A PROJECT REPORT

ON

“MUTUAL FUNDS IS THE BETTER

INVESTMENTS PLAN”

Submitted in partial fulfillment for

MASTER OF BUSINESS ADMIMISTRATION

Programme of

KHALSA COLLEGE (ASR) OF TECHNOLOGY

&BUSINESS STUDIES

MOHALI

Batch2017-19

Submitted by :- Under Guidance :-

SIMRAN RANI Dr. KULPREET KAUR

MBA( 2ND Year Programme)

Batch (2017-2019)

Enrolment No- 32138

 CERTIFICATE

This is to certify that the work contained in this project report entitled “ Mutual

Funds are the Best Investment Plan” embodies project work carried out by Simran

Rani herself under my supervision and that it is worthy of consideration for award

of the degree of Master of Business Administration. The work has not been

submitted in part or full for the award of any other University in my knowledge.

Dated: Supervisor’s

Signature
Dr. Kulpreet Kaur

Assistant Professor

Department of Commerce,

(Khalsa College (ASR) of Technology and Business Studies,

Phase 3A, Mohali)

 DECLARATION

I hereby declare that the work which is being presented in this project report, entitled

“Mutual Funds are the Best Investment Plan” is submitted for the fulfillment of the

degree of Master of Business Administration to Punjabi University, Patiala; under

the kind supervision of Dr. Kulpreet Kaur.

I also declare that the work embodied in the present project report is my original

work and has not been submitted by me for the award of this or any other

university/institute.

Signature

Dated: SIMRAN RANI

Place:
 ACKNOWLEDGEMENT

The Almighty, has been bestowing us with his blessings throughout our life. I thank

thou force for all that he has done for me and my friends. We all are disciples.

“ When you are impressed by some great purpose, some extraordinary project, all you

thought break their bonds, your mind transcends limitation.

Your consciousness expands in every direction and you find yourself in a new great

And wonderful world.

Dormant forces, faculties and talents become alive, and you discover yourself to be a

greater person by far than you ever dreamed yourself to be”.

I consider this an auspicious moment to express my renewable gratitude to all the

people involved directly or indirectly for the successful completion of this dissertation.

I would like to grab the opportunity to thank my guide Dr. Kulpreet Kaur (Assistant

Professor) Khalsa College (ASR) of Technology and Business Studies, Phase 3A,

Mohali for her immense support for the project. Mam you been a great support for me,

Enlightening my path of education and knowledge. Thanks for your unparalleled and

Excellent guidance, continuous encouragement for my project.

It is a great pleasure and honour to thank Dr. Harish Kumari (principal) of Khalsa

College (ASR) of Technology and Business Studies, Phase 3A, Mohali for such a
a temple of education that they provided.

I would like to thank all the teaching and non- teaching staff of ) Khalsa College

(ASR) of Technology and Business Studies, Phase 3A, Mohali. I owe my thanks to

the whole staff of library.

I would like to cast a vote of thanks to my friends and batch mates for their kind

Support throughout my project.

Words will fall short to express my feelings for my Father who is a very simple,
down to earth and an ideal person. He taught me the biggest lesson of life that is hard
work, honesty and self confidence. Education commence at the mother’ lap, my
Mom is the soul of my energy. Her blessings have always led me to tag alone the
right path. I can’t repay her silent patience and constant encouragement.

A special thanks to my loving Brothers who encouraged me time to time, had

confidence in me, when I doubted myself and brought out the good ideas in me.

This dissertation is dedicated to my family, for without their blessings nothing would
have been possible. Thanks a lot for everything that you have been doing for me.

Last but not the least, I am thankful to universal guide, the almighty God.

SIMRAN RANI
 TABLE OF CONTENTS

CHAPTER NO. CHAPTER TITLE PAGE NO.

Acknowledgement

Declaration

Executive Summary
1. Introduction

2. Company profile

3. Objectives and scope

4. Research methodology

5. Data analysis and

interpretation

6. Findings and conclusions

7. Suggestions &
recommendations
Bibliography
Chapter-1
Chapter - 1

Introduction
1.1 INTRODUCTION TO MUTUAL FUND AND ITS
VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who share a

common financial goal. This pool of money is invested in accordance with a stated

objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all

investors. 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 appreciations realized are shared by its unit holders in proportion 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. A Mutual Fund is an investment

tool that allows 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. Units

are issued and can be redeemed as needed. The funds Net Asset value (NAV) is

determined each day.

Investments in securities are spread across a wide cross-section of industries and

sectors and thus the risk is reduced. Diversification reduces the risk because all stocks

may not move in the same direction in the same proportion at the same time. Mutual

fund issues units to the investors in accordance with quantum of money invested by

them. Investors of mutual funds are known as unit holders.

When an investor subscribes for the units of a mutual fund, he becomes part owner of

the assets of the fund in the same proportion as his contribution amount put up with the

corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual

fund shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments (such

as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme.

NAV is defined as the market value of the Mutual Fund scheme's assets net of its

liabilities. NAV of a scheme is calculated by dividing the market value of scheme's

assets by the total number of units issued to the investors.

1.1.1ADVANTAGES OF MUTUAL FUND

 Portfolio Diversification

 Professional management

 Reduction / Diversification of Risk

 Liquidity

 Flexibility & Convenience

 Reduction in Transaction cost

 Safety of regulated environment

 Choice of schemes

 Transparency

1.1.2DISADVANTAGE OF MUTUAL FUND

 No control over Cost in the Hands of an Investor

 No tailor-made Portfolios

 Managing a Portfolio Funds

 Difficulty in selecting a Suitable Fund Scheme

1.2HISTORY 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. Though the growth

was slow, but it accelerated from the year 1987 when non-UTI players entered the

Industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both

qualities wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase; the Assets Under Management (AUM) was Rs67 billion. The private

sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till

April 2004; it reached the height if Rs. 1540 billion.

The Mutual Fund Industry is obviously growing at a tremendous space with 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

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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 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 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)

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. As at the end of January 2003, there were 33

mutual funds with total assets of Rs. 1,21,805 crores.

Fourth Phase – since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and certain other

schemes

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. consolidation

and growth. As at the end of September, 2004, there were 29 funds, which manage assets

of Rs.153108 crores under 421 schemes.

1.3CATEGORIES OF MUTUAL FUND:
 Mutual funds can be classified as follow :

 Based on their structure:

 Open-ended funds: Investors can buy and sell the units from the fund, at any point of

time.

 Close-ended funds : These funds raise money from investors only once. Therefore, after

the offer period, fresh investments can not be made into the fund. If the fund is listed on

a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund).

Recently, most of the New Fund Offers of close-ended funds provided liquidity window

on a periodic basis such as monthly or weekly. Redemption of units can be made during

specified intervals. Therefore, such funds have relatively low liquidity.

 Based on their investment objective:

1.3.1Equity funds: These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses. However,

short term fluctuations in the market, generally smoothens out in the long term, thereby

offering higher returns at relatively lower volatility. At the same time, such funds can

yield great capital appreciation as, historically, equities have outperformed all asset

classes in the long term. Hence, investment in equity funds should be considered for a

period of at least 3-5 years. It can be further classified as:

 i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is

tracked. Their portfolio mirrors the benchmark index both in terms of composition and

individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading across

different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that they

invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through

some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector

fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

1.3.2Balanced fund: Their investment portfolio includes both debt and equity. As a result, on

the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal

mutual funds vehicle for investors who prefer spreading their risk across various instruments.

Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

1.3.3Debt fund: They invest only in debt instruments, and are a good option for investors

averse to idea of taking risk associated with equities. Therefore, they invest exclusively

in fixed-income instruments like bonds, debentures, Government of India securities; and

money market instruments such as certificates of deposit (CD), commercial paper (CP)

and call money. Put your money into any of these debt funds depending on your

investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion

being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and

T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-

pricing between cash market and derivatives market. Funds are allocated to equities,

derivatives and money markets. Higher proportion (around 75%) is put in money

markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.
vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in

long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that

of the fund.
1.4INVESTMENT STRATEGIES

1. Systematic Investment Plan: under this a fixed sum is invested each month on a

fixed date of a month. Payment is made through post dated cheques or direct debit

facilities. The investor gets fewer units when the NAV is high and more units when the

NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and

give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the

same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund

then he can withdraw a fixed amount each month.

1.5 RISK V/S. RETURN:
 Chapter – 2
Chapter – 2

Company Profile
INTRODUCTION TO SBI MUTUAL FUND

SBI Funds Management Pvt. Ltd. is one of the leading fund houses in the country

with an investor base of over 4.6 million and over 20 years of rich experience in

fund management consistently delivering value to its investors. SBI Funds

Management Pvt. Ltd. is a joint venture between 'The State Bank of India' one of

India's largest banking enterprises, and Société Générale Asset Management

(France), one of the world's leading fund management companies that manages

over US$ 500 Billion worldwide.

Today the fund house manages over Rs 28500 crores of assets and has a diverse

profile of investors actively parking their investments across 36 active schemes.

In 20 years of operation, the fund has launched 38 schemes and successfully

redeemed 15 of them, and in the process, has rewarded our investors with

consistent returns. Schemes of the Mutual Fund have time after time outperformed

benchmark indices, honored us with 15 awards of performance and have emerged

as the preferred investment for millions of investors. The trust reposed on us by

over 4.6 million investors is a genuine tribute to our expertise in fund

management.

SBI Funds Management Pvt. Ltd. serves its vast family of investors through a

network of over 130 points of acceptance, 28 Investor Service Centr es, 46

Investor Service Desks and 56 District Organizers.SBI Mutual is the first bank-

sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund.

