TITLE PROJECT REPORT

A STUDY ON Consumer Behaviour Towards Mutual Funds

SUBMITTED BY Name: GARIMA Roll No: 12912FEMBINB0004

EXECUTIVE MASTERS IN BUSINESS ADMINSTRATION YEAR 2013-2014

SUBMITTED TO

KARNATAKA STATE OPEN UNIVERSITY MYSORE.

EDUPROZ INSTITUTE OF PROFESSIONAL STUDIES LC CODE-.. SECTOR-7 DWARKA NEW DELHI

STUDENT DECLARATION

I hereby declare that the Dessertation Entitled CONSUMER BEHAVIOUR TOWARDS MUTUAL FUNDS.

Submitted in partial fulfillment EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION

Degree Program

From KARNATAKA STATE OPEN UNIVERSITY, is my original work and not submitted for the award of any other degree, diploma, fellowship, or any other similar title or prizes.

Place:.. Date..

Sign Reg.No

CERTIFICATE

This is to certify that the report entitled A STUDY ON CONSUMER BEHAVIOR TOWARDS MUTUAL FUNDS is submitted in partial fulfillment

EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION Degree From From KARNATAKA STATE OPEN UNIVERSITY,

Garima is the student of Eduproz Institute Of Professional Studies.Has worked under my supervision and guidance .He/She has successfully completed the Project and report submitted is satisfactory.

No part of this report has been submitted for the award of any other degree, diploma, fellowship or the other similar titles or prizes and the work has not been published in any journal or Magazine.

Registration No

(HOD Academics)

EXAMINERS CERTIFICATION

The Dessertation submitted entitled Consumer Behaviour Towards Mutual Funds is approved and is acceptable in quality and form.

(Internal Examiner) *

(External Examiner)

DECLARATION

I, GARIMA, do hereby declare that this project work entitled CONSUMER BEHAVIOUR TOWARDS MUTUAL FUNDS is an outcome of my study and is submitted in partial fulfillment of the requirement for the award of the degree of Executive Master of Business Administration, Karnataka state Open University.

I also declare that this report has not been submitted by me fully or partially for the award of any degree, diploma, title, recognition or any other fellowship of any other university before.

Place: NEW DELHI Date: GARIMA

ACKNOWLEDGEMENT

Initially, let me thank the almighty God for guiding me all through the project work. I express my deep and sincere gratitude to Ms. Meenakshi, Faculty guide for providing the necessary assistance for the project. I sincerely acknowledge my gratitude to, Branch Manager of Standard Chartered Bank Ltd, branch and Mr. Bhupesh Harjai, Sales Manager for giving me an opportunity to do this project. I also owe my sincere thanks to all the staff in Standard Chartered Bank Ltd, branch, and the faculties of the Department of Executive Master of Business Administration, eduproz for their valuable guidance and suggestion in the preparation of this report and completing the same successfully.

STANDARD CHARTERED BANK

CONSUMER BEHAVIOUR TOWARDS MUTUAL FUNDS

EDUPROZ INSTITUTE OF PROFESSIONAL STUDIES

PREPARED BY: Garima ROLL NO: 12912FEMBINB0004

TABLE OF CONTENTS

TOPIC ACKNOWLEDGEMENT EXECUTIVE SUMMARY INTRODUCTION TO STANDARD CHARTERED BANK INTRODUCTION TO MUTUAL FUNDS WHAT IS A MUTUAL FUND ORGANISATION OF A MUTUAL FUNDS CHARACTERSTICS & OBJECTIVES OF MUTUAL FUNDS STRUCTURE OF A MUTUAL FUND HISTORY OF MUTUAL FUNDS IN INDIA TYPES OF MUTUAL FUNDS ADVANTAGES OF MUTUAL FUNDS DISADVANTAGES OF MUTUAL FUNDS MUTUAL FUNDS INVESTING STRATEGIES RISK ASSOCIATED WITH MUTUAL FUNDS METHODS OF MEASURING RISK HOW TO CALCULATE VALUE OF A MUTUAL FUND RETURNS TAX TREATMENT How Is A Mutual Fund Set Up? ASSOCIATION OF MUTUAL FUNDS 9 10 12 9 11 13 15 16 17 19 24 25 26 27 29 30 33 38 42 43

PAGE NO.

TIPS ON BUYING MUTUAL FUNDS STANDARD CHARTERED MUTUAL FUND PROBLEM DEFINITION RESEARCH METHODOLOGY ANALYSIS OF THE REPORT FINDINGS AND OBSERVATION QUESTIONNAIRE BIBLOGRAPHY

45 78 81 82 83 149 162 169

EXECUTIVE SUMMARY
Standard Chartered Bank

Standard Chartered Bank is a British bank headquartered in London with operations in more than seventy countries. It operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people.

Because the bank's history is entwined with the development of the British Empire its operations lie predominantly in former British colonies, though over the past two decades it has expanded into countries that have historically had little British influence. It aims to provide a safe regulatory bridge between these developing economies.

It now focuses on consumer, corporate, and institutional banking, and on the provision of treasury servicesareas in which the Group had particular strength and expertise.

Standard Chartered is listed on the London Stock Exchange and the Hong Kong Stock Exchange and is a constituent of the FTSE 100 Index. Its largest shareholder is Temasek Holdings.

The Early Years

The name Standard Chartered comes from the two original banks from which it was founded and which merged in 1969 The Chartered Bank of India, Australia and China, and The Standard Bank of British South Africa.

The Chartered Bank was founded by Scotsman James Wilson following the grant of a Royal Charter by Queen Victoria in 1853, while The Standard Bank was founded in the Cape Province of South Africa in 1862 by another Scotsman John Paterson. Both

companies were keen to capitalize on the huge expansion of trade and to earn the handsome profits to be made from financing the movement of goods from Europe to the East and to Africa.

In those early years, both banks prospered. Chartered opened its first branches in Bombay, Calcutta and Shanghai in 1858, followed by Hong Kong and Singapore in 1859. [2] With the opening of the Suez Canal in 1869 and the extension of the telegraph to China in 1871, Chartered was well placed to expand and develop its business.

In South Africa, Standard, having established a considerable number of branches was prominent in financing the development of the diamond fields of Kimberley from 1867 and later extended its network further north to the new town of Johannesburg when gold was discovered there in 1885. Half the output of the second largest gold field in the world passed through The Standard Bank on its way to London. Both banks at that time still quite separate companies survived the First World War and the Depression, but were directly affected by the wider conflict of the Second World War in terms of loss of business and closure of branches. There were also longer term effects for both banks as countries in Asia and Africa gained their independence in the 50s and 60s.

Each had acquired other small banks along the way and spread their networks further. In 1969, the banks decided to merge, and to counterbalance their existing network by expanding in Europe and the United States, while continuing their expansion in their traditional markets in Asia and Africa. All appeared to be going well, when in 1986 Lloyds Bank of the United Kingdom made a hostile takeover bid for the Group.

10

After having defeated the bid, Standard Chartered entered a period of change. It made provisions against Third World debt exposure and loans to corporations and entrepreneurs who could not meet their commitments. It also began a series of divestments notably in the United States and South Africa, and entered into a number of asset sales.

INTRODUCTION
In 2000, Standard Chartered acquired Grind lays Bank from ANZ Bank, increasing its presence in private banking and further expanding its operations in India and Pakistan. Standard Chartered retained Grind lays' private banking operations in London and Luxembourg and the subsidiary in Jersey, all of which it integrated into its own private bank. This now serves high net worth customers in Hong Kong, Dubai, and Johannesburg under the name Standard Chartered Grind lays Offshore Financial Services. In India, Standard Chartered integrated most of Grind lays' operations, making Standard Chartered the largest foreign bank in the country, despite Standard Chartered having cut some branches and having reduced the staff from 5500 to 3500 people.

On 15 April 2005, the bank acquired Korea First Bank, beating HSBC in the bid. Since then the bank has rebranded the branches as SC First Bank.

Standard Chartered completed the integration of its Bangkok branch and Standard Chartered Nakornthon Bank in October, renaming the new entity Standard Chartered Bank (Thailand). Standard Chartered also formed strategic alliances with Fleming Family & Partners to expand private wealth management in Asia and the Middle East, and acquired

11

stakes in ACB Vietnam, Travelex, American Express Bank in Bangladesh and Bohai Bank in China.

On 9 August 2006 Standard Chartered announced that it had acquired an 81% shareholding in the Union Bank of Pakistan in a deal ultimately worth $511 million. This deal represented the first acquisition by a foreign firm of a Pakistani bank and the merged bank, Standard Chartered Bank (Pakistan), is now Pakistan's sixth largest bank.

On 22 October, 2006 Standard Chartered announced that it has received tenders for more than 51 per cent of the issued share capital of Hsinchu International B ank (Hsinchu), established in 1948 in Hsinchu province in Taiwan. Standard Chartered, which had first entered Taiwan in 1985, acquired majority ownership of the bank, Taiwans seventh largest private sector bank by loans and deposits as at 30 June, 2006. Standard Chartered merged its existing three branches with Hsinchu's 83, and then delisted Hsinchu International Bank, changing the bank's name to Standard Chartered Bank (Taiwan) Limited). Prior to the merger, Hsinchu had suffered extensive losses on defaulted credit card debt.

In 2007, Standard Chartered opened its Private Banking global headquarters in Singapore.

On 23 August, 2007 Standard Chartered entered into an agreement to buy a 49 percent of an Indian brokerage firm (UTI Securities) for $36 million in cash from Securities Trading Corporation of India Ltd., with the option to raise its stake to 75 percent in 2008 and, if both partners agree, to 100 percent by 2010. UTI Securities offers broking, wealth management and investment banking services across 60 Indian cities.

