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Mutual Fund in India UTI

This document provides an introduction and overview of a project report on a study of customer perception towards UTI Mutual Fund. It includes an acknowledgement, declaration, table of contents, and initial sections on the introduction, company profile, objectives and scope of the study, and research methodology. The document appears to be laying the groundwork for a study and subsequent report on customer views of UTI Mutual Fund.

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kartik Chauhan
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0% found this document useful (0 votes)
92 views70 pages

Mutual Fund in India UTI

This document provides an introduction and overview of a project report on a study of customer perception towards UTI Mutual Fund. It includes an acknowledgement, declaration, table of contents, and initial sections on the introduction, company profile, objectives and scope of the study, and research methodology. The document appears to be laying the groundwork for a study and subsequent report on customer views of UTI Mutual Fund.

Uploaded by

kartik Chauhan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 70

A

Project Report
On
“A STUDY ON CUSTOMER PERCEPTION
TOWARDS UTI MUTUAL FUND.”

TO BE SUBMITTED TO ABDUL KALAM TECHNICAL,


UNIVERSITY, LUKCHNOW. IN THE PARTIAL
FULFILLMENT OF THE REQUIREMENT FOR THE
DEGREE
OF
MASTER OF BUSINESS ADMINISTRATION

1
ACKNOWLEDGEMENT

2
DECLARATION

3
TABLE OF CONTENTS

S.No PARTICULARS
2 Introduction

3 Company Profile

4 Objective of Study

5 Scope of Study

6 Recruitment & selection process in India mart

7 HRM in India Mart

8 Research methodology

9 Data Analysis

10 SWOT Analysis

11 Findings

12 Conclusion

13 Bibliography

4
5
INTRODUCTION

A mutual fund is a pool of money, collected from investors, and is invested according
to certain investment options. A mutual fund is a trust that pools the savings of a number of
investors who share a common financial goal. A mutual fund is created when investors put
their money together. It is therefore a pool of the investor’s funds. The money thus collected
is then invested in capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciation realized is shared
by its unit holders in proportion to the number of units owned by them.

The most important characteristics of a fund are that the contributors and the
beneficiaries of the fund are the same class of people, namely the investors. The term mutual
fund means the investors contribute to the pool, and also benefit from the pool. There are no
other claimants to the funds. The pool of funds held mutually by investors is the mutual fund

A mutual funds business is to invest the funds thus collected according to the wishes
of the investors who created the pool. Usually, the investors appoint professional investment
managers, to manage their funds. The same objective is achieved when professional
investment managers create a product and offer it for investment to the investor. This product
represents a share in the pool, and pre states investment objectives. Thus a mutual fund is the
most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.

Investors in the mutual fund industry today have a choice of 39 mutual funds, offering
nearly 500 products. Though the categories of product offered can be classified under about a
dozen generic heads, competition in the industry has led to innovative alterations to standard
products. The most important benefit of product choice is that it enables investors to choose
options that suit their return requirements and risk appetite. Investors can combine the options
to arrive at their own mutual fund portfolios that fit with their financial planning objectives.

6
History of the Indian Mutual Fund Industry

The mutual fund industry in India started in1963 with the formation of Unit Trust of

India, at the initiative of the government of India and Reserve Bank. The history of mutual

funds in India can be broadly divided into four distinct phases:

First Phase: - 1964 – 1987

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.6700 cores of assets under management.

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

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

banks and life Insurance corporation of India (LIC) and General Insurance Corporation of

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

followed by Can bank Mutual Fund ( Dec 87 ) , Punjab National Bank Mutual Fund ( Aug

89 ), Indian Bank Mutual Fund ( Nov 89 , Bank Of India ( Jun90),Bank Of Baroda

Mutual Fund (Oct92), LIC established it’s 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. 47,004crores.

7
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 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) Regulation 1996.

The number of mutual fund houses went on increasing, with many foreign mutual

Funds setting up funds in India and also the industry have 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 cores. The Unit Trust of India with Rs .44, 541 cores of assets under

management were 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 cores as at the end o f 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

administrators 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, BOB, and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation

8
of the erstwhile UTI which had in March 2000 more than Rs.76, 000 cores 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. 151108 crores

under 421schemes

9
REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA

The structure of mutual fund in India is governed by the SEBI Regulations,

1996. These regulations make it mandatory for mutual funds to have a three-tier structure

SPONSER –TRUSTEE-ASSET MANAGEMENT COMPANY (AMC). The sponsor is the

promoters of the mutual fund and appoints the AMC for managing the investment portfolio.

The AMC is the business face of the mutual fund. As its manages all the affairs of the mutual

fund. The mutual fund and the AMC have to be registered with SEBI.

Mutual Funds can be structured in the following ways:

Company form. In which investors hold shares of the mutual fund. In this structure

management of the fund in the hands of an elected board, which in turn appoints investment

managers to manage the fund? Trust from, in which the investors are held by the trust, on

behalf of the investors. The appoints investment managers and monitors their functioning in

the interest of the investors.

The company form of organization is very popular in the United States. In India

mutual funds are organized as trusts. The trust is created by the sponsors who is actually the

entity interested in creating the mutual fund business. The trust is either managed by a Board

of trustees or by a trustee company, formed for this purpose. The investors’ funds are held by

the trust.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the

first functionary to be appointed, and is involved in the appointment of all the other

functionaries. The AMC structures the mutual fund products, markets them and mobilizes the

funds and services the investors. It seeks the services of the functionaries in carrying out

these functions. All the functionaries are required to the trustees, who lay down the ground

rules and monitor them, working.

10
REGULATORY FRAMEWORK

Regulatory jurisdiction of SEBI:

SEBI is the apex regulatory of capital markets. SEBI has enacted the SEBI (mutual

fund) Regulations, 1996, which provides the scope of the regulation of the mutual fund in

India. All Mutual funds are required to be mandatorily registered with SEBI. The structure

and formation of mutual funds, appointment of key functionaries, operation of the mutual

funds, accounting and disclosure norms, rights and obligations of functionaries and investors,

investment restrictions ,compliance and penalties are all defined under the SEBI regulations.

Mutual funds have to send half yearly compliance reports to SEBI, and provide all

information about their operations.

Regulatory jurisdiction of RBI:

RBI is the monetary authority of the country and is also the regulatory of the banking

system. Earlier bank sponsored mutual funds were under the dual regulatory control of RBI

and SEBI. These provisions are no longer in vogue. SEBI is the regulator of all mutual funds.

The present position is that the RBI is involved with the mutual fund industry, only to the

limited extent of being the regulator of the sponsors of bank sponsored mutual funds.

Role of Ministry of Finance in Mutual Fund:

The Finance Ministry is the supervisor of both the RBI and SEBI. The Ministry Of

Finance is also the appellate authority under SEBI Regulations. Aggrieved parties can make

appeals to the Ministry of Finance on the SEBI rulings relating to the mutual fund.

11
Role of Companies Act in Mutual Fund:

The AMC and the Trustee Company may be structured as limited companies, which

may come under the regulatory purview of the Company Law Board (CLB).The provisions of

the Companies Act, 1956 is applicable to these company forms of organizations. The

Company Law Board is the apex regulatory authority for companies. Any grievance against

the AMC or the trustee company can be addressed to the Company Law Board for redressed.

