1

CHAPTER-1
1.1 INTRODUCTION TO THE INDUSTRY
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.
 2

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.
 3

ADVANTAGES 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

DISADVANTAGE 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

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

 4

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). BPL 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)

 5

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 BPL, 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.
 6

CATEGORIES OF MUTUAL FUND:

 7

Mutual funds can be classified as follow :

 Based on their structure:

 8

• 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.
 9

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.
 10

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:

 11

1.2 OBJECTIVES OF THE STUDY

PRIMARY OBJECTIVE:

• To find the investor’s attitude and preferences on mutual funds with special reference to
“Bonanza portfolio ltd”.

SECONDARY OBJECTIVE:

• To find out the Preferences of the investors for Asset Management company.
 12

• To know the Preferences for the portfolios.

• To know why one has invested or not invested in Mutual fund.
• To find out the most preferred channel.
• To find out what should be done to boost Mutual Fund Industry.

1.3 SCOPE AND SIGNIFICANCE:

A big boom as witnessed in the mutual fund industry recent times. A

large no of new players have entered the market and trying to gain market share in this rapidly
improving market.

The study will help you to know the preferences of the customers.which plan will
suit to them and which will give the return they expect to get.

1.4 COMPANY PROFILE

Bonanza a leading Financial Services & Brokerage House working diligently since 1994
can be described in a single word as a "Financial Powerhouse". With acknowledged industry
leadership in execution and clearing services on

Exchange Traded Derivatives and cash market products. Bonanza has spread its trustworthy
tentacles all over the country with more than 1025 outlets spread across 340 cities.
 13

It provides an extensive smorgasbord of services in equity, commodities, currency derivatives,

wealth management, distribution of third party products etc. Keeping in par with the modern
tech-savvy world , Bonanza makes an integrated and innovative use of technology; it also
enables its clients to trade online as well as offline and the strategic tie-ups with the latest
technology partners has earned Bonanza this prestigious place in one of the top brokerage houses
in the country. Client -focused philosophy backed by memberships of all principal Indian Stock
and Commodity Exchanges makes Bonanza stand apart from its competitors and a preferred
service provider in the industry for value-based services.

To add to our ever-growing achievements, a study by Dun and Bradstreet has rated
Bonanza as the SIXTH largest broking house in terms of equity terminal listings in the country.
If this is not enough, Bonanza Portfolio Ltd was recently nominated amongst the Top 3 Retail
Financial Advisors of the country in an event conducted by CNBC-TV18 and OptiMix Financial
Advisor Awards 2008. Also Bonanza has been awarded by BSE the "Major Volume driver for
the year 2004-2005, 2006-2007 and 2008-2009".

ACHIEVEMENTS

1. Top Equity Broking House in terms of branch expansion for 2008*.

2. 3rd in terms of Number of Trading Accounts for 2008*.
3. 6th in terms of trading terminals in for two consecutive years 2007- 2008*.
4. 9th in terms of Sub Brokers for 2007*
5. Awarded by BSE 'Major Volume Driver 04-05, 06-07, 07-08’.
6. Nominated among the Top 3 for the "Best Financial Advisor Awards '08" in the category
of National Distributors - Retail instituted by CNBC-TV18 and OptiMix.
* As per the survey by DUN & BRADSTREET.

CORPORATE TIE UPS

The company has Corporate Tie ups with Birla Sunlife ,Bajaj Allianz, ICICI Prudential, SBI ,
Aviva , Kotak Mahindra and Reliance for Life Insurance and General Insurance.
 14

In General Insurance, Bonanza provides Insurance for Motor, Health, Travel,

Housekeeper, Shopkeeper, Marine, Personal and Group Insurance.

REASONS TO CHOOSE Bonanza Portfolio LTD .

EXPERIENCE
Bonanza Portfolio ltd has more than eight decades of trust and credibility in the Indian stock
market. In the Asia Money broker’s poll held recently, SSKI won the ‘India’s best broking house
for 2004 award. Ever since it launched Sharekhan as its retail broking division in February 2000,
it has been providing institutional-level research and broking services to individual investors.

