A project report

on
A study on Mutual Funds
at
India Infoline.
Submitted in partial fulfillment of the
Requirements for the award of the Degree
of
MASTER OF BUSINESS ADMINISTRATION

Submitted By
Anusha
13BK1E00
Under the Guidance of
K.Arjun Goud
Assistant Professor
DEPARTMENT OF BUSINESS ADMINISTRATION
ST PETERS ENGINEERING COLLEGE
(Affiliated to Jawaharlal Nehru Technological University Hyderabad)
Hyderabad
2013 2015

CHAPTER I
INTRODUCTION

Introduction
Mutual Funds (MFs) play a vital role in resource mobilization and their efficient
allocation in a developing economy like India. Mutual funds are financial intermediaries
in the investment business. It mobilizes resources from the small investors. The
mobilized funds are, thereafter, utilised to purchase the securities of companies and
corporations. It is thus an institutional arrangement for resource mobilization from small,
marginal and household sector investors. The mobilized funds are used to acquire shares

and securities of reputed companies. The importance of mutual funds has increased
manifold in the capital market, particularly
after liberalization. It has helped in increasing the investors base.
In the 1992-93 budget, the finance ministers proposal to allow setting up mutual
funds in joint and private sectors has further accelerated the growth of mutual funds 1. Far
reaching changes have taken place in our economic system since liberalization. India is
now one of the fastest growing economies in the world with average GDP growth rate of
eight percent annually. According to the latest World Bank data, India is now the twelfth
largest economy of the world.
The savings and investment pattern in our country have undergone some
significant changes since liberalization. Investors now have various avenues to invest
their hard earned money. In this context, mutual funds appears the best investment
avenue, where the money of the investors is professionally managed having lesser risks
and good return. Due to this very fact mutual funds are popular avenues for investments
for small investors. This very fact was highlighted by the then Finance Minister, T. T.
Krishnamachary, when he introduced the UTI Bill in Parliament in
1

November 1963. He said the unit trusts provide an opportunity for the middle and lower
income groups to acquire without much difficulty property in the form of shares 2. Hence
our economic policy makers were convinced that mutual funds could offer a safe conduit
for household participation in equity market.
The process of liberalization initiated in 1991 to boost the ailing economy has
brought in a lot of changes in various aspects of the financial market. This had a positive
impact in all sphere, increasing the saving rate to 23 percent in the last few years one of
the highest in the world. The performance of the stock market has been tremendous and
has become one of the largest markets in the world in terms of capitalisation. All these
factors directly or indirectly have led to the tremendous growth of Indian mutual fund
industry. People willing to earn higher rate of return by taking minimal risks are finding
Mutual Funds (MFs) a good avenue to invest their savings.
Mutual funds have shown consistency in its performance and for the past eight
years or so, the Indian MFs industry has registered a growth rate of around 16.68% and it
is expected to continue in future. With the entrance of new fund houses and the
introduction of new funds into the market, investors are now being presented with a
broad array of fund choices. Fund houses with the better known brand equity are sure to
capture the biggest spending investors. The present study therefore aims to find out the
how liberalization has helped the industry to flourish and how HDFC mutual fund, a
private sector mutual fund has performed on various counts, to asses the advantages of
investment in mutual funds in comparison to other available option of investment.

LITERATURE
REVIEW

Review of Literature
INTRODUCTION OF MUTUAL FUNDS
Mutual funds are financial intermediaries, which collect the savings of investors and
invest them in a large and well-diversified portfolio of securities such as money market
instruments, corporate and government bonds and equity shares of joint stock companies.
A mutual fund is a pool of common funds invested by different investors, who have no
contact with each other.

Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market. Since small investors generally do not have adequate
time, knowledge, experience and resources for directly accessing the capital market, they
have to rely on an intermediary, which undertakes informed investment decisions and
provides consequential benefits of professional expertise. The advantages for the
investors are reduction in risk, expert professional management, diversified portfolios,
and liquidity of investment and tax benefits. By pooling their assets through mutual
funds, investors achieve economies of scale. The interests of the investors are protected
by the Securities & Exchange Board of India, which acts as a watchdog. Mutual funds are
governed by the SEBI (Mutual Funds) Regulations, 1993.
These funds can survive and thrive only if they can live up to the hopes and trusts of their
individual members. Constraints faced by the investors while making direct investments:
Limited resources in the hands of investors quite often take them away from stock market
transactions.
Lack of funds forbids investors to have a balanced and diversified portfolio.
Lack of professional knowledge associated with investment business restrains investors
to operate gainfully in the market. Small investors can hardly afford to have ex-pensive
investment consultations.

To buy shares, investors have to engage share brokers who are the members of stock
exchange and have to pay their brokerage.
They hardly have access to price sensitive information in time.
It is difficult for them to know the development taking place in share market and
corporate sector.
Firm allotments are not possible for small investors when there is a trend of over
subscription to public issues.

Mutual Fund Structure

The structure consists of:

Sponsor:

The sponsors initiate the idea to set up a mutual fund. It could be a registered
company, scheduled bank or financial institution. A sponsor has to satisfy certain
conditions, such as capital, record (at least five years operation in financial
services), default free dealings and general reputation of fairness. The sponsors
appoint the trustee, AMC and Custodian. Once the AMC is formed, the sponsor is
just a stakeholder. Sponsor must contribute at least 40% of the net worth of the
Investment Managed and meet the eligibility criteria prescribed under the
Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The
Sponsor is not responsible or liable for any loss or shortfall resulting from the
operation of the Schemes beyond the initial contribution made by it towards
setting up of the Mutual Fund

Trust/ Board of Trustees:

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. Trustees hold a fiduciary responsibility towards unit
holders by protecting their interests. Trustees float and market schemes, and
secure necessary approvals. They check if the AMCs investments are within welldefined limits, whether the funds assets are protected, and also ensure that unit
holders get their due returns. They also review any due diligence by the AMC. For
major decisions concerning the fund, they have to take the unit holders consent.
They submit reports every six months to SEBI; investors get an annual report.
Trustees are paid annually out of the funds assets 0.5 percent of the weekly net
asset value. They carry the crucial responsibility of safeguarding the interest of
investors. They have wide ranging powers and they can even dismiss Asset
Management Companies with approval of the SEBI.
Fund Managers/ AMC:
The AMC actually manages the funds of the various schemes. The AMC employs a
large number of professionals to carry out research. The AMC submits a quarterly
report on the functioning of the mutual fund to the trustees who will guide and
control the AMC. A Funds AMC can neither act for any other fund nor undertake
any business other than asset management. Its net worth should not fall below
Rs.10crore. And, its fee should not exceed 1.25 percent if collections are below
Rs.100crore and 1 percent if collections are above Rs.100crore.
Registrar or 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
Custodian:
Often as an independent organization, it takes custody of securities and other assets of
mutual fund. Its responsibilities include receipt and delivery of securities,
collecting income-distributing dividends, safe keeping of the units and segregating
assets and settlements between schemes. Their charges range between 0.15-0.2
percent of the net value of the holding.
Advantages of Mutual Funds

a)Channelizing savings for investment

Mutual funds act as a vehicle in galvanizing the savings of the people by offering
various schemes suitable to the various classes of customers for the development
of the economy as a whole. A number of schemes are being offered by mutual
funds so as to meet the varied requirements of the masses, and thus savings are
directed towards capital investments directly. In the absence of mutual funds, these
savings would have remained idle. Thus, the whole economy benefits due to cost
efficient and optimum use and allocation of scarce financial resources in the
economy.

