1

Introduction to Mutual funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market instruments
such as shares, debentures and other securities. The income earned through these investments and
the capital appreciation realized is shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost.

The flow chart below describes broadly the working of a Mutual Fund.

Mutual Fund is a body corporate registered with the Securities and Exchange Board of
India (SEBI) that pools up the money from individual/corporate investors and the same on
behalf of the investors/unit holders, in equity shares, Government securities, Bonds, Call Money
Markets etc, and distributes the profits. In the other words, a Mutual Fund allows investors to
indirectly take a position in a basket of assets.

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investments in securities are spread among a wide cross-section of industries and sectors thus the
risk is reduced. Diversification reduces the risk because all stocks may not move in the same
direction in the same proportion at same time. Investors of mutual funds are known as unit holders.
The investors in proportion to their investments share the profits of losses. The mutual
funds normally come out with a number of schemes with different investment objectives which are
launched from time to time. A Mutual Fund is required to be registered with Securities Exchange
Board of India (SEBI) which regulates securities markets before it can collect funds from the
public.


Need of the study
2


The projects idea is to project Mutual Fund as a better avenue for investment on a long-
term or short-term basis. Mutual Fund is a productive package for a lay-investor with limited
finances, this project creates an awareness that the Mutual Fund is a worthy investment practice.
Mutual Fund is a globally proven instrument. Mutual Funds are Unit Trust as it is called in some
parts of the world has a long and successful history, of late Mutual Funds have become a hot
favorite of millions of people all over the world. The driving force of Mutual Funds is the safety
of the principal guaranteed, plus the added advantage of capital appreciation together with the
income earned in the form of interest or dividend. The various schemes of Mutual Funds provide
the investor with a wide range of investment options according to his risk bearing capacities and
interest besides; they also give handy return to the investor. Mutual Funds offers an investor to
invest even a small amount of money, each Mutual Fund has a defined investment objective and
strategy. Mutual Funds schemes are managed by respective asset managed companies sponsored
by financial institutions, banks, private companies or international firms. A Mutual Fund is the
ideal investment vehicle for todays complex and modern financial scenario.

The study is basically made to analyze the various open-ended equity schemes of different
Asset Management Companies to highlight the diversity of investment that Mutual Fund offer.
Thus, through the study one would understand how a common man could fruitfully convert a
pittance into great penny by wisely investing into the right scheme according to his risk taking
abilities.







Objectives
1. To project Mutual Fund as the productive avenue for investing activities.
3

2. To show the wide range of investment options available in Mutual Funds by explaining its
various schemes.
3. To help an investor make a right choice of investment, while considering the inherent risk
factors.
4. To understand the recent trends in Mutual Funds world.

Scope of the study
The study here has been limited to analyze open-ended equity schemes of different Asset
Management Companies namely Reliance Capital, Franklin Templeton, and HDFC Mutual Funds
each scheme is analyzed according to its performance.
Research Methodology
The methodology involves randomly selecting open-ended equity schemes of different fund
houses of the country. The data collected for this project is basically from two sources, they are

1. Primary sources: The monthly fact sheets of different fund houses and research reports
from banks.
2. Secondary sources: Collection of data from Internet and books.

Limitations of the study

1. The study is limited only to the analysis of different schemes and its suitability to different
investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets, websites and
other books as primary data was not accessible.

The study is limited by the detailed study of various schemes of Three AMCs.


4

Industry Profile
An Overview
The mutual fund industry in India began with the setting up of the Unit Trust of
India (UTI) in 1963 by the Government of India. Till the year 2000, UTI has grown to be a
dominant player in the industry with the assets of over Rs. 76,547 crores as of March 31, 2000.
The UTI is governed by a special legislation, the Unit Trust of India Act, 1963. In 1987 public
sector banks and insurance companies were permitted to set up mutual funds.

Also the two insurance companies LIC and GIC established mutual funds. Securities
Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the
first time established a comprehensive regulatory framework for the mutual fund industry.

Growth of Mutual Funds
The Indian Mutual Fund has passed through three phases. The first phase was between
1964 and 1987 and the only player was the Unit Trust of India, which had a total assets of Rs. 6700
crores at the end of 1988. The second phase is between 1987 and 1993 in which period 8 funds
were established (6 by banks and one each by LIC and GIC). The total assets under management
had grown to rs. 61028 crores at the end of 1994 and the number of schemes were 167. The third
phase began with the entry of private and foreign sectors in the Mutual fund industry in 1993.
Kothari Pioneer Mutual Fund was the first fund to be established the private sector in association
with a foreign fund. At the end of financial year 31march 2000

Funds arc were functioning with Rs. 113005 crores as total assets under management. As
on August end 2000 there were 33 funds with 391 schemes and assets under management with Rs.
102849 crores.

As you probably know, mutual funds have become extremely popular over the last 20
years. What was once just another obscure financial instrument is now a part of our daily lives.
More than 80 million people, or one half of the households in America, invest in mutual funds
That means that, in the United States alone, trillions (yes, with a "T") of dollars are invested in
mutual funds.
5


In fact, too many people, investing means buying mutual funds. After all, its common
knowledge that incesting in mutual funds is (or at least should be) better than simply letting your
cash waste away in a savings account, but, for most people, that's where the understanding of funds
ends. It doesn't help that mutual fund salespeople speak a strange language that, sounding sort of
like English, is interspersed with jargon like MER, NAVPS, load/no-load, etc.

Originally mutual funds were heralded as a way for the little guy to get a piece of the
market. Instead of spending all your free time buried in the financial pages of the Wall Street
Journal, all you have to do is buy a mutual fund and you'd be set on your way to financial freedom.
As you might have guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in
reality, they haven't always delivered. Not all mutual funds are created equal, and investing in
mutuals isn't as easy as throwing your money at the first salesperson who solicits your business.
.
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.
History of Indian Mutual Fund Industry
The Mutual Fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The history of
Mutual Funds in India can be broadly divided into four distinct phases.

First Phase - 1964-87
Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was set up by
Reserve Bank of India and functioned under the regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964.
6

Second Phase- 1987-1993(Entry of Public Sector Funds)
1987 marked the entry of non-UTI, public sector Mutual Funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non -UTI Mutual Fund established in June 1987 followed by
Canara bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank
Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).

LIC established its Mutual Fund in June 1989 while GIC had set up its Mutual Fund in June
1989 while GIC had set up its Mutual Fund in December 1990.At the end of 1993, the Mutual
Fund industry had assets under management of Rs.47, 004crores.

1992-93 Amount
Mobilised
Assets
Under
Management
Mobilisation
as % of
gross
Domestic
Savings
UTI 11,057 38,247 5.2%
Public
Sector
1,964 8,757 0.9%
Total 13,021 47,004 6.1%

Third Phase-1993-2003 (Entry of Private Sector funds)
With the entry of private sector funds in 1993, a new era started in the Indian Mutual Fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, under which all Mutual Funds, except
UTI were to be registered and governed. The erstwhile Kothari pioneer (now merged with UTI
were to be registered and governed. The erstwhile Kothari pioneer (now merged with Franklin
Templeton) was the first private sector Mutual Fund registered in July 1993.
7

The number of Mutual Fund houses went on increasing, with many foreign Mutual Funds
setting up funds in India and also the industry has witnessed several mergers and acquisitions. AS
at the end of January 2003, there were 33 Mutual Funds with total assets of Rs. 1,21,805crores.
The Unit Trust of India with Rs.44, 541crores of assets under management was way ahead of other
Mutual Funds.

Fourth Phase -- since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the specified Undertaking of the Unit Trust of India
with assets under management of Rs.29,835 crores AS at the end of January 2003, representing
broadly, the assets of US 64 scheme, assured return and certain other schemes.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered
with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with
the setting up of a UTI Mutual Fund, confirming to the SEBI Mutual Fund Regulations, and with
recent mergers taking place among different private sector funds, the Mutual Fund industry has
entered its current phase of consolidation and growth. As at the end of October 31, 2003, there
were 31 funds, which manage assets of Rs.1, 26,726crores under 386 schemes
However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a
significant growth in mobilization of funds from investors and assets under management which is
supported by the following data:






8

Gross Fund Mobilizations (Rs. Crores)
From To UTI Public
sector
Private
sector
Total
01-April-
98
31-
March-
99
11,679 1,732 7,966 21,377
01-April-
99
31-
March-
00
13,536 4,039 42,173 59,748
01-April-
00
31-
March-
01
12,413 6,192 74,352 92,957
01-April-
01
31-
March-
02
4,643 13,61
3
1,46,267 1,64,523
01-April-
02
31-Jan-
03
5,505 22,92
3
2,20,551 2,48,979
01-Feb.-
03
31-
March-
03
* 7,259
*
58,435 65,694
01-April-
03
31-
March-
04
- 68,55
8
5,21,632 5,90,190
01-April-
04
31-
March-
05
- 1,03,2
46
7,36,416 8,39,662
01-April-
05
31-
March-
06
- 1,83,4
46
9,14,712 10,98,15
8

9

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 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.

The mutual fund industry, beset by net redemptions by investors and adverse global and local
market conditions, shrank by 1.6% in terms of assets under management during the year FY2011-
2012.

The benchmark BSE Sensex and the assets under management (AuM) for the mutual fund
industry have risen in tandem. Booming markets in 2006 saw increased investor participation in
the industry, leading to fund inflows enabling the AuM to grow at a pace greater than the Sensex.

10

However, volatile market conditions in the last two years have led to net withdrawals by investors
to the tune of 49,406 crore INR in FY 2010-11 and 22,023 crore INR in FY 2011-12, leading to a
further drop in AuM, in addition to the drop caused by adverse market movements.




