Chapter-1

Introduction

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MUTUAL FUND-CONCEPT

A mutual fund is a professionally managed type of collective investment scheme that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments, and other securities. The mutual fund has a fund manager who trades the pooled
money on a regular basis. The net proceeds or losses are then typically distributed to the
investors annually.

According to SEBI (Mutual Fund) Regulations 1993, Mutual Fund is "a fund established in the
form of a trust by a sponsor to raise money by the trustees through the sale of units to the public
under one or more schemes for investing securities in accordance with these regulations”.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital appreciations realized are shared by its unit holders in proportion to the number of units
owned by them.

Thus 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. Hence it 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.

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, which is determine
every day. 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.

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OPERATION OF MUTUAL FUND

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ORGANISATION OF MUTUAL FUND

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

Sponsor:

The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund &
registers the same with SEBI. He appoints the trustees, Custodians & the AMC with prior
approval of SEBI, & in accordance with SEBI regulations. He must have at least five year track
record of business interest in the financial markets. Sponsor must have been profit making in at
least three of the above five years. He must contribute at least 40% of the capital of the AMC.

Trustees:

The Mutual Fund may be managed by a Board of Trustees of individuals, or a trust company – a
corporate body. Most of the funds in India are managed by board of trustees. While the board of

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trustees is governed by the provisions of the Indian trust act, where the trustee is the corporate
body, it would also be required to comply with the provisions of the companies act, 1956. The
board of trustee company, as an independent body, act as protector of the unit-holders interest.
The trustees don’t directly manage the portfolio of securities. For this specialist function, they
appoint an AMC. They ensure that the fund is managed by AMC as per the defined objectives &
in accordance with the trust deed & SEBI regulations.

Asset Management Company (AMC):

The role of an Asset management companies is to act as the investment manager of the trust.
They are the ones who manage money of investors. An AMC takes decisions, compensates
investors through dividends, maintains proper accounting & information for pricing of units,
calculates the NAV, & provides information on listed schemes. It also exercises due diligence
on investments & submits quarterly reports to the trustees. AMCs have been set up in various
countries internationally as an answer to the global problem of bad loans.

Types of AMCs in Indian Context:

The following are the various types of AMCs we have in India:

AMCs owned by banks.

AMCs owned by financial institutions.

AMCs owned by Indian private sector companies.

AMCs owned by foreign institutional investors.

AMCs owned by Indian & foreign sponsors.

Custodian:
Often an independent organization, it takes custody all securities & other assets of mutual fund.
Its responsibilities include receipt & delivery of securities collecting income-distributing
dividends, safekeeping of the unit & segregating assets & settlements between schemes.

A sponsor then hires an asset management company to invest the funds according to the
investment objective. It also hires another entity to be the custodian of the assets of the fund &
perhaps the third one to handle registry work for the unit holder of the fund.

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Agent(R & T Registrars & Transfer Agent):

The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicing
function, as they maintain the records of investors in mutual funds. They process investor
applications; record details provide by the investors on application forms; send out to investors
details regarding their investment in the mutual fund; send out periodical information on the
performance of the mutual fund; process dividend payout to investor; incorporate changes in
information as communicated by investors; & keep the investor record up-to-date, by recording
new investors & removing investors who have withdrawn their funds.

SEBI – Securities and Exchange Board of India:

It is a board (autonomous body) created by the Government of India in 1988 and given statutory
form in 1992 with the SEBI Act 1992 with its head office at Mumbai.

SEBI acts as the nodal agency for addressing complaints of the investor, if they are not solved
directly between the parties concerned, or if the investor is not happy with the response.

SEBI has listed certain categories of grievances for which investors can file complaints with it.

These include:

Non-receipt of refund order or allotment advice in case of investment in IPO's, FPO's and rights
issues

Non-receipt of dividend from listed companies

Non-receipt of share certificates after transfer from listed companies

Non-receipt of debentures after transfer or non-receipt of interest or principal on redemption and

non-receipt of interest on delayed repayment

Non-receipt of rights offer letter

Brokers -Complaints against brokers stem from disputes over brokerage rates, non-receipt of
purchased shares or payments for sold shares, auction of shares sold and delivered timely, but
delay at broker's end, etc.

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Complaints against securities lending intermediaries may arise due to non-receipt of shares lent
by the investor or interest thereupon, or non-receipt of funds upon return of borrowed shares or
excessive interest charged upon borrowing.

Complaints against merchant bankers, registrar and transfer agents, bankers to issues and
underwriters generally stem from problems in primary market issues, like non-disclosures,
service issues etc.

Complaints against securities exchanges, clearing or settlement houses or depositories - these

concern irregularities or failure to act diligently,

Derivative trading - Investors sign legal papers empowering the broker to trade on their behalf,
without proper knowledge and wake up on seeing their margin money eroded due to sustained
losses.

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STRUCTURE OF MUTUAL FUNDS IN INDIA.

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 Institutions
UT
Private
Joint
Public
Foreign
Indian
Birla
Templeton
TATA
Banks
MutualVenture
Sun Funds
I
sector
with
Houses
Capital
Foreign
in
SBI
GIC India
Alliance
JM
Co.
CANARA
LIC etc.
Prudential
Reliance
PNB
Morgan
Partners
ICICI
BOI etc.
Stanley
Alliance
Capital

Kothari
Pioneer

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The Evolution

The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in
the year 1963. The primary objective at that time was to attract the small investors and it was
made possible through the collective efforts of the Government of India and the Reserve Bank of
India. The history of mutual fund industry in India can be better understood divided into
following phases:

Phase 1. Establishment and Growth of Unit Trust of India -

1964-87

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Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an
act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under
the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was
tranferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first
scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the years.

UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors.
It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and
India Fund (India's first offshore fund) in 1986, Mastershare (Inida's first equity diversified
scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the
end of 1987, UTI's assets under management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering the
market in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India
became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank
Mutual Fund, LIC Mutual Fund, Indian Bank Muatual Fund, Bank of India Mutual Fund, GIC
Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry
increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about
80% market share.

Mobilisatio
Assets
Amount n as % of
1992- Under
Mobilise gross
93 Managemen
d Domestic
t
Savings
UTI 11,057 38,247 5.2%
Publi
c
1,964 8,757 0.9%
Secto
r
Total 13,021 47,004 6.1%

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Phase III. Emergence of Private Secor Funds - 1993-96

The permission given to private sector funds including foreign fund management companies
(most of them entering through joint ventures with Indian promoters) to enter the mutal fund
industry in 1993, provided a wide range of choice to investors and more competition in the
industry. Private funds introduced innovative products, investment techniques and investor-
servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after
the year 1996. The mobilization of funds and the number of players operating in the industry
reached new heights as investors started showing more interest in mutual funds.

Investors' interests were safeguarded by SEBI and the Government offered tax benefits to the
investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced
by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999
exempted all dividend incomes in the hands of investors from income tax. Various Investor
Awareness Programmes were launched during this phase, both by SEBI and AMFI, with an
objective to educate investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a
trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual
fund players on the same level. UTI was re-organized into two parts: 1. The Specified
Undertaking, 2. The UTI Mutual Fund

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes
(like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual
Fund is still the largest player in the industry. In 1999, there was a significant growth in
mobilization of funds from investors and assets under management which is supported by the
following data:

GROSS FUND MOBILISATION (RS. CRORES)

PUBLI
PRIVAT
FRO C
TO UTI E TOTAL
M SECTO
SECTOR
R
01- 31-
11,67
April- March 1,732 7,966 21,377
9
98 -99

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 01- 31-
13,53
April- March 4,039 42,173 59,748
6
99 -00
01- 31-
12,41
April- March 6,192 74,352 92,957
3
00 -01
01- 31-
April- March 4,643 13,613 1,46,267 1,64,523
01 -02
01-
31-
April- 5,505 22,923 2,20,551 2,48,979
Jan-03
02
01- 31-
Feb.- March * 7,259* 58,435 65,694
03 -03
01- 31-
April- March - 68,558 5,21,632 5,90,190
03 -04
01- 31-
April- March - 1,03,246 7,36,416 8,39,662
04 -05
01- 31-
10,98,15
April- March - 1,83,446 9,14,712
8
05 -06

ASSETS UNDER MANAGEMENT (RS. CRORES)

PUBLIC PRIVATE TOTA
AS ON UTI
SECTOR SECTOR L
31-
53,32
March- 8,292 6,860 68,472
0
99

Phase V. Growth and Consolidation - 2004 Onwards

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The industry has also witnessed several mergers and acquisitions recently, examples of which
are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund
and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal
fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were
29 funds as at the end of March 2006. This is a continuing phase of growth of the industry
through consolidation and entry of new international and private sector players.

