Gururaj S-0373-Risk & Return of Investors

A STUDY ON
RISK AND RETURN OF INVESTORS IN MUTUAL FUNDS AT BANGALORE

CITY
Submitted in Partial Fulfillment of the Requirements of
Bangalore University for the Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
By
Mr. GURURAJ. S
Reg. No.: 03XQCM6039
Under the Guidance of
Dr. N.S. Vishwanath
M P Birla Institute of Management

Associate Bharatiya Vidya Bhavan
# 43, Race Course Road, Bangalore 560 001

2003-2005
M.P.BIRLA INSTITUTE OF MANAGEMENT
DECLARATION
I, GURURAJ S, here by declare that this Dissertation titled Risk and return of
investors in mutual funds at Bangalore City is based on original project study
conducted by me under the guidance of Dr. N.S. Vishwanath.
This has not been submitted earlier for the award of any other degree/Diploma
to Bangalore University or any other University.
Place: Bangalore
Date: 16 / 06 / 2005
Students signature
(GURURAJ. S)
CERTIFICATE FROM GUIDE
Certified that this dissertation titled RISK AND RETURN OF INVESTORS IN

MUTUAL FUNDS AT BANGALORE CITY is based on the original project
Study conducted by Mr. GURURAJ.S of the IV semester MBA under my
guidance.
This dissertation has not formed the basis for the award of any other
degree/diploma by Bangalore University or any other University.
Place: Bangalore.
Date: 16 / 06 / 2005
(Dr. N.S. Vishwanath)
PRINCIPAL CERTIFICATE
Certified that this dissertation titled Risk and return of investors in mutual funds
at Bangalore City is based on original project study conducted by Mr.
GURURAJ. S of IV semester MBA under the guidance of Dr. N.S. Vishwanath.
This dissertation Report is based on the training undergone by the student and
has not formed the basis for the award of any other Degree / Diploma by
Bangalore University or any other University.
Place: Bangalore
Date: 16 / 06 / 2005
Dr. Nagesh Malavalli

Principal
ACKNOWLEDGMENT
I am grateful to every one who have helped me throughout this project
work and made the project report a successful one. It gives me great
pleasure to extend my sincere thanks and gratitude to all those who have
been instrumental in the completion of this project.
I express my sincere thanks to Dr. N.S. Vishwanath Faculty of

M.P. Birla Institute of Management under whose guidance the project
was done and for all his support and invaluable suggestions provided
during the time of my project.
I shall be thankful to Dr. N.S. Malavalli, Principal, M.P. Birla
Institute of Management and other faculty members of M.P. Birla
Institute of Management for their kind co-operation.
I am also grateful to the staff members of various departments of
HDFC BANK, for their kind Co-operation for the completion of the
report.
Last but not the least, I wish to express my gratitude to my Parents
and also to my friends without whom this study would not have been
possible.
(GURURAJ.S)
INTRODUCTION TO FINANCE
It is rightly said that finance is the lifeblood of any business. Besides being one of the
scare set elements it is also the most indispensable requirement. Finance is one of the
basic foundations of all kinds of economic activities. It is the master key, which
provides access to all the sources for being employed in manufacturing and
merchandising activities.
It is true that money gets more money, but it is so only when it is properly rotated and
managed. Hence efficient management of every business enterprise is closely linked
with efficient management of its finance.
FINANCIAL MANAGEMENT
Financial management emerged as a distinct field of study at turn of the country. Its
evolution may be divided into three broad phases: the traditional phase, the
transitional phase and the modern phase. Since the beginning of the modern phase
many significant and seminal developments have occurred in the fields of capital
budgeting, capital structure theory, efficient market theory, option pricing theory,
agency theory, arbitrage pricing theory, valuation models, dividend policy, working
capital management, and behavioral finance.
KEY ACTIVITIES OF FINANCIAL MANAGEMENT
Financial analysis, planning and control
Management of firms assets structure
Management of firms financial structure
SCOPE OF FINANCE FUNCTION:
Estimating financial requirement
Deciding capital structure
Selecting a source of finance
Proper cash management
Selecting a pattern of investment
Implementing financial controls
THREE MAIN FINANCIAL DECISIONS
Investment decision
Financing decision
Dividend decision
Having discussed key activities of financial management, scope of finance functions

and three main financial decisions it is necessary to concentrate on THE INDIAN
FINANCIAL SYSTEM which is a back bone to all the above.
Financial Institutions
Funds
Deposits/shares
Suppliers of
Funds
Commercial Banks
Insurance Companies
Mutual Funds
Provident Funds
Non-Banking Financial
Companies
Private
Placement
Individual
Businesses
Governments
Demanders of
Funds
Individual
Businesses
Governments
Financial
Markets
Funds
Money Market
Capital Market
Securities
THE FINANCIAL SYSTEM
FUNCTIONS OF FINANCIAL SYSTEM:
It provides a payment system for the exchange of goods and services
It enables the polling of funds for undertaking large-scale enterprise
It provides a mechanism for spatial and temporal transfer of resources
It provides a way for managing uncertainty and controlling risk
It generates information that helps in co ordinate decentralized decision
making
It helps in dealing with the problem of informational asymmetry
INTRODUCTION TO INVESTMENT:
Investment is a postponed consumption; only in response to a rate of return which
must be suitably adjusted for inflation and risk.
When considering inflation, time value of money or expected rate of return is taken
into account.
When considering risk, the following are some of the risk faced by; an investor:
1. Inflation risk
2. Interest risk
3. Default risk: systematic and unsystematic risk
4. Environment risk: political, social etc.,
Hence basic investment decision is concentrated on TRADE-OFF between risk and
return.
RISK AND RETURN TRADE OFF:

We all know the term HIGH RISK HIGH RETURN.
But the dream of every investor is LOW RISK AND HIGH RETURN.
Other variables that bother investors are liquidity, tax savings etc.,
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Hence an investor tries to blend the above-mentioned variables in the investment that
he/she makes.
However many a times, in the fear of risks such as default risk, interest risk, the
investor may end up in investing in such kind of investments, the returns of which
area neither sufficient to cover up the inflation risk nor the cost of capital.
It is here the magic of portfolio works investors tries to manage the portfolio in such a
way that risk is distributed and fairly good returns are assured through a mix of debt
and equity.
GENERALLY INVESTMENT PROCESS OF AN INDIVIDUAL INCLUDES
THE FOLLOWING
1. Determine the investors objective policy
2. Undertake security analysis (fundamental and technical)
3. Construction of portfolio
4. Review
5. Evaluate the performance of the portfolio
An individual is also unlikely to have the knowledge, skills, inclination and time to
keep track; of events, understand their implication and act speedily. He/she finds it
difficult to keep track of ownership of his assets, investments, and brokerage dues and
bank transaction etc., He/she is however risk averse, preferring safer investment with
regular returns to capital appreciation and risk aggression. The investor is bound to be
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cautious, having lost considerable saving in the equity market and also in equity
linked fund schemes.
Hence a MUTUAL FUND is the ideal investment for individuals, especially for those
who want to avail the investment benefits but unable to understand the intricacies of
the capital market operation.
A Mutual Fund appoints professional qualified and experienced staff that manages
each of these functions on full time basis. The large pool of money collected in the
fund allows it to hire such staff at a very low cost of each investor. In effect the
Mutual Fund vehicle exploits economics of scale in all three areas-research,
investment and transaction processing.
While the concept of individual coming
together to invest money collectively is not new, the mutual fund as we know is a 20th
Century phenomenon.
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LITERATURE REVIEW
This dissertation provides an overview of mutual funds investment vehicles that
pool the money of thousands of investors to invest in a wide variety of securities with
a specific objective. It discusses how mutual funds provide professional management
and diversification and because of this, are safer and less volatile than individual
stocks and bonds. It examines how different classes of mutual funds have different
objectives, such as growth, income, growth and income, etc. and how the mutual fund
or funds those investors select reflect their objectives and tolerance for risk.
Generally there are two types of mutual funds. The first type is called an open ended fund . In an open-ended fund, the fund does not have a set number of shares. It
will continue to issue shares as long as investors will buy them. Investors can also
redeem shares. At the end of each trading day, the fund manager will calculate the net
asset value of the fund. The NAV is the total value of the assets held by the fund
divided by the total number of fund shares. Shares are purchased or redeemed on the
basis of the NAV.
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INTRODUCTION TO MUTUAL FUND

A MUTUAL FUND is a pool of money, collected from investors, and is invested
according to certain investment objectives.
A Mutual fund is created when investors put their money together. It is therefore a
pool of the investors funds. The most important characteristic of a mutual fund is
that the contributors and the beneficiaries; of the fund are the same class of people,
namely the investors. The term mutual means that investors contribute to the pool,
and also benefit from the pool. The pool of funds held mutually by investors is the
mutual fund.
A mutual funds business is to invest the fund thus collected, according to the wishes
of the investors who created the pool. In many markets these wishes area articulated
as investment mandates. Usually, the investors appoint professional inves tment
managers, to manage their fund. The same objective is achieved when professional
investment managers create a product, and offer it for investment to the investors.
This product represents a share in the pool and prestates investment objective. For
example, a mutual fund, this sells money market mutual fund, is actually seeking
investors willing to invest in a pool that would invest predominantly in money market
instruments.
Thus a Mutual Fund is the most suitable investment for the common man as it offers
an opportunity to invest in diversified, professional managed portfolio at a relatively
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low cost. Anybody with a minute surplus of even a few thousand rupees can invest in
Mutual Fund. Each mutual fund has a defined investment objective and strategies.
IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

a) A mutual fund actually belongs to the investors who have pooled their funds.
The ownership of the mutual fund is in the hands of investors.
b) Investment professionals and other service providers, who earn a fee for their
services, for the fund, manage a mutual fund.
c) The pool of funds is invested in a portfolio of marketable investments. The
value of the portfolio is updated every day.
d) The investors share in the fund is dominated by units. The va lue of the units
changes with the change in the portfolios value, every day. The value of one
unit of investment is called as the Net Asset Value or NAV.
ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favourite investment vehicle, it is because of
the many advantages they have over other forms and avenues of investing,
particularly for the investor who has limited resources available in terms of capital
and ability to carry out detailed research and market monitoring. The following
are major advantages offered by mutual funds to all investors:
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PORTFOLIO DIVERSIFICATION: each investor in a fund is part

owner of all of the funds assets, thus enabling him to hold a diversified
investment portfolio even with a small amount of investment that would
otherwise require big capital.
PROFESSIONAL MANAGEMENT: Even if an investor has a big

