Professional Documents
Culture Documents
INTRODUCTION
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Mutual fund is a buzz in the market these days. The mutual fund industry is burgeoning,
it is completely untapped market. Only few % of total potential of this industry has been
grabbed. Hence this industry has a lot of opportunities in it. Thats why it is so much
interactive.
The Indian stock market and companies have become lucrative for foreign investors.
More and more fund is pouring in our country. This is increasing liquidity in the market
and hence increasing the money in the hands of people and thus investment. As the future
prospects for Indian companies are bright, they have lots of opportunities to expand their
business worldwide, the investment in Indian companies.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could
range from shares to debentures to money market instruments. The income earned
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through these investments and the capital appreciations realized by the scheme are shared
by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low
cost. Anybody with an investible surplus of as little as a few thousand rupees can invest
in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.
A mutual fund is the ideal investment vehicle for todays complex and modern financial
scenario. Markets for equity shares, bonds and other fixed income instruments, real
estate, derivatives and other assets have become mature and information driven. Price
changes in these assets are driven by global events occurring in faraway places. A typical
individual is unlikely to have the knowledge, skills, inclination and time to keep track of
events, understand their implications and act speedily. An individual also finds it difficult
to keep track of ownership of his assets, investments, brokerage dues and bank
transactions etc.
A mutual fund is the answer to all these situations. It appoints professionally qualified
and experienced staff that manages each of these functions on a full time basis. The large
pool of money collected in the fund allows it to hire such staff at a very low cost to each
investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals
coming together to invest money collectively is not new, the mutual fund in its present
form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the
Second World War. Globally, there are thousands of firms offering tens of thousands of
mutual funds with different investment objectives. Today, mutual funds collectively
manage almost as much as or more money as compared to banks.
A draft offer document is to be prepared at the time of launching the fund. Typically, it
pre specifies the investment objectives of the fund, the risk associated, the costs involved
in the process and the broad rules for entry into and exit from the fund and other areas of
operation. In India, as in most countries, these sponsors need approval from a regulator,
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SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the
sponsor and its financial strength in granting approval to the fund for commencing
operations.
A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the
fund and perhaps a third one to handle registry work for the unit holders (subscribers) of
the fund.
In the Indian context, the sponsors promote the Asset Management Company also, in
which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the
Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the
Birla Sun Life Asset Management Company Ltd., which has floated different mutual
funds schemes and also acts as an asset manager for the funds collected under the
schemes.
All over the world, mutual fund is one of the most popular instruments for investment. Its
popularity with consumer has dramatically increased over the last couple of years
worldwide; the mutual fund has a long and successful history. The popularity of mutual
fund has increased manifold. In developed financial market like United States, mutual has
almost overtaken bank deposits and total assets of insurance funds.
The mutual fund industry in India is regulated by Association of Mutual Funds in India
(AMFI). The mutual fund industry in India is of 6.5lakh crores approx. Mutual Fund is
Indias largest bank sponsored mutual fund and has an enviable track record in judicious
investments and consistent wealth creation.
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The fund traces its lineage to Indias largest banking enterprise. The institution has grown
immensely since its inception and today it is India's largest bank, patronized by over 80%
of the top corporate houses of the country.
Mutual Fund is a joint venture between the Indian Market and Society General
Asset Management, one of the worlds leading fund management companies that
manages over US$ 500 Billion worldwide.
In twenty years of operation, the fund has launched 38 schemes and successfully
redeemed fifteen of them. In the process it has rewarded its investors handsomely with
consistently high returns.
A total of over 4.6 million investors have reposed their faith in the wealth generation
expertise of the Mutual Fund.
Schemes of the Mutual fund have consistently outperformed benchmark indices and have
emerged as the preferred investment for millions of investors and HNIs.
Today, the fund manages over Rs. 28500 crores of assets and has a diverse profile of
investors actively parking their investments across 36 active schemes.
The fund serves this vast family of investors by reaching out to them through network of
over 130 points of acceptance, 28 investor service centers, 46 investor service desks and
56 district organizers.
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 MF credo was born on
1st July,1955 based on the recommendations of All India Rural Credit Survey
Committee(1954) headed by Shri A.D Gorwala, through an Act of Parliament. The main
objective of Mutual Fumd is Extension of Banking facilities on a large scale, more
particularly in rural and semi-urban areas, and for diverse other public purposes and to
transfer to it the undertaking of the Imperial Bank of India and provide for other matters
connected thereto or incidental thereto.Mutual Fund is the oldest, the largest and the
highest profit making bank in India. Its evolution is not only intimately interwoven with
the economic development of modern India but also with our nation building process to
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an extent perhaps unparalleled in the world. Moving like colossuses on the Indian
financial turf, it has become a symbol of national pride and economic development.
Mutual Fund with its extensive network of over 9000 branches has vast clientele and
extends service not only on commercial basis but also on the basis of social
considerations. The Bank is also on its way to introduce and absorb technology
extensively at a rapid speed not only to remain customer-friendly and efficient for
existing business but also to manage new business and services in an increasingly
dynamic and global environment.
The project entitled Comparison of Mutual Fund with Other Investment Options
gives me an opportunity to enhance my knowledge of mutual funds industry and gives
me an insight of business processes of different types of client.
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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.
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There are many entities involved and the diagram below illustrates the organizational
set up of a Mutual Fund:
Mutual Funds diversify their risk by holding a portfolio of instead of only one asset.
This is because by holding all your money in just one asset, the entire fortunes of your
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portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk
is substantially reduced.
Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds
contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A
very important risk involved in Mutual Fund investments is the market risk. However,
the company specific risks are largely eliminated due to professional fund management.
SEBI
The regulation of mutual funds operating in India falls under the preview of authority of
the Securities and Exchange Board of India (SEBI). Any person proposing to set up
a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to
be registered with the SEBI.
Mutual funds
Mutual fund is vehicle that facilitates a number of investors to pool their money and have
it jointly managed by a professional money manager
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. The Sponsor is not responsible or liable for any loss or
shortfall resulting from the operation of the Schemes beyond the initial contribution made
by it towards setting up of the Mutual Fund.
Custodian
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The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian
to carry out the custodial services for the schemes of the fund. Only institutions with
substantial organizational strength, service capability in terms of computerization and
other infrastructure facilities are approved to act as custodians. The custodian must be
totally delinked from the AMC and must be registered with SEBI.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the unit
holders and ensure that the AMC functions in the interest of investors and in accordance
with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.
Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to
the Mutual Fund. The Registrar processes the application form, redemption requests and
dispatches account statements to the unit holders. The Registrar and Transfer agent also
handles communications with investors and updates investor records.
1.4 INVESTMENTS
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An investment can be described as perfect if it satisfies all the needs of all investors. So,
the starting point in searching for the perfect investment would be to examine investor
needs. If all those needs are met by the investment, then that investment can be termed
the perfect investment. Most investors and advisors spend a great deal of time
understanding the merits of the thousands of investments available in India. Little time,
however, is spent understanding the needs of the investor and ensuring that the most
appropriate investments are selected for him.
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Security of original capital: The chance of losing some capital has been a primary
need. This is perhaps the strongest need among investors in India, who have suffered
regularly due to failures of the financial system.
Wealth accumulation: This is largely a factor of investment performance, including
both short-term performance of an investment and long-term performance of a portfolio.
Wealth accumulation is the ultimate measure of the success of an investment decision.
Comfort factor: This refers to the peace of mind associated with an investment.
Avoiding discomfort is probably a greater need than receiving comfort. Reputation
plays an important part in delivering the comfort factor.
