Finance(MBA) 101

TABLE OF CONTENTS

A Study on INVESTOR PERCEPTION AND PERFORMANCE

EVALUTION OF MUTUAL FUNDFor

Submitting in Partial Fulfilment of the Requirements of Bangalore University for the Award of the Degree ofMASTER OF BUSINESS ADMISSION2003-2005

By

MUHAMMED IQUBAL

REG No. 03ACCM6024Under the Guidance of

PROF. GHOUSIA KHATOON (M.Com)

Al-Ameen Institute of Management Studies

Hosur Road

Bangalore 560 027

LIST OF CHARTSSl. No.ContentsPage No.

1Chart showing the Investors Status 43

2Chart showing the Age Profile44

3Chart showing the Sex Ratio45

4Chart showing the Qualification47

5Chart showing the Annual Family Income47

6Chart showing the Income Profile48

7Chart showing the Saving Habits49

8Chart showing the Investment Objectives50

9Chart showing the Investment Avenues52

10Chart showing the Decision Affecting Factor54

11Chart showing the Tax Incentive Factor55

12Chart showing the Advertisement58

13Chart showing the Risk Profile62

14Chart showing the Investment Time Horizon65

15Chart showing the Monitoring Performance 66

16Chart showing the Dividend Information69

17Chart showing the Iquity Funds75

18Chart showing the Income Funds78

19Chart showing the Balanced Funds80

20Chart showing the Monthly Income Plan82

21Chart showing the Tax Saving Plan85

22Chart showing the Index Funds87

EXCUTIVE SUMMARY EXECUTIVE SUMMARY

The Mutual Fund Industry has come a long way since the days of the UTI. The numbers of mutual funds has also increased over the years. Mutual funds are seen as an avenue for the retail investors to enter the stock market and bonds. They provide the professional competence to the retail investor. In India the retail investor is increasingly seeing mutual fund as an alternative investment avenue to the low-yielding bank deposits.

This survey was conducted to know the retail investors perceptions about mutual funds. Its objective was to measure the investors sensitivity to mange the portfolio to achieve objectives like:

1. Tax incentives.

2. Capital gain.

3. Time horizon of investment.4. Risk and return expectations.

The sample size was 150, and the total samples was divided between two segments of current and potential mutual fund investors. The sampling for the study was a convenient sampling.

The survey came out with some interesting findings that show that some investors were willing to take the risk whereas others had the idea of diversifying their investment portfolio. The groups having different levels of education had different perception about investment. The level of education had a direct bearing on the investment patterns. The higher the education, the higher was the level of understanding of investment complexities. As such a large number of graduates were found to have invested in mutual fund.

But surely there are signs that the investors inclination towards mutual funds is increasing and as the financial market strengthens and awareness of mutual funds increases, this investment instrument will become popular.

INTRODUCTION

The entry of private players with their foreign partners into the mutual fund business has revolutionized the industry. They brought professional competence and their aggressive marketing has made mutual funds an important part of any individual portfolios in India. As of the recent findings there are about 1457 schemes offered 31 mutual funds.

The good performance of the economy and the stock markets in last couple of years contributed to the growth of the mutual funds. Low interest rates on bank deposits and tax concessions on some of the schemes also contributed to the growth.

But the penetration of the mutual funds in the retail investor segment is still low compared to the developed world. In India, the size of the industry is just 6% of the GDP, while it is 70% in the US. World over it is around 37%. The contribution from the retail investors to the funds is very low compared to institutions and high net worth individuals. For the growth of industry, active participation of the retail investors is necessary.

Need for the study:

Mutual fund is one of the most important types of financial products in existence in the market today. The other major type of financial product offering are insurance, various banks and institutional deposits etc.

When it comes to a financial product like a mutual fund, emphasis has be paid not only on its financial aspects like investment outlay and the resulting return cash flow stream but also on how the product is offered to customers, who in this case present the investors. Thus we can say that the investors response to a mutual fund is not determined only on the basis of its financial aspects (which although are important) but also on how the product is positioned and offered to the investor,

The starting point for any successful marketing is to know the perceptions of the customers for the industry. This provides insights into the customers behavior and his expectation from the industry players. A prper understanding of the perceptions would definitely benefit the players.

This survey attempts to know the mutual fund investors better. It examines some interesting choices of the retail investor including the reasons behind investing in mutual fund and the risk tolerance levels of investors. The investors knowledge about mutual funds and what according to him are the best mutual funds is also analyzed. It is hoped that this survey in India would go a long way in benefiting the mutual fund players.

MUTUAL FUNDS: CONCEPTS AND STRUCTURES

A mutual fund represents a collective investment vehicle. When you participate in a scheme of a mutual fund, you become a part owner of the investments held by that fund under that scheme to the extent of your unit holding in that fund.

The pool of money collected from the individual investors by the mutual fund unit is invested in financial assets such as shares, government securities, debentures and money market instruments like commercial papers certificate of deposits and treasury bills.

From these assets the mutual fund unit receives dividends, if it is a share or an interest if it is a debenture or government securities. Therefore it receives either dividends or interest and the same interest or the same interest or dividends is given to the individual investors by the mutual fund unit. Therefore it is known as a collective investment vehicle.

Some key features of mutual fund are as follows,

Reduce your risks

Mutual funds allow you to broaden your portfolio while at the same time helping you reduce your overall investment risk by diversification of investment.

Maximize your opportunities

The fund managers who take care of your mutual fund have access to information and statistics from leading economists and analysts around the world. Because of this, they are in a better position than individual investors to identify opportunities for your investments to flourish.

Liquidity: Quick access to your money

With mutual funds its not only possible but easy to have access to your money at short notice. Why? Because mutual funds can be bought and sold on any dealing day (which normally means weekdays).

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.

Low cost

Mutual funds are 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. A large number of investors normally participate in a single mutual fund, and operating costs and commissions are spread among the whole group into different funds.

Transparency

The investor gets regular information on the value of his investment in addition to disclosure on the specific investments made by the fund, the proportion invested in each class of assets and the fund managers investment strategy and outlook.

Regulated for investor protection

All mutual funds in India are registered with the regulator of the Indian securities industry- the Securities and Exchange Board of India (SEBI). The funds function within the framework regulations designed by SEBI and these regulations are intended to protect the interests of investors. The operations of the mutual funds are also regularly monitored by SEBI.

Do investors have to make a lump sum investment?

You dont need to make a large lump sum investment. Mutual fund companies also offer a Varity of monthly investment plan where no initial lump sum is required.

STRUCTURE OF A MUTUAL FUND

A typical mutual fund in India has the following constituents

FUND sponsors:

A sponsors is any person who, acting alone or in combination with another body corporate, establishers a mutual fund. The sponsor of the fund is similar to the promoter of the company. In accordance with SEBI regulations, the sponsor forms a trust and appoints a board of trustees, and also generally appoints an AMC as fund manager. In addition, the sponsor also appoints the custodian to hold the funds assets. The sponsor must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over 5 years prior to registration.

Mutual fund:

A mutual fund in India is constituted in the form of a trust under the Indian trusts act of 1882. the fund invites investors to contribute their money in the common pool, by subscribing to units issued by various schemes established by the trust. The assets of the trust are held by the trustee of the benefits of unit holders, who are the beneficiaries of the trusts. Under the Indian trust act, the trust of the fund has no independent legal capacity; it is the trustee(s) who have the legal capacity.

Trustees:

The mutual fund or the trust can either be managed by the board of trustees. Which is a body of individuals, or by a trust company, which is a corporate body. The board of trustees manages most of the funds in India. The trustee being the primary guardians of the unit holders funds and assets, a trustee has to be a person of high repute and integrity. The trustees, however, do not directly manage the portfolio of securities. The portfolio is managed by the AMC as per the defined objectives, in accordance with trust deed and SEBI (mutual fund) regulations.

Assets Management Company:

The AMC, which is appointed by the sponsor or the trustees and approved by SEBI,act like the investment manager of the trust. The AMC functions under the supervision of its own board of directors, and also under the direction of the trustees and the SEBI. AMC, in the name of the trust, floats and manages the different investment schemes as per the SEBI regulations and as per the investment management agreement signed with the trustees.