11

The mutual fund industry is primarily debt-oriented with debt funds (including liquid funds)
forming 64% of the AuM. As in the past, increased equity participation is the need of the hour for
the mutual fund industry. The period from 2006 to 2012 saw a number of major events, a very
significant one being the global meltdown in the banking and financial services industry (BFSI),
which had knock-on effects on almost all business sectors. Considering that we now live in a
connected world, India faced its own share of consequences although companies in the BFSI
segment remained relatively unaffected by the turmoil seen in the Western world. It seemed as
though the tighter regulatory regime had paid a dividend in an imploding global scenario. The
relevant indices and statistics including stock marketsreflected the stress the Indian
environment went through. This document examines the various trends, outcomes and issues
pertaining to the Indian asset management industry against this backdrop.
The Sensex rose from the levels of 14,000 in February 2007 to a dizzying peak of 21,000 in a span
of a year (January 2008) and then plunged to levels below 9,000 in the next year (March 2009)!
This was despite the fact that the GDP grew by 9.3% in FY 2007-08 and 6.8% in FY 2008-09.
Since then, the market has largely been in the range of 15,000 to 17,000, thanks to the prevalent
global and local geo-political uncertainties. Regardless of all the above factors, the Indian asset
management industry has racked up an absolute growth of over 50% (31 March 2007 to 31 March
2009), which is no mean feat.
Over the same period, many mutual fund schemes actually delivered a positive alpha! This is
something the common investor is largely unaware of. Yet the industry again finds itself facing
several challenges. Factors such as softer economic outlook, an uncertain investor and regulatory
changes (e.g., the removal of the entry load in 2009) have led up to this situation. Mutual funds are
one of the several options that investors explore for investing surplus funds. In a deposit-dominated
market like India it is important for mutual funds to be able to offer differentiated risk-rewards and
gain shelf-space. With many seemingly similar offerings from multiple mutual funds unable to
clearly communicate their Superiority, a less informed investor may find it difficult to make a
choice. This uncertainty leads to a weakened pull for the product. On the other hand, in an open
architecture distribution scenario, distributors are well aware of the differential incentive and
brokerage structures across products. After the compensation norms for distributors were altered
(i.e. abolition of entry load), the brokerage offered for selling mutual fund products has become
less competitive vis-- vis some other products. Thus, the push for the product has also
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weakened. The question, therefore, is this: how can the mutual fund products regain the shelf-
space they seem to have lost in a scenario where investor knowledge and awareness is relatively
poor?

Against this backdrop, the industry has seen the number of mutual funds grow from 32 to 44 over
the last six years. The number of schemes has grown from 779 to 4,473 (counting various options
of a single scheme as separate schemes) in the same period.
Further, there have been 18 new entrants through the joint-venture (JV) or acquisition route, which
include the following:
Nomura
KBC Bank
L&T Finance
Goldman Sachs
Natixis Global AMC
T Rowe Price
Pramerica
13



There is one reported proposed entry of Schroder Investment Management through the
acquisition of a significant minority stake in an existing AMC or trust company and also one
reported proposed exit, viz. Fidelity This growth serves to demonstrate that, at a fundamental level,
there are many significant global and local players that consider the Indian mutual fund industry to
be attractive. It is necessary to understand the mix of investors, distributors, types and number of
schemes as factors that contribute to a sustainable and profitable operating model.

The data as on 31 March 2012 relating to geographic contributions to the total AuM tells a
revealing story.

The large number of corporate investors contributing to the skew towards the debt- oriented or
non-equity AuM is mirrored by the disproportionate contribution from Mumbai. The top five cities
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(Mumbai, New Delhi, Bangalore, Kolkata and Chennai) contribute over 71% of the total AuM,
with Mumbai alone accounting for more than 42%.


Thus, an overwhelming majority of the funds garnered from the urban non-retail segment are
short-term investments. Further, this is not a short-term trend as it has been noticed over a period
of a few years. Therefore, if the industry wants to change the age profile of the funds it has at its
disposal, it needs to seriously look at the other investors i.e. retail investors and high net-worth
individuals (HNIs) in the urban and semi-urban areas. This will also help fulfil the objectives of
financial inclusion.
This is not to say that corporate investors should not be encouraged to invest in mutual funds as
this leads to channelising corporate surpluses into the capital market in a structured fashion. At the
same time AMCs could do well to have a sharper focus on the retail investor. It is good to
remember that mutual funds originally aimed to provide individual investors with the opportunity
to make long- term capital market investments. Earlier, long-term referred to periods of five to
ten years. The perception in recent times of long-term is probably that of two to three years. This is
15

a period not nearly enough for a fund manager to demonstrate an alpha that justifies continued
investment.


16



17


Key Challenges

Traditionally, the Life Insurance Corporation of India and the Unit Trust of India
for their own products developed large distribution networks. The LIC model involved
engaging deeply with distributors and agents, by educating and equipping them to sell.
Agents were well compensated and penetration was deep. In return, the agents worked
exclusively with LIC and did not sell other products.
Unlike this, the mutual fund distribution network evolved in an open architecture
mode. All distributors were free to distribute or offer products from multiple asset
management companies (AMCs). As a result, the bond between the AMC and the
distributor was relatively weaker. An AMC did not end up spending resources beyond a
certain level on developing the distributor skills as the latter could then easily use these
improved skills to sell other competing products.
The withdrawal of the entry-load, which constituted a good part of the
commissions passed on to the distributors, was one of the other factors leading to a
sudden change in the distribution space.
Generally, it is more expensive for a distributor to reach out to a retail investor
than to a corporate investor. While an average retail investor folio has about 35,000 INR
of assets, an average corporate investor folio has 59 lakh INR of assets. Hence, a
distributor will need to reach around 170 retail investors to get the same AuM as a single
corporate folio, which acts as a relative disincentive to chasing and capturing individual
retail investors.
Considering the higher costs of acquisition of a retail investor, one could consider
evaluating differential expenses being charged to retail and institutional investors. This
may, however, impact investor returns of the two segments who have invested in the
same scheme, leading to discontent among retail investors. Moreover, despite the higher
upfront cost of acquiring a retail investor, the sticky nature of retail investors indicate that
18

retail consumers break even and are actually more profitable than corporate clients in the
long run.
Upfront commission: After the alteration to entry-load norms, in August 2011,
transaction charges were introduced to compensate distributors (refer to the transaction
charges paid to distributors point in the regulatory section). In respect of the opt-in
facility offered to distributors, only 16% have opted in with the rest opting out of
charging the transaction fee. A possible reason for this trend could be the lower limit of
10.000 INR on the ticket size, which consequently disincentives small scale distributors
and sub-distributors who typically get large volumes of low ticket size subscriptions. This
trend also indicates that this move has only partially brought back distributor interest in
selling to this segment.
Trail commission: The changes to trail commission led to large distributors
focusing on servicing and retaining existing investor-clients rather than reaching out to
new investors. Later, in May 2010, AMFI members agreed to ban trail commission on
transferred portfolio.
The reduced trail commission, which was typically charged to schemes, implied
increased scheme returns, which could prove beneficial to investors. However, the
blanket ban on all trail commissions for transferred portfolios could serve as a detraction
to investors whose existing agents were not servicing them, given the reduced attraction
for a new agent to service sans a trail commission.
The abolition of the entry load and the revision of trail commission guidelines
have taken care of some key issues, but in turn have given rise to other aspects which
need to be tackled and resolved.
Mandatory disclosure of commission earned: A mandatory disclosure alerts the
investor about the extent of distributor gain while putting the onus on the distributor to
explain the rationale for the switch.
In this context, a re-introduction of the entry load in its original form appears to
many to be a regressive step rather than a solution to the current problems faced by the
19

industry. One of the fallouts of such re-introduction could be an increased churn to some
extent.
Payment of distributor commission by investors: Currently, an investor is required
to draw two cheques: one to the AMC for the investment amount and the other to the
distributor for the commission. Distributors on the field have observed that investors may
be hesitant to go through this process. The depositing and subsequent collection of the
distribution commissions by the distributor also involves a cost. A system whereby
investors are given the option to draw a single cheque to the AMC, which clearly
indicates the distribution commission to be paid by the AMC to the distributor, may help
in simplifying this process.
Direct channels and exclusive or preferential treatment for distributors: Asset
management companies currently do not foresee a significant change in their current cost
structure, thereby continuing to have a limited margin to pass on to the distributors as
commission. Any increase or decrease in AuM directly affects the revenues (management
fees) and profitability of an AMC. In such a scenario, AMCs having access to their own
distribution channel to sell mutual fund products have a relative advantage; this includes
AMCs with Indian banks and brokerage houses as sponsors. Banks have also been
focussing increasingly on earning a higher percentage of their income from services and
fees. Hence, there is a mutual benefit for banks to use their network to sell mutual fund
products, whether those offered by their own group AMC or by others.
Currently, AMCs not having exclusive distributors have a limited incentive to
invest on training and improving the awareness, knowledge and skill of distributors.
Economic compulsions could see companies move towards a committed distributorship
system.
Alternate lower cost distribution channels:
Other avenues for AMCs to diversify their distribution base could include an
examination of distribution channels prevalent in other industries, especially those that
involve a low distribution cost such as the FMCG industry. Customers in Tier-2 and
lower cities could also be tapped by leveraging on the reach of PSU banks in these areas,
20

which could be mutually beneficial. Alternate technology-based channels including the
Internet and mobile banking could also be further explored with the aim of reaching a
larger customer base at lower costs.
Given the widespread use of mobile phones and secure payment gateways, it is
expected that this channel will be used to directly reach investors for reasons other than
merely communicating the daily NAV.
Another suggestion that could be considered is to lighten the AMFI certification
requirement for distributors with sales or collection below a certain threshold. This will
encourage sub- distributors in the far-flung areas to distribute mutual fund products to
investors with smaller investible surpluses.
Opportunities
In any industry, innovation and improvements happen when the rules are
changed. Large-scale environmental changes such as those that have taken place in the
last three years must lead to innovation and evolution.
Newer leaner operating structures will have to evolve which will entail the use of
technology that helps an AMC reach the retail end user with solutions that enable
transactions via platforms such as mobile or online platforms. This will not only
give greater direct access but will also help AMCs to better understand investor
behavior and create the appropriate environment and products to move towards
long and healthy relationships with the investors.
As the industry evolves, outsourcing an increasing number of functions to reduce
the head-count and increase efficiency might be the norm. All aspects of
operating costs must be examined for efficiencies.
A rational look at schemes of an AMC by their management teams is needed to
better understand the mix, the cost and the benefits to the investors as well as to
the AMCs.
Agile product design, re-positioning of ETFs and SIPs
Better communication of scheme returns on a relative basis to investors is
required. The alpha achieved is insufficiently communicated or understood.
21

