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 invested by the fund manager in different types of
securities depending upon the objective of the scheme. These could range from shares to
debentures to money market instruments. The income earned through these investments and
the capital appreciation realized by the scheme is shared by its units 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
portfolio at a relatively low cost. The small savings of all the investor are put together to
increase the buying power and hire a professional manager to invest and monitor the money.
Anybody with an ingestible surplus of as a few thousand rupees can invest in mutual funds.
Each mutual fund scheme has a defined investment objective and strategy.
In the preset time stock market is more volatile at that time small investor invest its
money via mutual fund it gives safety and secure return. For the small investor mutual fund is
the best investment option.
Mutual fund is a one of the investment instrument in the global market special in
USA, more than 30% saving invested in mutual fund but in India only 1-2% saving mutual
fund investment. Size of the mutual fund industries % of GDP in USA 67% where in India
only 6% so its reflect mutual fund industries is good potential

A SHORT HISTORY OF MUTUAL FUNDS

WHERE DID THEY COME FROM?
Mutual funds are not an American invention. The first was started in the Netherlands in 1822,
and the second in Scotland in the 1880's.
Originally called investment trusts, the first American one was the New York Stock Trust,
established in 1889. Most that followed were begun in Boston in the early 1920's, including
the State Street Fund, Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder,
Pioneer, and the Putnum Fund. The Wellington Fund, the first balanced fund that included
both stocks and bonds, was founded in 1928, and today is part of the giant Vanguard Funds
Group.
In the 1960's there was a phenomenal rise in aggressive growth funds (with very high risk).
Sometimes called "go-go" or "hot-shot" funds, they received the majority of the billions of
dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new
aggressive growth funds were established.
A severe bear market began in the autumn of 1969. People became disillusioned with stocks
and mutual funds. "The market's toast. Itll never get back to where it was!" was echoed by
panicked investors.
Unemployment grew; inflation went crazy, and investors pulled billions back out of the
funds. They should have hung in there! Many funds have risen 9,000% since then.
The 1970's saw a new kind of fund innovation: funds with no sales commission called "no
load" funds. The largest and most successful no load family of funds is the Vanguard Funds,
created by John Bogle in 1977.
At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's there were
244. Today there are more than 6,500 unique funds and even thousands more that differ only
by their share class (how they are sold, and how their expenses are charged).
Before we continue with all you need to know about mutual funds, here is something that
merits your attention. Since 1940, no mutual fund has gone bankrupt. You sure can't say
that about banks and savings and loans!

HISTORY OF MUTUAL FUND SHOWN IN PHASES

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 the. 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
the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6, 700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

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 Can 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 December 1990.
At the end of 1993, the mutual fund industry had assets under management of Rs.47, 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 milies. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996
The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805

crores. The Unit Trust of India with Rs.44, 541 crores 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 Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of March 2006, there were 30 funds, which manage assets of Rs.231862 crores under 421
schemes.

GROWTH OF MUTUAL FUNDS IN INDIA

The Indian Mutual Fund has passed through three phases. The first was between 1964 and
1987 and the only player was the Unit Trust of India, which had a total asset of Rs. 6700/crores at the end of 1988. The second phase is between 1987 and 1993 during which period 8
funds were established (6 by banks and one each by LIC and GIC). The total AUM 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 by the
private sector in association with a foreign fund.
As at end of financial year 2000 (31st March) 32 funds were functioning with Rs. 1, 13,005
crores as total Asset under Management. As on August end 2000, there were 33 funds with
391 schemes and asset under management with Rs. 1, 02,849 crores.
The SEBI came out with comprehensive regulation in 1993 which defined the structure of
Mutual Fund and AMC for the first time.
Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the
private players has risen rapidly since then.
Currently 30 Mutual Fund organizations in India are managing 265000 crores

ABOUT MUTUAL FUNDS

A MUTUAL FUND IS A POOL OF MONEY THAT IS

INVESTED IN VARIOUS SECURITIES AND PROFESSIONALLY
MANAGED BY AN INVESTMENT MANAGER

What is a Mutual Fund?

Like most developed and developing countries the mutual fund cult has been catching on in
India. There are various reasons for this. Mutual funds make it easy and less costly for
investors to satisfy their need for capital growth, income and/or income preservation.
And in addition to this a mutual fund brings the benefits of diversification and money
management to the individual investor, providing an opportunity for financial success that
was once available only to a select few.
Understanding Mutual funds is easy as it's such a simple concept: a mutual fund is a company
that pools the money of many investors -- its shareholders -- to invest in a variety of different
securities. Investments may be in stocks, bonds, money market securities or some
combination of these. Those securities are professionally managed on behalf of the
shareholders, and each investor holds a pro rata share of the portfolio -- entitled to any profits
when the securities are sold, but subject to any losses in value as well.
A mutual fund, by its very nature, is diversified -- its assets are invested in many different
securities. Beyond that, there are many different types of mutual funds with different
objectives and levels of growth potential, furthering your chances to diversify

>> Definition of Mutual Fund

A mutual fund is a pool of assets invested on behalf of investors. Mutual funds invest in a
diversified portfolio of securities, which can include equity securities (such as common and
preferred shares), debt securities (such as bonds and debentures) and other financial
instruments issued by corporations and governments, according to the stated investment
objectives of the funds. Individual investors own a percentage of the value of the fund as
represented by the number of units they purchase. A collection of money invested in a group
of assets and managed by an investment company (a mutual fund company or other). The
money comes from investors who want to buy shares in the fund. The benefits to investors in
buying shares of mutual funds come primarily from diversification, professional money
management, and capital gains and dividend reinvestment at relatively low cost. The flow
chart below describes broadly the working of a mutual fund.

Working of a Mutual fund:

The entire mutual fund industry operates in a very organized way. The investors, known as unit
holders, handover their savings to the AMCs under various schemes. The objective of the investment
should match with the objective of the fund to best suit the investors needs. The AMCs further invest
the funds into various securities according to the investment objective. The return generated from the
investments is passed on to the investors or reinvested as mentioned in the offer document.

ORGANISATION STRUCTURE OF A MUTUAL FUND

SEBI

TRUSTEE

OPERATIONS

SPONSOR

AMC
FUND
MANAGER
MUTUAL FUND

MKT. / SALES

MKT. / SALES
SCHEMES

DISTRIBUTER

INVESTORS

In case of developed countries, Mutual Fund industry is highly regulated keeping in view the
protection of investors interest as well as to maintain operational transparency. There is a
clear demarcation between open-ended schemes and close-ended schemes for which usually
two different types of structural and management approaches are followed. Open-ended
funds (unit trusts) follow the trust approach while close-ended schemes (investment trust)
follow corporate approach. The management and operations are guided by separate
regulatory mechanisms, separate controlling authorities as well. With regards to India, there
are no distinctions to the followed and are integrated by Indian Regulatory Authority, SEBI.
SEBI Regulations Act, 1996, guides the formations and operations of Mutual Funds. A
Mutual Fund comprises of four separate entities, (a) Sponsor (b) Mutual Fund Trust (c) AMC
and (d) Custodian. They are assisted by independent administrative entities like banks,
registrars and transfer agents.


Sponsor





Sponsor can be any person; acting alone or in a combination with another body
corporate, establishes the Mutual Funds and gets it registered with SEBI. As per
SEBI regulations, 1996:
Required to contribute 40% of minimum net worth (Rs. 10 crores) of the AMC.
Must have sound track record and general reputation of fairness and integrity in all
his/her transactions.
Mutual Fund shall be constituted in form of a trust and the instrument of trust shall be
in form of a deed, duly registered under the provisions of Indian Registration Act,
1908, executed by sponsor in favor of trustees.

Board of Trustees








Board of trustees manages a Mutual Fund and the sponsor executes the trust deeds.
Mutual Funds raise money through sale of units under one or more schemes, for
investing in securities. BoT sees to it that the schemes floated and managed by AMC
appointed by trustees are in accordance with trust deeds and SEBI guidelines. As per
SEBI Regulations, 1996:
The BoT has the right to obtain relevant information from the AMC and dismiss the
AMC under specific conditions also.
Half the trustees should be independent persons. Neither the AMC, not its employees
can act as a trustee.
As a trustee of Mutual Fund, he cannot be appointed as a trustee of another Mutual
Fund, until and unless he is an independent person or has permission from the Mutual
Fund where he is a trustee.
Trustees have the right to appoint custodian and supervise their activities.
Trustees can be removed only by prior approval of SEBI.