Growth through innovation and stable investment policies is the SBI MF credo.
PRODUCTS OF SBI MUTUAL FUND

Equity schemes

The investments of these schemes will predominantly be in the stock markets and

endeavor will be to provide investors the opportunity to benefit from the higher

returns which stock markets can provide. However the y are also exposed to the

volatility and attendant risks of stock markets and hence should be chosen only

by such investors who have high risk taking capacities and are willing to think

long term. Equity Funds include diversified Equity Funds, Sectoral Funds and

Index Funds. Diversified Equity Funds invest in various stocks across different

sectors while sectoral funds which are specialized Equity Funds restrict their

investments only to shares of a particular sector and hence, are riskier than

Diversified Equity Funds. Index Funds invest passively only in the stocks of a

particular index and the performance of such funds move with the movements of

the index.

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum Midcap Fund

Magnum Multicap Fund

Magnum Multiplier plus 1993

Magnum Sectoral Funds Umbrella

  M SFU- Emerging Business Fund

 M SFU- IT Fund

 M SFU- Pharma Fund

 M SFU- Contra Fund

 M SFU- FMCG Fund

 SBI Arbitrage Opportunities Fund

 SBI Blue chip Fund

 SBI Infrastructure Fund - Series I

 SBI Magnum Taxgain Scheme 1993

 SBI ONE India Fund

 SBI TAX ADVANTAGE FUND - SERIES I

Debt schemes

Debt Funds invest only in debt instruments such as Corporate Bonds,

Government Securities and Money Market instruments either completely

avoiding any investments in the stock markets as in Income Funds or Gilt Funds

or having a small exposure to equities as in Monthly Income Plans or Children's

Plan. Hence they are safer than equity funds. At the same time the expected

returns from debt funds would be lower. Such investments are advisable for the

risk-averse investor and as a part of the investment portfolio for other investors.

 Magnum Children’s benefit Plan

  Magnum Gilt Fund

 Magnum Income Fund

 Magnum Insta Cash Fund

 Magnum Income Fund- Floating Rate Plan

 Magnum Income Plus Fund

 Magnum Insta Cash Fund -Liquid Floater Plan

 Magnum Monthly Income Plan

 Magnum Monthly Income Plan- Floater

 Magnum NRI Investment Fund

 SBI Premier Liquid Fund

BALANCED SCHEMES

Magnum Balanced Fund invests in a mix of equity and debt investments. Hence

they are less risky than equity funds, but at the same time provide

commensurately lower returns. They provide a good investment opportunity to

investors who do not wish to be completely exposed to equity markets, but is

looking for higher returns than those provided by debt funds.

 Magnum Balanced Fund

COMPETITORS OF SBI MUTUAL FUND

Some of the main competitors of SBI Mutual Fund in Dehradoon are as

Follows:

i. ICICI Mutual Fund

ii. Reliance Mutual Fund

iii. UTI Mutual Fund

iv. Birla Sun Life Mutual Fund

v. Kotak Mutual Fund

vi. HDFC Mutual Fund

vii. Sundaram Mutual Fund

viii. LIC Mutual Fund

ix. Principal

x. Franklin Templeton

AWARDS AND ACHIEVEMENTS

SBI Mutual Fund (SBIMF) has been the proud recipient of the ICRA Online Award - 8

times, CNBC TV - 18 Crisil Award 2006 - 4 Awards, The Lipper Award (Year 2005-

2006) and most recently with the CNBC TV - 18 Crisil Mutual Fund of the Year Award

2007 and 5 Awards for our schemes.

 Chapter - 3
Chapter-3

Review of literature
Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have

studied Impact of Sharpe Ratio & Treynor’s Ratio on Selected Mutual Fund

Schemes. This paper examines the performance of selected mutual fund

schemes, that the risk profile of the aggregate mutual fund universe can be

accurately compared by a simple market index that offers comparative monthly

liquidity, returns, systematic & unsystematic risk and complete fund analysis by

using the special reference of Sharpe ratio and Treynor’s ratio.

Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research

on Comparative Performance Analysis of Select Indian Mutual Fund Schemes.

This study analyzes the performance of Indian owned mutual funds and

compares their performance. The performance of these funds was analyzed

using a five year NAVs and portfolio allocation. Findings of the study reveals

that, mutual funds out perform naïve investment. Mutual funds as a

medium-to-long term investment option are preferred as a suitable investment

option by investors.

Dr. Yogesh Kumar Mehta (Feb 2012), has studied Emerging Scenario of

Mutual Funds in India: An Analytical Study of Tax Funds. The present study is

based on selected equity funds of public sector and private sector mutual

fund. Corporate and Institutions who form only 1.16% of the total number of

investors accounts in the MFs industry, contribute a sizeable amount of Rs.

2,87,108.01 crore which is 56.55% of the total net assets in the MF industry. It

is also found that MFs did not prefer debt segment.

Dr Surender Kumar Gupta and Dr. Sandeep Bansal (Jul 2012), have done a

Comparative Study on Debt Scheme of Mutual Fund of Reliance and Birla

Sunlife. This study provides an overview of the performance of debt scheme of

mutual fund of Reliance, and Birla Sunlife with the help of Sharpe Index after

calculating Net Asset Values and Standard Deviation. This study reveals that

returns on Debt Schemes are close to Benchmark return (Crisil Composite

Debt Fund Index: 4.34%) and Risk Free Return: 6% (average adjusted for last

five year).

Prof. V. Vanaja and Dr. R. Karrupasamy (2013), have done a Study on the

Performance of select Private Sector Balanced Category Mutual Fund

Schemes in India. This study of performance evaluation would help the

investors to choose the best schemes available and will also help the AUM’s in

better portfolio construction and can rectify the problems of underperforming

schemes. The objective of the study is to evaluate the performance of

select Private sector balanced schemes on the basis of returns and

comparison with their bench marks and also to appraise the performance of
different category of funds using risk adjusted measures as suggested by

Sharpe, Treynor and Jensen.

E. Priyadarshini and Dr. A. Chandra Babu (2011), have done Prediction of

The Net Asset Values of Indian Mutual Funds Using Auto- Regressive

Integrated Moving Average (Arima). In this paper, some of the mutual funds in

India had been modeled using Box-Jenkins autoregressive integrated moving

average (ARIMA) methodology. Validity of the models was tested using

standard statistical techniques and the future NAV values of the mutual funds

have been forecasted.

Dr. Ranjit Singh, Dr. Anurag Singh and Dr. H. Ramananda Singh (August

2011), have done research on Positioning of Mutual Funds among Small Town

and Sub-Urban Investors. In the recent past the significant proportion of the

investment of the urban investor is being attracted by the mutual funds. This

has led to the saturation of the market in the urban areas. In order to increase

their investor base, the mutual fund companies are exploring the opportunities

in the small towns and sub-urban areas. But marketing the mutual funds in

these areas requires the positioning of the products in the minds of the

investors in a differentway. The product has to be acceptable to the investors, it

should be affordable to the investors, it should be made available to them and

at the same time the investors should be aware of it. The present paper deals

with all these issues. It measures the degree of influence on acceptability,

affordability, availability and awareness among the small town and sub-urban

investors on their investment decisions.

Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a

Comparative Study On Performance Evaluation of Mutual Fund Schemes Of

Indian Companies. In this paper the performance evaluation of Indian mutual

funds is carried out through relative performance index, risk-return analysis,

Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure, and Fama's

measure. The data used is daily closing NAVs. The source of data is website of

Association of Mutual Funds in India (AMFI). The study period is 1st January

2007 to 31st December, 2011. The results of performance measures suggest

that most of the mutual fund have given positive return during 2007 to 2011.

C.Srinivas Yadav and Hemanth N C (Feb 2014), have studied Performance

of Selected Equity Growth Mutual Funds in India: An Empirical Study during 1st

June 2010 To 31st May 2013. The study evaluates performance of selected

growth equity funds in India, carried out using portfolio performance evaluation

techniques such as Sharpe and Treynor measure. S&P CNX NIFTY has been

taken as the benchmark. The studyconducted with 15 equity growth Schemes

(NAV ) were chosen from top 10 AMCs ( based on AUM) for the period 1st June

2010 to 31st may 2013(3 years).

Rashmi Sharma and N. K. Pandya (2013), have done an overview of

Investing in Mutual Fund. In this paper, structure of mutual fund, comparison

between investments in mutual fund and other investment options and

calculation of NAV etc. have been considered. In this paper, the impacts of

various demographic factors on investors’ attitude towards mutual fund have

been studied. For measuring various phenomena and analyzing the collected

data effectively and efficiently for drawing sound conclusions, drawing pie

charts has been used and for analyzing the various factors responsible for

investment in mutual funds.

Rahul Singal, Anuradha Garg and Dr Sanjay Singla (May 2013), have done

Performance Appraisal of Growth Mutual Fund. The paper examines the

performance of 25 Growth Mutual Fund Schemes. Over the time period Jan

2004 to Dec 2008. For this purpose three techniques are used (I) Beta (II)

Sharpe Ratio (III) Treynor Ratio. Rank is given according to result drawn from

this scheme and comparison is also made between results drawn from different

schemes and normally the different are insignificant.

Dhimen Jani and Dr. Rajeev Jain (Dec 2013), have studied Role of Mutual

Funds in Indian Financial System as a Key Resource Mobiliser. This paper

attempts to identify, the relationship between AUM mobilized by mutual fund

companies and GDP growth of the India. To find out correlation coefficient

Kendall’s tau b and spearman’s rho correlation ship was applied, the data

range was selected from 1998-99 to 2009-10.

