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					                                       Index

Sr. No. Content                                        Page No.


   1    Introduction                                     03


  2     Organisation of Mutual Fund                      05


  3     Evolution of Mutual Fund industry in India       08


  4     Mutual Fund Industry - Global Scenario            10


  5     Bank v/s Mutual Fund                              13


  6     Types of Mutual Fund                              14


  7     Benefits of Mutual Fund Investment                18


  8     How to create a mass market for Mutual Funds     22


  9     Research Design                                  26


  10    Data Collection                                  27


  11    Data Analysis                                    28


  12    Findings & Conclusions                           46


  13    Questionnire                                     47


  14    Bibliography                                      51
                                    Introduction

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 invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned through

these investments and the capital appreciation realized by the scheme are shared by its

unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody

with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds.

Each Mutual Fund scheme has a defined investment objective and strategy


A mutual fund is the ideal investment vehicle for today’s 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 etc.


A mutual fund is the ideal investment vehicle for today’s 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 etc.
A draft offer document is to be prepared at the time of launching the fund. Typically, it pre

specifies the investment objectives of the fund, the risk associated, the costs involved in

the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the

sponsor and its financial strength in granting approval to the fund for commencing

operations.


A draft offer document is to be prepared at the time of launching the fund. Typically, it pre

specifies the investment objectives of the fund, the risk associated, the costs involved in

the process and the broad rules for entry into and exit from the fund and other areas of

operation. In India, as in most countries, these sponsors need approval from a regulator,

SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the

sponsor and its financial strength in granting approval to the fund for commencing

operations.


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.
                  What is a Mutual Fund? ---- The CONCEPT

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.


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 fundissues units

to the investors in accordance with quantum of money invested by them. Investors of

mutual funds are known as unitholders.


The profits or losses are shared by the investors in proportion to their investments. The

mutual funds normally come out with a number of schemes with different investment

objectives which are launched from time to time. A mutual fund is required to be registered

with Securities and Exchange Board of India (SEBI) which regulates securities markets

before it can collect funds from the public.




The flow chart below describes broadly the working of a mutual fund:



                                         Investors



           Passed back to                                     pool their money with


             Returns                                              Fund Manager



                    Generates                                 Invest in

                                         Securities
Mutual Fund Operation Flow Chart

A mutual fund is the ideal investment vehicle for today’s complex modern world. Markets

for equity shares, bonds and other fixed income instruments, real estate, derivatives and

other assets have become mature and knowledge 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 event, understand their

implications and act speedily. An individual also finds it difficult to keep track of ownership

of his assets, registrations, brokerage account and bank account reconciliation.


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, investing 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 20 th century phenomenon. In fact, mutual funds gained

popularity only after the Second World War. Globally, there are thousands of mutual fund

companies offering tens of thousands of mutual funds with different objectives. In

developed markets like the United States, mutual funds manage as much money as the

banks.


Along with the success of Mutual Funds there arose a need to regulate the industry. Thus

regulation and regulatory bodies came into existence so that some unscrupulous people

representing themselves as Mutual Funds do not put to loss the small investors, so this work

was carried out by SEBI in India. It formed an organizational structure that needs to be

followed by the upcoming as well as the existing Mutual Fund companies in India.
                 STRUCTURE OF A MUTUAL FUND COMPANY

There are many entities involved and the diagram below illustrates the organizational

set up of a mutual fund:




       SPONSOR                                                          TRUSTEE
       COMPANY




                                         MUTUAL
                                          FUND
                                        COMPANY




   ASSET MANAGEMENT                                                   CUSTODIAN
        COMPANY




                            Organization of a Mutual Fund

Typically a mutual fund scheme is initiated by a sponsor, which organizes and markets the

fund. It pre specifies the investment objectives of the fund, the risk associated, the costs

involved in the process and the broad rules for entry into and exit from the fund and other

areas of operation. In India, as in most other countries these sponsors need approval from

the regulator i.e. SEBI in India. SEBI looks at the track record of the sponsor and its

financial strength.



A sponsor then hires an Asset Management Company to invest the funds according to the

investment objective. It also hires another entity to be the custodian of assets of the fund

and perhaps a third one to handle registry work for the unit holders of the fund.

In the Indian context, the sponsor promotes 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). In most other countries, the sponsor and the Asset

Management Company need not be linked by ownership. E.g. Birla Global Finance is the

sponsor of the Birla Sun Life Asset Management Company Ltd. Which has floated different

mutual fund schemes and also acts as the manager for the funds collected under the

schemes.


The mutual fund scheme itself is a trust registered under the Indian Trust Act. The trust

is administered by a trustee company, which is promoted by the sponsor. For all practical

purposes, the trustee company is a shell vehicle. Typically, the trustees are experienced and

eminent people representing a cross section of the industry and society. The AMC has to

hire an outside custodian, which is responsible for custody of the asset of the fund. The

custodian is also responsible for receipt of all kind of cash and non-cash benefits such as

bonus, dividends and rights. The custodian is usually a bank or any other financially sound

institution



Many AMCs also hire a registrar and transfer agent which takes care of purchase and sale

of the units of the fund, issues certificates/account statements to investors, issues

redemption cheques, maintains the register of members, makes dividend payments and

handles investor related services like change of address and replacement of lost unit

certificates.


The AMC reports to the trustees who safeguard the interests of investors in the mutual

fund and also ensure compliance of the operations of the und with SEBI guidelines. They not

only monitor performance of the AMC but also oversee operations of the custodian and

transfer agent. The AMC receives a fee for its services. Currently, SEBI permits a

maximum fee of 1.25%p.a. of the asset value of the fund size less than Rs.1bn. As the asset

size of the fund increases, this falls progressively to 0.75%p.a. of the incremental asset

value. In addition, SEBI also permits AMCs to charge expense related to the management of

the fund up to certain limits. These are of two kinds of as follows:



       Up front expenses related to fund marketing and initial account opening – up to

        maximum of 6%of the investment amount (termed as “load”).
         Recurring expenses, which together with the management fees should not exceed

          certain limits. The maximum is 2.5% per year for equity funds and 2.25%per year

          for debt funds. As the asset size increases, the maximum limit falls progressively

          to 1.75. %of the incremental assets



First 1bn.               Next 3 bn.             Next 3 bn.             Over 7 bn.
2.5%                     2.25%                  2.00%                  1.75%

Both the management fee and the expenses are charged directly to the mutual fund

scheme.


Ideally Mutual Funds should be doing the following:

M       Mobilizing savings from public

U       Understand people need for savings

T       Transfers money from customers in investments of Contending companies.

U       utilities people’s fund property/appropriate resources.

A       analyses better risk-return relationship.

L       lowers saving costs.