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COMPARESION OF MUTUAL FUND WITH OTHER FINANCIAL
PRODUCT:

Schemes Return Safety Volatilit Liquidit Convenie

y y nce

Equity High High Low High Moderate

FI Bonds High High Moderate Moderate Moderate

Corporate Moderate Moderate Moderate Low Low

Debentures

Company Moderate Low Low Low Moderate

Fixed

Deposits

Bank Low High Low High High

Deposits

Life Low High Low Low Moderate

Insurance

Gold Moderate High Moderate Moderate Low

Real Estate High Moderate High Low Low

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Mutual High High Moderate High High
Funds

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ADVANTAGES OF MUTUAL FUND

➢ Portfolio Diversification- Mutual funds invest in a number of companies. This

diversification reduces the risk because it happens very rarely that all the stock’s decline
at the same time and in the same proportion.

➢ Professional Management- The service are provide by the experienced and skilled
professionals, assisted by investment research team that analysis the performance and
prospects of companies and select the suitable investments to achieve the objectives of
the scheme.

➢ Low Costs- Mutual funds are a relatively less expensive way to invest as compare to
directly investing in a capital markets because of less amount of brokerage and other fees

➢ Liquidity- Whenever an investor needs money he can easily get redemption, which is
not possible in most of other options of investment. In open-ended schemes of mutual
fund, the investor gets the money back at net asset value and on the other hand in close-
ended schemes the units can be sold in a stock exchange at a prevailing market price.

➢ Transparency- Investors get full information of the value of their investment, the
proportion of money invested in each class of assets and the fund manager’s investment
strategy.

➢ Flexibility- The investors can systematically invest or withdraw funds according to their
needs and convenience like regular investment plans, regular withdrawal plans, and
dividend reinvestment plans etc.

➢ Convenient Administration- Investing in a mutual fund reduces paperwork and helps

investors to avoid many problems like bad deliveries, delayed payments and follow up
with brokers and companies. Mutual funds save time and make investing easy.

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

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

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 ➢ Well Regulated-All mutual funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interest of investors. The
operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUND:

➢ No Guarantees- No investment is risk free. If the entire stock market declines in value,
the value of mutual fund shares will go down as well, no matter how balanced the
portfolio. Investors encounter fewer risks when they invest in mutual funds than when
they buy and sell stocks on their own. However, anyone who invests through mutual
fund runs the risk of losing the money.

➢ Fees and Commissions- All funds charge administrative fees to cover their day to day
expenses. Some funds also charge sales commissions or loads to compensate brokers,
financial consultants, or financial planners. Even if you don’t use a broker or other
financial advisor, you will pay a sales commission if you buy shares in a Load Fund.

➢ Taxes- During a typical year, most actively managed mutual funds sell anywhere from
20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its
sales, you will pay taxes on the income you receive; even you reinvest the money you
made.

➢ Management Risk- When you invest in mutual fund, you depend on fund manager to
make the right decisions regarding the fund’s portfolio. If the manager does not perform
as well as you had hoped, you might not make as much money on your investment as
you expected. Of course, if you invest in index funds, you forego management risk
because these funds do not employ managers.

➢ Dilution- It's possible to have too much diversification, because funds have small
holdings in so many 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.

➢ Costs- Mutual funds don't exist solely to make your life easier--all funds are in it for a
profit. The mutual fund industry is masterful at burying costs under layers of jargon.

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 These costs are so complicated that in this tutorial we have devoted an entire section to
the subject.

➢ Difficulty in selecting a Suitable Fund Scheme

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TYPES OF MUTUAL FUND SCHEMES:

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TYPES OF MUTUAL FUND SCHEMES:
 By Structure:

➢ Open-ended scheme: An open-ended fund or scheme is one that is available for

subscription and repurchase on a continuous basis. These schemes do not have a fixed
maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV)
related prices which are declared on a daily basis. The key feature of open-end schemes
is liquidity.

➢ Close-ended scheme: A close-ended fund or scheme has a stipulated maturity period

e.g. 5-7 years. The fund is open for subscription only during a specified period at the
time of launch of the scheme. 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 the units 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 i.e. either repurchase facility or
through listing on stock exchanges. These mutual funds schemes disclose NAV generally
on weekly basis.

➢ Interval Scheme: Interval funds combine the features of open-ended & closed ended
schemes. They are open for sale or redemption during pre-determined intervals at NAV
related prices.

 By Investment Objective:

➢ Growth /Equity Oriented Scheme: The aim of growth funds is to provide capital
appreciation over the medium to long- term. Such schemes normally invest a major part
of their corpus in equities. Such funds have comparatively high risks. These schemes
provide different options to the investors like dividend option, capital appreciation, etc.
and the investors may choose an option depending on their preferences. The investors
must indicate the option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are good for investors
having a long-term outlook seeking appreciation over a period of time. 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.

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 ➢ Income / Debt Oriented Scheme:- The aim of income funds is to provide regular and
steady income to investors. Such schemes generally invest in fixed income securities
such as bonds, corporate debentures, Government securities and money market
instruments. Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of capital
appreciation are also limited in such funds. The NAVs of such funds are affected because
of change in interest rates in the country. If the interest rates fall, NAVs of such funds are
likely to increase in the short run and vice versa. However, long term investors may not
bother about these fluctuations.

➢ Balanced Fund:-The aim of balanced funds is to provide both growth and regular
income as such schemes invest both in equities and fixed income securities in the
proportion indicated in their offer documents. These are appropriate for investors looking
for moderate growth. They generally invest 40-60% in equity and debt instruments.
These funds are also affected because of fluctuations in share prices in the stock markets.
However, NAVs of such funds are likely to be less volatile compared to pure equity
funds.

➢ Money Market or Liquid Fund:-These funds are also income funds and their aim is to
provide easy liquidity, preservation of capital and moderate income. These schemes
invest exclusively in safer short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money, government securities, etc.
Returns on these schemes fluctuate much less compared to other funds. These funds are
appropriate for corporate and individual investors as a means to park their surplus funds
for short periods.

➢ Gilt Fund:-These funds invest exclusively in government securities. Government

securities have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as is the case with income or debt oriented
schemes.

➢ Index Funds :-Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in
the same weightage comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same percentage
due to some factors known as "tracking error" in technical terms. Necessary disclosures
in this regard are made in the offer document of the mutual fund scheme.

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 ➢ Sector specific funds/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. They may also seek advice
of an expert.

➢ Tax Saving Schemes:-These schemes offer tax rebates to the investors under specific
provisions of the Income Tax Act, 1961 as the Government offers tax incentives for
investment in specified avenues. e.g. Equity Linked Savings Schemes(ELSS). Pension
schemes launched by the mutual funds also offer tax benefits. These schemes are growth
oriented and invest pre-dominantly inequities. Their growth opportunities and risks
associated are like any equity-oriented scheme.

➢ Fund of Funds (FoF) scheme:-A scheme that invests primarily in other schemes of the
same mutual fund or other mutual funds is known as a FoF scheme. An FoF scheme
enables the investors to achieve greater diversification through one scheme. It spreads
risks across a greater universe.