TECHNOLOGY
With our online trading account you can buy and sell shares in an instant from any PC
with an Internet connection. You will get access to our powerful online trading tools that
will help you take complete control over your investment in shares.

ACCESSIBILITY
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for
investors. These services are accessible through our centers across the country (over
250 locations in 123 cities), over the internet (through the website www.sharekhan.com) as well
as over the voice tool.

KNOWLEDGE
In a business where the right information at the right time can translate into directprofits, you get
access to a wide range of information on our content-rich portal, sharekhan.com. You will also
get a useful set of knowledge-based tools that will empower you to take informed decisions.
 15

CONVENIENCE
You can call our Dial-N-Trade number to get investment advice and execute your transactions.
We have a dedicated call-centre to provide this service via a toll free number from anywhere in
India.

CUSTOMER SERVICE
Our customer service team will assist you for any help that you need relating to transactions,
billing, Demat and other queries. Our customer service can be contracted via a toll-free number,
email or live chat on sharekhan.com.

INVESTMENT ADVICE
Sharekhan has dedicated research teams for fundamental and technical research. Our analyst
constantly track the pulse of the market and provide timely investment advice to you in the form
of daily research emails, online chat, printed reports and SMS on your phone.

BENEFITS
• Secure Order by Voice Tool Dial-n-Trade.
• Automated Portfolio to keep track of the value of your actual purchases.
• 24x7 Voice Tool access to your trading account.
• Personalized Price and Account Alerts delivered instantly to your cell phone & email
address.
• Special Personal Inbox for order and trade confirmations.
• On-line customer service via web chat.
• Anytime Ordering

SERVICE PROVIDED BY BONANZA

1. Mutual Funds
2. Insurance
• Life Insurance
 16

• General Insurance
3. PMS
4. Share Broking
5. IPO
6. Currency Derivatives
7. Share Broking
8. Commodity Broking

1.5 REVIEW OF LITERATURE

Literature on mutual fund performance evaluation is enormous. A few research studies that have
influenced the preparation of this paper substantially are discussed in this section.

Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance.
Drawing on results obtained in the field of portfolio analysis, economist Jack L. Treynor has
suggested a new predictor of mutual fund performance, one that differs from virtually all those
 17

used previously by incorporating the volatility of a fund's return in a simple yet meaningful
manner.

Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensen’s

alpha) that estimates how much a manager’s forecasting ability contributes to fund’s returns. As
indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the portfolio
over the return of the benchmark index, where the portfolio is leveraged to have the benchmark
index’s standard deviation.

S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a bear market through
relative performance index, risk-return analysis, Treynor’s ratio, Sharpe’s ratio, Sharpe’s
measure , Jensen’s measure, and Fama’s measure. The study used 269 open-ended schemes (out
of total schemes of 433) for computing relative performance index. Then after excluding funds
whose returns are less than risk-free returns, 58 schemes are finally used for further analysis. The
results of performance measures suggest that most of mutual fund schemes in the sample of 58
were able to satisfy investor’s expectations by giving excess returns over expected returns based
on both premium for systematic risk and total risk. Bijan Roy, et. al., conducted an empirical
study on conditional performance of Indian mutual funds. This paper uses a technique called
conditional performance evaluation on a sample of eighty-nine Indian mutual fund schemes .This
paper measures the performance of various mutual funds with both unconditional and conditional
form of CAPM, Treynor- Mazuy model and Henriksson-Merton model. The effect of
incorporating lagged information variables into the evaluation of mutual fund managers’
performance is examined in the Indian context. The results suggest that the use of conditioning
lagged information variables improves the performance of mutual fund schemes, causing alphas
to shift towards right and reducing the number of negative timing coefficients. Mishra, et al.,
(2002) measured mutual fund performance using lower partial moment. In this paper, measures
of evaluating portfolio performance based on lower partial moment are developed. Risk from the
lower partial moment is measured by taking into account only those states in which return is
below a pre-specified “target rate” like risk-free rate. Kshama Fernandes(2003) evaluated index
fund implementation in India. In this paper, tracking error of index funds in India is measured
.The consistency and level of tracking errors obtained by some well-run index fund suggests that
it is possible to attain low levels of tracking error under Indian conditions. At the same time,
there do seem to be periods where certain index funds appear to depart from the discipline of
indexation. K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-
 18

