Summer Internship Report

For the partial fulfillment of the requirement for the degree of

MASTER OF BUSINESS ADMINISTRATION

UNDERSTANDING INVESTMENT PATTERN IN MUTUAL FUNDS AND ADVISORY SERVICES

At

Of

Under The Supervision

Mr. Mohsin Shamim
Assistant Manager- II ICICI bank,GK-II,New Delhi
By

YASIR MOHEET
MBA (2007-08) Department of Business Studies JAMIA HAMDARD New Delhi

ACKNOWLEDGEMENT

I would like to thank Mr. Mohsin Shamim (AM-II , ICICI Bank), for giving me an opportunity to work on this project and help me increase my knowledge about the subject and get the first hand experience about the product. Without his panegyric support it would have been difficult for me to imbibe such skills required for completing the project.

I would also like to thank Mr. Shahid Siddiqui (AM-I , ICICI Bank), for his valuable help without whom it would not have been easier for me to work on this project.

(Md. Anwar Khan)

06 MBA-26

TABLE OF CONTENTS
ACKNOWLEDGEMENT.2 EXECUTIVE SUMMARY COMPANY OVERVIEW. 4 SERVICES PROVIDED BY ICICI BANK.7 INVESTMENT OPTIONS9 COMPARISION OF MODERN AND TRADITIONAL METHODS OF INVESTMENTS..13 HISTORY OF INDIAN MUTUAL FUND INDUSTRY..14 CONCEPT OF MUTUAL FUNDS..16 ORGANIZATIONAL STRUTURE OF MUTUAL FUND.19 TYPES OF MUTUAL FUNDS.....20 CLASSIFICATION OF MUTUAL FUNDS22 RISKS ASSOCIATED WITH MUTUAL FUNDS.26 ADVANTAGES OF INVESTING IN MUTUAL FUNDS.28 TAX BENEFITS OF INVESTING IN THE MUTUAL FUND.30 CUSTOMER PROFILING OF MUTUAL FUNDS44 OBJECTIVES OF THE STUDY RESEARCH METHODOLOGY FINDINGS AND INTERPRETATIONS CONCLUSIONS DRAWN RECOMMENDATIONS LIMITATIONS OF THE STUDY SWOT ANALYSIS OF MUTUAL FUND BASED ON THE STUDY..54 BIBLIOGRAPHY QUESTIONAIRRE

COMPANY OVERVIEW

ICICI BANK

ICICI Bank is India's second-largest bank with total assets of about Rs.146, 214 crore at December 31, 2004 and profit after tax of Rs. 1,391 crore in the nine months ended December 31, 2004. ICICI Bank has a network of about 505 branches and extension counters and about 1,850 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank has a global presence with subsidiaries. 4

In the United Kingdom and Canada, branches in Singapore and Bahrain and representative offices in the United States, China, United Arab Emirates and Bangladesh. ICICI Bank's equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As required by the stock exchanges, ICICI Bank has formulated a Code of Business Conduct and Ethics for its directors and employees. ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, An equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.

After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards Universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly feebased services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank.

SERVICES PROVIDED BY ICICI BANK

1. DEPOSITS

SAVING BANK SPECIAL SAVING ACCOUNT SENIOR CITIZEN SERVICE ROAMING CURRENT ACCOUNT PRIVATE BANK SALARY ACCOUNT WOMENS ACCOUNT FIXED DEPOSITS EASY FD RECURRING DEPOSIT YOUNG STAR EEFC ACCOUNT RFC ACCOUT

2. LOAN
HOME LOAN CAR LOAN PERSONAL LOAN TWO WHEELERS LOAN LOAN AGAINST SECURITY FARM EQUIPMENTS LOAN COMMERCIAL VEHICLE LOAN CONSTRUCTION EQUIPMENTS LOAN OFFICE EQUIPMENTS LOAN 8

