My new mf (2)[1]

CHAPTER-1

INTRODUCTION

1.1 Object of the Project

1.2 Introduction of the topic

1.3 Objective of study

1.4 Scope of the study

1.5 Rationale/ contribution of the study

1.6 Limitation of the study

1.1 Object of the Project

indira, 08/11/14,

Summer internship program [SIP] is integral part of the MMS program.

It gives an opportunity to test our interest and aptitudes in a particular career before

permanent commitments are made.

Student can develop skills in the application of theory to practical work situation.

Internship will provide students the opportunity to develop attitudes conducive to

effective interpersonal relationship.

Main objective of the project is we come to know the real life of the organisational

problems.

Internship will increase a student’s sense of responsibility.

Internship student will be prepared to enter into full-time employment in their area of

specialization upon graduation.

Internship students will acquire good work habits.

There is ample time to get into a regular work routine and gain valuable knowledge and

skills.

1.2 Introduction of the topic

Mutual Fund is a financial intermediary, just like a bank. However, the claim an investor obtains

while making investment thorough a mutual fund is quite different from the one he gets by

depositing money in a bank. Mutual Funds are pools of money that are managed by an

investment company. They provide the investor a variety of goals, depending on the fund and its

investment. They seek to generate income on a regular basis. Others seek to preserve an

investor’s money.According to Shakespeare ‘out of this nettle, danger, we pluck this flower,

safety'. The economic development model adopted by India in the post-independence era has

been characterized by mixed economy with the public sector playing a dominating role and the

activities in private industrial sector control measures emaciated from time to time. The

industrial policy resolution was introduced by the government in the 1948, immediately after the

independence.

In few years Mutual Fund has emerged as a tool for ensuring one‘s financial wellbeing.

Mutual Funds have not only contributed to the India growth story but have also helped families

tap into the success of Indian Industry. As information and awareness is rising more and more

people are enjoying the benefits of investing in mutual funds. The main reason the number of

retail mutual fund investors remains small is that nine in ten people with incomes in India do not

know that mutual funds exist. But once people are aware of mutual fund investment

opportunities, the number who decide to invest in mutual funds increases to as many as one in

five people. With emphasis on increase in domestic savings and improvement in deployment of

investment through markets, the need and scope for mutual fund operation has increased

tremendously.

The spread of the banking system has been a major factor in promoting financial

intermediation in the economy and in the growth of financial savings. With progressive

liberalization of economic policies, there has been a rapid growth of capital market, money

market and financial services industry including merchant banking, leasing and venture capital.

Thus in the financial sector, the mutual fund industry has also come to occupy an important

place.

Tanaya, 08/11/14,

Introduction should have following things. Please include the things which are not presentProvides a brief yet lively introduction to the subject/problem, its context, important theoretical notions, major methodological approach, the relevance and expected results. Someone who has read your introduction should know what this research is all about and how you intend to approach it in terms of theory and methodology.

1.3 Objectives of the Study

To give a brief idea about the benefits available from Mutual Fund investment

To give an idea of the types of schemes available.

Anticipation of future for Mutual funds in the economy.

To discuss about the market trends of Mutual Fund investment.

To Observe the fund management process of mutual funds

To Explore the recent developments in the mutual funds in India

To give an idea about the regulations of mutual funds

To know mutual fund investors behavior regarding risk factor involved in mutual fund

To find out the Preferences of the investors for Asset Management Company.

To find out the most preferred channel.

1.4 Scope of the Study

The study titled “MUTUAL FUND AS AN INCREASING WEALTH” is descriptive work of

research involving both qualitative and quantitative methods of research. The research aims to

study and describe the investment patterns of sample relating mutual funds in India. The universe

of my study was business professional and salaried persons. The sampling techniques involved

were purposive and convenience sampling and for which 50 samples were finalized. The 50

samples were 36 were salaried people and another 14 were businessmen. The methods for data

collection included both primary as well as secondary data methods. Primary data collection was

administered through face to face interviews and questionnaires were mailed. Secondary data

was collected from various official publications, internet websites, research papers/ literature

available on the topic of study.

The study mainly aimed to focus the describing/ examining the investment patterns/ choices of

samples selected for the study for the time period of two months spanning from 01/05/2014 to

30/06/2014.The study is beneficial in the sense that it will add value to the existing literatures

available on the topic and also help in policy decision making by the concerned AMC’s and

Government as well. The study covers all the information related to the Equity fund, Debt fund

and how to manage themutual funds Portfolio.

1.5 Rationale/ contribution of the study

Among various financial products, mutual fund ensures the minimum risks and maximum return

to the investors, growth and developments of various mutual funds products in the Indian capital

market has proved to be one of the most catalytic instruments in generating momentous

investment growth in the capital market.This study, basically, deals is about investment patterns

of the investors and how mutual funds is increasing wealth also it deals with different schemes of

mutual funds that are offered for investment by the various fund houses in India, This study

mainly focused on the performance of selected mutual fund schemes in terms of risk- return

relationship and comparing different schemes of mutual funds with the help of various statistical

parameters such as (alpha, beta, standard deviation, Sharpe ratio etc;)

1.6 Limitation of the study

The project aimed to study about various changes that have been done in today’s 21’s

century also got to know various investment patterns of investors and it was moderately

successful in doing so, and it was a learning experience for me but, I also faced certain

difficulties in conducting the project by way of non-response from samples, non-

availability of substantial data, non-reliable websites, time constraints. Duration of project

was not enough to make our conclusion on such a vast subject. Time constraint has become

a major limitation.The performance of mutual funds schemes are subject to market risk and

hence returns given in past may not substantiate for the future.

CHAPTER 2

PROFILE OF THE ORGANISATION

2.1 History & general information

2.2 Company profile

2.3 Competitors Analysis

2.1 History & general information

History

The Pentad Group emerged as the result of the merging of two financial planning practices,

namely Quintain Advisory Services and Bailey Livermore Financial Services, in July 2001.

Roger Bailey and Chris Heyworth began talking about joining forces many years ago when they

found they had a common approach to their profession and shared high ethical standards and

similar visions for the future.At the time Roger was managing a law firm’s financial planning

division and Chris had established a financial planning business as a division of an accounting

practice.In 1998 each went out on his own to establish their own businesses. They operated

alongside each other in the original premises at Camber well and shared some office resources

and staff.Roger brought in two partners, Lance Livermore and Russell Warmington, and

operated as Bailey Livermore Financial Services while Chris founded Quintain Advisory

Services.

Talks of a merger were continuous as both businesses consolidated and grew. Common themes

emerged during the discussions and all parties believed that a high standard of ethics and

commitment to the client were essential ingredients for success. The principals decided that a

larger – but still compact – business would be better able to cover the financial planning field if

they joined forces. A ‘boutique’ operation catering for a select list of clients for whom a wide

range of services was provided was considered the best way of moving forward. The preferred

client being either a retiree, a person with a good level of capital to invest or the higher paid

executive.It all came to fruition on July 1, 2001 when Quintain Advisory Services and Bailey

Livermore Financial Services commenced operating as the Pentad Group.Pentad is not a mass

provider of financial advice, instead concentrating on those clients who are seeking the most

effective way to progress from where they are today to where they want or need to be in the

future.

Roger retired in March 2003, leaving Chris Heyworth, Russell Warmington& Lance Livermore

as principals and directors.Four further advisers have since joined the firm, namely Robert

Syben, John Robson, Ken Maher and Morgen Harris.In July 2010, Pentad's self managed

superannuation fund team joined forces with accounting firm CHN Herold Ross to form a

specialisedself managed superannuation fund administration company, Moneta Super.In October

of that same year, Pentad merged with HRM Financial Services situated in

Ringwood.The Pentad Group is wholly owned by the Principals – Christopher Heyworth, Lance

Livermore, Russell Warmington and Senior Adviser - Ken Maher as well as Mark Herold and

Andrew Morris, the previous owners of HRM Financial Services.

2.2 Company Profile

Pentad securities

The Pentad Group is a successful and growing financial planning service located in Camber well,

Victoria. Our clients include senior executives and professionals of all ages, business owners and

retirees.

Through our seven experienced advisers and our own internal specialized investment committee,

we have the breadth of experience, services and resources that are essential to effectively

conduct a financial planning service. We are licensed through Capricorn Investment Partners

Limited and are a member of the Financial Planning Association.Pentad is a boutique financial

planning organization committed to helping our clients achieve their lifestyle through strategic

financial management.

Vision

A pentad is literally a group or series of five. The Pentad Group is based around the following key aspects of strategic financial management.

1. Strategic financial planning for the most effective way for our clients to progress to where

they want and need to be in the future

http://www.monetasuper.com.au/

2. Investment advice to achieve the financial goals and objectives through a tailored and

diversified portfolio of individual investments

3.Retirement planning and superannuation including the administration of self-managed

superannuation funds to give clients their chosen degrees of involvement in investment

management and control of their affairs

4.Tax-effective wealth accumulation for the future, and

5. Peace of mind through effective organization and management of affairs including estate

planning and life insurance

Mission

The Pentad Group is a boutique financial planning practice. We are independently owned, and

are not aligned to, or bound by the requirements of, any providers of investments or products we

recommend.

Our sole mission is to help you achieve ’lifestyle through strategic financial management’.To

help you achieve this goal, we offer a defined process in which we identify your lifestyle

aspirations, and then develop specific strategies and investment recommendations tailored to

help achieve those aspirations.Invariably your circumstances and needs will change over time.

So too will the legislative landscape as well as economic and investment market conditions. We

therefore also offer to provide you with a highly personalized review service.

Services

We believe that achieving your goals and objectives depends on a number of essential elements,

including advice on the following areas:

Self-managed superannuation fund. The Pentad Group offers a service designed to deliver

the benefits of having your own self-managed superannuation fund while guiding you

through compliance and reporting obligations.

Retirement and pre-retirement advice, assisting you to clearly identify and prioritize

realistic objectives, then helping you to identify appropriate strategies.

Superannuation advice is to provide you with a better understanding of the variety of

components and rules relating to this valuable retirement vehicle.

Estate planning advice is about making sound and well informed decisions to ensure that

your assets can be professionally managed and effectively distributed according to your

wishes.

Investment advice. Pentad provides a comprehensive range of services to meet your

individual needs. Our investment recommendations consider a variety of factors such as your

attitude to risk, short term and long term goals and the economic climate.

Wealth protection & personal risk advice, to protect you and your family from financial

hardship in the event of unforeseen disability or death.

Financial risk tolerance profiling is an important part of our planning process for which we

employ a highly developed profiling system.

Tax-effective strategies, to enhance your wealth creation.

Pentad's Financial Planning Process

The Pentad Group believes that financial planning is simply a process designed to help you

achieve your lifestyle objectives.

As with any successful process there are clearly defined steps, which can be summarized as

follows:

Step 1 – Understanding where you are right now

Before we can work out how best to achieve your lifestyle objectives, we need to have a

thorough understanding of your ‘starting point’. What are your assets; what do you owe; what is

your income; what income do you actually need; what do you know about different types of

investments; and, how comfortable are you with them?

We will spend time with you in order to build up an accurate picture of your current situation.

Step 2 – Where do you want to go?

Also fundamental to working out how best to achieve your lifestyle objectives, is an

understanding of where it is you want to go; what are your lifestyle and financial objectives this

next, next year, and in ten years time. Most of us have a notion of what we would like our future

to look like. We can help turn these notions into specific objectives.

Step 3 – What can stop you from getting to where you want to go?

Having established where you are right now and where it is you want to go, we will identify any

issues that might prevent you from achieving your objectives. Sometimes these issues can be

resolved, other times your objectives may need to be reviewed.

Step 4 – Your ‘Wealth Plan’

The above three steps form the basis of the ‘Wealth Plan’ that we will then proceed to prepare

for your consideration. Your Wealth Plan will provide clear recommendations in terms of the

specific strategy, structure, and investments that will help you achieve your lifestyle objectives.

Step 5 – Implementing your Wealth Plan

Having prepared your Wealth Plan, we will then present it to you, stepping you through the key

features and benefits of our recommendations. If we have done our job properly your Wealth

Plan should capture the issues and considerations relevant to you, and be one that you are

comfortable in implementing. We will, of course, be pleased to implement our recommendations,

or assist you in doing so.

Step 6 – Ensuring that everything continues to go according to your Wealth Plan

Implementing your Wealth Plan is not the end of the process. It is however, the ‘end of the

beginning’. Over time, as your circumstances and objectives change (and they will), we will

review how your overall strategy is ‘tracking’ in meeting your objectives, and if necessary,

recommend amendments to your overall strategy as appropriate.

2.3 Competitors Analysis

Share Markets could be very lucrative way to make money. However, if you are a novice player

then you could lose a lot of money without any knowledge about the stock markets. So you need

to gain enough knowledge before you think of buying and selling stocks. You have to consult

some of the best brokerage companies in India if you want to succeed in share markets.

Although there are number of companies or brokerage firms operating online and offline.

However, only few firms are reputed. I have jot down a list of some brokerage firms which is

competitor to Pentad securities Pvt ltd in India.

1. Sharekhan Limited

ShareKhan is an online trading company of SSKI group. It has presence in over 170 cities

of the country and India’s most trusted brokerage firms.

Head Office: Mumbai, India

Number of Terminals: 2000 to 2500

Number of Sub Brokers: 200 to 300

Number of Branches: 510 offices

Number of Employees: 1000 to 2000

Account Opening Fee: Rs 750/- for Classic Account and Rs 1000/- for Trade Tiger

Website: www.sharekhan.com

2. India Bulls

India bulls was founded by Sameer Gehlaut in the year 2000. India bull has a net worth of

Rs 17,000 crore.

