PROJECT REPORT

ON

A STUDY ON MUTUAL FUND INVESTORS POINT OF VIEW

AT
KARVY INVESTOR SERVICES LTD.
HYDERABAD

SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF

MASTER OF BUSINESS ADMINISTRATION

BY

G.ROJA
(098-060-150)

ST.PAULS PG. COLLEGE

HYDERABAD.
OSMANIA UNIVERSITY, HYDERABAD.
1

Date:O7.01.2008
To
K. RAJA REDDY
SR.MANAGER HR

Dear Sir,

This is to certify that Ms. G. ROJA was a project trainee with us from January
07,2008 to Feb 20, 2008 in the Karvy Investors Services ltd. Department. she has
successfully completed the project, Project on Mutual Fund from Investors point
of view
We wish her all the very best for her future.

For KARVY INVESTORS SERVICES LIMITED

K. RAJA REDDY
SR.MANAGER HR

DECLARATION
I hereby declare that the Project report entitled Study on Mutual Fund
Investors Point of View at Karvy Investors Services Limited is a bonafide work,
which I have executed for the Master of Business Administration in St.Pauls P.G.
College (Affiliated to Osmania University) during the academic year 2008.
I also declare that it has been compiled and completed by me and has not been
reproduced from any where and has not been submitted to any other institutions, or
published either in part or in whole at any time before.

G.ROJA
(098-060-150)

Date:20-02-2008.

ACKNOWLEDGEMENT
I would like to take this opportunity to thank all the people who have helped in the
completion of this project.
I would like to thank Mrs.SUSHMA PATRICK for giving me this opportunity, as it
was an experience of its own.
I would like to thank Mrs.R.Anita for her patience, valuable guidance, co-operation
and total support from time to time, without which this project would not have been
possible.
I highly indebted to Shri A. Shastri, Manager, Karvy, Hyderabad for accepting my
candidature and giving me the privilege for doing the project to be carried out in this
prestigious at KARVY, Hyderabad.

G.ROJA

(098-060-150)

TABLE OF CONTENTS

Chapters

Description

Chapter I

Introduction of the study

Objectives of study
Methodology
Limitations

Chapter II

Industry Profile
History
Structure

Chapter III

Company Profile
Company Back ground

Chapter IV

Mutual Funds
Literature survey
Overview
Case Study
Questionnaires
Interpretation
Conclusion
Bibliography

Chapter V

Pg.No.

CHAPTER 1

INTRODUCTION

INTRODUCTION TO THE STUDY

MUTUAL FUND- A Globally Proven Investment
Worldwide, Mutual Funds or the Unit Trust as it is called in some parts of the
world, has a long and successful history. The popularity of the Mutual Fund has
increased manifold. In developed Financial Markets, like the United States, Mutual
Funds have almost overtaken bank deposits and total assets of insurance funds. As on
date, in the US alone there are over 5,000 Mutual Funds with total assets of over
Rs.100 lakh crores.

In India Mutual Fund Industry started with the setting up of UTI in

1964. Public Sector Banks and Financial Institutions began to establish Mutual Funds
in 1987. The Private Sector and Foreign Institutions were allowed to set up Mutual
Funds in 1993. Today, there are over 29 Mutual Funds and over 300 Schemes with
total assets of approximately Rs.10,000 Crores. This fast growing industry is
regulated by the SEBI.

OBJECTIVES OF THE STUDY

To study about Mutual Fund Industry in India.

To understand the various types of Mutual Fund available to the investor.

To understand the performance and benefits of Mutual Funds.

To conduct a Market study & find the fund preference and awareness of full
schemes of AMC & dividend option .

METHODOLOGY OF STUDY

The data had been collected through primary and secondary source.

Primary data:
The data had been collected from investors using questionnaire which consists
of 17 questions.

Secondary data:
The data had been collected from text books, Journals, News papers, and
Internet.

Sampling Methodology:
The sample is selected by random sampling method and sample size taken for study is
100 respondents.
Data analysis tools used for analysis of data is percentage analysis, bar charts and piecharts.

SCOPE:

It is limited to KARVY.

Sample size restricted to hundred investors.

Survey is conducted only in hyderabad city.

LIMITATIONS OF THE PROJECT

1.

This Study is mainly based on the secondary data taken from the annual
reports of the mutual fund company.

2.

The Project has been conducted in limited geographical area in Hyderabad.

3.

In collection of data from the investors, personal basis may be present.

10

CHAPTER -2

GENERAL
INTRODUCTION
ABOUT MUTUAL FUND

11

COMPANY PROFILE
History of the Indian Mutual Fund Industry:

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank .The
objective then is to attract the small investors and introduce them to market
investments. Since then, the history of mutual funds in India can be broadly divided
into four distinct phases.

First Phase 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It

was set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from
the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets
under management. The mutual Funds Industry in India not only started with UTI, but
still count UTI as its largest Player with the largest corpus of investible funds among
all Mutual Funds currently opening in India.
For the period of 1987-88
Table No: 1

UTI
Total

Source: Secondary Data

Amount Mobilized

Assets Under Management

(Rs.Crores)
2,175
2,175

( Rs.Crores)
6,700
6,700

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

12

1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987 followed by Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December 1990. At the end of
1993, the mutual fund industry had assets under management of Rs.47,004 crores.
From 1987to 1992-93, the fund industry expanded nearly seven times in terms of
Assets under Management, as seen in the following figures:
For the period of 1992-93
Table No: 2

UTI
Public Sector
Total

Secondary Data

Amount Mobilized
(Rs.Crores)
11,057
1,964
13,021

Assets Under Management

( Rs.Crores)
38,247
8,757
47,004

Third Phase 1993-2003 (Entry of Private Sector Funds):

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into being,
under which all mutual funds, except UTI were to be registered and governed. The
erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private
sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations
were substituted by a more comprehensive and revised Mutual Fund Regulations in
1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds
with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores
of assets under management was way ahead of other mutual funds.
Fourth Phase since February 2003:

13

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of the Unit
Trust of India with assets under management of Rs.29,835 crores as at the end of
January 2003, representing broadly, the assets of US 64 scheme, assured return and
certain other schemes. The Specified Undertaking of Unit Trust of India, functioning
under an administrator and under the rules framed by Government of India and does
not come under the purview of the Mutual Fund Regulations.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.
With the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual
Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of October 31,
2003, there were 31 funds, which manage assets of Rs.126726 crores under 386
schemes. The graph indicates the growth of assets over the years.
Fig: 1.GROWTH IN ASSETS UNDER MANAGEMENT

Unit holding pattern of mutual funds industry as on March 31, 2003

14

SEBI has done an analysis of the unit holding pattern of mutual funds industry as on
March 31, 2003. The details are given below: A] Mutual Funds Industry Unit holding Pattern
From the data collected from the mutual funds, the following has been observed:i)

As on March 31, 2003 there are a total number of 1.6 crore investors accounts
(it is likely that there may be more than one folio of an investor which might
have been counted more than once and actual number of investors would be
less) holding units of Rs. 79,601 crore. Out of this total number of investors
accounts, 1.56 crore are individual investors accounts, accounting for 97.42%
of the total number of investors accounts and contribute Rs.32,691 crore
which is 41.07% of the total net assets.

ii)

Corporate and institutions who form only 2.04% of the total number of
investors accounts in the mutual funds industry, contribute a sizeable amount
of Rs.45,470 crore which is 57.12% of the total net assets in the mutual funds
industry.

iii)

The NRIs/OCBs and FIIs constitute a very small percentage of investors

accounts (0.54%) and contribute Rs.1440.18crore (1.81%) of net assets.