Role of Stock Exchanges:

If a mutual fund is listed its schemes on stock exchanges, such listings are subject to

the listing regulation of stock exchanges. Mutual funds have to sign the listing agreement and

abide by its provisions, which primarily deal with periodic notifications and disclosure of

information that may impact the trading of listed units.

12
ASSET MANAGEMENT COMPANY

Its Appointment and Functions:

The role of the AMC is to act as the Investment Manager of the Trust. The sponsors,

or the trustees, if so authorized by the trust deed appoint the AMC. The AMC so appointed is

required to be approved by the SEBI. Once approved, the AMC functions under the

supervision of its own directors and also under the direction of the trustees and the SEBI. The

trustees are empowered to terminate the appointment of the AMC by majority and appoint a

new one with the prior approval of the SEBI and the unit holders.

The AMC would, in the name of the trust, float and then manage the different

investment schemes as per the regulations of the SEBI and as per Investment Management

Agreement it signs with the trustees. Chapter IV of SEBI (MF) Regulations, 1996 describes

the issues relevant to appointment, eligibility criteria and the restrictions on the business

activities and obligations of the AMC.

13
CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning objective income for the investors and /

or getting increased value of their investments. To achieve these objectives mutual funds

adopt different strategies and accordingly offer different schemes of investments. On these

bases the simplest way to categorize schemes would be to group these into two broad

classifications:

 Operational Classification

 Portfolio Classification.

Operational Classification

a) Open ended schemes: As the name implies the size of the scheme (fund) is open i.e. not

specified or pre determined. Entry to the fund is always open to the investor who can

subscribe at any time. Such fund stands ready to buy or sell its securities at any time. It

implies that the capitalization of the fund is constantly changing as investors sell or buy their

shares. Further the shares or units are normally not traded on the stock exchange but are

repurchased by the fund at announced rates.

b) Close ended schemes: Such schemes have a definite period after which their shares/ units

are redeemed. Unlike open ended, these funds have fixed capitalization, i.e. corpus normally

does not change throughout its life period. Close ended funds units’ trade among the

investors in the secondary market since these are to be quoted on the stock exchanges. Their

price is determined on the basis of demand and supply in the market. .

14
Portfolio Classification of Funds:

Following are the portfolio classification of funds, which may be offered. This

classification may be on the basis of (a) Return (b) Investment Pattern (c) Specialized sector

of investment (d) Leverage (e) Others

a) Return Based Classification

To meet the diversified needs of the investors, the mutual fund schemes are made to

enjoy a good return. Returns expected are in form of regular dividends or capital appreciation

or a combination of these two.

1) Income Funds: For investors who are more curious for returns, income funds are floated.

Their objective is to maximize current income. Such funds distribute periodically the income

earned by them. These funds can further be spitted up into categories: those that stress

constant income at relatively low risk and those that attempt to achieve maximum income

possible, even with the use of leverage. Obviously, the higher the expected returns, the higher

the potential risk of the investment.

2) Growth Funds: Such funds aim to achieve increase in the value of the underlying

investments through capital appreciation. Such funds invest in growth oriented securities

which can appreciate through the expansion production facilities in long run. An investor

who selects such funds should be able to assume a higher than normal degree of risk.

3) Conservative Funds : The fund with a philosophy of “all things to all” issue offer

document announcing objectives as (I) To provide a reasonable rate of return, (ii) To protect

the value of investment (iii) To achieve capital appreciation consistent with the fulfillment of

the first two objectives.

15
b) Investment Based Classification:

Mutual funds may also be classified on the basis of securities in which they invest.

Basically, it is renaming the subcategories of return based classification.

Equity Fund : Such funds, as the name implies, invest most of their investible shares in

equity shares of companies and undertake the risk associated with the investment in equity

shares. Such funds are clearly expected to outdo other funds in rising market, because these

have almost all their capital in equity. Equity funds again can be of different categories

varying from those that invest exclusively in high quality ‘blue chip’ companies to those that

invest solely in the new, unestablished companies. The strength of these funds is the expected

capital appreciation. Naturally they have a higher degree of risk.

Bond Funds : Such funds have their portfolio consisted of bonds, debentures,etc. this type of

fund is expected to be very secure with a steady income and little or no chance of capital

appreciation. Obviously risk is low in such funds.

Balanced Fund : The funds which have in their portfolio a reasonable mix of equity and

bonds are known as balanced funds. Such funds will put more emphasis on equity share

investments when the outlook is bright and will tend to switch to debentures when the future

is expected to be poor for shares.

Specialized Sector Based Funds :

There are number of funds that invest in a specified sector of economy. While such

funds do have the disadvantage of low diversification by putting all their all eggs in one

basket, the policy of specializing has the advantage of developing in the fund managers an

intensive knowledge of the specific sector in which they are investing.

16
TYPES OF MUTUAL FUNDS

All mutual fund would be either close ended or open ended and either load or no load.

These classifications are general. For example all open – end funds operate the same way;or

in case of a load a deduction is made from investor’s subscription or redemption and only the

net amount used to determine his number of shares purchased or sold.

Funds are generally distinguished from each other by their investment objectives and

types of securities they invest in. The major types of funds available :-

Money Market Funds

Often considered to be at the lowest ring in the order of risk level. Money Market

Funds invest insecurities of short term nature which generally means securities of less than

one year maturity.The typical short term interest bearing instruments these funds invest in

Treasury Bills issued by governments, Certificate of Deposits issued by banks and

Commercial Paper issued by companies.The major strengths of money market funds are the

liquidity and safety of principal that the investors can normally expect from short term

investments.

Gilt Funds

Gilts are the governments securities with medium to long term maturities typically of

over one year (under one year instruments being money market securities ). In India, we have

now seen the emergence of government securities or gilt funds that invest in government

paper called dated securities. Since the issuer is the government ,these funds have little risk of

default and hence offer better protection of principal. However , investors have to recognize

the potential changes in values of debt securities held by the funds that are caused by changes

in the market price of debt securities held by the funds that are caused by changes in the

market price of debt securities quoted on the stock exchanges.

17
Debt Funds (Income Funds)

These funds invest in debt instruments issued not only by the governments, but also

by private companies, banks and financial institutions and other entities such as infrastructure

companies. By investing in debt these funds target low risk and stable income for the investor

as their key objectives.

Debt funds are largely considered as income funds as they do not target capital

appreciation, look for high current income and therefore distribute a substantial part of their

surplus to investors . The income funds fall largely in the category of debt funds as they

invest primarily in fixed income generating debt instrument

Diversified Debt Fund

A debt fund that invests in all available types of debt securities, issued by entities

across all industries and sectors is properly diversified debt fund. While debt fund offer high

income and less risk as compared to equity funds, investors need to recognize that

debt securities are subject to risk of default by the issuer on payment of interest or principal.

Focused Debt Fund

Some debt funds have a narrower focus, with less diversification in its investment.