➢ Load or no-load Fund:-A Load Fund is one that charges a percentage of NAV for entry
or exit. That is, each time one buys or sells units in the fund, a charge will be payable.
This charge is used by the mutual fund for marketing and distribution expenses. Suppose
the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the
investors who buy would be required to payRs.10.10 and those who offer their units for
repurchase to the mutual fund will get only Rs.9.90 per unit. The investors should take
the loads into consideration while making investment as these affect their yields/returns.
However, the investors should also consider the performance track recorded service
standards of the mutual fund which are more important. Efficient funds may give higher
returns in spite of loads. A no-load fund is one that does not charge for entry or exit. It
means the investors can enter the fund/scheme at NAV and no additional charges are
payable on purchase or sale of units.

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TYPE OF MUTUAL FUND ON THE BASIS OF RISK v/s
RETURN:

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PERFORMANCE EVALUATION OF MUTUAL FUND:

Parameters:-
✔ Risk

✔ Returns

✔ Liquidity

✔ Expense Ratio

✔ Composition of Portfolio

✔ Risk

 Risks Associated With Mutual Funds

Investing in mutual funds as with any security, does not come without risk. One of the
most basic economic principles is that risk and reward are directly correlated. In other words, the
greater the potential risk, the greater the potential return. The types of risk commonly associated
with mutual funds are:

➢ Market Risk: Market risk relate to the market value of a security in the future. Market
prices fluctuate and are susceptible to economic and financial trends, supply and
demand, and many other factors that cannot be precisely predicted or controlled.

➢ Political Risk: Changes in the tax laws, trade regulations, administered prices etc. is
some of the many political factors that create market risk. Although collectively, as
citizens, we have indirect control through the power of our vote, individually as
investors, we have virtually no control.

➢ Inflation Risk: Inflation or purchasing power risk, relates to the uncertainty of the future
purchasing power of the invested rupees. The risk is the increase in cost of the goods and
services, as measured by the Consumer Price Index.

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 ➢ Interest Rate Risk: Interest Rate risk relates to the future changes in interest rates. For
instance, if an investor invests in a long term debt mutual fund scheme and interest rate
increase, the NAV of the scheme will fall because the scheme will be end up holding
debt offering lowest interest rates.

➢ Business Risk: Business Risk is the uncertainty concerning the future existence, stability
and profitability of the issuer of the security. Business Risk is inherent in all business
ventures. The future financial stability of a company cannot be predicted or guaranteed,
nor can the price of its securities. Adverse changes in business circumstances will reduce
the market price of the company’s equity resulting in proportionate fall in the NAV of
mutual fund scheme, which has invested in the equity of such a company.

➢ Economic Risk: Economic Risk involves uncertainty in the economy, which, in turn
can have an adverse effect on a company’s business. For instance, if monsoons fall in a
year, equity stocks of agriculture bases companies will fall and NAVs of mutual funds,
which have invested in such stocks, will fall proportionately.

 Method to Measurement risk

➢ Beta Coefficient Measure of Risk: Beta relates a fund’s return with a market index. It
basically measures the sensitivity of funds return to changes in market index.
If Beta = 1
Fund moves with the market i.e. Passive fund
If Beta < 1
Fund is less volatile than the market i. e Defensive Fund
If Beta > 1
Funds will give higher returns when market rises & higher losses when market falls i.e.
Aggressive Fund

➢ Ex –Marks or R-squared Measure of Risk: Ex –Marks represents co relation with

markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-
marks is better diversified than a fund with lower Ex-marks.

➢ Standard Deviation Measure of Risk: It is a statistical concept, which measures

volatility. It measures the fluctuations of fund’s returns around a mean level. Basically it
gives you an idea of how volatile your earnings are. It is broader concept than BETA. It
also helps in measuring total risk and not just the market risk of the portfolio.

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 ✔ RETURNS:

Returns have to be studied along with the risk. A fund could have earned higher return
than the benchmark. But such higher return may be accompanied by high risk. Therefore,
We have to compare funds with the benchmarks, on a risk adjusted basis. William
Sharpe
created a metric for fund performance, which enables the ranking of funds on a risk
adjusted basis.
Risk Premium
Sharpe Ratio = ----------------------------------
Funds Standard Deviation
Risk Premium
Treynor Ratio = --------------------------------------
Funds Beta
Risk Premium = Difference between the Fund’s Average return and Risk free return on
Government security or Treasury bill over a given period.

✔ LIQUIDITY:
Most of the funds being sold today are open-ended. That is, investors can sell their
existing units, or buy new units, at any point of time, at prices that are related to the
NAV
of the fund on the date of the transaction. Since investors continuously enter and exit
funds, funds are actually able to provide liquidity to investors, even if the underlying
markets, in which the portfolio is invested, may not have the liquidity that the investor
seeks.

✔ EXPENSE RATIO:
Expense ratio is defined as the ratio of total expenses of the fund to the average net
assets of the fund. Expense ratio can actually understate the total expenses, because
brokerage paid on transactions of a fund are not included in the expenses. According to
the current SEBI norms, brokerage commissions are capitalized and included in the cost
of the transactions.
Total Expenses
Expense ratio = -----------------------------------
Average Net Assets

✔ COMPOSITION OF PORTFOLIO:
Credit quality of the portfolio is measured by looking at the credit ratings of the
Investments in the portfolio. Mutual Fund fact sheets show the composition of the
portfolio and the investments in various asset classes over time. Portfolio turnover rate is
the ratio of lesser of asset purchased or sold by funds in the market to the net assets of
the fund. If Portfolio ratio is 100% means portfolio has been changed fully. When
Portfolio ratio is high means expense ratio is high.
Total Sales & Purchase

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 Portfolio Ratio = --------------------------------
Net Assets of fund

In order to meaningfully compare funds some level of similarity in the following factors
has to be ensured:
✔ Size of the funds
✔ Investment objective
✔ Risk profile
✔ Portfolio composition
✔ Expense ratios
✔

METHOD OF MEASURING MUTUAL FUND:

➢ Absolute Return Method:- Percentage change in NAV is an absolute measure of return,
which finds the NAV appreciation between two points of time, as a percentage.
Ex: If NAV of one fund changes from Rs.20 to Rs.22 in 12 months then
Absolute return = (22 – 20)/20 X 100 =10%

➢ Simple Annual Return Method: Converting a return value for a period other than one
year, into a value for one year, is called as annualisation. In order to annualize a rate, we
find out what the return would before a year, if the return behaved for a year, in the same
manner it did, for any other fractional period.
Ex: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months then
Annual Return = (22 – 20) /20 X 12/6 X 100 = 20%

➢ Total Return Method: The total return method takes into account the dividends
distributed by the mutual fund, and adds it to the NAV appreciation, to arrive at returns.
Total Return =(Dividend distributed + Change in NAV)/ NAV at the start X 100
Ex: If NAV of one fund changes from Rs.20 to Rs.22 in 6 months if in between dividend
of Rs. 4 has been distributed then
Total Return = {4 + (22 – 20)}/20 X 100 = 30%

➢ Total Return when dividend is reinvested: This method is also called the return on
investment (ROI) method. Here, the dividends are reinvested into the scheme as soon as
they are received at the then prevailing NAV.
Ex-dividend NAV = [(Value of holdings at the end of the period/ value of the holdings at
the beginning) –1)*100]
E.g. an investor buys 100 units of a fund at Rs. 10.5 on January 1, 2007. On June 30,
2007. He receives dividends at the rate of 10%. The ex-dividend NAV was Rs. 10.25. On
December 31, 2007, the fund’s NAV was Rs. 12.25.
Value of holdings at the beginning period= 10.5*100= 1050
Number of units re-invested = 100/10.25 = 9.756
End period value of investment = 109.756*12.25 = 1344.51 Rs.

27 | P a g e
 Return on Investment = ((1344.51/1050)-1)*100= 28.05%

➢ Compounded Average Annual Return Method: - This method is basically used for
calculating the return for more than 1 year. In this method return is calculated with the
following formula:
A = P X (1 + R / 100) N Where P = Principal invested
A = maturity value
N = period of investment in years
R = Annualized compounded interest rate in %
R = {(Nth root of A / P) – 1} X 100
E. g: If amount invested is Rs. 100 & in the end we get return of Rs. 200 & period of
Investment is 10 years then annualized compounded return is
200 = 100 (1 + R / 100) 10
Rate = 7.2 %

FUND EVALUATION AGAINST BENCHMARK:

Funds can be evaluated against some performance indicators which are known as Benchmarks.