Tax efficiency: Legitimate reduction in the amount of tax payable is an important part
of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation.
Life Cover: Many investors look for investments that offer good return with adequate
life cover to manage the situations in case of any eventualities.
Simplicity: Investment instruments are complex, but investors need to understand what
is being done with their money. A planner should also deliver simplicity to investors.
Ease of withdrawal: This refers to the ability to invest long term but withdraw funds
when desired. This is strongly linked to a sense of ownership. It is normally triggered by
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a need to spend capital, change investments or cater to changes in other needs. Access to
a long-term investment at short notice can only be had at a substantial cost.
Communication: This refers to informing and educating investors about the purpose
and progress of their investments.
Perfect investment would have been achieved if all the above-mentioned needs had
been met to satisfaction. But there is always a trade-off involved in making investments.
As long as the investment strategy matches the needs of investor according to the
priority assigned to them, he should be happy.
The Ideal Investment strategy should be a customized one for each investor depending
on his risk-return profile, his satisfaction level, his income, and his expectations.
Accurate planning gives accurate results. And for that there must be an efficient and
trustworthy roadmap to achieve the ultimate goal of wealth maximization.
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SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the
securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board
of trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of
mutual funds that the mutual funds function within the strict regulatory framework. Its
objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry
practices in diverse areas such as valuation, disclosure, transparency etc.
CHAPTER-2
RESEARCH DESIGN
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PURPOSEThe main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from it
inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds. My study depends upon
prominent funds in India and their schemes like equity, income, balance as well as the
returns associated with those schemes.
The project study was done to ascertain the asset allocation, entry load, exit load,
associated with the mutual funds. Ultimately this would help in understanding the
benefits of mutual funds to investors.
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A mutual fund is a form of collective investment that pools money from many investors,
and invests the money in stocks, bonds, short-term money market instruments, and/or
other securities. Fund managers who can apply their expertise and dedicate time to
research investment options professionally manage it.
In the current scenario mutual fund investors face many problems. They gather
information about the various schemes through magazines, periodicals or through the
company website. However there is a need for aggregation of all this information at a
single place as most of this information is decentralized. For example the information
about fund A and B that belong to two different companies can be found on their
respective website. However it would be more useful if all this information is available
with a single login at a centralized location.
The investors very often face difficulties in choosing between two funds as a comparative
study between funds is a tedious process. For example a person can get information about
fund A and fund B however it is difficult to compare these funds based on different
parameters. This process gets further complicated with addition of more funds.
For an investor it is very important to monitor the current value of his investments. It is
essential to know about the worth of his portfolio based on current market situations. This
will help him determine his profit/loss and take necessary actions to book his profit/loss
based on his expectations from his investment.
AIMTo compare the investment options, its performance and risk & return relationship for
better investment decision.
OBJECTIVESIt is necessary to specify the objectives of the study. This is because of specification of
objectives will enable us to study various areas and aspects with clarity.
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To study the risk and return relationship with reference to mutual fund and other
investment s
HYPOTHESIS
Null hypothesis
Alternative hypothesis
RESEARCH METHODOLOGY
Stage-1 SAMPLE DESIGN
Sample Unit: Investors and Non-Investor
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Primary data.
Secondary data.
PRIMARY SOURCES: Questionnaire Analysis (ENCL.)
SECONDARY DATA:
It refers to those data that was already being corrected by and analyzed by someone else.
This data is collected from
Journal Reports
Magazines.
Newspapers and books
Website
Statistical tools-
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Plan for data analysis: Analysis of data is planned with the help of
Mean
Analysis of variance.
Tabulation
The study will aim at understanding and analyzing the types Mutual Fund and
other investment options
I will analyze the funds depending on their schemes like equity, income, balance
Subject matter is related to the investors approach towards mutual funds and
other investment options in Indian market
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information that is actually required is. Information in this case we require is that
what is the approach of investors while investing their money in mutual funds and
other investment options, e.g. what do they consider while deciding as to invest in
which of the two i.e. Mutual funds or other investment options. Also, it studies
the extent to which the investors are aware of the various costs that one bears
while making any investment. So, the information sought and information
generated is only possible after defining the information needed.
conducting the research project. It details the procedures necessary for obtaining
the information needed to solve research problems. In this project, the research
design is explorative in nature.
continuum on
which measured objects are located. Both nominal and interval scales have been
used for this purpose.
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CHAPTER-3
EXECUTIVE
SUMMARY
All investments carry risk in some form or the other. Risk, liquidity and return are the so
called factors which are considered before making an investment. But there is a tradeoff
between risk and return. Higher the risk higher the return. Lower the risk and lower the
return. The decision of which mode of investment to choose largely depends upon the
investors necessity and the factors which according to him is the most vital one.
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People with more security concern choose fixed investment and investments in
government securities and various post office savings. The main reason for choosing such
an investment mode is that the amount invested in the above stated securities seems to be
very secure and hence they seemed to be more preferred one where security is the prime
concern.
People whom returns are most important are ready to take risk to earn fairer risk. The
preferred mode of investment over here is shares and mutual fund. The risk factor in
these modes of investment is basically the returns are basically performance based. If the
company performs well the investors can accept fairer returns but if the company fails to
perform then there can be a threat to the invested amount. Hence the returns are very
volatile with the changes in the market conditions.
Hence it is up to the investors to decide that which is the best kind of investment that
would cater his need. The hypothesis of the study was Investors still prefer the
traditional funds for investment instead the more modern methods like mutual
fund.
The significant outcome of the government policy of liberalization in industrial and
financial sector has been the development of new financial instruments. These new
instruments are expected to impart greater competitiveness flexibility and efficiency to
the financial sector. Growth and development of various mutual fund products in Indian
capital market has proved to be one of the most catalytic instruments in generating
momentous investment growth in the capital market. There is a substantial growth in the
mutual fund market due to a high level of precision in the design and marketing of variety
of mutual fund products by banks and other financial institution providing growth,
liquidity and return.
In this context, prioritization, preference building and close monitoring of mutual funds
are essentials for fund managers to make this the strongest and most preferred instrument
in Indian capital market for the coming years. With the decline in the bank interest rates,
frequent fluctuations in the secondary market and the inherent attitude of Indian small
investors to avoid risk, it is important on the part of fund managers and mutual fund
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product designers to combine various elements of liquidity, return and security in making
mutual fund products the best possible alternative for the small investors in Indian
market. There are various parameters which an investor should consider before investing
in mutual funds. The comparative analysis between two mutual fund will help the
investor to take appropriate decision before investing in mutual funds.
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CHAPTER-4
PROFILE OF THE
INDUSTRY
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Invest in
Passed back to
Returns
Securities
Mutual Funds are popular among all income levels. With a mutual fund, we get a
diversified basket of stocks managed by professionals
These Trusts are run by experienced Investment Managers who use their knowledge and
expertise to select individual securities, which are classified to form portfolios that meet
predetermined objectives and criteria.
These portfolios are then sold to the public. They offer the investors the following main
services:
Portfolio Diversification
Marketability: A new financial asset is created that may be more easily marketable than
the underlying securities in the portfolio.
1986: UTI Master share, Indias first true mutual fund scheme, launched.
1987: PSU banks and insurers allowed floating mutual funds; State Bank of India (SBI)
first off the blocks.
1992: The Harshad Mehta-fuelled bull market arouses middle-class interest in shares and
mutual funds.
1993: Private sector and foreign players allowed; Kothari Pioneer first private fund house
to start operations; SEBI set up to regulate industry.
1994: Morgan Stanley is the first foreign player.