Dr. R. Narayanasamy and V. Rathnamani (Apr 2013), have done

Performance Evaluation of Equity Mutual Funds (On Selected Equity Large

Cap Funds). This study, basically, deals with the equity mutual funds that are

offered for investment by the various fund houses in India. This study mainly

focused on the performance of selected equity large cap mutual fund schemes

in terms of risk- return relationship. The main objectives of this research work

are to analysis financial performance of selected mutual fund schemes through

the statistical parameters such as (alpha, beta, standard deviation, r-squared,

Sharpe ratio).

Dr. Ashok Khurana and Kavita Panjwani (Nov, 2010), have analysed Hybrid

Mutual Funds. Mutual fund returns can be compared using Arithmetic mean &

Compounded Annual Growth Rate. Risk can be analyzed by finding out

Standard Deviation, Beta while performance analysis is based on Risk-Return

adjustment. Key ratios like Sharpe ratio and Treynor ratio are used for

Risk-Return analysis. Funds are compared with a benchmark, industry

average, and analysis of volatility and return per unit to find out how well they

are performing with respect to the market Value at Risk analysis can be done

to find out the maximum possible losses in a month given the investor had

made an investment in that month. Based on the quantitative study conducted

company a fund is chosen as the best fund in the Balance fund growth

schemes.

Dr. D. Rajasekar (Sep 2013), has done a Study on Investor`s Preference

Towards Mutual Funds With Reference To Reliance Private Limited, Chennai -

An Empirical Analysis. The data was analyzed using the statistical tools like

percentage analysis, chi square, weighted average. The report was concluded

with findings and suggestions and summary. From the findings, it was inferred

overall that the investor are highly concerned about safety and growth and

liquidity of investments. Most of the respondents are highly satisfied with the

benefits and the service rendered by the Reliance mutual funds.

Dr. Mamta Shah (Dec 2012) has done research on Marketing Practices of

Mutual Funds. Development of an economy necessarily depends upon its

financial system and the rate of new capital formation which can be achieved
by mobilizing savings and adopting an investment pattern, be its self-financing

(i.e. direct or indirect) where financial intermediaries like banks, insurance and

other financial companies come in the picture and mediate between savers

and borrowers of funds. In the same way there are different types of investors

and each category of investors differs in its objectives and hence it is

imperative for investment managers to choose an appropriate investment

policy for the group they are dealing with, further managing the investment is a

dynamic and an ongoing process.

Rajiv G. Sharma (Aug 2013) has done a Comparative Study on Public and

Private Sector Mutual Funds in India. The study at first tests whether there is

any relation between demographic profile of the investor and selection of

mutual fund alternative from among public sector and private sector. For the

purpose of analysis perceptions of selected investors from public and private

sector mutual funds are taken into consideration. The major factors influencing

the investors of public and private sectors mutual funds are identified. The

factors under consideration to compare between perceptions of public and

private sector mutual fund investors are Liquidity, Security, Flexibility,

Management fee, Service Quality, Transparency, Returns and Tax benefits.

 Chapter – 4

Research Methodology
 OBJECTIVES OF THE STUDY
General objectives
the main objective of the study is to analyse the mutual finds

Specific objectives

1. To find out the Preferences of the investors for Asset Management

Company.

2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in SBI Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.

Chapter scheme
The study has been organized into the following chapters:

1. Introduction

2. Company profile

3. Review of literature

4. Research methodology

5. Data analysis and interpretation

6. Findings, conclusions and suggestions

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large

number of new players have entered the market and trying to gain market
share in this rapidly improving market. The research was carried on in

Dehradoon. I had been sent at one of the branch of State Bank of India

Dehradoon where I completed my Project work. I surveyed on my Project

Topic “A study of preferences of the Investors for investment in Mutual Fund”

on the visiting customers of the SBI Boring Canal Road Branch. The study will

help to know the preferences of the customers, which company, portfolio,

mode of investment, option for getting return and so on they prefer. This

project report may help the company to make further planning and strategy.

RESEARCH METHODOLOGY

This report is based on primary as well secondary data, however primary data

collection was given more importance since it is overhearing factor in attitude

studies. One of the most important users of research methodology is that it

helps in identifying the problem, collecting, analyzing the required information

data and providing an alternative solution to the problem .It also helps in

collecting the vital information that is required by the top management to assist

them for the better decision making both day to day decision and critical ones.

Duration of Study:

The study was carried out for a period of two months, from 30th May to 30th
July 2008.

Data sources:

Research is totally based on primary data. Secondary data can be used only
for the reference. Research has been done by primary data collection, and

primary data has been collected by interacting with various people. The

secondary data has been collected through various journals and websites.

Sampling:

Sampling procedure:

The sample was selected of them who are the customers/visitors of State Bank
Of India. Boring Canal Road Branch, irrespective of them being investors or
not or availing the services or not. It was also collected through personal visits
to persons, by formal and informal talks and through filling up the
questionnaire prepared. The data has been analyzed by using
mathematical/Statistical tool.

Sample size:
The sample size of my project is limited to 200 people only. Out of which

only 120 people had invested in Mutual Fund. Other 80 people did not have

invested in Mutual Fund.

Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

Limitation:

➢ Some of the persons were not so responsive.

➢ Possibility of error in data collection because many of investors may have

Not given actual answers of my questionnaire.
➢ Sample size is limited to 200 visitors of State Bank of India , Branch Kharar
out of these only 120 had invested in Mutual Fund. The sample. size
may not adequately represent the whole market.

➢ Some respondents were reluctant to divulge personal information which can

affect the validity of all responses.

➢ The research is confined to a certain part of Kharar.

 Chapter – 5

Data Analysis
&
Interpretation
 ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors

Age Group <= 30 31-35 36-40 41-45 46-50 >50

No. of 12 18 30 24 20 16
Investors
Investors invested in Mutual Fund

35

30

25

20

15 30
24
10 18 20
16
5 12

0
<=30 31-35 36-40 41-45 46-50 >50
Age group of the Investors

Interpretation:

According to this chart out of 120 Mutual Fund investors of Kharar the most are in

the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of

41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.
(b). Educational Qualification of investors of

Educational Qualification Number of Investors

Graduate/ Post Graduate 88

Under Graduate 25

Others 7

Total 120

6%
23%

71%

Graduate/Post Graduate Under Graduate Others

Interpretation:

Out of 120 Mutual Fund investors 71% of the investors in Kharar are

Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).
 c). Occupation of the investors

Occupation No. of Investors

Govt. Service 30
.
Pvt. Service 45
Business 35
Agriculture 4
Others 6

50
No. of Investors

40
30
45
20
35 30
10
4 6
0
Govt. Pvt. Service Business Agriculture Others
Service
Occupation of the customers

Interpretation:

In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are

Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in

others.
(d). Monthly Family Income of the Investors

Income Group No. of Investors

<=10,000 5
10,001-15,000 12
15,001-20,000 28
20,001-30,000 43
>30,000 32

50
45
40
No. of Investors

35
30
25
20 43
15 32
28
10
5 12
5
0
<=10 10-15 15-20 20-30 >30
Income Group of the Investorsn (Rs. in Th.)

Interpretation:
In the Income Group of the investors of Kharar, out of 120 investors, 36%

investors that is the maximum investors are in the monthly income group Rs.

20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly income

group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the

monthly income group of below Rs. 10,000

(2) Investors invested in different kind of investments.

Kind of Investments No. of Respondents

Saving A/C 195
Fixed deposits 148
Insurance 152
Mutual Fund 120
Post office (NSC) 75
Shares/Debentures 50
Gold/Silver 30
Real Estate 65

65
Kinds of Investment

30
50
75
120
152
148
195
0 50 100 150 200 250

No.of Respondents

Interpretation: From the above graph it can be inferred that out of 200 people, 97.5%

people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits, 60% in

Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in Gold/Silver

and 32.5% in Real Estate.

3. Preference of factors while investing

Factors (a) Liquidity (b) Low Risk (c) High Return (d) Trust

No. of 40 60 64 36

Respondents

18% 20%

32% 30%

Liquidity Low Risk High Return Trust

Interpretation:

Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer

to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust
4. Awareness about Mutual Fund and its Operations

Response Yes No

No. of Respondents 135 65

33%

67%

Yes No

Interpretation:

From the above chart it is inferred that 67% People are aware of Mutual Fund and its

operations and 33% are not aware of Mutual Fund and its operations.
 5. Source of information for customers about Mutual Fund

Source of information No. of Respondents

Advertisement 18

Peer Group 25

Bank 30

Financial Advisors 62

70
No. of Respondents

60
50
40
30 62
20
30
10 18
0
Advertisement Peer Group Bank Financial
Advisors
Source of Information

Interpretation:

From the above chart it can be inferred that the Financial Advisor is the most important

source of information about Mutual Fund. Out of 135 Respondents, 46% know about

Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group

and 13% through Advertisement.

6. Investors invested in Mutual Fund

Response No. of Respondents

YES 120
NO 80
Total 200

No
40%

Yes
60%

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested in

Mutual Fund.
7. Reason for not invested in Mutual Fund

Reason No. of Respondents

Not Aware 65

Higher Risk 5

Not any Specific Reason 10

6%
13%

81%
Not Aware Higher Risk Not Any

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual

Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason.
8. Investors invested in different Assets Management Co. (AMC)

Name of AMC No. of Investors

SBIMF 55
UTI 75
HDFC 30
Reliance 75
ICICI Prudential 56
Kotak 45
Others 70

Others 70
HDFC
30
Name of AMC

Kotak
45
SBIMF 55
ICICI 56
Reliance 75
UTI 75

0 20 40 60 80
No. of Investors

Interpretation:

In kharara most of the Investors preferred UTI and Reliance Mutual Fund. Out of

120 Investors 62.5% have invested in each of them, only 46% have invested in SBIMF,

47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC.

