-1-

A
PROJECT REPORT
ON
STUDY OF INVESTORS AND ADVISORS PERCEPTION ABOUT
MUTUAL FUND
Submitted in partial fulfillment of the requirements of the award
of degree of
MASTER OF BUSINESS ADMINISTRATION
FROM
ARNI SCHOOL OF BUSINESS MANAGEMENT
AUGUST 2011

Submitted to: Mr. ASHISH PARASHAR (Astt. Prof.)

ASBM, ARNI UNIVERSITY
KATHGARH (INDORA), KANGRA (H.P)
www.arni.in

Submitted By: PARVINDER KUMAR SAHOTRA

(AEMB0046A/10)
MBA -3RD sem.
 -2-

CERTIFICATE BY THE GUIDE

This is to certify that Parvinder Kumar Sahotra, student of M.B.A.

3rd semester at ARNI UNIVERSITY has completed his project
entitled “STUDY OF INVESTORS AND ADVISORS PERCEPTION
ABOUT MUTUAL FUND” Under my supervision. To the best of my
knowledge and belief, this is his original work and this wholly or
partly has not been submitted for any degree of this or any other
university. I appreciate his efforts during his project and wish him
Best of Luck for the future. The contents of this report have been
verified and up to date.

Mr. ASHISH PRASHAR

PROJECT GUIDE
 -3-

ACKNOWLEDGEMENTS
I am really happy and exiled in representing this summer training
project report before you.
I must express my gratitude towards NJ FUNDS NETWORK for giving
me opportunity to work on this project, Especially Mr.Amit Patial
(Sr.Executive sales) without whose able guidance this would never
have been possible. He’s been the sincere advisor and inspiring force
behind the outcome of this project.
And off course I am very much thankful to Mr. RAVIKANT SWAMI
(Dean ASBM) and Astt. Prof. Mr. ASHISH PRASHAR (Project Guide)
for giving me his guidance and help through out preparing this Report.
He has also provided me valuable suggestion about this training which
proved very helpful to me to utilize my theoretical knowledge in
practice field.
At last but not least I am also thankful to my family and friends who
have given me their constructive advice, educative suggestions,
encouragement, co-operation & motivation to prepare this report

(PARVINDER KUMAR SAHOTRA)

AEMB0046A/10
MBA-3rd
 -4-

DECLARATION

I,Parvinder Kumar Sahotra Roll No/ID _AEMB0046A/10 M.B.A.

Final year (III semester) of Arni School of Business Management
hereby declare that the Summer Training Report entitled STUDY
OF INVESTORS AND ADVISORS PERCEPTION ABOUT MUTUAL
FUND is an original work and the same has not been submitted to
any other University/Organization for the award of any other
degree. A seminar presentation of the Training Report was made
on ____ and the suggestions as approved by the faculty were
duly incorporated.

Presentation
Signature of the Candidate In charge
(Faculty)

Countersigned
Director/Dean/Coordinator

(PARVINDER KUMAR SAHOTRA)

 -5-

Contents
Certificate by guide
Acknowledgement
Declaration
Abstract
Objective of the study

1. Company profile (4)

2. Mutual Fund History (21)
3. Mutual fund Industry (24)
4. Mutual Funds an introduction (30)
o Types of mutual funds (32)
o Net Asset Value (37)
o Comparison of mutual fund (38)
o Advantages of mutual fund (39)
o Disadvantages of mutual fund (41)
o Distribution channels of mutual fund (42)
o Risk in mutual fund (45)
o Factors affecting mutual fund (46)
o Regulatory framework for mutual fund (49)
o Structure of mutual fund (50)

5. Research methodology (54)

6. Data interpretation and analysis (57)
o Limitation of study (67)
 -6-

o Findings and suggestions (68)

o conclusion (70)

References and bibliography (71)

Questionnaire (72)
 -7-

ABSTRCT
The project includes a brief description of MUTUAL FUND Industry
and perception of investors and advisors about mutual fund.
A mutual fund is a scheme in which several people invest their
money for a common financial cause. The collected money invests in
the capital market and the money, which they earned, is divided
based on the number of units, which they hold. The mutual fund
industry started in India in a small way with the UTI Act creating what
was effectively a small savings division within the RBI. Over a period of
25 years this grew fairly successfully and gave investors a good return,
and therefore in 1989, as the next logical step, public sector banks and
financial institutions were allowed to float mutual funds and their
success emboldened the government to allow the private sector to
foray into this area.
A survey was conducted to get the primary data to judge the
factors that investor and advisor keep in mind before dealing in
mutual fund i.e.
.Safety
.Return
.flexibility
.Liquidity
.Schemes
At present there are many Schemes being offered by various
MUTUAL FUND companies. Each AMCs is competing with each other
by Launching new products or relaunching old ones.
MUTUAL FUND industry today is facing a huge competition not
only from with in the industry but also from other financial products
like Insurance Policies.
 -8-

In the project I tried my best to study things which I observed

during my training period .My analysis and conclusion is based on
actual research of the Topic.
 -9-

OBJECTIVES OF THE STUDY

The project was conducted for the following objective:-

 To gain knowledge and understanding of Mutual Funds as an

Investment tool.

 To study the product profile of the company.

 To study the perception of investors and advisors about

mutual fund.

 To know about the performance of Mutual Fund of different

companies.

 To know about the factors which affect mutual funds.

 To know about the distribution channels of mutual fund.

 To study the diversification of mutual fund.

 To know the different Asset management companies involve

in mutual fund.

]
 - 10 -

Chapter 1

COMPANY PROFILE

1. ABOUT NJ

Doing the 'right' thing is a virtue most desirable. The

difference between success and failure is often, not dictated by
knowledge or expertise, but by its actual application and
perseverance. When it comes to successful wealth creation for
customers, it is something that we believe in & practice. For us it
is more than a mission; it is what defines our lives and our actions
at NJ India Invest.

With this passion, we continue to evolve and make the right

product accessions and service innovations in our offerings. To
the advisors, we offer a 360° comprehensive business platform
with unmatched IT solutions, empowering them to set the best
practice standards and deliver real value to their customers. Over
the years, our passion has seen us grow from strength to strength
and expand rapidly, setting new benchmarks in the process. But
 - 11 -

to us, what really matters the most is the number of lives we have
managed to transform and we still have a long way to go...

NJ India Invest Pvt. Ltd. is one of the leading advisors and

distributors of financial products and services in India. Established
in year 1994, NJ has over a decade of rich exposure in financial
investments space and portfolio advisory services. From a humble
beginning, NJ, over the years has evolved out to be a
professionally managed, quality conscious and customer focused
financial / investment advisory & distribution firm.

We are headquartered in Surat, India, and have more than

INR 10,000 Crore plus of mutual fund assets under advice, with a
wide presence at over 104 locations in 21 states in India. The
numbers are reflections of the trust, commitment and value that
NJ shares with 11 Lac plus customer base with over 14000+
Advisors.

NJ prides in being a professionally managed, quality focused

and customer centric organization. The strength of NJ lies in the
strong domain knowledge in investment consultancy and the
delivery of sustainable value to clients with support from cutting-
edge technology platform, developed in-house by NJ.

At NJ, we believe in..

