INTRODUCTION

The origin of mutual fund industry in India is with the introduction of the
concept of mutual fund by UTI in the year 1963. Though the growth was
slow, but it accelerated from the year 1987when non-UTI players entered the
industryIn the past decade, Indian mutual fund industry had seen dramatic
improvements, both qualitywise as well as quantity wise. Before, the
monopoly of the market had seen an ending phase; theAssets Under
Management (AUM) was Rs. 67bn. The private sector entry to the fund
familyraised the AUM to Rs. 470 bn in March 1993 and till April 2004; it
reached the height of 1,540 bn.Putting the AUM of the Indian Mutual Funds
Industry into comparison, the total of it is less thanthe deposits of SBI alone,
constitute less than 11% of the total deposits held by the Indian banking
industry.The main reason of its poor growth is that the mutual fund industry
in India is new in the country.Large sections of Indian investors are yet to be
intellectuated with the concept. Hence, it is the prime responsibility of all
mutual fund companies, to market the product correctly abreast of selling
The mutual fund industry can be broadly put into four phases according to
the development of thesector. Each phase is briefly described as under.

First Phase - 1964-87.

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

It was set up by theReserve Bank of India and functioned under the
Regulatory and administrative control of theReserve Bank of India. In 1978
UTI was de-linked from the RBI and the Industrial DevelopmentBank of
India (IDBI) took over the regulatory and administrative control in place of
RBI. Thefirst scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6,700crores of assets under management

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds, SBI Mutual Fund was the first followed by
Canbank MutualFund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in1990. The end of
1993 marked Rs.47,004 as assets under management.

Third Phase-1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the
Indian mutual fundindustry, giving the Indian investors a wider choice of
fund families. Also, 1993 was the year inwhich the first Mutual Fund
Regulations came into being, under which all mutual funds, exceptUTI were
to be registered and governed. The erstwhile Kothari Pioneer (now merged
withFranklin Templeton) was the first private sector mutual fund registered
in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive andrevised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutualfund) Regulation 1996.The number of
mutual fund houses went on increasing, with many foreign mutual funds
settingup funds in India and also the industry has witnessed several mergers
and acquisitions. As at theend of January 2003, there were 33 mutual funds
with total assets of Rs. 1,21,805 crores. TheUnit Trust of India with
Rs.44,541 crores of assets under management was way ahead of other
Mutual Funds

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is theSpecified Undertaking of the Unit Trust of India with
AUM of Rs.29,835 crores (as on January2003). The Specified Undertaking
of Unit Trust of India, functioning under an administrator andunder the rules
framed by Government of India and does not come under the preview of
theMutual Fund regulations.The second is the UTI Mutual Fund Ltd,
sponsored by SBI, PNB, BOB and LIC. It is registeredwith SEBI and
functions under the Mutual Fund Regulations. With the bifurcation of
theerstwhile UTI which had in March 2000 more than Rs.76,000 crores of
AUM and with the settingup of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recentmergers taking place among
different private sector funds, the mutual fund industry has enteredits current
phase of consolidation and growth. As at the end of September, 2004, there
were 29funds, which manage assets of Rs 153108 crores under 421 schemes

The major players in the Indian Mutual Fund Industry are:

GROWTH IN ASSETS UNDER MANAGEMENT

Mutual Funds: Definition

A mutual fund is nothing more than a collection of stocks and/or bonds. We
can think of a mutualfund as a company that brings together a group of
people and invests their money in stocks, bonds, and other securities. Each
investor owns shares, which represent a portion of the holdingsof the fund.
Mutual Fund can make money in three ways:
1.Income is earned from dividends on stocks and interest on bonds. A fund
pays out nearlyall of the income it receives over the year to fund owners in
the form of a distribution.
2.If the fund sells securities that have increased in price, the fund has a
capital gain. Mostfunds also pass on these gains to investors in a
distribution.
3.If fund holdings increase in price but are not sold by the fund manager,
the fund's sharesincrease in price then mutual fund can be sell shares for
making profit.Funds will also usually give you a choice either to receive a
check for distributions or toreinvest the earnings and get more shares.
Advantages of Mutual Funds
Professional Management
- The primary advantage of funds (at least theoretically) is the professional
management of money. Investors purchase funds because they do not have
the timeor the expertise to manage their own portfolios. A mutual fund is a
relatively inexpensive way for a small investor to get a full-time manager to
make and monitor investments.
Diversification
- By owning shares in a mutual fund instead of owning individual stocks or
bonds, the risk will spread out. The idea behind diversification is to invest in
a large number of assets so that a loss in any particular investment is
minimized by gains in others. Large mutualfunds typically own hundreds of
different stocks in many different industries. It would not be possible for an
investor to build this kind of a portfolio with a small amount of money
Economies of Scale
- Because a mutual fund buys and sells large amounts of securities at atime,
its transaction costs are lower than what an individual would pay for
securities transactions.
Liquidity
- Just like an individual stock, a mutual fund allows you to request that your
shares be converted into cash at any time.
Simplicity
- Buying a mutual fund is easy! Pretty well, any bank has its own line of
mutualfunds, and the minimum investment is small. Most companies also
have automatic purchase planswhereby as little as $100 can be invested on a
monthly basis.
Disadvantages of Mutual Funds:
Professional Management
- Many investors debate whether the so-called professionals are any better
than at picking stocks. Management is by no means infallible, and, even if
the fund losesmoney, the manager still takes cut.
Costs
- Mutual funds do not exist solely to make life easier - all funds are in it for a
profit. Themutual fund industry is masterful at burying costs under layers of
jargon. These costs are socomplicated that in this tutorial devoted an entire
section to the subject.
Dilution
- It's possible to have too much diversification. Because funds have
smallholdings inso many different companies, high returns from a few
investments often don't make muchdifference on the overall return. Dilution
is also the result of a successful fund getting too big.When money pours into
funds that have had strong success, the manager often has troublefinding a
good investment for all the new money.
Taxes
- When making decisions about money, fund managers do not consider
personal taxsituation. For example, when a fund manager sells a security, a
capital gains tax is triggered,which affects how profitable the individual is
from the sale. It might have been moreadvantageous for the individual to
defer the capital gains liability.
Different Types of Mutual Funds
At the fundamental level, there are three varieties of mutual funds:
1) Equity funds (stocks)
2) Fixed-income funds (bonds)

3) Money market funds

All mutual funds are variations of these three asset classes.