Head Office: Gurgaon, Haryana



Number of Branches: 414 to 450


Account Opening Fee: Rs 1200/- (Rs 250/- for equity + Rs 200/- for Demat + R750/- for

software)

Website: www.indiabulls.com

http://www.indiabulls.com/

http://www.sharekhan.com/

3. Angel Broking Limited

Angel is counted among top 3 broking firms in India. It was founded in the year 1987 and

it offers various services like ebroking, commodity Trading and other wealth

management services.

Head Office: Mumbai, India





Account Opening Fee: Stock Trading Account + Demat Account = Rs 500/-,

Commodity Trading = Rs 625/-

Website: www.angelbroking.com

4. Reliance Money

Reliance money is India’s number one broking firm. It has over 3.5 million customers

with more than 6000 outlets around the country.

Head Office: Lower Parel, Mumbai





Account Opening Fee: Trading + Demat = Rs 750/- and for foreign nationals it is

Rs 1000/-

Website: www.reliancemoney.com

5. India Infoline Limited

India Infoline was started in year 1996 and has over 2 million customers.

Head Office: Andheri, Mumbai




http://www.reliancemoney.com/

http://www.angelbroking.com/


Account Opening Fee: Trading + Demat = Rs 750/-

Website: www.indiainfoline.com

6. Kotak Securities Limited

Kotak Securities was incorporated in 1994 and it is subsidiary of Kotak Mahindra. Head

Office: Nariman Point, Mumbai





Account Opening Fee: Derivative brokerage Rs 150 per contract and delivery brokerage

is .45%

Website: www.kotaksecurities.com

7. ICICI Direct

ICICI Direct is a stock Trading company of ICICI bank.

Head Office: Mumbai, Maharashtra





Account Opening Fee: Rs 750/- for share Trading account, wise investment, active

trader account

Website: www.ICICIdirect.com

http://www.ICICIdirect.com/

http://www.kotaksecurities.com/

http://www.indiainfoline.com/

Chapter 3:Review of Literature

3.1 Meaning & Concepts of the topic

3.2 Research on the selected topic

3.3 Basic theories of the topic

3.1 Meaning & concepts of topics

What Is Mutual Fund

Before we understand what is mutual fund, it’s very important to know the area in which mutual

funds works, the basic understanding of stocks and bonds.

Stocks:

Stocks represent shares of ownership in a public company. Examples of public companies

include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned

investment traded on the market.

Bonds:

Bonds are basically the money which you lend to the government or a company, and in return

you can receive interest on your invested amount, which is back over predetermined amounts of

time. Bonds are considered to be the most common lending investment traded on the market.

There are many other types of investments other than stocks and bonds (including annuities, real

estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

A mutual fund is just the connecting bridge or a financial intermediary that allows a group

of investors to pool their money together with a predetermined investment objective. The mutual

fund will have a fund manager who is responsible for investing the gathered money into specific

securities(stocks or bonds). When you invest in a mutual fund, you are buying units or portions

of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they

are very cost efficient and also easy to invest in, thus by pooling money together in a mutual

fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to

do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing

risk & maximizing returns.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. The flowchart below describes broadly the working of a

mutual fund.

Origin:

Mutual funds go back to the times of the Egyptians and Phonenicianswhen they sold shares in

caravans and vessels to spread the risk of theseventures. The foreign and colonial government

Trust of London of 1868 isconsidered to be the fore-runner of the modern concept of mutual

funds. TheUSA is, however, considered to be the mecca of modern mutual funds. Bythe early -

1930s quite a large number of close - ended mutual funds werein operation in the U.S.A. Much

latter in 1954, the committee on finance forthe private sector recommended mobilisation of

savings of the middle classinvestors through unit trusts. Finally in July 1964, the concept took

root inIndia when Unit Trust of India was set up with the twin objective of mobilizing household

savings and investing the funds in the capital market for industrialgrowth. Household sector

accounted for about 80 percent of nation’s savingsand only about one third of such savings was

available to the corporatesector, It was felt that UTI could be an effective vehicle for

channelizing progressively larger shares of household savings to productive investments inthe

corporate sector. The process of economic liberalization in the eightiesnot only brought in

dramatic changes in the environment for Indian industries,Corporate sector and the capital

market but also led to the emergenceof demand for newer financial services such as issue

management, corporatecounselling, capital restructuring and loan syndication. After two decades

ofUTI monopoly, recently some other public sector organisations like LIC(1989), GIC (1991 ),

SBI (1987), Can Bank (1987), Indian Bank (1990),Bank of India (1990), Punjab National Bank

(1990) have been permitted toset up mutual funds. Mr. M.R. Mayya the Executive Director of

BombayStock Exchange opined recently that the decade of nineties will belong tomutual funds

because the ordinary investor does not have the time, experienceand patience to take independent

investment decisions on his own.

HISTORY OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the

initiative of the Government of India and Reserve Bank. The history of mutual fundsin India can

be broadly divided into four distinct phases

FIRST PHASE – 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set upby the

Reserve Bank of India and functioned under the Regulatory and administrative control ofthe

Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the IndustrialDevelopment

Bank of India (IDBI) took over the regulatory and administrative control in placeof RBI. The

first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI hadRs.6,700crores

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 sectorbanks 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 followedbyCanbank

Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian BankMutual Fund

(Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LICestablished its

mutual fund in June 1989 while GIC had set up its mutual fund in December1990. At the end of

1993, the mutual fund industry had assets under management of Rs.47,004crores.

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

fundindustry, giving the Indian investors a wider choice of fund families. Also, 1993 was the

year inwhich the first Mutual Fund Regulations came into being, under which all mutual funds,

exceptUTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged

withFranklin Templeton) was the first private sector mutual fund registered in July 1993. 12

Importance of Mutual Fund

Small investors face a lot of problems in the share market, limited resources,lack of professional

advice, lack of information etc. Mutual fundshave come as a much needed help to these

investors. It is a special type ofinstitutional device or an investment vehicle through which the

investorspool their savings which are to be invested under the guidance of a team ofexperts in

wide variety of portfolio’s of Corporate securities in such a way,so as to minimize risk, while

ensuring safety and steady return on investment.It forms an important part of the capital market,

providing the benefitsof a diversified portfolio and expert fund management to a large

number,particularly small investors. Now a days, mutual fund is gaining its popularitydue to the

following reasons :

l. With the emphasis on increase in domestic savings and improvement indeployment of

investment through markets, the need and scope for mutualfund operation has increased

tremendously. The basic purpose of reformsin the financial sector was to enhance the generation

of domestic resources by reducing the dependence on outside funds. This calls fora market based

institution which can tap the vast potential of domesticsavings and channelize them for profitable

investments. Mutual funds arenot only best suited for the purpose but also capable of meeting

this

challenge.

2. An ordinary investor who applies for share in a public issue of anycompany is not assured of

any firm allotment. But mutual funds whosubscribe to the capital issue made by companies get

firm allotment ofshares. Mutual fund latter sell these shares in the same market and tothe

Promoters of the company at a much higher price. Hence, mutualfund creates the investors

confidence.

3. The phyche of the typical Indian investor has been summed up by Mr.S.A. Dave, Chairman of

UTI, in three words; Yield, Liquidity and Security.The mutual funds, being set up in the public

sector, have giventhe impression of being as safe a conduit for investment as bank

deposits.Besides, the assured returns promised by them have investors hadgreat appeal for the

typical Indian investor.

4. As mutual funds are managed by professionals, they are considered tohave a better knowledge

of market behaviors. Besides, they bring acertain competence to their job. They also maximise

gains by properselection and timing of investment.

5. Another important thing is that the dividends and capital gains are reinvestedautomatically in

mutual funds and hence are not fritted away.The automatic reinvestment feature of a mutual fund

is a form of forcedsaving and can make a big difference in the long run.

6. The mutual fund operation provides a reasonable protection to investors.Besides, presently all

Schemes of mutual funds provide tax relief underSection 80 L of the Income Tax Act and in

addition, some schemesprovide tax relief under Section 88 of the Income Tax Act lead to

thegrowth of importance of mutual fund in the minds of the investors.

7. As mutual funds creates awareness among urban and rural middle classpeople about the

benefits of investment in capital market, through profitableand safe avenues, mutual fund could

be able to make up a largeamount of the surplus funds available with these people.

8. The mutual fund attracts foreign capital flow in the country andsecure profitable investment

avenues abroad for domestic savings throughthe opening of off shore funds in various foreign

investors. Lastly anothernotable thing is that mutual funds are controlled and regulated byS E B I

and hence are considered safe. Due to all these benefits theimportance of mutual fund has been

increasing.

Advantages of mutual fund:

Small investments: Mutual funds help you to reap the benefit of returns by a portfolio spread

across a wide spectrum of companies with small investments.

Professional Fund Management: Professionals having considerable expertise, experience and

resources manage the pool of money collected by a mutual fund. They thoroughly analyse the

markets and economy to pick good investment opportunities.

Spreading Risk: An investor with limited funds might be able to invest in only one or two

stocks/bonds, thus increasing his or her risk. However, a mutual fund will spread its risk by

investing a number of sound stocks or bonds. A fund normally invests in companies across a

wide range of industries, so the risk is

diversified.

Transparency: Mutual Funds regularly provide investors with information on the value of their

investments. Mutual Funds also provide complete portfolio disclosure of the investments made

by various schemes and also the proportion invested in each asset type.

Choice: The large amount of Mutual Funds offer the investor a wide variety to choose from. An

investor can pick up a scheme depending upon his risk/ return profile.

Regulations: All the mutual funds are registered with SEBI and they function within the

provisions of strict regulation designed to protect the interests of the investor.

Variety: Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two

ways: first, it offers different types of schemes to investors

Tax Benefits: Depending on the scheme of mutual funds, tax shelter is also available. As per the

Union Budget-99, income earned through dividends from mutual funds is 100% tax free.

Disadvantages of mutual fund:

No control over cost: Since investors do not directly monitor the fund’s operations, they cannot

control the costs effectively. Regulators therefore usually limit the expenses of mutual funds.

No tailor-made portfolio: Mutual fund portfolios are created and marketed by AMCs, into

which investors invest. They cannot made tailor made portfolio.

Managing a portfolio of funds: As the number of funds increase, in order to tailor a portfolio

for himself, an investor may be holding portfolio funds, with the costs of monitoring them and

using hem, being incurred by him.

Delay in Redemption: The redemption of the funds though has liquidity in 24-hours to 3 days

takes formal application as well as needs time for redemption. This becomes cumbersome for the

investors.

Non-availability of loans: Mutual funds are not accepted as security against loan. The investor

cannot deposit the mutual funds against taking any kind of bank loans though they may be his

assets.

MUTUAL FUND – FOR WHOM & WHY

For Whom

These funds can survive and thrive only if they can live up to the hopes and trusts of their

individual members. These hopes and trusts echo the peculiarities which support the emergence

and growth of such insecurity of such investors who come to the rescue of such investors who

face following constraints while making direct investments:

Limited resources in the hands of investors quite often take them away from stock market

transactions.

Lack of funds forbids investors to have a balanced and diversified portfolio.

Lack of professional knowledge associated with investment business unable investors to

operate gainfully in the market. Small investors can hardly afford to have ex-pensive

investment consultations.

To buy shares, investors have to engage share brokers who are the members of stock

exchange and have to pay their brokerage.

They hardly have access to price sensitive information in time.

It is difficult for them to know the development taking place in share market and corporate

sector.

Firm allotments are not possible for small investors on when there is a trend of over

subscription to public issues.

Why Select Mutual

Fund?

The risk return trade-off

indicates that if investor is

willing to take higher risk

then correspondingly he can

expect higher returns and

vise versa if he pertains to

lower risk instruments,

which would be satisfied by

lower returns. For example,

if an investors opt for bank FD, which provide moderate return with minimal risk. But as he

moves ahead to invest in capital protected funds and the profit-bonds that give out more return

which is slightly higher as compared to the bank deposits but the risk involved also increases in

the same proportion. Thus investors choose mutual funds as their primary means of investing, as

Mutual funds provide professional management, diversification, convenience and liquidity. That

doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are

not invested only in debts funds which are less riskier but are also invested in the stock markets

which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk

since it is mostly traded in the derivatives market which is considered very volatile.

The goal of mutual fund

The goal of a mutual fund is to provide an individual to make money. There are several thousand

mutual funds with different investments strategies and goals to chosen from. Choosing one can

be over whelming, even though it need not be different mutual funds have different risks, which

differ because of the fund’s goals fund manager, and investment style. The fund itself will still

increase in value, and in that way you may also make money therefore the value of shares you

hold in mutual fund will increase in value when the holdings increases in value capital gains and

income or dividend payments are best reinvested for younger investors Retires often seek the

income from dividend distribution to augment their income with reinvestment of dividends and

capital distribution your money increase at an even greater rate. When you redeem your shares

what you receive is the value of the share.

Short Comings in Operation of Mutual Fund

The mutual fund has been operating for the last five to six years. Thus,it is too early to evaluate

its operations. However one should not lose sightto the fact that the formation years of any

institution is very important toevaluate as they could be able to know the good or bad systems

get evolvedaround this time. Following are some of the shortcomings in operation ofmutual

fund.

1. The mutual funds are externally managed. They do not have employeesof their own. Also

there is no specific law to supervise the mutual fundsin India. There are multiple regulations.

