INTRODUCTION

What is investment? Investment in terms of finance refers to the purchasing of securities or other financial assets from capital market. It also mean of buying money market or real properties with high market liquidity. Some examples are gold, silver, real estate and precious items. Financial investments are in stock, bonds, and other types of security investments. Indirect financial investment can also be done with the help of mediator or third parties, such as pension fund, mutual funds, commercial banks and insurance company. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country, bringing in their professional expertise in managing funds worldwide. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. Now investors have a wide range of Schemes to choose from depending on their individual profiles.

MUTUAL FUND

Mutual funds are a vehicle to mobilize moneys from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual fund and the investors. Mutual fund is a pool of money, which is collected from many investors by an assets management company to achieve some common objectives of the investors. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.

Passed back to

investors

Pool their money with

return

concept of mutual fund

fund manager

Generates securities

Invest in

HISTORY MUTUAL FUND

The first mutual funds were established in Europe. One researcher credits a Dutch merchant with creating the first mutual fund in 1774. The first mutual fund outside the Netherlands was the Foreign & Colonial Government Trust, which was established in London in 1868. It is now the Foreign & Colonial Investment Trust and trades on the London stock exchange. Mutual funds were introduced into the United States in the 1890s. They became popular during the 1920s. These early funds were generally of the closed-end type with a fixed number of shares which often traded at prices above the value of the portfolio. The first open-end mutual fund with redeemable shares was established on March 21, 1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds. However, closed-end funds remained more popular than open-end funds throughout the 1920s. By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets. After the stock market crash of 1929, Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. The Securities Act of 1933 requires that all investments sold to the public, including mutual funds, be registered with the Securities and Exchange Commission and that they provide prospective investors with a prospectus that discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires that issuers of securities, including mutual funds, report regularly to their investors; this act also created the Securities and Exchange Commission, which is the principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds, while the Investment Company Act of 1940 governs their structure. When confidence in the stock market returned in the 1950s, the mutual fund industry began to grow again. By 1970, there were approximately 360 funds with $48 billion in assets. The introduction of money market funds in the high interest rate environment of the late 1970s boosted industry growth dramatically. The first retail index fund, First Index Investment Trust, was formed in 1976 by The
3

Vanguard Group, headed by John Bogle; it is now called the Vanguard 500 Index Fund and is one of the world's largest mutual funds, with more than $100 billion in assets as of January 31, 2011. Fund industry growth continued into the 1980s and 1990s, as a result of three factors: a bull market for both stocks and bonds, new product introductions (including tax-exempt bond, sector, international and target date funds) and wider distribution of fund shares. Among the new distribution channels were retirement plans. Mutual funds are now the preferred investment option in certain types of fast-growing retirement plans, specifically in 401(k) and other defined contribution plans and in individual retirement accounts (IRAs), all of which surged in popularity in the 1980s. Total mutual fund assets fell in 2008 as a result of the credit crisis of 2008. In 2003, the mutual fund industry was involved in a scandal involving unequal treatment of fund shareholders. Some fund management companies allowed favored investors to engage in late trading, which is illegal, or market timing, which is a practice prohibited by fund policy. The scandal was initially discovered by then-New York State Attorney General Eliot Spitzer and resulted in significantly increased regulation of the industry. At the end of 2011, there were over 14,000 mutual funds in the United States with combined assets of $13 trillion, according to the Investment Company Institute (ICI), a trade association of investment companies in the United States. The ICI reports that worldwide mutual fund assets were $23.8 trillion on the same date. Mutual funds play an important role in U.S. household finances and retirement planning. At the end of 2011, funds accounted for 23% of household financial assets. Their role in retirement planning is particularly significant. Roughly half of assets in 401(k) plans and individual retirement accounts were invested in mutual funds Global mutual funds have been around for many years now but very few people seem to know about it or take it seriously. Let me try and give you a brief overview of these type of funds and answer to the all-important question as to whether you should consider this as your investment option or not.

INDIAN MARKET

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

GROWTH OF MUTUAL FUND IN INDIA

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 Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC 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
6

Rs.44,

541

crores

of

AUM

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 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.153108 crores under 421 schemes.

