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PROJECT GUIDE: -
MRS. SONU GUPTA

SUBMITTED BY: -
ABHINAY GOENKA

S K PATEL INSTITUTE OF MANAGEMENT AND COMPUTER STUDIES

GANDHINAGAR
2009-11
2
ACKNOWLEDGEMENT

I would like to express our deep feeling of gratitude to the under

mentioned officials for their assistance, guidance and inspiration
before and throughout the project.

I express my most sincere thanks to Mr. NEERAJ SUNDRANI ,

Regional Head, Mutual Fund Dept., Axis Mutual Fund for giving me this
opportunity to associate myself with the organization and have an
enriching learning experience.

I express my deepest thank to Mr. PARISHAD DADALANI & Mr

HEMAL MEHTA, Axis Mutual Fund for guiding me through various
stages of this project. It was a very enriching and enlightening
experience to work under their valuable guidance.

I am obliged to him for providing me with a clear basis to start the

project and for providing valuable feedback during the course of this
project without which the study would not have been possible.

Special thanks to respect Prof. SONU GUPTA, my project faculty, for

providing me a proper way to walk on, for providing help and guidance
throughout the project. She has always been the source of
encouragement. She has ceaselessly guided me in all aspects of the
project, with her abundance amount of experience and finer ideas.

I thank everybody who directly or indirectly helped me in this project to

make it successful.

ABHINAY

3
GOENKA

4
EXECUTIVE SUMMARY

Mutual Fund is a retail product designed to target small investors,

salaried people and others who are intimidated by the mysteries of
stock market but, nevertheless, like to reap the benefits of stock
market investing. The Indian Mutual Fund Industry has witnessed a sea
change since UTI was first established in 1963. From a single player
the number of players has increased to 37 and the number of schemes
has spiraled to 3200. The last decade has been a period of rapid
growth for MF industry. At the retail level, investors are unique and
highly heterogeneous group. Hence, their fund / scheme selection also
widely differs. Investors demand inter- temporal wealth shifting as he
or she progresses through the life cycle. This necessitates the Asset
Management Companies (AMC) to understand the fund/scheme
selection/switching behavior of the investors to design suitable
products to meet the changing financial needs of the investors. This
project is of detailed study about the investment behavior towards the
Mutual Fund industry after post liberalization period.

This report is on the study of primary & secondary data and brief
discussion on the work done so far. This project is about how the
investor’s behavior is changing. People have different investment
objective and risk appetite.

5
Contents
Pg.No
S. No. Particulars
.
Title Page i
Certificate ii
Acknowledgement iii
Executive Summary iv
1 Introduction 1
2 Company Profile 2
3 Mutual Fund Industry 8
4 Meaning of Mutual Fund 10
5 History & Background of MF 11
6 Types of Mutual Funds 14
7 Process of Mutual Fund 17
8 Organization of Mutual Fund 18
9 Why should one invest in Mutual Fund…..? 19
10 Common Investment mistakes that people can make 21
11 Benefits &Drawbacks of Mutual Fund 22
12 Mutual Fund Regulation 26
13 Association Of Mutual Fund In India 28
14 Future scenario 30
15 Different Terms 33
16 Survey Finding 38
17 Analysis & Interpretation 68
18 Recommendation 70
19 Conclusion 72
20 73
21 Bibliography 75
21 Annexure 76

6
INTRODUCTION

The significant outcome of the government policy of

liberalization in industrial and financial sector has been the
development of new financial instruments. These new
instruments are expected to impart greater competitiveness,
flexibility and efficiency to the financial sector. Growth and
development of various mutual fund products in Indian capital
market has proved to be one of the most catalytic instruments
in generating momentous investment growth in the capital
market. These is a substantial growth in the mutual fund
market due to a high level of precision in the design and
marketing of variety of mutual fund products by banks and
other financial institution providing growth, liquidity and
return. In this context, prioritization, preference building and
close monitoring of mutual funds are essential for fund
managers to make this the strongest and most preferred
instrument in Indian capital market for the coming years. With
the decline in the bank interest rates, frequent fluctuations in
the secondary market and the inherent attitude of the Indian
small investors to avoid risk, Mutual Funds are taking their
place. Mutual funds combine various elements of liquidity,
return and security in making themselves as the best possible
alternative for the small investors in Indian market. I have
attempted to study various need expectations of small
investors from different types of mutual funds available in the
Indian market and identify the risk return perception with the
purchase of Mutual Funds.

The Indian financial system in general and the mutual fund industry in

7
particular continue to take turn around from early 1990s. During this
period mutual funds have pooled huge investments for the corporate
sector. The investment habit of the small investors particularly has
undergone a sea change. Increasing number of players from public as
well as private sectors has entered in to the market with innovative
schemes to cater to the requirements of the investors, in India and
abroad. For all investors, particularly the small investors, mutual funds
have provided a better alternative to obtain benefits of expertise-
based equity investments to all types of investors.

8
COMPANY PROFILE

AXIS MUTUAL FUND

Axis mutual fund is a 100% subsidiary of Axis bank and Axis Bank,
formally UTI Bank, is a financial services firm that had begun
operations in 1994, after the Government of India allowed new private
banks to be established. The Bank was promoted jointly by the
Administrator of the Specified Undertaking of the Unit Trust of India
(UTI-I), Life Insurance Corporation of India (LIC), General Insurance
Corporation Ltd., National Insurance Company Ltd., The New India
Assurance Company, The Oriental Insurance Corporation and United
India Insurance Company UTI-I holds a special position in the Indian
capital markets and has promoted many leading financial institutions
in the country. The bank changed its name to Axis Bank in April 2007
to avoid confusion with other unrelated entities with similar name.
After the Retirement of Mr. P. J. Nayak, Shikha Sharma was named as
the bank's managing director and CEO on 20 April 2009.

As on the year ended March 31, 2009 the Bank had a total income of
Rs 13,745.04 crore (US$ 2.93 billion) and a net profit of Rs. 1,812.93
crore (US$ 386.15 million).

On February 24, 2010, Axis Bank announced the launch of 'AXIS CALL
& PAY on atom', a unique mobile payments solution using Axis Bank
debit cards. Axis Bank is the first bank in the country to provide a
secure debit card-based payment service over IVR.

9
Branch Network

AXIS Bank

At the end of October 2009, The Bank has a very wide network of more
than 1000 branches and Extension Counters (as on 31st March
2010).The Bank has a network of over 4055 ATMs (as on 31st March
2010). The Bank has loans now (as of June 2007) account for as much
as 70 per cent of the bank’s total loan book of Rs 2,00,000 crore. For
HDFC Bank, retail assets are around 57 per cent (Rs 28,000 crore) of
the total loans as of March 2007.

In the case of Axis Bank, retail loans have declined from 30 per cent of
the total loan book of Rs 25,800 crore in June 2006 to around 23 per
cent of loan book of Rs.41,280 crore (as of June 2007). Even over a
longer period, while the overall asset growth for Axis Bank has been
quite high and has matched that of the other banks, retail exposures
grew at a slower pace.

If the sharp decline in the retail asset book in the past year in the case
of Axis Bank is part of a deliberate business strategy, this could have

10
significant implications (not necessarily negative) for the overall future
profitability of the business.

Despite the slower growth of the retail book over a period of time and
the outright decline seen in the past year, the bank’s fundamentals are
quite resilient. With the high level of mid-corporate and wholesale
corporate lending the bank has been doing, one would have expected
the net interest margins to have been under greater pressure. The
bank, though, appears to have insulated such pressures. Interest
margins, while they have declined from the 3.15 per cent seen in
2003-04, are still hovering close to the 3 per cent mark. (The
comparable margins for ICICI Bank and HDFC Bank are around 2.60 per
cent and 4 per cent respectively. The margins for ICICI Bank are lower
despite its much larger share of the higher margin retail business,
since funding costs also are higher).

