Chapter 1: Introduction

1.1 Introduction
Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. A Mutual fund is a professionally managed
investment fund that pools money from many investors to purchase security. These
investors may be retail or institutional in nature. A mutual fund is a kind of investment that
uses money of investors to invest in stocks, bonds or other type of investment. Like all
investments, they also scary risks. The investors should comply risks and expected returns
after adjustments of tax on various instrument while taking investment decisions. The
investors may seek advice from experts while making investment decisions.

With an objective to make the investor aware of functioning of mutual funds, and attempt
has been made to provide information in question-answer format which may help the
investors in taking investment decisions.

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1.2 Meaning of mutual fund:

Mutual fund is a mechanism for pooling money by issuing units to the investors and
investing funds in securities in accordance with objectives as disclosed in offer document.
Investment in securities is spread across a wide cross-section of industries and sectors and
thus the risk is diversified because all stocks may not move in the same direction in the same
proportion at the same time. Mutual funds issue units to investors in accordance with
quantum of money invested by them. Investors of mutual funds are known as unitholder.

The profits or losses are shared by investors in proportion to their investments. Mutual
funds normally come out with a number of schemes which are launched from time to time
with different investment objectives. A mutual fund is required to be registered SEBI before
it can collect funds from the public.

1.3 Definition:
“Mutual funds are collected savings and investment vehicles where savings of small
(or something big) investors are pooled together to invest for their mutual benefit and
returns distributed proportionately”.

“A mutual fund is a professionally-managed investment scheme, usually run by an

asset management company that brings together a group of people and invests their money
in stocks, bonds and other securities”.

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1.4 Types of mutual fund

The different types of mutual funds available can be classified broadly based on structure,
asset class, and investment goals. Going a step further, funds can also be categorized based
on risk.

1. Structure of Mutual Funds

Based on the ease of investment, mutual funds can be:

Open-ended funds:

These funds do not limit when or how many units can be purchased. Investors can
enter or exit throughout the year at the current net asset value. Open-ended funds are ideal
for investors seeking liquidity.

Close-ended funds:

Close-ended funds have a pre-decided unit capital amount and also allow purchase
only during a specified period. Here, redemption is bound by the maturity date. However, to
facilitate liquidity, schemes trade on stock exchanges.

Interval funds

A cross between open-ended and close-ended funds, interval mutual funds permit
transaction at specific periods. Investors can choose to purchase or redeem their units when
the trading window opens ups.

2. Mutual Fund Asset class-

Depending on the assets they invest in mutual funds are categorised under-

Equity funds:

Equity funds invest money in company shares, and their returns depend on how the
stock market performs. Though these funds can give high returns, they are also considered
risky. They can be categorized further based on their features, like Large-Cap Funds, Mid-
Cap Funds, Small-Cap Funds, Focused Funds, or ELSS, among others. Invest in equity funds if
you have a long-term horizon and a high-risk appetite.

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Debt funds:

Debt funds invest money into fixed-income securities such as corporate bonds,
government securities, and treasury bills. Debt funds can offer stability and a regular income
with relatively minimum risk. These schemes can be split further into categories based on
duration, like low-duration funds, liquid funds, overnight funds, credit risk funds, gilt funds,
among others.

Hybrid funds:

Hybrid funds invest in both debt and equity instruments so as to balance out debt
and equity. The ratio of investment can be fixed or varied, depending on the fund house.
The broad types of hybrid funds are balanced or aggressive funds. There are multi asset
allocation funds which invest in at least 3 asset classes.

Solution-oriented funds:

These mutual fund schemes are for specific goals like building funds for children’s
education or marriage, or for your own retirement. They come with a lock-in period of at
least five years.

Other funds:

Index funds invest based on certain stock indices and fund of funds are categorized under
this head.

3. Mutual Funds based on Investment Goals:

You can also choose a fund based on your financial objective:

Growth funds:

Funds that invest primarily in high-performing stocks with the aim of capital
appreciation are considered growth funds. These funds can be an attractive option for
investors seeking high returns over a long period.

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Tax-saving Funds (ELSS):

Equity-linked saving schemes are mutual funds that invest mostly in company securities.
However, they qualify for tax deductions under Section 80C of the Income Tax Act.
They have a minimum investment horizon of three years.

Liquidity-based funds:

Some funds can be categorized based on how liquid the investments are. Ultra-
shortterm and liquid funds, are ideal for short-term goals, while schemes like retirement
funds have longer lock-in periods.

Capital protection funds:

These funds invest partially in fixed income instruments and the rest into equities.
This could ensure capital protection, i.e., minimal loss, if any. However, returns are taxable.

Fixed-maturity funds (FMF):

These funds route money into debt market instruments, which have either the same
or a similar maturity period as the fund itself. For instance, a three-year FMF will invest in
securities with a maturity of three years or lower.

Pension Funds:

Pension funds invest with the idea of providing regular returns after a long period of
investment. They are usually hybrid funds that give low but have potential to provide steady
returns in future.

4. Risk appetite

Investors may also choose to invest in mutual funds depending on their individual
risk appetite. Very-low-risk and low-risk funds are usually short-term investments (liquid or
ultraliquid funds) that attempt to hedge market risk. However, the returns they generate are
also low.Medium-risk funds, like hybrid funds, invest a portion in debt instruments to
balance risk while high-risk funds have large equity exposure. Usually, the higher the risk,
more the possibility of high returns.Every mutual fund must disclose its risk exposure via a
risk-o-meter that investors can check to decide if it lines up with their risk capacity.

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1.5 Different types of Mutual fund scheme :

1.Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on
its maturity period.

Open-ended Fund/ Scheme:

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

repurchase on a continuous basis. These schemes do not have a fixed maturity period.
Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which
are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme:

A close-ended fund or scheme has a stipulated maturity period e.g., 5-7 years.
The fund is open for subscription only during a specified period at the time of launch of the
scheme. Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges where the
units are listed. In order to provide an exit route to the investors, some close-ended funds
give an option of selling back the units to the mutual fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor
i.e., either repurchase facility or through listing on stock exchanges. These mutual funds schemes
disclose NAV generally on weekly basis.

2.Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme:

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 The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors may choose an
option depending on their preferences. The investors must indicate the option in the
application form. The mutual funds also allow the investors to change the options at a later
date. Growth schemes are good for investors having a long-term outlook seeking
appreciation over a period of time. Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate debentures,
Government securities and money market instruments. Such funds are less risky compared
to equity schemes. These funds are not affected because of fluctuations in equity markets.
However, opportunities of capital appreciation are also limited in such funds. The NAVs of
such funds are affected because of change in interest rates in the country. If the interest
rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However,
long term investors may not bother about these fluctuations.

Balanced Fund:

The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion indicated in
their offer documents. These are appropriate for investors looking for moderate growth.
They generally invest 40-60% in equity and debt instruments. These funds are also affected
because of fluctuations in share prices in the stock markets. However, NAVs of such funds
are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively in safer
shortterm instruments such as treasury bills, certificates of deposit, commercial paper and
interbank call money, government securities, etc. Returns on these schemes fluctuate much

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less compared to other funds. These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short periods.

Gilt Fund:

These funds invest exclusively in government securities. Government securities

have no default risk. NAVs of these schemes also fluctuate due to change in interest rates
and other economic factors as is the case with income or debt-oriented schemes.

Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P
NSE 50 indices (Nifty), etc These schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise
or fall in the index, though not exactly by the same percentage due to some factors known
as "tracking error" in technical terms. Necessary disclosures in this regard are made in the
offer document of the mutual fund scheme. There are also exchange traded index funds
launched by the mutual funds which are traded on the stock exchanges.