Asset Management Company







AMC is appointed by the trustees to float the schemes and manage the funds raised by
selling units under the scheme. They are to act as per SEBI guidelines, trust deeds
and management agreement between the trustees and AMC.
They should be registered under the SEBI.
Net worth of the AMC should be in cash and all assets should be in the name of
AMC.
AMC cannot give or guarantee loans and is restricted from acquiring assets, which
involve the assumption of unlimited liability.
AMC are required to disclose scheme particulars and base of calculation of NAV.
The director of AMC should be a person of reputed of high standing and at least have
five years experience in relevant field.
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AMC can be terminated with 75% unit holders or majority of trustees.

Custodian




As per SEBI Regulations Mutual Funds shall have a custodian who is not any way
associated with the AMC. It carry outs the activity of safekeeping the securities or
participating, in any clearing system.
Custodian should have a sound track record and adequate relevant experience.
Should not be associated with AMC or act as a sponsor or trustee to any Mutual Fund.

WHERE DO M UTUAL FUNDS INVEST?

Broadly mutual funds invest basically in 3 types of asset classes:

Stocks:
A stock represents ownership or equity in a company, popularly known as shares.

Bonds:
These represent debt from companies, financial institutions or government agencies.

Money market instruments:
These include short term debt instrument such as treasury bills, certificate of deposits and
inter-bank call money.

GLOBAL SCENARIO
Some basic facts:

In US, every third household is a mutual fund investor.

In US, the MF Industry size is about 67% of the US GDP whereas the Indian MF
Industry is just 6% of our GDP.
In US,MF assets are 1.5 times the bank deposit.
In India the bank deposits are about 10.50 times the MF assets.
In India for the past 3 years its has been seen that nearly 2,500 crore is being transferd
from bank deposits to Mutual funds on a yearly basis .
75% of the core customer bases of mutual funds in the top 50-broking firms in the
U.S. are expected to trade on-line by 2004.
On- line trading is a great idea to reduce management expenses from the current 2 %
of total assets to about 0.75 % of the total assets and as we start using advanced
technology in this industry this cost will further cut down the administration cost.

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Internationally, on-line investing continues its meteoric rise. Many have debated
about the success of e- commerce and its breakthroughs, but it is true that this aspect of
technology could and will change the way financial sectors function. However, mutual funds
cannot be left far behind. They have realized the potential of the Internet and are equipping
themselves to perform better.In fact in advanced countries like the U.S.A, mutual funds buysell transactions have already begun on the net, while in India the Net is used as a source of
Information and also net is used for transaction purpose is on the initial stage but is catching
up quickly with all dealing in this industry as it helps in reducing administrative cost.
Such changes could facilitate easy access, lower intermediation costs and better
services for all. A research agency that specializes in internet technology estimates that over
the next four years Mutual Fund Assets traded on- line will grow ten folds from $ 128 billion
to $ 1,227 billion; whereas equity assets traded on-line will increase during the period from $
246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40%
during the period.
Such increases in volumes are expected to bring about large changes in the way
Mutual Funds conduct their business.Here are some of the basic changes that have taken
place since the advent of the Net.
 Lower Costs: Distribution of funds will fall in the online trading regime by 2003. Mutual
funds could bring down their administrative costs to 0.75% if trading is done on- line. As
per SEBI regulations, bond funds can charge a maximum of 2.25% and equity funds can
charge 2.5% as administrative fees. Therefore if the administrative costs are low, the
benefits are passed down and hence Mutual Funds are able to attract more investors and
increase their asset base.
 Better advice: Mutual funds could provide better advice to their investors through the
Net rather than through the traditional investment routes where there is an additional
channel to deal with the Brokers. Direct dealing with the fund could help the investor
with their financial planning.
 In India, brokers could get more Net savvy than investors and could help the investors
with the knowledge through get from the Net.
 New investors would prefer online: Mutual funds can target investors who are young
individuals and who are Net savvy, since servicing them would be easier on the Net.
 India has around 1.6 million net users who are prime target for these funds and this could
just be the beginning. The Internet users are going to increase dramatically and mutual
funds are going to be the best beneficiary. With smaller administrative costs more funds
would be mobilized .A fund manager must be ready to tackle the volatility and will have
to maintain sufficient amount of investments which are high liquidity and low yielding
investments to honour redemption.
 Net based advertisements: There will be more sites involved in ads and promotion of
mutual funds. In the U.S. sites like AOL offer detailed research and financial details
about the functioning of different funds and their performance statistics. a is witnessing a
genesis in this area.

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FUTURE SCENARIO:
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few
years as investors shift their assets from banks and other traditional avenues. Some of the
older public and private sector players will either close shop or be taken over.
Out of ten public sector players five will sell out, close down or merge with stronger players
in three to four years. In the private sector this trend has already started with two mergers and
one takeover. Here too some of them will down their shutters in the near future to come.
But this does not mean there is no room for other players. The market will witness a flurry of
new players entering the arena. There will be a large number of offers from various asset
management companies in the time to come. Some big names like Fidelity, Principal, Old
Mutual etc. are looking at Indian market seriously. One important reason for it is that most
major players already have presence here and hence these big names would hardly like to get
left behind.
In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some
like real estate funds and commodity funds also take an exposure to physical assets. The latter
type of funds are preferred by Corporates who want to hedge their exposure to the
commodities they deal with.
For instance, a cable manufacturer who needs 100 tons of Copper in the month of January
could buy an equivalent amount of copper by investing in a copper fund. For Example,
Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its
corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world,
short term and long-term U.S. treasuries etc.
In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real
estate funds (investing in real estate and other related assets as well.).In India, the Canada
based Dundee mutual fund is planning to launch a gold and a real estate fund before the yearend.
In developed countries like the U.S.A there are funds to satisfy everybodys requirement, but
in India only the tip of the iceberg has been explored. In the near future India too will
concentrate on financial as well as physical funds.
The mutual fund industry is awaiting the introduction of DERIVATIVES in the country as
this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value
(NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to
trade in Derivatives. Importantly, many market players have called on the Regulator to
initiate the process immediately, so that the mutual funds can implement the changes that are
required to trade in Derivatives.

13

CATEGORIES OF MUTUAL FUND:

14

TYPES OF MUTUAL FUND SCHEMES

The various types of Mutual Funds can be classified according to various investors
objectives and their expectations. They can be segregated as under into the following criteria.





By Investment Objectives.
By Duration/Constitution.
Load and No-Load Funds.
Other types of schemes.
Hereby, let us discuss the various types of Mutual Funds in detail.

By Investment Objectives
 Growth/Equity Funds
These funds re high risk-high return funds, wherein major chunk of investment goes
in equity shares of companies. The NAV of such funds keep fluctuating, but the
potential to earn in such funds is higher provided they are invested with long-term
(more than 5 years) financial goals. The leading examples of such funds are, Kothari
Pioneer Prima Fund, Prudential ICICI Equity Fund, Birla Sun Life Fund, etc.

 Income/ Debt Funds

These funds are low risk-low return funds, where in the investments are made in
income bearing instruments such as bonds, debentures, government securities,
commercial papers etc. The share prices of these funds tend to be more stable in
value and are best suitable for regular income investment goals, provided minimum
investment period is more than one year. The leading examples are monthly income
funds of UTI, Prudential ICICI Income Plan, JM Income, Alliance Liquid Fund etc.

 Balanced Funds
These funds invest in both, equity shares and income bearing instruments. The idea is
to reduce volatility of fund, while providing some upside for capital appreciation. In
all, it is a combination of income and growth funds more return more risk than
income funds and less return less risk than growth funds. They are best suited for
people looking for a combination for capital appreciation and regular income and best
time span for such investments is more than 3 years. The examples are PRUICICI
Balanced Fund, IDBI-PRINCIPAL Balanced Fund, and IDBI-PRINCIPAL Child
Benefit Fund etc.

