A RESEARCH STUDY ON PORTFOLIO BUILDING FOR

MUTUAL FUND INVESTORS

A DISSERTATION SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF MBA DEGREE OF BANGALORE UNIVERSITY.

BY
PANKAJ KUMAR

REG.NO-02XQCM6037

UNDER THE GUIDANCE OF

Prof Meena Kumari
(Faculty -Finance)

M.P.BIRLA INSTITUDE OF MANAGEMENT

ASSOCIATE BHARTIYA VIDYA BHAVAN.
BANGALORE-560001

October 2004
 CONTENTS Page No

CHAPTER 1 RESEARCH EXTRACT 1

CHAPTER 2 INTRODUCTION 4
2.1 Background of the study
2.2 Need and importance of the study
2.3 Objectives of the study
2.4 Limitations of the study

CHAPTER 3 REVIEW OF LITERATURE 27

CHAPTER 4 METHODOLOGY 30
4.1 Type of research
4.2 Sampling technique
4.3 Sample size
4.4 Sample description
4.5 Tools used

CHAPTER 5 DATA ANALYSIS

AND INTERPRETATION 37

CHAPTER 6 CONCLUSIONS AND

RECOMMENDATIONS 116
6.1 Summary of findings
6.2 Conclusions from the study
6.3 Suggestions of the study
 LIST OF TABLES

TABLE PARTICULARS PAGE

SLNO
NUMBER
Table showing the % growth rate of return of
1 39
mutual funds
Table showing the comparison between bank vs.
2 41
mutual funds as an investment avenue
3 Table showing fund monitor 43-47
Table showing classification of investors based
4 48
on age group
5 Table showing the annual income of investors 50
Table showing the relationship between the
6 51
investors age and income
Table showing the decision variables that govern
7 53
investments
Table showing the investors preference prior to
8 54
investing
9 Table showing lock-in-period of funds invested 56
Table showing the % of monthly income that can
10 57
be invested
Table showing the relationship between the age
11 59
and % monthly income invested
Table showing relationship between income of
12 61
investors and their % monthly investment
13 Table showing volatility level of investors 63
Table showing the toleration towards temporary
14 65
decline of investments
Table showing the priority of important variables
15 67
while investing in mutual funds
Table showing the prime concern for
16 69
investments
Table showing the relationship between age and
17 70
prime concern for investments
18 Table showing the relationship between income 72
and prime concern for investments
 and prime concern for investments
19 Table showing the safety quotient 74
Table showing the relationship between the
20 76
safety quotient and age
Table showing the relationship between the
21 78
safety quotient and income
Table showing the reaction of investors in case
22 80
of fluctuations
Table showing the relationship between reaction
23 of investors incase of fluctuations and their 81
annual income
Table showing the array of products already
24 83
invested by investors
Table showing the relationship between the
25 investors age and the investments in the array of 84
products
Table showing the relationship between the
26 income and the investments in the array of 85
products
Table showing the relationship between the
27 87
investors age and risk factors
28 Table showing the financial goals of investors 88
Table showing the relationship between
29 89
investors income and financial goals
Table showing the relationship between the
30 91
financial goals and the age of investors
Table showing the existing investments in
31 92
mutual funds
32 Table showing the safety model portfolio 100
33 Table showing the income model portfolio 102
Table showing the income and moderate growth
34 104
portfolio
35 Table showing the balance growth portfolio 106
36 Table showing the aggressive growth portfolio 108
37 Table showing the maximum growth portfolio 110
38 Table showing the investments of ABC Ltd. 112-115
 LIST OF GRAPHS