criteria methodology and applied it to the Greek market of equity mutual funds. The
methodology is based on the combination of discrete and continuous multi-criteria decision aid
methods for mutual fund selection and composition. UTADIS multi-criteria decision aid method
is employed in order to develop mutual fund’s performance models. Goal programming model is
employed to determine proportion of selected mutual funds in the final potfolios.

1.6 RESEARCH METHODOLOGY

Research:

‘Research’ is a systematic and scientific activity to achieve the truth. Research includes
procedures of collecting data, analysis the data and finding the conclusion or truth.

Research Methodology:

‘Research Methodology’s a way of systematically solves the research problem. It is a

science of studying how the research is done successfully.

Title of the Study:

 19

The title is the study on ‘Investor’s attitude and preferences on mutual funds .

1.6.1 RESEARCH DESIGN

‘Research Design’ means the exact nature of Research work in a systematic manner. It
involves the information about the research work in view of the framework of the study,
availability of various data, observations, analysis, sampling etc.,

Descriptive Research Design:

The researcher has followed the descriptive research by using primary and secondary data
collections.

Descriptive studies try to discover answers to the questions who, what, when, where and
sometimes how the researcher attempts to describe or define a subject, often by creating profile
of a group of problems. People or events such studies may involve the collection of data and the
creation of distribution of the number of times the researcher observes a single event or
chararacteristics or they may involve relating the interaction of two or more variables.

SAMPLING:

Once the Researcher has clearly specified the problem and developed an appropriate design and
data collection instruments, the next step in research process is to select those elements from
which the information will be collected. Following sampling methods may collect the required
information in any scientific enquiry.

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 funds

Methods Sample:
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The researcher has followed Simple Random sampling method in this project.

SIMPLE RANDOM SAMPLING:

A subset of a statistical population in which each member of the subset has an equal
probability of being chosen. A simple random sample is meant to be an unbiased representation
of a group.

1.6.2 DATA COLLECTION TOOLS:

Primary Data:

The Researcher has collected the primary data by using questionnaire.

Secondary Data:

Secondary data from company magazine and old ledger.

1.6.3 STATISTICAL TOOLS OF TECHNIQUES:

1. Percentage Method
2. Correlation analysis
3. Weighted average Method

PERCENTAGE METHOD:

Percentage refers to a special kind of ratio percentages are used in making comparing
between expectations, awareness and satisfaction with various other factors

Observed Data

Percentage= --------------------- x 100

Sample size

CORRELATION ANALYSIS:
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Correlation is a statistical technique that can show whether and how strongly pairs of
variables are related.

∑ (X – X) (Y – Y)

r = _____________________________________
__ __
√∑ (X – X) 2 ∑ (Y – Y) 2

WEIGHTED AVERAGE

The average of a quantity is calculated after summing up all the value of that quantity and then
dividing it by the total number. A weighted average is calculated by taking into consideration,
additional conditions associated with each of the values for the data. That is, some values are
multiplied by an extra multiplicative factor as they occur more often. Unlike an average value, in
which all the values of a quantity contribute equally, in a weighted average, they contribute
unequally. Some values of the particular quantity contribute more than others and that is why it
is called a weighted average.

Weighted average calculation is an important tool in descriptive statistics and mathematics. If all
quantities are weighted equally or contribute equally, while calculating the weighted average, it
is equal to the arithmetic mean. It comes in handy when you have to combine the averages of
two different sets of values and get an overall average value.