amount of capital available to him, he benefits from the professional
management skills brought in by the fund in the management of the
Investors portfolio. The investment management skills, along with the
needed research into available investment options, ensure a much better
research than what the investor can manage on his own. Few investors
have the skills and resources of their own to succeed in todays fast
moving, global and sophisticated markets.
REDUCTION/DIVERSIFICTAION OF RISK: when an investor invest

directly, all the risks of potential loss is his own, whether he places a
deposit with a company or a bank, or buys a share or debenture on his own
or in any form. While investing in pool of funds with other investors, the
potential losses are also shared with other investors. The risk reduction is
one of the most important benefits of a collective investment vehicle like
the mutual fund.
REDUCTION OF TRANSACTION COSTS: What is true of risk is

also true of the transaction costs. The investors bear all the costs of
investing such as brokerage or custody of securities. When going through
a fund, he has the benefit of economics of scale; the funds pay lesser costs
because of larger volumes, a benefit passes on to investors.
LIQUIDITY: Often, investors hold shares or bonds they cannot directly,

easily and quickly sell. When they invest in their units of a fund, they can
generally cash their investment any time, by selling their units to fund if
open-ended, or selling them in a market if the fund is closed-end.
Liquidity pf investment is clearly a big benefit.
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CONVENIENCE AND FLEXIBILITY: Mutual fund management

companies offer many investor services that a direct market investor
cannot get. Investors can easily transfer their holdings from one scheme to
the other; get updated market information, and so on.
TYPES OF FUNDS
There are many types of mutual funds available to the investor. However, these
different types of funds can be grouped into certain classifications for better
understanding. From the investors perspective, we would follow three basic
classifications.
Firstly, funds are usually classified in their constitution as closed-end or open-end.
The distinction depends upon whether they give the investors the option to redeem
and buy units at any time from the fund itself (open end) or whether the investors
have to await a given maturity before they can redeem their units to the fund (closed
end).
Funds can also be grouped in terms of whether they collect from investors any
charges at the time of entry or exit or both, thus reducing the investible amount or the
redemption proceeds. Funds that make these charges are classified as load funds, and
funds that do not make any of these charges are termed no-load funds
Finally, funds can also be classified as being tax exempt or non tax- exempt,
depending on whether they invest in securities that give tax-exempt returns or not.
Currently in India, this classification may be somewhat less important, given the
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recent tax exemption given to investors receiving dividends from virtually all mutual
funds.
By Structure:
Open ended funds
An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at net asset
value related prices. The key feature of open-end schemes is liquidity.
Closed-ended funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to
15 years. The fund is open for subscription only during a specified period. 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 exchange where they 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.
Interval funds
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Interval funds combine the features of open-ended and close-ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related
prices.
BY INVESTMENT OBJECTIVE:
GROWTH FUNDS
The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has been
proven that returns from stocks, have outperformed most other kind of investments
held over the long term. Growth schemes are ideal for investors having a long-term
outlook seeking growth over a period of time
INCOME FUNDS
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures and government securities. Income funds are ideal for capital stability and
regular income.
BALANCED FUNDS
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities and
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fixed income securities in the proportion indicated in their offer documents. In a

rising stock market, the NAV of these schemes may not normally keep pace, or fall
equally when the market falls. These are ideal for investors looking for a combination
of income and moderate growth.
MONEY MARKET FUNDS

The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call
Money. Returns on these schemes may fluctuate depending upon the interest rates
prevailing in the market. These are ideal for corporate and individual investors as a
means to park their surplus funds for short periods.
LOAD FUNDS
A load fund is one that charges a commission for entry or exit. That is, each time you
buy or sell units in the fund, a commission will be payable. Typically entry and exit
loads range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.
NO-LOAD FUNDS
A no-load fund is one that does not charge a commission for entry or exit. That is, no
commission is payable on purchase or sale of units in the fund. The advantage of a no
load fund is that the entire corpus is put to work.
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OTHER SCHEMES:
Tax saving schemes
These schemes offer tax rebates to the investors under specific provisions of the
Indian income tax laws as the government offers tax incentives for investment in
specified avenues. Investments made in equity linked savings schemes (ELSS) and
pension schemes are allowed as deduction u/s 88 of the income tax act, 1961. The act
also provides opportunities to investors to save capital gains u/s 54EA and 54EB by
investing in mutual funds, provided the capital asset has been sold prior to April 1,
2000 and the amount is invested before September 30, 2000
SPECIAL SCHEMES
Industry specific schemes
Industry specific schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
INFOTECH, FMCG and PHARMACEUTICALS etc.
Index schemes
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Index funds attempt to replicate the performance of a particular index

such as the BSE SENSEX or the NSE 50.
Sectoral schemes
Sect oral funds are those, which invest exclusively in a specified
industry or a group of industries or various segments such as A group shares or

initial public offerings.
STRUCTURE OF MUTUAL FUNDS IN INDIA

Like other countries, India has a legal framework within which mutual funds must be
constituted. Unlike in the UK, where distinct trust and corporate approaches are
followed with separate regulation, in India, open and closed-end funds operate under
the same regulatory structure, i.e. in India, all mutual funds are constituted along one
unique structure-as unit trusts. A mutual fund in India is allowed to issue open-end
and close-end schemes under a common legal structure. Therefore, a mutual fund
may have several different schemes (open and close end) under it i.e. under one unit
trust, at any point of time.
The structure that is required to be followed by mutual funds in India is laid down
under SEBI (mutual fund) regulations, 1996. in the following paragraphs, we take a
look at the structure of each of the fund constituents.
THE FUND SPONSOR

Sponsor is defined under SEBI regulations as any pers on who, acting alone or in
combination with another body corporate, establishes a mutual fund. The sponsor of a
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fund is akin to the promoter of a company as he gets the fund registered with SEBI.
The sponsor will for a Trust and appoint a Board of Trustees. The sponsor will also
generally appoint an asset management company as fund managers. The sponsor,
either directly or acting through the Trustees, will also appoint a custodian to hold the
fund assets. All these appointments are made in accordance with SEBI regulations.
As per the existing SEBI regulations, for a person to qualify as a sponsor, he must
contribute at least 40% of the net worth of the AMC and possess a sound financial
tack record over five years prior to registration.
MUTUAL FUNDS AS TRUSTS

A mutual fund in India is constituted in the form of a public trust created under the
Indian trusts act, 1882. The fund sponsor acts as the settler of trust, contributing to its
initial capital and appoints a trustee to hold the assets of the Trust for the benefit of
the unit-holders, who are the beneficiaries of the trust. The fund then invites investors
to contribute their money in the common pool, by subscribing to units issued by
various schemes established by the trust as evidence of their beneficial interest in the
fund.
It should be understood that a mutual fund is just a pass -through vehicle. Under the
Indian Trusts Act, the Trust or the fund has no independent legal capacity itself,
rather it is the Trustee or Trustees who have the legal capacity and therefore all acts in
relation to the trust are taken on its behalf by the Trustees. The Trustees hold the unitholders money in a fiduciary capacity i.e. the money belongs to the unit -holders and
is entrusted to the fund for the purpose of investment. In legal parlance, the investors
or the unit-holders are the beneficial owners of that investments held by the trust,
even as these investments are held in the name of the trustees on a day-to-day basis.
Being public Trusts, mutual funds can invite any number of investors as beneficial
owners in their investment schemes.
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TRUSTEES
A board of Trustees - a body of individuals, or a Trust company a corporate body,
may manage the trust -the mutual fund -. Most of the funds in India are managed by
Boards of Trustees. While the provisions of the Indian Trust Act, will govern the
board of Trustees where the trustee is a corporate body, it would also be required to
comply with the provisions of the companies Act, 1956. The Board or the Trustee
Company, as an independent body, acts as protector of the unit-holders interests. The
Trustees do not directly manage the portfolio of securities. For his specialist function,
They appoint an asset management company. They ensure that the unsure that the
fund is managed by the AMC as per the defined objectives and in accordance with the
Trust deed and SEBI regulations.
The trust is created through a document called the TRUST DEED that is executed by
the fund sponsor in favour of the Trustees. The Trust Deed is required to be stamped
as registered under the provisions of the Indian Registration Act and registered with
SEBI. Clauses in the Trust Deed, inter alia, deal with the establishment of the Trust,
the appointment of Trustees, their powers and duties, and the obligations of the
Trustees towards the unit-holders and the AMC, and these clauses also specify
activities that the fund /AMC cannot undertake. The third schedule of the SEBI (MF)
Regulations, 1996 specifies the contents of the Trust Deed.
The Trustees being the primary guardians of the unit holders funds and assets, a
Trustee has to be a person of high repute and integrity. SEBI has laid down a set of
conditions to be fulfilled by the individuals being proposed as trustees of mutual
funds-both
independent
and
non-independent.
Besides
specifying
the
disqualifications, SEBI has also set down the Rights and obligations of the
Trustees. Broadly, the Trustees must ensure that the investors interests are
safeguarded and that the AMCs operations are alo ng professional lines. They must
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also ensure that the management of the fund is in accordance with SEBI regulations.
Some important rights and obligations are listed below.
SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL

FUNDS) REGULATIONS, 1996
1. Mutual fund schemes should not be organized, operated, managed or
the portfolio of securities selected, in the interest of sponsors, directors
of asset management companies, members of Board of trustees or
directors of trustee company, associated persons as in the interest of
special class of unit holders rather than in the interest of all classes of
unit holders of the scheme.
2. Trustees and asset management companies should avoid excessive
concentration of business with broking firms, affiliates and also
excessive holding of units in a scheme among a few investors.
3. Trustees and asset management companies shall carry out the business
and invest in accordance with the investment objectives stated in the
offer documents and take investment decision solely in the interest of
unit holders.
4. Trustees and asst management companies must avoid conflicts of
interest in managing the affairs of the schemes and keep the interest of
all unit holders paramount in all matters.
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5. Trustees and the asset management company shall maintain high

standards of integrity and fairness in all their dealings and in the
conduct of their business.
6. The sales literature may contain only information, the substance of
which is included in the funds current advertisements in accordance
with this code.
7. All advertisements shall also make a clear statement to the effect that
all mutual funds and securities investment are subject to market risks,
and there can be no assurance that the funds objective will be
achieved.
8. If however, in any Advertisement a mutual fund guarantees or assures