The details of unit holding pattern are given in the following table:

15

Table No: 3

Secondary Data

UNIT HOLDING PATTERN OF MUTUAL FUNDS INDUSTRY

Category

No. Of

% To Total

Investors A/C

Investors A/C

NAV(Rs.Crore)

%To Total
NAV

Individuals

15,557,506

97.42

32,691.12

41.07

NRIs/OCBs

84,311

0.53

878.51

1.10

2,058

0.01

561.67

0.71

324,979

2.04

45,469.53

57.12

15,968,854

100.00

79,600.83

100.00

FIIs
Corporate/
Institutions/Othe
rs
TOTAL

B] Unit holding Pattern Private/Public Sector Mutual Funds:

From the analysis of data on unit holding pattern of Private Sector Mutual Funds and
Public Sector Mutual Funds, the following observations are made:1.

Out of a total of 1.6 crore investors accounts in the mutual funds industry, (it is
likely that there may be more than one folio of an investor which might have been
counted more than once and therefore actual number of investors may be less)
42.93 lakh investors accounts i.e. 27% of the total investors accounts are in private
sector mutual funds whereas the 1.17 crore investors accounts ie.73% are with the
public sector mutual funds which includes UTI Mutual Fund. However, the
private sector mutual funds manage 71.2% of the net assets whereas the public
sector mutual funds own only 28.8% of the assets.

2.

UTI Mutual Fund has 97. 12 lakh investors accounts which is 60.82% of the
total investors accounts in the mutual funds industry.

Details of unit holding pattern of private sector and public sector mutual funds are:

16

Table No: 4

Secondary Data
UNIT HOLDING PATTERN OF PRIVATE SECTOR MFS

Category

No. Of Investors
A/C

% To Total
Investors A/C

NAV(Rs.Cr
ore)

%To Total
NAV

Individuals

4001841

93.23

17956.48

31.68

NRIs/OCBs

38416

0.89

723.02

1.28

1317

0.03

528.51

0.93

250972

5.85

37465.91

66.11

4292546

100.00

56673.92

100.00

FIIs
Corporate/
Institutions/
Others
TOTAL

Table No: 5

Secondary Data

UNIT HOLDING PATTERN OF PUBLIC SECTOR MFS (INCLUDING UTI MF )

Category

NO. Of
Investors A/C

% To Total
Investors A/C

NAV(Rs.Cr
ore)

%To
NAV

Total

Individuals

11,555,665

98.97

14734.64

64.27

NRIs/OCBs

45895

0.39

155.49

0.68

741

0.01

33.16

0.14

74007

0.63

8003.62

34.91

11676308

100.00

22926.91

100.00

FIIs
Corporate/
Institutions/
Others
TOTAL

RECENT TRENDS IN MUTUAL FUND INDUSTRY:

17

The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline of the
companies floated by nationalized banks and smaller private sector players.
Many nationalized banks got into the mutual fund business in the early
nineties and got off to a good start due to the stock market boom prevailing then.
These banks did not really understand the mutual fund business and they just viewed
it as another kind of banking activity. Few hired specialized staff and generally chose
to transfer staff from the parent organizations. The performance of most of the
schemes floated by these funds was not good. Some schemes had offered guaranteed
returns and their parent organizations had to bail out these AMCs by paying large
amounts of money as the difference between the guaranteed and actual returns. The
service levels were also very bad. Most of these AMCs have not been able to retain
staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they
have serious plans of continuing the activity in a major way.
The experience of some of the AMCs floated by private sector Indian
companies was also very similar. They quickly realized that the AMC business is a
business, which makes money in the long term and requires deep-pocketed support in
the intermediate years. Some have sold out to foreign owned companies, some have
merged with others and there is general restructuring going on.
The foreign owned companies have deep pockets and have come in here with
the expectation of a long haul. They can be credited with introducing many new
practices such as new product innovation, sharp improvement in service standards and
disclosure, usage of technology, broker education and support etc. In fact, they have
forced the industry to upgrade itself and service levels of organizations like UTI have
improved dramatically in the last few years in response to the competition provided
by these.

18

CHAPTER - 3

COMPANY
BACKGROUND

19

- Yours Online personal Finance Advisor -

KARVY BACKGROUND:
In 1982, a group of Hyderabad based practicing Chartered Accountants
started Karvy Consultants Limited with a capital of Rs. 1,50,000 offering auditing and
taxation services initially. Later, it forayed into the Registrar and Share Transfer
activities and subsequently into financial services. All along, Karvys strong work
ethic and professional background leveraged with Information Technology enabled it
to deliver quality to the individual.
A decade of commitment, professional integrity and vision helped Karvy
achieve a leadership position. In its field when it handled the largest number of issues
ever handled in the history of the Indian stock Market in a year. Thereafter, Karvy
made inroads into a host of capital-market services, - corporate and Retail which
proved to be a sound business synergy.
Today, Karvy has access to millions of Indian shareholders, besides
companies, banks, financial institutions and regulatory agencies. Over the past one
and half decades, Karvy has evolved as a veritable link between Industry, finance and
people. In January 1998, Karvy became the first Depository Participant in Andhra
Pradesh. An ISO 9002 company, Karvys commitment to quality and retail reach has
made it an integrated Financial Services Company.

20

CORE VALUES:
Karvys adherence to its core values integrity, enterprise and innovation has
earned it an enviable reputation amongst all the intermediaries and regulatory
authorities of the capital and financial markets.
Karvy capability has now been extended service global customers. The foray
into global processing services began in 1999 to cater to health care industry needs.
The first step Medical Transcription a service then required capability in
understanding a customers voice, conversion to text with timeliness and accuracy and
completion to a legally acceptable framework will now provide its service globally.

VISION:
Karvys aspiration of establishing itself as an integrated financial services
company is propelled by a vision that is shared by its entire work force. Towards this
end, Karvy has dedicated itself to:
To have a single minded focus on investor services;
To establish Karvy as a household name for financial services;
To set industry standards;
To establish a leadership position in all chosen areas of business.

KARVYS PHILOSOPHY:
Karvys core activities provide insights into the reasons for its consistent,
positive performance.

Assistance beyond service

Leadership through Quality

Innovation & Market Creation

Relationship Building

Integrity & Transparency

21

KARVYS COMPETITIVE EDGE:

Human Resources
Training
Technology
Software
Mailroom

RANGE OF SERVICES
Issue Servicing
Corporate Shareholder Servicing
Mutual Fund Investor Service
Asset Financing
Merchant Banking & Underwriting Services
Corporate Advisory Financing & Project Financing
Retail Financial Products
Karvy Depositor Services
Electronic Custodial Services
Depository Participant
Investor Services
Karvy - The OTCEI Dealer
Medical Transcription
Financial Products Marketed Through Karvy:

Initial Public Offerings

Fixed Income Products

Fixed Deposits
Debt Instruments
Bonds
Mutual Funds

Tax Saving Schemes

22

Personal Banking Products

Personal Loans & insurance

GROUP COMPANIES & DIVISIONS:

KARVY CONSULTANTS LIMITED: Deals in Registrar and Investment
Services
KARVY SECURITIES LIMITED: Deals in distribution of various
investment products, viz., equities, mutual funds, bonds and debentures, Fixed
deposits, insurance policies for the investor
KARVY INVESTOR SERVICES LIMITED: Deals in Issue management,
Investment Banking and Merchant Banking,
KARVY STOCK BROKING LIMITED: Deals in buying and selling equity
shares and debentures on the National Stock Exchange (NSE), the Hyderabad
Stock Exchange (HSE) and the Over-The-Counter Exchange of India
(OTCEI),

ALLIANCES:
Karvy has a strategic alliance with Jardine Fleming India Securities Limited
(JFISL) one of Asias most prestigious investment bankers to leverage on the
latters investment banking expertise. This would augment the retail distribution
reach and provide the Indian access to the best global and local insights on financial
markets. Jardine is a respected investment banker with a demonstrated track-record
of delivering value to its clients spread over 43 countries. It is ranked amongst the
worlds TOP 3 Foreign Institutional Investors (FIIs).