(www.amfiindia.com)

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

ABOUT MAJOR COMPANIES IN THE INDUSTRY

Axis Asset Management Company Ltd. Baroda Pioneer Asset Management Company Limited Birla Sun Life Asset Management Company Limited BNP Paribas Asset Management India Private Limited BOI AXA Investment Managers Private Limited Canara Robeco Asset Management Company Limited Daiwa Asset Management (India) Private Limited Deutsche Asset Management (India) Pvt. Ltd. DSP BlackRock Investment Managers Private Limited Edelweiss Asset Management Limited Escorts Asset Management Limited Franklin Templeton Asset Management (India) Private Limited Goldman Sachs Asset Management (India) Private Limited HDFC Asset Management Company Limited HSBC Asset Management (India) Private Ltd. ICICI Prudential Asset Mgmt.Company Limited IDBI Asset Management Ltd. IDFC Asset Management Company Limited IL&FS Infra Asset Management Limited India Infoline Asset Management Co. Ltd. Indiabulls Asset Management Company Ltd. ING Investment Management (India) Pvt. Ltd. JM Financial Asset Management Private Limited JPMorgan Asset Management India Pvt. Ltd. Kotak Mahindra Asset Management Company Limited(KMAMCL) L&T Investment Management Limited LIC NOMURA Mutual Fund Asset Management Company Limited Mirae Asset Global Investments (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt.Ltd. Motilal Oswal Asset Management Company Limited

Peerless Funds Management Co. Ltd. PineBridge Investments Asset Management Company (India) Pvt. Ltd. PPFAS Asset Management Pvt. Ltd. Pramerica Asset Managers Private Limited Principal Pnb Asset Management Co. Pvt. Ltd. Quantum Asset Management Company Private Limited Reliance Capital Asset Management Ltd. Religare Invesco Asset Management Company Private Limited Sahara Asset Management Company Private Limited SBI Funds Management Private Limited Sundaram Asset Management Company Limited Tata Asset Management Limited Taurus Asset Management Company Limited Union KBC Asset Management Company Private Limited UTI Asset Management Company Ltd
SOURCE: www.nseindia.com

10

Some Facts about Mutual Fund

100% growth in the last 6 years. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required.

We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products.

SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices. Introduction of Financial Planners who can provide need based advice.

11

KEY CONSTITUTE OF A MUTUAL FUND

Mutual funds structure in INDIA:

in INDIA open and close end funds are

constituted along one unique structure as unit trusts. A mutual fund may have several different schemes under it. Both open and close ended schemes are governed by the same regulations and the regulatory body SEBI Regulation, 1996. Thought there are many differences among various mutual funds, all mutual funds comprise of following four constitutes. They are:

SPONSOR

TRUSTEE

ASSETS MANAGEMENT COMPNY

CUSTODIAN
The Fund Sponsor Sponsor is defined under the SEBI regulations as any person who, acting alone or in combination with another body corporate, establishes a mutual fund. Sponsor must possess a sound financial track record over five year prior to registration. Sponsor could be a bank, a corporate or a financial institution. The sponsor must be profit making in at least 3 out of previous 5 years, including last year. Net worth (share capital + reserves & surplus) must be positive.

12

The Trustee The trustee is an independent body act as protector of the unit holder. The trust is crated through a document called trust deed that is executed by the fund sponsor in favor of the trustees. The role of the trustee is to safeguard the interest of the investor unit holder of the fund. The trustee makes sure that the fund is invested according to the investors objectives. Trustee of one mutual fund cannot be the trustee of another mutual fund. The board of the trustees is required to meet at least 4 times in a year to review the AMC. Assets Management Company The AMC is created by and its capital contributed by the sponsor. The AMC is appointed as fund managers of mutual fund by the trustees. The minimum worth of the AMC is must be rs.10 Crores at all time. Minimum of the directors must be independent. AMC of one fund cannot be trustee of another. Custodian Appointed by the board of trustees for safekeeping or participating in any clearing system through approved depository companies on behalf of mutual funds. The custodian should be an entity independent of the sponsor and is required to be registered with SEBI. Custodian function as investment back office of a mutual fund.

13

REGULATORY FRAMEWORK
Security Exchange board of India (SEBI) The Government of India constituted Securities and Exchange Board of India, by an Act of Parliament in 1992, the apex regulator of all entities that either raise funds in the capital markets or invest in capital market securities such as shares and debentures listed on stock exchanges. Mutual funds have emerged as an important institutional investor in capital market securities. Hence they come under the purview of SEBI. SEBI requires all mutual funds to be registered with them. It issues guidelines for all mutual fund operations including where they can invest, what investment limits and restrictions must be complied with, how they should account for income and expenses, how they should make disclosures of information to the investors and generally act in the interest of investor protection. To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. 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. 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 member. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical line enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives
14

of Association of Mutual Funds in India the Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors.

The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India does represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry AMFI undertakes all India awareness program for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

15

ADVANTAGES OF MUTUAL FUND Mutual funds have designed to provide maximum benefits to investors, and fund manager have research team to achieve schemes objective. Assets Management Company has different type of sector funds, which need to proper planning for strategic investment and to achieve the market return.

1) Portfolio Diversification Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).

2) Professional Management Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.

3) Less Risk Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

4) Low Transaction Costs Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors.

5) Liquidity An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid.

