A Summer Training Project Report On SCOPE OF MUTUAL FUND IN INDIAN FINANCIAL INDUSTRY

[Submitted to Mahamaya Technical University, Noida in the partial fulfillment for the requirement for the award of the degree of Master of Business Administration (MBA) programme

Submitted by :Amit Verma MBA IIIrd Sem Batch (2011-12)

Under Guidance :Salabh Srivastava Manager HDFC, AGRA

Hindustan Institute of Management & Computer Studies

Farah, Mathura (U.P.)

ACKNOWLEDGEMENT With regard to my Project with Mutual Fund I would like to thank each and every one who offered help, guideline and support whenever required. First and foremost I would like to express gratitude to Manager of HDFC, Salabh Srivastava, AGRA and other staffs for their support and guidance in the Project work.. I am extremely grateful to my guide, for their valuable guidance and timely suggestions. I would like to thank our sir Mr. Mayank Yadav and all faculty members of HIMCS for the valuable guidance& support. I would also like to extend my thanks to my friends for their support. And lastly, I would like to express my gratefulness to the parents for seeing me through it all.

Amit Kumar

DECLERATION

I hereby declare that this Project Report entitled THE SCOPE OF MUTUAL FUNDS IN INDIAN FINANCIAL INDUSTRY in HDFC STANDARD submitted in the partial fulfillment of the requirement of Master of Business Administration (MBA) of Hindustan Institute of Management & Computer Studies, Farah, Mathura is based on primary & secondary data found by me in various departments, books, magazines and websites & Collected by me in under guidance of MR. Salabh Srivastava.

DATE:

Amit Kumar MBA IIIrd Sem.

CONTENTS
Acknowledgement Declaration Chapter - 1 Chapter - 2 Chapter - 3 Chapter - 4 Chapter - 5 Chapter - 6 Chapter - 7 INTRODUCTION COMPANY PROFILE OBJECTIVES AND SCOPE RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINDINGS AND CONCLUSIONS SUGGESTIONS & RECOMMENDATIONS

BIBLIOGRAPHY QUESTIONNAIRE GLOSSARY

INTRODUCTION 1 Mutual Funds

MUTUAL FUNDS
Before we understand what is mutual fund, its very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.

Stocks

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

companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.

Bonds

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

return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific

securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund

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Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

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Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes

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.

Close Ended Schemes

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.

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Interval Schemes

Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

BY NATURE

Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual fund is categorized as follow:

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1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the riskreturn matrix.

2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

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Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months.
These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for shortterm cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

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3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

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BY INVESTMENT OBJECTIVE

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of
these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in safer, shortterm instruments, such as treasury bills, certificates of deposit, commercial paper and interbank call money.

OTHER SCHEMES
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Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax
laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular

index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the securities
of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns:

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

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. 19

If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or

bonds, the investors risk is spread out and minimized up to certain extent. 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. 20

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available

instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

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Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks.

2. Costs The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a
few investments often don't make much difference 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 trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal
tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

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Guidelines of the SEBI for Mutual Fund Companies :

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time.

SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :

1. Photo PAN card 23

2. In case of non-photo PAN card in addition to copy of PAN card any one of the following: driving license/passport copy/ voter id/ bank photo pass book. Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport, latest bank passbook/bank account statement, latest Demat account statement, voter id, driving license, ration card, rent agreement.

Offer document:

An offer document is issued when the AMCs make New Fund

Offer(NFO). Its advisable to every investor to ask for the offer document and read it before investing. An offer document consists of the following: Standard Offer Document for Mutual Funds (SEBI Format) Summary Information Glossary of Defined Terms Risk Disclosures Legal and Regulatory Compliance Expenses Condensed Financial Information of Schemes Constitution of the Mutual Fund Investment Objectives and Policies Management of the Fund Offer Related Information.

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Key Information Memorandum:

a key information memorandum, popularly

known as KIM, is attached along with the mutual fund form. And thus every investor get to read it. Its contents are: 1 Name of the fund.

2. Iestment objective 3. Aset allocation pattern of the scheme. 4. Risk profile of the scheme 5. Plans & options 6. Minimum application amount/ no. of units 7. Benchmark index 8. Dividend policy 9. Name of the fund manager(s) 10 . Expenses of the scheme: load structure, recurring expenses 11. Performance of the scheme (scheme return v/s. benchmark return) 12. Year- wise return for the last 5 financial year.

Distribution channels:

Mutual funds posses a very strong distribution channel so that the ultimate customers doesnt face any difficulty in the final procurement. The various parties involved in distribution of mutual funds are:

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1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The investors can approach to the AMCs for the forms. some of the top AMCs of India are; Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.

2 .Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker to popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub brokers.eg: SBI being the top financial intermediary of India has the greatest network. So the AMCs dealing through SBI has access to most of the investors.

3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents, independent brokers, banks and several non- banking financial corporations too, whichever he finds convenient for him.

Costs associated:

Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of 26

running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio

Loads:

Entry Load/Front-End Load (0-2.25%)-

its the commission charged at the

time of buying the fund to cover the cost of selling, processing etc.

Exit Load/Back- End Load (0.25-2.25%)-

it is the commission or charged

paid when an investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to zero with increase in holding period.