The new AIF guidelines will create opportunities to broaden the revenue base
without commensurate cost increases.
The asset management industries in the US and in Japan have had their 401 k
moments. In the late 70s market regulators in the US permitted pension funds
(later 401K) to invest a portion of their funds (at the discretion of the individual)
into mutual fund schemes. This saw a huge upsurge in the AuM of the industry as
a whole. Similarly the Japanese asset management industry went on a growth
surge around the turn of the century when the pension and retirement funds were
permitted to be invested in the asset management schemes. The EPF in India is a
huge pool of long-term investible funds. These are expected to yield high returns.
If the right mechanism were to be created to channelise even a small proportion of
the funds to be invested in the Indian mutual fund schemes (specific schemes can
be selected if required), it will provide a boost to the industry, apart from
maintaining the more important objective of having the funds managed by a
regulated sector and by persons with a track record. Imagine the change if 20% of
the 3,00,000 crore INR were permitted to be invested in the Indian capital markets
via the asset management industry. It will be the industrys 401K moment.
A similar impact could be generated by introducing the concept of individual
retirement accounts (IRAs). Some of the investment products available are in the
nature of retirement benefit plans (EPF, PPF and now NPS as well as certain
insurance products). Avenues such as EPF are available to only a certain section
of the population. To encourage people to save for the post retirement period
IRAs can be offered. The investments into such schemes could be self-directed,
flexible and in specific circumstances tax deductible. The fund so created could
be available tax free (EEE) at the age of retirement.
Such a concept exists in the mature western markets such as the US and
contributes to about 20% of the assets under management!
The recently announced Rajiv Gandhi Equity Savings Scheme is another opportunity
for the mutual fund industry. We believe that given the low financial awareness of such
new or first time investors in the far flung regions, it is imperative that these investors are
22

channelized into the markets via mutual funds rather than directly investing into equities
themselves!
Advisory services to off-shore funds should be explored further as an area of revenue
diversification. More could be done in this direction.
Conclusion: Evolution and not revolution
The Indian asset management industry has answered existential questions.
However, the present scenario demands vigorous innovation and reinvention.
Wholesale or drastic changes may not be warranted; instead, the purpose may be
better served by adopting a cluster of key initiatives in the areas of cost efficiency,
product design and positioning, alternative distribution models, revenue diversification
and capacity creation. We believe a sensitive regulatory environment will support the
evolution going forward.
Mutual fund products are a natural component of options for all class of investors
and will remain so. The evolution is more towards gaining a larger mind share with all
key stakeholders including, most importantly, the investors.













23

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24

About the Company
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cities.

With a smorgasbord of services across all verticals in finance, Bonanzas offers you
the perfect blend of financial services right from Equity Broking, Advisory Services that
cover Portfolio Management Services, Mutual Fund Investments, and Insurance to
exceptional Depository Services.

Bonanza believes in being technologically advanced so that we can offer you our tech-
savvy customers - an integrated and innovative platform to trade online as well as offline.
Besides, we also have one of the finest and most dedicated research teams with experts
who have in-depth, unsurpassed knowledge of the market place. All this and more makes
Bonanza the perfect place for you to take your first step in the direction of financial
success.

25

Vision
To be one of the most trusted and globally reputed financial distribution
companies.
Values
Customer-centric approach
At Bonanza, customers come first. And their satisfaction is not just our top
priority but also the driving force for us, every single day.
Transparency
Honesty is our forte. We believe in dealing on thoroughly ethical grounds,
being fair and transparent with our customers.
Meritocracy
We recognize and appreciate efforts put in by our employees. And we, as
a matter of fact, reward and distinguish each one of them, ceaselessly.
Solidarity
We believe in sharing a forthright and respectful relationship with our
business partners and employees. We consider them both as our team associates,
who work together. Succeed together.






26


5th largest in
terms of no. of
offices for the
year 2010-2012*.


Top Equity Broking House in
terms of branch expansion
for 2008*.



4th in terms of
Trading terminals
for the year 2010 -
2012*.


6th in terms of Sub Brokers
for the year2010-2012*.



Nominated
among the
Top 3 for the
"Best
Financial
Advisor
Awards 08"
in the
category of
National
Distributors
Retail
instituted by
CNBC-TV18
and OptiMix.


Nominated among the
Top 3 for the "Best
Financial Advisor
Awards 09" in the
category of National
Distributors Retail
instituted by CNBC-
TV18 and OptiMix.


27


Awarded by
BSE Major
Volume Driver
04-05,06-07,07-08 .


Ranked 2nd by UTI
MF & CNBC TV 18
Financial Awards
2009 in the category
Best Financial
Advisor- Retail.


Top 4 in
Commodity
Segment in
Bloomberg
UTV



Reach & Access
Mar 11 Mar 12
No. of Employees: 1827 1882
No. of Offices: 1339 1453
No. of Sub-brokers: 1278 1420
Sub-brokers Terminals: 4255 4363

The Bonanza group comprises of the following subsidiaries/associate firms:
Bonanza Portfolio Ltd
Bonanza Commodity Brokers Pvt Ltd
Bonanza Global DMCC Bonanza Insurance Brokers Pvt Ltd
Sunglow Fininvest Pvt Ltd
28

Products and Services
Prime Brokerage Services
Equity & Equity Derivatives: Bonanza is a member of both cash and derivative
segment of NSE and BSE and provides equity trading services to all class of investors.
The clients are given access to resources like research charts, advice, live quotes, and
market strategies to take a well versed decision. Bonanza has been awarded by BSE as
the major volume driver for FY04-05, FY06-07 and FY07-08.
Commodity & Currency Derivatives: Bonanza provides access to future trading via
multiple exchanges across various commodities such as agricultural commodities, base
metals, energy and precious metals. It also provides investment opportunities in Gulf
commodities futures and the currency market.
E-broking: Bonanzas online trading portal enables hassle free trading across all
exchanges and offers access to all services through a single window. E-broking has
emerged as a widely used feature for traders and investors. As on Jun 30, 2010 of its total
client accounts 15,833 were e-broking accounts and this number is rapidly growing.
Distribution Services
Mutual Funds: Bonanza is one of the largest distributors of mutual funds in India. It
does in-depth research across categories covering several parameters thereby guiding
their clients to take appropriate investment decisions. Bonanza, an AMFI certified
investment advisor, offers competitive deals to its customers keeping in mind their
budget, requirements and securities.
Insurance: Bonanza offers customized solutions to individual clients and corporate
institutions in India. Bonanza offers insurance products in Life and General Insurance. Its
IRDA certified advisory team helps clients make informed decisions by way of need
analyses, recommending optimum insurance cover to claims redressal & settlement.
29

IPO: Bonanza offers online investment access for public offerings through researched
reports. It also offers in-depth research reports for forthcoming IPOs.
Asset Management Services
PMS: Bonanza provides professional fund management services which are flexible to
address varying investment preferences and deliver maximum returns to its clients. The
PMS team aims to create the most suitable portfolio for their clients depending upon their
investment horizons, return expectation and the risk tolerance. They continuously track
the developments in the markets, the moving stocks, the trends to help the clients give
their investments the best upshots
Advisory Services: Bonanza provides advisory services by supporting its clients to re-
structure and streamline their portfolios based on changing market conditions and client
objectives
Custodial Services
Depository Services: Bonanza is a DP of both CDSL and NSDL and offers a host of
demat services to its clients. It gives investors the option of choosing their depository
services as well the opportunity of trading at one place with the benefit of Demat
operations.
Research & Advisory Services
The Bonanza research desk has a dedicated team of research analysts and experts that
have an in-depth knowledge of the market place. They offer value perspectives, focus on
opportunities for investment and growth and endeavor to reduce risk potential. The
premium advisory services are based on technical and fundamental views and strategies.
Bonanza provides a host of research reports from daily reports, monthly bulletins,
investment ideas, newsletters, special reports among a host of other research services. Its
research division covered more than 184 companies across 20 sectors as on Jun 30, 2010.
30

Moreover, Bonanza has a dedicated institutional research and marketing team to serve the
investment needs of the institutional clients.
ACHIEVEMENTS
Top Equity Broking House in terms of branch expansion for 2008*.
3rd in terms of Number of Trading Accounts for 2008*.
6th in terms of trading terminals in for two consecutive years 2007- 2008*.
9th in terms of Sub Brokers for 2007*
Awarded by BSE 'Major Volume Driver 04-05, 06-07, 07-08
Nominated among the Top 3 for the "Best Financial Advisor Awards '08" in the category
of National Distributors - Retail instituted by CNBC-TV18 and OptiMix
Milestones:-
4th largest in terms of no. of offices for 2008-2009*.

Ranked 2nd by UTI MF & CNBC TV 18 Financial Awards 2009 in the category Best
Financial Advisor- Retail.
Top Equity Broking House in terms of branch expansion for 2008*.

6th in terms of trading terminals in for two consecutive years 2007- 2008*.

9th in terms of Sub Brokers for 2007*.

Nominated among the Top 3 for the "Best Financial Advisor Awards 08" in the
category of National Distributors Retail instituted by CNBC-TV18 and OptiMix.

Nominated among the Top 3 for the "Best Financial Advisor Awards 09" in the
category of National Distributors Retail instituted by CNBC-TV18 and OptiMix.

Awarded by BSE Major Volume Driver 04-05, 06-07, 07-08 .