F       future securities promises offered.

U       uses expert’s advice for tracking better portfolios.

N       Net Asset Valuation is calculated on daily basis.

D       Develops financial markets.

S       Strives to provide better & safe returns to investors.




                     Evolution of Mutual Fund industry in India
The end of the year 2007 marks 43 years of existence of Mutual Fund in this country. The

ride through these 43 years is not smooth. Investor opinion is still divided. UTI commenced

its operations from July 1964. the impetus for establishing a formal institutions came from

the desire to increase the propensity of the middle and lower groups to save and to invest.

The UTI came into existence during a period marked by great political and economic turmoil

that depressed the financial market; entrepreneurs were hesitant to enter the capital

market.


The already existing companies found it difficult to raise fresh capital, as investors did not

respond adequately to new issues. Earnest efforts were required to channelise savings of

the community into productive uses in order to speed up the process of industrial growth.

The then Finance Minister, T.T.Krishnamachari set up the idea of a unit trust that would be

“open to any person or institution to purchase the units offered by the trust. However,

this institution as we see it, is intended to cater to the needs of individual investors,

and even among them as far as possible, to those whose means are small.”


His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill

the twin objectives of mobilizing retail savings and investing those savings in the capital

market and passing on the benefits so accrued to the small investors.



UTI commenced its operations from July 1964 “with a view to encourage savings and

investment and participation in the income, profits and gains accruing to the

Corporation from the acquisition, holding, management and disposal of securities.”

Different provisions of the UTI Act laid down the structure of management, scope of

business, powers and functions of the trust as well as accounting, disclosures and regulatory

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



         First Phase – 1964-87



Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by

the Reserve Bank of India and functioned under the Regulatory and administrative control

of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial

Development Bank of India (IDBI) took over the regulatory and administrative control in

place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988

UTI had Rs.6,700 crores of assets under management.



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

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of

India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987

followed by 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)



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 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.



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 September, 2004, there were 29 funds, which

manage assets of Rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years.


GROWTH IN ASSETS UNDER MANAGEMENT
                   Major Players in Mutual Fund Industry

1.    ABN AMRO Mutual Fund
2.    Alliance Capital Mutual Fund
3.    AIG Global Investment Group Mutual Fund
4.    Benchmark Mutual Fund
5.    BOB Mutual Fund
6.    Birla Mutual Fund
7.    Canara Robeco Mutual Fund
8.    CRB Mutual Fund
9.    DBS Chola Mutual Fund
10.   Deutsche Mutual Fund
11.   DSP Merrill Lynch Mutual Fund
12.   Escorts Mutual Fund
13.   Franklin Templeton Mutual Fund
14.   Fidelity Mutual Fund
15.   HDFC Mutual Fund
16.   HSBC Mutual Fund
17.   ICICI Mutual Fund
18.   IL & FS Mutual Fund
19.   ING Mutual Fund
20.   J M Financial Mutual Fund
21.   J P Morgan Mutual Fund
22.   Kotak Mahindra Mutual Fund
23.   KJMC Mutual Fund
24.   LIC Mutual Fund
25.   Lotus India Mutual Fund
26.   Moran Stanley Mutual Fund
27.   Principal Mutual Fund
28.   ICICI Prudential Mutual Fund
29.   Quantum Mutual Fund
30.   Reliance Mutual Fund
31.   Sahara Mutual Fund
32.   SBI Mutual Fund
33.   Shriram Mutual Fund
34.   Standard Chartered Mutual Fund
35.   Sundaram BNP Paribas Mutual Fund
36.   Taurus Mutual Fund
37.   Tata Mutual Fund
38.   UTI Mutual Fund
                                  Mutual fund industry

        Mutual Fund Industry - Global Scenario

The global mutual fund industry is dominated by the United States which accounts for more

than 65%of total mutual fund assets worldwide. The other large centers are France and

Luxembourg. The net assets of US mutual funds have increased from $6.03trillion in July

1999 to $7.08 trillion in July 2000. Historically, the asset of the mutual fund industry in

the US has increased from $47.6bn in 1970 to $6846.3bn at the end of 1999, implying a

CAGR of nearly 19%. Number of mutual funds too has seen an exponential growth what with

around 400 mutual funds in 1970 to 7791 funds today. In contrast, the mutual fund industry

in India is still in a nascent stage with net assets having grown from Rs.173.98bn in 1990 to

Rs.1028.49bn today (CAGR 0f 19.44%).


As regards composition of net assets, the share of Stock Mutual Funds in the assets in the

US has been steadily increasing over the last 10 years. The share has grown a meager

22.5%in 1990 to a dominant 60% today.



Indian mutual fund Industry

The Unit Trust of India dominates the Indian mutual fund industry, which has a total corpus

of over Rs.700bn collected from more than 20 million investors. The UTI has many

funds/schemes in all categories. i.e. equity, balanced and income with some being open-ended

and some being closed-ended. The Unit Scheme 1964 commonly known as US 64, which was

the balanced fund, is the biggest scheme with a corpus of about Rs.200bn. UTI was floated

by financial institutions and is governed by a special act of Parliament.



The second largest category of mutual funds is the ones floated by the nationalized banks.

Canara bank and SBI Funds management floated by the state bank of India are the largest

of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahyog AMC

floated by the LIC are some of the other prominent ones. The aggregate corpus fund

managed by this category of AMCs is about Rs.95bn.
The third largest category of mutual fund is the ones floated by the private sector and by

foreign asset management companies. The largest of these are Birla Sun Life AMC and

Prudential ICICI AMC. The aggregate corpus of assets managed by this category of AMCs

is about Rs.253bn.



1999-2000-year of the funds

1999 saw immense growth and developments in the mutual funds sector. This year marked

the resurgence of mutual funds and the regaining of investor confidence in them. One of

the most significant factors that gave lift to the revival of the funds was the Union Budget.

The budget brought about a large number of changes in one stroke.



The Union Budget exempted mutual fund dividend given out by equity-oriented schemes

from tax, both at the hands of the investor as well as the mutual fund. It provided

centrestage to the mutual funds, made them more attractive and provided acceptability

among the investors. So new schemes were inevitable. The quest to attract investors

extended beyond just new schemes. The funds started to regulate themselves and went all

out on winning the trust and confidence of the investors under the aegis of the Association

of mutual Funds of India (AMFI).



The Budget provisions placed the mutual funds at an advantage to banks in attracting retail

deposits. The power shift towards mutual funds has become obvious. The coming few years

will show that the traditional saving avenues are losing out in the current scenario. Many

investors are realizing that investments in savings accounts are as good as locking up their

deposits in a closet. The fund mobilization trend by mutual funds in the current year

indicates that money is going to mutual funds in a big way.