 MEDICAL EQUIPMENTS LOAN

3. INVESTMENTS
ICICI BANK BONDS MUTUAL FUNDS PURE GOLD INITIAL PUBLIC OFFER GOVERNMENT OF INDIA BOND

4. DEMAT 5. CARDS
CREDIT CARD DEBIT CARD TRAVEL CARD

6. YOUNG STAR LOGIN 7. MOBILE BANKING 8. ONLINE SERVICES

BILL PAY SHOPPING TICKETING CHARITY SHARE TRADING

9. NRI SERVICES
NRI HOME BANKING PRODUCTS MONEY TO INDIA 9

INVESTMENT OPTIONS

MODERN INVESTMENT OPTIONS

Along with Deposit products and Loan offerings, ICICI Bank assists you to manage your finances by providing various investment options ranging from ICICI Bank Tax Saving Bonds to Equity Investments through Initial Public Offers and Investment in Pure Gold. ICICI Bank facilitates following investment products: ICICI Bank Tax Saving Bonds Government of India Bonds Investment in Mutual Funds Initial Public Offers by Corporate Investment in "Pure Gold"

TRADITIONAL INVESTMENT OPTIONS

ICICI Bank offers wide variety of Deposit Products to suit Investors requirements. Coupled with convenience of networked branches with over 1800 ATMs and facility of E-channels like Internet and Mobile Banking, ICICI Bank brings banking at Customers doorstep. There are three Options available to the investors. Fixed Deposits Savings Account Recurring Deposit

10

11

Comparison of Traditional & Modern investment

S.No. 1 2 3 4 TRADITIONAL METHODS

Options Fixed Deposit Recurring Deposit Savings ICICI Tax Bonds

Risk LOW LOW LOW Bank LOW

Return

Tax

Less Than 6% Taxable p.a Less than 6% Taxable p.a 3.5% p.a 8% Taxable Deductible From Taxable Income

Saving

Government of India

No Risk

8%

Tax Free

MODERN METHODS

Bonds Investment in Moderate Mutual Funds

Average returns Depend Market

Funds Under ELSS On Deductible From Taxable

Initial Offers

Public High by

Fluctuations Income High or Low Returns After Depends Market on One Year are Tax Free

Corporate 8 Investment in Low Pure Gold

Conditions Depends on Taxable the Growth in the Market

HISTORY OF INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and the Reserve Bank 12

of India. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase: 1964 1987 An Act of Parliament established Unit Trust of India (UTI) in 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase: 1987 - 1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (December 87), Punjab National Bank Mutual Fund (August 89), Indian Bank Mutual Fund (November 89), Bank of India (June 90), Bank of Baroda Mutual Fund (October 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 crores.

Third Phase: 1993 - 2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except 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 13

1993

SEBI

(Mutual

Fund)

Regulations

were

substituted

by

more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase: Since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the specified undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of October 31, 2003, there were 31 funds, which manage assets of Rs.126726 crores under 386 schemes.

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CONCEPT OF MUTUAL FUNDS

A mutual fund is an investment vehicle which allows investors with similar (one could say mutual) investment objectives, to pool their resources and thereby achieve economies of scale and diversification in their investing. Economies of Scale mean lower costs on a per unit basis by doing things "in bulk" which spreads fixed costs over greater volume. A mutual fund achieves lower per unit costs for professional money management and for transaction charges, than small investors could achieve on their own. This can increase return to the investor. Diversification is just another way of saying "Dont put all your eggs in one basket." A mutual fund allows its investors to a small percentage of many different investments. So in a well-diversified mutual fund no one particular investment dominates its performance. Poor results from some investments are likely to be offset by good results from other investments. Therefore, the unit value of a mutual fund will not fluctuate as sharply as the value of any one of its investments. This can reduce risk to the investor. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual 15

funds collectively manage almost as much as or more money as compared to banks. Despite these advantages mutual funds do not guarantee do not return, nor do they eliminate risk to investors. The return and risk of a mutual fund depend primarily on the type of securities instruments in which it invests, and secondarily on how well it is managed by the company offering it. Typically a mutual fund scheme is initiated by a sponsor who recognizes and markets the fund. It pre specifies the investment objective of the fund and the risks associated with the costs involved in the process and broad rules for entry into and exit from the fund and other areas of operation. In India as in most nations the sponsors need approval from the regulator viz. SEBI. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to the custodian of the assets of the funds and perhaps a third one to handle registry work. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. 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 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.

