Factors Affecting Investors Preference For Mutual Funds in India

FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA
SUMMER INTERNSHIP PROGRAMME INTERIM REPORT ON FACTORS AFFECTING INVESTORS PREFER

ENCE FOR MUTUAL FUNDS IN INDIA
Submitted by:
NILAMADHAV SAMAL 08BS0001995
1
CONTENTS
Abstract Objective Limitation Company profile Introduction Credit Rating Product
s and services Mahindra Fin Smart : Investment Advisory Services Investments Inv
estment Needs Choosing the Right Investment Option Investment Options in India M
utual Funds Organization Regulatory Authorities Types Of Mutual Funds Advantages
/ Disadvantages of Mutual Funds History Analysis of a fund/scheme. Further Scop
e of StudyAnalysis of a fund/scheme with examples Comparative analysis of differ
ent investment Options Market Survey Research Methodology Sample Selection Demog
raphic analysis of Investment patterns Further Scope of the study Factors(Intrin
sic and Environmental) affecting selection of a scheme Further Scope of Study In
fluence of Product Qualities on Scheme Selection Further Scope of Study Influenc
e of Fund Sponsor Qualities on Scheme Selection Influence of Investor Services o
n Scheme Selection Suggestions Conclusion Annexure I References 3 4 5 6 6 6 6 7
8 8 10 12 16 18 20 21 26 28 31
34 34 36 37 42 43 44 45 47
48 52
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ABSTRACT
The project contains the brief description of the mutual fund industry in genera
l. It also includes the study and comparison of other investment products availa
ble in the market like Insurance plans, ULIP, Mutual Funds, Savings account, Pro
vident funds, Postal savings and Fixed Deposits and Stocks available in the mark
et. A survey was conducted to gather primary data to judge the factors that infl
uence investors before they invest in any of the investment tools and thus the f
irst part of the paper scrutinizes the investor s perception and analyzes the re
lation between the features of the products and the investors requirements. With
this back ground an attempt has been made in this paper to categorize investors
based on various demographic factors such as age, sex, income level and occupat
ion. The second part of the paper deals exclusively in Mutual Funds. It is widel
y believed that MF is a retail product designed to target small investors, salar
ied people and others who are intimidated by the stock market but, nevertheless,
like to reap the benefits of stock market investing. At the retail level, inves
tors are unique and are a highly heterogeneous group. Hence, designing products
that are customer tailored to the different needs is important. Currently (as on
23/3/2009) there are more than 2500 schemes with varied objectives and AMCs are
competing against each other by launching new products or repositioning old one
s. MF industry today is facing competition not only from within the industry but
also from other financial products that provide many of the same economic funct
ions as mutual funds but are not strictly MFs. Thus the second part of the paper
attempts to study the factors influencing the fund/scheme selection behavior of
Retail Investors who invest in Mutual funds.
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OBJECTIVE
· To categorize investors as being inclined towards investment products based on c
ertain characteristic such as sex, age, academic qualifications, marital status,
occupation, annual income etc.
·
In order to examine the issues raised above, this paper has the following object
ives before it : 1) To understand the savings avenue preference among MF investo
rs 2) To identify the features the investors look for in Mutual Fund products 3)
To identify the scheme preference of investors 4) To identify the factors that
influences the investor s fund/scheme selection 5) To identify the information s
ources influencing the scheme selection decision.
·
This paper shall also look into the brief history of mutual funds industry in In
dia; try to classify them according to the various schemes and products offered.
It shall also provide a comparative analysis between different types of mutual
funds in India and between mutual funds and other investment products.
4
LIMITATIONS
i) Sample size was limited to 100 investors who have invested through Mahindra o
nly. The sample size may not adequately represent the national market.
ii) This study shall not been conducted over an extended period of time consider
ing both market ups and downs. The market state has a significant influence on t
he buying patterns and preferences of investors.. The study cannot capture such
situations.
iii) The study shall take into account the preferences of investors who have inv
ested in schemes offered by the distributor services of Mahindra only. As such t
here will be a element of biasness in the study.
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COMPANY PROFILE
MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD.
Mahindra and Mahindra Financial Services Limited is one of India s leading non-b
anking finance companies focused on the rural and semi-urban sector providing fi
nance for utility vehicles, tractors and cars with largest network of branches c
overing these areas. It is a subsidiary of M&M, a leading tractor and UV manufac
turer with over 60 years experience in the Indian market. The Company was incorp
orated on 1st January, 1991 as Maxi Motors Financial Services Limited and receiv
ed Certificate of Commencement of Business on 19th February, 1991. The name has
been changed to Mahindra & Mahindra Financial Services Limited and Fresh Certifi
cate of Incorporation was received on 3rd November, 1992. Credit Rating: Credit
Rating Information Services Limited (CRISIL) has reviewed the performance of the
Company and reaffirms FAA for Fixed Deposit program and AA for Long term Debt a
nd P1+ for Short term Debt. Company has also been awarded Ind AA+ rating by Duff
& Phelps
(DCR) for the Rs.50 crores Long Term Non- Convertible Debentures. Products & Ser
vices It provides financial loans to tractors, utility vehicles, light commercia
l vehicles, cars, two wheelers, three-wheelers and used vehicles. Its services i
nclude Mutual Fund distributions and financial advisory services also.
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In May 2004, as a supplement to its lending business it started an insurance bro
king business through its wholly owned subsidiary, Mahindra Insurance Brokers Li
mited (MIBL). Mahindra Finance has already started distributing insurance produc
ts in rural and semi urban India through its subsidiary Mahindra Insurance Broke
rs Limited. It has also recently commenced its mutual fund distribution business
and are exploring opportunities of entering housing loans and personal loans in
rural and semi urban markets. It believes that the growth of their interactive,
people-driven business model depends on the building of strong, long-term perso
nal relationships. This coupled with superior knowledge of rural markets, and th
e ability to tailor products, positions the company well to continue to meet rur
al and semi-urban credit needs and provide competitive, flexible and speedy lend
ing services. MAHINDRA SERVICES Now Mahindra finance has started its new venture
named Mahindra Finance- FinSmart which is an investment advisory services provi
der. It provides financial planning solutions to customers by which they can get
all those things which they want to achieve. And as in today s scenario Mutual
Funds is the best available investment option so it deals in MFs. Its planners t
ell people for how long and how much money they have to invest in MFs. In just o
ver three years since its launch, it have strongly cemented its position as a le
ading player in industry based on its pioneering strategy i.e., Where your Inves
tment Matters and not its size .