 Having single window, multiple solutions that are integrated

for simplicity and sapience
 Making innovations, accessions, value-additions, a constant
process
 Providing customers with solutions for tomorrow which will
keep them above the curve, today
 - 12 -

Technology has traditionally been NJ's key strength. Our offering

on the technological front is unmatched, vibrant, and
comprehensive in nature. Our focus & commitment on technology
can be gauged from the fact that we have set-up distinct entity
with a very strong, talented work-force for the sole purpose of
providing the best to NJ in terms of technology and support.
Finlogic Technologies (India) Pvt. Ltd. does all the development &
support work in-house on a continuous basis. It has successfully
developed & implemented a powerful support system for the
mutual fund distribution business at NJ with a provision for
integrating the same with other investment products as well as
the financial accounting system. Today Fin logic Technologies has
more than 100 employees for its IT development

Our Divisions

 NJ Fundz Network

NJ Fundz Network has been playing a pioneering role in India in

providing independent advisors / advisory firms with integrated,
comprehensive and practical business solutions for ensuring
continuous growth & continuity of business. It provides the
financial advisors and the institutions that serve them with
insights, strategies and tools to help them significantly grow their
businesses. How do we do it? That’s because we understand how
financial & wealth management businesses work and what is
needed to manage, monitor and grow the practice...

With the 360° Advisory platform, NJ has managed to

successfully transform the business of many advisory /
distribution houses, bringing them on equal footing or even better
than the toughest competitors in the industry in the concerned
domain. With a vast experience & strong delivery mechanism, we
 - 13 -

at NJ Fundz Network, help & ensure transformation and the

exploitation of the opportunities available.

First in the Indian Mutual Fund Industry to offer a Complete

Business Platform to Advisors

 NJ Realty Services

This is an integrated service model offering solutions for

meeting the diverse real-estate needs of corporates & retail
customers in transacting properties.

Finding the right property at the right value and the best buyer
for a property is the crux of any realty solution. At NJ India Realty
we value this critical element of retailing and aim to provide the
customer with an integrated service model that not only focuses
on him meeting his desired needs but also on enhancing the
overall experience of the transaction.

The scope of properties embraces both commercial &

residential projects / properties. The integrated value-added
services ensure that the solutions are feasible, authentic, secure &
profitable.

Leveraging upon the strengths of the parent company NJ, NJ

India Realty aims to offer attractive options and operational
guidance to satisfactorily realize the customer’s realty dreams.

Today NJ Realty Services has tied up with over 40 developers

with over 150 projects across India.

 NJ Gurukul

(CFP) by Making people benefit from the growing economy

is possible by attracting them to participate in Equity for long
 - 14 -

term, to make their money work for itself and create wealth. For
this to happen, a huge force of effective Financial Advisors is
needed. Visualizing this need and with a view to bridge the gap,
NJ India Invest Pvt. Ltd. has set up NJ Gurukul to offer different
training programs at moderate costs.

NJ Gurukul seeks to help people become better

professionals / business personalities & achieve success in their
own endeavors.

For businesses, as a people partner, NJ Gurukul seeks to

groom employees & management so that they deliver upon their
expectations & responsibilities, successfully. NJ Gurukul is
authorized to give training for Certified Financial Planner FBSB
India. Today NJ Gurukul has offered over 1200 training
programmes with over 20000 candidates.

Vision & mission of NJ India Invest

Vision

•To be the leader in our field of business through,

• Total Customer Satisfaction
• Commitment to Excellence
• Determination to Succeed with strict adherence to
compliance
• Successful Wealth Creation of our Customers

Mission

Ensure creation of the desired value for our customers,

employees and associates, through constant improvement,
innovation and commitment to service & quality. To provide
 - 15 -

solutions which meet expectations and maintain high professional

& ethical standards along with the adherence to the service
commitments?

2. MANAGEMENT

The management at NJ brings together a team of people

with wide experience and knowledge in the financial
Services domain.The management provides direction and
guidance to the whole organization. The management has strong
visions for NJ as a globally respected company providing
comprehensive services in financial sector.The ‘Customer First’
philosophy in deeply ingrained in the management at NJ. The aim
of the management is to bring the best to the customers in terms
of

• Range of products and services offered

• Quality Customer ServiceProjectsformba.blogspot.com

All the key members of the organization put in great focus

on the processes & systems under the diverse functions of
business. The management also focuses on utilizing technology as
the key enabler for all the activities and to leverage the
technology for enhancing overall customer experience.

The key members of the management are:

Our Management
 - 16 -

Mr. Neeraj Choksi

Jt Managing Directors
Mr. Jignesh Desai

Sales Team:
Name Category

Mr. Misbah Baxamusa National Head

Mr. Kulbhushan Nandwani

A.V.P
Mr. Prashant Kakkad

Mr. Anil Taliaya

Mr. Manish Gadhvi

Zonal Manager
Mr. Sarfaraz Patel

Mr. Tushar Bhajantri

Executive Team:
Name Department Head

Mr. Shirish Patel Information Technology

 - 17 -

Mr. Vinayak Rajput Operations & Customer Care

Mr. Tejas Soni Finance

Mr. Abhishek Dubey Business Process Management

Mr. Samanvay Maniar Marketing

Mr. Jigesh Desai Real Estate

Mr. Viral Shah Research

Mr. Dhaval Desai Human Resources

Mr. Kalpesh Mehta Alternate Channel

3. OUR CORE VALUES

(A) Our values

While we constantly look for new ideas and changes that cause
positive difference to our clients, we remain true to the values
upon which NJ India Invest was found:

 High-level of expertise:

Being a growing organization, we strive to constantly evolve by

providing the highest level of expertise to our client, continuously,

 integrity & transparency:

 - 18 -

We believe in doing business with a high standard of honesty &

integrity. Creating long term 'trustworthy' relationships with our
clients is at the core of our business model. We strive to maintain
the highest level of transparency and are open to discussions
when serving our advisors and investors.

 performance:

Our drive for performance is distinguished by consistent and

meaningful measurement. At NJ, we are passionate about our
customer's wealth creation. The entire NJ team exudes
confidence and spreads positive vibes around. Team NJ is well
inclined towards its roles & responsibilities and is eager to learn to
serve the customer better. We believe in continuous
enhancement and growth of our human capital and people at NJ
start each day afresh with an eagerness to learn and a passion to
win

 strong relationships

Strong relationships grounded in trust and mutual respect over

the long-term allow us to successfully serve clients through the
various phases of their lives.

COMPREHENSIVE, ACCURATE COMMUNICATIONS USING

LEADING-EDGE TECHNOLOGIES

We employ new technologies to set industry standards in

reporting and client communications.

 professional ethics

Our top priority is meeting the needs of our clients, and we

unequivocally take full responsibility for the work we do. At NJ,
we follow a strong process oriented approach in everything we
 - 19 -

do. We are firm believers of “Follow the process, Results will

come” mantra. We have detailed processes related to sales,
administration and client servicing, which help us evaluate our
performance better and improve upon the shortcomings
identified in the system.

 striving excellence in servicing:

There is no substitute to quality service and advice. We accept

this fact at NJ through our commitment to quality client servicing.
We work on the latest technologies, solutions and products for
our clients to ensure they stay ahead of the competition and
make their business run in quick, efficient and the best way.