Risk and earnings perspective

From a medium-term perspective, it appears that Axis Bank could be

charting out a niche for itself in the private bank space. It appears to
be following a business strategy quite different from the high-volume
and commodity-style approach of ICICI Bank and HDFC Bank. That
strategy also has its pluses in terms of the higher margins in some
segments of the retail business and the in-built credit risk
diversification (and mitigation) achieved through a widely dispersed
retail credit portfolio.

Mutual fund department is still very new to the market and then also it
has one of the largest AUM in the country .their maiden fund was Axis
equity fund which was a pure equity and debt fund and it performed
very well .Afterwards they had launched Axis tax saver fund during the

11
month of January which is showing very good prospects for the
customers..

Now in next year they launched a new fund in the mip category which
is known as Axis Income saver fund. This fund had a typical peculiarity
that the funds nav will not go below 5% in a calendar year. This made
it different from other funds in the market and after the successful
completion of this fund. They are in the nfo of the new fund which will
be investing in all the investment classes’ .i.e. Gold ETF, Equity and
Bonds.

BOARD OF DIRECTORS:

• Axis Asset Management Company Ltd.

• Shikha Sharma, Chairperson, Associate Director
• T S Narayanasami, Independent Director
• Pranesh Misra, Independent Director
• U R Bhat, Independent Director
• Ms. Sonu Bhasin, Associate Director
• Rajiv Anand, MD & CEO of Axis AMC, Associate Director
• Axis Mutual Fund Trustee Ltd.
• Dr T C Nair, Chairman, Independent Director
• Kamlesh Vikamsey, Independent Director
• Kedar Desai, Independent Director
• B Gopalakrishnan, Associate Director

THREE PILLARS OF AXIS MUTUAL FUND.

Outside-in View
• Investor at the heart of every single decision.

12
 • Communicate in his language, not in ours.

Enduring Wealth Creation

• Play a serious and credible role in investor's money basket.
• Encourage investors to build a long-term perspective of the
mutual fund category.

Long-term Relationships
• Leverage the equity of the 'Axis' brand
• Aim at building relationships rather than being transactional.

PRODUCTS

Mutual fund is such an investment avenue which can be changed

according to the customer’s needs .If any investor wants high returns
then equity will be preferred and when he wants a fixed income then
bond will be a good option for him. So axis has taken due care in
forming any mutual fund of their AMC. So, the following are the
products which have to offer to its investors.

Axis Liquid Fund

• An extremely low risk fund suitable for an investment horizon of
1 day – 90 days

• Returns are calculated for the number of days you remain

invested

• No entry or exit loads

• High liquidity - Under normal circumstances, we will endeavour

to ensure that an investor gets his money back one day after
putting in a valid redemption request

Axis Treasury Advantage Fund

• A low risk fund suitable for an investment horizon of 91 days to
180 days

13
 • Returns are calculated for the number of days you remain
invested

• No entry or exit loads

• High liquidity - Under normal circumstances, we will endeavor to

ensure that an investor gets his money back one day after
putting in a valid redemption request

• Tax efficient as dividends are tax-free in your hands (post

deduction of 14.1625% dividend distribution tax for individual
investors - inclusive of cess and surcharge)

Axis Short Term Fund

• A low risk fund suitable for an investment horizon of 6 months - 1
year

• Aims to provide stable returns by investing in debt and money

market instruments

• Returns are calculated for the number of days you remain

invested

• No entry load but with an exit load of 0.25% if units are

redeemed/switched out within three months from the date of
allotment

• Easy Call facility available

• High liquidity - Under normal circumstances, we will endeavour

to ensure that an investor gets his money back one day after
putting in a valid redemption request

• Tax efficient as dividends are tax-free in your hands (post

deduction of 14.1625% dividend distribution tax for individual
investors - inclusive of cess and surcharge)

Axis Income Saver Fund

• A low to medium risk fund suitable for an investment horizon of 2
– 4 years

• Brings stability to your portfolio by investing primarily in fixed

income instruments

• Offers the potential for capital growth through limited exposure

to equity instruments

14
• Adopts a quantitative asset allocation strategy for risk
management

• Open-ended nature allows you to buy or sell units of the scheme

at any point of time subject to applicable loads

• Scheme managed by an experienced team of fund managers

15
Axis Equity Fund
• A diversified equity fund that invests primarily in the Indian
equity markets

• Provides the opportunity to capitalize on India's high paced

growth

• Supported by a strong investment management team at Axis

Mutual Fund

• Suitable for an investment horizon of 3 years or more

• With no entry load

• Easy Call facility available

Axis Triple Advantage Fund - Growth through diversification

Axis Triple Advantage Fund helps you take advantage of diversification

by investing in a mix of equity, fixed income and gold. This not only

helps avoid monetary surprises but also provides opportunity for

wealth growth. With Axis Triple Advantage Fund, if you have planned

for something, chances are you should be able to go and get it. Key

Features

• Provides diversification across three asset classes viz. equity,

fixed income and gold thereby leading to reduction in risk

• Returns potential not compromised even with reduced risk levels

• Returns more stable than pure equity or gold investments over

the long term

• Offers convenience. Now one single application is sufficient for

investment in three asset classes.

• 20 - 30% of investment in gold. Gold is a good hedge against

financial crises.

16
MUTUAL FUND INDUSTRY

Alone UTI with just one scheme in 1964 now competes with as many as
400 odd products and 34 players in the market. In spite of the stiff
competition and losing market share, UTI still remains a formidable
force to reckon with.

Last six years have been the most turbulent as well as exiting ones for
the industry. New players have come in, while others have decided to
close shop by either selling off or merging with others. Product
innovation is now passé with the game shifting to performance delivery
in fund management as well as service. Those directly associated with
the fund management industry like distributors, registrars and transfer
agents, and even the regulators have become more mature and
responsible.

The industry is also having a profound impact on financial markets.

While UTI has always been a dominant player on the bourses as well as
the debt markets, the new generations of private funds which have
gained substantial mass are now seen flexing their muscles. Fund
managers, by their selection criteria for stocks have forced corporate
governance on the industry. By rewarding honest and transparent
management with higher valuations, a system of risk-reward has been
created where the corporate sector is more transparent then before.

Funds have shifted their focus to the recession free sectors like
pharmaceuticals, FMCG and technology sector. Funds performances
are improving. Funds collection, which averaged at less than Rs100bn
per annum over five-year period spanning 1993-98 doubled to
Rs210bn in 1998-99. In the current year mobilization till now have
exceeded Rs300bn. Total collection for the current financial year
ending March 2000 is expected to reach Rs450bn.

17
What is particularly noteworthy is that bulk of the mobilization has
been by the private sector mutual funds rather than public sector
mutual funds. Indeed private

MFs saw a net inflow of Rs. 7819.34 crore during the first nine months
of the year as against a net inflow of Rs.604.40 crore in the case of
public sector funds.

Mutual funds are now also competing with commercial banks

in the race for retail investor’s savings and corporate float
money. The power shift towards mutual funds has become
obvious. The coming few years will show that the traditional
saving avenues are losing out in the current scenario. Many
investors are realizing that investments in savings accounts
are as good as locking up their deposits in a closet. The fund
mobilization trend by mutual funds in the current year
indicates that money is going to mutual funds in a big way.
The collection in the first half of the financial year 1999-2000
matches the whole of 1998-99.

India is at the first stage of a revolution that has already

peaked in the U.S. The U.S. boasts of an Asset base that is
much higher than its bank deposits. In India, mutual fund
assets are not even 10% of the bank deposits, but this trend is
beginning to change. Recent figures indicate that in the first
quarter of the current fiscal year mutual fund assets went up
by 115% whereas bank deposits rose by only 17%. (Source:
Think-tank, the Financial Express September 99) This is
forcing a large number of banks to adopt the concept of
narrow banking wherein the deposits are kept in Gilts and
some other assets, which improves liquidity and reduces risk.
The basic fact lies that banks cannot be ignored and they will

18
not close down completely. Their role as intermediaries cannot
be ignored. Mutual Funds are going to change the way banks
do business in the future.