 Money Market Funds

These funds invest in highly liquid instruments such as certificate of deposits and
short-term bonds. They have emerged as an alternative for savings and short-term
fixed deposit accounts. They are best suited for capital preservation investment
objectives, where time-span is least.

15

 Gilt Funds
These funds are sort of government funds wherein the investments are made in debt
instruments of the government, which carry no risk of non-payment of interest as the
RBI manages the payment of interest and principal on the instruments. These funds
are best suited to the regular income and long-term investment objectives. The timespan matters a lot as there are chances of price volatility, which may lead to
possibility of loss of principal invested, if invested for short-term. Examples are
PRUICICI Gilt Fund, IDBI-PRINCIPAL Government Securities Fund etc.

 International Funds
These are funds investing in international assets or shares of emerging market origin.
These are not possible in India due to regulation against investing overseas. Most of
the foreign institutional investors (FIIs) investing in India are actually funds of this
type.

By Duration/By Constitution
 Open ended Funds
These funds are open for subscription and redemption every day at prices linked to
the daily net asset value per share. That means buying and selling is done directly
with the fund. From the investors perspective, these funds are more liquid compared
to the close-ended funds. The key features of such funds are there in fixed maturity,
the corpus keeps on fluctuating and they are typically not listed in any stock
exchange.

 Close ended Funds

The investment in such funds is made during the initial issue period and the money
gets lock-in for a stipulated period (ranging from 2 to 15 years). After the initial
issue, these funds can be bought or sold on the stock exchange where the fund is
listed. Generally, the close-ended funds are traded at a discount to their NAV. Its key
features are the maturity is fixed, the corpus is also fixed and they are listed in stock
exchange.

 Interval Funds
Interval funds combine the features of open ended and close ended schemes.
They are open for sale or redemption during pre-determined intervals at NAV related
prices.

16


By Entry/Exit Charges
 Load Funds
Load funds are those funds wherein the investor has to incur a one-time charge at the
time of either entry or exit into the fund. The entry charge is called front end load,
whereas the exit charge is called back end load. This load is limited to a maximum
of 6% of the investment value.

 No load Funds
No load funds are those wherein the investor has to incur charges on every
transaction made by him, but then the investor is free from entry or exit fee as in the
case of load funds. Here the AMC is entitled to collect 1% additional management
fees (this fee is less than load funds but then the transaction made will be higher, so
the actual amount incurred will be nearly similar). Thus, while the investor saves
some upfront cost, he incurs high ongoing cost.

 Assured return scheme

Assured return schemes are those schemes that assure a specific return to the unit
holders irrespective of performance of the scheme. A scheme cannot promise returns
unless such returns are fully guaranteed by the sponsor or AMC and this is required to
be disclosed in the offer document. Investors should carefully read the offer document
whether return is assured for the entire period of the scheme or only for a certain
period. Some schemes assure returns one year at a time and they review and change it
at the beginning of the next year.

Other Types of Schemes

 Tax Saving Funds
These funds offer tax rebate to the investor along wit capital growth and steady
returns. An Equity United Savings Scheme is available wherein investments are
made primarily in stocks. The investment can be made any time, but it gets lock-in
for a period of 3 years and in return tax rebate @ 20% is obtained if investments
exceed Rs.1, 00,000. Another such scheme is pension scheme, wherein tax rebate @
20% can be obtained for investment up to Rs.60, 000.

 Index Funds
Index funds invest only in stocks of a particular index such as BSE, S&P CNX 500
etc. The principle is to duplicate performance of these widely followed indexes while
keeping trading and other costs to a minimum. The returns in case of such funds
depend on the indexs performance. It is best suited to the investors who are satisfied
with the returns of an index.

17

 Sector Funds
Sector funds primarily invest in companies of a particular sector/ industry such as
information technology, pharmaceuticals, FMCGs etc. These types of funds are
subject to more risk as the performance of funds depends on the performance of the
industry as a whole and also because the diversification of risk is reduced. Also with
the new rule of government not allowing investing more than 10% in a particular
company, is a big problem as the number of companies is not very large and at the
same time all of them are not very successful. It is best suited to people willing to
take high risk.

 Special Purpose Funds

Special purpose funds are those funds that target a specific customer segments, such
as children, women, retired people etc. Making their fund oriented towards the need
of the group they are targeting.

 Off Shore Funds

These funds will have non-residential investors and are regulated by the provision of
the foreign countries where they are registered. Further these funds are governed by
the rules and procedures laid down for the purpose of approving and monitoring their
performance by the department of economic affairs, Ministry of Finance and the
directions of RBI.

Investment strategies:
1. Systematic Investment Plan: under this a fixed sum is invested each month on
a fixed date of a month. Payment is made through post dated cheques or direct debit
facilities. The investor gets fewer units when the NAV is high and more units when
the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund
and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme
of the same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual
fund then he can withdraw a fixed amount each month.

18

Risk v/s. return:

T h e R is k R e t u r n T r a d e - o ff

P o te n ti a l
f o r re tu rn

G r o w th F u n ds
A ggre ssiv e , V a lu e ,
G ro w th

B a l a n c e d F u n ds
R at i o o f D eb t : E qu i t y

L i qu i d F u n ds

R is k

19

S e c to r a l F u n ds

HOW TO INVEST IN MUTUAL FUND

Step One - Identify your Investment needs
Your financial goals will vary, based on your age, lifestyle, financial independence,
family commitments, and level of income and expenses among many other factors.
Therefore, the first step is to assess your needs. You can begin by defining your
investment objectives and needs which could be regular income, buying a home or
finance a wedding or educate your children or a combination of all these needs, the
quantum of risk you are willing to take and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your
requirements. The offer document of the scheme tells you its objectives and provides
supplementary details like the track record of other schemes managed by the same
Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are
the track record of the performance of the fund over the last few years in relation to
the appropriate yardstick and similar funds in the same category. Other factors could
be the portfolio allocation, the dividend yield and the degree of transparency as
reflected in the frequency and quality of their communications. For selecting the right
scheme as per your specific requirements, click here.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs.
You may consider investing in a combination of schemes to achieve your specific
goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month.
By investing a fixed sum each month, you buy fewer units when the price is higher
and more units when the price is low, thus bringing down your average cost per unit.
This is called rupee cost averaging and is a disciplined investment strategy followed
by investors all over the world. You can also avail the systematic investment plan
facility offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you
start now, you will make more than if you wait and invest later. The power of
compounding lets you earn income on income and your money multiplies at a
compounded rate of return.
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Step Six - The final step

All you need to do now is to Click here for online application forms of various mutual
fund schemes and start investing. You may reap the rewards in the years to come.
Mutual Funds are suitable for every kind of investor - whether starting a career or
retiring, conservative or risk taking, growth oriented or income seeking

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BENEFITS OF MUTUAL FUNDS

Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed
by a dedicated investment research team that analyses the performance and prospects
of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification
Mutual Funds invest in a number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk because all stock cannot
go through a downtrend at the same time and in the same proportion. You achieve
this diversification through a Mutual Fund with far less money than you can do on
your own.

Conventional Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems
such as bad deliveries, delayed payments and follow up with brokers and companies.
Mutual Funds save your time and make investing easy and convenient. Return
Potential Over a medium to long-term; Mutual Funds have the potential to provide a
higher return as they invest in a diversified basket of selected securities.

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 investor.

Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. They are also prompt in meeting redemption
demands. In close-end schemes, the units can be sold on a stock exchange at the
prevailing market price or the investor can avail of the facility of direct repurchase at
NAV related prices by the Mutual Fund. Thus, Mutual Funds can be easily converted
22

into cash whenever required, highlighting its function of high liquidity, whether openended or close-ended.

Transparency
You get regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund managers investment strategy and outlook.

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

Affordability
An added advantage of investing in Mutual Funds is an investor can invest money
whenever he has a surplus even when the amount is very small.
Investors individually may lack sufficient funds to invest in high-grade stocks. A
Mutual Fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.

