Research Project Report

On

“Comparative Study of Debt and Equity

Funds in India”

Submitted in partial fulfillment of PGDM Program

2009-2011

Under the Faculty Guidance of

Ms. Chitra Bhatia Arora
Submitted by
NITIN GUPTA
Roll Number: M200955

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 AIT-SCHOOL OF MANAGEMENT
Greater Noida
DECLARATION

I, Nitin Gupta, study in PGDM (VI Trim. Batch 2009-11) of Apeejay Institute of Technology
(School Of Management), Greater Noida hereby declare that I have completed this project on
“Comparative Study on Debt and Equity Funds in India” as per the requirements of Post
Graduate Diploma In Management (PGDM) . The information presented through this project is
true and original to the best of my knowledge.

I declare that the Project work has not been presented to any university or institute towards the
degree/diploma/fellowship or any other similar title

Date: (Nitin Gupta)

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 ACKNOWLEDGEMENT
This Research Report which is on “Comparative Study on Debt and Equity Funds in
India” is done by me at the research time, provides details regarding the performance of debt
and equity funds in India and the customer’s perception regarding both the funds

I would like to take this opportunity to thank all the people, who extended their
immense help to complete my project. I would like to thank my Research Report guide
Ms. Chitra Bhatia Arora, who spent her valuable time to discuss about the Research and
her continuous co-operation to me and for guiding and helping me to solve all kinds of
queries regarding the Research work.

Last but not the least I would like to thank all the persons, who have directly or
indirectly helped me with their moral support for the completion of my Research Report.

(Nitin Gupta)

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 PREFACE

During post graduation in master of business administration program, students come direct
contact with the market and have to submit the Research Report.

It is great privilege for me to place this report before the readers. Report is related to
“Comparative Study of Debt and Equity Funds in India”. This report is proposed in a
very simple and lucid language. I would also like to start that although every possible
care has been taken to make this report error free. I shall feel highly obliged to all the
readers if the same are brought to my notice. I sincerely express my gratefulness to all
those who have directly or indirectly helped me in preparing this report.

I have spent my 4 months, time to under the guidance of Ms. Chitra Bhatia Arora to
complete the research project.

In brief I can say that this project is a summary of all the information and knowledge,
I have gathered during my Research period.

(Nitin Gupta)

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 SUPERVISOR’S CERTIFICATE

This is to certify that Research Project titled, “Comparative Study of Debt and Equity Funds
in India” has been carried out by Nitin Gupta, student of PGDM –II year (VI Trimester) at
Apeejay Institute of Technology, School of Management, Greater Noida, under my supervision.
This is an original work carried out by the said student to the best of my knowledge and I
recommend for the submission of this research project.

(Ms. Chitra Bhatia Arora)

Faculty of Finance

5
 DIRECTOR’S CERTIFICATE

This is to certify that project titled, “Comparative Study of Debt and Equity Funds in India”
carried out by Nitin Gupta, student of PGDM –II year (VI Trimester) at Apeejay Institute of
Technology, School of Management, Greater Noida, under the supervision of Ms. Chitra
Bhatia Arora, Faculty of Finance, AIT, Greater Noida.
This is an original work carried out by the said student to the best of my knowledge and I
recommend for the submission of this research project.

(Prof. R. K. Verma)
Executive Director

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 Executive Summary

In few years Mutual Fund has emerged as a tool for ensuring one’s financial well being. 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 of people who decide to invest in mutual funds will increase to as many as one in five
people. The trick for converting a person with no knowledge of mutual funds to a new Mutual
Fund customer is to understand which of the potential investors are more likely to buy mutual
funds and to use the right arguments in the sales process that customers will accept as important
and relevant to their decision.

This Project gave me a great learning experience and at the same time it gave me enough scope
to implement my analytical ability. The analysis and advice presented in this Project Report is
based on market research on the study of Debt and Equity Funds in India. This Report will help
to know about the investors’ preferences in Mutual Fund means, Do they prefer any particular
Asset Management Company (AMC), Which type of Product they prefer, Which Option
(Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic
Investment Plan or One time Plan). This Project as a whole can be divided into two parts.

The first part gives an insight about Debt and Equity Funds and its various aspects, the major
mutual fund players in India, Objectives of the study, Research Methodology. One can have a
brief knowledge about Debt and Equity Fund and its basics through the Project.

The second part of the Project consists of data and its analysis collected through survey done on
100 people and some financial analysis done on the basis of NAV (Monthly Data). For the
collection of Primary data I made a questionnaire and surveyed of 100 people. I also took
interview of many People those who are the customers of various banks. I visited other AMCs to

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get some knowledge related to my topic. I studied about the products and strategies of other
AMCs to know why people prefer to invest in those AMCs. This Project covers the topic
“Comparative Study of Debt and Equity Funds in India”. The data collected has been well
organized and presented. I hope the research findings and conclusion will be of use.

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 CONTENTS:-

Chapter - 1 INTRODUCTION 11-34

Chapter - 2 INDUSTRY PROFILE 36-42

Chapter - 3 OBJECTIVES AND SCOPE 44-46

Chapter - 4 RESEARCH METHODOLOGY 48-50

Chapter - 5 LITERATURE REVIEW 52-53

Chapter - 6 DATA ANALYSIS AND INTERPRETATION 55-83

Chapter - 7 FINDINGS AND SUGGESIONS 85-88

CONCLUSION 89

BIBLIOGRAPHY &ANNEXURE 90-93

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Chapter -1

Introduction

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Introduction:-
We have tried to analyze the performance of debt and equity funds through mutual funds. As
debt and equity fund is a wide area. Mutual fund has been considered as an effective tool to
measure the relationship of debt and equity funds. Equity and Debt funds are further divided into
two parts i.e. Dividend and Growth. The Growth fund includes re-investment of dividend, which
definitely shows high performance in comparison of other funds. This has been reflected in our
OLS Model also. Result R2 shows the percentage of total variation of the dependable variable
that can be explained by the independent variable X. to further analyze it, we have implemented
OLS Model in equity & debt fund and tried to find out cause and effect relationship between
Sensex and debt & equity funds, as these funds are further re-invested in the market through
BSE & NSE Sensex by mutual fund companies. Generally these funds are divided into two parts
Debt(less risk), Equity (pertaining high risk). As the performance of both the funds are reflected
through volatility in the market. Hence I have taken Sensex as a common parameter in the OLS
model (dependent variable) to further analyze the relationship between debt and equity funds.

I have downloaded the secondary daily data of NAV through website of www.hdfcfund.com.
This has been further converted as monthly average daily prices X1+X2+X3+…………+Xn.
Further I have calculated percentage growth through formula {(P1-P0)*100/P0}

Where P0=Initial Price i.e. first month average price and P1 indicates current monthly average
NAV.

Mutual fund is a trust that pools the savings of a number of investors who share a common
financial goal. This pool of money is invested in accordance with a stated objective. The joint

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ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus
collected is then invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital appreciations realized
are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual
Fund is the most suitable investment for the common man as it offers an opportunity to invest in
a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund
is an investment tool that allows small investors access to a well-diversified portfolio of equities,
bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are
issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is determined each
day.

Investments in securities are spread across a wide cross-section of industries and sectors and
thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the
same direction in the same proportion at the same time. Mutual fund issues units to the investors
in accordance with quantum of money invested by them. Investors of mutual funds are known as
unit holders.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets
of the fund in the same proportion as his contribution amount put up with the corpus (the total
amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit
holder.
Any change in the value of the investments made into capital market instruments (such as shares,
debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the
market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is
calculated by dividing the market value of scheme's assets by the total number of units issued to
the investors.

CATEGORIES OF MUTUAL FUND:

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Mutual funds can be classified as follow :

➢ Based on their structure:

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 • Open-ended funds: Investors can buy and sell the units from the fund, at any point of
time.

• Close-ended funds: These funds raise money from investors only once. Therefore,
after the offer period, fresh investments can’t be made into the fund. If the fund is listed
on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth
Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity
window on a periodic basis such as monthly or weekly. Redemption of units can be made
during specified intervals. Therefore, such funds have relatively low liquidity.

➢ Based on their investment objective:

Equity Funds
Equity funds are considered to be the more risky funds as compared to other fund types, but they
also provide higher returns than other funds. It is advisable that an investor looking to invest in
an equity fund should invest for long term i.e. for 3 years or more. There are different types of
equity funds each falling into different risk bracket. In the order of decreasing risk level, there
are following types of equity funds:
1. Aggressive Growth Funds: In Aggressive Growth Funds, fund manager
aspire for maximum capital appreciation and invest in less researched shares of
speculative nature. Because of these speculative investments Aggressive Growth
Funds become more volatile and thus, are prone to higher risk than other equity funds.

2. Growth Funds - Growth Funds also invest for capital appreciation (with time
horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the
sense that they invest in companies that are expected to outperform the market in the
future. Without entirely adopting speculative strategies, Growth Funds invest in those
companies that are expected to post above average earnings in the future.

3. Specialty Funds: Specialty funds have stated criteria for investment and their
portfolio comprises of only those companies that meet their criteria. Criteria for some
specialty funds could be to invest/not to invest in particular regions/companies.
Specialty funds are concentrated and thus, are comparatively riskier than diversified
funds. These are following types of specialty funds:

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a) Sector Funds: Equity funds that invest in a particular sector/industry of the market are
known as Sector Funds. The exposure of these funds is limited to a particular sector (say
Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods)
which is why they are more risky than equity funds that invest in multiple sectors.

b) Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in
one or more foreign companies. Foreign securities funds achieve international diversification
and hence they are less risky than sector funds. However, foreign securities funds are exposed to
foreign exchange rate risk and country risk.
c) Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market
capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds.
Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less
than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market
capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated
by multiplying the market price of the company's share by the total number of its outstanding
shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of
Large-Cap Companies which gives rise to volatility in share prices of these companies and
consequently, investment gets risky.
1. Diversified Equity Funds - Except for a small portion of investment in liquid money
market, diversified equity funds invest mainly in equities without any concentration on
a particular sector(s). These funds are well diversified and reduce sector-specific or
company-specific risk. However, like all other funds diversified equity funds too are
exposed to equity market risk. One prominent type of diversified equity fund in India
is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of
investments by ELSS should be in equities at all times. ELSS investors are eligible to
claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income
tax return. ELSS usually has a lock-in period and in case of any redemption by the
investor before the expiry of the lock-in period makes him liable to pay income tax on
such income(s) for which he may have received any tax exemption(s) in the past.

2. Equity Index Funds - Equity Index Funds have the objective to match the
performance of a specific stock market index. The portfolio of these funds comprises
of the same companies that form the index and is constituted in the same proportion as
the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex)
are less risky than equity index funds that follow narrow sectoral indices (like
BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and
therefore, are more risky.
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 3. Value Funds - Value Funds invest in those companies that have sound fundamentals
and whose share prices are currently under-valued. The portfolio of these funds
comprises of shares that are trading at a low Price to Earning Ratio (Market Price per
Share / Earning per Share) and a low Market to Book Value (Fundamental Value)
Ratio. Value Funds may select companies from diversified sectors and are exposed to
lower risk level as compared to growth funds or specialty funds. Value stocks are
generally from cyclical industries (such as cement, steel, sugar etc.), which make them
volatile in the short-term. Therefore, it is advisable to invest in Value funds with a
long-term time horizon as risk in the long term, to a large extent, is reduced.

