Mutual Funds Industry in India

Investor’s Perception towards Mutual Fund & its peers investment options
Chapter: 1
OBJECTIVE
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OBJECTIVES OF STUDY
Following are the objectives of the study:
1. To know about investors' investment preferences.

2. To check awareness level of people about mutual funds.
3. To work out potential market for mutual funds.
4. To access the satisfaction level of mutual funds investors and to find out the reasons for
dissatisfaction.
5. To check factors considered by investors while investing in mutual funds.
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Chapter: 2
INTRODUCTION
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INTRODUCTION OF MUTUAL FUNDS

Mutual funds have become a very popular way to take some of the risk out of investing in individual
stocks by investors. Mutual funds are a collection of stocks selected by mutual fund seller and sold to
investors as shares in a fund. There are several types of funds that you can invest in. Some of the more
popular types are technology funds, growth funds, security funds, and income funds. Mutual funds are
very popular because they allow you to invest in a numbers of stocks therefore greatly reducing the risks
associated with putting you money in an individual stock.
Mutual funds have become one of the most attractive ways for the average person to invest their
money. A mutual fund pools resources from thousands of investors and then diversifies its investment
into many different holdings such as stocks, bonds, or government securities in order to provide high
relative safety and returns.
Mutual Funds now represent perhaps the most appropriate opportunity for most investors. It is no
wonder that birthplace of mutual funds - the U.S.A.- the fund industry has already overtaken the
banking industry. The Indian industry has already started opening up many of the exciting investment
opportunities to Indian investors.
Though not insured like banks, mutual funds generally provide more return than the current one to two
percent obtainable through banks while still being one of the safest ways to grow your money. There are
an endless variety of mutual fund investment choices depending on the degree of risk you feel
comfortable with.
Mutual Funds have emerged as professional intermediaries. Besides providing the expertise in stock
market investing, these funds allow investing in small amounts and yet holding a diversified portfolio to
a limit.
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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank and started its operations in 1964 with the issue
of units under the scheme US-64. 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 families. Also, 1993 was the year in which the first
Mutual Fund Regulations came into being, under which all mutual funds, except LTI 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
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
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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 October 31, 2003, there were 31 funds, which manage assets
of Rs. 126726 crores under 386 schemes.
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of
India effective from February 2003. The Assets under management of the Specified Undertaking of the
Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from
February 2003 onwards.
Currently Public Sector Banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC
Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like HDFC,
Prudential ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual funds.
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WHAT IS MUTUAL FUND?

A Mutual Fund is a vehicle for investing in stocks and bonds. It is not an alternative investment option to
stocks and bonds; rather it pools the money of several investors and invests this in stocks, bonds, money
market instruments and other types of securities. Buying a mutual fund is like buying a small slice of a
big pizza. The owner of a mutual fund unit gets a proportional share of the fund's gains, losses, income
and expenses.
A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI),
which pools up the money from individual/ corporate investors and invests the same on behalf of the
investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and
distributes the profits. In other words, a mutual fund allows an investor to indirectly take a position in a
basket of assets. A mutual fund pools together sums from individual investors and invests it in various
financial instruments. Each mutual fund has its own investment objective.
Mutual funds have become one of the most attractive ways for the average person to invest their
money. A mutual fund pools resources from thousands of investors and then diversifies its investment
into many different holdings such as stock, bonds, and securities in order to provide highly relative
safety and returns.
Each Mutual Fund with different type of schemes is managed by respective Asset Management
Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund according to
his choice and becomes the unit holder of the scheme. The invested money in a particular scheme of a
Mutual Fund is then invested by fund manager in different types of suitable stock and securities, bonds
and money market instruments. Each Mutual Fund is managed by qualified professional man, who uses
this money to create a portfolio which includes stock and shares, bonds, gilt, money-market instruments
or combination of all.
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DISTINGUISHING CHARACTERISTICS OF MUTUAL FUND

The traditional, distinguishing characteristics of the mutual fund may include the following:
 Investors purchase mutual fund shares from the fund itself (or through a broker for the fund)
instead of from other investors on a secondary market.
 The price that investors pay for mutual fund shares is the fund's per share net asset value
(NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales
loads).
 Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund
(or to a broker acting for the fund).
 Mutual funds generally create and sell new shares to accommodate new investors. In other
words, they sell their shares on a continuous basis, although some funds stop selling when, for
example, they become too large.
 The investment portfolios of mutual funds typically are managed by separate entities known as
"investment advisers" that are registered with the SEBI.
MAJOR RIGHTS AS A UNIT HOLDER IN A MUTUAL FUND
Some important rights are mentioned below:
 Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme
and to the dividend declared.
 They are entitled to receive dividend warrants within 42 days of the date of declaration of the
dividend.
 They are entitled to receive redemption cheques within 10 working days from the date of
redemption.
 75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund.
 75% of the unit holders can pass a resolution to wind-up the scheme.
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REGULATORY BODY FOR MUTUAL FUNDS

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned
above. All the mutual funds must get registered with SEBl. The only exception is the UTI, since it is a
corporation formed under a separate Act of Parliament.
Broad Guidelines Issued by SEBI for a MF: -
SEBI is the regulatory authority of Mutual Funds. SEBl has the following broad guidelines pertaining to
mutual funds:
 Mutual Funds should be formed as a Trust under Indian Trust Act and should be operated by
Asset Management Companies (AMCs).
 Mutual Funds need to set up a Board of Trustees and Trustee Companies. They should also have
their Board of Directors.
 The net worth of the AMCs should be at least Rs.5 crore.
 AMCs and Trustees of a Mutual Fund should be two separate and distinct legal entities.
 The AMC or any of its companies cannot act as managers for any other fund.
 AMCs have to get the approval of SEBI for its Articles and Memorandum of Association.
 All Mutual Funds schemes should be registered with SEBI.
 Mutual Funds should distribute minimum of 90% of their profits among the investors.
There are other guidelines also that govern investment strategy, disclosure norms and advertising code
for mutual funds.
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ROLE OF A FUND MANAGER