any minimum rate of return or yield to prospective investors, resources
to back such a guarantee shall also be indicated.
9. Advertisements on the performance of a mutual fund or its Asset
management company shall compare the past performances only on
the basis of per unit of statistics as per these regulations.
Advertisements for NAVs must indicate the past as well as the latest
NAV of a scheme. The yield calculations will be made as provided in
these regulations.
10. An advertisement shall be truthful, fair and clear and shall not contain
a statement, promise or forecast which is untrue of misleading.
11. The advertisement shall not be so designed in content and format or in
print as to be likely to be misunderstood, or likely to disguise the
significance of any statement. Advertisements shall not contain
statement that directly or by implication or by omission may mislead
the investor.
12. The advertisement shall not compare one fund with another, implicitly
or explicitly, unless the comparison is fair and all information relevant
to the comparison is included in the advertisement.
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13. The fund that advertises yield must use standardized computations
such as annual dividend on face value, annual yield on the purchase
price, and annual compounded rate of return.
14. A mutual fund scheme shall not invest more than 15% of its NAV in
debt instruments issued by a single issuer that are rated not below
investments grade by a credit rating agency authorized to carry out
such activity under the Act. Such investment limit may be extended to
20% of the NAV of the scheme with the prior approval of the Board of
Trustees and the Board of Asset Management Company. Provided that
such limit shall not be applicable for investments in government
securities and money market instruments.
15. The initial issue expenses in respect of any scheme may not exceed six
percent of the funds raised under that scheme.
16. Every mutual fund shall buy and sell securities on the basis of
deliveries and shall in all cases of sale, deliver the securities and shall
in no case put itself in a position whereby it has to make short sale or
carry forward transaction or engage in badla finance. Provided that
mutual funds shall enter into derivatives transactions in a recognized
stock exchange for the purpose of hedging and portfolio balancing, in
accordance with the guidelines issued by the Board.
17. No mutual fund under all its schemes should own more than 10% of
any companys paid up capital carrying voting rights.
18. A scheme may invest in another scheme under the same asset
management company or any other mutual fund without charging fees,
provided that aggregate inter scheme investment made by all schemes
under the management of any other asset management company shall
not exceed 5% of the net asset value of the mutual fund.
19. Every mutual fund shall, get the securities purchased or transferred in
the name of the mutual fund on account of the concerned scheme,
wherever investments are intended to be of long-term nature.
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20. No mutual fund scheme shall invest more than 10% of its NAV in the
equity shares or equity related instruments of any company
Mutual fund in India is not very well established because very well established
because very few know about the existence of the scheme and its benefits. Those who
know are also hesitant to invest because of the fear involved attributable to the
absence of complete transparency.
The present work involves the problems faced by investors in mutual fund and the
ways, means to overcome them. The study is also done to express that those
interested in shares can do so through mutual funds there by reducing the risk of
direct exposure of the investors to security market.
SCOPE OF STUDY
This study draws its parameters on the investors knowledge of investment in g eneral
with prominence to mutual funds. An attempt is also made to deduce the mindset of
the investors to know their requirement and expectations from these investments.
To analyze the opinion of investors about mutual fund, where do they place them
among the various other investment alternative. What is that they would like mutual
funds to provide them, and what steps do they feel is necessary to rank the mutual
fund as one of the best investment alternative
TOOLS AND TECHNIQUES FOR DATA COLLECTION
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The method of data collection will be through a questionnaire, for the above study
primary data and secondary data are considered.
Primary data: The data collected through the questionnaire.
Secondary data: The data collected from published reports, newspaper like economic
times, business standard and journals.
TITLE: A STUDY ON RISK AND RETURN OF INVESTORS IN

MUTUAL FUNDS AT BANGALORE CITY
The study is concentrated on the interest related areas of investors, in risk and return
such as:
1. What is their trade-off between risk and return?
2. What is that they see in mutual fund compared to other available
alternative sources of investment?
3. What is that they would expect from their investment?
Data collected from the investors, brokers would be used to analyze.
RESEARCH METHODOLOGY
Research is a systematic study. It is a search means an intensive a powerful search
for knowledge and understanding social, physical phenomenon. It is a method for the
discovery of true value in scientific way.
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SAMPLING PLAN:
Sample unit: Investors
Sample size: 50
Sampling method: Random Sampling
OBJECTIVE OF THE STUDY:

1. To determine the causes for the investments in mutual fund slowing down.
2. To determine expectations of mutual fund investors.
3. To study how distributors may become more effective in promoting the culture
of mutual funds as viable investment opportunity.
4. To reduce how mutual funds might reduce portfolio risk.
STATEMENT OF THE PROBLEM

The first and the foremost thing the investors should know about the product.
Product awareness plays a very crucial role in selecting the right kind of product.
The investor should be convinced and comfortable, where is being money is
invested.
Selecting a scheme that suits the investor needs, and will also maximizes his
returns. An investor not only needs advice on how to choose from this variety of
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investment options available, but also a proper investment strategy that is suitable to
his situation and needs.
Mutual fund investor has to time his investment properly, that can be done only by
proper advice of a sound financial advisor. The investor should exit at the right time
after booking profits, staying longer might affect his returns.
The investor has a herd mentality. They blindly follow the market trend. For exheavy investment in technology sector funds during recent years. To ensure
adequate returns the investors must diversify his risk and returns.
PROBLEMS FACED BY INVESTORS:

1. In risk and return trade off and its implications on mutual fund companies
2. Availability of alternative investment opportunities and their relative
benefits.
Limitations:
1. The study was restricted only at Bangalore City.
2. Number of Sample selected was 50.
3. The analysis of investors was restricted to HDFC.
4. Detailed study of Mutual Funds Products could not be accomplished.
5. The study was limited for 40 days.
31
INDUSTRY PROFILE:
The Indian mutual fund industry began with the formation of the unit trust of India
(UTI) in 1964 by the government. UTI was formed as a non-profit organization
governed under a special legislation, the unit trust of India act, 1963. it had a
monopoly up to 1987 and during this period UTI launched a series of equity and debt
schemes and established itself as a household name with assets under management of
rupees 4563 crores and unit holders accounts of slightly under 3 million by mid 1987.
UTI growth continued up to 1986 when the strong entry of private sector players saw
its share of the market reducing sharply although UTI continues to be a dominant
force in the Indian financial services industry with assets of over rs.67000 crores as of
December 31st, 1999.
In 1987, the industry saw the entry of public sector mutual funds, that is funds
promoted by public sector banks and financial institutions, such as SBI, CANARA
BANK, LIC and IDBI. Predictably they were given the brand of their promoters such
32
as SBI mutual fund, can bank mutual fund, LIC mutual fund and
IDBI
mutual fund.
Other public sector mutual funds also entered the market but UTI continued to remain
the dominant player with a share of 84% in 1991-1992.
In 1993 private and foreign fund houses were allowed to operate in India. Today
about 36 fund houses private, state and foreign owned operate in the country, but the
Indian mutual fund industries pace off growth can be hardly be described as frenetic.
On June 30, 2004 Indian mutual funds commanded assets of Rs. 1,04,762 crore, 8%
of the retail deposit of scheduled commercial banks.
The industry over 550 schemes in equity, debt, gilt and balanced funds offered by 36
fund houses. They include prudential
ICICI, HDFC,
Franklin Templeton, Birla sunlife
mutual funds, sundaram mutual funds, etc.,

Prudential
ICICI
is the largest is the operating private sector in the mutual fund
industry followed by HDFC mutual fund after it took over Zurich India mutual funds.
The share of private players in the Indian mutual fund industry has going up steadily.
Prudential icici is poised to overtake uti asset management in terms of assets under
management (AUM). PRUDENTIAL ICICI has asset of Rs.12,637 crore as against
uti AMCS Rs.16, 015 crore at the end of June 2004. Other private funds are also
catching up with hdfc mutual fund and Franklin Templeton at Rs.11, 961 and
Rs.11,152 crore respectively.
INDIAN MUTUAL FUND INDUSTRY
33
UTI
PUBLIC SECTOR
PRIVATE SECTOR
SBI MF
LIC MF
GIC MF
SUN F&C
BIRLA SUN LIFE
ALLIANCE CAPITAL
PRUDENTIAL ICICI
UTI commenced its operations from July 1964 with a view to encouraging savings
and investment and participation in the income, profits and gains accruing to the
corporation from the acquisition, holding, management and disposal of securities.
Different provisions of the uti Act laid down the structure of management, scope of
business, powers and functions of the trust as well as accounting, disclosures and
regulatory requirements for the Trust.
One thing is certain the fund industry is hero to stay. The industry was one-entity
show till 1986 when the uti monopoly was broken when SBI and Can bank mutual
fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC,
etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25 bn in
1964 the industry has grown at a compounded average growth rate of 26.34% to its
current size of Rs 1130 bn.
The period 1986-1993 can be termed as the period of public sector mutual funds.
From one player in 1985 the number increased to 8 in 1993. The party did not last
34
long. When the private sector made its debut in 1993-1994, the stock market was
booming.
The opening up of the asset management business to private sector in1993 saw
international players like Morgan Stanley, Jordan Fleming, jpmorgan, George soros
and capital international along with the host of domestic players join the party. But
for the equity funds, the period 1994-1996 was one of the worst in the history of
Indian mutual funds.
1999-2000 year of the funds
Mutual funds have been around for a long period of time to be precise for 36 years
but the year of 1999 saw immense future potential and developments in the sector.
This year signaled the year of resurgemes the revival of the funds the AMCS, the unit
Holders, the other related parties. However the sole factor that gave life to the revival
of the funds was the union budget. The budget bought about a large number of
changes in one stroke. An insight of the union budget on mutual fund taxation
benefits is provided later.
It provided center stage to the mutual funds, made them more attractive and provides
acceptability among the investors. The union budget exempted mutual funds dividend
given out by equity-oriented schemes from tax, both at the hands of investors as well
as the mutual funds. No longer were the mutual funds interested in selling the concept
of mutual find they wanted to talk business, which would mean to increase asset base,
and to get asset base, and investor base they had to fully arm with a whole lot of
schemes for every investor. So new schemes for new IPOs was inevitable. The quest
to attract investors extended behind just new schemes. The finds started to regulate
themselves and were all out on winning the trust and confidence of the investors
under the aegis of the association of the mutual funds of India.
35
One can say that the industry is moving from infancy to adolescence, the industry is
maturing and the investors and funds are frankly and openly discussing difficulties
and opportunities and compulsion.
MERGERS IN THE INDIAN MUTUAL FUND INDUSTRY

During the last couple of years the Indian mutual fund industry has witness to a spate
of mergers and acquisition. The most recent of these being principal mutual
agreement to buy out sun F & C mutual fund scheme.
Sun F & C mutual fund itself had acquired the schemes of jordine Fleming mutual
fund in June 2002, while template on bought out pioneer ITI mutual fund. Zurich
India was acquired by HDFC during the same year.
REASEONS FOR MERGER

generate a reasonable return on investment as to meet the fixed cost.
To
fight stiff competition from larger firms
To
increase the size of the asset base
To
increase the return on investment.