4. Equity Income and Debt Yield Funds: The objective of Equity Income or Dividend
Yield Equity Funds is to generate high recurring income and steady capital
appreciation for investors by investing in those companies which issue high dividends
(such as Power or Utility companies whose share prices fluctuate comparatively lesser
than other companies' share prices). Equity Income or Dividend Yield Equity Funds
are generally exposed to the lowest risk level as compared to other equity funds.

DEBT FUNDS
Funds that invest in medium to long-term debt instruments issued by private companies, banks,
financial institutions, governments and other entities belonging to various sectors (like
infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk
profile funds that seek to generate fixed current income (and not capital appreciation) to
investors. In order to ensure regular income to investors, debt (or income) funds distribute large
fraction of their surplus to investors. Although debt securities are generally less risky than
equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or
principal payment. To minimize the risk of default, debt funds usually invest in securities from
issuers who are rated by credit rating agencies and are considered to be of "Investment Grade".
Debt funds that target high returns are more risky. Based on different investment objectives,
there can be following types of debt funds:
1) Diversified Debt Funds: Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best feature of
diversified debt funds is that investments are properly diversified into all sectors, which results
in risk reduction.

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2) High Yield Debt Funds: As we now understand that risk of default is present in all
debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in
securities issued by only those borrowers who are considered to be of "investment grade". But,
High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers
who are considered to be of "below investment grade". The motive behind adopting this sort of
risky strategy is to earn higher interest returns from these issuers. These funds are more volatile
and bear higher default risk, although they may earn at times higher returns for investors.
3) Assured Return Funds: Although it is not necessary that a fund will meet its
objectives or provide assured returns to investors, but there can be funds that come with a lock-
in period and offer assurance of annual returns to investors during the lock-in period. Any
shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs).
These funds are generally debt funds and provide investors with a low-risk investment
opportunity. However, the security of investments depends upon the net worth of the guarantor
(whose name is specified in advance on the offer document). To safeguard the interests of
investors, SEBI permits only those funds to offer assured return schemes whose sponsors have
adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return
schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the
future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually,
government had to intervene and took over UTI's payment obligations on itself. Currently, no
AMC in India offers assured return schemes to investors, though possible.
4) Fixed Term Plan Series: Fixed Term Plan Series usually are closed-end schemes
having short-term maturity period (of less than one year) that offer a series of plans and issue
units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on
the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-
term investors. The objective of fixed term plan schemes is to gratify investors by generating
some expected returns in a short period.

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INVESTMENT STRATEGIES

1. Systematic Investment Plan: Under this a fixed sum is invested each month
on a fixed date of a month. Payment is made through post dated cheques 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
the same mutual fund.

3. Systematic Withdrawal Plan: If someone wishes to withdraw from a mutual

fund then he can withdraw a fixed amount each month.

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ANALYSIS OF DEBT AND EQUITY FUND

Debt Funds
1) They must be repaid or refinanced.
2) Requires regular interest payments. Company must generate cash flow to pay.
3) Collateral assets must usually be available.
4) Debt providers are conservative. They cannot share any upside or profits. Therefore, they
want to eliminate all possible loss or downside risks.
5) Interest payments are tax deductible.
6) Debt has little or no impact on control of the company.
7) Debt allows leverage of company profits.

Equity Funds
1) They can usually be kept permanently.
2) No payment requirements. May receive dividends, but only out of retained earnings.
3) No collateral required.
4) Equity providers are aggressive. They can accept downside risks because they fully share
the upside as well.
5) Dividend payments are not tax deductible.
6) Equity requires shared control of the company and may impose restrictions.
7) Shareholders share the company profits.

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Importance of using Debt Funds:
1) Debt is not an ownership interest in the business. Creditors generally do not have voting
power.
2) The payment of interest on debt is considered a cost of doing business and is fully tax
deductible.

Importance of using Equity Funds:

1) Unlike obligation of debt, your business will not have any contractual obligation to pay
for equity dividend
2) Equity financing also allows your business to obtain funds without incurring debt, or
without having to repay a specific amount of money at a particular time.
Equity financing also allows your business to obtain funds without incurring debt, or without
having to repay a specific amount of money at a particular time. Recent deals by equity funds are
much larger than in the past. And debt funds are now doing larger "club" deals. Both types of
funds have more money under management than ever before. More cash is chasing deals,
causing overlap where both types of funds vie over the same company.
Although these funds do not represent long-term threats to each other, secured lenders must
recognize that equity and debt funds have marked different characteristics, goals and behaviors.
The most fundamental difference in equity funds seeks to buy all of the equity of companies debt
funds are not constrained to controlling equity investments. Highlighted below are other major
differences between the both types of funds.
Whether investing in debt or equity, debt funds typically demand a much more rapid exit
strategy than equity funds. Debt funds generally seek a quick flip of their investments. However,
some debt fund investments are "loan to own" that is, they buy debt at a deep discount with an
eye towards converting that debt to equity, then magnetizing that equity (through a
recapitalization, refinancing, sale, merger or other disposition) in a short time period. This is a
function of, among other things, the liquidity and leverage differences between the two types of
funds. The time-hold differences directly affect the exit strategy, risk tolerance and desired rate
of return of the two types of funds.

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Thus, Investing money for short-term has generally been an issue. As it is the interest rates /
returns are quite low. On top of this, there could be taxation issues, which will further reduce the
effective returns. Equity funds may not be a prudent option for short-term. Therefore, we need to
consider mainly the interest-based investment options. In the equity funds, higher the risk you
take, the higher the returns you can get. Since there's a known cash flow associated with debt,
the risk is less. But the returns are also less. When compared with equity funds, the risk for the
latter may be more. This is because there's a steady cash flow associated with debt funds. In fact,
the interest which the debt fund promises to pay (known as 'coupon' in financial parlance) is one
of the fundamental attributes of a debt fund.
However, debt fund shares a very fundamental relationship with interest rates. To understand
this relationship and how that can be used in present day context to make money, you must
understand the basics of debt.

The Relationship between Debt & Equity Funds

When we look at prospective investments, possibly the most important thing to look at is debt.
Not just debt, but the firm's ability to carry the debt. This is central in any investment decision.
The relationship between debt and equity is the formal means of understanding this carrying
capacity and ultimately, the financial health of the firm.

Features
• Formally, the relationship between debt and equity is a ratio that measures the amount of
debt versus the amount of equity owned by shareholders. Simply put, it is a ratio between
the amount owed to creditors of all kinds and the amount of capital owned by
shareholders, or the amount of capital under the ownership of the firm. Even simpler, it is
the amount owed versus what the firm actually has, including cash flow.

Function
• For investors, the debt to equity ratio is about the financial health of the firm and the
nature of its own investment policy. Taken in isolation, a firm that has high debt versus
its capital possessions seems to be in trouble or poorly managed. Shareholders might
worry that high debt might make it difficult or impossible for the firm to pay what it
owes and satisfy shareholders in the event of dissolution.

Significance
• Debt versus equity should not, however, be taken in isolation. Debt financing is cheaper
than equity, or selling shares, and therefore, high debt might mean an aggressive strategy
that will pay off in the end. This is especially true among firms with a high cash flow. If

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 cash flow is high, then even a firm with much debt versus equity is not in trouble, but is
expanding quickly and financing new projects with loans versus selling shares. On the
other hand, high equity might mean the firm is sluggish, not using its equity to finance
new products or expansion.

Effects
• Investors who do not like surprises want to invest in firms with low debt to equity ratios.
Low ratios here are generally conservative firms with low volatility. One mark of high
debt is that earnings will likely be volatile and risk is higher. For investors, another ratio
that can supplement debt to equity is income to interest. These two ratios taken together
tell more of the story since cash flow can be used to control for high debt.

Benefits
• The debt-to-equity ratio is a good way to determine the health of a firm and its general
policies, but it must be taken in context. Capital-intensive firms like those in the
automotive or petroleum industries almost always have high debt due to expensive
equipment. The big issue here is general cash flow rather than the ratio. Debt means little
if the firm is growing and earning at a healthy rate. Debt means everything if the cash
flow cannot keep up with obligations or is receding relative to debt.

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Why debt funds are attractive?
The recent stock market’s gyrations would have left a lot of investors dazed. At this juncture,
many would be looking at decent returns as well as safety of capital.

The answer lies in fixed income instruments, particularly debt schemes of mutual funds, since
they provide higher post-tax returns than traditional debt instruments as well as a chance for
capital appreciation. Let us look at some of these options and why they seem so attractive at
present:

Simply put, interest rates have an inverse relationship with bond prices. If RBI cuts interest rates,
this will lead to bond prices rallying, giving the investor both, income flows from the bond
coupon, as well as capital gains.

This has already been happening over the last few months, where bond yields have fallen and
investors have been getting quite decent returns in bond funds, especially longer duration funds.

This is because bonds of longer maturity periods are more sensitive to interest rate changes than
shorter maturity bonds. This leads to higher capital gains due to greater increase in their market
prices when bond yields fall.

For example, let us take two bonds of Rs 100 each, one of three-year duration and another of 10-
year duration. The first bond yields 7.75 per cent and the latter returns 8 per cent. Now let us
suppose bond yields fell by 50 basis points.

The price of both bonds would go up, to neutralize the effect of the interest rate fall, since they
are currently giving higher interest than the market interest rate.

While the price of the three-year bond should rise to Rs 101.33, the price of the 10-year bond
would have risen to Rs 104.75.

Even if we are approaching a softer interest rate scenario, investors would do well o put their
money into longer duration bond and gilt funds or actively managed bond funds, where the fund
manager tries to generate superior bond returns by playing the yield curve.

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Debt schemes of mutual funds also offer greater tax-efficiency. While investors have to pay
income tax at the rate of 33.9 per cent on their interest income from conventional investments
like post office schemes and bank fixed deposits, in case they are in the highest tax slab, mutual
fund investors get to pay much less.

In case the investor takes the dividend option, an individual or an HUF has to face deduction of
dividend distribution tax (DDT) from their fund's NAV at the rate of 14.16 per cent, while others
like corporate has to bear a DDT of 22.66 per cent, both of which are much lower than the
highest marginal tax rate and the corporate tax rate. The income in the hands of investors after
this dividend distribution tax is completely tax-free.

For those investors who do not want the risk of changing bond yields and prices, the preferred
investment avenue could be fixed maturity plans (FMP) of mutual funds.

They are available in various durations, from 3 months to 3 years. At this time of the year, 14
month fixed maturity plans are very popular, since they provide high returns to the investor with
minimal taxes due to double indexation benefits. Here is how they work.