Measuring and evaluating mutual funds performance:

Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore its very necessary to continuously evaluate the funds performance with the help of factsheets and newsletters, websites, newspapers and professional advisors like SBI mutual fund services. If the investors ignore the evaluation of funds performance then he can loose hold of it any time. In this ever-changing industry, he can face any of the following problems:

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1. Variation in the funds performance due to change in its management/ objective. 2. The funds performance can slip in comparison to similar funds. 3. There may be an increase in the various costs associated with the fund. 4 .Beta, a technical measure of the risk associated may also surge. 5. The funds ratings may go down in the various lists published by independent rating agencies. 6 .It can merge into another fund or could be acquired by another fund house.

Performance measures:
Equity funds:
the performance of equity funds can be measured on the basis of: NAV

Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.

Debt fund:

likewise the performance of debt funds can be measured on the basis of: Peer

Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the
basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

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Concept of benchmarking for performance evaluation:

Every fund sets its benchmark according to its investment objective. The funds performance is measured in comparison with the benchmark. If the fund generates a greater return than the benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark then the correlation between them is exactly 1. And if in case the return is lower than the benchmark then the fund is said to be underperformed.

Some of the benchmarks are :

1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500 index, BSE bankex, and other sectoral indices. 2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds. 3. Liquid funds: Short Term Government Instruments Interest Rates as Benchmarks, JPM TBill Index

To measure the funds performance, the comparisons are usually done with:
I)with a market index. ii) Funds from the same peer group. 29

iii) Other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):

Investors are required to go for financial planning before making investments in any mutual fund. The objective of financial planning is to ensure that the right amount of money is available at the right time to the investor to be able to meet his financial goals. It is more than mere tax planning.

Steps in financial planning are:

Asset allocation. Selection of fund. Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving the actual allocation of securities and their management to fund managers. A fund manager has to closely follow the objectives stated in the offer document, because financial plans of users are chosen using these objectives.

Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. all these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. measuring 30

these form

investment options on the basis of the mentioned parameters, we get this in a tabular

Return

Safety

Volatility

Liquidity

Convenienc e Moderate High Low Moderate High High Moderate Gold Low High

Equity Bonds Co. Debentures Co. FDs Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds

High Moderate Moderate Moderate Low Moderate Low Moderate High High

Low High Moderate Low High High High High Moderate High

High Moderate Moderate Low Low Low Low Moderate High Moderate

High Moderate Low Low High Moderate Low Moderate Low High

We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas its moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low 31

safety which doesnt makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate.

Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important ie; it scores low on return , so its not an happening option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesnt gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly the other investment options are not at par with mutual funds and serve the needs of only a specific customer group. Straightforward, we can say that mutual fund emerges as a clear winner among all the options available. The reasons for this being:

I)Mutual funds combine the advantage of each of the investment products: mutual fund is one such option which can invest in all other investment options.
Its principle of diversification allows the investors to taste all the fruits in one plate. just by investing in it, the investor can enjoy the best investment option as per the investment objective.

II)dispense the shortcomings of the other options : every other investment

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option has more or les some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both.likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives.

III) Returns get adjusted for the market movements : as the mutual funds
are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments.

IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one more reason which has established mutual funds as one of the largest financial intermediary and that is the flexibility that mutual funds offer regarding the investment amount. One can start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some cases.

How do investors choose between funds?

When the market is flooded with mutual funds, its a very tough job for the investors to choose the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look 33

at the investment objective of the fund. Then the investors sort out the funds whose investment objective matches with that of the investors. Now the tough task for investors start, they may carry on the further process themselves or can go for advisors like SBI . Of course the investors can save their money by going the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors thoughts go beyond just investment objectives and rate of return. Some of the basic tools which an investor may ignore but an mf advisor will always look for are as follows

1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an investor to bring down the average cost of buying a scheme by making a fixed investment periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls, the investors can get more number of units and vice-versa. This results in the average cost per unit for the investor being lower than the average price per unit over time. The investor needs to decide on the investment amount and the frequency. More frequent the investment interval, greater the chances of benefiting from lower prices. Investors can also benefit by increasing the SIP amount during market downturns, which will result in reducing the average cost and enhancing returns. Whereas STP allows investors who have lump sums to park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund 34

to take advantage of rupee cost averaging.

2. Rebalancing:

Rebalancing involves booking profit in the fund class that has gone up and investing in the asset class that is down. Trigger and switching are tools that can be used to rebalance a portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs. The trigger could be the value of the investment, the net asset value of the scheme, level of capital appreciation, level of the market indices or even a date. The funds redeemed can be switched to other specified schemes within the same fund house. Some fund houses allow such switches without charging an entry load. To use the trigger and switch facility, the investor needs to specify the event, the amount or the number of units to be redeemed and the scheme into which the switch has to be made. This ensures that the investor books some profits and maintains the asset allocation in the portfolio.

3. Diversification:

Diversification involves investing the amount into different options. In case of mutual funds, the investor may enjoy it afterwards also through dividend transfer option. Under this, the dividend is reinvested not into the same scheme but into another scheme of the investor's choice. For example, the dividends from debt funds may be transferred to equity schemes. This gives the investor a small exposure to a new asset class without risk to the principal amount. Such 35

transfers may be done with or without entry loads, depending on the MF's policy.