1996: Sebis mutual fund rules and regulations, which forms the basis of most current
laws, come into force.
1998: UTI Master Index Fund is the countrys first index fund.
1999: The takeover of 20th Century AMC by Zurich Mutual Fund is the first acquisition
in the mutual fund industry.
2000: The industrys assets under management crosses Rs 1, 00,000 crore.
2001: US-64 scam leads to UTI overhaul.
2002: UTI bifurcated, comes under SEBI purview; mutual fund distributors banned from
giving commissions to investors; floating rate funds and Foreign debt funds debut.
2003: AMFI certification made compulsory for new agents; fund of funds launched.
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The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank. The history of
mutual funds in India can be broadly divided into four distinct phases.
FIRST PHASE: 1964 87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the regulatory and administrative
control of the Reserve Bank of India. In 1978, UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the
end of 1988 UTI had Rs.6, 700 crores of assets under the management.
SECOND PHASE: 1987 1993 (Entry of Public Sector Funds)
1987 marked the entry of non UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India (GIC). SBI Mutual Fund was the first non UTI Mutual Fund established in
June1987 followed by Can Bank Mutual Fund (Dec 87), Punjab National Bank Mutual
Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC
had set up its mutual fund in December 1990. At the end of 1993, the mutual fund
industry had assets under management of Rs.47, 004 crores.
except UTI, were to be registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector mutual fund registered in
July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996.
The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The
number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets
of Rs.1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under
management was way ahead of other mutual funds.
FOURTH PHASE: since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000
crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place
among different private sector funds, the mutual fund industry has entered its current
phase of consolidation and growth
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TYPES OF
MUTUAL
FUND
ACCORDING
TO
STUCTURE
ACCORDING
TO
INVESTMEN
T
OBJECTIVES
OTHER
OBJECTIVES
Growth Funds:
The aim of growth funds is to provide capital appreciation over the medium to long term.
Such schemes normally invest a majority of their corpus in equities. It has been proved
that returns from stocks, have outperformed most other kind of investments held over the
long term. Growth schemes are ideal for investors having a long term outlook seeking
growth over a period of time.
Income Funds:
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures
and Government securities. Income Funds are ideal for capital stability and regular
income.
Balanced Fund:
The aim of balanced funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed income
securities in the proportion indicated in their offer documents. In a rising stock market,
the NAV of these schemes may not normally keep pace, or fall equally when the market
falls. These are ideal for investors looking for a combination of income and moderate
growth.
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Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50
Sectoral Schemes
Sectoral Funds are those which invest exclusively in a specified sector. This could be an
industry or a group of industries or various segments such as 'A' Group shares or initial
public offerings
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the key benefits in this section. The benefits have been broadly split into universal
benefits, applicable to all schemes and benefits applicable specifically to open-ended
schemes.
1. AFFORDABILITY
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the
investment objective of the scheme. An investor can buy in to a portfolio of equities,
which would otherwise be extremely expensive. Each unit holder thus gets an exposure to
such portfolios with an investment as modest as Rs.500/-. This amount today would get
you less than quarter of an Infosys share! Thus it would be affordable for an investor to
build a portfolio of investments through a mutual fund rather than investing directly in
the stock market.
2. DIVERSIFICATION
The nuclear weapon in your arsenal for your fight against Risk. It simply means that you
must spread your investment across different securities (stocks, bonds, money market
instruments, real estate, fixed deposits etc.) and different sectors (auto, textile,
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information technology etc.). This kind of a diversification may add to the stability of
your returns, for example during one period of time equities might underperform but
bonds and money market instruments might do well enough to offset the effect of a slump
in the equity markets. Similarly the information technology sector might be faring poorly
but the auto and textile sectors might do well and may protect your principal investment
as well as help you meet your return objectives.
3. VARIETY
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two
ways: first, it offers different types of schemes to investors with different needs and risk
appetites; Secondly, it offers an opportunity to an investor to invest sums across a variety
of schemes, both debt and equity. For example, an investor can invest his money in a
Growth Fund (equity scheme) and Income Fund (debt scheme) depending on his risk
appetite and thus create a balanced portfolio
easily or simply just buy a Balanced Scheme.
4. PROFESSIONAL MANAGEMENT
Qualified investment professionals who seek to maximize returns and minimize risk
monitor investor's money. When you buy in to a mutual fund, you are handing your
money to an investment professional that has experience in making investment decisions.
It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's
stated investment objectives; and (b) keep track of investments and changes in market
conditions and adjust the mix of the portfolio, as and when required.
5. TAX BENEFITS
Any income distributed after March 31, 2002 will be subject to tax in the assessment of
all Unit holders. However, as a measure of concession to Unit holders of open-ended
equity-oriented funds, income distributions for the year ending March 31, 2003, will be
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schemes do have a lock-in period where an investor cannot return the units until the
completion of such a lock-in period.
9. CONVENIENCE
An investor can purchase or sell fund units directly from a fund, through a broker or a
financial planner. The investor may opt for a Systematic Investment Plan (SIP) or a
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4.6 DISADVANTAGES
No assured returns and no protection of capital
If you are planning to go with a mutual fund, this must be your mantra: mutual funds do
not offer assured returns and carry risk. For instance, unlike bank deposits, your
investment in a mutual fund can fall in value. In addition, mutual funds are not insured or
guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per
bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the
Reserve Bank of India).
There are strict norms for any fund that assures returns and it is now compulsory for
funds to establish that they have resources to back such assurances. This is because most
closed-end funds that assured returns in the early-nineties failed to stick to their
assurances made at the time of launch, resulting in losses to investors.
Restrictive gains
Diversification helps, if risk minimization is your objective. However, the lack of
investment focus also means you gain less than if you had invested directly in a single
security.
In our earlier example, say, Reliance appreciated 50 per cent. A direct investment in the
stock would appreciate by 50 per cent. But your investment in the mutual fund, which
had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.
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Like other countries, India has a legal framework within which mutual funds must be
constituted. In India, open and close end funds operate under the same regulatory
structure, i.e. in India, all mutual funds are constituted along one unique structure as
unit trust. A mutual fund in India is allowed to issue open end and close end schemes
under a common legal structure. The structure, which is required to be followed by
mutual funds in India, laid down under SEBI (Mutual Fund) Regulations, 1996.
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Sponsor is defined under SEBI Regulations as any person who, acting alone or in
combination with another body corporate establishes a mutual fund. The sponsor of a
fund is akin to the promoter of companies he gets the fund registered with SEBI. The
sponsor will form a Trust and appoint a Board of Trustees. All these appointments are
made in accordance with the SEBI Regulations. As per the existing SEBI Regulations, for
a person to qualify as a sponsor, must contribute at least 40% of the net worth of the
AMC and issues a sound financial track over five years prior to registration.
Mutual Funds as Trusts
Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust
Act 1882. The fund invites investors to contribute their money in the common pool by
subscribing to units issued by various schemes established by the Trust as evidence of
their beneficial interest in the fund. The Trust or Fund has no legal capacity itself rather it
is the Trustee(s) who have legal capacity and therefore the trustees take all acts in relation
to the Trust itself.
Trustees
A Board of Trustees a body of individuals, or a trust company a corporate body, may
manage the Trust. Board of Trustees manages most of the funds in India. The Trust is
created through a document called the Trust Deed that is executed by the Fund Sponsor in
favors of the trustees. They are the primary guardian of the unit holders funds and assets.
They ensure that AMCs operations are along professional lines.