Examples include sector ,specialized and off shore debt funds. These are much similar to

the equity funds that these are less income oriented oriented and less riskier

High Yield Debt Funds

Usually debt funds control the borrower default risk by investing in securities issued

by the borrowers who are rated by the credit rating agencies and are considered to be of

“investment grade”. There are however, high yield debt funds that seek to obtain higher

interest returns by investing in the debt instruments that are considered “below investment

grade”. These funds are exposed to greater risks.

18
Assured Return Funds – An Indian Variant

Fundamentally ,mutual funds hold assets in trust for investors. All returns and

risks are for account of the investors. The role of the fund manager is to provide the

professional management service and to ensure the highest possible return consistent with the

investment objective of the fund. The fund manager or the trustees do not give any guarantee

of any minimum return to the investor.

However in India, historically the UTI offered assured return to the investor. If

there is any shortfall it will be borne by the sponsor.

Fixed Term Plan Series

A mutual fund would normally be either open ended or close ended .

Howeverin India, mutual funds have evolved an innovative middle option between the two,

in response to the investor needs.

Fixed Term Plan Series are essentially close ended in nature . In that the mutual

fund AMC issues a fixed number of units for each series only for once and closesthe issue

after an initial offering period like a close end scheme offering.

Equity Funds

As investors move from debt funds category to equity funds , they face increased risk

level . However there are a large variety of equity funds and all of them are not equally risk

prone. Investor and their advisors need to sort out and select the right equity fund that risk

appetite.

Equity funds adopt different investment strategies resulting in different levels of risk.

Hence they are generally separated into different types in terms of their investment styles.

Some of these equity funds are as under :

19
Growth Funds

Growth funds invest in companies whose earnings are expected to rise at an average.

These companies may be operating in sectors like technology considered having a growth

potential, but not entirely unproven and speculative. The primary objective of growth fund is

capital appreciation over a span of 3 to 5 years. Growth funds are therefore les volatile than

funds that target aggressive growth.

Specialty Funds

These funds have a narrower portfolio orientation and invest only in companies that

meet pre determined criteria. Some funds may build portfolio that will exclude Tobacco

companies. Within the specialty funds category some funds may be broad based in terms of

investments in the portfolio. However most specialty funds tend to be concentrated funds,

since diversification is limited to one type of investment. Clearly concentrated specialty fund

tend to be more volatile than the diversified funds.

Diversified Equity Funds

A fund that seeks to invest only in equities for a very small portion in liquid money

market securities but is not focused on any one or few sectors or shares may be termed as

diversified equity funds. While exposed to all equity risks, diversified equity funds seek to

reduce the sector or stock specific risks through diversifications. They have mainly market

risk exposure. Such general purpose but diversified funds are clearly at the lower risk level

than growth funds.

20
Equity Linked Savings Scheme

In India the investors have been given tax concessions to encourage them to invest in

equity markets through these special schemes. Investments in these schemes entitles the

investors to claim an income tax rebate, but usually has a lock in period before the end of

which funds cannot be withdrawn. These funds are subject to the general SEBI investment

guidelines for all equity funds and would be in the Diversified Equity Fund category.

However as there are no specific restrictions on which sectors these funds ought to invest in

,investors should clearly look for where the AMC proposes to invest and accordingly judge

the level of risk involved.

Equity Index Funds

An index fund tracks the performance of a specific stock market index. The objective

is to match the performance of the stock market by tracking an index that represents the

overall market. The fund invests in shares that constitute the index in the same proportion as

the index. Since they generally invests in a diversified market index portfolio these funds

take only the overall market risks while reducing the sector and the stock specific risks

through diversifications.

Value Funds

The growth funds that we reviewed above holds shares of the companies with good or

improving profit prospects and aim primarily at capital appreciation. These concentrate on

future growth prospects may be willing to pay high price/ earnings multiples for companies

considered to have good potential. In contrast to the growth investing other funds follow

Value Investing Approach.

21
Equity Income Funds

Usually income funds are in the debt funds category, as they target fixed income

investments. However there are equity funds that can be designed to give the investors a high

level of current income along with some steady capital appreciation, investing mainly in

shares of companies with high dividend yields.

Hybrid Funds

We have seen that in terms of the nature of financial securities held, there are three

major mutual fund types: money market, debt and equity. Many mutual fund mix these

different types of securities in their portfolios. Thus, most funds equity or debt always have

some money market securities in their portfolios as these securities offer the much needed

liquidity. However money market holdings will constitute a lower proportion in the overall

portfolios. These are the funds that seek to hold a relatively balanced holdings of debt or

equity in their portfolios. Such funds are termed as “hybrid funds” as they have a dual equity/

bond focus.

Balanced Funds

A balanced fund is the one that has a portfolio comprising debt instruments,

convertible securities, and preference and equity shares. Their assets are generally held in

more or less equal proportion between debt / money market securities and equities. By

investing in a mix of this nature, balanced funds seek to attain the objectives of the income,

moderate capital appreciation and preservation of capital and are ideal for investors with a

conservative and long term orientation.

22
Growth and Income Funds

Unlike income or growth focused funds, these funds seek to strike a balance between

capital appreciation and income for the investor. Their portfolios are a mix between

companies with good dividends paying records and those with potential for capital

appreciation. These funds would be less risky than the pure growth funds though more risky

than the income funds.

23
INVESTMENT PLANS

The term investment plans generally refers to the services that the funds provide to

investors offering different ways to invest or invest. The different investment plans are an

important considerations in the investment decisions because they determine the level of

flexibility available to the investors. Alternate investment plans offered by the fund allow the

investor freedom with respect to investing at one time or at regular intervals, making transfers

to different schemes within the same fund family or receiving income at specified intervals or

accumulating distributions. Some of the investment plans offered are as follows:-

Automatic Reinvestment Plans (ARP)

In India, many funds offer two options under the same scheme the dividend option

and the growth option. The dividend option or the Automatic Reinvestment Plans (ARP)

allows the investor to reinvest in additional units the amount of dividends or other

distribution made by the fund, instead of receiving them in cash. Reinvestment takes place at

the ex-dividend NAV. The ARP ensures that the investors reap the benefit of compounding in

his investments. Some funds allow reinvestments into other schemes in the fund family.

Automatic Investment Plans (AIP)

These require the investor to invest a fixed sum periodically, there by letting the

investor save in a disciplined and phased manner. The mode of investment could be through

debit to the investor’s salary or bank account. Such plans are also known as the Systematic

Investment Plans. But mutual funds do not offer this facility on all the schemes. Typically

they restrict it to their plain vanilla schemes like diversified equity funds, income funds and

balanced funds. SIP works best in equity funds. It enforces saving discipline and helps you

profit from market volatility- you buy more units when the market is down and fewer when

the market is up.

24
Systematic Withdrawal Plan (SWP)

Such plan allow the investor to make systematic withdrawal from his fund investment

account on a periodic basis, thereby providing the same benefit as regular income. The

investor must withdraw a specific minimum amount with the facility to have withdrawal

amounts sent to his residence by cheque or credited directly into his bank account. The

amount withdrawn is treated as redemption of units at the applicable NAV as specified in the

offer document. For example, the withdrawal could be at NAV on the first day of the month

of payment. The investor is usually required to maintain a minimum balance in his bank

account under this plan. Agents and the investors should understand that the SWP’s are

different from the Monthly Income Plans, as the former allow investors to get back the

principal amount invested while the latter only pay the income part on a regular basis.