31

Future Plans
To service the Indian market with an excess of 5,000 outlets in the next three years
To aim 5% market share in equity, commodity and currency segment
Become a leading insurance broker in India
Aspire to enhance its institutional client base
Consistently working towards becoming one of the largest online broking services
provider














32


ORGANIZATION STRUCTURE & ORGANIZATIONCHART


33

Corporate Manager:
The corporate manager is a term assigned to a user placed at thehighest level in a
trading firm. Such a user receives the End of Day reports for all branches of the trading
member. The facility to set Branch Order Value Limits and User Order Value Limits is
available to the corporate manager.
Branch Manager:
The branch manager is a term assigned to a user who is placed under the
corporate manager. The branch manager receives End of Day reports for all the dealers
under that branch. The branch manager can set user order value limit for each of his
branch.
Dealer:
Dealers are users at the lower most level of the hierarchy. A dealer can view and
perform order and trade related activities only for one self and does not have access to
information on other dealers under either the same branch or other branches.
Reasons To Choose Bonanza Portfolio
EXPERIENCE
TECHNOLOGY
KNOWLEDGE
CONVENIENCE
CUSTOMER SERVICE
Growth and Development of The Organization
It provides an extensive smorgasbord of services in equity, commodities, currency
derivatives, wealth management, distribution of third party products etc.

Keeping in par with the modern tech-savvy world , Bonanza makes an integrated and
innovative use of technology; it also enables its clients to trade online as well as offline
34

and the strategic tie-ups with the latest technology partners has earned Bonanza this
prestigious place in one of the top brokerage houses in the country.

Client -focused philosophy backed by memberships of all principal Indian Stock and
Commodity Exchanges makes Bonanza stand apart from its competitors and a preferred
service provider in the industry for value- based services.

To add to our ever-growing achievements, a study by Dun and Bradstreet has rated
Bonanza as the SIXTH largest broking house in terms of equity terminal listings in the
country.

Bonanza Portfolio Ltd was recently nominated amongst the Top 3 Retail Financial
Advisors of the country in an event conducted by CNBC-TV18 and Opti Mix Financial
Advisor Awards 2008. Also Bonanza has been awarded by BSE the "Major Volume
driver for the year 2004-2005, 2006-2007 and 2008-2009".
Corporate Tie Ups
The company has Corporate Tie ups with Birla Sun Life, Bajaj Allianz, ICICI
Prudential, SBI , Aviva , Kotak Mahindra and Reliance for Life Insurance and General
Insurance. In General Insurance, Bonanza provides Insurance for Motor, Health, Travel,
Housekeeper, Shopkeeper, Marine, Personal and Group Insurance.
Present Status of the Organization
There are certain benefits which defines the status of the BONANZA
1. Secure Order by Voice Tool Dial-n-Trade.
2. Automated Portfolio to keep track of the value of your actual purchases.
3. 24x7 Voice Tool access to your trading account.
4. Personalized Price and Account Alerts delivered instantly to your cell phone & email
address.
35

5. Special Personal Inbox for order and trade confirmations.
6. On-line customer service via web chat.
7. Anytime Ordering
Functional departments of the organization
Administration:
The role of this department is to provide all the assistance regarding
anything to the all other departments which they need to deliver their efforts more
efficiently in the interest of the company.

Human resource department:
The role of HR department is to recruit the efficient workers for the company,
and to keep eye on the grievances, problems which the employees are facing in
performing their work. This department also takes care of various works like
calculating salaries, leave status, attendance of employees, etc.
Finance:
As the name suggests this department is concerned with the all finance
related matters of the company be it the salary payment or the financing the
various requirements of the business.
Talent and Knowledge Management:
The role of this department is to take care of all the activities of the
various production departments. This department is responsible for organising the
various trainings which are needed by the employees to work with more
efficiency.
Quality Control:
The work of this department is to make sure that the services and
information provided by the all three production department is up to the quality
measure set by the clients. This department randomly checks the services and
information to make sure the company is standing on clients expectations and is
truly reliable.
36

Software:
This department deals with the software side of the company. All the three
production departments use various software designs by the software department
to do work more easily and efficiently. This department keeps on updating the
software so that work cans be done in time.
Management
Directors
Shiv Kumar Goel
Surendra Kumar Goel
Satya Prakash Goel
Vishnu Kumar Aggarwal
A P Goel
Chief Compliance Officer
M Venkataramana
Shiv Kumar Goel CEO
Bonanza Corporate Solutions Pvt. Ltd. (BCS) is a member of Bonanza Group focused
on providing financial & strategic business advisory services for Indian Small and
Medium Enterprises (SMEs) & middle market Corporates with the primary objective of
enhancing our clients competitiveness & value.
Our Customer centric & research based approach enables us to design services to meet
our clients specific needs with high level of customization at every stage of the transaction,
making us their valued partners for growth. We understand the problems faced by our clients by
working closely with them & help them deliver integrated solutions to complex financial &
business problems.
37

BCS specializes in providing advisory services towards strategic Business
Advisory, Venture Capital / Private Equity Fund Raising, Debt Syndication, Strategic
Investments, and Mergers & Acquisitions
BCS is also engaged in advisory for domestic as well as foreign private equity /
venture capital investors for deal flow generation, pre-investment due diligence,
valuation, post-investment monitoring and exit strategy.
Strategic Business Advisory involves building the financial models & business
cases that support the client's drive in delivering organic growth.
Our Role
Helping clients to translate innovative ideas into sound business plan
Keeping the strategic competitive landscape in mind, strengthening the business plan
further with a business model by helping companies in various areas like Go-to-Market
strategy, distribution, branding, people, business performance management, funding etc.
Helping clients to scale up the business and ensure the transition from early stage to
growth stage to be smooth and seamless.

Bonanza Corporate Solutions (BCS) helps start-up, emerging & mature companies to
raise capital through Equity as well as Debt. One of the key roles played by us is in
financial structuring, wherein we determine the appropriate level of gearing & advice the
company whether to leverage, de-leverage or maintain its current debt-equity levels.
Our Role:
Scanning the market for potential investors.
Submitting the necessary information, documents and further clarifications
required by the Investors
38

Co-ordinate with Investors and the Company during the process of detailed due
diligence
Negotiation with Investor(s) on Valuation and Financial Structuring, terms and
conditions of Investment Securing sanction of Investment from the Fund(s) as per
the requirement of the company
Assistance in Finalizations of Investment Agreement/Shareholders Agreement
with the Investor(s)
Assistance in completion of required legal documentation for closure of
transaction
Openness of smaller companies to look for strategic investment opportunities has
led to tremendous rise in unlocking of business value by synergizing on various fronts; be
it technology, markets, research, financial muscle and more importantly management
strength. This has lead to better resource utilization in industries thereby strengthening
the Indian Economy.
Our strength lies in identifying strategic investment opportunities based on
industry and competition specific value drivers to create long term and sustainable
competitive advantage for our clients.








39

SWOT ANALYSIS
Strength
Bonanza Portfolio is the only Financial service company that provides
Brokers, Equity, Commodity, currency derivative, Wealth management.
Large experience and biggest market share in the country.
It is works since 1994.
Availability of and manpower planning & Financial service.
Availability of mind product Range with large base of special application
customers. And catering to the flat products market segment.
Bonanza has over 1500 outlets in more than 550 cities in India. (as on
June 2012)Bonanza has more than 2,80,000 clients comprising of
Corporate Financial Institutions & Investors, Mutual Funds, High Net-
worth Individuals and Retail Investors.
Bonanza has a young dynamic team of 2200 professionals. Strong
infrastructure supporting over 3000 trading terminals supporting more
than 350 VSAT's to support geographic reach and servicing capabilities.
24x7 service and support via our federal support systems
Weakness
Absence of core competence.
Location of the plants vis--vis market place.
Latest state of art technology for Financial Service.
Limited efforts for Branding of products on the fore of stiff competition.
Covering 260cities so difficult in planning process.
40

Opportunity
A huge investment in insurance and finance sector now a days.
Ability to influence market share.
Emergence of quality Service.
Larger coverage products.

Threats
Law and Order varies in different time.
Up and down in share market indices.
Government new liberalization policies.

Competitors of Bonanza:-
There are several financial security companies playing their roles in Indian equity market.
But Bonanza faces competitions from these few companies.
ICICI Direct.com
Share Khan (SSKI)
Kotak Securities.com
India Bulls
HDFC Securities
5paisa.com
Motital Oswal
IL&FS
Karvy


41

INVESTORS PROFILE

An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated to different proportions of the total
disposable amount. Investments for specific goals normally find their way into the debt
market as risk reduction is of prime importance, this is the area for the risk-averse
investors and here, Mutual Funds are generally the best option. One can avail of the
benefits of better returns with added benefits of anytime liquidity by investing in open-
ended debt funds at lower risk, this risk of default by any company that one has chosen to
invest in, can be minimized by investing in Mutual Funds as the fund managers analyze
the companies financials more minutely than an individual can do as they have the
expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk
and invest in equity funds/capital market. However, since their appetite for risk is also
limited, they would rather have some exposure to debt as well. For these investors,
balanced funds provide an easy route of investment, armed with expertise of investment
techniques, they can invest in equity as well as good quality debt thereby reducing risks
and providing the investor with better returns than he could otherwise manage. Since they
can reshuffle their portfolio as per market conditions, they are likely to generate moderate
returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to
investing in high-risk avenues. Capital markets find their fancy more often than not,
because they have historically generated better returns than any other avenue, provided,
the money was judiciously invested. Though the risk associated is generally on the higher
side of the spectrum, the return-potential compensates for the risk attached.




42

Performance Measures of Mutual Funds
Mutual Fund industry today, with about 30 players and more than six hundred
schemes, is one of the most preferred investment avenues in India. However, with a
plethora of schemes to choose from, the retail investor faces problems in selecting funds.
Factors such as investment strategy and management style are qualitative, but the funds
record is an important indicator too.

Though past performance alone cannot be indicative of future performance, it is,
frankly, the only quantitative way to judge how good a fund is at present., there is a need
to correctly assess the past performance of different Mutual Funds.

Worldwide, good Mutual Fund companies over are known by their AMCs and
this fame is directly linked to their superior stock selection skills. For Mutual Funds to
grow, AMCs must be held accountable for their selection of stocks. In other words, there
must be some performance indicator that will reveal the quality of stock selection of
various AMCs.

Return alone should not be considered as the basis of measurement of the
performance of a Mutual Fund scheme, it should also include the risk taken by the fund
manager because different funds will have different levels of risk attached to them. Risk
associated with a fund, in a general, can be defined as variability or fluctuations in the
returns generated by it. The higher the fluctuations in the returns of a fund during a given
period, higher will be the risk associated with it.