While UTI is governed by itsown regulations, the banks are supervised by Reserved Bank of

India,the Central Government and insurance company mutual regulations fundsare regulated by

Central Government

2. At present, the investors in India prefer to invest in mutual fund as asubstitute of fixed

deposits in Banks, About 75 percent of the investorsare not willing to invest in mutual funds

unless there was a promise ofa minimum return,

3. Sponsorship of mutual funds has a bearing on the integrity and efficiencyof fund management

which are key to establishing investor'sconfidence. So far, only public sector sponsorship or

ownership ofmutual fund organisations had taken care of this need.

4. Unrestrained fund rising by schemes without adequate supply of scrip’scan create severe

imbalance in the market and exacerbate the distortions

5. Many small companies did very well last year, by schemes withoutadequate imbalance in the

market but mutual funds cannot reap theirbenefits because they are not allowed to invest in

smaller companies.Not only this, a mutual fund is allowed to hold only a fixed

maximumpercentage of shares in a particular industry.

6. The mutual fund in India are formed as trusts. As there is no distinctionmade between

sponsors, trustees and fund managers, the trustees playthe roll of fund managers.

7. The increase in the number of mutual funds and various schemes haveincreased competition.

Hence it has been remarked by Senior Broker“mutual funds are too busy trying to race against

each other”. As aresult they lose their stabilizing factor in the market.

8. While UTI publishes details of accounts their investments but mutualfunds have not published

any profit and loss Account and balance sheeteven after its operation.

9. The mutual fund have eroded the financial clout of institutionin the stock market for which

cross transaction between mutual fundsand financial institutions are not only allowing

speculatorsto manipulate price but also providing cash leading to the distortion ofbalanced

growth of market.

10. As the mutual fund is very poor in standard of efficiency in investorsservice; such as dispatch

of certificates, repurchase and attending toinquiries lead to the detoriation of interest of the

investors towardsmutual fund.

11. Transparency is another area in mutual fund which was neglected tillrecently. Investors have

right to know and asset management companieshave an obligation to inform where and how his

money has been deployed.But investors are deprived of getting the information.

TYPES OF MUTUAL FUND

Mutual funds are classified in the following manner:

(a) On the basis of Objective

Equity Funds/ Growth Funds

Funds that invest in equity shares are called equity funds. They carry the principal objective of

capital appreciation of the investment over the medium to long-term. They are best suited for

investors who areseeking capital appreciation. There are different types of equity funds such as

Diversified funds, Sector specific funds and Index based funds.

Diversified funds

These funds invest in companies spread across sectors. These funds are generally meant for risk-

averse investors who want a diversified portfolio across sectors.

Sector funds

These funds invest primarily in equity shares of companies in a particular business sector or

industry. These funds are targeted at investors who are bullish or fancy the prospects of a

particular sector.

Index funds

These funds invest in the same pattern as popular market indices like S&P CNX Nifty or S&P

CNX 500. The money collected from the investors is invested only in the stocks, which represent

the index. For e.g. a Nifty index fund will invest only in the Nifty 50 stocks. The objective of

such funds is not to beat the market but to give a return equivalent to the market returns.

Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided

under this scheme are in the form of tax rebates under the Income Tax act.

Debt/Income Funds

These funds invest predominantly in high-rated fixed-income-bearing instruments like bonds,

debentures, government securities, commercial paper and other money market instruments. They

are best suited for the medium to long-term investors who are averse to risk and seek capital

preservation. They provide a regular income to the investor.

Liquid Funds/Money Market Funds

These funds invest in highly liquid money market instruments. The period of investment could

be as short as a day. They provide easy liquidity. They have emerged as an alternative for

savings and shorttermfixed deposit accounts with comparatively higher returns. These funds are

ideal for corporate, institutional investors and business houses that invest their funds for very

short periods.

Gilt Funds

These funds invest in Central and State Government securities. Since they are Government

backed bonds they give a secured return and also ensure safety of the principal amount. They are

best suited for the medium to long-term investors who are averse to risk.

Balanced Funds

These funds invest both in equity shares and fixed-income-bearing instruments (debt) in some

proportion. They provide a steady return and reduce the volatility of the fund while providing

some upside forcapital appreciation. They are ideal for medium to long-term investors who are

willing to take moderate risks.

b) On the basis of Flexibility

Open-ended Funds

These funds do not have a fixed date of redemption. Generally they are open for subscription and

redemption throughout the year. Their prices are linked to the daily net asset value (NAV). From

theinvestors' perspective, they are much more liquid than closed-ended funds.

Close-ended Funds

These funds are open initially for entry during the Initial Public Offering (IPO) and thereafter

closed for entry as well as exit. These funds have a fixed date of redemption. One of the

characteristics of the close-ended schemes is that they are generally traded at a discount to NAV;

but the discount narrows as maturity nears. These funds are open for subscription only once and

can be redeemed only on the fixed date of redemption. The units of these funds are listed on

stock exchanges (with certain exceptions), are tradable and the subscribers to the fund would be

able to exit from the fund at any time through the secondary market.

MUTUAL FUND STRUCTURE

The Structure Consists:The structure of mutual funds in India is governed by the SEBI Regulations, 1996. These

regulations make it mandatory for mutual funds to have a 3-tier structure of Sponsors-Trustee-

AMC (Asset Management Company). The Sponsor is the promoter of mutual fund, and appoints

the Trustee. The Trustees are responsible to the investors in the mutual funds, and appoint the

AMC for managing the investment portfolio. The AMC is the business face of the mutual funds,

as it manages all the affairs of mutual funds. The mutual funds and AMC have to be registered

by the SEBI.

Sponsor

Sponsor is the person who acting alone or in combination with another body corporate

establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the

Investment Managed and meet the eligibility criteria prescribed under the Securities and

Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or

liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial

contribution made by it towards setting up of the Mutual Fund

Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts

Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The

main responsibility of the Trustee is to safeguard the interest of the unit holders and inter-alia

ensure that the AMC functions in the interest of investors and in accordance with the Securities

and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust

Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee

are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC

is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an

asset management company of the Mutual Fund. At least 50% of the directors of the AMC are

independent directors who are not associated with the Sponsor in any manner. The AMC must

have a net worth of at least 10 crores at all times.

Registrar and Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the

Mutual Fund. The Registrar processes the application form, redemption requests and dispatches

account statements to the unit holders.

Custodian

A custodian handles the investment back office of a mutual fund. Its responsibilities include

receipt and delivery of securities, collection of income, distribution of dividends, and segregation

of assets between schemes. The sponsor of a mutual fund cannot act as a custodian to the fund.

For example, Deutsche Bank is a custodian, but it cannot service Deutsche Mutual Fund, its

mutual fund arm.

Depository

Indian capital markets are moving away from having physical certificates for securities, to

ownership of these securities in ‘dematerialized’ form with a Depository.

Types of Risk in Mutual Fund:

Mutual Funds do not provide assured returns. Their returns are linked totheir performance. They

invest in shares, debentures, bonds etc. All theseinvestments involve an element of risk. The unit

value may vary dependingupon the performance of the company and if a company defaults in

paymentof interest/principal on their debentures/bonds the performance of the fundmay get

affected. Besides incase there is a sudden downturn in an industryor the government comes up

with new a regulation which affects a particularindustry or company the fund can again be

adversely affected. All thesefactors influence the performance of Mutual Funds.

Some of the Risk to which Mutual Funds are exposed to is given below:

Type of Risk Type of Investment affected How the fund could lose money

Market Risk All typesThe value of its investments decline because of unavoidable risks that affect the entire market.

Liquidity Risk All typesThe fund can’t sell an investment that’s declining in value because there are no buyers.

Credit Risk Fixed Income SecuritiesIf a bond issuer can’t repay a bond, it may end up being a worthless investment

Interest Rate Risk Fixed Income SecuritiesThe value of fixed income securities generally falls when interest rates rise.

Country Risk Foreign InvestmentThe value of a foreign investment declines because of political changes or instability in the country where the investment was issued.

Currency RiskInvestment denominated in a currency other than the Canadian dollar

If the other currency declines against the Canadian dollar, the investment will lose value.

Other risks can be like:

The risk-return trade-off: The most important relationship to understand is the risk-return

trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. Hence

it is up to you, the investor to decide how much risk you are willing to take. In order to do this

you must first be aware of the different types of risks involved with your investment decision.

Political/government policy risk:Changes in government policy and political decision can

change the investment environment. They can create a favorable environment for investment or

vice versa.

Inflation risk:Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100

tomorrow.” “Remember the time when a bus ride cost 50

paisa?“MehangaiKaJamanaHai.”Inflation is the loss of purchasing power over time. A lot of

times people make conservative investment decisions to protect their capital but end up with a

sum of money that can buy less than what the principal could at the time of the investment. This

happens when inflation grows faster than the return on your investment. A well-diversified

portfolio with some investment in equities might help mitigate this risk.

Types of returns:

There are three ways, where the total returns provided by mutual funds can be enjoyed by

investors:

•Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly

allincome it receives over the year to fund owners in the form of a distribution.

•If the fund sells securities that have increased in price, the fund has a capital gain. Most

fundsalso pass on these gains to investors in a distribution.

•If fund holdings increase in price but are not sold by the fund manager, the fund's sharesincrease

in price. You can then sell your mutual fund shares for a profit. Funds will also usuallygive you a

choice either to receive a check for distributions or to reinvest the earnings and get more shares.

RISK V/S. RETURN:

Interpretation:

In the above graph we see that as the risk is increasing return is also increasing. We can say that

risk isdirectly proportional to the return. Here, we see that in liquid funds, debt fund, balanced

fund risk is less so return is also less. While inindex funds, equity funds, sectoral funds risk is

high so return is also high

WHO MANAGES INVESTOR’S MONEY?

This is the role of the Asset Management Company (the Third tier).Trustees appoint the Asset

Management Company (AMC), to manageinvestor’s money. The AMC in return charges a fee

for the services providedand this fee is borne by the investors as it is deducted from the

moneycollected from them. The AMC’s Board of Directors must have at least 50% ofDirectors

who are independent directors. The AMC has to be approved bySEBI. The AMC functions under

the supervision of it’s Board of Directors, andalso under the direction of the Trustees and SEBI.

It is the AMC, which in thename of the Trust, floats new schemes and manage these schemes by

buyingand selling securities. In order to do this the AMC needs to follow all rules andregulations

prescribed by SEBI and as per the Investment ManagementAgreement it signs with the

Trustees.If any fund manager, analyst intends to buy/ sell some securities, thepermission of the

Compliance Officer is a must. A compliance Officer is one of the most important persons in the

AMC. Whenever the fund intends to launcha new scheme, the AMC has to submit a Draft Offer

Document to SEBI. Thisdraft offer document, after getting SEBI approval becomes the

offerdocument of the scheme. The Offer Document (OD) is a legal document andinvestors rely

upon the information provided in the OD for investing in themutual fund scheme. The

Compliance Officer has to sign the Due DiligenceCertificate in the OD. This certificate says that

all the information providedinside the OD is true and correct. This ensures that there is

accountability andsomebody is responsible for the OD. In case there is no compliance

officer,then senior executives like CEO, Chairman of the AMC has to sign the duediligence

certificate. The certificate ensures that the AMC takes responsibilityof the OD and its contents.

Equity versus Mutual Funds

Investment in both equity and mutual funds are subject to market risk. An investor holding an

equity security that is not traded in the market place has aproblem in realizing value from it. But

investment in an open-end mutual fund eliminates thisdirect risk of not being able to sell the

investment in the market. An indirect risk remains,because the scheme has to realize its

investments to pay investors. The AMC is however in abetter position to handle the situation

Another benefit of equity mutual fund schemes is that they give investors the benefit ofportfolio

diversification through a small investment. For instance, an investor can take anexposure to the

index by investing a mere Rs 5,000 in an index fund.

ASSET MANAGEMENT COMPANYA firm that invest the pooled funds of retail investors in securities in line with the

statedinvestment objectives. For a fee, the investment company provides more diversification,

liquidity, and professional service that are normally available to individual investors.

Asset Management Company is:Constituted as a Company under the Indian Companies Act

Minimum Net worth of Rs. 10 crores for AMC

Minimum contribution of sponsor: 40% of share capital of AMC

At least 50% of Directors of AMC to be independent

AMC can do only the following businesses

Asset Management Services

Portfolio Management Services

Portfolio Advisory Services

AMC can be terminated/changed with the consent of

Majority of Trustees or

At least 75% majority of Unit holders

Role of AMC

AMC is the Fund Manager for managing Mutual Fund Assets

AMC floats different MF schemes

AMC accountable to the Trustees

Registrar & Transfer Agent

Fund Accounting

Lead Manager

InvestmentAdvisors

LegalAdvisors

Fund Manager

Advisors

Asset Management company

AMC charges Asset Management Fees subject to ceiling prescribed by SEBI.

Asset Management Agreement between AMC and Trustee

Obligations of AMC

Limit of 5% of aggregate purchase and sales of Securities under all its scheme per broker

per quarter.

As far as possible AMC to avoid services of its sponsor.

All Security transactions with a Sponsor and his associates to be disclosed

Disclosure of transactions with a company which has invested more than 5% of NAV in

any scheme.

Working of Asset Management Company:

It is not required that AMC performs all its function of its own. It can hire service of outside

agencies as per its requirements or performs all function of its own. Registrars and Transfers

Agents are assigned the job of receiving and processing the application forms of investors,

issuing units certificate, sending refunds orders, according all transfers of units and maintaining

all such records, repurchasing the units, redemption of units. Issuing divided or income warrants.