16

6) Choice of Schemes Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options

7) Transparency Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.

8) Flexibility Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.

9) Safety Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

DISADVANTAGES OF MUTUAL FUND

The mutual fund not just advantage of investor but also has disadvantages for the funds. The fund manager not always made profits but might creates loss for not properly managed. The fund have own strategy for investment to hold, to sell, to purchase unit at particular time period. 1) Costs Control Not in the Hands of an Investor Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund

17

2) No Customized Portfolios The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.

3) Difficulty in Selecting a Suitable Fund Scheme Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

18

TYPES OF MUTUAL FUND

Schemes according to Maturity Period A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-ended Fund/ Scheme An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity. Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors 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 the units 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 i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. Schemes according to Investment Objective A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

19

 Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a longterm outlook seeking appreciation over a period of time. Income / Debt Oriented Scheme 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, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

20

 Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate 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.NAVs of such schemes 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. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. Sector specific Funds/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
21

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. They may also seek advice of an expert. Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. E.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme. Fund of Funds (FoF) scheme A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe. Load or no-load Fund A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads into consideration while making investment as these affect their yields/returns. However, the investors should also consider the performance track record and service standards of the mutual fund which are more important. Efficient funds may give higher returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
22

Return
DIVERSIFIED INDEX BALANCED INCOME GILT MMMF

Risk
(Source: AMFI Mutual fund Module 2008)

23

INVESTMENT PLANS AND SERVICES Systematic Investment Plan (SIP) SIP is a vehicle offered by mutual funds to help investors save regularly. It is just like a recurring deposit with the post office or bank where you put in a small amount every month, except the amount is invested in a mutual fund. The minimum amount to be invested can be as small as 100 Rs. and the frequency of investment is usually monthly or quarterly. Systematic withdrawal plan SWP is the reverse of SIP. Where in SIP you look at accumulating a corpus by making regular investments into a fund, in SWP you regularly withdraw a fixed amount of money from a fund. The amount to be withdrawn and the frequency is fixed by the investor. So you can have a monthly, quarterly or annual frequency for any fixed amount that you wish to receive. Systematic Transfer Plan Investors can use Systematic Transfer Plan (STP) as a defence mechanism in volatile market. This plan is used to transfer investment from one asset or asset type into another asset or asset type. Systematic Transfer Plan is of two types; fixed STP, and capital appreciation STP.

Dividend payout option

When investing into a mutual fund, a fund house gives an option to an investor to express his way of receiving the returns in the mutual fund. These are called Payout options. Broadly, there are three options: Dividend Option Just like shares, mutual funds also declare dividends. These dividends are tax free in the hands of the investors and are sent to the investor via cheque (in case an investor opts for cheque payments) or credited directly into the bank account of the investor (in case an investor opts for the direct bank credit option).

24

 Growth Option If an investor has opted for Growth option, the mutual fund house shall not provide such an investor with regular dividends which it declares. However, it does not mean that the investor is at loss. The NAV of mutual funds invested with growth option does not decrease by the dividend amount, and hence indirectly the return of the investor is reflected in the form of higher NAVs. Dividend Reinvestment This option is a hybrid between Growth Option and Dividend Option. Just like a Dividend Option, the mutual fund house declares a dividend on the scheme. The NAV of the scheme gets reduced by the extent of dividend. However, instead of paying out the dividend in cash, the mutual fund invests the dividend at the exdividend NAV in the same scheme.

25

MUTUAL FUND V/S OTHER INVESTMENT AVENUES

1) Company Fixed Deposits v/s mutual fund

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This amount today would get you less than quarter of an Infosys share! Thus it would be affordable for an investor to build a portfolio of investments through a mutual fund rather than investing directly in the stock market.

2) Bank Fixed deposits v/s mutual fund

Bank Fixed deposits are similar to company fixed deposits excepting that the Bank FDs are safer and chances of default are very less. Banks operate under stringent requirements regarding Statutory Liquidity Ration (SLR) and Cash Reserve Ratio (CRR). Further, Deposit Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits.

3) Bonds and Debentures v/s Mutual fund

Credit rating of a bond is an indication of the inherent default risk in the investment. However unlike fixed deposits, bonds and debentures are transferable securities. If security does not get traded in the market, then the liquidity remains on paper. In this respect an open-end mutual fund scheme offering continuous sale / repurchase option is superior.

There could be capital gain / capital loss to investor in case of an early exit,
because the investment is subject to market risk. This is normally less in Mutual fund as the investment is made in basket of funds and hence your investment gets diversified.
26

4) Equity v/s Mutual fund

It is not possible for a common man to lay his hands on all that information needed to make an equity investment. Mutual fund handled by professionals makes prudent investment decisions.