To
36
13%
3%
19%
65%
liquid funds
debt finance
euity funds
hybrid funds
From the above, we see that the Indian mutual fund industry is 65% debt oriented, 19%
liquid, 13% equity and 3 % hybrid. For companies to generate more income they should
concentrate on equity funds as they generate more income compared to other funds.
The fact is that equity funds do carry a larger amount of risk. But the company should
take calculated risk to generate larger amount by investing in these funds.
HDFC-HISTORY
HDFC was incorporated in 1977 as the first specialized housing finance
institution in India.
HDFC provides financial assistance to individuals,
corporate and developers for the purchase or construction of residential
37
housing.
It also provides property related services (e.g. property
identification, sales services and valuation),

Training and consultancy. Of these activities, housing finance remains the
dominant activity.
HDFC currently has a client base of over 500000
borrowers, 1300000 depositors, 100000shareholders and 52000 deposit

agents. HDFC raises funds from international agencies such as the World
Bank, IFC (Washington), USAID, CDC, ADB and bonds and deposits
program for the eighth year in succession. HDFC standard life insurance
company limited, promoted by HDFC was the first life insurance company in
the private sector to be granted a certificate of registration (on October
23,2000) by the insurance regulatory and development authority to transact
life insurance business in India.
THE STANDARD LIFE ASSURANCE COMPANY

The standard life assurance company was established in 1825 and has considerable
experience in global financial markets. In 1998, a standard life investment limited
became the dedicated investment management company of the standard life group
and is owned 100% by the standard life assurance company. With global assets under
management of approximately US$126 billion as at may 15 2004, standard life
investments limited is one of the worlds major investment companies and is
responsible for investing money on behalf of five million retail and institutional
clients dia worldwide. With its headquarters in Edinburgh, standard life investments
limited has an extensive and developing global presence with operations in the united
Kingdom, Ireland, Canada, USA and Hong Kong. In order to meet the different
needs and risk profiles of its clients, standard life investments limited manages a
diverse portfolio covering all of the major markets worldwide, which includes a range
of private and public equities, government and company bonds, property investments
and various derivative instruments. The companys current holdings in UK equities
account for approximately 2% of the market capitalization of the London stock
38
exchange.
The standard life assurance company was present in the Indian life
insurance market from 1847 to 1938 when agencies were setup in kolkata and
Mumbai. The standard life insurance company was therefore keen to re-enter the
Indian market and in 1995, signed an agreement with HDFC to launch an insurance
joint venture. HDFC and standard life investments limited are neither responsible nor
liable for any loss resulting from the operation of the schemes beyond their
contribution of an amount of Rs. 1 lakh each made by them towards the corpus of the
mutual fund.
MISSION:
To be a world class financial institution -benchmarking themselves against
international standards and best practices.
OBJECTIVES:
To build sound customer franchises across distinct business so as to be preferred
provider of financial services to achieve a healthy growth in profitability and
customer base. To be committed to do this while ensuring the highest levels of
ethical standards, professional integrity and regulatory compliance.
VISION:
To be a dominant player in the Indian mutual fund space recognized for its high
levels of ethical and professional conduct and a commitment towards enhancing
investor interest.
39
MUTUAL FUNDS FY 2004

The financial year ended 30 March 2004 was very volatile for the stock as well as the
debt markets. Investors se ntiment was shattered by scams, terrorist attack, political
uncertainties, economic slowdown and budget 2004. With the stock markets proving
to be volatile, investors shifted to safer to safer havens like bank deposits or low risk
debt schemes of mutual funds. Mobilization of mutual funds jumped up by 77% from
Rs. 92,957 crore in FY 2003-04.private sector players mopped up 89% of the funds.
Debt schemes accounted for Rs. 162944 crore, as against Rs. 67,054 crore in FY
2002-03, a jump of 143.09% and a share of 99% in the total mobilizations reflecting
the turmoil in the stock market, pure equity schemes posted an average 10.07%
returns. Debt schemes, riding piggyback on falling interest rates, posted 13.06%
returns on an average, which were 4.50% above the 8.50% SBI one year deposit rate
and 3% higher than the one year NBFC fixed deposit rate of 10% at the beginning of
the fiscal 2001-02. Among the 200 open-ended equity analyzed (including suboptions), 179 outperformed the benchmark sensex, while 164 schemes posted positive
returns.
Among the 236 open-ended debt schemes analyzed (including sub-options), 171 out
formed the benchmark 1-year SBI deposit rate of 8.50% as in March 2001. Only 3
schemes posted returns.
The best performing categories were debt-medium term and debt-gilt 13.67% and
19.51%, respectively. As against that, Equity-tax planning schemes posted 15.09%
Returns, while Equity-Balanced schemes posted 9.73%. Diversified equity schemes
returned 10.23% on an average.
40
STATE BANK OF INDIA MUTUAL FUND - Pioneer Bank sponsored Mutual

Fund
In 1987, sensing the need for an investment alternative, the State Bank of India
launched SBI Mutual Fund, making it the pioneer bank sponsored mutual fund in an
untapped field with a huge potential.
Today the fund has an investor base of over 1.1 million spread over 23 schemes.
With a large network of collecting branches and investor service centers, SBI Mutual
Fund constantly endeavors to get closer to its growing family of investors.
Establishment
SBI Mutual Fund has grown tremendously in terms of corpus as well as number of
investors. Today, it is the largest bank sponsored mutual fund with an investor base
of 2.8 million. SBI Mutual Fund has launched 20 schemes, of which 7 has redeemed,
yielding handsome returns. Today, the fund mangers over Rs.2, 500 crores.
SBI Mutual Fund is also the first bank-sponsored mutual fund to launch an offshore
fund, the India Magnum Fund, with a corpus of $ 206 million.
With the larger network (over 34 collecting branches and 212 Investors service
Centers) SBI Mutual Fund constantly endeavors to get closer to its growing family of
investors.
CRITERIA FOR COMPETITIVE POSITION

invest in business with sustainable competitive advantages
We

Sustainable competitive advantages should get reflected in

High Operating margins
41

Improving market share

Earning momentum superior to peer group
VALUATION CRITERIA

The current share price should not discount growth beyond 2 years.
debt equity ratio is more than 1.5, increase valuation discount
If

The company should exhibit positive trend in EVA generation
also look at other valuation measures like P/BV, Market Cap/Sales &
We
nbsp
KOTAK MAHINDRA MUTUAL FUND

The kotak mahindra group was born in 1985 as kotak capital management finance
limited. Uday Kotak, S.A.A. pinto and Kotak & Company Promoted this company.
Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and thats
when the company changed its name to Kotak Mahindra Finance Limited (KMFL).
42
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMFL, is the asset manager for Kotak Mahindra Mutual Fund
(KMMF). KMAMC started operations in December 1998 and has over 1, 15,000
investors in various schemes. KMMF offers schemes catering to investors with
varying risk-return profiles and was the first fund house in the country to launch a
dedicated gilt scheme investing only in government securities.
SCHEME PHILOSOPHY
K Gilt is a scheme that allows the retail investor to invest in the otherwise wholesale
government securities market. K Gilt invests in the gilt-edged government securities
giving you a zero credit risk investment option. It recognizes that for you, Safety is
prime, giving you the liquidity of a saving account with attractive returns.
K Gilt scheme offers several plants to choose from:
Savings plan: ideal if you are a short-term investor, this plan invests in a portfolio of
securities with Weighted Average Maturity of less than two years. Investors can
choose the monthly dividend option or the growth option.
Investment plan: ideal for long-term investors, this plan aims to enhance returns by
investing in longer maturity instruments. The portfolio has no restriction on the
maturity of the security. Investors can choose the quarterly dividend option*.
SERIAL PLANS: several plans maturing at 2 years intervals starting on December
31,2001 up to December 31,2019 that allow investors to nearly estimated their returns
43
if the investment is held till maturity. The ideal alternative to fixed deposits of similar
maturity with the safety of government Securities. Investors can choose quarterly
dividend option or the growth option. Payable subject to availability and adequacy of
distributable surplus.
INVESTMENT OBJECTIVE
K Balance seeks to exploit the capital appreciation of equity and the stable returns of
debt. By investing a substantial amount in debt and money market instruments, the
scheme aims to minimize the risk that arises out of even the most carefully picked
equity stocks.
The scheme usually has an exposure of about 51% to 55% on equity and the rest in
debt instruments. A combination that in our opinion gives you a perfect balance
between stability and growth.
K Balance is ideally suited for first time investors in equity schemes
DSP MERRILL LYNCH

DSP Merrill Lynch Limited (DSP ML) DSP ML is a leading financial service
provider in India. It has been formed by the culmination of a long-standing
relationship between DSP financial consultants Limited (DSP), and Merrill Lynch
and co. (ML), the leading international capital raising, financial management and
44
advisory company. Merrill lynch has a40% equity stake in DSP ML. In addition, ML
has also invested in a separate joint venture with DSP ML DSP Merrill lynch
investment managers Limited (DSPMLIM)
In India, DSP ML is leading underwriter and broken for debt and equity securities
and a leading advisor to corporations, institutions and state governments. For private
customers, our platform of products and service provides access to a robust range of
investing and wealth building tools with the personal guidance of financial
consultants. DSPML is also among the first firms to set up a full- fledged research
team in India. The Company is among the major players in the debt and equity
markets and is also a primary dealer of government securities.
DSP Merrill Lynchs credentials are best supported with accolades received DSP ML as the
Best Local Equity House in India for the same period. Additi onally, Euro money magazine
voted DSP ML Best Domestic equity Houses in India in their Awards of Excellence for
2002.
MERRILL LYNCH
Merrill Lynch is one of the worlds leading financial management and advisory
companies with offices in 37 countries and total client assets of approximately $1.4
trillion. As an investment bank, it is a leading global under writer of debt and equity
securities and strategic advisor to corporations, governments, institutions, and
45
Individuals worldwide. Through Merrill Lynch Investment managers, the company is

one of the worlds largest managers of financial assets.
OUR PRINCIPLES
Client Focus The client is the driving force behind what we do.
Respect for the Individual We respect the dignity of each individual, whether an
employee, shareholder, client or member of the general public.
Teamwork We strive for seamless integration of services.
Responsible Citizenship We seek to improve the quality of life in the communities
where our employees live and work.
Integrity No ones personal bottom line is more important than the reputation of our
firm.
PIONEER ITI MUTUAL FUND

