Mutual Fund in India UTI
Mutual Fund in India UTI
Project Report
On
“A STUDY ON CUSTOMER PERCEPTION
TOWARDS UTI MUTUAL FUND.”
1
ACKNOWLEDGEMENT
2
DECLARATION
3
TABLE OF CONTENTS
S.No PARTICULARS
2 Introduction
3 Company Profile
4 Objective of Study
5 Scope of Study
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
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
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
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
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.
comprehensive and revised Mutual Fund Regulations in 1996. The Industry now functions
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
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
administrators and under the rules framed by Government of India and does not come under
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
1996. These regulations make it mandatory for mutual funds to have a three-tier structure
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.
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 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
10
REGULATORY FRAMEWORK
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
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.
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.
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
12
ASSET MANAGEMENT COMPANY
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
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
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
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
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
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
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
15
b) Investment Based Classification:
Mutual funds may also be classified on the basis of securities in which they invest.
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
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
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
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
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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
Funds are generally distinguished from each other by their investment objectives and
types of securities they invest in. The major types of funds available :-
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
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
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
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
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.
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
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
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
However in India, historically the UTI offered assured return to the investor. If
Howeverin India, mutual funds have evolved an innovative middle option between the two,
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
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.
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
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
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
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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
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
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
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
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
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
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.
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
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.
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
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
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.
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.
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.
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
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
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.
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
Tax provisions
Generally, income earned by any mutual fund registered with SEBI is exempt
from tax.
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
32
Taxation in the hands of the investor
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’.
From the accounting year 1999/2000, income distributed by a fund is exempt in the
hands of the investors.
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.
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Mutual Fund Performance
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.
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.
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
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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.
(NAV at the end of the period) – (NAV at the beginning of the period)
If period covered is less /more than one year: for annualized NAV
Change
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.
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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
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
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 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
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distribution. The appropriate measure of the growth of an investor’s mutual fund holdings is
NAV*100
by mutual fund tracking agencies such as Residence in Mumbai and Value Research in New
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.
are not included in the fund expenses figure while computing this ratio..
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.
Formula: a fund’s income ratio is defined as its net investment income dividend by its
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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.
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 –
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
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,
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
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
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
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
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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
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
moderate his expectations with realistic investments alternatives available to him in the
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
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
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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.
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
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
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
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
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fund and therefore the investor would not expect to beat the benchmark, but merely earn the
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
“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.
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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
institution –owned. The reliability and track record of these sponsors has been an important
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
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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
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WEALTH CYCLE CLASSIFICATION OF INVESTORS
generalized approach to saving and investment as the classifications, than age or life stages .
Accumulation stage Investing for long term Growth option and long
identified financial goals term products. High risk
appetite
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Asset Allocation
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
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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:
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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
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-
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LIMITATION OF THE STUDY
This product is limited in scope as the survey is conducted with a shortage of time
The answers given by the responds may be biased due to several reasons or could be
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
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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
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
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
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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
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
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
The analysis and interpretation of the data are based on simple %age bases.
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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
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.
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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
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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
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OBJECTIVE BEHIND INVESTMENT
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.
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SOURCES OF AWARENESS
Newspaper/Magazi
ne
13% Factsheets
Others
Interpretation:
resources.
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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
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TIME PERIOD FOR INVESTMENT
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
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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,
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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
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
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
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CONCLUSION
important in recent times when the stock markets have proven to be more volatile and the
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
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
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
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
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SUGGESTIONS
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
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.
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
1. Educate the agents or the salesmen properly so that they can take up the
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
4. Developed, design separate schemes for rural/semi urban areas and lower the
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BIBLIOGRAPHY
Analyst magazine
Business Standard
Smart investors
Websites
www.mfea.com
www.investments.com.ph
www.camsindia.com
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