WHAT EXACTLY IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors

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

The Situation could vary as per age groups, mindsets and risk taking
ability, but the solution, in each case wants money to grow. Most of the
investors don’t have sufficient knowledge about different investment
options, financial instrument’s nature, market information, analytical
skills and therefore their funds are lacking proper management and
diversification to get market-linked return with flexibility as well as
liquidity. These kinds of investors should prefer mutual funds to
channelize their funds properly.

A security that gives small investors access to a well-diversified

portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Shares are issued and can
be redeemed as needed.

Mutual Funds are the unique instrument that offers an individual

19
professional management, diversification, flexibility, liquidity and a
chance to get market linked returns. Mutual funds are indeed the best
tool for wealth creation. Whatever other instruments can do, mutual
funds can do too – and more efficiently.

HISTORY & BACKGROUND

Four Phases Of Mutual Fund In India The mutual fund industry can be
broadly put into four phases according to the development of the
sector. Each phase is briefly described as under.

First Phase - 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It

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

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

Entry of non-UTI mutual funds. SBI Mutual Fund was the first
followed by Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89),
Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).
LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,
004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

20
With the entry of private sector funds in 1993, a new era
started in the Indian mutual fund industry, giving the Indian
investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with

many foreign mutual funds setting up funds in India and also
the industry has witnessed several mergers and acquisitions.
As at the end of January 2003, there were 33 mutual funds
with total assets of management was way ahead of other
mutual funds. Rs. 121805 crores. The Unit Trust of India with
Rs.44541 crores of assets.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into
two separate entities. One is the Specified undertaking of the
Unit Trust of India with AUM of Rs.29, 835 crores (as on
January 2003). The Specified Undertaking of Unit Trust of
India, functioning under an administrator and under the rules
framed by Government of India and does not come under the
purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB,

21
BOB and LIC. It is registered with SEBI and functions under the
Mutual Fund Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than Rs.76, 000 crores of
AUM and with the setting up of a UTI Mutual Fund, conforming
to the SEBI Mutual Fund Regulations, and with recent mergers
taking place among different private sector funds, the mutual
fund industry has entered its current phase of consolidation
and growth. As at the end of September, 2004, there were 29
funds, which manage assets of Rs.153108 crores under 421
schemes.

22
GROWTH IN ASSETS UNDER MANAGEMENT

As on Mar-08, the Asset under management is approx. 621238 crore.

23
March 2009 the asset under management is approx 751521
TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its
investments.

By Structure:

Open-ended Funds
An open-end fund is one that is available for subscription all through
the year. These do not have a fixed maturity. Investors can
conveniently buy and sell units at Net Asset Value ("NAV") related
prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds
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 where they are listed. In
order to provide an exit route to the investors, some close-ended funds
give an option of selling back the units to the Mutual Fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate
that at least one of the two exit routes is provided to the investor.

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.

24
By Investment Objective:

Income Funds
The aim of income funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities
such as bonds, corporate debentures and government securities.
Income Funds are ideal for capital stability and regular income.

Balanced Funds
The aim of balanced funds is to provide both growth and regular
income. Such schemes periodically distribute a part of their earning
and invest both in equities and fixed income securities in the
proportion indicated in their offer documents. In a rising stock market,
the NAV of these schemes may not normally keep pace, or fall equally
when the market falls. These are ideal for investors looking for a
combination of income and moderate growth.

Growth Funds
The aim of growth funds is to provide capital appreciation over the
medium to long-term. Such schemes normally invest a majority of their
corpus in equities. It has been proven that returns from stocks, have
outperformed most other kind of investments held over the long term.
Growth schemes are ideal for investors having a long-term outlook
seeking growth over a period of time.

Money Market Funds

The aim of money market funds is 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.
Returns on these schemes may fluctuate depending upon the interest
rates prevailing in the market. These are ideal for Corporate and

25
individual investors as a means to park their surplus funds for short
periods.

Load Funds:
A Load Fund is one that charges a commission for entry or exit. That is,
each time you buy or sell units in the fund, a commission will be
payable. Typically entry and exit loads range from 1% to 2%. It could
be worth paying the load, if the fund has a good performance history.

No-Load Funds:
A no-Load Fund is one that does not charge a commission for entry or
exit. That is, no commission is payable on purchase or sale of units in
the fund. The advantage of a no load fund is that the entire corpus is
put to work.

Other Schemes:

Tax saving Schemes

These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws as the Government offers tax
incentives for investment in specified avenues. Investments made in
Equity Linked Savings Schemes (ELSS) and pension Schemes are
allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also
provides opportunities to investors to save capital gains u/s 54EA by
investing in Mutual Funds, provided the capital asset has been sold
prior to April 1, 2000 and the amount is invested before September 30,
2000.

Special Schemes:-

 Industry Specific Schemes

26
 Industry Specific Schemes invest only in the industries
specified in the offer document. The investment of these
funds is limited to specific industries like InfoTech, FMCG and
Pharmaceuticals etc.

 Index Schemes

Index Funds attempt to replicate the performance of a

particular index such as the BSE Sense or the NSE 50

 Sectoral Schemes

Sect oral Funds are those, which invest exclusively in a

specified industry or a group of industries or various segments
such as 'A' Group shares or initial public offerings.

27
PROCESS OF MUTUAL FUND

In the above graph shows how Mutual Fund works and how investor
earns money by investing in the Mutual Fund. Investors put their
saving as an investment in mutual fund. The fund manager, who is a
person who takes the decisions where the money should be invested in
securities according to the scheme’s objective. Securities include
Equities, Debentures, Govt. securities, Bonds and Commercial Paper
etc. These securities generate returns to the fund manager. The fund
manager passes beck return to the investor.

28
Mutual Funds – Organization

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

Organization of a Mutual Fund

Rights of a Mutual Fund Unit holder A unit holder in a Mutual Fund

scheme governed by the SEBI (Mutual Funds) Regulations is entitled
to:

1. Receive unit certificates or statements of accounts confirming the

title within 6 weeks from the date of closure of the subscription or
within 6 weeks from the date of request for a unit certificate is
received by the Mutual Fund.

2. Receive information about the investment policies, investment

29
 objectives, financial position and general affairs of the scheme.

3. Receive dividend within 42 days of their declaration and receive the

redemption or repurchase proceeds within 10 days from the date of
redemption or repurchase.

4. Vote in accordance with the Regulations to:-

a. Approve or disapprove any change in the fundamental

investment policies of the scheme, which are likely to modify the
scheme or affect the interest of the unit holder. The dissenting
unit holder has a right to redeem the investment.
b. Change the Asset Management Company.
c. Wind up the schemes.
5. Inspect the documents of the Mutual Funds specified in the
scheme's offer document.

30
WHY SHOULD ONE INVEST IN MUTUAL
FUNDS……?

• One can avail of the benefits of better returns with added

benefits of anytime liquidity by investing in open-ended
debt funds at lower risk.

• One can minimize his risk by investing in mutual funds as

the mutual fund managers analyze the companies’ financials
more minutely than an individual can do as they have the
expertise to do so. They can manage the maturity of their
portfolio by investing in instruments of varied maturity
profile.

• Moreover, mutual funds are better placed to absorb the

fluctuations in the prices of the securities as a result of
interest rate variation and one can benefits from any such
price movement.

• Liquid funds offer liquidity as well as better return than

banks and so attract investors. Many funds provide anytime
withdrawal enabling a big investor to take maximum
benefits.

• Apart from liquidity, the funds provide very good post-tax

returns on year-to-year basis. Even some of the debt funds
have generated superior returns at relatively low level of
risk. On an average debt funds have posted returns over 10
percent over one year horizon. In nutshell we can say that
these funds have delivered more than what one expects of
debt avenues such as post office schemes or bank fixed
deposits.

31
• Mutual funds specialize in identification of stocks through
dedicated experts in the field and this enables them to pick
stocks at the right movement. Sector funds provide an edge
and generate good returns if the particular sector is doing
well.