12

Standard Chartered Buys American Express Bank

Standard Chartered paid $1.1bn (550m) to buy American Express's banking arm, which has a customer base of institutions and wealthy individuals largely concentrated in emerging markets.

The deal will gave Standard Chartered access to 10,000 private banking clients with assets of $22.5bn under management. It gave the group branch licences in India and Taiwan and takes it into new territories such as Kazakhstan and Egypt.

American Express Bank (AEB) dates back to 1919 and predates the introduction of American Express credit cards. But the American financial group has decided that its future lies in payments, processing and cards.

A Standard Chartered spokesman said: "This is a very good fit with our own footprint. It's strong in Hong Kong, Singapore, Indonesia and India."

Under the terms of the deal, Standard Chartered is paid $300m plus AEB's net asset value of $860m. The transaction was financed from Standard Chartered's cash resources.

Standard Chartered has made a string of recent purchases to bolster its banking presence in emerging markets. It bought Taiwan's Hsinchu International Bank for 650m in September and snapped up Pakistan's Union Bank for $511m. The group has bought stakes in banking operations in Indonesia and China.

13

AEB's financial institutions group, which provides clearing and transaction services to other banks, employs 700 people while the private banking arm has 400 staff. The Miami-based bank has occasionally attracted the interest of regulators.

AEB agreed to forfeit $55m and pay $10m penalties in a settlement with the US Justice Department over allegations that it had failed to maintain an effective anti-money laundering program against international drug cartels. Standard Chartered's shares rose 61p to 15.30.

Standard Chartered Acquired 49% Stake in UTI Sec for Rs 147 crore
Standard Chartered Bank has agreed to acquire 49 per cent stake in UTI Securities from the Securities Trading Corporation of India (STCI) for Rs 147 crore in cash. Under the arrangement, Standard Chartered Bank had the option to raise its stake by another 25 per cent in 2008 and gradually buy out 100 per cent of UTI Securities by 2010, subject to regulatory approvals. Under the arrangement, Standard Chartered has the option to increase its stake to 75 per cent at a fixed price. In 2010, the bank can purchase the balance stake at a price based on a formula, which caps the minimum and maximum price, said Mr Neeraj Swaroop , CEOIndia, Standard Chartered Bank.

14

Online platform The partnership will enable Standard Chartered to broaden its product offering in wealth management and private banking within India and the non-resident product portfolio in footprint countries, he added. UTI Securities offers retail broking, online trading, depository services, portfolio management services, equities research, investment banking, fixed income securities and distribution of third party financial products across 60 cities in India. One of the reasons why UTI Securities was appealing to Standard Chartered Bank is its strong online trading platform, said Mr G. Narayanan, Managing Director, STCI.

Customer base

STCI, one of the leading primary dealers in the country, had bought 100 per cent of UTI Securities from the Administrator of the Specified Undertaking of the Unit Trust of India in February 2006, for Rs 265 crore. UTI Securities reported a net profit of Rs 6.5 crore in 2006-07 and received Rs 65 crore in revenues. The company has 41 branches and 174 franchises. UTI securities has 40,000 clients and around 70 per cent of the business comes from retail broking. UTI Securities will provide us with a customer base in retail business and help us tap the growing affluent segment of population. We would also like to grow the institutional business with overseas linkages, Mr. Swaroop said.

15

The composition of the board of UTI Securities will have four members from STCI, three members from Standard Chartered Bank and one or more independent members.

Investment Services
Equity Solutions At Standard Chartered, we believe in an end to end approach to banking we believe that our success is directly linked to helping you succeed. We offer you the full range of investment products from the simple and classic options to the more evolved and structure ones.

With our ability to provide you a range of products that suit your customised needs, we give you enormous opportunity to meet both your current and long term financial needs.

Mutual Funds

At Standard Chartered we put forward choice of over 300 funds offered by more than 15 fund managers. We help you identify a suitable mix of Mutual Fund schemes spreading across Equity, Balanced, Fixed Income and Liquid Funds.

Equity Mutual Funds

Equity funds are schemes where more than 65% of the investments are done in equity and equity related securities of various companies. However, the returns from these funds are directly linked to the stock market and are more volatile as compared to those from fixed income funds.

16

Balanced Funds

Balanced funds are schemes that invest in equity and debt instruments in varying proportions. These funds supplement capital appreciation from equities with a steady return from debt instruments. To a large extent, the returns depend on the performance of the equity portion in the portfolio. There is some flexibility in changing the asset composition between equity and debt and fund managers exploit this to buy the best asset class at each time.

Tax Saving Funds

Tax savings funds are special products offered by mutual funds. The Equity Linked Savings Schemes (ELSS) as they are popularly known give their investors the option of saving tax while participating in the growth of the capital market. These funds have a lock-in-period of three years.

Equity PMS

Standard Chartered Bank will assist you for Portfolio Management Services (PMS) by referring to our partner Asset Management Companies. Our partner Asset Management Companies conducts detailed and scientific analysis of various investment avenues to help you invest your money suiting your customised needs

17

Fixed Income Solutions Fixed Income Funds

These funds invest primarily in government and corporate debt. While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors.

Bonds

We offer a wide range of Fixed Income solutions denominated in Indian Rupees such as:

Short dated securities like Commercial Paper, Bank Certificates of Deposits and Government of India Treasury Bills (Tenors shorter than 1 year) Long dated securities like Private Sector and Public Sector Corporate Bonds and Government of India securities (Tenors longer than 1 year) Non Discretionary Portfolio Management Service (NDPMS) for Fixed Income by referring to Standard Chartered Securities India.

This enables you to customize your Investments portfolio by leveraging the yield differentials across different tenors as well as different Issuers. In simple terms, you can now invest in a wide variety of securities in the relatively safe Fixed Income space.

18

Liquid Funds

Liquid Funds are schemes investing in short-term money market instruments including treasury bills, commercial paper and certificates of deposit. These funds are distributed by Standard Chartered Bank.

Deposits

Standard chartered bank offers wide variety of deposit options to suit different needs, including Short Term Deposit, Reinvestment Deposit, and Simple Fixed Deposit.

Loan Against Securities

The Loan Against Securities is Standard Chartered Bank's immediate overdraft facility against Shares and Mutual Funds. It offers you a convenient and immediate line of credit just when you want it. What's more, you pay for it only when you actually use it.

Alternate Solutions Structured Notes

Rather than the traditional buy-and-hold approach, these products use derivatives and option strategies to provide structured payouts. Certain structured products also offer the benefit of capital protection.

Private Equity Funds

We partner with leading specialists to help you invest in private equity funds. These products can help you to further diversify your portfolio while gaining from the long term benefits of investing in prudently selected securities.

19

Real Estate Funds

We work with leading fund managers to help you invest in real estate funds unlike direct purchase of property, these funds can participate in the entire life cycle of real estate projects through dedicated experts. These can either be development or yield based.

Advisory & Research Risk Profiling

To start with, we take you through a simple, easy-to-fill questionnaire; we gauge your appetite for risk, for specific investment products and for your entire portfolio. So whether you should be investing heavily into equity or in cash, whether that hot biotech fund is suitable for you, our profiling gives you the right answers.

Asset Allocation Advice

Our well established and robust investment process is specially designed to give you the best possible investment experience. We understand your financial and risk profile through need analysis and then help you select the right asset allocation and products to match your needs followed by regular portfolio review and rebalancing. Our advisors help you create sound portfolios and identify thematic opportunities across varied market cycles.

Market Outlook

To help equip clients with the latest insight, SCB WM team provides outlook on various markets and asset classes to our esteemed clients. Our regular publications include Weekly Market View and Monthly Market View covering global & local markets.

20

Mutual Fund Star Rating

One of our regular publications available to our valued clients includes our in house SCIS Star Ratings - A Concise, Pertinent Analysis on Mutual Funds. The rating system designed is based on the combination of key performance metrics including Information Ratio, Downside Risk and Jenson's Alpha, providing a birds eye view on key mutual funds across common parameters.

INTRODUCTION TO MUTUAL FUNDS

The Indian mutual fund industry in recent years has exponential growth and yet it is still at a very nascent stage. We believe that the mutual fund industry has grown in terms of size or choices available, but is a long distance from being regarded as a mature one. To understand this one has to look at the global scenario. If one look at the global mutual fund industry, one has see that assets have grown by 185% between 2000 and 2006. In comparison, Indian assets outgrew at a staggering 446%, where as the US only grew by 158% and Europe by 242%. As our economy continues to grow at a spectacular rate there is a huge amount of wealth creating opportunities surfacing everywhere. Financial Planners have an immensely responsible role to play by identifying these opportunities and channelling them into wealth creating initiatives that would enable people to address their financial needs. To give an overview of a recent study conducted by Invest India, there are about 321.8 millions paid workers in India. Of this only 5.3 millions have an exposure to mutual funds. This is less than 2% of total work force. Even more interesting fact is that 77% of them reside in super metros and Tier I cities. Again, about 4 millions come in the Rs 90,000-5 lack income bracket. The penetration among the less than Rs 90,000 and more than Rs 5 lack income

21

bracket is very low. The need for the hour is to expend the market boundaries and expand scope in Tier II and Tier III cities. India is also one of the fastest growing markets for mutual funds, attracting a host of global players. Hence, investors will have an even wider range of products to choose from. The combination of the increase in number of fund houses along with new schemes and the increase in the number of people parking their saving in mutual funds has resulted in per cent during April-December 2007. This now stands at Rs 30314 billion as against Rs 13476 billion for the corresponding period last year. As on January 31, 2008, Indian assets stood at $ 137 billion and are growing. We already have many experts expressing their concentration at the frequency of NFO launches. Yet we have less than 1000 schemes in India, compared to 15000 in the US and 36000 in Europe. The gap is significant and has to be filled up with unique and better priced products. There has also been a rapid rise in the HNI segment. India stands only second-best to Korea in the Asia- Pacific region in terms of percentage growth. The total HNWI (High Net Worth Individual) assets stood at about Rs 12 trillion and their assets are distributed over various assets classes. To top them MFs will have to come up with structured products, real estate funds, commodity based funds, art funds and the like. Indian households have also increased their exposure to the capital market. Very interestingly, the MF proportion in this has increased. In fact, there has been more than 2000% growth in the assets coming to MFs in the last 3 years. Statistics reveal that a higher portion of investors savings is now invested in market -linked avenues like mutual funds as compared to earlier times.