Apart from these, the mutual fund has some other fund constituents, such as custodians and depositories, banks, transfer agents and distributors. The custodian is appointed for a safe keeping of securities and participating in the clearing system through approved depository. The bankers handle the financial dealing of fund. AMCs appoint distributors or brokers who sell units on behalf of the fund, and also serve as investment advisors. Besides broker, independent individuals are also appointed as agents for the purpose of selling fund schemes to investors. The regulations arms length relationship between the fund sponsors, trustees, custodians and AMC.

CLASSIFICATION OF MUTUAL FUNDS

TYPES OF MUTUAL FUND SCHEMES:

Open ended versus close ended schemes :

A mutual fund scheme may be a close ended scheme or an open ended scheme. The key differences between the close end and the open end scheme are as follows:

The subscription to close end scheme is kept open only for a limited period (usually one month to three months), whereas an open end scheme accepts funds from investors by offering its units or shares on a continuing basis.

A close end scheme does not allow investors to withdraw funds as and when they like, where as an open end scheme permits investors to withdraw funds on continuing basis under a re purchase arrangement.

A close end scheme has a fixed maturity period (usually five to fifteen years) whereas an open end scheme has no maturity period.

The close end schemes are listed on the secondary market, whereas the open end scheme are ordinarily not listed.

There are different types of mutual fund schemes:

1. Equity funds

2. Debt fund/ income funds

3. Balanced funds

4. Monthly income plants

5. Sectoral funds

6. Money market schemes

7. Index funds

8. Floaters funds

1. Equity funds:

Equity funds, as the name suggests have an investment portfolio which is weighed in favor of equity. The equity holding may even be 100%. Equity securities represent ownership capital. There exits no certainness with regards to the returns resulting thereof, both in terms of dividends and capital gains. Hence equity instruments by nature are volatile and prone to price fluctuations on a daily basis due to both macro and micro factors. Trading volumes, settlements periods and transfer procedures may restrict the liquidity of these investments.

Equity fund is also known as growth fund. The aim of equity fund is to provide capital appreciation over the medium to long term. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation etc and the investors may choose an option depending on their preferences. Growth schemes are good for the investors having a long term outlook seeking appreciation over a period of time.

The equity funds may be of two types:

Aggressive and

Conservative

Aggressive is that type of equity fund in which you have a higher risk involved. These can be the shares of the companies who are not the blue chip companies (generally mid cap companies) and their returns are also very high. These are the shares of the companies that are not listed in the top form. They offer very high returns subject to accompanying high risk exposure.

Conservative equity funds, on the other hand are those equity funds in which you can expect reasonable rate of returns subject to a very moderate amount of risk. The companies which belong to these are the blue chip companies. These are less volatile when compared to the aggressive type of equity fund.

2. Debt fund:

Debt funds are those funds in which there is 100% debt and no equity involved. This is also called as income funds. These funds provide regular income to the investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The net asset values of such funds are affected because of change in the interest rates in the country. If the interest rates fall. The NAVs of such funds are likely to increase in the short run and vice versa. Hence although the risk is les when compared to equity funds, the values of these funds are influenced by interest rate risk.

The debt funds can also be differentiated as aggressive and conservative debt funds. This differentiation is on the basis of the grading of the securities that the fund holds. For e.g. aggressive funds invest in debt securities of low rated companies or institutions like local authorities. Since the risk associated with these debt instruments is higher than those of central government and AAA rated companies, the return is also higher in the form of higher coupon rates.3. Balanced fund:

Balanced fund are those funds in which you have the mixture of both equity and debt. A balanced scheme, as the name suggests, invests its corpus across two broad asset classes, viz. equity and debt in a more or less balanced manner. A commonly followed allocation is as follows:

Allocation of percentage (%) of corpus

Maximum Minimum

Equity60%40%

Debt 60%40%

The objective of the balanced scheme is to combine growth and stability. These funds are also affected because of fluctuations in the share prices in the stock markets. However NAVs of such funds are likely to be less volatile compared to pure equity funds. These balanced funds also have both aggressive and conservative funds.

4. Monthly income plans:

The main objective of this plan is that it seeks to earn regular income through investment in fixed income securities. It also seeks to provide regular income through a portfolio of predominantly high quality fixed income securities with a maximum exposure of 20% to equities and the rest to the debt. Hence it involves the total debt-equity allocation mix of 20-80.

In the case of monthly income plans, the fund manager strives to earn regular income with no assured returns in the fixed income market by actively managing the funds portfolio on interest rate movements and credit risks, while seeking to enhance the returns with a marginal equity allocation.

5. Sectoral funds:

A sectoral fund invests its corpus in the equity stocks of a given sector such as pharmaceuticals, information technology, telecommunication, and so on. Sectoral schemes appeal to investors interested in taking a bet on those sectors.

Let us take for example an IT Sector fund. In this fund, the entire corpus would be invested only in securities issued by IT companies. The portfolio theoretically includes both debt and equity. However in practice it is usually restricted to equity investments only. The nature of companies are both top end market leaders and mid cap, growing companies.

6. Money market schemes :

Debt instruments which have a maturity of less than one year at the time of issue are called money market instruments. These instruments are highly liquid and have negligible risk. The major money market instruments are treasury bills, certificate of deposit, commercial papers and repots.

These funds are also known as liquid funds. These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. The investment objective of this scheme is to provide investors with high safety, a high degree of liquidity and current income through investment in high quality money market instruments.

These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. Money market instruments have negligible interest risk exposure as well as credit risk exposure. The principal value of unit in a liquid scheme remains stable thought the periodic income may vary depending on the conditions in the money market.

Liquid funds = money market fund + short term deposits with banks. The rationale behind mutual funds investing in short term deposits with banks is that they are usually able to obtain a higher interest rate due to their huge investment size and also because they are better equipped to assess the risk associated with the bank. The latter is especially relevant in the case of private sector banks.7. Index funds:

An index scheme is and equity scheme that invests its corpus in a basket of equity stocks that comprise a given stock market index such as S & P CNX Nifty index, with each stock being assigned a weightage equal to what is has in the index. Thus and index fund appreciates or depreciates (subject to tracking error) the same way as the index. The principal objective of an index scheme is to give a return in line with the index movement.

The investment objective of the index fund aims to provide returns that, before expenses, closely correspond to the total return of common stocks as represented by the S&P CNX Nifty index under the Nifty plans and the BSE Sensex under the BSE Sensex plans.

In this type of mutual fund the fund manager follows a passive style of equity investing. The portfolio of the fund is dependent upon the composition of the stock market index which it follows. Any changes in the index (additions or deletions of companies change in weightage) are reflected in the portfolio. This is because index funds replicate the portfolio of a particular index such as the BSE. Sensitive index, S&P NSE 50 index (nifty), etc. these schemes invest in the securities in the same weightage comprising of and index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as tracking error in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

8. Floaters fund:

The concept behind a floater fund is explained as follows:

The Face Value of a debenture is the value which is stated on the face of the debenture. The face value represents the money which the company has actually borrowed from the investors and which it promises to repay at the time of redemption of debentures.

Market value on the other hand is that value at which the debenture can be sold or purchased in the market place.

There can be three scenarios when market value is compared with face value, viz.

I. Market value greater than the face value i.e. at premium

II. Market value is equal to the face value i.e. at par

III. Market value lesser than the face value i.e. at discount

Let us now consider a numerical example.

Face value of a debenture (X) is Rs 1000 and the interest on that debenture is 8% per annum which is nothing but the coupon rate. Here the interest amount which you get is Rs 80.

The current scenario was giving you 8% per annum. Lets now consider a future scenario wherein the market interest rate changers to 7% instead of 8% per annum.

However, the interest rate for the debenture X which was already issued in the past remains fixed at 8% and the interest amount continues to be Rs 80.

Now a new debenture (Y) is issued with the same face value of Rs. 1000 but due to a change in the interest rate from 8% to 7% the coupon amount will be Rs. 70 instead of Rs. 80.