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FINANCE
-
FINSMART:
INVESTMENT
ADVISORY
INVESTMENTS
Savings form an important part of the economy of any nation. With the savings in
vested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of ave
nues to the investors. Though certainly not the best or deepest of markets in th
e world, it has reasonable options for an ordinary man to invest his savings. An
investment can be described as perfect if it satisfies all the needs of all inv
estors. So, the starting point in searching for the perfect investment would be
to examine investor needs. If all those needs are met by the investment, then th
at investment can be termed the perfect investment. Most investors and advisors
spend a great deal of time understanding the merits of the thousands of investme
nts available in India. Little time, however, is spent understanding the needs o
f the investor and ensuring that the most appropriate investments are selected f
or him.
The Investment Needs of an Investor
By and large, most investors have eight common needs from their investments: 1.
Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax
Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. C
ommunication. · Security of original capital: The chance of losing some capital ha
s been a primary need. This is perhaps the strongest need among investors in Ind
ia, who have suffered regularly due to failures of the financial system.
8
·
Wealth accumulation: This is largely a factor of investment performance, includi
ng both short-term performance of an investment and long-term performance of a p
ortfolio. Wealth accumulation is the ultimate measure of the success of an inves
tment decision.
·
Comfort factor: This refers to the peace of mind associated with an investment.
Avoiding discomfort is probably a greater need than receiving comfort. Reputatio
n plays an important part in delivering the comfort factor.
·
Tax efficiency: Legitimate reduction in the amount of tax payable is an importan
t part of the Indian psyche. Every rupee saved in taxes goes towards wealth accu
mulation.
·
Life Cover: Many investors look for investments that offer good return with adeq
uate life cover to manage the situations in case of any eventualities.
·
Income: This refers to money distributed at intervals by an investment, which ar
e usually used by the investor for meeting regular expenses. Income needs tend t
o be fairly constant because they are related to lifestyle and are well understo
od by investors.
·
Simplicity: Investment instruments are complex, but investors need to understand
what is being done with their money. A planner should also deliver simplicity t
o investors.
·
Ease of withdrawal: This refers to the ability to invest long term but withdraw
funds when desired. This is strongly linked to a sense of
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ownership. It is normally triggered by a need to spend capital, change investmen
ts or cater to changes in other needs. Access to a long-term investment at short
notice can only be had at a substantial cost. · Communication: This refers to inf
orming and educating investors about the purpose and progress of their investmen
ts. The need to communicate increases when investments are threatened.
· · ·
Security of original capital is more important when performance falls. Performan
ce is more important when investments are performing well. Failures engender a d
esire for an increase in the comfort factor.
Perfect investment would have been achieved if all the above-mentioned needs had
been met to satisfaction. But there is always a trade-off involved in making in
vestments. As long as the investment strategy matches the needs of investor acco
rding to the priority assigned to them, he should be happy. The Ideal Investment
strategy should be a customized one for each investor depending on his risk-ret
urn profile, his satisfaction level, his income, and his expectations. Accurate
planning gives accurate results. And for that there must be an efficient and tru
stworthy roadmap to achieve the ultimate goal of wealth maximization. Choosing t
he Right Investment Options After understanding the concept of investment, the i
nvestors would like to know how to go about the task of investment, how much to
invest at any
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moment and when to buy or sell the securities, This depends on investment proces
s as investment policy, investment analysis, valuation of securities, portfolio
construction and portfolio evaluation and revision. Every investor tries to deri
ve maximum economic advantage from his investment activity. For evaluating an in
vestment avenues are based upon the rate of return, risk and uncertainty, capita
l appreciation, marketability, tax advantage and convenience of investment. The
following Table should give the clear picture relating to the investors investme
nt decisions in various financial market instruments. The choice of the best inv
estment options will depend on personal circumstances as well as general market
conditions. For example, a good investment for a long-term retirement plan may n
ot be a good investment for higher education expenses. In most cases, the right
investment is a balance of three things: Liquidity, Safety and Return.
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Investment Options in India
Fixed Deposits
They cover the fixed deposits of varied tenors offered by
the commercial banks and other non-banking financial institutions. These are gen
erally a low risk prepositions as the commercial banks are believed to return th
e amount due without default. By and large these FDs are the preferred choice of
risk-averse Indian investors who rate safety of capital & ease of investment ab
ove all parameters. Largely, these investments earn a marginal rate of return of
6-8% per annum.
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Government Bonds
The Central and State Governments raise money
from the market through a variety of Small Saving Schemes like national saving c
ertificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. Thes
e schemes are risk free as the government does not default in payments. But the
interest rates offered by them are in the range of 7% 9%. Money-back insurance -
Insurance in India is mostly sold and bought as investment products. They are p
referred because of their add-on benefits like financial life-cover, tax-savings
and satisfactory returns. Even if one does not manage to save money and invest
regularly in financial instruments, with insurance, the policyholder has no choi
ce. If he does not pay his premiums on time, his insurance cover will lapse. Mon
ey-back Insurance schemes are used as investment avenues as they offer partial c
ash-back at certain intervals. This money can be utilized for children s educati
on, marriage, etc. Endowment Insurance These policies are term policies. Investo
rs have
to pay the premiums for a particular term, and at maturity the accrued bonus and
other benefits are returned to the policyholder if he survives at maturity. Bul
lion Market Precious metals like gold and silver had been a safe
heaven for Indian investors since ages. Besides jewellery these metals are used
for investment purposes also. Since last 1 year, both Gold and Silver have highl
y appreciated in value both in the domestic as well as the international markets
. In addition to its attributes as a store of value, the case for investing in g
old revolves around the role it can play as a portfolio diversifier.
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Stock Market
Indian stock markets particularly the BSE and the NSE, had
been a preferred destination not only for the Indian investors but also for the
Foreign investors.. Although Indian Markets had been through tough times due to
various scams, but history shows that they recovered very fast. Many types of sc
rip had been value creators for the investors. People have earned fortunes from
the stock markets, but there are people who have lost everything due to incorrec
t timings or selection of fundamentally weak companies. Real Estate- Returns are
almost guaranteed because property values are always on the rise due to a growi
ng world population. Residential real estate is more than just an investment. Th
ere are more ways than ever before to profit from real estate investment. Mutual
Funds - There is a collection of investors in Mutual funds that have profession
al fund managers that invest in the stock market collectively on behalf of inves
tors. Mutual funds offer a better route to investing in equities for lay investo
rs. A mutual fund acts like a professional fund manager, investing the money and
passing the ret urns to its investors. All it deducts is a management fee and i
ts expenses, which are declared in its offer document. Unit Linked Insurance Pla
ns - ULIPs are remarkably alike to mutual funds in terms of their structure and
functioning; premium payments made are converted into units and a net asset valu
e (NAV) is declared for the same. In traditional insurance products, the sum ass
ured is the corner stone; in ULIPs premium payments is the key component.