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The flow chart below describes broadly the working of a mutual fund Mutual fund Investment Flow-chart

Organization of Mutual Funds

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ORGANIZATIONAL STRUTURE OF MUTUAL FUND

Sponsor Company (For eg. Prudential icici)

Established MF as the trust Register the MF under SEBI

Managed by the board of trustee Hold unit holders fund in MF Enter into an agreement with SEBI and ensure compliance

Mutual Fund (For eg prudential icici mutual fund) AMC (eg. Prudential ICICI AMC)

Float MF funds, Manages the fund as SEBI Guidelines and AMC agreement

CUSTODIAN

Provides custodial services

REGISTER

Provides registrar and transfer service Provides the network for distribution of the schemes to the investor

DISTRIBUTORS

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TYPES OF MUTUAL FUNDS

Most mutual funds are open-ended funds. This means you can subscribe to one at any time of the year. Open-ended funds are not listed on stock exchanges. A converse set of rules apply to closed ended funds. Closed ended funds have a fixed number of shares, are open for subscription during a specified period and operate for a fixed period of time. For example, five years and so, the number of buyers and sellers are exact someone would have to sell for you to be able to buy. Closed ended funds are generally listed on stock exchanges. Mutual funds can also be broadly classified into four distinguishable types: Equity funds Debt or Income funds Balanced funds Money Market funds

Debt or Income Funds The aim of debt or income funds is to make regular payments to its investors, although dividends can be reinvested to buy more units of the fund. To provide you with a steady income, these funds generally invest in fixed income securities such as bonds, corporate debentures, government securities (gilts) and money market instruments. Opportunities for capital appreciation are limited and the downside is that as interest rates fluctuate, the net asset value or NAV of the fund could follow suit if interest rates fall, the NAV is likely to increase and vice versa. There is also a risk that a company issuing a bond may default on its payment, if it is not financially healthy. However, if the fund invests in

19

government securities there is little risk of the government defaulting on its payment.

Equity Funds Equity funds (often described as growth funds) aims to provide capital growth by investing in the shares of individual companies. Depending on the funds objective, this could range from large blue-chip organizations to small and new businesses. Any dividends received by the fund can be reinvested by the fund manager to provide further growth or paid to investors. Both risk and returns are high but they could be a good investment if you have a long-term perspective and can stay invested for at least five years.

Balanced funds - The best of both the worlds As the name suggests, these funds aim for balance, so they are made up of a mixture of equities and debt instruments. They match the goals of investors who seek to grow their capital and get regular income, while retaining relatively low risk. The debt or bond element of the fund provides a level of income and acts as the safety net during dynamic periods in the market, while equities provide the potential for capital appreciation. Balanced funds could be suitable for investors who are looking for moderate capital appreciation. Money market funds Money market or liquid funds are an appealing alternative to bank deposits because they aim to provide stability, liquidity, capital preservation and slightly higher interest rates than bank accounts. When you invest in a money market fund, the fund manager invests in cash assets such as treasury bills, certificates of deposit and commercial paper. Returns on these funds fluctuate 20

much less compared to other funds, but they are not guaranteed. They are appropriate for corporate and individual investors who wish to park their surplus money in a fund for a short period.

21

CLASSIFICATION OF MUTUAL FUNDS

There are varied ways in which funds can be classified. From the investors perspective funds are usually classified in terms:

Collection Constitution Structure exit investors Close ended Load funds

entry

or from

charges

Open ended

No-Load funds

Under each broad classification, there are several types of funds, depending on the basis of the nature of their portfolio. Every fund has unique risk-profiles that are determined by its portfolio.