The market value of a security is directly related to the cash flows resulting from its ownership. Hence the market value of a security whose cash flow (coupon) is higher than that of another comparable security will be higher than the market value of the lower coupon yielding security.

The question comes as to : what will happen if the investor of the currents scenario sells his debenture to another investor. If he sells his debenture of Rs 1000 as the same rate he bought it for, he is going to incur a loss as the market interest rate has decreased from 8% to 7%. The investor who is purchasing the current scenario debenture would benefit since he is getting the debenture for Rs. 1000 and at a higher interest rate of 8% per annum.

In order to determine the market value of the debenture X we will hence capitalize its yearly cash flow which is simply its coupon of Rs. 80 at the current market interest rate of 7%. Hence the market value is 80/.07 = Rs. 1143.

Therefore the current scenario investor would sell his debenture for Rs. 1143 instead of Rs 1000 at the same interest rate of 8% per annum. By doing this he is going with the market value and also selling his debenture at a premium.

To summarize, a debenture will trade at a premium when the coupon rate of the debenture is greater than the current market interest rate.

A debenture will trade a par when the coupon rate of the debenture is equal to current market interest rate.

A debenture will trade at a discount when the coupon rate of the debenture is less than the current market interest rate.

As per the example above, suppose if the face value of the debenture remain the same and the market interest rate on the debenture increases from 8% to 9% per annum.

In that case the interest received on a new debenture of Rs. 1000 will be Rs. 90. now if the current investor has to sell the debenture he will have to sell his debenture for a discount, since the market rate is at 9% per annum.

The market value of the previously issued debenture X is simply Rs. 80 coupon capitalized at increased market rate of 9%. This is 80 / 0.09 = Rs. 889.

Therefore the current investor would be selling his debenture for Rs 889 rather than for Rs. 1000. Therefore the debenture is sold at a discount.

This effect of changes in the market interest rate on the market value of a debenture is called the interest rate risk.

A floating rate debenture is one whose coupon rate changes in accordance with changes in the market interest rate. Thus coupon rate of a debenture will always be equal to the market interest rate.

Therefore market value of the debenture will always be equal to the face value i.e. at per. Hence the interest rate risk is eliminated.

A floater fund invests in debenture which has a floating rate of interest. The floating interest rate is fixed on to a benchmark rate such as the LONDON INTER BANK OFFER RATE which is known as LIBOR and also the BANK RATE. These LIBOR or the BANK RATE is taken to eliminate the interest rate risk.

The following interest rate is expressed as : Benchmark Rate + X basis points.

E.g. LIBOR + 2% Or BANK RATE + 4%

2% is nothing but 200 basis points.

4% is nothing but 400 basis points.

Since the interest rate received on the debenture varies with the changes in the market rate, interest rate risk is eliminated. This is because the benchmark rate keeps changing to the changes in the market. If there is an increase in the market interest rates, the benchmark rate also increases and if the market interest rate decreases the benchmark rate also declines. Hence interest rate risk is totally eliminated barring for the time lag between changes two review periods of the floating rare security.

Interest rate risk is both beneficial as well as harmful. It is beneficial in a situation of decreasing interest rates whereas it is harmful in a situation of increasing interest rates.

The spectra of increasing the interest rates are presently there in India today. Therefore floaters fund is launched in India as an innovation so as to eliminate the interest rate risk. MUTUAL FUND INDUSTRY REVIEW

DEBT FUNDS:

Overall, the bond market remained volatile and yields firmed up on concerns of rise in fiscals deficit and rise in inflation rates. The results of general elections also surprised the market as a congress led coalition government formed the government. The common minimum programmed that outlines the economic vision of the new government also affected the market sentiments as the CMP laid more emphasis on growth on social sectors and also mentioned that there could not be any divestments of profit making PSUs.

During the month, the RBI announced the credit policy which maintained the status quo on interest rates and emphasized RBIs preferences for flexibility in administrating the monetary policy. The yields particularly at the longer end firmed up as the market participates their holding and turned cautious.

Besides the domestic factors, the market also was concerned as the international yields also firmed up on strong growth in economic factors. The US Federal Reserve and ECB left the key rates unchanged, but bank of England of any cut in small savings rates also affected the market sentiments.

The yields on the benchmark 10 yrs security firmed up to touch a high of 5,31% as the yield moved in the range of 5,20%-5.30%. for most part of the month. The inflation rate showed an upward trend due to rise in prices of primary articles. Volatility in the equity market, FLL outflows and firm trend in oil prices pushed the rupee against the US dollar. The corporate bond markets track the government sec market as the yield firmed up on low buying interest.

The income find and the gift funds during the month generated negative returns due to the rise in yields at the longer end. Though most of the income funds have reduced the maturity of the portfolio, the funds have maturity of 4-5 years. The income and the gift funds have seen net outflows during the month as investors switched their investments to liquid and floating rate funds.

Most of the funds have increased the exposure to cash as the market was expected to remain volatile. The funds are expected to remain cautious and would look forward to aggressively manage the portfolio. The short term funds also have reduced their maturity profile and have shifted their allocation to cash. Floating rate funds and liquid funds have witnessed good inflows as the investors switched to low risk assets. Portfolio advisors hence recommend investment in short term funds with an investment horizon of 3-6 onnths and for less than 3 months investments should be made in floating rate funds as the interest rates are expected to firm up in the medium term.

It is also recommended that investors of debt funds to invest a portion of their portfolio in monthly income funds (funds which invest 85% in debt and 15% in equities) and short term funds. However, MIP funds would have higher volatility compared to income funds as these funds invest 15%-20% of the funds in equity market. Investors considering only debt funds should invest in floating rate funds and short term funds.

Equity funds:

Overall, the equity market remained volatile as the market indices declined after the general election results. The nifty index declined by 17% during the month. The fall in the market was due to the uncertainty after the elections as the ruling NDA government failed to get the required majority. The confusion was worsened further as different constituents of the congress led coalition spoke in different voices over the economic reform process. The fall in the domestic equity market was also due to the general decline in other merging markets. Higher oil prices, slowing down of the Chinese economy, concerns of rise in global interest rates has led to risk aversion among investors and the merging markets took most of the brunt with both debt and equity markets under performing other markets.

Overall, select stocks belonging to cement, pharmaceuticals and software out performed their peers. Most of the recommended funds have been able to out perform the market indices in the long term, on account of their investment strategy of using a bottom approach towards stock picking, aggressive sectoral rotation and also due to a good allocation towards mid-cap and small cap stocks. Though most of the funds had increased the exposure to cash, the sharp decline in the market had taken the funds by surprised. At lower levels, the funds invested as the stocks had turned very attractive considering the long-term fundamentals.

However, over 1-2 years investment horizon the market would do well as the valuation of most of stocks are looking attractive. The overall economic fundamentals are strong with various drivers like infrastructure spending, retail lending, positive demographics, out sourcing, retail lending, positive demographics, out sourcing opportunities and strong possibility of pick in capital expenditure as most of the companies are operating at close to their full capacity levels.

The funds continue to remain fully invested and most of the funds have a diversified portfolio inverted across various sectors. The funds continue to remain over weight on baking, automobiles, cement and capital goods while the funds are under weight on FMCG and pharmaceuticals and metal stocks. With the uncertainty over privatization, funds have generally reduced the exposure towards PSU and oil stocks.

It is hence appropriate to recommend investment in diversified equity funds for aggressive investors, with an investment horizon of 2-3 years. However, investors need to stick to their asset allocation and should re-balance the allocation across equities depending on the risk- return profile. Investors with moderate risk profile can consider balanced funds focusing more on equities.INDUSTRY PROFILE

The Indian mutual fund industry began with the formation of the Unit Trust of India (UTI) in 1964 by the government. UTI was formed as a non-profit organization governed under a special legislation, the Unit Trust of India Act, 1963. It had a monopoly up to 1987 and during this period, UTI launched a series of equity and debt schemes and established itself as a household name with assets under management of Rs. 4563 crore and unit holder accounts of slightly under 3 million by mid 1987. UTIs growth continued up to 1996 when the strong entry of the private sectors players saw its share of market reducing sharply although UTI continues to be a dominant force in the Indian financial services industry with assets of over Rs. 67,000 crore as of December 31st, 1999.