There are 3 types of benchmarks:

➢ Relative to market as whole

➢ Relative to other comparable financial products

➢ Relative to other mutual funds

 Relative to market as whole: There are different ways to measure the performance of
fund w.r.t market as Equity Funds

 Index Fund – An Index fund invests in the stock comprising of the index in the same
Ratio. This is a passive management style.

For example, Market Index Fund - BSE Sensex

Nifty Index Fund - NIFTY

The difference between the return of this fund and its index benchmark can be explained
By “TRACKING ERROR”.

 Active Equity Funds:- The fund manager actively manages this fund. To evaluate
performance in such case we have to select an appropriate benchmark.

Large diversified equity fund - BSE 100

28 | P a g e
 Sector fund - Sectoral Indices

 Debt Funds: - Debt fund can also be judged against a debt market index e.g. I-BEX

COMPUTATION OF NAV:

The net assets represent the market value of assets, which belong to the investors, on a given
date.Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund,
in net asset terms.

Following are the regulatory requirements and accounting definitions laid

down by
SEBI:
NAV = Net Asset of the Scheme / Number of Units
Outstanding
= MVL+ REC+ AI+ Asset – AE – Pay – Lia
No .of Units Outstanding as at the NAV date
Where MVL: Market value of Investment
REC: Receivables
AI: Other Accrued Income
Asset: Other Assets (Dividend yet to be received)
AE: Accrued Expenses

29 | P a g e
 Pay: Other Payables
Lia: Other Liabilities (Custodian and Management Fees)

Fund’s NAV is affected by:

• Purchase or Sale of Investors Securities.
• Valuation of all Investment Securities.
• Other Assets and Liabilities.
• Units Sold or Redeemed.

SEBI requires that the fund must ensure that repurchase price is not lower than 93% of
NAV (95% in the case of a closed-fund). On the other side, a fund may sell new units at a
price that is different from the NAV, but the sale price cannot be higher than 107 % of NAV.
Also the difference between the repurchase price and the sale price of the unit is not
permitted to exceed 7% of the sale price.

30 | P a g e
INVESTMENT STRATEGIES:

➢ Systematic Investment Plan:

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)

➢ Systematic Transfer Plan:

Under this an investor invests in debt oriented fund and gives instructions to transfer a
fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

➢ Systematic Withdrawal Plan:

If someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount
each month.

31 | P a g e
TIPS FOR INVESTING IN MUTUAL FUND:-

➢ Determine your financial objectives and amount to invest- Make sure the fund’s
objectives coincide with your own. Don’t change your objectives or exceed the amount
set aside for investment unless you have good reason.

➢ Always obtain all available information before you invest- Request the prospectus,
The Statement of Additional Information and the latest shareholder report from each
Fund you are considering.

➢ Never invest in periodic payment plans unless you are virtually certain that you will
not have to redeem early- If you redeem early or do not complete the plan, you may
have to pay sales charges of up to 51% of your investment.

➢ Be alert for incorporation by reference-You will have "no excuse" for not
knowing this information, if a problem arises. You may be legally presumed to know
materials incorporated by reference in a prospectus or other documents.

➢ Always determine all sales charges, fees and expenses before you invest- Fees such
as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and
capital gains distributions can substantially add to your costs. Shop around among the
many funds offered and compare the various fees and costs connected with funds that
appeal to you.

➢ Learn the costs of redemption- Sometimes investors are surprised to learn that they
have to pay to get out of funds through back-end loads or redemption fees. Find out
the redemption costs before you invest so you won’t be unpleasantly surprised when
you redeem your shares.

➢ Never treat the risks of investment in a fund lightly-Weigh the risks of the funds you
want to buy against your ability to tolerate the ups and downs of the market and your
investment goals. Be extra cautious when considering investing in funds with high
yield/high risk portfolios. Junk bond problems, for example, invariably affect the funds
performance.

➢ Don’t be misled by the name of a fund- Some funds have been given names
denoting safety, stability and low risk, despite the fact that the underlying investments
in the portfolio are volatile and highly risky.

32 | P a g e
HOW LONG TO KEEP INVESTMENT TO GET MAXIMUM
RETURNS:-

Technically open-ended funds you can withdraw your investments even within a week, but to
get desired returns positive time frame is required are:

Funds Time Period

Equity Funds 3 Years (plus)
Balanced Funds 18 months to 3 Years
MIP’s 1 Year (plus)
Income Funds 6 months to 1 Year
Liquid Funds few days to 6 months

33 | P a g e
EXPECTED RETURNS OF VARIOUS SCHEMES:-

Funds Returns
Sector funds 22% to 25% p.a
Balance funds 15% to 18% p.a
MIP’s Pension Plans 12% to 15% p.a
Income Funds 10% to 12% p.a
Liquid Funds 7% to 9% p.a

N.B:- The above-mentioned returns in the table are indicative and not assured. All investments
in MUTUAL FUNDS are securities and are subject to market risk and the NAVs of the schemes
may go up and down depending upon the factors and forces affecting the security market
including the fluctuations in the internal rates .The past performance of the MUTUAL FUNDS
is not indicative of future performance.

34 | P a g e
TERMS OF MUTUAL FUND:

➢ Advisor – An employee of Mutual Fund organization to provide professional advice on

the fund’s investments and to supervise the management of its asset.

➢ Diversification – The policy of spreading investments among a range of different

securities to reduce the risk.

➢ Net Asset Value (NAV) - Net Asset Value is the market value of the assets of the
scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by
the number of units outstanding on the Valuation Date. It is calculated at the end of the
trading day as:

Market Value of Assets - Liabilities

NAV = -----------------------------

Units Outstanding

➢ Sales Price - The price which investor you pay while investing in the scheme. also as
called Offer Price.

➢ Repurchase Price - The price at which a close-ended scheme repurchases its units and it
may include a back-end load. This is also called Bid Price.

➢ Redemption Price - The price at which open-ended schemes repurchase their units and
close-ended schemes redeem their units on maturity. Such prices are NAV related.

➢ Sales Load- The charge collected by a scheme when it sells the units. Also called ‘Front-
end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

➢ Call Risk- The possibility that falling interest rates will cause a bond issuer to redeem—
or call—its high-yielding bond before the bond's maturity date.

➢ Country Risk- The possibility that political events (a war, national elections), financial
problems (rising inflation, government default), or natural disasters (an earthquake, a
poor harvest) will weaken a country's economy and cause investments in that country to
decline.

35 | P a g e
 ➢ Credit Risk- The possibility that a bond issuer will fail to repay interest and principal in
a timely manner. Also called default risk.

➢ Currency Risk- Also called exchange-rate risk. The possibility that returns could be
reduced for Americans investing in foreign securities because of a rise in the value of the
U.S. dollar against foreign currencies.

➢ Income Risk. The possibility that a fixed-income fund's dividends will decline as a
result of falling overall interest rates.

➢ Industry Risk. The possibility that a group of stocks in a single industry will decline in
price due to developments in that industry.

➢ Inflation Risk- The possibility resulting to increases in the cost of living will reduce or
eliminate a fund's real inflation-adjusted returns.

➢ Interest Rate Risk- The possibility that a bond fund will decline in value because of an
increase in interest rates.

➢ Manager Risk- The possibility that an actively managed mutual fund's investment
adviser will fail to execute the fund's investment strategy effectively resulting in the
failure of stated objectives.

➢ Market Risk- The possibility that stock fund or bond fund prices overall will decline
over short or even extended periods. Stock and bond markets tend to move in cycles,
with periods when prices rise and other periods when prices fall.

➢ Principal Risk- The possibility that an investment will go down in value, or "lose
money," from the original or invested amount.