b)Offering wide Portfolio investment

Small and medium investors used to burn their fingers in the stock exchange
operations with a relatively modest outlay. If they invest in a few selected shares,
some maysink without a trace to never rise again. Now, these investors can enjoy
the wide portfolio of the investment held by the mutual fund.
The fund diversifies its risks by investing in large varieties of shares and bonds which
cannot be done by small and medium investors. This is in accordance with the
maxim not to lay all eggs in one basket. These funds have large amounts at their
disposal, and so, they carry a clout in respect of stock exchange transactions.
They are in a position to a have a balanced portfolio which is free from risks.
c)Offering Tax benefits
Certain funds offer tax benefits to its customers. Thus, apart from the dividends,
interest & capital apperciation, investors also stand to get the benefit of tax
concession.
d)Providing greater Affordability and Liquidity
Even a very small investor can afford to invest in Mutual fund. They provide an
attractive and cost effective alternative for direct purchase of shares. In the
absence of mutual funds, small investors cannot even think of participating in a
number of investments with such a meagre sum. Units can be sold to the fund at
any time at net asset value and thus quicker access to the liquid cash is assured.
Branches of sponsoring bank are always ready to provide loan facility against the
unit certificates.
e)Professional Management

Mutual Funds provides the services of experienced and skilled professionals backed by
a dedicated investment research team that analyses the performance and prospects
of the companies and selects suitable investments to achieve the objectives of the
scheme.
f)Diversification
Mutual Funds invest in number of companies across a broad cross-section of
industries and sectors. This diversification reduces the risk because seldom do all
stocks decline at the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far lesser money than you can do on
your own.
g)Low Costs
Mutual Funds are relatively less expensive way to invest compared to directly investing
in the capital markets because the benefits of scale in brokerage, custodial and
other fees translate into lower costs for investors.
Disadvantages of Mutual Funds
Disadvantage 1: Mutual Funds Have Hidden Fees
If fees were hidden, those fees would certainly be on the list of disadvantages of mutual
funds. The hidden fees are lamented are properly referred to as 12b-1 fees. While these
12b-1 fees are no fun to pay, they are not hidden. The fee is disclosed in the mutual fund
prospectus and can be found on the mutual funds web sites. Many mutual funds do not
charge a 12b-1 fee. If you find the 12b-1 fee onerous, invest in a mutual fund that does
not charge the fee. Hidden fees cannot make the list of disadvantages of mutual funds
because they are not hidden and there are thousands of mutual funds that do not charge
12b-1 fees.
Disadvantage 2: Mutual Funds Lack Liquidity
How fast can you get your money if you sell a mutual fund as compared to ETFs
stocks and closed-end funds? If you sell a mutual fund, you have access to your cash the
day after the sale. ETFs, stocks and closed-end funds require you to wait three days after
you sell the investment. I would call the lack of liquidity disadvantage of mutual funds
a myth. You can only find more liquidity if you invest in your mattress.
Disadvantage 3: Mutual Funds Have High Sales Charges

Should a sales charge be included in the disadvantages of mutual funds list? Its difficult
to justify paying a sales charge when you have a plethora of no-load mutual funds. But
then again, its difficult to say that a sales charge is a disadvantage of mutual funds when
you have thousands of mutual fund options that do not have sales charges. Sales charges
are too broad to be included on my list of disadvantages of mutual funds.
Disadvantage 4: Mutual Funds and Poor Trade Execution
If you buy or sell a mutual fund, the transaction will take place at the close of the market
regardless of the time you entered the order to buy or sell the mutual fund.
I find the trading of mutual funds to be a simple, stress-free feature of the investment
structure. However, many advocates and purveyors of ERFs will point out that you can
trade throughout the day with ETFs. If you decide to invest in ETFs over mutual funds
because your order can be filled at 3:50 pm EST with ETFs rather than receive prices as
of 4:00 pm EST with mutual funds, I recommend that you sign up for the Stress
Management Weekly Newsletter at About.com.
Disadvantage 5: All Mutual Funds Have High Capital Gains Distributions
If all mutual funds sell holdings and pass the capital gains on to investors as a taxable
event, then we have a found a winner for the list disadvantages of mutual funds list. Oh
well, not all mutual funds make annual capital gains distributions
Marketing Strategies Adopted by the Mutual Funds
The present marketing strategies of mutual funds can be divided into three main
headings:
1. Direct Marketing
This constitutes 20 percent of the total sales of mutual funds. Some of the
important tools used in this type of selling are
Personal Selling: In this case the customer support officer or the Relationship Manager
of the fund at a particular branch fixes an appointment with the potential prospect. Once
the appointment is fixed, the branch officer also called Business Development Associate
(BDA) in some funds, then meets the prospect and gives him all the details about various
schemes being offered by his fund. The conversion rate in this mode of selling is in
between 30%- 40%.