9. Reason for invested in SBIMF

Reason No. of Respondents

Associated with SBI 35

Better Return 5

Agents Advice 15

27%

9% 64%

Associated with SBI Better Return Agents Advice

Interpretation:

Out of 55 investors of SBIMF 64% have invested because of its association with Brand

SBI, 27% invested on Agent’s Advice, 9% invested because of better return.

10. Reason for not invested in SBIMF

Reason No. of Respondents

Not Aware 25

Less Return 18

Agent’s Advice 22

34%
38%

28%
Not Aware Less Return Agent's Advice

Interpretation:

Out of 65 people who have not invested in SBIMF, 38% were not aware with SBIMF,

28% do not have invested due to less return and 34% due to Agent’s Advice.
11. Preference of Investors for future investment in Mutual Fund

Name of AMC No. of Investors

SBIMF 76
UTI 45
HDFC 35
Reliance 82
ICICI Prudential 80
Kotak 60
Others 75

Others 75

Kotak 60
Name of AMC

ICICI Prudential 80

Reliance 82

HDFC 35

UTI 45

SBIMF 76

0 20 40 60 80 100

No. of Investors

Interpretation:

Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63% in

SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund Investment

 Channel Financial Advisor Bank AMC

No. of Respondents 72 18 30

25%

60%
15%

Financial Advisor Bank AMC

Interpretation:

Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through

AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors

 Mode of Investment One time Investment Systematic Investment Plan (SIP)

No. of Respondents 78 42

35%

65%

One time Investment SIP

Interpretation:

Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through

Systematic Investment Plan.

14. Preferred Portfolios by the Investors

 Portfolio No. of Investors
Equity 56
Debt 20
Balanced 44

37%
46%

17%

Equity Debt Balance

Interpretation:

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17%

preferred Debt portfolio

15. Option for getting Return Preferred by the Investors

 Option Dividend Payout Dividend Growth

Reinvestment

No. of Respondents 25 10 85

21%

8%

71%
Dividend Payout Dividend Reinvestment Growth

Interpretation:

From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout

and 8% preferred Dividend Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds

 Response No. of Respondents

Yes 25

No 95

21%

79% Yes No

Interpretation:

Out of 120 investors, 79% investors do not prefer to invest in Sectoral Fund because

there is maximum risk and 21% prefer to invest in Sectoral Fund.

Chapter – 6

Findings and

Conclusion

Findings
 I n Kharar in the Age Group of 36-40 years were more in numbers.

The second most Investors were in the age group of 41-45 years and

the least were in the age group of below 30 years.

 I n Kharar most of the Investors were Graduate or Post Graduate

and below HSC there were very few in numbers.

 I n Occupation group most of the Investors were Govt. employees, the

second most Investors were Private employees and the least were

associated with Agriculture.

 I n family Income group, between Rs. 20,001- 30,000 were more in

numbers, the second most were in the Income group of more than

Rs.30,000 and the least were in the group of below Rs. 10,000.

 About all the Respondents had a Saving A/c in Bank, 76% Invested in

Fixed Deposits, Only 60% Respondents invested in Mutual fund.

 Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred

Trust.

 Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

 Among 200 Respondents only 60% had invested in Mutual Fund and

40% did not have invested in Mutual fund.

 Out of 80 Respondents 81% were not aware of Mutual Fund, 13% told

there is not any specific reason for not invested in Mutual Fund and

6% told there is likely to be higher risk in Mutual Fund.

 Most of the Investors had invested in Reliance or UTI Mutual Fund,

ICICI Prudential has also good Brand Position among investors,

SBIMF places after ICICI Prudential according to the Respondents.

 Out of 55 investors of SBIMF 64% have invested due to its association

with the Brand SBI, 27% Invested because of Advisor’s Advice and

9% due to better return.

 Most of the investors who did not invested in SBIMF due to not Aware

of SBIMF, the second most due to Agent’s advice and rest due to Less

Return.

 For Future investment the maximum Respondents preferred Reliance

Mutual Fund, the second most preferred ICICI Prudential, SBIMF has

been preferred after them.

 60% Investors preferred to Invest through Financial Advisors, 25%

through AMC (means Direct Investment) and 15% through Bank.

 65% preferred One Time Investment and 35% preferred SIP out of

both type of Mode of Investment.

 The most preferred Portfolio was Equity, the second most was Balance

(mixture of both equity and debt), and the least preferred Portfolio was

Debt portfolio.

 Maximum Number of Investors Preferred Growth Option for returns,

the second most preferred Dividend Payout and then Dividend

Reinvestment.

 Most of the Investors did not want to invest in Sectoral Fund, only

21% wanted to invest in Sectoral Fund.

Conclusion
Running a successful Mutual Fund requires complete understanding of the

peculiarities of the Indian Stock Market and also the psyche of the small

investors. This study has made an attempt to understand the financial

behavior of Mutual Fund investors in connection with the preferences of

Brand (AMC), Products, Channels etc. I observed that many of people have

fear of Mutual Fund. They think their money will not be secure in Mutual

Fund. They need the knowledge of Mutual Fund and its related terms. Many

of people do not have invested in mutual fund due to lack of awareness

although they have money to invest. As the awareness and income is

growing the number of mutual fund investors are also growing.

“Brand” plays important role for the investment. People invest in those

Companies where they have faith or they are well known with them. There

are many AMCs in Dehradoon but only some are performing well due to

Brand awareness. Some AMCs are not performing well although some of

the schemes of them are giving good return because of not awareness about

Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known

Brand, they are performing well and their Assets Under Management is

larger than others whose Brand name are not well known like Principle,

Sunderam, etc.
Distribution channels are also important for the investment in mutual fund.

Financial Advisors are the most preferred channel for the investment in

mutual fund. They can change investors’ mind from one investment option

to others. Many of investors directly invest their money through AMC

because they do not have to pay entry load. Only those people invest directly

who know well about mutual fund and its operations and those have time.
 Chapter – 7

Suggestions

And

Recommendations

Suggestions and Recommendations

 The most vital problem spotted is of ignorance. Investors should be

made aware of the benefits. Nobody will invest until and unless he
 is fully convinced. Investors should be made to realize that ignorance

is no longer bliss and what they are losing by not investing.

 Mutual funds offer a lot of benefit which no other single option could

offer. But most of the people are not even aware of what actually a

mutual fund is? They only see it as just another investment option.

So the advisors should try to change their mindsets. The advisors

should target for more and more young investors. Young investors

as well as persons at the height of their career would like to go for

advisors due to lack of expertise and time.

 Mutual Fund Company needs to give the training of the Individual

Financial Advisors about the Fund/Scheme and its objective,

because they are the main source to influence the investors.

 Before making any investment Financial Advisors should first enquire

about the risk tolerance of the investors/customers, their need and time

(how long they want to invest). By considering these three things they

can take the customers into consideration.

 Younger people aged under 35 will be a key new customer group

into the future, so making greater efforts with younger customers who

show some interest in investing should pay off.

 Customers with graduate level education are easier to sell to and

there is a large untapped market there. To succeed however, advisors

must provide sound advice and high quality.

 Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the

industry. SIP is easy for monthly salaried person as it provides the

facility of do the investment in EMI. Though most of the prospects

and potential investors are not aware about the SIP. There is a large

scope for the companies to tap the salaried persons.

BIBLIOGRAPHY

 NEWS PAPERS

 OUTLOOK MONEY
 TELEVISION CHANNEL (CNBC AAWAJ)

 MUTUAL FUND HAND BOOK

 FACT SHEET AND STATEMENT

 WWW.SBIMF.COM

 WWW.MONEYCONTROL.COM

 WWW.AMFIINDIA.COM

 WWW.ONLINERESEARCHONLINE.COM

 WWW. MUTUALFUNDSINDIA.COM
 Mutual Funds

All About Mutual Funds

Before we understand what is mutual fund, it’s very important to know the area in which mutual
funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment
traded on the market.
Bonds : Bonds are basically the money which you lend to the government or a company, and in return
you can receive interest on your invested amount, which is back over predetermined amounts of time.
Bonds are considered to be the most common lending investment traded on the market. There are many
other types of investments other than stocks and bonds (including annuities, real estate, and precious
metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual fund
will have a fund manager who is responsible for investing the gathered money into specific securities
(stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others
they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it
on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk &
maximizing returns.

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

Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and
started its operations in 1964 with the issue of units under the scheme US-64.

Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. The table below gives an overview into the existing types of
schemes in the Industry.
Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes

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

Close Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest in the
scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme
on the stock exchanges 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 Schemes
Interval Schemes are that scheme, which combines the features of open-ended and close-ended
schemes. The units may be traded on the stock exchange or may be open for sale or redemption during
pre-determined intervals at NAV related prices.

BY NATURE

1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different stocks.
The Equity Funds are sub-classified depending upon their investment objective, as follows:

 Diversified Equity Funds

 Mid-Cap Funds
 Sector Specific Funds
  Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private companies,
banks and financial institutions are some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are
further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

 Income Funds: Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.

 MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly
high on the risk-return matrix when compared with other debt schemes.

 Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers
(CPs). Some portion of the corpus is also invested in corporate debentures.

 Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity
and preservation of capital. These schemes invest in short-term instruments like Treasury Bills,
inter-bank call money market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon of 1day to 3 months.
These schemes rank low on risk-return matrix and are considered to be the safest amongst all
categories of mutual funds.
3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined investment objective of
the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part
provide growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives
of the fund. The investor can align his own investment needs with the funds objective and invest
accordingly.

BY INVESTMENT OBJECTIVE

 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value
for possible future appreciation.
  Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest
in fixed income securities such as bonds and corporate debentures. Capital appreciation in
such schemes may be limited.

 Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in their offer
documents (normally 50:50).

 Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation
of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money.

OTHER SCHEMES

 Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
 Index Schemes: Index schemes attempt to replicate the performance of a particular index
such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from such schemes would be
more or less equivalent to those of the Index.
 Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a
watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

 Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain. Most funds
also pass on these gains to investors in a distribution.
 If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.

Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of
investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed,
by well qualified professional. Investors purchase funds because they do not have the time or the
expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive
way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds,
the investors risk is spread out and minimized up to certain extent. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is minimized by gains
in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to
reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available

instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many
investors debate over whether or not the so-called professionals are any better than mutual fund or
investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra
cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax
situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which
affects how profitable the individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.

Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by
UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-
UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality wise
as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets
Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM
to Rs. 470 in in March 1993 and till April 2004, it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the
deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking
industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country.
Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime
responsibility of all mutual fund companies, to market the product correctly abreast of selling.

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.

The major players in the Indian Mutual Fund Industry are:

Major Players of Mutual Funds In India

 Period (Last&nbsp1 Week)

Rank Scheme Name Date NAV Last 1 Since

(Rs.) Week Inception
1 JM Core 11 Fund - Series 1 - Mar 26 8.45 5.12 -94.64
Growth , 2008
2 Tata Indo-Global Infrastructure Mar 26 8.26 5.05 -40.42
Fund - Growth , 2008
3 Tata Capital Builder Fund - Mar 26 12.44 5.03 15.35
Growth , 2008
4 Standard Chartered Enterprise Mar 26 14.07 5 20.92
Equity Fund - Growth , 2008
5 DBS Chola Infrastructure Fund - Mar 26 9.01 4.65 -17.17
Growth , 2008
6 ICICI Prudential Fusion Fund - Mar 26 10.2 4.62 23.69
Series III - Institutional - , 2008
Growth
7 DSP Merrill Lynch Micro Cap Mar 26 9.93 4.56 -0.85
Fund - Regular - Growth , 2008
8 ICICI Prudential Fusion Fund - Mar 26 10.19 4.51 22.39
Series III - Retail - Growth , 2008
9 DBS Chola Small Cap Fund - Mar 26 6.36 3.75 -81.78
Growth , 2008
10 Principal Personal Taxsaver Mar 25 124.66 3.44 29.97
, 2008
11 Benchmark Split Capital Fund - Mar 26 141.51 3.14 13.71
Plan A - Preferred Units , 2008
12 ICICI Prudential FMP - Series Mar 26 9.89 2.91 -7.88
33 - Plan A - Growth , 2008
13 Tata SIP Fund - Series I - Mar 26 10.25 2.38 2.39
Growth , 2008
14 Sahara R.E.A.L Fund - Growth Mar 25 7.64 1.86 -49.52
, 2008
15 Tata SIP Fund - Series II - Mar 26 9.93 1.58 -0.94
Growth , 2008

A mutual fund is a professionally-managed firm of collective investments that pools money from
many investors and invests it in stocks, bonds, short-term money market instruments, and/or other
securities.in other words we can say that A Mutual Fund is a trust 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.
The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly calculated
daily based on the total value of the fund divided by the number of shares currently issued and
outstanding. The value of all the securities in the portfolio in calculated daily. From this, all expenses
are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.

NAV = Total value of the fund……………….

No. of shares currently issued and outstanding

Advantages of a MF
– Mutual Funds provide the benefit of cheap access to expensive stocks

– Mutual funds diversify the risk of the investor by investing in a basket of assets

– A team of professional fund managers manages them with in-depth research inputs
from investment analysts.

– Being institutions with good bargaining power in markets, mutual funds have access to
crucial corporate information, which individual investors cannot access.

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. 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 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 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 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)

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. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.
1,21,805 crores.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into
two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under
management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US
64 scheme, assured return and certain other schemes
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with
SEBI and functions under the Mutual Fund Regulations. consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
Categories of mutual funds:

Mutual funds can be classified as follow:

  Based on their structure:

 Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.

 Close-ended funds: These funds raise money from investors only once. Therefore, after the offer
period, fresh investments can not be made into the fund. If the fund is listed on a stocks exchange
the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the
New Fund Offers of close-ended funds provided liquidity window on a periodic basis such as
monthly or weekly. Redemption of units can be made during specified intervals. Therefore, such
funds have relatively low liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating share
prices, such funds show volatile performance, even losses. However, short term fluctuations in the
market, generally smoothens out in the long term, thereby offering higher returns at relatively lower
volatility. At the same time, such funds can yield great capital appreciation as, historically, equities
have outperformed all asset classes in the long term. Hence, investment in equity funds should be
considered for a period of at least 3-5 years. It can be further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their
portfolio mirrors the benchmark index both in terms of composition and individual stock
weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different sectors
and stocks.

iii) Dividend yield funds- it is similar to the equity diversified funds except that they invest in companies
offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest
in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder,
they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who
prefer spreading their risk across various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of
taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like
bonds, debentures, Government of India securities; and money market instruments such as certificates
of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds
depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested
in call money market.

ii)Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills.

iii)Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which have
variable coupon rate.

iv)Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between
cash market and derivatives market. Funds are allocated to equities, derivatives and money markets.
Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.

v)Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt
papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-30%
to equities.

viii)FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.
Investment strategies:
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a
month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer
units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee
Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions
to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can
withdraw a fixed amount each month.
Risk v/s. return:
Working of a Mutual fund:

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

Before we understand what is mutual fund, it’s very important to know the area in which mutual
funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment
traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a company, and in return
you can receive interest on your invested amount, which is back over predetermined amounts of time.
Bonds are considered to be the most common lending investment traded on the market. There are many
other types of investments other than stocks and bonds (including annuities, real estate, and precious
metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual fund will
have a fund manager who is responsible for investing the gathered money into specific securities
(stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they
are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund,
investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their
own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing
returns.
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
Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. The table below gives an overview into the existing types of
schemes in the Industry.
Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes

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

Close Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15
years. The fund is open for subscription only during a specified period. Investors can invest in the
scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme
on the stock exchanges 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 Schemes
Interval Schemes are that scheme, which combines the features of open-ended and close-
ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV related prices.
BY NATURE

Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual
fund is categorized as follow:
1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different stocks.
The Equity Funds are sub-classified depending upon their investment objective, as follows:

 Diversified Equity Funds

 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private companies,
banks and financial institutions are some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are
further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

 Income Funds: Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.

 MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks
slightly high on the risk-return matrix when compared with other debt schemes.

 Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
  Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity
and preservation of capital. These schemes invest in short-term instruments like Treasury
Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon of 1day to 3
months. These schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both the worlds.
Equity part provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives
of the fund. The investor can align his own investment needs with the funds objective and invest
accordingly.
BY INVESTMENT OBJECTIVE

 Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value
for possible future appreciation.

 Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest
in fixed income securities such as bonds and corporate debentures. Capital appreciation in
such schemes may be limited.

 Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in their offer
documents (normally 50:50).

 Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation
of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money.

OTHER SCHEMES
 Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
 Index Schemes: Index schemes attempt to replicate the performance of a particular index
such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from such schemes would be
more or less equivalent to those of the Index.
  Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a
watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns:

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
 Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain. Most funds
also pass on these gains to investors in a distribution.
 If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of
investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed,
by well qualified professional. Investors purchase funds because they do not have the time or the
expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive
way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds,
the investors risk is spread out and minimized up to certain extent. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is minimized by gains
in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to
reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available

instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their management
is not dynamic enough to explore the available opportunity in the market, thus many investors debate
over whether or not the so-called professionals are any better than mutual fund or investor himself, for
picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra
cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had strong success, the manager
often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax
situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which
affects how profitable the individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
Guidelines of the SEBI for Mutual Fund Companies :

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds.
It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time.

SEBI approved Asset Management Company (AMC) manages the funds by making investments
in various types of securities. Custodian, registered with SEBI, holds the securities of various
schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading
professional standards and in promoting best industry practices in diverse areas such as
valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :

1. Photo PAN card

2. In case of non-photo PAN card in addition to copy of PAN card any one of the following:
driving license/passport copy/ voter id/ bank photo pass book.
Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport,
latest bank passbook/bank account statement, latest Demat account statement, voter id, driving
license, ration card, rent agreement.
Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO).
Its advisable to every investor to ask for the offer document and read it before investing. An
offer document consists of the following:
Standard Offer Document for Mutual Funds (SEBI Format)
 Summary Information
 Glossary of Defined Terms
 Ris k Disclosures
 Legal and Regulatory Compliance
 Expenses
 Condensed Financial Information of Schemes
 Constitution of the Mutual Fund
 Investment Objectives and Policies
 Management of the Fund
 Offer Related Information.

Key Information Memorandum: a key information memorandum, popularly known as KIM,

is attached along with the mutual fund form. And thus every investor get to read it. Its contents
are:
1 Name of the fund.
2. Iestment
objective
3. Aset allocation pattern of the scheme.
4. Risk profile of the scheme
5. Plans & options
6. Minimum application amount/ no. of units
7. Benchmark index
8. Dividend policy
9. Name of the fund manager(s)
10 . Expenses of the scheme: load structure, recurring expenses
11. Performance of the scheme (scheme return v/s. benchmark return)
12. Year- wise return for the last 5 financial year.
Distribution channels:

Mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t
face any difficulty in the final procurement. The various parties involved in distribution of
mutual funds are:

1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The
investors can approach to the AMCs for the forms. some of the top AMCs of India are; Reliance
,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae Assets,
Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard Chartered,
Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.