In 1987, the industry saw the entry of public sector mutual funds, i.e. funds promoted by public sector banks and financial institutions, such as SBI, Canara bank, LIC and IDBI. Predictably they were given the brand of their promoters such as SBI mutual funds, Canara bank mutual funds, LIC mutual funds, IDBI mutual fund. Other public sector mutual funds also entered the market but UTI continued to remain the dominant player with a share of 84% in 1991-92.

In 1993, private and foreign fund houses were allowed to operate in India. Today, about 36 fund houses-private, state and foreign owned-operate in the country, but the Indian mutual fund industrys pace of growth can hardly be described as frenetic.

On June 30, 2003 in Indian mutual funds commanded assets of Rs. 1,04,762 crore, 8% of the retail deposits of schedule commercial banks.

The industry has over 550 schemes in equity, debt, gilt and balanced funds, offered by 36 fund houses. They include prudential ICICI, HDFC, Franklin Templeton, Birla Sunlife mutual funds, Sundaram mutual funds, etc.

Prudential ICICI is the largest operating private sector in the mutual fund industry followed by HDFC mutual fund after it took over Zurich India mutual funds.

The share of private players in the mutual fund industry has gone up steadily. Prudential ICICI is posed to overtake UTI asset management in terms of assets under management (AUM). Prudential ICICI has assets of Rs. 12,637 crore as against UTI, AMCs Rs. 16,015 crore at the end of June, 2003. Other private funds are also catching up with ICICI mutual fund and Franklin Templeton at Rs. 11,961 and Rs. 11,152 crore respectively.

MUTUAL FUND COMPANY PROFILE

1. Franklin Templeton Investments

Franklin Templeton Investments is one of the largest financial services groups in the world based at San Mateo, California USA. The group has US$ 347.4 billion in assets under management globally (as of July 31, 2004) in mutual funds and other investment vehicles for individuals, institutions, pension plans, trusts, partnerships and other clients. Franklin Templeton offers over 240 investment products, available under the Franklin, Templeton and Mutual series brand names, serviced and supported by 6,400 employees in more than 28 countries. With over 50 years of experience in international investment management and offices in over 28 countries it services more than 10 million unit holders. Franklin Templeton has achieved the Dalbar Service Award in the US six times in the past ten years for superior customer service and back office support.

Franklin Templeton in India:

As part of Franklin Templetons thrust in expanding business in key international markets, Franklin Templeton has set up offices in 33 locations nationwide and manages Rs. 17698.78 crores in assets and an investor base of 9 lacks as of July 30, 2004.

2. Prudential ICICI Asset Management Company

Prudential ICICI Asset Management Company, (55%:45%) a joint venture between Prudential Plc, UKs leading insurance company and ICICI Bank Ltd, Indias premier financial institution.

The joint venture was formed with the key objective of providing the Indian investor mutual fund products to suit a variety of investment needs. The AMC has already launched a range of products to suit different risk and maturity profiles.

Prudential ICICI Asset Management Company Limited has a net worth of about Rs. 69.89 crore as of March 31, 2002. Both Prudential and ICICI Bank Limited have a strategic long term commitment to the rapidly expanding financial services sector in India. Assets under Management as on July 31, 2004 are Rs. 15,945.29 crore with Number of Funds Managed being 217.

3. Tata Asset Management Limited

Tata Asset Management Limited, one of Indias fastest growing fund management companies worth more than 5,500 crores (as on July 30, 2004) of assets, from about 0.3 million investors, under management.

A Proud Pedigree: Tata Asset Management Limited is part of the Tata group one of Indias largest and most respected industrial groups. The Tata group is one of Indias best known conglomerate in the private sector with a turnover of around US$ 11.2 billion (equivalent to 2.4% of Indias GDP). Long known for its adherence to business ethics, it is Indias most respected private group. With 210,433 employees across 93 companies, it is also Indias largest employer in private sector.

The group has always believed in returning wealth to the society to which it serves. Thus, nearly two-thirds of the equity of Tata Sons, the Groups promoter company, is held by philanthropic trust which have created a host of national institutions in natural sciences, medical care, energy and arts, and which gives substantial grants and endowments to deserving individuals and institutions in the areas of education, healthcare and social upliftment.

By combining ethical values with business acumen, globalization with national interests and core businesses with emerging ones, the Tata Group aims to be the largest and most global brand from India.

4. UTI Mutual Fund

UTI Mutual Fund has come into existence with effect from 1st February 2003. UTI Asset Management Company presently manages 42 NAV based domestic SEBI complaint schemes and 4 off shores fund having a corpus Rs. 15,243 crore from about 10 million investor accounts.

UTI Mutual Fund has a track record of managing a variety of schemes catering to the needs of every class of citizenry over a period of 39 years. It has a national wide network consisting of 54 branch offices, 3 UTI Financial Centers (UFCs) and representative offices in Dubai and London. With a view to reach the investors at district level, 18 satellite offices have also been opened in select towns and districts. It has 2400 committed employees and over 10,000 active agents and 266 chief representatives to sell and service its schemes.

It has reset transparency standards for the mutual fund industry. All the branches, UFCs and registrar offices are connected on a robust IT network to ensure cost-effective quick and efficient service. All has evolved UTI Mutual Fund to position as a dynamic, responsive, restructured, efficient, and transparent and SEBI compliant entity.

5. Birla Sun Life Financial Services

Birla Sun Life Financial Services offers a range of financial services for Resident Indians and Non Resident Indians. Brought together by two large, powerful business houses, the Aditya Birla Group and Sun Life Financial, it is their aim to offer diverse and top quality financial services to customers. The Mutual Fund and Insurance Companies provide wealth management and protection products to customers while the Distribution and Securities companies provide brokerage and trading services for investment in equities, debt securities, fixed deposits etc.

Birla Sun Life Financial Service follows a conservative long term approach to investment, which is based on identifying companies that have good credit-worthiness and are fundamentally strong. It places a lot of emphasis on quality of management and risk control. This is done through extensive analysis that influences factory visits and field research. It has one of the largest team of research analysts in the industry. The company is one of Indias leading private mutual funds with a large customer base. It has been recognized nationally with coveted awards.

6. HDFC Mutual Fund

Sponsors of HDFC Mutual Fund are HDFC and Standard Life Assurance Company.

HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation) training and consultancy. Of these activities. Housing finance remains the dominate activity. HDFC currently has a client base of over 5,00,000 borrowers, 13,00,000 depositors, 1,00,000 shareholders and 52,000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington) ,USAID, CDC, ADB, AND KIW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the eighth year in succession. HDFC Standard Life Insurance Company Limited, promoted by HDFC was the first life insurance company in the private sector to be granted a Certificate of Registration (on October 23, 2000) by the insurance Regulatory and Development Authority to transact life insurance businesses in India.

The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investments Limited became the dedicated investment management company of Standard Life Group and is owned 100% by The Standard Life Assurance Company. With global assets under management of approximately US$126 billion as at May 15, 2003, Standard Life Investments Limited is one of the worlds major investment companies and is responsible for investing money on behalf of five million rertail and institutional clients worldwide. With its headquarters in Edinbrugh, Standard Life Investments Limited has an extensive and developing global presence with operations in he United Kingdom, Ireland, Canada, USA and Hong Kong. In order to meet the different needs and risk profiles of its clients, Standard Life Investments Limited manages a diverse portfolio covering all of the major markets world-wide, which includes a range a of private and public equities, government and company bonds, property inverstments and various derivative instruments. The companys current holding in UK equities account for approximately 2% of the market capitalization of the London Stock Exchange. The Standard Life Assurance Company was therefore keen to re-enter the Indian market and in 1995, signed an agreement with HDFC to launch an insurance joint venture. HDFC and Standard Life Investment Limited are neither responsible nor liable for any loss resulting from the operation of the Scheme(s) beyond their contribution of an amount of Rs. 1 lakh each made by them towards the corpus of the Mutual Fund.