These fluctuations in the returns generated by a fund are resultant of two guiding
forces. First, general market fluctuations, which affect all the securities , present in
the market , called market risk or systematic risk and second, fluctuations due to specific
securities present in the portfolio of the fund, called unsystematic risk
Systematic risk, on the other hand, is measured in terms of Beta, which represents
fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a
Mutual Fund is to the changes in the market; higher will be its beta. Beta is calculated by
43

relating the returns on a Mutual Fund with the returns in the market. While unsystematic
risk can be diversified through investments in a number of instruments, systematic risk
cannot. By using the risk return relationship, we try to assess the competitive strength of
the Mutual Funds vis--vis one another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several
eminent authors have worked since 1960s to develop composite performance indices to
evaluate a portfolio by comparing alternative portfolios within a particular risk class. The
most important and widely used measures of performance are:

Measures of performance
The Treynor Measure
The Sharpe Measure
Jenson Model
Fama Model

The Treynor Measure
Developed by Jack Treynor, this performance measure evaluates funds on the basis of
Treynor's Index.

This Index is a ratio of return generated by the fund over and above risk free rate
of return (generally taken to be the return on securities backed by the government, as
there is no credit risk associated), during a given period and systematic risk associated
with it (beta). Symbolically, it can be represented as:
Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the
fund.

44

All risk-averse investors would like to maximize this value. While a high and positive
Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative
Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure
In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,
which is a ratio of returns generated by the fund over and above risk free rate of return
and the total risk associated with it.
According to Sharpe, it is the total risk of the fund that the investors are concerned about.
So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically,
it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.
While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a
fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk
premium by a numerical risk measure. The total risk is appropriate when we are
evaluating the risk return relationship for well-diversified portfolios. On the other hand,
the systematic risk is the relevant measure of risk when we are evaluating less than fully
diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is
equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic
risk (Treynor measure) should be identical for a well-diversified portfolio, as the total
risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher
on Treynor measure, compared with another fund that is highly diversified, will rank
lower on Sharpe Measure.

45

Jenson Model
Jenson's model proposes another risk adjusted performance measure. This
measure was developed by Michael Jenson and is sometimes referred to as the
differential Return Method. This measure involves evaluation of the returns that the fund
has generated vs. the returns actually expected out of the fund1 given the level of its
systematic risk. The surplus between the two returns is called Alpha, which measures the
performance of a fund compared with the actual returns over the period. Required return
of a fund at a given level of risk (Bi) can be calculated as:

Ri = Rf + Bi (Rm - Rf)
Where, Rm is average market return during the given period. After calculating it,
alpha can be obtained by subtracting required return from the actual return of the fund.
Higher alpha represents superior performance of the fund and vice versa. Limitation of
this model is that it considers only systematic risk not the entire risk associated with the
fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of
market is primitive.

Fama Model
The Eugene Fama model is an extension of Jenson model. This model compares
the performance, measured in terms of returns, of a fund with the required return
commensurate with the total risk associated with it. The difference between these two is
taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is
the excess returns over and above the return required to compensate for the total risk
taken by the fund manager. Higher value of which indicates that fund manager has earned
returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf)
Where, Sm is standard deviation of market returns. The net selectivity is then
calculated by subtracting this required return from the actual return of the fund.
46


Among the above performance measures, two models namely, Treynor measure
and Jenson model use Systematic risk is based on the premise that the unsystematic risk
is diversifiable. These models are suitable for large investors like institutional investors
with high risk taking capacities as they do not face paucity of funds and can invest in a
number of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors.

However, Sharpe measure and Fama model that consider the entire risk
associated with Funds are suitable for small investors, as the ordinary investor lacks the
necessary skill and resources to diversify. Moreover, the selection of the fund on the basis
of superior stock selection ability of the fund manager will also help in safeguarding the
money invested to a great extent.

Net Asset Value (Nav) An Explanation

When a Mutual Fund scheme is first offered to the public, the offer price is
usually Rs.10 per unit. After the amount raised is invested, the total funds under the
control of the Mutual Fund increases or decreases depending upon the fluctuation in the
market value of the investments. As a result, this Rs.10 per unit becomes higher or lower.
This is the NAV or the market value of each unit of the scheme. This is explained with an
example:








47

Initial amount collected by the Mutual Fund Rs.100 crores
Number of initial units issued, taking Rs.10 per unit as
the initial value per unit
Rs.10 crores
This initial amount is now invested and the market
value goes up to
Rs.110 crores
Taking the initial number of units (i.e. 10crore units),
the value per unit (the NAV) will now be
Rs.11 (Rs.110 crores
divided by 10 crore
units.)
Rs.11 is the NAV of each unit.


This is a simplistic example in reality there are a number of factors affecting the NAV
such as expenses charged to the scheme, fresh unit sales and repurchases, bonuses issued,
dividends declared, etc.

Different Modes Of Receiving The Income Earned From Mutual Fund Investments

Mutual Funds offer three methods of receiving income:
Growth Plan
In this plan, dividend is neither declared nor paid out to the investor but is built
into the value of the NAV. In other words, the NAV increases over time due to such
incomes and the investor realizes only the capital appreciation on redemption of his
investment.

Income Plan
In this plan, dividends are paid-out to the investor. In other words, the NAV only
reflects the capital appreciation or depreciation in market price of the underlying
portfolio.


48

Dividend Re-investment Plan
In this case, dividend is declared but not paid out to the investor, instead, it is
reinvested back into the scheme at the then prevailing NAV. In other words, the investor
is given additional units and not cash as dividend.

Mutual Fund Investing Strategies
Systematic Investment Plans (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 the Mutual fund scheme the investor has chosen, an investor opting for SIP in
xyz Mutual Fund scheme will need to invest a certain sum on money every
month/quarter/half-year in the scheme.

Systematic Withdrawal Plans (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 his expenses

Systematic Transfer Plans (STPs)
They allow the investor 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 investments actively to achieve his
objectives. Many funds do not even charge any transaction fees for his service an added
advantage for the active investor.

Advantages Of Investing Through Mutual Funds
There are several reasons that can be attributed to the growing popularity and
suitability of Mutual Funds as an investment vehicle especially for retail investor

49

Asset Allocation
Mutual Funds offer the investors a valuable tool Asset Allocation. This is
explained by an example.
An investor investing Rs.1 lakh in a mutual fund scheme, which has collected
Rs.100 crores and invested the money in various investment options, will have
Rs.1lakh spread over a number of investment options as demonstrated below

Investment Type
Percentage of
Allocation (% of
total portfolio)
Total portfolio of
the Mutual Fund
scheme (Rs. I n
crores)
I nvestors
portfolio
allocation
(Rs.)
Equity: 57% 57 57,000
State Bank of
I ndia
15% 15 15,000
I nfosys
Technologies
12% 12 12,000
ABB 10% 10 10,000
Reliance I ndustries 9% 9 9,000
MI CO 7% 7 7,000
Tata Power 4% 4 4,000
DEBT: 43% 43 43,000
Govt. Securities 20% 20 20,000
Company
Debentures
10% 10 10,000
I nstitutuion Bonds 9% 9 9,000
Money Market 4% 4 4,000
Total 100% 100 1,00,000
50

Thus Asset Allocation is allocating your investments into different investment options
depending on your risk profile and return expectations.
Diversification
Diversification is spreading your investment amount over a larger number of
investments in order to reduce risk. For instance, if you have Rs.10,000 to invest in
Information Technology (IT) stocks, this amount will only buy you a handful of stocks of
perhaps one or two companies. A fall in the market price of any of these company stocks
will significantly erode your investment amount instead it makes sense to invest in an IT
sector mutual fund scheme so that your Rs.10,000 is spread across a larger number of
stocks thereby reducing your risk.
Professionals at work
Few investors have the time or expertise to manage their personal investments
every day, to efficiently reinvest interest or dividend income, or to investigate the
thousands of securities available in the financial markets. Fund managers are
professionals and experienced in tracking the finance markets, having access to extensive
research and market information, which enables them to decide which securities to buy
and sell for the fund. For an individual investor like you, this professionalism is built in
when you invest in the Mutual Fund.

Reduction of Transaction Costs
While investing directly in securities, all the costs of investing such as brokerage,
custodial services etc. borne by you are at the highest rates due to small transaction sizes.
However, when going through a fund, you have the benefit of economies of scale; the
fund pays lesser costs because of larger volumes, a benefit passed on to its investors like
you.

Easy Access to Your Money
This is one of the most important benefits of a Mutual Fund. Often you hold shares
or bonds that you cannot directly, easily and quickly sell. In such situations, it could take
several days or even longer before you are able to liquidate his Mutual Fund investment
by selling the units to the fund itself and receive his money within 3 working days.
51

Transparency
The investor gets regular information on the value of his investment in addition to
disclosure on the specific investments made by the fund, the proportion invested in each
class of assets and the fund managers investment strategy and outlook.

Saving Taxes
Tax saving schemes of Mutual Funds offer investor a tax rebate under section 88
of the Income Tax Act. Under this section, an investor can invest up to Rs.10,000 per
financial year in a tax saving scheme.

Investing In Stock Market Index
Index schemes of mutual funds give you the opportunity of investing in scripts
that make up a particular index in the same proportion of weight age that these scripts
have in the index.

Investing In Government Securities
Gilt and money market schemes of Mutual Funds also give you the opportunity to
invest in government securities and money markets (including the inter banking call
money market)

Well-Regulated Industry
All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors. The
operations of Mutual Funds are regularly monitored by SEBI.
52


MUTUAL FUNDS
DEFINITION & SETUP OF MUTUAL FUND
In Mutual Fund Book, published by Investment company of U.S.., A
Mutual Fund is a financial service organization that receives money from shareholders,
invest it, earns returns on it, attempts to make it grows and aggress to pay the share
holders cash on demand for the current value of his investment. The investment
managers of the funds manage these savings in such a way that the risk is minimized and
steady return is ensured.
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 define
Mutual Fund as , a fund established in the form of a trust to raise monies through the
sale of units to the public or a section of the public under one or more schemes for
investing in securities, including, money market instrument.