Right of Trustees
Page 39
c) Have the right to request any necessary information from the AMC concerning the
operations of various schemes managed by the AMC
Page 40
Bankers
A funds activities involved dealing with the money on a continuous basis primarily with
respect to buying and selling units, paying for investment made, receiving the proceeds
from sale of investment and discharging its obligations towards operative expenses. A
funds banker therefore plays a crucial role with respect to its financial dealings.
Custodian and Depository
The custodian is appointed by the Board of Trustees for safekeeping of securities in terms
of physical delivery and eventual safe keeping or participating in the clearing system
through approved depository companies.
Page 41
It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual
fund and asset management. The agencies who are by any means connected or
involved in the field of capital markets and financial services also involved in this
code of conduct of the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry.
Association of Mutual Fund in India does represent the Government of India, the
Reserve Bank of India and other related bodies on matters relating to the Mutual Fund
Industry.
It develops a team of well qualified and trained Agent distributors. It implements a
program of training and certification for all intermediaries and other engaged in the
mutual fund industry.
AMFI undertakes all India awareness programmed for investors in order to promote
proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate
informations on Mutual Fund Industry and undertakes studies and research either
directly or in association with other bodies
Page 42
Savings form an important part of the economy of any nation. With the savings invested
in various options available to the people, the money acts as the driver for growth of the
country. Indian financial scene too presents a plethora of avenues to the investors.
Though certainly not the best or deepest of markets in the world, it has reasonable options
for an ordinary man to invest his savings. A short briefing about each form of investment
is given below:
STOCK
MARKET
FIXED
DEPOSITS
INVESTME
NT
OPTIONS
MUTUAL
FUNDS
INSURAN
CE
Page 43
There are mainly three types of fixed deposits available in the market, namely, viz.
1. Fixed deposits offered by Banks
2. Fixed deposits offered by Post Offices
3. Company fixed deposits
Now, well see these three fixed deposit schemes in details.
1. Fixed deposits offered by Banks:
Considered as the safest of all options, banks have been the roots of the financial systems
in India. Promoted as the means of social development, banks in India have indeed
played an important role in not only urban areas, but also in rural upliftment. For an
ordinary person though, banks have acted as the safest avenue wherein a person deposits
money and earns interest on it. The two main modes of investment in banks, savings
accounts and fixed deposits have been effectively used by one and all.
Page 44
However, today the interest rate structure in the country is headed southwards, keeping in
line with global trends. With the banks offering just above in their fixed deposits for one
year, the yields have come down substantially in recent times. Add to this, inflammatory
pressure in the economy and we have a position where the savings are not earning. The
inflation is creeping up almost 8% at times, this means the value of money saved goes
down instead of going up. This effectively mars any chance of gaining investments from
the banks.
Banks in India can be categorized into non-scheduled banks and scheduled banks.
Scheduled banks constitute of commercial banks and co-operative banks. There are about
67,000 branches of Scheduled
Page 45
Page 46
The equity indexes are correlated beyond the boundaries of different countries with their
exposure to common calamities like monsoon which would affect both India and
Bangladesh or trade integration policies and close connection with the foreign investors.
From 1995 onwards, both in terms of trade integration and FIIs India has made an
advance.
Indian Equity Market at present is a lucrative field for the investors and investing in
Indian stocks are profitable for not only the long and medium-term investors, but also the
position traders, short-term swing traders and also very short term intra-day traders. In
terms of market capitalization, there are over 2500 companies in the BSE chart list with
the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels
to 8000 levels providing a profitable business to all those who had been investing in the
Indian Equity Market. There are about 22 stock exchanges in India which regulates the
market trends of different stocks. Generally the bigger companies are listed with the NSE
and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which
lists the medium and small sized companies.
In the Indian market scenario, the large FMCG companies reached the top line with a
double-digit growth, with their shares being attractive for investing in the Indian stock
market. Such companies like the Tata Tea, Britannia, to name a few, have been providing
a bustling business for the Indian share market. Other leading houses offering equally
beneficial stocks for investing in Indian Equity Market, of the SENSEX chart are the
two-wheeler and three-wheeler maker Bajaj Auto and second largest software exporter
Infosys Technologies.
Thus, the growing financial capital markets of India being encouraged by domestic and
foreign investments is becoming a profitable business more with each day. If all the
economic parameters are unchanged Indian Equity Market will be conducive for the
growth of private equities and this will lead to an overall improvement in the Indian
economy.
Page 47
Now apart from all these, the first question that comes in our mind is,
Why do so many people invest in shares?
Simply put, you want to invest in order to create wealth. While investing is relatively
painless, its rewards are plentiful. To understand why you need to invest, you need to
realize that you lose when you just save and do not invest. That is because the value of
the rupee decreases every year due to inflation. Historically shares have outperformed all
the other investment instruments and given the maximum returns in the long run. In the
twenty-five year period of 1980-2005 while the other instruments have barely managed to
generate returns at a rate higher than the inflation rate (7.10%), on an average shares have
given returns of about 17% in a year and that does not even take into account the
dividend income from them.
[Inflation: general rise in prices and wages caused by an increase in the money supply
and demand for goods, and resulting in a fall in the value of money. Inflation occurs
when most prices rise by some degree across the economy.]
There are lots of advantages of investment in share market. Some of these are:
1. Dividend income: investments in shares are attractive as much for the
appreciation in the share prices as for the dividends their companies pay out.
2. Tax advantages: shares appear as the best investment option if you also consider
the unbeatable tax benefits that they offer. First, the dividend income is tax-free in
the hands of investors. Second, you are required to pay only a 10% short term
capital gains tax on the profits made from investments in shares, if you book your
profits within a year of making the purchase. Third, you don't need to pay any
long-term capital gains tax on the profits if you sell the shares after holding them
for a period of one year. The capital gains tax rate is much higher for other
Page 48
investment instruments: a 30% short-term capital gains tax (assuming that you fall
in the 30% tax bracket) and a 10% long-term capital gains tax.
3. Easy liquidity: shares can also be made liquid anytime from anywhere (on
sharekhan.com you can sell a share at the click of a mouse from anywhere in the
world) and the gains can be realized in just two working days. Considering the
high returns, the tax advantages and the highly liquid nature, shares are the best
investment option to create wealth.
a) Appreciation in share prices: You buy shares with the belief that their price will
increase and that when this happens you will be able to sell off your shares and
earn profit. For example, if you bought a share for Rs100 three years ago and it is
Rs500 today, then you have earned Rs400 in three years.
b) Dividend: when a company makes profits, it can choose to share part of its profits
with its shareholders by paying out dividend. This dividend is paid as a
percentage of the face value of the share. For example, a company may declare a
dividend of 25%. Then if the face value of its share is Rs10 you will get Rs2.50
for every share you own of that company, irrespective of the market price. In itself
this might not be much, but over a longer period of time or if you have a lot of
shares, you could earn quite a bit from the dividend itself. The best thing about
dividends is that they are tax-free in the hands of investors. Dividend yield stocks
are known to give returns higher than fixed deposits [dividend yield = (dividend
per share / market price of the share) x 100].
Every share transaction attracts some tax or the other. Some of the main expenses are as
follows.