4. Tax efficiency:

Tax factor acts as the x-factor for mutual funds. Tax efficiency affects the final decision of any investor before investing. The investors gain through either dividends or capital appreciation but if they havent considered the tax factor then they may end loosing. Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and education cess) on dividends paid out. Investors who need a regular stream of income have to choose between the dividend option and a systematic withdrawal plan that allows them to redeem units periodically. SWP implies capital gains for the investor. If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket. Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than one year), the growth option is more tax efficient for all investors. This is because investors can redeem units using the SWP where they will have to pay 10 per cent as long-term capital gains tax against the 12.50 per cent DDT paid by the MF on dividends. All the tools discussed over here are used by all the advisors and have helped investors in reducing risk, simplicity and affordability. Even then an investor needs to examine costs, tax implications and minimum applicable investment amounts before committing to a service.

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Systematic investment plan (in details)

We have already mentioned about SIPs in brief in the previous pages but now going into details, we will see how the power of compounding could benefit us. In such case, every small amounts invested regularly can grow substantially. SIP gives a clear picture of how an early and regular investment can help the investor in wealth creation. Due to its unlimited advantages SIP could be redefined as a methodology of fund investing regularly to benefit regularly from the stock market volatility. In the later sections we will see how returns generated from some of the SIPs have outperformed their benchmark. But before moving on to that lets have a look at some of the top performing SIPs and their return for 1 year:

Does fund performance and ranking persist?

This project has been a great learning experience for me. But the analyses that are carried onward these pages are really close to my heart. After taking a look at the data presented 37

below, an expert might underestimate my efforts. One might think it as a boring task and can go for recording historic NAVs since last 1 month instead of recording it daily. But frankly speaking, while tracking the NAVs, I really developed some sentiments with these funds. Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio. The portfolio consists of different types of funds. We can see some funds are 5- star rated but their performances are below the unrated funds. We can also find some funds which performed very well initially but gradually declined either in short- run or long run. Some funds have high NAVS but the returns offered are low. We can also see some funds following same benchmark and reflecting diverse NAV and returns. Even it can be seen that the expense ratios for various funds varies which may affect the ultimate return.

Now before going into details, lets have a look at those funds: in this downgrading equity market, we can easily make out that the 1 year return of the fund that was on 17 th of april could not be sustained till 1 month. One can sort out that the present return of funds has decreased a lot and subsequently its NAV too has come down. All the funds are showing negative returns for the last 1 month. Even the two hybrid funds are showing negative monthly returns. That means all those who bought these funds a month back must be experiencing a negative return. Although the annual return of the funds have gone down in comparison to what it was offering a month back. Still the total return is positive. On an average the equity funds are offering a return of 30% annually, inspite of a week equity market.

Now checking the validity of funds ratings, we can see that some of the funds are 5 star or 4 star rated but their returns lag behind the unrated funds. Although, since the ratings include 38

both risk and return so it will not be a total justice to judge the funds purely on a return basis but still we can go for it just to judge them on the basis of returns generated.

Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated funds. In other way, we have seven equity diversified funds, one equity specialty, one hybrid: dynamic asset allocation and one hybrid: debt oriented fund. It is not possible to compare each and every fund in details. So I have compared 2 funds out of this list on the basis of their returns and expenses. Here DBS Chola opportunities and ICICI Pru infrastructure follows the same benchmark S&P CNX NIFTY. In this case, DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru infrastructure is an unrated fund. The star rating definitely gives DBS a competitive advantage but now lets have a look at other factors, we can see that ICICI Pru has really performed worse in the last month. Its 1 month return is -5.8% whereas DBS gave a return of -3.07%. Even if we consider 6 months return or yearly returns, definitely DBS is a winner. We can easily spot the difference by change in their rankings even. Considering 1 yr return, we can spot DBS at no.5 whereas ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock, DBS is at 52 and ICICI far behind at 172. But if we look at the yearly returns, then there is not much difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27. But looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which may act as the ultimate factor in choosing the fund in a long run.

Thus at last we can conclude that ratings are totally irrelevant for investors. Here is why they are totally irrelevant to investor:
39

1. Mutual fund ratings are based on the returns generated, that is, appreciation of net asset value, based on the historical performance. So they rely more on the past, rather than the current scenario. 2. As returns play a key role in deciding the ratings, any change in returns will lead to rerating of the mutual fund. If you choose your mutual fund only on the basis of rating, it will be a nuisance to keep realigning your investment in line with the revision of the ratings. 3. The ratings dont value the investment processes followed by the mutual fund. As a result, a fund following a certain process may lose out to a fund that has given superior returns only because it has a star fund manager. But there is a higher risk associated with a star fund manager that the ratings dont reflect. If the star fund manager quits, it can throw the working of a mutual fund out of gear and thus affect its performance.

4. The ratings dont show the level of ethics followed by the fund. A fund or fund manager that is involved in a scam or financial irregularities wont get poor ratings on the basis of ethics. As the star ratings look at just returns, any wrongdoing carried out by the fund or fund manager will be completely ignored.

5. Ratings also dont consider two very important factors: transparency and keeping investors informed. There are no negative ratings awarded to the fund for being investor-unfriendly.