Fund managers are responsible for implementing a consistent investment strategy that reflects the goals
and objectives of the fund. Normally, fund managers monitor market and economic trends and analyze
securities in order to make informed investment decisions. Thus the role of fund manager is very crucial.
ACCOUNT STATEMENT
When the units are bought or get allotted a statement will be issued mentioning the number of units
allotted/bought and redeemed by you. The recording of entries would be similar to the passbook entries
in the bank. In mutual fund terminology it is called Account Statement.
After investing in a mutual fund investor gets an account statement, which shows his holding and the
price at this bought units. The account statement is computer generated and cannot be traded or
transferred. The account statement shows the: -
 holding details
 the number of units outstanding
 value of the holdings
All transactions relating to purchase units, redemption of units, dividend, reinvestment, etc are shown in
the account statement.
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MUTUAL FUND STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form
of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one
or more schemes for investing in securities in accordance with these regulations.
These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure
indicated by the new regulations is indicated as under.
THE SPONSOR: The Sponsor is the creator of the fund, establishes the mutual fund and gets it
registered with SEBI and will typically hold a number of voting shares (perhaps 100) in the fund, but
these are not entitled to any distributions or share in the equity. All of the equity belongs to the
investors, typically in the form of non-voting "preferred redeemable shares" The voting shares generally
control management of the fund, apart from limited major decisions. The sponsor is the Settlor of the
Trust that holds Trust property on behalf of investors who are the beneficiaries of the Trust. The sponsor
is also required to contribute at least 40% of the capital of the asset management company, which is
formed for managing the assets of the Trust.
THE BOARD OF TRUSTEES: The mutual fund needs to be constituted in the form of a trust and the
instrument of the trust should be in the form of a deed registered under the provisions of the Indian
Registration Act, 1908. The supervisory role is fulfilled by the Board of Trustees of the Investment
Company. The board of trustees manages the MF and the sponsor executes the trust deeds in favour of
the trustees. It is the job of the MF trustees to see that schemes floated and managed by the AMC
appointed by the trustees are in accordance with the trust deed and SEBI guidelines.
THE ASSET MANAGEMENT COMPANY (AMC): The company that manages a mutual fund is called
an AMC. For all practical purposes, it is an organized form of a "money portfolio manager". An AMC may
have several mutual fund schemes with similar or varied investment objectives. The AMC hires a
professional money manager, who buys and sells securities in line with the fund's stated objective.
All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is
promoted by a bank). In addition, every mutual fund has a board of directors that represents the unit
holders' interests in the mutual fund.
This entity that undertakes the designing and marketing of schemes raises money from the public
under the schemes and manages the money on behalf of its owners. To segregate the collected funds
from this entity's own funds, the corpus is placed in a legal vehicle. It is the character of this legal vehicle
that determines the character of the Fund itself. Irrespective of the nature of the structure, what is
more fundamental is that in view of the fiduciary role of the AMC or the fund manager towards the
public, there is a need for supervision of the activities of the AMC or fund manager by a separate body.
The assets of the Trust comprise of properties of the schemes, which are floated by the asset
management company with the approval of the Trustees Schemes may have different characteristics -
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They may be open or closed ended or may have a particular investment focus or portfolio composition.
Finally, the safe custody of assets of the Trust is entrusted to one or more custodians.
THE CUSTODIAN: Custodian holds the fund's cash and investment assets. Commonly, parts of the
fund's assets are held by one or more brokers who execute trades on behalf of the fund Custodial Fees
can also be a fixed fee or a percentage of NAV. Where a broker acts as de facto custodian, it usually
charges on a transactional basis.
Apart from these four there is registrar or a transfer agent who acts as a key party
THE ADMINISTRATOR: Administrator acts as registrar and transfer agent, keeps the books and
records of the fund, and calculates the NAV. Depending on the complexity of the fund, the
administrator's fees could be as little as a few thousand dollars a year or as much as 0.5 to 0.65 % of the
NAV per annum. Sometimes the administrator's fees are included within the management fee. In certain
situations, the administrator subcontracts a part of the work, particularly the NAV certification, to the
investment manager.
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REGULATIONS OF MUTUAL FUNDS IN INDIA

In India SEBI and RBI act as regulators of mutual fund.
SEBI (Mutual Fund) REGULATIONS,1996
The provisions of this regulations pertaining to AMC are:
 All the schemes to be launched by the AMC need to be approved by the trustees and copies of
offer document of such schemes are to be filed with SEBI.
 The offer document shall contain adequate disclosure to enables the investor to make informed
decision.
 Advertisement in respect of schemes should be in conformity with the SEBI prescribed
advertisement code, and discloses the method and periodicity of the valuation of investment
sales and repurchase in addition to the investment objectives.
 The listing of close ended schemes is mandatory and every close ended scheme should be listed
on a recognized stock exchange with in six months from the closure of subscription. However,
listing is not mandatory in case the scheme provides for monthly income or caters to the special
classes of persons like senior citizen, women, children, and physically handicapped. If the
scheme discloses detail of repurchase in the offer document: if the schemes opens for
repurchase with in six months of closure of subscription.
 Units of a close ended scheme can be opened for sale or redemption at a predetermined fixed
interval if the minimum and maximum amount of sale, redemption, and periodicity is disclosed
in the offer document.
 Units of a close ended scheme can also be converted into an open ended scheme with the
consent of majority of the unit holder and disclosure is made in the offer document about the
option and period of conversion.
 Units of a close ended scheme may be rolled over by passing resolution by a majority of the
shareholders.
 No scheme other than unit linked schemes can be opened for more than 45 days.
 The AMC must specify in the offer document about the minimum subscription and the extent of
over subscription, which is intended to be retained. In the case of over subscription, all
applicants applying up to 500 units must be given full allotment subjected to over subscription.
 The AMC must refund the application money if minimum subscription is not received and also
the excess over subscription with in the six weeks of closure of subscription.
 Guaranteed returns can be provided in a scheme if such returns are fully guaranteed by the
AMC or sponsor. In such cases, there should be a statement indicating the name of the person,
and the manner in which the guarantee is to be made must be stated in the offer document.
 A close ended scheme shall be wound up on redemption date, unless it is rolled over, or if 75%
of the unit holders of a scheme pass a resolution of winding up of the scheme : if the trustee on
happening of any event, requires the scheme to be wound up: or if SEBI, so directed in the
interest of investors.
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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
repurchase by mutual fund shall be made available to the investor.
General obligation
 Every asset management company for each scheme shall keep and maintain proper books of
account, records and document, for each scheme so as to explain its transaction and to disclose
at any point of time the financial position of each scheme and in particular give true and fair
view of state of affairs of the fund and intimate to board the place where such books of account,
record, and document are maintained.
 The financial year for all the schemes shall end as on march 31 of each year. Every mutual fund
or the asset management company shall prepare in respect of scheme and the fund as specific
in eleventh schedule.
 Every mutual fund shall have the annual statement of account audited by an auditor who is nor
in any way associated with the auditor of the asset management company.
Procedure in case of default
On and from the date of suspension of the certificate or the approval as the 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 subjected 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, trustee, or asset management company.
SEBI Guidelines (2001-02) Relating to Mutual Fund:-
 A common format is prescribed for all mutual fund schemes to disclosed their entire portfolio
of half yearly basis so that the investors can get meaningful information on the deployment of
funds. Mutual funds are also required to disclose the investment in various types of instruments
and percentage of in each script to the total NAV illiquid and non performing assets,
investments in derivatives and in ADRs and GDR’s.
 To enable the investor to make informed investment decision, mutual funds have been directed
to fully revise and update offer document and memorandum at least once in two years.
Mutual funds are also require to:-
i. Bring uniformity in disclosure of various categories of advertisements, with a view to ensuring