Open-ended Funds An open-end fund is one that has units available for sale and repurchase at all the times at a price based on the NAV per unit. Such funds are open for subscription the whole year. Capitalization/corpus is continuously changing. Fund size and the total investment amount goes up if more new subscription comes in from new investors than redemption by exiting investors, the fund shrinks when redemption of units exceeds fresh subscription. Theres no fixed maturity.

22

Shares or units of such funds are normally not traded on the stock exchange but are repurchased by the fund at announced rates. They provide better liquidity even though not listed as investors can any time approach mutual funds for sale of such units. Dividend reinvestment option is also available in case of such funds. Since there is always a possibility of withdrawals, management of such funds becomes more tedious as managers have to work from crises to crises. Crises may be two fronts: Unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. By virtue of this situation such funds may fail to grab favorable opportunities. Further to match quick cash payments, funds cannot have matching realization from their portfolio due to intricacies of the stock market. Close-ended Funds Close end funds can be subscribed to, only during the initial public offer. Thereafter the units of such funds can be bought and sold on the stock exchange on which they are listed through a broker. Such funds have a stipulated maturity period. The duration of such funds is generally 2 to 15 years. The funds units may be traded at the discount or premium to NAV based on the investors perception about the funds future performance and other market factors affecting the demand for a supply of the funds units. An important point to note here is that the number of outstanding units of such fund doesnt vary on account of trading in the funds units at the stock exchange. From management point of view, managing close ended schemes is comparatively easy since fund managers can evolve and adopt long term investment strategies depending on the life of the scheme.

23

Load Funds Marketing of new mutual fund scheme involves initial expenses. Charges made to the investor to cover distribution/sales/marketing expenses are often called loads. These expenses may be recovered from the investors in different ways at different times. Typically entry and exit loads range from 1% to 2%. Three usual ways in which funds sales expenses may be recovered from the investor are: At the time of entry into the fund, by deducting a specific amount from his initial expenses. The load charges to the investor at the time of his entry into the scheme are called a front-end or entry load. By charging the fund/scheme with a fixed amount each year, during the stated number of years. The load amount charged to the scheme over a period of time is called deferred load. At the time of investors exit from the scheme, by deducting a specified amount from the redemption precedes payable to the investor. The load that the investors pay at the time of his exit is called a back-end or exit load. Some funds may also charge different amounts of load to the investor depending upon how many years the investors has stayed with the fund, the longer the investor stays with the fund less the amount of exit load, he is charged. This is called as contingent deferred sales charge. The schemes NAV would reflect the net amount after the deferred load.

Loads are charged not only by an open-ended fund but even a close-ended fund can charge a load to cover the initial issue expense. No-Load Funds Funds that make no such charges or loads for sales expenses are called as no load funds.

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OPTIONS AVAILABLE TO THE INVESTORS

Each plan of every mutual fund has three options Growth, Dividend and dividend reinvestment. Separate NAV are calculated for each scheme.

Dividend Option Under the dividend plan dividend are usually declared on quarterly or annual basis. Mutual fund reserves the right to change the frequency of dividend declared.

Dividend reinvestment option Instead of remittances of units through payouts, Units holder may choose to invest the entire dividend in additional units of the scheme at NAV related prices of the next working day after the record date. No sales or entry load is levied on dividend reinvest. Dividend Payout option Dividend declared by the fund manager is remitted to the investors and NAV is reduced by that value. Growth Option Under this plan returns accrue to the investor in the form of capital appreciation as reflected in the NAV. The scheme will not declare the dividend under the Growth plan and investors who opt for this plan will not receive any income from the scheme. Instead of income earned on their units will remain invested within the scheme and will be reflected in the NAV.

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Calculation of NAV

RISKS ASSOCIATED WITH MUTUAL FUNDS

Mutual funds and securities investment are subject to various risks and there is no assurance that a scheme objective will be achieved. These risks should be properly understood by investors so that they can understand how much risky their investment avenue is. Equity and fixed income bearing securities have different risks associated with them. Various risks associated with mutual funds can be described as below.