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MUTUAL FUNDS
INTRODUCTION
Mutual Funds over the years have gained immensely in their popularity. Apart fro
m the many advantages that investing in mutual funds provide like diversificatio
n, professional management, the ease of investment process has proved to be a ma
jor enabling factor. However, with the introduction of innovative products, the
world of mutual funds nowadays has a lot to offer to its investors. With the int
roduction of diverse options, investors needs to choose a mutual fund that meets
his risk acceptance and his risk capacity levels and has similar investment obj
ectives as the investor. With the plethora of schemes available in the Indian ma
rkets, an investors needs to evaluate and consider various factors before making
an investment decision. Since not everyone has the time or inclination to inves
t and do the analysis himself, the job is best left to a professional. Since Ind
ian economy is no more a closed market, and has started integrating with the wor
ld markets, external factors which are complex in nature affect us too. Factors
such as an increase in short-term US interest rates, the hike in crude prices, o
r any major happening in Asian market have a deep impact on the Indian stock mar
ket. Although it is not possible for an individual investor to understand Indian
companies and investing in such an environment, the process can become fairly t
ime consuming. Mutual funds (whose fund managers are paid to understand these is
sues and whose Asset Management Company invests in research) provide an option o
f investing without getting lost in the complexities. Most importantly, mutual f
unds provide risk diversification: diversification of a portfolio is amongst the
primary tenets of portfolio structuring, and a necessary one to reduce the leve
l of risk assumed by the portfolio holder. Most of the investors are not necessa
rily well qualified to apply the theories of portfolio structuring to their hold
ings and hence would be better off leaving that to a professional. Mutual funds
represent one such option.
Definition- A Mutual Fund is a trust that pools the savings of a number of inves
tors who share a common financial goal. The money thus collected is then investe
d in capital market instruments such as shares, debentures and
15
other securities. The income earned through these investments and the capital ap
preciation realised are shared by its unit holders in proportion to the number o
f units owned by them. Thus a Mutual Fund is the most suitable investment for th
e common man as it offers an opportunity to invest in a diversified, professiona
lly managed basket of securities at a relatively low cost. The flow chart below
describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
The flow chart below describes broadly the working of a mutual fund:
Many Investors with common financial objectives pool their money
Investors on a proportionate basis, get mutual fund units for the sum contribute
d to the pool
The money collected from the investors is invested into shares, debentures and o
ther securities by fund managers.
The fund manager realizes gain or losses, and collect dividends or interest inco
me
Any capital gain or loss from such investors are passed onto the investors in th
e proportion of number of units held by them.
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ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the organizat
ional set up of a mutual fund
Mutual funds Mutual fund is vehicle that facilitates a number of investors to po
ol their money and have it jointly managed by a professional money manager Spons
or Sponsor is the person who acting alone or in combination with another body co
rporate establishes a mutual fund. The Sponsor is not responsible or liable for
any loss or shortfall resulting from the operation of the Schemes beyond the ini
tial contribution made by it towards setting up of the Mutual Fund. Trustee Trus
tee is usually a company (corporate body) or a Board of Trustees (body of indivi
duals). The main responsibility of the Trustee is to safeguard the interest of t
he unit holders and ensure that the AMC functions in the interest of investors a
nd in accordance with the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996. Asset Management Company (AMC) The AMC is appointed by the Tr
ustee as the Investment Manager of the Mutual Fund. At least 50% of the director
s of the AMC are independent
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directors who are not associated with the Sponsor in any manner. The AMC must ha
ve a net worth of at least 10 crores at all times. Transfer Agent The AMC if so
authorised by the Trust Deed appoints the Registrar and Transfer Agent to the Mu
tual Fund. The Registrar processes the application form, redemption requests and
dispatches account statements to the unit holders. The Registrar and Transfer a
gent also handles communications with investors and updates investor records. Te
rms associated with a Mutual Fund Net Asset Value (NAV) - Net Asset Value is the
market value of the assets of the scheme minus its liabilities. The per unit NA
V is the net asset value of the scheme divided by the number of units outstandin
g on the Valuation Date. Sale Price- Is the price you pay when you invest in a s
cheme. Also called Offer Price. It may include a sales load. Repurchase Price- I
s the price at which a close-ended scheme repurchases its units and it may inclu
de a back-end load. This is also called Bid Price. Redemption Price- Is the pric
e at which open-ended schemes repurchase their units and close-ended schemes red
eem their units on maturity. Such prices are NAV related. Repurchase or Back-end
Load / Exit load - Is a charge collected by a scheme when it buys back the unit
s from the unit holders. Entry load- Entry load is the commission that an invest
or has to pay while purchasing units of a mutual fund. This is a certain percent
age that the mutual fund charges to meet its expenses. Credit Rating- Credit rat
ings measure a borrower s creditworthiness and helps in comparison of credit qua
lity, this is true within a country and also
18
across countries. Issuer credit rating measures the creditworthiness of the borr
ower including its capacity and willingness to meet financial needs.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and regulates
the mutual funds. It notified regulations in 1993 (fully revised in 1996) and i
ssues guidelines from time to time. MF either promoted by public or by private s
ector entities including one promoted by foreign entities is governed by these R
egulations. SEBI approved Asset Management Company (AMC) manages the funds by ma
king investments in various types of securities. Custodian, registered with SEBI
, holds the securities of various schemes of the fund in its custody. According
to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent. The Association of Mutual Funds in India (AMFI) re
assures the investors in units of mutual funds that the mutual funds function wi
thin the strict regulatory framework. Its objective is to increase public awaren
ess of the mutual fund industry. AMFI also is engaged in upgrading professional
standards and in promoting best industry practices in diverse areas such as valu
ation, disclosure, transparency etc.
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TYPES OF MUTUAL FUND SCHEMES
BY STRUCTURE 1. Open - Ended Schemes: An open-end fund is one that is available
for subscription all through the year. These do not have a fixed maturity. Inves
tors can conveniently buy and sell units at Net Asset Value ("NAV") related pric
es. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes:
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges w
here they are listed. In order to provide an exit route to the investors, some c
lose-ended funds give an option of selling back the
20
units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI
Regulations stipulate that at least one of the two exit routes is provided to t
he investor. 3. Interval Schemes: Interval Schemes are that scheme, which combin
es the features of openended and close-ended schemes. The units may be traded on
the stock exchange or may be open for sale or redemption during pre-determined
intervals at NAV related prices.