40

6. Ratings dont match the investors risk-appetite with their portfolio. As a matter of fact, investments should be done only after considering the risk appetite of the investor. For example, equities may not be the best investment vehicle for a very conservative investor. However ratings fail to take that into account.

Ratings should be the starting point for making an investment decision. They are not the be all and end all of mutual fund investments. There are other important factors like portfolio management, age of funds and more, which should be taken into account before making an investment

Portfolio analysis tools:

With the increasing number of mutual fund schemes, it becomes very difficult for an investor to choose the type of funds for investment. By using some of the portfolio analysis tools, he can become more equipped to make a well informed choice. There are many financial tools to analyze mutual funds. Each has their unique strengths and limitations as well. Therefore, one needs to use a combination of these tools to make a thorough analysis of the funds. The present market has become very volatile and buoyant, so it is getting difficult for the investors to take right investing decision. so the easiest available option for investors is to choose the best performing funds in terms of returns which have yielded maximum returns. But if we look deeply to it, we can find that the returns are important but it is also important to look at the quality of the returns. Quality determines how much risk a fund is taking to generate those returns. One can make a judgment on the quality of a fund from various ratios 41

such as standard deviation, sharpe ratio, beta, treynor measure, R-squared, alpha, portfolio turnover ratio, total expense ratio etc. Now I have compared two funds of SBI on the basis of standard deviation, beta, R-squared, sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into details, lets have a look at these ratios:

Standard deviation:
in simple terms standard deviation is one of the commonly used statistical parameter to measure risk, which determines the volatility of a fund. Deviation is defined as any variation from a mean value (upward & downward). Since the markets are volatile, the returns fluctuate everyday. High standard deviation of a fund implies high volatility and a low standard deviation implies low volatility.

Beta analysis:
beta is used to measure the risk. It basically indicates the level of volatility associated with the fund as compared to the market. In case of funds, as compared to the market. In case of funds, beta would indicate the volatility against the benchmark index. It is used as a short term decision making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark index, while a beta of less than 1 means that the fund is more volatile than the benchmark index. A fund with a beta very close to 1 means the funds performance closely matches the index or benchmark. 42

The success of beta is heavily dependent on the correlation between correlation between a fund and its benchmark. Thus, if the funds portfolio doesnt have a relevant benchmark index then a beta would be grossly inappropriate. For example if we are considering a banking fund, we should look at the beta against a bank index.

R-Squared (R2):

R squared is the square of R (i.e.; coefficient of correlation). It describes the level of association between the funs market volatility and market risk. The value of R- squared ranges from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable measure to analyze the performance of a fund. Beta should be ignored when the rsquared is low as it indicates that the fund performance is affected by factors other than the market For example: Case 1 0.65 1.2 Case 2 0.88 0.9

R2 B

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and beta value is 0.9. it means that this fund is less aggressive than the market. Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns given by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio means that these returns have been generated taking lesser risk. In other words, the fund is less volatile and yet generating good returns. Thus, given similar returns, the fund with a higher sharpe 43

ratio offers a better avenue for investing. The ratio is calculated as:

Sharpe ratio = (Average return- risk free rate) / standard deviation

Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity

and is calculated by dividing the lesser of purchases or sales (excluding securities with maturities of less than one year) by the average monthly net assets of the fund. Turnover is simply a measure of the percentage of portfolio value that has been transacted, not an indication of the percentage of a fund's holdings that have been changed. Portfolio turnover is the purchase and sale of securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its positions within the last year. Turnover is important when investing in any mutual fund, since the amount of turnover affects the fees and costs within the mutual fund.

Total expenses ratio:

A measure of the total costs associated with managing and

operating an investment fund such as a mutual fund. These costs consist primarily of management fees and additional expenses such as trading fees, legal fees, auditor fees and other operational expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage amount, which represents the TER:

Total expense ratio = (Total fund Costs/ Total fund Asset Quantitative data:
44

Ratios Standard deviation Beta r-squared Sharpe ratio Portfolio turnover Total expense ratio

Magnum equity fund 26.00% 0.96% 1.46% 31% 2.5%

Magnum multiplier plus 26.90% 0.95% 0.84% 1.42% 25% 2.5%

Analysis:
We can see that the standard deviation of both the funds are more or less same even then the S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the SD higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than magnum equity fund. The beta of magnum equity fund is higher than that of magnum multiplier plus. Therefore, equity fund is more volatile than multiplier plus. But beta of both the funds is smaller than 1 that means both the funds are less volatile than the market index. As rsquared values are more than 0.80 in both the cases, we can rely on the usage of beta for the analysis of these funds. A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus. A higher Sharpe ratio of equity fund depicts that these return have been generated taking lesser risk than the multiplier plus. It Is less volatile than the other. R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a reliable measure to analyze the performance of these funds. Magnum equity funds Rsquared is higher. So its beta is more reliable. Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean 45

the manager is frequently churning the portfolio of equity fund than of multiplier plus. It may lead to an increase in expenses but could be ignored if could generate higher return by changing the composition of portfolio. Total expense ratio of both the funds are same i.e.; 2.5%

In the form of a chart:

Data analysis:

Have you ever invested/ interested to invest in mutual funds?