QUALITY POLICY:
To achieve and retain leadership, Karvy shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide superior
quality financial services. In the process, Karvy will strive to exceed Customers
expectations.

23

QUALITY OBJECTIVES:
As per the Quality Policy, Karvy will:
Build in-house processes that will ensure transparent and harmonious
relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with its investor service agents and vendors that
will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them with
adequate knowledge & skills so as to respond to customers needs.
Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in the business ethics.
Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
Strive to be a reliable source of value-added financial products and services and
constantly guide the individuals and institutions in making a judicious choice of
same.
Strive to keep all stake-holders (shareholders, clients, investors, employees,
suppliers and regulatory authorities) proud and satisfied.

KARVYKEY PEOPLE:
Board of Directors Karvy Consultants Limited
C. Parthasarathy - Chairman And Managing Director
M. Yugandhar

- Managing Director

M.S. Ramakrishna - Director

Prasad V Potluri

- Director

Dr. P.V.S. Jaganmohan Rao Company Secretary

Price Water House, Hyderabad Auditors

24

Bankers: UCO Bank, Bank Of Baroda, HDFC Bank, Standard Chartered Grindlays
Bank.
Registered Office: Karvy House,46, Avenue 4, Street No.1, Banjara Hills,
Hyderabad, Andhra Pradesh, India.

KARVY MUTUAL FUND SERVICES (MFS DIVISION)

-

building a heritage of confidence

There is a wide range of mutual fund services available at KARVY

MUTUAL FUND SERVICES to the various categories like Asset Management
Companies, Investors, Distributors and General Users. We can use mutual fund
services through web also, the web site is karvymfs.com, with a click of the mouse we
can enter into the karvy mutual fund services, this provides Interactive Fund Service
to query for account related details and register specific services requests.
Since its inception in 1982, Karvy has demonstrated a dedication coupled with
dynamism that has inspired trust for various segments corporate, government bodies
and individuals. Karvy has since been performing a pivotal role as the intermediary
the interface between these players.
With Mutual Funds emerging as a distinct asset class, Karvy has made a
strategic choice to leverage the power of latest technology to provide a cutting edge to
its services. This, today, service nearly 40% of the asset management companies
(AMCs) across an extensive network of service centers with assets under service in
excess of Rs.10,000 crores.
Karvys ability to mass customize and offer a diverse range of products for
diverse range of customers has helped mutual fund companies to uniquely position
themselves in the market place. These diverse range of services cut across multiple
delivery channels service centers, web, mobile phones, call center has brought
hone the benefits of technology to investors, distributors, and the mutual funds.
Going forward, it shall strive to create new products and services, which
would address the needs of the end customer. Its single-minded focus in delivering
products for customers has given the distinguished position of being the preferred
provider of financial services in the country.

These services can be broadly

categorized as below:

25

 Investor Services
Distributor Services
AMC Services
General Services or Information Services

a) INVESTOR SERVICES:
- Keeping ahead with the changing investor expectations Investor is a person who invests in the mutual funds in the mutual funds
concept. He placed in the bottom of the structure, but he plays a pivotal role, without
investor we cannot imagine the mutual funds. There is a wide range of investor
services provided by karvy mutual fund services to the investors and also Mutual
Fund Investors have the convenience of logging on to the web site and utilize various
account related services. To utilize these web services the investor has to first register
himself with the karvymfs.com in the investor services with the web site, the
karvymfs.com gives authorized ID and Password to the registered user, with a click of
the mouse he can gets the services, without authorized ID and Password he cannot get
the services. The major online services for investors can be categorized as below:
View their account statements online
Get a snapshot of all their investment serviced by Karvy:
Portfolio Valuation Services
NAV Broadcast Services
NAV Alert Services
Receive Account statements by email
Apart from the afore-mentioned services, any visitor from the web site has the
option to know Mutual Fund Concepts, check out the latest NAVs of his/her favorite
Mutual Funds, etc., obtain dividend information, get the latest load structure information
etc.

b) DISTRIBUTOR SERVICES:
- Re-defining service -

26

Karvy recognizes the distributor, as on invaluable customer, in the Mutual Fund

transaction chain. Keeping this in mind, Karvy has engineered several initiatives for the
distributors and for the benefit of his clients.

AMC SERVICES:
- your partners in progress There is wide range of AMC Services provided by Karvy Mutual Fund Services to the
registered Asset Management Companys (AMCs).The AMC can now viewing investor
information and requesting various reports related to the investor, is possible through the
web site also, just by the click of the mouse. In order to use the respective AMC services
on the site, Mutual Fund AMCs must enter into agreement with Karvy Consultants Limited,
whereby users are assigned a User ID and Password at the fund level. AMC may use this
ID and Password to access all the site services. It provides registered AMCs can check out
various ONLINE and MAIL-BACK services and gets an update on the investments of its
investors.

Online Services:
1. Investor Account Statements
2. Query on application number
3. Query on investors name
Mail-Back Services:
1. Transaction Reports
2. Net Assets Under Management Report
3. Asset Movement Report
4. Slab Report
5. Status-wise holdings report

c)

GENERAL/INFORMATION SERVICES:
In addition to the afore-mentioned services Karvy mfs provides general or
information services to the users. These services can be broadly classified as below:

27

1. Dividend History
2. Fund Information
3. Load Structures
4. Special Products
5. Karvy Network

MUTUAL FUNDS AT KARVY

The Mutual Fund umbrella of Karvy consists both Open-ended and Close-ended
Mutual Funds. The following are the various mutual fund AMCs for which Karvy
acts as a Registrar.
1) BOB Mutual Fund
2) BOI Mutual Fund
3) DEUTSCHE Mutual Fund
4) GIC Mutual Fund
5) IDBI Mutual Fund
6) IL & FS Mutual Fund
7) MORGAN STANLEY Growth Fund
8) PNB Mutual Fund
9) RELIANCE Capital Mutual Fund
10) SBI Mutual Fund
11) UTI Mutual Fund

28

CHAPTER 4

THEROTICAL PERSPECTIVE
OF

MUTUAL FUNDS

29

LITERATURE SURVEY
MUTUAL FUNDS AN OVERVIEW
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial Goal. The money thus collected is invested by the fund
manager in different types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market instruments. The
income earned through these investments and the capital appreciation realized by the
scheme are shared by its unit holders in proportion to the number of units owned by
them (pro rata). Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified, professionally managed
portfolio at a relatively low cost. Each Mutual Fund scheme has a defined investment
objective and strategy.

A draft offer document is to be prepared at the time of launching the fund.

Typically, it pre specifies the investment objectives of the fund, the risk associated,
the costs involved in the process and the broad rules for entry into and exit from the
fund and other areas of operation. In India, as in most countries, these sponsors need
approval from a regulator, SEBI (Securities Exchange Board of India) in our case.
SEBI looks at track records of the sponsor and its financial strength in granting
approval to the fund for commencing operations.
A sponsor then hires an asset management company to invest the funds
according to the investment objective. It also hires another entity to be the custodian
of the assets of the fund and perhaps a third one to handle registry work for the unit
holders (subscribers) of the fund.