Suppose you invest Rs 1 lakh in a FMP of 14 months at an indicative yield of 9 per cent a year.
Your total returns would be Rs 10,500. Now suppose the cost inflation index for this and the
next financial year is 4 and 4.5 respectively.

This would enable you to get indexation benefits for gains equaling Rs 9,917. That is, only Rs
583 are deducted as tax. This too would get taxed at the rate of 20.6 per cent, since you would
pay long-term capital gains tax on your income from investments of more than a year.

Thus we see that debt schemes of mutual funds offer a viable investment option, providing both
regular income as well as chance of capital gains to investors.

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5 Things to avoid while investing in Equity mutual
funds:-
Choosing the best equity fund or ELSS for the purpose of investing in mutual funds is no-doubt
very important but what are the other important considerations to be kept in mind while
investing in them.

So, this is going to tell you about 5 things to avoid while investing in equity mutual funds.

5 things to avoid while investing in Equity funds:

1. Avoid Duplication

Before Investing in a good mutual fund, you must look at its top 10 stock holdings and also top 5
sector holdings...Why? To avoid duplication. The basic purpose behind investment through the
medium of mutual funds is to diversify the investment portfolio. Diversification helps in de-
risking of stock portfolio but having multiple funds in your portfolio with the same stocks
defeats the purpose of diversification i.e., your investment portfolio becomes as good as an
undiversified portfolio.

Therefore, while investing in equity funds, give a look at the underlying stocks. Let’s say you’ve
all the three top / best performing equity funds in your portfolio. Further suppose that out of the
top 10 stock holdings six (say, ICICI Bank, SBI, Reliance Industries, Infosys, HUL and HDFC)
are common to all the three funds; it’ll be as good as investing in just one of the funds.

First ask yourself, why do we need to go for multiple funds? By investing in similar schemes,
you don’t do much of a diversification in the real sense. The best way is to have two or at the
most 3 top rated equity diversified funds (multi / large Cap) having different stock portfolio and /
or 1-2 equity diversified (mid & small Cap), according to your risk profile (remember mid &

25
small cap funds are riskier than multi / large-cap funds).

2. Avoid Laggards

Rather than chasing top-performers, it is more important to look for consistent good performers
and avoid non-performers. In other words, avoiding laggards or weeding out consistent under-
performers is more important than running after the best equity mutual funds.

First ask yourself: Is it really important to run after the best performing funds? Is it worth the
time, effort and cost involved; or, is there any better way to make your mutual fund portfolio
better & efficient?

As already explained in the earlier post, the best is always a relative term (there is no absolute
best) and this relativity can make your performance look pale not because you’re not doing good
but others are doing better than you.

There are two implications:

a) We should consider both relative as well as absolute performance.
b) It is more important to avoid the laggards / worst performers than to choose the best
performer.

You’ve nothing to worry about so long as your portfolio contains 4 & 5 rated funds. If a fund is
rated 3 stars, then hold on and keep it on your watch list. No urgency to dump it immediately. If
a fund is rated 1 star or 2 stars, it shows consistent poor performance. You must act immediately
to weed it out.

3. Avoid Sectoral & Thematic Funds

Avoid sectoral and thematic funds because these are the riskiest equity funds. If you’re already
invested in them or would like to invest in them, restrict your exposure to a maximum of 10%.

4. Avoid New Funds

First never invest in a NFO. Second, go for a diversified equity fund with a track record of 5 or
more years and having 4 or 5 star rating. You might also consider other 5 star rated funds having
track record of less than 5 years. But it is better to avoid any fund less than 3 year old.
26
5. Avoid Frequent Churning

Know that there is a cost attached to shuffling portfolio. You should have clear reasons for
reshuffling the portfolio. Simply because the fund ratings have dropped from 5-star to 4-star or
from 4-star to 3-star is not a good enough reason. In other words, so long as your portfolio
doesn’t hold any 1-2 star rated fund you’ve no reason to worry and there is no need to reshuffle
funds. As already discussed, chasing short term top performance is a mirage.

What is Risk?
Any rational investor, before investing his or her investible wealth in the stock, analyses the risk
associated with the particular stock. The actual return he receives from a stock may vary from
his expected return and the risk is expressed in terms of variability of return. The down side risk
may be cause by several factors, either common to all stocks or specific to a particular stock.
Investor in general would like to analyze the risk factors and a thorough knowledge of the risk
helps him to plan his portfolio in such a manner so as to minimize the risk associated with the
investment.

The dictionary meaning of risk is the possibility of loss or injury, the degree the degree or
probability of such loss. In risk, the probable outcomes of all the possible events are listed. Once
the events are listed subjectively, the derived probabilities can be assigned to the entire possible
events. For example- the investor can analyze and find out the possible range of returns from his
investment. He can assign some subjective probability to his returns, such as 50% of the time
there is a likelihood of getting Rs. 2 per share as dividend and 50% of the time the possible
dividend may be Rs. 3 per share. Often risk is interchangeably used with uncertainty. In
uncertainty, the possible events and probabilities of their occurrence are not known. Hence, risk
and uncertainty are different from each other.

Risks consist of two components, the systematic risk and unsystematic risk. The Systematic Risk
is caused by factors external to the particular company and uncontrollable by the company. The
systematic risk affects the market as a whole. In the case of unsystematic risk the factors are
specific, unique and related to the particular industry or company.

What is Return?

27
The return from the stock includes both current income and capital gain caused by the
appreciation of the price. The income and capital gain are expressed as a percentage of money
invested in the beginning. The historical returns or exposit returns are derived from the cash flow
received as well as the price changes that occur during the period of holding the stock or any
asset. The income flow is the dividend he receives during the holding period.

Risk V/S. Return

28
Different kind of risk associated with Debt Fund
Debt Funds hold major investments in bonds of different categories.

Bond funds invest in bonds and like any investment are affected by some risks. The risks
associated with bonds are:

29
Interest-rate risk

Unlike stock market where an upward movement of market leads to upward movement in stock
prices, it is a fall in the market yield that pushes up the prices of debt securities. This happens
because there exists an inverse relationship between the yield and the price of a bond. So, if
there is an upward movement of interest rates after one has invested in a bond fund, the prices of
bonds will go down leading to a corresponding fall in the NAVs of the bond funds. Let us take
an example:

Suppose a person buys a bond for Rs. 100 with a coupon rate of 10 percent. In other terms the
person should get Rs. 110 at the end of the year. If the RBI announces a hike in the bank rate and
the market yield for the duration of the bond increased, say to 11 percent, the prices of the bond
will fall around to Rs. 90.91 in order to adjust to the market yield.

An investor stands to benefit in the opposite scenario, when the interest rates are cut as then the
prices go up leading to better returns from the fund. If the interest rate in the above example falls
to 9 percent, a person still gets Rs. 10 in interest but in order to align the amount received to the
prevailing market yield, the price of the bond adjusts to Rs. 111.11. In this case, the investor is
better off by selling it at Rs. 111.11 than holding it to its maturity, as then he will only get Rs.
110.

This risk is also dependent upon the maturity and duration of the bond and generally, the longer
a fund's duration or average maturity, the higher its interest-rate risk, or the more sensitive the
NAV of the fund will be to changes in interest rates. One can reduce the interest rate risk by
choosing a bond fund with a shorter duration or average maturity.

Credit risk

Just like shares where the performance of the company has some bearing on the stock prices,
credibility of the issuer is of importance in debt instruments. The risk of the issuer not being able
to make payments on his liabilities (debt instrument) is termed as default risk or credit risk. This
is of special concern to the investor if the fund is investing into junk bonds or lower quality

30
bonds. Bond funds offer professional management and a range of quality ratings to help lower
this risk and so investors stand to benefit by the expertise of fund to pick good papers only.

Delay Risk

Cash flows are estimated on the basis of the pattern of income distribution. For example, a bond
can pay interest half yearly, on fixed dates and so if there is any delay in receiving payments
from the issuer, there is bound to be a mismatch between the cash flows. This can be termed as
the delay risk. Mutual funds too can miss out on the interest due on an investment and have to
show it as accrued but not received. This also affects the time value of the money due. A
continuation of this trend may lead to a re-rating of the paper and add to the non-performing
assets of the fund.

Balancing Risk vs. Reward

As with any investment in any category, there is always a trade-off between the risks taken and
returns generated. The greater the risk of a bond fund (dependent on the quality and duration of
papers), the higher is the potential reward, or return. With a bond fund, the risk that prices may
fluctuate and the value of your investment may increase or decrease is not eliminated and so one
must choose funds based on his risk tolerance.

Debt funds invest in instruments that carry a fixed rate of interest or are guaranteed, in many
cases, by the issuer. As a result, debt funds are often perceived by the investor as being
completely risk-free. However, the reality is different. Debt funds may be less risky than equity
funds, but they certainly aren't risk-free. Debt fund NAVs can change with interest rates,
changes in the portfolio's ratings or tenure.

Risk Associated With Investment in Equity Funds

We are often told that equity investments are subject to market risk. What is risk? It means
earning less than what is expected from a given investment or loosing part which is invested.
When it comes to investment, we only talk about returns. We say “The higher the risk the
higher the return”. How easy it would be then to assess a mutual fund if they published, along
with their returns performance, the risk involved in earning such returns. For example- a fund
gave 25% return by risking losing your capital to the extent of 5%, and another gave 50% return

31
by taking the risk of losing 100% of your capital. In the absence of risk figures, you would rate
the fund that gave 60% return as better than the one that gave 25% return. However, within the
risk parameter, you would prefer a fund that risks 5% of your capital to one that risks 100% of it.

‘No risk no return’ is a phrase that truly explains the stock markets. Be it equity or derivative
instruments, various types of risks can be associated with them. The motive of investors is to
minimize the risk and maximize the returns.

Economy related risk

Stock market is highly influenced by economic changes or macro factors. For instance, factors
such as economic performance of a particular country, interest rate movements, and international
developments play a great role in deciding the movements in securities market. Any unforeseen
changes in these factors can influence the securities market positively as well as negatively.
Your investment is derivatives and equities will also be influenced by these macro changes.

Risks at industry or company level

Risks related to the condition of various industries or industry cycles also affect your return on
investment in equity, future, options, and other securities. For instance, if the industry you have
invested in faces a setback due to any reason; you have the risk of losing upon all or a part of
your investment. Any changes in government regulations related to any particular industry
affects the companies under that industry. This in turn will have an effect on your investment in
these companies. if the company you invested in faces a downfall, your investment is at a risk of
being wasted.

Other risks
The risk related to any derivative you have invested in is related to the base securities that
underline your investment. If your base securities are exposed to high risks, your investment will
be categorized as a high risk investment. Change in value of derivatives, risk of failure to
perform on the part of counterparty, and if any of the parties become insolvent explain market
risks, credit risks, and legal risks associated with derivative instruments. Operational risk is also
one of the major risks that can be associated with market of derivative instruments.

Tools & Techniques that is used in the study:

CORRELATION CO - EFFICIENT ANALYSIS

32
 A measure of the strength of linear association between two variables. Correlation will always
between -1.0 and +1.0. If the correlation is positive, we have a positive relationship. If it is
negative, the relationship is negative.