Mutual fund investment offers diversification irrespective of the size of

investment. Individual investor investing in equity scheme may not have this advantage especially if he does not have that sort of investible funds.

5) Life insurance v/s Mutual Fund

Life insurance is hedge against risk and not really an investment option. But occasionally, on account of miss-pricing of products in India, life insurance products have offered a return that is higher than a comparable safe fixed return security thus, you are effectively paid for getting insured.

27

Risk with Mutual fund

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. A fund's investment objective and its holdings are influential factors in determining how risky a fund is. Risk and potential return are related. This is the risk/return trade-off. Higher risks are usually taken with the expectation of higher returns at the cost of increased volatility. While a fund with higher risk has the potential for higher return, it also has the greater potential for losses or negative returns. The school of thought when investing in mutual funds suggests that the longer your investment time horizon is the less affected you should be by short-term volatility. Therefore, the shorter your investment time horizon, the more concerned you should be with short-term volatility and higher risk. Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk defined as industry risk.

28

Following is a risk to consider when investing in mutual funds. Call Risk. The possibility that falling interest rates will cause a bond issuer to redeemor callits high-yielding bond before the bond's maturity date. Country Risk. The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause investments in that country to decline. Currency Risk. The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk. Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates. Industry Risk. The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. Interest Rate Risk. The possibility that a bond fund will decline in value because of an increase in interest rates. Manager Risk. The possibility that an actively managed mutual fund's investment adviser will fail to execute the fund's investment strategy effectively resulting in the failure of stated objectives. Market Risk. The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall. Principal Risk. The possibility that an investment will go down in value, or "lose money," from the original or invested amount.

29

Company Profile

Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life insurance, to investment banking, the group caters to the financial needs of individuals and corporate. The group has a net worth of Rs.7,911 crores and employs around 20,000 employees across its various businesses, servicing around 7 million customer accounts through a distribution network of 1,716 branches, franchisees and satellite offices across more than 470 cities and towns in India and offices in New York, California, San Francisco, London, Dubai, Mauritius and Singapore

BUSINESS
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of Kotak Mahindra bank Limited (KMBL), is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December 1998 and has over 10 Lac investors in various schemes. KMMF offers schemes catering to investors with varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme investing only in government securities. The company is present in 76 cities and has 79 branches.

30

PURPOSE
Our vision is to be a responsible player in the Indian mutual fund space, always striving to offer best in class products across investor lifecycle. We strive hard to deliver consistent performance over the benchmark across all our products, thereby creating customer satisfaction. Our 12 years of existence offering a broad range of investment products across asset classes with varying risk parameters that cater to needs of various customer segments, have enabled us to garner trust of over 10 lack investors.

Product of Kotak Mutual Fund

EQUITY FUND
KOTAK 50 KOTAK OPPORTUNITIES KOTAK TAX SAVER KOTAK MID CAP KOTAK BALANCE KOTAK CLASSIC EQITY KOTAK SELECT FOCUS FUND KOTAK EQUITY FOF KOTAK GLOBLE EMERGING MAKET FUND KOTAK EMERGING EQUITY KOTAK EQUITY ARBITRAGE

DEBT FUND
KOTAK GILT SAVING KOTAK GILT INVESTMENT KOTAK MULTI ASSET ALLOCATION FUND KOTAK MONTHLY INCOME PLAN KOTAK BOND KOTAK BOND SHORT TERM KOTAK INCOME OPPORTUNITIES FUND KOTAK FLOATER LONG TERM KOTAK FLOATER SHORT TERM KOTAK FLEXI DEBT KOTAK LIQUID

ETF Scheme
KOTAK GOLD ETF KOTAK PSU BANK ETF KOTAK SENSEX ETF KOTAK NIFTY ETF

31

INTRODUCTION OF THE STUDY

The subject is a comparative study investing about investment option of mutual funds v/s other investment for KOTAK MUTUAL FUND. The aim of this project is to identify which is a better option for investors at large when it comes to mutual funds and other investments. The market does not remain static overtime and hence the research was conducted taking into account what the people prefer among the two options and in which they want to invest so that they would be able to get more return and also less risk. From this we shall come to know what people prefer and where they want to invest their money and also with whose guidance.

32

LITERATURE REVIEW

1) NALINI PRAVA TRIPATHY The Indian capital market has been increasing tremendously during last few years. With the reforms of economy, reforms of industrial policy, reforms of public sector and reforms of financial sector, the economy has been opened up and many developments have been taking place in the Indian money market and capital market. In order to help the small investors, mutual fund industry has come to occupy an important place. The main objective of this paper is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds and suggest some measures to make it a successful scheme in India. With the structural liberalization policies no doubt Indian economy is likely to return to a high grow path in few years. Hence mutual fund organizations are needed to upgrade their skills and technology. Success of Mutual fund however would bright depending upon the implementation of Suggestions.