Characteristics of Mutual Funds
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 professionals and others services
providers, who earn a fee their services, from the fund.

The pool of the funds is invested in a portfolio of marketable inve4stments. The
value of the portfolio is updated everyday.

The investors share in the fund is denominated by units. The value of the units
changes with the change in the portfolios value, everyday. The value of one unit
of the investment is called as the NET Asset Value or NAV

The investment portfolio of the mutual fund is created accordingly to the stated
investment objectives of the funds.
53


ORGANISATION OF A MUTUAL FUND

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


Mutual Fund Structure






54


Sponsor
Sponsor is the person who acting alone or in combination with another body
corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net
worth of the Investment Managed and meet the eligibility criteria prescribed under the
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. the Sponsor
is not responsible or liable for any loss or shortfall resulting from the operation of the
Schemes beyond the initial contribution made by it towards setting up of the Mutual
Fund.

Trust
By the sponsor. The trust deed provisions The Mutual Fund is constituted as a
trust in accordance with the provisions of the Indian Trusts Act, 1882 of the India Trusts
Act, 1882 by the sponsor. The trust deed is registered under the Indian Registration Act,
1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the unit
holders and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions
of the Trust Deed and the offer Documents of the respective Schemes. At least 2/3

rd
directors of the Trustee are independent directors who are not associated with the sponsor
in any manner.

Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual
Fund. The AMC is required to be approved by the Securities and Exchange Board of
India (SEBI) to act as an asset management company of the Mutual Fund. At least 50%
of the AMC are independent directors who are not associated with the Sponsor in any
manner. The AMC must have a net worth of at least 10 crore at all times.


55

Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer
Agent to the Mutual Fund. The Registrar processes the application form, redemption
requests and dispatches account statements to the unit holders. The Registrar and
Transfer agent also handles communications with investors and updates investor records.

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 important risk involved in Mutual Fund investments is the market risk. When the
market is in doldrums, most of the equity funds will also experience a downturn.
However, the company specific risks are largely eliminated due to professional fund
management.










56

Types of mutual funds



TYPES OF MUTUAL FUNDS SCHEMES

A Mutual Fund scheme can be classified into open-ended scheme or close-ended
scheme depending on its maturity period.

1. Open-ended Fund/Scheme
An open-ended fund scheme is one that is available for subscription and repurchase
on a continuous basis. These schemes do not have fixed maturity period. Investors can
57

conveniently buy and sell units at Net Asset Value (NAV) related prices which are
declared on a daily basis. The key feature of open-ended schemes is liquidity.

2. Closed-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 a time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchange 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 periods repurchase of
NAV-related prices. SEBI regulations stipulated that at least one of the two exit routes is
provided to the investor, i.e., either repurchase facility or through listing on stock
exchanges.

By 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 schemes
as described earlier. Such schemes may be classified mainly as follows:

1. Growth/Equity-oriented Schemes
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 close an option
depending on their preference. The investors must indicate the option in the application
form. Mutual funds also allow investors to change the options at the later date. Growth
schemes are good for investors having a long- term outlook seeking appreciation over a
period of time.


58

2. 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 likely to increase in the short run and vice versa.
However, long-term investors may not bother about these fluctuations.
3. Balanced Fund
The aim of balanced fund 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 instruments. The funds are also affected
because of fluctuation in share prices in the stock markets.
4. 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. Returns on these schemes fluctuate
much less compared to other funds are appropriate for corporate and individual investors
as a means to park their surplus funds for short periods.
5. Gilt Fund
These funds invest exclusively in government securities. Government securities
have no default risk. NAVs of these schemes also fluctuate due to changes in interest
rates and other economic factor as is the case with income or debt-oriented schemes.
6. Index Fund
Index funds replicated 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 an index. NAVs of such schemes would rise or fall in accordance
with the rise or fall in the index, through not exactly by the same percentage due to some
59

factors know as tracking error in technical terms. Necessary disclosures in this regard
are made in the offer documents of the mutual fund scheme.
These are also exchange traded index funds launched by the mutual funds are traded on
the stock exchanges.

Sector Specific Funds/Schemes
Seek the advice of an export. These are the funds/schemes, which invest in the
securities of only those sectors or industries as specified in the offer documents. E.g.,
pharmaceuticals, software, Fast Moving Consumer Goods (FMCG), petroleum stocks,
etc. the returns in these funds are dependent on the performance of the respective
sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of
these sectors/ industries and must exit at an appropriate time. They may also

Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provision of the
income Tax Act, 1961 as the government offers tax incentives for investment in specific
avenues e.g., Equities-linked Saving Schemes (ELLS). Pension schemes launched by the
mutual fund also offer tax benefits. These schemes are growth-oriented and invest
predominantly in equities. Their growth opportunities and risk associated are like any
equity-oriented schemes.

Systematic Investment Plan (SIP)
Here the investor is given the option of preparing a pre-determined number of
post-dated Cheques in favor of the fund. He will get units on the date of the Cheques at
the existing NAV.





60

Systematic Withdrawal Plan
As opened to the Systematic Investment Plan, the Systematic Withdrawal Plan
allows the investor the facility to withdraw a pre-determined amounts/units from his fund
at a pre-determined interval. The investors units will be redeemed at the existing NAV
as on the day.

Advantages of Mutual Funds

Professional Management
Qualified professionals manage your money and they have research team that
continuously analyses the performance and prospects of companies. They also select
suitable investment to achieve the objectives of the schemes and expertise which will add
value to your investment. These fund managers are in a better position to manage your
investment and get higher returns.

Diversification
The clich, dont put all your eggs in one basket really applies to the concept of
intelligent investing. Diversification lowers your risk of loss by spreading your money
across various industries. It is a rare occasion when all the stocks decline at the same time
and in the same proportion. Sector funds will spread your investment across only one
industry and it would not be wise for your portfolio to be skewed towards these types of
funds for obvious reasons.

Choice of Schemes
Mutual Funds offer a variety of schemes that will suit your needs over a life time.
When you enter a new stage in your life, all you need to do is sit down with your
investment advisor who will help you to rearrange your portfolio to suit your altered
lifestyle.



61

Affordability
As small investors, many find that it is so not possible to buy shares of large
corporations. Mutual funds generally buy and sell securities in large volumes which
allow investors to benefit from lower trading costs. The smallest investor can get started
on mutual funds because of the minimal investment requirements. You can invest with a
minimum of Rs. 500 in a on a regular basis.
Tax Benefits
Investments held by investors for a period of 12 months or more qualify for
Capital gains and will be taxed accordingly (10%of the amount by which the investment
appreciated, or 20%after factoring in the benefits of cost indexation, whichever is lower).
These investments also get the benefits of indexation.
Liquidity
With open-ended funds, you can redeem all or part of your investment any time
you wish and receive the current value of the shares or the NAV related price. Funds are
more liquid than most investment in shares, deposits and bonds and the process is
standardized, making it quick and efficient so that you can get your cash in hand as soon
as possible.
Transparency
The performance of a mutual fund is reviewed by various publications and rating
agencies, making it easy for investors to compare one to the other. Once you are part of a
mutual fund scheme, you are provided with regular updates, for examples daily NAVs, as
well as information on the specific investment made and the fund managers strategy and
out look of the scheme.
Well Regulated
All Mutual Funds are registered by SEBI and they function within the provision
of strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.



62

Flexibility
Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, you can systematically invest or withdraw funds
accordingly to your needs and convenience.

Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly
investing in the capital markets because the benefits of scale in brokerage, custodial and
other fees translate into lower costs for investors.

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 relates 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

Changes in the tax laws, trade regulations, administered prices, etc are 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.


63

Inflation Risk
Interest rate risk relates to future changes in interest rates. For instance, if an
investor invests in a long-term debt Mutual Fund scheme and interest rates increase, the
NAV of the scheme will fall because the scheme will be end up holding debt offering
lower 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 the
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 fail in a year, equity
stocks of agriculture-based companies will fall and NAVs of Mutual Funds, which have
invested in such stocks, will fall proportionately.

Credit Risk
In short, how stable is the company or entity to which you lend your money when
you invest. How certain are you that it will able to pay the interest you are promised, or
repay your principal when the investment matures.

Interest Risk
Changing interest rates affect both equities and bonds in many ways. Investors are
reminded that predicting which way rates wick go is rarely successful. A diversified
portfolio can help in offsetting these changes.

64

The broad guidelines issued for a Mutual Fund

SEBI is the regulatory authority of Mutual Funds. SEBI has the following broad
guidelines pertaining to Mutual Funds:


Mutual Funds should be formed as a trust under Indian Trust Act and should be
operated by Asset Management Companies.

Mutual Funds need to set up a Board of Trustee Companies. They should also
have their Board of Directories.

The net worth of the Asset Management Company should be at least Rs.5 crore.

Asset Management Companies and Trustees of a MF should be two separate and
distinct legal entities.

The Asset Management Companies or any of its companies cannot act AS
managers for any other fund.

Asset Management Company has to get the approval of SEBI for its articles and
Memorandum of Association.

All Mutual Fund Schemes should be registered with SEBI.

Mutual Funds should distribute minimum of 90% of their profits among the
investors.




65

DATA ANALYSIS
VALUATION OF MUTUAL FUND

The net assets value of the Fund is the cumulative market value of the assets Fund
net of its liabilities. The Fund is dissolved or liquidated, by selling off all the assets in the
Fund, this is the amount shareholders would collectively own. This gives rise to the
concept of the net assets value per unit, which is the represented by the ownership of one
unit in the Fund. It is calculated simply by dividing the net assets value Fund by the
number of units. However, most people refer loosely to the NAV per unit as NAV,
ignoring the units. We also abide by the same convention.


NET ASSET VALUE (NAV): (THE CONCEPT)
The net assets value of the fund is the cumulative market value of the assets fund
net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all
the assets in the fund, this is the amount that the shareholders would collectively own.
This gives rise to the concept of the net assets value per unit, which is the value,
represented by the ownership of one unit in the Fund. It is calculated simply by dividing
the net asset value of the Fund by the number of units.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by
the Fund. Once it is calculated the NAV is simply the net value of the assets divided by
the number of units outstanding. The detailed method for the calculation of the net asset
value is given below.