Systematic Transfer Plans (STP)

These plans allows the customer tom transfer on a periodic basis a specified amount

from one scheme to the another within the same fund family- meaning two schemes by the

same AMC and belonging to the same fund. A transfer will be treated as the redemption of

the units from the scheme from which the transfer is made, and as investments in units of the

scheme into which the transfer is made. Such redemption or investment will be at the

applicable NAV for the respective schemes as specified in the offer document. It is necessary

for the investor to maintain a minimum balance in the scheme from which the transfer is

made .Both UTI and other private funds now generally offer these services to the investor in

India. The service allows the investor to maintain his investment actively to achieve his

objectives. Many funds do not even change any transaction fees for this service.

25
EQUITY FUND

An open – ended Equity Scheme

Fund features:
Who should invest? The scheme is suitable for investors
Seeking effective diversification by spreading the risks
without compromising on the returns.
Investment Objective The objective is to provide investors long
Term capital appreciation.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth
Tax.

INDEX FUND

An open – ended Index Scheme

Fund features
Who should invest? The scheme is suitable for investors seeking capital
Appreciation commensurate with that of the market.
Investment Objective The objective is to invest in the securities that
Comprise S&P CNX Nifty in the same Proportion
So as to attain results commensurate with the Nifty.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

26
BALANCED FUND
An open – ended Balanced Scheme

Fund features
Who should invest? The scheme is suitable for investors who seek long
Term growth and wish to avoid the risk if investing
Solely in equities. It provides a balanced exposure to
Both growth and income producing assets.
Investment Objective The objective is to provide periodic returns and
Capital appreciation through a judicious mix of
Equity and debt instruments, while simultaneously
Aiming to minimize capital erosion.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

TAX SAVINGS FUND


An open – ended Equity Linked Savings Scheme

Fund features
Who should invest? The scheme is suitable for investors seeking income
Tax rebate under section 88(2) of ITA along with
Long term appreciation from investments in equities.
Investment Objective The objective of the scheme is to build a high
Quality growth oriented portfolio to provide long
Term capital gains to the investors. The scheme aims
At providing returns through capital appreciation
Over the file of the scheme.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Tax-rebate under section 88, indexation benefits

27
TRUST BENEFIT SCHEME
An open – ended Income Scheme

Fund features
Who should invest? The scheme has been formulated exclusively to
Address the investment needs of the organization,
Such as charitable and religious trusts and other non
Profit making bodies.
Investment Objective The investment objective of the scheme is to build a
High quality income oriented portfolio and provide
Returns and / or capital appreciation along with
Regular liquidity to a distinct class of investor with
Special needs.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

CASH MANAGEMENT FUND _ LIQUID OPTION


An open – ended Liquid Scheme

Fund features
Who should invest? The scheme is a suitable investment for an investor
Seeking very high liquidity and negligible principal
Risk while aiming for a good return.
Investment Objective The objective of the scheme is to provide investors
With a high level of income from short term
Investments. The scheme will focus on preserving
The investor’s capital and liquidity. Investments will
Be made in money market and in investment grade
Debt instruments.
Investment options a) Growth b) Dividend (Daily/ Weekly /Monthly)
Liquidity Sale and repurchase on all business days.
NAV calculation 365 days a year
Redemption proceeds Will be dispatched within 1 business days.

28
CASH MANAGEMENT FUND MONEY AT CALL
An open – ended Liquid Scheme

Fund features
Who should invest? The scheme is a suitable investment for an investor
Seeking very high liquidity and negligible principal
Risk while aiming for a good return.
Investment Objective The objective of the scheme is to provide investors
With a high level of income from short term
Investments. The scheme will focus on preserving
The investor’s capital and liquidity. Investments will
Be made in money market and in investment grade
Debt instruments.
Investment options a) Growth b) Dividend (Daily)
Liquidity Sale and repurchase on all business days.
NAV calculation 365 days a year
Redemption proceeds Will be dispatched within 1 business days.

CHILD BENEFIT FUND


An open – ended Equity Scheme

Fund features
Who should invest? The scheme is suitable for investors seeking long
Term growth and accumulation of capital for the
Beneficiary.
Investment Objective The objective of the scheme is to generate regular
Returns along with capital appreciation with the aim
Of giving lump sum capital growth to the
Beneficiary at the end of the chosen target period.
Investment option Career builder plan (one time investment)
Future guard plan (recurring annual investment)
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

29
MONTHLY INCOME PLAN
An open – ended fund

Monthly Income is not assured and is subject to the availability of distributable


surplus.

Fund features
Who should invest? An open ended income scheme having periodical
Distributions with no assured monthly returns. MIP
Attempts to provide income on a monthly basis and
Is therefore particularly suited for investors seeking
Regular source of income.
Investment Objective The objective is to generate regular income through
Investments in debt securities to enable periodical
Income distribution and also to generate long term
Capital appreciation by investing a potion in equity
Related instruments.
Investment option Dividend Plan, Growth Accumulation Plan
And Auto earnings
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

30
MONTHLY INCOME PLAN – MIP PLUS
An open – ended fund
Monthly Income is not assured and is subject to the availability of distributable surplus.
Fund features
Who should invest? An open ended income scheme having periodical
Distributions with no assured monthly returns. MIP
Attempts to provide income on a monthly basis and
Is therefore particularly suited for investors seeking
Regular source of income.
Investment Objective The objective is to generate regular income through
Investments in debt securities to enable periodical

Investment option Dividend Plan, Growth Accumulation Plan


And Auto earnings
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.

GROWTH FUND
An open – ended Equity Scheme

Fund features
Who should invest? The scheme is suitable for investors willing to accept
The risks that come with investing in equities.
Investment Objective The objective is to provide investors long term
Capital appreciation.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Tax free dividends in the hands of investors.
Indexation benefits, no Gift Tax, no Wealth tax.

31
TAXATION

Investors often view the tax angle as an important consideration while deciding on the

appropriate investments. This section examines the area of mutual fund taxation with respect

to the taxation of income (dividends and capital gains) in the hands of the fund itself and the

income when received in the hands when received in the hands investors.

Taxation in the hands of the funds

When we talk about a mutual fund for taxation purpose, we mean the legally

constituted trust that holds the investors’ money. It is this trust that earns and receives income

from the investments it makes on the behalf of the investors. Most countries do not impose

any tax on this entity- the trust- because this income that it earns is meant for the investors.

The trust is considered to be only a pass through entry. It would amount to double taxation if

the trust first pays the tax and then the investor is also required to pay the tax. Generally, the

trust is exempted from the tax and it the investor who pays tax on his share of income. After

the 1999/2000 budget of finance minister Mr.Yashwant Sinhala, the investors are totally

exempted from paying any tax on the dividend income they receive from the mutual funds,

while certain types of schemes pay some taxes. This section deals with what the fund or the

trust pays by the way of tax.