2) Bhagaban Das, Sangeeta Mohanty, Nikhil Chandra Shil During the post 1990 period, service sector in most of the Asian economies witnessed growth fueled by significant changes in their financial sector. India is now being ranked as one of the fastest growing economy of the world. During last one decade or so, role of Indian insurance and mutual fund industry as a significant financial service in financial market has really been noteworthy. In fact since 1992, a number of research studies have underlined the importance of these two in the Indian capital market environment as important investment vehicles. But the existing Behavioral Finance studies on factors influencing selection of mutual fund and life insurance schemes are very few and very little information is available about investor perceptions, preferences, attitudes and behavior. Yet again, perhaps no efforts are made to analyze and compare the selection behavior of Indian retail investors towards mutual funds and life insurances particularly in post-liberalization period. With this background this paper makes an earnest attempt to study the behavior of the investors in the selection of these two investment vehicles in an Indian perspective by making a comparative study.

33

3) Kristie Lorette (Money Market vs. Mutual Fund) Money market accounts and money market mutual funds have some similarities, but investors need to review the distinctions carefully to ensure they make the best investment decision. Both options provide yields, but the rate of yield and the rate of risk vary. For investors looking to protect their assets while acquiring a gain on them, deciding between a money market account and a money market mutual fund requires an understanding of the gain, the risk, the fees and the intended time period for the investment. 4) L. Rajarajeswari Each investment alternative has its own strengths and weaknesses. Some options seek to achieve superior returns (like equity), but with corresponding higher risk. Other provide safety (like PPF) but at the expense of liquidity and growth. Other options such as FDs offer safety and liquidity, but at the cost of return. Mutual funds seek to combine the advantages of investing in arch of these alternatives while dispensing with the shortcomings. It would be good to diversify one's portfolio to include equity mutual funds and stocks. The benefit of diversification are that while risk exposure from a particular asset may not be very high, it would also give the opportunity of participating in the party in the equity markets- which may have just begun- in a relatively safe manner(than investing directly into stock markets). Mutual funds are one of the best options for investors to choose from. It must be realized that the performance of different funds varies time to time. Evaluation of a fund performance is meaningful when a fund has access to an array of investment products in market.

34

5) Nikhil Chandra Shil (Mutual Fund vs. Life Insurance)

During the post 1990 period, service sector in most of the Asian economies witnessed growth fueled by significant changes in their financial sector. India is now being ranked as one of the fastest growing economy of the world. During last one decade or so, role of Indian insurance and mutual fund industry as a significant financial service in financial market has really been noteworthy. In fact since 1992, a number of research studies have underlined the importance of these two in the Indian capital market environment as important investment vehicles. But the existing Behavioral Finance studies on factors influencing selection of mutual fund and life insurance schemes are very few and very little information is available about investor perceptions, preferences, attitudes and behavior. Yet again, perhaps no efforts are made to analyze and compare the selection behavior of Indian retail investors towards mutual funds and life insurances particularly in post-liberalization period. With this background this paper makes an earnest attempt to study the behavior of the investors in the selection of these two investment vehicles in an Indian perspective by making a comparative study.

35

BACKGROUND OF THE STUDY

Today there are plenty of investment avenues open. Some of them include banks deposits, bonds, stocks, mutual fund investments and corporate debentures. Investors may invest money in banks, bonds and corporate debentures where the risk is low and so are the returns. On the contrary, stocks of companies have high risk but the returns are also proportionately high. It is important to understand the benefits of mutual funds before investing the money you really care about. Here are a lot of investment avenues available today in the financial market for an investor with an investable surplus. The recent trends in the Stock Market have shown that an average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. However they proved too costly for a small investor. These investors have found a good shelter with the mutual funds. The study comprise about comparative analysis of various investment option with mutual fund.

36

 PROBLEM STATEMENT A STUDY ON COMPARATIVE ANALYSIS OF MUTUAL FUND AND OTHER AVENUES IMPORTANCE OF STUDY

All investment involves risk in varying degrees and hence it is necessary to understand risk and now how it can affect investors investments. Investors should consider tradeoff between risk and return. There are also risks which are not in control like inflation risk. Credit risk, risk pertaining to political environment for instance, in present due to inflationary financial system, investments has lost their interest income as additional income, which can help for growth of their capital due to higher inflation rate. In short, in the current situation there is rare chance for growth of inventors actual capital (investment) if he goes for the traditional source of investment. Mutual fund is indeed of great benefits in this respect. They provide the services of experienced and skilled professional who determine this risk and monitor them ongoing basis. They are also backed by through research. The investors with good knowledge and traditional finance can invest the finance easily in stock market and earn a good profit. There is a high liquidity and flexibility in stock market so the profitable opportunitys advantage can be taken. When investors are confronted with an outstanding range of products, form traditional bank deposits to downright shady money-multiples schemes, it has to be judge on the yardsticks of returns, liquidity, safety, convenience and tax efficiency. An important question facing many investors across the country today is whether one should invest on a bank fixed deposit the amount with the debit-oriented Mutual fund. The objective behind the data collection was to compare the various investment avenues with mutual fund and find out risk associated with it, return, safety and liquidity.