For such service they are entitled to a fee, which is in proportion to numbers of units - holders

and numbers of transaction etc. Tata mutual fund proposes to pay of 0.60 percent of schemes

weekly net assets for this service. Such fee is charged by AMC from the mutual fund and is paid

to the agents. In India almost all AMC engage such agents.

Functions of asset Management Company

Investment: -

The major strength of any AMC lies its investment functions is a specialized function which,

depending on operational strategies, such as under.

Fund Manager:-

Asset Management companies manage the investment of fund through a fund manager. It is

desirable to have independent fund manager for each scheme handled by it and this is the

practice in U.S.A. But in India the practice is otherwise. A single fund manager handles many

schemes simultaneously. It is so because size of schemes is not to big. Each AMC may evolve its

own criterion for number of fund managers. Individual fund manager’s capacity varies between

individuals. One’s expertise and experience in investment handling decided the size of total

corpus one can handle. His basic function is to decide about which, when, how much securities

are to be sold or bought. To a great extent the success of any scheme depends on the calibre of

the fund manager.

Research and Planning Cell

This department plays a crucial role. It performs a very sensitive and technical assignment.

Depending again on the operational policies, such units can be created by AMC of its own or

research finding can be borrowed. The research can be with respect of securities as well as

positive investment. The fund manager can contribute to the bottom line of mutual fund by

spotting significant changes in securities ahead of the crowed. In India at present many funds

depends on outsiders. Such outsiders need not be technical analyst. Even brokers provide tips to

mutual fund.

Such strategy saves a lot of funds to be invested in small corpus can hardly afford to have their

own database. But there are mutual fund following the philosophy “your expertise is your

original research”. This section also assists planning new schemes and designing innovations in

schemes.

Dealers:-

To execute the sale and purchase transactions in capital or money market, a separate section may

be created in under the charge of a person called dealer having deep understanding of a stock

market operations. Sometimes this division is under the charge of marketing division of AMC.

Dealers are to comply with all formalities of sale and purchase through brokers. Such brokers are

to be approved by Board Of Directors of AMC. It is B.O.D., which lays down the guidelines for

allocation of business to different brokers. Many big mutual funds have their own dealing rooms.

For making sales or purchase at different stock exchanges, dealer may have his staff deputed at

such centers.

Underwriter:-

Mutual fund have been permitted by SEBI to go in for underwriting of public issues to generate

additional income for their schemes, Mutual fund have to make an application to SEBI for

registration under SEBI (underwriters) Rules and Regulations 1993.

Any underwriting decision by any scheme shall be in conformity with the provisions of the SEBI

of India (mutual fund) Regulation. An underwriting commitment by the Mutual Fund will be

made as if the Mutual Fund is actually investing the amount under any scheme.

Marketing

Marketing is a big challenge in business especially for mutual fund. Mutual funds deals with

small investors’ hard earn money, a sensitive commodity and only service is involved in selling

the product. The main challenge of marketing to mutual fund is that with same product,

customers with diversified profile viz. Demographics, socio-economic background, life style and

psychographics are to be served. Since mutual funds are to interact with lacks of investors who

are likely to be associated for a longer tenure. Post issue services play an important role in

customer’s satisfaction.It is the marketing division which complies with the formulates to market

the product i.e. a new scheme. It seeks permission from agencies like Ministry Of Finance,

Reserve Bank of India, Securities and Exchange Board of India etc. Gazette notification of

scheme is also its assignment. Marketing division is to pursue the appointment of Registrar to the

issue. Appointment of solicitors, Auditors, custodians and transfer agents is also looked after by

this division. Ones a scheme is approved, the related printing of application forms, offer

documents, banker statement forms, stationery for unit certificates, commission cheques, refund

order etc. This stationery is to be distributed at appropriate time to the concerned agencies.

Marketing people also evolve a target amount of a scheme. The most crucial “marketing

strategy’ is evolved to the best advantage of the fund Advertisement strategy is also designed by

it.Marketing division has to evaluate the market potentials, strength and weakness. For each

scheme, what is its market shear is very crucial question to design its future strategies. To

identify which section of society is under serviced, is another important assignment of marketing

division.

How important is an AMC (Asset Management Company) behind a mutual

fund?

AMC controls the operations and functioning of a mutual fund. It is very critical to the

performance of a mutual fund as it decides on the style of functioning, people who are going to

manage the funds, the commitment to service quality and overall supervision.The financial

strength and the commitment of the AMC sponsors to the business are very key issues. This is

because most AMCs lose money in the first few years of operations. In most cases, these losses

are much more than the capital requirements stipulated by SEBI. Hence, a sponsor which is

financially weak or which cannot capital to the business either because of its inability or

unwillingness will result in an unhealthy operation. There will be a tendency to cut corners and

unwillingness to spend money to expand operations. This is the last place where high quality

persons would want to remain and work. The AMC then remains stunted and the sponsors lose

interest. The worst affected are the investors. This is exactly what has happened with some

AMCs promoted by Indian business houses.This is also a problem that has afflicted some of the

AMCs floated by nationalized banks. In these organizations, the traditional thinking is prevalent

which can be summarized as "money is power". Since mutual fund business did not have access

to too much money, a posting in the AMC became punishment postings for some personnel who

were not doing well in the parent organization or who lost out in the organizational politics. The

management of the banks also did not allow these AMCs to become independent viable

businesses. The CEO’s of the AMCs did not have any clue of the mutual fund business and

neither were they interested in it – the entire effort was spent in getting a posting back in the

parent. The fund managers had no experience in the activity making a mockery of "professional

management". The sad results are there to see. Some of the parents had to provide funds to

bridge the gap in "assured return schemes". It looks extremely likely that some of these AMCs

will no longer exist in a few years.

Exchange-traded fund(ETF):

An exchange-traded fund as a mutual fund that trades like a stock.Just like an index fund, an

ETF represents a basket of stocks that reflect anindex such as the Nifty. An ETF, however, isn't a

mutual fund; it trades justlike any other company on a stock exchange. Unlike a mutual fund that

hasits net-asset value (NAV) calculated at the end of each trading day, an ETF'sprice changes

throughout the day, fluctuating with supply and demand. It isimportant to remember that while

ETFs attempt to replicate the return onindexes, there is no guarantee that they will do so

exactly.By owning an ETF, you get the diversification of an index fund plus theflexibility of a

stock. Because, ETFs trade like stocks, you can short sellthem, buy them on margin and purchase

as little as one share. Anotheradvantage is that the expense ratios of most ETFs are lower than

that of theaverage mutual fund. When buying and selling ETFs, you pay your broker.

E.g., a Nifty ETF will look to replicate CNX Nifty returns.ETFs are popular world over with

nearly 60% of trading volumes on the American Stock Exchange (AMEX) captured by all types

of ETFs. At the end of June 2011, the global ETF industry comprised 2,825 ETFs from 146

providers on 49 exchanges around the world with total assets of US$1.49 trillion.

The ETF advantage

Trade like stocks - You can buy and sell an ETF during market hours on a real time basis as

well as put advance orders on purchase such as limits or stops. In case of conventional mutual

funds, purchase or sale can be done only once a day after the fund NAV is calculated.

Low cost of investment - The passive investment style with low turnover helps keep costs low.

ETFs are known to have among the lowest expense ratios compared to others schemes.

Diversification benefit - In case of Nifty ETF, you own the complete basket of 50 stocks and

remain diversified.

Simple and transparent - The underlying securities are known and quantities are pre-defined

(In case of conventional mutual fund schemes, one needs to wait for the monthly factsheet). No

form filling is required if you transact in the secondary market. Investment can be made directly

from the fund house or the exchange.

Supports small ticket investments - ETFs are a great tool for investors wanting to start with a

small corpus. The minimum ticket size is 1 unit (in case of IIFL Nifty ETF, 1 unit is

approximately 1/10th of Nifty level, i.e Rs500, when Nifty is at 5000). Premium and discount

also tends to be higher in the futures segment, than in ETFs.

ETFs are taxed like stocks - Investors can take advantage of special rates for short term and

long-term capital gains.

Target audience

Long term investors

First time investors

Investors looking for a low cost diversified portfolio

Traders who do not have enough capital to invest in index futures

Institutional investors looking to temporarily park cash during portfolio transition

Arbitrageurs to carry out operations with low impact cost

Tracking error

The extent to which the NAV of the scheme moves in a manner inconsistent with the movements

of the underlying Index on any given day or over any given period of time due to any cause or

reason whatsoever including but not limited to expenditure incurred by the scheme, dividend

payouts if any, all cash not invested at all times as it may keep a portion of funds in cash to meet

redemption, purchase price different from the closing price of securities on the day of rebalance

of Index, etc.

Points to note before investing in ETFs

Invest in ETFs with ample secondary market liquidity - Fund houses do depend on market

makers and arbitrageurs to maintain liquidity to keep the price in line with the actual NAV.

ETFs track the target index – Any investor wanting an exposure to a particular target index

like Nifty will do well by investing in ETFs. The objective of ETF is to be the index rather than

beat the Index.

Always invest in key benchmarks ETFs rather than sectoral funds - Investing in sectoral

ETFs is prone to higher volatility compared to key benchmark ETFs like Nifty.

Cost of trading on the exchange - Investor will have to bear the cost of brokerage and other

applicable statutory levies e.g, Securities Transaction Tax, etc, when the units are bought or sold

on the stock exchange.

INVESTMENT STRATEGY

1. Systematic Investment Plan:

Under this a fixed sum is invested each month on afixed date of a month. Payment is made

through post datedcheques or direct debit facilities. The investor gets fewer units when the NAV

is high and more units when the NAV is low. This is called as the benefit of Rupee Cost

Averaging (RCA)

2. Systematic Transfer Plan:

Under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum,

at a fixed interval, to an equity scheme of thesame mutual fund.

3. Systematic Withdrawal Plan:

If someone wishes to withdraw from a mutual fundthen he can withdraw a fixed amount each

month.

Classes of Funds

Many mutual funds offer more than one class of shares. For example, you may have seen a fund

that offers "Class A" and "Class B" shares. Each class will invest in the same "pool" (or

investment portfolio) of securities and will have the same investment objectives and policies. But

each class will have different shareholder services and/or distribution arrangements with

different fees and expenses. As a result, each class will likely have different performance results.

A multi-class structure offers investors the ability to select a fee and expense structure that is

most appropriate for their investment goals (including the time that they expect to remain

invested in the fund). Here are some key characteristics of the most common mutual fund share

classes offered to individual investors:

Class A Shares — Class A shares typically impose a front-end sales load. They also tend

to have a lower 12b-1 fee and lower annual expenses than other mutual fund share

classes. Be aware that some mutual funds reduce the front-end load as the size of your

investment increases. If you're considering Class A shares, be sure to inquire about

breakpoints.

Class B Shares — Class B shares typically do not have a front-end sales load. Instead,

they may impose a contingent deferred sales load and a 12b-1 fee (along with other

annual expenses). Class B shares also might convert automatically to a class with a lower

12b-1 fee if the investor holds the shares long enough.

Class C Shares — Class C shares might have a 12b-1 fee, other annual expenses, and

either a front- or back-end sales load. But the front- or back-end load for Class C shares

tends to be lower than for Class A or Class B shares, respectively. Unlike Class B shares,

Class C shares generally do not convert to another class. Class C shares tend to have

higher annual expenses than either Class A or Class B shares.

Clearing & Settlement - MFs

The settlement for Mutual Funds Service System is carried out by NSCCL through the

depository and bank interface.The clearing and settlement mechanism provides for settlement of

funds and mutual fund units in case of subscription and redemption orders. The transfer of funds

and units in respect of redemptions and subscriptions, respectively, is effected to the

broker/Clearing Members' settlement / pool account. Investors receive redemption amount (if

units are redeemed) and units (if units are purchased) through broker/clearing members' pool

account.All requests for subscription and redemption are settled on individual basis and only to

the extent of the funds/units paid in by participants/clients on the settlement day. Receipt and

transfer of funds and units for subscription are done on a T+1 day basis. . Receipt and transfer of

mutual fund units for redemption is done on T day and is conducted for units in dematerialised

form only. The transfer of funds for redemption is carried out on a T+1, T+2 and T+3 basis

depending upon the category of funds.

The settlement cycles are in accordance with the settlement schedules issued by NSCCL from

time to time.

NSCCL is only a facilitator and not a counter party for the subscription and redemption of units.

Subscription of units:

Participants have to open a separate clearing bank account for the purpose of settlement of funds

for subscription.

The depository pool accounts of the Participants in the cash segment are used for the purpose

of settlement of subscription units.

Funds pay-in confirmation files are downloaded to participants on the T day for units

subscribed.

Participants have to provide funds in their settlement accounts by 8.30 a.m. on the T+1 day.

Participants have to upload payment confirmation files on the T+1 day by 9.30 a.m.

identifying transactions for which payments have been received and transactions for which

payments have not been received. Wherever the funds collected from the bank account fall short

of the amount indicated in the details provided by the participant, the details are considered

defective and are not further processed. In such cases, the funds collected, if any, are returned to

the designated bank account of the participant.A client-wise receivable obligation report (DLVR)

is downloaded to participants on T+1 day for units allotted under subscription.A Demat Final

Receipt Statement (DFRS) is downloaded to Participants after the release of payout of

subscription units to their respective pool accounts on the T+1 day.