• The benefits listed so far are essentially for the small retail
investor but the industry can attract investments from
institutional and big investors as well.

• Moving up in the risk spectrum, there are many people who

would like to take some risk and invest in equity
funds/capital market. However, since their appetite for risk
is also limited, they would rather have some exposure to
debt as well. For these investors, balanced funds provide an
easy route of investment. Armed with the expertise of
investment techniques, they can invest in equity as well as
in good quality debt thereby reducing risk and providing the
investor with better returns than he could otherwise
manage.

• Next problem is that of our funds or money. A single person

can’t invest in multiple high-priced stocks for the sole
reason that his pockets are not likely to be deep enough.
This limits him from diversifying his portfolio as well as
benefiting from multiple investments.

• Investing through MF route enables an investor to invest in

many good stocks and reap benefits even through a small
investment. This not only diversifies the portfolio and helps
in generating returns from a number of sectors but reduces
the risk as well. Through identification of the right fund

32
 might not be an easy task, a good investment consultants
and counselors will can investors take informed decision.

• Investing in just one Mutual Fund scheme may not meet all
investment needs. One might consider investing in a
combination of schemes to achieve your specific goals. Here
is the risk, return grid that shows how and where an
investor can invest according to his risk, returns appetite.
An investor can see different kinds of funds where in he can
get maximum benefit with utmost care.

33
COMMON INVESTMENT MISTAKES THAT
PEOPLE CAN MAKE

Knowing about some investment mistakes people can make.

1. Investing without a clear plan of action: Many people neglect to take

the time to think about their needs and long-term financial goals
before investing. Unfortunately, this often results in falling short of
their expectations. You should decide whether you are interested in
rice stability, growth, or a combination of these. Determine your
investment goals. Then, depending on your age and your tolerance
for risk, select mutual fund with objective similar to yours.

2. Meddling with your account too often: You should have clear
understanding of your investments so that you are comfortable with
their behavior. If you keep transferring investments in response to
downturns in prices, you may miss the upturns as well. Even in the
investment field, the “tortoise” that is more patient, may win over
the “hare”. While past performance does not necessarily guarantee
future performance, your understanding of the behavior of various
investments over a time can help prevent you from becoming
shortsighted about your long-term goals.

3. Losing sight of inflation: While may be aware of the fact that the cost
of goods and services are rising, people tend to forget the impact of
inflation will have on investment in long-term. The value of Rs.100 in
1980 was down to Rs. 26 in 1995. This means that the buying power
of rupee has decreased, you can not buy as much for Rs.100 now
that you could 9.35% per annum between 1980-81 and 1994-95.
Source: RBI report on Currency and Finance).You have to keep in
mind that will eat into your savings faster than you can imagine.

34
4. Investing too little too late: People do not “pay themselves first”.
Most people these days have too many bills to pay every month, and
planning for your future often takes a backseat. Regardless of age or
income, if you do not place long-term investing among your top
priorities, you may not be able to meet your financial goals. The
sooner you start, the less you have to save every month to reach
your financial goals.

5. Do not put all your eggs into one basket, diversify: When it comes to
investing, most of us do not appreciate the importance of
diversification. While we know that we should not “put all our eggs in
one basket”, we often relate this concept to stocks and bonds. Take
the time to discuss the importance of diversifying investments
among different assets categories and industries. When you spread
your holdings around, you do not have to rely on the success of just
one investment.

35
BENEFITS OF MUTUAL FUND

Mutual funds serve as a link between the saving public and the capital
markets. They mobilize savings from the investors and bring them to
borrowers in the capital markets. Today mutual funds are fast
emerging as the favorite investment vehicle because of the many
advantages they have over other forms and avenues of investing. The
major advantages offered by mutual funds to all investors are:

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-

36
section of industries and sectors. This diversification reduces the risk
because seldom do all stocks decline 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.

Variety

Mutual funds offer a tremendous variety of schemes. This variety is

beneficial in two ways: first, it offers different types of schemes to
investors with different needs and risk appetites; secondly it offers an
opportunity to investors to invest sums across a variety of schemes,
both debt and equity. For example, an investor can invest his money in
a Growth Fund (equity scheme) and Income Fund (Debt scheme)
depending on his risk appetite and thus creates balanced portfolio
easily or simply just buy a balanced scheme.

Convenient 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 Cost

Mutual Finds are a relatively less expensive way to invest compared to

37
directly investing in the capital markets because the benefits of scale
in brokerage, custodial and other fees translate into lower costs for
investors.

Liquidity

In open-end schemes, the investor gets the money back promptly at

net asset value related prices from the Mutual Fund. In closed-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.

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 manager's
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

Investors individually may lack sufficient funds to invest in high-grade

stock. A mutual fund because of its large corpus allows even a small
investor to take the benefit of its investment strategy.

38
Choice of schemes

Mutual Funds offer a family of schemes to suit your varying needs over
a lifetime.

Regulations

All Mutual Funds are registered with SEBI and they function within the
provision of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by
SEBI.

Tax Benefits

Any income distributed after March 31, 2002 will be subject to

tax in assessment of all unit holders. However, as a measure of
concession to unit holders of open-ended equity-oriented
funds, income distributions for the year ending March 31,
2003, will be taxed at a concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction up to

Rs 9000 from the Total income will be admissible in respect of income
from investments specified in Section 80L, including income from units
of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax
and Gift-Tax.

39
DRAWBACKS OF INVESTING IN MUTUAL
FUNDS

Potential loss

Unlike a bank deposit, the investment in a mutual fund could fall in

value, as the fund is nothing bur a portfolio of different securities.
Apart from a few assured returns schemes, the fund does not
guarantee any minimum percentage of return.

The Diversification Penalty

While diversification reduces the risk of loss from holding a single

security, it also limits the gains if a single security increases
dramatically in value. Also, diversification does not protect the unit
holders totally from an overall decline in the market.

No tailor made portfolio

Mutual fund portfolios are created and marked by AMCs, in to which

investors invest. They can not made tailor made portfolio.

40
MUTUAL FUND REGULATION

There was no uniform regulation of the mutual funds industry till a few
years ago. The UTI was regulated by a special Act of Parliament while
funds promoted by public sector banks were subject to RBI Guidelines
of July 1989. The Securities & Exchange Board of India (SEBI) was
formed in 1993 as a capital market regulator. One of its responsibilities
was to regulate the mutual fund industry and it came up with
comprehensive regulations for the industry in 1993. The rules for the
formation, administration and management of mutual funds in India
were clearly laid down. Regulations also prescribed disclosure
requirements.

The regulations were thoroughly reviewed and re-notified in December

1996. The revised guidelines tighten the accounting and disclosure
requirements in line with recommendations of The Expert Committee
on Accounting Policies, Net Asset Values and Pricing of Mutual Funds.
The SEBI (Mutual Funds) Regulations, 1996 have been further
amended in 1997, 1998 and 1999. Today, all mutual funds are
regulated by SEBI. Efforts have been made to bring UTI schemes under
SEBI's ambit with the result that all schemes, with the exception of
Unit 64, are now regulated by the capital market regulator.

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC's are in the queue to enter the Indian

markets like Fidelity Investments, US based, with over
US$1trillion assets under management worldwide.

 Our saving rate is over 23%, highest in the world. Only

41
 channelizing these savings in mutual funds sector is required.

 We have approximately 29 mutual funds which is much less than

US having more than 800. There is a big scope for expansion.

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

 Mutual fund can penetrate rural like the Indian insurance

industry with simple and limited products.

 SEBI allowing the MF's to launch commodity mutual funds.

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

Legal and Regulatory Framework

Mutual funds are regulated by the SEBI (Mutual Fund) regulations,

1996. SEBI is the regulator of all funds, except offshore funds. Bank
sponsored mutual finds are jointly regulated by SEBI and RBI
permission. If there is a bank sponsored find, it cannot provide a
guarantee without RBI permission. RBI regulates money and govt.
securities in which mutual fund invest. Listed mutual funds are subject
to the listing regulations of stock exchanges. Since the AMC and
trustee co, are Co.s they are regulated by the department of co affairs,
they have to send periodic report to the roc and the co law board is the
appellate authority.