By investment objective :
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of thes
e schemes is to provide capital appreciation over medium to long term. These sch
emes normally invest a major part of their fund in equities and are willing to b
ear short-term decline in value for possible future appreciation. Income Schemes
: Income Schemes are also known as debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest i
n fixed income securities such as bonds and corporate debentures. Capital apprec
iation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to
provide both growth and income by periodically distributing a part of the incom
e and capital gains they earn. These schemes invest in both shares and fixed inc
ome securities, in the proportion indicated in their offer documents (normally 5
0:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in
safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.
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The risk return trade-off indicates that if investor is willing to take higher r
isk then correspondingly he can expect higher returns and vise versa if he perta
ins to lower risk instruments, which would be satisfied by lower returns. For ex
ample, if an investors opt for bank FD, which provide moderate return with minim
al risk. But as he moves ahead to invest in capital protected funds and the prof
it-bonds that give out more return which is slightly higher as compared to the b
ank deposits but the risk involved also increases in the same proportion. Thus i
nvestors choose mutual funds as their primary means of investing, as Mutual fund
s provide professional management, diversification, convenience and liquidity. T
hat doesn t mean mutual fund investments risk free. This is because the money th
at is pooled in are not invested only in debts funds which are less riskier but
are also invested in the stock markets which involves a higher risk but can expe
ct higher returns. Hedge fund involves a very high risk since it is mostly trade
d in the derivatives market which is considered very volatile.
BY NATURE
1. Equity fund: These funds invest a maximum part of their corpus into equities
holdings. The structure of the fund may vary different for different schemes and
the
22
fund manager s outlook on different stocks. The Equity Funds are subclassified d
epending upon their investment objective, as follows: · · · · Diversified Equity Funds.
Mid-Cap Funds. Sector Specific Funds. Tax Savings Funds (ELSS). Equity investmen
ts are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix. 2. Debt funds: The objective of these Funds is to invest in debt
papers. Government authorities, private companies, banks and financial instituti
ons are some of the major issuers of debt papers. By investing in debt instrumen
ts, these funds ensure low risk and provide stable income to the investors. Debt
funds are further classified as: Gilt Funds: Invest their corpus in securities
issued by Government, popularly known as Government of India debt papers. These
Funds carry zero Default risk but are associated with Interest Rate risk. These
schemes are safer as they invest in papers backed by Government. Income Funds: I
nvest a major portion into various debt instruments such as bonds, corporate deb
entures and Government securities. They provide a fixed return over each period
of time. MIPs: Invests maximum of their total corpus in debt instruments while t
hey take minimum exposure in equities. It gets benefit of both equity and debt m
arket. These scheme ranks slightly high on the risk-return matrix when compared
with other debt schemes. Short Term Plans (STPs): Meant for investment horizon f
or three to six months. These funds primarily invest in short term papers like C
ertificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the co
rpus is also invested in corporate debentures. Liquid Funds: Also known as Money
Market Schemes, These funds provides easy liquidity and preservation of capital
. These schemes invest in shortterm instruments like Treasury Bills, inter-bank
call money market, CPs and CDs. These funds are meant for short-term cash manage
ment of corporate houses and are meant for an investment horizon of 1day to 3 mo
nths. These
23
schemes rank low on risk-return matrix and are considered to be the safest among
st all categories of mutual funds. 3. Balanced funds : As the name suggest they,
are a mix of both equity and debt funds. They invest in both equities and fixed
income securities, which are in line with pre-defined investment objective of t
he scheme. These schemes aim to provide investors with the best of both the worl
ds. Equity part provides growth and the debt part provides stability in returns.
High Risk
Equit Funds, MIPs Funds
MEDIUM RISK
Balanced Funds
LOW RISK
Debt Funds, Gilt funds, Income Funds, STPs, Liqiud Funds
Types of returns
There are three ways, where the total returns provided by mutual funds can be en
joyed by investors.
24
Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a dis
tribution. If the fund sells securities that have increased in price, the fund h
as a capital gain. Most funds also pass on these gains to investors in a distrib
ution. If fund holdings increase in price but are not sold by the fund manager,
the fund's shares increase in price. You can then sell your mutual fund shares f
or a profit. Funds will also usually give you a choice either to receive a check
for distributions or to reinvest the earnings and get more shares.
Advantages of Investing Mutual Funds :
1. Professional Management - The basic advantage of funds is that, they are prof
essional managed, by well qualified professional. Investors purchase funds becau
se they do not have the time or the expertise to manage their own portfolio. A m
utual fund is considered to be relatively less expensive way to make and monitor
their investments. The professional fund managers who supervise fund s portfoli
o take desirable decisions viz., what scripts are to be bought, what investments
are to be sold and more appropriate decisions 2. Diversification of Risk - Purc
hasing units in a mutual fund instead of buying individual stocks or bonds, the
investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any
particular investment is minimized by gains in others. 3. Economies of Scale - M
utual fund buy and sell large amounts of securities at a time, thus help to redu
cing transaction costs, and help to bring down the average cost of the unit for
their investors. 4. Liquidity - Just like an individual stock, mutual fund also
allows investors to liquidate their holdings as and when they want. Mutual funds
units can either be sold in the share market as SEBI has made it obligatory for
closedended schemes to list themselves on stock exchanges. For open-ended schem
es investors can always approach the fund for repurchase at net asset value (NAV
) of the scheme. Such repurchase price and NAV is advertised in newspaper for th
e convenience of investors as to timings of such buy and sell. They have extensi
ve research facilities at their disposal, can spend full time to investigate and
can give the fund a constant supervision.
25
5. Simplicity - Investments in mutual fund is considered to be easy, compare to
other available instruments in the market, and the minimum investment is small.
Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where
SIP start with just Rs.50 per month basis. 6 Safety of Investments-Besides depe
nding on the expert supervision of fund managers, the legislation in a country (
like SEBI in India) also provides for the safety of investments. Mutual funds ha
ve to broadly follow the laid down provisions for their regulations, SEBI acts a
s a watchdog and attempts whole heatedly to safeguard investor s interests. 7. T
ax Shelter: Depending on the scheme of mutual funds, tax shelter is also availab
le. As per the Union Budget-2003, income earned through dividends from mutual fu
nds is 100% tax-free at the hands of the investors. Close ended schemes ELSS sch
emes with a minimum of 3 years lock in period also provide tax exemption to the
investor. Long term Capital gains are also exempted from tax for equity funds. 9
. The concept of Systematic Investment plan and Rupee cost averaging- Unlike oth
er equity linked product and shares or stocks Mutual funds provide the added ben
efit of Systematic Investment plan. Here the money may be invested over a longer
horizon of time in equal installments. Our natural instinct might be to stop in
vesting if the price starts to drop but history suggests that the best time to i
nvest may be when you are getting good value. Rupee-cost averaging can be an eff
ective strategy with funds or stocks that can have sharp ups and downs, because
it gives you more opportunities to purchase shares less expensively. The benefit
of this approach is that, over time, you may reduce the risk of having bought s
hares when their cost was highest.