consistency and comparability across schemes of various mutual funds.
ii. Reduce initial offer period from a maximum of 45 days to 30 days.
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iii. Dispatch statement of account once the minimum subscription amount specified in offer
document is received even before the closure of the issue.
iv. Invest in mortgaged backed securities of investment grade given by credit rating agency.
v. Identify and make a provision for non performing asset (NPAs) according to criteria for
classification of n NPAs and treatment of income accrued on NPAs to disclose NPAs in half yearly
portfolio reports.
vi. Disclose information in a revised format on unit capital, reserves, performance in terms of
dividend and rise/fall in NAV during the half year period annualized yield over the last 1, 3, 5
years in addition to percentage of management fee, percentage of recurring expenses to net
asset, investment made in associate companies, payment made to associate companies,
payment made to associate companies for their services, and detail of large holding, since their
operation.
vii. Declare their NAVs and sale/repurchase prices of all schemes updated on regular basis on the
AMFI website by 8.00 PM and declare NAVs of their close ended schemes on every Wednesday.
 The format for unaudited half yearly result for the mutual funds has been revised by SEBI.
These results are to be published before the expiry of one month from the close of each half-
year as against two month period provided earlier. These results shall also be put in their
websites by mutual fond.
 All the schemes by mutual fund shall be launched with in six months from the date of the letter
containing observation from SEBI on the scheme offer document. Otherwise, a fresh offer
document along with filing fee shall be filled with SEBI.
 Mutual funds are required to disclose large unit-holding in the scheme, which are over 25% of
the NAV.
RBI as supervisor of bank owned Mutual Funds
The first non-UTI mutual funds were started by public sector banks. Banks come under the regulatory
jurisdiction of RBI. So Bank owned mutual funds are regulated by RBI, but it has been clarified that all
the mutual funds, being primarily capital market players come under the regulatory framework of SEBI.
Thus, the bank owned fund continue to be under the joint supervision of both RBI and SEBI. It is
generally understood that all market related and investor related activities of the fund are to be
supervised by SEBI, while any issue concerning the ownership of the AMC by bank fall under the
regulatory ambit of RBI. But RBI on bank fund should not conflict with SEBI guidelines.
RBI as supervisor of money market Mutual funds
RBI is the only Government agency that is charged with the sole responsibility of overall entities that
operates in money market. So money market mutual funds were regulated by RBI guidelines till
23.11.1995. Recently it has been decided that money market mutual funds of registered mutual fund
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will be regulated by SEBI through the same guidelines issued for other mutual funds, i.e. SEBI (MF)
regulations, 1996. However RBI does retain the right to decide whether mutual funds will be allowed to
access inter-call money market. Accordingly, RBI has placed certain restrictions through latest credit
policy, with the intention of moving toward a pure inter bank money market.
CALCULATION OF NAV
Net asset value on a particular date reflects the realizable value of a mutual fund's portfolio in per share
or per unit terms. It is the worth of an investment with an open-end mutual fund quoted in terms of its
net asset value. That is also the amount an investor can expect if he or she were to sell his or her units
back to the issuer. Daily closing prices of all securities held by the fund are used as a starting point.
Subtract this amount for liabilities (including expenses and commissions). And divide the result by the
number of outstanding shares.
If the realizable worth of the portfolio is Rs 12 million, divided it by shares outstanding, let's say one
million units, then the NAV is Rs 12 (12/1).
If a fund's NAV a year ago was Rs 10.5 and is currently Rs 12, then your pre-tax return is 14.28
percent((12-10.5)/(10.5)*100).
An NAV signifies nothing more than the current worth of a portfolio. The NAV of a fund only starts to
make sense when compared to a benchmark index. First, it tells you the extent to which the securities
that comprise the fund's portfolio have outperformed or under performed the index. Second, the use of
certain statistical measures can also tell you whether a fund was able to derive above-average,
riskreturned schemes.
Having said this, a fund's historical NAV performance is not the best indicator of its future performance.
For equity funds, this NAV changes almost everyday with fluctuations in stock prices. While the NAV of a
fixed-income fund is driven more by changes in rate of interest. On its own, a rising NAV only means that
assets, which form a part of the fund's portfolio, are rising and vice-versa.
TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified on the basis of its structure and its investment objective.
ON THE BASIS OF STRUCTURE;
On the basis of structure mutual fund can be either open-ended or close-ended.
Most mutual funds are open-end funds, which mean the fund sells and redeems its shares. As more
shares are sold, the fund grows. Sometimes open-end funds are closed to new investors when the funds
become too large to be managed effectively-though current shareholders can continue to invest money.
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When a fund is closed this way, the investment company offering the fund often creates a similar fund
to capitalize on investor interest.
Closed-end fund are traded on the major exchanges, as stocks are. There are a fixed number of shares
available because a closed-end fund raises its money all at once and does not buy back shares investors
want to sell. Closed-end fund shares often trade at a discount, or less than their net asset value, but you
may pay a premium, or more than the NAV, if the fund is in demand. Their prices change constantly
throughout the trading day, unlike open-end funds whose prices are set only once, at the end of the
day.
DIFFERENCE BETWEEN THE TWO
The difference between the two is in the way each operates after the initial public offering. A close
ended scheme operates like any other public entity whose shares are traded on the stock market. Thus,
to buy or sell the shares of a close-ended scheme, you have to transact on the BSE or on the NSE. That's
why the market price of its shares is also determined by > supply and demand for its shares (apart from
quality and performance of its portfolio). On the contrary, open-ended funds continue to price, sell and
repurchase shares after the initial offer on the basis of the NAV. The mutual fund is ready to sell
additional shares of the fund at the NAV (at par or adjusted for expenses), or buy back (redeem) shares
of the fund at the NAV (at par or adjusted for expenses). That's why the unit capital of open-ended
funds can fluctuate on daily basis. But a close-ended fund may or may not offer more shares after its
listing. It may or may not also repurchase its shares. That is up to the issuing company to decide.
So we can say that in an open-ended mutual fund there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price
that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus is
limited by the size of the initial offer.