Money Market Funds
The money market consists of short-term debt instruments, mostly Treasury
bills this is a safe place to park the money. It will not get great returns A
typical return is twice the amount earn in aregular checking/savings account
and a little less than the average certificate of deposit (CD).
Bond/Income Funds
The money market consists of short-term debt instruments, mostly Treasury
bills this is a safe place to park the money. It will not get great returns A
typical return is twice the amount earn in aregular checking/savings account
and a little less than the average certificate of deposit (CD).Income funds are
named appropriately: their purpose is to provide current income on a steady
basis. When referring to mutual funds, the terms "fixed-income," "bond,"
and "income" aresynonymous. These terms denote funds that invest
primarily in government and corporate debt.While fund holdings may
appreciate, the primary objective of these funds is to provide a steady cash
flow to investors. As such, the audience for these funds consists of
conservative investorsand retires. Bond funds are likely to pay higher returns
than certificates of deposit and moneymarket investments, but bond funds
are not without risk. Because there are many different typesof bonds, bond
funds can vary dramatically depending on where they invest Furthermore,
nearlyall bond funds are subject to interest rate risk, which means that if
rates go up the value of thefunds goes down
Balanced Funds
The objective of these funds is to provide a balanced mixture of safety,
income and capitalappreciation. The strategy of balanced funds is to invest
in a combination of fixed income andequities. A typical balanced fund might
have a weighting of 60% equity and 40% fixed income.The weighting might
also be restricted to a specified maximum or minimum for each asset class.A
similar type of fund is known as an asset allocation fund. Objectives are
similar to those of a balanced fund, but these kinds of funds typically do not
have to hold a specified percentage of any asset class. The portfolio manager
is therefore given freedom to switch the ratio of assetclasses as the economy
moves through the business cycle.
Equity Funds
Funds that invest in stocks represent the largest category of mutual funds.
Generally, theinvestment objective of this class of funds is long-term capital
growth with some income. Thereare, however, many different types of
equity funds because there are many different types of equities.
Global/International Funds
An international fund (or foreign fund) invests only outside your home
country. Global fundsinvest anywhere around the world, including the home
country.It is tough to classify these funds as either riskier or safer than
domestic investments. They dotend to be more volatile and have unique
country and/or political risks. However, on the other side, they can, as part
of a well-balanced portfolio, actually reduce risk by
increasingdiversification. Although the world's economies are becoming
more inter-related, it is likely thatanother economy somewhere is
outperforming the economy of the home country.
Specialty Funds
This classification of mutual funds is more of an all-encompassing category
that consists of fundsthat have proved to be popular but don't necessarily
belong to the categories we've described sofar. This type of mutual fund
forgoes broad diversification to concentrate on a certain segment of the
economySector funds are extremely volatile. Regional funds make it easier
to focus on a specificarea of the world. This may mean focusing on a region
(say Latin America) or an individualcountry (for example, only Brazil). An
advantage of these funds is that they make it easier to buystock in foreign
countries, which is otherwise difficult and expensive. Just like for sector
funds,we have to accept the high risk of loss, which occurs if the region goes
into a bad recession.Socially responsible funds (or ethical funds) invest only
in companies that meet the criteria of certain guidelines or beliefs. Most
socially responsible funds don't invest in industries such astobacco, alcoholic
beverages, weapons or nuclear power. The idea is to get a competitive
performance while still maintaining a healthy conscience.
Index Funds
This type of mutual fund replicates the performance of a broad market index
such as the S & P500 or Dow Jones Industrial Average (DJIA) An investor
in an index fund figures that mostmanagers can't beat the market. An index
fund merely replicates the market return and benefitsinvestors in the form of
low fees.
Types of mutual fund
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-
ended schemedepending on its maturity period.
Open-ended Fund
An open-ended Mutual fund is one that is available for subscription and
repurchase ona continuous basis. These Funds do not have a fixed maturity
period. Investors can conveniently buy and sell units at Net Asset Value
(NAV)related prices which are declared on a daily basis.The key feature of
open-end schemes is liquidity.
Close-ended Fund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years.
The fund is open for subscription only during a specified period at the time
of launch of the scheme. Investors caninvest in the scheme at the time of the
initial public issue and thereafter they can buy or sell theunits of the scheme
on the stock exchanges where the units are listed. In order to provide an
exitroute to the investors, some close-ended funds give an option of selling
back the units to themutual fund through periodic repurchase at NAV related
prices. SEBI Regulations stipulate thatat least one of the two exit routes is
provided to the investor i.e. either repurchase facility or through listing on
stock exchanges. These mutual funds schemes disclose NAV generally
onweekly basis
REVIEW OF LITERATURE
William fung and David a. hsieh (1988)
explored the investment styles in mutual fund hedgefunds. The results
indicated that there were 39 dominants mutual fund styles that were mixes or
specialized subsets of 9 broadly define user classes. There was little
evidence of market timingof asset class rotation in these dominants mutual
fund styles. Thus, a 12 factor model with 9 assetclasses and three dynamic
trading strategies provided a good first step in a unified approach for
performance attributions and style analysis of mutual funds and hedge funds.
Jaidev (1996)
evaluated the performance of two growth oriented mutual funds (master gain
andmagnum express) on the basis of monthly returns compared in
benchmark returns. For that purpose, risk adjusted performance measures
suggested by jenson, treynor and hsarpe wereemployed. It was found that,
Mastergain had performed better according to jenson and treynor measures
and on the basis of Sharpe ratio it's performance was not upto the
benchmark. The performance of Magnum Express was poor on the basis of
all these three measures. However,Magnum Express was well diversified
and had reduced it's unique risk where as Master gain didnot. It can be
concluded that, the two growth oriented funds had not performed better in
terms of total risk and the funds were not offering advantages of
diversification and professionalism to theinvestors.