46

YES NO

135 65

.what is the most important reason for not investing in mutual funds? ( only for above 65 participants)

Lack of knowledge about mutual funds 25 Enjoys investing in other options 10 Its benefits are not enough to drive you 18 for investment No trust over the fund managers 12 47

 .where do you find yourself as a mutual fund investor?

Totally ignorant Partial knowledge of MFs Aware of only scheme in which invested Good knowledge of MFs

28 37 46 24

48

 .where from you purchases mutual funds?

Directly from the AMCs Brokers only ( large intermediaries) Broker/ sub-brokers Other sources

33 28 59 15

49

Chapter 2 Company Profile

50

INTRODUCTION TO SBI MUTUAL FUND

HDFC Standard Life Insurance Company Ltd. is one of India's leading private insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), India's leading housing finance institution and a Group Company of the Standard Life, UK. HDFC as on March 31, 2007 holds 81.9 per cent of equity in the joint venture. Our key strengths Financial Expertise As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage your long-term investments safely and efficiently. Range of Solutions

51

We have a range of individual and group solutions, which can be easily customized to specific needs. Our group solutions have been designed to offer you complete flexibility combined with a low charging structure. Track Record so far Our gross premium income, for the year ending March 31, 2007 stood at Rs. 2, 856 crores and new business premium income at Rs. 1,624 crores. The company has covered over 8,77,000 lives year ending March 31, 2007. HDFC - Standard Life HDFC Standard Life Insurance HDFC Standard Life Insurance Company is a joint venture between India's largest housing finance provider, HDFC and Europe's largest mutual life assurance company - The Standard Life Assurance Company (U. K). HDFC Standard Life Insurance Company Limited is the First Private Sector Life Insurance Company to be granted a license. Foreign Partner: Standard Life, UK Standard Life, UK, founded in 1825, has been at the forefront of the UK insurance industry for 175 years by combining sound financial judgement with integrity and reliability. It is the Largest Mutual Life company in Europe and has total assets of Rs. 5, 50,000 crore.

52

It is one of the very few insurance companies in the world to have received 'AAA' rating from two of the leading international credit rating agencies, Moody's and Standard & Poor's. Standard Life was recently voted 'Company of the Decade' in U.K. by the Independent Brokers called IFAs.

53

Contact Information HDFC Standard Life Insurance Company Ltd Trade Star, 2nd Floor, A Wing. Junction of Kondivita & M.V. Road Andheri -Kurla Road Andheri (E) Mumbai 400 059 Ph:022-67516666 Fax: 022-28222414 Email: response@hdfcinsurance.com Website: www.hdfcinsurance.com

54

MISSION The mission is to become the first choice for insurance needs for the people and become most successful and admired life insurance company. In the view of present market trends, the SWOT analysis was carried with respective of the above mission as under.

VISION The most successful and admired life insurance company, which means are the most, treated company and we offer best value for money and set the standard in the industry.

55

Board Members Brief profile of the Board of Directors Mr. Deepak S Parikh is the Chairman of the Company. He is also the Executive Chairman of Housing Development Finance Corporation Limited (HDFC Limited). He joined HDFC Limited in a senior management position in 1978. He was inducted as a whole-time director of HDFC Limited in 1985 and was appointed as its Executive Chairman in 1993. He is the Chief Executive Officer of HDFC Limited. Mr. Parekh is a Fellow of the Institute of Chartered Accountants (England & Wales. Mr. Keki M Mistry joined the Board of Directors of the Company in December, 2000. He is currently the Managing Director of HDFC Limited. He joined HDFC Limited in 1981 and became an Executive Director in 1993. He was appointed as its Managing Director in November, 2000. Mr. Mistry is a Fellow of the Institute of Chartered Accountants of India and a member of the Michigan Association of Certified Public Accountants. Mr. Alexander M Crombie joined the Board of Directors of the Company in April, 2002. He has been with the Standard Life Group for 34 years holding various senior management positions. He was appointed as the Group Chief Executive of the Standard Life Group in March 2004. Mr. Crombie is a fellow of the Faculty of Actuaries in Scotland. Ms. Marcia D Campbell is currently the Group Operations Director in the Standard Life group and is responsible for Group Operations, Asia Pacific Development, Strategy & Planning, Corporate Responsibility and Shared Services Centre. Ms. Campbell joined the Board of Directors in November 2005 56

Mr. Keith N Skeoch is currently the Chief Executive in Standard Life Investments Limited and is responsible for overseeing Investment Process & Chief Executive Officer Function. Prior to this, Mr. Skeoch was working with M/s. James Capel & Co. holding the positions of UK Economist, Chief Economist, Executive Director, Director of Controls and Strategy HSBS Securities and Managing Director International Equities. He was also responsible for Economic and Investment Strategy research produced on a worldwide basis. Mr. Skeoch joined the Board of Directors in November 2005. Mr. Gautam R Divan is a practising Chartered Accountant and is a Fellow of the Institute of Chartered Accountants of India. Mr. Divan was the Former Chairman and Managing Committee Member of Midsnell Group International, an International Association of Independent Accounting Firms and has authored several papers of professional interest. Mr. Divan has wide experience in auditing accounts of large public limited companies and nationalised banks, financial and taxation planning of individuals and limited companies and also has substantial experience in structuring overseas investments to and from India. Mr. Ranjan Pant is a global Management Consultant advising CEO/Boards on Strategy and Change Management. Mr. Pant, until 2002 was a Partner & Vice-President at Bain & Company, Inc., Boston, where he led the worldwide Utility Practice. He was also Director, Corporate Business Development at General Electric headquarters in Fairfield, USA. Mr. Pant has an MBA from The Wharton School and BE (Honours) from Birla Institute of Technology and Sciences. Mr. Ravi Narain is the Managing Director & CEO of National Stock Exchange of India Limited. Mr. Ravi Narain was a member of the core team to set-up the Securities & Exchange Board of India (SEBI) and is also associated with various committees of SEBI and the Reserve Bank of India (RBI). 57