1.6 How mutual fund works and give returns to investors:

A mutual funds is and SEC-registered open end investment company that pols money
in stocks, bonds, short-term money-market instrument sand other securities or assets, or
some combination of these investments. The combined securities and assets of the mutual
fund owners are known as its portfolio, which is managed by an SEC-registered investment
advisor. Each mutual fund scheme represents an investors proportionate ownership of the
mutual fund’s portfolio and the income the portfolio generates. Investors in mutual funds
buy their share from and sell/redeem their share to, the mutual fund themselves. Mutual
fund share is typically purchased from the fund directly or through investment professionals
like bankers, mutual funds are required by law to price their share each business day and

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they typically do so after major vs exchange case. The price-the per share value of the
mutual fund assets minus its liabilities-is called the NAV or Net asset Value. Mutual funds
must sell and redeem their share the NAV that is calculated after the investor places a
Purchase or redemption order. This means that, when an investor places a purchase order
for mutual fund shares during the day, the investor won’t know the purchase price until the
men NAV is calculated. Investor can make money from their investment in three ways-

1. Dividend payments: Depending on the underlying securities a mutual fund or ETF

may earn income in the form of dividends on the securities in the portfolio. The
mutual fund or ETF then pays its shareholders nearly all the income minus disclosed
expenses it has earned.
2. Capital gains distribution: The price of the securities a mutual fund or ETF sells has a
capital Gain. At the end of the year, These capital gains to shareholders. ETFs seek to
minimize these capital gains by making in-kind exchange to redeeming authorised
participants instead of selling portfolio securities.
3. Increased NAV/ increased market price: If the market value of a mutual fund’s
Portfolio increases, after deduction of expenses and liabilities, then the net asset
value of the mutual fund and its shares increase. If the market value of an ETF’s
portfolio increases after deduction of expenses and liabilities, then the net asset
value of the ETF increases, with respect to dividend payments and capital gains
distributions, mutual funds usually will give investor a choice: The mutual fund can
send the investor a check or other forms of payment, or the investor can have the
dividend or distributions reinvested in the mutual fund to buy more shares. If an ETF
investor wants to reinvest a dividend payment or capital gain distribution, the
process can be more complicated and the investor may have to pay additional
brokerage commissions. Investors should check with their ETG or investment
professional

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 Chapter 2: Literature review:

2.1 Review on literature:

Mutual funds as an area of knowledge have drawn interest from academic as well as
practitioner communities. Literature review has been done related to fund selection
behaviour.

Abey (2017) – The paper contemplated the different elements impacting investment choice
in mutual fund plans. It found that age and instructive capability doesn't influence the
investment disposition. The paper shows that transient investment period is more liked than
to hang tight for exceptional yield at cost of high risk. The paper upheld for mutual fund
investments for better enhancement. Retirement pay plans are more liked by investors
relying on their assignment or pay level. The expert management framework additionally
impacts mutual fund investment choices as investment portfolios by giving applicable
monetary data.

Afshan (2013) - The scientist examined the exhibition of mutual fund profit and
development plan under the fair class for the year 2009 - 2012. The investigation found the
over execution of funds and even ideal proficiency of a portion of the plans.
Notwithstanding, it has been likewise discovered that a few funds, which are 100%
proficient under BCC (Banker, Chances, Cooper) model are not same under CCR (Charmes,
Cooper, Rhodes) model and SBM (SlacksBased Measure) model. This shows the strength of
CCR and SBM models for estimating specialized proficiency of a fund. The paper in by and
demonstrates expanded proficiency for profit and development plan funds after some time.

Agarwal et al (2017) – The paper has done an examination on 100 mutual funds for a period
of time of a long time from 2013-2016. The 100 funds incorporate a mix of broadened value
plans, charge saving plans, enormous cap funds, long haul blame funds, long haul pay funds,

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momentary pay funds, little mid-cap funds and super transient funds. Their examination
uncovers the outperformance of 90% plans, particularly long, short and super short
obligation funds, ELSS and mid/little cap funds. It has additionally been discovered that
Valued at Risk for value based mutual funds is higher than obligation funds. Additionally,
value funds draw in more cost proportion than obligation funds because of greater
management exercises.
Nonetheless, it is additionally redundant that low cost proportion funds will give a low
return. The examination likewise announced that the fund's return may differ inside a
similar classification. It might fluctuate as per an arrangement of various plans.

Aizenman, et al (2016) – The scientist contemplates the impact of efficient risk on the
exhibition of worldwide mutual fund investments. The forthcoming outpouring of funds has
a lower orderly risk as it decreases fund size. During emergency time of the monetary
market, this impact might be proportionately enormous. With more surge of fund size, the
fund administrators become more cautious in holding more fluid resources lessening the
fundexplicit risk. The paper considers that there is a non-direct connection between the
imminent progression of funds and precise risk commitment.

Alamelu et al (2017) - The analysts firmly contended the idea of Systematic Investment Plan
(SIP) for retail investors as a cutting edge and unrivaled investment road. The paper
proposed risk taker investors to go for a little and mid-cap value fund. Additionally, value
mutual fund plans are appropriate for such investors who can contribute just with a low
sum. It has been discovered that enormous cap value development funds give less return in
long haul when contrasted with little and mid-cap, Tax saving fund plans. Because of less
risk, the funds get back to be low. During their investigation, ICICI, Reliance, and UTI offered
value plans are found to give preferable returns over different funds.

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Baliyan et al (2017) – The creator assessed the presentation of foundation mutual funds in
India. A short examination has been made between HDFC mutual fund, Reliance mutual
fund,
ICICI Prudential mutual fund, Birla Sun life mutual fund, UTI mutual fund, and SBI mutual
fund.
The creator discovered HDFC and ICICI mutual fund to be safer and Birla sun life mutual fund
as better entertainer. Nonetheless, their figurings show that Reliance mutual fund is high
riskier. The creators express the requirement for promoting efforts by Reliance. 1328
Further, the investigation expresses that public organization's funds are more liked because
of security and less risk. For a similar explanation, obligation funds are likewise sought after
than value based funds.

Goel et al (2014) - The paper mirrored an outline of Indian mutual fund area and its new
patterns. There is the consideration of numerous unfamiliar mutual funds in the Indian
market. Numerous consolidations and acquisitions have been confirmed. Indian mutual fund
industry is developing at CAGR of 15%. The quantities of mutual fund records and exchanges
have likewise expanded. In any case, the commitment of AUM towards GDP is just 5% - 6%
which is altogether lower than numerous economies. The development of obligation funds
is discovered to be above then pay, adjusted, ETF, and Overseas funds. On this premise, the
specialists close degree that obligation securities in the capital market are consumed by
mutual fund area, to a huge degree. The paper likewise focuses at certain difficulties like
absence of monetary instruction and mindfulness and so on For better and compelling
dissemination channel, banks and IFAs are being recommended. An administrative
routineness system is likewise being recommended to set up.

Banerjee et al (2017) - The paper considers the different components influencing

investment choices of people. It is discovered that investors of current investment roads
have the instructive and expert foundation. Just 10% - 25% of complete investment funds
are invested in the mutual fund, and furthermore they anticipate 15% - 20% of the profit for
their investment. 30-50 years of people are keen on specialized investment design. Youthful

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investors are risk takers. Open-finished plans are more liked than close-finished plans.
Alongside fund, organization notoriety and fund supervisors history are likewise a significant
determinant for investment choices. Market-situated investments with normal pay likewise
impact investments.

Gandhi et al (2016) - The investigation discovered CanaraRobeco Equity Tax saver

development plans as safer, among other duty saving plans. The tax reductions offered by
various plans draw in numerous investors towards mutual fund industry. Annuity conspires
likewise pull in as it offers charge concessions to more established individuals. The above
plans are additionally found to have high data Ratio which shows the high productivity of
those fund administrators.

Garg et al (2014) - The investigation holds the time frame 2008 - 2013 and found that chose
ELSS plans performed in a way that is better than enhanced and sectoral funds in mutual
fund market. In any case, it has been additionally discovered that chosen plans and market
didn't remunerate sufficiently even to cover sans risk return and all out risk of the plan. Just
DSP BLOCK ROCK Tax saver, Franklin India Tax shield and ICICI charge saving plans
discovered to be a correct track during the examination time frame.

Godase et al (2015) - The paper fund less return of enormous cap value development funds
than little and midcap, charge saving fund plans and value fund conspires because of the
positive relationship of risk and returns, the risk of huge cap funds are additionally less. In
this manner, tees funds are entirely reasonable for less risktaking investors. Additionally,
value based mutual funds through SIP, is likewise totally reasonable for investors who are
inadequate with regards to single amount add up to contribute, at a time. A few plans of SBI,
UTI, ICICI and Reliance are encouraged to be invested. Notwithstanding, plans for risk takers
and risk avoiders are accessible in the mutual fund industry.