The net asset value is the actual value of a unit on any business day. NAV is the
barometer of the performance of the scheme. The net asset value is the market value of
66

the assets of the schemes minus its liabilities and expenses. The NAV is the net asset
value of the scheme divided by the number of units outstanding on the valuation


NAV is calculated as follows
Market value of Fund investment + receivables + accrued income- liabilities accrued
expenses
VOLATILITY MEASUREMENT OF MUTUAL FUND
When considering a funds volatility, an investor may find it difficult to decide
which fund will provide the optimal risk-reward combination.

Optimal Portfolio Theory and Mutual Funds
One examination of the relationship between portfolio returns and risk is the
efficient frontier, a curve that is a part of the modern portfolio theory. The curve forms
from a graph plotting return and risk indicated by volatility, which is represented by
standard deviation. According to the modern portfolio theory, funds lying on the curve
are yielding the maximum return possible given the amount of volatility.

Standard Deviation
The standard deviation essentially reports a funds volatility, which indicates the
tendency of the returns to rise or fall drastically in a short period of time. A security that
is volatile is also considered higher risk because its performance may change quickly in
either direction at any moment. The standard deviation of a fund measures this risk by
measuring the degree to which the fund fluctuates in relation to its mean return, the
average return of a fund over a period of time.

67

Beta
While standard deviation determines the volatility of a fund according to the
disparity of its return over a period of time, beta, another useful statistical measure,
determines the volatility, or risk, of a fund in comparison to that of its index or
benchmark. A fund with a beta very close to 1 means the funds performance closely
matches the index or benchmarka beta greater than 1 indicates greater volatility than
the overall market, and beta less than 1 indicates less volatility than the benchmark.

Investors expecting the market to be bullish may choose funds exhibiting high
betas, which increases investors chances of bearing the market. If an investor expects the
market to be bearish in the near future, the funds that have betas less than 1 are a good
choice because they would be expected to decline less in value than the index.

R-Squared (R2)
The R-squared of a fund advises investors if the beta of a mutual fund is measured
against an appropriate benchmark. Measuring the correlation of a funds movements to
that of an index, R-squared describe the level of association between the funds volatility
and market risk, or more specifically, the degree to which a funds volatility is a result of
the day-to-day fluctuations experienced by the overall market.

R-squared values range between 0 and 1, where 0 represents the least correlation
and 1 represents full correlation. If a funds beta has an R-squared value that is close to 1,
the beta of the fund should be trusted. On the other hand, an R-squared value that is close
to 0 indicates that the beta is not particularly use full because the fund is being compared
against an appropriate benchmark.
An inappropriate benchmark will skew more than just beta. Alpha is calculated using
beta, so if the R-squared value of a fund is low, it is also wise not to trust the figure given
for alpha.



68

Alpha
Up to this point, we have learned how to examine figures that measure risk posed
by volatility, how so we measure the extra return rewarded to you for taking on risk
posed by
factors other than market volatility? Enter alpha, which measure how much if any of this
extra risk helped the fund outperform its corresponding benchmark. Using beta, alphas
computation compares the funds performance to that of the benchmarks risk-adjusted
returns and establishes if the funds returns outperformed the markets given the same
amount of risk. For example, if a fund has an alpha of 1, it means the fund outperformed
the benchmark by 1%. Negative alphas are bad in that they indicate that the fund under
performed for the amount of extra, fund-specific risk that the funds investors undertook.

Conclusion
This explanation of these four statistical measure provide with the basic
knowledge on using them apply the premises of the optimal portfolio theory, which uses
volatility to establish risk and states a guideline for determining how much of a funds
volatility carries a higher potential for return.

Benchmarks used in Mutual fund Industry
The BSE Sensex and S&P CNX Nifty are used as a benchmark for actively
managed all equity portfolios. If the equity portfolio is broader based, S&P CNX 500 is
used as the benchmarks. For bond funds, the IBex, an index for government bonds is used
as benchmark.Evaluating the performance of the Mutual fund with respect to a
benchmark Over the same period of the time, it is possible to observe how the returns of a
benchmark and NAV of the mutual fund have behaved this will provide an indication of
the extent to which the mutual fund portfolio has tracked the underlying benchmark.
These comparisons tell us whether a fund has done well as the benchmark, better
or worse than a benchmark. In mutual fund industry, a fund that performs better than the
benchmark is known to have out-performed; those that did worse are called under-
performers.

69

Basis for Analysis
Net Asset Value (NAV) is the best parameter on which the performance of a
mutual fund can be studied. We have studied the performance of the NAV based on the
compounded annual returns of the schemes in terms of appreciation of NAV, dividend
and bonus issue. We have compared the Net asset values of various schemes to get an
idea about their relative standings.
Data collected from Respondents using Structured Questionnaire is then tabulated & put
to the
Analysis using Frequency Distribution, Charts, using Ms-Excel













70

Question wise analysis has been made to arrive at the meaningful inferences

1. Age
a) Below 25 years b) 26 to 30 years
c) 31 to 40 years d) Above 40 years


Table14:Age of the investors



Age of the Investors

Frequency Percent Valid
Percent
Below 25 years 19 18 18
26 to 30 years 26 32 32
31 to 40 years 22 24 24
40 years &
above
33 26 26
Total 100 100 100











71

Graph1: Age of the investors



Interpretation Out of 100 Investors
Majority of investors falls between the age of 26 to 30 years, & later followed by
40 years & above. There is less investment activity between the age of below 25 years, it
may be because of the people in this age are found to be students or employees. Were in
the investment activity is not so active in these age.














18
32
24
26
Percent
Below 25 years
26 to 30 years
31 to 40 years
40 years & above
72

2. Occupation
a) Employee b) Businessman
c) Retired d) Student
e) Others


Table 15: Occupation of the Investors

Occupation of the Investors

Frequency Percent Valid
Percent
Employee 58 58 58
Businessman 16 16 16
Retired 6 6 6
Student 8 8 8
Others 12 12 12
Total 100 100 100














73




Graph 2: Occupation of the Investors




Interpretation Out of 100 Investors

Majority of investors are Employees, Businessman & later followed by others.
Very less investment activity is seen with retired, Students & others, the interesting
outcome is the investment activity among the students also, and even students are keen of
saving their money.







74


3. Annual Income
a) Less than Rs.50,000 b) Rs. 50,001 to Rs. 1,00,000
c) Rs.1,00,001 to Rs.5,00,000 d) Above Rs. 5,00,000


Table 16: Annual income of the
Investors.

















Annual income of the Investors

Frequency Percent Valid
Percent
Less than Rs. 50,000 24 24 24
Rs 50,001 to Rs.
1,00,000
24 24 24
Rs. 1,00,001 to Rs.
5,00,000
50 50 50
Above Rs. 5,00,000 2 2 2
Total 100 100 100
75

Graph 3: Annual income of the Investors


Interpretation Out of 100 Investors

Majority of investors annual income fall in the group between the Rs. 1,00,000 to
Rs. 5,00,000 & later followed by below Rs. 50,000 & between Rs. 50,000 to Rs.
1,00,000. A very less percentage of investment is seen investors with annual income of
above Rs. 5,00,000.













76

4. Monthly Savings
a) Below Rs. 5,000 b) Rs. 5,001 to Rs. 10,000
c) Rs. 10,001 to Rs. 20,000 d) Above Rs. 20,000



Savings of the Investors

Frequency Percent Valid
Percent
Below Rs. 5,000 28 56 56
Rs. 5,001 to Rs.
10,000
15 30 30
Rs. 10,001 to Rs.
20,000
5 10 10
Above Rs. 20,000 2 4 4
Total 100 100 100















77


Table 17: Savings of the Investors

Graph 4: Savings of the Investors
Interpretation Out of 50 Investors

Majority of investors monthly savings are below Rs.5,000 & later followed by
investors savings between Rs. 5,000 to 10,000 very less percentage Is seen investors
savings with above Rs.20,000












78

5. Which type of Investment do you prefer?
a) Bank Deposit b) Stock Market
c) Commodities d) Real Estate
e) Mutual Funds f) Others





Type of Investment respondents Prefer

Frequency Percent Valid
Percent
Bank
Deposit
28 56 56
Stock
Market
13 26 26
Real
Estate
1 2 2
Mutual
Funds
4 8 8
Others 4 8 8
Total 100 100 100






79


Table 18: Type of Investment Investors Prefer


Graph 5: Type of Investment Investors Prefer
Interpretation Out of 100 Investors
[Majority of investors invest still in bank & later followed by Stock market,
investors still consider banks as a safe way to invest & were the returns are assured when
compared to stock market because of.









80
































6. Are you aware of mutual Funds?
a) Yes b) No







Table 19: Awareness of Derivatives






Are you aware Mutual funds?

Frequency Percent Valid
Percent
Yes 29 58 58
No 21 42 42
Total 100 100 100
81

Graph 6: Awareness of Derivatives

I nterpretation: Out of 100 Investors
Majority of investors are aware of Mutual Funds & there is hardly difference of
unawareness therefore educating about Mutual Funds is a must to the investors.
















82

7. If yes, have you invested in Mutual Funds?
a) Yes b) No
If No, continue with question 9 &. If yes, continue with question 10

Table 20: Have you invested in Mutual Funds?
Have you invested in Mutual Funds?

Frequency Percent Valid
Percent
Yes 32 30 30
No 68 70 70
Total 100 100 100

Graph 7: Have you invested in Mutual Funds?

I nterpretation: Out of 100 Investors
Majority of investors are not investing in derivatives & there are less percentage
of investors investing in Mutual Funds,




83

8. Your current savings/investments are in?
a) Bank b) Equities
c) Insurance d) Mutual Funds

Table 21: Your current savings are in?
Your current savings are in?

Frequency Percent Valid
Percent
Bank 28 56 56
Equities 8 16 16
Insurance 8 16 16
Mutual
funds
6 12 12
Total 100 100 100

Graph 8: your current savings are in?