Mr. Deepak M Satwalekar is the Managing Director and CEO of the Company since November, 2000. Prior to this, he was the Managing Director of HDFC Limited since 1993. Mr. Satwalekar obtained a Bachelors Degree in Technology from the Indian Institute of Technology, Bombay and a Masters Degree in Business Administration from The American University, Washington DC. Ms. Renu S. Karnad is the Executive director of HDFC Limited, is a graduate in law and holds a Master's degree in economics from Delhi University. She has been employed with HDFC Limited since 1978 and was appointed as the Executive Director in 2000. She is responsible for overseeing all aspects of lending operations of HDFC Limited. AUDITORS Haribhakti & Company Chartered Accountants Kalyaniwalla & Mistry Chartered Accountants

58

GROUP COMPANY

59

BANCASSURANCE PERNTER

60

Chapter - 3 Objectives and scope

61

OBJECTIVES OF THE STUDY This study is conducted in order to find out:1- Current trends of mutual funds in the Indian market. 2- Investors perception towards mutual funds investment option.
3- Different views of professional advisors.

4- To find out the Preferences of the investors for Asset Management Company. 5- To know the Preferences for the portfolios. 6- To know why one has invested or not invested in SBI Mutual fund 7- To find out the most preferred channel. 8- To find out what should do to boost Mutual Fund Industry.

62

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market. The research was carried on in AGRA. I had been sent at one of the branch of State Bank of India AGRA where I completed my Project work. I surveyed on my Project on the visiting customers of the SBI and various government channels. The study will help to know the preferences of the customers, which company, portfolio, mode of investment, option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.

63

Chapter 4 Research Methodology

64

RESEARCH METHODOLOGY
Objective of research; The main objective of this project is concerned with getting the opinion of people regarding mutual funds and what they feel about availing the services of financial advisors. I have tried to explore the general opinion about mutual funds. It also covers why/ why not investors are availing the services of financial advisors. Along with it a brief introduction to Indias largest financial intermediary, SBI has been given and it is shown that how they operate in mutual fund deptt Scope of the study: The research was restricted to Agra. I have visited people randomly nearby my locality, different shopping malls, small retailers $ all the local HDFC channels This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

Data sources:

65

Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various journals and websites.

Duration of Study:
The study was carried out from 15th JUNE TO 30th JULY, 2009.

Sampling:
Sampling procedure:

The sample was selected of them who are the customers/visitors of State Bank of India, Main Branch ,AGRA irrespective of them being investors or not or availing the services or not. It was also collected through personal visits to persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using mathematical/Statistical tool. Sample size:

The sample size of my project is limited to 200 people only. Out of which only 120 people had invested in Mutual Fund. Other 80 people did not have invested in Mutual Fund. Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc 66

Limitation:

Some of the persons were not so responsive. Possibility of error in data collection because many of investors may have not given actual answers of my questionnaire. Sample size is limited to 200 visitors of HDFC, Agra Branch, AGRA out of these only 120 had invested in Mutual Fund. The sample. size may not adequately represent the whole market.

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

The research is confined to a certain part of AGRA.

67

Chapter 5 Data Analysis & Interpretation

68

ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors of Agra

Age Group No. of Investors

<= 30 12

31-35 18

36-40 30

41-45 24

46-50 20

>50 16

Investors invested in Mutual Fund

35 30 25 20 15 10 5 0 <=30 31-35 36-40 41-45 46-50 >50 Age group of the Investors 12 18 30 24 20 16

Interpretation:

69

According to this chart out of 120 Mutual Fund investors of Agra the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 4145yrs i.e. 20% and the least investors are in the age group of below 30 yrs.

(b). Educational Qualification of investors of Agra

Educational Qualification Graduate/ Post Graduate Under Graduate Others Total Number of Investors 88 25 7 120

70

6% 23%

71%

Graduate/Post Graduate

Under Graduate

Others

Interpretation:

71

Out of 120 Mutual Fund investors 71% of the investors in Agra are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).

c). Occupation of the investors of Agra

Occupation
Govt. Service Pvt. Service Business Agriculture Others .

No. of Investors
30 45 35 4 6

50 No. of Investors 40 30 20 10 0 Govt. Service Pvt. Service Business 35 45 30 4 Agriculture 6 Others

Occupation of the customers

Interpretation:
72

In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in others .