Use the Correlation transformer to determine the extent to which changes in the value of an
attribute (such as length of employment) are associated with changes in another attribute (such
as salary). The data for a correlation analysis consists of two input columns. Each column
contains values for one of the attributes of interest. The Correlation transformer can calculate
various measures of association between the two input columns. You can select more than one
statistic to calculate for a given pair of input columns.

The data in the input columns also can be treated as a sample obtained from a larger population,
and the Correlation transformer can be used to test whether the attributes are correlated in the
population. In this context, the null hypothesis asserts that the two attributes are not correlated,
and the alternative hypothesis asserts that the attributes are correlated.
The Correlation transformer calculates any of the following correlation-related statistics on one
or more pairs of columns.

N∑XY – (∑X) (∑Y)

r=
√ [NΣX2 - (ΣX) 2] [NΣY2 - (ΣY) 2])

N= Number of values or elements

X = First Score
Y = Second Score
ΣXY = Sum of the product of first and Second Scores
ΣX = Sum of First Scores
ΣY = Sum of Second Scores
ΣX2 = Sum of square First Scores
ΣY2 = Sum of square Second Scores

As I have also applied OLS Model in our study as the data is a time series data.

Linear regression attempts to model the relationship between two variables by fitting a linear
equation to observed data. One variable is considered to be an explanatory variable, and the
other is considered to be a dependent variable. For example, a modeler might want to relate the
weights of individuals to their heights using a linear regression model.

33
Before attempting to fit a linear model to observed data, a modeler should first determine
whether or not there is a relationship between the variables of interest. This does not necessarily
imply that one variable causes the other (for example, higher SAT scores do not cause higher
college grades), but that there is some significant association between the two variables.
A scatter plot can be a helpful tool in determining the strength of the relationship between two
variables. If there appears to be no association between the proposed explanatory and dependent
variables (i.e., the scatter plot does not indicate any increasing or decreasing trends), then fitting
a linear regression model to the data probably will not provide a useful model. A valuable
numerical measure of association between two variables is the correlation coefficient, which is a
value between -1 and 1 indicating the strength of the association of the observed data for the two
variables.
A linear regression line has an equation of the form Y=β0+ β1X, where X is the independent
variable and Y is the dependent variable. The slope of the line is β1, and β0 is the intercept (the
value of y when x = 0).

34
 Chapter – 2
Industry Profile

Major Mutual Fund Player in market

SBI MUTUAL FUND:-

SBI Funds Management Pvt. Ltd. is one of the leading fund houses in the country with an
investor base of over 4.6 million and over 20 years of rich experience in fund management

35
consistently delivering value to its investors. SBI Funds Management Pvt. Ltd. is a joint venture
between 'The State Bank of India' one of India's largest banking enterprises, and Société
Générale Asset Management (France), one of the world's leading fund management companies
that manages over US$ 500 Billion worldwide.
Today the fund house manages over Rs 28500 crores of assets and has a diverse profile of
investors actively parking their investments across 36 active schemes. In 20 years of operation,
the fund has launched 38 schemes and successfully redeemed 15 of them, and in the process, has
rewarded our investors with consistent returns. Schemes of the Mutual Fund have time after time
outperformed benchmark indices, honored us with 15 awards of performance and have emerged
as the preferred investment for millions of investors. The trust reposed on us by over 4.6 million
investors is a genuine tribute to our expertise in fund management.
SBI Funds Management Pvt. Ltd. serves its vast family of investors through a network of over
130 points of acceptance, 28 Investor Service Centers, 46 Investor Service Desks and 56 District
Organizers.SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent
India Opportunities Fund.
Growth through innovation and stable investment policies is the SBI MF credo.
PRODUCTS OF SBI MUTUAL FUND
Equity schemes
The investments of these schemes will predominantly be in the stock markets and endeavor will
be to provide investors the opportunity to benefit from the higher returns which stock markets
can provide. However they are also exposed to the volatility and attendant risks of stock markets
and hence should be chosen only by such investors who have high risk taking capacities and are
willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and
Index Funds. Diversified Equity Funds invest in various stocks across different sectors while
sectoral funds which are specialized Equity Funds restrict their investments only to shares of a
particular sector and hence, are riskier than Diversified Equity Funds. Index Funds invest
passively only in the stocks of a particular index and the performance of such funds move with
the movements of the index.

➢ Magnum COMMA Fund

➢ Magnum Equity Fund
➢ Magnum Global Fund
➢ Magnum Index Fund
➢ Magnum Midcap Fund
➢ Magnum Multicap Fund
➢ Magnum Multiplier plus 1993
➢ Magnum Sectoral Funds Umbrella
➢ MSFU- Emerging Business Fund
➢ MSFU- IT Fund
➢ MSFU- Pharma Fund

36
 ➢ MSFU- Contra Fund
➢ MSFU- FMCG Fund
➢ SBI Arbitrage Opportunities Fund
➢ SBI Blue chip Fund
➢ SBI Infrastructure Fund - Series I
➢ SBI Magnum Taxgain Scheme 1993
➢ SBI ONE India Fund
➢ SBI TAX ADVANTAGE FUND - SERIES I

Debt schemes

Debt Funds invest only in debt instruments such as Corporate Bonds, Government Securities and
Money Market instruments either completely avoiding any investments in the stock markets as
in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income
Plans or Children's Plan. Hence they are safer than equity funds. At the same time the expected
returns from debt funds would be lower. Such investments are advisable for the risk-averse
investor and as a part of the investment portfolio for other investors.

➢ Magnum Children’s benefit Plan

➢ Magnum Gilt Fund
➢ Magnum Income Fund
➢ Magnum Insta Cash Fund
➢ Magnum Income Fund- Floating Rate Plan
➢ Magnum Income Plus Fund
➢ Magnum Insta Cash Fund -Liquid Floater Plan
➢ Magnum Monthly Income Plan
➢ Magnum Monthly Income Plan- Floater
➢ Magnum NRI Investment Fund
➢ SBI Premier Liquid Fund

Balanced Schemes
Magnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less
risky than equity funds, but at the same time provide commensurately lower returns. They
provide a good investment opportunity to investors who do not wish to be completely exposed to
equity markets, but is looking for higher returns than those provided by debt funds.

37
 ➢ Magnum Balanced Fund

ICICI Mutual Fund

ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI Bank,
India’s second largest commercial bank & a well-known and trusted name in the financial
services in India, & Prudential Plc, one of the United Kingdom’s largest players in the financial

38
services sectors.

In a span of just over 12 years, the company has forged a position of preeminence as one of the
largest Asset Management Company’s in the country, contributing significantly towards the
growth of the Indian mutual fund industry.

Our Average Assets under Management (AAUM) as on Dec 2010 month-end in Mutual Fund
Schemes stood at Rs. 65876.5 Crores. This is in addition to our Portfolio Management Services,
inclusive of EPFO*, and International Advisory Mandates for clients across international
markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted
returns.

As an Asset Management Company, we have over 15 years of experience and are currently
managing a comprehensive range of schemes of more than 46 Mutual funds and a wide range of
PMS Products for our investors, spread across the country. We service this investor base with
our own branch network of over 160 branches and a distribution reach of over 42,000 channel
partners.

Products of ICICI Mutual Fund

Equity Scheme

➢ ICICI Prudential Focused Bluechip Equity Fund

➢ ICICI Prudential Dynamic Plan
➢ ICICI Prudential Infrastructure Fund
➢ ICICI Prudential Discovery Fund
➢ ICICI Prudential Tax Plan
➢ ICICI Prudential Power
• ICICI Prudential Technology Fund
• ICICI Prudential Index Fund
• ICICI Prudential Nifty Junior Index Fund
• ICICI Prudential Growth Plan
• ICICI Prudential Emerging Star Fund
• ICICI Prudential Services Industries Fund
• ICICI Prudential Equity Opportunities Fund
• ICICI Prudential E & D - Income Optimiser
➢ ICICI Prudential E & D - Wealth Optimiser
➢ ICICI Prudential Indo Asia Fund
➢ ICICI Prudential FMCG Fund
➢ ICICI Prudential Banking and Financial Fund
➢ ICICI Prudential Target Returns Fund

39
Debt Schemes

• ICICI Prudential Liquid Plan

• ICICI Prudential Flexible Income Plan
• ICICI Prudential Ultra Short Term Plan
• ICICI Prudential Floating Rate Plan
• ICICI Prudential Short Term Plan
➢ ICICI Prudential Income Plan
➢ ICICI Prudential Gilt Fund-Investment Plan-PF
➢ ICICI Prudential Gilt Fund-Treasury Plan-PF
➢ ICICI Prudential MIP 25
➢ ICICI Prudential Long Term Plan
➢ ICICI Prudential Gilt-Treasury
➢ ICICI Prudential Gilt-Investment
• ICICI Prudential Long Term Floating Rate Plan
• ICICI Prudential Monthly Income Plan
• ICICI Prudential Income Opportunities Fund
• ICICI Prudential Medium Term Plan
• ICICI Prudential Banking & PSU Debt Fund
• ICICI Prudential Regular Savings Fund

HDFC Mutual Fund

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act,
1956, on December 10, 1999, and was approved to act as an Asset Management Company for
the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.

40
The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169,
Backbay Reclamation, Churchgate, Mumbai - 400 020.

In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset
Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is
Rs. 25.161 crore.
The AMC is managing 28 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund,
HDFC Equity Fund, HDFC Top 200 Fund, HDFC Capital Builder Fund, HDFC Core & Satellite
Fund, HDFC Premier Multi-Cap Fund, HDFC Index Fund, HDFC Long Term Advantage Fund,
HDFC TaxSaver, HDFC Arbitrage Fund, HDFC Mid-Cap Opportunities Fund, HDFC Balanced
Fund, HDFC Prudence Fund, HDFC Children’s Gift Fund, HDFC Gold Exchange Traded Fund,
HDFC MF Monthly Income Plan, HDFC Multiple Yield Fund, HDFC Multiple Yield Fund-
Plan 2005, HDFC Income Fund, HDFC High Interest Fund, HDFC Short Term Plan, HDFC
Short Term Opportunities Fund, HDFC Medium Term Opportunities Fund, HDFC Gilt Fund and
HDFC Floating Rate Income Fund , HDFC Liquid Fund, HDFC Cash Management Fund and
HDFC Quarterly Interval Fund.

The AMC is also managing 7 closed ended Schemes of the HDFC Mutual Fund viz. HDFC
Long Term Equity Fund, HDFC Infrastructure Fund, HDFC Fixed Maturity Plans - Series XI,
HDFC Fixed Maturity Plans - Series XII, HDFC Fixed Maturity Plans - Series XIV, HDFC
Fixed Maturity Plans - Series XV and HDFC Fixed Maturity Plans - Series XVII.
The AMC is also providing portfolio management / advisory services and such activities are not
in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from
SEBI vide Registration No. - PM / INP000000506 dated December 21, 2009 to act as a Portfolio
Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of
Registration is valid from January 1, 2010 to December 31, 2012.