7. Reliance Capital Asset Management LTD.

(RCAM) a company registered under the Compaines Act, 1956 was appointed to act as the investment manager of Reliance Capital Mutual Fund, it is a wholly owned subsidiary of Reliance Capital Ltd.

The networth of the asset Magnagement Company as on March 31, 2004 is Rs. 16.84 crores. The Mutual Fund has lauched eleven Schemes till date, namely :Reliance Vision Fund (September 1995) Reliance Growth Fund (September 1995) Reliance Income Fund (December 1997), Reliance Liquid Fund (march 1998) and Reliance Medium Term Fund (August 2000), Reliance Short Term Fund ( December 2002), Reliance Gilt Securiites Fund (july 2003)., Reliance monthly income plan (December 2003) reliance dieversified power sector fund (March 2004) and Reliance paharma fund (april 2004).

Reliance Capital Asset Management Ltd, Has been registered as a portfolio manager dated July, 25 2000 and as foreign i9nstititioal investor effe3cive 1st august 2003. RCAM has not commenced these activates. However, as and when the same are undertaken, it will ensure that the key personnel of the AMC, the systems, back office, bank and securities accounts are segregated activity wise and there exits systems to prohibit access to inside information of various activities. As per SEBI Regulations, it will further ensure that AMC meets the capital adequacy requirements, if any separately for each such activity and obtain separate approval. If necessary under the relevant regulations.

ICICI COMPANY PROFILEICICI BANK

ICICI Bank is Indias second largest bank with total assets about a trillion and a network of about 540 branches and offices and over 1600 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, asset management and information technology. ICICI Banks equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depository Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Ltd., an Indian financial institution, and was it wholly owned subsidiary. ICICIs 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 in NYSE in fiscal 200, ICICI Banks acquisition of Bank of Madura Limited in 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 Govt. of India and representatives of the Indian industry. The principal objective was to create a developmental financial institution for providing medium term and long term project financing to Indian businesses. In the 1990s ICICI transformed its business from developmental 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 became the first Indian company and the first bank or financial institution from non Japan Asia to be listed on the NYSE.

After consideration of various aspects corporate structuring themselves in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed a view that the merger of the ICICI with optimal legal structure for the ICICI groups universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entitys 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 ICICIs strong corporate relationships built up over a 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 if its wholly owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002 and by the High Court of Judicature at Bombay and the Reserve Bank of India in April 2002, consequent to the merger, the ICICI Groups financing and banking operations, both wholesale and retail have been integrated in a single entity.

ICICI Bank pioneered internet banking in India and today has over one million of its retail customers on the net. ICICI Bank has been following a multi channel multi product retail strategy. It functions as a universal bank, through itself and its associate companies in the areas of corporate finance, commercial banking, personal banking, investment banking, asset management, investor services, broking and insurance.

ICICI Bank is the only Indian financial services company to be rated above the sovereign rating by Moodys reflecting the underlying positive sentiment about the Banks fundamentals in the international community. It is also the first Indian company and the second bank from Asia to list on the New York Stock Exchange. It instituted global benchmarks in India through its US GAAP audit processes, SEC companies practice and corporate governance practices.

ICICI Bank (NYSE:IBN) is the largest private sector bank in the country, providing a broad spectrum of financial services to individuals and companies. ICICI Bank today services a growing customer base of more than 5 million customer accounts and 5 million bondholders accounts through a multi-channel access network.

Except for the historical information contained herein, statements in this release, which contain words or phrases such as will, would etc. and similar expressions or variations of such expression may constitute forward looking statements. These forward looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward looking statements.

These risks and uncertainties are not limited to our ability to obtain statutory and regulatory approvals and to successfully implement our strategy, future levels of non performing loans, our growth and expansion in business, the adequacy of our allowance for credit losses, technological implementation and changes, the actual growth in demand for banking products and services, investment income, cash flow projections, our exposure to market risks as well as other risks detailed in the reports filed by us with the United States Securities and Exchange Commission.

ICICI Bank undertakes no obligation to update forward looking statements to reflect events or circumstances after the date thereof.

ICICI Bank is looking for improvements marketing efforts and has invested on the customer relationships and increase the value of each customer through cross-selling. The new system may ultimately help the bank to significantly increase fee-based income growth.

INTERNATIONAL BANKING GROUP (IBG)

As global banks expand their presence in India and target local customers it becomes important for ICICI Bank to offer a complete value proposition to its customer base that is globally competitive. IBG has the following business teams :

a. Country Teams

Based on a detailed analysis of business potential in various geographies, ICICI Bank has identified US, Canada, UK, Singapore, Gulf Cooperation Countries (GCC) and China as key target markets in the first phase of expansion for retail and corporate banking.

b. NRI Services

This group focuses on increasing the NRI business for ICICI Bank through new product developments and innovation, customer acquisition strategy, marketing and promotions and ensuring world-class service delivery standards.

ICICI BANK OVERVIEW

Setup by the erstwhile ICICI Limited and SCICI Limited in the year 1994.

Largest private sector bank in India in terms of assets.

Second Indian company to get listed on NYSE (the erstwhile ICICI Ltd. was the first company to be listed on NYSE).

Asset base of about Rs. 1,00,000 crore.

Govt. holding (through LIC, GIC, UTI etc.) 20%.

Foreign holding : 63%.

3/5 foreign stake denotes highly competitive management and robust growth.

30% of the liability to be maintained in the form of SLR & CRR additional safety cushion.

Stringent RBI regulations for better control.

The major parameter that distinguishes these private banks from the nationalized banks in the industry is the level and the quality of services that is offered to the customer. The focus in these banks is the customer satisfaction understanding the needs, and consequently delighting the customer with various benefits and a wide range of products and services which suit the needs of the individual or the corporate. The popularity of these banks can be gauged by the fact that in the short span of time, these banks have gained considerable customer confidence and consequently shown impressive growth rates. Today the private sector banks corner almost 4% share of the total share of deposits. With efficiency being the major focus, these banks have leveraged on their strengths and competencies viz. management operational efficiency and flexibility, superior product positioning and higher employee productivity skills.

ORGANIZATIONAL STRUCTURE

Research design

Title of the report:

Investor perception and performance evaluation of mutual funds.

Statement of the problem:

To determine the perception towards investing in mutual funds and to review the performance of various mutual fund schemes across specific study periods.

Research objectives:

The specific objectives with regard to investor perception survey are:

To identify the objective of the investor for investing in a mutual fund.

To identify the investment patterns of investors.

To find out the risk tolerance factors of the investors.

To study consumer perception about time horizon and tax sensitivity aspect of investing in mutual funds.

Questions that have been addressed include:

1. The investors objective behind investing in a mutual fund.

2. The risk tolerance factor for investing in a mutual fund.

3. The underlying tax factor for investing in a mutual fund.

4. The time horizon preferred by the investors for investing in a mutual fund.

Methodology:

Objective1: To determine investor perception towards investing in mutual funds.

In order to determine investor perception towards investing in mutual funds, a survey was conducted for a sample of 150 respondents. The method of sampling design adopted was simple random sampling. However to ensure that the sample members were selected from visitors at various leading banks and mutual fund offices. The specific individual were selected at random.

The method of interviewing the respondents was personal interview. The research instrument was a questionnaire. This was done to ensure comprehensiveness, standardization and ease of the interviews.

The sample size of the 150 was selected to provide adequate coverage to both groups namely current and potential investors. The analysis was done using percentages, graphs and pie charts.Objective 2: to review the performance of various mutual fund schemes across specific study periods.

When it comes to comparing the performance of various mutual fund schemes, such a comparisons would be meaningful only if the specific schemes to be compared were of a similar nature to one another. We hence grouped the various mutual fund schemes into six distinct categories, viz.

1. Equity funds.

2. Income funds.

3. Balanced funds.

4. Monthly income plans.

5. ELSS tax saving schemes.

6. Index funds.

The scheme of the various mutual fund players such as Reliance, HDFC, Franklin Templeton, and Prudential ICICI etc were then compared under each category.

The returns of each scheme were determined for the specific study periods. The returns meant total returns, which included dividends declared and changes in the Net Asset Value (NAV) of each unit of the fund under consideration.