Right from 1993 they were the first to traverse the pathway of mutual fund in the
private sector, they done very many exiting and innovative things. Indias first world
class open end fund, indias first private pension fund, indias first technology fund,
indias first online payment gateway for funds, and many more.
46
More than these innovations themselves, its where these s peak of creativity spring
from that gives a real insight into what drives us the desire to provide the very best
to investors. Intense research and superior investment results, service that delights,
being accessible, and straight talking and openness on how your funds are being
managed.
We are professional in the way we work, but with a personal touch. Towards this
end, we look forward to hearing from you on what you feel about us and how we can
do more for you.
Who We Are
Pioneer ITI is Indias fir st mutual fund in the private sector. Today, we manage
Rs.3647 crores in assets for over 745,000* investors across a range of growth,
balanced, income, liquid and tax saving funds. In the open- end equity funds
category, we lead in terms of assets, and have emerged as the most preferred fund
house in India.
Ever since we launched our first two funds, Blue-chip and prima, in October 1993,
we have been recognized as an innovative fund that provides superior investment
results, exemplary service, complete product choice and total transparency in the way
we operate and invest.
Pioneer ITI is a joint venture between pioneer one of Americas oldest mutual funds
and ITI, one of Indias established finance companies. Pioneer helped found the
modern mutual fund industry in the US in 1928, and has operations in several
countries across the globe.
47
Pioneer has recently become part of the Uni Creditio Italino Group one of Italys
largest banking companies with over USD 150 billion in management company,
Pioneer Global Asset Management, with a strong base in both the US and Europe and
assets under management of over USD 100 billion (as on December 2000).
The Investment Trust of India was established in 1946 and is one of Indias well known and highly regarded financial services company.
Our mission is to offer individuals and institutions an array of investment options that
will fulfill their financial goals.
PRUDENTIAL ICICI MUTUAL FUND

Prudential ICICI Asset Management Company, (55%: 45%) a joint venture between
prudential, UKs leading insurance company and ICICI Indias premier financial
institution.
48
The joint venture was formed with the key objective of providing the Indian investor
mutual fund products to suit a variety of investment needs, the AMC has already
launched a range of products to suit different risk and maturity profiles.
Prudential ICICI Assets Management Company Limited has a net worth of about
Rs.78.13 crores as of March 31,2002. Both prudential and ICICI have a strategic
long-term commitment to the rapidly expanding financial services sector in India.
Key Indicators
As of May 2000
Assets under
Management
Number of Funds
Managed
As on June 30,2002
Rs.160 crore
Rs.7748.31 crore
14
GUIDING PRINCIPLES
Prudential ICICI will conduct its business with

Honesty and trustworthiness in all interactions.
pioneer spirit and excellence in action
A
Collaboration and teamwork.
49
understanding of customer needs and the desire to satisfy them.

An

The highest service standards.
consistency above average performance.

A
FRANKLIN TEMPLETON MUTUAL FUND

Franklin Templeton Investments is one of the largest financial services groups in the
world based at San Mateo, California USA. The group has over US $ 270 billion
(over Rs. 1,315,000 crores) in assets under management globally (as of June 30,
2002) in mutual funds and other investment vehicles for individuals, institutions,
pension plans, trusts, partnerships and other clients. Franklin Templeton offers over
50
240 investment products, available under the Franklin Templeton and Mutual Series
brand names, serviced and supported by 6,400 employees in more than 29 countries.
With over 50 years of experience in international investment management and offices
in Franklin Templeton has achieved the Dalbar Service Award in the US six times
in the past ten years for superior customer service and back office support.
Franklin Templeton in India
As part of Franklin Templetons thrust in expanding business in key interna tional
markets, Franklin Templeton set-up an office in Mumbai, India in January 1996. The
firm now has offices in Ahmedabad, Bangalore, Calcutta, Chennai, Delhi, Hydrabad,
Kochi, Lacknow, Mangalore and Pune and manages assets of over Rs.4000 crores as
an June 30, 2002.
At Franklin Templeton we believe that individuals differ in their investment needs
depending on their financial goals, risk taking ability and time horizon available to
meet those goals. To cater to these different needs, mutual funds provide individuals
the flexibility to create an investment plan, based on ones individual financial goals.
SUN F& C MUTUAL FUND

SUN F & C was incorporated in 1995. The sponsors principle objective in
establishing the company is to create amongst Indias leading asset management
organizations through an uncompromising focus on quality in all aspects of product
innovation, investment management and investment execution. The sponsors of SUN
51
F& C are the F & c Emerging Markets Limited, a part of the F & C Group and SUN
securities (India) Pvt Limited, the Indian financial services arm of the SUN Group
Investment philosophy
It is this philosophy, which guides the day-to-day investment management in all its
schemes. The equity investment philosophy guides investment decisions in the Value
Fund and the equity portion of the Balanced Fund, while the debt investment
philosophy guides investment decisions in the Money Value Fund and the debt
portion of the Monthly Income plan.
SUN F& Cs investment philosophy consists of two elements Investment Approach
& Investment Style.
Investment Approaches
Typically there are two common approaches used by fund managers for their
investment philosophy
1. Top-down Approach
Focuses on key macro economic indicators and trends, followed by a study of
individual sectors in the economy to form an outlook on their future prospects.
Thought this process, business opportunities in different sectors are identified
and accordingly the best stocks within the identified sectors are selected for
investment. Hence, attractive industries are identified first and then
attractive stocks are identified within those industries
2. Bottom-up-Approach
This approach focuses on identifying individual high-performing companies
with outstanding management whose business is growing faster than any of its
peers within or outside their industry.
52
INVESTMENT STYLES
The common styles used by fund mangers for their investment philosophy are:
1. Value Investing
Fund managers employing the value approach look for companies trading at a
discount to their intrinsic worth. Simply put, these companies are quoting at a price
earnings (P/E) multiple lower than what it should be their management, industry
outlook and balance sheet indicators. Hence, there exists a potential for the P/E of
these companies being adjusted upwards over time as the markets realize their
intrinsic worth. Such a change P/E is also called re rating of stock.
2. Growth Investing
Growth involves investing in stocks of companies whose businesses are expected to
show healthy growth in future earnings. Here, the companys price will move up not
because the P/E will improve (no re rating) but because the EPS will go up. This is
because, the price of a share is a function of the P/E multiplied by the EPS.
3. Momentum Investing
Fund managers using momentum investing use technical indicators to buy low and
sell high in the short run. This means that they do not rely on indicators such as P/E
or EPS but buy/sell decisions purely on price movements of that share, however good
or bad the company may be. This approaches is commonly used for stocks that are
highly volatile and where profits opportunities exist in short term trading of these
stocks.
It may also be worth explaining here the difference between investment philosophy
and investment objective, since these two terms are often used and are confusing to
most investors. While investment objectives is usually associated with a particular
scheme investment objective of the SUN F& C Value Fund is to generate long-term
capital growth from a portfolio substantially consisting of equity and related
53
securities. On the other hand, investment philosophy defines how investment

decisions should be made, i.e., the Value Fund is guided by the philosophy of value
oriented investing. This long-term style of investing tries to locate, in a disciplined
manner, shares, which for a variety of reasons, are selling at prices, which are lower
than the companys actual business value or future earnings potenti al.
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 550 odd
products and 36 players in the market. In spite of the stiff competition and losing
market share, UTI still remains a formidable force to reckon with.
54
Last six years have been the most turbulent as well exiting ones for the industry.
New players have come in, while others decided to close shop by either selling off or
merging with others. Product innovation is now passing with the game shifting to
performance delivery in fund management industry like distributors, more mature and
responsible.
The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generations of private funds that have gained substantial mass are now seen flexing
their muscles. Fund managers by their selection criteria for stocks have forced
corporate governance on the industry. By rewarding honest and transparent
management with higher valuations, a system of risk-reward has been created where
the corporate sector is more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals,
FMCG and technology sector. Funds performances are improving. Funds collection,
which averaged at less than Rs.100 billion per annum over five year period spanning
1993-98 doubled to Rs.210 billion in 1998-99. in the current year mobilization till
now have exceeded Rs.300 billion. Total collection for the current financial year
ending is expected to reach Rs.450 billion.
What is particularly noteworthy is that bulk of the mobilization has been by the
private sector mutual funds rather than public sector mutual funds. Indeed private
Mutual Funds saw a net inflow of Rs.7819.34 crore during the first nine months of
the year as against a net inflow of Rs.604.40 crore in the case of public sector funds.
55
Mutual funds are now also competing with commercial banks in the race for retail
investors savings and corporate float money. The power shift towards mutual funds
has become obvious. The coming few years will show that the traditional saving
avenues are losing out in savings accounts are as good as locking up their deposits in
a closet. The fund mobilization trend by mutual funds in the current year indicates
that money is going to mutual funds in a big way. The collection in the first half of
the financial year 1999-2000 matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. the U.S.
boasts of an asset base that is much higher than its bank deposits. In India, mutual
fund assets are not even 10% of the bank deposits, but this trend is beginning to
change. Recent figures indicate that in the first quarter of the current fiscal year
mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This
is forcing a large number of banks to adopt the concept of narrow banking wherein
the deposits are kept in Gilts and some other assets, which improves liquidity and
reduces risk. The basic fact lies that banks cannot be ignored and they will not close
down completely. Their role as intermediaries cannot be ignored. It is just that
Mutual Funds are going to change the way banks do business in the future.
Bank v/s Mutual Funds

BANKS
Returns
Administrative
expenses
Low
High
MUTUAL
FUNDS
Better
Low
56
expenses
Risk
Investment option
Network
Liquidity
Quality of assets
Interest calculations
Guarantee
Low
Less
High penetration
At a cost
Not transparent
Min bal b/w 10th & 30th of
every month
Max Rs.1 lakh on deposits
Moderate
More
Low but improving
Better
Transparent
Every day
None
DATA ANALYSIS
The data was collected from both primary and secondary sources.
The data was collected thought administrating structured questionnaire to prospective
and current investors. The secondary data was collected from published reports in
57
Newspaper, Magazines etc., and the data after collection need to be processed and
analyzed in accordance with the outline laid down for the purpose at the time of
developing the research plan. The samples were processed and classified according
to their response.
Data analysis process involves:

Editing
Coding
Classification
Tabulation of collected data
EDITING:
Data collected though questionnaire will be in crude form and not ready for analysis.
Editing is done to correlate the data collected with the purpose, plan of the research
and facilitate coding and tabulation.
CODING:
Coding is done for efficient analysis of data collected.
CLASSIFICATION:
Classification of raw data collected was done to reduce the large volume of
homogeneous group to arrive at a meaningful relationship.
TABULATION:
58
The process of tabulation involved combining and totaling of the collected data. Since
the questionnaire involved in the study was only 50, manual tabulation was done and
also due to the limited scope of use of statistical tools.
INTERPRETATION OF DATA:
The primary data collected in the form of questionnaire is tabulated in the form of
table. Pie chart and graphs, given in succeeding pages. Also the tabular column are
given a number, each of which bears a header.
ANALYSIS OF DATA OBTAINED FROM INVESTORS