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OTHER SCHEMES:
TAX SAVING SCHEME Equity Linked Savings Schemes (ELSS):
Equity Linked Saving Schemes (ELSS) are open-ended funds investing predominantly in equity-oriented
instruments. Under Section 88 of the Income Tax Act, 1961 investments up to Rs. 10000 in equity linked
savings schemes (ELSS) qualifies for the tax rebate of 20% or 15%. (Investors with gross total income of
up to Rs.1.50 Lacs can claim a rebate of 20% while investors with gross total income of Rs. 1.5 Lacs to
Rs.5 Lacs can claim a rebate of 15%). The funds launched under this plan are largely diversified equity
funds. The investment strategy for most of the funds is similar to investment strategy followed by the
fund under diversified equity funds.
ON THE BASIS OF INVESTMENT OBJECTIVE:
When it comes to investing in mutual funds, investors have literally thousands of choices. Before
investing in any given fund, decide whether the investment strategy and risks of the fund are a good fit
for you. The first step to successful investing is figuring out financial goals and risk tolerance. Once you
know what you're saving for, when you'll need the money, and how much risk one can tolerate, one can
more easily narrow your choices.
Most mutual funds fall into one of three main categories —equity funds (also called "stock" funds), debt
funds (also called "bond" funds) and balanced funds (also called "hybrid" funds). Each type has different
features and different risks and rewards. Generally, the higher the potential return, the higher the risk of
loss. The schemes or funds (often used synonymously) can be classified as:
SCHEMES
 Equity Funds
 Debt Funds
 Balanced funds
EQUITY FUNDS:
They are also known as growth funds. They focus on stocks that may not pay a regular dividend but have
potential for large capital gains. They promise pure capital appreciation with equity shares. They buy
shares in companies with high potential for growth (some of which might not pay dividends). The NAV of
such a fund will tend to be erratic, since these so-called growth shares experience high price volatility.
They also make quick profits by investing in small cap shares and by investing in initial public offerings of
small companies. However, growth strategy may differ from one fund to another. Not all growth funds
operate similarly. Some of the common equity funds are:
 Sector funds: The goal is once again pure capital appreciation, but the strategy is to buy into
shares of only one industry. And not diversify like a growth fund. Such funds forgo the principle
of asset allocation for high returns. That's why they are also the riskiest.
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 Tax planning funds: Also known as equity linked savings schemes, they operate like any other
growth fund (and that's why are as risky). However, an investor in these schemes gets an
income-tax rebate of 20 per cent (for a maximum of Rs 10,000) under Section 88 of the Income
Tax Act. Essentially an incentive for the investor (who is otherwise investing in fixed-income
instruments like the Public Provident Fund primarily for saving tax on his or her annual salary or
business income) a chance to participate in capital appreciation that can be delivered by
investing in equity shares. That's also why these schemes also come with a three-year lock-in
period. Also while other tax planning schemes guarantee returns, an ELSS offers no such
assurance.
 Index fund: Their goal is to match the performance of the markets. They do not involve stock
picking by so called professional fund managers. An index fund essentially buys into the stock
market in a way determined by some market index (BSE Sensex or S&P CNX Nifty) and does
almost no further trading. Index funds are optimally diversified portfolios and only carry along
with it the due to economy wide factors.
DEBT FUNDS:
They aim to provide safety of principal and regular (monthly, quarterly or semi annually) income by
investing in bonds, corporate debentures and other fixed income instruments. The AMC in this case will
also be guided by ratings given to the issuer of debt by credit rating agencies. Wherever a debt
instrument is not rated, specific approval of the board of the AMC is required. Since most of corporate
debt is illiquid, the fund tries to provide liquidity by investing in debt of varying maturity. Some of the
common debt funds are:
 Money market funds: Also known as liquid plans, these funds are a play on volatility in
interest rates. Most of their investment is in fixed-income instruments with maturity period of
less than a year. Since they accept money even for a few days, they are best used to park short-
term money, which otherwise earns a lower return in a savings bank account.
 Gilt funds: They are aimed at generating returns commensurate with zero credit risk, which is
by investing securities created and issued by the central and/or the state government securities
and/or other instruments permitted by the Reserve Bank of India. Since they ensure zero risk,
instant liquidity, tax-free income, their return is lower than an income fund.
BALANCED FUNDS:
The idea is to get the best of both the world's equity shares and debt. These are also known as hybrid
funds. Investing in equities is supposed to bring home capital appreciation, while that in fixed income is
to impart stability and assure income for distribution. The proportion of the two asset classes depends
on the fund managers' preference for risk against return. But because the investments are highly
19
diversified, investors reduce their market risk. Normally about 50 to 65 per cent of a portfolio's assets
are invested in equity shares.
TYPES OF LOADS
The AMC that manages your mutual fund has to bear a number of expenses. So it recovers part of these
expenses from its investors, for whom it is doing the favour of managing funds. It is broken into two
parts: annual management fee (up to 1.25 per cent for funds less than Rs 1 billion and one per cent for
funds above Rs. 1 billion) and entry & exit loads.
ENTRY LOAD:
Loads normally apply to only open-ended schemes. An entry load is also called the sales load. which is
mainly to help the AMC recover expenses relating to sales literature, distribution, advertising and
agent/broker commissions. The price at which an investor buys into the fund is a function of both the
NAV and sales load. An entry load is an additional cost that an investor pays at the point of entry.
Assume that your proposed investment is Rs. 10, OOO/-. Also assume that the current NAV of the fund
is Rs. 12.00 and that the entry load is Rs.0.50. Then you will receive 10000/12.50 = 800 units. The entry
load could be different for each scheme; it would also depend on the amount of investment and the
time period of investment.
EXIT LOAD:
On the other hand, exit load (if you withdraw within a specified period) is charged while redeeming your
units. The latter is for more logical reasons, especially with income or money market funds, where a
quick withdrawal by too many investors can put pressure on the fund's asset maturity profile. So to
ensure that longer-term investors are not penalized, short-term investors are charged an exit load. An
exit load is levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting
the fund. Assume that the current NAV of the fund is Rs. 12.00 and that the exit load is Rs.0.50. Now if
you sell 800 units then you stand to receive 800X11.5 = Rs. 9200. The exit load could be different for
each scheme. It would also depend on the amount of investment and the time period of investment.
VARIOUS PLANS OF MUTUAL FUNDS