30

In the Indian context, the sponsors promote the Asset Management Company
also, in which it holds a majority stake. In many cases a sponsor can hold a 100%
stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the
sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated
different mutual funds schemes and also acts as an asset manager for the funds
collected under the schemes.
The flow chart below describes broadly the working of a mutual fund:
Fig: 2 Working of Mutual Funds

ORGANISATION OF MUTUAL FUNDS

There are many entities involved and the diagram below illustrates the
organization set up of a mutual fund.
Fig: 3 Organization of a Mutual Fund:

Mutual funds have a typical organization in which five key parties or players or
special bodies are involved. They are (a) the sponsor(s), (b)the Board of Trustees
(BOT) or Trust Company, (c) Asset Management Company (AMC), (d) the custodian,

31

(e) the Unit holders. They are usually formed by an investment adviser or manager or
sponsor who selects and appoints a BOT, which, in turn, hires or contracts a separate
AMC which is run by professional managers. The AMC conducts the necessary
research, and based on it, manages the fund or portfolio. It is responsible for floating,
managing, redeeming the schemes; it also handles the administrative chores. It
receives the fees for the services rendered by it. The custodian is responsible for coordination with brokers, the actual transfer and storage of stocks, and handling the
property of the trust. He is answerable to the AMC.
As per the current regulations in force in India, every MF proposed by a
sponsor has to be set up as a trust under the Indian Trust Act, 1882 (and not as a
company under the Companies Act, 1956). The UTI, however, was set up under a
special UTI Act, 1963. All MFs have to be registered with the SEBI. It is required that
the first four constituents of the MF should maintain an arms length relationship
among themselves in order to reduce conflict or interests, and to safeguard the
interests of the investors.
Mutual funds can sell their units directly to the investors or they may employ
the sales force of brokers and agents for that purpose.

32

IMPORTANT PARTICIPANTS IN MUTUAL FUNDS:

The legal structure and organization of Mutual Funds as laid down by SEBI
guidelines is as follows:
Sponsor
Sponsor is the person who acting alone or in combination with another body corporate
establishes a mutual fund. Sponsor must contribute at least 40% of the networth of the
Investment Managed and meet the eligibility criteria prescribed under the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996.
Fig: 4 LEGAL STUCTURE OF MUTUAL FUNDS

SEBI
TRUSTEE

OPERATIONS

MKT. /

SPONSOR

AMC
FUND
MANAGER

SALES

MKT./
SALES

MUTUAL
FUND
DISTRIBUTOR
SCHEME

33

 Trust

INVESTOR

The Mutual Fund is constituted as a trust in accordance with the provisions of the
Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian
Registration Act, 1908.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body of
individuals). The main responsibility of the Trustee is to safeguard the interest of the
unit holders and inter-alia ensure that the AMC functions in the interest of investors
and in accordance with the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the
respective Schemes. At least 2/3rd directors of the Trustee are independent directors
who are not associated with the Sponsor in any manner.
Asset Management Company (AMC)
The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The
AMC is required to be approved by the Securities and Exchange Board of India
(SEBI) to act as an asset management company of the Mutual Fund. At least 50% of
the directors of the AMC are independent directors who are not associated with the
Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all
times.
Registrar and Transfer Agent
The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer
Agent to the Mutual Fund. The Registrar processes the application form, redemption
requests and dispatches account statements to the unit holders. The Registrar and
Transfer agent also handles communications with investors and updates investor
records.

34

MUTUAL FUND CLASSIFICATIONS:

There are many types of Mutual Funds available to the investor. However,
these different types can be grouped into certain classifications for better
understanding. From the investors perspective there are three basic classifications of
mutual funds.
1. Open- Ended Vs Closed- Ended Funds:
Open- Ended Funds:
An Open- Ended Fund is one that has units available for sale and repurchase at
all times. An investor can buy or redeem units from the fund itself at a price based on
the Net Assets Value (NAV) per unit. Note that an open- ended fund is not obliged to
keep selling/issuing new units at all times, and many successful funds stop issuing
further subscriptions from new investors after they reach a certain size and think they
cannot change a larger fund without adversely affecting profitability. On the other
hand, an open- ended fund rarely denies to its investors the facility to redeem existing
units, subject to certain obvious conditions. The units offered by these schemes are
available for sale and repurchase on any business day at NAV based prices. Hence, the
unit capital of the schemes keeps changing each day. Such schemes thus offer very
high liquidity to investors and are becoming increasingly popular in India.
Closed- Ended Funds:
Unlike an open- ended fund, the unit capital of a closed- ended fund is fixed,
as it makes a one- time sale of a fixed number of units. Later on, unlike open- ended
funds, close- ended funds do not allow investors to buy or redeem units directly from
the funds. However, to provide the much needed liquidity to investors, many closeended funds get themselves listed on a stock exchange(s). Trading through a stock
exchange enables the investors to buy or sell units of a closed- ended Mutual Fund
from each other, through a stockbroker, in the same fashion as buying or selling
shares of a company. The funds units may be traded at a discount or premium to NAV

35

based on investors perceptions about the funds performance and other market factors
affecting the demand for or supply of the funds units. Note that the number of
outstanding units of a closed- ended fund does not vary on account of trading in the
funds units at the stock exchange. On the other hand, funds often do offer buy-back
of fund shares/units, thus offering another avenue for liquidity to close- ended fund
investors. In this case, the Mutual Fund actually reduces the number of units
outstanding with investors.

2. Load and no- load funds:

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 of sale of units in the fund. The
advantage of a no load fund is that the entire corpus is put to work.

3. Tax- exempt Vs non- Tax- Exempt:

Generally, when a fund invests in tax- exempt securities, it is called a taxexempt fund. In the U.S.A., for example, municipal bonds pay interest that is taxfree, while interest on corporate and other bonds is taxable. In India, after 1999 union
budget, all of the dividend income received from any of the Mutual Fund is Tax- free
in the hands of the investors. However, funds other than Equity Funds have to pay a
distribution tax, before distributing income to investors. In other words, equity Mutual
Fund Schemes are tax- exempt investment avenues, while other funds are taxable for
distributable income.

36

MUTUAL FUNDS TYPES

All Mutual Funds would be either Close- ended or Open-ended, and either
load or un-load. These Classifications are general. Once we have reviewed the fund
classes, we are ready to discuss more specific types of funds. The fund Types are
generally distinguished from each other by their investment objectives and types of
securities they invest in.

Fig: 5 Types Of Mutual Fund Schemes

Investment
Objective

Equity
Oriented

Debt
Based

Types of
Schemes

Hybrid

Constitution

Open
Ended

Closed
Ended

Interval

Investment Objective:
Schemes can be classified by way of their stated investment objective such as
Growth Fund, Balanced Fund, Income Fund etc.
Equity Oriented Schemes:
These schemes, also commonly called Growth Schemes, seek to invest a
majority of their funds in equities and a small portion in money market instruments.
Such schemes have the potential to deliver superior returns over the long term.
However, because they invest in equities, these schemes are exposed to fluctuations in
value especially in the short term.
Equity schemes are hence not suitable for investors seeking regular income or
needing to use their investments in the short-term. They are ideal for investors who

37

have a long-term investment horizon. The NAV prices of equity fund fluctuates with
market value of the underlying stock which are influenced by external factors such as
social, political as well as economic. HDFC Growth Fund, HDFC Tax Plan 2000 and
HDFC Index Fund are examples of equity schemes. Discussed below are the major
types of equity funds, arranged in order of higher to lower risk level.
a)