36 | P a g e
 Chapter-2

Company Profile

37 | P a g e
38 | P a g e
Introduction to SBI Mutual Fund

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record
in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has grown
immensely since its inception and today it is India's largest bank, patronized by over 80% of the
top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Society General Asset
Management, one of the world’s leading fund management companies that manages over
US$ 500 Billion worldwide.

In twenty years of operation, the fund has launched 38 schemes and successfully redeemed
fifteen of them. In the process it has rewarded its investors handsomely with consistent returns.

A total of over 5.8 million investors have reposed their faith in the wealth generation expertise
of the Mutual Fund.

Schemes of the Mutual fund have consistently outperformed benchmark indices and have
emerged as the preferred investment for millions of investors and HNI’s.

Today, the fund manages over Rs. 38,782 cores of assets and has a diverse profile of investors
actively parking their investments across 38 active schemes.

The fund serves this vast family of investors by reaching out to them through network of over
130 points of acceptance, 28 investor service centers, 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.

39 | P a g e
Business Objectives

The Primary Objective of SBI Mutual Fund is to enhance the Investments in the country through
the Provision of Different Mutual Fund Schemes in a systematic and Professional Manner, and
to promote the Investments In the Mutual Fund

Organizational goal:

➢ Develop a Close Relationship with Customer.

➢ Transform Ideas in to Viable and Creative Solutions.

➢ Provide consistently high Returns to Shareholders.

➢ To grow through diversification by leveraging off the existing client base.

Business Focus:

SBI Mutual Fund mission is to be world class Mutual Fund its Main aim is to build
Customer Franchises across distinct business so as to be the Preferred Provider of services in the
Segments and is committed to maintain the highest level of ethical standards, professional
integrity and regulatory compliance

Subsidiaries and Associates:

➢ SBI Bank.

➢ SBI Mutual Fund.

➢ SBI Life insurance Company.

➢ SBI Securities.

➢ SBI NRI Services.

➢ Other Companies co- promoted by SBI

40 | P a g e
Product of SBI Mutual Fund

✔ Equity Scheme:

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 they 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.

Type of Equity Scheme:

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum Midcap Fund

Magnum Multicap Fund

Magnum Multiplier Plus 1993

Magnum NRI Investment Fund - Flexi Asset Plan

Magnum Sector Funds Umbrella

MSFU - Emerging Businesses Fund

41 | P a g e
 MSFU - IT Fund

MSFU - Pharma Fund

MSFU - Contra Fund

MSFU - FMCG Fund

SBI Arbitrage Opportunities Fund

SBI Blue Chip Fund

SBI Infrastructure Fund - Series I

SBI Magnum Tax gain Scheme 1993

SBI ONE India Fund

SBI TAX ADVANTAGE FUND - SERIES I

✔ Debt Scheme:
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.

Type of Debt Scheme:

42 | P a g e
 Magnum Children`s Benefit Plan

Magnum Gilt Fund

Magnum Gilt Fund (Long Term)

Magnum Gilt Fund (Short Term)

Magnum Income Fund

Magnum Income Plus Fund

Magnum Income Plus Fund (Saving Plan)

Magnum Income Plus Fund (Investment Plan)

Magnum Insta Cash Fund

Magnum InstaCash Fund -Liquid Floater Plan

Magnum Institutional Income Fund

Magnum Monthly Income Plan

Magnum Monthly Income Plan Floater

Magnum NRI Investment Fund

SBI Capital Protection Oriented Fund - Series I

SBI DEBT FUND SERIES - 370 Days - 3

SBI DEBT FUND SERIES-180 Days-9

SBI DEBT FUND SERIES-90 DAY- 33

SBI DEBT FUND SERIES-90 DAY- 33

SBI Debt Fund Series

SDFS 15 Months Fund

SDFS 90 Days Fund

43 | P a g e
 SDFS 13 Months Fund

SDFS 18 Months Fund

SDFS 24 Months Fund

SDFS 30 DAYS

SDFS 30 DAYS

SDFS 370 days

SDFS 60 Days Fund

SDFS 180 Days Fund

SDFS 370 days

SDFS 30 DAYS

SBI Debt Fund Series-15 Months-5

SBI Dynamic Bond Fund

SBI Premier Liquid Fund

SBI Short Horizon Debt Fund

SBI Short Horizon Debt Fund - Ultra Short Term Fund

SBI Short Horizon Debt Fund - Short Term Fund

✔ Balanced Scheme:

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.

44 | P a g e
 Magnum Balanced Fund

✔ Exchange Traded Scheme

SBI Gold Exchange Traded Scheme

45 | P a g e
Award and Achievement

46 | P a g e
 2010

2009

2008

47 | P a g e
 2007

48 | P a g e
 2006

49 | P a g e
 ➢ 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.

50 | P a g e
Key Personnel

Mr. Achal K. Gupta Mr. Ashwini K Jain

Managing Director & Chief Executive Chief Operating Officer.
Officer.

Mr. Didier Turpin Mr. C A Santosh

Dy. Chief Executive Officer. Chief Manager - Customer Service.

Mr. Navneet Munot Ms. Aparna Nirgude

Chief Investment Officer. Chief Risk Officer .

Mr. R. S. Srinivas Jain Mr. Parijat Agrawal

Chief Marketing Officer. Head – Fixed Income.

Ms. Vinaya Datar

Company Secretary & Compliance
Officer.

51 | P a g e
 Chapter-2

Objective and Scope

52 | P a g e
OBJECTIVE OF THE STUDY:

The main objective of the research is to find out the truth, which is hidden and which has not
been discovered yet, though each research has its own objectives.

Primary Objectives:
➢ To have a comparative study and analyses the awareness level of Mutual
Funds in relation to other Investment avenues among people at Dimapur,
Nagaland.

Secondary Objective:

➢ To compare the investor perception in investments in Mutual Fund and

other Investment option.

➢ To know whether Customer know the various Mutual Fund Investment

Avenues available in Dimapur

➢ To know the important sources of information for investing in mutual

Funds among Investors in Dimapur.

➢ To know the Decision Making factor for investment in Mutual Funds.

➢ To make a comparative study of market share of different mutual fund.

➢ To know the most preferred saving/Investment Avenue.

➢ To know the most preferred Mutual fund in Dimapur

➢ To find out the problems for investment in Mutual Fund

➢ To find out solution for the problem.

53 | P a g e
SCOPE OF THE STUDY:

The research was carried out in Dimapur Town. Nagaland .where the outcome of the research
will ascertain the awareness level of Mutual Fund of the People in Dimapur. Finds out the
perspective of Investor and the most preferred investment avenue. And will let us know the
source of information of Mutual Fund among the Investor, the decision making factor and the
market share of various Asset Management Company and finds out the prospect and key reasons
for not reaching customer and to counter the drawback, problems and issue that exist, where in a
way that this project report may help the company to make further planning and strategy.

The Investors were surveyed in the following areas:

➢ Various Branches of SBI & SBI Regional Office Dimapur.

➢ SBI Life Dimapur.
➢ UCO Bank Dimapur.
➢ IDBI Bank Dimapur.
➢ ICICI Bank Dimapur.
➢ Axis Bank Dimapur.
➢ HDFC Bank Dimapur.
➢ HSBC Direct Invest Dimapur.
➢ Nagaland Co-operative Bank Dimapur
➢ Vijay Bank Dimapur.
➢ UTI Representative Office Dimapur
➢ Life Insurance Corporation of India Dimapur
➢ Birla Life Insurance Dimapur.
➢ Nagaland University.Dimapur.
➢ Deputy Commissioner Office Dimapur.
➢ PWD Office Dimapur.
➢ BSNL office Dimapur.
➢ Govt. Primary School.Purana Bazaar. Dimapur
➢ HN Company. Dimapur.
➢ Various Shops in Dimapur Town.

54 | P a g e
 Chapter-4

Research Methodology

55 | P a g e
RESEARCH METHODOLOGY:

”Research Methodology is a way to systematically solve the research problem. It includes not
only the research methods, but also the logic behind using the methods.” It basically means the
selection of various method and technique in the research conducted.

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.