Page 49
a) Capital gains tax: If you purchase a share and sell it at a price higher than the
purchase price and if this sale is within a year of the purchase, then a 10% capital
gains tax is levied on the profit that you make. For example, if you bought a share
for Rs100 on January 1, 2005 and sold it for Rs150 on July 1, 2005, then you have
to pay a tax of 10% on the Rs50 profit that you make. If you sell after a year of
purchase, there is no tax on the long-term gains.
b) Securities transaction tax: Securities transaction tax (STT) is levied by the
government on every transaction you do on a stock exchange. You dont have to
pay this separately; its collected by your broker. As per the Union Budget 2005
the STT will be 0.10% on delivery-based transactions and 0.02% on intra-day
transactions.
c) Brokerage: Brokers get a commission on every trade that they do for you. This
commission varies from broker to broker; at sharekhan.com the brokerage is 0.5%
for delivery-based transactions and 0.10% for intraday transactions. On the
brokerage amount you are required to pay a service tax to the government (to be
collected by the broker). The brokerage varies depending on the service that the
broker provides you. Some brokers, such as Share khan, offer its clients regular
updates on companies, multiple means to transact and customer service support.
d) Depository fees: Since most of the shares exist in a dematerialized form, every
time you buy or sell shares the transactions are being noted by your DP. The DPs
normally levy a charge which is an annual charge or a charge on each transaction.
4. Risks ---the only disadvantage in investing in shares:
There are two types of risk associated with this kind of investment: company specific
risk and market risk.
Set of risks that deals with a company and its sector are referred to as company specific
risk.
Page 50
Examples of company specific risk: bad management, bad marketing strategies, sector
disturbances that have an impact on industry etc.
External factors (economic, global factors) that affect the market as a whole are referred
to as market risk.
Examples of market risk: political instability, high inflation, rupee depreciation, rising
interest rates, global incidents like wars and disasters that throttle the nation's economy
etc.
With careful scrutiny and proper homework, it might be easy to identify and be
forewarned of the risks a company may be carrying. Specifically check out for the
mergers and acquisitions that do not have a real synergy or are a nightmare after
reconciliation (A O L - Time Warner, Hewlett Packard-Compaq).
Also is suspicious of diversifications that do not really add value to a company's core
offering. A third kind of risk would be with the companies that have bet their stakes on a
single product offering and are high on debt. Likewise companies that depend on research
could be prone to higher risk, if the research doesn't come to fruition.
If steel prices rise, auto companies get affected. If low cost Chinese products invade the
country's market, then local fast moving consumer goods companies might find no takers
for their products. The changing nature of the industry itself may lead to dipping stock
prices; a print publication may see revenue loss if everyone moves to reading on the
Internet.
It is difficult to predict market risks. The only thing we can say here is that start noticing
all the small signs early. If the election results are feared to lead to a fall in the stock
market, notice the signals beforehand. Read Sebi's bulletins and track companies whose
shares prices are very volatile.
Page 51
How people can minimize their risk and maximize their return?
Buy when stocks are falling, sell when these are rising. This works well when you are a
long-term investor and there is an extended bear or Bull Run. Don't try to second guess or
predict that the market will fall today and rise tomorrow. Even seasoned investors cannot
do that!
Your instincts might tell you that pharma or technology stocks are hot due to certain
policies or events, but remember millions of investors have already guessed that and
bought these stocks. The prices of these stocks would therefore be at a higher level when
you buy them. Instead focus on the long term and don't get swayed by short-term events.
Short-term investing is prone to higher risks. When investing in stocks, aim to get good
returns after a period of three to five years at the minimum. Also churn your portfolio
periodically and based on the progress that a company makes in a quarter or in six
months, decide whether to hold the stock or get out of it.
You may have overheard some news about a stock or your friend may advise that a
particular stock is all geared to move up. Avoid such tips like the plague and your
investments will remain safe.
Blue-chip companies are there because they have done well in the past and have a high
market capitalization. It is a likely guess that they will maintain their track record and
give you higher returns even in future. Therefore invest in companies that have a good
track record.
Page 52
Page 53
4.10.1 INSURANCE
No mutual fund under all its schemes should own more than ten percent of any
companys paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on spot
basis. The securities so transferred shall be in conformity with the investment objective of
the scheme to which such transfer has been made.
Introduction to insurance:
The business of insurance is related to the protection of the economic values of the assets.
Every asset has a value. The asset would have been created through the efforts of the
owner. The asset is valuable to the owner, because he expects some benefits from it. It is
a benefit because it meets some of his needs. But every asset is expected to last for a
certain period of time during which it will provide the benefits. After that the benefit may
not be available. The owner is aware of this and he can so manage his affairs that by the
end of that period or life-time, a substitute made available. Thus he makes sure that the
benefit isnt lost. Here comes the thought of insurance.
Purpose and needs of insurance:
Assets are insured, because they are likely to be destroyed or made non-functional before
the expected life time, through accidental occurrences are called perils. Fire, floods,
breakdowns, lightning, and earthquakes such things are called perils. If such perils can
cause damage to the assets, we say that the asset is exposed to that risk. Perils are the
events. Risks are the consequential losses or damages.
Insurance doesnt protect the asset. It does not prevent its loss due to the peril. The peril
cant be avoided through the insurance. The risk can sometimes be avoided, through
better safety and damage control measures. Insurance only tries to reduce the impact of
the risk on the owner of the asset and those who depend on that asset. They are the ones
who benefit from the asset and therefore, would lose, when the asset is damaged.
Insurance only compensates for the losses-and that too, not fully.
Classification of risks:
Page 54
Risks are classified in various ways. One classification is based on the extent of the
damage likely to be caused. They are,
a) Critical or catastrophic risks: this may lead to the bankruptcy of the owner.
b) Important risks: may not spell doom, but may upset family or business finances
badly, require a lot of time to recover.
c) Unimportant risks: like temporary illness or accidents.
d) Financial risks
e) Non-financial risks
f) Dynamic risks: caused by perils which have national consequence, like inflation,
technology etc.
g) Static risks: caused by perils which have no consequence on the national economy,
like a fire or theft.
h) Fundamental risks: that affects large populations.
I) Particular risks: affects only specific persons.
j) Pure risks
k) Speculative risks
Page 55
Rs.200 each. This works out to 1% of the value of the house, which is the same as the
probability of risk (4 out of 400 houses).
The business of insurance:
Insurance companies are called insurers. The business of insurance is to,
Bring together persons with common insurance interests (sharing the same risks)
Collect the share or contribution (called premium) from all of them
Pay out compensations (called claims) to those who suffer from the risks.
The premium is determined on the same lines, but with further refinements.
In India, insurance business is classified primarily as life and non-life or general. Life
insurance includes all risks related to the lives of human beings and general insurance
covers the rest. General insurance has 3 classifications viz. fire (dealing with all fire
related risks), marine (dealing with all transport related risks and ships) and
miscellaneous (dealing with all others like liability, fidelity, motor, crop, etc). Personal
accident and sickness insurance, which are related to human beings, is classified as nonlife in India but is classified as life, in many other countries.
In India, the IRDA has, in 2005, issued regulations enabled micro insurance (broadly
meaning insurance for small sums assured, like 5-50 thousands) to be done by both life
and general insurers on the basis of mutual tie-ups. A policy may be issued by a life
insurer covering both life and non-life risks, but premium on account of the non-life
business will be passed on to a general insurer and the claim amount collected from the
latter.
Trustee:
The insurer is in the position of a trustee as it is managing the common fund, for and on
behalf of the community of policyholders. It has to ensure that nobody is allowed to take
undue advantage of the arrangement. That means that the management of the insurance
business requires care to prevent entry (into the group) of people whose risks are not of
the same kind as well as playing claims on losses that are not accidental. The decision to
allow entry is the process of underwriting of risk. Underwriting includes assessing the
Page 56
risk, which means, making an evaluation of how much is the exposure to risk. The
premium to be charged depends on this assessment of the risk. Both underwriting and
claim settlements have to be done with great care.
Reinsurance:
Insurance companies are taking risks they have to pay claims as and when they occur.