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Goel et al (2014) - The paper mirrored an outline of Indian mutual fund area and its new
patterns. There is the consideration of numerous unfamiliar mutual funds in the Indian
market. Numerous consolidations and acquisitions have been confirmed. Indian mutual fund
industry is developing at CAGR of 15%. The quantities of mutual fund records and exchanges
have likewise expanded. In any case, the commitment of AUM towards GDP is just 5% - 6%
which is altogether lower than numerous economies. The development of obligation funds
is discovered to be above then pay, adjusted, ETF, and Overseas funds. On this premise, the
specialists close degree that obligation securities in the capital market are consumed by
mutual fund area, to a huge degree. The paper likewise focuses at certain difficulties like
absence of monetary instruction and mindfulness and so on For better and compelling
dissemination channel, banks and IFAs are being recommended. An administrative
routineness system is likewise being recommended to set up.

2.2 Gap analysis:

After reviewing the literature on “ project on Investor’s perception Towards Mutual Funds “.
It is observed that no such study has been undertakes so for in Jharsuguda area therefore
the research decided to undertake the present study in Jharsuguda district.

The main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from its inception
stage, growth and future prospects.

It also helps in understanding different schemes of mutual funds. Because my study

depends upon prominent funds in India and their schemes like equity, income, balance as
well as the returns associated with those schemes. Ultimately this would help in
understanding the benefits of mutual funds to investors.

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 Chapter 3: Description on subject of study

3.1 History of mutual fund in India and role of SEBI in mutual fund industry:

Unit Trust of India was the first mutual fund set up in India in the year 1963. In late 1980s,
Government allowed public sector banks and institutions to set up mutual funds. In the year
1992, Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI
are – to protect the interest of investors in securities and to promote the development of
and to regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies, regulates and
supervises mutual funds to protect the interest of the investors. SEBI notified regulations for
mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were
allowed to enter the capital market. The regulations were fully revised in 1996 and have
been amended thereafter from time to time. SEBI has also issued guidelines through
circulars to mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of Regulations.
There is no distinction in regulatory requirements for these mutual funds and all are subject
to monitoring and inspections by SEBI.

3.2 How is a mutual fund set up? Organisation and management of mutual
fund in India:

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset
Management Company (AMC) and custodian. The trust is established by a sponsor or more
than one sponsor who is like promoter of a company. The trustees of the mutual fund hold
its property for the benefit of the unitholders. AMC approved by SEBI manages the funds by
making investments in various types of securities. Custodian, who is required to be
registered with

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SEBI, holds the securities of various schemes of the fund in its custody. The trustees are
vested with the general power of superintendence and direction over AMC. They monitor
the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two-thirds of the directors of trustee

company or board of trustees must be independent i.e. they should not be associated with
the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any scheme.

SEBI (MF) regulations 1993 provided a concrete format of the constitution and
management of mutual funds. These provisions are designed to safeguard investors, check,
speculative activities expected of mutual funds and ensuring financial discipline through
transparency and fair play. Mutual funds in India are now governed under the securities and
exchange board of India (mutual fund) regulation, 1996. SEBI has provided a four tier system
for managing the affairs of mutual funds.

SEBI contemplate a four tier system for efficient management of mutual funds.
The four constituents are:- a.

Sponsoring agency

b. Mutual fund as a trust

c. Asset management company (AMC)
d. Custodian.

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3.3 Advantages of investing in mutual fund:

Mutual fund offer several important advertisement

Diversification:

mutual funds have their share of risks as their performance is based on the stock
market movements. Hence, the fund manager spreads your investment across stocks of
companies across various industries and different sectors called diversification. In this way,
when one asset class doesn’t perform, the other sectors can compensate to avoid loss for
investors.

Liquidity

Unless you opt for close-ended mutual funds, it is relatively easier to buy and
exit a mutual fund scheme. You can sell your open-ended equity mutual fund units when the
stock market is high and make a profit. Do keep an eye on the exit load and expense ratio of
the mutual fund.

Invest in smaller denominations

By investing in smaller denominations of as low as Rs 500 per SIP instalment, you

can stagger your investments in mutual funds over some time. This reduces the average cost
of investment – you spread your investment across stock market lows and highs. Regular
(monthly or quarterly) investments, as opposed to lumpsum investments, give you the
benefit of rupee cost averaging.

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Cost-efficiency

You can check the expense ratio of different mutual funds and choose the one with
the lowest expense ratio. The expense ratio is the fee for managing your mutual fund.

Suits your financial goals

There are several types of mutual funds available in India catering to investors across
all walks of life. No matter what your income is, you must make it a habit to set aside some
amount (however small) towards investments. It is easy to find a mutual fund that matches
your income, time horizon, investment goals and risk appetite.

Automated payments

It is common to delay SIPs or postpone investments due to some reason. You can opt
for paperless automation with your fund house or agent by submitting a SIP mandate, where
you instruct your bank account to automatically deduct SIP amounts when it’s due. Timely
email and SMS notifications make sure you stay on track with mutual fund investments.

Tax-efficiency

You can invest in tax-saving mutual funds called ELSS which qualifies for tax
deduction up to Rs 1.5 lakh per annum under Section 80C of the Income Tax Act, 1961.
Though a 10% tax on Long-Term Capital Gains (LTCG) above Rs 1 lakh is applicable, they
have consistently delivered higher returns than other tax-saving instruments in recent years.

3.4 Problems of mutual fund:

The main problems faced by mutual funds in India are as follows:-

Fluctuating returns:

Mutual funds do not offer fixed guaranteed returns in that you should always be
prepared for any eventuality including depreciation in the value of your mutual fund. In
other words, mutual funds entail a wide range of price fluctuations. Professional

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management of a fund by a team of experts does not insulate you from bad performance of
your fund.

Fund Evaluation:

Many investors may find it difficult to extensively research and evaluate the value
of different funds. A mutual fund's net asset value (NAV) provides investors the value of a
fund's portfolio. However, investors have to study various parameters such as sharpe ratio
and standard deviation among others to ascertain how one fund has fared compared to
another which can be complicated to some extent.

No Control:

All types of mutual funds are managed by fund managers. In many cases, the
fund manager may be supported by a team of analysts. Consequently, as an investor, you do
not have any control over your investment. All major decisions concerning your fund are
taken by your fund manager. However, you can examine some important parameters such
as disclosure norms, corpus and overall investment strategy followed by an Asset
Management Company (AMC).

CAGR:

The performance of a mutual fund vis-a-vis the compounded annualised growth

rate (CAGR) neither provides investors adequate information about the amount of risk
facing a mutual fund nor the process of investment involved. It is therefore, only one of the
indicators to gauge the performance of a fund but is far from being comprehensive.

Fund managers:

According to experts, as an investor, you would do well not to be carried away by

the so-called ‘star fund managers’. Even a highly skilled manager can make a positive
difference in the short-term but cannot dramatically change the performance of a fund in
the long-term. Also, there is always the likelihood of a star fund manager joining another

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company. It is, therefore, more prudent to examine the processes which are followed by a
fund house rather than the star appeal of just one individual.

Costs:

The value of a mutual fund may fluctuate depending on the changing market
conditions. Furthermore, there are fees and expenses involved towards professional
management of a mutual fund which is not the case for buying stocks or securities directly in
the market. There is an entry load which has to be borne by an investor when buying a
mutual fund. Furthermore, some companies charge an exit cost as well when an investor
chooses to exit from a mutual fund.

Past performance:

Ratings and advertisements issued by companies are only an indicator of the past
performance of a fund. It is important to note that robust past performance of a fund is not
a guarantee of a similar performance in the future. As an investor, you should analyse the
investment philosophy, transparency, ethics, compliance and overall performance of a fund
house across different phases in the market over a period of time. Ratings can be taken as a
reference point.

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3.5 Parties involved in mutual fund:

Investors –

Who have savings for investment and are looking for proper investment channel.

Sponsor –

Is a person who sets up a mutual fund and sets up a trust after executing trust
deed. Sponsor contributes to the initial capital of the trust and appoints the board of
trustees. It also appoints asset management company (AMC) and contributes minimum of
40% of net worth of AMC.

Asset Management Company –

AMC is the Fund Manager for floating and managing different mutual fund
schemes. AMC is accountable to the trustees and charges asset management fees subject to
ceiling prescribed by regulator.

Trustees –

Are appointed by the sponsor with the approval of regulator. At least two- third
trustees must be independent. Trustees have a FIDUCIARY responsibility toward unit holders
and they receive fees for their service.