The returns were determined for the following study periods,

1. Last 3 months.

2. Last 6 months.

3. Last 1 year

4. Last 3 years (where possible).

The data with respect time returns of the individual schemes were collected from the websites of the respective mutual fund companies. The returns have been calculated till 31st May 2004.

Since the schemes that fall under each category have similar risk dispositions (due to similarity in their debt equity asset allocations and class of securities selected), we can straight away judge their performance on the basis of the returns of that scheme relative to the returns of the other schemes that fall under the same category. No adjustments are required in respect of the risk premiums of the various schemes.

In a scenario of positive returns, the scheme that earns the highest returns is judged as the best performer. In contrast under a scenario of all negative returns, the scheme that earns the least negative returns id judged as the best performer.

INVESTOR PERCEPTION ANALYSIS

1. Do you hold an investment in any kind of mutual fund scheme today?

ParticularsNo. of RespondentsPercentage

Current4933

Potential10167

Total150100

current investors are individuals who are presently investing in mutual fund.

Potential investors are investors who intend to invest in mutual funds sometime in he future, but currently do not hold any mutual fund investment.

In this survey, 33% of the respondents were current investors and 67% were potential investors. This mix was intentional as the objective of this study is to determine investor perceptions towards investing in mutual fund and hence the potential investors should have a higher weight age in the sample size when compared to current investors. The ratio of potential to current investors in thus 2:1.

2. Please tick your sex

ParticularsNo of RespondentsPercentage

Male14597

Female53

Total150100

The sample group was heavily weighted towards thee male sex. This because in a conservative country like India even thought the lady of the house may be working., the investment decisions are considered as male prerogative. It is the man of the house who generally takes investment decisions for the entire family. Therefore around 97% of the respondents were males and the rest 3% were females.

3. Please mark your age segment

Age CategoryNo. of RespondentsPercentage

20 - 296745

30 - 394329

40 - 492114

50 - 59149

Above 6053

Total150100

The age group of the respondents is by and large spread across all the age segments. However, around 70% of the respondents come under the combined age groups of 20 to 39 years.

Our interaction with mutual fund sales executives has revealed that individuals falling under these age profiles are typically the most lucrative segment for mutual fund investments. This is more due to their willingness to try out relatively new forms of investments like mutual fund which are not that readily acceptable by older people.

Investors in higher age groups typically prefer old tried and tested investment avenues like bank deposits , real estate etc.

4. Please tick the correct category for your education qualification


Under Graduate1812

Graduate5839

Post Graduate6140

Others139

Total150100

The surveyed group was well educated with 39% being graduates and 40% being postgraduates. Around 12% o the samples collected were under graduates.

This mix conforms to the overall composition of the high salary earning burgeoning middle class, which is (when it comes to numbers), the largest market segment or financial products like mutual fund.

5. Please tell us about your annual family income

ParticularsNo of RespondantsPercentage

Less than 1,00,0002114

1,00,000 - 2,00,0005738

2,00,000 - 3,00,0004228

3,00,000 - 5,00,0002315

Above 5,00,00075

Total150100

The above table shows the breakup of the income profile of the respondents.

Majority of the respondents (66%) fall under the categories of annual income 1.0-2.0

Lacks (38%) and 2.0 to 3.0 lacks (28%). A meager of only (5%) of the respondents fall under the annual income of above 5lcks.Another (15%) of the respondents fall between the annual incomes of 3-5 lacks.

6. On an average you save in a month


Upto 20004329

2001 50006040

5001 - 10,0003322

10,001 - 20,000117

Above 20,00132

Total150100

Around 40% of the respondents reported to have a saving in the range of Rs. 2,000-5,000 per month. That with a monthly saving of above Rs.20, 000 was abysmally small at 2%. This is in conformity with the average earning levels of developing economies like India.

7. Please tell us the main reason behind most of the investment decision made by you till date. Tick as many as applicable.


Safety of Investment6719

Generate Regular Income6920

Avail Tax benefits5516

Capital Gains7321

Have a secured future8023

Others31

Total347100

This section of the survey was aimed at understanding the main reasons behind the investment decisions made by the individual. The question permitted multiple responses by the same individual.

Amongst all the primary objectives, the desire for a secure future (23%)was the most frequently selected category followed closely by capital gains (21%) safety of investments and desire for regular income were other important investment determinants. The desire for tax benefits was the least influencing factor in investment decision-making.

8. Apart from the reason stated above which of the following would influence your investment decision.


Future Outlook3911

Brand Value7420

Risk factor involved8523

Return on Investment8624

Tax Incentives3710

Current / Political scenario4512

Total366100

The risk factors involved and the returns on the investment have major secondary influence on the investment decision. They are followed closely by the brand value of the issuer. The current economic / political scenario, future outlook and the tax incentives have a limited influence on investors.

If the above factors are to be grouped together on the basis of similar characteristics; risk, return and brand value of the issuer can be classified as internal factors whereas current scenario, future outlook and tax incentives are factors external to the security.

We can hence conclude that it is the factors that are inherent in the security itself which have a greater influence on the investment decision rather than factors that are external to the specific security.

9. Which of the following investment avenues have you invested in or intend to do so in the future?ParticularsNo of RespondantsPercentage

Mutual Fund6316

Banking Products8923

Insurance Products7119

Corporate Debentures267

Govt. Securities308

Real Estate154

Gold185

Equity Shares7018

Total382100

Amongst the various investments avenues, baking products are the most common with 23% of the respondents having invested or intending to do so in them. Equity shares and insurance products are 18% and 19% respectively. A mutual fund comes next at 16%. Not many of the respondents have invested / likely to do so in the case of G-Sec, corporate debentures. Real estates and gold stand much lower in acceptance ratings.

It must be noted here that 67% of the respondents are potential investors who have not made any mutual fund investment till date (see question 1). We have now seen that only 16% of the respondents have chosen mutual fund as an avenue for investment made / do so in the future. Hence it can be said that there exists significant scope for increase in the awareness and acceptance of mutual funds amongst the investor community.

10. When you are investing in a mutual fund or intend to do so which of the following would you influence your investment decision.ParticularsNo of RespondantsPercentage

Economic Scenario3218

Fund performance in the past4927

Mutual Fund Company Image5732

Fund Manager Image179

Tax Incentives2514

Total180100

The company image is by far the foremost factor which influences the investment decision when evaluating investment in mutual fund with 32% of the respondents selecting it. The fund performance is the second most determining variable at 27%. Economic scenario tax incentives have limited influence.

Fund manager image has the least influence thereby suggesting that the mutual fund industry, at least as of date does not have any individuals like Marc Phobius oh quantum funds who enjoy a large than life image such that they are able to attract investors on the basis of their name alone.

Since company image plays such a determining role in mutual fund investment decisions, it is available for all the mutual fund companies to invest heavily in brand building. This exercise along with highlighting of past performance of same scheme / other schemes by the same company will go to a large extent in growth of the industry in general and the fund in particular.

11. How important is the tax incentive factor to you when you are making an investment in mutual fund.ParticularsNo of RespondentsPercentage

Very Important5436

Somewhat Important5939

Neutral2718

Somewhat unimportant43

Not at all important64

Total150100

In this question we seek to determine the influence that the tax incentives factor has when evaluating mutual fund decision in particular. In the earlier questions (q7 and q8) we have evaluated the impact of tax incentives on investments in general.

The table reveals that 75% of the respondents consider tax incentives as very important and some what important when making mutual fund investments. The percentages o respondents who dont asscociate any importance to tax incentives in mutual fund investments are very low at 7%.

This findings reveals that the mutual industry is still to growth out of the image of being merely a haven for tax protection. The life insurance players in India are also facing the same problem with bulk of the life insurance polices being sold only for the purposse of tax rebates u/s 88 and not has a means of saving and risk protection. The mutual fund industry needs to grow out this image because if the future tax incentives on mutual fund were to be removed then this industry would get very adversely hit. The mutual fund companies need to promote the image of mutual fund as an attractive returns avenue with low risks association. 12. How do you rate your understanding about the concept and working of mutual fund?ParticularsNo of RespondantsPercentage

Very Good117

Good4832

Average6745

Poor1812

Very Poor64

Total150100

In this question we attempt to understand from the respondends their knowledge about mutual funds. The highest frequency is for average category (45%) with only 32% of the respondends rating their knowledge as good. Only 7% rate themselves as were good.