(B) Philosophy

At NJ, our Service and Investing philosophy inspire and shape

the thoughts, beliefs, attitude, actions and decisions of our
employees. Our philosophy is the spirit which drives our body
called NJ.

 Service Philosophy:

Our primary measure of success is customer satisfaction. We

are committed to provide our customers with continuous, long-
term improvements and value-additions, to meet the needs in an
exceptional way. In our efforts to consistently deliver the best
service possible to our customers, all employees of NJ make every
effort to:

 Think of the customer first, take responsibility, and make

prompt service to the customer a priority.
 Deliver upon the commitments & promises made, on time.
 Anticipate, visualize, understand, meet and exceed our
customer's needs.
 - 20 -

 Bring energy, passion & excellence in everything we do.

 Be honest and ethical, in action & attitude, and keep the
customer’s interest supreme.
 Strengthen customer relationships by providing service in a
thoughtful & proactive manner and meet the expectations,
effectively.

 Investing Philosophy:

We aim to provide need-based solutions for long-term wealth

creation we aim to provide all the customers of NJ, directly or
indirectly, with true, unbiased, need-based solutions and advice
that best meet their stated & un-stated needs. In our efforts to
provide quality financial & investment advice, we believe that.

 Clients want need-based solutions, which fits them.

 Long-term wealth creation is simple and straight.
 Asset-Allocation is the ideal & the best way for long-term
wealth creation.
 Educating and disclosing all the important facets, which the
customer needs to be aware of, is important.
 The solutions must be unbiased, feasible, practical,
executable, measurable and flexible.
 Constant monitoring and proper after-sales service is critical
to complete the on-going process.

At NJ, our aim is to earn the trust and respect of the

employees, customers, partners, regulators, industry members
and the community at large, by following our service and
investing philosophy with commitment.

 360° – advisory platform

 - 21 -

NJ believes in “360° – Advisory Platform” philosophy …With this

philosophy, we try to offer all possible products, services and
support which an Advisor would need in his business. The support
functions are generally in the following areas …
• Business Planning and Strategy
• Training and Development – Self and of employees
• Products and Service Offerings
• Business Branding
• Marketing
• Sales and Development
• Technology
• Advisors Resources - Tools, Calculators, etc..
• Research
With this comprehensive supporting platform, the NJ Fundz
Partners stays ahead of the curve in each respect compared to
other Advisors/competitors in the market

4. AWARDS & RECOGNITIONS

Some of the awards & recognitions that we have received in the

past …

Year 2000:
For Outstanding Performance presented by Chairman, Prudential
Plc. at London

Year 2002:
For Outstanding Performance presented by Group Chief
Executive, Prudential Plc. at London
 - 22 -

Year 2003:
For Outstanding Performance presented by Group Chief
Executive, Prudential Plc. at London

Year 2004:
Among Most Valued Business Associates presented by HDFC
Standard Life at Edinburgh, Scotland

Year 2004:
For Outstanding Performance by Deputy CEO, Prudential
Singapore at Malaysia

Year 2006:
Award for mobilising the Highest Number of SIPs at National Level
by Fidelity Mutual Fund Plc at Mumbai

Year 2006:
Award – Vietnam

5. PEOPLE & CULTURE:

For any service oriented organization like NJ, its employees are
perhaps the best asset. People at NJ serve clients with vibrant
energy and enthusiasm. 'Serving with Smile' is the motto adopted
by people at NJ. People here are well inclined towards their roles
& responsibilities and are given complete freedom to do justice
with their roles. We believe in continuous enhancement and
growth of our human capital through on going process of training
& development. At NJ, we encourage innovative ideas and
suggestions from employees and value their contributions. Team
NJ works towards common goal of 'Client Esteem' and in process
 - 23 -

of deriving this goal people at NJ keep learning, evolving and

developing every day.

 People:

Enthusiasm, Enterprise, Education and Ethics form the four

pillars at NJ. At NJ, one can witness the vibrant energy,
enthusiasm and the enterprising drive to excel, flowing freely
throughout the organization. Here, one can also experience the
creativity, one-to-one responsiveness, collaborative approach and
passion for delivering value.

At NJ, people evolve to be more effective, efficient, and result

oriented. Knowledge is inherent due to the education-centric
approach and the experience in handling different client groups
across diverse product profiles.

NJ understands that the people are the most important assets

of the company and it is not the company that grows but the
people. It, hence, undertakes rigorous training and educational
activities for enhancing the entire team at NJ. It also believes in
the ‘Learning through Responsibility’ concept for its employees.

For people at NJ, success is not a new word, but is a regular

stepping-stone to realizing the common vision that everyone
shares.

 Culture:

At NJ we believe in transforming the lives of our customers. We

exist to create a difference – a change towards a better life. The
culture here reflects this responsibility, this dream of
 - 24 -

transforming lives. And we, at NJ are always excited and enthused

in doing so.

We believe in keeping ‘Customer First’, providing you with the

products and services that meet your stated and unstated needs.
Client satisfaction and client service is the Mantra we constantly
recite. This service oriented philosophy runs throughout the
organization, from the top to the bottom.

Employees are given ample freedom in their work. The

objective is to keep an open, healthy environment with ample
scope for enterprise, improvement, innovations and out-of-the
box solutions.

Our efforts are constantly engaged in improving our existing

services, offering new and innovative solutions that go beyond
expectations. This focus has made us one of the most respected
and preferred service providers, especially in the mutual fund
industry.

6. PRODUCTS

NJ offers advisory and distribution services on the following

products.

1. Mutual funds – covering all AMCs & all schemes,

2. Fixed deposits (fixed maturity plan) of companies,
3. Government/RBI bonds,
4. Infrastructure Bonds
5. Insurance (Life & Health)
 - 25 -

7. ADVANTAGES WITH NJ

 All Mutual Fund Schemes under one roof.

 Regular training support to develop Mutual fund business
 Dedicated customer care (toll free) for query resolution
 Desiccated online partner desk for managing your business
 Daily updation of client portfolio online
 Marketing support for branding and business development
 Dedicated relationship manager to train & develop business
 online mutual fund transaction facility for clients

8. NJ INDIA INVEST - INVESTMENT PORTFOLIO

DSP Merrill Lynch Mutual Fund

Birla Mutual Fund

Alliance Capital Mutual Fund

ING Vysya Mutual Fund

Cholamandalam Mutual Fund

Deutsche Mutual Fund

ABN - AMRO Mutual Fund

HDFC Mutual Fund

Franklin Templeton Mutual Fund

Reliance Mutual Fund

HSBC Mutual Fund

 - 26 -

Unit Trust Of India

Prudential ICICI Mutual Fund

Kotak Mutual Fund

Standard Chartered Mutual Fund

SBI Mutual

Principal Mutual Fund

Tata Mutual

JM Financial Mutual Fund

LIC Mutual Fund

Sahara Mutual Fund

Sundaram Mutual Fund

 - 27 -

Chapter 2

HISTORY OF MUTUAL FUNDS

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. Though the growth was
slow, but it accelerated form the year 1987 when non-UTI players
entered in the industry.
In the past decade INDIAN Mutual Fund industry had seen a
dramatic improvement quality wise as well as quantity wise. 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 management.