Tax provisions

 Generally, income earned by any mutual fund registered with SEBI is exempt

from tax.

 However, income distributed to unit-holders by a closed-end or debt fund is

liable to a dividend distribution tax of 10% plus a surcharge of 2%, i.e., a tax of 10.2%. This

tax is also applicable to distributions made by open-end equity funds (i.e., funds with more

than 50% of their portfolio in equity) on or after April 1, 2002.

32
Taxation in the hands of the investor

Tax rebate available to individual investor on subscriptions to Mutual Funds

In accordance with the section 88 of the Income Tax Act,

Investments up to Rs.10, 000 in an ELSS qualifies for tax rebate of 20%.

In case of “infrastructure” mutual fund units, investments up to Rs.80, 000 is eligible


for 20% tax rebate.

However, total investment eligible for tax rebate under section 88 is not allowed to
exceed Rs. 60,000 (Rs.80, 000 in case of investment qualifying under ‘infrastructure’.

Dividends received from Mutual Funds

From the accounting year 1999/2000, income distributed by a fund is exempt in the
hands of the investors.

Capital gains on sale of Units

However, if the investors sells his units and earns “Capital Gains”, the investor is
subject to the Capital Gains Tax as under:

If units are held for not more 12 months, they will be treated as short term capital assets,
otherwise as long term capital assets. (This period is 36 months for assets other than shares
and listed securities).

 Tax law definition of capital gains = sale consideration- (Cost of Acquisition + Cost
of improvements + cost of transfer)

 If the units were held for over one year, the investors gets the benefit of “indexation”,
which means his purchase price is marked up by an inflation index , so his capital
gains amount is less than otherwise. Purchase price of a long term capital assets after
indexation is computed as, Cost of acquisition or improvement= actual cost of
acquisition or improvement *cost inflation index for year of transfer/cost inflation
index for year of acquisition or improvement or for 1981, whichever is later.

33
Mutual Fund Performance

The Investor Perspective

The investor would actually be interested in tracking the value of his investments,

whether he invests directly in the market or indirectly through the mutual funds. He would

have to make intelligent decisions on whether he gets an acceptable return on his investments

in the funds selected by him, or if he needs to switch to the another fund. He therefore, needs

to understand the basis of appropriate performance measurement for the funds, and acquire

the basic knowledge of the different measures of evaluating the performance of a fund. Only

then would he be in a position to judge correctly whether his fund is performing well or not.

The Advisor’s Perspective

If you are an intermediary recommending a mutual fund to a potential investor, he

would expect you to give him proper advice on which funds have a good performance track

record. If you want to be an effective investment advisor, then you too have to know how to

measure and evaluate the performance of the different funds available to the investor. The

need to compare the performance of the different funds requires the advisor to have the

knowledge of the correct and appropriate measures of evaluating the fund performance.

Different Performance Measures

Remember that there are many ways to evaluate the performance of the fund. One

must find the most suitable measure, depending upon the type of the fund one is looking at,

the stated investment objective of the fund and even depending on the current financial

market condition. Let us discuss few common measures.

 Change in NAV- The most common measure

34
Purpose: If an investor wants to compute the Return on Investment between two

dates, he can simply use the Per Unit Net Assets Value at the beginning and the end periods

and calculate the change in the value of the NAV between the two dates in absolute and

percentage terms.

Formula: for NAV change in absolute terms:

(NAV at the end of the period) – (NAV at the beginning of the period)

For NAV change in percentage terms:

(Absolute changes in NAV /NAV at the beginning)*100.

If period covered is less /more than one year: for annualized NAV

Change

(Absolute change in NAV/NAV at the beginning)/months

covered]*12}*100

Suitability: NAV change is most commonly used by the investors to evaluate fund

performance, and so is also most commonly published by the mutual fund managers. The

advantage of this measure is that it is easily understood and applies to virtually any type of

fund.

Interpretation: Whether the return in terms of NAV growth is sufficient or not should

be interpreted in light of the investment objective of the fund, current market conditions and

alternative investment returns. Thus, a long term growth fund or infrastructure fund will give

low returns in its initial years. All equity funds may give lower returns when the market is in

bearish phase.

Limitation: However, this measures does not always give the

35
Correct picture, in case where the fund has distributed to the investors a significant

amount of dividend in the interim period. If, in the above example, year end NAV was Rs.22

after declaration and payment of dividend of Re.1, the NAV change of 10% gives an

incomplete picture.

Therefore, it is suitable for evaluating growth funds and accumulation plans of debt

and equity fund, but should be avoided for income funds and funds with withdrawal plans.

 Total Return

Purpose: This measure corrects the shortcomings of the NAV Change measure, by

taking into account of the dividends distributed by the fund between the two NAV dates, and

adding them to the NAV change to arrive at the total return.

Formula :[( distributions+ change in NAV)/NAV at the beginning of the period]*100

Suitability: total return is the measure suitable for all types of funds. Performance of

different types of funds can be compared on the basis of Total Return. Thus, during a given

period, one can find out whether a debt fund has given better returns than the equity fund. It

is also more accurate than simple NAV change, because it takes into account distribution

during the period.

Limitation: although more accurate than NAV change, simple Total Return as

calculated here is still inadequate as a performance measure, because it ignores the fact that

distributed dividends also get reinvested if Received during the year. The investor’s total

return should take account of reinvestment of interim dividends.

 Return On Investment

Purpose: the short coming of the simple total return is overcome by the total return

with reinvestment of the dividends in the funds itself at the NAV on the date of the

36
distribution. The appropriate measure of the growth of an investor’s mutual fund holdings is

therefore, the return on investment.

Formula: {(units held+ dividend/ex-dividend NAV)*end NAV}-begin NAV/begin

NAV*100

Suitability: Total return with distributions reinvested at NAV is a measure accepted

by mutual fund tracking agencies such as Residence in Mumbai and Value Research in New

Delhi. It is appropriate for measuring performance of accumulation plans, monthly/ quarterly

income schemes that distribute interim dividends.

 The Expense Ratio

Purpose: the expense ratio is an indicator of the fund’s efficiency and cost-

effectiveness.

Formula: it is defined as the ratio of the total expenses to average net assets of the

fund.

Suitability: SEBI Regulations regulate this aspect for funds in India.

It is important to know that the brokerage commissions on the fund’s transactions

are not included in the fund expenses figure while computing this ratio..

Limitation: though an important yardsticks, fluctuation in the ratios across periods

require that an average over 3 to 5 years be used to judge a fund’s performance. Also, the

expense ratio must be evaluated in the light of fund size, average account size and the

portfolio composition.

 The Income Ratio

Formula: a fund’s income ratio is defined as its net investment income dividend by its

net assets for this period.

37
Purpose/Suitability: this ratio is a useful measure for evaluating income-oriented fund,

particularly debt funds. It is not recommended for funds that concentrate primarily on capital

appreciation.

Limitation: the income ratio cannot be considered in isolation; it should be used only

to supplement the analysis based on the expense ratio and total return.