Risk associated to fixed income bearing securities are

Interest rate risk As with all the securities, changes in interest rates may affect the schemes Net Asset Value (NAV) as the prices of the securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long-term securities generally fluctuate more in response to interest rates changes than short term securities do. Indian Debt markets can be volatile leading to the possibility of price movements up or down in the fixed income securities and thereby to the possible movements in the NAV.

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Liquidity or marketable risk This refers to the ease with which a security can be sold at near to its valuation yield to maturity. The primary measure of liquidity risk is the spread between the bid price and the offer price quoted by the dealer. Liquidity risk is inherent to the Indian Debt market.

Credit risk Credit risk or default risk refers to the risk that an issuer of fixed income security may default (i.e., will be unable to make timely principal and interest payments on the security). Because of this risk corporate debentures are sold at a yield above those offered on Government securities, which are sovereign obligations and free of credit risk. Normally the value of fixed income security will fluctuate depending upon the perceived level of credit risks well as the actual event of default. The greater the credit risk the greater the yield require for someone to be compensated for increased risk.

Risk associated to equities

Market risk The NAV of the scheme investing in equity will fluctuate as the daily prices of the individual securities in which they invest fluctuate and the units when redeemed may be worth more or less than the original cost.

Timing the market It is difficult to identify which is the right time to invest and which is the right time to take out the money. There may be situations where stocks may not be rightly timed according to the market leading to loss in the value of scheme.

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Liquidity Investment made in unlisted equities or equity related securities might only be realizable upon the listing of the securities. Settlement problems could cause the scheme to miss certain investment opportunities.

ADVANTAGES OF INVESTING IN MUTUAL FUNDS

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

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Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability Investors individually may lack sufficient funds to invest in high-grade 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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Choice of Schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

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

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TAX BENEFITS OF INVESTING IN THE MUTUAL FUND

A. TO THE UNITHOLDERS
INCOME RECEIVED FROM MUTUTAL FUND Any income received in respect of units of Mutual Fund under clause (23D) of Section 10, in respect of Assessment Year 2004-2005, will be exempt from income tax in the hands of the unit holders. Further, it has been clarified that income arising from transfer of units of Mutual Fund shall not be exempt under section10 (35). No tax would be payable by unit holders in respect of income distributed by the Fund and no tax needs to be deducted at source thereon by the Fund.

B. LONG TERM CAPITAL GAINS ON TRANSFER OF UNITS

For Individuals and HUFs Long-term Capital Gain tax is not applicable if the Units are held for more than 12 months.

For Non-resident Indians Under section 115E of the Act for non-resident Indians, income by way of long-term capital gains in respect of Units is chargeable at the rate of 20% plus applicable surcharge.

C. SHORT TERM CAPITAL GAINS

Short term Capital Gains in respect of Units held for a period of not more than 12 months is added to the total income. Total income including short-term capital gains is chargeable to tax as per the relevant slab rates Income Tax Rates The maximum taxes rates applicable to different categories of assess are as follows: 31

 Resident individuals and HUF 30% plus surcharge Partnership Firms 35% plus surcharge Indian companies 35% plus surcharge Non Resident Indians 30% plus surcharge Foreign Companies 40% plus surcharge As per the Finance Act 2003, a surcharge of 2.5% on the income tax would be applicable for all categories of assesses except in the case of individuals and HUF.

TAX DEDUCTION AT SOURCE

For Income in respect of units As per section 10(35), section 194K and section 194A, no tax shall be deducted in respect of any income credited or paid on or after April 1, 2003 in respect of units of the Fund.