(d). Monthly Family Income of the Investors of Agra. Income Group

<=10,000 10,001-15,000 15,001-20,000 20,001-30,000 >30,000 50 45 40 35 30 25 20 15 10 5 0

No. of Investors
5

12 28 43 32

No. of Investors

43 28 5 <=10 12 10-15 15-20 20-30 >30 32

Income Group of the Investorsn (Rs. in Th.)

Interpretation:
In the Income Group of the investors of Agra, out of 120 investors, 36% investors that is the maximum investors are in the monthly income group Rs. 73

20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000

(2) Investors invested in different kind of investments. Kind of Investments

Saving A/C

Fixed deposits Insurance Mutual Fund Post office (NSC) Shares/Debentures Gold/Silver Real Estate

No. of Respondents 195 148 152 120 75 50 30 65

Kinds of Investment

65
Po st O G Sa In ffi su vi ce old ng /S ra ( ilv nc NS A/ C) er e c

30 50 75 120 152 148 195 0 50 100 150 200 250

No.of Respondents

74

Interpretation: From the above graph it can be inferred that out of 200 people,
97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver and 32.5% in Real Estate.

3. Preference of factors while investing

Factors (a) Liquidity (b) Low Risk (c) High Return (d) Trust

No. of Respondents

40

60

64

36

75

18%

20%

32%

30%

Liquidity

Low R is k

H ig hR eturn

Trus t

Interpretation:

76

Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust

4. Awareness about Mutual Fund and its Operations

Response No. of Respondents

Yes 135

No 65

33%

67%

Y es 77

No

Interpretation:
From the above chart it is inferred that 67% People are aware of Mutual Fund and its operations and 33% are not aware of Mutual Fund and its operations.

5. Source of information for customers about Mutual Fund

Source of information Advertisement Peer Group Bank Financial Advisors No. of Respondents 18 25 30 62

7 0 6 0 5 0 4 0 3 0 2 0 2 5 1 0 1 8 0 Advertisem ent Peer Group

No. of R espondents

6 2 3 0 B a nk F ina ncia l Advisors

S ource of Inform a tion

Interpretation:
From the above chart it can be inferred that the Financial Advisor is the most important source of information about Mutual Fund. Out of 135 Respondents, 46% 78

know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement.

6. Investors invested in Mutual Fund

Response YES NO Total No. of Respondents 120 80 200

No 40%

Yes 60%

Interpretation:

79

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested in Mutual Fund.

7. Reason for not invested in Mutual Fund

Reason Not Aware Higher Risk Not any Specific Reason No. of Respondents

65 5 10

13%

6%

81%
Not Aware H ig her R is k Not Any

Interpretation:
Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason. 80

8. Investors invested in different Assets Management Co. (AMC) Name of AMC

HDFC UTI SBIMF Reliance ICICI Prudential Kotak Others

No. of Investors 30 75 55 75 56 45 70

Others HDFC Name of AMC Kotak SBIMF ICICI Reliance UTI 0 20 40 No. of Investors 60 30 45 55 56

70

75 75 80

Interpretation:
In Agra most of the Investors preferred UTI and Reliance Mutual Fund. Out of 120 Investors 62.5% have invested in each of them, only 46% have invested in SBIMF, 47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC. 81

9. Reason for invested in HDFC Reason

Associated with HDFC Better Return Agents Advice

No. of Respondents
35 5 15

27%

9%

6 4%

As s ociated with H D F C

B etter R eturn

Ag ents Advice

Interpretation:
Out of 55 investors of HDFC 64% have invested because of its association with Brand HDFC, 27% invested on Agents Advice, 9% invested because of better return.

82

10. Reason for not invested in HDFC Reason

Not Aware Less Return Agents Advice

No. of Respondents
25 18 22

34%

38%

28%
Not A w are L ess Return A g ent's A dvice

Interpretation:
Out of 65 people who have not invested in HDFC, 38% were not aware with HDFC, 28% do not have invested due to less return and 34% due to Agents Advice.

11. Preference of Investors for future investment in Mutual Fund Name of AMC No. of Investors
83

HDFC UTI SBIMF Reliance ICICI Prudential Kotak Others

35 45 76 82 80 60 75

Others K otak Nam e of AMC IC IC I Prudential R eliance H D F C UTI S BIMF 0 20 35 45 60

75

80 82

76 40 60 80 100

No. of Inves tors

Interpretation:
Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63% in SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund Investment

84

Channel No. of Respondents

Financial Advisor 72

Bank 18

AMC 30

25%

15%
F inancia l Advisor B a nk AMC

60%

Interpretation:
Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors

85

Mode of Investment No. of Respondents

One time Investment 78

Systematic Investment Plan (SIP) 42

35%

65%

One tim e Inves tm ent

S IP

Interpretation:
Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through Systematic Investment Plan.

14. Preferred Portfolios by the Investors Portfolio

86

No. of Investors

Equity Debt Balanced

56 20 44

37%

46%

17%

Equity

Debt

Balance

Interpretation:
From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17% preferred Debt portfolio

15. Option for getting Return Preferred by the Investors

87

Option No. of Respondents

Dividend Payout 25

Dividend Reinvestment 10

Growth 85

21%

8% 71%
Dividend Payout D ividend R einves tm ent Growth

Interpretation:
From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout and 8% preferred Dividend Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds Response No. of Respondents
88

Yes No

25 95

21%

79%

Y es

No

Interpretation:
Out of 120 investors, 79% investors do not prefer to invest in Sectoral Fund because there is maximum risk and 21% prefer to invest in Sectoral Fund.