Telemarketing: In this case the emphasis is to inform the people about the fund. Some
fund houses have their database of investors and they cross sell their other products.
Sometimes people belonging to a particular profession are also contacted through phone
and are then informed about the fund. Generally the conversion rate in this form of
marketing is 15% - 20%.
Direct mail: This one of the most common method followed by all Mutual Funds.
Addresses of people are picked at random from telephone directory, business directory,
professional directory etc. The customer support officer (CSO) then mails the literature of
the schemes offered by the fund. The follow up starts after 3 4 days of mailing the
literature. The CSO calls on the people to whom the literature was mailed. He answers to
their queries and is generally successful in taking appointments with those people. It is
then the job of BDA to try his best to convert that prospect into a customer.
Advertisements in newspapers and magazines: Mutual funds regularly advertise in
business newspapers and magazines and also in leading national dailies. The purpose is to
keep the investors aware about the schemes offered by the fund and their performance in
recent past.
Advertisement in TV/FM Channel: Mutual funds are aggressively giving their
advertisements in TV and FM Channels to promote their funds.
Hoardings and Banners: In this case the hoardings and banners of the fund are put at
important locations of the city where the movement of the people is very high. The
hoarding and banner generally contains information either about one particular scheme or
brief information about all the schemes of the Mutual fund.
2. Selling through intermediaries
Intermediaries contribute towards 80% of the total sales of Mutual Funds. These are the
people/ distributors who are in direct touch with the investors. They perform an important
role in attracting new customers. Most of these intermediaries are also involved in selling
shares and other investment instruments. A lot depends on the after sale services offered
by the intermediary to the customer. Customers prefer to work with those intermediaries
who give them right information about the fund and keep them abreast with the latest
changes taking place in the market especially if they have any bearing on the fund in
which they have invested.
Regular Meetings with distributors: Most of the mutual funds conduct monthly/bimonthly meetings with their distributors. The objective is to hear their complaints
regarding service aspects from funds side and other queries related to the market
situation. Sometimes, special training programs are also conducted for the new agents/

distributors. Training involves giving details about the products of the fund, their present
performance in the market, what the competitors are doing and what they can do to
increase the sales of the fund.
3. Joint Calls : This is generally done when the prospect seems to be a high net worth
(HNI) investor. The BDA and the agent (who is located close to the HNIs residence or
area of operation) together visit the prospect and brief him about the fund. The
conversion rate is very high in this situation, generally, around 60%. Both the fund and
the agent provide after sale services in this particular case.
Meetings with HNIs: This is a special feature of all the funds. Whenever a top official
visits a particular branch office, he devotes at least one to two hours in meeting with the
HNIs of that particular area. This generally develops a faith among the HNIs towards
the fund.
Market Research
Investment in mutual fund is not a one-time activity. It is a continuous activity. The same
investor, if satisfied, will come to the fund again and again. When the investor sends his
application, it is not only an application but it also contains vital information. Most of this
information, if tabulated and analyzed, would provide important insights into investor
needs, preferences and behavior and enables us to target customers need more accurately
to achieve better penetration, deeper loyalty and reduced costs. It is in this context that
direct marketing will assume increased importance. Knowing the customer thoroughly is
of utmost importance. Unlike the consumer goods industry, it is not possible for mutual
fund industry to test market and have pilot projects before launch. At the same time,
focusing and concentrating on a particular geographic area where the fund has a strong
presence and proven marketing network can help reduce issue expenses and ultimately
translate into higher returns for the investor. Very little research on investor preference is
available but the industry can collectively have a data bank and share the information for
appropriate use
.
Market Segmentation
Different segments of the market have different risk-return criteria, on the basis of which
they take investment decisions. Not only that, in a particular segment also there could be
different sub-segments asking for different risk-return attributes, and differential
preference for various investments attributes of financial product.
Different investment attributes an investor expects in a financial product are:Liquidity,