That depends on the strategy of the concerned scheme. But generally there are 3 broad categories
that any Mutual Fund scheme offers: -
 A Dividend Plan entails a regular payment of dividend to the investors.

 A Reinvestment Plan is a plan where these dividends are reinvested in the scheme itself.
20
 A Growth Plan is one where no dividends are declared and the investor only gains through
capital appreciation in the NAV of the fund.
The term 'growth' is often used in a very generic sense to denote every equity mutual fund. Also
'growth' in fixed income funds, comes from reinvesting dividends. That's why in such fixed income
funds, investors have an option, and they can choose either growth through reinvestment of
dividends, or regular income by ticking on the income option.
HOW TO CHOOSE A PLAN

It depends on investment object of the investor, which again depends on his income, age, financial
responsibilities, risk taking capacity and tax status. For example a retired government employee is
most likely to opt for monthly income plan while a high-income youngster is most likely to opt for
growth plan.
SYSTEMATIC INVESTMENT PLAN
Besides these three plans there is one another plan whish is becoming popular that is systematic
investment plan. A systematic investment plan is one where an investor contributes a fixed amount
every month and at the prevailing NAV the units are credited to his account. Today many funds are
offering this facility.
A systematic investment plan (SIP) offers 2 major benefits to an investor:
 It avoids lump sum investment at one point of time.

 In a scenario of falling prices, it reduces your overall cost of acquisition by a process of rupee
cost averaging. This means that at lower prices you end up getting more units for the same
investment.
HOW MUTUAL FUND WORKS
For retail investor who does not have the time and expertise to analyze and invest in stocks and
bonds, mutual funds offer a viable investment alternative.
One can purchase shares in some mutual funds by contacting the fund directly or other mutual fund
shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual
funds will redeem (buy back) the shares on any business day and must send the payment within
seven days. One can invest by approaching a registered broker of Mutual funds or the respective
offices of the Mutual funds in that particular town/city. An application form has to be filled up giving
all the particulars along with the cheque or Demand Draft for the amount to be invested.
The mutual fund issues shares of stock and bonds (just like any other corporation) to investors in
exchange for cash. It is interesting to note that funds do not issue a pre-determined amount of
21
stock, as do most corporations; new shares are issued as each new investment is made. Investors
thus become part owners of the fund itself, and thereby the assets of the fund. The fund, in turn,
uses investors' cash to purchase securities, such as stocks and bonds. The primary assets of a fund
are the securities it invests in (other assets, such as equipment, are a relatively small part of the
total assets of a fund).
Invest in securities
Returns increase fund value
STOCKS BONDS
PRICING AND VALUATION DESCRIPTION
The value of the shares of an open-end mutual fund is readily determined Each day, the
accounting staff of a fund simply adds up the value of all the securities in the portfolio, adds
in other assets, deducts liabilities, and comes up with a net overall value. It is then a simple
matter to divide the net assets by the number of shares outstanding. This is called the net
asset value, and is the price at which investors buy and sell shares from the fund. The net
asset value is listed in the financial section of many major newspapers.'
LOAD AND NO-LOAD FUNDS DESCRIPTION
A load, or loaded, fund is one that has a sales charge. A no-load fund has no sales charge. As
noted above, not all funds have sales charges. Those that do simply add them on to the net
asset value of the fund, thus coming up with a new, higher offering price per share It is
important to note that the underlying value of the fund's shares do not change, and further,
that an investor selling shares will still receive only the net asset
value A no-load fund is simpler. The net asset value is used for both the purchase price and
the selling price. Therefore, the two prices are always identical. In the case of a load fund,
the broker usually takes care of the details for you. In the case of a no-load fund, investors
usually deal directly with the fund in question.
BUYING AND SELLING FUND SHARES DESCRIPTION
When you buy shares, you pay the current NAV per share plus any fee the fund assesses at
the time of purchase, such as a purchase sales load or other type of purchase fee. When
you sell your shares, the fund will pay you the NAV minus any fee the fund assesses at the
time of redemption, such as a deferred (or back-end) sales load or redemption fee. A fund's
NAV goes up or down daily as its holdings change in value.
22
FUND OBJECTIVES AND PROSPECTUS DESCRIPTION

A fund's objective, described in the prospectus, gives broad indications of the types of investments a
fund may make. The most important aspect of a fund is its investment objective. The fund's
objective tells investors the goals the fund seeks to achieve and a good deal about how it intends to
achieve them. A balanced fund will generally hold stocks and bonds. A fund seeking growth fund will
utilize stocks. A fund seeking income with little or no concern for growth will generally hold bonds.
The objective of a fund is so fundamental that it generally determines the category into which a
fund will be assigned. Listed below are some examples of major investment objective categories: -
 Preservation of Capital & Liquidity: Achieved by investing in very short-term bonds

 Income: Achieved by investing in bonds
 Balanced: Achieved by investing in bonds and stocks
 Growth: Achieved by investing in stocks
The prospectus:
The Securities and Exchange Commission (SEC) requires all mutual funds to publish a plain English
prospectus and issue a copy to all potential investors either before they buy or along with the
confirmation of their initial investment.
The prospectus must explain the programs and policies the management follows to achieve the
fund's investment goals. The prospectus includes:
 Statement of objective
 Investor programs
 Fund fees and expenses
 Fund performance history
 Results of investment
 How to purchase and redeem shares
 Shareholder services
23
HOW MUTUAL FUNDS CAN EARN MONEY

A mutual fund can earn money in three different ways.
Dividend Payments: A fund may earn income in the form of dividends and interest on the securities in
its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it
has earned in the form of dividends.
Capital Gains Distributions: They are paid from any profits the fund realizes from selling investments.
The price of the securities a fund owns may , increase. When a fund sells a security that has increased in
price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains
DISTRIBUTIONS (minus any capital losses) to investors.
Increased NAV: If the market value of a fund's portfolio increases after deduction of expenses and
liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher
value of your investment.
With respect to dividend payments and capital gains distributions, funds usually will give a choice: the
fund can send a check or other form of payment, or the dividends or distributions reinvested in the fund
to buy more shares (often without paying an additional sales load.
A fund may sell investments for a number of reasons:
 To capitalize on an investment's increased value

 To achieve performance targets
 To free up money to make new investments
 To prevent additional losses in a security that is losing value
 To have enough cash to redeem shares its investors want to sell back to the fund
INFORMATION NEEDS TO EVALUATE MUTUAL FUNDS