89

Chapter 5 Findings $ Suggestion

Findings

90

 In AGRA in the Age Group of 36-40 years were more in numbers. The second most Investors were in the age group of 41-45 years and the least were in the age group of below 30 years. In Agra most of the Investors were Graduate or Post Graduate and below HSC there were very few in numbers. In Occupation group most of the Investors were Govt. employees, the second most Investors were Private employees and the least were associated with Agriculture. In family Income group, between Rs. 20,001- 30,000 were more in numbers, the second most were in the Income group of more than Rs.30,000 and the least were in the group of below Rs. 10,000. About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed Deposits, Only 60% Respondents invested in Mutual fund. Mostly Respondents preferred High Return while investment, the second most preferred Low Risk then liquidity and the least preferred Trust. Only 67% Respondents were aware about Mutual fund and its operations and 33% were not. Among 200 Respondents only 60% had invested in Mutual Fund and 40% did not have invested in Mutual fund.
91

 Out of 80 Respondents 81% were not aware of Mutual Fund, 13% told there is not any specific reason for not invested in Mutual Fund and 6% told there is likely to be higher risk in Mutual Fund. Most of the Investors had invested in Reliance or UTI Mutual Fund, ICICI Prudential has also good Brand Position among investors, HDFC places after ICICI Prudential according to the Respondents. Out of 55 investors of MF 64% have invested due to its association with the Brand HDFC, 27% Invested because of Advisors Advice and 9% due to better return. Most of the investors who did not invested in Mutual Fund due to not Aware of Mutual Fund , the second most due to Agents advice and rest due to Less Return. For Future investment the maximum Respondents preferred Reliance Mutual Fund, the second most preferred ICICI Prudential, HDFC has been preferred after them. 60% Investors preferred to Invest through Financial Advisors, 25% through AMC (means Direct Investment) and 15% through Bank. 65% preferred One Time Investment and 35% preferred SIP out of both type of Mode of Investment.

92

 The most preferred Portfolio was Equity, the second most was Balance (mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio. Maximum Number of Investors Preferred Growth Option for returns, the second most preferred Dividend Payout and then Dividend Reinvestment. Most of the Investors did not want to invest in Sectoral Fund, only 21% wanted to invest in Sectoral Fund.

Suggestions and Recommendations

93

 The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time. Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their
94

need and time (how long they want to invest). By considering these three things they can take the customers into consideration. Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off. Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality. Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.

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Chapter 6 Conclusion

Conclusion
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Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing. Brand plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, HDFC, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under Management is larger than others whose Brand name are not well known .

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

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QUESTIONNAIRE
A study of preferences of the investors for investment in mutual funds.
1. Personal Details: (a). Name:(b). Add: (c). Age:(d). Qualification:Graduation/PG Under Graduate Others Phone:-

(e). Occupation. Pl tick () Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (). Up to Rs.10,000 Rs. 10,001 to 15000 Rs. 15,001 to 20,000 Rs. 20,001 to 30,000 Rs. 30,001 and above

2. What kind of investments you have made so far? Pl tick (). All applicable. a. Saving account e. Post Office-NSC, etc b. Fixed deposits f. Shares/Debentures c. Insurance g. Gold/ Silver d. Mutual Fund h. Real Estate

3. While investing your money, which factor will you prefer? . (a) Liquidity (b) Low Risk (c) High Return

(d) Trust

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4. Are you aware about Mutual Funds and their operations? Pl tick ().

Yes

No

5. If yes, how did you know about Mutual Fund? a. Advertisement b. Peer Group c. Banks d. Financial Advisors Yes No

6. Have you ever invested in Mutual Fund? Pl tick (). 7. If not invested in Mutual Fund then why? (a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (). All applicable. a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. specify

9. If invested in HDFC, you do so because (Pl. tick (), all applicable). a. HDFC is associated with State Bank of India. b. They have a record of giving good returns year after year. c. Agent Advice 10. If NOT invested in HDFC, you do so because (Pl. tick () all applicable). a. You are not aware of HDFC. b. SBIMF gives less return compared to the others. c. Agent Advice 11. When you plan to invest your money in asset management co. which AMC will you prefer? Assets Management Co. a. SBIMF b. UTI c. Reliance d. HDFC e. Kotak f. ICICI

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12. Which Channel will you prefer while investing in Mutual Fund? (a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (). a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose? a. Having only debt portfolio b. Having debt & equity portfolio. c. Only equity portfolio.

15. How would you like to receive the returns every year? Pl. tick (). a. Dividend payout b. Dividend re-investment c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial funds? Please tick (). Yes No

BIBLIOGRAPHY
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NEWS PAPERS OUTLOOK MONEY TELEVISION CHANNEL (CNBC AAWAJ) MUTUAL FUND HAND BOOK FACT SHEET AND STATEMENT WWW.HDFC.COM WWW.MONEYCONTROL.COM WWW.AMFIINDIA.COM WWW.ONLINERESEARCHONLINE.COM WWW. MUTUALFUNDSINDIA.COM

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