Investors cannot sue the trust, as they are the same as the trust and

42
cant sure themselves. UTI is governed by the UTI act, 1963 and is
voluntarily under SEBI regulations. UTI can borrow as well as lend and
also engage in other financial services activities. SROs are the second
tier in the regulatory structure; SROs cannot do any legislation on their
own. All stock exchanges are SROs. AMFI is an industry association of
mutual funds. AMFI is not yet a SEBI registered SRO. AMFI has created
code for mutual funds. AMFI aims at increasing investor awareness
about mutual finds, encouraging best practices and bringing about
high standards of professional behavior in the industry.

43
Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual
fund association in India was generated to function as a non-profit
organisation. Association of Mutual Funds in India (AMFI) was
incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which

has been registered with SEBI. Till date all the AMCs are that have
launched mutual fund schemes are its members. It functions under the
supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interests of mutual funds as well as their
unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered

AMCs of the country. It has certain defined objectives which juxtaposes
the guidelines of its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains high professional and

ethical standards in all areas of operation of the industry.

It also recommends and promotes the top class business

practices and code of conduct which is followed by members
and related people engaged in the activities of mutual fund
and asset management. The agencies who are by any means
connected or involved in the field of capital markets and

44
financial services also involved in this code of conduct of the
association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the
mutual fund industry.

Association of Mutual Fund of India do represent the Government of

India, the Reserve Bank of India and other related bodies on matters
relating to the Mutual Fund Industry.

It develops a team of well-qualified and trained Agent distributors. It

implements a programme of training and certification for all
intermediaries and other engaged in the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order

to promote proper understanding of the concept and working of mutual
funds.

At last but not the least association of mutual fund of India also
disseminate information’s on Mutual Fund Industry and undertakes
studies and research either directly or in association with other bodies.

45
Ten Golden rules for Investing

Warren Buffet has suggested ten golden rules for investing which
proves to be immense use to the investors who want a better
investment in stock markets.

1. Never invest in a business you cannot understand.

2. Risk can be reduced by concentrating on a few holdings.

3. Stop trying to predict the direction of the stock market, the

economy, interest rates, or elections.

4. Buy companies with strong histories of profitability and with

a dominant business franchisee.

5. Be fearful when others are greedy and greedy when others

are fearful.

6. Unless you can watch your stock holding decline by 50%

without becoming panic-stricken, you should not be in the
stock market.

7. Do not take yearly results too seriously. Instead, focus on

four or five year averages.

8. Focus on return on equity, not earnings per share (EPS).

9. Calculate "owner earnings" to get a true reflection of value.

Look for companies with high profit margins.

10.Always invest for the long term. Does the business have
favorable long-term prospects?

46
FUTURE SCENARIO

The asset base will continue to grow at an annual rate of about 30 to

35 % over the next few years as investor’s 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 corporate’s 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 it’s corpus in Gold, Silver, Swiss

47
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 year-end.

In developed countries like the U.S.A there are funds to satisfy

everybody’s 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.

48
DIFFERENT TERMS

Sale Price

Sale price is the price you pay when you invest in a scheme. Also
called Offer Price. It may include a sales load.

Repurchase Price

Repurchase price is the price at which a close-ended scheme

repurchases its units and it may include a back-end load. This
is also called Bid Price.

Redemption Price

Redemption price is the price at which open-ended schemes

repurchase their units and close-ended schemes redeem their units on
maturity. Such prices are NAV related.

Sales Load

Sales load is a charge collected by a scheme when it sells the

units. Also called ‘Front-end’ load. Schemes that do not
charge a load are called ‘No Load’ schemes.

NET ASSETS VALUE (NAV)

The performance of a particular scheme of mutual fund is

denoted by Net Assets Value (NAV).Mutual fund invest the
money collected from the investors in securities markets. In

49
simple word, Net Asset Value is the market value of the
securities held by the scheme. Since market value of securities
changes every day, NAV of a scheme also varies on day to day
basis. The NAV per unit is the market vale of securities of a
scheme divided buy the total no of units of the scheme of any
particular date. For example if the market value if securities of
a mutual fund scheme is Rs. 200 lakhs and mutual fund has
issue 10 lakhs units of Rs.10 each to the investors, then the
NAV per unit of the fund is Rs. 20 . NAV is required to be
disclosed by the mutual funds on a regular basis –daily of
weekly- depending on the type of scheme.

The net assets value (NAV) is the actual value of one unit of a
given scheme in any given business day. The NAV reflect the
liquidation value of the funds investments on that particular
day after accounting for all expenses. It is calculated by
deducting all liabilities except unit capital of the fund from the
realizable value of all assets and dividing it by number of units
outstanding.

So NAV is equals to-

Market / fair value of schemes

(+) Receivables
(+) Accrued income
(+) Other assets
(-) Accrued expenses
(-) Payables
(-) Other liability
(/) Number of unit outstanding.

Here, "other assets" includes any income due to the fund but not

50
received as on the valuation date (for example, dividend announced by
a company but yet to be received). Similarly, "other liabilities" includes
expenses payable by the fund, for example management fees payable
to the AMC. Thus, SEBI requires that all expenses and incomes are
accrued up to the valuation date and considered for NAV computation.

Net Asset Value - NAV

1. In the context of mutual funds, the total value of the fund's portfolio
less liabilities. The NAV is usually calculated on a daily basis.

2. In terms of corporate valuations, the book value of assets less

liabilities.
Notes:
The NAV is usually below the market price because the current
value of the fund’s assets is higher than the historical financial Net
Asset Value Per Share - NAVPS

3. The value of a mutual fund share. Calculated by dividing the total

net asset value of the fund by its number of outstanding shares.

4. A fundamental analysis indicator that gives an estimate of the value

of a fund's shares after all assets are sold and all liabilities are paid
off.

5. In other words, NAVPS is the value of a single unit of a mutual fund.

This figure is affected by both its underlying value and market
forces. It is important to consider both these factors when buying a
mutual fund because the price that the fund investors pay is based
on them.

6. The NAVPS is usually below the market price per share because the

51
 current value of the fund's assets is higher than the value appearing
on the historical financial statements used in the NAVPS calculation.
Financial statements used in the NAV.

Unit

Unit means the interest of the holders in a scheme. Each unit

represents one undivided share in the assets of a scheme. The value of
each changes depending on the performance of the fund.

Asset Management Company (AMC)

Making decisions regarding investment of the money of the unit

holders is a tricky affair. People at the helm of affairs need to have
knowledge about investment alternatives and should also have up- to-
date information. This is where the role of an Asset Management
Company comes into play. The AMC has to act as the investment
manager of the Trust under the Board supervision and direction of the
Trustees. The AMC should also be approved and registered with the
SEBI as an AMC. Directors of the AMC should have adequate
professional experience in financial services and should be individuals
of high moral standing.

One of the other objectives of forming an AMC is that of bringing about

transparency in the working of a mutual fund. The AMC and its
directors are answerable to the Trustees and must submit quarterly
reports to them on AMC activities. They also have to make required
disclosures to the investors in areas such as calculation of NAV and
repurchase price.

Lock in period:

52
Lock-in-period is the minimum period for which investment made in
new units of a scheme cannot be redeemed. Normally, this is specified
for tax saving schemes.

Systematic transfer plan:

This is a plan offered by some funds under which an investor may

choose to transfer a specified amount from their investments in one
scheme of the fund to another scheme of the same fund at periodic
intervals (usually monthly or quarterly).

Systematic investments plan:

Under these plans, the investor gives a mandate to the mutual fund to
allot fresh units at specified intervals (monthly, quarterly, etc.) against
which the investor provides post-dated cheques. On the specified
dates, the cheques are realized by the mutual fund and, additional
units at the prevailing NAV are allotted to the investor.

This is highly convenient for a person who has a regular source of

income and wishes to allocate a portion of the same towards savings.

