To give a brief idea about the benefits available from Mutual Fund investment.

To give a brief idea about the benefits available from Mutual Fund investment.
Te. To discuss about the market trends of Mutual Fund investment. > To study som
e of the mutual fund schemes.
3. To study some mutual fund companies and their funds. > Observe the fund manag
ement process of mutual funds.
Explore the recent developments in the mutual funds in India. Se. To give an ide
a about the regulations of mutual funds.
The main purpose of doing this project was to know about mutual fund and its fun
ctioning. This helps to know in details about mutual fund industry right from it
s inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds. Because my stu
dy depends upon prominent funds in India and their schemes like equity, income,
balance as well as the returns ass.iated with ihose schemes.
T. proj.t study was done to ascertain the asset allocation, entry load, exit loa
d, ass.iated with the mutual funds. Ultimately this would help in undetstanding
the benefits of mutual funds to investors.
Literature Review on Mutual Funds
A study was conducted by Grinblatt and Titman (1989) to examine the superior sto
ck selection abilities of mutual fund managers through which researcher generate
d abnormal returns. For this purpose a sample of 274 funds was taken from 1974 t
o1984. Study applied Jensen Measure and compared the abnormal returns of active
and passive investment strategies both with and without transaction costs, fees,
and expenses. The results showed that the actual returns of these funds do not
exhibit abnormal performance indicating that investors cannot take advantage of
the superior abilities of these portfolio managers by purchasing shares in the m
utual funds.
A company that collected money from a group of people with common investment obj
ectives to buy different securities is called mutual fund. The collected holding
of these securities was known as its portfolio Mark (2007). According to Teri (
2007) mutual fund is a professional investment company which managed collection
of stocks, bonds, or other securities owned by a group of investor. Each mutual
fund had a fund manager who purchased and sold the funds investment according to
the fund goals. Fund managers were responsible to analyze the economic condition
s, industry trends, government regulations and the impact on stocks before selec
ting the securities for investment.
Mutual funds provided investment facility to the small investors who cannot affo
rd to invest the large sums of money Teri (2007). Basically these small investor
s invested money into a common fund and handover the investment decision to fund
manager. Many people often regard the beginning of Foreign and Colonial Governm
ent Trust as the beginning of modern day mutual funds. But the beginning of mutu
al funds dates back to Seventeenth century when the first "pooling of money" for
investments was done in 1774. Following the financial crisis of 1772-1773 a Dut
ch merchant Ketwich invited investors to come together to form an investment tru
st under the name of Eendragt Maakt Magt David (2007). The purpose of the trust
was to provide diversification at low cost to the small investors.
In order to spread risk, the fund invested in various countries such as Austria,
Denmark, German States, Spain, Sweden, Russia etc. In 18th century Amsterdam St
ock Exchange had only a small number of listed equities due to which the trust i
nvested only in bonds. However after war with England many colonial bonds defaul
ted due to which there was sharp decline in the investments. As a result, share
redemption was suspended in 1782 and later the interest payments were decreased
too. The fund was no longer attractive for investors and vanished. These early m
utual funds before heading to the United States took root in England and France
in the 1890s. On the other hand Massachusetts Investors' Trust of Boston was the f
irst open-end fund Formed in 1924. The growth of pooled investments was hampered
by stock market crash of 1929 and the Great Depression but Securities Act of 19
33 and Company Act of 1940 restored investors confidence and industry witnessed s
teady growth after that.
Several measures are used in the literature on mutual fund performance evaluatio
n but there is (still) a large controversy around them. Some of the important ri
sk-adjusted techniques include the Sharpe (1966) measure, the Treynor (1965) mea
sure and the Jensen (1968) measure. These measures were frequently called tradit
ional measures of performance evaluation and were based on the idea that the com
bination of any portfolio with the risk-free asset is located in the expected re
turn or beta space. The Jensen measure has been the most commonly used performan
ce measure in academic and non-academic empirical studies. On the other hand Sha
rpes reward-to-variability ratio was also very popular and was frequently used by
the researchers. Some of the empirical work on the performance of mutual funds
was given below.
Sharpe (1966) introduced the measure to evaluate the mutual funds risk-adjusted p
erformance. The measure was known as reward-to-variability ratio (Currently Shar
pe Ratio). With the help of this ratio he evaluated the return of 34 open-end mu
tual funds in the period 1945-1963. The results showed the capital market was ex
tremely efficient due to which majority of the sample had lower performance as c
ompared to the Dow Jones Index. Sharpe (1966) found that from 1954 to 1963 only
11 funds outperformed the Dow-Jones Industrial Average (DJIA) while 23 funds wer
e outperformed by the DJIA. Study concluded that the mutual funds were inferior
investments during the period.
Previously two- and three-moment analyses were used to analyze the mutual fund p
erformance relative to market performance. But Joy and Porter (1974) applied fir
st-, second-, and third-degree stochastic dominance principles to investigate th
e same question. Study suggested that the proper test of mutual fund performance
relative to the market (DJIA) is a test employing stochastic dominance principl
es. Such a test necessitates a pair wise comparison between each fund and the DJ
IA. Therefore Joy and Porter (1974) collected the performance data for the 34 fu
nds analyzed by both Sharpe (1966) and Arditti (1971) for the ten-year period 19
54-1963. Price and dividend data were also collected for the DJIA over the same
period. Study supported the earlier Sharpe (1966) study and opposed the Arditti
(1971) work and concluded that mutual fund performance was inferior to market pe
rformance over the period 1954-1963.