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Distributors-

Distributors earn a commission for bringing investors into the schemes of a mutual
fund. The distributors commission is an expenditure for the scheme.

Registrar and Transfer Agent –

They issue, redeem, transfer units of mutual fund schemes and keep investor’s
account up to date. Registrar and Transfer Agent are registered with regulator.

Custodian/ Depository –

They are appointed by Board of Trustees and keep record of

securities/investments.
Custodian/Depository Participant are registered with regulator.

Chapter 4: Research hypothesis and

methodology

4.1 MEANING OF RESEARCH

Research may be very broadly defined as systematic gathering of data and information and
its analysis for advancement of knowledge in any subject. Research attempts to find answer
intellectual and practical questions through application of systematic methods. Webster’s
Collegiate Dictionary defines research as "studious inquiry or examination; esp.:
investigation or experimentation aimed at the discovery and interpretation of facts, revision
of accepted theories or laws in the light of new facts, or practical application of such new or
revised theories or laws”. Some people consider research as a movement, a movement
from the known to the unknown.

It is actually a voyage of discovery. We all possess the vital instinct of inquisitiveness for,
when the unknown confronts us, we wonder and our inquisitiveness makes us probe and
attain full and fuller understanding of the unknown. This inquisitiveness is the mother of all

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knowledge and the method, which man employs for obtaining the knowledge of whatever
the unknown, can be termed as research.

Research is an academic activity and as such the term should be used in a technical sense.
According to Clifford Woody research comprises defining and redefining problems,
formulating hypothesis or suggested solutions; collecting, organizing and evaluating data;
making deductions and reaching conclusions; and at last carefully testing the conclusions to
determine whether they fit the formulating hypothesis. D. Steiner and M. Stephenson in the
encyclopedia of Social Sciences define research as "the manipulation of things, concepts or
symbols for the purpose of generalizing to extend, correct or verify knowledge, whether that
knowledge aids in construction of theory or in the practice of an art”.

Research is, thus, an original contribution to the existing stock of knowledge making for its
advancement. It is per suit of truth with the help of study, observation, comparison and
experiment. In short, the search for knowledge through objective and systematic method of
finding solution to a problem is research. The systematic approach concerning generalization
and the formulation of a theory is also research. As such the term 'research' refers to the
systematic method consisting of enunciating the problem, formulating a hypothesis,
collecting the facts or data, analyzing the facts and reaching certain conclusions either in the
form of solutions(s) towards the concerned problem or in certain generalizations for some
theoretical formulation.

4.2 TYPES OF RESEARCH

Following are the types of research:

I. Basic Research: Basic research is mostly conducted to enhance knowledge. It covers

fundamental aspects of research. The main motivation of this research is knowledge
expansion. It is a non-commercial research and doesn't facilitate in creating or inventing
anything .for example, an experiment is a good example of basic research.

2. Applied Research: Applied research focuses on analyzing and solving real-life

problems. This type of research refers to the study that helps solve practical problem using

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scientific methods. This research plays an important role in solving issues that impact the
overall wellbeing of humans. For example, finding a specific cure for a disease.

3. Problem Oriented Research: As the name suggests, problem-oriented research is

conducted to understand the exact nature of the problem to find out relevant solutions. The
term “problem” refers to having issues or two thoughts while making any decisions.

For e.g. Revenue of a car company has decreased by 12% in the last year. The following
could be the probable causes: There is no optimum production, poor quality of a product, no
advertising, Economic conditions etc.

4. Problem Solving Research: This type of research is conducted by companies to

understand and resolve their own problems. The problem-solving research uses applied
research to find solutions to the existing problems.

5. Qualitative Research: Qualitative research is a process that is about inquiry that

helps indepth understanding of the problems or issues in their natural settings. This is a non-
statistical research method.

Qualitative research is heavily dependent on the experience of the researchers and the
questions used to prove the sample. The sample size is usually restricted to 6-10 people in a
sample. Open-ended questions are asked in a manner that one question leads to another.
The purpose of asking open-ended questions is to gather as much information as possible
from the sample.

Following are the methods used for qualitative research:

1. One-to-one interview
2. focus groups
3. Ethnographic Research
4. Content Text Analysis
5. Case study research

6. Quantitative Research: Qualitative research is a structured way of collecting data

and analyzing it to draw Conclusions. Unlike qualitative research, this research method uses

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a computational, statistical and similar method to collect and analyze data. Quantitative
data is all about numbers.

Quantitative research involves a larger population as more number of people means more
data. In this manner more data can be analyzed to obtain accurate results. This type of
research method uses close-ended questions because, in quantitative research, the
researchers are typically looking at measuring the extent and gathering foolproof statistical
data.

Online surveys, questionnaires, and polls are preferable data collection tools used in
quantitative research. There are various methods of deploying surveys or questionnaires. In
recent times online surveys and questionnaires have gained popularity. Survey respondents
can receive these surveys on mobile phones, emails or can simply use the internet to access
surveys or questionnaires.

4.3 Objective of the study:

The study has been conducted with the following objective:-

• To explore the preferred investment avenue of retail investors.

• To determine the investors preference for different mutual fund schemes.
• To evaluate fund qualities that affect the selection of mutual fund.
• To check awareness level of people about mutual funds.
• To give idea about different types of risks of investing in mutual fund and some ways
to reduce this investment risks.

4.4 Scope of the study:

The scope of the study is as wide as an ocean and thereby the implementation hurdles .the
study is confined to Jharsuguda district of odisha considered for survey purpose.

• The study focused on “influence of risk of the buying behaviour of mutual fund
investors only.

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 • The number of respondents taken for the study is 70.
• This study is helpful for mutual fund investors to improve their knowledge & idea
about the investment criteria, process and factors that consider before investing in
mutual fund so that the risk is reduced.

4.5 Hypothesis of the study:

Hypothesis literally means an assumption. In terms of statistics, it means

estimation. A Supposition or explanation (theory) that is provisionally accepted in order to
interpret certain events or phenomena, and to provide guidance for further investigation. A
hypothesis may be proven correct or wrong, and must be capable of refutation. If it remains
unrefuted by facts, it is said to be verified or corroborated. An assumption about certain
characteristics of a population. If it specifies values for every parameter of a population, it is
called a simple hypothesis; if not, a composite hypothesis. If it attempts to nullity the
difference between two sample means (by suggesting that the difference is of no statistical
significance), it is called a null hypothesis.

Example-we can attract more customer if we drop our price by 20%, in turn it help to
increase the profit margin. Hypothesis may be true or false.

Types-There are two types of hypothesis:

(Ho) Null Hypothesis or hypothesis of no significant difference between product and

customer satisfaction.

(H1) Alternative Hypothesis. When there is a significance difference/relationship between

product and customer satisfaction.

The following are the hypothesis developed to identify the relation between the
dependent and independent variables.

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Hypothesis 0 a :-

There is no significant relation between gender and investing experience in mutual fund.

Hypothesis 0 b :- there is a significant relation between choose of different mutual funds

and the tenur of investment.

Hypothesis 0 c :-

There is no significant relation between age of investor and risk profile.

4.6 Limitation of study:

Sample size is limited to 70 educated individuals investors. Respondents those who are
aware about financial market and investment options and invested in mutual funds have
been considered for the study.

• The survey is done among the respondents of Jharsuguda district so the result can be
confined to Jharsuguda district only & not generalised for other areas.

• It is a wider topic. It may have different dimension. However, it is possible that there
will be other factors which might not have been covered in this study. Some
respondents did not properly respond to the questioners.

• Respondents opinion are dynamics, they keep changing time to time & some people
were reluctant to fill the questioner. They were not willing to disclose their
investment plan.

• there was shortage of time & resources for the functioning of operations so this
study has not been conducted over an extended period of time having both ups &
downs of stock market conditions which influences investors saving & investing
patterns.

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4.7 Methodology of study:

The study is empirical in nature. To know the response, both primary and secondary method
was used.

• Primary source:
Primary source can be described as those source that are closest to the
origin of the information. They contain raw information and thus must be
interpreted by researchers.

• Secondary source:
Secondary sources are works that analyse, assess or interpret an
historical event, era or phenomena, generally utilizing primary sources to do so.
Secondary sources often offer a review or a critique. Secondary sources can include
books, journal, articles, research reports and more.