Tracking Mutual Fund Performance

Having identified appropriate measures and benchmarks for the mutual funds

available in the market, the challenge is to track fund performance on a regular basis. This is

indeed the key towards maximizing wealth through mutual fund investing. Proper tracking

allows the investor to make informed and timely decisions regarding his fund portfolio –

whether to acquire attractive funds, dispose of poor performers or switch between

funds/plans.

To be able to track fund performance, the first step is to find the relevant information

on NAV, expenses cash flow, appropriate indices and so on. The following are the sources of

information in India:

Mutual Funds’ Annual and Periodic Reports: These include data on the fund’s financial

performance, so indicators such as

Income/expense ratios and Total Return can be computed on the basis of this data.

The annual report includes a listing of the fund’s portfolios holdings at market value,

statement of revenue and expenses, unrealized appreciation/depreciation at year-end, and

changes in the net assets. On the basis of the annual report, the investors can develop a

perspective on the quality of the fund‘s assets and portfolio concentration and risk profile,

38
besides computing returns. He can also assess the quality of the fund management company

by reviewing all their scheme’s performance. The profit and loss account part of the annual

report will also give details of transaction costs such as brokerage paid, custodian/registrar

fees and stamp duties.

Mutual Funds’ Websites: With the increasing spread of the internet as a medium, all mutual

funds have their own websites. SEBI even requires funds to disclose certain types of the

information on these sites- for example, the Portfolio Composition. Similarly, AMFI itself

has a websites, which displays all of its member’s funds’ NAV information.

Financial papers: Daily newspapers such as the Economic Times provide daily NAV figures

for the open end schemes and share prices of the closed end listed schemes. Besides, weekly

supplements of the economic newspapers give more analytical information on the fund

performance. For example, Business Standard- the Smart Investor gives total returns over

3month, 1 year and 3 year periods, besides the fund size and rankings with the other funds

separately for Equity, Balanced, Debt, Money Market, Short Term Debt and Tax Planning

Funds. Similarly, Economic Times weekly supplement gives additional data on open end

schemes such as Loads and Dividends besides the NAV and other information, and

performance data on closed end scheme.

Fund Tracking Agencies: In India, agencies such as Credence and Value Research are a

source of information for mutual fund performance data and evaluation. This data is available

only on request and payment.

Newsletters: Many stockbrokers, mutual fund agent and banks and non-ranking firms

catering to retail investors publish their own newsletters, sometimes free or else for their

subscribes, giving fund performance data and recommendations.

39
Prospectus: SEBI Regulations for mutual fund require the fund sponsors to disclose

performance data relating to scheme being managed by the concerned AMC, such as the

beginning and end of the year.

Evaluating Fund Performance

Importance of Benchmarking in Evaluating Fund Performance

The measures mentioned above are obsolete, i.e., none of the measure should be used

to evaluate the fund performance in isolation. A fund’s performance can only be judged in

relation to the investor’s expectations. However, it is important for the investor to define his

expectations in relation to the certain “guideposts” on what is possible to achieve, or

moderate his expectations with realistic investments alternatives available to him in the

financial market. These guideposts or the indicators of performance can be thought of as

benchmarks against which a fund’s performance ought to be judged. For example, an

investor’s expectations of returns from equity fund should be judged against how the overall

stock market performed, in the other words by how much the stock market index itself moved

up or down, and whether the fund gave a return that was better or worse than the index

movement. In this example, we can use a market index like S&P CNX Nifty or BSE

SENSEX as “benchmarks to evaluate the investor’s mutual fund performance.

The advisor needs to select the right benchmark to evaluate a fund’s performance, so

that he can compare the measured performance figures against the selected benchmark.

Historically, in India, investors’ only option to evaluate the performance of the units was UTI

schemes or the bank fixed deposit interest rates. UTI itself to tended to “benchmark” its

returns against what interest rates were available on bank deposits of 3/5 year maturity. Thus,

for a long period, US 64 scheme dividends were compared on bank interest rates and

investors would be happy if the Dividend Yield on US 64 units was greater than comparable

40
deposits interest rate. However, with increasing investment options in the market, bank

interest rates should not be used to judge a mutual fund’s performance in all cases. Let us

therefore look at how to choose the correct benchmarks of mutual fund performance.

Basis of choosing an Appropriate Performance Benchmark

The appropriate benchmark for any fund as to be selected by reference to:

i. The asset class it invests in. Thus, an equity fund has to be judged by an

appropriate benchmark from the equity markets, a debt fund performance against a debt

market bench mark and so on; and

ii. The fund’s stated investment objective. For example, if a fund invests in long

term growth stocks, its performance ought to be evaluated against a benchmark that captures

a growth stocks’ performance.

There are in fact three types of benchmarks that can be used to evaluate a fund’s

performance relative to the market as whole, relative to other mutual funds, comparable

financial products or investments options open to the investor.

Benchmarking relative to the market:

Equity Funds

Index Funds- a Base Index: If an investor were to choose an Equity Fund, now being

offered in India, he can expect to get the same return on his investments as the return on the

equity index used by the fund as its benchmark, called the Base Index. The fund would invest

in the index stocks, and expects NAV changes to mirror the changes in the index itself. The

41
fund and therefore the investor would not expect to beat the benchmark, but merely earn the

same return as the index.

Tracking Error: In order to obtain the same returns as the index, an index fund invests in all

of the stocks included in the index calculation, in the same proportion as the stocks’ weight

age in the index. The tracking error arises from the practical difficulties faced by the fund

manager in trying to always buy or sell stocks to remain in line with the weight age that the

stock enjoys in the index.

“Active” Equity Funds: An index fund is passively managed, to track a given index.
However, most of the other equity funds/ schemes are actively managed by the fund
managers. If an investor holds such an actively managed equity fund, the fund manager
would not specify in advance the benchmark to evaluate his expected performance as in case
of an index fund. However, the investor still needs to know whether the fund performance is
good or bad. To evaluate the performance of the equity scheme, therefore, we still need to
select an appropriate benchmark and compare its return to the returns on the benchmark;
usually this means using the appropriate market index. The appropriate index to be used to
evaluate a broad based equity fund should be decided on the basis of the size and the
composition of the fund’s portfolio. If the fund in question has a large portfolio, a broader
market index like BSE 100 or 200 or NSE 100 may have to be used as the rather than S&P
CNX NIFTY or BSE 30. An actively managed fund expects to be able to beat the index, in
other words give higher returns than the index itself.

Somewhat like the Index Funds, the choice of benchmarks in case of Sector Funds is
easier. Clearly, for example, an investor in Infotech or Parma sector funds can only expect the
same return as the relative sectoral indices. In such cases, he should expect the same or higher
returns than the Infotech or Parma sector index if such index exists. In other words, the
choice of the correct equity index as a benchmark also depends upon the investment objective
of the fund. The performance of a small cap fund has to be compared with the small cap
index. A Growth Fund investing in new growth sectors but is diversified in many sectors can
only be judged against the appropriate growth index if available. If not, the returns can only
be compared to either a broad based index or a combined set of sectoral indices.

42
Evaluating the Fund Manager /Asset Management Company

While every fund is exposed to market risks, good funds should at least match major

market indices, and be able to sustain bearish market phases better than other funds. Good

funds manager operate long term perspective, do not sacrifice investor value by excessive

trading which generates a high level of transaction costs, and will turn out more consistent

performance, which is more valuable than one-time high and otherwise volatile performance

record.