Variety
Mutual Funds offer schemes to suit specific investment needs. For instance, there are
growth schemes for investors who are willing to bear a greater risk, gilt schemes for
investors who are risk-averse and retirement plans for those with an eye on the future.

Highly Regulated
All Mutual Funds in India have to be regulated with the SEBI, and comply with its
regulations, which means strict safeguard of investors funds implying appropriate
protection of funds against fraud and misuse.

LIMITATIONS OF MUTUAL FUND

Mutual Funds are a victim of their own success. When a large body like a fund
invests in shares, the concentrated buying or selling often results in adverse price
movements i.e. at the time of buying, the fund ends up paying a higher price and
while selling it realizes a lower price. For obvious reasons, this problem is even more
severe for funds investing in small capitalization stocks. However, given the large
size of the debt market, excluding UTI, most debt funds do not face this problem.

23


Waiting time before investment

It takes time for a Mutual Fund to invest money. Since it is difficult to invest all
funds in one day, there is dome money waiting to be invested. Further, there may be a
time lag before investment opportunities are identified. This ensures that the fund
under performs the index. For open-ended funds, there is the added problem of
perpetually keeping some money in liquid assets to meet redemption. The problem of
impracticability of quick investments is likely to be reduced to some extent with the
introduction of index futures.

Fund management costs

The costs of the fund management process are deducted from the fund. This includes
marketing and initial costs deducted at the time of entry itself, called load. Then
there is the annual asset management fee and expenses, together called the expense
ratio. Usually, the former is not counted while measuring performance, while the
later is. A standard 2% expense ratio means that, everything else being equal, the
Fund manager under performs the benchmark index by an equal amount.

Cost of churning
The portfolio of a fund does not remain constant. The extent to which the portfolio
changes is a function of the style of the individual fund manager. It is also dependent
on the volatility of the fund size i.e. whether the fund constantly receives fresh
subscriptions and redemption. Such portfolio changes have associated costs of
brokerage, custody fees, and registration fees etc. that lowers the portfolio return
commensurately.

Change of index composition

The indices keep changing over the world to reflect changing market conditions.
There is an inherent survivorship bias in this process, with the bad stocks weeded out
and replaced by emerging blue chips. This is a severe problem in India with the
Sensex having been changes twice in the last five years, with each change being quite
substantial.
Another reasons for change index composition is Mergers &
Acquisitions. The weight age of the shares of a particular company in the index
changes if it acquires a large company not a part of the index.

Tendency to take conformist decisions

From the above points, it is quite clear that the only way a fund can beat the index is
through investment of some part of its portfolio in some shares where it gets excellent
returns, much more than the index. This will pull up the overall average return. In
order to obtain such exceptional returns, the fund manager has to take a strong view
and invest in some uncommon or unfenced investment options. Most people are
unwilling to do that. They follow the principle No fund manager ever got fired for
investing in Hindustan Lever i.e. if something goes wrong with an unusual
investment, the fund manager will be questioned but if anything goes wrong with the

24

blue chip, then you can always blame it on the environment or uncontrollable
Factors knowing fully well that there are many other fund managers who have made
the same decision.
Unfortunately if the fund manager does the same thing as several other of his class,
chances are that he will produce average results. This does not mean that if a fund
manager takes active views and invests in heavily researched uncommon ideas,
the fund will necessarily out perform the index.

Challenges in Mutual Fund Industry

Today, the Mutual Funds have become the most favoured investment vehicle across
the world. As in the history of the Indian financial system, the stock markets had not
performed well and the interest rates also stayed depressed, due to which even the
Mutual Funds could not do well. So earlier was the scenario where people did not
preferred Mutual Funds and the only industry that came to their minds while investing
was the banking sector. But now the trends are changing and the investors are making
their investments the most in the Mutual Funds industry.
Today, the Mutual Funds industry is of about $18 19 billion. Right now it is very
small with barely 11% of the net demand. But the scope of its development is very
high, with the changing trends of more popularity of the Mutual Funds. There are
certain challenges relating to the Mutual Funds industry which are discussed as
follows:

Customer Perspective
Today the customer profile is changing as they are more educated and are aware of
whats happening in the markets. They want to invest only in those schemes where
they know where the money is going. Apart from this they want fair amount of
returns with moderate risk or rather low risk. And considering to these needs, it can
be easily noted that Mutual Fund fulfils these expectations of the customers, where
their operations are pretty transparent and also wide range of schemes are available
for different investment objectives (right from high risk takers to no risk takers).
Earlier Mutual Fund meant high risk because of improper knowledge of Mutual
Funds, but today even this issue is taken care of and customers are satisfied with the
performance of Mutual Funds which has made this instrument a hot spot.

Increasing Number Of Players

Earlier was the scenario where only one player, UTI was operating the Mutual Funds.
Later the market got monopolistic, where only few giants operated in the market.
This scenario continued for nearly 35 years. But now, large number of players has
entered into this market, coming up with better schemes, better services and superior
performance. Today services like redemption of units within 48 hours, toll-free
telephone nos., cheque writing facility against Mutual Fund account, ATM cards and

25

switching between two accounts have been reduced for high customer satisfaction.
(And continuation to this scenario it wont take long when the transactions will take
place on the Internet, with more customized services.)

Growing Market
The Mutual Funds market is growing at a very quick span, taking away major chunk
of financial savings from other instruments in the market. Currently, Mutual Funds
are giving a big threat to the banks by taking away share of savings from their fixed
deposits, savings deposits and other cash management products. This has led to
banks, also entering into the Mutual Funds markets.

Preference To Equity And Mixed Funds

The investors are finding deals in the equity funds pretty profitable with good range of
returns. Though the risks are high in such investments the investors have started
confiding in the AMC which prefer equity funds (as against what happened earlier
when people used to prefer debt funds against equity fund due to low risk). Also
moderate investors are going for mixed or balanced funds so as to obtain high gains of
the equity stocks.

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.

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,

26

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.

MARKETING OF THE FUNDS

This is a critical issue that is getting due importance these days. As such, there is no
much product differentiation and almost all the funds are offering similar services to
the investors. So the funds are now a days focusing on their core competence of
managing money and marketing their funds. Also the funds are changing their focus
from scheme oriented to customer oriented to tap the unexplored market for
investments. They are trying to tap the rural and semi urban markets where people
are not much educated about the funds and their savings are going to the banks, by
spreading awareness of the added benefits of the Mutual Fund schemes as well as the
customer incentives that are offered these days.

Clear Investment Policies

This is the new approach adopted by the funds to attract more investments. Here the
objectives are clear and are properly communicated so that the fund is more
transparent and it is already noted that the more transparent the fund the better
satisfied the customer.

Lower Cost
Distribution of funds will fall in the online trading regime by 2003. Mutual Funds
could bring down their administrative costs to 0.75% if trading is done on-line.

27

Therefore if the administrative costs are low, the benefits are passed down and hence
Mutual Funds are able to attract minor investors and increase their asset base.

Better Advice
Mutual Funds could provide better advice to their investors through the Net rather
than through the traditional investment routes where there is an additional channel to
deal with the Brokers. Direct dealing with the fund could help the investor with their
financial planning.

Net Based Advertisement

Mutual Funds can target investors who are young individuals and who are Net savvy,
since servicing them would easier on the Net. India has around 1.6 million net users
who are prime target for these funds and this could just be the beginning. The
Internet users are going to increase dramatically and Mutual Funds are going to be the
best beneficiary.