Here is the general formula for weighted average calculation:

Weighted Average = (x1 w1 + x2 w2. .+ xn wn) / (w1 + w2. . + wn) = Σi = 1 to n (xi wi) / Σi = 1 to n wi

Here 'xi' are values of the quantity whose weighted average is being calculated, while 'wi' are the
values of the corresponding weights. So, for calculating weighted average, you must multiply
values of the quantity with their corresponding weights, add all them up and divide them by the
 22

sum of the weights. Let me explain weighted average calculation through an example in the next
section.

1.6.4 LIMITATION OF THE STUDY

The project deals with “INVESTOR’S ATTITUDE AND PREFERENCES ON

MUTUAL FUNDS ”.
A Study on Investors attitude and their preferences on mutual funds ”.

➢ Time limitation.

➢ Research has been done only at Chennai.

➢ 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.

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CHAPTER-2
ANALYSIS AND INTERPRETATION OF DATA
2.1 PERCENTAGE ANALYSIS
1 (a) Age distribution of the Investors of CHENNAI

TABLE-2.1.1

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

No. of Investors 12 18 30 24 20 16

Percentage 10% 15% 25% 20% 16.7% 13.3

%
CHART-2.1.1

Interpretation:

According to this chart out of 120 Mutual Fund investors of CHENNAI 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.
 24

(b). Educational Qualification of investors of CHENNAI

TABLE-2.1.1

Educational Qualification Number of Investors percentage

Graduate/ Post Graduate 88 73%

Under Graduate 25 21%

Others 7 6%

Total 120 100%

CHART-2.1.1(b)

Interpretation:

Out of 120 Mutual Fund investors 71% of the investors in CHENNAI are Graduate/Post

Graduate, 23% are Under Graduate and 6% are others (under HSC).

c). Occupation of the investors of CHENNAI

TABLE-2.1.1

Occupation No. of Investors percentage

Govt. Service 30 25%

Pvt. Service 45 37.5%

Business 35 29%

Agriculture 4 3%

Others 6 5%
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CHART-2.1.1(c)

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 of CHENNAI.

TABLE-2.1.1

Income Group No. of Investors percentage

<=10,000 5 4%

10,001-15,000 12 10%
15,001-20,000 28 23%
20,001-30,000 43 36.8%
>30,000 32 26.6%

CHART-2.1.1(d)
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Interpretation:
In the Income Group of the investors of CHENNAI, 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.

TABLE-2.1.2

Kind of Investments No of percentage

respondents
Saving A/C 195 25%
Fixed deposits 148 19%
Insurance 152 20%
Mutual Fund 120 16%
Post office (NSC) 75 10%
Shares/Debentures 50 6%
Gold/Silver 30 4%
Real Estate 65 8%

CHART-2.1.2

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.

 27

3. Preference of factors while investing

TABLE-2.1.3

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

No. of Respondents 40 60 64 36

percentage 20% 30% 32% 18%

CHART-2.1.3

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
TABLE-
No. of Respondents 135 65
2.1.4 percentage 67% 33%
 28

CHART-2.1.4

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.

Source of information No. of Respondents percentage

Advertisement 18 13.3%

Peer Group 25 18.5%

Bank 30 22.2%

Financial Advisors 62 45.9%

5. Source of information for customers about Mutual Fund

TABLE2.1.5

CHART-2.1.5

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.
 29

6. Investors invested in Mutual Fund

TABLE-2.1.6

Response No. of Respondents percentage

YES 120 60%

NO 80 40%

Total 200 100%

CHART-2.1.6

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

TABLE-2.1.7

Reason No. of Respondents Percentage

Not Aware 65 81%

Higher Risk 5 5%
Not any Specific 10 13%
Reason
 30

CHART-2.1.7

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)

TABLE-2.1.8

Name of AMC No. of Investors percentage

BPLMF 18 15%
UTI 45 37.5%
HDFC 7 5.8%
Reliance 17 14%
ICICI Prudential 13 10.8%
Kotak 4 3.3%
Others 16 13.3%
CHART-2.1.8

Interpretation:
 31

In CHENNAI most of the Investors preferred UTI and Reliance Mutual Fund. Out of 120

Investors 75% have invested in each of them, only 15% have invested in BPLMF, 11% in

ICICI Prudential, 3% in Kotak and 6% in HDFC.