They cannot be sure when the claim will occur and how big the claim may be. This is so
because of the very nature of the perils. Insurers normally are financially sound enough to
be able to pay claims. But there are limits. An event like the tsunami or hurricane may
generate claims amounting of crores of rupees, which may put a very heavy strain on the
reserves of the insurer. Insurers protect themselves from such situations, which may be
beyond their capacity, by reinsuring the risk with other insurers. If there is a claim, the
burden is shared by the primary insurer and the reinsurers.
Advantages of life insurance:
Life insurance has no competition from any other business. Many people think that life
insurance is an investment or a means of saving. This is not the correct view. When a
person saves, the amount of fund available at any time is equal to the amount of money
set aside in the past, plus interest. This is so in the fixed deposit in a bank, in national
savings certificate, in mutual funds or any other savings instruments. If the money is
invested in buying shares and stocks, there is the risk of the money being lost in the
fluctuations of the stock market. Even if there is no loss, the available money at any time
is the amount invested plus appreciation. In life insurance, however, the fund available is
not the total of the savings already made (premiums paid), but the amount one wished to
have at the end of the savings period (which is next 20/30 years). The final fund is
secured from the very beginning. One is paying for it over the years, out of the savings.
One has to pay for it only as long as one life or for a lesser period, if so chosen. The
assured fund is not affected. There is no other scheme which provides this kind of benefit.
Therefore life insurance has no substitute.
Recovery of Contribution:
Page 57
The scheme will be effective from 01 Nov 2005. Contribution for the first month will be
recovered through IRLA from the pay and allowances for the month of Oct 2005.
Death Benefit:
Death benefit includes the cover assured and accumulated balance of Saving Element of
contribution up to the month of death together with interest and bonus as applicable.
Disability Benefit:
Member who is invalidated out of Indian Air Force by an Invalidating Medical Board
(NOT the Released Medical Board held at the time of retirement/release) on account of a
disability, whether attributable to service or not, will be eligible for disability benefit at
half the life insurance cover for 100% disability. The disability benefit will be reduced
proportionately depending upon the percentage of disability. In case of disability of less
than 20%, a member will not be eligible for any disability benefit. Disability benefit is in
addition to accumulated balance of saving element, together with interest and bonus,
payable on invalidment from service.
Members invalidated out of Indian Air Force due to reasons mentioned below will not be
entitled to any disability benefit, irrespective of percentage of their disability:(a) Alcoholism
(b) Drug addiction
(c) Self-inflicted injuries.
(d) Disability as a result of attempted suicide.
(e) Any disability arising out of intentional acts resulting in criminal conviction.
(f) Invalidment within one year of enrolment due to disability, which is not attributable to
service.
Survival Benefit:
Page 58
Survival Benefit constitutes the saving element of contribution and the interest earned on
it as per the rates declared by the Society every year. The rate declared at the beginning of
each year will be as approved by BoT of AFGIS based on the likely interest earnings of
the Society for the year and its requisite allocation. The scheme does not cater for the
concept of refund of contribution or the saving element along with interest whichever is
higher as survival benefit.
Survival Benefit accumulated under the earlier schemes will be retained by the Society
till such time the same is repayable to the members on account of his death/ retirement/
release. The Survival Benefit (excluding Bonus) accumulated under the old schemes will
continue to earn interest as applicable to GIS-05.
Bonus:
after requisite allocation to various funds and payment of the interest on saving element
as declared at the beginning of the year, if the society generates excess income by way of
interest earnings during the year the same will be distributed to members as Bonus for the
year. The quantum of such surplus available will decide the quantum/rate of bonus to be
paid to the members. The bonus will be admissible to all those who were members of the
scheme on the last day of year. Bonus does not earn any interest since the effort of the
CHAPTER-5
society will be to maximize interest on Saving Element. Separate letter will be issued by
AFGIS as and when bonus for a year is approved by Board of Trustees.
THE RISKS
ASSOCITED WITH
MUTUAL FUND
INVESTMENT
Page 59
5.1 RISKS ASSOCIATED WITH MUTUAL FUNDS:Investing in Mutual Funds, as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other
words, the greater the potential risk the greater the potential return. The types of risk
commonly associated with Mutual Funds are:
1. Market risk
Market risk exposes one to a potential loss of principal. In all likelihood the market value
of a stock will fluctuate based on factors such as developments affecting the company's
financial status, earnings of the company or impact of economic slowdown on the
company. Likewise, debt funds too are subject to market risk. Prices of bonds and
government securities fluctuate with change in interest rates. One can minimize market
risk by diversifying among a variety of instruments rather than investing your money in
one or two stocks. Diversification helps minimize risks. Thus, when one asset class is
adversely affected by market or other conditions, another class may be less affected.
Because mutual funds invest in a lot of companies, they are the best way to diversify.
2. Interest Rate Risk
Page 60
The risk that the value of a fixed income security will drop as interest rates rise.
Government security prices are inversely related to interest rates. If interest rates decline
then the prices of securities increase and vice versa. This risk cannot be avoided.
3. Inflation risk
Sometimes referred to as loss of purchasing power. Whenever inflation rises forward
faster than the earnings on your investment, you run the risk that you will actually be able
to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.
4. Business Risk
The risk that a company issuing a security may not be financially sounds due to factors
like poor management, low product demand, or huge operating expenses. Such situations
can result in a decline in the security's value. Since mutual funds invest in a variety of
companies, the effect of such a risk spreads out.
5. Credit risk
The risk that an issuer will default on a fixed income security by failing to pay interest or
principal when due. Most of the bond instruments are rated by rating agencies. The
higher the rating given to the bond, the higher is the credit quality implying low credit
risk and vice versa. This risk can be limited by investing in mutual funds having a high
exposure to quality paper. Rating of AA/AAA denotes high credit quality.
6. Manager Risk
This risk arises from the possibility that an actively managed mutual fund's investment
adviser will fail to execute the fund's investment strategy effectively, resulting in the
failure of the stated objectives.
7. Industry Risk
This risk arises from the possibility that a group of stocks in a single industry will decline
in price due to developments in that industry.
Page 61
8. Exchange risk
A number of companies generate revenues in foreign currencies and may have
investments or expenses also denominated in foreign currencies. Change rates may,
therefore, have a positive or negative impact on companies which in turn would have an
effect on the investment of the fund.
9. Investment risks
The sectoral fund schemes, investments will be predominantly in equities of select
companies in the particular sectors. Accordingly, the NAV of the schemes are linked to
the equity performance of such companies and may be more volatile than a more
diversified portfolio of equities.