Disadvantages of Investing Mutual Funds: 1. Professional Management- Some funds
don t perform as their management is not dynamic enough to explore the available
opportunity in the market, thus many investors debate over whether or not the s
o-called professionals are any better than mutual fund or investor himself, for
picking up stocks. 2. Costs The biggest source of AMC income is generally from t
he entry & exit load which they charge from investors, at the time of purchase.
The mutual fund industries are thus charging extra cost under layers of jargon.
26
3. Dilution - Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the overall
return. Dilution is also the result of a successful fund getting too big. When m
oney pours into funds that have had strong success, the manager often has troubl
e finding a good investment for all the new money. 4. Taxes - when making decisi
ons, fund managers don't consider investor s personal tax situation. For example
, when a fund manager sells a security, a capital-gain tax is triggered, which a
ffects how profitable the individual is from the sale. It might have been more a
dvantageous for the individual to defer the capital gains liability.
HISTORY 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 ba
nk the. the history of mutual funds in india can be broadly divided into four di
stinct phases
First phase
1964-87
Unit trust of India (uti) was established on 1963 by an act of parliament. it wa
s set up by the reserve bank of india and functioned under the regulatory and ad
ministrative control of the reserve bank of india. in 1978 uti was delinked from
the rbi and the industrial development bank of india (idbi) took over the regul
atory and administrative control in place of rbi. the first scheme launched by u
ti was unit scheme 1964. at the end of 1988 uti had rs.6,700 crores of assets un
der management.
Second phase
1987-1993 (entry of public sector funds)
1987 marked the entry of non- uti, public sector mutual funds set up by public s
ector 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 e
stablished in june 1987 followed by canbank mutual fund (dec 87), punjab nationa
l bank mutual fund (aug 89), indian bank mutual fund (nov 89), bank of india (ju
n 90), bank of baroda mutual fund (oct 92). Lic established its mutual fund in J
une 1989 while gic had set up its mutual fund in December 1990.
27
At the end of 1993, the mutual fund industry had assets under management of rs.4
7, 004 crores.
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 familie
s. 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 govern
ed. the erstwhile kothari pioneer (now merged with franklin templeton) was the f
irst private sector mutual fund registered in july 1993. The 1993 sebi (mutual f
und) regulations were substituted by a more comprehensive and revised mutual fun
d regulations in 1996. the industry now functions under the sebi (mutual fund) r
egulations 1996. The number of mutual fund houses went on increasing, with many
foreign mutual funds setting up funds in India and also the industry has witness
ed several mergers and acquisitions. As at the end of January 2003, there were 3
3 mutual funds with total assets of rs. 121,805crores. The unit trust of india w
ith rs.44, 541 crores of assets under management was way ahead of other mutual f
unds.
Fourth phase
since February 2003
In February 2003, following the repeal of the unit trust of india act 1963 uti w
as bifurcated into two separate entities. one is the specified undertaking of th
e 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 specified undertaking of unit trust of ind
ia, functioning under an administrator and under the rules framed by government
of india and does not come under the purview of the mutual fund regulations. The
second is the uti mutual fund ltd, sponsored by sbi, pnb, bob and lic. it is re
gistered with sebi and functions under the mutual fund regulations. with the bif
urcation 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, confor
ming to the sebi mutual fund regulations, and with recent mergers taking place a
mong different private sector funds, the mutual fund industry has entered its cu
rrent phase of consolidation and
28
growth. as at the end of September, 2004, there were 29 funds, which manage asse
ts of rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years
29
Analysis
Mutual funds also carry a risk profile with them. Some of the tools available to
assess a scheme s riskiness areBeta This common measure compares a mutual fund'
s volatility with that of a benchmark and is supposed to give some sense of how
far you can expect a fund to fall when the market takes a dive, or how high it m
ight climb if the bull is running hard. A fund with a beta greater than 1 is con
sidered more volatile than the market; less than 1 means less volatile. So say y
our fund gets a beta of 1.15 -- it has a history of fluctuating 15% more than th
e benchmark If the market is up, the fund should outperform by 15%. If the marke
t heads lower, the fund should fall by 15% more. But beta, though a useful guide
, is far from perfect, especially when used as a proxy for "risk." The problem h
ere, as with many risk measures, is the benchmark. The benchmark has to be a cor
rect measure of comparison only then will the beta hold any indicative value. Al
pha Alpha was designed to take beta one step further. It looks at the relationsh
ip between a fund's historical beta and its current performance, or the differen
ce between the return beta would lead you to expect and the return a fund actual
ly gets. An alpha of 0 simply means that the fund did as well as expected, consi
dering the risks it took. So if that fund with the beta of 1.15 beat the market
by 15% (or underperformed it by 15% when the market was down), it would have a 0
alpha. If your fund has a positive alpha, that means it returned more than its
beta predicted. A negative alpha means it returned less. The trouble with alpha
is that it's only as good as its beta. If the benchmark isn't appropriate to a f
und in deriving its beta, then alpha, too, will be imprecise.
Standard Deviation
Standard deviation is applied to the annual rate of return of an investment to m
easure the investment's volatility. Standard deviation is also known as historic
al volatility and is used by investors as a gauge for the amount of expected vol
atility. Standard deviation is a statistical measurement that sheds light on his
torical volatility. For example, a volatile stock will have a high standard devi
ation
30
while the deviation of a stable blue chip stock will be lower. A large dispersio
n tells us how much the return on the fund is deviating from the expected normal
returns.
Sharpe Ratio
The Sharpe ratio tells us whether a portfolio's returns are due to smart investm
ent decisions or a result of excess risk. This measurement is very useful becaus
e although one portfolio or fund can reap higher returns than its peers, it is o
nly a good investment if those higher returns do not come with too much addition
al risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted pe
rformance has been.
Treynor s performance index :
A ratio developed by Jack Treynor that measures returns earned in excess of that
which could have been earned on a riskless investment per each unit of market r
isks. In other words, the Treynor ratio is a risk-adjusted measure of return bas
ed on systematic risk. It is similar to the Sharpe ratio, with the difference be
ing that the Treynor ratio uses beta as the measurement of volatility. :
æR - R ö ç P f ÷ è ø Treynor = b P
Where: Ti = Treynor s performance index
31
Rp = Portfolio s actual return during a specified time period Rf = Risk-free rat
e of return during the same period p = beta of the portfolio Whenever Rp> Rf and
p > 0 a larger T value means a better portfolio for all investors regardless of
their individual risk preferences. In two cases we may have a negative T value:
when Rp < Rf or when p < 0. If T is negative because Rp < Rf, we judge the port
folio performance as very poor. However, if the negativity of T comes from a neg
ative beta, fund s performance is superb. Finally when Rp- Rf, and p are both ne
gative, T will be positive, but in order to qualify the fund s performance as go
od or bad we should see whether Rp is above or below the security market line.