9. Reason for invested in BPLMF

TABLE-2.1.9

Reason No. of percentage

Respondents
Associated with BPL 5 29%

Better Return 9 53%

Agents Advice 4 18%

CHART-2.1.9

Interpretation:

Out of 18 investors of BPLMF 29% have invested because of its association with Brand

BPL, 18% invested on Agent’s Advice, 53% invested because of better return.

10. Reason for not invested in BPLMF

TABLE-2.1.10

Reason No of Respondents percentage

Not Aware 71 69%

 32

Less Return 18 18%

Agent’s Advice 13 13%

CHART-2.1.10

Interpretation:

Out of 102 people who have not invested in BPLMF, 69% were not aware with BPLMF,

18% do not have invested due to less return and 13% due to Agent’s Advice.

11. Preference of Investors for future investment in Mutual Fund

TABLE-2.1.11

Name of AMC No. of Investors percentage

BPLMF 21 17.5%
UTI 53 44.1%
HDFC 10 8.3%
Reliance 12 10%
ICICI Prudential 8 6.6%
Kotak 5 4.1% CHART-
Others 11 9.1% 2.1.11

Interpretation:
 33

Out of 120 investors, 10% prefer to invest in Reliance, 7% in ICICI Prudential, 18% in BPLMF,
9% in Others, 4% in Kotak, 44% in UTI and 8% in HDFC Mutual Fund.

12. Channel Preferred by the Investors for Mutual Fund Investment

TABLE-2.1.12
Channel Financial Bank AMC

Advisor

No. of Respondents 72 18 30

percentage 60% 15% 25%

CHART-2.1.12

Interpretation:
 34

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

TABLE-2.1.13

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

No. of Respondents 78 42

percentage 65% 35%

CHART-2.1.13

Interpretation:

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

Systematic Investment Plan.

14. Preferred Portfolios by the Investors

TABLE-2.1.14

Portfolio No. of Investors Percentage

Equity 56 46%

Debt 20 17%

Balanced 44 37%
 35

CHART-2.1.14

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

TABLE-2.1.15

Option Dividend Payout Dividend Growth

Reinvestment

No. of Respondents 25 10 85

percentage 21% 8% 71%

CHART-2.1.15

Interpretation:

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

8% preferred Dividend Reinvestment Option.

 36

16. Preference of Investors whether to invest in Sectoral Funds

TABLE-2.1.16

Response No. of Respondents percentage

Yes 25 21%
No 95 79%

CHART-2.1.16

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.

17.strategic preference of investor

TABLE-2.1.17

No of strategies No. of Investors percentage

High risk, high return 23 19%
Medium risk, medium 62 51.6%
return

Low risk, low return 35 29.1%

Total 120 100%
 37

CHART-2.1.17

Interpretation:

Out of 120 investors, 19% investors prefer high risk high return strategy and 51% prefer

medium risk medium return strategy which is preferred by maximum investor’s and 30%

prefer low risk low return strategy

18. Performance rating of your Amc

TABLE-2.1.18

Rating No. of Investors percentage

Highly satisfied 11 9%
satisfied 56 47%
Neutral 29 24%
Dissatisfied 18 15%
Highly dissatisfied 6 5%
Total 120 100%
CHART-2.1.18

Interpretation:

Out of 120 investors,47% investor’s are satisfied with the performance of their AMC and,

24% investor’s have neutral opinion, 15% are dissatisfied,9% are highly satisfied and 5%

are highly dissatisfied.