Page 62
Page 63
CHAPTER-6
ANALYSIS &
INTERPRETATION
AGE:Age Group
20-30
30-40
Page 64
40-50
50 and above
TOTAL
6
12
50
Age Group
20-30; 14%
40-50; 12%
30-40; 50%
Interpretation
OCCUPATION:
SCALE
RESPONSE(No. of Person)
Government employee
12
Private employee
23
Page 65
Self employee
Professional
TOTAL
50
OCCUPATION
Professional; 12%
government employee; 24%
Self Employee; 18%
Interpretation
EDUCATION:
SCALE
SSC
PUC
Graduate
Post Graduate
Others
TOTAL
12
15
12
8
50
EDUCATION
Others; 16%
SSC; 6%
PUC; 24%
Graduate; 30%
Interpretation-
INCOME :
SCALE
Below 2,50,000
2,50,000
4,00,000-5,50,000
5,50,000-8,00,000
0
50
RESPONE
550000-800000; 2%
Below 250000; 34%
400000-550000; 42%
250000-400000; 22%
Interpretation-
Page 68
26-30%; 10%
21-25%; 18%
16-20%; 8%
10-15%; 64%
Interpretation-
SCALE
Below 15,000
15,000-30,000
30,000-45,000
45,000 & above
TOTAL
Page 69
below 15,000; 4%
45 & above; 18%
15,000-30,000; 24%
30,000-45,000; 54%
Interpretation-
Dividend Gain
Capital Gain
Tax Saving
19
Return
15
Page 70
TOTAL
50
INVESTMENT OBJECTIVE
Return; 30%
Tax Saving; 38%
Interpretation-
Banks
13
Agents
16
Page 71
Newspaper
Television
Friends
15
TOTAL
50
Friends; 30%
Banks; 26%
Television; 8%
Newspaper; 4% Agents; 32%
Interpretation-
Maximum: 32% of respondents are come to know about various Mutual Fund
from Agents
Minimum: 4% of respondents are come to know about various Mutual Fund
schemes from Newspaper
Page 72
Financial Planning
20
Tax Maximizing
35
Mutual Fund
40
Real State
30
Home Loan
Fixed Deposit
10
Personal Loan
Life Insurance
30
Health Care
10
TOTAL
183
INVESTMENT
te
Ho
me
Lo
an
Fi
xe
d
De
po
s it
s
Pe
rs
on
al
Lo
an
Li
fe
In
su
ra
nc
e
He
alt
h
Ca
re
Re
a
lS
ta
d
ut
ua
lF
un
g
M
ax
im
izi
n
Ta
xM
Fi
na
nc
ial
Pl
an
ni
ng
45
40
35
30
25
20
15
10
5
0
INVESTMENT
Interpretation-
Page 73
RESPONSE(No. of Person)
3 months 6 months
6 months 8 months
8 months 12 months
26
TOTAL
50
Interpretation
Page 74
SCALE
Yes
40
No
10
TOTAL
50
No; 20%
Yes; 80%
Page 75
Interpretation-
Page 76
te
Re
a
lS
ta
re
s
Eq
u
ity
/S
ha
ns
Ho
me
Lo
a
Go
ld
ce
ur
an
In
s
ds
Bo
n
t.
Go
v
tO
ffi
ce
Po
s
Fi
xe
d
De
po
s it
18
16
14
12
10
8
6
4
2
0
Interpretation-
Govt. Sector
27
Private Sector
23
TOTAL
50
Page 77
INVESTINTG SECTOR
Interpretation-
19
14
Ulips
Page 78
TOTAL
50
MOSTLY INVESTED
ts
me
n
ds
In
d
iv
id
u
Ot
h
al
St
o
er
in
s
ck
s&
tru
Bo
n
ck
s
d
M
ut
Sa
v
ua
lF
un
in
g
in
v
/c
es
&
tin
PO
in
Sc
h
St
o
em
es
20
18
16
14
12
10
8
6
4
2
0
Interpretation-
Safety of Capital
11
Retirement
Beating Inflation
Tax Maximizing
18
Page 79
Liquidity
TOTAL
50
PURPOSE
20
18
16
14
12
10
8
6
4
2
0
Re
t
ur
ns
id
ity
l-
Li
qu
g
ax
im
izi
n
Gr
ow
th
of
Ca
p
ita
Ta
xM
in
g
In
fla
tio
ire
me
nt
Be
at
Sa
fe
t
of
Re
t
Ca
p
ita
PURPOSE
Interpretation-
Safety of Capital
17
Low Risk
10
Page 80
High Returns
23
Maturity
TOTAL
50
REASON (INVESTMENT)
Interpretation-
Page 81
29
wealth
The opportunity for steady growth
will generate
The safety of investment principal
TOTAL
50
18%
14%
58%
10%
Interpretation-
Page 82
SCALE
Yes
13
No
37
TOTAL
50
YES; 26%
NO; 74%
Interpretation-
SCALE
Daily
Weekly
Monthly
25
Yearly
23
TOTAL
50
INVESTMENT TIMING
Daily; 4%
Yearly; 46%
Monthly; 50%
Interpretation-
Page 84
Low
26
Moderate
13
High
11
TOTAL
50
High; 22%
Low; 52%
Moderate; 26%
InterpretationPage 85
If in the near future if you ever plan to invest in your money in any of
the mutual fund company, which would be your first investment choice?
SCALE
27
TOTAL
50
Page 86
lF
un
lF
un
St
a
nd
ar
d
Ch
a
Ta
t
rte
d
aM
ut
ut
ua
ua
lF
un
ua
ut
tia
lM
en
IC
IC
IP
ru
d
Ca
n
ar
aB
an
kM
ut
ua
lF
un
30
25
20
15
10
5
0
Interpretation-
What motivates a person or an organization to buy securities, rather than spending their
money immediately? The most common answer is savings -- the desire to pass money
from the present into the future. People and organizations anticipate future cash needs,
and expect that their earnings in the future will not meet those needs. You may be willing
to invest to make something happen that might not, otherwise -- you could invest to build
a museum, to finance low-income housing, or to re-claim urban neighborhoods. The
dividends from these kinds of investments may not be economic, and thus they are
difficult to compare and evaluate. For most investors, charitable goals aside, the key
measure of benefit derived from a security is the rate of return.
Page 87
It is clear that the investors are basically quite conservative and hence are not
ready to take any risk with their hard earned money. They are very conscious and hence
are not ready to take any risk. The mutual fund is not very new concept in India it still
seems that the mutual fund has still a very long way to go before they would get highly
established. The maximum numbers of investors still prefers traditional investments like
insurance, fixed deposits and shares and seems to be satisfied and hence are not interested
in investing in mutual funds. Even the concept of IPO (Initial Public Offering) seems to
be less accepted concept. So the hypothesis for the study that the investors still prefer
traditional methods of investment has not proved to be completely wrong from the
analysis done, which is very evident from the above charts. The number of investors
investing in mutual fund seems to be very less as compared to investments modes like
insurance, fixed deposits and shares.
CHAPTER-7
FINDINGS
Page 88
FINDINGS
The findings from the study are as under:
The people are basically of conservative nature and hence are very precautious
about their hard earned money. Hence they would like to play it safe when it
comes to spending of their money.
Security and returns are the two main reasons that are taken into consideration
before making an investment.
Bank fixed deposits and post office savings seem to be most preferred one among
the investors because it is considered to be the most secured one.
Page 89
Shares and mutual funds were considered to be very risky and hence that seemed
to be the last choice of the general mass
Amongst mutual fund and shares people preferred shares because the possessed
complete knowledge about the shares but had very little knowledge about the
mutual fund industry.
The people who do not invest in mutual fund basically fear that they are less
secured as compared with other investments.
The others were aware about the concept of mutual fund but were not full aware
of its intricacy hence were not interested in investing in it.
Most of the investors who invest in Mutual Fund substitute the same against the
Bank Deposits, insurance and other saving schemes. The investors are not willing
to invest in mutual fund industry unless they are guaranteed about minimum
returns.
The increase in mutual fund and various schemes have left many investors
confused as to which scheme to opt for even if they want to invest in mutual fund.
The increase in Mutual fund and various schemes have increased competition.
Hence it has been remarked by many investors mutual funds are too busy trying
to race against each other. As a result they lose their stabilizing factor in the
market
RECOMMENDATIONS
The performance of the mutual fund depends on the previous years Net Asset Value of
the fund. All schemes are doing well. But the future is uncertain. So, the AMC (Asset
under Management Companies) should take the following steps: -
Page 90
1. The people do not want to take risk. The AMC should launch more
diversified funds so that the risk becomes minimum. This will lure more
and more people to invest in mutual funds.