India is at the first stage of a revolution that has already peaked in the US. The US boasts

of a mutual fund asset base that is higher than its bank deposits. In India, mutual fund

assets are not even 12%of the bank deposits, but this trend is beginning to change. This is

forcing a large number to adopt the concept of narrow banking where in the deposit are
kept in gilts and some other assets which improves liquidity and reduces risk. The basic fact

is that bank cannot be ignored and they will not close down completely. Their role as

intermediaries cannot be ignored. It is just that mutual funds are going to change the way

banks do business in the future.



Future scenario

The asset base is likely to grow at an annual rate of about 30-35% over the next few years

as investors shift their assets from banks and other traditional avenues. Some of the older

public and private sector players will either close shop or be taken over. In the private

sector this trend has already started with mergers and takeovers. Here too some of them

are likely to down their shutters in the near future to come.


But this does not mean there is no room for other players in the Indian markets. The

market will witness a flurry of new players entering the arena. There will be a large number

of offers from various asset management companies in the time to come. Some big names

Fidelity and Old Mutual are looking at Indian market seriously. One important reason for it

is that major players already have presence here and hence these big names would hardly

like to get left behind.


Banks v/s Mutual Funds
                                Banks                           Mutual Funds
Returns                         Low                             Better
Administrative exp.             High                            Low
Risk                            Low                             Moderate

Investment options              Less                            More
Network                         High penetration                Low but improving
Liquidity                       At a cost                       Better
Quality of assets               Not transparent                 Transparent
Interest calculation            Minimum balance between         Everyday
                                10th and 30th of every month
Guarantee                       None                            None
                                   Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its investment

objective.



By Structure:


      Open-ended Funds

An open-ended fund or scheme is one that is available for subscription and repurchase on a

continuous basis. These schemes do not have a fixed maturity period. Investors can

conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared

on a daily basis. The key feature of open-end schemes is liquidity.


      Closed-ended Funds

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is

open for subscription only during a specified period at the time of launch of the scheme.

Investors can invest in the scheme at the time of the initial public issue and thereafter

they can buy or sell the units of the scheme on the stock exchanges where the units are

listed. In order to provide an exit route to the investors, some close-ended funds give an

option of selling back the units to the mutual fund through periodic repurchase at NAV

related prices. SEBI Regulations stipulate that at least one of the two exit routes is

provided to the investor i.e. either repurchase facility or through listing on stock

exchanges. These mutual funds schemes disclose NAV generally on weekly basis.


        Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are

open for sale or redemption during pre-determined intervals at NAV related prices.
By Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme

considering its investment objective. Such schemes may be open-ended or close-ended

schemes as described earlier. Such schemes may be classified mainly as follows:


        Growth / Equity Oriented Funds

The aim of growth funds is to provide capital appreciation over the medium to long- term.

Such schemes normally invest a major part of their corpus in equities. Such funds have

comparatively high risks. These schemes provide different options to the investors like

dividend option, capital appreciation, etc. and the investors may choose an option depending

on their preferences. The investors must indicate the option in the application form. The

mutual funds also allow the investors to change the options at a later date. Growth schemes

are good for investors having a long-term outlook seeking appreciation over a period of time.


        Income / Debt Oriented Funds

The aim of income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and

Government securities. Income Funds are ideal for capital stability and regular income.


        Balanced Funds

The aim of balanced funds is to provide both growth and regular income as such schemes

invest both in equities and fixed income securities in the proportion indicated in their offer

documents. These are appropriate for investors looking for moderate growth. They

generally invest 40-60% in equity and debt instruments. These funds are also affected

because of fluctuations in share prices in the stock markets. However, NAVs of such funds

are likely to be less volatile compared to pure equity funds.


        Money Market / Liquid Funds

These funds are also income funds and their aim is to provide easy liquidity, preservation of

capital and moderate income. These schemes invest exclusively in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank

call money, government securities, etc. Returns on these schemes fluctuate much less

compared to other funds. These funds are appropriate for corporate and individual

investors as a means to park their surplus funds for short periods.


                Load / No Load Funds

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time

one buys or sells units in the fund, a charge will be payable. This charge is used by the

mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If

the entry as well as exit load charged is 1%, then the investors who buy would be required

to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund will get

only Rs.9.90 per unit. The investors should take the loads into consideration while making

investment as these affect their yields/returns. However, the investors should also

consider the performance track record and service standards of the mutual fund which are

more important. Efficient funds may give higher returns in spite of loads.


A no-load fund is one that does not charge for entry or exit. It means the investors can

enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of

units.


Mutual funds cannot increase the load beyond the level mentioned in the offer document.

Any change in the load will be applicable only to prospective investments and not to the

original investments. In case of imposition of fresh loads or increase in existing loads, the

mutual funds are required to amend their offer documents so that the new investors are

aware of loads at the time of investments.




                 Gilt Fund

These funds invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and

other economic factors as is the case with income or debt oriented schemes.
        Fund of Fund Scheme


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

Other Schemes:

      Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian

Income Tax laws as the Government offers tax incentives for investment in specified

avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes

are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides

opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual

Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is

invested before September 30, 2000.


Special Schemes

      Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document.

The investment of these funds is limited to specific industries like InfoTech, FMCG, and

Pharmaceuticals etc.


      Index Schemes

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index,

S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same

weightage comprising of an index. NAVs of such schemes would rise or fall in accordance

with the rise or fall in the index, though not exactly by the same percentage due to some

factors known as "tracking error" in technical terms. Necessary disclosures in this regard

are made in the offer document of the mutual fund scheme.


There are also exchange traded index funds launched by the mutual funds which are traded

on the stock exchanges.
          Assured Return Scheme


Assured return schemes are those schemes that assure a specific return to the unitholders

irrespective of performance of the scheme.


A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or

AMC and this is required to be disclosed in the offer document.


Investors should carefully read the offer document whether return is assured for the

entire period of the scheme or only for a certain period. Some schemes assure returns one

year at a time and they review and change it at the beginning of the next year.


      Sectoral Schemes

These are the funds/schemes which invest in the securities of only those sectors or

industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving

Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent

on the performance of the respective sectors/industries. While these funds may give

higher returns, they are more risky compared to diversified funds. Investors need to keep a

watch on the performance of those sectors/industries and must exit at an appropriate time.

They may also seek advice of an expert.
                         Benefits of Mutual Fund investment

      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



Fund with far less money than Mutual Funds invest in a number of companies across a broad

cross-section 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 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.


      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.




      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.

        Net Asset Value (NAV)

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value

(NAV).