In light of the above it is adviseable that the mutual fund companies should undertake campaigns that are designed to increase the understanding of the concept and working of mutual fund along with their unique advantages. This ids important because until and unless an individuals knows properly what the enire concept of mutual fund is all about, he will not at all be convieniced to invests his hard earn money in them. This would probably also is a resons for the low popularity of mutual fund in India especially when compare to other countries like USA, UK etc. 13. in your opinion which of the following advertising media would have the highest influence on the mutual fund investment decision of a


Print Media9865

Electronic Media2416

Pamphlets]1812

Hoardings & Billboards107

Total150100

65% of the respondents fell that the print media would have the highest influence on their mutual fund investment decision. The influence of electronic media and pamphlets is limited at 16% and 12% respectively. Hoarding and billboards have negligible influence at only 7%.

In light of the above finding, we can safely conclude that the communication mix of a mutual fund company should be heavily weighted in favor of the print media. What further needs to be ascertained is that which category of the print media such as newspapers, magazines etc have a higher impact and also specific media vehicle in these categories.

14. When making and investment in mutual fund you would be influenced by the advice of: (tick the option with highest influenced) ParticularsNo of RespondentsPercentage

Fund Manager2718

Your Friends & Relatives3332

Your Financial Advisor / CA5436

None but depend on your personal analysis3624

Total150100

Amongst the personal sources that have a bearing on the mutual fund investment decision of the respondents, the financial advisor/ CA of the individual as the highest influence (36%). Friends and relatives also play a determining role. One quarter of the respondents do not get influenced by the advice of others but instead rely upon their own analysis. The low popularity of fund managers at 18% suggests that majority of the investing community view their advise as partisan to the company which they work for.

15. Please tick amongst those companies listed below for whose mutual fund schemes you are aware of


ICICI8020

Franklin Templeton9224

HDFC8522

UTI7018

Reliance Capital308

HSBC226

Others112

Total390100

With regards to the awareness of mutual fund companies 92% of the respondents were aware of Franklin Templeton. ICICI and HDFC came close at 80% and 85% respectively. UTI despite being the oldest mutual fund in the country is lagging behind the new private mutual fund companies with an awareness score of 70%. Another surprising discovery is that RELIANCE CAPITAL ranks low at 13% even though it is quite old and their can be a possibility of lack of advertising or lack of awareness among the investors regarding RELIANE CAPITAL.

Although Franklin Templeton as an institution is new entrants in the Indian financial sector (December 1993) when compared to other establish players the fact that it has achieved such high awareness is significant. The possible reason could be its strategy of selling its schemes through other private sector banks like ICICI Bank, HDFC Bank, UTI Bank and reliance capital which has paid dividends and enable it to overcome its constrains of not having its own infra structure in terms of sales offices etc. 16 An established fact in any investment exercise is that greater returns come with greater risk. In light of this truism please identify your risk return disposition


ICICI8020


HDFC8522

a. You are willing to undertake risk

a. Your return expectations are:


5% - 10%3221

11% - 19%9664

20% - 29%128

Above 30%64

Can't say43

Total150100

By means of this question we are attempting to discern the risk return profile of the respondents. Our findings clearly reveal that the bulk of the respondents fall under the moderate returns category with 52% willing to bear moderate risk and 64% expecting returns in the band of 11% - 19%.

The limitation of such questions is that the findings invariably tend to confirm to a typical bell shaped curve. This is because it is generally seen that majority of the respondents invariably choose to clarify themselves under the middle score category and very few rate themselves as belonging to any one of the extreme tail positions.

17.When comparing risk return characteristics of mutual fund Vs. direct investment in stock markets, in your opinion:


Same Relationship4127

Mutual Fund better8154

Direct Investment better2819

Total150100

The main USP i.e. unique selling proposition of the entire concept of mutual funds is that their expert investment managers are better equipped than individual investors in making investment decisions accurately. These results in lower risk exposure for the same return when compared to equivalent investment avenues like direct investment in stocks.

The belief seems to be well accepted by the respondents as a clear majority (54%) believes that they provide a means to reduce risk for the same return when compared to direct investment in stock markets. This is vital because unless and until investors do not believe in the superiority of the mutual funds when compared to direct investment on their own, they will obviously not invest in them.

However, there exists considerable room for the expansion as 27% believe that they offer same risk return relationship and 19% believe that direct investment is more beneficial. The latter could be those who have adequate expertise when it comes to investments in stocks.

18.What is the time horizon for which you generally keep your investment in case of mutual fund and stocks?ParticularsNo of RespondantsPercentage

Upto a Year4228

Between 1 - 3 Years8053

Between 3 - 5 Years2215

Greater than 5 Years64

Total150100

The established belief is that any investment in equities requires a time horizon of over a year to yield substantial returns.

Since 53% of the respondents have a time horizon of 1-3 years, mutual fund companies are better equipped to convince such investors to participate in mutual fund schemes that have an equity exposure will depend on the risk profile of the investor.

There definitely exists good potential for short term mutual funds like money market mutual funds etc. this is due to the fact that 28% of the respondents keep their investments within one year and for such investors equity mutual fund may not be advisable.

The market for long term oriented growth funds is limited as only 15% of respondents have a time horizon of 3-5 years and a mere 4% of over 5 years.

19.When it comes to your existing investments in mutual fund, you monitor the performance of the mutual fund in terms of NAV, Dividend declaration etc on a :


Daily1812

Weekly3926

Fortnightly3322

Monthly4731

No specific review period139

Total150100

By means of this question we attempt to ascertain how closely do investors monitor the performance of their mutual fund, which in turn reflects their zeal for investment management.

The highest frequency is for the monthly reviews (@ 31%) followed closely by weekly (@ 26%) and fortnightly (@22%).

Mutual fund companies need to provide timely feedback to their investors in a manner, which is expected by them. This is essential to enhance the satisfaction the investor feels with respect to his investment.

It is hence suggested that mutual fund companies should send weekly reviews by email to their investors. The cost of email are low and in this manner 26% (weekly) + 22% (fortnightly) = 48% of the investors are bound to be satisfied.

The preference of investors could be obtained at time of investment monthly reviews by post could be sent to those investors who got for them and do not wish to subscribe to the weekly e-review service.

20. There are various micro and macro factor that affect the performance of an investment. In your opinion, mutual fund performance is influenced the most by


Stock Market Movements6342

Interest rate movements2919

Fund Manager3624

Regulations in Mutual Fund2215

Total150100

In question number 10. We had seen that external factors had greater influence vis a vis internal factors on mutual fund investment decisions. The same also holds true when it comes to investors belief about mutual fund performance.

Only 24% believe that a highly crucial internal factor namely the fund manager has the highest influence on fund performance. This finding can be attributed to the low emphasis that mutual fund companies invariably place on the expertise personal profiles of their fund managers.

61% of respondents believe that fund performance is influenced by stock market movements (42%) and interest rate movements (19%).

It is advisable for the mutual fund companies to make attempts to change this perception. A possible way could be to highlight the occasions when the mutual fund has out performed the stock markets. This in turn will convince potential investors about the superiority of mutual funds.

21. Please identify the source through which you receive dividend information about your mutual fund investments (Tick any one)

Company Advertisement4027

Company Brochures4429

Company Websites2416

Investment Advisor2819

Friends and colleagues149

Total150100

There are two types of returns on mutual fund investments a continuing return during the holding period of the investment in form of dividends and a terminal return in form of capital gains on sale of the units. Since return in the primary variable influencing investor satisfaction, mutual fund companies need to provide accurate information about dividends in a timely and convenient manner.

A huge 72% of the respondents claim to receive dividend information about their mutual fund investment from company sources such as advertisements (27%), brochures (29%) and websites (16%).

This finding clearly shows that mutual fund companies should pay attention to their communications with investors, which will go a long way to enhance investors satisfaction.