For primary data a well structured questionnaires was personally

administered to the selected sample to collect the primary data. Questionnaires
were distributed to respondents & they were asked to answer the questions given in
the questionnaire. In the present study questions were arranged and interconnected
logically and secondary data were generated from newspapers articles, research
books and internet.

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 Chapter 5: ANALYSIS

5.1 Investment process in mutual fund:

The following steps may be considered while investing in mutual funds:

Identify the investment needs:-

The first step is assessment of investment needs. The financial goals will vary
based on age, lifestyle, financial, independence, family commitments, level of income and
expenses among mainly other factors.

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Select the right mutual funds:-

Once there is a clear strategy in mind, the next step is the selection of right type
of mutual fund and scheme in which the investment is to be made. The offer document of
the scheme tells the objectives and provides supplementary details like the track records of
other scheme managed by the same fund manager.

The following factors must be considered before selecting a particular mutual

fund:-

• The track record of performance over the cast few years in relation to the
appropriate yardstick and similar funds in the same category.

• How well the mutual fund is organised to provide efficient, prompt and personalised
service.

• Degree of transparency as reflected in frequency and quality of their

communications.

Choice of ideal mix of schemes:-

Investment in just one mutual fund schemes may not meet all the investment
needs and requirements of investor. So the investor has to consider investing in a
combination of schemes to achieve his specific goals. There are different types of plans
for investment:-

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 • Aggressive plan:-
This plan may suit to the investors in their prime earnings and willing to
take more risk. The investors seeing growth over a long – term invest maximum
in the money market schemes on priority basis as compared to income schemes,
balanced schemes and growth schemes. For example:-

• Moderate plan:-
This plan may suit to the investors seeing income and moderate growth
and investors looking for growth and stability with moderate risk. For example:-

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 • Conservative plan:-
This plan may suit to the retired and other investors who need to
preserve capital and earn regular income.

Invest regularly:-

Investment must be made on regular basis. It is best approach to invest a fixed

amount at specific intervals say every month. By investing a fixed sum each month, the
investor can buy fewer units when the price is higher and more units when the price is low.
This brings down the average cost per unit. This is called rupee cost averaging and is a
disciplined investment strategy followed by investors all over the world. As many open
ended schemes offering systematic investment plan, this regular investing habit is made
easy for investor.

Keep your taxes in mind:-

If you are in a high tax bracket and have utilized fully the exemption under sec
80L of the income tax act, investing in growth funds that do not pay dividends might be
more tax efficient and improve your post-tax return. If you are in a low tax bracket and have
not utilized fully the exemptions available under sec 80L, selecting funds paying regular
income could be more tax efficient. Further there are other benefits available for investment
in mfs under the provisions of the provisions of the prevailing tax laws. you may therefore
consult your tax advisor or chartered accountant for specific advise.

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Start early:-

It is desirable to start investing early and stick to a regular investment plan. If you
start now, you will make more than, if you wait and invest later. The power of compounding
lets you earn income on income and your money multiplies at a compound rate of return.

The final step:-

All you need to do now is to get in touch with a mutual fund or your agent/
broker and start investing. Reap the regards in the year to come. Mutual funds are suitable
for every kind of investor- weather starting a career or retiring conservative or risk taking
growth oriented or income- seeking.

5.2 Factors that consider before investing in mutual fund:-

Investors are often puzzled when it comes to investments in mutual funds as

there are plenty. All funds come with their own sets of pros and cons but all investors
have varying objectives and requirements and they should invest as per their
investment goals. But before you begin to invest, you first need to decide on the
category of mutual funds, that is, whether you want to invest in equity, debt, or hybrid
funds, and what would be their respective sub-categories. Then, you may choose among
a variety of funds based on certain parameters. In this blog, we shall discuss the major
factors that an investor must consider before investing money in it.

A) The factors that you should consider before selecting a mutual fund
category:-

Mutual funds have been categorized as per the norms laid by the Securities and
Exchange Board of India (SEBI). All the fund houses or Asset Management Companies

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(AMCs) must launch mutual fund schemes in all categories as per the SEBI regulations.
You can choose from a plethora of MF schemes but first, you need to decide the category
that can match your investment purposes. Consider the below factors:

Identify Your Investment Goals:-

Know your investment goals, i.e. identify whether you seek growth or value.
You should invest in equity funds or aggressive hybrid funds if you want high returns.
But these funds also come with high risks, so if you would want to park your money
somewhere which is not easily influenced by market volatility, then you should consider
bond funds. You should plan out your objectives, like whether you want to have a
retirement fund, fund children’s education or wedding, have an emergency fund for
urgent requirements, medical expenses or other mis happenings, etc.

Time Horizon:-

Investment goals and time horizons go hand-in-hand. You can actually set your
objectives as per the time duration you want to stay invested for. Long-term goals allow
you to focus on growth-oriented equity funds, as you can have ample time to ride
through the upheavals of the market, for example – retirement funds. Mid-term goals
should have a balanced portfolio of growth and value funds that provide good returns
and stability against market volatility. Investors with short-term goals should invest
about 30% of their money in bond funds so that market ups and downs do not have a
negative impact in the near-by term. For example, if you want to plan a short-term fund
for college expenses. You should be able to have your money whenever you want it and
hence, you should invest in funds that are easy to redeem. Also, you can invest in Income
funds to have a regular income.

Risk Tolerance:-

One of the major factors to consider before investing is to measure your risk tolerance,
meaning that you should evaluate whether you wish to play safe or take some risks and
whether you have a high-risk tolerance or moderate risk appetite. Based on your risk
tolerance, you can bear the market volatility and choose the funds to invest accordingly.
Risks and returns are directly proportional, so know if you want to take an aggressive
route or have a conservative approach towards your mutual fund investments.

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If you are an investor who wants to take high-risk in exchange for a high return, then
you should go for equity funds, especially mid-cap and small-cap funds. Large-cap funds,
for instance, are comparatively safer while hybrid funds give a mix of stocks and bonds.
Debt funds, on the other hand, offer further stability. Since each fund offers a different
variation of risk and return, you should do a proper risk analysis of the funds before you
invest in them.

So, investors should draw a financial roadmap to evaluate their risk-taking abilities
before choosing the fund category.

B) Factors to Consider Before Choosing a Mutual Fund Scheme:-

First and foremost, investors must understand that choosing the category and
the scheme of a mutual fund are two different things. Plenty of mutual fund schemes can
exist in one mutual fund category. Investors should decide on the category as per the
factors mentioned above and then consider the below-mentioned factors to opt for a
mutual fund scheme:

Fund Performance:-

Investors should consider the fund performance of the mutual fund scheme before
investing. Compare the 3-5 year performance against the benchmark as well as the
category of the fund along with the consistency of the performance. The asset allocation
of a fund should match the benchmark index, that is, they must have similar objectives.
For example, small-cap fund schemes will be compared against a small-cap benchmark.
Similarly, you should compare with other schemes in one fund category. Benchmark
indices are the standard against which a fund’s performance, and the asset allocation,
are compared.

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Net Asset Value:-

Net Asset Value (NAV) refers to the market value per unit of mutual funds and is often a
key factor for many investors. Mutual funds with high NAV are expensive and can also
offer lesser growth whereas the ones with lower NAV cost less and give more growth
opportunities. However, sometimes a mutual fund with a higher NAV may invest in
quality stocks and bonds to give good returns to investors and hence, can be more
reliable than mutual funds with a lower NAV. Therefore, while the NAV is important, it
cannot be the deciding factor for investment in any mutual fund scheme, so you must
consider the other parameters as well.

AMC Performance:-

Investors should check the performance of AMCs just like they check the fund
performance. All fund houses have plenty of schemes under them, and some investment
decisions are made at the AMC level. For instance, you may find certain stocks in most of
the schemes that were selected by the CIO (Chief Investment Officer) at the AMC level.

Some funds may underperform but the overall track record of an AMC matters the most.
It reflects the investment decisions that are made and how fund schemes may perform
in the future.

Expense Ratio:-

All funds come with some costs and fees, which include managerial and operational
charges as mutual funds are schemes managed by professional individuals. Fund
managers research, analyze and do timely investments and withdrawals from stocks
and bonds to generate good returns on behalf of the fundholders. These are the charges
for management, promotion, administration, and distribution of a mutual fund. Most
expense ratios are somewhere between 1-2% and some of them are lower than 1%. It is
important to check the expense ratio as even the slightest difference can impact your
wealth growth significantly. The Securities & Exchange Board of India (SEBI) has capped
the expense ratio at 2.25% of the total fund assets by capital markets that an Asset
Management Company (AMC) can charge.