Redemption of units

Investors are required to transfer units for their transacted orders to the NSCCL pool account on

the T day by 4.30 p.m. under settlement type “U” (Normal Redemption). The details on such

instructions and settlement procedure of redemption orders are given in the circular

NSE/CMPT/16506 dated December 10, 2010 and NSE/CMPT/18823 dated September 08, 2011

respectively.Demat Final Delivery Statement (DFDS) is downloaded to Participants on the T day

after units are received by NSCCL. A client-wise funds receivable obligation report (FNDS) is

downloaded to Participants on T+1 day for redemption proceeds receivable on the T+1 , T+2 and

T+3 days.Funds payout for redemption is effected to the Participants' clearing bank account as

per the settlement schedule issued for the various settlement types.

Major Players OF Mutual Funds in India

At present following are the main players in the Mutual Fund Industry:-

1.Unit Trust of India.

2. ABN Amro Mutual Fund.

3.Benchmark Mutual Fund.

4.Birla Sun life Mutual Fund.

5.Can bank Mutual Fund.

6.DBSChola Mutual Fund.

7.DSP Merrill Lynch Mutual Fund.

8.Deutsche Mutual Fund.

9.Escorts Mutual Fund.

10.Fidelity Mutual Fund.

11.HDFC Mutual Fund

12.HSBC Mutual Fund.

13.ICICI Prudential Mutual Fund.

14.INGVysya Mutual Fund.

15.Kotak Mahindra Mutual Fund.

16.LIC Mutual Fund.

17.Lotus India Mutual Fund.

18.Optimix Mutual Fund.

19.Principal Mutual Fund.

20.Quantum Mutual Fund.

21.Reliance Mutual Fund.

22.SBI Mutual Fund.

23.Sahara Mutual Fund.

24.Sundaram BNP Paribas Mutual Fund.

25.Tata Mutual Fund.

26.Taurus Mutual Fund.

How to manage mutual fund portfolio

A mutual fund is an investment avenue for small and large investors alike. The investors’ money

is pooled, professionally managed & invested by professional fund managers. This benefits

investors as they can get the advantages of scale as well as returns from a professionally

managed portfolio at a fraction of the cost. Through this diversification, one’s portfolio risk is

reduced; thus enhancing the Risk Adjusted Returns. In short, mutual funds helps to generate

wealth through capital appreciation in the long term (depending on one’s investment horizon and

goals) through a diversified portfolio at a low cost and lower risk.

One can invest in both equity and debt funds at a low cost and without the need for daily

monitoring. Ideally, one should look at investing 70% in equity funds and 20% in debt

funds, and 10% in gold funds (either via ETF or gold funds) – the mentioned allocation is

suitable for a person who has risk appetite of moderate – high and is willing to stay

invested for a long term. The best way to invest in a mutual fund is first to understand

one’s risk profile and based on the risk profile, one should select the appropriate asset

allocation (Debt, Equity, Gold, etc.). If one loses sleep over the ups and downs in the

stock market, it will be better to avoid any significant exposure to equity funds. However,

if the investor is willing to take risks and has the ability to hold on to the investment for a

reasonable period, equity funds are the best option to reach one’s financial goal. Also

within the equity holdings, funds can be further diversified to Large/Mid &

Small/Balanced funds.

However managing one's diversified portfolio needs adequate disciplined approach of

investment and maintenance. Here are the few methods that can be followed in-order to

manage one's mutual fund portfolio.

Diversify the holdings

In practice, not all funds invested in different portfolios such as bonds, debt instruments, stocks,

etc. incur similar profit all the time; as some funds can give substantial returns and others might

not. So it is essential for an individual to look into the mutual fund category before investing, the

type of fund i.e. Large/Mid&Small/Balanced/Gold/Debt etc, returns generated in the past and

also the associated risk.. You can choose some of these funds based on your portfolio mix

keeping in mind your risk appetite and financial plans.A high performing fund for a particular

year may not perform well in the future years or vice versa, and basing investment decisions on

this will not bode well for the long term. For example, if one invests money across several funds

equally, and if one fund (Fund A) does badly, while the others give moderate returns and Fund B

yields very high returns; then the losses made in Fund A will be offset by the gain in Fund B –

hence it would be advisable to diversify/invest in multiple funds in order to reduce the risk.

Risk Profile

Before investing one should know whether you are a risk taker or averse to risk. Risk tolerance is

measured by how much market risk (fluctuations/volatility) you can handle at a given period of

time, and the higher your risk tolerance you can have a higher allocation towards equity oriented

avenues as compared to debt, bonds etc, whereas if the risk tolerance level is low then your

portfolio should have a lower allocation towards equity in relation to debt instruments.

Time Horizon

This is a very important factor to consider, since this is based on one's financial goals – the

shorter the time frame for the goal is (e.g. higher education) it is better to invest in debt

instruments, and for longer time frame goals it is better to invest in equities (via mutual funds). If

one is willing to invest for the long term, then equity mutual funds are the right investment

decision. As holding the investments for a longer term period will benefit the investors, due to

the power of compounding, as well as zero long term capital gains tax for equity instruments.

Performance

A very crucial step towards managing your mutual fund portfolio is to revisit your portfolio from

time to time, and make check/measure the performance. If the performance is inline with the

market condition and expected returns, then one can continue holding the same portfolio mix.

However if the portfolio has not been successful in delivering the expected returns then one can

consider small modification in the same. However it is advisable to stay invested in an equity

oriented avenue for a longer time before making any switch.

Tax Consequences

When you buy and hold an individual stock or bond, you must pay income tax each year on the

dividends or interest you receive. But you won't have to pay any capital gains tax until you

actually sell and unless you make a profit.

Mutual funds are different. When you buy and hold mutual fund shares, you will owe income

tax on any ordinary dividends in the year you receive or reinvest them. And, in addition to owing

taxes on any personal capital gains when you sell your shares, you may also have to pay taxes

each year on the fund's capital gains. That's because the law requires mutual funds to distribute

capital gains to shareholders if they sell securities for a profit that can't be offset by a loss.

Tax Exempt Funds

If you invest in a tax-exempt fund — such as a municipal bond fund — some or all of your

dividends will be exempt from federal (and sometimes state and local) income tax. You will,

however, owe taxes on any capital gains.

Bear in mind that if you receive a capital gains distribution, you will likely owe taxes — even if

the fund has had a negative return from the point during the year when you purchased your

shares. For this reason, you should call the fund to find out when it makes distributions so you

won't pay more than your fair share of taxes. Some funds post that information on their websites.

SEC rules require mutual funds to disclose in their prospectuses after-tax returns. In calculating

after-tax returns, mutual funds must use standardized formulas similar to the ones used to

calculate before-tax average annual total returns. You'll find a fund's after-tax returns in the

"Risk/Return Summary" section of the prospectus. When comparing funds, be sure to take taxes

into account.

Tax Reckoner 2013-14

The rates are applicable for the Financial Year 2013-14.

A. Applicable Income Tax Rates – Investments in Mutual Fund Schemes

Tax Implication on Dividend received by Unit holders

Resident Individual/HUF Domestic corporates NRI

Dividend

Equity Oriented

Schemes Tax Free Tax Free Tax Free

Other than

Equity Oriented

Schemes Tax Free Tax Free Tax Free

Dividend Distribution Tax (Payable by the Scheme)

Equity Oriented

Schemes*

Nil Nil Nil

Money Market &

Liquid Schemes

25%+ 10%

Surcharge+ 3% Cess

= 28.325%

30%+ 10%

Surcharge+ 3% Cess

= 33.99%

25%+ 10%

Surcharge+ 3% Cess

= 28.325%

Other than Equity

Oriented Schemes

Applicable Upto 31st May, 2013

12.5%+ 10%

Surcharge+ 3% Cess

= 14.1625%

30%+ 10%

Surcharge+ 3% Cess

= 33.99%

12.5%+ 10%

Surcharge+ 3% Cess

= 14.1625%

Applicable from 1st June, 2013

25%+ 10%Surcharge

+ 3%Cess

= 28.325%

30%+ 10%Surcharge

+ 3%Cess

= 33.99%

25%+ 10%Surcharge

+ 3%Cess

= 28.325%

Capital Gain Taxation

Resident

Individual/HUF

Domestic

Corporates

NRI **

Long Term Capital Gains (Units held for more than 12 months)

Equity Schemes* Nil Nil Nil

Other than Equity

Oriented Schemes

(listed)

10% without

indexation or 20%

with indexation

whichever is lower +

10% Surcharge $ +

3% Cess

10% without

indexation or 20%

with indexation


Surcharge as

applicable $$ + 3%

Cess

10% without

indexation or 20%

with indexation


10% Surcharge $ +

3% Cess ***

Without Indexation = 11.33% =10.815% or 11.33% = 11.33%

With Indexation = 22.66% = 21.63% or 22.66% = 22.66%

Schemes other than

Equity oriented

schemes (unlisted)

10% without

indexation or 20%

with indexation


10% Surcharge $+ 3%

Cess

10% without

indexation or 20%

with indexation


Surcharge as

applicable $$ + 3%

Cess

10% without

indexation ^^ + 10%

Surcharge $ + 3%

Cess

Without Indexation = 11.33% =10.815% or 11.33% = 11.33%

With Indexation = 22.66% = 21.63% or 22.66% = Not Applicble

Short Term Capital Gains (Units held for 12 months or less)

Equity Oriented

Schemes*

15%+ 10% Surcharge

$ + 3% Cess

15% + Surcharge as

applicable $$ + 3%

Cess

15% + 10% Surcharge

$ + 3% Cess

= 16.995% = 16.223% or

16.995%

= 16.995%

Other than Equity

Oriented Schemes

30%^ + 10%

Surcharge $ + 3%

Cess

= 33.99%

30% + Surcharge as

applicable $$ + 3%

Cess

=32.445% or 33.99%

30%^+ 10%

Surcharge $ + 3%

Cess

=33.99%

Tax deducted at source pertaining to NRI Investors #

Short Term Capital Gain Long Term Capital Gain

Equity Oriented Schemes 16.995% ## Nil

Other than Equity Oriented

schemes (Listed)

33.99% 22.66%@

Other than Equity Oriented

schemes (Unlisted)

33.99% 11.33%

*STT will be deducted on equity oriented schemes at the time of redemption and switch to the

other schemes. Mutual Fund would also pay securities transaction tax wherever applicable on the

securities sold

$ Surcharge at the rate of 10% shall be levied in case of individual / HUF unit holders where

their income exceeds Rs 1 crore.

$$ Surcharge at the rate of 5% shall be levied for domestic corporate unit holders where the

income exceeds Rs 1 crore but less than 10 crores and at the rate of 10%, where income exceeds

10 crores.

** The tax rates are subject to DTAA benefits available to NRI’s. As per the Finance Act 2013,

submission of tax residency certificate (“TRC”) will be necessary for granting Double Taxation

Avoidance Agreement (“DTAA”) benefits to non-residents. A taxpayer claiming DTAA benefit

shall furnish a TRC of his residence obtained by him from the Government of that country or

specified territory. Further, in addition to the TRC, the non-resident shall also provide such other

documents and information subsequently, as may be prescribed by the Indian Tax Authorities.

*** These are the tax rates applicable to capital gains, in case the rate of tax is lower than 20%

and if the NRI does not have a Permanent Account Number, then for the purpose of TDS, the

withholding tax rate would be 20%

# As per the Finance Act 2012, with effect from July 1, 2012, a list of transactions is proposed to

be specified, wherein the rate for tax deduction at source needs to be determined by the assessing

officer. In case the transaction of sale of mutual fund units by an NRI gets covered within such

list, then an application would be required to be made to the assessing officer to determine the

tax deduction at source rate

## Subject to NRI’s having Permanent Account Number in India

^^ In case of transfer of unlisted securities by non-resident, the tax rates in case of long term

capital gains shall be 10% (plus surcharge and cess) without indexation

^Assuming the investor falls into the highest tax bracket

@ after providing for indexation

B. Income Tax Rates (i) For Individual, Hindu Undivided Family, Association of Persons, Body of Individuals and Artificial juridical persons.Taxable Income Tax Rates (%)Upto Rs.2,00,000 (a)(b) Nil Rs. 2,00,001 to Rs. 5,00,000 (c) (d) 10% Rs. 5,00,001 to Rs.10,00,000 (c) 20% Rs. 10,00,000 and above (c) (e) 30%

a. In the case of a resident individual of the age of sixty years or above but below eighty years, the basic exemption limit is Rs.2,50,000.

b. In the case of a resident individual of the age of eighty years or above, the basic exemption limit is Rs.5,00,000/-

c. Education cess is applicable at the rate of 3 percent of income-tax. No Surcharge is applicable.

d. The Finance Act 2013 provides a rebate of Rs.2,000 for individual having Total Income uptoRs. 5 lakhs.

e. As per the Finance Act, 2013, surcharge at the rate of 10% is applicable on income exceeding Rs. 1 crore; Marginal relief for such person is available.

(ii) Securities Transaction Tax (STT) STT is levied on the value of taxable securities

transactions as under:

TransactionRatesPayable By Purchase/ Sale of equity shares

0.1%* Purchaser/Seller Purchase of units of equity oriented mutual fund (delivery based )

on recognized stock exchange # Nil Purchaser Sale of units of equity oriented mutual fund

(delivery based ) on recognized stock exchange # 0.001% Seller Sale of equity shares, units of

equity oriented mutual fund (non delivery based) 0.025% Seller Sale of an option in securities

0.017% Seller Sale of an option in securities, where option is exercised 0.125% Purchaser Sale

of a futures in securities # 0.010% Seller Sale of unit of an equity oriented scheme to the Mutual

Fund # 0.001% Seller # Effective from 1st June, 2013.