There are three key pieces of information that help to evaluate a mutual fund.
 PAST PERFORMANCE: It measures the fund's historical returns, whether the returns are
consistent, and how they stack up against the returns of comparable funds. While there's no
guarantee that a fund's future performance will equal its current or past record.
 RISK: It measures how likely you are to earn money or lose it. Risk isn't bad if you're investing
for the long term and you can tolerate some setbacks without selling in a panic if the fund drops
in value. But if you're investing to meet short-term goals or preserve capital, you may want a
fund that poses less risk to principal.
 COST: It measures how much you pay in sales charges or commissions, fees, and annual asset-
based expenses. Since these costs directly affect your return, you may want to compare the
expense ratios and sales charges of various funds as part of your evaluation process. Higher fees
24
may correlate with higher risk if the fund manager takes added risk to help reduce the impact of
fees on return.
FACTORS TO CONSIDER
Thinking about long-term investment strategies and tolerance for risk can help to decide what type of
fund is best suited. But one should also consider the effect that fees and taxes will have on the returns
over time.
DEGREES OF RISK
Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same
risk as investing in the markets, the only difference being that due to professional management of funds
the controllable risks are substantially reduced. A very important risk involved in mutual fund
investments is the market risk. When the market is in doldrums, most of the equity funds will also
experience a downturn. However, the company specific risks are largely eliminated due to professional
fund management
All funds carry some level of risk. One can lose some or all of the money invests principal -because the
securities held by a fund go up and down in value. Dividend or interest payments may also fluctuate as
market conditions change.
Before investing, be sure to read a fund's prospectus and shareholder reports to learn about its
investment strategy and the potential risks. Funds with higher rates of return may take risks that are
beyond your comfort level and are inconsistent with your financial goals. Financial theory-states that an
investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is
because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this
one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.
HOW SAFE ARE MUTUAL FUNDS:

As financial intermediaries, they do not come without risk. Also when defined in terms of losing money,
the risk in mutual funds is not dramatically different than that present in other financial instruments.
Still, they are relatively safer and offer a more convenient way on investing.
With mutual funds you can control risk by choosing a fund that given your risk profile, you believe is the
best. On the other hand, picking stocks individually that will both meet your objectives and match your
profile can be tough.
A mutual fund portfolio is also easier to monitor than individual shares. They also come without
systemic risks (like bad deliveries). They offer quick liquidity most private mutual funds can be
redeemed in three to four working days, unlike a fixed deposit that is more likely to be received a month
after its maturity, or an equity share after the end of its settlement period (or depending up on your
25
broker). This too cuts the overall risk associated with investing, often not so visible and hence not
accounted by many investors.
TAX CONSEQUENCES
When an individual stock or bond is bought and hold, income tax has to be paid each year on the
dividends or interest received.
Mutual funds are different. When you buy and hold mutual fund shares, you will owe income tax on any
ordinary dividends in the year you receive or reinvest them. And, in addition to owing taxes on any
personal capital gains when you sell your shares, you may also have to pay taxes each year on the fund's
capital gains. That's because the law requires mutual funds to distribute capital gains to shareholders if
they sell securities for a profit that can't be offset by a loss
Tax Exempt Funds
If you invest in a tax-exempt fund - - such as a municipal bond fund - - some or all of your dividends will
be exempt from federal (and sometimes state and local) income tax.
But if you receive a capital gains distribution, you will likely owe taxes — even if the fund has had a
negative return from the point during the year when you purchased your shares. SEC rules require
mutual funds to disclose in their prospectuses after-tax returns. In calculating after-tax returns, mutual
funds must use standardized formulas similar to the ones used to calculate before-tax average annual
total returns. When comparing funds, be sure to take taxes into account.
RETURNS
As per SEBI Regulations, mutual funds are not allowed to assure returns. However, funds floated by
AMCs of public sector banks and financial institutions were permitted to assure returns to the unit
holders provided the parent sponsor was willing to give an explicit guarantee to honor such a
commitment. But in general, mutual funds cannot assure fixed returns to their investors.
Investors need to be clear that mutual funds are essentially medium to long-term investments Hence,
short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the
mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk
of direct investment accompanied with professional fund management.
26
ADVANTAGES AND DISADVANTAGES