For Capital Gains In respect of Resident Unit holders: No tax is required to be deducted at source on capital gains arising to any resident unit holder (under section 194K)

In respect of Non- Resident Unit holders Under section 195 of the Income Tax Act, 1961, tax shall be deducted at source in respect of capital gains as under: In case of non resident other than a company Long term capital gains 20% plus surcharge Short term capital gains 30% plus surcharge

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EXEMPTION FROM TAX ON CAPITAL GAINS ARISING ON TRANSFER OF UNITS HELD FOR MORE THAN 12 MONTHS Under section 54EC of the Act the Income Tax Act, 1961, where an assesses has made capital gains from the transfer of units held in Mutual Fund Scheme for a period exceeding 12 months, such capital gains shall be exempted from tax on capital gains under section 54EC of the Income Tax Act 1961. WEALTH TAX Units held under the Mutual Fund Scheme are not treated as assets within the meaning of section 2(ea) of the Wealth Tax Act, 1957 and are, therefore, not liable to Wealth-Tax.

GIFT TAX Units of the Mutual Fund may be given as a gift and no gift tax will be payable either by the donor or the done, as the Gift Tax Act has been abolished.

CUSTOMER PROFILING OF MUTUAL FUNDS

We plan to do customer profiling of mutual funds investors that would help us to know their investment behavior and their risk taking ability. This would involve questionnaire filling and interviewing them.

PROBLEM STATEMENT Analysis of the Investment pattern in Mutual Funds.

RESEARCH PROBLEM There are myriad choices available to the investor of today. Investment avenues are Galore. There are different investment vehicles such as stocks and bonds. We however need to invest carefully, and work out various investment options and decide on how to make best of our investment in terms of monetary benefits. The key questions on mutual funds are: 33

 What are the selection criteria for customers in buying of mutual funds? What is the buying behavior of mutual fund customers? What is the level of awareness about mutual funds among investor? What percentage of investors invests in mutual funds in proportion of their investments? What is the most preferred mutual fund among various mutual funds? What are the customers objectives of investing in mutual funds? What is the level of satisfaction of investors from their mutual funds?

Objectives of the Study

To understand the investment behavior of the investors To analyze the risk appetite of the investors Role of a distributor in investment decisions of the investors and to identify the areas for improvement To find out the major factor influencing the investment decision of an investor

Research Methodology
Research design: Data source : Sampling Method: Sample Size: Sampling Unit: Area covered: Time period: Exploratory research Primary & Secondary Simple Random Sampling 150 Investors above 20 yrs of age Delhi 2 Months (20/5/2008-30/6/2008)

How research was conducted: 150 questionnaires were distributed and filled up by the target sample.

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DEFINE POPULATION The population of our research consists of people residing in DELHI. All the age groups above the age of 20 form the elements of our population. DEFINING SAMPLE Our sample size consists of 150 respondents, consisting of people from the age range of 20 and above. We have chosen this sample because the investors in this age group are adults and they are ready to invest there savings in financial instruments.

HOW THE SAMPLE SIZE IS CHOSEN The sample size of 150 people has been chosen by the process of simple random sampling technique where each element of the population has an equal and likely chance to get selected.

WHERE THE SURVEY WAS CONDUCTED Our sample selection target places have been mostly malls and few financial institutions like ICICI bank. We choose these places because the respondents that we would get at these places would be mostly of our requirement, who usually invest in these financial instruments.

RESEARCH DESIGN
Our study is mainly Exploratory in nature.

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Findings & Interpretations

Age-wise distribution

Majority of the MF investors fall in age bracket of 35-50 yrs.This shows that middle aged persons are quite liberal in investing in Mutual Funds.

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Educational background

Aa
A large number of investors are post graduates and graduates. It shows that MF investments are hotter among the educated class. Less qualified persons are a bit hesitant in investing in MFs. This may be due to the lack of knowledge and expertise about the Mutual Funds.

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Nature of occupation

Majority of the investors are either Professionals, Businessmen or Private sector employees.

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Types of investment(s) made

A large number of our sample invests in Mutual Funds (137) and Insurance (124). Also a good number in FDs (94). This shows that investors approach is somewhat balanced as nearly one third also invest in Equities (46).