(iii) Capital GainParticulars Short Term

capital gains tax rates (a)

Long Term capital gains tax rates (a)

Sale transactions of equity shares / units of an equity oriented scheme which attract STT

15% Nil

Sale transaction of other listed units other than units mentioned above (without STT)

Individuals (resident and non-resident) Progressive slab rates – as per B above

20% with indexation 10% without indexation

( for units)Firms including LLP (resident and non-resident)

30%

Resident Companies 30%Overseas financial organisations specified in section 115AB

40% (Corporate)30% (non-corporate)

10% for units purchased in foreign currency @@

FIIs 30% 10%@@Other Foreign Companies 40% 20% with indexation

10% without indexationLocal Authorities 30% 20% with indexation

10% without indexationCo-Operative Society Rates Progressive SlabSale transaction of un-listed units Individuals (resident and non-resident) Progressive slab

rates– as per B 20% with indexation10% without indexation

above **Firms including LLP (resident and non-resident)

30%

Resident Companies 30%Overseas financial organisations specified in section 115AB

40% (Corporate) 30% (non-corporate)

10% for units purchased in foreign currency @@

FIIs 30% 10%@@Local Authorities 30% 20% with indexation

10% without indexationCo-Operative Society Rates Progressive SlabAny other non-resident 40% 10% without indexationThese rates will further increase by surcharge, if applicable & education cess@@without indexation** In case of Non resident, long term capital gains arising from transfer of unlisted units will be taxable at the rate of 10% (plus surcharge and cess) without indexation.

SIPs best way to create wealth via mutual funds

At the very basic, wealth creation refers to the process of deploying your money in a manner that

there is real-value accretion over the long run. In other words, you should deploy your savings in

such a way that the rate of return on your money beats the rate of inflation.

For example, today you spend Rs 100 to buy Product A. Now the rate of inflation

in the economy is, say, 8% per annum. So we can assume that one year from now, the cost of the

same Product A will be Rs 108. So to create real value, you should deploy your Rs 100 today in

such a way and in such products that after a year, after paying for taxes if any, you should still

have more than Rs 108. If your savings after one year is just Rs 108, you have not created any

value, while if the value of your savings is less than Rs 108, you have actually destroyed value in

real terms.

The idea here is to invest in such a way that

your purchasing power is always more than

what the rate of inflation is able to destroy.

It is true that you may not be able to beat

the rate of inflation in the short term, like in

every year. But the aim should be to beat

the inflation rate over the long term, that is

over 10, 15, 20 years. In India, over the past several years, stocks, gold and real estate

have beaten the rate of inflation, while instruments like bank fixed deposits and bonds have not

been able to do that in any significant way. So financial planners advise their clients, who are not

very financially savvy, to take the equities route for wealth creation with some parts of the

money going into debt, gold and real estate.

The illiquidity factor attached to real estate — which is your not being

able to sell your property exactly when you need the money and also at the right price — is one

of the most limiting factors for any decision to invest in this investment product. And for

investing in equity and debt, financial planners advise their clients to take the mutual fund route.

For example, according to a note prepared by BhavinSangoi and

BhuvanaSreeram of freedom Financial Planners, in the last five years, a portfolio of five mutual

fund schemes — consisting of four equity schemes investing in large-, medium- and small-cap

stocks and one debt scheme — returned about 12.70% on a compounded annual basis. So a

systematic investment plan (SIP) of Rs 10,000 every month for five years in these funds

amounted to about Rs 8.3 lakh. In comparison, if the same Rs 10,000 was put in a monthly

recurring deposit for five years, the total corpus would be Rs 7.44 lakh, the note shows.

And this return in the mutual funds came despite the fact that the stock market has mostly

remained flat on a point-to-point basis over this five-year period. "The important thing here is to

invest regularly and stay away from reacting to market volatility. Undisputedly, mutual funds are

a great wealth-creation vehicle," the note by Sangoi and Sreeram says.

To follow this route, financial planners and advisers say that the SIP route to

invest in mutual funds is the best way: It inculcates discipline in one's approach to investment,

helps the investor negotiate volatility and has a strong potential to create wealth in the long run.

3.2 Basic theories of the topic

What is NAV?

Net Asset Value (NAV) represents a fund's per share market value. This is the price at which

investors buy ("bid price") fund shares from a fund company and sell them ("redemption price")

to a fund company.Buying and selling intofunds is done on the basis of NAV-related prices.The

NAV of a mutual fund are required to be published in newspapers. TheNAV of an open end

scheme should be disclosed on a daily basis and theNAV of a close end scheme should be

disclosed at least on a weekly basis. It is derived by dividing the total value of all the cash and

securities in a fund's portfolio, less any liabilities, by the number of shares outstanding. An NAV

computation is undertaken once at the end of each trading day based on the closing market prices

of the portfolio's securities. For example;

Scheme ABN

Scheme Size Rs. 5, 00, 00,000 (Five Crores), Face Value of Units Rs.10/-

Scheme Size 5, 00, 00,000

--------------------------- = ------------------- = 50, 00,000

Face value of units 10

The fund will offer 50, 00,000 units to Public.

Investments: Equity shares of Various Companies.

Market Value of Shares is Rs.10, 00, 00,000 (Ten Crores)

Rs. 10, 00, 00,000

NAV = -------------------------- = Rs.20/-

50, 00,000 units

Thus each unit of Rs. 10/- is Worth Rs.20/-

It states that the value of the money has appreciated since it is more than the face value

Basis of Comparison of various schemes of mutual funds

1. BETA

BETA measures the sensitivity of the stock to the market. For example if beta =1.5, it means the

stock price will change by 1.5% for every 1% change in sensex. It is also used to measures the

systematic risk. Systematic risk means risks which are external to the organization like competition,

government policies. They are non-diversifiable risks.

Beta is calculated using regression analysis; Beta can also be defined as the tendency of a security's

returns to respond to swings in the market. A beta of 1 indicates that the security's price will move

with the market. A beta less than 1 it means that the security will be less volatile than the market. A

beta greater than 1 indicates that the security's price will be more volatile than the market. For

example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

Beta>11thenxaggressivexstocks

If1beta<1xthen1defensive1stocks

If beta=1 then neutral

So, it’s a measure of the volatility, or systematic risk, of a security or a portfolio in comparison

to the market as a whole. Many utilities stocks have a beta of less than 1. Conversely, most hi-

tech NASDAQ-based stocks have a beta greater than 1, offering the possibility of a higher rate of

return but also posing more risk.

2. Standard Deviation

A measure of the dispersion of a set of data from its mean. The more spread apart the data, the

higher the deviation. Standard deviation is calculated as the square root of variance.

In finance, standard deviation is applied to the annual rate of return of an investment to measure

the investment's volatility. Standard deviation is also known as historical volatility and is used by

investors as a gauge for the amount of expected volatility. Standard deviation is a statistical

measurement that sheds light on historical volatility. For example, a volatile stock will have a

high standard deviation while the deviation of a stable blue chip stock will be lower. A large

dispersion tells us how much the return on the fund is deviating from the expected normal

returns.

3. Sharpe Ratio

A ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is

calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the

result by the standard deviation of the portfolio returns.

The Sharpe ratio tells us whether the returns of a portfolio are because of smart investment decisions

or a result of excess risk. This measurement is very useful because although one portfolio or fund can

reap higher returns than its peers, it is only a good investment if those higher returns do not come

with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted

performance has been.

4. Treynor Ratio

The treynor ratio, named after Jack Treynor, is similar to the Sharpe ratio, except that the risk

measure used is Beta instead of standard deviation. This ratio thus measures reward to volatility.

Treynor Ratio = (Return from the investment – Risk free return) / Beta of the

investment. The scheme with the higher treynor Ratio offers a better risk-reward equation for the

investor. Since Treynor Ratio uses Beta as a risk measure, it evaluates excess returns only with

respect to systematic (or market) risk. It will therefore be more appropriate for diversified

schemes, where the non-systematic risks have been eliminated. Generally, large institutional

investors have the requisite funds to maintain such highly diversified portfolios. Also since Beta

is based on capital asset pricing model, which is empirically tested for equity, Treynor Ratio

would be inappropriate for debt schemes.

5. Expense Ratio

Among other things that an investor must look at before finalising a scheme, is that he must

check out the Expense Ratio. Expense Ratio is defined as the ratio of expenses incurred by a

scheme to its Average Weekly Net Assets. It means how much of investors money is going for

expenses and how much is getting invested. This ratio should be as low as possible. Assume that

a scheme has average weekly net assets of Rs 100 cr. and the scheme incurs Rs. 1 cr as annual

expenses, then the expense ratio would be 1/ 100 = 1%. In case this scheme’s expense ratio is

comparable or better than its peers then this scheme would qualify as a good investment, based

on this parameter only. If this scheme performs well and its AUM increases to Rs. 150 cr in the

next year whereas its annual expenses increase to Rs. 2 cr, then its expense would be 2/ 150 =

1.33%. It is not enough to compare a scheme’s expense ratio with peers. The scheme’s expense

ratio must be tracked over different time periods. Ideally as net assets increase, the expense ratio

of a scheme should come down.

6. Exit Load

Exit Loads, are paid by the investors in the scheme, if they exit one of the scheme before a

specified time period. Exit Loads reduce the amount received by the investor. Not all schemes

have an Exit Load, and not all schemes have similar exit loads as well. Some schemes have

Contingent Deferred Sales Charge (CDSC). This is nothing but a modified form of Exit Load,

wherein the investor has to pay different Exit Loads depending upon his investment period. If the

investor exits early, he will have to bear more Exit Load and if he remains invested for a longer

period of time, his Exit Load will reduce. Thus the longer the investor remains invested, lesser is

the Exit Load. After some time the Exit Load reduces to nil; i.e. if the investor exits after a

specified time period, he will not have to bear any Exit Load.

7. Manager Tenure

Manager Tenure refers to the amount of time, usually measured in years, a mutual fund manager

or management team has been managing a particular mutual fund. Managers of actively-

managed funds are actively trying to outperform a particular benchmark, such as the S&P 500;

whereas the manager of a passively-managed fund is only investing in the same securities as the

benchmark. When looking at a mutual fund's historic performance is sure to confirm the manager

or management team has been managing the fund for the time frame you are reviewing. For

example, if you are attracted to the 5-year return of a mutual fund but the manager tenure is only

one year, the 5-year return is not meaningful in making the decision to buy this fund.

3.3 Research on the selected topic

Mutual funds garner 1.5 trillion in May, 2014:

Investors pumped in a net Rs 1.5 trillion in various mutual fund schemes in May, the highest

amount in more than three years. Investors had poured in Rs 1.09 lakh crore in April. Industry

experts attribute the rise in inflows to improved market sentiment over the past two months and

steps by the Securities & Exchange Board of India, the capital market regulator, to make the

mutual fund sector more attractive. According to industry experts, inflows into mutual funds may

increase in the months ahead. Mutual funds pool money raised from the public and invest it on

their behalf in accordance with a stated set of objectives.At the gross level, mutual funds

mobilized over Rs 17.06 lakh crore in May, while redemptions amounted to Rs 15.6 lakh crore

during the month.The net inflows in May climbed to Rs 1,46,095 crore, the highest level in a

single month since April 2011, when investors had put in Rs 1.84 lakh crore, as per Sebi

data.Total assets under the management of mutual funds have grown to a record Rs 10.11 lakh

crore as of May 31. SEBI recently cleared the first long-term policy for the sector, proposing a

number of tax benefits and measures for the growth of the mutual fund business. The policy is

aimed at channelizing household savings into equities and mutual funds.In 2013-14, mutual

funds had garnered almost Rs 54,000 crore from investors against Rs 76,539 crore in the

preceding financial year.

Best sector mutual funds to invest now in 2014

There are several sectors like Pharma, FMCG, Banking, Infra, IT etc. where sector based mutual

funds have been investing. However, there are few sectors which are doing well and expected to

do well in the coming 3-5 years. What are the best sector based mutual funds to invest now?

1. Banking Sector

funds: Another sector

which would benefit

from new government

focus on infrastructure

development is Banking

Sector. All funding for

such infrastructure

http://businesstoday.intoday.in/story/investor-tips-to-choose-the-right-mutual-fund-scheme-plan/1/203801.html

http://businesstoday.intoday.in/story/mutual-funds-assets-under-management-in-may-2014/1/206966.html

would happen through bank and financial sector. This sector is expected to benefit more from

such Infra development. Investors can look for Reliance Banking fund, ICICI Banking and Fin.

Services funds, etc. for a period of 3 to 5 years time frame. Investors with high risk appetite can

only invest in these funds.

2. Infra Sector funds: As indicated by the new Government in its manifesto, its focus would be

on Infra Sector development in coming years. With such focus, construction, Infrastructure and

Banking companies are expected to grow in coming years. Investors can invest in Infra funds

like BSL Infra fund, Tata Infra fund, HDFC Infra Fund and ICICI Infra funds etc. High risk

appetite investors who are willing to invest for a time frame of 3 to 5 years through SIP can

consider them.

3. Pharma Sector Funds:Pharma and Health care sector has been evergreen in the last few

years. We expect that this sector would continue to do well in the next few years. Investors can

look for Reliance Pharma Fund, UTI Pharma and Healthcare fund etc. for investment. High risk

appetite investors willing to invest 3 to 5 years through SIP can consider these funds.

4. Media and Entertainment sector funds: While you would have seen good potential in this

sector, have you ever heard about any top fund in this sector? There are few funds which are

investing in this sector. However, Reliance Media and Entertainment fund has generated 33%

returns in last 1 year and 18% annualized returns in last 5 years? High risk appetite investors

willing to invest through SIP for 3 to 5 years can consider this fund.