Investment advisors also play a significant role (19%). Mutual fund companies should hence provide them timely feedback about fund performance, which in turn will also influence their recommendations to potential investors.

22.Please tick the source(s) through which you receive information about new mutual fund scheme and products, tick as many as applicable


Company Advertisement1812

Company Brochures3322

Company Websites2416

Investment Advisor2718

Friends and colleagues139

Invst. Newspapers & Magazines3523

Total150100

Through this question we will attempt to identify the sources through which investors receive information about new mutual fund schemes / products. The findings will be particularly useful in identify the most effective channel (s) to reach out to potential investors and thereby enhance the overall effectiveness of the mutual fund companies marketing mix.

As in the case of channels for receiving dividend information, the biggest source for information of new products remains companys own avenue like advertisements, brochure and websites.

In addition, investment newspapers and magazines also play a considerable role with 23% of respondents having selected this media. Hence mutual fund companies need to have good relations with such publications in order to get favorable coverage of their products.23.Which of the following companies would you select as the best mutual fund?


ICICI3020


HDFC2718

UTI2215

Reliance Capital2114

HSBC85

Others00

Total150100

Amongst all the mutual fund companies, it is the Franklin Templeton (@ 28%), which leads in the ranking of the best mutual fund. ICICI and HDFC follow with approval ratings of 20% and 18% respectively.

UTI, the one time mutual fund behemoth has a low approval of 15% thereby indicating those investors are still to forget the US-64 debacle. Reliance capital is just next to UTI having a close competition of 14% HSBC ranks atleast at 5%.

Although Franklin Templeton leads ICICI by 8%, the gap between the next three ranks is very small in the range of 1% - 3%. We can hence say that there exist on the whole close competition amongst the mutual fund companies.

Further, by and large there does not appear to be much difference in the respondents perception with respect to dividend information, ease in making and withdrawing investment amongst the various players.

24. In the future, you estimate that your investments in mutual fund will


Increased by upto 10%4027

Increased by 11% - 20%2919

Increased over 20%1510

No change2114

Decreased by upto 10%2718

Decreased by 11% - 20%149

Decreased by over 20%43

Total150100

All in the majority of the respondents (56%) are bullish that their investment in the mutual fund will increase in the future. More than one quarter of the total respondents estimate an increase of upto 10% from current investment positions. We can hence say that the prospects for the mutual fund industry appear bright.

However, the mutual fund companies should also make efforts to understand why a total of 30% of respondents have a negative outlook towards future mutual fund investments. Remedial measures in terms of systems, process changes or new products to suit the need of investors can be developed.

NAME OF SCHEMEFUND NAMENAV Rs3 MONTHS6 MONTHSRETURN FOR 1YEAR

BSE SENSEX4759.62-16.02%-5.65%49.64%

Aggressive Funds

Growth FundsReliance Capital68.95-8.01%5.04%100.43%

Prima FundFranklin Inida68.17-5.05%4.93%82.50%

Opportunities FundDSP ML17.62-11.28%3.65%82.56%

Top 200 FundHDFC34.962-11.55%1.53%66.66%

Power FundPrudential ICICI24.57-16.06%-5.93%59.76%

Conservative Fund

Equity FundHDFC45.315-11.15%-1.46%70.18%

Kotak FundKotak Mahindra22.244-10.65%10.49%77.28%

growth FundsSundaram23.5475-10.05%2.49%65.60%

Equity FundDSP ML17.96-13.83%-2.34%72.77%

EQUITY FUNDS

Recommended funds based on long term trends.

Equity Funds

All the equity funds across the board (aggressive and conservative) have returned negative returns for the last three months. This is expected as the Sensex has declined by 16% for the same period.

In such a negative returns scenario, the fund is expected to out perform the sensex by posting losses lower than that of the sensex. The fund which has lowest losses is judged the best fund. We can hence say that the prima fund by Franklin Templeton has performed best in last three months.

When considering the six month returns, although the sensex has declined by close to 6% only three out of the nine funds have given negative returns. This clearly shows the superiority of the mutual fund in reducing risk and their ability to out perform the market. Kotak 30 by Kotak Mahindra has performed impressively by giving a return of 10.49%.

Reliance capitals growth fund has done best for the last one year by doubling the value of its investments in this period.

ANNULAZIED

RETURNS ANNULAZIED

RETURNS ANNULAZIED RETURNS

FUND NAMENAV RsFor 3 monthsFor 6 monthsFor 1 year

10.4%21.2%-Nil-

Standard Chartered15.7003-0.6%10.1%32.1%

Reliance Capital20.578811.4%33.5%78.8%

Templeton India23.4428-1.4%9.3%29.9%

Kotak Mahindra17.24581.1%17.5%34.4%

Birla Sun Lie28.105510.4%26.3%27.53%

HDFC15.74165.1%18.6%42.9%

Principal15.54463.1%15.4%43.89%

Templeton India23.78257.1%28.4%70.7%

Sundaram21.48418.5%12.2%22.3%

Income Funds

Similarities are observed with regards to the returns of all the income funds viz.

a) They have all declared positive returns across all study periods (3 months, 6 months, 1 year perception).

b) The returns since inception (latest of which is October 2000) have been in the range of 12% - 13% and have thereafter declined considerably to 4%-5% levels. This has occurred due to the overall decline in interest rates which has affected the returns adversely.

c) In the short term (3 months period) all the income funds have out performed the equity funds (as equity funds gave negative returns in this period).

d) The returns of equity funds and income funds are very close for the six month period.

e) In the longer term (one year and above) the equity funds have performed significantly better than the income funds. This supports the wide spread belief that an investor with the long term investment horizon should weigh his portfolio in favor of equity whereas an investor who is constrained by a shorter investment period should invest in debt securities.

The above table clearly reveals that the income fund retail by reliance capital has outperformed all other competing funds by giving the highest returns for the 3 month, 6 months and 1 year periods. Further the spread (the difference between the return of reliance fund versus the second ranking fund) is large. The difference is 71 basis points for 3 months, 81 basis points for 6 month and 49 basis points for 1 year.

Thus, not only has income fund retail by reliance capital given the highest returns for all study periods, the extent to which it has performed better than other competing funds is also very large thereby signifying superior fund management.BALANCED FUND

NAME OF SCHEMEFUND NAMENAV Rs3 MONTHS6 MONTHSRETURN FOR 1 YEAR

Crisil balanced fund index-10.09%-1%33.18%

Aggressive funds

Prudence fundHDFC42.79-5.08%2%42.9%

Balanced fundFT India15.23-7.25%6.28%70.7%

Balanced fundKotak Mahindra12.53-5.00%2.50%44.2%

Balanced fundPrudential ICICI14.57-8.19%-1%58.9%

Conservative fund

Balanced fundDSP ML17.06-5.22%6.63%32.2%

Balanced fundTATA20.41-10%-2.82%43.2%

Recommended funds based on long term trends

Balanced Funds

For the last 3 months we have seen that the average return for equity funds is negative 10.89%. the average return of income funds for the same period is a positive 4.85%.

The average return of balanced funds for the last 3 months is -6.79%. If we are to assume that the balanced funds equally represents the characteristics of both equity fund and income funds, the average return of balanced funds for the last 3 months should be -3.02%.

We can hence say that the performance of the balanced funds is not really a balanced performance at all. Their returns appear to be influenced more by the returns on equity rather than debt.

As far as best balanced fund is concerned. Franklin Templeton Indias balanced fund has given the highest returns for the 6 month and 1 year period. However, when the 3 month and the 3 year periods are considered, Kotak Mahindras balanced funds and HDFC Prudence Fund is are respectively the best performers.

MONTHLY INCOME PLANAnnualized Return for Annualized Return forAnnualized Return for

Name of SchemesFund NameNAV Rs3 Minths6 Months1 Year

Aggressive Fund

Saving Plus undDSP ML11.6166-1.92%5.34%13.26%

FT India MIP Plan-BFT India15.6729-2018%6.75%15.36%

Monthly Income PlanBirla Sunlife15.2621-1.94%4.64%11.09%

Conservative Funds

Monthly

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