37

 OBJECTIVE OF THE STUDY

To aware the customer about mutual fund. To know the risk involved in investing in mutual fund and investment segment To know which one is better option for investment. To know the reasons why the investors invest in Mutual Funds. To know the factors affecting investment decisions. various

38

 RESEARCH DESIGN For this topic, here descriptive research design is used. Research Design is done mainly based on survey which is done by using questionnaire rolled out to know the views of investors. The analysis is based on the information gathered through questionnaire.

SOURCE OF THE DATA Primary Data Secondary data

DATA COLLECTION METHOD Personal data collection method is used

POPULATION

Population is Investor of Surat city SAMPLING SIZE

75 questionnaires DATA COLLECTION INSTRUMENT

Questionnaire

39

DATA ANALYSIS & INTERPRETATION

3. Age Below 25 12 26 to 40 43 41 to 55 20 above 55 0

AGE
age Below 25 age 26 to 40 0% 27% 16% age 41 to 55 age above 55

57%

Age also affect while considering investment decision because below 40 year will go for somewhat risk but above 40 year people always think about steady income.

From the above chart its clearly indicate that 57% of the respondent are between 26 to 4o year who wants to do investment or invested his or her some percentage income i.e. 43 people are in class of 26 to 40 year.

27% respondents are below 27% and 16% respondents are between 41 to 55 year.

40

4. Occupation

Self - Employed 25

Salaried 46

Retired 4

Occupation
5% 34% Occupation Self - Employed

Occupation Salaried
Occupation Retired 61%

According to Survey 25 respondents have their own business and 46 respondents are salaried person. It also includes the retired person i.e. 4. Most of the respondents are salaried i.e. More than 50% respondents are salaried which contain 61% of overall survey. while 34% are self-employed and 5% are retired.

41

5. Monthly income less than 15,000 13 15,000 to 25,000 32 25,000 to 35,000 20 above 35,000 10

Monthly Income
35
30 No. of Respondents 25 20 20 15 10 5 0 less than 15,000 15,000 to 25,000 25,000 to 35,000 Income ('000) above 35,000 13 10 32

Income is most important factor while we think about investment or saving. In simple word, on averages who have income in between 15,000 to 25,000 or more than that slab will think about investment. 13 respondents have their monthly income is less than 15,000. 32 respondents have their monthly income is in between 15,000 to 25, 000 and 20 respondents have their monthly income is between 25,000 to 35,000. There is 10 respondents who have their monthly is above 35,000.

42

6. Are you aware about mutual fund?

Yes 69 No 6

Aware About MF
No 8%

Yes 92%

92% respondents are aware about mutual fund i.e. 69 respondents are aware about mutual fund only 8% people are not aware about mutual fund.

43

7. If yes, through which medium do you know?

AMC 38

Friends Advertisement Magazine Internet 17 11 3 0

Which Medium
40
35 No. of Respondents 30 25 20 15 10 5 0 AMC Friends Advertisement Magazine 16 12 38

3
0 Internet

Medium

This chart indicates that through which medium people know about mutual fund, most of the people know about mutual fund is through AMC (Asset Management Company). From the above study more than 50% respondent know about mutual fund through AMC. It shows that AMC doing work hard in the field of mutual fund to make aware about mutual fund to people. 16 people know about mutual fund through friends and 12 respondents know about mutual fund through advertisement and only 3 people know through magazine.

44

8. Have you invested in mutual fund?

Yes 61

No 14

Invested in MF
Yes No

31% 69%

Around 31% respondents said that still they do not invested in mutual fund and they given many reason like they were not aware about mutual fund and they have invested in other financial product like Equity, Fixed deposit and so on. 69% respondents who are all ready know about mutual fund and they have invested his/her money in mutual fund.

45

9. In which fund you prefer to invest?

Equity 3

Debt 15

Liquid 9

Tax saving 3

Investment Fund
34 No. of respondents

15 9 3 Equity Debt Funds Liquid Tax saving

Most of the respondents are investing their money in Equity related scheme because equity gives high return which contains high risk also. 34 respondent investing in equity related fund. 15 respondents are investing in debt fund and 9 respondent investing in liquid fund only 3 respondent said that they invested his money in tax saving. This chart indicates that most of the respondent wants return and they are ready to bear risk also. Mostly people investing in equity related fund and debt fund.