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Exit Load:-

Just like the expense ratio, some funds also have an exit load if you make a premature
exit from the fund. So, you must check if the schemes have any exit load or they are free
from it.

AUM (Assets Under Management) of the AMC:-

AUM (Assets Under Management), as it indicates, is the total assets that are being
managed by a mutual fund scheme. A larger AUM indicates a larger fund corpus from
the collection of funds from investors and also indicates that more investors are
involved. A larger AUM for equity funds makes it tough for the fund to enter or exit the
companies but it is favourable in the case of liquid funds or other short-term debt funds.

Experience of the Fund Manager:-

SEBI has mandated all AMCs to declare the asset allocation as well as the details of the
fund managers. It is advised that you check the qualifications and experience of the fund
managers, what funds they have managed and how those funds have performed, etc.
You should know if the fund managers could deliver the results outperforming the
benchmark indices or matching them before you decide to invest in a fund managed by a
particular fund manager. Also, note that if the returns were consistent or more volatile
than market indices. The management of the fund should also be taken into
consideration, whether they are actively or passively managed. At times, the longevity of
the fund managers on a scheme also matters, because if a fund is performing well, then
fund managers will stick to it.

Wrapping it up:

Mutual funds selection is a two-step process, selecting the category and then the
scheme, suiting the individual’s goals and risk appetite. Checking the fund type, its
performance, track record of the AMC, and that of the fund managers are a few factors
you must keep in mind. Also, check how much the scheme loads on you through its
operational fees and exit charges along with the volatility of the scheme. Additionally,
tax implications of all categories of funds, depending on the long-term or short-term
gains must be borne in mind before investors arrive at a decision.

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5.3 Different types of risk of investing in mutual funds:-

Any investment carries with it an element of risk. Therefore, prior to making an

investment, prospective investors should consider the following risk factors.

Returns Not Guaranteed:-

Investors should be aware that by investing in a mutual fund, there is no

guarantee of any income distribution, returns or capital appreciation.

General Market Risk:-

Any purchase of securities will involve some element of market risk. Hence, a
mutual fund may be prone to changing market conditions as a result of:

o global, regional or national economic developments; o

governmental policies or political conditions;

o development in regulatory framework, law and legal

issues o general movements in interest rates; o
broad investor sentiment; and
o external shocks (e.g. natural disasters, war and etc.)

In addition, the following risk factors should also be considered.

Security specific risk:-

There are many specific risks which apply to the individual security. Some
examples include the possibility of a company defaulting on the repayment of the
coupon and/or principal of its debentures, and the implications of a company's credit
rating being downgraded.

Liquidity risk:-

Liquidity risk can be defined as the ease with which a security can be sold at or
near its fair value depending on the volume traded in the market.

Inflation risk:-

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 Inflation rate risk is the risk of potential loss in the purchasing power of your
investment due to a general increase of consumer prices.

Loan Financing Risk:-

If a loan is obtained to finance the purchases of units of any mutual fund,

investors will need to understand that:

o Borrowing increases the possibility for gains as well as losses;

o If the value of the investment falls below a certain level, investors may be asked
by the financial institution to top up the collateral or reduce the outstanding loan
amount to the required level;
o The borrowing cost may vary over time depending on the fluctuations in interest
rates;

o The risks of using loan financing in light of investors' investment objectives,

attitude towards risk and financial circumstances should be carefully assessed.

Risk of Non-Compliance:-

This refers to the current and prospective risk to the mutual fund and the
investors' interest arising from non-conformance with laws, rules, regulations,
prescribed practices and internal policies and procedures by the manager.

Manager's Risk:-

The performance of any mutual funds is dependent amongst others on the

experience, knowledge, expertise and investment techniques/process adopted by the
manager and any lack of the above would have an adverse impact on the fund's
performance thereby working to the detriment of Unit holders.

5.4 Some ways to reduce individual fund investment risk:-

Risk and reward are two sides of the same coin when it comes to investing. The
usual mindset it that to earn higher returns, one needs to take high risk. However,

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unfortunately, the vice versa doesn’t hold – taking a high risk doesn’t necessarily give you
high returns. Taking high risk is not a bad thing, but employing tricks that can help mitigate
investment risk is necessary.

Design and Align portfolio with risk appetite:-

Mutual Fund investments are made based on investors profile. Risk varies among
investors. What is a good fund for one person might not be the best for another person.
While choosing a fund one has to consider their age, financial position, number of
dependents, the duration for the goal, and risk tolerance. For instance, if an investor has a
moderate to highrisk appetite and has a long term investment horizon, then equities would
be the best-suited fund. While for a low-risk appetite investor, debt funds would be the
best-suited category.

Therefore, do not invest based on word of mouth recommendations, make sure you are
aligning the funds with your risk appetite.

SIP Investing for all your regular savings:-

Be it any market phase, investing through SI is always beneficial. SIPs keep you a
P
disciplined investor and are very easy to monitor. It takes advantage of rupee cost
averaging. Without worrying about timing the market, SIPs help in averaging the cost over
time. More units are bought for the same amount when the prices are low and fewer units
when the prices are high. Therefore, it is advised to invest in Mutual Funds through SIPs and
not worry about overvalued markets.

STPs for Lump Sum Investments:-

Rather than worrying about overpriced markets while investing lump-sum

amounts, systematic transfer plan (STP) is the best option available. Similar to SIPs, STPs
also take advantage of rupee cost averaging. By averaging out the buying cost, investors can
relax about overvalued markets. STP is also useful when your long term financial goals are
ultra short term debt funds
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nearing maturity. Shifting the funds from equity to will help in consolidating gains by
reducing the downside risk.

Keep an eye on NFOs:- is similar to an Initial Public Offer (IPO), where the
fund is open for subscription for the first time. Since NFOs do not
New Fund Offer (NFO)
have a past track record, its challenging to analyze their
performance. Therefore, in such instances, the track record of the fund managers is of
utmost importance. Try to probe other funds that are managed by the fund manager and
under their performance trajectory. Also, NFOs should be purchased only if your investment
objective is in line with that of the fund’s strategy. They are highly risky, and hence, only if
you have a high-risk appetite, NFOs are suggested. In the case of thematic NFOs, only if you
are well aware of the theme or sector of the fund then invest. Otherwise, stick to the funds
with a good track record.

Asset Allocation:-

The key to asset allocation is to balance the risk and reward. Asset
allocation involves investing in various asset classes like equities, mutual funds, debts, real
estate, and gold. One should choose the right assets based on their financial goals. Duration
of your goal will help in deciding on the asset class. For short term goals, debt funds are
ideal. While for long term goals equities are ideal. Therefore, based on the duration and
your risk appetite, the right asset class should be chosen for investment.

Diversify your portfolio:-

As the saying goes, do not put all eggs in one basket, do not have all your
investments in the same asset class and also in the same instrument of an asset class. A
common practice has been to invest in a fund that has been performing well in the near
past. It ultimately increases market risk. In case the market falls, and your investment in the
fund is negatively affected, you are at risk of losing most of your money. Therefore, it is

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always advised to have exposure to multiple asset classes and also various sectors or types
in the same asset class. It helps in lowering the concentration of risk. If anyone fund
underperforms, there is always another fund that will make up for the loss.

5.5 MEANING OF CHI SQUARE TEST

The Chi-Square Test is the widely used non-parametric statistical test that describes
the magnitude of discrepancy between the observed data and the data expected to be
obtained with a specific hypothesis. The observed and expected frequencies are said to be
completely coinciding when the X 2= 0 and as the value of increases the discrepancy
between the observed and expected data becomes significant. The following formula is used
to calculate Chi-square:

X2=∑

Where,

O=Observed Frequency

E = Expected or Theoretical Frequency

The computed value of x' is compared with the table value of for a given degree of
freedom and at a given significance level. If the calculated value exceeds the table value,
then the difference between the observed frequencies and expected frequencies is said to
be significant, 1.e. it could not have arisen due to the fluctuations in simple sampling. On the
other hand, if the computed value is less than the table value, then the difference between
the observed frequencies and expected frequencies is considered insignificant, ie. might
have been occurred due to the fluctuations in simple sampling.