NO OF RESPONDENTS: 50
SOCIO ECONOMIC STATUS OF RESPONDENTS
59
Sl
No.
Status
Sex
Age
Educational level
4
Occupation
5
Income per annum
Annual Savings
Description
Male
Female
Total
Below 25yrs
26-35 yrs
36-50yrs
51-60yrs
>61yrs
Total
Under Graduate
Graduate
Post Graduate
Others
Total
Govt.Service
Private Sector
Public Sector
Business
Retired Person
Others (Self emp)
Total
<5000
5000-10000
10000-15000
15000-20000
20000-30000
>300000
Total
<50000
50000-100000
100000-200000
200000-300000
Total
No of
respondents
41
9
50
8
11
24
3
4
50
8
17
20
5
50
4
18
3
1
5
19
50
0
1
7
19
15
8
50
26
17
14
3
50
%age
82
18
100
16
22
48
6
8
100
16
34
40
10
100
8
36
6
2
10
38
100
0
2
14
38
30
16
100
52
34
28
6
100
60
GRAPH SHOWING THE DISTRIBUTION OF RESPONSENTS

BASED ON GENDER
100%
90%
%age od respondents
80%
70%
60%
50%
40%
82%
30%
20%
10%
18%
0%
Male
Gender
Female
61
GRAPH SHOWING THE DISTRIBUTION OF RESPONDENTS

BASED ON GENDER
60%
%age of respondents
50%
40%
30%
20%
10%
0%
<25
26-35
36-50
51-60
>61
Age
62
GRAPH SHOWING THE DISTYRIBUTION OF RESPONDENTS

BASED ON EDUCATION LEVEL
50%
% age of respondents
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Under
Graduate
Graduate
Post
Gratuate
Others
Education level
63

BASED ON OCCUPATION
45%
%age of respondents
40%
35%
30%
25%
20%
38%
36%
15%
10%
5%
8%
2%
G
ov
tS
er
vi
Pr
ce
iv
at
e
Se
ct
Pu
or
bl
ic
Se
ct
or
B
us
in
R
es
et
ire
s
d
Pe
O
th
rs
er
on
s(
Se
lf
em
p)
0%
6%
10%
Occupation
64
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
38%
30%
16%
14%
00
00
>3
20
00
0-
30
00
0
00
20
015
00
0-
15
00
00
00
10
50
00
-1
00
00
<5
2%
0%
%age of respondents
BASED ON INCOME PER ANNUM
Income
65

BASED ON SAVINGS
60%
%age of respondents
50%
40%
30%
20%
10%
0%
<50000
50000100000
100000200000
200000300000
Savings
66
TABLE SHOWING THE INVESTORS PREFERENCE TO

MUTUAL FUNDS
Particulars
Do investors
prefer to invest in
mutual funds
Description
Yes
No
Cant say
Total
No of
Respondents
25
21
4
50
%age of
Respondents
50%
42%
8%
100%
Data Analysis:
Do investors prefer to invest in mutual funds?

50% said YES

42% said NO
said CANT SAY

8%
67
GRAPH SHOWING THE INVESTORS PREFERENCE TO

MUTUAL FUNDS
8%
42%
50%
Yes
No
Can't say
68
TABLE SHOWING THE INVESTORS OPINION ABOUT

MUTUAL FUND
Particulars
Mutual fund is
fast emerging
investment
alternative
Description
Absolutely Yes
Partially Yes
Cant say
Partially No
Absolutely No
Total
No of
Respondents
7
30
4
2
7
50
%age of
Respondents
14%
60%
8%
4%
14%
100%
Data analysis:
Do investors think mutual fund is fast emerging alternative instrument?

60% of respondents felt partially yes

14% of respondents felt absolutely yes
of respondents felt cant say
8%
of the respondents felt partially no

4%

14% of the respondents felt absolutely no
69
GRAPH SHOWING THE INVESTORS OPINION OF MUTUAL

FUNDS
14%
14%
4%
8%
60%
Absolutely yes
Partially yes
Can't say
Partially No
Absolutely No
70
TABLE SHOWING THE TENURE OF INVESTMENT

PREFFERED
Tenure
No of respondents
%age of respondents
17
13
13
7
50
34%
26%
26%
14%
100%
<1 year
1-3 year
3-5 year
>5 year
Total
Interpretation:
There is almost near consistency in the tenure of investment preferred by the
investors, however the most preferred tenure is
1-3 &3-5 years
There is a mixed preference of both short term and long-term investment in risk and
return.
71
GRAPH SHOWING THE TENURE OF INVESTMENT

PREFERRED
40%
%age of respondents
35%
30%
25%
20%
15%
34%
26%
26%
10%
14%
5%
0%
< 1 year
1-3 year
3-5 year
> 5 years
Tenure if Investment
72
TABLE SHOWING THE RESPONDENTS PREFERENCE FOR

THE TYPE OF MUTUAL FUND
Particulars
Investors
Selection of type
Of mutual fund
Investors
selection
Of type
Of mutual fund
Description
Open end
Scheme
Close end
Scheme
No response
Total
Growth
Income
Balanced
Money Market
Tax saving
Others
No response
Total
No of
Respondents
30
%age of
Respondents
60%
10
20%
10
50
20%
100%
9
5
15
1
4
16
50
18%
10%
30%
2%
8%
32%
100%
Data analysis:
Investors selection of type of mutual fund

60% of respondents opted for open-end scheme

20% of respondents opted for close-end scheme

20% did not respond
73
Investors selection of type of mutual fund scheme

38% of respondents opted for balanced scheme

18% of respondents opted for growth scheme

10% of respondents opted for income scheme
of respondents opted for money market scheme

2%

32% did not respond
Interpretation:
Majority of the respondents pre ferred balanced scheme 32% of the respondents not
responding implies that either they are ignorant of mutual fund or they are not
interested in them.
74
GRAPH SHOWING THE RESPONDENTS PREFFERENCE FOR

THE TYPE OF MUTUAL FUND
20%
20%
60%
open end
scheme
close end
scheme
No response
75
GRAPH SHOWING THE PREFERENCE OF MUTUAL FUND

SCHEME
35%
30%
25%
20%
15%
32%
30%
10%
18%
10%
on
he
re
No
ce
Mo
d
ne
yM
ar
ke
t
Ta
xS
av
ing
lan
Ba
Inc
om
e
th
ow
Gr
rs
2%
0%
se
8%
sp
5%
Ot
%age of respondents
40%
Types of schemes
76
INVESTMENT OBJECTIVE OF INVESTORS

Objective
High
Returns
Tax Saving
Safety
Liquidity
Most
Important
27
Partially
Important
19
Not
Important
3
20
29
22
28
18
14
1
1
12
Interpretation:
The investment objectives of the respondents were almost consistent. Even though
there were 22 respondents who aspired for high liquidity 12 did not give any
importance.

54% of the respondents gave the importance to high returns

40% to Tax Savings

58% to safety

44% to liquidity
77
TABLE SHOWING THE EXTENT OF KNOWLEDGE AND

INVESTMENT MADE BY THE RESPONDENTS IN THE
FOLLOWING MUTUAL FUNDS
Mutual fund
Alliance Mutual Fund
Birla Mutual Fund
Kothari Pioneer
Prudential Mutual fund
Franklin Templeton
HDFC Mutual Fund
Sundaram Mutual Fund
Grindlays Mutual Fund
Zurich Mutual Fund
UTI Mutual Fund
Having
heard of
(in no)
30
34
25
37
27
23
32
22
24
38
%age of
Having
respondents Invested
in (in no)
60%
9
64%
4
50%
5
74%
7
54%
3
46%
3
64%
2
44%
48%
76%
5
%age of
respondents
18%
8%
10%
14%
6%
6%
4%
10%
Findings:

Some of the respondents replied that they had earlier invested in mutual fund
but got burnt their finger by receiving very low returns and also the NAV
falling very low.
They would invest further in mutual fund only after
companies showed good performance and maintained consistency.

Come of them were interested in investing but were unaware of the route
through which the investment could be done.

Few of them even didnt know that a mutual fund was one of the investment
instruments.

One of the opinions of the respondents was that mutual fund were for
employed ones and not for businessmen. Businessmen expect return of 100%
or more and not less that that.
50 respondents none of them had ever invested in Grindleys and Zurich

Of
Mutual Fund.
78
GRAPH SHOWING THE %AGE OF RESPONDENTS HAVING

HEARD OF SPECIFIED MUTUAL FUND
90%
%age of respondents
80%
70%
60%
50%
40%
30% 60% 64%
20%
76%
74%
50%
54%
64%
44% 48%
46%
10%
UT
I
dl
ey
s
HD
FC
in
Gr
Al
lia
nc
e
Bi
r
Ko la
Pr tha
ri
ud
e
Te n t i
a
m
pl l
et
on
Zu
S u ric
nd h
ar
am
0%
Mutual Fund
79
GRAPH SHOWING THE %AGE OF RESPONDENTS HAVING

INVESTED IN MUTUAL FUND
%age of respondents
25%
20%
15%
10%
18%
14%
5%
8%
10%
10%
6% 6%
4%
0
rin
UT
I
dl
ay
Zu s
ric
h
Al
lia
nc
e
Bi
Pi rla
o
Pr n e
ud e r
Te e n t i
a
m
pl l
et
on
H
Su DF
nd C
ar
am
0%
Respondents invested
80
TABLE SHOWING THE EXPECTED RATE OF RETURN OF

INVESTORS FROM THEIR INVESTMENT
Rate of Return
0-7%
7-10%
10-15%
15% and above
No of respondents
5
8
30
5
%age of respondents
10%
16%
64%
10%
Interpretation:
64% of 50 respondents expected a rate of return, which was between 0% to 15%.
81
GRAPH SHOWING THE EXPECTED RATE OF RETURN OF

INVESTORS FROM THEIR INVESTMENT PER ANNUM
%age of respondents
80%
70%
60%
50%
40%
64%
30%
20%
10%
0%
10%
0-7%
16%
7-10%
10%
10-15%
>15%
Rate of Return expected
82
REASONS THAT INVESTORS ATTRIBUTE FOR FALLING

IMPORTANCE OF MUTUAL FUND
Attributes
Inadequate information
Rational behavior
Failure of Mutual Fund
Availability of other
lucrative & safer
investment
Lack of transparency
Conservative investor
Priority of consumption
to saving & investment
Priority to safety
No of respondents
%age of respondents
22
7
27
13
44%
14%
54%
26%
17
7
1
34%
14%
2%
12%
Findings:

Respondents felt sliding sensex, unassured profit and the greater amount of
chances to incur loss were the reasons, which detracted them from investing in
mutual fund.