22

PASSING THROUGH THE GROWTH PHASE We have always read that fund industry has seen three phases the UTI phase, the public sector phase and the post UTI phase. But if we study a bit more closely, there have been four clear stages.
-

UTI Phase (1964 1987) Public sector phase (1987 1993), during which the likes of SBI,BOB and Canara Bank comes in to existence

The emergence phase (1993 2003), when international players come in to India. Some have wound up their operations and a few of them are looking for re-entry.

Post UTI phase (2003 2007), when domestic players along with some global players have consolidated the MF industry.

And now we are entering Phase V of the industry, when not only are newer players readying to enter the market but are also looking at penetration and market expansion. All in all, this is a win-win situation for Indian investors. We have also come up a long way from plain vanilla equity funds to hybrid funds, from balanced funds to arbitrage funds, from sectoral funds to quant strategies.

CHANGING INVESTOR PROFILE Todays investor is quite young and very unlike the older generation. He follows a contrarians approach. He buys when the market flips and books profit when it rallies. While the market corrected by almost 22% during the January mayhem, mutual funds were net buyers to the tune of Rs 4,200 crores. Much of this support came from domestic investors. The retail participation in equity schemes has also increased tremendously. The total AUM

23

of 330 schemes in December last year stood at Rs 2,157 billion as compared to 197 schemes and Rs92 billions In march 2000. Also in the last three years, mobilizations from NFOs stood at Rs 95,000 crores. Although many complain that the industry is still brokerage driven, the trends clearly suggest that investors prefer NFOs to enter equities. Our economy is booming, we have now a sustained GDP growth of 8%, which is likely to remain at this level for years to come, our per capita income is about to touch $ 1000 by the end of 2008. The number of AMCs is increasing. Their presence across India is expending. Distributors too are expanding their networks. Besides, the regulator has taken up measures to safeguard investor interests. These are all drivers for the fund industry. Together, these greet investor warmly. The need of the investor populace has changed, resulting in a change in asset management styles. In a way, this is leading to the design of new and competitively-priced products, implying greater emphasis on higher quality of intermediation. This in itself is both an opportunity and a challenge. As our economy continuous to grow at a spectacular rate there is a huge amount of wealth creating opportunities surfacing everywhere. Financial Planners have an immensely responsible role to play by identifying these opportunities and channeling them into wealth creating initiatives that would enable people to adequately address their financial needs.

24

WHAT IS A MUTUAL FUND

A mutual fund is a professionally-managed form of collective investments that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager, who is also known as the portfolio manager, trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV) is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. Legally known as an "open-end company" under the Investment Company Act of 1940(the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States. Outside of the United States (with the exception of Canada, which follows the U.S. model), mutual fund may be used as a generic term for various types of collective investment vehicle. In the United Kingdom and Western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds. In Australia and New Zealand the term "mutual fund" is generally not used; the name "managed fund" is used instead. Mutual funds belong to the class of firms known as investment companies. While companies may offer a "family" of funds under a single umbrella name and common administration - for example, the Vanguard Group, Fidelity Investments, or Strong Funds -

25

each fund offered is a separately incorporated investment company. These are entities that pool investor money to buy the securities that make up the funds portfolio. The idea behind this pooling of investor

money is to give each investor the benefits that come from the ownership of a diversified portfolio of securities chosen and monitored daily by experience, professional advisers. The funds create and sell new shares on demand. Investors` shares represent a portion of the funds portfolio and income proportional to the number of shares they purchase. Individual shareholders of the mutual funds have voting rights in the operation of the fund, just as most holders of common stocks in corporations have the right to vote on certain issues involving the running of the company. The key attribute of a mutual fund, regardless of how it is structured, is that the investor is entitled to receive on demand, or within a specified period after demand, an amount computed by reference to the value of the investors proportionate interest in the net assets of the mutual fund. This means that the owner of mutual fund shares can "cash in," or redeem his or her shares at any time. Mutual funds, therefore, are considered a liquid investment. The investors selling (redemption) price may be higher or lower than the purchase price. It all depends on the performance of the funds portf olio. The fund has an adviser who charges a fee for managing the portfolio. The adviser decides when and what securities to buy and sell, and is responsible for providing or causing to be provided all services required by the mutual fund in carrying on its day-to-day activities. All fund investors get this built-in portfolio management whether they own 50 shares or 10,000.The adviser generally purchases many different securities for the portfolio, since investment theory holds that diversification reduces risk. It is this diminished risk that is one of the attractions of mutual funds.

26

27

ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational set up of a Mutual Fund:

Mutual Funds diversify their risk by holding a portfolio of instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Mutual Fund investments are not totally risk free. In fact, investing in Mutual Funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. A very

28

important risk involved in Mutual Fund investments is the market risk. However, the company specific risks are largely eliminated due to professional fund management.

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors.

A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the funds.

The pool of Funds is invested in a portfolio of marketable investments.

The value of the portfolio is updated every day.

The investors share in the fund is denominated by units. The value of the units changes with change in the portfolio value, every day. The value of one unit of investment is called net asset value (NAV).

The investment portfolio of the mutual fund is created according to the stated Investment objectives of the Fund.

29

OBJECTIVES OF A MUTUAL FUND

To provide an opportunity for lower income groups to acquire without much difficulty, property in the form of shares. To Cater mainly of the need of individual investors, whose means are small? To manage investors portfolio that provides regular income, growth, Safety, liquidity, tax advantage, professional management and diversification.

30

STRUCTURE OF A MUTUAL FUND

Sponsor

Trustees

Mutual fund

ASSET MANAGEMENT COMPANY

Custodian

Registrar

31

History of Mutual Fund in India

The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 1964-87 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Master share (Indias first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores. Phase II. Entry of Public Sector Funds - 1987-1993

32

The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canara bank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share.

Mobilisation Assets 199293 Amount Under Mobilised Management Domestic Savings UTI Public 1,964 Sector Total 13,021 47,004 6.1% 8,757 0.9% 11,057 38,247 5.2% gross as % of

Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the

33

mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Inventors interests were safeguarded by SEBI and the Government offered tax bene fits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more

34

international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

Types of Mutual Funds

35

1. 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

36

through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis. 2. 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:

Growth / Equity Oriented Scheme:The aim of growth funds is to provide capital appreciation over the medium to long- term. 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 long-term outlook seeking appreciation over a period of time.

37

 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.

38

 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 weight age 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.

39

3. Sector specific funds/schemes:These are the funds/schemes which invest in the securities of only those sectors or industries as specified Fast in the offer documents. Goods E.g.

Pharmaceuticals,

Software,

Moving

Consumer

(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. They may also seek advice of an expert. 4. 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 equityoriented scheme.

5. 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.

40

6. 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.

41

ADVANTAGES OF MUTUAL FUND

S. Advantage No. Mutual Funds invest in a well-diversified portfolio of securities Portfolio 1. Diversification portfolio (whether the amount of investment is big or small). Fund manager undergoes through various research works Professional 2. Management higher returns to the investor than what he can manage on his own. Investors acquire a diversified portfolio of securities even with 3. Less Risk a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. Low 4. 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. An investor may not be able to sell some of the shares held 5. Liquidity by him very easily and quickly, whereas units of a mutual fund are far more liquid. and has better investment management skills which ensure which enables investor to hold a diversified investment Particulars

42

Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of Choice of 6. Schemes investment objectives and their own financial goals. These schemes further have different plans/options Funds provide investors with updated information pertaining 7. Transparency to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. 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. 8. Flexibility Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected 9. Safety by the regulator. All funds are registered with SEBI and complete transparency is forced. investing in a scheme having a correlation between its

43

Disadvantages of Investing Through Mutual Funds

S. Disadvantage No. Costs Investor has to pay investment management fees and fund Control Not distribution costs as a percentage of the value of his 1. in the Hands investments (as long as he holds the units), irrespective of of an the performance of the fund. Investor The portfolio of securities in which a fund invests is a No 2. Customized Portfolios 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. Difficulty in Many investors find it difficult to select one option from the Selecting a plethora of funds/schemes/plans available. For this, they 3. Suitable may have to take advice from financial planners in order to Fund invest in the right fund to achieve their objectives. Scheme Particulars

44

Mutual Fund Investment Strategies

Systematic Investment Plan (SIPs): These are best suited for young people who have started their careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in mutual fund scheme the investor has chosen. For instance an investor opting for SIP in xyz mutual fund scheme will need to invest a certain sum of money every month / quarter /half year in the scheme.

Systematic Withdrawal Plan (SWPs): These plans are best suited for people nearing retirement. In these plans an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of expenses.