Every investment has advantages and disadvantages. But it's important to remember that features that
matter to one investor may not be important to you. Whether any particular feature is an advantage for
you will depend on your unique circumstances. For some investors, mutual funds provide an attractive
investment choice because they generally offer the following advantages:
 Professional Management: Professional money managers research, select, and monitor the
performance of the securities the fund purchases.
 Diversification: Diversification is an investing strategy that can be neatly summed up as "Don't
put all your eggs in one basket." Spreading your investments across a wide range of companies
and industry sectors can help lower your risk if a company or sector fails. Some investors find it
easier to achieve diversification through ownership of mutual funds rather than through
ownership of individual stocks or bonds.
 Affordability: Some mutual funds accommodate investors who don't have a lot of money to
invest by setting relatively low amounts for initial purchases, subsequent monthly purchases or
both.
 Liquidity & flexibility: Mutual fund investors can readily redeem their shares at the current NAV
plus any fees and charges assessed on redemption at any time 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.
 Easy entry and exit: Filling a mutual fund application or a redemption form is all that it takes
while entering or exiting a mutual fund. But with equity shares, you need to have an account
with a stockbroker (for buying & selling) and another with a depository participant. Some
investors may find this cumbersome.
 Tax benefits: Section 88 for Equity Linked Saving Schemes, ability to reinvest your proceeds
from capital gains into mutual funds under section 54EA & 54EB and tax-free status for equity
oriented funds for three years starting from April 1, 1999 are popular benefits that investors in
mutual funds can avail of.
 Transparency: One get regular information on the value of the investment in addition to
disclosure on the specific investments made by ones scheme, the proportion invested in each
class of assets and the fund manager's investment strategy and outlook.
 Well Regulated: All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.
But mutual funds also have features that some investors might view as Disadvantages, such as:
 Costs despite Negative Returns: Investors must pay sales charges, annual fees, and other
expenses regardless of how the fund performs. And, depending on the timing of their
27
investment, investors may also have to pay taxes on any capital gains distribution they receive
even if the fund went on to perform poorly after they bought shares.
 Lack of Control: Investors typically cannot ascertain the exact make-up of a fund's portfolio at
any given time, nor can they directly influence which securities the fund manager buys and sells
or the timing of those trades.
 Price Uncertainty: With an individual stock, you can obtain real-time (or close to real ¬time)
pricing information with relative ease by checking financial websites or by calling your broker.
You can also monitor how a stock's price changes from hour to hour — or even second to
second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will
typically depend on the fund's NAV, which the fund might not calculate until many hours after
you've placed your order. In general, mutual funds must calculate their NAV at least once every
business day.
28
Chapter: 3
Research Methodology
29
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research problem. The Research
Methodology includes the various methods and techniques for conducting a research Marketing
Research is the systemic design, collection, analysis and reporting of data and finding relevant solution
to a specific marketing situation or problem."
D. Slesinger and M. Stephonson in the encyclopedia of Social Sciences define research as "the
manipulation of things, concepts or symbols for the purpose of generalizing to extend, correct or verify
knowledge, whether that knowledge aids in construction of theory or in the practice of an art."
Research is, thus, an original contribution to the existing stock of knowledge making for its
advancement. The purpose of Research is to discover answers to he questions through the application
of scientific procedures. My project had a specific framework for collecting data in an effective manner.
Such framework is called “Research Design”. I follow the research process consisted of following steps:
A. Defining the problems and research objectives: It is said, " a problem well defined is half
solved." The first step done was to define the project under study and decided the research
objective. The project undertaken by me was- Consumer awareness about Mutual Funds
The objective of my research was to know the customer awareness about the working of
Mutual funds provided by Mahindra & Mahindra and to work out the potential market for
Mahindra & Mahindra.
B. Developing the research plan: The second stage of my study consisted of developing the
most efficient plan for gathering the relevant data. The method adopted by me for carrying
out study was as followed:
Sampling Plan: Sampling can be defined as the section of some part of an aggregate or totality
on the basis of which the judgment or an inference about aggregate or totality is made The
sampling plan helps in decision making in the following areas: -
 Sampling units: The population that was targeted consists of businessmen, service class,
students, housewives etc.
 Sample size: The sample size for my study was -100.
 Sampling procedure: Random sampling method was used.
C. Data Collection: Information was collected from both Primary and Secondary data:-
 Primary sources- Primary data are those, which are collected afresh and for the
first time, and thus happen to be original in character. 1 had collected Primary data
by conducting surveys through Questionnaire, which include both open-ended and
close-ended questions.
 Secondary sources- Secondary data are those which have already been collected
by someone else and which already had been passed through the statistical
processes. I had collected secondary data through Magazines, Websites,
Newspapers, Books, Journals, Mahindra & Mahindra monthly magazine etc.
30
D. Analysis of Data: After collecting the data the analysis of data had been through various
statistical tools and techniques. The analysis of data required a number of closely related
operations such as establishment of categories, the application of these categories to raw
data through coding, tabulation and then drawing the statistical inferences. The unwieldy
data was condensed into few manageable groups and tables for further analysis. Thus it
helped to classify the raw data into some purposeful and usable categories.
E. Interpretations: After analysis Interpretations were done i.e. to explain the findings on the
basis of analysis Tabulation of data was done wherein classified data were to put in the
form of tables. After tabulation the analysis work of my project was based on the
computation of various statistical formulae- Percentages, Values, Pie charts and Graphs and
Bar Diagrams.
31
LIMITATIONS
Besides following scientific methodologies the study has come across some limitations. These are:
1. The sample size is small as compared to the population, so it may not he the true
representative.
2. Due to limited time countrywide survey was not possible. Hence only Delhi city has been taken
for the study.
3. Some people were reluctant to fill the questionnaire. They were not willing to disclose their
investment plans.
4. The possibility of respondents being biased cannot be ruled out.
32
Chapter: 4
DATA ANALYSIS
&
INTERPRETATION
33
Q1. Do you familiar with MUTUAL FUND?
Responses Respondents
Yes 60.2%
No 39.8%
Respondents
Yes
No
Interpretation: From the above data we can conclude that 60.2% people are aware of
different financial institutions while 39.8% are unaware about it.
34
Q2. How much of your monthly income do you invest?
Less than Rs.5, 000 42.67%
5,000 - 10,000 30%
More than 10,000 27.33%
Respondents
Less than Rs.5, 000

5,000 - 10,000
5,000 - 10,000
Interpretation: From the above data we can conclude that 42.67% of people invest their
monthly income less than Rs.5, 000, 30% of people invest Rs.5,000-10,000% whereas 27.33% of
people invest their monthly income more than 10, 000.
35
Q3. In what type of instrument you generally invest or save your money?
Various Instruments Respondents