Products of HDFC Mutual Fund

Equity Scheme

• HDFC Debt Fund for Cancer Cure

• HDFC Short Term Opportunities Fund

41
 • HDFC Gilt Fund - Long Term Plan
• HDFC High Interest Fund
• HDFC MF Monthly Income Plan - Long Term Plan
• HDFC Floating Rate Income Fund - Short Term Plan
• HDFC Short Term Plan
• HDFC Multiple Yield Fund
• HDFC Medium Term Opportunities Fund
• HDFC Floating Rate Income Fund - Long Term Plan
• HDFC High Interest Fund - Short Term Plan
• HDFC Multiple Yield Fund - Plan 2005
• HDFC Cash Management Fund-Treasury Advantage Plan
• HDFC Gilt Fund - Short Term Plan
• HDFC Income Fund
• HDFC MF Monthly Income Plan - Short Term Plan

Debt Schemes

• HDFC Mid-Cap Opportunities Fund

• HDFC Prudence Fund
• HDFC Index Fund - Nifty Plan
• HDFC Capital Builder Fund
• HDFC Infrastructure Fund
• HDFC Long Term Advantage Fund (ELSS)
• HDFC Index Fund - Sensex Plus Plan
• HDFC Core and Satellite Fund
• HDFC Growth Fund
• HDFC TaxSaver (ELSS)
• HDFC Arbitrage Fund
• HDFC Premier Multi-Cap Fund
• HDFC Equity Fund
• HDFC Long Term Equity Fund
• HDFC Balanced Fund
• HDFC Index Fund - Sensex Plan
• HDFC Top 200 Fund

42
 Chapter - 3

Objectives, Scope and

Hypothesis

Objective of the study:-

• To find out the relationship between debt and equity funds.

• How risk affects the performance of the funds.

• Do the risk and return affects the investment decision of investors.

43
Scope of the study

A big boom has been witnessed in Mutual Fund Industry in recent times. A large
number of new players have entered the market and trying to gain market share in
this rapidly improving market.

44
 • The study will help to know the preferences of the customers, which
company, portfolio, mode of investment, and option for getting return and
so on they prefer.

• This study may help the company to make further planning and
strategy.

• This study will help the customer to know about the various aspects of
debt and equity funds.

Research Hypothesis:-
1. H0 : Change in the return of one fund affects the change in the return of other
fund
H1: Changes are not related

2. H0 : Risk and return affects the investment decision of investors

H1: Risk and return do not affect the investors’ decision

45
Chapter – 4
46
Research Methodology

RESEARCH METHODOLOGY
The research in its nature will be of descriptive and analytical type. This report is based on
primary as well secondary data. One of the most important uses of research methodology is that
it helps in identifying the problem, collecting, analyzing the required information data and
providing an alternative solution to the problem .It also helps in collecting the vital information
that is required by the top management to assist them for the better decision making both day to
day decision and critical ones.

Sampling:-
A sample is a finite part of a statistical population whose properties are studied to gain
information about the whole. When dealing with people, it can be defined as a set of respondents
(people) selected from a larger population for the purpose of a survey.
A population is a group of individual persons, objects, or items from which samples are taken for
measurement for example a population of presidents or professors, books or students.

47
Objective of sampling method:
The prime objective of the sample survey is to obtain accurate and reliable information about of
the universe with minimization of cost, time, and energy.

BASIS OF SAMPLING
Different types of sampling techniques are used for drawing a sample plan. The methods of
sampling are classified into two types:
1. Probability sampling and
2. Non-probability sampling
Both are derived below

1. Probability sampling:
It provides a scientific technique of drawing samples from the universe. In such a case each unit
has the some defined pre-assigned probability of being chosen in the sample. Different types of
probability sampling techniques are:

➢ Random sampling
➢ Systematic sampling
➢ Stratified sampling
➢ Cluster sampling
➢ Multi-stage sampling and
➢ Area sampling

2. Non-probability sampling:
Non-probability sampling or judgment sampling is based on the personal judgment. Under
this method a desired number of sample units are selected deliberately or purposely
depending upon the subject of the enquiry so that only the important items representing the
true characteristic of population are included in the sample. The methods of non-probability
sampling are
➢ Purposive sampling
➢ Quota sampling and
➢ Convenience sampling.

48
But the sampling technique which I am going to use in this study will be Random
Sampling because the samples (the customer of different banks) will be randomly chosen
for the questionnaire.

Sample Size:-
The sample size will be 100 people of different banks for the purpose of Primary data.
Some secondary financial data has also been used.

Limitation:-

➢ Some of the persons were not so responsive.

➢ Possibility of error in data collection because many of the investors may have not given
actual answers of the questionnaire.

➢ Sample size is limited to 100 visitors of different banks out of these only 55 had invested
in Mutual Fund. The sample size may not adequately represent the whole market.

➢ Some respondents were reluctant to divulge personal information which can affect the
validity of all responses.

➢ The research is confined to a certain part of Greater Noida.

49
Chapter –5
50
 Literature Review

Literature Review:
Mutual fund is a mechanism for pooling the resources by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus
the risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at the same time. The aim of Equity Funds is to provide capital
appreciation over the medium to long- term. Such schemes normally invest a major part of their
corpus in equities. Such funds have comparatively high risks. These schemes provide different
options to the investors like dividend option, capital appreciation, etc. and the investors may
choose an option depending on their preferences. The investors must indicate the option in the
application form. The mutual funds also allow the investors to change the options at a later date.
Growth schemes are good for investors having a long-term outlook seeking appreciation over a
period of time. Equity investing can provide you with a lot of potential as an investor. This
potential has enticed many investors to get involved exclusively in the equity market. Here are a
few things to consider about whether you should deal only with equities. The aim of Debt
Funds is to provide regular and steady income to investors. Such schemes generally invest in
51
fixed income securities such as bonds, corporate debentures, Government securities and money
market instruments. Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of capital
appreciation are also limited in such funds. The NAVs of such funds are affected because of
change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term investors may not bother about
these fluctuations. For investors in debt mutual funds, these are interesting times. They need to
realize that their returns will be adversely impacted if rates go up. No wonder, experts are quite
clear in their view - avoid medium and long-term funds. Also, gilt funds are a strict no-no. This
is because they are the first to be impacted in case of a rate rise. While there are various options
for investors, they need to select the category that suits their risk-taking ability and time horizon.
Debt funds offer you benefits, which pure debt investments (like bonds and deposits) don't. If
there were to be a further decline in interest rates, and you have directly invested in debt
instruments, it would not mean much to you. You would hardly trade the securities you hold
since all you would want to collect is the promised interest at the end of the term. But a debt
fund can post a better return by marking the bonds in its portfolio to their rising market value,
and by actively trading them.
The era of tax concessions is ending. (Too bad, if you didn't notice that). With lower interest
rates already acting as a dampener, small saving schemes appear to be at a disadvantage
compared to debt funds. If you raise your eyes a little and look at the horizon, you will see that
the further the small saving plans are deprived of tax sops, the more unattractive their returns
will become compared to debt funds.
Unlike the case of direct investments in bonds, higher returns in debt funds need not necessarily
mean higher risks. Several debt funds have achieved great returns from a steady income stream
and aggressive duration management (that is managing bonds' tenure in the portfolio), without
their risk going up. In short, exceptional returns in debt funds need not mean higher risks. In
pure debt instruments, higher return is certainly the result of the issuer taking higher risks.
Unlike retail investors, debt fund managers do not rely only on the rating of credit rating
agencies while evaluating bonds. The market has a way of downgrading a bond even before the
bond is actually downgraded by a rating agency. To give an example, last year, for months on

52
end, debt fund managers were already acting as if the bond of a top rated financial institution had
already been downgraded, when it had not. The bond was later downgraded, proving their fears
right. If you are directly investing in a bond, it is impossible to adopt such a cautious approach.
In any case, it would not mean much since you would keep the bond until maturity.

Chapter – 6
53
 Data Analysis
&
Interpretation

Part-I
Financial Analysis
We have tried to analyze the performance of debt and equity funds through mutual funds. As
debt and equity fund is a wide area. Mutual fund has been considered as an effective tool to
measure the relationship of debt and equity funds. Equity and Debt funds are further divided into
two parts i.e. Dividend and Growth. The Growth fund includes re-investment of dividend, which
definitely shows high performance in comparison of other funds. This has been reflected in our
OLS Model also. Result R2 shows the percentage of total variation of the dependable variable
that can be explained by the independent variable X. to further analyze it, we have implemented
OLS Model in equity & debt fund and tried to find out cause and effect relationship between
Sensex and debt & equity funds, as these funds are further re-invested in the market through
BSE & NSE Sensex by mutual fund companies. Generally these funds are divided into two parts
Debt(less risk), Equity(pertaining high risk). As the performance of both the funds are reflected
through volatility in the market. Hence I have taken Sensex as a common parameter in the OLS
model (dependent variable) to further analyze the relationship between debt and equity funds.

54
I have downloaded the secondary daily data of NAV through website of www.hdfcfund.com.
This has been further converted as monthly average daily prices X1+X2+X3+…………+Xn.
Further I have calculated percentage growth through formula {(P1-P0)*100/P0}
Where P0=Initial Price i.e. first month average price and P1 indicates current monthly average
NAV.
Here the data for debt fund is taken from one of the debt fund scheme of HDFC Debt Mutual
Fund i.e. HDFC Debt Income Fund Scheme and the data for equity fund is also taken from one
of the HDFC Equity Mutual Fund i.e. HDFC Equity Balanced Fund Scheme.