Capital appreciation,
Safety of principal,
Tax treatment,
Dividend or interest income,
Regulatory restrictions,
Time period for investment, etc.
On the basis of these attributes the mutual fund market may be broadly segmented into
five main segments as under.
1) Retail Segment:
This segment characterizes large number of participants but low individual volumes. It
consists of individuals, Hindu Undivided Families and firms. It may be further subdivided into:
I. Salaried class people;
ii. Retired people;
iii. Businessmen and firms having occasional surpluses;
iv. HUFs for long term investment purpose.
These may be further classified on the basis of their income levels. It has been observed
that prospects in different classes of income levels have different patterns of preferences
of investment. Similarly, the strategies for tapping this segment would differ on the basis
of differential life style, value and ethics, social environment, media habits, and nature of
work. Broadly, this class requires security of the principal, liquidity, and regular income
more than the capital appreciation. It lacks specialized investment skills in financial
markets and is highly susceptible to mob behavior. The marketing strategy involving
indirect selling through agency network and creating awareness through appropriate
media would be more effective in this segment.
2) Institutional Segment:
This segment characterizes less number of participants, and large individual volumes. It
consists of banks, public sector units, financial institutions, foreign institutional investors,
insurance corporations, provident and pension funds. This class normally looks for more
specialized professional investment skills of the fund managers and expects a structured
product rather than a ready-made product. The tax features and regulatory restrictions are
the vital considerations in their investment decisions. Each class of participants, such as
banks, provides a niche to the fund managers in this segment. It requires more of a
personalized and direct marketing to sustain and increase volumes.

3) Trusts:
This is a highly regulated, high volumes segment. It consists of various types of trusts,
namely, charitable trusts, religious trust, educational trust, family trust, social trust, etc.
each with different objectives. Its basic investment need would be safety of the principal,
regular income and hedge against inflation rather than liquidity and capital appreciation.
This class offers vast potential to the fund managers if the regulators relax guidelines and
allow the trusts to invest freely in the mutual funds.
4) Non-Resident Indians:
This segment consists of very risk sensitive participants, at times referred as fair
weather friends. They need the highest cover against political and exchange risk. They
normally prefer easy exit with repatriation of income and principal. They also hold a
strategic importance as they bring in crucial foreign exchange a crucial input for
developing country like ours. Marketing to this segment requires special kind of products
depending upon the provisions of tax treaties. A range of suitable products are required to
be designed to divert the funds flowing into bank accounts.
5) Corporates:
Generally, the investment need of this segment is to park their occasional surplus funds
that earn return more than what they have to pay on account of
them. Alternatively, they also get surplus fund due to the seasonality of the business
which typically become due for the payment within a year or quarter or even a month.
They need short term parking place for their fund. This segment offers a vast potential to
specialized money market managers. Given the relaxation in the regulatory guidelines,
fund managers are expected to design products to this segment.
Thus, each segment and sub-segment has their own risk return preferences forming
niches in the market. Mutual fund managers have to analyze in detail the intrinsic needs
of the prospects and design a variety of suitable products for them. Not only that the
products are also required to be marketed through appropriately different marketing
strategies.
Classification of Mutual Fund Schemes
Every mutual fund has an objective of earning income for the investors and/ or
getting increased value of their investments. To achieve these objectives, mutual
funds adopt different strategies and accordingly offer different schemes of
investments. On this basis the simplest way to categorize these schemes would be to
group them into two broad classifications:1. Operational Classification

(a) Open Ended Schemes:

As the name implies the size of the scheme (Fund) is open

i.e., not specified or pre-determined. It implies that the capitalization of the

fund is constantly changing as investors sell or buy their shares. Further, the
shares or units are normally not traded on the stock exchange but are
repurchased by the fund at announced rates. Open-ended schemes have
comparatively better liquidity despite the fact that they are not listed. The
reason is that the investors can at any time approach the mutual fund for sale
of such units. Moreover, the realizable amount is certain since repurchase is
at a price based on the declared net asset value (NAV). No minute to minute
fluctuations in rates haunt the investors. The portfolio mix of such schemes
has to be the investments, which are actively traded in the market. Otherwise,
it will not be possible to calculate NAV. This is the reason that generally openended schemes are equity based. Moreover, open-ended schemes hardly have
in their portfolio, shares of comparatively new and smaller companies since
they are not generally traded. In such funds, option to reinvest its dividend is
also available. Since there is always a possibility of withdrawals, the
management of such funds becomes more tedious as managers have to work
from crisis to crisis. Crisis may be on two fronts; one is that unexpected
withdrawals require funds to maintain a high level of available cash every
time. Fund managers have to face questions like what to sell. He could very
well have to sell his most liquid assets. Second, by virtue of this situation such
funds may fail to grab favorable opportunities. Further, to match quick cash
payments, funds cannot have matching realization from their portfolio due to
intricacies of the stock market. Thus, the success of the open-ended schemes
to a greater extent depends on the efficiency of the capital market and the
selection and quality of the portfolio.
(b) Close Ended Schemes: Such schemes have a definite period after which their shares/
units are redeemed. Unlike open-ended funds, these funds have fixed capitalization, i.e.,
their corpus normally do not change throughout the life period. Close ended fund units
trade among the investors in the secondary market since these are to be quoted on the
stock exchanges. Their price is determined on the basis of demand and supply in the
market. Their liquidity depends on the efficiency and understanding of the engaged
broker. Their price is free to deviate from NAV, i.e., there is every possibility that the
market price may be above or below its NAV. If one takes into account the issue
expenses, conceptually close ended fund units cannot be traded at a premium or over

NAV because the price of the package of investments cannot exceed the sum of the prices
of the investments constituting the package. Premium, if any, exists, would be on the
account of speculative activities. In India as per SEBI (MF) Regulations, every mutual
fund is free to launch any or both types of schemes.
2. Portfolio Classification of Fund: following are the portfolio classification of funds,
which may be offered. This classification may be on the basis of (a) Return, (b)
Investment Pattern, (c) Specialized sector of investment, (d) Leverage and (e) Others.
(a) Return based classification:
To meet the diversified needs of the investors, the mutual fund schemes are made to
enjoy a good return. Returns expected are in form of regular dividends or capital
appreciation or a combination of both.
I. Income Funds: For investors who are more curious for returns, Income funds are
floated. Their objective is to maximize current income. Such funds distribute periodically
the income earned by them. These funds can further be splitted up into categories: those
that stress constant income at relatively low risk and those that attempt to achieve
maximum income possible, even with the use of leverage. Obviously, the higher the
expected returns, the higher the potential risk of the investment.
ii. Growth Funds: Such funds aim to achieve increase in the value of the underlying
investments through capital appreciation. Such funds invest in growth oriented securities
which can appreciate through the expansion facilities in long run. An investor who selects
such funds should be able to assume a risk higher than the normal degree of risk.
iii. Conservative Funds: The fund with a philosophy of all things to all issue, offer a
document announcing objectives as: (I) To provide a reasonable rate of return, (ii) To
protect the value of investment and, (iii) To achieve capital appreciation consistent with
the fulfillment of the first two objectives. Such funds which offer a blend of immediate
average return and reasonable capital appreciation are known as middle of the road
funds. Such funds have been most popular and appeal to the investors who want both
growth and income.
(b) Investment Based Classification:
Mutual funds may also be classified on the basis of securities in which they invest.
Basically, it is renaming the subcategories of return based classification.
I. Equity Fund: Such funds, as the name implies, invest most of their investable shares
in the equity shares of the companies and undertake the risk associated with the
investment in equity shares. Such funds are clearly expected to out do the other funds in
rising market because they have almost all their capital in equity. Equity funds again can