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Investment objective

In this graph we can see that 35% invest for Capital gains and 32% for Future plans while 26% invest for Tax savings.

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Criteria for selecting a MF Scheme

This graph shows that 42% of the investors select a Mutual Fund scheme on the basis of return potential while 26% of them on the basis of past performance. This shows that people are somewhat aggressive in selecting a MF scheme and they consider returns for some amount of risk.

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Type of MF Scheme most preferred

Most of the investors (42%) go for Growth schemes while a good number(29%) go for Balanced scheme. Very few (8%) go for Debt scheme. This may be due to good equity market over a couple of years and poor debt market conditions.

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Channel of Investment

A large number of investors (96%) invest through advisors or distributors. This may be due to time constraint or lack of expertise.

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Annual investment in Mutual Funds

49% of our sample invest less than Rs. 50,000 in MFs annually while 32% invest in the range of Rs. 50,000-1,00,000. Very few i.e only 2% invest more than Rs. 3,00,000 annually.

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Level of satisfaction from MF investments

52% of the investors are satisfied with their MF investments while 15% are highly satisfied. This is also probably due the outcome of good equity market conditions for the past few years.

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Annual Income of the investors

Majority of our investors fall in the income of Rs. 1,00,000-2,50,000 (54%) and Rs.2,50,000-5,00,000 (31%) annually. The HNIs were not easily accessible which was the major constraint of my study.

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Conclusions Awareness level of mutual Funds is very high among the investors in Delhi. Returns is the prime factor which affect their investment decisions. Investors in Delhi are reasonably aggressive and are willing to take risk for return. Distributors play a very important role in investors decision making. Investors in Delhi have a well organized portfolio.

New investors are a bit apprehensive in investing in Public Sector AMCs and they prefer the names like UTI, SBI,etc.

Majority of the investors are satisfied with their MF investments

A good number of investors invest in FDs and they can be convinced to invest in MFs.

Majority of the MF investors are Graduates and Post graduates.

Pvt. Sector employees and Professionals are more liberal in making their investment decisions.

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Recommendations

FCs be given more structured training. After sales service of the distributors be improved. More awareness campaigns be launched to educate the investors especially for undergraduate investors. Walk ins of FDs be induced to start with small amounts. Research be conducted over a larger sample & coverage. Respondents can be lured by offering incentives. Organizations should provide access to their HNI database. SIPs should be promoted to small investors.

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Limitations

The results cannot be generalized as the investors behavior in Delhi are quite different . The sample size was very small and population is very large. Respondents unwillingness to respond. Time constraint led to limit our sample size. Research was limited mostly to MF investors only. Respondents reluctance in disclosing their income levels. Lack of experience of the researcher. The HNIs were not easily accessible. Financial constraint.

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SWOT ANALYSIS BASED ON THE STUDY OF MFs

Strength Good for new investor as the fund has to be managed by specialized fund manager. Only product which invests in money market, debt market and equity market at same time. Investment needed is comparatively less than other investments. During the stack market boom periods all mutual funds have performed fairly well thereby increasing investors expectations.

Weakness Customers do not prefer it because of risk attached to it that is market risk. Fund manager if makes a wrong prediction then customer will bear the brunt therefore it depends on funds managers analysis. Sometimes the age factor affects the investment preference of the investors. People are afraid of investing in the equity market.

Opportunities Creating positive image about the fund and changing the nature of the market itself. Market of mutual fund is expanding as many foreign companies are coming in this. Great scope of new investment due to the budget announcement this year. 50

 The objective of investing in mutual fund is Tax-saving apart form returns third main objective is growth.

Threats Now there are many other investment instruments which are more lucrative than mutual fund. (real estate , gold) Unawareness among investors regarding mutual funds. Also in India most of the people lack of awareness about mutual fund. They dont know anything about what is mutual fund, how it works. How fund managers invest peoples money in different portfolios and provide the better returns to the customers Lack of promotions, advertising by mutual fund industry

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