Table 1.0 Showing Monthly Average NAV of Debt Fund (Dividend Option)
Years
Months
2004 2005 2006 2007 2008 2009 2010
10.743 10.265 10.163 10.610 11.069 10.871
January 33 79 5 10.19 43 68 93
10.697 10.323 10.136 10.16 10.675 10.835 10.836
February 92 5 32 37 71 26 56
10.742 10.334 10.063 10.10 10.560 10.757 10.844
March 5 55 64 62 93 93 86
10.766 10.116 10.13 10.228 11.053 10.864
April 84 10.233 47 9 3 66 89
10.745 10.254 10.157 10.16 10.339 11.095 11.004
May 24 55 27 76 44 47 58
10.619 10.307 10.147 10.19 10.259 11.026 10.996
June 09 73 73 95 09 66 6
10.437 10.134 10.34 10.174 11.430 10.893
July 73 10.22 76 57 93 98 95
10.328 10.273 10.209 10.39 10.201 10.900 10.897
August 18 3 09 14 35 33 19
Septembe 10.380 10.285 10.279 10.40 10.249 10.916 10.951
r 95 24 52 35 6 38 41
10.261 10.236 10.40 10.089 10.825 10.821
October 1 10.216 84 46 5 66 14
Novembe 10.213 10.291 10.48 10.241 10.967 10.874
r 68 10.252 36 71 43 15 03
10.292 10.236 10.56 11.162 10.976 10.900
December 61 36 10.312 53 94 65 26

55
 Graph-1.0
Table 1.1 Showing Monthly Averages NAV of Debt Fund (Growth Option)

Years
Months
2004 2005 2006 2007 2008 2009 2010
15.613 15.643 16.260 16.672 18.234 20.481 21.310
January 75 16 5 86 78 49 74
Februar 16.216 18.346 20.047 21.241
y 15.545 15.731 32 16.575 67 59 32
15.667 15.785 16.099 16.528 18.235 19.967 21.302
March 5 91 55 33 28 95 46
15.844 16.188 17.966 20.781 21.521
April 74 15.8 24 16.585 99 78 84
15.812 15.832 16.252 16.630 18.162 20.860 21.798
May 38 73 27 95 19 42 58
15.655 15.952 16.234 16.719 18.021 20.775 21.829
June 45 73 09 05 06 05 01
15.562 15.990 16.215 17.114 17.873 20.505 21.919
July 27 53 24 29 21 16 5
15.395 16.074 16.333 17.190 17.919 20.815 21.926
August 45 76 64 45 64 04 01
Septem 15.508 16.135 16.474 17.252 18.033 20.857 22.069
ber 57 71 29 5 08 11 55
15.467 16.161 16.560 17.498 17.922 20.890 22.115
October 89 5 53 64 39 08 26
Novem 15.395 16.220 16.648 17.638 18.192 21.163 22.223
ber 26 5 64 57 28 12 33
Decemb 15.542 16.227 17.829 19.949 21.212 22.298
er 61 73 16.711 47 18 88 06

Graph-1.1
Table-1.2 Showing Monthly Average NAV of Equity Fund (Dividend Option)

Years
Months
2004 2005 2006 2007 2008 2009 2010
15.880 17.817 16.619 20.009 12.885 20.177
January 95 37 5 18.272 05 45 21
February 15.485 18.487 17.031 17.640 18.930 12.550 19.916

56
 26 58 53 95 74 21
15.814 17.143 17.985 16.222 17.321 10.876 18.726
March 29 33 24 86 89 1 95
15.902 14.369 18.951 16.994 17.689 12.509 18.955
April 11 5 18 5 75 24 45
14.808 14.554 18.509 17.714 14.275 18.805
May 57 29 52 76 18.033 7 38
14.101 14.839 16.445 17.945 16.823 15.924
June 9 05 24 5 76 71 19.553
14.656 15.807 19.552 15.981 16.102 21.774
July 76 8 16.94 24 38 62 86
15.073 16.795 18.052 18.280 17.123 16.676 22.252
August 81 33 38 95 2 81 57
Septembe 15.937 17.211 18.931 16.846 17.557 21.604
r 14 43 9 18.984 52 4 9
17.003 19.694 20.336 13.941 18.345 22.377
October 16.4 5 74 67 26 74 38
Novembe 17.096 21.345 14.041 18.718 22.431
r 32 15.561 20.52 24 44 35 3
17.858 18.107 20.343 22.105 12.744 19.407 22.034
December 24 62 5 79 29 95 62

Graph-1.2
Table-1.3 Showing Monthly Average NAV of Equity Fund (Growth Option)

Years
Months
2004 2005 2006 2007 2008 2009 2010
17.301 19.413 25.846 39.741 25.595 45.627
January 9 16 11 32.345 9 25 21
16.873 20.142 26.492 31.226 37.600 25.087 45.037
February 16 5 11 84 14 26 05
16.033 20.298 27.975 28.716 34.402 24.595 46.771
March 81 57 71 19 67 15 24
17.324 19.904 29.458 35.135 28.288 48.163
April 21 5 13 30.08 95 06 9
16.134 28.787 31.351 35.817 32.282 47.782
May 76 20.16 14 9 4 95 71
15.364 20.555 25.574 33.415 36.012 49.682
June 76 71 76 31.763 95 43 38
15.893 21.473 26.342 33.365 31.743 36.414 50.092
July 6 8 86 1 43 38 14

57
 16.428 22.846 28.074 32.352 34.013 37.712 51.203
August 1 76 76 86 5 38 71
Septembe 17.365 23.840 29.441 33.463 39.704 54.902
r 71 95 43 33.597 71 25 48
17.871 30.627 35.994 41.486 56.866
October 05 23.553 89 29 27.693 68 24
Novembe 21.555 31.910 37.779 42.327 57.003
r 18.63 5 48 52 23.942 8 1
19.388 25.081 39.594 25.315 43.887 55.994
December 65 9 31.829 74 24 48 05

Graph-1.3
Table-1.4 Showing % growth in the Debt Fund (Dividend Option)
Years
Months 2004 2005 2006 2007 2008 2009 2010
- - - -
4.4449 5.3971 5.1504 1.2370 3.0376 1.1970
January 9 2 5 5 99 22
- - - - -
Februar 0.4226 3.9078 5.6501 5.3954 0.6294 0.8556 0.8677
y 8 2 1 4 1 94 94
- - - -
0.0077 3.8049 6.3266 5.9305 - 0.1358 0.9450
March 3 7 2 6 1.6978 98 51
- - -
0.2188 - 5.8348 5.6251 4.7939 2.8885 1.1314
April 33 4.7502 8 6 5 83 93
- - - -
0.0177 4.5496 5.4551 5.3587 3.7594 3.2777 2.4317
May 78 1 1 7 5 55 41
- - - -
1.1564 4.0546 - 5.0618 4.5073 2.6372 2.3574
June 4 1 5.5439 4 5 64 63
- - - - -
2.8445 4.8712 5.6646 3.7010 5.2907 6.4007 1.4019
July 6 1 3 9 2 16 86
- - - -
3.8642 4.3750 4.9727 3.2761 - 1.4613 1.4321
August 6 9 6 7 5.0448 72 44
- - - - -
Septem 3.3730 4.2639 4.3171 3.1631 4.5956 1.6107 1.9368
ber 7 5 9 7 9 67 3

58
 - - - -
Octobe 4.4886 4.9084 4.7144 - 6.0859 0.7663 0.7242
r 5 4 6 3.1534 2 36 63
- - - - -
Novem 4.9300 4.5733 4.2069 2.3846 4.6717 2.0833 1.2165
ber 4 5 8 4 4 39 69
- - - -
Decem 4.1953 4.7189 4.0148 1.6574 3.9057 2.1717 1.4607
ber 5 3 6 9 72 66 2

Graph-1.4
Table-1.5 Showing % growth in the Debt Fund (Growth Option)
Year
Month
2004 2005 2006 2007 2008 2009 2010
-
1.399 3.932 7.027 14.19 27.76 36.48
January 34 303 46 083 674 701
- -
Februa 0.440 0.455 4.142 6.783 16.78 31.17 36.04
ry 32 62 182 188 668 598 24
0.344 0.188 3.859 6.156 17.50 28.39 36.43
March 248 36 227 433 329 702 398
-
0.440 0.750 3.111 5.857 16.78 27.88 37.83
April 32 941 36 529 988 696 902
0.344 1.102 3.679 6.220 15.07 33.09 39.61
May 248 618 385 479 159 922 143
1.479 1.192 4.089 6.514 16.32 33.60 39.80
June 401 859 472 771 177 288 632
1.272 1.402 3.973 7.079 15.41 33.05 40.38
July 148 482 037 017 788 612 588
0.267 2.171 3.852 9.610 14.47 31.32 40.42
August 072 035 31 375 096 758 757
-
Septem 0.329 2.413 4.610 10.09 14.76 33.31 41.34
ber 71 129 616 815 833 224 689
-
Octobe 1.398 2.952 5.511 10.49 15.49 33.58 41.63
r 13 59 424 556 487 168 964
-
Novem 0.673 3.342 6.063 12.07 14.78 33.79 42.33
ber 64 951 758 199 594 284 179

59
 -
Decem 0.934 3.508 6.628 12.96 16.51 35.54 42.81
ber 18 126 068 819 448 156 041

Graph-1.5
Table-1.6 Showing % growth in the Equity Fund (Dividend Option)
Year
Month
2004 2005 2006 2007 2008 2009 2010
-
12.19 4.650 15.05 25.99 18.86 27.05
January 335 54 609 404 22 292
- -
Februa 2.491 16.40 7.245 11.07 19.20 20.96 25.40
ry 6 991 347 982 54 98 944
- -
0.419 7.949 13.25 2.152 9.073 31.51 17.92
March 75 021 04 957 387 48 084
- -
0.133 9.517 19.33 7.011 11.38 21.23 19.35
April 241 38 279 86 975 12 967
- - -
6.752 8.353 16.55 11.54 13.55 10.10 18.41
May 62 78 172 723 114 8 47
- -
11.20 6.560 3.553 13.00 5.936 0.275 23.12
June 24 69 251 017 736 55 236
- -
7.708 0.460 6.668 23.11 0.632 1.395 37.11
July 54 61 682 757 393 823 308
-
5.082 5.757 13.67 15.11 7.822 5.011 40.12
August 44 716 317 245 265 413 115
Septem 0.353 8.377 19.21 19.53 6.080 10.55 36.04
ber 82 836 138 945 052 636 287
-
Octobe 3.268 7.068 24.01 28.05 12.21 15.52 40.90
r 381 532 487 701 39 042 706
- -
Novem 7.653 2.014 29.21 34.40 11.58 17.86 41.24
ber 006 68 141 783 31 669 659

60
 -
Decem 12.45 14.02 28.10 39.19 19.75 22.20 38.74
ber 07 101 002 69 11 9 875

Graph-1.6

Table-1.7 Showing % growth in the Equity Fund (Growth Option)

Year
Month
2004 2005 2006 2007 2008 2009 2010
12.20 49.38 86.94 129.6 47.93 163.7
January 247 307 479 967 317 121
-
Februa 2.477 16.41 53.11 80.48 117.3 44.99 160.3
ry 99 785 677 214 18 714 012
-
7.329 17.31 61.69 65.97 98.83 42.15 170.3
March 2 989 155 131 753 288 243
0.128 15.04 70.25 73.85 103.0 63.49 178.3
April 945 228 951 374 757 684 735
-
6.745 16.51 66.38 81.20 107.0 86.58 176.1
May 73 9 138 495 143 616 703
-
11.19 18.80 47.81 83.58 93.13 108.1 187.1
June 61 608 475 099 457 415 499
-
8.139 24.11 52.25 92.84 83.46 110.4 189.5
July 57 238 415 067 789 646 181
-
5.050 32.04 62.26 86.99 96.58 117.9 195.9
August 31 769 403 021 824 667 427
Septem 0.368 37.79 70.16 94.18 93.41 129.4 217.3
ber 803 383 299 099 061 791 205
Octobe 3.289 36.12 77.02 108.0 60.05 139.7 228.6
r 523 956 039 366 757 811 705
Novem 7.676 24.58 84.43 118.3 38.37 144.6 229.4
ber 036 458 339 547 787 425 615
Decem 12.06 44.96 83.96 128.8 46.31 153.6 223.6
ber 081 616 245 462 48 57 295