Safety Perspectives
Any Mutual Fund is as safe or unsafe as the assets that it invests in. There are two
categories of Mutual Funds with others being variations or mixtures of these. Firstly,
there are those that invest purely in equity shares (called equity funds or growth
funds) and secondly, there are those that invest purely in bonds, debentures and other
interest bearing instruments called Income or Debt funds. The NAV of growth funds
fluctuates in line with the fluctuation of the shares held by them. They can also
witness face substantial erosion in value, which a much lesser degree and an income
fund is extremely unlikely to face erosion in value especially of the permanent kind.
Most Mutual Funds have qualified and experienced personnel, who understand the
risks of investing. But, nobody is immune from making mistakes. However, funds
diversify the investment portfolio substantially so that default in any single
investment (in the case of an income fund) will not affect the overall performance of a
fund in a significant manner. In the event of default of a participant of the portfolio,
an income fund is extremely unlikely to face erosion in the face value.
Generally, Mutual Funds are not guaranteed by anybody. However, in the Indian
context, some of the Mutual Funds have floated guaranteed or assured return
schemes, which guarantee certain annual return or guarantee a buyback at a specified
price after some time. Examples of these include funds floated by the UTI, Can bank
Mutual Fund, SBI Mutual Fund, LIC Mutual Fund etc. Many of these funds have not
earned returns that they promised and the AMCs of the respective Mutual Funds or
their sponsors have made good their promises. The biggest case pertains to the US
64, which never guaranteed any returns but is being bailed out by the Government due
to the millions of individuals who have invested in it.

28

REGULATORY ASPECTS OF MUTUAL FUNDS

Schemes of a Mutual Fund

The asset management company shall launch no scheme unless the trustees approve
such scheme and a copy of the offer document has been filed with the Board.
Every mutual fund shall along with the offer document of each scheme pay filing
fees.
The offer document shall contain disclosures which are adequate in order to enable
the investors to make informed investment decision including the disclosure on
maximum investments proposed to be made by the scheme in the listed securities of
the group companies of the sponsor
The mutual fund and asset management company shall be liable to refund the
application money to the applicants,- (i) If the mutual fund fails to receive the
minimum subscription amount referred to in clause (a) of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription as
referred to in clause (b) of sub-regulation (1).

The asset management company shall issue to the applicant whose application has
been accepted, unit certificates or a statement of accounts specifying the number of
units allotted to the applicant as soon as possible but not later than six weeks from the
date of closure of the initial subscription list and or from the date of receipt of the
request from the unit holders in any open ended scheme.
Rules Regarding Advertisement:
The offer document and advertisement materials shall not be misleading or contain
any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made available to
the investors.

General Obligations:

Every asset management company for each scheme shall keep and maintain proper
books of accounts, records and documents, for each scheme so as to explain its
transactions and to disclose at any point of time the financial position of each scheme
and in particular give a true and fair view of the state of affairs of the fund and
intimate to the Board the place where such books of accounts, records and documents
are maintained.

29

The financial year for all the schemes shall end as of March 31 of each year.
Every mutual fund shall have the annual statement of accounts audited by an auditor
who is not in any way associated with the auditor of the asset management company.

Procedure For Action In Case Of Default:

On and from the date of the suspension of the certificate or the approval, as the case
may be, the mutual fund, trustees or asset management company, shall cease to carry
on any activity as a mutual fund, trustee or asset management company, during the
period of suspension, and shall be subject to the directions of the Board with regard to
any records, documents, or securities that may be in its custody or control, relating to
its activities as mutual fund, trustees or asset management company.

Restrictions On Investments:

A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments
issued by a single issuer, which are rated not below investment grade by a credit
rating agency authorized to carry out such activity under the Act. Such investment
limit may be extended to 20% of the NAV of the scheme with the prior approval of
the Board of Trustees and the Board of asset Management Company.
A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt
instruments issued by a single issuer and the total investment in such instruments shall
not exceed 25% of the NAV of the scheme. All such investments shall be made with
the prior approval of the Board of Trustees and the Board of asset Management
Company.
No mutual fund under all its schemes should own more than ten per cent of any
company's paid up capital carrying voting rights.
Such transfers are done at the prevailing market price for quoted instruments on spot
basis.
The securities so transferred shall be in conformity with the investment objective of
the scheme to which such transfer has been made.
A scheme may invest in another scheme under the same asset management company
or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same management or in schemes
under the management of any other asset management company shall not exceed 5%
of the net asset value of the mutual fund.
The initial issue expenses in respect of any scheme may not exceed six per cent of the
funds raised under that scheme.
Every mutual fund shall buy and sell securities on the basis of deliveries and shall in
all cases of purchases, take delivery of relative securities and in all cases of sale,
deliver the securities and shall in no case put itself in a position whereby it
has to make short sale or carry forward transaction or engage in badla finance.

30

Every mutual fund shall, get the securities purchased or transferred in the name of the
mutual fund on account of the concerned scheme, wherever investments are intended
to be of long-term nature.
Pending deployment of funds of a scheme in securities in terms of investment
objectives of the scheme a mutual fund can invest the funds of the scheme in short
term deposits of scheduled commercial banks.
No mutual fund scheme shall make any investment in;
i.
ii.
iii.

Any unlisted security of an associate or group company of the sponsor; or

Any security issued by way of private placement by an associate or group
company of the sponsor; or
The listed securities of group companies of the sponsor which is in excess of
30% of the net assets [of all the schemes of a mutual fund

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity
shares or equity related instruments of any company. Provided that, the limit of 10 per
cent shall not be applicable for investments in index fund or sector or industry specific
scheme.
A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares
or equity related investments in case of open-ended scheme and 10% of its NAV in
case of close-ended scheme.

31


NJ IndiaInvest Pvt. Ltd.

Two dynamic young men after completing their education were about to start their
career when they sow the growing scope of the financial service sector. Both of them
decided to jump into the same field and came out with the dynamic concept of NJ
Capital stock now, which is known as NJ IndiaInvest. The word NJ stands for the
first letter of Neeraj Choksi and Jignesh Desai the founder directors of NJ
IndiaInvest.
This business was started in the year 1994; it was the period when private company
was entering the field of financial services. This is the time when NJ IndiaInvest
evolved out as a client focused need based investment advisory firm. NJ has achieved
expertise in need base investment of clients.
NJ has a very well trained men power to meet the need of the clients and market. With
the help of which the organization has achieved growth in past, is growing and will be
growing in future. At NJ we regard mutual fund as one of the best investment avenue
available to satisfy any kind of investment need. With a very well qualified work
force we have gained expertise in analyzing mutual fund schemes, and in-depth study
on various parameters is carried out on a regular basis.
NJ IndiaInvest is a company, which is involved in this business from past 11 years as
a client focused need based investment advisory firm. It has developed its own IT
Industry known as Finlogic India Pvt. Ltd. i.e. technology to support for client as
well as its employees in their daily routine work. There is a very qualified staff for IT
who has prepared a website for the organization known as www.njindiainvest.com
which provides a valuable support to clients as well as to the employees in trading.
All the valuable information, are available on our above mentioned web site.
NJ IndiaInvest is a modern concept organization that was growing in past, growing
in present and will be growing in future.

NJ IndiaInvest Process :
The sole business of the organization is to manage clients investments and to fulfill
their need from cap-a-pie. At NJ the people are education centric, the relationship
managers will help you in identifying and understanding your need and help you
develop a portfolio across different asset classes commensurate to your needs. This
practice is only performed at NJ and this is what makes it superior to other
competition in this same field.

33

There are well-trained experts who will give a feel on the various asset classes and
explain you the risk associated with each in a simple and lucid manner to put you at
calm. Once the investment is planned and done we dont leave our client in between,
but we back them by periodic valuation reports and regular relevant information
through newsletters, mailers, e-mail, road shows etc.
The prime concern of the people at NJ will be to help you attain peace of mind on the
investment front

Services provided to valuable Clients & Agents:

 Dedicated portfolio planning & restructuring on demand
 The Weekly Performance Sheet (it covers performance of leading mutual fund
schemes)
 The Monthly Fund Fact Sheet (it covers comprehensive analysis of various mutual
fund)
 Various Subscription services via e-mail
 Sharing relevant information related to the Indian Investment world.
Over and all we also provide net-based services to our clients and agents. Our eservices are powered by a comprehensive website http:/www.njindiainvest.com. It
covers detailed information about the Mutual industry, it passes various financial
planners to satisfy investment goals like retirement planning, childs marriage
planning etc, it also posses various analytical tools to measure the performance of
Mutual Fund schemes viz. Returns Calculators, SIP Returns Calculator, and many
others. There is a separate desk for the clients to get their portfolio information on
fingertips.