46

10. What is the average tenure of your investment? less than 1 year 9 1 year to 3 year 24 3 year to 5 year 27 above 5 year 1

30 24
25 20 no. of respondents 15 9 10 5 0 less than 1 year 1 year to 3 year

27

1 3 year to 5 year above 5 year

year

Above chart indicates that how much respondents are investing in different fund. And only 1 respondent who has invested his money for more than 5 year. 27 people invested their money in 3 to 5 year tenure, 24 people invested in 1 to 3 year tenure. Only 9 people invested for less than one year. Most of the people investing for 2 to 5 year.

47

11. How much return do you expect from your investment? Less than More than 1 year & More than 3 year 1 year less than 3 year & less than 5 year 5% - 10% 49 19 7 10% - 15% 17 42 7 15%-20% 3 39 21 ABOVE 20% 0 11 19 More than year 0 9 12 45 5

EXPECTED RETURN
50 45 40 35 30 25 20 15 10 5 0 LESS THEN 1 YEAR MORE THAN 1 MORE THAN 3 MORE THAN 5 YEAR & LESS YEAR & LESS YEAR THAN 3 YEAR THAN 5 YEAR

5% - 10% 10% - 15% 15%-20% ABOVE 20%

This chart show expected return investor want to get during different time slab. Less than 1 year 49 respondents said that if investment is less than 1 year than expected return is in between 5% to 10%. 17 respondents say that their average expected return is 10% -15% 3 respondents expect 15%-20% return. More than 1 year and less than 3 year 42 respondents want 10% -15% returns if the tenure is more than 1 year and less than 3 year.

48

 19 respondents said it is ok if the return is 5% to 10%. 39 people expect return is in between 15% -20% and 11 respondents said expected return is above 20%. More than 3 year and less than 5 year 14 respondents expect return 5% to 10%. 21 respondents expect return 15% to 20% and 19 respondents will satisfy if the return is above 20%.

More than 5 year Is the investment is more than 5 year than expected return is more than 20%. 12 people respond that they expect return is 15% to 20%.

49

12. Which other investment product do you invest?

Gold 21

Equity 17

Real Estate 8

Bonds 3

fixed Deposit 9

Mix 17

Other Investment Products

21 17 17

no. of Respondents

8 3

Gold

Equity

Real Estate

Bonds

fixed Deposit

Mix

This study indicates that most of the people invest their money in combination of all products like gold, fixed deposit, real estate, equity and bond. In India, people are crazy to but gold whether it is jewelry, gold coin or anything else which contain gold. 21 respondents purchase gold as an investment option and 34 people have invested in equity and mix of the entire financial product. 8 respondents have invested in real estate as an investment and 9 respondents do fixed deposit.

50

13. How much return did you get from your past investment?

5% to 10% 23

10% to 15% 37

15% to 20% 14

Above 20% 1

Return from past investment

40 35 30 25 No. of Respondents 20 15 10 5 0 5% to 10% 10% to 15% 15% to 20% Above 20% Return 1 23 37

14

23 respondents get 5% to 10% return from their past investment whether it is in any of the financial products. 37 respondents get return from their investment is about 10% to 15%. And 14 people cover return is on an average is belong to 15% to 20% interval.

51

14. What factor do you consider while making investment?

Return 21

Risk 14

Safety 22

Liquidity More than 1 Factor 2 15

factors
Return Safety Risk Lquidity

20% 28% 3%

30%

19%

Different people consider different factor which affect mostly during thinking about investment. 28% respondents think about return while investment whether it is in mutual fund, equity, gold or any of the product. 19% respondents are thinking about risk it indicate that if any of the investment which contain high risk than they think twice before investing money. If the risk is moderate to low than it will considered as a liberal side. 30% respondents are want safe their money when do investment. 3% said they investment will contain liquidity that whenever they want money they can easily get. 20% respondents consider more than one factor when think about investment.

52

15. Rate the Financial Product.

Equity Return Risk Safety Liquidity 53 46 10 48 14 19 15 15 8 10 50 12 50 40 30 47

MUTUAL FUND 17 30 25 21 8 5 20 7

Real Estate 15 7 20 3 29 15 37 10 31 53 18 62 6 7 42 11

Fixed Deposit 26 15 16 19 43 53 17 45 36 20 17 46 Gold 21 18 31 24 11 47 17 12

RATING OF FINANCIAL PRODUCT

70

60
50 40 30 20 10 0 Equity MUTUAL FUND Reat Estate Fixed Deposit Gold

Equity 53 respondents said that equity gives high return and 14 says that return is high and 8 says return is average to low. 46 say risk is also very high. 50 respondents mark safety is moderate to low. 48 say liquidity is highly satisfactory. From the above study is concluding that equity give high return but also contain high risk and safety also average while liquidity is also very high.