Aggressive Growth Funds: As the name suggests aggressive growth funds

target maximum capital appreciation, invest in ,less research or speculative shares
and may not adopt speculative investment strategies to attain their objective of
high returns for the investor. Consequently, they tend to be more volatile and
riskier than other funds.

b) Growth Funds: Growth funds invest in companies whose earnings are expected
to rise at an above average rate. The primary objective of the growth Funds is
capital appreciation over a three to five years span. Growth funds are therefore less
volatile than funds that target aggressive growth.
c) Specialty Funds:
These funds have a narrow portfolio orientation and invest only in companies
that meet pre-defined criteria. However, most specialty funds tend to be
concentrated funds, since diversification is limited to one type of investment.
Clearly concentrated specialty funds tend to be more volatile than diversified funds.
i)

Sector Funds: Sector funds portfolio consist of investments in only one

industry or sector of the market such as Information technology,
Pharmaceuticals or FMCGs. Since Sector funds do not diversify into multiple
sectors, they carry a higher level of sector and company specific risk than
diversified equity funds.

ii)

Offshore funds: These funds invest in equities in one or more foreign

countries thereby achieving diversification across country borders. These
funds may invest in a single country

38

( hence riskier) or many countries ( hence diversified).

iii)

Small- Cap Equity Funds: These funds invest in shares of companies with
relatively lower market capitalization than that of big, blue chip companies.
They may thus be more volatile than other funds, as smaller companies
shares are not very liquid in the market.

iv)

Option Income Funds: These funds do not exist in India, but Option Income
Funds write options on a significant part of their portfolio. While Options are
viewed as risky instruments, they may actually help to control volatility, if
properly used.

d) Diversified Equity Funds:

A Fund that seeks to invest only in equities, except for a very small portion
in liquid money market securities, but is not focused on any one or few sectors or
shares, may be termed a diversified equity fund. While exposed to all equity price
risks, diversified equity funds seek to reduce the sector or stock specific risk
through diversification. They have mainly market risk exposure. Such general
purpose but diversified funds are clearly at the lower risk level than growth funds.
e) Equity Index Funds:
An index fund tracks the performance of a specific stock market index. The
objective is to match the performance of the stock market by tracking an index
that represents the overall market.
f) Value Funds:
These funds try to seek out fundamentally sound companies whose shares are
currently under priced in the market. Value funds have the equity market price
fluctuation risk, but stand often at a lower end of the risk spectrum in comparison
with the growth funds.
g) Equity Income funds:
These are equity funds that can be designed to give the investor a high level of
current income along with some steady capital appreciation, investing mainly in
shares of companies with high dividend yields. These funds are therefore less
volatile and less risky than other equity funds.

39

Debt Based Schemes:

These schemes, also commonly called Income Schemes, invest in debt
securities such as corporate bonds, debentures and government securities. The prices
of these schemes tend to be more stable compared with equity schemes and most of
the returns to the investors are generated through dividends or steady capital
appreciation. These schemes are ideal for conservative investors or those not in a
position to take higher equity risks, such as retired individuals. However, as compared
to the money market schemes they do have a higher price fluctuation risk and
compared to a Gilt fund they have a higher credit risk. Debt funds are largely
considered as Income funds as they do not target capital appreciation. Let us see Debt
funds in this light:

Diversified Debt Funds:

A debt fund that invests in all available types of debt securities, issued by entities
across all industries and sectors is a properly diversified debt fund. They are less risky
than a narrow- focus fund that invests in debt securities of a particular sector or
industry.

Focused Debt Funds:

Some debt funds have a narrower focus, with less diversification in its
investments. Examples include sector, specialized and offshore funds. These funds
are similar to the funds described in equity funds, except that debt funds have a
substantial part of their portfolio invested in debt instruments and therefore more
income oriented and inherently less risky than equity funds.

High Yield Debt Funds

These funds seeks to obtain higher interest returns by investing in debt instruments
that are considered below investment grade. These funds tend to be more volatile
than other debt funds, although they may earn higher returns as a result of the higher
risks taken.

40

Assured Return Funds

Assured Return or Guaranteed Monthly Income Plans are essentially Debt/ Income
Funds. They certainly reduce the risk level considerably, as compared to all other debt
or equity funds.

Fixed Term Plan Series:

Fixed Term Plans are essentially closed-end in nature, in that the Mutual Fund AMC
issues a fixed number of units for each series only once and closes the issue after an
initial offering period, like a closed end scheme offering.

Money Market Schemes:

These schemes invest in short term instruments such as commercial paper
(CP), certificates of deposit (CD), treasury bills (T-Bill) and overnight money
(Call). The schemes are the least volatile of all the types of schemes because of
their investments in money market instrument with short-term maturities and have
become popular with institutional investors and high net worth individuals having
short-term surplus funds.
Gilt Funds:
This scheme primarily invests in Government Debt. Hence the investor
usually does not have to worry about credit risk since Government Debt is generally
credit risk free.

Hybrid Funds:
We have seen that in terms of nature of financial securities held, there are three
major mutual fund types: Money Market, Debt and Equity. Many Mutual funds mix
these different types of securities in their portfolios. Such funds are termed hybrid
funds as they have a dual equity/bond focus.

41

a) Balanced Funds: A balanced fund is one that has a portfolio comprising debt
instruments, convertible securities, preference and equity shares. By investing
in a mix of this nature, balanced funds seeks to attain objectives of income,
moderate capital appreciation and preservation of capital, and are ideal for
investors with a conservative and long-term orientation.
b) Growth and Income Funds: Unlike Income-focused or growth focused
funds, these funds seek to strike a balance between capital appreciation and
income for the investor. These funds would be less risky than pure growth
funds, though more risky than income finds.
c) Asset allocation Funds: Normally, an equity fund would have its primary
portfolio in equities most of the time. Similarly, a debt fund would not have
major equity holdings. In other words, their asset allocation is predetermined
within certain parameters. Asset Allocation Funds that follow more stable
allocation policies are more like balanced funds.
Index schemes:
The primary purpose of an Index is to serve as a measure of the performance
of the market as a whole, or a specific sector of the market. An Index also serves as a
relevant benchmark to evaluate the performance of mutual funds.
Real Estate Funds:
Specialized real estate funds would invest in real estates directly, or may fund
real estate developers or lend to them directly or buy shares of housing finance
companies or may even buy their securitized assets.

42

BENEFITS OF MUTUAL FUNDS

There are numerous benefits of investing in mutual funds and one of the key
reasons for its phenomenal success in the developed markets like US and UK is the
range of benefits they offer, which are unmatched by most other investment avenues.
The benefits have been broadly split into universal benefits, applicable to all schemes
and benefits applicable specifically to open-ended schemes.

Universal Benefits
a) Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor can buy in to a
portfolio of equities, which would otherwise be extremely expensive. Each unit holder
thus gets an exposure to such portfolios with an investment as modest as Rs.500/-.
This amount today would get you less than quarter of an Infosys share! Thus it would
be affordable for an investor to build a portfolio of investments through a mutual fund
rather than investing directly in the stock market.
b) Diversification
The nuclear weapon in your arsenal for your fight against Risk. It simply
means that you must spread your investment across different securities (stocks, bonds,
money market instruments, real estate, fixed deposits etc.) and different sectors (auto,
textile, information technology etc.). This kind of a diversification may add to the
stability of your returns, for example during one period of time equities might
underperform but bonds and money market instruments might do well enough to
offset the effect of a slump in the equity markets. Similarly the information
technology sector might be faring poorly but the auto and textile sectors might do well
and may protect your principal investment as well as help you meet your return
objectives.