Mutual funds invest the money collected from the investors in securities markets. In simple

words, Net Asset Value is the market value of the securities held by the scheme. Since

market value of securities changes every day, NAV of a scheme also varies on day to day

basis. The NAV per unit is the market value of securities of a scheme divided by the total

number of units of the scheme on any particular date. For example, if the market value of

securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs

units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20. NAV is

required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending

on the type of scheme.


        Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by the fund.

Once it is calculated, the NAV is simply the net value of assets divided by the number of

units outstanding. The detailed methodology for the calculation of the asset value is given

below.
       Asset value is equal to

Sum of market value of shares/debentures

+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid




Details on the above items

For liquid shares/debentures, valuation is done on the basis of the last or closing market

price on the principal exchange where the security is traded


For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be

estimated. For shares, this could be the book value per share or an estimated market price

if suitable benchmarks are available. For debentures and bonds, value is estimated on the

basis of yields of comparable liquid securities after adjusting for liquidity. The value of

fixed interest bearing securities moves in a direction opposite to interest rate changes

Valuation of debentures and bonds is a big problem since most of them are unlisted and

thinly traded. This gives considerable leeway to the AMCs on valuation and some of the

AMCs are believed to take advantage of this and adopt flexible valuation policies depending

on the situation.


Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with

every passing day, interest is said to be accrued, at the daily interest rate, which is

calculated by dividing the periodic interest payment with the number of days in each period.

Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by

the number of days since the last interest payment date.
Usually, dividends are proposed at the time of the Annual General meeting and become due

on the record date. There is a gap between the dates on which it becomes due and the

actual payment date. In the intermediate period, it is deemed to be "accrued".


Expenses including management fees, custody charges etc. are calculated on a daily basis.


How to create a mass market for mutual funds ?

The Indian mutual fund industry has traditionally been faced with an unstable asset

composition, a small geographically skewed retail investor base, and a relatively insignificant

share of household savings.


A pervasive issue, and one which SEBI is already attempting to combat, is the mutual fund

sales and distribution structures and practices.


The prevailing incentive models in non-proprietary intermediation have imposed three

serious threats to mutual funds operating in India. The first is the captive market syndrome

where commissioned agents depress both AMC margins and investor returns by demanding

high front-end charges and trailing commissions.


The second is an escalation in churning practices. The third is distributor disinterest in

sales to potential SIP investors. These front-end inefficiencies flow back to AMCs in the

form of higher costs, lower profits and erratic investor behaviour.


At one level, this is simply an issue of how the costs involved are shared across the food

chain. The customer is unlikely to complain as long as returns on investment match

expectations and the actual costs are not transparent. If both product providers and sales

and distribution actors are making profits, the only tension is the relative shares each

receives.


While economic conditions are buoyant, and general investor savvy is low, these tensions are

at worst manageable. However, if general economic conditions sour, or investors demand

higher returns, or regulators demand greater transparency in fees and charges, pressure
will mount on product providers to lower asset management fees while distributors will seek

to make up their losses through escalated charges and/or churning.


With sales incentives skewed heavily towards transactions and investment volumes, it is not

surprising that distributors have shown little interest in delivering value added advisory

services or in growing the underlying investor base. In this scenario, mutual funds should

evaluate alternative sales and distribution arrangements that better protect their long

term positions and more effectively insulate them from market fluctuations and tax policy

changes.


However, sales and distribution practices are only one of the many reasons for low retail

penetration by India's mutual fund sector. Till a few years ago, for example, the incomes of

most Indians were at levels too modest for mutual funds to be of active interest. This has

rapidly receded into history as India seems set to shoulder its way into a more prosperous

future and with average incomes in India rising by nearly 30 per cent from the 2004-05

levels.


Another reason is that smaller retail investors traditionally have been offered a limited

range of investment options and most household savings have been channeled into either low

yielding bank deposits or to life insurance policies. This has produced what is, for the

moment at least, a low risk appetite in the minds of many small investors.


Interest rate subsidies offered by the government as a back door method of selling

government paper through various savings schemes offered by India Post have not helped

either as they have herded a significant share of household savings in that direction. And

finally, the mandatory publicly managed pension and provident funds have consumed over US

$50 billion of stable and long-term household savings.


In all of this, the mutual fund industry itself also needs to accept a large part of the

responsibility for the inertia as the various mutual fund players are yet to come together to

more effectively promote the industry as a whole. As a result, mutual fund investment

opportunities have yet to come onto the savings radar of most individuals with incomes in
India as nearly 90 percent of them do not know that mutual funds exist. Of those who are

aware, over 30 per cent could not recall even a single mutual fund brand. The fact that the

mutual fund investor base is small therefore can be pinned substantially to this factor alone.


An important flip side to this analysis is that the existing retail mutual fund investor base

represents some 18 per cent of the "aware" population. This suggests that the mutual fund

investor base can be grown significantly if visibility levels among the larger audience, where

visibility does not exist, is raised. In the mass market context, it is also significant that

existing mutual fund investors are heavily influenced by social and familial networks in first

being attracted to the mutual fund option.


Hence the underlying size of the investor base can play a key role in attracting new

investors. In part, attracting the smaller investor can swing on effectively promoting the

systematic investment plan (SIP) approach wherein smaller investors can more easily

participate, and in the process spread risks more effectively when doing so. The problem is

that the visibility of the SIP investment approach is lower again, with less than half of even

the aware population relating to the possibility of investing in this way.


But there are signs that change is in the wind. According to new research posted by IIMS

Dataworks, the mutual fund retail investor base is today at 5.3 million. Life insurers also are

experiencing good success with selling ULIPs while equity markets are ramping up with over

4.3 million individual investors. Looked at in this way, the base investor mass of interest to

mutual funds already stands at over 10 million, as lying at the bottom of all three investment

options is the mutual fund industry's stock in trade - a booming securities market.


Importantly, the potential mass market demand for mutual fund type products outside of

this population is not a central issue. At a conservative estimate, an additional 34 million

individuals, with the capacity and interest to invest up to US $14 billion annually in mutual

fund type products already exists in India. However, over 57 per cent (19.6 million) of this

population lives in rural areas.
Therefore, while most of the new demand from existing mutual fund investors will naturally

come from middle and higher income earners, most of the potential mass market for mutual

funds is likely to be found mainly among the lower and lower middle income groups.


For obvious reasons, this population is unlikely to be of much interest to the existing sales

and distribution channels for mutual funds. Most of these potential investors (78 per cent)

can instead be reached through the banking and postal networks. On the ground,

promotional activities by the mutual fund industry at a bank or postal branch level also may

reap rich dividends as three in four of these customers usually visit their bank at least once

a month.