be of different categories varying from those that invest exclusively in high quality blue
chip companies to those that invest solely in the new, unestablished companies. The
strength of these funds is the expected capital appreciation. Naturally, they have a higher
degree of risk.
ii. Bond Funds: Such funds have their portfolio consisting of bonds, debentures, etc.
This type of fund is expected to be very secure with a steady income and little or no
chance of capital appreciation. Obviously risk is low in such funds. In this category we
may come across the funds called Liquid Funds which specialize in investing short-term
money market instruments. The emphasis is on liquidity and is associated with lower
risks and low returns.
iii. Balanced Fund: The funds, which have in their portfolio a reasonable mix of equity
and bonds, are known as balanced funds. Such funds will put more emphasis on equity
share investments when the outlook is bright and will tend to switch over to debentures
when the future is expected to be poor for shares.
(c) Sector Based Funds:
There are number of funds that invest in a specified sector of an economy. While such
funds do have the disadvantage of low diversification by putting their all eggs in one
basket, the policy of specializing has an advantage of the fund managers developing an
intensive knowledge of the specific sector in which they are investing. Sector based funds
are aggressive growth funds which make investments on the basis of assessed bright
future for a particular sector.
Other Schemes
Tax Saving Schemes:
These schemes offer tax rebates to the investors under specific provisions of the Indian
Income Tax Act, 1961. Investments made in Equity Linked Savings Schemes (ELSS) and
Pension Schemes are allowed as deduction u/s 80C of the Income Tax Act, 1961.
The Act also provides opportunities to investors to save capital gains under the provisions
of section 54 of the Income Tax Act, 1961 by investing in Mutual Funds.
Special Schemes:
(a)Industry Specific Schemes:
Industry Specific Schemes invest only in the industries specified in the offer
document. The investments of these funds are limited to the specific industries like
InfoTech, FMCG, Pharmaceuticals, etc.
(b)Index Schemes: Index Funds attempt to replicate the performance of a
index such as the BSE Senses or the NSE 50

particular

Research Gap
Statement of the Problems
The Indian mutual funds industry is going through a phase of transformation since
liberalization. Liberalization has paved the way for foreign investors in the mutual fund
industry. This has increased the pace of evolution in the industry and made more products
and services available to investors. Institutional investors dominate the mutual fund
industry. They hold about 57 percent the total net assets whereas, retail investors account
for about 37percent.
From the foregoing comprehensive literature review related to mutual funds
industry in India, it is evident that though few works has been done to find out the growth
of mutual fund since the inception of UTI. But no detailed study has been undertaken to
assess the impact of liberalization on the mutual funds industry in India. Also no
empirical work has been done to find out performance evaluation of SBI, UTI, Reliance
mutual funds schemes. Therefore, the present study has been done to find out the impact
of liberalization on the net resource mobilized by mutual funds, its impact on house hold
sector savings. Also an elaborate empirical work is carried out to assess the performance
of SBI, UTI, Reliance mutual funds schemes in comparison to benchmark indices.

The present study differs from the earlier studies as it covers all aspects of mutual
funds industry in India since 1993. The year 1993 is important as it was in this year that
SEBI Mutual Funds regulation was enacted and also the private sector mutual funds were
allowed to start operation in India. The study makes an attempt to trace the impact of
liberalization on the Indian mutual fund industry. It also tries to find out the performance
of SBI, UTI, Reliance mutual funds in comparison there NAVs and their portfolio
composition and diversification of each scheme.