FURTHER SCOPE OF THE STUDY The study will further try to1. Analyze a few fund/sc
hemes. 2. Comparative analysis of different investment Options with Mutual Funds
32
MARKET SURVEY
INTRODUCTION In financial markets, expectations of the investors play a vital ro
le. They influence the price of the securities; the volume traded and determines
quite a lot of things in actual practice. These expectations of the investors a
re influenced by their perception and humans generally relate perception to acti
on. The objective of the survey was to categorize investors as being inclined to
wards investment products based on certain characteristic such as sex, age, occu
pation, annual income etc. In addition the time horizon of investment and the th
e real need/purpose of investment were studied and categorized based on the abov
e demographic factors. It was also intended to examine the different intrinsic f
actors of a mutual fund scheme and different environmental forces that motivate
a investor to choose a particular mutual fund scheme. RESEARCH METHODOLOGY DESIG
NING A QUESTIONAIRE To understand the savings avenue preference, scheme preferen
ce, time horizon for investment and objectives for investment in MFs, and to ide
ntify the information sources influencing scheme selection, and the preferred mo
de of communication, a questionnaire (ANNEXURE I) was designed and the responden
ts were asked to rank their preferences on a ranking scale. The ranks were ascer
tained by obtaining the weighted mean value of the responses. To identify the fa
ctors that influence the investors fund/scheme selection, 23 variables were iden
tified through evidence from past research. Based on theory, past research, and
personal judgment, the factors that could influence the investors in their selec
tion of Mutual funds/schemes was first grouped into 3 major groups Fund/Scheme q
ualities, fund sponsor qualities and the expected investor services. Then the 23
identified variables were classified under the appropriate group as follows: SC
HEMES QUALITIES 1. Fund s/Scheme s performance record
33
2. Fund s/Scheme s brand name 3. Scheme s expense ratio 4. Scheme s portfolio co
nstituents
5. Reputation of scheme(s), portfolio manager(s) 6. Withdrawal facilities 7. Rat
ing by a rating agency 8. Innovativeness of the Scheme 9. Products with tax bene
fits 10.Entry and Exit load
FUND SPONSOR S QUALITIES 1. Reputation of the sponsoring firm 2. Sponsor offers
a wide range of schemes with different investment objectives 3. Brand name of Sp
onsor 4. Sponsor has a well developed Agency Net work/Infrastructure 5. Sponsor
has an efficient research wing 6. Sponsor s expertise in managing money INVESTOR
SERVICES 1. Disclosure of investment objectives, method and periodicity of valu
ation in advertisement 2. Disclosure of method, periodicity of scheme s sales an
d repurchase in offer documents 3. Announcement of NAV on every trading day 4. D
isclosure of deviation of the investments from the expected pattern 5. Disclosur
e of scheme s investments on every trading day 6. Mutual Fund Investors grievanc
e redressal machinery_ 7. Additional Services like free insurance, free credit c
ard, loans on collateral, tax benefits etc
In the survey, the respondents were asked to rate the importance of the 23 speci
fied variables on a 5 point scale ranging from Highly Important (1) to Not at al
l Important (5). The data for each of the 3 sub -groups were factor analyzed usi
ng Principal Component Analysis with the objective of identifying the factor in
the sub -group which turns out to be significant in the fund/scheme selection.
34
SAMPLE SELECTION Survey was conducted on 50 existing investors of Mahindra finan
ce and 50 more who were planning to invest into various schemes through Mahindra
Finance. The survey was conducted during March April 2009. The required data wa
s collected through a pre-tested questionnaire which was administered through di
fferent techniques i.e.- through telephone, emails, direct and interviewer admin
istered. Profile of Investors, distribution of the present investors by demograp
hic factors is given below. TABLE Distribution of retail mutual fund investors b
y demographic factors INVESTOR PROFILE SEX Male Female AGE Below 30 31-40 41-50
Above 50 MARITAL STATUS Married Unmarried OCCUPATION Salaried Business Retired A
NNUAL INCOME (Rs) Below 150000 150000 300000 300000 400000 Above 400000 ANNUAL S
AVINGS (Rs) Below 50000 50000 100000 100000 150000 150000 250000 Above 250000 NO
OF RESPONDENTS
78 22 14 36 30 20 58 42 60 26 14 14 54 14 18 39 24 10 12 15
35
Age Distribution in Sample A majority of the sample were from the 31-40 age grou
p followed by the 4150 age group (30%). The sample contained a minimum number of
investors in the below 0 age group.
Above 50 20%
Age Distribution
41-50 30% 31-40 36%
Below 30 14%
Occupational Distribution in Sample A majority of the people surveyed were from
the salaried class (60%). The business class (26%) also includes those people wh
o are self employed.
Occupational Distribution
Retired 14% Busines s 26% Salaried 60%
Annual Income Distribution in Sample Most of the people surveyed belonged to the
150000 to 300000 annual income category.
Above 400000 18% 300000 400000 14% 150000 300000 54%
Annual Income Below
150000 14%
36
Disposable Income Distribution in Sample More than 39% of people save below 5000
0 a year whereas only 15 %of people save more than 250000 a year.
Disposable Income Distribution
Above 250000 15% 150000 250000 12%
Below 50000 39%
100000 150000 10%
50000 - 100000 24%
Investment type Distribution in Sample Maximum no of people invest their money i
n providend funds. This is followed by the Mutual funds category. This can be at
tributed to the fact that a majority of the sample were salaried employees.
Investment Type Distribution
Postal Savings 14% Life Insurance 10% Bank Deposits 4% MF 22% PPF 26% Stocks 24%
37
Annual Income Vs Annual Savings
Income vs Savings
100 Percent 80 60 40 20 0 Below 50000 50000 100000 Savings Below 50000 Below 150
000 150000 - 300000 300000 - 400000 Above 400000 100 88 30 12 50000 - 100000 100
000 - 150000 150000 - 250000 Above 250000 0 9 47 18 0 3 15 25 0 0 8 28 0 0 0 17
100000 150000
Above 400000 300000 - 400000 150000 - 300000 Below 150000 150000 250000 Above 25
0000
Almost 100% of the people in the salary class of below 150000 save less than 500
00 a year. This is attributed to the fact that this slab is tax free. People in
the salary class of 1,50,000 to 3,00,000 mostly invest below 50,000. The income
slab of 3,00,000 invest maximum 50,000 to 1,00,000 yearly. The maximum no of peo
ple who invest more than 2,50,000 a year lies in the above 4,00,000 category inc
ome slab.