Interpretation Out of 100 Investors
Majority of investors still prefers or follows the traditional form of investing the
money in Bank Deposits because of the Safety concern & guaranteed returns, & same
84

percentage of investors Savings are in Equity & Insurance, & very less savings is seen in
Mutual funds.





























85

9. If yes, then where you have invested?
a) Debt Fund b) Equity Funds
c) Balanced d)


Table 22: If yes then where you have invested?
If yes then where you have invested?

Frequency Percent Valid
Percent
Debt 6 12 25
Equity
Funds
4 8 16.67
Balanced 14 28 58.33
Total 24 48 100
Missing 26 52
Total 100 100















86


Graph 9: if yes then where you have invested?


Interpretation Out of 100 Investors
Majority of investors has invested in others, 12% investors have invested in Debt
Funds, & only 8% investors have invested in Equity Oriented Funds.











87


10. What are the factors you consider while investing in mutual Funds?
a) Professional managment b) AMC
c) past Perfomance d) Others

Table 23: Factors considered by Investors while investing in derivatives?
Factors considered by Investors while investing in derivatives?

Frequency Percent Valid
Percent
Professional
managment
2 4 10.52
Amc 2 4 10.52
Returns 12 24 63.15
Others 3 6 15.78
Total 19 38 100
Missing 31 62
Total 100 100














88


Graph: 10, Factors considered by Investors while investing in derivatives?

Interpretation Out of 100 Investors
Majority of investors consider returns as the factor while investing in derivatives,
& 4% each consider Hedging & Arbitrage as a factor while investing in derivatives.
The main objective of very investors to earn money from their investment therefore it
is very obvious to consider return as a factor while investing in Derivatives.














89

11. How did you come to know about the mutual Fund products?
a) Brokers b) Family
c) Friends d) Television
e) Others
Table 24: who told you about mutual Fund?


Who told you about mutual Fund?
Frequency Percent Valid Percent
Brokers 10 20 55.56
Family 5 10 27.78
Friends 1 2 5.56
Others 2 4 11.11
Total 18 36 100
Missing 32 64
Total 100 100















90


Graph 11: who told you about mutual Fund?

Interpretation Out of 100 Investors
Majority of investors came to know about mutual Fund from Brokers & Brokers
are considered as a best mean or way for educating the investors while investing in
mutual Fund 10% of investors take advice from Family, 2% take advice from friends,&
4% investors came to know about mutual Fund from others.













91

12. From whom, do you take advice?
a) Brokers b) Family
c) Friends d) Others
Table 25: If yes, then from whom do you take advice?
If yes, then from whom do you take advice?
Frequency Percent Valid Percent
Brokers 9 18 64.28
Family 3 6 21.42
Friends 1 2 7.14
Others 1 2 7.14
Total 14 28 100
Missing 36 72
Total 50 100

Graph 12: If yes then from whom do you take advice?

I nterpretation: Out of 100 Investors
Majority of investors takes advice from brokers, 6% investors take advice from
family, & 2% each take advice from Friends & others while investing in derivatives. the
outcome says that Brokers can educate well to the investors while investing in
derivatives.

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13. Since how long you are into the mutual Fund?
a) Less than 1 year b) 1 year to 3 years
c) 3 years to 5 years d) Above 5 years

Table 26: Since how long you are in mutual Fund?
Since how long you are in mutual Fund?

Frequency Percent Valid
Percent
Less than
a1 year
6 12 35.29
1 to 3 year 2 4 11.76
3 to 5
years
5 10 29.41
Above 5
years
4 8 23.52
Total 17 34 100
Missing 33 66
Total 100 100










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Graph 13: Since how long you are in mutual Fund?


Interpretation Out of 100 Investors
Majority of investors are less than 1 year in mutual Fund, 10% investors are from
3 to 5 years, 8% investors are there more than 5 years in mutual Fund. The outcome of
the above graph shows that majority of investors has limited their investments after the
major downfall in the stock market. Investors were more in numbers when the stock
market was at 21,000 points, & very less investors were there in mutual Fund to invest.












94

14. Which System Do you Prefer In mutual Fund?
a) STP b) SWP
c) SIP d) OTHER

Table 27: Which System Do you Prefer In mutual Fund
Which System Do you Prefer In mutual Fund?
Frequency Percent Valid Percent
STP 15 10 33.33
SWP 20 4 13.33
SIP 30 16 53.33
Total 65 30
Missing 35 70
Total 100 100 100


















95


Graph 14: Which System Do you Prefer In mutual FundS?


Interpretation Out of 100 Investors
Majority of investors investing in sip plan 54% stp, 33% of investors trade daily,
& swp% trade weekly in derivative market.











96

15. How do you rate the facilities provided by the AMC COMPANY?
a) Excellent b) Good
c) Fair d) Poor

Table 28: Rate services provided by AMC COMPANY
Rate services provided by AMC COMPANY services

Frequency Percent Valid
Percent
Excellent 15 30 30
Good 30 60 60
Fair 5 10 10
Total 100 100 100

Graph 15: Rate services provided by AMC COMPANY

Interpretation Out of 100 Investors
Majority of investors rated services provided by AMC COMPANY services as
Good & it can be improved further by taking the necessary steps by filling the gaps by
conducting programs like clients meeting or investors meeting.


97

Findings

Most of the investors belong to the age group of 26 years to 40 years & above.
Through this we can infer that the investment activity in this age is more
compared to the investors whose age is below 25 years.
Most of the investors are Employees & Businessman. Even student investors are
investing more compared to retired investors.
Most of the investors annual income fall under the group between Rs. 1,00,000 to
Rs. 5,00,000.
Most of the investors belong to the savings group of below Rs. 5,000.
Most of the investors prefer investing in Bank Deposit. Through this we can infer
that people still invest in bank & not in MUTUAL FUNDS.
Most of the investors consider Safety as a factor while investing. Investors are
concerned about safety of their money & not return.
Most of the investors invested their savings in Equity. We can infer that equity is
still in the topmost priority when it comes to investing.
Most of the investors are unaware of mutual funds. It may be because of it being a
new arena for investment, at least in Indian market & ill promotion of the same.
Most of the investors came to know about mutual funds through Brokers.
Most of the investors do take advice from Brokers while investing in mutual
funds.
Most of the investors are trading in mutual funds for less than one year. This
means that derivatives trading are unfamiliar & they consider it as too risky.
Most of the investors trade on Monthly basis in systematic investment plan.
Most of the investors rated services provided by AMC companies Services as
Good




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Suggestions
It is better to maintain customer relationship management wing with in the
organization for having better access to customer.
It is better to conduct more awareness camps to general public for getting more
customer response.
Since the entire funds returns are beating the market returns and the funds are giving
good returns, investing is quite helpful to investors.

Since most of the investors are working in the private sector it is all the more
necessary to give equity flavor to ones investment portfolio so that they can have a
comfortable post retirement life.

It is important to select the fund carefully. The most important factor while selecting
a fund is the suitability. A fund may be best available in the market if it doesnt match
the requirement, skip the fund.

The performance of the mutual fund over a long time horizon should be taken into
consideration. Short-term performances are like a flash in the pan and should not be
the guiding factor for any investment decision.

Investors should invest in equities for a long term, which generates higher returns and
should invest in debt funds for short term.

99

Conclusion

It can be said that, falling interest rates and recent developments in the investment
climate in the country, have led to investment avenues dwindling drastically. But
Mutual Funds are any day a safe bet for investors of different groups, motives and
other preferences. Since Asset Management companies offer a range of Funds
respective Investment philosophies, an investor can benefit only by investing in
appropriate fund, which shall meet his requirements.
Manager should try to reduce the risk by investing in efficient or he should be
able to differentiate between the efficient and inefficient securities.
The mutual fund company should concentrate on cash rich companies like the
Trusts, cash rich private companies, etc to generate, more funds for the
investment.

















100

Bibliography

1. MUTUAL FUNDS IN INDIA: S .KRISHNA MURTHY, Second Edition, Chandra
Bose, Calcutta.

2 .INVESTMENT MANAGEMENT: V.A. AVADHANI, Fourth Edition, 2000,
Himalaya publications, Hyderabad.


1. www.BONANZAONLINE.com

2. www.mutualfundsindia.com

3. www.bseindia.com

4. www.nseindia.com

5. www.amfiindia.com

6. Economic times

7. Business world

8. Www. Mutualfundsindia.com

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1. Age
a) Below 25 years b) 26 to 30 years
c) 31 to 40 years d) Above 40 years

2. Occupation
a) Employee b) Businessman
c) Retired d) Student
e) Others

3. Annual Income

a) Less than Rs.50,000 b) Rs. 50,001 to Rs. 1,00,000
c) Rs.1,00,001 to Rs.5,00,000 d) Above Rs. 5,00,000


4. Monthly Savings
a) Below Rs. 5,000 b) Rs. 5,001 to Rs. 10,000
c) Rs. 10,001 to Rs. 20,000 d) Above Rs. 20,000


5. Which type of Investment do you prefer?
a) Bank Deposit b) Stock Market
c) Commodities d) Real Estate
e) Mutual Funds f) Others
6. Are you aware of mutual Funds?
a) Yes b) No






102


If No, continue with question 9 &. If yes, continue with question 8

7. If yes, have you invested in Mutual Funds?
a) Yes b) No
If No, continue with question 9 &. If yes, continue with question 10
8. Your current savings/investments are in?
a) Bank b) Equities
c) Insurance d) Mutual Funds

9. If yes, then where you have invested?
a) Debt Fund b) Equity Funds
c) Balanced d)

10. What are the factors you consider while investing in mutual Funds?
a) Professional management b) AMC
c) past Perfomance d) Others
11. How did you come to know about the mutual Fund products?
a) Brokers b) Family
c) Friends d) Television
e) Others
12. From whom, do you take advice?
a) Brokers b) Family
c) Friends d) Others

13. Since how long you are into the mutual Fund?
a) Less than 1 year b) 1 year to 3 years
c) 3 years to 5 years d) Above 5 years





103




14. Which SYstem Do you Prefer In mutual Fund?
a) STP b) SWP
c) SIP d) OTHER


15. How do you rate the facilities provided by the AMC COMPANY?
a) Excellent b) Good
c) Fair d) Poor