Systematic Transfer Plan (STPs): They allow the investors to transfer on a periodic basis a specified amount from one scheme to another within the same fund family meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made .Such redemption or investment will be at the applicable NAV. This service allows the investor to manage his investment actively to achieve his objectives. Many funds do not even charge even any transaction fee for this service an added advantage for the active investor.

45

Performance Evaluation

PARAMETERS OF MUTUAL FUND EVALUATION: Risk Returns Liquidity Expense Ratio Composition of Portfolio

Risks Associated With Mutual Funds

Investing in mutual funds as with any security, does not come without risk. One of the most basic economic principles is that risk and reward are directly correlated. In other words, the greater the potential risk, the greater the potential return. The types of risk commonly associated with mutual funds are: Market Risk: Market risk relate to the market value of a security in the future. Market prices fluctuate and are susceptible to economic and financial trends, supply and demand, and many other factors that cannot be precisely predicted or controlled. Political Risk:

46

Changes in the tax laws, trade regulations, administered prices etc. is some of the many political factors that create market risk. Although collectively, as citizens, we have indirect control through the power of our vote, individually as investors, we have virtually no control. Inflation Risk: Inflation or purchasing power risk, relates to the uncertainty of the future purchasing power of the invested rupees. The risk is the increase in cost of the goods and services, as measured by the Consumer Price Index. Interest Rate Risk: Interest Rate risk relates to the future changes in interest rates. For instance, if an investor invests in a long term debt mutual fund scheme and interest rate increase, the NAV of the scheme will fall because the scheme will be end up holding debt offering lowest interest rates. Business Risk: Business Risk is the uncertainty concerning the future existence, stability and profitability of the issuer of the security. Business Risk is inherent in all business ventures. The future financial stability of a company cannot be predicted or guaranteed, nor can the price of its securities. Adverse changes in business circumstances will reduce the market price of the companys equity resulting in proportionate fall in the NAV of mutual fund scheme, which has invested in the equity of such a company. Economic Risk: Economic Risk involves uncertainty in the economy, which, in turn can have an adverse effect on a companys business. For instance, if monsoons fall in a year, equity stocks of agriculture bases companies will fall and NAVs of mutual funds, which have invested in such stocks, will fall proportionately.

47

Methods of Measuring Risk

There are 3 different methods with the help of which we can measure the risk. I. Beta Coefficient Measure Of Risk :

Beta relates a funds return with a market index. It basically measures the sensitivity of funds return to changes in market index. If Beta = 1 Fund moves with the market i.e. Passive fund If Beta < 1 Fund is less volatile than the market i. e Defensive Fund If Beta > 1 Funds will give higher returns when market rises & higher losses when market falls i.e. Aggressive Fund. II. Ex Marks or R-squared Measure Of Risk : Ex Marks represents co relation with markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-marks is better diversified than a fund with lower Exmarks. III. Standard Deviation Measure Of Risk : It is a statistical concept, which measures volatility. It measures the fluctuations of funds returns around a mean level. Basically it gives you an idea of how volatile your earnings are. It is broader concept than BETA. It also helps in measuring total risk and not just the market risk of the portfolio.

48

How to Calculate the Value of a Mutual Fund:

The investors funds are deployed in a portfolio of securities by the fund manager. The value of these investments keeps changing as the market price of the securities change. Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date. Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms.

NAV = Net Assets of the scheme / Number of Units Outstanding

Where Net Assets are calculated as:-

(Market value of investments + current assets and other assets + Accrued income current liabilities and other liabilities less accrued expenses) / No. of Units Outstanding as at the NAV date

NAV of all schemes must be calculated and published at least weekly for closed-end schemes and daily for open-end schemes.

49

The major factors affecting the NAV of a fund are: Sale and purchase of securities Sale and repurchase of units Valuation of assets Accrual of income and expenses

SEBI requires that the fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV. Also the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price. Measuring Mutual Fund Performance: We can measure mutual funds performance by different method:

Absolute Return Method:

Percentage change in NAV is an absolute measure of return, which finds the NAV appreciation between two points of time, as a percentage. E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then Absolute return = (22 20)/20 X 100 =10%

50

Simple Annual Return Method :

Converting a return value for a period other than one year, into a value for one year, is called as animalisation. In order to annualize a rate, we find out what the return would be for a year, if the return behaved for a year, in the same manner it did, for any other fractional period. E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then Annual Return = (22 20) /20 X 12/6 X 100 = 20%

Total Return Method:

The total return method takes into account the dividends distributed by the mutual fund, and adds it to the NAV appreciation, to arrive at returns. Total Return = (Dividend distributed + Change in NAV)/ NAV at the start X 100 E .g: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend of Rs. 4 has been distributed then Total Return = {4 + (22 20)}/20 X 100 = 30%

51

Total Return when dividend is reinvested: This method is also called the return on investment (ROI) method. In this method, the dividends are reinvested into the scheme as soon as they are received at the then prevailing NAV (ex-dividend NAV). = ((Value of holdings at the end of the period/ value of the holdings at the beginning) 1)*100 E.g. an investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30, 2007 he receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On December 31, 2007, the funds NAV was Rs. 12.25. Value of holdings at the beginning period= 10.5*100= 1050 Number of units re-invested = 100/10.25 = 9.756 End period value of investment = 109.756*12.25 = 1344.51 Rs. Return on Investment = ((1344.51/1050)-1)*100 = 28.05%

Compounded Average Annual Return Method: This method is basically used for calculating the return for more than 1 year. method return is calculated with the following formula: A = P X (1 + R / 100) N Where P = Principal invested A = maturity value N = period of investment in years In this

52

R = Annualized compounded interest rate in % R = {(Nth root of A / P) 1} X 100 E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of investment is 10 years then annualized compounded return is 200 = 100 (1 + R / 100) 10 Rate = 7.2 %

53

RETURNS

Returns have to be studied along with the risk. A fund could have earned higher return than the benchmark. But such higher return may be accompanied by high risk. Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe created a metric for fund performance, which enables the ranking of funds on a risk adjusted basis.

Sharpe Ratio

Risk Premium Funds Standard Deviation

Treynor Ratio

Risk Premium Funds Beta

Risk Premium = Difference between the Funds Average return and Risk free return on government security or treasury bill over a given period .

LIQUIDITY: Most of the funds being sold today are open-ended. That is, investors can sell their existing units, or buy new units, at any point of time, at prices that are related to the NAV of the fund on the date of the transaction. Since investors continuously enter and exit funds, funds are actually able to provide liquidity to investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investor seeks.

54

EXPENSE RATIO: Expense ratio is defined as the ratio of total expenses of the fund to the average net assets of the fund. Expense ratio can actually understate the total expenses, because brokerage paid on transactions of a fund are not included in the expenses. According to the current SEBI norms, brokerage commissions are capitalized and included in the cost of the transactions. Expense ratio = Total Expenses Average Net Assets COMPOSITION OF THE PORTFOLIO: Credit quality of the portfolio is measured by looking at the credit ratings of the investments in the portfolio. Mutual Fund fact sheets show the composition of the portfolio and the investments in various asset classes over time. Portfolio turnover rate is the ratio of lesser of asset purchased or sold by funds in the market to the net assets of the fund. If Portfolio ratio is 100% means portfolio has been changed fully. When Portfolio ratio is high means expense ratio is high. Portfolio Ratio = Total Sales & Purchase Net Assets of fund

In order to meaningfully compare funds some level of similarity in the following factors has to be ensured: Size of the funds Investment objective

55

Risk profile Portfolio composition Expense ratios

56

Fund evaluation against benchmark: Funds can be evaluated against some performance indicators which are known as benchmarks. There are 3 types of benchmarks: Relative to market as whole Relative to other comparable financial products Relative to other mutual funds

Relative to market as whole:

There are different ways to measure the performance of fund w.r.t market as Equity Funds Index Fund An Index fund invests in the stock comprising of the index in the same ratio. This is a passive management style. For example,

Market Index Fund

BSE Sensex

Nifty Index Fund

NIFTY

The difference between the return of this fund and its index benchmark can be explained by TRACKING ERROR.

57

Active Equity Funds: The fund manager actively manages this fund. To evaluate performance in such case we have to select an appropriate benchmark.

Large diversified equity fund

BSE 100

Sector fund

Sectoral Indices

Debt Funds: Debt fund can also be judged against a debt market index e.g. I-BEX

58

Relative to other comparable financial products:

Schemes

Return Convenience

Safety

Volatility

Liquidity

Equity

High Moderate

Low

High

High

FI Bonds

Moderate High

High

Moderate

Moderate

Corporate Debentures

Moderate Low

Moderate

Moderate

Low

Company Fixed Deposits

Moderate Moderate

Low

Low

Low

Bank Deposits

Low High

High

Low

High

59

PPF

Moderate High

High

Low

Moderate

Life Insurance

Low Moderate

High

Low

Low

Gold

Moderate Low

High

Moderate

Moderate

Real Estate

High Low

Moderate

High

Low

Mutual Funds

High

High

Moderate

High

Schemes

Investment Objective

Risk Tolerance High Low

Investment Horizon Long Medium to Long term

Equity Term FI Bonds

Capital Appreciation Income

60

Corporate Debentures Company Fixed Deposits Bank Deposits

Income

High Moderate

Medium to Long term

Income

Moderate Low

Medium

Income

Generally

Flexible all terms

PPF

Income

Low

Long

Life Insurance

Risk Cover

Low

Long

Gold

Inflation Hedge

Low

Long

Real Estate

Inflation Hedge

Low

Long

61

TAX TREATMENT FOR THE INVESTORS (UNITHOLDERS):-

Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document, some broad income tax implications of investing in the units of the Scheme are stated below. The information so stated is based on the Mutual Fund's understanding of the tax laws in force as of the date of the Offer Document, which have been confirmed by its auditors. The information stated below is only for the purposes of providing general information to the investors and is neither designed nor intended to be a substitute for professional tax advice. As the tax consequences are specific to each investor and in view of the changing tax laws, each investor is advised to consult his or her or its own tax consultant with respect to the specific tax implications arising out of his or her or its participation in the Scheme.

Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006

To the Unit holders

(a.) Tax on Income

In accordance with the provisions of section 10(35) (a) of the Act, income received by all categories of unit holders in respect of units of the Fund will be exempt from income-tax in their hands. Exemption from income tax under section 10(35) of the Act would, however, not apply to any income arising from the transfer of these units.

62

(b.) Tax on capital gains:

As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the investor as a capital asset, is considered to be a short-term capital asset, if it is held for 12 months or less from the date of its acquisition by the unit holder. Accordingly, if the unit is held for a period of more than 12 months, it is treated as a long-term capital asset.

Computation of capital gain Capital gains on transfer of units will be computed after taking into account the cost of their acquisition. While calculating long-term capital gains, such cost will be indexed by using the cost inflation index notified by the Government of India. Individuals and HUFs, are granted a deduction from total income, under section 80C of the Act upto Rs. 100,000, in respect of specified investments made during the year (please also refer paragraph d).

Long-term capital gains As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be exempt from income-tax, provided such transaction of sale is chargeable to securities transaction tax. Pursuant to an amendment made in the Finance Act, 2006, effective 1 April 2006, companies would be required to include such long term capital gains in computing the book profits and minimum alternated tax liability under section 115JB of the Act.

63

 Short -term capital gains As per Section 111A of the Act, short-term capital gains from the sale of unit of an equity oriented fund entered into in a recognized stock exchange or sale of such unit of an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such transaction of sale is chargeable to securities transaction tax.

The said tax rate would be increased by a surcharge of: - 10 per cent in case of non-corporate Unit holders, where the total income exceeds Rs.1,000,000, - 10 per cent in case of resident corporate Unit holders, and - 2.5 per cent in case of non-resident corporate unit holders irrespective of the amount of taxable income. Further, an additional surcharge of 2 per cent by way of education cess would be charged on amount of tax inclusive of surcharge. In case of resident individual, if the income from short term capital gains is less than the maximum amount not chargeable to tax, then there will be no tax payable.

Further, in case of individuals/ HUFs, being residents, where the total income excluding short-term capital gains is below the maximum amount not chargeable to tax1, then the difference between the current maximum amount not chargeable to tax and total income excluding short-term capital gains, shall be adjusted from short-term capital gains. Therefore only the balance short term capital gains will be liable to income tax at the rate of 10 percent plus surcharge, if applicable and education cess.

64

 Non-residents In case of non-resident unit holder who is a resident of a country with which India has signed a Double Taxation Avoidance Agreement (which is in force) income tax is payable at the rates provided in the Act, as discussed above, or the rates provided in the such agreement, if any, whichever is more beneficial to such non-resident unit holder.

Investment by Minors Where sale / repurchase is made during the minority of the child, tax will be levied on either of the parents, whose income is greater, where the said income is not covered by the exception in the proviso to section 64(1A) of the Act. When the child attains majority, such tax liability will be on the child.

Losses arising from sale of units

- As per the provisions of section 94(7) of the Act, loss arising on transfer of units, which are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive the income from units) and sold within a period of nine months after the record date, shall not be allowed to the extent of income distributed by the Fund in respect of such units.

65

- As per the provisions of section 94(8) of the Act, where any units ("original units") are acquired within a period of three months prior to the record date (date fixed by the Fund for the purposes of entitlement of the unit holder to receive bonus units) and any bonus units are allotted (free of cost) based on the holding of the original units, the loss, if any, on sale of the original units within a period of nine months after the record date, shall be ignored in the computation of the unit holder's taxable income. Such loss will however, be deemed to be the cost of acquisition of the bonus units.

--Each Unit holder is advised to consult his / her or its own professional tax advisor before claiming set off of long-term capital loss arising on sale / repurchase of units of an equity oriented fund referred to above, against longterm capital gains arising on sale of other assets.

- Short-term capital loss suffered on sale / repurchase of units shall be available for set off against both long-term and short-term capital gains arising on sale of other assets and balance short-term capital loss shall be carried forward for set off against capital gains in subsequent years.

- Carry forward of losses is admissible maximum upto eight assessment years.

66

(c.) Tax withholding on capital gains Capital gains arising to a unit holder on repurchase of units by the Fund should attract tax withholding as under:

- No tax needs to be withheld from capital gains arising to a FII on the basis of the provisions of section 196D of the Act.

- In case of non-resident unit holder who is a resident of a country with which India has signed a double taxation avoidance agreement (which is in force) the tax should be deducted at source under section 195 of the Act at the rate provided in the Finance Act of the relevant year or the rate provided in the said agreement, whichever is beneficial to such non-resident unit holder. However, such a non-resident unit holder will be required to provide appropriate documents to the Fund, to be entitled to the beneficial rate provided under such agreement.

- No tax needs to be withheld from capital gains arising to a resident unit holder on the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT. Subject to the above, the provisions relating to tax withholding in respect of gains arising from the sale of units of the various schemes of the fund are as under:

- No tax is required is to be withheld from long term capital gains arising from sale of units in equity oriented fund schemes, that are subject to securities transaction tax.

67

- In respect of short-term capital gains arising to foreign companies (including Overseas Corporate Bodies), the Fund is required to deduct tax at source at the rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge). In respect of short-term capital gains arising to non-resident individual unit holders, the Fund is required to deduct tax at source at the rate of 11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus additional surcharge of 2 per cent by way of education cess on the tax plus surcharge).

(d.) Wealth Tax Units held under the Schemes of the Fund are not treated as assets within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax.

(e.) Securities Transaction Tax Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%) Delivery based purchase transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange 0.1 0.125 Non-delivery based sale transaction in equity shares or units of equity oriented fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an equity oriented fund to the

68

mutual fund 0.2 0.25 Value of taxable securities transaction in case of units shall be the price at which such units are purchased or sold. A deduction in respect of securities transaction tax paid is not permitted for the purpose of computation of business income or capital gains. However, if the total income of an assessee includes any business income arising from taxable securities transactions, he shall be entitled to a rebate3 from income-tax of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered during the course of his business.

The maximum amounts of total income, not chargeable to tax are as under: Type of person Maximum amount of income not chargeable to tax Women Senior citizens Other individuals and HUFs Rs. 135,000 Rs. 185,000 Rs. 100,000

69

How Is A Mutual Fund Set Up?

A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

70

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August; 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of 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 lines 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 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 a high professional and ethical standard 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.

71

 AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do 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 programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme 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.

The sponsorers of Association of Mutual Funds in India: --Bank Sponsored SBI Fund Management Ltd. BOB Asset Management Co. Ltd. Canara bank Investment Management Services Ltd. UTI Asset Management Company Pvt. Ltd.

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

72

Private Sector: -

73

Indian Benchmark Asset Management Co. Pvt. Ltd. Cholamandalam Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. Escorts Asset Management Ltd. JM Financial Mutual Fund Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. Sahara Asset Management Co. Pvt. Ltd Sundaram Asset Management Company Ltd. Tata Asset Management Private Ltd. Predominantly India Joint Ventures:Birla Sun Life Asset Management Co. Ltd. DSP Merrill Lynch Fund Managers Limited HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:ABN AMRO Asset Management (I) Ltd. Alliance Capital Asset Management (India) Pvt. Ltd. Deutsche Asset Management (India) Pvt. Ltd. Fidelity Fund Management Private Limited Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. HSBC Asset Management (India) Private Ltd. ING Investment Management (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt. Ltd. Principal Asset Management Co. Pvt. Ltd. Prudential ICICI Asset Management Co. Ltd. Standard Chartered Asset Mgmt Co. Pvt. Ltd

74

Tips On Buying Mutual Funds:-

1. Determine your financial objectives and how much money you have to invest. Make sure the funds objectives coincide with your own. Dont change your objectives or exceed the amount set aside for investment unless you have good reason. 2. Always obtain all available information before you invest. Request the prospectus, the Statement of Additional Information and the latest shareholder report from each fund you are considering. 3. Never invest in periodic payment plans unless you are virtually certain that you will not have to redeem early. If you redeem early or do not complete the plan, you may have to pay sales charges of up to 51% of your investment. 4. Be on the alert for incorporation by reference. You will have "no excuse" for not knowing this information, if a problem arises. You may be legally presumed to know materials incorporated by reference in a prospectus or other documents. 5. Always determine all sales charges, fees and expenses before you invest. Fees such as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and capital gains distributions can substantially add to your costs. Shop around among the many funds offered and compare the various fees and costs connected with funds that appeal to you. 6. Learn the costs of redemption. Sometimes investors are surprised to learn that they have to pay to get out of funds through back-end loads or redemption fees. Find out the redemption costs before you invest so you wont be unpleasantly surprised when you redeem your shares.

75

7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds you want to buy against your ability to tolerate the ups and downs of the market and your investment goals. Be extra cautious when considering investing in funds with high yield/high risk portfolios. Junk bond problems, for example, invariably affect the funds performance. 8. Dont be misled by the name of a fund. Some funds have been given names denoting safety, stability and low risk, despite the fact that the underlying investments in the portfolio are volatile and highly risky.