The investor does not need to spend time and effort in evaluating
investments in each time interval and probably ensures that the
surplus funds do not remain idle.

It carries an additional advantage of Rupee Cost Averaging. By

investing a fixed amount at regular intervals, one ends up buying more
units when the price is low, and fewer units when the price is high. As a
result, over a period of time, the average unit costs will always be less
than average market price per unit, irrespective of whether the market
is rising, falling or fluctuating.

53
54
SURVEY FINDINGS

Background & Need for the study:

It is widely believed that MF is a retail product designed to target small

investors, salaried people and others who are intimidated by the stock
arket but nevertheless, like to reap the benefits of stock market
investing. At the retail level, investors are unique and are a highly
heterogeneous group. Hence, designing a general product and
expecting a good response will be futile, through UTI could do this
nearly for three decades (1964-1987) due to its monopoly in the
industry. In the second phase of oligopolistic competition (1987-1992),
the public sector banks and financial institutions entered the field, but
with the then existing boom condition, it was a smooth sailing for the
industry. Further, the globalization and liberalization measures
announced by the government led to a paradigm shift in the mindset
of investors and the capital market nvironment become more
unfriendly to retail investors. They had no other choice but to turn to
MFs to reap the benefits of stock market investing. Hence, the need to
be innovative in designing the product was not felt and investors had
to choose from the limited schemes offered. During the third phase
(1992 hence) the industry was thrown open to the private sector and
the stage got set for competition.

Currently there are more than 3200 schemes with varied objectives
and AMCs compete against one another by launching new products or
repositioning old ones. Now MF industry is facing competition not only
from within the industry but also from other financial products that
may provide many of the same economic functions, as MFs but are not
strictly MFs. For example, in US, one saving institution has patented a
product that promises to deliver consumers a pay off indexed to
college tuition costs, thus attempting to meet a common consumer

55
requirement. This product is structured as a certificate of deposit, but
it could have been set up as a Mutual Fund. Such products will shortly
appear in the Indian market also. Other examples could be ULIP plans
which are giving a good competition to MFs. All this, in aggregate,
heightens the consumer confusion in his selection of the product. He is
confused as to how to shift the grain from the chaff? Unless the MF
schemes are tailored to his changing needs, and unless the AMCs
understand the fund selection/switching behavior of the investors,
survival of the funds will be difficult in future. With this background an
attempt is made in this project to study the factors influencing the
fund/scheme selection behaviors of retail investors.

56
OBJECTIVES OF THE STUDY:

In order to examine the issues mentioned above, this survey has the
following objectives before it:

1) To understand the savings avenue preference among MF investors

2) To identify the features the investors look for in Mutual Fund

products.

3) To identify the schemes preference of investors.

4) To identify the factors that influencing the investor’s fund/scheme

selection.

5) To identify the information sources influencing the scheme selection

decision.

6) To identify the preferred communication mode.

57
SAMPLE PLAN:

Sampling Unit: Any individual above the age of 20 years and who is
earning.

Sample size: 100 people from Ahmedabad.

Sampling Method: Random Sampling

Research Instrument:

The research instrument used for primary data collection is

questionnaire. The questionnaire has close ended questions.
(Questionnaire is attached as Annexure) The questionnaire is supposed
to be given to an individual to fill up on his own.

Importance and Benefits:

Though many MF are giving nearly 100% returns in a year, only

2% of total population has invested in MF. The research would
help to understand the reasons why people invest less in MF.
This research would help AMCs to understand what steps can
be taken to increase the investment in MF.

Limitation of the study:

1. Sample size is limited to 500 educated investors in Ahmedabad

only. The sample size may not adequately represent the National
market.

2. This study has not been conducted over an extended period of the

58
 time having both market ups and downs. The market state has
significance influence on the buying patterns and preferences of
investors. For example, the July 2001 fall has sent violent shock
waves across the MF investor community and is bound to influence
the scheme preference/ selection of the investors. The study has
not captured such situations.

3. We have to depend on a small sample size of investors to find out

the results of the study which may become biased and this sample
might be small to gather an in depth knowledge of MF.

4. Investor’s behavior is affected by various factors and in a short span

of time it is not possible to study all this factors.

5. It may not be possible to take proportional sample size from each

area.

6. People might not reveal there true investment behavior in the

interview. Therefore it might lead to error in judgment.

Method of Data Collection

For the purpose of understanding investor’s behavior we have

collected data from both primary as well as secondary data. Survey
sample is taken as 500.

Primary data – in order to collect direct information from investors we

have designed a questionnaire. We have approached investors of
different age and income groups.

Secondary data – in secondary data we have collected articles

related to investor’s behavior from different sources like internet,

59
magazines, newspaper and documents provided by our company.

Framework of Analysis:

To understand the savings avenue preference, scheme preference, and

objective for investment in MFs, and also to identify the information
sources to influencing scheme selection, and the preferred mode of
communication, the respondents were asked to rank their preferences
on a ranking scale. The ranks were ascertained by obtaining the
weighted mean value of the responses.

60
OBSERVATIONS:

Characteristics and Attributes of Focused & Disciplined

Investor

• Taking investment as serious study, research and monitoring work

and not a casual game with hear-say and hope for the best.

• Understand investment is a matter of timing, not blindly in long

term.

• Invest in market instrument that have potential to bring the best

return, not using diversification of mix-up good apples with bad
fruits.

• Study risk / reward carefully and prepare to exit if faced with high
uncertainty to acquired gain, or preserve capital or cut loss.

• Make research on future scenarios of investment performance with

monitoring to validate the assumptions and not to deal with
uncertainty or unknown.

• Take care of every dollar of investment to ensure its value creation.

Behavior about investing in Mutual Fund is pretty different.

• Most of the people are unaware of MFs or they feel it is very

complicated thing. They don’t understand the philosophy of Mutual
Funds.

• Most of the people invest in MFs only for the purpose of tax
benefits. They are not very much concerned about the returns

61
 which ELSS schemes are giving but they are only concerned about
getting the tax deductions.

• Those people who want to invest in equity market but don’t have
knowledge and huge amount of money to invest in share market
and don’t even have ability to take high risk, mutual funds comes
out to be the best option for them. These kinds of people invest
heavily in mutual funds. Majority of their go in to the mutual funds.

• Investors who are well aware of the knowledge of stock market, who
can manage their portfolio, they don’t want invest in mutual funds
because they get huge profits in stock market. They generally
divide their investments into two parts i.e. Fixed income
instruments like FDs, Bond, Debentures, PPF, NSC, etc and Stock
Market. MFs are a kind of midway between these two. Even if they
know about the mutual funds they are not interested. These kinds
of investors are very aggressive and high risk taking.

• Mutual Funds are attractive to only those people who don’t have
knowledge about share market, don’t have sufficient Funds and
time to track the market and don’t want to take high risks.

• Some investors are very risk averse. They don’t want to invest in
MFs just because it is an indirect investment in stock market.

People who don’t want to invest in mutual funds:

• Those who have never invested.

• Those who are unaware of mutual funds.

• Those who are very risk averse.

62
• Those who enjoy investing in stock market; they find MF as a
boring.

Bird’s Eye view of the Sample Taken

63
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← • Out of these 500 people, 160 lie in the age group of 20-35
years, 220 in the age group of 35-50 years and 120 above 50 years of
age. The age groups were selected in this manner because a
considerable change in the knowledge and investment pattern was
seen in these break-ups.
← • The service class people capture the maximum share of
71%. The second largest share is of the businessman with 24%.
Student (3%) and retired (2%)people were also included in the sample
size but it was realized that they could not contribute much.
← • Around 40% people are graduates and 34% people have
completed their professional courses. Here we can relate Qualification
with Age group and Occupation. We find from our survey that under
graduate (3%) people are not more aware about MF product. In our
survey we found that the people who have done PG (23%) and Prof.
Course are in service class. So it can be one of the reasons that they
prefer safety in Investment so they invest in MF rather than stock
market.