In money terms, retail investment flow in mutual funds in the last 12 months stood at US

$5.6 billion. Importantly, this result has been achieved with a mutual fund penetration of

the active workforce of less than 2 per cent. If the mutual fund industry manages to

mobilise the necessary effort to bring the huge number of potential investors for whom

mutual fund investments are not yet on the radar, the sky could literally be the limit.
RESEARCH DESIGN


Exploratory

       Information pertaining to Mutual Funds will be collected from various websites,
books and magazines.

       Information will also be collected from the investors and their buyer behavior
towards investing in Mutual funds will be understood and studied.




Questionnaire

        A questionnaire will be administered to the current investors and the would be
investors of various Mutual Funds. The questionnaire will not contain more than 15 questions.
Personal data of the respondents will be collected through additional questions at the end
of the questionnaire.




LIMITATIONS

      Economic Constraints

                  The budget was a constraint as a result of which the sample size was limited
                  to 100.

      Time Constraints

                  The project had to be completed in a specified time, which resulted in
                  limiting the area of research to the western suburbs of Mumbai.

Data collection

Schedule

      From 20th October to 28th October secondary data collection.

      From 1st November to 4th November 2007 questionnaire formation.

      From 5th November to 15th November questionnaire administering.

      From 16th November onwards analysis and completion of the project.
                                 Data analysis
This will be done by using various statistical tools and SPSS package as questions will
contain suitable combination of rating and ranking scales such as multiple choices, Likert’s
summated rating scale.


   Top of the mind recall


                                        Ranks

                                                      Mean Rank
                     UTI                                   1.85
                     Franklin Templeton                    4.85
                     DSPMerrill Lynch                      3.76
                     Tata                                  4.74
                     Reliance                              5.19
                     SBI Mutual Fund                       7.09
                     Kotak Mahindra                        7.03
                     Cholamandalam                         7.40
                     HSBC                                  7.84
                     Prudential ICICI                      7.99
                     LIC                                   8.27

   We learn from the table that the old warhorse UTI has still remained the no.1 choice

   in the minds of the people. It withstood all the competition from the private and

   foreign players but still has remained as the top of the mind recall for many people. It

   is followed by DSP Merrill Lynch and Tata Mutual fund at second and third positions

   respectively. Close fourth is Franklin Templeton with Reliance Mutual Fund just

   behind at fifth spot.
Has the respondent invested in a mutual fund?

                        Inve sted in Mutual Fund

                                                             Cumulative
                      Frequency   Percent    Valid Percent    Percent
  Valid      yes             65       60.7           64.4          64.4
             no              36       33.6           35.6         100.0
             Total          101       94.4          100.0
  Missing    System           6        5.6
  Total                     107     100.0




                            Invested in Mutual Fund
     No

     35.6%




                                                                                     Yes

                                                                                  64.4%




The awareness about mutual funds among the people of India is increasing. This can be seen

from the fact that out of 100 respondents 64.4%of the respondents say that they have

invested in mutual funds while a substantial 35.6%respondents say that they have still not

invested in Mutual funds.
          Which company the respondent has invested in?

                                          Company you hav e invested in

                                                                                         Cumulative
                                                Frequency     Percent    Valid Percent    Percent
              Valid        UTI                         19         17.8            18.8         18.8
                           Franklin Templeton          24         22.4            23.8         42.6
                           HSBC                        23         21.5            22.8         65.3
                           DSP Merrill Lynch           17         15.9            16.8         82.2
                           OTHERS                      18         16.8            17.8        100.0
                           Total                      101         94.4          100.0
              Missing      System                       6          5.6
              Total                                   107        100.0




                          Company you have invested in
                  30




                                                 24
                                                                23
                  20
                                   19
                                                                                               18
                                                                                17



                  10
Percent




                      0
                                  UTI                          HSBC                           OTHERS
                                         Franklin Templeton              DSP Merrill Ly nch


                          Company you have invested in
Out of the 100 respondents, 24% respondents have invested in Franklin Templeton, 23%

in HSBC Mutual Fund, followed by 19% in UTI and 17% in DSP Merrill Lynch, while 18%

of the respondents invested their money in some other assets.



Reasons for choosing the company ?


Dichotomy table                      Count                  % of response
Past Performance                       67                         19
Fund manager                           59                         17
NAV                                    80                         23
Brand Name                             56                         16
Credibility                            87                         25



              reasons for choosing a particular company

                                         Past
                  Credibility        Performance
                                         19%                        Past Performance
                    25%
                                                                    Fund manager
                                       Fund manager                 NAV
               Brand Name                  17%                      Brand Name
                  16%
                                NAV                                 Credibility
                                23%




If a person has to keep his money with someone then the other person should be credible

enough. Credibility of the Mutual Fund is the most important factor, which is considered

before investing in Mutual fund. 25% of the respondents feel credibility is the most

important factor. NAV is the second most important reason for selecting in a particular

company which 23% of people think, followed by past performance as a factor at 19%

and fund manager at 17%. Brand name is the least important factor, which 16%

respondents have voted for.
What are the reasons for investing in a mutual fund?


             Dichotomy table                  Responses         % Of Cases
             Good Returns                         66                20.3
             Regular Returns                      95                29.2
             Savings                              75                23.1

             Tax Planning                         89                27.4



      Reasins for investing in mutual funds

                                 Good
           Tax
                                Returns
         Planning
                                 20%                             Good Returns
           27%
                                                                 Regular Returns
                                                                 Savings
                                 Regular
           Savings               Returns                         Tax Planning
            23%                   30%




Mutual funds are seen as vehicle to invest in stock markets and earn returns regularly.

Therefore regular returns have earned 30% votes, which make it the most important

reason to invest into Mutual funds. Tax planning is a close second with 27%, followed by

savings as a reason with 23% and good returns at 20%.
          What do you feel about advice based Mutual Fund selling?

                               Advice based mutual fund selling encourage d

                                                                                     Cumulative
                                       Frequency      Percent      Valid Percent      Percent
                Valid         YES             83          77.6             82.2            82.2
                              NO              18          16.8             17.8           100.0
                              Total          101          94.4            100.0
                Missing       System           6           5.6
                Total                        107        100.0


                            Advice based mutual fund selling encouraged
                   100



                     80                       82



                     60



                     40



                     20
Percent




                                                                             18

                        0
                                             YES                             NO


                            Advice based mutual fund selling encouraged



          You should be really well versed with the market to know which scheme of which company to

          buy. Every investor is not so well versed with the market so advice based selling is really

          liked. This can be seen from the fact that 82% of the respondents have voted in favor of

          advice based selling as compared to just 18% respondents voting against it.
          For what period do you invest in Mutual Fund?