2 .Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker to
popularize their funds. AMCs can enjoy the advantage of large network of these brokers and sub
brokers.eg: SBI being the top financial intermediary of India has the greatest network. So the
AMCs dealing through SBI has access to most of the investors.

3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents,
independent brokers, banks and several non- banking financial corporations too, whichever he
finds convenient for him.

Costs associated:

Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50
for every Rs100 in assets under management. A fund's expense ratio is typically to the size of
the funds under management and not to the returns earned. Normally, the costs of running a fund
grow slower than the growth in the fund size - so, the more assets in the fund, the lower should
be its expense ratio

Loads:

Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying the
fund to cover the cost of selling, processing etc.

Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an
investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to zero
with increase in holding period.

Measuring and evaluating mutual funds performance:

Every investor investing in the mutual funds is driven by the motto of either wealth creation or
wealth increment or both. Therefore it’s very necessary to continuously evaluate the funds’
performance with the help of factsheets and newsletters, websites, newspapers and professional
advisors like SBI mutual fund services. If the investors ignore the evaluation of funds’
performance then he can loose hold of it any time. In this ever-changing industry, he can face
any of the following problems:

1. Variation in the funds’ performance due to change in its management/ objective.

2. The funds’ performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund.
4 .Beta, a technical measure of the risk associated may also surge.
5. The funds’ ratings may go down in the various lists published by independent rating
agencies.
6 .It can merge into another fund or could be acquired by another fund house.
Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of: NAV Growth,
Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions,
Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios,
Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs,
Cash Flow, Leverage.

Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer Group
Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV
Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the basis
of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

Concept of benchmarking for performance evaluation:

Every fund sets its benchmark according to its investment objective. The funds performance is
measured in comparison with the benchmark. If the fund generates a greater return than the
benchmark then it is said that the fund has outperformed benchmark , if it is equal to benchmark
then the correlation between them is exactly 1. And if in case the return is lower than the
benchmark then the fund is said to be underperformed.

Some of the benchmarks are :

1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE 500
index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return
Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-
Bill Index

To measure the fund’s performance, the comparisons are usually done with:
I)with a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):

Investors are required to go for financial planning before making investments in any mutual
fund. The objective of financial planning is to ensure that the right amount of money is available
at the right time to the investor to be able to meet his financial goals. It is more than mere tax
planning. Steps in financial planning are:

Asset allocation.
Selection of fund.
Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation, leaving
the actual allocation of securities and their management to fund managers. A fund manager has
to closely follow the objectives stated in the offer document, because financial plans of users are
chosen using these objectives.
Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the market
flooded with a variety of investment options which includes mutual funds, equities, fixed income
bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold,
real estate etc. all these investment options could be judged on the basis of various parameters
such as- return, safety convenience, volatility and liquidity. measuring these investment
options on the basis of the mentioned parameters, we get this in a tabular form

Return Safety Volatility Liquidity Convenienc

e

Equity High Low High High Moderate

Bonds Moderate High Moderate Moderate High

Co. Moderate Moderate Moderate Low Low

Debentures
Co. FDs Moderate Low Low Low Moderate

Bank Low High Low High High

Deposits
PPF Moderate High Low Moderate High

Life Low High Low Low Moderate

Insurance
Gold Moderate High Moderate Moderate Gold

Real Estate High Moderate High Low Low

Mutual High High Moderate High High

Funds
We can very well see that mutual funds outperform every other investment option. On three
parameters it scores high whereas it’s moderate at one. comparing it with the other options, we
find that equities gives us high returns with high liquidity but its volatility too is high with low
safety which doesn’t makes it favourite among persons who have low risk- appetite. Even the
convenience involved with investing in equities is just moderate.

Now looking at bank deposits, it scores better than equities at all

fronts but lags badly in the parameter of utmost important ie; it scores low on return , so it’s not
an happening option for person who can afford to take risks for higher return. The other option
offering high return is real estate but that even comes with high volatility and moderate safety
level, even the liquidity and convenience involved are too low. Gold have always been a
favourite among Indians but when we look at it as an investment option then it definitely doesn’t
gives a very bright picture. Although it ensures high safety but the returns generated and liquidity
are moderate. Similarly the other investment options are not at par with mutual funds and serve
the needs of only a specific customer group. Straightforward, we can say that mutual fund
emerges as a clear winner among all the options available.
The reasons for this being:

I)Mutual funds combine the advantage of each of the investment products: mutual fund is
one such option which can invest in all other investment options. Its principle of diversification
allows the investors to taste all the fruits in one plate. just by investing in it, the investor can
enjoy the best investment option as per the investment objective.

II)dispense the shortcomings of the other options: every other investment option has more or
les some shortcomings. Such as if some are good at return then they are not safe, if some are
safe then either they have low liquidity or low safety or both….likewise, there exists no single
option which can fit to the need of everybody. But mutual funds have definitely sorted out this
problem. Now everybody can choose their fund according to their investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are managed by
experts so they are ready to switch to the profitable option along with the market movement.
Suppose they predict that market is going to fall then they can sell some of their shares and book
profit and can reinvest the amount again in money market instruments.

IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one
more reason which has established mutual funds as one of the largest financial intermediary and
that is the flexibility that mutual funds offer regarding the investment amount. One can start
investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100 in some
cases.

How do investors choose between funds?

When the market is flooded with mutual funds, it’s a very tough job for the investors to choose
the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look
at the investment objective of the fund. Then the investors sort out the funds whose investment
objective matches with that of the investor’s. Now the tough task for investors start, they may
carry on the further process themselves or can go for advisors like SBI . Of course the investors
can save their money by going the direct route i.e. through the AMCs directly but it will only
save 1-2.25% (entry load) but could cost the investors in terms of returns if the investor is not
an expert. So it is always advisable to go for MF advisors. The mf advisors’ thoughts go beyond
just investment objectives and rate of return. Some of the basic tools which an investor may
ignore but an mf advisor will always look for are as follow:
1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP)
may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an
investor to bring down the average cost of buying a scheme by making a fixed investment
periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this
case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls,
the investors can get more number of units and vice-versa. This results in the average cost per
unit for the investor being lower than the average price per unit over time.
The investor needs to decide on the investment amount and the frequency. More frequent the
investment interval, greater the chances of benefiting from lower prices. Investors can also
benefit by increasing the SIP amount during market downturns, which will result in reducing the
average cost and enhancing returns. Whereas STP allows investors who have lump sums to park
the funds in a low-risk fund like liquid funds and make periodic transfers to another fund to take
advantage of rupee cost averaging.

2. Rebalancing:

Rebalancing involves booking profit in the fund class that has gone up and investing in the asset
class that is down. Trigger and switching are tools that can be used to rebalance a portfolio.
Trigger facilities allow automatic redemption or switch if a specified event occurs. The trigger
could be the value of the investment, the net asset value of the scheme, level of capital
appreciation, level of the market indices or even a date. The funds redeemed can be switched to
other specified schemes within the same fund house. Some fund houses allow such switches
without charging an entry load.
To use the trigger and switch facility, the investor needs to specify the event, the amount or the
number of units to be redeemed and the scheme into which the switch has to be made. This
ensures that the investor books some profits and maintains the asset allocation in the portfolio.
3. Diversification:

Diversification involves investing the amount into different options. In case of mutual funds, the
investor may enjoy it afterwards also through dividend transfer option. Under this, the dividend
is reinvested not into the same scheme but into another scheme of the investor's choice.
For example, the dividends from debt funds may be transferred to equity schemes. This gives
the investor a small exposure to a new asset class without risk to the principal amount. Such
transfers may be done with or without entry loads, depending on the MF's policy.

4. Tax efficiency:

Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final decision of
any investor before investing. The investors gain through either dividends or capital appreciation
but if they haven’t considered the tax factor then they may end loosing.
Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and
education cess) on dividends paid out. Investors who need a regular stream of income have to
choose between the dividend option and a systematic withdrawal plan that allows them to
redeem units periodically. SWP implies capital gains for the investor.
If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket.
Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and
should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than one year),
the growth option is more tax efficient for all investors. This is because investors can redeem
units using the SWP where they will have to pay 10 per cent as long-term capital gains tax
against the 12.50 per cent DDT paid by the MF on dividends.
All the tools discussed over here are used by all the advisors and have helped investors in
reducing risk, simplicity and affordability. Even then an investor needs to examine costs, tax
implications and minimum applicable investment amounts before committing to a service.

Most popular stocks among fund managers (as on 30th April 2008)

Company Name no. of funds

Reliance industries limited 244
Larsen & toubro limited 206
ICICI bank limited 202
State bank of India 188
Bharti airtel limited 184
Bharat heavy electricals limited 200
Reliance communication ventures
ltd 169
Infosys technologies ltd 159
Oil& Natural gas corporation ltd. 153
ITC ltd. 143
We can easily point out that reliance industries limited emerges as a true winner over here
attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI bank
ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place at top 10
are SBI, Bharti airtel limited, reliance communications, Infosys technologies limited, ONGC
and at last ITC ltd.

What are the most lucrative sectors for mutual fund managers?