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5.6 CONDITION OF CHI SQUARE TEST

The following five basic conditions should be met before applying the chi-square test: .
1.The observation data must be independent of each other.

2. The data should be expressed in original units and not in percentage or ratio form so that
it 4 can be easily compared.

3. The data must be drawn randomly from the target population.

4. The sample should include at least 50 observations.

5. Every cell must have five or more observations. Each data entry is called a cell. In case, the
observations are less than 5, then the value of shall be overestimated and will result in n
rejection of several Null Hypothesis.

Thus, the chi-square test is one of the simplest non-parametric tests in statistical work
where no assumption about the population being sampled is made.

5.7 PROCEDURE OF CHI SQUARE TEST

The various chi square test steps involved are as follows:

1. First of all calculate the expected frequencies on the basis of given hypothesis or on
the basis of null hypothesis. Usually in case of a 2 x 2 or any contingency table, the expected
frequency 10r any ven cell is worked under: out as (Row total for the row of that cell) x
Expected frequency of any cell =Column total for the column of that cell) (Grand total)

2. Obtain the difference between observed and expected frequencies and find out the
squares of such differences i.e., calculate (Oij - Eij).

3. Divide the quantity (Oij - Eij) *obtained as stated above by the corresponding
expected frequency to get (Oij - Eij) /Eij and this should be done for all the cell frequencies
or the group qulencies

4 Find the summation of (Oij - Eij) /Eij values or what we call This is the required x2 value.
The x2 value obtained as such should be compared with relevant table value of x2 and then
inference be drawn as stated above.

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5.8 ADVANTAGES OF CHI SQUARE TEST

1. Can test association between variables.

2. Identifies differences between observed and expected values.

5.9 DISADVANTAGES OF CHI SQUARE TEST

1.Can't use percentages.

2. Data must be numerical

3. Categories of two are not good to compare.

4. The number of observations must be 20+

5. The test becomes invalid if any of the expected values are below

6. Quite complicated to get right - difficult formula.

5.10 APPLICATION OF CHI SQUARE TEST

The applications of X* test statistic can be discussed as stated below:

1. Testing the divergence of observed results from expected results when our expectations
are based on the hypothesis of equal probability.

2. Chi-square test when expectations are based on normal distribution.

3. Chi-square test when our expectations are based on predetermined results.

4. Correction for discontinuity or Yates' correction in calculating

5. Chi-square test of independence in contingency tables.

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 Table 1

H0 a:- There is no significant relation between gender and investing experience in mutual
fund.

Gender Yes No Statistical inference

male 43 7 x2= 0.012876 Df = 1 tabulation value
at 5% significant value = 3.841 H0=
female 17 3
accepted H1= rejected.

Sources- calculated value

Interpretation:-

From the above table it shows result is 0.012876 but tabulated value of 1 degree of freedom
at 5% level of significance is 3.841. comparing the tabulated and calculated value we find
that calculated value is less than the tabulated value so null hypothesis is accepted, thus
proving there is no relation between gender & investment experience in mutual fund.

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 Table-2

H0 b:- There have a significant relation between different mutual funds and the tenure of
investment.

Tenure of Less than 1-3 year 3-5 year More 5 Statistical inference
investment than
1 year
year
Mf funds

Long term 3 12 7 18 X2= 17.93

Short term 10 16 2 2 Df=3

Tabulation value at 5%
significant value=
7.815
H0= rejected
H1= accepted

Sources - calculated value

Interpretation:-

From the above table it shows result is 17.93 but tabulated value of 3 degree of freedom at
5% level of significance is 7.815. comparing the tabulated and calculated value we find that
calculated value is more than the tabulated value so null hypothesis is rejected and
alternative hypothesis accepted.

Table- 3

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H0 c:- There is no significant relation between age of investor and risk profile.

Risk innovation moderate Risk other Statistical inference

profile averse

Age group
10-15 0 2 0 0 X2= 7.5241
15-30 14 22 12 7 Df= 9
30-45 1 3 4 1 Tabulated value at 5%
45+ 1 1 1 1 significant value= 16.919
H0= accepted
H1= rejected

Sources:- calculated value

Interpretation:-

From the above table it shows result is 7.5241 & at tabulated value of 9 degree of freedom
at 5% level of significance is 16.919. comparing the tabulated and calculated value we find
that calculated value is less than the tabulated value so null hypothesis is accepted, thus
providing there is no significant relation between age of investor and risk profile.

Table -4

What type of mutual fund have you invested in?

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Response No. of respondents Percentage
Equity fund 28 40%
Debt fund 7 10%
Both types fund 23 32.9%
others 12 17.1%

Source: Primary data

Interpretation:-

The above table indicates that are most of investors are generally prefer to equity fund
rather than debt fund & also some investor invest in both in equity & debt fund and some
are in other funds. Out of 70 respondents 40% are invest in equity fund & 10% are in debt
fund also
32.9% investor invest in both type of fund and 17.1% of people invest in other funds.

Table- 5

What do you consider the most important parameters while investing?

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Response No. of respondent Percentage
Returns 36 51.4%
Lower risk factor 16 22.9%
Credit rating 11 15.7%
Inflaction 2 2.85%
Company 4 5.53%
Lock in period 1 1.62%

Source:- primary data

Interpretation:-

The above table indicates that are Most of investors are consider returns and some are
lower risk factor and also some are consider to credit rating & few are consider inflaction,
company & lock in period as the most important parameters while investing. Out of 70
respondents 51.4% are consider returns, 22.9% are consider lower riskfactors, 15.7% are
consider credit rating & remain 10% are consider inflaction, company & lock in period as the
most important parameters while investing.

Table-6

Which risks you think usually affects mutual fund?

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Response No. of respondent Percentage
Systematic risk 41 58.6%
Unsystematic risk 29 41.4%

Source:- primary data

Interpretation:-

The above table indicates that are the systematic risk is usually affects to mutual funds
rather than unsystematic risk. Out of 70 respondents 58.6% investor think systematic risk
are affects mutual fund & 41.4% investor think unsystematic risk affects mutual fund.

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 Table -7

Which factors prevent you to invest in mutual fund?

Response No. of respondent percentage

Bitter past experience 6 8.6%
Lack of knowledge 26 37.1%
Lack of confidence in service being 5 7.1%
provided

Difficulty in selection scheme 24 34.3%

Inefficient investment advisor 9 12.9%

Source:- primary data

Interpretation:-

The above table indicate that are lack of knowledge is the main factors that prevent to
invest in mutual funds & for some investor difficulty in selection schemes is also prevent to
invest in mf. & also for few investors bitter past experience, lack of confidence in service
being provided & inefficient advisor also the factors that prevent them to invest in mf. Out
of 70 respondents for 8.6% is bitter past experience, for 37.1% is lack of knowledge, for 7.1%
is Lack of confidence in service being provided, for 34.3% is difficulty in selection scheme &
for 12.9% is inefficient investment advisor are facters prevent them to invest in mutual fund.

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 Chapter 6: Finding, suggestion, conclusion

6.1 Finding:-

Under the study, an efforts has been made to sketch the behavioural pattern of retail
investors towards various investment opportunity. A couple of hypothesis in this regard
have been selected and tested to reach to conclusion. And the research concludes with
some importance findings that will be valuable for both investors and the companies having
such investment opportunities. Through this project the results was derived are:-

• There is no significant relation between gender and investing experience in

mutual fund.

• Investors have shown very positive sentiments on mutual funds during the phase
of the study conducted & people who lie under the age group of 15-30 have
more interested in investing in mutual fund.

• 57% investors are generally invest in longterm, open ended & equity fund and
33% investors are invested in short term, cloes ended and debt fund and remain
10% investor are invest in other type of fund.

• Most of investors are consider returns and some are lower risk factor and also
some are consider to credit rating & few are consider inflaction, company & lock
in period as the most important parameters while investing.

• The systematic risk is usually affects to mutual fund rather than unsystematic
risk. Generally most of the investors risk profile is moderate & some of the
investors risk profile is innovation and risk averse.

• lack of knowledge is the main factors that prevent to invest in mutual funds & for
some investor difficulty in selection schemes is also prevent to invest in mf. &
also for few investors bitter past experience, lack of confidence in service being
provided & inefficient advisor also the factors that prevent them to invest in mf

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6.2 Suggestions:-

After the analysis of the consumer awareness level of the investor about mutual funds along
with the schemes & services following suggession can be given.