                                                    Pe riod of Investme nt

                                                                                                        Cumulative
                                                        Frequency        Percent        Valid Percent    Percent
            Valid          Less than 6 months                  46            43.0               45.5          45.5
                           6 months-1year                      40            37.4               39.6          85.1
                           2 Years                             12            11.2               11.9          97.0
                           3 Years                              3             2.8                 3.0        100.0
                           Total                              101            94.4              100.0
            Missing        System                               6             5.6
            Total                                             107           100.0




                         Period of Investment
                    50

                                   46
                    40
                                                   40


                    30



                    20



                    10                                              12
Percent




                    0                                                               3
                            Less than 6 months                 2 Y ears
                                             6 months-1y ear                    3 Y ears


                         Period of Investment


          The investors can be categorized in three types
              Who invest to and forget and then sell it out when they feel that the stock market
               is doing great (less than 6 months)
              Who invest to earn the dividend (6-8 months)
              Who invest to have a capital appreciation (more than 1 year).
We can see that 46% of the investors invest for less than 6 months,40% for 6 months-

1 year while 12% respondents invest for 2 years while a meager 3% invest for 3         years.
In India still Mutual Funds are looked upon for quick money so short term investment is

high.



Which type of Mutual Fund does the investor?

                                   Type of Mutual fund

                                                                          Cumulative
                               Frequency      Percent     Valid Percent    Percent
        Valid     Equity              21          19.6             20.8         20.8
                  Balanced            44          41.1             43.6         64.4
                  Debt                24          22.4             23.8         88.1
                  Money Market        12          11.2             11.9        100.0
                  Total              101          94.4           100.0
        Missing   System               6           5.6
        Total                        107         100.0


                              Type of Mutual fund

          Money Market
          11.9%

          Debt
          23.8%

                                                                              Equity

                                                                              20.8%




                                                                           Balanced

                                                                              43.6%
Balanced funds are the ones, which give capital appreciation and high returns so they are

most sought after as 43.6% of the respondents have voted for it. It is distantly followed

by debt type mutual funds at approximately 24% closely followed by equity at 20.8% and

money market at approximately 12%.



Rank the parameters on the basis of satisfaction level?




                                         Ranks

                                                         Mean Rank
                 Scheme feature as
                                                                     3.04
                 satisfaction level
                 Credibility                                         2.66
                 Service Quality                                     3.26
                 Processing Speed                                    3.17
                 NAV                                                 2.87


Credibility and satisfaction level go hand in hand higher the credibility higher is the

satisfaction, at least this is what we can see from the table. Credibility is ranked first

followed closely by NAV and then the scheme features. Processing speed and service

quality are not given that much importance but they still are important, for the customers

to have a good experience for the customer and to be satisfied.
          What do you think about the credibility of the private mutual fund
          players?
                                            Credibility of mutual fund player

                                                                                                  Cumulative
                                                   Frequency         Percent     Valid Percent     Percent
               Valid          highly credible             17             15.9             16.8          16.8
                              very credible               49             45.8             48.5          65.3
                              less credible               29             27.1             28.7          94.1
                              not credible                 4              3.7              4.0          98.0
                              MISSING                      2              1.9              2.0         100.0
                              Total                      101             94.4           100.0
               Missing        System                       6              5.6
               Total                                     107           100.0



                           Credibility of mutual fund player
                   60



                   50
                                                         49

                   40



                   30
                                                                            29

                   20

                                       17
                   10
Percent




                       0                                                                    4
                                 highly credible    v ery credible     less credible   not credible


                           Credibility of mutual fund player

          India has seen UTI as the only player in this industry for the last 26-27 years. People

          thought UTI if it fails has Government to bail it out but,
what about the private and foreign players??? Are they credible? This question is answered

as 49% respondents feel Private and foreign players are very credible while 17%

respondents feel they are highly credible. Just 29% and 4% respondents feel that they

are less and not credible respectively.



What has been the impact of the mutual fund sector opening ?

                          impact of mutual fund se ctor openg

                                                                           Cumulative
                                  Frequency     Percent    Valid Percent    Percent
   Valid      more choice                42         39.3            41.6         41.6
              better quality             38         35.5            37.6         79.2
              more complication          19         17.8            18.8         98.0
              others                      1           .9             1.0         99.0
              MISSING                     1           .9             1.0        100.0
              Total                     101         94.4          100.0
   Missing    System                      6          5.6
   Total                                107       100.0
                               impact of mutual fund sector opening
                     50




                     40                 42

                                                         38


                     30




                     20
                                                                                 19
Percent




                     10
                                  more choice       better quality        more complication


                          impact of mutual fund sector openg

          Every coin has two sides good and bad. We should check both we can see clearly that, 42%
          of the respondents think that mutual fund sector opening up creates more choice for the
          customer, while 38% of the respondents think that it gives the customer better quality,
          while 19% of the respondents think it creates more complications.


          Which age group do you belong to?
                                                Age group

                                                                                      Cumulative
                                        Frequency   Percent          Valid Percent     Percent
             Valid         18-25               42       39.3                 41.6           41.6
                           26-30               29       27.1                 28.7           70.3
                           31-35               27       25.2                 26.7           97.0
                           36 & above           3        2.8                   3.0         100.0
                           Total              101       94.4                100.0
             Missing       System               6        5.6
             Total                            107      100.0
                                    Age group

     36 & abov e

     3.0%


     31-35
     26.7%
                                                                               18-25

                                                                              41.6%




     26-30
     28.7%




People from different age groups are investing in mutual funds and this thing has really no

age bars. As we can see almost 42% of the respondents belong to the 18-25 age group,

28.7% respondents belong to 26-30 age groups, while 26.7% belong 31-35 age group

and 3% of the respondents belong to 35 and above.
          Which income group do you belong to?
                                                 Income group

                                                                                           Cumulative
                                             Frequency       Percent    Valid Percent       Percent
             Valid         50000-100000             16           15.0           15.8             15.8
                           100001-200000            18           16.8           17.8             33.7
                           200001-300000            29           27.1           28.7             62.4
                           300001 & above           24           22.4           23.8             86.1
                           MISSING                  14           13.1           13.9            100.0
                           Total                   101           94.4          100.0
             Missing       System                    6            5.6
             Total                                 107          100.0




                          Income group
                     30

                     28                                           29

                     26

                     24
                                                                                   24
                     22

                     20

                     18
                                                  18
Percent




                     16
                                   16
                     14
                              50000-100000                   200001-300000
                                             100001-200000                   300001 & abov e


                          Income group

          Money attracts money, this is what people say, this can be seen as 24% of the respondents

          belong to income group of 3 lakh and above, while 29% of them belong to income group

          200001-300000.however only 16% of the respondents who have invested in mutual fund or
    are willing to invest belong to the income group 50000-100000 and 18% of them belong to

    income group 100001-200000.