Hanumantha Rao and Vijay Kr. Mishra
found mutual funds have emerged as an importantsegment of financial
market of India, especially as a result of the initiatives taken by the govt. of
India for resolving problems relating to UTP's US-64 and to liberalized tax
liabilities on theincomes earned by the mutual funds. They now play a very
significant role in channelizing thesavings of millions of individuals into the
investment in equity and debt instruments. This paper aims at making a
critical study of the role performed by mutual funds as a financial service
inIndian financial market.
Sotiris Zontos, Skiadas Christos and Yiannis Valvis
developed strategies that enabled portfolio managers to improve market
timing by learning to recognize leading indications of forthcoming changes.
They aimed to test, in a Mutual fund series, of the predicting ability of along
term moving averages were made, for the same time series for different
values of short termand long term moving averages and the profitability of
this method was calculated. The methodwas proved profitable if no buy and
sell cost was counted.
Mark Grinblatt (1989)
empirically examined the Jensen Measures, the positive periodweighting
measures, developed in Grinblatt and titman (1987a), measures developed
from theTreynor Mazuy (1966) quadratic regression on a sample 179 mutual
funds, using a variety of benchmark portfolios. They found that the
measures generally yield similar inference when usingthe same benchmark
and those inferences could vary, even from the same measures, when
usingdifferent benchmarks. Several benchmark, developed there, appeared
in improve upon traditional benchmark for assessment of fund performance.
This superior benchmark consisted of sets of portfolio formed on the basis
of securities characteristics. Tests of fund performance thatemployed fund
characteristics, such as ne asset value, load, expenses, portfolio
turnover,management fee, and past performance were also reported. Those
potentially more powerful testssuggested that past performance and turnover
were positively related to fund performance.
The Week, March 18th2007:
Money...The route to take; Best options in a changing market.A study
conducted on various investment options and its importance.
Major findings of the study are as follows:
Bank deposit:
the demand for credit has led to an increase in different for deposits to
banks.With the demand for deposits increasing, internet rates are not
expected to come down in thenearer future. Banks are given better returns
than post office deposits to stem any flow there, too.
Real estate:
An increase in interest rates by banks has made investment in real estate
dearer for the common man. There will be 17 million new households
needing a residual space of 16 billionsq. ft. by 2010.
Debt market:
debt market is all set to come out of their cocoon because of the
internationalturmoil. The year 2007 has been cited as the year of debt.
Gold:
it has greater stability than any other asset. Though the prices are on a
correction mode, prices will increase by 20-30 percent in 2007. Short term
investment is not recommended.
Equity market:
volatility in the stock prices will continue. The expectation is that a
healthycorporate earnings of 15-20 percent on the back of an 8-9 percent
GDP will reinforce the faith inthe market.
Mutual funds:
equity oriented funds remain the favorites. Debt funds are making a
comeback.After the budget, liquid funds or fixed maturity plans are also in
demand.
Insurance:
The budget (2007) raised the tax exempted limit on medical insurance
premium tors.15000 and Rs. 20000 to senior citizens. This will motivate
individuals to purchase health care products at a younger age. With public
spending on health care limited and health care costincreasing this will also
help older people.
Michael C. Jensen (1968)
developed an absolute measure based upon the capital asset pricingmodel in
his classic study. ³The performance of mutual funds in the period 1945-1964
and reported that mutual funds did not appear in achieve abnormal
performance when transactioncosts were taken into account. It estimated
how much a manager forecasting ability contributes tothe fund's returns. The
measure was based on the theory of the pricing of capital assets by
Sharpe(1964), Lintner (1965) and Treynor (Undated). It applied the
measures to estimate the predictiveability of 115 mutual funds managers in
the period 1945-1964.
Lubos Pastor and Robert F. Stambaugh (2000)
developed and applied a framework in which believed about pricing models
and managerial skill play roles in both performance evaluation
andinvestment decisions. They analyzed non- benchmark passive assets
provides additionalinformation about mutual fund's performance measures
and expected returns and in additions,non benchmark assets help account for
common variation in fund returns, making the investment problem feasible
with a large universe of funds. A mutual fund's performance measures,
alpha,was defined relative to a set of passive benchmarks.
Kozup, John C., Elizabeth Howlett and Michael Pagano (2008)
choosing how to best investfor retirement is one of the most important
decisions a consumer can make. Unfortunately, thiscan be an especially
challenging task given the current financial information
disclosureenvironment. The objective of this research is to explore whether a
single page supplementalinformation disclosure impacts investor's fund
evaluations and investment intentions. Resultsindicate that while investors
continue to place too much emphasis on prior performance, the provision of
supplemental information, particularly in a graphical format, interacts with
performance and investment knowledge to influence perceptions and
evaluations of mutualfunds.
OBJECTIVES AND METHODOLOGY
The objective of the study is to
1-Explore the recent development process in Mutual Fund in India.
2-To find out the reason for investment in Mutual Funds.
3-To find out the investment perception of individual.
4-To find out what steps to be taken to boost Mutual Fund industry.
5-To recommend and promote best business practices and code of conduct to
be followed by members and other engaged in the activities of Mutual Fund
agencies involved in hefield of capital markets and financial services.
MEHTODOLOGY OF THE STUDY
Comparative Mean study is done here. It includes surveys of different kinds.
The major purpose of descriptive research is description of the state of
affairs as it exists at present. The problemidentified was "The study on
Consumer Perception on Investment in Mutual Funds."
SAMPLING TECHNIQUES
The sample population for research was the investors who have invested in
Mutual Fund throughdifferent financial Mutual Fund companies in Chennai,
Bangalore and Port Blair.Sample size is 100.Data has been presented with
the help of bar graph, pie charts,etc.
RESEARCH INSTRUMENTS
 Questionnaire method is used. The structured and straight forward
questionnaire was usedso that valid and accurate data can be collected.

SPSS software package were used for graphical representation and analysis
of data.

Simple percentage, Ranking, Mean values (scores) and Analysis of Variance

(ANOVA)method were used to interpret various data collected through
questionnaire.