Savings 42.07%
FDs 25.59%
Shares 9.8%
Mutual Funds 7.9%
Post Office 9.57%
Others 5.07%
Respondents
Savings
FDs
Shares
Mutual Funds
Post Office
Others
Interpretation: From the data we can conclude that 42.07% people like to invest in savings
account, 25.59% in FDs, 9.8% in shares, 7.9% in Mutual Funds, 9.57% in Post Office Deposits
and 5.07% in others.
36
Q4. Do you know Mutual fund is also a source of investing your money?
Response Respondents
Yes 37%
No 63%
Respondents
Yes
No
Interpretation: From the above data we can conclude that only 37 % people are aware about
this fact while remaining 63% people are unaware of this
37
Q5. Have you ever invested your money in Mutual Funds?
Response Respondents
Yes 32.14%
No 67.86%
Respondents
Yes
No
Interpretation: From the above data we can conclude that only 32.14% people have invested
their money in Mutual Funds.
38
Q6. Are you aware that the advices made by Mutual Fund in Mutual Funds are made after
understanding the customer appetite of risk, return, safety and liquidity?
Yes 26.66%
No 73.34%
Respondents
Yes
No
Interpretation: From the above data we can conclude that only 26.66% people are aware of
this fact of Mutual Fund while 73.34% are unaware about this .
39
Q7. What do you think about 'fear of risk' in Mutual Fund?
Very Risky 65.33%
Risky 16%
Low 3.6%
Very Low 15.07%
Respondents
Very Risky
Risky
Low
Very Low
Interpretation: From the above data we can conclude that 65.33% people find Mutual funds
very risky, 16% find it risky, only'3.6% find low risk while 15.07% find very low.
40
Q8. Are you aware of the fact that you can avail rebate under sec.88 up to Rs 10, 000 by
investing in Mutual Funds under ELSS scheme?
Yes 19.3%
No 80.67%
Respondents
Yes
No
Interpretation: From the above data we can conclude that only 19.3% people are aware of
the rebates in Mutual funds while 80.67% people do not have any knowledge.
41
Q9. Do you know that you can earn regular income in the form of Dividends, MIP, and Dividend
Reinvestment Option by investing in various Mutual Funds schemes?
Yes 26%
No 74%
Respondents
Yes
No
Interpretation: From the above data we can conclude that 26% people know that they can
earn regular income while investing in Mutual funds.
42
Q10. How do you find the services provided by the Mutual Fund?
Excellent 24%
Very good 50%
Good 21%
Poor 5%
Respondents
Excellent
Very good
Good
Poor
Interpretation: From the above data we can conclude that half of the people i.e. 50% analyzed
find the services of the Mutual Fund very good, 24% find it excellent, 21% find it good whereas
5% people are also their who are not satisfied with the services of Mutual Fund.
43
Chapter: 5
CONCLUSION
44
CONCLUSION
From this study it is observed that few people like to invest in the Mutual Funds because of ignorance,
lack of knowledge or due to loss in faith. About half of the people invest more than 10% of their income
in various investments avenues. Saving accounts and fixed deposits are the most preferred investment
avenues followed by the Post Office Savings Only 37.33% of the people are aware of the fact that
Mutual Fund is also a source of investing their money and only 32.14 % of people have actually invested
in Mutual Funds. Most of the people like to invest in the open-ended type of Mutual Funds. The tax
benefits and liquidity and flexibility factors involved persuade most of the people to invest in Mutual
funds along with the factors like fixed and regular income. About 65% of the people considered that to
invest in Mutual Funds is a very risky task. Only 28% of the people know that they can avail rebate under
sec. 88 and only 26% of the people have the knowledge that they can earn regular income by investing
in Mutual funds.
About 27 % people know about this that Mutual Fund acts as an advisory agent not only in Single Mutual
Fund but also in other mutual funds offered by Standard Chartered, Prudential 1C 1C I, Kotak Mahindra,
Templeton Birla etc.
From this survey it is clear that besides providing various facilities by Mutual Fund and other private
Brokers most of the people still have their faith in government banks. However most of the people are
satisfied with the working of the Mutual Funds.
45
Chapter: 6
SUGGESTIONS
46
SUGGESTIONS
After the analysis of the consumer awareness level about mutual funds along with other products and
services following suggestions can be given: -
 The Mutual Fund should try to improve its market intelligence system. This would keep it know
its customer better and it will get more information about the competitors and the forces
affecting the market.
 The Mutual Fund should increase its advertising budget to get the benefits of good advertising
so that consumers should aware of their existing products and services as well as new one.
 The Mutual Fund should increase its number of branches not only in urban areas but also in
rural and semi-urban areas for the ease of the public.
 The customer should be fully satisfied and delighted so that they go a long way with Mutual
Fund.
47
Chapter: 7
BIBLIOGRAPHY
48
BIBLIOGRAPHY
 Newspapers
 Outlook Money
 Television Channel(CNBC AAWAJ)
 Mutual Fund Hand Book
 Fact Sheet and Statement
 www.sbimf.com
 www.mutualfunds.com
 www.funds.com
 www.moneybuy.com
49
Chapter: 8
ANNEXURE
50
QUESTIONNAIRE
Q1. Do you familiar with MUTUAL FUND?
a. Yes b. No
Q2. How much of your monthly income do you invest?
a. Less than Rs.5,000 b. 5,000-10,000 c. More than Rs. 10,000
Q3. In what type of instrument you generally invest or save your money?
a. Savings b. Fixed deposits
c. Shares d. Mutual Funds
e. Fixed deposits f. Other (please specify)
Q4. Do you know Mutual fund is also a source of investing your money?
a. Yes b. No
Q5. Have you ever invested your money in Mutual Funds?
a. Yes b. No
Q6. Are you aware that the advices made by Mutual Funds are made after understanding the customer appetite
of risk, return, safety and liquidity?
a. Yes b. No
Q7. What do you think about 'fear of risk' in Mutual Fund?
a. Very Risky b. Risky
c. Low d. Very low
Q8. Are you aware of the fact that you can avail rebate under sec.88 up to Rs 10, 000 by investing in Mutual Funds
under ELSS scheme?
a. Yes b. No
Q9. Do you know that you can earn regular income in the form of Dividends, MIP, and Dividend Reinvestment
Option by investing in various Mutual Funds schemes?
a. Yes b. No
Q10. How do you find the services provided by the Mutual Fund?
a. Excellent b. Very good
c. Good d. Poor
51

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Mutual Funds Industry in India

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Investor’s Perception towards Mutual Fund & its peers investment options

1. To know about investors' investment preferences.

INTRODUCTION OF MUTUAL FUNDS

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

First Phase- 1964-87

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

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

Fourth Phase - since February 2003

WHAT IS MUTUAL FUND?

DISTINGUISHING CHARACTERISTICS OF MUTUAL FUND

MAJOR RIGHTS AS A UNIT HOLDER IN A MUTUAL FUND

Some important rights are mentioned below:

REGULATORY BODY FOR MUTUAL FUNDS

Broad Guidelines Issued by SEBI for a MF: -

ROLE OF A FUND MANAGER

MUTUAL FUND STRUCTURE

REGULATIONS OF MUTUAL FUNDS IN INDIA

SEBI (Mutual Fund) REGULATIONS,1996

The provisions of this regulations pertaining to AMC are:

Investment objectives and valuation policies :-

Procedure in case of default

SEBI Guidelines (2001-02) Relating to Mutual Fund:-

Mutual funds are also require to:-

i. Bring uniformity in disclosure of various categories of advertisements, with a view to ensuring

RBI as supervisor of bank owned Mutual Funds

RBI as supervisor of money market Mutual funds

TYPES OF MUTUAL FUNDS

ON THE BASIS OF STRUCTURE;

On the basis of structure mutual fund can be either open-ended or close-ended.

DIFFERENCE BETWEEN THE TWO

TAX SAVING SCHEME Equity Linked Savings Schemes (ELSS):

ON THE BASIS OF INVESTMENT OBJECTIVE:

VARIOUS PLANS OF MUTUAL FUNDS

that any Mutual Fund scheme offers: -

 A Dividend Plan entails a regular payment of dividend to the investors.

HOW TO CHOOSE A PLAN

SYSTEMATIC INVESTMENT PLAN

A systematic investment plan (SIP) offers 2 major benefits to an investor:

 It avoids lump sum investment at one point of time.

HOW MUTUAL FUND WORKS

LOAD AND NO-LOAD FUNDS DESCRIPTION

BUYING AND SELLING FUND SHARES DESCRIPTION

FUND OBJECTIVES AND PROSPECTUS DESCRIPTION

 Preservation of Capital & Liquidity: Achieved by investing in very short-term bonds

HOW MUTUAL FUNDS CAN EARN MONEY

A fund may sell investments for a number of reasons:

 To capitalize on an investment's increased value

INFORMATION NEEDS TO EVALUATE MUTUAL FUNDS

HOW SAFE ARE MUTUAL FUNDS:

Tax Exempt Funds

ADVANTAGES AND DISADVANTAGES

Q1. Do you familiar with MUTUAL FUND?

Q2. How much of your monthly income do you invest?

Less than Rs.5, 000 42.67%

5,000 - 10,000 30%

More than 10,000 27.33%

Less than Rs.5, 000

Various Instruments Respondents

Q5. Have you ever invested your money in Mutual Funds?

Q7. What do you think about 'fear of risk' in Mutual Fund?

Very Risky 65.33%

Very Low 15.07%

Very good 50%