• The mutual fund of India should increase its advertising budget to get the
benefits of good advertising so that consumer should aware of their existing
schemes & services as well as new one.

• The mutual fund should try to improve its market intelligence system. This would
keep it know its customer better and it will get more info about the competitors
and the forces affecting the market.

• Mutual fund India should increase investment base not only in urban area but
also in rural and semi- urban areas that they have been made to educate the
potential investors in rural areas.

• The investors should evaluate a mutual fund scheme based on its long term
return & other performance parameter and investor also carefully go through
the scheme details to get a better under standing of the product. Investor should
guidance from ethical and unbiased investment/ mutual fund advisor with
research capability will help you add the best schemes to your portfolio.

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6.3 Conclusion:-

It is widely believed that mutual fund is a retail product designed to target individual
investors, who are intimated by the stock market but, like to take advantage of stock market
investing. Hence an appropriated crafting of a mutual fund products and expecting a good
response from the investors is the need of the hours. Mutual funds now represent perhaps
most appropriate investment opportunity for most investors. As financial markets become
more sophisticated and complex, investors need a financial intermediary who provides the
required knowledge and professional expertise on successful investing. As the investor
always try to maximise the returns and minimise the risk. Mutual fund satisfies this
requirements by providing attractive returns with affordable risk. The fund industry has
already overtaken the banking industry, more funds being under mutual fund management
than deposited with banks. With the emergence of tough competition in this sectors mutual
fund are launching a verity of schemes which caters to the requirement of the particular
class of investors. Risk takers for getting capital appreciation should invest in growth, equity
schemes. Investors who are in need of regular income should invest in income plans.

In the present paper with this background a survey was conducted by primary
data through structured questionnaire collected from 70 investors in Jharsuguda district of
odisha(india). In this paper It is found that 57% investors are generally invest in longterm,
open ended & equity fund and 33% investors are invested in short term, close ended and
debt fund and remain 10% investor are invest in other type of fund. And from the various
factors lack of knowledge is the main factors that prevent to invest in mutual funds & for
some investor difficulty in selection schemes is also prevent to invest in mf. & also for few
investors bitter past experience, lack of confidence in service being provided & inefficient
advisor also the factors that prevent them to invest in mf. It is also found that overall level of
risk perception of investor in Jharsuguda towards mutual fund is of moderate level.
Success of mutual fund however would bright depending upon the implementation of
suggetions. The investors should evaluate a mutual fund scheme based on its long term
return & other performance parameter and investor also carefully go through the scheme
details to get a better under standing of the product. Investor should guidance from ethical

56 | P a g e
and unbiased investment/ mutual fund advisor with research capability will help you add the
best schemes to your portfolio.

Bibliography

Journals and magazines:-

1. AbeyJoji, “Mutual Fund: Investors Perception on Investment”, International Journal of

Sciences: Basic and Applied Research (IJSBAR), Volume 34, No. 3, Pp. 55-67, ISSN 2307 – 4531, 2017.

2. Agarwal Shivangi and MirzaNawazish, “A Study on the Risk-Adjusted Performance of Mutual

Fund Industry in India”, Review of Innovation and Competitiveness, Vol. 3, Issue 1, 2017.

3. Agrawal Gaurav and Jain Mini, “Investor’s Preference towards Mutual Fund in Comparison to
other Investment Avenues”, Journal of Indian Research, ISSN: 2321 – 4155, Vol. 1, No. 4, Pp – 115 -
131, October – December 2013.

4. Anis Ali and BajpaiSaurabh, “Risk Opportunities and Returns for Investors in Mutual Fund”,
International Journal of Technology Management and Humanities, Vol.1, Issue 4, ISSN. 2454-566x,
March 2016 .

Books:-

• R.k. Mohapatra “ Mutual fund – A powerful investment”.

• Sundar Sankaran “ A guide for industry professionals & intelligent investors”.
• Mahesh chandar kausik “ how to make profit in market”.
• Jagroop singh “ Financial markets, institution & services “. Websites:-

https://www.principal.co.id/en/general-risks-investing-mutual-funds-0

https://scripbox.com/mf/reduce-mutual-fund-investment-risk/

https://www.franklintempletonindia.com/article/beginners-guide-

chapter10io04og32/types-of-mutual-fund-in-india https://amc.ppfas.com/knowledge-

center/investor-education-programme/what-are-thedifferent-types-of-mutual-fund-

schemes/index.php https://paytm.com/blog/mutual-funds/factors-you-must-consider-

before-investing-inmutual-funds/

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 Annexure

Table – 1

H0 a :-There is no significant relation between gender & investing experience in mutual fund.
Observed value Expected value (O – E) (O – E)2 (O – E)2 /E
43 42.85 0.15 0.0225 0.0005250
7 7.15 - 0.15 0.0225 0.003146
17 17.15 0.15 0.0225 0.001311
3 2.85 - 0.15 0.0225 0.007849
X2 0.012876

X2 = [(O – E)2 /E] = 0.012876

Table - 2

H0 b:- There have a significant relation between different mutual funds and the tenure of
investment.
Observed value Expected value (O – E) (O – E)2 (O – E)2 /E
3 7.42 -4.42 19.53 2.63
12 16 -4 16 1
7 5.15 1.85 3.42 0.66
18 11.43 6.57 43.16 3.77
10 5.58 4.42 19.53 3.5
16 12 -4 16 1.33
2 3.85 -0.15 0.0225 0.0058
2 8.57 -6.57 43.16 5.0361
X2 17.93

X2 = [(O – E)2 /E] = 17.93

Table – 3

H0 c:- There is no significant relation between age of investor and risk profile.

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Observed value Expected value (O – E) (O – E)2 (O – E)2 /E
0 0.47 -0.47 0.2209 0.47
2 0.8 1.2 1.44 1.8
0 0.48 -0.48 0.2304 0.48
0 0.25 -0.25 0.0625 0.25
14 12.39 1.61 2.5921 0.885
22 22 0 0 ------
12 13.36 -1.36 1.8496 0.1384
7 7.07 -0.07 0.0049 0.00069
1 2.05 -1.05 1.1025 0.5378
3 3.62 -0.62 0.3844 0.1061
4 2 2 4 2
1 1.15 -0.15 0.0225 0.0195
1 0.91 0.09 0.0081 0.0089
1 1.8 -0.8 0.64 0.3555
1 0.96 0.04 0.0016 0.0016
1 0.51 0.49 0.2401 0.4707
X2 7.5241

X2 = [(O – E)2 /E] = 7.5241

QUESTIONAIRE

Dear respondents,

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 I Pradyumna Mahato ,bcom student, Belpahar degree college,
Belpahar, Jharsuguda (Sambalpur University). I am conducting a survey
on "A study on Investor’s perception Towards Mutual Fund." In partial
fulfilment of degree. I would request you to please spare a few minutes
to fill up the questionnaire and help me to get the required information.
The data to be collected is used for my academic purpose only and your
response is valuable for my research work. please feel free to opine.
Thank you.

Demographic questions:-

1. Name

2. Age group you belongs to.

• 10-15 • 15-30
• 30-45
• 45+
3. Your Designation.

• Student
• Business
• Service person
• Other
4. Gender

• Male
• Female
• Other
5. Income

• Below 50000
• Between 50000 - 100000
• Above 100000

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Survey questions:-

1. In this highly volatile market, do you think mutual funds are a

destination for investment.
• Yes
• No
2. You have investment for _______ mutual fund.

• Long term
• Short term
3. Which type of scheme do you prefer to invest?

• Open ended
• Close ended
4. What type of scheme have you invested in?

• Equity fund
• Debt fund
• Both type of fund
• Others
5. What is the tenure of your investment in mutual fund.

less then 1 year

• 1 year to 3 year
• 3 year to 5 year
• More than 5 year
6. What do you consider the most important parameters while investing?

Returns
• Lower risk factors
• Credit rating
• Inflation
• Company
• Lock in period
7. What is your risk profile?

• Innovation
• Moderate
• Risk averse

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 • Other

8. Which risk you think usually affects mutual fund.

• Systematic risks
• Unsystematic risks
9. Which factors prevent you to invest in mutual fund.

• Bitter past experience

• Lack of knowledge
• Lack of confidence in service being provided.
• Difficulty in selection of schemes.
• Inefficient investment advisors

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