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66
Interpretation: Based on the duration of operation of schemes, the 1 st

preference is for open- ended schemes (84.57%) and only 15.43% of

the respondents favor close-ended schemes. The main reason for more
investment in Open-ended scheme is no entry and exit barriers.
Generally, those people who want to invest for a long period of time
prefer Close-ended schemes.

Que. 1 Are you aware about Mutual Funds?

Awareness of People about Mutual Fund

Interpretation: The above graph shows that from the total 100
respondents, 70% of people are aware about Mutual Fund while 30% of
people are not aware about Mutual Fund. From our survey of 100
respondents awareness of MF product is more in service class people.
A large group of business class people is aware about Mutual Fund as

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to take risk is the nature of business class people they invest in stock
market for high returns.

Que.2 How will you describe your investment knowledge of Mutual

Funds?

Interpretation: Out of surveyed 100 people 70 % people are aware

about Mutual fund. Out of this 70 %, 5% people have excellent
knowledge, 8% people have Good knowledge, 47% people have
Average knowledge about mutual fund and remaining 40% people
have poor knowledge about this financial product. Having average
knowledge people are mostly aware about MF concept and they also
invest in Mutual Fund for a long or short period of time. Here, the
service class people have average to good knowledge, they want to

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know more about MF but because of time constraints they are unable
to do so. As we also found in our survey that having poor knowledge
people just know only about MF as an Investment tool and invest in it
without knowing it.

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the Que.5 Rank investment options according to

your preferences (i.e. Most

Preferable-1, Least preferable-8) (Tick any one)

Interpretation: People are habitual to invest and they have many

investment options. But from our survey we find that because of safety
reasons people mostly invest in Fixed Deposits and another reason we
can say that from the surveyed 20% female they only go for savings
for that’s why FDs (30%) have maximum 30%. Service related people
are also investing in PPF(22.5%) as they found it the safer one. Post
office and Mutual Fund are also popular as an investment tool as share
of both 15.5% and 13.5%. While LIC is 3%, Govt. &RBI bonds is 5% and
Public Issues/IPO’S is 4.5% in the total survey.

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Que. 6 If you invest in Mutual Funds, what is the share of mutual fund
in your total investments?

Interpretation: Out 70 people 35% people said that their share of

mutual funds in total investment ranges between 0-25percent. Only
40% people were having share of 25-50% as mutual fund in their total
investment. While 18% people have the share of 75-100%. Now a
days people are more aware about Mutual Fund and other investment
tool. The proportion of savings in total income has also been increased.
Another reason for more investment is that they are becoming more
future conscious and so they invest more out of their total savings so
that they can use their money whenever it will be needed.

Que.7 What are the types of Mutual Fund schemes where you normally
invest in?

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Interpretation: The above graph shows that out of 70 people 40%
invest in Equity funds. Out of remaining 60%, 30% invest in Debt funds
while 25% and 5% people invest in Balanced funds and Monthly
Income Fund respectively. This shows that the people who give the 1 st

preference to Risk & Return factor, they invest in Equity Funds.

Generally, Business class people invest more in Equity Funds because
of high risk and high return. People also give more importance to NAV
because the people who have average to poor knowledge give more
importance to NAV and the NAV of the Equity Funds are always more
than any other funds. People who don’t want to take more risk on their
investment they mostly invest in Debt Funds.

\Que.9 Which are the companies in which you invest the most?

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Interpretation: Reliance Mutual Fund is having the 1 st
position among the 6

mutual fund companies. Franklin Templeton and Fidelity are on 2nd and 3rd position respectively while

HDFC MF is on the 4th position with 15%. Pru. ICICI & SBI HAVE 9% and 6% share respectively. As

Reliance has a good image in the mind of people who have faith in
Reliance. So when Reliance entered in Mutual Fund people invest more
and it results in 1 rank among the all MF Companies. Where HDFC MF
st

is known for the its professionalism and for this reason CRISIL has
given the 1st rank to HDFC MF. HDFC is assumed to be a bit
conservative for short-term investments. That’s why prefer Reliance
over HDFC because of its aggressiveness.

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Que.10 What types of investing procedure do you normally follow?

Interpretation: From our survey we find that people are investing in

both Lump sum and SIP equally. But the people who are investing on
large basis they prefer to invest in Lump sum. While service class has a
tendency to invest in SIP as it is benefited on certain ways like monthly
installments. Another reason for the service class people is that they
don’t have more money to pay at a time. The investor does not need
to spend time and effort in evaluating investments in each

time interval and probably ensures that the surplus funds do not
remain idle. Reason in investing
in SIP is also more units allocation.
Que.11 In what type of plan do you normally invest in?

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Interpretation: The people who have good knowledge about Mutual
Fund invest in Growth Fund (65%) because they get interest on capital.
It means their money is compounded annually. In long run dividend
reinvestment (17%) and growth fund becomes the same. In the matter
of NAV growth funds are more beneficial than dividend related funds
because it has very short portion of Equity.

Que.12 At what time do you normally invest in mutual funds?

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Interpretation: From the above graph we can interpret that 42% people
invest whenever they have sufficient savings on their hand. Mostly
service class people are investing whenever they have sufficient
saving on their hand. The reason for more percentage in Year Ending
(24%) investment is the limit of Rs.1 lakh given to service class people,
which is beneficial in Tax deduction. The people who have excellent to
good knowledge about MF, they invest at the time of NFO i.e.18%.

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79
income is also not more. We find that professionals and business class

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have annual saving of more than Rs. 1 lakh to 1.5 lakh i.e.11%.

Que.15 How do you normally get information about Mutual

Fund?

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Interpretation: The main source of information for people is
the Agents with 44% because they directly approach to the
customers. Now a day the Internet users are increasing day by
day and therefore 24% people are getting information through
Internet. The respondents prefer to get the routine special
information like daily NAV, dividend, bonus, change in asset
mix etc., through Internet. While 18% people get knowledge
from Newspaper and 6% from Friends.

MODES OF AWARENESS FOR MUTUAL FUNDS

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 ANALYSIS & INTERPRETATION

The survey reveals that among the 500 respondents only 70%
people were aware about the name of mutual funds. But out of
70% people 40% people did not know about the concept of
mutual funds. Remaining 48 % people had average to poor
knowledge about MFs. Only 7-8 % people had good knowledge
of mutual funds. But the actual investors in MF were even
more less. It could be hardly 5% of investor invests in MF.

Average time period for investing in MF ranges between 1 to 3 years.

Maximum investors invest for 1 year. It was also revealed that the
most preferred investment vehicle is Fixed Deposits, with MFs ranking
4 in the order among 8 choices given. Growth schemes are ranked
th

first, followed by Income schemes and Balanced schemes. Based on

the duration of operation of schemes, the 1 preference is for open-
st

ended schemes (84.57%) and only 15.43% of the respondents favor

close-ended schemes. The investors look for good returns, Tax
Benefits, liquidity and capital appreciation in MF products.

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 Brokers and Agents Direct Mail, News papers
and Magazines, Television , Friends suggestions in that order. Further
24% of the respondents reported that they use Internet facility to know
more about MFs while 76% reported that they do not have access to
Internet. Further, 37.43% of the respondents prefer to get the routine
special information like daily NAV, dividend, bonus, change in asset
mix etc., through automated response system while 53.71% prefer
personal communication and 8.86% have no preference.

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Out of 100 people only 35% people said that their share of mutual
funds in total investment ranges between 0-25%. Only 40% people
were having share of 25-50% as mutual funds in their total investment.
Most of the investors prefer 10-15% minimum expected returns. Most
preferred companies in Mutual fund comes out to be Reliance Mutual
Fund, SBI, Franklin Templeton, Fidelity, HDFC mutual fund, Pru ICICI.
Reliance Mutual Fund rank 1 among all the given choices. Out of
st

every 10 people who invest in mutual funds at least 5 have invested in

Reliance Mutual Fund. Reliance Mutual Fund is assumed to be a bit
conservative for short-term investments.

The survey indicates that the awareness of financial products in India

is poor.