76

Standard Chartered Mutual Fund

Standard Chartered mutual fund is promoted by banking giant Standard Chartered and exclusively focuses on debt schemes. The fund started as ANZ Grind lays Mutual Fund and was later renamed as Standard Chartered Mutual Fund after the takeover of Grind lays Bank by Standard Chartered.

Standard Chartered Bank is a truly global bank with employees representing 80 nationalities. The bank has a strong brand presence in India and is well entrenched in developing markets of Asia Pacific region.

The sponsor of the fund is Standard Chartered Bank. The AMC of the fund is Standard Chartered Asset Management Company Private Limited. The sponsor holds a 75 per cent stake in the company and the balance is held by Atul Choksey of Apcotex. As of Aug 2006, the fund has assets of over Rs.15, 551 crore under management.

Here is a list of mutual funds of Standard Chartered which includes Equity and Debt. Latest NAV Scheme Name NAV (Net Asset Value) IDFC CF-Plan C-Daily Dividend IDFC CF-Plan C-Growth IDFC CF-Plan C-Monthly Dividend 10.0025 14-Jun-2009 10.8234 14-Jun-2009 10.0444 14-Jun-2009 Date

77

IDFC CF-Plan C-weekly Dividend IDFC GSF - Short Term Growth IDFC GSF - Short Term - Quarterly Dividend IDFC Dynamic Bond Fund Growth IDFC Dynamic Bond Fund - Annual Dividend IDFC Dynamic Bond Fund - Quarterly Dividend IDFC GSF - Short Term - Monthly Dividend IDFC - SSIF - Investment Plan - Annual Dividend IDFC - SSIF - Investment Plan - Growth Option IDFC - SSIF - Investment Plan - Half Yearly Dividend IDFC - SSIF - Investment Plan - Quarterly Dividend IDFC Arbitrage Fund - Plan A Dividend IDFC Arbitrage Fund - Plan A Growth IDFC Arbitrage Fund - Plan B Dividend IDFC Arbitrage Fund - Plan B Growth IDFC Classic Equity Fund-Plan A- Dividend IDFC Classic Equity Fund-Plan A- Growth IDFC Imperial Equity Fund-Plan A - Dividend IDFC Imperial Equity Fund-Plan A Growth IDFC Premier Equity Fund-Plan A - Dividend IDFC Premier Equity Fund_Plan A - Growth

10.0526 14-Jun-2009 13.6007 12-Jun-2009 10.1491 12-Jun-2009 18.0118 12-Jun-2009 11.5758 12-Jun-2009 10.9937 12-Jun-2009 10.0254 12-Jun-2009 11.3001 12-Jun-2009 21.7029 12-Jun-2009 11.0217 12-Jun-2009 10.7888 12-Jun-2009 10.3060 12-Jun-2009 11.9215 12-Jun-2009 10.4471 12-Jun-2009 12.0704 12-Jun-2009 12.1278 12-Jun-2009 16.7593 12-Jun-2009 12.7631 12-Jun-2009 15.4392 12-Jun-2009 17.5076 12-Jun-2009 19.5061 12-Jun-2009

78

IDFC Arbitrage Plus Fund -A-DIVIDEND IDFC Arbitrage Plus Fund -A-GROWTH IDFC Arbitrage Plus Fund -B-DIVIDEND IDFC Arbitrage Plus Fund -B-GROWTH IDFC GSF - Short Term - Weekly Dividend IDFC GSF - Short Term -Plan B Growth IDFC Dynamic Bond Fund -PLAN B GROWTH IDFC GSF - Short Term -Plan B Weekly Dividend IDFC-SSIF-Investment Plan B- GROWTH IDFC Dynamic Bond Fund -PLAN B DIVIDEND IDFC-SSIF-Investment Plan B DIVIDEND IDFC Tax Advantage (ELSS) Fund - Dividend IDFC Tax Advantage (ELSS) Fund - Growth IDFC Imperial Equity Fund-Plan B - Dividend IDFC GSF - Short Term -Plan B Quarterly Dividend IDFC Premier Equity Fund-Plan B - Dividend IDFC Imperial Equity Fund-Plan B Growth IDFC Premier Equity Fund_Plan B - Growth IDFC-SSIF-Investment Plan C- DIVIDEND IDFC-SSIF-Investment Plan C- GROWTH IDFC Enterprise Equity Fund Dividend

10.3619 12-Jun-2009 10.7582 12-Jun-2009 10.3947 12-Jun-2009 10.7609 12-Jun-2009 10.0226 18-May-2009 10.1877 12-Jun-2009 10.5067 12-Jun-2009 10.0217 12-Jun-2009 10.4165 12-Jun-2009 10.4666 12-Jun-2009 10.2851 12-Jun-2009 14.0476 12-Jun-2009 14.0436 12-Jun-2009 13.5006 12-Jun-2009 10.0855 12-Jun-2009 14.4873 12-Jun-2009 13.3093 12-Jun-2009 14.3843 12-Jun-2009 10.0542 12-Jun-2009 10.0546 12-Jun-2009 12.0101 10-Jun-2009

79

PROBLEM DEFINITON
1) TO GAIN INSIGHT AS TO WHAT IS THE CONSUMER BEHAVIOUR TOWARDS MUTUAL FUNDS. 2) TO KNOW AS TO WHAT A CONSUMER WANTS IN A MUTUAL FUND.

80

RESEARCH METHODOLOGY

SAMPLE SIZE:- 60 THE DATA HAS BEEN COLLECTED THROUGH PRIMARY DATA COLLECTION METHODS. THE DATA THUS COLLECTED HAS BEEN ANALYSED USING STATISTIACAL PRACTICES FOR SOCIAL SERCIVE SOFTWARE (S.P.S.S.)

81

ANALYSIS OF THE REPORT

82

QUESTION 1

Do you have a mutual fund?

Yes

No

If yes then which asset management company/companies?

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

83

Holding Mutual Funds

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

HOLDING(YES) NOT HOLDING (NO) TOTAL %

40%

80%

29%

66%

60% 100%

20% 100%

71% 100%

34% 100%

84

 In Terms Of Gender

MALES HOLDING(YES) NOT HOLDING (NO) TOTAL % 100% 64% 36%

FEMALES 38% 62% 100%

85

% OF HOLDINGS IN VARIOUS COMPANIES

UTI MF

SBI MF

HDFC MF

BIRLA MF

RELIANCE MF 38%

KOTAK MF

% HOLDINGS

20%

24%

25%

16%

5%

86

QUESTION 2

Rank the following as per you preferences to investment in a financial year: a. Shares b. Mutual Funds c. Life Insurance d. Government Bonds

87

SHARES In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

1 2 3 4 TOTAL % 100%

0% 7% 40% 53% 100%

7% 7% 20% 66% 100%

13% 47% 13% 27% 100%

27% 47% 0% 26%

88

 In Terms Of Gender

MALES 1 2 3 4 TOTAL % 10% 20% 30% 40% 100% 10% 35% 20% 35%

FEMALES

100%

89

MUTUAL FUNDS

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

1 2 3 4 TOTAL %

20% 40% 27% 13% 100%

26% 40% 27% 7% 100%

33% 27% 33% 7% 100%

27% 27% 33% 13% 100%

90

 In Terms Of Gender

MALES 1 2 3 4 TOTAL % 28% 35% 25% 12% 100% 25% 30% 40% 5%

FEMALES

100%

91

LIFE INSURANCE

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

1 2 3 4 TOTAL %

73% 33% 47% 33% 100%

20% 40% 13% 13% 100%

7% 20% 27% 47% 100%

0% 7% 13% 7% 100%

92

 In Terms Of Gender

MALES 1 2 3 4 TOTAL % 50% 23% 20% 7% 100% 40% 20% 30% 10%

FEMALES

100%

93

GOVERNMENT BONDS

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

1 2 3 4 TOTAL %

7% 33% 27% 33% 100%

33% 13% 34% 20% 100%

7% 13% 27% 53% 100%

7% 20% 26% 47% 100%

94

 In Terms Of Gender

MALES 1 2 3 4 TOTAL % 5% 23% 38% 34% 100% 32% 16% 11% 41%

FEMALES

100%

95

QUESTION 3

What is your primary objective for your investment? a. Preservation of Principal b. Current Income c. Growth and Income d. Conservative Growth e. Aggressive Growth

96

PRIMARY OBJECTIVEOF SAVING In Terms Of Annual Income

3-5 LAKHS PRESERVATION OF PRINCIPAL CURRENT INCOME GROWTH AND INCOME CONSERVATIVE GROWTH AGGRESSIVE GROWTH TOTAL % 13% 100% 14% 53% 13% 7%

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

7% 20%

7% 47%

13% 0%

60%

20%

53%

6%

20%

13%

7% 100%

6% 100%

21% 100%

97

 IN TERMS OF GENDER

MALES PRESERVATION OF PRINCIPAL CURRENT INCOME GROWTH AND INCOME CONSERVATIVE GROWTH AGGRESSIVE GROWTH TOTAL % 8% 15% 45% 15% 17% 100%

FEMALES 15% 25% 50% 5% 5% 100%

98

QUESTION 4

When it comes to investing in stock or bond mutual funds (or individual stocks or bonds), I would describe myself as a/an...? VERY INEXPERIENCED INVESTOR SOMEWHAT INEXPERIENCED INVESTOR VERY EXPERIENCED INVESTOR EXPERIENCED INVESTOR SOMEWHAT EXPERIENCED INVESTOR

99

EXPERIENCE LEVEL OF INVESTOR

In Terms Of Annual Income

3-5 LAKHS VERY INEXPERIENCED SOMEWHAT 40% INEXPERIENCED SOMEWHAT 40% EXPERIENCED EXPERIENCED VERY EXPERIENCED TOTAL % 13% 0% 100% 7%