43

c) Variety
Mutual funds offer a tremendous variety of schemes. This variety is beneficial
in two ways: first, it offers different types of schemes to investors with different needs
and risk appetites; secondly, it offers an opportunity to an investor to invest sums
across a variety of schemes, both debt and equity. For example, an investor can invest
his money in a Growth Fund (equity scheme) and Income Fund (debt scheme)
depending on his risk appetite and thus create a balanced portfolio easily or simply
just buy a Balanced Scheme.
d) Professional Management
Qualified investment professionals who seek to maximise returns and
minimise risk monitor investor's money. When you buy in to a mutual fund, you are
handing your money to an investment professional who has experience in making
investment decisions. It is the Fund Manager's job to (a) find the best securities for the
fund, given the fund's stated investment objectives; and (b) keep track of investments
and changes in market conditions and adjust the mix of the portfolio, as and when
required.
e) Tax Benefits
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit holders
of open-ended equity-oriented funds, income distributions for the year ending March
31, 2003, will be taxed at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction upto Rs.
9,000 from the Total Income will be admissible in respect of income from investments
specified in Section 80L, including income from Units of the Mutual Fund. Units of
the schemes are not subject to Wealth-Tax and Gift-Tax.

f) Regulations
Securities Exchange Board of India (SEBI), the mutual funds regulator has
clearly defined rules, which govern mutual funds. These rules relate to the formation,
administration and management of mutual funds and also prescribe disclosure and

44

accounting requirements. Such a high level of regulation seeks to protect the interest
of investors.

Benefits of Open-ended Schemes

a) Liquidity
In open-ended mutual funds, you can redeem all or part of your units any time
you wish. Some schemes do have a lock-in period where an investor cannot return the
units until the completion of such a lock-in period.
b) Convenience
An investor can purchase or sell fund units directly from a fund, through a
broker or a financial planner. The investor may opt for a Systematic Investment Plan
(SIP) or a Systematic Withdrawal Advantage Plan (SWAP). In addition to this an
investor receives account statements and portfolios of the schemes.
c) Flexibility
Mutual Funds offering multiple schemes allow investors to switch easily
between various schemes. This flexibility gives the investor a convenient way to
change the mix of his portfolio over time.
d) Transparency
Open-ended mutual funds disclose their Net Asset Value (NAV) daily and
the entire portfolio monthly. This level of transparency, where the investor himself
sees the underlying assets bought with his money, is unmatched by any other financial
instrument. Thus the investor is in the know of the quality of the portfolio and can
invest further or redeem depending on the kind of the portfolio that has been
constructed by the investment manager.

45

RISK HIREARCHY OF MUTUAL FUND

Fig: 6
Data

Source: Secondary

Money
Market Funds

Debt Funds

Equity Funds

Gilt
Funds

Hybrid Funds
Aggressive
Growth Funds
Flexible Asset
Allocation
Funds

R
I
S
K

Growth Funds
High Yield Debt
Funds

L
E
V
E
L

Diversified
Equity Funds
Index Funds
Value Funds
Focused
Debt Funds
Growth and
Income Funds
Equity
Income
Funds
Balanced Funds
Diversified
Debt Funds
Gilt Funds
Money Market
Funds

46
TYPE OF FUND

FUND FAMILY SCAN OF THE AMCS IN INDIA

Table:10
Fund Family Scan
Alliance Capital MF
BenchMark AMC
BOB Mutual Fund
Can Bank MF
CholaMandalam MF
Deutsche MF
DSP ML MF
Escorts MF
First india MF
GIC MF
HDFC MF
HSBC MF
IL&FS MF
ING Vysya MF
JM MF
Kotak MF
LIC MF
Morgan Stanley MF
PNB MF
Principal MF
Pru ICICI MF
Reliance MF
SBI MF
S Chartered MF
Sundaram MF
Tata TD MF
Taurus MF
Templeton India MF
UTI MF
UTI Mutual Fund

Primary Data
Incorp. Date
Ownership
30/12/94
Foreign JV
Private
30/10/92
Public
15/12/87
Public
03/01/97Private
28/10/02
Foreign
16/12/96
Foreign JV
15/04/96
Private
18/07/96
Foreign JV
10/12/90Foreign JV
30/06/00
Private
07/02/02Foreign JV
01/01/98Private
11/02/98Foreign JV
15/09/94
Private
23/06/98
Private
19/06/89
Public
05/11/93Foreign JV
08/08/89Public
25/11/94
Private
25/08/93
Foreign JV
30/06/95
Private
29/06/87
Public
13/03/00
Foreign JV
24/08/96
Private
30/06/95
Foreign JV
20/08/93
Private
19/02/96
01/02/64
01/02/03

T.A(Rs inEq.
Cr)Fund
2425.52
6
68.07
1
374.83
2
1717.18
5
1457.77
2
3036.33
1
5458.32
4
133.61
2
428.21
2
152.86
3
15437.5
9
4279.79
2
2431.45
4
1961.66
4
4345.79
3
5209.42
4
4091.37
6
1355.54
0
117.25
0
4044.22
5
15892.43
8
6361.98
3
5415.04
9
8075.75
0
2676.34
4
3779.76
9
148.64
4

S-T
Dt. Fund Fund
3
5
0
1
3
2
2
2
5
5
6
3
4
4
2
0
2
2
2
1
9
15
6
6
5
7
5
2
9
6
12
6
5
3
0
0
1
0
8
6
9
9
5
6
15
7
10
7
7
3
10
7
2
0

Hyrd.
Fund
1
0
1
4
0
1
1
3
0
1
4
0
1
1
2
1
2
1
1
2
10
0
4
0
1
2
0

Foreign JV

15713.98

15

10

13

Private
Private

0
19770.45

0
24

0
4

0
6

0
10

47

Interpretation:
From the above given table it is clear that, in Indian Mutual Fund Industry
there are 31 Asset Management Companies, with more than 500 schemes in general.
In that 5 Public Sector owned AMCs and 13 Private Sector owned AMCs and 11
Foreign Joint Ventures and one Foreign Owned Asset Management companies are
playing in the Indian Mutual Fund industry. Among this UTI Mutual Fund with Total
asset of 19770.45 crores is the largest AMC in India. It has got more than 44 schemes
invested in more diversified Mutual fund Industry. Prudential ICICI with 15892.43
crores of total assets is the second largest AMC in India in Total Assets basis with
More than 36 schemes in its hand. Templeton India Mutual fund a Foreign JV holds
the third total assets holdings rank with 15713.98 crores of assets with more than 47
Schemes. The fourth largest asset holding AMC is HDFC Mutual Fund with 15437.5
Crores of Total asset holding with more than 38 a Schemes in hand. The fifth Biggest
AMC is Standard Chartered Mutual Fund with 8075.75 Crores of Total Assets with
more than 17 Schemes.
Equity Funds and debt funds are the most common Mutual Fund Types in
Indian Mutual Fund Industry , then comes the Hybrid Funds and the Short Term
Funds.

48

CASE STUDY
ANALYSIS
ANALYSIS OF QUARTERLY PERFORMANCE OF MUTUAL FUNDS FOR
FISCAL YEAR APRIL 2006 - MARCH 2007
SALES
Secondary data
Category

1st Qtr.

2nd Qtr.

3rd Qtr.

4th Qtr.