OBJECTIVES OF THE STUDY

To determine the best performing mutual fund company.
To compare the NAVs of the selected securities
To compare investment pattern of the three funds.
To understand each company performance based on their NAVs.
To examine which fund is better to invest from these there securities

Hypotheses of the Study

In order to fulfill and achieve the above stated objectives of the research the study has
been made on the basis of certain hypothesis bifurcated according to the various dimensions of
the Indian mutual funds industry. The study has taken into consideration the growth and
development of Indian mutual funds industry in toto and in term of net resource mobilization
related to the Indian mutual funds industry, the performance evaluation of SBI, UTI, Relaince
mutual fund schemes and its diversification as criteria for hypothesis. For testing purpose the
following hypotheses have been formulated.
Hypothesis 1
The null hypothesis of the study assumes,
H0 : There is no significant impact of policy reforms on net resource mobilized by mutual funds
since 1993-94, while the alternate hypothesis of the study assumes,
H1: there is a significant impact of policy reforms on net resource mobilized by mutual funds
since 1993-94.
Hypothesis 2
H0: The investment performance of SBI mutual funds schemes is not superior to the relevant
benchmark portfolio, while the alternate hypothesis of the study assumes,
H1: The investment performance of SBI mutual funds schemes is superior to the relevant
benchmark portfolio.
Hypothesis 3
H0: The schemes of SBI mutual funds are not well diversified, while the alternate hypothesis of
the study assumes,
H1: The schemes of SBI mutual funds are well diversified.
Hypothesis 4
H0: The investment performance of UTI mutual funds schemes is not superior to the relevant
benchmark portfolio, while the alternate hypothesis of the study assumes,
H1: The investment performance of UTI mutual funds schemes is superior to the relevant
benchmark portfolio.

Hypothesis 5
H0: The schemes of UTI mutual funds are not well diversified, while the alternate hypothesis of
the study assumes,
H1: The schemes of UTI mutual funds are well diversified.
Hypothesis 6
H0: The investment performance of Reliance mutual funds schemes is not superior to the
relevant benchmark portfolio, while the alternate hypothesis of the study assumes,
H1: The investment performance of Reliance mutual funds schemes is superior to the relevant
benchmark portfolio.
Hypothesis 7
H0: The schemes of Reliance mutual funds are not well diversified, while the alternate
hypothesis of the study assumes,
H1: The schemes of Reliance mutual funds are well diversified.
Hypothesis 4
H0: There is a no relationship between mutual funds schemes investment objectives and their
risk characteristic, while the alternate hypothesis of the study assumes,
H1: There is a relationship between mutual funds schemes investment objectives and their risk
characteristic.

Scope of the Study

The present study would cover period from 1981-2015, a period of 34 years to assess the
growth and development of mutual funds industry in general and the impact of liberalization on
net resource mobilization in particular. The study also covers a period of eight years from Sep.
2000 to March 2008 for evaluating the investment performance of HDFC mutual funds schemes.
The present study focuses mainly on the growth trend of Indian mutual funds schemes and
household sector savings mobilization by the mutual funds in India. The S & P CNX NIFTY
Index is used by the researcher to compare the performance of HDFC mutual funds schemes.
The study has used the monthly yields on 91-day Treasury bills (T-bills) as a surrogate for the
risk- free rate of return

Period of the study

The period of the Research study is 45 days

The study is conducted in short period due to which the study may not be detailed in all aspects.
The study is limited due to non availability of analytical software

Methodology of the Study

The study is an empirical work based on the secondary data and primary data collected
from various sources for the fulfilment of truthfulness of the analysis and interpretation and then
to ensure the quality of research study.
Collection of Data
a) Secondary Data
The secondary data for the study have been collected from various secondary sources of
information such as published reports of AMFI, SEBI, RBI annual reports and bulletin. The
annual reports of various mutual funds and their monthly fact sheets have also been used. Other
reports such ad various reports from Ministry of Finance, Department of Company Affairs etc
are also collected for supporting the literature references. Altogether relevant books, journals
and periodicals, research papers, published thesis, articles, financial dailies, websites, are also
consulted by the researcher for better referencing.
b)

Primary Data
The primary source is the outcome of personal interviews with experts, fund manager,
brokers and agents.