5-7 7-9 LAKHS LAKHS 0% 7%

ABOVE 9 LAKHS 0%

7%

27%

7%

60%

27%

7%

27% 6% 100%

33% 6% 100%

27% 13% 100%

100

 IN TERMS OF GENDER

3-5 LAKHS VERY INEXPERIENCED SOMEWHAT INEXPERIENCED SOMEWHAT EXPERIENCED EXPERIENCED VERY EXPERIENCED TOTAL % 3% 15% 48% 27% 7% 100%

5-7 LAKHS 5% 30% 40% 20% 5% 100%

101

QUESTION 5

Is there any substitute of Mutual Funds? Yes No

If yes then what: _________________________________________________ __________________________________________________

102

SUBSTITUTE OF MUTUAL FUNDS

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

YES YES TOTAL %

7% 93% 100%

27% 73% 100%

7% 93% 100%

20% 80% 100%

103

 IN TERMS OF GENDER

MALES YES NO TOTAL % 15% 85% 100% SUBSTITUTES OF MUTUAL FUNDS

FEMALES 15% 85% 100%

104

QUESTION 6

When making an investment, I plan to hold the investment for... a) 1 to 2 years b) 3 to 4 years c) 5 to 6 years d) 7 to 8 years e) more than 8 years

105

TIME PERIOD

In Terms Of Annual Income

3-5 LAKHS 1-2 YEARS 3-4 YEARS 5-6 YEARS 7-8 YEARS ABOVE 8 YEARS TOTAL % 0% 40% 27% 13% 20% 100%

5-7 7-9 LAKHS LAKHS 7% 26% 47% 13% 7% 100% 7% 13% 27% 33% 20% 100%

ABOVE 9 LAKHS 7% 20% 40% 33% 0% 100%

106

 IN TERMS OF GENDER

MALES 1-2 YEARS 3-4 YEARS 5-6 YEARS 7-8 YEARS ABOVE 8 YEARS TOTAL % 5% 20% 28% 30% 17% 100%

FEMLAES 5% 35% 50% 10% 0% 100%

107

QUESTION 7

According to you is investing in mutual funds a Safer option or not? Yes No

108

SAFETY OPTION

In Terms Of Annual Income

3-5 LAKHS

5-7 LAKHS

7-9 LAKHS

ABOVE 9 LAKHS

YES YES TOTAL %

87% 13% 100%

87% 13% 100%

93% 7% 100%

100% 0% 100%

109

 In Terms Of Gender

MALES YES NO TOTAL % 88% 12% 100%

FEMALES 95% 5% 100%

110

QUESTION 8

According to you which company has more demand in the market? a) Reliance mutual fund b) HDFC mutual fund c) Birla sun life mutual fund d) Kotak Mahindra mutual fund e) S.B.I Mutual Fund f) Others

111

DEMAND of DIFFRENT MUTUAL FUNDS

In Terms Of Annual Income

3-5 Lakhs RELIANCE HDFC BIRLA KOTAK SBI OTHERS TOTAL % 27% 20% 13% 0% 27% 13% 100%

5-7 Lakhs 40% 27% 7% 7% 12% 7% 100%

7-9 lakhs 40% 27% 13% 13% 0% 7% 100%

Above 9 lakhs 47% 13% 13% 0% 20% 7% 100%

112

 In Terms Of Gender

MALES RELIANCE HDFC BIRLA KOTAK SBI OTHERS TOTAL % 43% 15% 13% 3% 16% 10% 100%

FEMLAES 30% 35% 10% 10% 10% 5% 100%

113

QUESTION 9

Which of the following source of mutual funds information do you like to opt for? 1. Professional advisory 2. Company advisory 3. Mutual fund prospects 4. Newspaper, magazine, television 5. Mutual fund rating service

114

SOURCE

In Terms Of Annual Income

3-5 Lakhs PROFESSIONAL ADVISORY COMPANY ADVISORY MUTUAL FUND PROSPECTS MEDIA MF. RATING SERVICES TOTAL % 46% 0% 0% 100% 27% 27%

5-7 Lakhs

7-9 lakhs

Above 9 lakhs

27% 33%

33% 27%

33% 40%

33% 7% 0% 100%

20% 10% 10% 100%

27% 0% 0% 100%

115

 In Terms Of Gender

MALES PROFESSIONAL ADVISORY COMPANY ADVISORY MUTUAL FUND PROSPECTS MEDIA MF. RATING SERVICES TOTAL % 27% 35% 30% 5% 3% 100%

FEMLAES 35% 25% 35% 5% 0% 100%

116

QUESTION 10

When you want to invest which type of mutual funds would you choose?

Having only Equity Having only Debt Portfolio Portfolio

Having Debt & Equity Portfolio

117

TYPE OF MUTUAL FUNDS

In Terms Of Annual Income

3-5 Lakhs DEBT PORTFOLIO EQUITY PORTFOLIO DEBT & EQUITY PORTFOLIO TOTAL % 47% 100% 20% 33%

5-7 Lakhs 20% 20%

7-9 lakhs 7% 33%

Above 9 lakhs 20% 13%

60% 100%

60% 100%

67% 100%

118

 In Terms Of Gender

MALES DEBT PORTFOLIO EQUITY PORTFOLIO DEBT & EQUITY PORTFOLIO TOTAL % 15% 30% 55% 100%

FEMALES 20% 15% 65% 100%

119

QUESTION 11

I would invest in a mutual fund based solely on a brief conversation with a friend, coworker or relative. STRONGLY DISAGREE DISAGREE AGREE SOMEWHAT AGREE AGREE STRONGLY

120

CONVERSATION

In Terms Of Annual Income

3-5 Lakhs SRONGLY DISAGREE DISAGREE SOMEWHAT AGREE AGREE STRONGLY AGREE TOTAL % 0% 0% 40% 33% 27% 100%

5-7 Lakhs

7-9 lakhs

Above 9 lakhs

0% 0% 7% 73% 20% 100%

0% 13% 47% 13% 27% 100%

0% 0% 27% 46% 27% 100%

121

MALES SRONGLY DISAGREE DISAGREE SOMEWHAT AGREE AGREE STRONGLY AGREE TOTAL % 0% 3% 30% 35% 32% 100%

FEMLAES 0% 5% 30% 55% 10% 100%

122

QUESTION 12

Generally, I prefer investments with little or no fluctuation in value, and I am willing to accept the lower returns associated with these investments. STRONGLY DISAGREE DISAGREE AGREE SOMEWHAT AGREE AGREE STRONGLY

123

FLUCTUATION IN VALUE

In Terms Of Annual Income

3-5 Lakhs SRONGLY DISAGREE DISAGREE SOMEWHAT AGREE AGREE STRONGLY AGREE TOTAL % 0% 20% 67% 13% 0% 100%

5-7 Lakhs 13% 33% 27% 27% 0% 100%

7-9 lakhs 20% 47% 33% 0% 0% 100%

Above 9 lakhs 0% 20% 73% 7% 0% 100%

124

 In Terms Of Gender

MALES SRONGLY DISAGREE DISAGREE SOMEWHAT AGREE AGREE STRONGLY AGREE TOTAL % 13% 15% 58% 14% 0% 100%

FEMLAES 0% 60% 30% 10% 0% 100%

125

QUESTION 13

Which channel do you prefer for investing in mutual funds?

Financial Advisor

AMC

Bank

126

CHANNEL OF PREFRENCE

In Terms Of Annual Income

3-5 Lakhs FINANCIAL ADVISOR AMC BANK TOTAL % 20% 40% 40% 100%

5-7 Lakhs 47% 40% 13% 100%

7-9 lakhs 33% 40% 27% 100%

Above 9 lakhs 20% 33% 47% 100%

127

 In Terms Of Gender

MALES FINANCIAL ADVISOR AMC BANK TOTAL % 25% 45% 30% 100%

FEMALES 40% 25% 35% 100%

128

QUESTION 14

How would you like to receive Dividend every year?

Dividend Payout

Dividend Re-investment

Growth in NAV

129

DIVIDENT

In Terms Of Annual Income

3-5 Lakhs DIVIDEND PAYOUT DIVIDEND REINVESTMENT GROWTH IN NAV TOTAL % 40% 27% 100% 33%

5-7 Lakhs 47%

7-9 lakhs 60%

Above 9 lakhs 47%

33% 20% 100%

33% 7% 100%

33% 20% 100%

130

 In Terms Of Gender

MALES DIVIDEND PAYOUT DIVIDEND RE-INVESTMENT GROWTH IN NAV TOTAL % 50% 35% 15% 100%

FEMALES 40% 35% 25% 100%

131

QUESTION 15

Do you view following factor/sources of information important while investing in MF? Extremely Important Important Neutral nt important Unimporta Highly

a) Safety b) Liquidity c) Return earned d) Tax savings e) Performance of past schemes f) Rating of MF by Agencies g) Advertisements h) Recommendation of friends and relatives.