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

Entry of non-UTI mutual funds.SBI Mutual Fund was the first

followed by Canra bank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),
 - 28 -

Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).LIC in
1989 and GIC in 1990. 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 fund industry, giving the Indian
investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under
which all mutual funds, 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

This phase had bitter experience for UTI. It was bifurcated

into two separate entities. One is the Specified Undertaking of the
Unit Trust of India with AUM of Rs.29,835 crores (as on January
 - 29 -

2003). The Specified Undertaking of Unit Trust of India,

functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the
Mutual Fund Regulations.

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 AUM 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. As at the end of September, 2004,
there were 29 funds, which manage assets of Rs.1, 53,108 crores
under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

 - 30 -

Chapter 3

MUTUAL FUND INDUSTRY

The Indian Mutual fund industry has witnessed considerable

growth since its inception in 1963. The assets under management
(AUM) have surged to Rs 4,173 bn in Mar-09 from just Rs 250 mn
in Mar-65. In a span of 10 years (from 1999 to 2009), the industry
has registered a CAGR of 22.3%, albeit encompassing some
shortfalls in AUM due to business cycles.
The impressive growth in the Indian Mutual fund industry in
recent years can largely be attributed to various factors such as
 rising household savings,
 comprehensive regulatory framework,
 Favourable tax policies,
 Introduction of several new products
 Investor education campaign and role of distributors.
In the last few years, household’s income levels have grown
significantly, leading to commensurate increase in household’s
savings.Towards the huge market potential of the Mutual fund
industry in India.
Besides, SEBI has introduced various regulatory measures in
order to protect the interest of small investors that augurs well
for the long term growth of the industry.The tax benefits allowed
on mutual fund schemes.
 - 31 -

Besides, the Indian Mutual fund industry has introduced an

array of products such as liquid/money market funds, sector-
specific funds, index funds, gilt funds, capital protection oriented
schemes, special category funds, insurance linked funds, exchange
traded funds, etc. It also has introduced Gold ETF fund in 2007
with an aim to allow mutual funds to invest in gold or gold related
instruments. Further, the industry has launched special schemes
to invest in foreign securities. The wide variety of schemes offered
by the Indian Mutual fund industry provides multiple options of
investment to common man.
 - 32 -

FUTURE OF MUTUAL FUNDS IN INDIA

The Future of Mutual Funds In India suggests that the industry

has got huge scopes of development in the times to come.
The Future of Mutual Funds In India is quite bright. Mutual Funds
are one of the most popular forms of investments as these funds
are diversification, professional management, and liquidity. In the
year 2004, the mutual fund industry in India was worth Rs 1,
50,537 crores. The mutual fund industry is expected to grow at a
rate of 13.4% over the next 10 years.
 - 33 -

Mutual Fund Assets under Management (MF AUM)-Growth

a) In March 1998, the MF AUM was ` 68984 crores.

b) In March 2000, the MF AUM was ` 93717 crores and the
percentage growth was 26 %.
c) In March 2001, the MF AUM was ` 83131 crores and the
percentage growth was 13 %.
d) In March 2002, the MF AUM was ` 94017 crores and the
percentage growth was 12 %.
e) In March 2003, the MF AUM was ` 75306 crores and the
percentage growth was 25 %.
f) In March 2004, the MF AUM was ` 137626 crores and the
percentage growth was 45 %.
g) In September 2004, the MF AUM was ` 151141 crores and
the percentage growth was 9 % in 6 months time.
h) In December 2004, the MF AUM was ` 149300 crores and
the percentage growth was 1 % in 2 months time.
i)

Future of Mutual Funds In India-Facts on growth

Important aspects related to the future of mutual funds in India

are -

a) The growth rate was 100 % in 6 previous years.

b) The saving rate in India is 23 %.
c) There is a huge scope in the future for the expansion of
the mutual funds industry.
d) A number of foreign based assets management
companies are venturing into Indian markets.
 - 34 -

MAJOR PLAYERS IN INDUSTRY

List of Asset Management Companies in India

Bank Sponsored
I. Bank of Baroda Asset Management Co. Ltd.
II. Canbank Investment Management Services Ltd.
III. PNB Asset Management Ltd.
IV. UTI Asset Management Company (P) Ltd.

Institutions
I. GIC Asset Management Co. Ltd.
II. Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector
INDIAN
I. Benchmark Asset Management Co. Ltd.
II. Cholamandalam Asset Management Co. Ltd.
III. Escorts Asset Management
IV. J.M. Capital Management Ltd.
V. Kotak Mahindra Asset Management Co. Ltd.
VI. Sundaram Asset Management Co.
VII. Reliance Capital Asset Management Ltd.
FOREIGN
I. Principal Asset Management Co. Ltd.

Joint Ventures – Predominantly Indian

I. Birla Sun Life Asset Management Pvt. Co. Ltd.
II. Credit Capital Asset Management Co. Ltd.
III. DSP Merrill Lynch Fund Managers Ltd.
IV. First India Asset Management Pvt. Ltd.
V. HDFC Asset Management Co. Ltd.
VI. Tata TD Waterhouse Asset Management Pvt. Ltd.
 - 35 -

Joint Ventures – Predominantly Foreign

I. Alliance Capital Asset Management (India) Pvt. Ltd.
II. Deutsche Asset Management (India) Pvt. Ltd.
III. HSBC Asset Management (India) Pvt. Ltd.
IV. ING Investment Management (India) Pvt. Ltd.
V. Prudential ICICI Management Co. Ltd.
 - 36 -

Chapter 4

MUTUAL FUND (AN INTRODUCTION)

Definition:-Mutual Fund is the pool of money from investors to

invest in different securities according to certain objectives.

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 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 inventible 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 today’s 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
 - 37 -

finds it difficult to keep track of ownership of his assets,

investments, brokerage dues and bank transactions etc.

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, 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.

CHARACTERISTICS OF MUTUAL FUNDS

•The ownership is in the hands of the investors who have pooled

in their funds.
• It is managed by a team of investment professionals and other
service providers.
 - 38 -

•The pool of funds is invested in a portfolio of marketable

investments.
•The investors share is denominated by ‘units’ whose value is
called as Net Asset Value (NAV) which changes everyday.
•The investment portfolio is created according to the stated
investment objectives of the fund.

MUTUAL FUND OPERATION

TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified on the basis of its

structure and its investment objective.
 - 39 -

A. By Structure:

 Open-ended Funds

An open-end fund is one that is available for subscription all

through the year. These do not have a fixed maturity. Investors
can conveniently buy and sell units at Net Asset Value ("NAV")
related prices. The key feature of open-end schemes is liquidity.

 Closed-ended Funds

A closed-end fund has a stipulated maturity period which

generally ranging from 3 to 15 years. The fund is open for
subscription only during a specified period. Investors can invest in
the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock
exchanges where they are listed. In order to provide an exit route
to the investors, some close-ended funds give an option of selling
back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of
the two exit routes is provided to the investor.

 Interval Funds

Interval funds combine the features of open-ended and close-

ended schemes. They are open for sale or redemption during pre-
determined intervals at NAV related prices.

B. By Investment Objective:

 Growth/Equity oriented schemes

 - 40 -

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 proven 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/Debt oriented schemes

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 Funds

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.