19.Service quality rating of your Amc

 38

TABLE-2.1.18

Rating No. of Investors percentage

Highly satisfied 9 7%
satisfied 62 52%
Neutral 21 17%
Dissatisfied 15 13%
Highly dissatisfied 13 11%
Total 120 100% CHART-

2.1.18

Interpretation:

Out of 120 investors,52% investor’s are satisfied with the service quality of their AMC

and, 17% investor’s have neutral opinion, 13% are dissatisfied,7% are highly satisfied

and 11% are highly dissatisfied.

CORRELATION ANALYSIS

Table showing the correlation between the customer preferences on various types of funds with

their type of investment strategies.

TABLE 2.2.1

Customer Preferences No of No of
Type Of Investment
On Various Types Of
Respondents Strategies Respondents
Funds
 39

Having only debt High-risk, high return

18 23
portfolio category

Having debt and equity medium-risk, medium

71 62
portfolio return category

Having only equity low-risk, low return

31 35
portfolio category

Total 120 Total 120

X – Level of customer preferences on various funds

Y – Level of investment strategies

X Y (x-x) (y-y) (x-x)2 (y-y)2 (x-x) (y-y)

18 23 -22 -17 484 289 374

71 62 31 22 961 484 682

31 35 -9 -5 81 25 45

120 120 0 0 1526 798 1101

X = x = 120

= 40

N 3

Y = y = 120

= 40

N 3
 40

__ __

r= ∑ (X – X) (Y – Y)

_____________________________________

__ __

√∑ (X – X) 2 ∑ (Y – Y) 2

= 1101
= > 0.9976

1526 x 798

The Two variables are highly correlated.

The above test portrays that there is a positive correlation between the various type of

funds and different investment strategy. Thus, as the funds changes accordingly their strategies

also changes and vice versa.

TABLE 2.2.3
CORRELATION ANALYSIS

Table showing the correlation between the AMC’S performance on mutual funds with

customer satisfaction on AMC’S service Quality.

performance on mutual No of satisfaction on service No of

funds Respondents Quality Respondents

Highly Satisfied 11 Highly Satisfied 9

Satisfied 56 Satisfied 62

Neutral 29 Neutral 21
 41

Dissatisfied 18 Dissatisfied 15

Highly Dissatisfied 6 Highly Dissatisfied 13

Total 120 Total 120

X – Level of AMC’S performance on mutual funds.

Y – Level of AMC’S satisfaction on service Quality.

X Y (x-x) (y-y) (x-x)2 (y-y)2 (x-x) (y-y)

11 9 -13 -15 169 225 195

56 62 32 38 1024 1444 1216

29 21 5 -3 25 9 15

18 15 -6 -9 36 81 54

6 13 -18 -11 324 121 198

X = Σ x = 120

= 24

N 5

Y = y = 120

= 24

N 5

__ __
 42

R = ∑ (X – X) (Y – Y)

_____________________________________

__ __

√∑ (X – X) 2 ∑ (Y – Y) 2

= 1678
= > 0.9742

1578x 1880

The Two variables are highly correlated.

The above test portrays that there is a positive correlation between the performance

and the level of satisfaction on service Quality. Thus, as the performance increases, the

satisfaction on service Quality also increases. When the performance decreases the satisfaction

on service Quality decreases.

 43

TABLE 2.3.1

2.3.1 ANALYSIS USING WEIGHTED AVERAGE METHOD

WEIGHTED AVERAGE METHOD

Weighted averages are used extensively in descriptive statistical analysis such as index
numbers. An average in which each quantity to be averaged is assigned a weight. These
weightings determine the relative importance of each quantity on the average. Weightings are the
equivalent of having that many like items with the same value involved in the average.

SHOWS HOW LIKELY THE CUSTOMERS ARE WILLING TO GET THE RETURNS EVERY
YEAR?”