➢ Data Collection Mode:

Questionnaire Method and face-to-interview with the Investor.

➢ Data Source:

 Primary Data: Research is totally based on primary data. The Primary Data is collected
through face-to-face interview using Questionnaire method from Investor. Research has
been done by primary data collection, and primary data has been collected by interacting
with various Customers
 Secondary Data: Secondary data is used for reference.The secondary data has been
collected through various publications through researchers in the field of fund
management journals and websites etc.

➢ Sampling Procedure:

The sample was selected from various branches of SBI & SBI Regional Office Dimapur.SBI
Life.UCO Bank .IDBI Bank. ICICI Bank. Axis Bank.HDFC Bank. HSBC Direct Invest.
Nagaland Co-operative Bank. Vijay Bank. UTI Representative Office. Life Insurance
Corporation of India. Birla Life Insurance. Nagaland University. Deputy Commissioner
Office.PWD Office. BSNL Office. Govt. Primary School.Purana Bazaar. HN Company.
Dimapur.Various Shops in Dimapur Town. Who are the customers/visitors/employee,
irrespective of them being investors of Mutual fund or not or availing the services or not. It is

56 | P a g e
collected through face-to-interview, 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 Projected is limited to One Hundred (100) investors only. And constitute
of both new and old investors. Out of which 60 people had invested in Mutual Fund and 40 are
other Investors.

➢ Sampling Method:

Inorder to serve my purpose. I have used Convenient Random Sampling method.

➢ Data Analysis & Interpretation:

Data analysis is based on the data collected by way of questionnaire. For better understanding of
the study. Data has been presented with the help of MS Excel to draw tables, bar diagram, pie
charts, line graphs etc.

➢ Conclusion:
It is drown from result of different data processing and articles analyzation.

➢ Duration of Study:

The study was carried out for a period of two months………………..

57 | P a g e
 Chapter-4

Data Analysis and Interpretation

58 | P a g e
DATA ANALYSIS AND INTERPRETATION:

A. Analysis of Demographic Characteristic:

• Respondents by Gender:
Table-A.1

Gender No. of Respondent Percentage (%)

Male 84 84

Female 16 16

Total 100 100

Figure- A.1

➢ Interpretation:

From the above graph, it can be concluded that, among the respondents surveyed 84% of
respondents were male and 16% of them were female.

• Age distribution of the Investors at Dimapur.

59 | P a g e
Table-A.2

Age Group <25 25-30 31-35 >=36

No. of 6 36 28 30

Investors

Figure-A.2

➢ Interpretation:

From the study it can be inferred that 6% of the investors were below 25 yrs and 36% of the
investors were in the age group of 25-30,28% of investors were in the age group 31-35 and 30%
of the investors were 36 yrs and above.

Occupation No. of Investors Percentage (%)

Salaried 55 55
Professional 18 18
Business 24 24
Other 3 3
Total 100 100

• Occupation of the Investors.

Table-A.3

Figure-A.3

60 | P a g e
 ➢ Interpretation:

In Occupation group out of 100 investors, 55% are Salaried, 24% are Businessman, 18% are
Professional, and 3% are in others.

• Yearly Income of Investors.

Table-A.4

Yearly Income (Rs) No. of Investors Percentage (%)

Below 1, 00,000. 9 9
1, 00,001- 5, 00, 000. 54 54
5,00,001-10,00,000. 22 22
Above 10,00,001 15 15
Total 100 100

Figure-A.4

➢ Interpretation:

The yearly income of investors,where 9% are below Rs. 1, 00,000. 15% are above 10, 00,000.
22% ranges from 5,00,001 to 10,00,000.and 54% ranges from 1,00,001-5,00,000.

61 | P a g e
 1. Do you invest your saving?

Table-4.1

Investor opinion No. of Respondent

Yes 100

No 0

Figure-4.1

Total Number of Respondent= 100.

➢ Interpretation:

100% of the people in Dimapur invest their saving in different Sector.

1. If yes, what kind of investments you have made so far?

Table-4.2

Sl. No. Investment Avenue No. of Respondent %

1 Bank Deposit 7 7

2 Insurance 25 25

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 3 Real Estate 2 2

4 Mutual Fund 40 40

5 Share/ Debenture 10 10

6 Post Office Saving 12 12

7 Gold/ Silver 4 4

8 Total 100 100

Figure-4.2

➢ Interpretation:

It can be inferred that 4% of the respondents invested in Gold& Silver, 12% preferred Post
Office Saving,10% Share and Debenture, 40% Mutual Fund, 2% Real Estate,25% Insurance an
7% Bank Deposit.It can be conclude that majority of the respondents invest in Mutual Fund.

1. Are you aware of Mutual Funds Avenues and its operations in Dimapur?

Table-4.3

Investor opinion No. of Respondent

Yes 70

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 No 30
Figure-4.3

➢ Interpretation:

It can be concluded that 70% of the respondent are aware of Mutual Fund Avenues and its
operation in Dimapur out of 100 respondents.Where the rest 30% are not aware of Mutual
avenues in Dimapur.

1. If yes, what was your source of information about Mutual Fund?

Table-4.4

Source No. of Respondent Percentage (%)

Advertisement 25 36

Peer Group 9 13

Banks 22 31

Financial Advisor 10 14

Other 4 6

Total 70 100

Figure-4.4

64 | P a g e
 ➢ Interpretation:

From the above analysis, 36% of the respondent got the information from advertisement.13%
from peer Groups.31% from Banks.14% from Financial Advisor and 6% from other source.

1. Have you invested in Mutual Fund?

Table-4.5

Option No. of Respondent Percentage (%)

Yes 40 40
No 60 60
Total 100 100

Figure-4.5

➢ Interpretation:

From the above Chart it is concluded that 40% of the respondent invest in Mutual and the rest
60% invest in other Sectors such as Bank Deposit, Insurance, Post Office Saving, Real Estate,
Share and Debenture and Gold and Silver.

1. If not invested in Mutual Fund then why?

Table-4.6

Sl. Reason No. of Respondent Percentage (%)

No
1 Not aware of Mutual Fund 30 50

2 Higher Risk 3 5

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3 No technical know-how 8 13

4 No Asset Management Company 17 28

5 Other 2 3

6 Total 60 100
Figure-4.6

➢ Interpretation:

From the above Chart it can be inferred that, 50% are not aware of Mutual Fund Operation in
Dimapur out of 60 respondents. Where 28% do no invest because of absence of Asset
Management Company in Dimapur.14% because of No Technical Know how,3% because of
Higher Risk and the rest 5% for other Reason.
1. If yes, in which Mutual Fund house have you invested?

Table-4.7

Sl. No. Asset Management Company No. of Respondent Percentage (%)

1 SBI Mutual Fund 10 25

2 Axis 9 22
3 Reliance 2 5
4 LIC 4 10
5 HDFC 3 7
6 IDBI 4 10
7 ICICI 1 3
8 UTI 7 18

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9 Total

40 100
Figure-4.7

➢ Interpretation:

It is inferred that the market share of SBI Mutual Fund in Dimapur is 25%, Axis 22%, Reliance
5%,LIC 10%,HDFC 7%,IDBI 10% ICICI 3%,UTI 18%.

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 1. If invested in SBIMF you do so because.

Table-4.8

Reasons No. of Respondent Percentage (%)

SBIMF is associated with 3 30

SBI
Good record of return 4 40

Agent advice 1 10

Easy Accessibility 2 20

Total 10 100

Figure-4.8

➢ Interpretation:

From the above Pie diagram, it is inferred that 30% invest in SBI Mutual Fund because it is
Associated with SBI.40% because of Good record of Return, 10% because of Agent Advice and
the rest 20% because of easy accessibility.

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9.1. Respondent decision on Liquidity while investing in Mutual Fund.

Table-4.9.1

Liquidity No. of Respondent Percentage

Important 24 34

More Important 36 51

Most Important 10 14

Total 70 100

Figure-4.9.1

➢ Interpretation:

It can be inferred that out of 70 respondent, 34% of the respondent prefer liquidity as the
important factor in decision making while investing in Mutual Fund.51% rate liquidity as more
important factor and 14% rated liquidity as the Most Important Factor in Investing in Mutual
Fund.

