) made

A large number of our sample invests in Mutual Funds (137) and Insurance

(124). Also a good number in FDs (94). This shows that investors approach is

somewhat balanced as nearly one third also invest in Equities (46).

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Investment objective

In this graph we can see that 35% invest for Capital gains and 32% for Future

plans while 26% invest for Tax savings.

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Criteria for selecting a MF Scheme

This graph shows that 42% of the investors select a Mutual Fund scheme on the

basis of return potential while 26% of them on the basis of past performance.

This shows that people are somewhat aggressive in selecting a MF scheme and

they consider returns for some amount of risk.

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Type of MF Scheme most preferred

Most of the investors (42%) go for Growth schemes while a good number(29%)

go for Balanced scheme. Very few (8%) go for Debt scheme. This may be due to

good equity market over a couple of years and poor debt market conditions.

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Channel of Investment

A large number of investors (96%) invest through advisors or distributors. This

may be due to time constraint or lack of expertise.

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Annual investment in Mutual Funds

49% of our sample invest less than Rs. 50,000 in MFs annually while 32% invest

in the range of Rs. 50,000-1,00,000. Very few i.e only 2% invest more than Rs.

3,00,000 annually.

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Level of satisfaction from MF investments

52% of the investors are satisfied with their MF investments while 15% are highly

satisfied. This is also probably due the outcome of good equity market conditions

for the past few years.

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Annual Income of the investors

Majority of our investors fall in the income of Rs. 1,00,000-2,50,000 (54%) and

Rs.2,50,000-5,00,000 (31%) annually. The HNIs were not easily accessible

which was the major constraint of my study.

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Conclusions

Awareness level of mutual Funds is very high among the

investors in Delhi.

Returns is the prime factor which affect their investment

decisions.

Investors in Delhi are reasonably aggressive and are

willing to take risk for return. Distributors play a very important role in investors

decision making.

Investors in Delhi have a well organized portfolio.

New investors are a bit apprehensive in investing in

Public Sector AMCs and they prefer the names like UTI,

SBI,etc.

Majority of the investors are satisfied with their MF

investments

A good number of investors invest in FDs and they can

be convinced to invest in MFs.

Majority of the MF investors are Graduates and Post

graduates.

Pvt. Sector employees and Professionals are more

liberal in making their investment decisions.

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Recommendations

FCs be given more structured training.

After sales service of the distributors be improved.

More awareness campaigns be launched to educate the

investors especially for undergraduate investors.

Walk ins of FDs be induced to start with small amounts.

Research be conducted over a larger sample &

coverage.

Respondents can be lured by offering incentives.

Organizations should provide access to their HNI

database.

SIPs should be promoted to small investors.

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Limitations

The results cannot be generalized as the investors

behavior in Delhi are quite different .

The sample size was very small and population is verylarge.

Respondents unwillingness to respond.

Time constraint led to limit our sample size.

Research was limited mostly to MF investors only.

Respondents reluctance in disclosing their income

levels.

Lack of experience of the researcher.

The HNIs were not easily accessible.

Financial constraint.

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SWOT ANALYSIS BASED ON THE STUDY OF MFs

Strength

Good for new investor as the fund has to be managed by specialized fund

manager.

Only product which invests in money market, debt market and equity

market at same time.

Investment needed is comparatively less than other investments.

During the stack market boom periods all mutual funds have performed

fairly well thereby increasing investors expectations.

Weakness

Customers do not prefer it because of risk attached to it that is market

risk.

Fund manager if makes a wrong prediction then customer will bear thebrunt therefore it depends on funds managers analysis.

Sometimes the age factor affects the investment preference of the

investors.

People are afraid of investing in the equity market.

Opportunities Creating positive image about the fund and changing the nature of the

market itself.

Market of mutual fund is expanding as many foreign companies are

coming in this.

Great scope of new investment due to the budget announcement this

year.

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The objective of investing in mutual fund is Tax-saving apart form returns

third main objective is growth.

Threats

Now there are many other investment instruments which are more

lucrative than mutual fund. (real estate , gold)

Unawareness among investors regarding mutual funds. Also in India most

of the people lack of awareness about mutual fund. They dont know

anything about what is mutual fund, how it works. How fund managers

invest peoples money in different portfolios and provide the better returns

to the customers

Lack of promotions, advertising by mutual fund industry

Finance Understanding Investment Pattern in Mutual Funds and Advisory Services Final

Documents