                                            Cross tabulations
    Age group *company you have invested in

    Company you                                                       Age Group
    have invested in                       18-25           26-30           31-35       36 & Above   Total
    UTI                                          10            4             5                 -     19
    Franklin Templeton                           12            5             7                 -     24
    HSBC                                         10            7             6                 -     23
    DSF Merrill                                  6             5             4                 2     17
    Others                                       4             8             5                 1     18
                    Total = = = = >              42           29            27                 3    101

             14


             12


             10


             8

                                                                                   Age group
             6

                                                                                      18-25
             4
                                                                                      26-30

             2                                                                        31-35
Count




             0                                                                        36 & abov e
                      UTI                    HSBC                     OTHERS
                            Franklin Templeton        DSP Merrill Ly nch


                  Company you have invested in
    The table clearly shows that UTI is a clear winner, among the 18-25 age group as 10

    respondents have invested in it, Similar is the case for Franklin Templeton, HSBC and DSP

    Merrill Lynch. We can learn from this that 18-25 age group is the most active in

    investing in different mutual funds as compared to other age groups.
                   Company you have invested in & income group Crosstabulation

                                                                Income Group
Company you                          50,000 -       1,00,001 - 2,00,001 -      3,00,001
have invested in                     1,00,000        2,00,000   3,00,000       & Above      Missing   Total
UTI                                      4              1                 6       5              3     19
Franklin Templeton                       3              6                 3       8              4     24
HSBC                                     5              4                 8       4              2     23
DSF Merrill                              2              -                 6       5              4     17
Others                                   2              7                 6       2               1    18
               Total = = = = >           16            18             29         24              14   101


                10




                 8




                 6
                                                                               Income group

                                                                                  50000-100000
                 4
                                                                                  100001-200000

                                                                                  200001-300000
                 2
                                                                                  300001 & abov e
   Count




                 0                                                                MISSING
                         UTI                   HSBC                 OTHERS
                               Franklin Templeton    DSP Merrill Ly nch


                     Company you have invested in

       Money attracts money is the right saying for this situation. If we have more money we can

       invest in and get more and higher returns. If we see the income groups active in investing

       in mutual funds are the higher income groups. Although respondents from the lower

       income group also invest but they are less active in this field.
                                Income group and period of investment

                                                                          Income Group
                                    50,000 -         1,00,001 - 2,00,001 -                3,00,001
Period of Investment                1,00,000          2,00,000   3,00,000                 & Above       Missing   Total
Less than 6 months                        10                  9                13             10          4        46
6 months to 1 year                        5                   7                11              9          8        40
2 years                                       -               2                3               5          2        12
3 years                                       1               -                2               -           -       3
               Total = = = = >            16                  18              29              24          14      101


              100
                           24            28          50              67
               90

               80
                           31
               70                        34

               60

               50
                                                     30                            Income group
               40          21
                                         22                                           300001 & abov e
               30                                                    33
                                                                                      200001-300000
               20          24
                                                     20
                                                                                      100001-200000
   Count




               10                        16

                0                                                                     50000-100000
                    Less than 6 months             2 Y ears
                                 6 months-1y ear                   3 Y ears


                    Period of Investment


       The table and the graph show us that people from the 200001-300000 invest for less than

       6 months which basically done for dividend purposes as 31% respondents invest for

       that period. 34%of the respondents from 200001-300000 invest for 6 months-1 year.

       While a whopping 67% of the respondents of the 200001-300000 incomes group invest

       for more than 3 years which may be for capital appreciation purposes. While 50% of

       the respondents belonging to 300001 and above age group invest for 2 years, which is

       also for capital appreciation purposes.
                          FINDINGS AND CONCLUSION

This project was a great experience for me and I really learnt a lot of things from this

project. This project has given me the opportunity to gain knowledge and information about

Mutual Funds, its working and the buyer behavior towards Mutual Funds.


I have found,

      UTI has paved the path for the new private companies to market their products in a

       better fashion to the Indians.

      UTI is one of those few Government owned company’s who has fought with

       competition tooth and nail. It has upgraded its services and brought out newer and

       better products to face the competition.

      Awareness towards mutual fund in India is on a rise as people from all age groups

       have started investing in it.

      The stage of development of Mutual Fund in India has reached a situation where

       newer and newer methods of selling and marketing Mutual Funds are being practiced.

      Investor today is knowledgeable enough to understand the basic terms used in the

       trading of mutual funds.

      Today every company has many schemes and different types of mutual funds, which

       gives the investor a varied array of products to choose from.

       Investors today have smart enough to do dividend stripping and bonus stripping.

       Dividend stripping is a phenomenon where one invests to take advantage of the

       dividend being announced by the company. Investor knows when the company would

       declare its dividend and would invest at a point of time where he would have to

       invest for the smallest time period but still he would get the dividend declared by

       the company.
There are many limitations because of which most mutual funds underperform, the main

limitations are as under –


   Entry and exit costs : Mutual funds are a victim of their own success. When a large

    body like a fund invests in shares, the concentrated buying or selling often results in

    adverse price movements ie at the time of buying, the fund ends up paying a higher

    price and while selling it realizes a lower price. This problem is especially severe in

    emerging markets like India, where, excluding a few stocks, even the stocks in the

    Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there

    is simply no way that a fund can beat the Sensex or any other index, if it blindly

    invests in the same stocks as those in the Sensex and in the same proportion. For

    obvious reasons, this problem is even more severe for funds investing in small

    capitalization stocks. However, given the large size of the debt market, excluding

    UTI, most debt funds do not face this problem.




   Entry and exit costs : Mutual funds are a victim of their own success. When a large

    body like a fund invests in shares, the concentrated buying or selling often results in

    adverse price movements ie at the time of buying, the fund ends up paying a higher

    price and while selling it realizes a lower price. This problem is especially severe in

    emerging markets like India, where, excluding a few stocks, even the stocks in the

    Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there

    is simply no way that a fund can beat the Sensex or any other index, if it blindly

    invests in the same stocks as those in the Sensex and in the same proportion. For

    obvious reasons, this problem is even more severe for funds investing in small

    capitalization stocks. However, given the large size of the debt market, excluding

    UTI, most debt funds do not face this problem
   Entry and exit costs : Mutual funds are a victim of their own success. When a large

    body like a fund invests in shares, the concentrated buying or selling often results in

    adverse price movements ie at the time of buying, the fund ends up paying a higher

    price and while selling it realizes a lower price. This problem is especially severe in

    emerging markets like India, where, excluding a few stocks, even the stocks in the

    Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there

    is simply no way that a fund can beat the Sensex or any other index, if it blindly

    invests in the same stocks as those in the Sensex and in the same proportion. For

    obvious reasons, this problem is even more severe for funds investing in small

    capitalization stocks. However, given the large size of the debt market, excluding

    UTI, most debt funds do not face this problem




   Cost of churn : The portfolio of a fund does not remain constant. The extent to

    which the portfolio changes is a function of the style of the individual fund manager

    ie whether he is a buy and hold type of manager or one who aggressively churns the

    fund. It is also dependent on the volatility of the fund size ie whether the fund

    constantly receives fresh subscriptions and redemptions. Such portfolio changes

    have associated costs of brokerage, custody fees, registration fees etc. which

    lowers the portfolio return commensurately.