Concluding remarks: Sector based mutual funds are high risk. However, there is good potential

to invest in a few sectors which are discussed above. Investors with high risk appetite, willing to

invest for 3 to 5 years can consider these funds.

5. Transport and Logistics sector funds: One of the sector which has potential to grow is

transport and logistics. There are few funds which are investing in this sector. Do you know that

UTI Transport and Logistics fund has generated 80% returns in last 1 year? This fund has been

consistently performing well and given more than 30% annualized returns in last 5 years.

Investors with high risk appetite and willing to invest through SIP for 3 to 5 years can consider

this fund.

Mutual Funds Witness Rise in Investments by Group Companies

Leading fund houses have seen a considerable increase in investments in their schemes by group

companies in the first 2 months of the current fiscal year.

HDFC Mutual Fund, the largest fund house, witnessed a 17 per cent rise in investment in

its schemes to Rs. 6,462 crore by group companies during May.

HDFC Mutual Fund was followed by ICICI Prudential MF (16 per cent) and Birla Sun

Life MF (13 per cent) and Reliance MF (12 per cent).

However, UTI MF saw a drop of 2 per cent in investment in its schemes to Rs. 3,069

crore by related companies during the period.

Moreover, in April, top 5 fund houses saw an increase in investments in the range of 13

per cent and 60 per cent.

In absolute terms, Birla Sun Life MF saw an investment of Rs. 8,072 crore from its

related entities in May, ICICI MF (Rs. 5,749 crore) and Reliance MF (Rs. 4,118 crore).

Overall, Birla Sun Life MF has over 8 per cent of its Assets Under Management (AUM)

from investments by group firms followed by HDFC MF (5 per cent), ICICI Prudential

MF (4.8 per cent) UTI MF (3.8 per cent) and Reliance MF (3.7 per cent).

The fund houses have been disclosing the exact amount of investments by their group

companies in their respective schemes following the Securities and Exchange Board of

India (Sebi) directive.

As per Sebi's direction, MFs are required to make monthly disclosure of AUM from

different categories of schemes, AUM from places beyond top-15 cities, contribution of

sponsor and its associates in AUM and contribution from different types of investors

(retail, corporate etc).

The fund houses also need to make disclosures about state-wise contribution and AUM

from sponsor group or non-sponsor group distributors on their websites and share the

same with AMFI within 7 working days from end of the month.

These rules came into effect from this month.

The norms were recently framed by the market regulator as part of its first-ever long-term

policy for the mutual fund industry.

Sebi wants mutual funds to enhance use of online route to sell products

Taking cue from an ever-growing number of people using Internet for banking, shopping

and ticketing needs, Sebi wants mutual funds to increase the use of online medium for

sale of investment products.

The regulator is of the view that a greater use of Internet as a distribution channel can

help increase the penetration of mutual funds, especially among young investors.

Under its new long-term policy for mutual funds, which has been approved by the Sebi

board and will soon be made public, the fund houses would be asked "to enhance the

online investment facility and tap the Internet savvy users to invest in mutual funds."

The Securities and Exchange Board of India (Sebi) said that online phenomenon is

increasing rapidly as more and more people especially younger generation prefers to

carry out most of transactions online such as Internet banking, shopping and ticketing.

"This phenomenon brings opportunities for mutual funds to tap this segment of

population by offering them an option to invest online using Internet," Sebi said in its

draft proposals.

At present, many fund houses are offering facility for online investment, but Sebi said

there is a need to promote and make it more user friendly for investors by improving the

infrastructure and efficiencies.

"Online distribution not only increases customer convenience, but also significantly

improves distributor economics," Sebi said.

The regulator would also ask mutual fund players to tap burgeoning mobile-only Internet

users for direct distribution of investment products.

According to an estimate, number of Internet-enabled mobile phones in the country is

expected to increase from 10-15 millions in 2010 to 300-400 millions in 2015.

SBI Mutual launches dual advantage close ended debt scheme -New Delhi, May

29:

SBI Mutual Fund on Thursday launched SBI Dual Advantage Fund — Series III, a 36-

month close-ended debt-oriented hybrid scheme.

The scheme will invest 10-20 per cent of the assets in equity and equity related

instruments and 80-85 per cent in debt securities or fixed income.

“Under this scheme, investor can also avail indexation benefits and thereby potential tax

efficient returns as per current tax law,” the company said in a press release.

The NFO period of SBI Dual Advantage Fund Series III starts from May 29, 2014-June

12, 2014.

The company said it will focus primarily on companies that have demonstrated

characteristics such as market leadership, strong financials and quality management.

“This fund gives investors an opportunity to grow by endeavouring to minimise credit

risk & matching maturity reduces interest rate risk,” said DP Singh, ED and CMO,

Domestic Business, SBI Mutual Fund.

The company said the fund is suitable for investors with low to medium risk appetite; to

HNIs who are in highest tax bracket; to first time mutual fund investors, and investors

who are looking for income as well as capital appreciation.

Sector/thematic funds

One purpose of investing in mutual funds is diversification. So, among the multitude of offerings

is a category called sector or thematic funds. These focus on one or selected sectors or invest

according to their chosen theme. However, these are risky compared to diversified funds due to

their limited mandate.The returns from a sector fund depends on the performance of one small

section of the market. This may differ in degree and direction from the overall market. Therefore,

these funds carry a high concentration risk.

Sector funds have the capacity to substantially outperform diversified funds. However, at the

same time, they may get hit harder in downturns. In 2007, the metal sector was the best

performer as the S&P BSE Metal index delivered a return of 121% compared to 47% rise in the

Sensex. But when markets tanked the next year, the metal index fell 74% while the Sensex

delivered a negative

return of 52%. The

broader market was

cushioned by the presence

of other sectors, for

instance defensive ones

such as FMCG, which did

not do as badly as others.

Investors should

understand that due to

cyclical nature of

businesses, a few sectors

will do better than others

at any given point in time.

No sector index has

topped the charts for long.

"I am not a big fan of

thematic and sector

funds," says Kumar of

Union KBC Mutual Fund.Thematic funds, however, have a broader investment universe

compared to sector funds. But investors chase the top performing theme and buy when it has

already had a good run. For instance, in 2005-07, many fund houses came out with infrastructure

funds. These were beaten badly in 2008 and failed to make a comeback in the subsequent rally in

2009. In the past five years, infrastructure has been the worst performing category with an

annualised return of just 8%.

"Sector funds can provide extra returns to the portfolio if you can get both the legs of the

investment, the upturn as well as the downturn, right," says Nagpal of Outlook Asia Capital.

"It is advisable to invest in diversified mutual fund schemes which invest in multiple sectors.

This mitigates risk. One can invest in a sector/thematic fund strategically if one is expecting a

rally (in that part of the market)," says Anil Rego of Right Horizons.

Consistent performers

We know that investing in equity mutual funds entails risk. It is imperative to know that any

given fund may not be in the top quartile all the time. Hence, for investors who are not chasing

toppers and are willing to be patient and stick to a fund for its consistency, there is a set of funds

that has managed to deliver consistent performance over the last five years.

Anil of Right Horizons says that during a bull run most funds perform well. "It is advisable to

check a fund's performance during a bear phase also. If it is better than the benchmark, one can

consider it ideal for investment," he says.

Keeping in mind the volatility in performances, Money Today and Value Research have

identified 10 funds that have delivered consistent returns over the last five years.

To qualify, the funds needed a rating history of over five years. Then, we filtered out funds

which have never fallen below 3-star rating on a monthon-month basis for five years. The 10

selected funds have achieved the maximum number of stars during the last five years. The Value

Research's rating analysis is based on the fund's risk-adjusted return score.

The oldest: Let us start with the longest standing equity fund (launched in December 1993),

Franklin India Bluechip Fund, which has delivered 21% a year return over the last five years.

"The fund's single biggest focus is to invest in best large-cap stocks and stick with them through

ups and downs, irrespective of the current flavour or any political or rupee changes," says

AnandRadhakrishnan, CIO, Franklin Equity, Franklin Templeton Investments.

"The fund invests in companies that have transparent managements and are careful about

allocating capital, are run in the best possible way and, hence, are able to withstand adverse

business cycles," he says.

The fund's top 3 sector holdings are banks and software and pharmaceutical companies. "Also,

the fund refrains from stocks with corporate governance issues and companies with high

government intervention," he says.

Beating the benchmark: Birla Sun Life Frontline Equity Fund manages Rs 3,900 crore. It is a

4-star fund with average risk grade. The fund has returned 23.4% a year since launch. Its five-

year annualised returns are 23%.

"The fund may not be a top performer during all time frames, but it is our aim to beat the

benchmark by 300-400 bps every year," says Mahesh Patil, Co-CIO and fund manager of Birla

Sun Life Frontline Equity Fund.

Adding value: We also have a few value funds in this category. One such is ICICI Prudential

Value Discovery Fund. "The fund invests in stocks that offer differentiation and cheap valuation.

The stocks may or may not be a part of the index. The returns could be back-ended but

substantial," says Mrinal Singh, fund manager, ICICI Prudential AMC.

The fund's consistency can be attributed to its decision to stick to value stocks and not being

swayed by greed and fear. "We buy cheap, hold tight and let the value realise," says Singh.

For instance, private sector banks are a big part of the portfolio, followed by stocks from

pharmaceutical and technology sectors, besides the agricultural and shipping space. The fund

refrains from investing in high leveraged businesses such as real estate.

Top 5 Best Performing SIP mutual funds to invest for 2014

We have analyzed top and the best mutual funds to invest and below is the analysis.

1) ICICI Pru Tech Fund

Overview:

The scheme invests in Information Technology and IT dependent companies. Since IT

companies are more dependent on exports of software to US and European countries, the

performance of these funds would dependent on US, Europe and other countries spending on IT

across the globe. US economy has grown in the last 2-3 years and expected to continue to grow

for the next couple of years. This would give an enormous amount of opportunities for IT /

Software companies in India.

Performance of the fund:

This is 1st top performing mutual fund as per our analysis and its 5 year returns are 38% per

annum which has beaten even equity mutual fund returns. This fund gave 20% annualized

returns in last 3 year. This fund is expected to perform well in the future. If you have invested Rs

1,000 in SIP in last 3 years, your invested amount would be Rs 36,000 and investment value

would have been Rs 60,000 now.

Suitable for:

Since this invests only in one sector, i.e. IT, it is high risk high return scheme. Investors with

high risk appetite can invest in these funds.

2) SBI Pharma Fund

Overview: The scheme looks for growth opportunities in various Pharma stocks.


As per our analysis, this is 2nd top performing mutual fund in India. Its 5 year annualized returns

are 35% per annum, which has beaten even equity mutual fund returns. It gave 24% annualized

returns in last 3 year. If you have invested Rs 1,000 in SIP in last 3 years, your invested amount

would be Rs 36,000 and investment value would have been Rs 53,000 now.

Suitable for:

This sector has been performing well in the last 5 years. However, since this is a sector based

fund and invests only in the Pharma industry, it is high risk, high return investment. Investors

with high risk appetite can invest in these funds. This is one of the best mutual funds in India.

3) FT Feeder Franklin US Opps fund

Overview:

The Fund seeks to provide capital appreciation by investing predominantly in units of Franklin

U. S. Opportunities Fund, an overseas Franklin Templeton mutual fund, which primarily invests

in securities in the United States of America. This is one of the top mutual funds in the

International fund category.


This is the 3rd best SIP mutual fund as per our analysis. Last 1 year returns are 46% and last 2

years annualized returns are 29%. If you have invested Rs 1,000 in SIP in the last 3 years

(extrapolated 2 years returns for 3 years), your invested amount would be Rs 36,000 and

investment value would have been Rs 49,500 now.

Suitable for:

This fund invests in FT US Opportunities fund which invests in top US Stocks. This is purely

based on US economic growth. US economy is expected to grow at a higher pace even in next 2-

3 years. However, this is high risk, high return fund. One should consider this risk before

investing in this.

4) SBI Magnum Mid-cap mutual fund

Overview:

The scheme objective is to invest at least 65 per cent in mid cap stocks. Mid-cap stocks are those

which have high potential to grow in the long run. These can create good wealth for investors. s


This is 4th top performing mutual fund in India and its 5 year returns are 26% per annum which

has beaten even equity mutual fund returns. It gave 14 annualized % returns in last 3 year. If you

have invested Rs 1,000 in SIP in last 3 years, your invested amount would be Rs 36,000 and

investment value would have been Rs 47,000.

Suitable for:

Since this invests in mid-cap, this carries a high risk. Investors with high risk appetite looking for

high returns can invest in these funds.

5) Franklin India Smaller Companies fund

Overview:

This fund aims for long term capital appreciation by investing in Midcap and small cap

companies. This fund invests 75% in smaller companies.


This is 5th top performing mutual fund and its 5 year returns are 27% per. It gave 13% annualized

returns in last 3 years. If you have invested Rs 1,000 in SIP in last 3 years, your invested amount

would be Rs 36,000 and investment value would have been Rs 46,500.

Suitable for:

Since this invests in mid-cap, this carries a high risk. Investors with high risk appetite looking for

high returns can invest in these funds.

Tanaya, 08/11/14,

Why mention this in literature review??

Chapter 4

Research Methodology

Every project is started with the objective of getting results either positive or negative. And each

and every project reaches to the stage of completion through the way of some research either

with the help of primary data or secondary data. And getting of any project and getting genuine

results from that depends on the research method used by researcher.