TABLE-2.3.1

RESPONDENTS WEIGHTAGE
CHOICE WiXi WiXi/∑Wi RANK
(Xi) (Wi)

25 2 50 8.3 2
Dividend payout

Dividend re-
10 1 10 1.7 3
investment

Growth in NAV 85 3 255 42.5 1

Total 120 6 12.2

 44

INFERENCE:

(Investor’s are willing to make growth in NAV(Net asset value)”

TABLE 2.3.2

SOURCE OF INFORMATION FOR INVESTOR’S ABOUT MUTUAL FUNDS?”

RESPONDEN WEIGHTAGE
CHOICE WiXi WiXi/ ∑ Wi RANK
TS (Xi) (Wi)

18 1 18 1.8 4
Advertisement

Peer group 25 2 50 5 3

Bank 30 3 90 9 2

Financial
62 4 248 24.8 1
advisors

Total 10

INFERENCE:

Investor’s get more information about mutual funds through financial advisors than other
source of information.
 45

CHAPTER-3
SUMMARY
3.1FINDINGS
➢ Investor’s of 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.
➢ Most of the Investors were Graduate or Post Graduate and below HSC there were very
few in numbers in chennai.

➢ In Occupation group most of the Investors were Govt. employees, the second most
Investors were Private employees and the least were associated with Agriculture.

➢ In 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.
 46

➢ Most of the Investors had invested in UTI or BPL Mutual Fund, RELIANCE has
also good Brand Position among investors, ICICI prudential places after Reliance
according to the Respondents.

➢ Out of 18 investors of BPLMF 28% have invested due to its association with the
Brand BPL, 17% Invested because of Advisor’s Advice and 50% due to better
return.

➢ Most of the investors who did not invested in BPLMF due to not Aware of
BPLMF, the second most due to not aware and rest due to agent’s advice.

➢ For Future investment the maximum Respondents preferred UTI Mutual Fund, the
second most preferred BPLMF, Reliance 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.

➢ 50% of investor’s preferred medium-risk, medium-return and the most preferred low-risk,
low-return and then high-risk, high-return.
➢ Based upon the choice of investor’s on funds the investment strategies differ and vice
versa.
➢ Out of 120 investor’s most of them are satisfied with their Amc’s performance.
➢ Out of 120 investor’s most of them are satisfied with their Amc’s Service quality.
➢ Based on the service quality of amc’s the performance on mutual fund is been measured.
➢ Investor’s have shown their preferences towards growth in NAV(Net asset value).
 47

3.2 SUGGESTIONS
➢ 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.
 48

➢ 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.

3.3 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
CHENNAI 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, BPLMF, 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.
 49

Only those people invest directly who know well about mutual fund and its operations
and those have time.

APPENDIX
QUESTIONNARE

A study on Investor’s attitude and preferences on 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
 50

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
 51

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

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

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

a. BPLMF is associated with Bonanza portfolio ltd.

b. They have a record of giving good returns year after year.

c. Agent’ Advice

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

a. You are not aware of BPLMF.

b. BPLMF 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. BPLMF

b. UTI

c. Reliance

d. HDFC

e. Kotak

f. ICICI

12. Which Channel will you prefer while investing in Mutual Fund?
 52

(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

17. Which type of investment strategic you would like?

high-risk, high-returns category medium-risk, medium-returns low-risk, low-returns category

category

18. Rate your AMC’s performance on mutual funds

 53

Highly
Highly satisfied satisfied Neutral Dissatisfied
dissatisfied

19. Rate your satisfactory level on service quality of your AMC

Highly
Highly satisfied satisfied Neutral Dissatisfied
dissatisfied

BIBLOGRPHY

• NEWS PAPERS
 54

• OUTLOOK MONEY

• TELEVISION CHANNEL (CNBC AAWAJ)

• MUTUAL FUND HAND BOOK

• FACT SHEET AND STATEMENT

• WWW.BPLMF.COM

• WWW.MONEYCONTROL.COM

• WWW.AMFIINDIA.COM

• WWW.ONLINERESEARCHONLINE.COM

• WWW. MUTUALFUNDSINDIA.COM
55