2. The expectation of the people from the mutual funds is high. So, the
portfolio of the fund should be prepared taking into consideration the
expectations of the people.
3. Try to reduce fund charges, administration charges and other charges
which helps to invest more funds in the security market and earn good
returns.
4. Different campaigns should be launched to educate people regarding
mutual funds.
5. Companies should give regular dividends as it depicts profitability.
6. Mutual funds should concentrate on differentiating the portfolio of their
MF than their competitors MF
7. Companies should give handsome brokerage to brokers so that they get
attracted towards distribution of the funds.
Page 91
SUGGESTIONS
The Indian Investment Industrys development and success would depend on various
issues such as:
Educate the people: There are lots of alternatives available in the present time.
But because of lack of knowledge people are not ready to try them. Even because
of the fear to try new ones the investment industry has limited itself. The same
can be done through arranging events that promote such innovations.
Preconceptions rule: The preconceptions that a person carries tries rule his
investment decisions. The past record of shares and mutual fund restrict the
people in investing in the same. Though the rules and regulations have changed a
lot but there are still people who are not ready to accept such facts.
Let them know where there amount in reinvested: The investors should know
that the amount that is invested in the company how the funds are used and for
what purpose .They have the right to know where are their funds reinvested i.e.
the companies should be transparent.
Do not cut others line for showing yourself bigger: The promoters to promote
their funds degrading the other modes of investment and hence this limits their
investment scopes itself because this act degrades the company in the eyes of the
customers
Lead through Innovation: Although there is enough room in the market,
unfortunately in Indian market, all mutual funds have been chasing the same set
of investors with the same set of products and inducements. Product
differentiation is the first step towards escaping competition and attracting more
investors.
Page 92
Page 93
CONCLUSION
The future of primary market is growing at a very high pace. Taking this thing into
consideration, there are lots of opportunities for the Mutual Funds Management Pvt Ltd
to tap the golden opportunities from the Indian market.
Mutual Funds Management Pvt Ltd has emerged a very strong player in the field of
distribution of financial product within a short period of one year time in Northern India
and is giving stiff competition to all the players in the market including the banks. It is
expanding its area of business, if the progress of MF goes in the same way, than I can say
that there is bright future for MF in coming years. They have much potential to expand
their distribution network in northern India.
The company is currently following huge investment and growth strategies. Apart from
the market growth rate the distribution industry doesnt seem so attractive. Hence the
firm should be selective using growth strategies. This is not to undermine the bright
future of MF, just a check to be a cautious.
There is little awareness about mutual fund in India; people have accepted it as a one of
the major investment avenue. Mutual funds will become one of the sought after
investment avenues. As far as the other investment products marketed by MF are
concerned, they have a ready market. The only thing, which it needs to focus on, is that
they should have a strong network so that prompt services and availability of forms is
made available to the investor at a short notice, and if it keeps the traditional base for
Page 94
marketing in India, which is a price sensitive market, we can say that MF has a great
future ahead.
QUESTIONNAIRE
Dear Sir/Madam,
I would like to introduce myself as a PGDM (AIMA) student of M.S.Ramaiah
Management Institute, Bangalore and doing a project on the topic. A Study on
Comparative Analysis of Mutual Fund and Other Investment Options
This project is to be submitted to the AIMA for the award of PGDM. Hence I, request
you to kindly spend few minutes of your valuable time in answering this.
Section A - Identification
1) Name:
2) Age:
a) 20-30 [ ]
b) 30-40 [ ]
c) 40-50 [ ]
d) 50 and above [ ]
3) Occupation:
a) Government employee
[ ]
b) Private Employee
[ ]
Page 95
c) Self-Employed
[ ]
d) Professional
[ ]
e) Others........
4) Address:
5) Education:
a) Ssc
[ ]
b) Puc
[ ]
c) Graduation
[ ]
d) Post Graduate
[ ]
e) Other..
6) Phone No.:
7) Income :
a)
b)
c)
d)
e)
Below 250000
250000-400000
400000-550000
5500000-800000
800000 and above
[
[
[
[
[
]
]
]
]
]
[
[
[
[
[
]
]
]
]
]
Page 96
[
[
[
[
]
]
]
]
[ ]
b) Capital gain
[ ]
c) Tax savings
[ ]
d) Return
[ ]
[ ]
[ ]
[ ]
11) How did you know about various Mutual Fund Schemes?
a) Bank
[ ]
b) Agents
c) Newspaper
[ ]
d) Television
e) Friends
[ ]
b) Others..
[ ]
[ ]
[ ]
[ ]
[ ]
Page 97
d)
e)
f)
g)
h)
i)
Real state
Home loan
Fixed deposits
Personal loan
Life insurance
Health care
[
[
[
[
[
[
]
]
]
]
]
]
[ ]
[ ]
[ ]
[ ]
[ ]
[ ]
b) No
[ ]
a)
b)
c)
d)
e)
f)
g)
h)
Fixed deposits
Post office
Government bonds
Insurance
Gold
Home loans
Equity/ Shares
Real state
[
[
[
[
[
[
[
[
]
]
]
]
]
]
]
]
[ ]
b) Private sector
[ ]
a)
b)
a)
b)
c)
d)
e)
[
[
[
[
[
[
[
]
]
]
]
]
]
]
[ ]
(b) Retirement
[ ]
[ ]
[ ]
(e) Liquidity
[ ]
[ ]
Page 99
[ ]
(b) Property/Land
[ ]
[ ]
(d) Gold
[ ]
[ ]
(h) Equity/Shares
[ ]
[ ]
21) Rank the following investment which is the best investment option according you?
(a) Bank deposit
[ ]
(b) Property/Land
[ ]
[ ]
(d) Gold
[ ]
[ ]
[ ]
[ ]
[ ]
22) Which factor do you consider before investing in mutual fund or other investment
options?
a)
b)
c)
d)
Safety of principal
Low risk
High returns
Maturity
[
[
[
[
]
]
]
]
23) Which factor do you consider most important while choosing an investment option?
(a) How quickly will I be able to increase wealth?
[ ]
[ ]
[ ]
Page 100
[ ]
Categories
Highly
Favorable
Neutral
Unfavorable
Favorable
Highly
Unfavorable
Return
Categories
Current
Yield
Capital
Risk
Marketability/
Tax
Liquidity
shelter
Convenience
appreciation
(a)Share
Market
(b)Mutual
Funds
(c) Insurance
Page 101
(d)Bank
Deposits
(e) Real state
[ ]
[ ]
Daily
Weekly
Monthly
Yearly
[
[
[
[
]
]
]
]
28) Your comfort level in making investment decisions can best be described as
a) Low
b) Moderate
c) High
[ ]
[ ]
[ ]
29) If in the near future if you ever plan to invest in your money in any of the mutual
fund company, which would be your first investment choice?
(a) Canara bank mutual fund
[ ]
[ ]
(c)
(d)
(e)
(f)
(g)
(h)
[
[
[
[
[
]
]
]
]
]
Page 102
30) Would you like to give any suggestions regarding improvement of investment in
Mutual Fund and other investment options?
BIBLIOGRAPHY
BOOKS:
1. C.R Kothari: Research Methodology; Wishva Publication, New Delhi.
2. M.J Mathew : Risk & Return Analysis
MAGAZINES:1
Business world.
Invest one
Business Today
NEWSPAPERS:-
Page 103
1.
Economic Times.
WEBSTIES:
www.reliancemutualfund.com
www.google.com
www.indiainfoline.com
www.amfi.com
www.mutualfundsindia.com
www.businesslink.com
Page 104