61
 Graph-1.7
Table-1.8 Showing Change in the % growth of Debt Fund (Dividend Option)
Year
Month
2004 2005 2006 2007 2008 2009 2010
- - - - -
0.249 0.678 1.135 0.420 0.868 0.974
January 64 19 59 447 07 74
- - - -
Februa 0.537 0.252 0.244 0.607 2.182 0.329
ry 171 99 99 633 01 23
- - - -
0.414 0.102 0.676 0.535 1.068 0.719 0.077
March 955 855 51 12 38 8 257
- -
0.226 0.945 0.491 0.305 3.096 2.752 0.186
April 559 24 747 399 15 685 441
-
0.201 0.200 0.379 0.266 1.034 0.389 1.300
May 05 59 771 398 502 172 249
- - - - -
1.174 0.495 0.088 0.296 0.747 0.640 0.074
June 22 005 8 928 91 49 28
- - - - -
1.688 0.816 0.120 1.360 0.783 3.763 0.955
July 12 6 73 751 37 451 48
- -
1.019 0.496 0.691 0.424 0.245 4.939 0.030
August 7 122 871 915 92 34 158
Septem 0.491 0.111 0.655 0.449 0.149 0.504
ber 188 139 57 0.113 116 395 685
- - - - - -
Octobe 1.115 0.644 0.397 0.009 1.490 0.844 1.212
r 58 49 27 774 23 43 57
-
Novem 0.441 0.335 0.507 0.768 1.414 1.317 0.492
ber 39 092 478 756 18 003 305
-
Decem 0.734 0.145 0.192 0.727 8.577 0.088 0.244
ber 688 58 119 149 508 427 151

Graph-1.8

62
Table-1.9 Showing Change in the % growth of Debt Fund (Growth Option)
Year
Month
2004 2005 2006 2007 2008 2009 2010
-
0.643 0.209 0.244 2.595 3.409 0.626
January 984 879 27 853 239 755
- - - -
Februa 0.562 0.282 0.626 0.716 2.778 0.444
ry 581 96 76 612 96 61
- - - -
0.784 0.351 0.747 0.298 0.713 0.510 0.391
March 565 677 87 9 41 06 578
-
1.135 0.090 0.568 0.362 1.718 5.212 1.405
April 153 241 025 949 29 265 044
-
0.207 0.209 0.410 0.294 1.250 0.503 1.772
May 25 623 087 292 18 659 412
- - - -
1.005 0.768 0.116 0.564 0.903 0.546 0.194
June 08 553 44 246 88 76 892
- - - -
0.596 0.242 0.120 2.531 0.946 1.728 0.579
July 78 094 73 359 92 54 553
-
1.068 0.539 0.758 0.487 0.297 1.984 0.041
August 42 46 306 775 366 661 694
Septem 0.724 0.390 0.900 0.397 0.726 0.269 0.919
ber 49 361 809 406 539 442 318
- -
Octobe 0.260 0.165 0.552 1.576 0.708 0.211 0.292
r 54 175 334 431 93 16 755
-
Novem 0.465 0.377 0.564 0.896 1.728 1.748 0.692
ber 17 872 31 197 541 715 146
Decem 0.943 0.046 0.399 1.222 11.25 0.318 0.478
ber 719 305 392 64 226 693 617

Graph-1.9
Table-2.0 Showing Change in the % growth of Equity Fund (Dividend
Option)

63
 Year
Month
2004 2005 2006 2007 2008 2009 2010
- - - -
0.2573 9.3704 13.043 13.202 0.8888 4.8439
January 5 7 9 9 64 17
- - - -
Februar 4.2165 2.5948 3.9762 6.7886 2.1076 1.6434
y 61 07 7 4 2 8
- - -
2.0718 8.4608 6.0050 8.9268 - - 7.4885
March 53 9 56 6 10.132 10.545 9
-
0.5529 17.466 6.0823 4.8589 2.3163 10.283 1.4388
April 9 4 82 03 6 64 31
- - -
6.8858 1.1635 2.7810 4.5353 2.1613 11.123 0.9449
May 6 95 7 71 95 14 7
- -
- 1.7930 12.998 1.4529 7.6144 10.383 4.7076
June 4.4498 92 5 36 1 57 53
-
3.4938 6.1000 3.1154 10.117 5.3043 1.1202 13.990
July 72 76 31 4 4 73 72
-
2.6261 6.2183 7.0044 8.0051 7.1898 3.6155 3.0080
August 02 31 93 3 72 9 69
- -
Septem 5.4362 2.6201 5.5382 4.4270 1.7422 5.5449 4.0782
ber 62 2 08 02 1 45 8
2.9145 - 4.8034 8.5175 - 4.9640 4.8641
October 61 1.3093 91 63 18.294 61 93
-
Novemb 4.3846 9.0832 5.1965 6.3508 0.6308 2.3462 0.3395
er 24 1 41 17 19 7 26
- - -
Decemb 4.7976 16.035 1.1113 4.7890 8.1679 4.3423 2.4978
er 98 69 9 71 6 09 4

Graph-2.0
Table-2.1 Showing Change in the % growth of Equity Fund (Growth Option)
Year
Month
2004 2005 2006 2007 2008 2009 2010
January 0.141 4.416 2.982 0.850 1.618 10.05

64
 661 914 331 542 377 514
- - - -
Februa 4.215 3.733 6.462 12.37 2.936 3.410
ry 375 694 64 87 04 95
- - - -
4.851 0.902 8.574 14.51 18.48 2.844 10.02
March 2 04 781 08 05 25 312
-
7.458 2.277 8.567 7.882 4.238 21.34 8.049
April 14 61 961 429 147 396 174
- - -
6.874 1.476 3.878 7.351 3.938 23.08 2.203
May 68 716 13 216 585 931 17
- - -
4.450 2.287 18.56 2.376 13.87 21.55 10.97
June 38 09 66 04 97 532 955
-
3.056 5.306 4.439 9.259 9.666 2.323 2.368
July 543 296 397 677 68 155 295
-
3.089 7.935 10.00 5.850 13.12 7.502 6.424
August 256 313 988 46 035 066 555
-
Septem 5.419 5.746 7.898 7.190 3.177 11.51 21.37
ber 116 132 959 771 63 244 783
- -
Octobe 2.920 1.664 6.857 13.85 33.35 10.30 11.34
r 72 27 397 565 3 193 997
- -
Novem 4.386 11.54 7.413 10.31 21.67 4.861 0.791
ber 512 5 001 812 97 431 011
- -
Decem 4.384 20.38 0.470 10.49 7.936 9.014 5.832
ber 779 158 93 145 932 501 02

Graph-2.1
Table-2.2 Showing Sensex Last 7 years monthly average performance
Year
Month 2004 2005 2006 2007 2008 2009 2010
5784.0 6591.2 9671.1 13959. 18986. 9572.3 16915.
January 75 15 9 35 99 95 71

65
 Februar 5691.4 6639.5 10164. 13531. 17699. 9115.9 16384.
y 85 35 74 23 7 9 44
5619.9 6609.3 10824. 13042. 9235.6 16983.
March 5 7 36 92 16436 9 11
5627.1 6330.5 11692. 13342. 16529. 10574. 17556.
April 05 2 76 15 52 51 88
5202.7 6449.0 11251. 14266. 16987. 13130. 17240.
May 4 9 2 12 86 25 75
4793.7 6961.6 10540. 14630. 15026. 14620. 17321.
June 35 2 86 4 53 18 86
4992.0 7400.4 10680. 15118. 13917. 15086. 17773.
July 4 35 43 08 89 54 82
5192.6 7718.7 11218. 15331. 14314. 15680. 17941.
August 65 2 28 31 4 71 22
Septem 5394.3 8226.6 16346. 13636. 16409. 19048.
ber 85 9 12706 55 71 06 12
5629.8 8277.6 12717. 18597. 11397. 16541. 20063.
October 65 55 85 49 39 24 22
Novemb 5956.4 8389.3 13344. 19746. 9651.0 16383. 19896.
er 7 35 47 71 45 93 87
Decemb 6430.9 9105.8 13758. 19917. 9405.1 17206. 20019.
er 85 75 3 04 25 14 54

Table Showing Regression and multiple regressions between various variables

R2 β0 β1 β2 F
Sensex and % Growth of 13579. 525.25 11.9073
Debt(Dividend) 0.128164 23 27 5
Sensex and % Growth of 10346. 206.30 77.9111
Equity(Dividend) 0.490281 64 03 4
Sensex and % Growth of 10687. 124.48 30.1428
Debt(Growth) 0.271208 99 46 8
Sensex and % Growth of 6784.0 69.368 522.282
Equity(Growth) 0.865735 44 48 8
% Growth of Debt(Dividend) & -
Change in 2.2534 0.5305 5.05366
% Growth of Debt(Dividend) 0.059417 2 2 3
% Growth of Equity(Dividend) &
Change in 9.8759 0.5873 5.72576
% Growth of Equity(Dividend) 0.066792 63 66 7
% Growth of Debt(Growth) & 0.198091 13.764 0.5140 19.7619
Change in 76 5 9

66
% Growth of Debt(Growth)
% Growth of Equity(Growth) &
Change in 78.384 1.3740 3.96563
% Growth of Equity(Growth) 0.047229 38 55 9
Sensex and % Growth of
Debt(Dividend) 11449. 475.58 201.575 58.7891
and Equity(Dividend) 0.595097 47 88 1 3
Sensex and % Growth of -
Debt(Growth) 6714.6 29.933 75.3368 280.018
and Equity(Growth) 0.875007 09 4 8 5
10.403 0.0059 0.15771
Debt(Dividend) and Equity(Dividend) 0.00192
8 55 5
10.403 0.0059 0.15771
Debt(Growth) and Equity(Growth) 0.00192
8 55 5

1. Correlation between Debt Fund (Dividend Option) and Equity Fund (Dividend Option) is
.0438.
2. Correlation between Debt Fund (Growth Option) and Equity Fund (Growth Option) is .
8446.

Part-II
1. (a) Age distribution of the Investors of Gr. Noida
Age Group <= 30 31-35 36-40 41-45 46-50

No. of 10 10 15 13 7
Investors

Interpretation:

67
According to this chart out of 55 Mutual Fund investors of Gr. Noida most are in the age group

of 36-40 yrs. i.e. 27.27%, the second most investors are in the age group of 41-45yrs i.e. 23.63%

and the least investors are in the age group of above 45 yrs.

(b). Educational Qualification of investors of Gr. Noida

Educational Qualification Number of Investors

Graduate/ Post Graduate 35

Under Graduate 15

Others 5

Total 55

Interpretation:

Out of 55 Mutual Fund investors 63.64% of the investors in Gr. Noida are Graduate/Post

Graduate, 27.27% are Under Graduate and 9.10% are others.

c). Occupation of the investors of Gr. Noida

68
 Occupation No. of Investors
Govt. Service 15
Pvt. Service 22
Business 13
Agriculture 5
Others 0

Interpretation:

In Occupation group out of 55 investors, 40% are Pvt. Employees, 23.64% are Businessman,

27.27% are Govt. Employees, 9.1% are in Agriculture and 0% are in others.

(d). Monthly Family Income of the Investors of Gr. Noida.