Bank Sponsored
Institutions
Private Sector-Indian
JV Predominantly Indian
JV Predominantly Foreign

18901
6879
60429
39973
79249

22668
3107
63063
39961
89568

18303
2281
57419
36305
80628

28370
3744
61423
40759
87664

Interpretation:
The above given table shows the sales figure of the Mutual Fund Companies for a
period of four quarters (fiscal 2006 -07) starting from April 2006 to March 2007.
Predominantly Foreign AMCs have the highest Sales for the last one year with 89568
Crores during the second quarter July-September 2006. Private SectorIndian Firms
have the next position for the highest sales with 63063 Crores in the second quarter
July-September 2006. Next comes the Predominantly Indian AMCs with higher sales
of 40759 Crores in the fourth quarter Jan-March 2007. Bank Sponsored AMCs holds
the fourth position in sales with 28370 Crores in the fourth quarter Jan-March 2007.
Institutions AMCs comes in the Fifth position with 6879 Crores of sales in the first
quarter April-June 2006.

REDEMPTION

Year

49

Secondary Data
Category

1st Qtr.

2nd Qtr.

3rd Qtr.

4th Qtr.

Bank Sponsored
Institutions
Private Sector-Indian
JV Predominantly Indian
JV Predominantly Foreign

18911
6041
53617
36152
69594

24335
3808
65940
43321
89562

19918
3529
58580
38072
83091

27136
4965
58823
38753
93360

Interpretation:
The above table depicts the redemption value for the different category of
AMCs in India. It states the highest rate of redemption occurs for the Predominantly
Foreign JV

AMCs with 93360 Crores in the fourth quarter Jan-March 2007 ,

succeeded by Private sector - Indian with 65940 Crores in the second quarter JuneSeptember 2006 then by Predominantly Indian JV AMCs with 43321 Crores in the
second quarter June-September 2006. Then succeeded by Bank Sponsored AMCs
with 27136 Crores in the fourth quarter Jan-March 2007 and next come Institutional
AMCs with 6041 Crores of Redemption Figure in the first quarter April-June 2006

Quarterly sales analysis from April 2006 to March 2007

50

Quarterly Redemption Analysis from April 2006 to march 2007

ASSETS UNDER MANAGEMENT (AUM)

Secondary Data
Category

1 Qtr.

2nd Qtr.

3rd Qtr.

4th Qtr.

Bank Sponsored
Institutions
Private Sector-Indian
JV Predominantly Indian
JV Predominantly Foreign

26079
7179
30141
32022
60424

28148
4555
28514
30167
61724

28358
3288
28041
29344
61506

29103
3010
30750
30885
55852

st

Quarterly AUM Analysis from April 2006 to March 2007

ANALYSIS FROM QUETIONNAIRE

51

STATUS OF INVESTOR

Primary Data
Type of investor

No: of Respondents

New Investor

69

Existing Investor

31

Total

100

Interpretation:
Out of the 100 respondents answered, majority of respondents are New
Investors in the Mutual Fund. Their Percentage is 69. Whereas the no. of Existing
Investors in the Mutual Fund is less, which is of 31 per cent, as compared with New
Investors. 60%

52

MODE OF KNOWLEDGE ABOUT MUTUAL FUNDS

Primary Data
Mode Of knowledge
News
Advertisement
Friends
Relatives
Others
Total

No: of Respondents
23
36
21
11
9
100

Interpretation:
From the analysis, most of the respondents come to know about Mutual Funds
by the way of Advertisement, 36%. Second Majority respondents got knowledge
regarding mutual funds from News. Friends have influenced 21% of respondents.
Relatives and others have only least influence in the respondents knowledge, they are
11% and 9% respectively.

53

INVESTORS COMPLETE KNOWLEDGE ON AMCs IN INDIA

Primary Data
Attribute
Yes
No
Total

No: of Respondents
33
67
100

Interpretation:
From analysis it is clear that the no: of respondents having complete
knowledge regarding all the Mutual Fund Schemes in India are less. Here the
percentage of respondents those who dont have complete knowledge about the
Mutual Fund Schemes in India is 67. Those who have a very little knowledge about it
are only 33%.

54

FUND PREFERENCE FOR INVESTMENT

Primary Data

Type Of Funds
Open-ended Funds
Close-ended Funds
Total

No: of Respondents
76
24
100

Interpretation:
On the available major division of the Mutual Funds, majority of 76%
respondents prefer to invest their money in the Open-ended Funds than Close-ended
Funds, where only 24% show there investment interest.

55

FUND AVAIL
Primary Data

Fund Sub-category
Income Funds
Debt Funds
Balanced Funds
Liquid Funds
Gilt Funds
Total

No: of Respondents
33
27
13
18
9
100

Interpretation:
Among the various Sub-category Funds, majority of respondents of 33%
prefer to put their money in the Income Funds. 27% of respondents chose Debt Funds
for their investment. Respondents of 18% and 13% prefer liquid Funds and Balanced
Funds respectively. The respondents are less preferring gilt Funds, which is of 9%.

56

AWARENESS OF FULL SCHEMES OF THE AMC

Primary Data
Attributes
Yes
No
Total

No: of Respondents
47
53
100

Interpretation:
From the analysis only 47% of respondents have complete awareness on the
full schemes offered by the AMC, which they have opted for investing their money. A
majority of 53% respondents have only little knowledge on the Full Schemes offered
by their AMC.

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CATEGORY OF AMC CHOSEN BY INVESTOR

Primary Data
Category of AMC
Bank Sponsored
Institution
Pvt Sector-Indian
Pvt Sector-Foreign
Joint Venture
Total

No: of Respondents
38
11
19
9
23
100

Interpretation:
Out of the 100 respondents, a majority of 38% has selected Bank Sponsored
AMC; secondly Joint Venture AMC is selected by 23% of respondents. Private
Sector- Indian AMC is preferred by 19% of respondents. Institutional and Private
Sector Foreign are selected as the choice of investment by a less percent of
respondents, which is of 11 and 9 percentage respectively.

DIVIDEND OPTION OF INVESTOR

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Primary Data

Dividend Option
Dividend Payment
Dividend Reinvestment.
Total

No: of Respondents
55
45
100

Interpretation:
From The analysis it is clear that majority of 55% respondents chose for
Dividend Payout Option, than Dividend Re-investment, which is being opted by less
percent of respondents, of 45 in number.

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LEVEL OF SATISFACTION ON DIVIDEND RATE

Primary Data
Level of satisfaction
Highly Satisfied
Satisfied
Unsatisfied
Highly Unsatisfied
No Comment
Total

No: of Respondents
5
58
2
0
35
100

Interpretation:
From the analysis majority of 58% respondents are satisfied with the Dividend
Rate of the AMC, 35% respondents have no comment on it. Only 5% respondents are
highly satisfied with the dividend rate of the AMC. A least percentage of 2%,
respondents are Unsatisfied with the dividend rate of the AMC. Zero respondents are
highly unsatisfied with the dividend rates.

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INVESTOR PREFERANCE FOR SHIFT/SWITCH OF THE FUND

HOLDINGS

Primary Data

Attributes
Yes
No
Total

No: Of Respondents
9
91
100

Interpretation:
Out of the total respondents, only 9% have the intention of going for
shift/switch of their fund holdings. 91% of respondents have no intention of going for
Shift/ Switch of their Fund Holdings.

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REDEMPTION/RE-PURCHASE APPROACH
Primary Data

Times Of Approach
0-1 Times
2 Times
3 Times
4 Times
More
Total

No: of Respondents
69
24
7
0
0
100

Interpretation:
From the Analysis it is clear that, majority of 69% respondents have 0-1-time
approach for redemption/re-purchase. 24% respondents have approached AMC for 2
times for redemption/repurchase. Only 7% respondents approached the AMC for 3
times and more than zero respondents make 4 times approach.