 Money Market/liquid fund

The aim of money market funds is to provide easy liquidity,

preservation of capital and moderate income. These schemes
generally invest in safer short-term instruments such as treasury
bills, certificates of deposit, commercial paper and inter-bank call
money. Returns on these schemes may fluctuate depending upon
 - 41 -

the interest rates prevailing in the market. These are ideal for
Corporate and individual investors as a means to park their
surplus funds for short periods.

 Gilt Fund

These funds invest exclusively in government securities.

Government securities have no default risk. NAVs of these
schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented
schemes.

 Index Funds

Index Funds replicate the portfolio of a particular index such as

the BSE Sensitive index,S&P NSE 50 index (Nifty), etc, these
schemes invest in the securities in the same
weightage comprising of an index. NAV’s of such sche-
mes would rise or fall in accordance with the rise or fall in the
index, though not exactly by the same percentage due to some
factors known as "tracking error" in technical terms. Necessary
disclosures in this regard are made in the offer document of the
mutual fund scheme.

 Load Funds

A Load Fund is one that charges a commission for entry or exit.

That is, each time you buy or sell units in the fund, a commission
will be payable. Typically entry and exit loads range from 1% to
2%. It could be worth paying the load, if the fund has a good
performance history.

 No-Load Funds
 - 42 -

A No-Load Fund is one that does not charge a commission for

entry or exit. That is, no commission is payable on purchase or
sale of units in the fund. The advantage of a no load fund is that
the entire corpus is put to work

C. other schemes:

 Tax Saving Schemes

These schemes offer tax rebates to the investors under specific

provisions of the Indian Income Tax laws as the Government
offers tax incentives for investment in specified avenues.
Investments made in Equity Linked Savings Schemes (ELSS) and
Pension Schemes are allowed as deduction u/s 88 of the Income
Tax Act, 1961. The Act also provides opportunities to investors to
save capital gains u/s 54EA and 54EB by investing in Mutual
Funds.

 Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in

the offer document. The investment of these funds is limited to
specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

 Index Schemes

Index Funds attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50

 Sectoral Schemes
 - 43 -

Sectoral Funds are those, which invest exclusively in a specified

industry or a group of industries or various segments such as 'A'
Group shares or initial public offerings.

NET ASSET VALUE

Net Asset Value (NAV)

Definition of NAV Net Asset Value, or NAV, is the sum total of the
market value of all the shares held in the portfolio including cash,
less the liabilities, divided by the total number of units
outstanding. Thus, NAV of a mutual fund unit is nothing but the
book value.

It is calculated simply by dividing the net asset value of the fund

by the number of units. However, most people refer loosely to the
NAV per unit as NAV, ignoring the "per unit". We also abide by the
same convention.

An example will make it clear that returns are independent of the

NAV. Say; you have Rs 10,000 to invest. You have two options,
wherein the funds are same as far as the portfolio is concerned.
But say one Fund X has an NAV of Rs 10 and another Fund Y has
NAV of Rs 50. You will get 1000 units of Fund X or 200 units of
Fund Y. After one year, both funds would have grown equally as
their portfolio is same, say by25%. Then NAV after one year would
be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of your
investment would be 1000*12.50 = Rs 12,500 for Fund X and
200*62.5= Rs 12,500 for Fund Y. Thus your returns would be same
irrespective of the NAV.It is quality of fund, which would make a
difference to your returns.
 - 44 -

COMPARISON OF MUTUAL FUNDS

Mutual Objective Risk Investment Who should Investment

portfolio invest horizon
funds
Equity Long-term High risk Stock &share Aggressive 3 years +
capital investors ,
funds long term
appreciation investment
Balanced Growth & Capital Balanced Moderate & 2 years +
regular income market risk & ratio of aggressive
funds interest risk equity &debt investors
funds to
ensure higher
return at low
risk
Index To generate NAV varies Portfolio Aggressive 3 years +
returns that with index indices like investors
funds commensurate performance BSE, NIFTY
with returns of etc.
respective
indices
Gilt funds Securities & Interest rate Government Salaried & 12 months +
Income risk Securities conservative
Investors
Bond Regular Income Credit Risk & Debentures Salaried & 12 months +
funds Interest rate ,Govt. conservative
risk securities , Investors
corporate
Bonds
Money Liquidity + Negligible Treasury Park funds in 2 Days to 3
market Moderate Bills, current A/c s weeks
Income + Certificates or short term
Reservation of of Deposits , Bank
Income commercial Deposits
papers, Call
money
 - 45 -

HOW MUTUAL FUND DIFFER IN TERMS OF RISK PROFILE?

EQUITY FUNDS High level of return, but has a high level of risk
too (no fixed return)

DEBT,s FUND Return comparatively less than equity funds

LIQUID AND MONEY Provide stable but low level of return

MARKET FUND

ADVANTAGES OF MUTUAL FUND

Mutual Funds offer several benefits to an investor that are

unmatched by the other investment options.

1. Affordability: Small investors with low investment fund are

unable to invest in high-grade or blue chip stocks. An investor
through Mutual Funds can be benefited from a portfolio including
of high priced stock.

2. Risk Diversification: Investors investment is spread across

different securities (stocks, bonds, money market, real estate,
fixed deposits etc.) and different sectors (auto, textile, IT etc.).
This kind of a diversification add to the stability of returns,
reduces the risk for example during one period of time equities
might under perform but bonds and money market instruments
might do well do well and may protect principal investment as
well as help to meet return objectives.
 - 46 -

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

4. Professional Management: Mutual Funds employ the services

of experienced and skilled professionals and dedicated
investment research team. The whole team analyses the
performance and balance sheet of companies and selects them to
achieve the objectives of the scheme.

5. Tax Benefits: Depending on the scheme of mutual funds, tax

shelter is also available. As per the Union Budget-99, income
earned through dividends from mutual funds is 100% tax free.
Under ELSS of open-ended equity-oriented funds an exemption is
provided up to Rs. 100,000/- under section 80C.

6. Regulation: All Mutual Funds are registered with SEBI and they
function within the provisions of strict regulations designed to
protect the interests of investors. The operations of Mutual Funds
are regularly monitored by SEBI.

7. Liquidity: Investment in MUTUAL FUND can be redeemed at

any time.

8. Flexibility: Investment in MUTUAL FUND is flexible because an

investor can switch easily in schemes.

9. High Return: Mutual Fund may generate high return in long run
(beyond 5 year).

DISADVANTAGES OF MUTUAL FUND

 - 47 -

The following are the disadvantages of investing through mutual

fund:

1. No Guarantees
No investment is risk free. If the entire stock market declines in
value, the value of mutual fund shares will go down as well, no
matter how balanced the portfolio. Investors encounter fewer
risks when they invest in mutual funds than when they buy and
sell stocks on their own. However, anyone who invests through
mutual fund runs the risk of losing the money.
2. No control over cost
Since investors do not directly monitor the fund’s operations, they
cannot control the costs effectively. Regulators therefore usually
limit the expenses of mutual funds.

3. No tailor-made portfolio
Mutual fund portfolios are created and marketed by AMCs, into
which investors invest. They cannot made tailor made
portfolio.Projectsformba.blogspot.com

4. Managing a portfolio of funds

As the number of funds increase, in order to tailor a portfolio for
himself, an investor may be holding portfolio funds, with the costs
of monitoring them and using hem, being incurred by him.