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 9.2. Respondent decision on Low Risk while investing in Mutual Fund.

Table-4.9.2

Low Risk No. of Respondent Percentage

Important 38 54

More Important 24 34

Most Important 8 11

Total 70 100

Figure-4.9.2

➢ Interpretation:

It can be inferred that most of the respondent consider low risk as Important factor in investment
decision while investing in Mutual Fund, as 54% rated Low risk as Important Factor, where 34%
rated Low Risk as the more Important Factor and the rest 11% rated Low Risk as the Most
Important factor in decision making while investing in Mutual Fund.

9.3. Respondent decision on High Return while investing in Mutual Fund.

Table-4.9.3

High Return No. of Respondent Percentage

Important 9 13

More Important 20 28

Most Important 41 59

Total 70 100

Figure-4.9.3

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 ➢ Interpretation:

Out of 70 respondent, 59% preferred High Return as the Most Important Factor while investing
in Mutual Fund.28% more Important and 13% Important for investment decision while investing
in mutual Fund. It can be inferred that most of the respondent consider low risk as Important
factor in investment decision while investing in Mutual Fund,

9.4. Respondent decision on Trust while investing in Mutual Fund.

Table-4.9.4

Trust No. of Respondent Percentage

Important 16 22

More Important 12 17

Most Important 42 60

Total 70 100

Figure-4.9.4

➢ Interpretation:

Out of 70 respondent, 60% of the respondent rated trust as the Most Important factor in decision
making while investing in Mutual Fund.17% rated More Important factor as the rest rated
important as 22%.

10. Preference of Channel while investing in Mutual Fund.

Table-4.10

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 Channel No. of Respondent Percentage

Banks 30 30

Financial Advisor 13 13

Direct /website 9 9

Mutual Fund Office

Total 70 100
Figure-4.10

➢ Interpretation:

Out of 100 respondent.48% of the Respondent prefer investing in Mutual Fund through the best,
where the 30% of the respondent prefer investing in Mutual Fund through Banks as they feel
more secure through Banks, 13% of the respondent prefers through Financial Advisor and the
rest opt investing in Mutual Fund directly through Website

10. Analysis of Mode of Investment.

Table-4.11

Mode No. of Respondent Percentage (%)

Lump Sum Investment 20 28.56

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Systematic Investment 50 71.43

Total 70 100

Figure-4.11

➢ Interpretation:

Out of 70 respondents, 71% prefer Systematic Investment plan where the rest 29% prefer Lump
sum Investment plan.

`12. Investing in Mutual Funds is less risky than the share market?

Table-4.12

Investor Opinion No. of Respondent Percentage (%)

Yes 68 97.14

No 2 2.86

Total 70 100

Figure-4.12

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 ➢ Interpretation:

From the pie diagram, it is inferred that 97% of the Investor consider Share market as Risky
compared to Mutual Fund and the rest 3% felt that investing in Mutual Fund is more risky then
the Share Market.

13. Investor preference on Asset Management Company.

Table-4.13

Asset Management Company No. of Respondent Percentage (%)

SBI Mutual Fund 23 23
UTI 14 14
IDBI 8 8
Reliance 16 16
ICICI 3 3
Axis 18 18
HDFC 10 10
LIC 8 8
Total 100 100
Figure-4.13

➢ Interpretation:

Out of 100 respondent, 23% will prefer investing in SBI Mutual Fund,14% in UTI,8% in
IDBI,16% in Reliance,3% in ICICI,18 in Axis, 10% in HDFC and 8% in LIC.

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14.1. Investor Preference of fallowing attribute on Mutual Fund Investment:

Table-4.14.1

Attributes Mean Score

Liquidity 2.99

Risk 2.19

Return 3.46

Accessibility 2.79

Figure-4.14.1

➢ Interpretation:

It is inferred that the preference of Liquidity for Mutual Fund scored 2.99. Where risk score
2.19. Return 3.46 and accessibility scored2.79 out of 70 respondents.

14.2 Investor Preference on Insurance:

Table-4.14.2

Attributes Mean Score

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Liquidity 2.47

Risk 2.23

Return 2.51

Accessibility 2.89

Figure-4.14.2

➢ Interpretation:

From the analysis it is clear that liquidity in Insurance score 2.47. Risk in Insurance scored 2.23.
Return scored 2.51 and accessibility scored 2.89 out of 100 respondents.

14.3. Investor Preference on Bank Deposit:

Table-4.14.3

Attributes Mean Score

Liquidity 3.27

Risk 1.31

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Return 2.22

Accessibility 2.81

Figure-4.14.3

➢ Interpretation:

From the analysis it is clear that liquidity in Bank Deposit scored 3.27. Risk in Bank Deposit
scored 1.31. Return scored 2.22 and accessibility scored 2.81 out of 100 respondents.

14.4 Investor Preference on Postal Saving/ NSC:

Table-4.14.4

Attributes Mean Score

Liquidity 1.19

Risk 1.04

Return 2.67

Accessibility 2.03

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Figure-4.14.4

➢ Interpretation:

From the analysis it is clear that liquidity in Postal saving \ NSC scored 1.19. Risk in Postal
saving \ NSC scored 1.04. Return scored 2.67 and accessibility scored 2.03 out of 100
respondents.

14.5. Investor Preference on Gold/ Silver:

Table-4.14.5

Attributes Mean Score

Liquidity 3.80

Risk 2.14

Return 3.05

Accessibility 2.54

Figure-4.14.5

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 ➢ Interpretation:

From the analysis it is clear that liquidity in Gold\Silver scored 3.8. Risk in Gold\Silver scored
2.14. Return scored 3.05 and accessibility scored 2.54 out of 80 respondents.

14.4. Investor Preference on Real Estate/ Building:

Table-4.14.6

Attributes Mean Score

Liquidity 1.85

Risk 2.32

Return 4.99

Accessibility 2.27

Figure-4.14.6

➢ Interpretation:

From the analysis it is clear that liquidity in Real Estate scored 1.85. Risk in Real Estate scored
2.32. Return scored 4.99 and accessibility scored 2.27 out of 100 respondents.

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15. Investor Suggestion to popularize Mutual Fund Business in Dimapur town.

Table-4.15

Suggestion No. of Respondent Percentage

Advertisement 10 10

Opening of Asset Management Company 42 42

Distributor recommendation 12 12

Creating Awareness among the Mass 34 34

Through Banking Channel 2 2

Total 100 100

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Figure-4.15

➢ Interpretation:

It can be inferred that opening of Asset Management Company in Dimapur Town will be the
Solution to popularize Mutual Fund Business in Dimapur as majority of the respondent i.e. 42%
of the respondent, Secondly Creating awareness among the mass, where 34% of the respondent
recommended, thirdly Distributor Recommendation where it was rated 12 %, 10% through
advertisement and the rest through Banking Channel.

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 Findings and Observation

Chapter-5
➢ There is a great potential for investment in Mutual Fund in Dimapur Town, as Citizens
wants to invest to meet various future obligation yet lack technical know-how.

➢ Common people do not have much confidence with the Financial Advisor as most of
Financial Advisor are outsider, which they say that they are here only for there Business.
indings &Observation, Suggestions & Recommendation. Limi
➢ Some group says that there is no particular office, where they can enquire about the
working of Mutual Fund, the merits and demerits.

➢ Citizens are not satisfied with the rate of Interest in Bank deposit. Which is a clue for the
Financial Advisor to easily attracted investors to make investments in Mutual Funds
since the return is higher in Mutual Fund.

➢ Comparatively people in Dimapur are not aware of other investment avenues (Shares,
Debenture etc).therefore market of Mutual Fund has greater chance for Growth.

➢ Study found that more middle age people are likely to involve in financial activities. This
is an opportunity for mutual funds houses to attract these people The Age Group of 25-
30 was more in numbers. Which comprises of 36%.and the second ranges from 36 years
and above, comprising of 30%,where the third lies in the age group of 31-
35,comprising 28%,and the least range from below 25 years, comprises of 6% only.