   Change of index composition : World over, the indices keep changing to reflect

    changing market conditions. There is an inherent survivorship bias in this process,

    with the bad stocks weeded out and replaced by emerging blue chips. This is a

    severe problem in India with the Sensex having been changed twice in the last 5

    years, with each change being quite substantial. Another reason for change index

    composition is Mergers & Acquisitions. The weightage of the shares of a particular

    company in the index changes if it acquires a large company not a part of the index.
   Tendency to take conformist decisions : From the above points, it is quite clear
    that the only way a fund can beat the index is through investment of some part of
    its portfolio in some shares where it gets excellent returns, much more than the
    index. This will pull up the overall average return. In order to obtain such
    exceptional returns, the fund manager has to take a strong view and invest in some
    uncommon or unfancied investment options. Most people are unwilling to do that.
    They follow the principle "No fund manager ever got fired for investing in Hindustan
    Lever" ie if something goes wrong with an unusual investment, the fund manager will
    be questioned but if anything goes wrong with the blue chip, then you can always
    blame it on the "environment" or "uncontrollable factors" knowing fully well that
    there are many other fund managers who have made the same decision.
    Unfortunately, if the fund manager does the same thing as several others of his
    class, chances are that he will produce average results. This does not mean that if a
    fund manager takes "active" views and invests in heavily researched "uncommon"
    ideas, the fund will necessarily outperform the index. If the idea does not work, it
    will result in poor fund performance. But if no such view is taken, there is absolutely
    no chance that the fund will outperform the index.




Beside the limitations mentioned above, should an investor invest in a mutual fund

despite its limitations or no ?


And the answer is “Yes”, Investor should invest some part or their investment portfolio

in mutual funds. In fact some investors may be better off by putting their entire

portfolio in mutual funds. This is on account of the following reasons:


       On their own, uninformed investors could perform much worse than mutual

        funds.

       Diversification of risks which is difficult for an investor to achieve with the

        small amount of funds at his disposal

       Possibility of investing in small amounts as and when the investor has funds to

        invest.

       Unquestioned service of transaction processing, tracking of investments,

        collecting dividends/interest warrants etc.

       Debt      funds   in   India   offer   exposure   to   a   diversified   portfolio   of

        bonds/debentures, which is possible, only if the investor is investing millions of

        rupees. Further, they offer easy liquidity and tax benefits. Debt funds thus
    offer a great proposition that is impossible for ordinary investors to replicate

    on their own. This proposition compares favorably against competing investments

    like small savings.

   Investors require analytical capability and access to research and information

    and need to spend an enormous amount of time to make investment decisions and

    keep monitoring them. Some people have the inclination and the time to make

    better decisions than fund managers do, but the vast majority does not. Those

    who can are advised to invest some part of their money into funds, especially

    debt funds, to diversify their risk. They may also note that one of the

    objectives of this site is to help them improve the odds in their favor.
APPENDICES-I

                              Questionnaire                 Respondent No: _ _ _


Dear Respondent,

                   I am a student of N.L Dalmia Institute of Management Studies and

Research and am doing a research on buyer behavior of Mutual Fund. This study is being

conducted purely for academic purpose only.



Secrecy of the information will be maintained.


Q.1. List 5 Mutual Fund companies that you are aware of:

       a. _______________________ b. ____________________________

       c. _______________________ d. ____________________________

       e. ______________________



Q.2 Have you invested in Mutual Fund?

Yes                      No

If No go to Q.4a



Q.3    Which company have you invested in?

       UTI                            Birla Sunlife

       Franklin Templeton             DSF Merrill Lynch

       Others (Please specify)     __________________________
Q.4a    If you consider switching over/ buying new policy which company would you consider?

        UTI    UTI                Birla Sun lifeBirla Sun Life

                                           DSP Merrill
               Franklin Templeton Merrill Lynch AllianceLynch Alliance
        Franklin Templeton     DSP

              Others specify)
        Others (Please(Please specify)   ____________________________
                                    ____________________________



Q4b.    What would be the reason for choosing the Company?

               Past Performance                Fund Manager

               NAV                             Brand Name

               Credibility                     Others (please specify) _______________



Q.5. What is the reasons for investing in mutual funds?

               Good Returns                    Regular Returns

               Savings                         Tax Planning

               Others (please specify) ___________________



Q.6. Through which channel would you buy the policy?

               Stock Broker                    Direct from Company

               Others (please specify) ___________________




Q.7    Why do you prefer specified Channel?

       ______________________________________________________________________

       ______________________________________________________________________
Q.8       Do you think personalized advice-based Mutual Fund selling should be encouraged?

                  Yes                              No



Q.9 For what period do you normally invest in a mutual fund?

                  Less than 6 months               6 months – 1 year

                  2 years                          3 years

                  more than 3 years



Q.10. Which type of Mutual Fund you like to invest?

                  Equity                           Balanced

                  Debt                             Money Market

                  Others (please specify) ___________________



Q.11 Rate the following parameters on the basis of satisfaction level

          (1 --- Least satisfying, 5 --- Most satisfying)

         Scheme features
         Service Quality
         Credibility
         Agent/Consultant
         Processing speed



Q.12      Are you thinking of changing your Mutual Fund company?



                  Yes                              No

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Q.13. What do you think is the credibility of the private Mutual Fund companies?

                     Highly credible                  Very credible

                     Less credible                    Not credible



Q.14     What would be the impact of Mutual Fund sector opening up?

                      More choice to the consumer              Better quality of service

                     More complication and confusion

                     Others (Please Specify)___________________________________



Q.15     Which player would you choose in the present scenario ? Why ?



---------------------------------------------------------------------------------------------------------------------

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Q16 Which age group do you belong to ?

                      18 – 25                                   31 – 35

                      26 – 30                                   35 & above



Q17 which income groups do you belong to?

                      50,000 – 1,00,000

                      1.00,000 – 2,00,000

                      2,00,000 – 3,00,000

                      3,00,000 & Above
Bibliography

   1)    Research Methodology- Donald R.Cooper & Pamela S. Schindler

   2)    http://www.google.com

   3)    http://www.indiainfoline.com

   4)    http://www.amfindia.com

   5)    How do mutual funds work ?

   6)    Guide to Mutual Fund Investing

				
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