THE CLIENT DESK @ NJINDIAINVEST.COM










Transaction Summary Report (Mutual Funds, fixed Deposits, RBI Bonds & others)
Portfolio Valuation Report
Portfolio performance Report
Profit & Loss Account (FY wise)
Consolidated sector & stock profile for equity investments through mutual funds
Consolidated rating & script profile across debt funds through mutual funds.
Consolidate Asset Allocation Report Across various Assets
Alert processing facility across different parameters

34

Philosophy at NJ IndiaInvest:
To provide reliable information

To honor our service commitments

To maintain all records in privacy
To preserve client capital
To provide appropriate feedback

To guide their future investment

To restructure investment plan on demand

Finally to provide complete solution & peace of mind on the investment front.

35

AMCs with NJ IndiaInvest:

Alliance Capital Mutual Fund

Birla Mutual Fund

Cholamandalam Cazenove Mutual Fund

DSP Merrill Lynch Mutual Fund

Dundee Mutual Fund

Escorts Mutual Fund

First India Mutual Fund

Franklin Templeton Mutual Fund

Pioneer ITI

HDFC Mutual Fund

HSBC Mutual Fund

IDBI Principal

36

IL & FS Mutual Fund

ING Savings Trust

JM Mutual Fund

LIC Mutual Fund

Prudential ICICI Mutual Fund

Reliance Capital

SBI Mutual

Standard Chartered Mutual Fund

Sun F&C Mutual Fund

Sundaram Mutual Fund

Tata Mutual

Unit Trust Of India

Zurich India Mutual Fund

Vision and Mission Statement of N J IndiaInvest Pvt. Ltd.

VISION STATEMENT
To be the leader in our sector of business through:
Total Customer Satisfaction, Commitment to Excellence,
Determination to Succeed & Finally to provide
peace of mind on investment front to society.

MISSION STATEMENT:

ENSURE CREATION OF VALUE BY PROVIDING A

D IFFERENTIATING EDGE TO THE ACTIVITIES OF
OUR CUSTOMERS, INVESTORS AND DISTRIBUTORS
THROUGH TECHNNOVATIVE SOLUTIONS WHILE

F ULFILLING OUR SOCIAL OBLIGATIONS AND MAINTAINING

HIGH P ROFESSIONAL AND ETHICAL STANDARDS
ALONG WITH THE SERVICE STANDARDS.

QUALITY POLICY OF NJ INDIAINVEST

NJ AIMS AT PROVIDING HIGH QUALITY SERVICE ONINVESTMENT FRONT

THROUGH SYSTEMATIC &PROFESSIONAL APPROACH BACKED BY TOTAL
MANAGEMENTCOMMITMENT & TEAM WORK. TO ACHIEVE CUSTOMER
SATISFACTIONAT A COST THAT REPRESENTS VALUE. WE AS A WHOLE ARE
COMMITTED TO PRACTICE A POLICY
RIGHT AT THE FIRST TIME
& THEN CONTINEOUS IMPROVEMENT IN OUR
ACTION & DEALING

38

Organization Structure

Sales Dept.

Operations
Dept.
Accounts
Dept.
Research
Depart.
Legal
Compliances

HR Dept.

39

Research methodology give students the necessary training in gathering materials and
arranging them, participation in the field work when required and techniques for the
collection of data appropriate to a particular problem in the use of statistics
questionnaire and controlled experimentation and in recording evidence, sorting it out
and interpreting it thereafter.

ASSUMPTIONS:

It has been assumed that sample of hundred represents whole centre area of Baroda.

The information given by the customer may be unbiased

Methodology of Study:
Research can be defined as a systemized effort to gain new knowledge. A research is
carried out by different methodologies which have their own pros and cons. Research
methodology is a way to solve research in study and solving research problems along
with logic behind them are defined through research methodology. Thus while talking
about research methodologies we are not only talking of research methods but also
consider the logic behind the methods. We are in context of our research studies and
explain why it is being used a particular method or technique and why the others are
not used. So that research result is capable of being evaluated either by researcher
himself or by others.

LITERATURE SURVEY:
The project is based on pure findings of facts
Development of Working Hypothesis: The hypothesis could be developed by
discussing with the consulting department heads and guides about this exploratory
research and reach to the conclusion that the data is to be collected by personal
interaction with the clients, asking them about their investment planning and their
need for financial advisory service from NJ indiainvest.

[1] Problem Statement:It is obvious that Investment in Mutual Fund will grow in year to come. However lack of
Awareness of Mutual Fund is a hindering factor in expected growth of Mutual Fund
Business. Under noted problems are envisaged in this area:

Difficult in convincing people for investment.

Difficult to change mind of the investor according to age and Profession.
Difficult to make an approach to investors.
Difficult to take an appointment with professional people.
Difficult to overcome an impassionate person who wants return in less time.
Difficult to follow up the people whose names are being stored in a data.
41


Difficult to remove the fear of risk from the minds of investors.

[2] Research Objectives:Primary Objective:

The study of Mutual Fund Market in Baroda was conducted with the primary objective
to know Potential of mutual fund as investment option.

Secondary Objective:

To study the perception of independent financial advisors about different investment

options available in the market.
To know priority level between different criteria of investment like safety level,
retunes, liquidity, tax benefit, maturity of investment.
To study about how satisfied the client is from his investment as well as services
provided.
To know the awareness of Mutual Funds in the market of Baroda.
To see the interest of people in investing in MUTUAL FUNDS.
To know the future of MUTUAL FUNDS in India.
To know the different attitudes of people regarding risk, rate of return, period of
investment etc.
To know about how they invest in Mutual Fund, that is trough lump sum or SIP.
To know about the primary objective of their investment.
To know about that which is the most important source of information that investor
use mainly.

[3] Methods of Data Collection

Research Design:
A research design is simply the framework or plan for a study, used as a guide in
collecting and analyzing data. It is the blue print that is followed in completing the
study. Research design is the conceptual structure within which the research would be
conducted. In the context of this project report I have utilize descriptive research
design This cover research design that is intended to produce accurate description of
variable relevant to the decision face without demonstrating relationship exists
between variables.

42

 Sampling Design:

Sampling Method
In the context of this project the survey done by convenient sampling method.

Sample size
Our total sample size is 100

Sample Area
The survey is done in the centre city of Baroda.
Scope of the study:
The research was carried on in the centre city of Baroda. I have visited people
randomly nearby my locality, different shopping malls, small retailers, some through
phone call etc.

Sources of data
Primary Data
In the context of this project report the resource of data used by researcher is
primary data. Researcher has collected the data by contacting personally the
respondent and by interviewing them.

Secondary Data
To know the information about current market scenario making use of internet,
magazines, newspaper, periodicals and fact sheets of different AMCs and NJ
IndiaInvest.

Limitations of Study:
Every work has its own limitations. Limitations are extent to which the process should
not exceed. The following limitations for the project are:

Duration of project was not enough to make our conclusion on such a vast subject.
Time constraints has also become a major limitation

The sample size taken for drawing the conclusion was not sizeable

Investor ignorance was faced during discussions with respondents

As sampling technique is convenient sampling so it may result in personal bias.

Even respondents may give bias answer.

This research is only for Baroda city. It cannot be generalized for other cities.

43

Execution of Project
It is very essential in the research process to know the accuracy of the findings which
depends on how systematically the study has been carried out so that it can make sense.
We have executed the project after prior discussion with our guide and structured in the
following steps:
a. Preparation of a questionnaire
b. The focal point of the designing the questionnaire was to comprehend the current
investment scenario.
c. This questionnaire was primarily aimed to respondents in general.
d. The questionnaires were discussed through personal interface or on phone with the
respondents.

44

1. Age distribution of the Investors of Baroda

Age
Group
No. of
Investors

25

26-30

31-35

36-40

41-45

46

25

27

21

15

Interpretation:
According to this chart, out of 100 investors in Baroda. The most are in the age group of 2630 yrs. i.e. 27%, the second most investors are in the age group of 25 yrs i.e. 25% and the
least investors are in the age group of 41-45.