This is a question of utmost interest for all the investors even for those who don’t invest in mutual
funds. Because the investments done by the MFs acts as trendsetters. The investments made by
the fund managers are used for prediction. Huge investments assure liquidity and reflects
appositive picture whereas tight investment policy reflects crunch and investors may look
forward for a gloomy picture.
Their investments show that which sector is hot? And will set the market trends. The expert
management of the funds will always look for profitable and high paying sectors. So we can
have a look at most lucrative sectors to know about the recent trends:
Sector name No. of MFs betting on it
automotive 255
banking & financial 196
services
cement & construction 237
consumer durables 51
conglomerates 218
chemicals 259
consumer non durables 146
engineering & capital 317
goods
food & beverages 175
information technology 284
media & entertainment 218
Manufacturing 259
metals& mining 275
Miscellaneous 250
oil & gas 290
Pharmaceuticals 250
Services 200
Telecom 264
Tobacco 150
Utility 225
From the above data collected we can say that engineering & capital goods sector has emerged
as the hottest as most of the funds are betting on it. We can say that this sector is on boom and
presents a bright picture. Other than it other sectors on height are oil & gas, telecom, metals &
mining and information technology. Sectors performing average are automotive, cement &
construction, chemicals, media & entertainment, manufacturing, miscellaneous,
pharmaceuticals and utility. The sectors which are not so favourite are banking & financial
services, conglomerates, consumer non- durables, food & beverages, services and tobacco. And
the sector which failed to attract the fund managers is consumer durables with just 51 funds
betting on it.

Thus this analysis not only gives a picture of the mindset of fund managers rather it also reflects
the liquidity existing in each of the sectors. It is not only useful for investors of mutual funds
rather the investors of equity and debt too could take a hint from it. Asset allocation by fund
managers are based on several researches carried on so, it is always advisable for other investors
too take a look on it. It can be further presented in the form of a graph as follow:
Systematic investment plan (in details)

We have already mentioned about SIPs in brief in the previous pages but now going into details,
we will see how the power of compounding could benefit us. In such case, every small amounts
invested regularly can grow substantially. SIP gives a clear picture of how an early and regular
investment can help the investor in wealth creation. Due to its unlimited advantages SIP could
be redefined as “a methodology of fund investing regularly to benefit regularly from the stock
market volatility. In the later sections we will see how returns generated from some of the SIPs
have outperformed their benchmark. But before moving on to that lets have a look at some of
the top performing SIPs and their return for 1 year:

Scheme
Amount NAV NAV Date Total Amount

Reliance diversified power sector

retail 1000 62.74 30/5/2008 14524.07
Reliance regular savings equity
1000 22.208 30/5/2008 13584.944
principal global opportunities fund
1000 18.86 30/5/2008 14247.728
DWS investment opportunities
fund
1000 35.31 30/5/2008 13791.157

BOB growth fund

1000 42.14 30/5/2008 13769.152

In the above chart, we can see how if we start investing Rs.1000 per month then what return we’ll get for
the total investment of Rs. 12000. There is reliance diversified power sector retail giving the maximum
returns of Rs. 2524.07 per year which comes to 21% roughly. Next we can see if anybody would have
undertaken the SIP in Principal would have got returns of app. 18%. We can see reliance regular savings
equity, DWS investment opportunities and BOB growth fund giving returns of 13.20%, 14.92%, and
14.74% respectively which is greater than any other monthly investment options. Thus we can easily
make out how SIP is beneficial for us. Its hassle free, it forces the investors to save and get them into the
habit of saving. Also paying a small amount of Rs. 1000 is easy and convenient for them, thus putting no
pressure on their pockets.
Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and bank fixed deposits
In a tabular format as well as graphical.

NO. OF

Scheme Name INSTALMENTS Original inv Returns at BSE 200 FUND RETURNS

Birla SL tax relief '96 144 144000 553190 1684008

Birla SL equity fund 114 114000 388701 669219

Birla frontline equity fund 66 66000 156269 181127
In the above case, we have taken three funds of Birla sunlife namely Birla sunlife tax relief ’96, Birla
sunlife equity fund and Birla sunlife frontline equity fund. All these three funds follow the same
benchmark ie; BSE 200. Here, we have shown how one would have benefitted if he would have put his
money into these schemes since their inception. And the amount even is a meager Rs. 1000 per month.
Starting from Birla frontline equity fund, we could spot that if someone would have invested Rs. 1000
per month resulting into total investment of Rs. 66000 then it would have amounted to rs.156269 if
invested in BSE 200 whereas the fund would have given a total return of Rs 181127. Now moving next
to Birla sunlife equity fund, a total investment of 114000 for a total of 114 months at BSE 200 would
have given a total return of Rs. 388701 whereas the fund gave a total return of Rs. 669219, nearly double
the return generated at BSE 200. And now the cream of all the investments, Birla sunlife tax relief ’96.
A total investment of Rs. 144000 for a period of 12 years at BSE 200 would have given total returns of
just Rs. 553190 but the Birla sunlife tax relief ’96 gave an unbelievable total return of Rs 1684008.

Thus the above case very well explains the power of compounding and early investment. We have seen
how a meager amount of Rs. 144000 turned into Rs. 1684008. It may appear unbelievable for many but
SIPs have turned this into reality and the power of compounding is speaking loud, attracting more and
more investors to create wealth through SIPs.

Does fund performance and ranking persist?

This project has been a great learning experience for me. But the analyses that are carried onward
these pages are really close to my heart. After taking a look at the data presented below, an expert
might underestimate my efforts. One might think it as a boring task and can go for recording
historic NAVs since last 1 month instead of recording it daily.
But frankly speaking, while tracking the NAVs, I really developed some sentiments with these
funds. Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio.
The portfolio consists of different types of funds. We can see some funds are 5- star rated but
their performances are below the unrated funds. We can also find some funds which performed
very well initially but gradually declined either in short- run or long run. Some funds have high
NAVS but the returns offered are low. We can also see some funds following same benchmark
and reflecting diverse NAV and returns. Even it can be seen that the expense ratios for various
funds varies which may affect the ultimate return.

Now before going into details, lets have a look at those funds: in this downgrading equity market,
we can easily make out that the 1 year return of the fund that was on 17 th of april could not be
sustained till 1 month. One can sort out that the present return of funds has decreased a lot and
subsequently its NAV too has come down. All the funds are showing negative returns for the
last 1 month. Even the two hybrid funds are showing negative monthly returns. That means all
those who bought these funds a month back must be experiencing a negative return. Although
the annual return of the funds have gone down in comparison to what it was offering a month
back. Still the total return is positive. On an average the equity funds are offering a return of
30% annually, inspite of a week equity market.

Now checking the validity of funds’ ratings, we can see that some of the funds are 5 star or 4
star rated but their returns lag behind the unrated funds. Although, since the ratings include both
risk and return so it will not be a total justice to judge the funds purely on a return basis but still
we can go for it just to judge them on the basis of returns generated.

Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated funds. In
other way, we have seven equity diversified funds, one equity specialty, one hybrid: dynamic
asset allocation and one hybrid: debt oriented fund. It is not possible to compare each and every
fund in details. So I have compared 2 funds out of this list on the basis of their returns and
expenses.
Here DBS Chola opportunities and ICICI Pru infrastructure follows the same benchmark S&P
CNX NIFTY. In this case, DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru
infrastructure is an unrated fund. The star rating definitely gives DBS a competitive advantage
but now lets have a look at other factors, we can see that ICICI Pru has really performed worse
in the last month. Its 1 month return is -5.8% whereas DBS gave a return of -3.07%. Even if we
consider 6 months return or yearly returns, definitely DBS is a winner. We can easily spot the
difference by change in their rankings even. Considering 1 yr return, we can spot DBS at no.5
whereas ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock, DBS is
at 52 and ICICI far behind at 172. But if we look at the yearly returns, then there is not much
difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27. But
looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which may act
as the ultimate factor in choosing the fund in a long run.
Thus at last we can conclude that ratings are totally irrelevant for investors. Here is why
they are totally irrelevant to investor:
1. Mutual fund ratings are based on the returns generated, that is, appreciation of net asset
value, based on the historical performance. So they rely more on the past, rather than the
current scenario.
2. As returns play a key role in deciding the ratings, any change in returns will lead to re-
rating of the mutual fund. If you choose your mutual fund only on the basis of rating, it
will be a nuisance to keep realigning your investment in line with the revision of the
ratings.
3. The ratings don’t value the investment processes followed by the mutual fund. As a
result, a fund following a certain process may lose out to a fund that has given superior
returns only because it has a star fund manager. But there is a higher risk associated with
a star fund manager that the ratings don’t reflect. If the star fund manager quits, it can
throw the working of a mutual fund out of gear and thus affect its performance.

4. The ratings don’t show the level of ethics followed by the fund. A fund or fund manager
that is involved in a scam or financial irregularities won’t get poor ratings on the basis of
ethics. As the star ratings look at just returns, any wrongdoing carried out by the fund or
fund manager will be completely ignored.
 5. Ratings also don’t consider two very important factors: transparency and keeping
investors informed. There are no negative ratings awarded to the fund for being investor-
unfriendly.

6. Ratings don’t match the investor’s risk-appetite with their portfolio. As a matter of fact,
investments should be done only after considering the risk appetite of the investor. For
example, equities may not be the best investment vehicle for a very conservative investor.
However ratings fail to take that into account.

Ratings should be the starting point for making an investment decision. They are not the be all
and end all of mutual fund investments. There are other important factors like portfolio
management, age of funds and more, which should be taken into account before making an
investment.

Portfolio analysis tools:

With the increasing number of mutual fund schemes, it becomes very difficult for an investor to
choose the type of funds for investment. By using some of the portfolio analysis tools, he can
become more equipped to make a well informed choice. There are many financial tools to
analyze mutual funds. Each has their unique strengths and limitations as well. Therefore, one
needs to use a combination of these tools to make a thorough analysis of the funds.
The present market has become very volatile and buoyant, so it is getting difficult for the
investors to take right investing decision. so the easiest available option for investors is to choose
the best performing funds in terms of “returns” which have yielded maximum returns.
But if we look deeply to it, we can find that the returns are important but it is also important to
look at the ‘quality’ of the returns. ‘Quality’ determines how much risk a fund is taking to
generate those returns. One can make a judgment on the quality of a fund from various ratios
such as standard deviation, sharpe ratio, beta, treynor measure, R-squared, alpha, portfolio
turnover ratio, total expense ratio etc.
Now I have compared two funds of SBI on the basis of standard deviation, beta, R-squared,
sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into details, lets
have a look at these ratios:

Standard deviation:
in simple terms standard deviation is one of the commonly used statistical parameter to measure
risk, which determines the volatility of a fund. Deviation is defined as any variation from a
mean value (upward & downward). Since the markets are volatile, the returns fluctuate everyday.
High standard deviation of a fund implies high volatility and a low standard deviation implies
low volatility.