Respondents even felt the mutual fund companies were very careless in
utilizing the funds mobilized by them for further investment.

The majority of investors felt that poor past performance and failure of mutual
fund were the reasons for failing preference of mutual funds as an investment
alternative.
83
GRAPH SHOWING THE REASONS THAT INVESTORS

CONSIDER FOR ADVERSLY AFFECTING THE IMPORTANCE
OF MUTUAL FUNDS
%age of respondents
60%
50%
40%
30%
54%
20% 44%
10%
14%
26%
14% 14%
of
MF
sa
fer
inv
es
tm
La
Pr
en
ck
ior
t
of
ity
tra
of
sp
co
Co
ar
ns
en
ns
um
cy
er
va
pt
tiv
ion
ei
to
nv
sa
es
vin
to
r
g&
inv
es
tm
en
pr
t
ior
ity
to
sa
fet
y
re
ilu
Fa
lb
na
tio
Ra
2%
Av
ail
ab
ilit
yo
f lu
cr
ati
ve
&
Ina
de
qu
ate
inf
or
eh
av
ma
tio
iou
0%
12%
Attribution
84
INVESTORS EXPECTATIONS FROM MUTUAL FUND

Particulars
Expectations of
investors from
mutual fund
Description
Greater
Transparency
Investors
Education
Prudent
management
Strict guideline
from SEBI
Revival of
Economy
Greater safety of
capital
No of
respondents
40
%age of
respondents
80%
30
60%
23
46%
24
48%
17
34%
30
60%
Findings:

Investors expressed that assured returns and greater safety were the ones most
preferred for any investment.

They also felt that the returns given by mutual fund must be at least equal to
or greater than what is given by banks.
85
TABLE SHOWING INVESTORS PREFERANCE FOR THE

INVESTMENT AVENUES
Investment avenues
Insurance policies
Govt Saving Schemes
Mutual Funds
Bank Fixed Deposits
Share and debentures
Post office saving
schemes
No of respondents
38
25
22
45
24
43
%age of respondents
76%
50%
44%
90%
48%
86%
Interpretation
From the data analysis it was found that majority of the respondents opted the
following investment avenues for the following corresponding objective
Insurance Policies
Safety and Tax savings
Govt Saving schemes
Tax savings
Mutual Fund
High returns
Bank fixes deposits
Fixed return and liquidity
Shares and Debentures
High returns
Post office savings schemes
Safety, fixed return and tax
Most of the respondents expected complete transparency of the operations

immediately proceeded by the respondents expecting investors education and greater
safety and capital.
86
GRAPH SHOWING THE INVESTORS PREFERANCE FROM

THE INVESTMENT AVENUES
100%
90%
80%
90%
76%
50%
20%
10%
0%
es
sc
en
e
sa
vi
ng
de
b
of
fic
Po
st
Sh
ar
es
an
d
d
fix
e
he
m
tu
re
s
ts
de
po
si
un
d
m
es
lF
Ba
nk
tS
av
i
ng
sc
he
po
lic
ce
26%
Go
v
ur
an
In
s
48%
44%
M
ut
ua
70%
60%
50%
40%
30%
ie
s
%age of respondents
Investors preference
87
Testing of hypothesis
RESEARCH OBJECTIVE
To know whether more than 50% of respondents would like to invest in mutual fund.
H0: 50% or less is interested in mutual fund investment.
HA: more than 50% are interested in mutual fund investment.
Conclusion: yes more than 50% of respondents are interested in mutual

fund investment. Because low risk and a high return is possible in this
securities. Each investor in a fund is part owner of all of the funds assets,
thus enabling him to hold a diversified investment portfolio even with a
small amount of investment that would otherwise require big capital.
88
Summary of the findings from the study

1. 50% said YES to Mutual fund, 42% said NO to Mutual fund and 8% CANT
SAY i.e., NO RESPONSE
2. Majority of the respondents preferred 1-3 & 3-5 years as the term of
investment.
3. A highest rating was given to open ended schemes and in that the balanced
schemes income schemes.
4. Regarding investment objective all the 4, in high returns, Tax savings, Safety
and liquidity were given equal importance.
5. The most preferred and expected rate of return was between 10% - 15%.
6. The most expected requirement in the operation of Mutual fund was greater
transparency proceeded by investors education.
7. The reason that majority of investors attributed for falling/declining
importance of mutual fund was failure of Mutual fund preceded by adequate
information.
8. 60% of the respondents accepted that partially Mutual fund were fast
emerging alternative investment.
9. None of the respondents had ever invested in Grindlays Mutual fund.
89
FINDINGS OF THE STUDY

1. The asset preferences of the household have undergone a shift from physical
assets to financial assets.
There is also a shift in household savings
investment from Bank deposits, post office deposits, shares and debentures
and unit of Mutual fund.
2. Investors importance to safety compared to the returns of their investme nt
remains the same till date.
3. Further it was also found that investors do not take any tension or headache in
acquiring investment and receiving income from it.
They would have
minimal formalities in it.

4. Investors prefer bank deposits and post office schemes as it gives safety,
returns and liquidity along with minimum tensions. Investors expressed that
they were ready to accept low returns provided their role is very minimal and
they need not get involved in any way during the tenure of investment.
5. However, investors knowledge about Mutual Fund is very poor in India.
Besided having little knowledge, investors also have a very negative approach
towards it. They feel they investing in Mutual Fund means investing in
shares, which is gambling and risky. They are even ignorant of the basic
advantage of Mutual Fund of diversification of risk.
6. Mutual Fund still remains Middle class investment vehicle. What was found
in the study was that business people were very much hesitant to invest in
mutual fund. Therefore whatever funds flow to Mutual Fund it is mostly by
salaried people.
90
7. Moreover it was also found that investors belonging to the age group 25-50
were the ones most interested and enthusiastic in investing in Mutual Fund.
Retired people were totally against investing in Mutual Fund. Retired people
were totally against investing Mutual Fund. They gave more importance to
Safety.
Their most proffered investment avenue were post office and
moreover it was also found that investors belonging to the age group 25-50
were the ones most interested and enthusiastic in investing in Mutual Fund.
Retired people were totally against investing in Mutual Fund. They gave
more importance to safety. Their most proffered investment avenue were post
office and bank deposits. They expressed their satisfaction with the percent of
interest provided by these avenues. They told that they were not greedy and
security was given the most importance, preceded by liquidity. More over
they also expressed that there was no more confidence on Mutual Fund.
91
SUGGESTIONS:
1. If professional Management cannot guarantee controlled risk
adjustment, then a lot of new investment will flow directly into the
market. That is precisely why the inflows directly into the market.
That is precisely why the inflows into Mutual Fund might slow down.
Stock market analysts also argue that with new products like Index
funds and derivatives, the options before a retail investor have
enlarged. As Forbes in its Mutual Fund survey stated red-hot fund
performer can bullish and bearish markets are the ones to chase.
Hence endurance and consistency should be the order of the day.
2. There should be greater transparency and disclosure in valuation
practices, for this is a burning issue on risk positioning & should be
made evident to the investors. The investor expects and has a right to
know where his money is invested.
3. Distribution must appear for Association of Mutual Fund Certification
courses, as advisors will drive the Mutual Fund business in the long
run.
4. Mutual Fund in India has been promoted as an alternate to equity
investing, thus creating a very high expectation among investors.
Further there is also aggressive selling by untrained agents and
financial Advisors leaving Mutual Fund unable to offer high-expected
return and thus driving away many first time investors. Hence Mutual
Fund should be treated as a separate investment opportunity available
in itself. A proper training must also be provided to agents, Financial
Advisors and Distributors.
92
5. As far as possible, investor must undergo counseling by Distributors

before investing in Mutual Fund so that the mentality of the investors
could be studied and suitable scheme may be availed to them.
6. Educating investors are in a dilemma whether to invest in Mutual Fund
or not. It is not that they are totally reluctant to invest in Mutual
Funds; it is that they do not know the relative advantage of investing in
Mutual Fund.
India being a vast country with huge population with varied income
level, accompanied by a gradual shift in household savings from
financial assets to physical assets, Mutual Fund has a large scope and
Mutual Fund companies must take this opportunity.
They must be made to understand that how difficult it is for them to
invest by themselves in shares market and how they could invest so
easily through Mutual Fund. Relevance of long-term investment to
short term investment could be put forth to the investors, accompanies
by its relative advantage.
7. Mutual Fund must try to diversify their portfolio. Mutual Fund must
preferred companies such as Infosys, satyam etc., Mutual Fund should
try to diversify their investments to other competent and lucrative
companies, such as that a variation in the share value of these most
preferred companies do not affect the returns of Mutual Fund to a large
extent. Ultimately consistency and endurance in giving returns should
be maintained.
The selection criteria as far as possible could be
intrinsic value rather than erratic huge returns and complete loss at
other time.
8. Just like what is practiced in LIC companies, Mutual Fund may try
having its agents to spread the knowledge of Mutual Fund and to get
the required investment from the general public.
93
CONCLUSION:
Indian Mutual Fund industry has seen a lot of ups and down in history. In spite of
that it has been able to successfully assist efficient resource allocation, provide strong
support to capital market and help investors to realize the benefits of stock market
investing.
The growing importance of Indian Mutual Fund in the market place may be noticed in
terms of increased mobilization of funds and growing number of investors accounts
with Indian Mutual Funds. This could be further improved by providing suitable
investor education regarding the Mutual Fund schemes its relative benefits compared
to other investment avenues. Requisite training should also be given to financial
Advisors, Mutual Fund Investment Avenue.
Taking into considerations the study on Mutual Fund in India can easily confirm that
Mutual Fund is one of the best investment plans available to investors, which not only
give fixed income or return but also capital appreciation, if managed properly. This is
far more superior to other investment companies, like erratic NBFCs, oscillating
share market and low return provided by Banks, post office and other Government
Securities.
94
Findings about HDFC

1. Those respondents who were customers of HDFC showed a very great
sense of satisfaction and happiness towards the service rendered by
company. The common expression was that the services rendered are
of top class and the company must try to be consistent with that.
2. Most of the respondents felt that at HDFC employees show a great
degree of friendliness and empathy with customers.
Customers
usually expect this kind of a friendly and open relation.