2. Occupation of the investors of Baroda

Occupation
Pvt. Service

No. of Investors
48

Govt. Service

15

Business

17

Others

20

TOTAL

100

46

Interpretation:
In Occupation group out of 100 people, 50% are Pvt. Employees, 17% are Businessman,
15% are Govt. Employees and 20% are in others. Other include agriculture, shop man etc.

3. Annual Family Income of the Investors (Approximately)

Income Group
1,00,000
1,00,000-2,00,000
2,00,000-3,00,000
3,00,000-4,00,000
4,00,000
TOTAL

No. of Investors
16
29
18
13
24
100

47

Interpretation:
In the Income Group of the investors of Baroda, out of 100 investors, 29% investors that is
the maximum investors are in the Annual income group of Rs1, 00,000-2, 00,000., Second
one i.e. 24% investors are in the Annual income group of more than Rs. 4, 00,000 and the
minimum investors i.e. 13% are in the monthly income group of 3, 00,000-4, 00,000. In the
lowest income group that is less than 1, 00,000, there are 16% of investors.

4. Investment Budget of the Investors (Annual)

Income Group
20,000
20,000-50,000
50,000-1,00,000
1,00,000
NA
TOTAL

No. of Investors
28
21
26
18
7
100

48

Interpretation:
From the above chart it is clear that 28% of the investor invest less then 20,000 annually.
Second highest number of investor are in the 50,000-1, 00,000 range. I also find investor who
does not respond to question. There are 18% of the investor who invested more than 1,
00,000 annually from their budget.

5. Over what periods of time will investor want to withdraw it

Time to withdraws (In Year)
2
2-5
6-9
10-15
TOTAL

No. of Investors
11
29
37
23
100

49

Interpretation:
At what time investors want to withdraw his money. It is found that 37% of investor wants
their money bank in 6-9 year. Second highest number is 29% who want to withdraw in 2-5
years. There are some government employees who has secured job like to withdraw in 10-15
years. Some business man and private employee want their money back in less than 2 years.

6. Preference of factors while investing

Factors
Risk Averse
Moderate Risk for high return
Risk taker
TOTAL

No. of Investors
42
35
23
100

Interpretation:
Out of 100 People, 42% People prefer to invest where there is lower risk, 35% prefer to
invest where there is some amount of Risk and high return, 23% are risk taker, and they like
to take risk in order to get high return.

50

7. Investors invested in different kind of investments

Kind of Investments
Saving A/C
Fixed deposits
Insurance
Mutual Fund
Post office (NSC)
Shares/Debentures
Gold/Silver

No. of Respondents
94
24
40
72
15
26
24

Interpretation:
From the above graph it can be inferred that out of 100 people, 94% people have invested in
Saving A/c, 40% in Insurance, 24% in Fixed Deposits, 72% in Mutual Fund, 15 % in Post
Office, 26% in Shares or Debentures, 24% in Gold/Silver and 18% in Real Estate. There are
many investors who have invested in MF for more profit with less risk still today there are
people who invest in saving account and fixed deposit. Today everybody like to have their
bank account for general transaction, like purchasing, ATM withdrawal etc. so saving
account is attracted by 94% of investors.

51

8. Main Objective of investment for which investor invest.

1
6
43
26
24
100

Preservation of Principal
Current Income
Growth and Income
Conservative Growth
Aggressive Growth
TOTAL

Interpretation:
Above graph show the investor for investment. 43% of investor invests their money for
growth and income. Second highest lot invests money for conservative growth. 24% of
the investor invests for aggressive growth in their investment. You can also see that
there 6% of investor who invest for current income and only 1% invest for preservation
of principal.

52

9. Ever invested in Mutual Funds

Response
No. of Respondents

Yes
72

No
28

Interpretation:
Out of 100 People, 72% have invested in Mutual Fund and 28% do not have invested in
Mutual Fund.

10. How did you know about Mutual Fund?

Source of information
Advertisement
Peer Group
Bank
Financial Advisors

No. of Respondents
20
14
8
30

53

Interpretation:
From the above chart it can be inferred that the Financial Advisor is the most important
source of information about Mutual Fund. Out of 72 Respondents, 42% know about Mutual
fund Through Financial Advisor, 27% through Advertisement, 19% through Peer Group and
11% through bank. During survey there are some respondent who has get information from
more then one source.

11. How much you invested in Mutual fund

Amount Invested
30,000
30,000-60,000
60,000-1,00,000
1,00,000-1,50,000
1,50,000

No. of Investors
32
21
9
4
6

Interpretation:
From the above chart it can be inferred that 45% of investor have invested less than 30,000 in
MF. 29% of the investor has invested 30,000-60,000.and there are 8% investor who had
invested more then 1, 50,000.

54

11. Investment Route

Agent
Direct
Bank

54
18
12

Interpretation:
From the above graph it is clear that 64% MF investment is through agent. Direct investment
is 22% and remaining is investment through bank i.e. 14%. Here total of three is 84
respondents because there are some respondent who has chosen different route for more than
one scheme.

12. Reason for choosing AMC

Good Market
Growth
Return Given
Other
NR

12
7
16
14
23

55

Interpretation:
You can see in the above chart that 22% investor has chosen AMC on the basis of return
given by it. There are 16% of investor who chosen AMC because of good market. There 32%
investor who does not have reason.

13. Reason for choosing scheme

Past history
Growth and return
other
NR

9
31
16
16

56

Interpretation:
You can see in the above chart that 43% investor has chosen scheme for growth and return.
There are 22% of investor who have chosen scheme because many other reason. There 13%
investor who see past history of the scheme while investing. Remaining 22% investor does
not give any reason for their investing scheme.

14. Mode of Investment Preferred by the Investors

In percentage
42%
58%

Lump Sum
SIP

Interpretation:
From the above chart it is clear that 42% investment in Mutual fund is through Lump sum
and remaining 58% is through SIP (Systematic Investment Plan). There are many investors
who have invested in both of the above option. There 12 such investor out of 100 who prefer
both the option.

57

15. Satisfaction with investment

Response
No. of Respondents

Yes
46

No
26

Interpretation:
When asked about how much they satisfied with their investment in Mutual fund, then almost
64% are very much satisfied with their investment and 36% are not. This 36% are not
satisfied because they have invested for sorter period.

16. You like to continue investing in MF

Response
No. of Respondents

Yes
54

58

No
18

Interpretation:
Above chart show that 25% of investor of MF are not like to invest again in MF, but 75% of
investor are like to continue investing in MF. There 18 investors, who not like to continue
investing in MF and main reasons are low return, higher Market risk and long term
investment.

17. Why not invested in Mutual Fund

Not aware
High risk
No reason

5
5
18

Interpretation:
Out of 28 people, who have not invested in Mutual Fund, 18% are not aware of Mutual Fund,
18% said there is likely to be higher risk and 64% do not have any specific reason.

18. Have you ever consider MF as your investment option

Response
No. of Respondents

Yes
60

59

No
40

Interpretation:
Above chart show the potential mutual fund has in future. 60% of respondent like to invest in
MF. Remaining 40% do not like to investor in MF. People who do not like to invest also
include investors who are not satisfied by investing in MF.

19. You like to know more about MF

Response
No. of Respondents

Yes
41

No
59

Interpretation:
When asked that they like to know more about Mutual fund, then 59% respondent say No and
41% respondent say yes.

60

FINDINGS

In Baroda in the Age Group of 26-30 years were more in numbers. The second
most Investors were in the age group of below 25 years and the least were in the
age group of 41-45 years.

In Occupation group most of the Investors were private employees, the second
most Investors were business men and the least were government employees.

In family Income group, between Rs. 1,00,000-2,00,00 were more in numbers,
the second most were in the Income group of more than Rs.4,00,000 and the
least were in the group of 3,00,000-4,00,000. There are 16% of investor below
1, 00,000 income.

There 28% of investor who invested less than 20,000 and second highest lot (i.e.
26) have invested between 50,000-1, 00,000.there are also some investor who
had invested above 1,00,000.

It is found that 37% of investor wants their money bank in 6-9 year. Second
highest number is 29% who want to withdraw in 2-5 years. There are some
government employees who has secured job like to withdraw in 10-15 years.
Some business man and private employee want their money back in less than 2
years.