The investor must evaluate the fund manager’s track record, how his schemes have

performed over the years. There is a difference between institution-managed funds that have

a team of managers with successful records as against funds that are managed by the

individuals only. The team approach also helps by offsetting bad performance by one

manager with good performance from the others in the team. In practice, however, single

person managed funds are widely prevalent in the countries like the U.S. In India, many

individuals operate as Portfolio Managers. However, currently, we have mainly institution

sponsored funds, either bank-sponsored, corporate owned or government / financial

institution –owned. The reliability and track record of these sponsors has been an important

factor in investor perceptions.

In the final analysis, Asset Management Companies and their fund managers ought to

be judged on consistency in the returns obtained, and performance record against competing

or peer group managers running similar funds. While transaction costs incurred are also an

important factor, this information is not generally available in India.

43
CLASSIFICATION OF INVESTOR NEEDS

Needs are generically classified into protection needs and investment needs.

Protection needs refer to needs that have to be primarily taken care of to protect the living

standards, current requirement and survival requirement of investors. Needs for regular

income. Need for retirement income and need for insurance cover are protection needs.

Investment needs are additional financial needs that can be served through saving and

investments .These is needs for children’s professional growth.

44
WEALTH CYCLE CLASSIFICATION OF INVESTORS

Wealth cycle based classification of investor’s financial needs. refers to using a

generalized approach to saving and investment as the classifications, than age or life stages .

The following table illustrates:

STAGE FINANCIAL INVESTMENT


NEEDS PREFERENCES

Accumulation stage Investing for long term Growth option and long
identified financial goals term products. High risk
appetite

Transition stage Near term needs for Liquid and medium


funds as per specified needs term investment. Preference
draw closer for income and debt
products.

Reaping stage Higher liquidity Liquid and medium


requirements term investment ., for
income low risk appetite

Inter generation Long term investment of Low liquidity needs ,


transfer inheritance Ability to take risks and
invest for the long term

Sudden wealth surge Medium to long term Wealth preservation.


Preference for low risk
products.

45
Asset Allocation

Asset Allocation refers to the process of deciding the composition of a portfolio. In

order to achieve the goals of a financial plan, investors should allocate their funds to equity,

debt and other asset classes, according to the risk and return features of these classes. This

process is called asset allocation.

Asset Allocation Strategies for Investors

Benjamin Graham recommends the following allocations

Basic Managed Portfolio 50% in diversified equity value funds


25% in government securities fund
25% in high grade corporate bond fund

Basic Indexed Portfolio 50% in stock market index fund


50% in bond market index fund

Simple Managed portfolio 85% in balanced fund


15% in medium term bond fund

Complex Managed Portfolio 20% in diversified equity fund


20% in aggressive growth fund
10% in specialty fund
30% in long term bond funds
20% in short term bond funds

Readymade Portfolio Single index fund with 60% in equity


and 40% in debt

46
Model Portfolios that can be recommended for investors according to their Life Cycle

Stages

The model portfolio that has been recommended by Jacobs for investors is as follows:

INVESTOR RECOMMENDED MODEL


PORTFOLIO

Young unmarried professional 50% in aggressive equity funds


25% in high yield bond funds, growth
and income funds
25% in conservative money market
funds

Young couple with 2 incomes and 2 10% in money market funds


children 30% in aggressive funds
25% in high yield bond funds and long
term growth funds
35% in municipal bond funds

Older couple single income 30% in short term municipal funds


35% in long term municipal funds
25% in moderately aggressive equity
10% in emerging growth equity

Recently retired couple 35% in conservative equity funds for


capital preservation/ income
25% in moderately aggressive equity
for modest capital growth
40% in money market funds.

47
48
OBJECTIVES OF THE STUDY

 This project has been prepared with an objective of getting an idea of different styles of

investment.

 How needs are changing and resulting in how a person change his approach for investing

his money i.e. from conservative to aggressive approach.

 The project also shows the potential of Mutual Fund market in India.

 Which are the market leaders in this sector and what percent of market share them have-

are the topic of great concern in this study?

 It is also being trying to know the future of Mutual Funds in India.

49
LIMITATION OF THE STUDY

 This product is limited in scope as the survey is conducted with a shortage of time

constraints and is also based on secondary data.

 The answers given by the responds may be biased due to several reasons or could be

attachments to a particular bank or brand.

 Due to ignorance factor some of the respondents were able to give correct answers.

 The respondents were not disclosing their exact portfolio because they have a fear in their

mind that they can come under tax slabs.

50
Importance of the project

In Indian financial market, recent trends shows that the retail investor are more

concern about the risk factors of the Indian Economy and most importantly returns on the

money invested by them.

Now people are more interested towards NFOs of the Mutual Funds. Being a student

of management I shall try to find out what could be the major factors because of which

people are choosing NFOs.

Scope

This product will provide me the better platform to understand the History, Growth

and various other aspects of Mutual Funds. It will also help me to understand the behavior of

Indian investors regarding different investment tools.

51
52
Research Methodology

The success of any survey is depends upon resources, quality and timing and integrity

of the surveyor who compiles the primary data. So it is a very important task is to manage all

the available resources which make impact on the quality of survey.

Research Design

The research design is the conceptual structure with in the research is conducted. As

such the design includes an outline of what the researcher will do. There are two main

researches, Descriptive and Exploratory used in collection of the data.

Instrument

Interview method was adopted to collect the information from the population of the

taken sample size. This was done with the help of questionnaire given to them.

Collection of Data

Data for the completion of the study was collected both from primary and Secondary

sources.

Primary data was collected from the respondent through the questionnaire.

Secondary data was collected from the Internet, Magazines, Books, and Journal.

Sample size

100 respondents

Analysis of the data

The analysis and interpretation of the data are based on simple %age bases.

53
54
Data Analysis & Interpretation

The questionnaires were sent to 100 people out of whom only 52 responded. I have

analyzed my survey on the basis of these respondents feedback. Once the questionnaire was

filled up, the next work that comes up is the analysis of the data arrived. We find out that

more Business Men were inclined towards investing their in the Current A/c. Ladies are more

inclined towards investing their funds in gold and other jewellery. On the other hand, service

class people and retired fellows prefer more either Savings and/or Fixed Deposits. People

with high income and who are young enough to take risks prefer shares and mutual funds.

Similarly, people are interested in knowing what the returns of their investments are.

Similar large number of people is equally interested in the safety of their funds. There are the

people who want easy liquidity of money and these are basically the business people who

have to deal in the ready cash all the time. Surprisingly, while a large number (34) of people

are aware of the tax benefits, a very small number of them, only 5, are interested in it.

Whilst a large number of people are aware of mutual funds, comparatively a very less

number invests into it. On asking how they get knowledge of Mutual Funds, a large number

of them attributed it to Print Media. Even Banks today follow the role of investment advisors.

Very few get any information from the Electronic Media or the Relatives/Friends.