38
Age VS Investment Type
Age Vs Investment Type
45 40 35 30 25 20 15 10 5 0
Percent
Above 50 40-50 30-40 Below 30
Stocks Below 30 30-40 40-50 Above 50 14 24 29 22
PPF 29 24 29 22
MF 14 36 18 19
Bank Deposits Life Insurance Postal Savings 0 0 0 15 43 16 0 0 0 0 24 22
It can be inferred from the readings that young people invest mostly in life ins
urance schemes whereas the age group of 30-40 and 40-50 invest their money mostl
y in mutual funds and stocks. Risk averse young people also invest in PPFs. They
hardly go for bank deposits and postal savings etc. Postal savings and bank dep
osits fare well in case of old investors as can be seen from the chart.
39
Age Vs Time Horizon
Age VS Time Horizon
50 45 40 35 30 25 20 15 10 5 0 Below 1 Year 1-3 Years Time of Deposit Below 1 Ye
ar Below 30 30-40 40-50 Above 50 25 29 38 29 1-3 Years 50 29 38 29 3-5 Years 25
43 23 24 5 above 0 0 0 19
%
Above 50 40-50 30-40 Below 30 3-5 Years 5 above
The below 30 age group prefer a time horizon of mostly 1-3 years(50%) and rest o
f them prefer the below one year and the 3-5 yrs schemes equally. The age group
of 50 above prefers the 5 yrs time horizon more than the other age groups.
40
FURTHER SCOPE OF THE STUDY The study shall further include the comparative analy
sis of other demographic factors (Income, Occupation and Gender) with types and
horizon of investment. 1. 2. 3. 4. 5. 6. Income VS Type of Investment Income VS
Horizon of Investment Occupation VS Type of Investment Occupation VS Horizon of
Investment Gender VS Type of Investment Gender VS Horizon of Investment
41
FACTORS AFFECTING SCHEME SELECTION IN MUTUAL FUNDS Ranking of the Investment Obj
ective in Sample OBJECTIVE Safety Liquidity Tax Benefit Dividend Capital Appreci
ation RANK 1 4 3 2 5
The investors look for safety first in MF products, followed by good returns, Ta
x Benefits, liquidity and capital appreciation. The survey further reveals that
the scheme selection decision is made by respondents on their own, and the other
sources influencing their selection decision are News papers and Magazines, Bro
kers and Agents, Television, Friends suggestions and Direct Mail in that order P
referable Route to Mutual Fund Investing as indicated below. ROUTE Friends Sugge
stions Newspaper/Magazines Self Decision Television Brokers/Agents Email/Direct
mail RANK 5 2 1 4 3 6
Since the survey reveals priority to Self decision in scheme selection. Informat
ion dissemination through all possible routes which will reach the investors sho
uld be tapped in a cost-effective manner by AMCs. Diagnostically looking, the fa
ct that the investors prefer to make their own scheme selection decision, in spi
te of their lack of knowledge about the sophisticated market environment, reflec
ts their reluctance to believe the available quality of service provided by the
agents, financial consultants and investment advisers. These agencies and person
s engaged in giving investment advice should gear up now to win the confidence o
f the investors. In the long run, it will help both the investors and the invest
ment advisers, thus strengthening the link between the individual investors and
the Mutual Funds. Scheme Preference of Mutual Fund Investors
42
SCHEME Growth Income Balanced
RANK 1 2 3
FURTHER SCOPE OF THE STUDY Although it has been observed that safety is the numb
er one motive behind investment in any mutual funds, the effect of demographics
cannot be neglected while observing the scheme selection behavior of Mutual Fund
investors. Thus this study will further include a analysis of the perception of
different individuals belonging to different demographics on various objectives
of investment offered by mutual funds (Tax benefit, Dividend, Safety, Capital A
ppreciation, Liquidity). This will help in finding out what product to offer to
which type of individual.
43
Influence of Product Qualities on Scheme Selection
OBSERVATION
The 10 fund related variables were analyzed for their importance. The analysis r
eveals that the investor considers all the 10 variables as important in his sele
ction of the fund/scheme. The mean values of the readings were obtained and the
factors were ranked according to their importance. VARIABLES Scheme s Performanc
e Records Schemes Brand Name Portfolio of Investment Withdrawal facility Reputat
ion of Schemes Managers Products with Tax Benefits Ratings Entry and Exit Load E
xpense Ratio Innovativeness of Scheme RANKING 1 2 3 4 5 6 7 8 9 10
To identify the investor s underlying fund/scheme selection criteria, so as to g
roup them into specific market segment to enable the designing of the appropriat
e marketing strategy, Factor Analysis was done using Principal Component Analysi
s. The readings obtained are given below.
COMMUNALITIES Variable A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 Initial 1 1 1 1 1 1 1 1 1
1 Extraction 0.438 0.798 0.248 0.675 0.409 0.371 0.352 0.359 0.593 0.435
INITIAL EIGEN Eigen Factor Value 1 2.327 2 1.265 3 1.086 4 0.971 5 0.931 6 0.87
7 0.71 8 0.693 9 0.61 10 0.537
VALUES % of variance 23.268 12.653 10.861 9.71 9.307 8.701 7.098 6.93 6.098 5.37
4
Cumulative 23.268 35.921 46.782 56.492 65.799 74.5 81.598 88.528 94.626 100
44
Extraction Method- Principal Component Analysis Variable
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10
FACTOR MATRIX Factor 1 Factor 2 Factor 3
0.316 0.234 0.416 0.354 0.542 0.468 0.551 0.589 0.54 0.646 0.429 0.194 0.272 0.7
0.25 -0.389 -0.199 -0.102 -0.446 -0.131 -0.392 0.84 -2.56E-02 -0.245 0.229 -1.9
1E-02 9.14E-02 4.76E-02 -0.32 7.13E-03
ROTATED FACTOR MATRIX Factor 1 Factor 2 Factor 3
6.19E-02 2.40E-02 0.202 -6.48E-02 0.299 0.604 0.562 0.554 0.719 0.661 0.641 -5.7
9E-02 0.423 0.816 0.369 -7.63E-02 7.09E-02 0.182 2.88E-02 0.202 -0.513 0.891 0.1
66 6.91E-02 0.428 -1.17E-03 0.177 0.174 -0.275 0.144
Total variance Explained
EXTRACTION SUM OF ROTATIONAL SUM OF SQUARED LOADINGS SQUARED LOADINGS Eigen % of
Eigen % of Factor Value variance Cumulative Value variance Cumulative 1 2.327 2
3.268 23.268 2.006 20.059 20.059 2 1.265 12.653 35.921 1.481 14.809 34.868 3 1.0
86 10.861 46.782 1.191 11.914 46.782 Extraction Method- Principal Component Anal
ysis
Component and Rotated Component Matrix
Extraction Method- Principal Component Analysis Rotation Method- Varimax with Ka
iser Normalization
INFERENCE
Retaining only the variables with eigen values greater than one, we can infer th
at 23.268% of variance is explained by factor 1; 12.653% of variance is explaine
d by factor 2 and 10.861% of variance is explained by factor 3 and together, all
three factors contributed to 46.782% of variance. On the basis of Varimax Rotat
ion with Kaiser Normalization, 3 factors have emerged. Each factor is constitute
d of all those variables that have factor loadings greater than or equal to 0.5.