132

SAFETY In Terms Of Annual Income

3-5 Lakhs EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 73% 27% 0% 0% 100%

5-7 Lakhs 93% 7% 0% 0% 100%

7-9 lakhs 67% 33% 0% 0% 100%

Above 9 lakhs 87% 13% 0% 0% 100%

133

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 80% 20% 0% 0% 100%

FEMALES 75% 25% 0% 0% 100%

134

LIQUIDITY

In Terms Of Annual Income

3-5 Lakhs EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 20% 40% 27% 13% 100%

5-7 Lakhs 33% 60% 0% 7% 100%

7-9 lakhs 27% 40% 13% 20% 100%

Above 9 lakhs 7% 40% 20% 33% 100%

135

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 25% 40% 15% 20% 100%

FEMALES 15% 55% 15% 15% 100%

136

RETURNS EARNED

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 67% 26% 0% 7% 100%

5-7 LAKHS 53% 47% 0% 0% 100%

7-9 LAKHS 20% 60% 20% 0% 100%

ABOVE 9 LAKHS

53% 40% 7% 0% 100%

137

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 67% 28% 5% 0% 100%

FEMALES 15% 70% 10% 5% 100%

138

TAX SAVINGS

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 6% 27% 47% 20% 100%

5-7 LAKHS 13% 40% 40% 7% 100%

7-9 LAKHS 13% 46% 34% 7% 100%

ABOVE 9 LAKHS

13% 46% 34% 7% 100%

139

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 43% 45% 12% 0% 100%

FEMALES 30% 60% 10% 0% 100%

140

PAST PERFORMANCE

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 7% 27% 46% 20% 100%

5-7 LAKHS 13% 40% 40% 7% 100%

7-9 LAKHS 13% 46% 33% 8% 100%

ABOVE 9 LAKHS

13% 46% 33% 8% 100%

141

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 10% 40% 38% 12% 100%

FEMALES 15% 40% 40% 5% 100%

142

MUTUAL FUNDS RATING BY COMPANIES

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 0% 26% 53% 21% 100%

5-7 LAKHS 7% 46% 26% 21% 100%

7-9 LAKHS 7% 13% 47% 33% 100%

ABOVE 9 LAKHS

20% 40% 13% 27% 100%

143

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 10% 28% 34% 28% 100%

FEMALES 5% 40% 40% 15% 100%

144

MUTUAL FUNDS RATING BY COMPANIES

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 7% 20% 20% 53% 100%

5-7 LAKHS 7% 40% 40% 13% 100%

7-9 LAKHS 7% 27% 33% 33% 100%

ABOVE 9 LAKHS

20% 20% 40% 20% 100%

145

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 13% 23% 38% 26% 100%

FEMALES 5% 30% 25% 40% 100%

146

RECOMMENDATION BY FRIENDS & RELATIVES

In Terms Of Annual Income

3-5 LAKHS EXTREMLY IMPORTANT IMPORTANT NEUTAL UNIMPORTANT TOTAL 20% 53% 20% 7% 100%

5-7 LAKHS 27% 53% 13% 7% 100%

7-9 LAKHS 20% 27% 27% 26% 100%

ABOVE 9 LAKHS

47% 33% 13% 7% 100%

147

 In Terms Of Gender

MALES EXTERMELY IMPORTANT IMPORTANT NEUTRAL UNIMPORTANT TOTAL % 33% 45% 13% 9% 100%

FEMALES 20% 35% 30% 15% 100%

148

FINDINGS AND OBSERVATIONS

149

a) From the total population 55% OF the people were holding mutual funds and the rest 45% were not holding mutual funds.

b) Out of the 55% people who were holding mutual funds, 20% were holding in UTI, 24%in SBI, 25% in HDFC, 16% in Birla, 38% in RELIANCE and 5% in KOTAK.

c) The population was asked to rank shares, mutual funds, life insurance and government bonds in order of preference as to in which they would like to invest their money. 48% people prefer Life insurance, 28% prefer mutual funds, 14% bonds and 10% people will prefer Government Bonds to invest their money.

150

d) 15% of the population would like to prefer financial safety, 35% of the population returns 12% companys reputation for treating policy holders fairly, 10% companys history, and 28% would prefer all the above criteria.

e) The population was asked as what they think about their level of investment. 4% consider themselves as very inexperienced investor, 20% as somewhat experienced, 45 % as somewhat experienced, 25% as experienced and 6% as very experienced.

151

f) Now the population was whether they thought mutual funds had a substitute or not. 18% of the people said yes and rest 82% said no

g) 36% people think shares as a substitute of mutual funds, 54% fixed deposits and 10% life insurance.

152

h) While making an investment 5% of the population would like to hold their investment for 1-2 years, 25% for 3-4 years, 35% for 5-6 years, 24% for 7-8 years, and 11% for more than 8 years.

i) 90% of the total population think it is safe to invest in mutual funds and rest 10% consider mutual funds an unsafe option.

153

j) According to the participants reliance mf has more demand in the market with 38%, HDFC 22%, Birla sun MF 10%, SBI MF 8%, Kotak Mahindra 5% and other with 17%.

k) 30% of the population would like to take advice from professional advisory, 32% from company advisory, 32% from mutual funds Prospects, 4% from TV. newspaper , etc and 2% from MF rating service.

154

l) 18% people would like to invest their money in a debt portfolio MF, 26% in Equity Portfolio MF, and 66% in Debt and Equity portfolio.

m) 3% of the total population disagree to invest in MF based on a conversation with a relative friend, or a co-worker, 30% somewhat agree, 43% agree and 24% strongly agree to the point.

155

n) 9% of the population disagrees to prefer investments with little or no fluctuation in value, and the lower returns associated with these investments, 30% somewhat agree, 50% agree and 11% disagree to the point.

o) 30% of the people would like to invest with the help of a financial advisor, 30% with asset management companies and 32% with a bank.

156

p) Now the people were asked how they would like to receive the returns of mutual fund. 48% would like Dividend Payout, 35% Dividend Re-investment and 17% Growth in NAV.

q) 80% of the people consider safety extremely important and 20% important for investing their money in mutual funds.

157

r) 22% of the total population consider liquidity as extremely important, 45% important, 15% neutral and 18% unimportant factor while investing in mutual funds.

s) 48% people consider Returns earned as an extremely important factor, 42% important factor, 8% are neutral and 2% unimportant factor to invest in mutual funds.

t) Tax saving is extremely important factor for 40% of the population, important for 52% neutral for 5% and 3% consider it as an unimportant

158

factor.

u) Tax saving is extremely important to 12% of the people, for 40% important, for 38% neutral and for 10% it is unimportant factor while investing in Mutual funds.

159

v) Ratings of MF by agencies are extremely important to8% population, for 32% it is important, for 35% it is neutral factor and for 25% it is an unimportant factor.

w) Advertisements of mutual funds are extremely important to 10% of the population, for 30% its important, for 34% it is neutral, and for 26% it is unimportant

160

x) Recommendation of Mutual Funds by friends and relatives is extremely important for 29% of the population, for 42% it is important, 20% people are neutral and for 9% it is an unimportant factor.

161

Consumer behaviour towards mutual funds

QUESTIONNAIRE

Before you proceed to the questionnaire please fill some personal information

Name : __________________________________________________ Age : ____years

Gender:________ Marital Status: ____________________ Highest level of Education: __________________________________________________ Company you are currently Employed: _________________________________________ Work Experience: ______________ Annual Income: ___________________________ No. of family members:_____ No. of People Earning in your Family:_______

162

1) Do you have a mutual fund?

Yes

No

If yes then which asset management company/companies?

-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------3) Please rank the following as per you preferences to investment in a financial year: a. Shares b. Mutual Funds c. Life Insurance d. Government Bonds

3) What is your primary objective for your investment? a. Preservation of Principal b. Current Income c. Growth and Income d. Conservative Growth e. Aggressive Growth

163

4) When it comes to investing in stock or bond mutual funds (or individual stocks or bonds), I would describe myself as a/an... VERY INEXPERIENCE D INVESTOR SOMEWHAT INEXPERIENCE D INVESTOR SOMEWHAT EXPERIENCE D INVESTOR VERY EXPERIENCE D INVESTOR

EXPERIENCE D INVESTOR

5) Is there any substitute of Mutual Funds? Yes If yes then what: _____________________________________________________________________ No

_____________________________________________________________________ 6) When making a investment, I plan to hold the investment for... a. 1 to 2 years b. 3 to 4 years c. 5 to 6 years d. 7 to 8 years e. more than 8 years 7) According to you is investing in mutual funds a Safer option or not? Yes No

164

8) According to you which company has more demand in the market? a. Reliance mutual fund b. HDFC mutual fund c. Birla sun life mutual fund d. Kotak Mahindra mutual fund e. Other

f. Which of the following source of mutual funds information do you like to opt for? a. Professional advisory b. Company advisory c. Mutual fund prospects d. Newspaper, magazine, television e. Mutual fund rating service 10. When you want to invest which type of mutual funds would you choose?

Having only Equity Having only Debt Portfolio Portfolio

Having Debt & Equity Portfolio

165

11) I would invest in a mutual fund based solely on a brief conversation with a friend, coworker or relative. STRONGLY DISAGREE DISAGREE AGREE SOMEWHAT AGREE AGREE STRONGLY

12) Generally, I prefer investments with little or no fluctuation in value, and I am willing to accept the lower returns associated with these investments. STRONGLY DISAGREE DISAGREE AGREE SOMEWHAT AGREE AGREE STRONGLY

13) Which channel do you prefer for investing in mutual funds?

Financial Advisor

AMC

Bank

14) How would you like to receive Dividend every year?

Dividend Payout

Dividend Re-investment

Growth in NAV

166

15) Do you view following factor/sources of information important while investing in MF? Extremely Important Safety Liquidity Return earned Tax savings Performance of past schemes Rating of MF by Agencies Advertisements Recommendations of friends and relatives. Important Neutral Unimporta nt Highly important

167

BIBLOGRAPHY

www.google.com www.wikipedia.com www.sc.com

www.irdaindia.gov www.quickmba.com www.amfindia.com www.mba.com

168