5. Delay in Redemption
The redemption of the funds though has liquidity in 24- hours to 3
days takes formal application as well as needs time for
redemption. This becomes cumbersome for the investors.

6. Non-availability of loans
 - 48 -

Mutual funds are not accepted as security against loan. The

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

DISTRIBUTION CHANNELS OF THE MUTUAL FUND

In India, AMCs work with five distinct distribution channels those

are direct, banking, retail, corporate and individual financial
adviser.

1. The Direct Channels:

In the direct channel, customers invest in the schemes directly

through AMC. In most cases, the company does not provide any
investment advice, so these investors have to carry out their own
research and select schemes themselves.The
fund companies provide several tools to investors who invest thro
ugh this channel.
This includes monthly a/c statement, processing of transaction, an
d maintaince of records. In this channel most investors can invest
through websites, or receive information through telephonic
services provided by the company. About 10-20% of the total
sales of an AMC come through this direct channel

2. The banking channel:

The large customer base of banks,in developed countries, have pl

ayed an important role in the selling MFs. In the recent years, this
channel has also opened up in India. Banks operating in India ,
including public sector, private and foreign banks have established
 - 49 -

tie-up with various fund companies for providing distribution and

servicing. The banking channel is likely to develop as the most
vital distribution channel for fund companies there are several
reasons for the same. Customers remain invested in banks for
long periods of time and therefore banks maintain a relationship
of trust with their customers. Customers are rely on advice
provided to them
by bankers as they are always on the look out for better investme
nt avenues. Managers are guiding to customers about various
funds.
An additional advantage that banks provide is that the concerned
customer becomes a permanent contact of the banks and
therefore can be reached during launch of (new fund offer) NFO
or new schemes any time in the future.

3. The retail channel:

A customer can deal with directly with a sub broker belonging to a

distribution company, instead of taking trouble of dealing with
several agents. Distribution companies sell the schemes of several
fund houses simultaneously and brokerage is paid by the AMC
whose funds they sell. The retail channel offers the benefits
of specialist knowledge and established client contact and,
therefore private fund houses are generally prefer this channel.
Some of the major players in India in this
in this channel are national players like Karvey, Birla sunlife IL&FS
and cholamandalam. The key factor for this channel to sell a
company’s fund used to be the brokerage paid. The banking and
retail channel generally contribute to about 50-70% of the total
Asset under Management (AUM).

4. The corporate channel

 - 50 -

The corporate channel includes a variety of institutions that invest

in shares on the company’s name.
These are businesses, trust, and even state and local
governments. For institutional investors, fund managers prefer to
create special funds and share classes. Corporate can either invest
directly in mutual funds or through an intermediary such as a
distribution house or a bank. Corporate exhibit varying degrees ‘of
awareness of mutual fund products.Most of the established
corporate, such as the TVS industries in Hyderabad, are well-
versed with the performance and composition of various
funds. The smaller companies and start-up firms, however, need
to be educating on several aspects of mutual funds. In order to
provide information to such clients, fund companies usually
organize presentation for these companies or set-up meetings
with the finance managers.

5. Individual financial advisors (ifa) or agents:

The IFA channel is the oldest channel for distribution and was
widely employed
at the time when UTI monopoly in the market.
In recent times with the emergence significantly decreased. An
agent who basically acts as an interface between the customer
and the fund house there is a unique systems in place in India ,
wherein several sub-brokers are working under one main
broker. The huge network of sub-brokers, thus ensure larger
market penetration and geographic coverage. As per AMFI,
over one lakh agents are registered to sell mutual funds and
other financial products such as insurance across the country.

RISK INVOLVED IN MUTUAL FUND

 - 51 -

 THE RISK-RETURN TRADE-OFF

The most important relationship to understand is the risk-

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

Hence it is up to you, the investor to decide how much risk you

are willing to take. In order to do this you must first be aware of
the different types of risks involved with your investment
decision.

 MARKET RISK
Sometimes prices and yields of all securities rise and fall. Broad
outside influences affecting the market in general lead to this.
This is true, may it be big corporations or smaller mid-sized
companies. This is known as Market Risk. A Systematic Investment
Plan (“SIP”) that works on the concept of Rupee Cost Averaging
(“RCA”) might help mitigate this risk

 CREDIT RISK
The debt servicing ability (May it be interest payments or
repayment of principal) of a company through its cash flows
determines the Credit Risk faced by you. This credit risk is
measured by independent rating agencies like CRISIL who rate
companies and their paper. An ‘AAA’ rating is considered the
safest whereas a ‘D’ rating is considered poor credit quality. A
well-diversified portfolio might help mitigate this risk.

 INFLATION RISK
Things you hear people talk about: “Rs. 100 today is worth more
than Rs. 100 tomorrow.” “Remember the time when a bus ride
 - 52 -

costed 50 paisa?” “Mehangai Ka Jamana Hai.” The root

cause,Inflation. Inflation is the loss of purchasing power over
time. A lot of times people make conservative investment
decisions to protect their capital but end up with a sum of money
that can buy less than what the principal could at the time of
investment.
This happens when inflation grows faster than the return on your
investment. A well-diversified portfolio with some investment in
equities might help mitigate this risk

 INTEREST RATE RISK

In a free market economy interest rates are difficult if not
impossible to predict. Changes in interest rates affect the prices of
bonds as well as equities. If interest rates raise the prices of bonds
fall and vice versa. Equity might be negatively affected as well in a
rising interest rate environment. A well-diversified portfolio might
help mitigate this risk

 POLITICAL/GOVERNMENT POLICY RISK

Changes in government policy and political decision can change
the investment environment. They can create a favorable
environment for investment or vice versa.

 LIQUIDITY RISK
Liquidity risk arises when it becomes difficult to sell the securities
that one has purchased. Liquidity Risk can be partly mitigated by
diversification, staggering of maturities as well as internal risk
controls that lean towards purchase of liquid securities.

FACTORS AFFECTING MUTUAL FUND

 Governmental Influences
 - 53 -

Mutual fund business is a highly regulated business throughout

the world as it seeks to ensure that quality and fairly priced
schemes are available. Governmental intervention thus in mutual
fund market usually is most needed to ensure that insurers are
reliable

 Taxation Policy
Social equity being one of the motives behind tax collections,
government gives certain exemptions from such levying. One such
exemption is deduction incurred by tax payer s towards
investment in mutual fund coverage. Similarly, capital invested in
infrastructure bonds etc is offered with certain concession under
tax laws.

 National Income
The relative importance of the mutual fund Market within a
country will also be dependent upon economic development.
With greater rates of economic growth, consumption of
investment should increase as a result of increased income, and
an increased stock of assets requiring mutual fund.

 Employment
The effect of employment on mutual fund industry is as direct as
that on economic development of any country. With the rising
levels of employment the effect on mutual fund industry is
positive.

 Money supply
The central banks has indicated that credit growth and money
supply number are likely to be above its prosecution for the
current fiscal year, the statement “to consider promptly all
possible measures as appropriate to the evolving global and
domestics situation “is indicative of phased increase in FII limits
 - 54 -

for gilt investment could help in depending the securities market

and is part of the road map towards fuller convertibility.

 Interest
Interest is major factor for investment when a person find less
return from investment tool than people move towards the
higher returns tool of investment.