Thus A6, A7, A8, A9 and A10 constituted the first factor. This factor was named
as Intrinsic Product Qualities ; A1 and A4 constituted the second factor and th
is was conceptualized as Portfolio Management ; A2 constituted the 3rd factor an
d was conceptualized as Image factor.
45
Thus, after rotation, factor 1 (Intrinsic Product Qualities) accounts for 20.059
% of the variance; factor 2 (Portfolio Management) accounts for 14.809% of varia
nce and factor 3 (Image) accounts for 11.914% of var iance and all 3 factors tog
ether explain for 46.782% of variance. CLUBBING OF FACTORS INTO VARIABLES FACTOR
NAME Intrinsic Qualities Product VARIABLE the Withdrawal Facilities Rating by a
rating agency Innovativeness of Scheme Tax benefits Performance Record Investme
nt Portfolio Reputation of Brand name
of
Portfolio Management
Image
FURTHER SCOPE OF THE STUDY The six sponsor related variables are to be analyzed
for their importance using Factor Analysis. The Seven Investors Services related
variables are also to be analyzed for their importance using Factor Analysis.
46
ANNEXURE 1
This survey is for the sole purpose of collecting data for a survey carried out
by the ICFAI Business School Management students for internship thesis. Informat
ion in this survey would not be disclosed for any other purpose. We are very muc
h grateful to you for your cooperation and time. NAME___________________________
___________________ Email Id_________________________________________ Mobile____
_________________ Please tick mark I.SEX: Male II.AGE: Female 30 40 150000-30000
Salaried 40 - 50 300000-400000 Businessman 50 and above 4000000< Retired
Below 30
III.INCOME: 150000 < IV. OCCUPATION
Please fill in SAVINGS = Rs ____________ / Year What % of your savings are inves
ted for 5 years and above __________________ (approx.) What % of your savings ar
e invested for 3-5 years__________________ (approx.) What % of your savings are
invested for 1-3 years___________________ (approx) What % of your savings are in
vested for less than one year________________ (approx) Please rank the choices a
ccording to your preferences as indicated in example. Give Rank 1 to the most pr
eferred option. Give Rank 2 to the next best option and so on. EXAMPLE: What sea
son do you like most? Rainy 3 Winter 1 Summer 2 In which schemes have you invest
ed most till date? (Rank 1-6) Mutual Funds Fixed Deposits Life Insurance Postal
Savings Stocks Provident Funds
What were the most important factors while selecting a mutual fund scheme? (Rank
1 to 6) Tax Benefit Capital Appreciation Dividend Liquidity Safety
47
Which environmental forces influenced you the most to invest in mutual fund? Ran
k in order of preference from 1 to 6.
Friends Suggestions Newspapers / Magazines Television and commercials Brokers an
d Agents Self evaluation and decision Direct mail / E mail
Which mode of communication do you prefer most for receiving updates and perform
ance of your scheme / portfolio of mutual fund investment? Rank 1 to 4.
Telephone E mail / Internet Direct mail Personal contact / visit.
GIVE MARKS OUT OF 5 TO EACH OF THE ATTRIBUTES FOR THEIR IMPORTANC E WHILE MAKING
A INVESTMENT DECISION. Please Refer Example.
Give: Give: Give: Give: Give: 1 2 3 4 5 for Highly Important Factor for Importan
t for Moderately Important for Less Important for Not at all Important. Please f
eel free to leave any question that you can t understand Unmarked
EXAMPLE:
SL NO.
Grade Funds Popularity? ________________________
SCHEMES QUALITIES
3
MARKS
A1 A2 A3 A4 A5 A6
Fund s/Scheme s performance record_______________
Fund s/Scheme s brand name_____________________
Scheme s expense ratio__________________________
Scheme s portfolio constituents____________________
Reputation of scheme(s), portfolio manager(s)________
Withdrawal facilities____________________________
48
A7 A8 A9 A10
Rating by a rating agency________________________
Innovativeness of the Scheme_____________________
Products with tax benefits________________________
Entry and Exit load_____________________________
SL NO.
FUND SPONSOR S QUALITIES Reputation of the sponsoring firm_________________
MARKS
B1 B2
Sponsor offers a wide range of schemes with different investment objectives_____
______________________
B3 B4
Brand name of Sponsor__________ ______________ Sponsor has a well developed Agen
cy Net work/Infrastructure_____________________________
B5 B6
SL NO.
Sponsor has an efficient research wing______________
Sponsor s expertise in managing money_____________ INVESTOR SERVICES Disclosure
of investment objectives, method and periodicity of valuation in advertisement__
__________ Disclosure of method, periodicity of scheme s sales and repurchase in
offer documents_____________________
MARKS
C1 C2
C3
Announcement of NAV on every trading day____________
49
C4 C5
Disclosure of deviation of the investments from the expected pattern____________
_____________________ Disclosure of scheme s investments on every trading day___
_______________________________________
C6 C7
Mutual Fund Investors grievance redressal machinery_ Additional Services like fr
ee insurance, free credit card, loans on collateral, tax benefits etc.__________
______
50
REFERENCES
1. www.moneycontrol.com 2. www.amfiindia.com 3. www.wikepedia.com 4. Shanmugham,
R., 2000, Factors Influencing Investment Decisions , Indian Capital Markets Tre
nds and Dimensions (ed.), Tata McGraw-Hill PublishingCompany Limited, New Delhi,
2000 5. Anjan Chakrabarti and Harsh Rungta, 2000, Mutual Funds Industry in Indi
a :An in-depth look into the problems of credibility, Risk and Brand , The ICFAI
Journal of Applied Finance, Vol.6, No.2, April, 27-45. 6. Customer Orientation
in Designing Mutual Fund Products, -An Analytical Approach to Indian Market Pref
erences, Dr Tapan K Panda, Faculty Member, Indian Institute of Management, Luckn
ow. 7. Review Of Marketing Research Volume 5: K. Naresh Malhotra:
51
THANK YOU
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