About all the Respondents had a Saving A/c in Bank, 72% Respondents
invested in Mutual fund. 40% Invested in Insurance.

Mostly Respondents preferred High Averse while investment, the second most
preferred to take some Risk to get high return and the least preferred high risk
for good return.

43% of the investor invests their money for growth and income. Second highest
lot is 26% who invest for conservative growth. There is only 1% of investor
who only invests for preservation of principal. There are also good lots of
investor who want aggressive growth.

Among 100 Respondents only 72% had invested in Mutual Fund and 28% did
not have invested in Mutual fund.

Financial Advisor is the most important source of information about Mutual Fund.
Out of 72 Respondents, 42% know about Mutual fund Through Financial Advisor,
27% through Advertisement, 19% through Peer Group and 11% through bank. During
survey there are also some respondent who has get information from more then one
source.

45% of investor has invested less than 30,000 in MF. 29% of the investor has invested
30,000-60,000.and there are 8% investor who had invested more then 1, 50,000.

Most of the Investors had invested in Reliance or SBI Mutual Fund, HDFC has
also good Brand Position among investors, Birla and Tata places after HDFC
according to the Respondents.

54% Investors preferred to Invest through Financial Advisors, 18% through
AMC (means Direct Investment) and 12% through Bank.

62


There are 22% investor has chosen AMC on the basis of return given by it. There are
16% of investor who chosen AMC because of good market. There 32% investor who
does not have reason.

43% investor has chosen scheme for growth and return. There 13% investor who see
past history of the scheme while investing. Remaining 22% investor does not give any
reason for their investing scheme.

42% preferred Lump sum (One Time Investment) and 58% preferred SIP out
of both type of Mode of Investment.

Maximum Number of Investors Preferred Growth Option for returns, the second
most has invested in tax saver and then Dividend payout.

There 64% of the investor are satisfied with their investment in MF.

Out of 28 Respondents 18% were not aware of Mutual Fund, 64% told there is
not any specific reason for not invested in Mutual Fund and 18% told there is
likely to be higher risk in Mutual Fund.

Out of total respondent 60% of respondent like to invest in MF. Remaining 40%
do not like to investor in MF. People who do not like to invest also include
investors who are not satisfied by investing in MF. So ultimately 6% of
respondent who not invested in MF are like to invest.

59% respondent does not like to know more about MF and 41% respondent like to.

63

CONCLUSION
Running a successful Mutual Fund requires complete understanding of the peculiarities of
the Indian Stock Market and also the psyche of the small investors. This study has made an
attempt to understand the Potential Mutual Fund has in investors budget. I observed that
many of people have fear of Mutual Fund. They think their money will not be secure in
Mutual Fund. They need the knowledge of Mutual Fund and its related terms. Many of
people do not have invested in mutual fund due to lack of awareness although they have
money to invest. As the awareness and income is growing the number of mutual fund
investors are also growing.
Brand plays important role for the investment. People invest in those Companies where
they have faith or they are well known with them. There are many AMCs in Baroda but
only some are performing well due to Brand awareness. Some AMCs are not performing
well although some of the schemes of them are giving good return because of not
awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known
Brand, they are performing well and their Assets Under Management is larger than others
whose Brand name are not well known like Sunderam, etc.
Distribution channels are also important for the investment in mutual fund. Financial
Advisors are the most preferred channel for the investment in mutual fund. They can
change investors mind from one investment option to others. Many of investors directly
invest their money through AMC because they do not have to pay entry load. Only those
people invest directly who know well about mutual fund and its operations and those have
time.
Slow down in the world economy has affected India also. So people are highly concerned
about their investment. They mainly invest for income and growth purpose. There are
almost 42% of investor prefer to invest where his saving do not go down significantly.
There are many investors who are not satisfied with investment in MF. Mutual Fund
always has good return in ling run. Investor who satisfied with MF is because of their long
term investment and good AMC selection. There is also low return because of this slow
down but it is not mean that it always give low return.

64

SUGGESTIONS AND RECOMMENDATIONS

The most vital problem spotted is of ignorance. Investors should be made aware
of the benefits. Nobody will invest until and unless he is fully convinced.
Investors should be made to realize that ignorance is no longer bliss and what
they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But
most of the people are not even aware of what actually a mutual fund is? They
only see it as just another investment option. So the advisors should try to
change their mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of their career would
like to go for advisors due to lack of expertise and time.

Mutual Fund Company needs to give the training of the Individual Financial
Advisors about the Fund/Scheme and its objective, because they are the main
source to influence the investors.

Before making any investment Financial Advisors should first enquire about the
risk tolerance of the investors/customers, their need and time (how long they
want to invest). By considering these three things they can take the customers
into consideration.

Younger people aged less than 35 year will be a key new customer group into
the future, so making greater efforts with younger customers who show some
interest in investing should pay off.

Systematic Investment Plan (SIP) is one the innovative products launched by
Assets Management companies very recently in the industry. SIP is easy for
monthly salaried person as it provides the facility of do the investment in EMI.
Though most of the prospects and potential investors are not aware about the
SIP. There is a large scope for the companies to tap the salaried persons.

There are many investors who are in no need of money for longer period of time
and also they invest in FD and saving Account. Conveying such type of investor
for MF help those to get more return in future.

Agent must provide timely information to investor about their investment. Many
investors are not satisfied with the service provided. Providing timely valuation
report at home or by e-mail is must be timely.

65

This survey is conducted for knowing potential of mutual fund as investment option. Your
details are secure and I promise that it will not use for any other purpose.

QUESTIONNAIRE
1. Name: __________________________________________________
2. Ph.No:______________________ 3. Age: _____________________
4. E-mail:__________________________________________________
5. Occupation: _____________________________________________
6. Gross Annual Income (GAI):_________________________________
7. Investment Budget (Annual):________________________________
8. Over what periods of time will you withdraw it?

A lump sum withdrawal or fully withdraw
over a period of lessthan2years

Over a period of 2-5 years

Over a period of 6-9 years

Over a period of 10-15 years
9. Which statement best characterizes your feelings?

I want to be as sure as possible that my savings will not go down significantly.

I prefer taking on a small amount of risk in order to gain higher
expected returns.

I prefer taking on substantial risk in order to gain higher expected
returns.
10. What kind of investments you have made so far? Pl tick ().
a. Saving account

b. Fixed deposits

c. Insurance

d. Mutual Fund

e. Post Office-NSC.

f. Shares/Debentures

g. Gold/ Silver

h. Real Estate

11. How much you invested in last 5 years: _______________________

67

12. What is your primary objective for your investment?

Preservation of Principal
Current Income
Growth and Income
Conservative Growth
Aggressive Growth

13. Ever invested in Mutual Funds:

Yes

No

Yes then go to question 14 (or go to question 26)

14. how did you know about Mutual Fund?
a. Advertisement

b. Peer Group

c. Banks

d. Financial Advisors

15. In which scheme and AMC:

1. _______________________________________________________
2._______________________________________________________
3. ______________________________________________________
4. ______________________________________________________
5. ______________________________________________________
16. How much you invested: _________________________________
17. How you come to know about scheme: ______________________
18. Investment Route:

1. Agent
2. Direct
3. Bank

19. Reason for choosing AMC: _________________________________

20. Reason for choosing scheme: _______________________________
21. How you invested:

1. Lump sum: __________________________

2. SIP_________________________________

22. You are satisfied with your investment:

Yes

No

23. Satisfied with service provided:

Yes

No

68

For No in Question 23.

24. Service in which you not satisfied: __________________________
_________________________________________________________
25. You like to continue investing in MF:

Yes

No

26. if not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason
27. Have you ever consider MF as your investment option:
Yes

No

28. You like to know more about MF?

Yes

69

No

WEBSITES:

www.amfiindia.com

www.mutualfundindia.com

www.moneycontrol.com

www.njindiainvest.com

www.njfundz.com
Book:

Mutual fund management and working by Lait K. Bansal

AMFI book
Others:

Fact Sheet of NJ IndiaInvest Pvt Ltd.

Fact sheets of other AMCs

Pamphlets and other materials relating to mutual fund

71