Income Group No. of Investors

<=10,000 0
10,001-15,000 10
15,001-20,000 12
20,001-30,000 20
>30,000 13

Interpretation:

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In the Income Group of the investors of Gr. Noida, out of 55 investors, 36.36% investors that is
the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000, Second one
i.e. 23.64% investors are in the monthly income group of more than Rs. 30,000 and the
minimum investors i.e. 18.2% are in the monthly income group of below Rs. 10,000 to Rs.
15,000. And whose income is less than Rs. 10,000, they didn’t invest in mutual funds.

2. Awareness about Mutual Fund and its Operations

Response Yes No
No. of Respondents 85 15

Interpretation:

From the above chart it is inferred that 85% People are aware of Mutual Fund and its operations

and 15% are not aware of Mutual Fund and its operations.

1. Source of information for customers about Mutual Fund

Source of information No. of Respondents

Advertisement 28
Peer Group 4
Bank 38
Financial Advisors 15

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Interpretation:

From the above chart it can be inferred that the Bank is the most important source of information
about Mutual Fund. Out of 85 Respondents, 44.71% know about Mutual fund through Bank,
17.65% through Financial Advisor, 4.7% through Peer Group and 32.94% through
Advertisement.
2. Investors invested in Mutual Fund

Response No. of Respondents

YES 55
NO 30
Total 85

Interpretation:

Out of 85 People, 64.71% have invested in Mutual Fund and 35.29% have not invested in

Mutual Fund.

3. Preferred Portfolios by the Investors

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 Portfolio No. of Investors
Equity 20
Debt 35

Interpretation:

From the above graph 36.36% preferred Equity Portfolio, 63.63% Debt portfolio.

4. How much risk investors are ready to take?

Risk No. of Investors

Low Risk 20
Moderate Risk 30
High Risk 5

Interpretation:

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Out of the 55 investors, 36.36% want low risk in investment, 63.63% investors want moderate
risk in their investment and only 9.1% investors are ready to take high risk in their investment.

5. Investor’s expected rate of return

Expected rate of return No. of Investors

Double 45
According to Market 10

Interpretation:
Out of the 55 investors, 81.81% want double return from their investment and 18.18% want
their return according to the market scenario.

6. Investors invested in different Assets Management Co. (AMC)

Name of AMC No. of Investors

SBIMF 35

73
 UTI 5
HDFC 7
Reliance 0
ICICI Prudential 5
Kotak 5

Interpretation:

Out of 55 investors, 63.63% invested in SBIMF, 9.1% invested in UTI, ICICI and Kotak and
12.73% invested in HDFC. No one invested in Reliance.

7. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan (SIP)

No. of Respondents 40 15

Interpretation:

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Out of 55 Investors, 72.73% preferred one time Investment and 27.27 % Preferred through

Systematic Investment Plan.

8. Preference of Investors for future investment in Mutual Fund

Type of Fund No. of Investors

Having only Debt Portfolio 28
Having debt and equity portfolio 17
Having only equity portfolio 10

Interpretation:

Out of 55 investors, 50.1% chose to invest in debt portfolio only in future, 30.9% chose to invest

in debt and equity portfolio both and only 18.18% chose to invest in equity portfolio in future.

9. Option for getting Return Preferred by the Investors

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 Option Dividend Payout Dividend

Reinvestment
No. of 20 35

Respondents

Interpretation:

From the above graph, 36.36% preferred Dividend Payout and 63.63% preferred Dividend

Reinvestment Option.

Chapter – 6

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 Findings and
Suggestion

Findings

1. Our first model is Y=β0+ β1X where Y is dependent variable i.e. Sensex and X is
dependent variable i.e. % of growth of debt (Dividend Option). R2 is .1282 which is not
significant as expected because proportion of investment in debt fund does not affect the
Sensex or stock market.

2. Similarly by taking Sensex as dependent variable and % growth of Debt Fund (Growth
Option) as independent variable, the result R2 is .2712 which is again not significant as
expected due to the fact that investment in debt fund doesn’t affect the Sensex.

3. By taking Sensex as dependent variable and % growth of equity fund (Dividend &
Growth Option) as independent variable, the result R2 is .4903 and .8657 which is again
not significant due to the fact that investment in equity fund doesn’t affect the Sensex.

4. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of
Debt Fund (Dividend Fund) and X is independent variable i.e. change in % growth of

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 Debt Fund (Dividend Option). R2 is .0594 which is not significant as expected because
both the variables do not affect on each other.

5. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of
Debt Fund (Growth Fund) and X is independent variable i.e. change in % growth of Debt
Fund (Growth Option). R2 is .1981 which is not significant as expected because both the
variables do not affect on each other.

6. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of
Equity Fund (Dividend Fund) and X is independent variable i.e. change in % growth of
Equity Fund (Dividend Option). R2 is .0668 which is not significant as expected because
both the variables do not affect on each other.

7. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of
Equity Fund (Growth Fund) and X is independent variable i.e. change in % growth of
Equity Fund (Growth Option). R2 is .0472 which is not significant as expected because
both the variables do not affect on each other.

8. R2 of multiple regression model Y=β0+ β1X1+ β2X2 where Y is dependent variable i.e.
Sensex and X1 and X2 is independent variable i.e. % growth of Debt Fund (Dividend
Option) and Equity Fund (Dividend Option) and % growth of Debt Fund (Growth
Option) and Equity Fund (Growth Option). R2 is .5950 & .8750 which is quite expected
as growth funds mean re-investment of dividend and interest which further increase
inflow of the fund in the market and is reflected in the results i.e. change in sensex is
explained 87% change by Debt and Equity (Growth Fund).

9. The correlation between Dent Fund (Dividend Option) and Equity Fund (Dividend
Option) is .044 which is negligible because the change in debt fund doesn’t affect the
change in equity fund.

10. The correlation between Dent Fund (Growth Option) and Equity Fund (Growth Option)
is .845, it means that they are highly correlated because growth funds mean re-
investment of dividend & Interest which further increase inflow of the fund in the market
and is reflected in the results.

11. In Gr. Noida, age group of 36-40 years was more in numbers. The second most investors
were in the age group of 41-45 years and the least were in the age group below 46-50.

12. In Gr. Noida most of the investors were Graduate or Post Graduate and the least were
from others.

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13. In Occupation group most of the Investors were Pvt. employees, the second most
Investors were Govt. employees and the least were associated with Agriculture.

14. In family Income group, between Rs. 20,001- 30,000 were more in numbers, the second
most were in the Income group of more than Rs. 30,000 and the least were in the group
of below Rs. 10,000.

15. About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed Deposits,
Only 55% Respondents invested in Mutual fund.

16. Only 85% Respondents were aware about Mutual fund and its operations and 15% were
not.

17. Among 100 Respondents only 55% had invested in Mutual Fund and 35% did not invest
in Mutual fund.

18. Most of the Investors had invested in SBIMF; ICICI Prudential has also good Brand
Position among investors.

19. Most of the investors invested in debt fund rather than equity fund.

20. Most of the investors wanted to take moderate risk in their investment and less investor
were ready to take high risk.

21. 72.72% preferred One Time Investment and 27.27% preferred Systematic Investment
Plan.

22. The most preferred Portfolio was Debt, the second most was Balance (mixture of both
equity and debt), and the least preferred Portfolio was Equity portfolio.

23. Maximum Number of Investors Preferred Dividend Reinvestment for returns, the second
most preferred Dividend Payout.

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 Suggestions
➢ 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.

➢ 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
target for 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.

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➢ Mutual Fund Company needs to give the training of the Individual Financial Advisors about the
Fund/Scheme and its objective, because they are the main source to influence the investors.

➢ Before making any investment Financial Advisors should first enquire about the risk tolerance
of the investors/customers, their need and time (how long they want to invest). By considering
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, so making
greater efforts with younger customers who show some interest in investing should pay off.

➢ Customers with graduate level education are easier to sell to and there is a large untapped
market there. To succeed however, advisors must provide sound advice and high quality.

➢ Systematic Investment Plan (SIP) is one the innovative products launched by Assets
Management 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 potential
investors are not aware about the SIP. There is a large scope for the companies to tap the
salaried persons.

Conclusion

Running a successful Mutual Fund requires complete understanding of the peculiarities of the
Indian Stock Market and also the psyche of the small investors. This study has made an attempt
to understand the financial behavior of Debt and Equity Funds investors in connection with the
preferences of Brand (AMC), Products, and 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

81
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.

People can invest their savings in equity fund as equity funds give the higher return but the risk
is also high there. But the risk has to be taken because until unless the risk won’t be taken, the
appreciation of fund is not possible. But with the point of view of a common man, the investor
should consider a balance portfolio while investing.

“Brand” plays important role for the investment. People invest in those Companies where they
have faith or they are well known with them. There are many AMCs in Gr. Noida but only
some are performing well due to Brand awareness. Some AMCs are not performing well
although some of the schemes of them are giving good return because of not awareness about
Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are
performing well and their Assets Under Management is larger than others whose Brand name
are not well known like Principle, Sunderam, etc.

Distribution channels are also important for the investment in mutual fund. Financial Advisors
are the most preferred channel for the investment in mutual fund. They can change investors’
mind from one investment option to others. Many of investors directly invest their money
through AMC because they do not have to pay entry load. Only those people invest directly
who know well about mutual fund and its operations and those have time.

Bibliography:
Books:
➢ Kothari C.R.,”Research Methodology, Methods of Techniques,” 2nd Edition: Wiley
Eastern; 4th reprint 1993.

➢ Advandhani, VA, Investment Management, Himalaya publishing House, Delhi, 1996

➢ Turan & Bodla, Performance Appraisal of Mutual Funds, Excel Printers, Delhi, 2001

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Articles in Journal and News Papers:
➢ Bansal, LK, ‘Mutual Fund Investors taken for Granted by AMC’s’, Chartered Secretary,
26(4), (Apr. 1996)

➢ Kumar N Ashok, Baskaran S,’Money Market and Performance’, Chartered Financial

Analyst, (March 1996)

➢ Economic Times

➢ Business Line

Internet Source:
www.ezinearticles.com
www.rediffbusiness.com
www.yahoofinance.com
www.bizfinance.com

Annexure
A study of Comparative Study of debt and equity funds in India

1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

83
 Graduation/PG Under Graduate Others

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(f). what is your monthly family income approximately? Pl tick (√).

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001

Rs.10,000 15000 20,000 30,000 and above

2. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

3. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors

4. Have you ever invested in Mutual Fund? Pl tick (√). Yes No

5. Which sector do you think is more beneficial to invest in?

(a).Debt fund (b).Equity fund

6. How much risk you are ready to take?

7. What is your expected rate of return?

8. When you plan to invest your money in asset management co. which AMC will you prefer?

84
 Assets Management Co.
a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI

9. When you invest in Mutual Funds which mode of investment will you prefer? Pl.tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)

10. When you want to invest which type of funds would you choose?

a. Having only debt b. Having debt & equity c. Only equity portfolio.
portfolio portfolio.

11. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re- c. Growth in NAV

investment

85