 Risk factor
All investments in Mutual Fund and securities are subject to
market risks and the NAV of the fund may go up or down
depending on the factors and forces affecting the security market.
There can be no assurance that the fund’s objective will be
achieved. Past performance of the sponsors/Mutual
fund/schemes/AMC is not necessarily indicative of the future
results. The name of the schemes does not in any manner indicate
their quality, their future prospects or returns. The specific risk
would be credit, market, illiquidity, judgmental error, interest
rate, swaps and forward rates.

 Demographic environment
The demographic environment significantly affects the demand
for the mutual fund industry. Factors like the average age of the
population, levels of education, household structures income
distribution, life style and the extent of industrialization.

 Education
Education is major factor of demand for mutual fund product. If
the education levels is higher than the people know the benefits
of mutual fund the use mutual fund as investment tool and also
take raise capital growth
REGULATORY FREAMWORK FOR MUTUAL FUND
 - 55 -

For the smooth functioning of mutual funds in INDIA followings

are the watchdogs

1. ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for

mutual fund association in India was generated to function as a
non-profit organization. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August 1995.

AMFI is an apex body of all Asset Management Companies (AMC),

which has been registered with SEBI. Till date all the AMCs are
that have launched mutual fund schemes are its members. It
functions under the supervision and guidelines of board of
directors. AMFI has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of
both protecting and promoting the interest of mutual funds as
well as their unit holders.

2. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996

The fast growing industry is regulated by Securities and Exchange

Board of India (SEBI) since inception of SEBI as a statutory body.
SEBI initially formulated “SECURITIES AND EXCHANGE BOARD OF
INDIA (MUTUAL FUNDS) REGULATIONS, 1993” providing detailed
procedure for establishment, registration, constitution,
management of trustees, asset management company, about
schemes/products to be designed, about investment of funds
collected, general obligation of MFs, about inspection, audit etc.
 - 56 -

based on experience gained and feedback received from the

market SEBI revised the guidelines of 1993 and issued fresh
guidelines in 1996 titled “SECURITIES AND EXCHANGE BOARD OF
INDIA (MUTUAL FUNDS) REGULATIONS, 1996”. The said
regulations as amended from time to time are in force even
today.

STRUCTURE OF MUTUAL FUNDS

The mutual fund industry is governed by the Securities and

Exchange Board of India (Mutual Fund) Regulations, 1996, which
lays the norms for the structure and the operation of a mutual
fund in India. The diagram below illustrates the organizational set
up of a mutual fund:

Organizational Setup of a Mutual Fund

 - 57 -

 SPONSOR

A “sponsor” is a person who, acting alone or in combination with

another corporate body, establishes a Mutual Fund. In order to
register with SEBI as a Mutual Fund, the sponsor should have a
sound financial track record of over five years and general
reputation of fairness and integrity in all his business transactions.
Following its registration with SEBI, the sponsor forms a trust,
appoints a Board of Trustees and an Asset Management Company
(AMC) as a fund manager. The sponsor should contribute at least
40% of the net worth of the AMC.

 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 FUND

A Mutual Fund is established in the form of a trust under the

Indian Trusts Act, 1882. The investor subscribes to the units issued
by the Mutual Funds. The resources raised are pooled under
various schemes established by the trust.

 TRUSTEES

The Mutual Fund can either be managed by the Board of

Trustees, which is a body of individuals, or by a trust company,
which is a corporate body. Most of the funds in India are managed
 - 58 -

by the Board of Trustees. The Trustees are appointed with the

approval of the SEBI. Two thirds of the Trustees are independent
persons and are not associated with the sponsors. The Trustees,
however, do not manage the portfolio of Mutual Fund. It is
managed by the AMC.

 UNIT HOLDERS

They are the parties to whom the mutual fund is sold. They
are ultimate beneficiary of the income earned by the mutual
funds.

 ASSET MANAGEMENT COMPANY (AMC)

The AMC,appointed by the sponsors or the Trustees and

approved by SEBI, acts like an investment manager of the Trust.
The AMC should have a net worth of at least Rs.10 crores. It
functions under the supervision of its Board of Directors, Trustees
and the SEBI. In the name of the Trust, AMC floats and manages
different investment schemes as per the SEBI regulations. Apart
from these, a Mutual Fund has some other constituents, such as,
custodians and depositories, banks, transfer agents and
distributors. A custodian is appointed for safe keeping the
securities and participating in the clearing system through
approved depository. The bankers handle the financial dealings of
the fund. Transfer agents are responsible for issue and
redemption of the ‘units’. The AMC appoints distributors or
brokers to sell ‘units’ on behalf of the fund.
 - 59 -

 CUSTODIAN

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.
 - 60 -

Chapter 5

RESEARCH METHODOLOGY

Research can simply be defined as search for knowledge; it is an

art of scientific investigation.
In this report a research has been conducted to know Investors
and Advisors perception about Mutual Funds.

OBJECTIVES:

 To study about the mutual funds and MF industry.

 To know the perception of Investors and Advisors
towards mutual funds.

SCOPE OF THE STUDY:

 Study covers mutual fund Company (NJ India invest), mutual

fund industry, investors and advisors behaviour towards
mutual funds.
 People of age between 20 to 60 years
 Area covered Panchkula, manimajra, pinjor, kalka,
parwanoo and Zirakpur.

RESEARCH PROCESS
1. Define research problem and objective: - first of all we need to
define research problem with out which we can not proceed. In
our study our research problem and Objectives are
 - 61 -

 To know about the mutual funds industry.

 To study the perception of Investors and Advisors
towards mutual funds.

2. Define the information needed: - here we need to

define the information actually required for our study. In
this case we require information about the approach of
investors and advisors about mutual funds e.g. what point’s
investors consider before investing in mutual fund, attitude
of insurance advisors who are not selling mutual funds and
are not AMFI certified. So, the information sought and
information generated is only possible after defining the
information needed.

3. Research design: - A research design is a framework or

conceptual structure with in which research would be
conducted and also helps us to collect maximum
information with minimal expenditure of effort, time and
money. In this project Descriptive Research (in which
researcher has no control over variables) is designed.

4. Determine sample design and sample size:-

Sample design is a definite plan for obtaining a sample
from given population and is determined before data collection.
Our study uses convenient sampling technique.

Sample Is the part of totality on the basis of which a

judgment about the totality is made.
This study consists of near about 170 respondents
 - 62 -

Population All the investors and advisors from panchkula,

manimajra,pinjor, kalka, parwanoo and zirakpur from 20 July
to 11august 2011.

5. Collection of data: - Both primary and secondary data

have been used for the purpose of the data collection.
Primary data was collected by a structured questionnaire.
And the secondary data was collected from company’s
books and data source.
 - 63 -

Chapter 6

DATA INTERPRETATION AND ANALYSIS

After collection of data analysis is done to make it

understandable and to draw a conclusion.

In the present work sample size is 170 which is taken from

panchkula, manimajra,pinjor, kalka, parwanoo and zirakpur

Q1. Are you a wealth Advisor?

Yes No Total
170 0 170

No
0%

Yes
100%
 - 64 -

The table and diagram shows that there are 170 wealth advisors
in my sample size.

sex

frmale
30%

male
70%

Above diagram shows that, there are 30% females and 70% males
working as a wealth advisors in my sample size.