Hence AMCs must increase the awareness about their product through Electronic

Media (T.V.s, Cables, Radios etc) as well as and should not just constrained itself to the print

advertisement. Those who do not read newspaper/magazines due to any reasons may watch

or listen to the advertisements.

A large part of respondents said that their knowledge about MF does not allow them

to invest into it while to another segment considered government bonds much better.

55
PRIORITY OF INVESTORS WHILE INVESTING

19% 10%
Safety
Higher return
71% Liquidity

Interpretation:

At the time of investing out of 100 investors 71% investors wants safety, 19% wants

higher return while 10% wants liquidity in their investment.

56
FREQUENCY OF INVESTMENT

33%
15% Regularly
Once a while
52%
None of these

Interpretation:

In 100 investor it finds that 52% invest once a while, 33% investor invest regularly

While 15% don’t invest.

57
OBJECTIVE BEHIND INVESTMENT

29% 4% Income Generation


Tax Saving
67% Others

Interpretation:

The objective behind investment in 100 respondent shows that 67% investor wants

income generation , 29% wants tax saving while 4% investor invest for other reasons.

58
SOURCES OF AWARENESS

Newspaper/Magazi
ne

12% 10% Friends/Colleagues


48%
17% TV Advertisements

13% Factsheets

Others

Interpretation:

In 100 investors 48% got information from newspapers/magazine,17% from TV

advertisement,13% from factsheets,12% from friends/colleagues & 10 % from other

resources.

59
SPECIFIC APPREHENSIONS ABOUT INVESTING IN MUTUAL FUNDS

Lack of
awareness
20%
51% Lack of trust
12%
Inconvenience
18%
Others

Interpretation:

In 100 investor 12% investor have lack of trust on mutual fund,18% due to

inconvenience,19% have lack of awareness while 51% have other reasons.

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TIME PERIOD FOR INVESTMENT

Less than 1 year

19% 13% 50%


1 to 2 year

2 to 5 years
17%
More than 5 years

Interpretation:

Time period for investment in 100 investor finds that 50% invest in less than one

year,17% invest in between 1 to 2 year, 19% invest for 2 to 5 years while 14% invest for

more than 5 Years.

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PRIORITY OF INVESTORS TO INVEST IN VARIOUS FINANCIAL PRODUCTS

Bank deposits

Mutual fund
18%
20% 51%
Government
Bonds
12%
Equity market

Interpretation:

In 100 investor only 12% prefer invest in mutual fund , 18% invest in equity market,

19% invest in Gov. bonds & 51% invest in bank deposits.

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REASONS FOR NOT INVESTING IN MUTUAL FUNDS

Confidence
14% 12%
Knowledge
26%
Beter bonds
49%
Others

Interpretation:

The reason for not investing in mutual fund is 12% due to lack of confidence,

14% due to lack of knowledge,25% due to beter bonds while 49% due to other reason.

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Finding

Analysis about the Mutual Fund

On the basis of findings the researcher has also analyzed the following points:

 Today the most of the areas in Capital market is covered by Shares & Debentures

 .The Mutual Fund sector covers only 23% of the market.

 In Mutual Fund sector, the UTI govt. owned co. is a dominating company.

 It was found that there is still required to spread the knowledge about the Mutual Fund

because even 24% dealers & brokers have said that they do not prefer to deal with

Mutual Fund due to lacking awareness and 43% have said that investors do not prefer to

invest in Mutual Fund due to their own less awareness about Mutual Fund.

 The investors, who are aware about the Mutual Fund, invest in Mutual Fund for less risk

 The brokers & dealers, both the deal in Mutual Fund or not, prefer to deal with UTI, and

RELIANCE comes at second place in preference list.

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CONCLUSION

Diversification and investment in alternative forms of investments have become more

important in recent times when the stock markets have proven to be more volatile and the

government bonds are barely able to match the inflation rate.

Investors are looking to put their money in assets, which give decent returns even if

the stock markets are tumbling. For example, the value of a piece of art may rise if the

inflation is on the rise irrespective of the performance of stock markets.

For example, the real estate investments in the National Capital Region of Delhi have

consistently provided a return of more than 10% over the last three years, in both the

commercial and residential segments.

This is much more than the 7-8% return provided by government bonds and fixed

deposits. At the same time, the returns are not as volatile as that witnessed in the stock

markets. At last it can be said that investment style has been change dramatically over a

period of time and it can be surely predicted that such change will also continue in future.

Taking the present scenario of Capital Market, there is much more change in present

than a decade ago. Before the 90s decade, the capital market was having very little awareness

amongst the general public, physical dealing of security was done with any governance body

and operating with less capital formation rate in the country.

The present situation of Indian Capital Market is not only different with earlier, but

also facilitating online trading, having SEBI Act, 1992 as a governance body, increased

capital formation rate in the country. Before the 90s decade, there were only two instruments

of dealing in capital market i.e. share & debenture. Later on, the Mutual Fund is incepted as

operating instrument in the capital market.

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SUGGESTIONS

Investors point of view

The question all the customer, irrespective of the age group and financial status, think

of is- Are Mutual Funds are a safe option? What makes them safe? The basis of mutual fund

industry’s safety is the way the business is defined and regulations of law. Since the mutual

fund invests in the capital market instruments, so proper knowledge is essential.

Hence the essential requirement is the well informed seller and equally informed

buyer. Who understands and help them to understand the product (here we can say the capital

market and the money market instruments) are the essential pre-conditions.

Being a prudent investors one should:

1. Ask one’s agent to give details of different schemes and match the appropriate ones.

2. Go to the company or the fund house regarding any queries if one is not satisfied by

the agents.

3. Investors should always keep an eye on the performance of the scheme and other

good schemes as well which are available in the market for the closed comparison.

4. Never invest blindly in the investments before going through the fact sheets, annual

reports etc. of the company since, according to the guidelines of the SEBI, the AMCs

are bound to disclose all the relevant data that is necessary for the investment purpose

by the investor.

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Companies point of view

Following measures can be taken up by the company for getting higher investments

in the mutual fund schemes.

1. Educate the agents or the salesmen properly so that they can take up the

queries of the customer effectively.

2. Set up separate customer care divisions where the customers can any time

pose their query, regarding the scheme or the current NAV etc. These

customer care units can work out in accordance with the requirements of the

customer and facilitate him to choose the scheme that suits his financial

requirements.

3. Conduct seminars or programs on about mutual funds where each and every

minute information about the product is outlined including the risk factor

associated with the different classes of assets.

4. Developed, design separate schemes for rural/semi urban areas and lower the

minimum investment amount from Rs.500.

5. Recruit appropriate number of agents for rural/urban and semi-urban areas.

6. Make customer care services faster.

7. Choose appropriate media, newspaper/magazines, T.V. commercials, etc. for

marketing the product and educate the masses.

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BIBLIOGRAPHY

Books & Magazine


 R. Sharan “Indian Financial System” 3rd edition; Sultan Chand & Sons Publication

 Madura “Financial Institution & Market” 7th edition; Thomson Pulication;2007

 KOTHARI C.R. Research Methodology

 Analyst magazine

 Business Standard

 Smart investors

Websites

 www.mfea.com

 www.investments.com.ph

 www.camsindia.com

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