Mutual Funds: assured returns. While only 12 % believe that the

government provides a guarantee to investors in mutual funds and just
13 % believe that the value of one’s investment in a mutual fund can
not fall below Rs.10, the survey shows that investors are stuck in an
“assured returns” time warp- four out of five prefer funds that
guarantee returns. These are schemes heading towards extinction. It is
no surprise, then, that only, 7% said they were ‘very confident’ of
choosing a fund, with two out of five investors feeling ‘not confident’.

Insurance: high confidence. Here we see that the fruits of familiarity-

barring banks, insurance has the highest number of people (38%)
saying they were ‘very confident’ of choosing life insurance, with just
7% ‘not confident’. Much of the credit for this confidence must go to
LIC. However, it is disheartening to note that just 29% people buy
insurance for securities against death, with savings following at 23%.

Banks: blind faith. With almost half the people ‘very confident’ about
choosing a banking product and just 3% of them ‘not confident’, this

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sector truly has the trust of investors, this confidence is misplaced.
Almost three out of five people believe that the unfortunately
government guarantee full deposits in nationalized banks. This is
untrue: only Rs.1 lakh worth of deposits per bank are guaranteed;
anything beyond that is not. This faith extends to financial institutions
too-61% people believe the bonds of dithering institutions like IFCI and
IDBI are “always safer than mutual funds”.

Retirement : worrying. India’s approach to financing its retirement is a

cause for worry.while of the people feel that they will retire between
55 and 65, only 44% believe they will have enough savings to ensure
their current standards of living post retirement. Sociological trends
are too: a third of all people surveyed expect their children will take
care of them post retirement, while an equal number expect they will
not.

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 SUGGESTIONS AND RECOMMONDATION:

The survey reveals that the investors are basically influenced

by the intrinsic qualities of the product followed by efficient
fund management and general image of the fund / scheme in
their selection of fund schemes. Hence it is suggested that
AMCs should design products consciously to meet the
investors’ needs and should be alert to capture the changing
market moods and be innovative. Continuous product
development and introduction of innovative products, is a
must to attract and retain this market segment. Some
suggestions are:

0 • The investors are influenced by the extent and

quality of disclosure of information subsequent to their
investment regarding disclosure of NAV, portfolio of
investment and disclosure of deviation of investment from the
stated objectives and the attached fringe to the scheme in
their selection of the scheme. Hence AMCs should take steps
to be as transparent as possible and follow the disclosure
norms spelt out by SEBI and AMFI in this connection. UTI’s
unique place in the industry that allowed it to be non-
transparent has led to the July 2001 UTI scam. The investors
were kept in dark when its income schemes portfolio of debt to
equity as
1 70:30 got slowly tilted to 20:80. We have to wait and see
the impact of such nondisclosures on future fund mobilization
by UTI.
← • The falling interest rates and a reasonably good
performance of many growth schemes might have been the
reason for the high performance of Growth schemes during the
period under study. Now the scale is in favor of income
schemes. So it is suggested that AMCs should react in time to
the changing market moods by launching new products or
repositioning old ones. Deviation from the stated investment
objectives without authority should be dealt seriously by the
regulatory bodies. Safety of capital subject to market risk,
should be assured to the MF investor.
← • Since the survey reveals priority to self decision in

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scheme selection. Information dissemination through all
possible routes which will reach the investors should be
tapped in a cost effective manner by AMCs. Diagnostically
looking, the fact that the investors prefer to make their own
scheme selection decision, inspite of their lack of knowledge
about the sophisticated market environment, reflects their
reluctance to believe the available quality of service provided
by the agents, financial consultants and investment advisors.
These agencies and persons engaged in giving investment
advice should gear up now to win the confidence of the
investors. In long run it will help both the investors and the
investment advisors, thus strengthening the link between the
individual investors and the Mutual Funds.
← • Number of foreign AMC's are in the queue to enter
the Indian markets like Fidelity Investments, US based, with
over US$1trillion assets under management worldwide. It is
one of the challenge for HDFC Mutual Fund and they should
have to try to come 1 among all Indian MFs.
st

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CONCLUSION:

Running a successful MF requires complete understanding of

the peculiarities of the Indian stock market and also the
psyche of the small invesor. This study has made an attempt to
understand the financial behavior of MF investors in
connection with the scheme preference and selection. The post
survey developments are likely to have an influence on the
findings.

Behavioral trends usually take time to stabilize and they get

disturbed even by a slight change in any of the influencing
variables. Hence, surveys similar to the present one need to be
conducted at intervals to develop useful models. Nevertheless,
it is hoped that the survey findings will have some useful
managerial implication for the AMCs in their product designing
and marketing.

BIBLIOGRAPHY

Internet:

 www.axismf.com
 www.amfiindia.com
 www.angeltrade.com
www.mutualfundindia.co

m
 www.nseindia.com
 www.bankersindia.com

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  www.investindia.com
 www.altavista.com
 www.indiaonline.com
 www.google.com

ANNEXURE

A study on the
investment behavior of people…

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 Questionnaire for
investors

1. Are you aware about Mutual Funds?

□ Yes □ No

.12. How will you describe your Investment Knowledge of

mutual funds?
.2□ Average □ Poor
.33. What are the purposes of your investments?
□ High Return □ Short Term Planning
□ Tax Benefits □ If Others ________
.44. For what time period do you normally invest?
□ Less than 6 months □ 6 months to 1 year
□ 1 year to 3 years □ 3 years to 5 years
□ More than 5 years □ If Others ________
2. 5. Rank the investment options according to your
preferences (i.e. Most Preferable-1, Least
preferable-8)(Tick any one)
3. 6. If you invest in Mutual Funds, what is the share of mutual
funds in your total

a. Post Offices □
b. Fixed Deposits □
c. LIC □
d. Govt. & RBI bonds □
e. PPF □
Public issues/
f. □
IPO’s
g. Mutual Funds □
h. Stock market □

Investments?

← □ 0% -25% □ 25% -50%

← □ 50% -75% □ 75% -100%

95
.17. What are the types of mutual fund scheme where you
normally invest in?
□ Monthly Income Funds □ Equity Funds
□ Balanced Funds □ Debt Funds
2. 8. The minimum return that you normally expect in a year
is _______________________________________________________.
.19. Which are the companies in which you invest the most
(Rank according to Preferences).
□ Reliance MF _______
□ Franklin Templeton _______
□ SBI MF _______
□ HDFC MF _______
□ Fidelity _______
□ If, Others _______

10. What types of investing procedure do you normally follow?

(Tick)
← □ Payment in Lumpsum (One Time)
← □ Payment in Systematic Investment Plan

11. In what type of plan do you normally invest in?

← □ Growth Fund □ Dividend Payout
← □ Dividend Reinvest □ Indifferent among the plans

12. At what time do you normally invest in mutual funds?

← □ At the time of NFO □ At year ending (31 March)

st

← □ Any time of the year □ Whenever sufficient savings

have

13. What is your annual income (Approx)

← □ Less than Rs. 1 lakh □ Rs. 1lakh to Rs. 2 lakh

← □ Rs. 2 lakh to Rs.3lakh □ More than Rs. 3 lakh

14. What is your annual Savings (Approx)

← □ Less than Rs. 50000 □ Rs.50000 to Rs. 1 lakh

96
← □ Rs.1 lakh-Rs.1.5 lakh □ More than Rs.1.5 lakh

15. How do you normally get information about Mutual Fund?

← □ Friend / Associates □ Newspapers □

Advertisements
← □ Internet which sites please specify _______________________
← □ Agents

18. Can you suggest any facilities that any mutual fund can provide
you / facilities you want any mutual fund to provide you.
_______________________________________________________
_______________________________________________________
_________________________.

19. Remarks:

_______________________________________________________
_______________________________________________________
_______________________________________________________
_________________________.

Name: ____________________ Age:____ Gender:_______

Family Size:____________Marital status:_______________

Occupation:________________Education:______________

Phone:_____________ Address:______________________

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