Beta analysis:
beta is used to measure the risk. It basically indicates the level of volatility associated with the
fund as compared to the market. In case of funds, as compared to the market. In case of funds,
beta would indicate the volatility against the benchmark index. It is used as a short term decision
making tool. A beta that is greater than 1 means that the fund is more volatile than the benchmark
index, while a beta of less than 1 means that the fund is more volatile than the benchmark index.
A fund with a beta very close to 1 means the fund’s performance closely matches the index or
benchmark.
The success of beta is heavily dependent on the correlation between correlation between a fund
and its benchmark. Thus, if the fund’s portfolio doesn’t have a relevant benchmark index then a
beta would be grossly inappropriate. For example if we are considering a banking fund, we
should look at the beta against a bank index.

R-Squared (R2):

R squared is the square of ‘R’ (i.e.; coefficient of correlation). It describes the level of
association between the fun’s market volatility and market risk. The value of R- squared ranges
from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable
measure to analyze the performance of a fund. Beta should be ignored when the r-squared is low
as it indicates that the fund performance is affected by factors other than the markets.

For example:
Case 1 Case 2
R2 0.65 0.88
B 1.2 0.9

In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that
the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and
beta value is 0.9. it means that this fund is less aggressive than the market.
Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns given
by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio means that these
returns have been generated taking lesser risk. In other words, the fund is less volatile and yet
generating good returns. Thus, given similar returns, the fund with a higher sharpe ratio offers a
better avenue for investing. The ratio is calculated as:
Sharpe ratio = (Average return- risk free rate) / standard deviation

Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity and is
calculated by dividing the lesser of purchases or sales (excluding securities with maturities of
less than one year) by the average monthly net assets of the fund. Turnover is simply a measure
of the percentage of portfolio value that has been transacted, not an indication of the percentage
of a fund's holdings that have been changed. Portfolio turnover is the purchase and sale of
securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and sold all its
positions within the last year. Turnover is important when investing in any mutual fund, since
the amount of turnover affects the fees and costs within the mutual fund.

Total expenses ratio: A measure of the total costs associated with managing and operating an
investment fund such as a mutual fund. These costs consist primarily of management fees and
additional expenses such as trading fees, legal fees, auditor fees and other operational expenses.
The total cost of the fund is divided by the fund's total assets to arrive at a percentage
amount, which represents the TER:
Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of magnum equity fund and magnum multiplier
plus against their benchmark BSE100:

YTD 1M 3M 6M 1Y 3Y 5Y
Magnu -23.73% 9.02% -7.71% -15.18% 26.61% 45.07% 48.96%
m
equity
fund

Magnu -26.16% 5.57% -11.26% -18.00% 21.44% 45.28% 59.31%

m
multipli
er plus
 Bench -17.53% 11.74% -2.56% 11.47% 30.71% 40.46% 44.24%
mark
BSE100

Now in the above table, we have two funds from SBI ie; magnum equity fund and magnum
multiplier plus following the same benchmark i.e; BSE 100. In this case, we have compared their
returns during various time periods. We have their returns YTD, during last 1 month, 3month, 6
months, 1 year, 3 year and 5 year. If we look at a long term perspective, then magnum multiplier
plus totally outperformed both magnum equity fund as well as bse 100. In case of 5 year returns,
neither the benchmark nor the magnum equity fund stands anywhere near multiplier plus. It is
greater than equity fund by 10.35% and from benchmark by 15.07%. but in case of 3 year returns,
surely multiplier plus gave the maximum return but it fell sharply in comparison to its 5 yr return.
A 45.28% return scored over equity fund just by a margin of 0.21% and benchmark by a mere
4.28%. now moving down to 1 yr return, we can clearly see that bse 100 emerges as a true
winner. The benchmark gave a return of 30.71% but both the funds failed to match it even.

But the ultimate surprise comes when we look at the datas of last 6 months. Here not only the
fund mangers failed to beat or match the market. Rather they also performed as laggards, giving
negative returns. When the bse 100 gave returns of 11.47%, these funds were trailing by 29.47%
and 26.65% which is a huge figure. In th last 3 months too, both the funds were behind bse100
but all the three gave negative returns and the difference between them and benchmark was
narrowed down. Again, during last 1 month return of all three got positive but the funds always
remained behind the benchmark. The bse 100 outscored multiplier plus and equity fund by
6.17% and 2.72% respectively. Similarly, the YTD return of all 3 is negative even then the
benchmark is at a better position than the funds.

From the following analysis we can infer that inspite of all the steps taken; it is not always
possible for the fund managers to always beat the market. Also, the past performance just tells
the background and history of the fund, by looking at it we cannot interpret that the fund will
perform in the same way in the future too. The datas can be presented in the form of a graph
as follow:

Quantitative data:
Ratios Magnum equity fund Magnum multiplier plus

Standard deviation 26.00% 26.90%

Beta 0.96% 0.95%
r-squared 0.84%
Sharpe ratio 1.46% 1.42%
Portfolio turnover 31% 25%
Total expense ratio 2.5% 2.5%
Analysis:
 W e can see that the standard deviation of both the funds are more or less same even then the
S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the SD
higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than magnum
equity fund.
 The beta of magnum equity fund is higher than that of magnum multiplier plus. Therefore,
equity fund is more volatile than multiplier plus. But beta of both the funds is smaller than 1 that
means both the funds are less volatile than the market index. As r- squared values are more than
0.80 in both the cases, we can rely on the usage of beta for the analysis of these funds.
 A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus.
A higher Sharpe ratio of equity fund depicts that these return have been generated taking lesser
risk than the multiplier plus. It Is less volatile than the other.
 R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a
reliable measure to analyze the performance of these funds. Magnum equity fund’s R- squared
is higher. So its beta is more reliable.
 Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean the
manager is frequently churning the portfolio of equity fund than of multiplier plus. It may lead
to an increase in expenses but could be ignored if could generate higher return by changing the
composition of portfolio.
 Total expense ratio of both the funds are same i.e.; 2.5%

In the form of a chart:

Research report
Objective of research;

 Th e main objective of this project is concerned with getting the opinion of people
regarding mutual funds and what they feel about availing the services of financial
advisors.
 I have tried to explore the general opinion about mutual funds. It also covers why/ why
not investors are availing the services of financial advisors.
 Along with it a brief introduction to India’s largest financial intermediary, SBI has been
given and it is shown that how they operate in mutual fund deptt
Scope of the study:

The research was carried on in the Northern Region of India. It is restricted to Dehradoon. I have
visited people randomly nearby my locality, different shopping malls, small retailers etc.

Data sources:
Research is totally based on primary data. Secondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected by
interacting with various people. The secondary data has been collected through various journals
and websites and some special publications of SBI .

Sampling:

 Sampling procedure:

The sample is selected in a random way, irrespective of them being investor or not or
availing the services or not. It was collected through mails and personal visits to the
known persons, by formal and informal talks and through filling up the questionnaire
prepared. The data has been analyzed by using the measures of central tendencies like
mean, median, mode. The group has been selected and the analysis has been done on the
basis statistical tools available.
 Sample size:

The sample size of my project is limited to 200 only. Out of which only 135 people
attempted all the questions. Other 65 not investing in MFs attempted only 2 questions.

 Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

 Limitation:

 Time limitation.

 Research has been done only at Dehradoon.

 Some of the persons were not so responsive.

 Possibility of error in data collection.

 Possibility of error in analysis of data due to small sample size.

Data analysis:

 Have you ever invested/ interested to invest in mutual funds?

YES 135
NO 65

No. of persons= 200

Series1,
NO, 65,
33%
Series1,
YES, 135,
67%

 .what is the most important reason for not investing in mutual funds? (only
for above 65 participants)

Lack of knowledge about mutual funds 25

Enjoys investing in other options 10

Its benefits are not enough to drive you 18
for investment
No trust over the fund managers 12
  .where do you find yourself as a mutual fund investor?

Totally ignorant 28

Partial knowledge of MFs 37

Aware of only scheme in which invested 46
Good knowledge of MFs 24
  .where from you purchases mutual funds?

Directly from the AMCs 33

Brokers only ( large intermediaries) 28

Broker/ sub-brokers 59
Other sources 15
 QUESTIONNAIRE

A study of preferences of the investors for investment in mutual funds.

1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

Graduation/PG Under Graduate Others

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (√).

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001 and

Rs.10,000 15000 20,000 30,000 above

2. What kind of investments you have made so far? Pl tick (√). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund

e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer?

.
(a) Liquidity (b) Low Risk (c) High Return (d) Trust

4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No
 5. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No

7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.

a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. specify

9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable).

a. SBIMF is associated with State Bank of India.

b. They have a record of giving good returns year after year.
c. Agent’ Advice

10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable).

a. You are not aware of SBIMF.

b. SBIMF gives less return compared to the others.
c. Agent’ Advice

11. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.

a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI
12. Which Channel will you prefer while investing in Mutual Fund?

(a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)

14. When you want to invest which type of funds would you choose?

a. Having only debt b. Having debt & equity c. Only equity portfolio.
portfolio portfolio.

15. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re-investment c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial funds?
Please tick (√). Yes No