Q2. How long have you been working as a wealth advisor?

Years No of persons percentage

1-5 40 23.52%
5-10 75 44.11%
More than 10 55 32.35%
 - 65 -

no of persons

more than 1 to 5 years

10 years 24%
32%

5 to 10
years
44%

The above diagram shows that there are 24% means 40 advisors
out of 170 who are working as wealth advisors from 1-5 years.
There are 44% means 75 advisors working from 5-10 years and
32% means 55 advisors working from more than 10 years as
wealth advisor.

Q3. With which organization you are working?

Organizations No of persons %
LIC 80 47
Post office 56 32.94
New India insurance 2 1.76
Oriental insurance 30 17.64
National insurance 2 1.76
 - 66 -

National
insurance,
1%
Oriental
insurance,
18%
New India,
1% LIC, 47%

Post office,
33%

Above data shows 47% advisors work with LIC, 33% work with
post office, about 1% works with new India, 18% advisors work
with Oriental insurance and 1% with National Insurance

Q4.Do you invest in mutual fund?

Response Respondents %
Yes 38 22.35
No 132 77.64
 - 67 -

Respondents

Yes
22%

No
78%

When question asked to advisors that do they invest in mutual

fund 38 advisors means 22% say yes they do and 78% advisors do
not invest in mutual fund.

(a). If yes, what factors do you keep in mind before investing in

mutual fund?

Response Respondents %
Safety 18 47.36
Good return 12 31.57
Liquidity 8 21.05
 - 68 -

Respondents

Liquidity
21%

Safety
47%

Good return
32%

It shows majority of investors i.e. 47% wants safety, 32%want

good return and 21%investors want liquidity before investing in
mutual fund.

Q5. Do you sell MUTUAL FUND?

Response Respondents %
Yes 25 14.70
No 145 85.30
 - 69 -

Respondents

Yes
15%

No
85%

There are 15% advisors who sell Mutual Funds and 85 % advisors
don’t deal in mutual fund

Q6.

(a) Are you AMFI certified?

Response Respondents %
Yes 7 4.11
No 163 95.88
 - 70 -

Respondents

Yes
4%

Yes
No

No
96%

In the above diagram there are only 4% advisors are AMFI

certified and 96% are not AMFI certified.

(b) If yes, do you want to associate with NJ India Invest?

Response Respondents %
No 3 42.85
Already with NJ 4 57.14
 - 71 -

Respondents

No
Already with 43%
NJ
57%

Above data shows that out of 7 AMFI certified advisors there are
57% advisors who are working with NJ India Invest, 43% advisors
don’t want to associate with due to less brokerage at NJ.

Q7.Do you want to be an AMFI certified Advisor?

Response Respondents %
Yes 8 4.90
No 155 95.09
 - 72 -

Respondents

Yes
5%

Yes
No

No
95%

out of 163 advisors there are 5% means 8 advisors want to be

AMFI certified and 95% rwe not interested to be AMFI certified.
 - 73 -

LIMITATIONS OF THE STUDY

Research has made many achievements and thus simplified

human life. Whatever we are enjoying today is due to research.
Every research has its own advantages, disadvantages and
limitations and my present research work is no exception to this
general rule.
Limitations of the study are as under:·
 In this research Interview method was followed which is
very much time consuming and very expensive method,
especially when spread geographic sample is taken.
 Questionnaire method can be used only for those
respondents who are literate and co-operative.
 In this research work Sample size was 170 which is not
enough to study the awareness of mutual fund and on the
basis of this sample we can not make a judgment.
 Sampling techniques used in the study is convenient
sampling so it may result in personal bias. Even respondent
give bias answers.
 Time is main constraint of the research as we have very less
time.
 - 74 -

FINDING AND SUGESSIONS

During my summer training program at panchkula in NJ India
invest I found that a large number of wealth Advisors were
working with insurance companies (LIC, new India, oriental
insurance, National insurance) and post offices or with both.
Most of investors and advisors have a little knowledge about
mutual fund.

FINDINGS

 Highest number of investors comes from the salaried

class(having age group 25-40) and have been investing in
mutual funds for last 5-7 years.
 Most of the advisors have been working with insurance
companies and post offices.
 Brokerage in mutual funds is very low as compare to
insurance.
 Mutual fund investments are subject to market risk
therefore people don’t want to talk about them.
 Advisors don’t want to be AMFI certified because they have
to study and they think fee at NJ is more as compare to LIC.
 Some advisors were dealing in mutual fund with out any
AMFI certification with RR chd.
 Majority of people were not aware about NJ India Invest so
they should launch Brand awareness programme
periodically.
 ARN holders who are working independently don’t want to
associate with NJ due to less brokerage at NJ.
 Some people want to earn high return, some want safety,
some want tax benefit and some want liquidity.
 - 75 -

SUGGESTIONS

 NJ should decrease charges upon AMFI test.

 NJ should launch awareness program about mutual fund
for general public to get direct clients and for brand
building.
 Brokerage of the financial advisor’s should be improved.
 Give more importance to safety and return attributes
because Independent Financial Advisors are more
concern about safety and of giving more benefit of the
investments to their clients.
 By providing better service NJ India Invest should try to
attract the Independent Financial Advisors to join with
them.
 Tax benefit should be highlighted to attract public sector
employees for investment in mutual fund.
 - 76 -

CONCLUSION
On the Basis of above research we can say that mutual fund
industry is growing with a great speed and investment in mutual
fund provides a good return in long run i.e. beyond 5 years.
Today each and every person is fully aware of every kind of
investment proposal. Everybody wants to invest money, which
entitled of low risk, high returns and easy redemption.
Though a mutual fund provides a good return but it also has risk
involved in it. Investor should have a good knowledge about
working of mutual fund and market before investment. In my
opinion before investing in mutual funds, one should be fully
aware of each and everything.
 - 77 -

REFERENCES & BIBLIOGRAPHY

Websites:
 www.google.com
 www.njfundz.com
 www.amfiindia.com
 www.mutualfundsindia.com

Books:
 C.R.Kothari,Research methodology, new Delhi: new age
international publishers.
 Text book for AMFI Exam.

Magazines:
 Business India
 Opportunity (by NJ)
 Business Today
 - 78 -

Questionnaire

Q1. Are you a wealth Advisor?

o Yes
o No

Q2. How long have you been working as a wealth advisor?

o 0-5years
o 5-10years
o More than 10 years

Q3. With which organization you are working?

o A…………………………………
o B…………………………………
o C…………………………………
o D…………………………………
o E…………………………………

Q4.Do you invest in mutual fund?

o Yes
o No

(a). If yes, what factors do you keep in mind before investing in

mutual fund?
o Safety
o Return
o Liquidity

Q5. Do you sell MUTUAL FUND?

o Yes
o No
 - 79 -

Q6.

(a) Are you AMFI certified?

o Yes
o No
(b) If yes, do you want to associate with NJ India Invest?
o Yes
o No
o Already with NJ

Q7.Do you want to be an AMFI certified Advisor?

o Yes
o No

Name: - …………………………………………………….
Mail Id: - …………………………………………………….
Contact No: - …………………………………………………….
Office Address: - ……………………………………………………

Thanks for your Co-operation