OPINION ON COMPETITIVE AMC AND THEIR

SCHEMES
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Primary Data

Type of Opinion
Above Average
Average
Below Average
Total

No: of Respondents
27
61
12
100

Interpretation:
Majority of 61% respondents have Average level opinion on the Competitive
AMC and their Schemes, 27% of respondents have Above Average Opinion. 12%
respondents have Below Average opinion on the Competitive AMC.

OPINION ON BENEFITS PROVIDED BY COMPETITIVE AMC

Primary Data

63

Attributes
Yes
No
Total

No: of Respondents
26
74
100

Interpretation:
Out of the 100 respondents, 74% says that the competitive AMCs are not
providing any Special or additional benefit on the same investment amount as
compared with their AMC. Only 26% have opinion that the benefits of competitive
AMCs are more compared with their AMC.

AGE OF INVESTOR
Primary Data

64

Age Level
Minor
Between 18&40
Between 40&60
Above 60
Total

No: of Respondents
0
45
37
18
100

Interpretation:
From the analysis, it is clear that, majority of 45% respondents comes under
the age limit of between 18&40, whereas 37% respondents are between 40&60,
respondents of above 60 are of 18% and minors are of Zero percent.

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SEX OF INVESTORS
Primary Data
Sex
Male
Female
Total

No: Of Respondents
66
34
100

Interpretation:
Out of the respondents, majority of the respondents are male, they are of 66%
of total respondents, whereas Female respondents are of only 34%.

66

OCCUPATION OF INVESTORS
Primary Data

Occupation
Business
Profession
Student
Others
Total

No: Of Respondents
30
33
12
25
100

Interpretation:
Majority of respondents of 33% are Professionals, 30% are Business Persons,
25% respondents are other occupation holders and only 12% respondents are students.

67

FINDINGS

68

FINDINGS

From the Market study it is found that most of the respondents are new
male investors and whose age limit is between 18-40 years and the gained
their knowledge to invest through advertisement.

Most of the Investors are Professionals.

Most of the respondents dont have complete knowledge about Mutual

Fund Scheme in India.

From the study it is found that investors prefer Open-End funds.

From the study it is found the majority of the investors prefer income
funds and the like to choose Bank sponsored AMCs.

Majority of the Investors choose for dividend rate of AMCs.

Majority of the Investors have no intention of going for Swift/Switch of

their fund holding.

From the study we find that majority of the investors have less than two
time approach for redemption / re-purchased.

Majority of investors have average level opinion on the benefits provided

by AMCs on their schemes. But are satisfied portfolio allocation pattern
of AMCs.

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SUGGESTIONS

70

SUGGESTIONS
(1) There is an intense need take up extensive awareness and promotional
campaigns to reach out to more and more households and to make the households
invest their savings in Mutual Fund Schemes, particularly equity schemes.
(2) The record of performance and the standards of service are the twin
strengths of MF industry and on these strengths; the industry needs to build its
household clientele.
(3)

While institutions can continue to be serviced by AMCs and

intermediaries, it is proposed that AMCs and the intermediary community focus more
on individual investors and take every effort to:
a) Provide high quality advice and product information to such customers.
(b) Explain and position this service in such a way that clients recognize it as a
specialized and value added service, a task which may be difficult to accomplish on
their own.
(c) Convince investors that the transaction and intermediation cost they are
paying is justified in lieu of the long-term benefits accruing from such counseling and
guidance.
(4)

The Mutual Fund industry has to now take the more difficult but long-

term sustainable route of gathering assets from individual investors by providing them
value added, financial planning services and ensuring that Mutual Funds are an
integral part of their overall portfolio.
(a) Each investor, institutional or individual, receives the exact level of service
they choose and correct advice based on clear and concrete facts and figures.

71

Correspondingly, the intermediation and transaction cost investors incur

should reflect the value of the service and advice they receive.
(b) Mutual Funds are accurately represented and appropriately positioned to
investors, whichever channel or mode they choose to invest in. The industry should
safeguard the investors right towards correct description of the product, good service,
transparency and ability to take informed decisions.
(c) There is comprehensive knowledge and understanding of Mutual Funds
amongst all individuals instrumental in selling the Mutual Fund schemes to investors
including employees of intermediaries, individual agents and financial planners.

CONCLUSIONS:
The mutual fund industry in India started in 1963, with the formation of UNIT
TRUST OF INDIA at the initiative of government of INDIA & RESERVE BANK.
The main objective is to attract the small investors & to introduce them to market
investments, the study of mutual fund industry divided in to four distinct phases.
There are many types of mutual funds available to the investor, these different types
can be grouped in to certain classification for better understanding, from the investor
perspective there are three basic classifications of mutual funds, they are,
1) OPEN ENDED FUNDS VS CLOSE ENDED FUNDS, 2) LOAD& NO LOAD
FUNDS, 3) TAX EXEMPT & NO TAX EXEMT. And there are so many types of
mutually sub classified from the above are available to investors
There are numerous benefits of investing in mutual funds &one of the key reason for
its phenomenal success in the developed markets like US &UK is the range of
benefits they offer, the benefits have been broadly split in to universal benefits
applicable to all schemes. The benefits are,
Affordability, diversification, variety of schemes offered, professional mgt, tax
benefit, regulation., liquidity, convenience, flexibility, transparency are the benefits of
mutual funds.

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GLOSSARY

73

QUESTIONNAIRE
1.

Are you a new or Existing Investor?

(a) New Investor (b) Existing Investor

2.

How do you know about Mutual Fund?

(a) Advertisement (b) Friends
(c) Relatives

3.

(d) Others

Do you have complete knowledge on AMCs in India?

(a) Yes

4.

(b) No

Which type of fund to you prefer?

(a) Open ended-Fund (b) Close-ended fund

5.

What are the various choices on Sub-category of Funds?

(a) Income fund

(b) Debt fund

(c) Balance fund (d) Liquid fund (e) Gilt fund

6.

Do you have full awareness on all types of schemes of AMCs?

(a) Yes

7.

(b) No

What are the categories of AMCs chosen by You?

(a) Bank sponsored

(b) Institutions

(c) Private Sector Indian (d) Private Sector Foreign

8.

What is your dividend option?

(a) Dividend payment (b) Dividend Re-investment.

9.

What are the levels of satisfaction you have on Dividend rate?

(a) Highly satisfied

(b) Satisfied

74

(c) unsatisfied
10.

(d) No comment

Is there any preference for swift/switch of fund building?

(a) Yes

11.

(b) No

What is the redemption approach?

(a) 0.1
(c) 3 times

12.

(b) 2 times
(d) 4 times

What is your option on competitive AMC?

(a) Above average

13.

(b) Average (c) Below average

What is opinion on benefits provided by competitive AMC?

(a) Yes

14.

(b) No

What are the various age levels of Investors?

(a) Minor (b) Between 18 to 40
(c) Between 40 to 60

15.

What are the categories of investors?

(a) Male

16.

(d) Above 60

(b) Female

What is your occupation?

(a) Business
(c) Student

(b) Profession
(d) Others

75

BIBLIOGRAPHY

76

5000
0
October
July
April
25000
20000
15000
10000
Sponsore
Bank
Institution
Private
Indian
Foreign
Predomin
JV
Sales
sd
Sectorently
Analysi

BIBLIOGRAPHY

s From
April03-

Security Analysis and Portfolio Management

Fischer & Jordan

Investment, Analysis and Management

Francis

Financial Markets and Institutions

L.M. Bhole

Investment Management (SAPM)

Preeti Singh

http://www.amfiindia.com
(Association of Mutual Funds in India)

http://www.indiainfoline.com
http://www.hdfcfund.com
http://www.sebi.gov.in

77