➢ Major portion of the respondents surveyed are salaried comprising of 55% and Business
people 24%, Where Professional comprises of 18% and other 3%.

➢ In Income group the yearly income, between Rs. 1, 00,001 – 5, 00,000. Were more in
numbers comprising of 54%, the second most were in the Income group of Rs.5, 00,001
-1, 00,000. Comprising of 23% fallowed by 15% in Rs.10, 00,000 and above ant the least
was in the group of below Rs. 1, 00,000.

➢ From the analysis, it is clear that most of the respondents invest in Mutual Fund,
insurance, shares and debenture, post office Savings, Bank deposits, Gold and silver, i.e.,
40% invest in Mutual Fund.25% in Insurance.12% in post Office Saving.10% in Share
and Debenture.7% in Bank Deposit and 4% in Gold and Silver.

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 ➢ From the entire analysis of this survey. Majority of the investor are aware of Mutual
Fund and its of the operation in Dimapur, comprising of 70% which include of having
Vague idea about Mutual Fund

➢ From the analysis, it is concluded that the main source of information about Mutual Fund
in Dimapur, is advertisement and Banks comprising of 36% and 31% respectively,
followed by Financial Advisors, Peer Groups and others, which account with 14%, 13%
and 6% respectively.

➢ It is found that out of 100 respondents, 40 respondents were the investors of various
Mutual Fund House and 60 respondents were not the investors of Mutual Fund.

➢ The sources of information for the 70 respondent were as follows:

 36% through advertisement.
 31% through banks.
 14% through Financial Advisor.
 13% through Peer Groups.
 6% others.

➢ The followings are the reasons for not investing in Mutual Fund:
 50% were not aware of Mutual Fund.
 28% because of non-availability of Asset Management Company.
 13% because of No technical Know-how.
 5% because of Higher Risk.
 3% because of other reasons.

➢ The Market Share of Mutual Fund in Dimapur are as follows:

 25% in SBI Mutual Fund house.
 22% in Axis
 18% in UTI.
 10% in LIC.
 10% in IDBI.
 7% in HDFC.
 5% in Reliance.
 3% in ICICI.

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 ➢ The reason behind investing in SBI Mutual Fund for the 10 investors are as follows:
 40% because of good record of return.
 30% because SBIMF is associated with SBI.
 20% easy accessibility.
 10% agent advice.

➢ Majority of the respondent rated (51%) liquidity as More Important factor while
investing in Mutual Fund.

➢ While for the Low Risk factor, while investing in Mutual Fund, majority of the
respondent rated (54%) as important factor in Mutual Fund.

➢ The respondent decision on high return for Mutual Fund is Most Important as majority of
the respondent rated (59%) for it.

➢ Majority of the respondent, i.e. 60% rated as most important for Trust while investing in
Mutual Fund.

➢ The respondent preferences of channel for investing in Mutual Fund are as follows:
 48% prefer investing in Mutual Fund House through Asset Management Company.
 30% through Banks.
 13% through Financial Advisor.
 9% directly though website.

➢ Majority of the Investor prefer investing under systematic investment plan comprising of
80%.

➢ Majority of the Investor (98%) believe that investing in Mutual Fund is less risky
compare to the share Market.

➢ Preference of Asset Management Company among the Respondents are as follows:

 SBI Mutual Fund 23%.
 Axis 18%.
 Reliance 16%.
 UTI 14%.

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  HDFC 10%.
 LIC 8%.
 IDBI 8%.
 ICICI 3%.

➢ From the analysis, it is concluded that liquidity is the less important factor as majority
rated as less important for mutual fund. Risk and Return as an important factor as
majority of the respondent rated as important factor for investing in Mutual Fund. Where
accessibility as the most important factor while investing in Mutual Fund.

➢ From the analysis, the opinion on insurance are as such, where liquidity is the less
important factor as majority of the respondent rated for it. Risk and Return are the
important factor and accessibility is the most important factor for Insurance.

➢ Where the preference for Bank Deposit, liquidity and accessibility as the Most
Important, risk and return as less important.

➢ As per the study, For Post Office Saving, the following are the preference of the
respondent: liquidity and Risk Less Important, Return More Important and accessibility
important,

➢ The opinion on Gold/Silver is as follows: liquidity most important. Risk important.

Return most important and accessibility more important.

➢ Liquidity as less important factor, risk and accessibility as important factor, return as
most important factor while investing in Real Estate.

➢ For popularizing Mutual Fund Business in Dimapur town, The respondent rated the
following:
 42% rated opening of Asset Management Company.
 34% creating awareness among the Mass.
 12% Distributor recommendation.
 10% advertisement.
 2% through Banking Channel.

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Suggestions and Recommendations

➢ A Seminar or a kind of campaigns should be launched in Dimapur town to educate

citizens about Mutual Fund, as most of the people have only the vague idea about Mutual
Fund.

➢ While interacting with investors, some groups of customers were not aware of Mutual
Fund. Thus a Mutual Fund awareness program can help to increase the penetration of
Mutual Funds in the market.

➢ The most vital problem spotted is of ignorance. Investors should be made aware of the
various advantages while investing in Mutual Fund. 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.

➢ Middle age people (25-30) will be a key new customer group in the future, which should
be the focal point of the financial advisor in other to attract more investor in Diamapur
town.

➢ The bank employee are not able to expand the service of business Mutual Fund, due to
lack of time, Hence forth the Asset Management Company can provide them knowledge
about single window services by which investor can get all financial services from one
place.

➢ Financial advisors should giving sound and quality advice about Systematic Investment
Plan (SIP) to the salaried people, which will gain advantage as this group shows keen
interest in Investing yet lack technical know-how.

➢ The people do not want to take risk. Therefore AMC should launch more diversified
funds so that the risk becomes minimum. This will lure more and more people to invest
in mutual funds.

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 ➢ Mutual funds offer lot of benefit, which no other single option could offer. But the
investors only see it as just another investment option. Henceforth the advisors should try
changing the mindset of the people.

➢ The various schemes should be clearly explained-merits and demerit, such that Investors
can take decision in choosing the scheme which deemed suit, which will draw greater
interest in participating.

Limitation

➢ Time factor basically prevent me to take limited sample size, as more would have
highlighted a very clear scenario of the study.

➢ The insecurity in Dimapur led some respondent to be reluctant in their response.

➢ Possibility of error in data collection.

➢ Data Analysis and interpretation done may not be that strong due to small sample and
conveyance skill in me.

➢ My inexperience in research area might have affected results.

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 Chapter-6

Conclusion

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Conclusion

A business can be successful only when the firm understand its customer perspective and
diagnosed the wants and demand of it Customer. This project study has made an attempt to
understand the customer perspective on mutual Fund in comparesion to various other investment
avenues in Dimapur Town.

In my observation, some people have fear in investing in Mutual Fund. Due to lack of technical
knowledge, they assume that their money will not be secure in Mutual Fund. As they are not
aware of as to how Mutual fund is professionally managed. A certain group of people do not
invest in Mutual Fund, due to lack of awareness although they have money to invest.

Yet in reality, Mutual Fund is the best investment option for those seeking Financial advice in
making investment decisions. It is also a best option for novice investors. The trick for
converting a person with no knowledge of mutual funds to a new Mutual Fund customer is to
understand which of the potential investors are more likely to invest in mutual funds and to use
the right knowledge in the sales process which customers will gladly accept, giving due
weightage to advantages.

The increases in awareness level of Mutual Fund will increases the number of investors in
Mutual Fund, as once people are aware of Mutual Fund investment opportunities, they enjoying
the benefits of investing in Mutual Funds, the number who decide to invest in Mutual funds
increases to as many as one in five people.

This Project gave me a great learning experience, enhances my analytical ability and gets to
know the different aspect of Mutual Fund. The analysis and advice presented in this Project
Report is based on market research on a study on customer perspective on Mutual fund v/s other
investment options in Dimapur town.Nagaland.

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