53

Mutual fund Mutual fund is also giving very good return this thinks believe 50 respondents. 40 people says that risk is also very high and 30 people thinking that risk is high 5 respondent rate mutual fund is average risky to low. Most of the people think that mutual fund is safe than equity i.e. 25 people says that safety is high 30 people says that safety is very high. 47 respondents says that liquidity is very high 21 respondents believe that mutual fund is highly liquid.

Real Estate Real estate is fixed assets and more than 50% say return is moderate to low not that much higher than equity and mutual fund gives. 53 respondents believe that risk is also moderate to low because it not contains volatility like stock market. It is also safer side like 37 respondents says that safety is high. More than 50% says that liquidity is average to very low because you cannot easily trade it.

Fixed deposit 46 respondents are rate the fixed deposit is on an average return giving product because interest rate is fixed. 53 respondents say that risk is also low because is not depending on market volatility. More than 50% respondents rate fixed deposit as a safe investment. 45 people respond that liquidity in fixed deposit is not highly liquid financial product.

Gold 36 people say that gold give very high return 18 says that return is moderate to low. 20 respondents think that risk is very high but on other side 24 respondents says risk is moderate to low and other remaining says it is high.

54

 47 people say that gold is not safe like other products may it stolen or damage. 46 people sys liquidity is also very high whenever you trade in the market it will easily tradable. This study indicates that its depending on investors perception that how he/she take product as any investment. One side where equity gives high return than it also covers very high risk. But liquidity is also very high. And other side product likes fixed deposit which contains moderate return and low risk. Real estate is also containing high return and risk is also low but liquidity is low. And gold cover good return, lower risk but safety is not high.

55

16. Rank the following Investment option in order of your preference.

Equity 3

Mutual fund 2

Real estate 4

Fixed deposit 1

Gold 5

OVERALL RANKING
5
5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 EQUITY MUTUAL FUND REAL ESTATE FIXED DEPOSIT GOLD 2 3 4

According to the study it concludes that most of the people investing money in fixed deposit and mutual fund. Mutual fund and fixed deposit is also highly preferable investment option equity and real estate is also preferable and gold is least preferred.

56

RESULT & FINDING

According to study most of the people think is belong to 25 to 40 year age class it shows that they have at least minimum capability to bear the risk. Most of the respondents are salaried and self employed who can invest money in different financial product. Monthly income is on an average 15,000 to 25,000 rs. When come to mutual fund than most of the respondents of the survey are aware the basic thing which mainly focuses in mutual fund and explain concept of mutual fund. Most of the people know about mutual fund through AMCs and friends rather than any other different medium. The person who know about mutual fund they investing in it because of some basic advantage which give only mutual fund not any of the financial product like tax benefit, risk diversification. Four fund are available in mutual fund is equity, debt, liquid, tax saving and only most of the people invest in equity fund only because it gives return while if the person earning in particular tax slab than tax saving is beneficiary but it have 3 year lock in period. If person want to get good return than average tenure of investment in mutual fund is more than 3 year when especially investment in equity related fund. But in liquid fund less than 1 year investment is most preferred. If the investment is less than 1 year than expected return is 5% to 10% and if the investment is more than 1 year and less than 3 year than expected return is 10% to 15%, if investment tenure is more than 3 year and less than 5 year than expected return is 15% to 20% but when investment for more than 5 year than return also expected to reach at above 20%. The people who are very conscious about return and risk they always go for that kind of investment which gives steady income. Most of the people think about return and risk while some of are thinking about safety and liquidity. According to different want and thought every individual think differently.

57

LIMITATION OF THE STUDY Study contains only 75 respondents which cannot include the all surat city investors response. When any respondent give response it contain biasness no one give true response. Most of the people in Surat city are not know about mutual fund and its concept. Most of the people think that fixed deposit is sate investment but they dont think whether any other product available in the market for investment. Limited knowledge as compare to exports regarding comparative investment avenues. Time is major constrain for study because of limitation if the time no more respondents are covered. This project covers only four factors which affect investors perception but there also so many factors which considered while comparing financial products.

58

CONCLUSION

This project covers entire study of comparison of all financial products with special reference to mutual fund. Risk is low as compare to equity because mutual fund invest not only in one sector or company it collect the money from investors and invest in different sectors and companies.

People always think about future return so they always invest in that avenue which gives better return than other and mutual fund is good option if person will invest in long term fund.

59

SCOPE OF FUTURE STUDY

Every project have some limitation whether it is time, sample size, location or else. In India, mutual fund concept is newly introduced and so many people are not aware about it. This is the scope that try to aware people about mutual fund and whatever negative thought they have in their mind try to convert in positive side.

60