3. One of the common expressions of the respondents was that they were
totally ignorant about the existence of dealership of HDFC in Mutual
Fund. They felt that there was no adequate advertising and publicity
regarding this fact and so they were unaware of it.
95
BIBLIOGRAPHY
Prasanna Chandra
Hill
Financial management
TATA Mc Graw
Gordan & Natrajan

Services
Financial markets &
Himalaya publication
Philip kotlar
Marketing Management
Prentice Hall India
Fifth edition: 2001
Newspapers
Economic Times
Business standard
Magazine
Capital Market
Fund manager
Website
mutualfundsindia.com
moneycontrol.com
amfi.com
96
DEAR SIR OR MADAM:
QUESTIONNAIRE
I AM AN MBA STUDENT OF M.P.BIRLA INSTITUTE OF MANAGEMENT,

DOING A RESEARCH A STUDY ON RISK AND RETURN OF INVESTORS IN
MUTUAL FUNDS AT BANGALORE CITY
THIS QUESTIONNAIRE IS BEING ADMINISTERED FOR THE PURPOSE OF COLLECTING
THE INDIVIDUAL PERCEPTION ON INVESTMENT AND ITS RETURN PATTERN. I
REQUEST YOU TO KINDLY SPARE SOME TIME AND REPLY TO THIS QUESTIONNAIRE.
Q PERSONAL INFORMATION
NAME OF THE RESPONDENT:
RESPONDENTS AGE:
ADDRESS:
GENDER:
MALE
FEMALE
Q EDUCATIONAL QUALIFICATION:
UNDER GRADUATE
GRADUATE
POST GRADUATE
OTHERS (PLEASE SPECIFY)
Q OCCUPATION:
SALARIED
SELF-EMPLOYED
RETIRED
Q IF
EMPLOYED
YOUR FIRM IS
PRIVATE SECTOR
MNC
PUBLIC SECTOR
GOVT. SECTOR
OTHERS
PROFESSION:
LAWYER
DOCTOR
ENGINEER
INFOTECH
IF SELF EMPLOYED, YOUR FIRM IS

PROPRIETORSHIP
PARTNERSHIP
PVT.LTD CO
CA
97
Q YOUR MONTHLY INCOME

<5000
10000-15000
20000-30000
5000-10000
15000-20000
>30000
Q YOUR TOTAL SAVING PER ANNUM

< 50000
100000-200000
50000-100000
200000-300000
Q INVESTMENT OBJECTIVE
YOUR INVESTMENT OBJECTIVE:
EXTENT OF IMPORTANCE
EXPECTATION
VERY MUCH PARTIALLY

AT ALL
HIGH RETURN
PARTIALLY
NO
NOT
YES
TAX SAVING
SAFETY
LIQUIDITY
OTHERS (SPECIFY)
WHICH OF THE FOLLOWING INVESTMENT TYPES DO YOU FAMILY HOLD? AND TICK THE
OBJECTIVE BEHIND
SUCH AN INVESTMENT?
INVESTMENT
SAVING
SAFETY
HIGH
RATE
OF
LIQUIDITY
OTHERS
(SPECIFY)
RETURN
I INSURANCE POLICIES
GOVT.SAVING
SCHEMES
MUTUAL FUNDS
BANK F D
REAL ESTATE
GOLD
SHARES
DEBENTURES
OTHERS (SPECIFY)
TAX
&
Q WHAT IS YOUR INVESTMENT TIME FRAME I.E., FOR HOW LONG YOU SET ASIDE YOUR
FUNDS?
LESS THAN A YEAR
1YEAR TO 3YEARS
3YEARS TO 5YEARS
MORE THAN 5 YEARS
98
(KEEPING IN MIND THAT THE LONGER

RETURNS YOU CAN EARN)
YOU CAN SET ASIDE YOUR FUNDS, THE GREATER THE
Q HOW DO YOU PERCEIVE YOURSELF IN TERMS OF WILLINGNESS TO TAKE RISK?

CANNOT ACCEPT ANY LOSS IN CAPITAL OR UNCERTAINTY IN RETURNS
CAN TOLERATE MODERATE FLUCTUATION IN THE VALUE OF THE INVESTMENT
CAN ACCEPT A HIGH DEGREE OF VOLATILITY IN VALUE OF INVESTMENT AND
CAN SUSTAIN
NEGATIVE RETURNS FOR LONG PERIOD, TO STRIVE FOR THE HIGHEST POSSIBLE RETURNS.
Q WHICH OF THE FOLLOWING STATEMENT BEST DESCRIBES YOUR REACTION TO A FALL IN VALUE
OF YOUR INVESTMENT
I TEND TO SELL AS SOON IT LOSES VALUE

I ADOPT TO WAIT AND SEE
I PREFER TO SELL IT ONLY WHEN IT REGAINS ITS VALUE
Q WHAT IS THE EXPECTED RETURN ON YOUR INVESTMENT?
7% - 10%
10% - 15%
15% AND ABOVE
Q DO YOU PREFER INVESTING IN MUTUAL FUND TO OTHER FINANCIAL INSTRUMENT
YES
NO
CANT SAY
Q IF YOU WERE TO INVEST IN MUTUAL FUND, YOU WOULD SELECT
OPEN-END SCHEME, WITH NO FIXED MATURITY
CLOSED-END SCHEME, WITH STIPULATED MATURITY
Q SELECTS THE SCHEME YOU WOULD INVEST IN MUTUAL FUND
GROWTH SCHEME-CAPITAL APPRECIATION
INCOME SCHEME-CONSISTENT INCOME
BALANCED BOTH INCOME AND CAPITAL APPRECIATION
MONEY MARKET SCHEME HIGH TO LOW INCOME & EASY LIQUIDITY
Q PERCEPTION OF THE FOLLOWING MUTUAL FUND
SL.NO
NAMES
HAVE HEARD
OF
1
2
3
4
5
6
ALLIANCE MUTUAL FUND

BIRLA MUTUAL FUND
GRINLAYS MUTUAL FUND
HDFC MUTUAL FUND
PIONEER ITI MUTUAL FUND
PRUDENTIAL ICICI MUTUAL FUND
(Y OR N)
INVESTED IN
(Y OR N)
RATING
(RETURN)
99
7
8
9
10
FRANKLIN TEMPLETON MUTUAL FUND

ZURICH MUTUAL FUND
SUNDARAM MUTUAL FUND
UTI MUTUAL FUND
Q MUTUAL FUND IS A FAST EMERGING ALTERNATIVE INVESTMENT

ABSOLUTELY YES
PARTIALLY YES
CANT SAY
PARTIALLY NO
ABSOLUTELY NO
Q WHICH OF THE FOLLOWING MEASURE WOULD YOU GEAR UP TO INVEST IN MUTUAL FUND
GREATER TRANSPARENCY
INVESTORS EDUCATION
PRUDENT & GENUINE MANAGEMENT
STRICT GUIDELINE FROM SEBI
REVIVAL OF ECONOMY
GREATER SAFETY OF CAPITAL
Q WHICH ACCORDING TO YOU IS THE REASONS FOR THE LESSER POPULARITY OF MUTUAL FUND,
COMPARED TO OTHER INVESTMENT OPPORTUNITIES
INADEQUATE INFORMATION
RATIONAL BEHAVIOR
FAILURE OF MUTUAL FUND
AVAILABILITY OF OTHER LUCRATIVE AND SAFER INVESTMENT
LACK OF TRANSPARENCY
CONSERVATIVE INVESTOR
PRIORITY OF CONSUMPTION TO SAVING AND INVESTMENT
PRIORITY TO SAFETY
Q
DID YOU KNOW THAT WAY TO WEALTH IS AN ADVISOR AND DISTRIBUTOR IN ALL THE
MENTIONED MUTUAL FUND
YES
NO
THANK YOU FOR YOUR PRECIOUS TIME
100

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A STUDY ON

RISK AND RETURN OF INVESTORS IN MUTUAL FUNDS AT BANGALORE

M P Birla Institute of Management

# 43, Race Course Road, Bangalore 560 001

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

CERTIFICATE FROM GUIDE

Certified that this dissertation titled RISK AND RETURN OF INVESTORS IN

M.P.BIRLA INSTITUTE OF MANAGEMENT

(Dr. N.S. Vishwanath)

M.P.BIRLA INSTITUTE OF MANAGEMENT

Dr. Nagesh Malavalli

I express my sincere thanks to Dr. N.S. Vishwanath Faculty of

M.P.BIRLA INSTITUTE OF MANAGEMENT

KEY ACTIVITIES OF FINANCIAL MANAGEMENT

Financial analysis, planning and control

M.P.BIRLA INSTITUTE OF MANAGEMENT

Management of firms assets structure

Management of firms financial structure

SCOPE OF FINANCE FUNCTION:

Estimating financial requirement

Deciding capital structure

Selecting a source of finance

Proper cash management

Selecting a pattern of investment

Implementing financial controls

THREE MAIN FINANCIAL DECISIONS

Having discussed key activities of financial management, scope of finance functions

FINANCIAL SYSTEM which is a back bone to all the above.

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

THE FINANCIAL SYSTEM

FUNCTIONS OF FINANCIAL SYSTEM:

It provides a payment system for the exchange of goods and services

It enables the polling of funds for undertaking large-scale enterprise

It provides a mechanism for spatial and temporal transfer of resources

It provides a way for managing uncertainty and controlling risk

It generates information that helps in co ordinate decentralized decision

M.P.BIRLA INSTITUTE OF MANAGEMENT

RISK AND RETURN TRADE OFF:

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

While the concept of individual coming

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

INTRODUCTION TO MUTUAL FUND

M.P.BIRLA INSTITUTE OF MANAGEMENT

IMPORTANT CHARACTERISTICS OF A MUTUAL FUND

ADVANTAGES OF MUTUAL FUNDS

M.P.BIRLA INSTITUTE OF MANAGEMENT

PORTFOLIO DIVERSIFICATION: each investor in a fund is part

PROFESSIONAL MANAGEMENT: Even if an investor has a big

REDUCTION/DIVERSIFICTAION OF RISK: when an investor invest

REDUCTION OF TRANSACTION COSTS: What is true of risk is

LIQUIDITY: Often, investors hold shares or bonds they cannot directly,

M.P.BIRLA INSTITUTE OF MANAGEMENT

CONVENIENCE AND FLEXIBILITY: Mutual fund management

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

M.P.BIRLA INSTITUTE OF MANAGEMENT

fixed income securities in the proportion indicated in their offer documents. In a

MONEY MARKET FUNDS

M.P.BIRLA INSTITUTE OF MANAGEMENT

Industry specific schemes

Gururaj S-0373-Risk & Return of Investors

Gururaj S-0373-Risk & Return of Investors