4.1 Problem Statement

Due to falling Rate Of Interest on Bank deposits, It is obvious that investment in Mutual Fund

will grow in year to come. However, there is some lack of awareness of Mutual Fund which is a

hindering factor in expected growth of Mutual Fund Business.

Difficult to change mind of the investors according to their Age and Profession.

Difficult to make an approach to investors.

Difficult to take an appointment with Professional people.

Difficult to remove the fear of risk from the minds of investors.

Primary data:

Primary data was collected with the help of questionnaire which was distributed andcollected

from the respondents of Airoli residents. The questionnaire has two sections; the first section

relates to demographical profile of respondents and the secondpart relates to the perception of

investors of Mutual Funds. The data hasbeen collected directly by door to door investigation.

Secondary data:

It was collected from-

- Books

-Magazines

-Newspapers

-Reports

- Internet

Sample design

Purposive sampling method is used to collect data. 50 respondents each are taken from

Airoliresidents. A structured questionnaire wasgiven to 50 respondents which consisted of both

open ended and close ended questions.

Tanaya, 08/11/14,

Which kind of reports??

Tanaya, 08/11/14,

Correct the grammar

Sample size: - The sample size of 50 respondents each was taken from Airoliresidents

they were asked to fill up the questionnaire.

Questionnaire design: - A Structured questionnaire has been prepared and distributed

among the selected Mutual Funds investors.

Methods of Sampling:

Random sampling is done in AiroliArea.

Purposive sampling

Duration of Study:

The study was carried out for a period of two months, from1stMay to 1st July 2014.

Chapter 5:

Data Analysis and data Interpretation

Q.1 Age wise classification of Respondents.

Age No. Of RespondentsBelow 20 Nil20-29 2230-39 1040-49 850-59 5Above 60 5

44%

20%

16%

10%10%

Age wise classification of Respondents

20-29 30-39 40-49 50-59 Above 60

Interpretation:

According to the survey the respondents were of different age groups. There are no respondents

of age below 20. The investors of age 20-29 are 22 in number with 44%

Q. 2 Gender of the Respondents

Gender No. Of RespondentsMale 34Female 16

Male68%

Female32%

No. Of Re-spondents

Interpretation:

In the survey the number of male Respondents are more in number that is about 68% & the next

position is occupied by female Respondents about 32%. Thus we can say that Men prefer to go

for investments.

Q.3Educational Qualification of investors

Education Qualification No. of investorsGraduates/ P.G 24Under Graduates 22Others 4

48%

44%

8%

No. of investorsGraduates/ P.G Under Graduates Others

Interpretation:

48% of the investors are Graduate/Postgraduates, 44% are Under Graduate and 8% are others (under HSC)

Q.4Occupation of the investors

Occupation No of investorsGovernment service 18Private service 14Business 14Others 4

Interpretation:

In Occupation group, 36% are Private Employees, 28% are Businessman, 28% are Government employees and 8% are in others.

Q.5 Annual income of the respondents

Annual Income No Of RespondentsLess than 1 lakhs 121-2 lakhs 202-3 lakhs 10Above 3 lakhs 8

24%

40%

20%

16%

Annual income of Respondents

Less than 1 lakh 1-2 lakhs 2-3 lakhs Above 3 lakhs

28%

36%

28%

8%

No of investors

Government servicePrivate serviceBusinessOthers

Interpretation:

In the above chart we can see that the Respondents of the income group of less

than 1 lakh are of only 24% and the income group of 1-2 lakhs are of 40%.

Q.6Awareness of Mutual Funds

Options No Of RespondentsYes 47No 3

94%

6%

Awareness of Mutual Funds

Yes No

Interpretation:

In today’s economy most of the investors are aware of the Mutual Funds. From

the above we can see that about 94% of the respondents are aware of Mutual Funds and the rest

6% are not aware of Mutual Funds

Q.7Do the respondents invest their money

Investments No Of RespondentsYes 45No 5

90%

10%

Respondents InvestmentYes No

Interpretation:

From the survey it has been proved that 90% of Respondents invest into Mutual

Funds whereas only 10% of them don’t invest.

Q.8 Amount of the Respondents save yearly

Amounts No of RespondentsLess than 25,000 25Less than 50,000 12Less than 1,00,000 8More than 1,00,000 5

50%

24%

16%

10%

Amount of Respondents

Less than 25,000 Less than 50,000Less than 1,00,000 More than 1,00,000

Interpretation:

From the survey only 50% of Respondents save yearly which is less than

Rs.25,000& more than Rs. 1,00,000 is about only with 10%.

Q.9 Investors preferences for various investments objectives

Options No Of RespondentsSecurity 20Yield 13Maturity 5Tax benefits 2Liquidity 10

40%

26%

10%

4%

20%

Various investments

Security Yield MaturityTax benefits Liquidity

Interpretation:Different types of investors want to invest their funds into various investment objectives,

so that they can enjoy their benefits. According to the survey most of the Respondents want to invest only in those Mutual funds which give them security i.e 40% and very less Respondents want tax benefits i.e, 4%.

Q.10Do you feel investment in mutual fund dependent on reputation of AMCs

Response No of respondentsYes 32No 18

Tanaya, 08/11/14,

Different formatting for different charts...make it consistent..

Yes64%

No36%

No of respondents

Interpretation:

From the above we can see that 64% feel that before investing in mutual fund there is need to be invested in good company so reputation plays an important role. Whereas 36% of the respondents feel that investing in reputed company is not necessary it’s just because, new service provider may come up with new schemes in the market.

Q.11 Source of information for customers about Mutual Fund

Source of information No. of respondentsAdvertisement 5Peer groups 12Bank 10Financial advisors 23

10%24%

20%

46%

No. of respondentsAdvertisement Peer groupsBank Financial advisors

Interpretation:

From this we can see that the Financial Advisor is the most important source of information

about Mutual Fund. Out of which 46% know about Mutual fund Through Financial Advisor,

24% through Peer Group, 20% through Bank, and 10% through Advertisement.

Q.12 Investors invested in different Assets Management Co. (AMC)

Name of AMC No. of respondentsSBI MF 7UTI 14HDFC 9Reliance 13Others 7

14%

28%18%

26%

14%

No. of respondentsSBI MF UTI HDFC Reliance Others

Interpretation:

Most of the Investors preferred UTI with 28% in which 26% have invested in SBIMF, 18% in

HDFC & 14% in Reliance and others(ICICI Prudential, kotaketc).

Q.13 You are Satisfied with transparency of Mutual funds


Yes80%

No20%

No of respondents

Interpretation:

As we can see 80% are Satisfied with transparency of Mutual Fund. But only 20% are not happy because shares of the mutual funds keeps on changing in every now and then in the market so due to this it will not show transparency if there is certain changes.

Q.14 Preference of Investors for future investment in Mutual Fund

Name of AMC’s No. of respondentsSBI MF 14UTI 7HDFC 5Reliance 19Others 5

38%

14%10%

28%

10%

No. of respondents

SBI MF UTI HDFC Reliance Others

Interpretation:

38% prefer to invest in SBI MF, 28% in Reliance, 14% in UTI and 10% in HDFC & other companies.

Q.15 Option for getting Return Preferred by the InvestorsOptions No of respondentsDividend Payout 15Dividend Reinvestment 10Growth 25

30%

20%

50%

No of respondents

Dividend PayoutDividend ReinvestmentGrowth

Interpretation:

From the above graph 50% preferred Growth Option, 30% preferred Dividend Payout and 20% preferred Dividend Reinvestment Option.Q.16 Preference of Investors whether to invest in Sectoral Funds

Options No of respondentsYes 30No 20

60%

40%

No of respondentsYes No

Interpretation:

Out of 50 investors, 40% of investors do not prefer to invest in Sectoral Fund because there is maximum risk, also due to lack of awareness and 60% prefer to invest in Sectoral Fund like sectors like Pharma, FMCG, Banking, Infra.

Q.17 Does introduction of new mutual funds attract customer?


94%

6%


Interpretation:

From this we can say that 96% of customers get attract towards introduction of new MF in the market and only 6% are less interested.

Q.18 Do you feel that mutual fund investment in the current market scenario is the best for the

customer?


60%

40%


Interpretation:

In this 60% of investorsfeel that investing in current market of mutual fund is the. Whereas 40% feel less interesting.

Q.19 Is mutual fund investment better than gold investment?


30%

70%


Interpretation:

Gold is risky and when it comes to maintenance it is difficult, whereas MF provides alternatives, rate of return is best.

Q.20 Investors invested in different kind of investments.

Kinds of investments No of respondentsSavings A/c 5Fixed deposits 10Insurance 10Mutual funds 10Shares/Debentures 5Gold/Silver 5Real estate 5

Savings A/c10%

Fixed deposits20%

Insurance20%

Mutual funds20%

Shares/Debentures10%

Gold/Silver10%

Real estate10%

Kinds of investments

Interpretation:

Savings A/c- low interest rate and only for current n recurring needs

Fixed deposits- high interest rate, tax benefits, serves for future contingency

Insurance- Indemnify (fulfiln compensation 4 loss), a tool For risk cover

Mutual funds-alternates are available, return rate

Shares/Debentures- Good, but highly volatile, return is greater but risk is also involved

Gold/Silver- requires more security only for utility purpose as per culture of society

Real estate- actually good but not affordable for lower prices as compared with other investment option.

Chapter 6

Findings

The study was to analyse whether Mutual fund is really an increasing the wealth and to

know the investors perception regarding investment in Mutual fund and so on & the study

proved it fruitfully.

Most of the investors want guaranteed returns from the investment.

Every fund has some percentage in debt product to avoid high risk of market.

The investors are aware of equity growth mutual funds they do not invest in

proportionate.

Large-cap fund has high risk but potential of high returns.

Most of the equity growth mutual fund provide high returns and high risk in respect of

market condition.

In Occupation group, 36% are Private Employees, 28% are Businessman, 28% are

Government employees and 8% are in others.

Chapter 7

Recommendation and Suggestion

The most vital problem spotted is of ignorance. Investors should be made aware of the

benefits. Nobody will invest until and unless he is fully convinced. Investors should be

made to realize that ignorance is no longer bliss and what they are losing by not

investing.

Large-cap fund should attract investors to invest in mutual funds by introducing new

growth schemes.

While investing, investors should not only take in to consideration their past performance

asset allocation and the returns given during their inception.

Mutual funds offer a lot of benefit which no other single option could offer. But most

of the people are not even aware of what actually a mutual fund is? They only see it as

just another investment option. So the advisors should try to change their mindsets. The

advisors should targetfor more and more young investors.

Young investors as well as persons at the height of their career would like to go for

advisors due to lack of expertise and time.

Before making any investment Financial Advisors should first enquire about therisk

tolerance of the investors/customers, their need and time (how long they want to invest).

Byconsidering these three things they can take the customers into consideration.

Younger people aged under 35 will be a key new customer group into the future,

somaking greater efforts with younger customers who show some interest in investing

should payoff.

Systematic Investment Plan (SIP) is one the innovative products launched by

AssetsManagement companies very recently in the industry. SIP is easy for monthly

salaried person as it provides the facility of do the investment in EMI. Though most of

the prospects and potentialinvestors are not aware about the SIP. There is a large scope

for the companies to tap the salaried persons

Advertising of the schemes in newspaper should be done so that investors get to know

about the schemes performing well.

Mutual fund should provide more information about their investment products and

services. Before investing in mutual fund study historical return of funds, risk

measurement ratios to evaluate fund.

Conclusions

The Indian mutual fund industry has now reached at a stage of maturity in terms of

standards that match with international levels.This study has made an attempt to understand the

financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC),

Products, Channels etc. I observed that many of people have fear of Mutual Fund. They think

their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its

related terms. Many of people do not have invested in mutual fund due to lack of awareness

although they have money to invest. As the awareness and Income is growing the number of

mutual fund investors are also growing.“Brand” plays important role for the investment. People

invest in those Companies where they have faith or they are well known with them. Mutual

Funds now represent perhaps most appropriate investment opportunity for most investors. As

financial markets become more sophisticated and complex, investors need a financial

intermediary who provides the required knowledge and professional expertise on successful

investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund

satisfies these requirements by providing attractive returns with affordable risks.

The fund industry has already overtaken the banking industry, more funds being

under mutual fund management than deposited with banks. With the emergence of tough

competition in this sector mutual funds are launching a variety of schemes which caters to the

requirement of the particular class of investors. Risk takers for getting capital appreciation

should invest in growth, equity schemes. Investors who are in need of regular income should

invest in income plans. The stock market has been rising for over three years now. This in turn

has not only protected the money invested in funds but has also to helped grow these

investments. This has also instilled greater confidence among fund investors who are investing

more into the market through the MF route than ever before.

So the future of mutual funds in India is bright, because it meets investor s needs

perfectly. This will give boost to Indian investors and will attract foreign investors also. It will

lead to the growth of strong institutional framework that can support the capital markets in the

long run.

References/Bibliography:

http://businesstoday.intoday.in

Economic Times

www.moneycontrol.com

www.nsc.org.in

www.ifaonline.co.uk

http://profit.ndtv.com/news/mutual-funds

http://www.thehindubusinessline.com/money-wise/mutual-funds/

http://www.thehindubusinessline.com/money-wise/mutual-funds/

http://profit.ndtv.com/news/mutual-funds

http://www.ifaonline.co.uk/

http://www.nsc.org.in/

http://businesstoday.intoday.in/

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internship students

growth of financial

money market

financial intermediary