GRAPH PARTICULARS PAGE

SLNO
NUMBER
Chart showing performance of various
1 38
instruments
Chart showing investors classification based on
2 49
age
3 Chart showing the annual income of investors 50
Chart showing the relationship between the
4 52
investors age and annual income
Chart showing the decision variables that govern
5 53
investments
Chart showing investors preference prior to
6 55
investing
Chart showing the lock-in-period of funds
7 56
invested
Chart showing the percentage of monthly income
8 58
that can be invested by potential investors
Chart showing the age and % monthly income
9 60
invested
Chart showing the relationship between income
10 61
of investors and their % monthly investment
11 Chart showing the risk level of investors 63
Chart showing the toleration towards the
12 65
temporary decline of investments
13 Chart showing the criteria for investing 67
Chart showing the relationship between the age
14 69
and prime concern for investments
Chart showing the relationship between investors
15 71
income and prime concern for investments
16 Chart showing the safety quotient 72
Chart showing the relationship between the
17 74
safety quotient and age
Chart showing the relationship between the
18 77
safety quotient and income
19 Chart showing the reaction of investors in case 79
of fluctuations
 of fluctuations
Chart showing the reaction of investors incase of
20 80
fluctuations
Chart showing the relationship between age and
21 82
array of investments made
Chart showing the relationship between income
22 84
and investments in the array of products
23 Chart showing the financial goal of investors 86
Chart showing the mutual fund invested in
24 88
earlier by investors
25 Chart showing the investment model 92
26 Chart showing the aggressive growth portfolio 96
27 Chart showing conservative portfolio 97
28 Chart showing the moderate growth portfolio 98
 CHAPTER 1
RESEARCH EXTRACT
RESEARCH EXTRACT
In India, the only mutual fund operating for a long time since 1964 was the UTI. It
was a public sector undertaking enjoying the monopoly position and some unique
tax benefits such as exemption from income tax of its entire income. During the
1960s, government wanted to mobilize huge sums from the public. Thus this gave
rise to mutual funds. Contribution towards the mutual funds was only from the high
net worth individuals and the other individuals were not contributing. Overall the
investors were not actively participating in the stock market mainly
because of lack of knowledge. To fill the gap between mobilization of huge sums to
the government as well as to increase the knowledge of the investors in relation to
risk and return, mutual funds were created. Until 1991, the private mutual funds were
not encouraged. But after privatization, which brought about changes in the
economic policies and the reforms, it has caught the imagination of financial
community and is in a growing stage. These funds mainly cater to the individual
investors and small savers. It was thrown open to the private sector and the foreign
sector in 1992-93. Thus mutual funds were liberated and this gave rise to
competition between the various players offering mutual funds. This gave rise to the
various schemes of mutual funds.
Throughout life, one may experience many changes, such as marriage, having
children, buying a home, financing college education, and even caring for ageing
parents. All of these situations can put a dent in one’s finances. That’s why it’s
important to set goals and follow a financial plan.
With liberalization and opening of the global markets countries like India have made
rapid advancements in the fields of finance. A country that was used to plain vanilla
products like Fixed Deposits, PPFs, NSS and LIC as investment avenues suddenly
saw a plethora of complex financial products storming the Indian market and
mentality. People now have a wide range of choices to exercise when it came to
investments. The only aspect, which did suffer, was that of awareness of these
products.
The company responsive to customer expectation places a strong emphasis on
existing emergency and latent needs. A strong orientation towards personalized
value service has made a force to reckon with.
The entire process of portfolio management is triggered by clearly articulating the
client’s risk return profile and his investment objectives. Such an investment
objective is then suitably qualified by constraint such as liquidity needs and
investments time horizon to determine the information in proprietary in-house an
external database to identify various mutual funds and to arrive at an optimum
portfolio.
CHAPTER 2
INTRODUCTION
2.1 INTRODUCTION
FINANCIAL SYSTEM AND FINANCIAL MARKET
Financial markets are the backbone of an economic system and aid allocation of
scare capital across the productive sectors of the economy. While Indian economic
growth is in evitable, stability and dynamism of the financial system is essential for
proper allocation of resources, which in turn helps sustain a healthy climate for
saving and investment. In fact, the financial system has to be more dynamic than the
real system as it has to continuously respond to the needs of the real economy to
help it achieve its goals.
Financial system implies a set of complex and closely connected or interlinked
institutions, agents, practices, markets, transactions and liabilities in the economy.
The financial system is concerned about money, credit and finance. The three terms
are intimately related yet different from each other. Money refers to the current
medium of exchange or means of payment. Credit or loans is the sum of money to
be returned, normally with interest- it refers to a debt of economic unit. Finance is a
monetary resource comprising of debt and ownership funds of the state, company or
person. The financial system functions as an intermediary and facilitates the flow of
funds from
the areas of surplus to the areas of deficit. A financial system is a composition of
various institutions, market regulations, transactions and claims.
The financial system helps bring together sowers and users of capital. Hence, the
efficiency of financial markets is essential for facilitating optimal intermediation
between households and firms.
The Indian financial system has always had a well-defined institutional structure.
While it has been dominated by government sponsored financial institutions and
nationalized commercial banks, in recent years, the private sector has been showing
steady growth in the areas of asset management and financial services. Today India
can boast of having would-comparable capital market and money markets.
A financial market can be defined as a market in which financial assets are created
or transferred. These markets are classified as Money Market (where the
instruments dealt are short-term maturity) and Capital Market (the instruments dealt
are of long-term maturity).

2.2 INVESTMENTS
Investment is making the money work for you. Idle saved money will be eroded of its
value by reduction in purchasing power. Investing smartly
makes money grow. In other words one must involve funds available in such
avenues that may counter balance the reduction of real value. Assets whose value
increases over time must be chosen for such purpose. The investments must offer
maximum advantages to the investor.
Now there are a number of investments avenues available to common man.
Recently all financial products investment opportunities come with some or other
innovations. It is at the behest of the consumer the investor depending on the
advantages in the investment is chosen.

2.3 FEATURES OF INVESTMENTS

1. Security:
It is guarantee that at least the amount deposited with the agency will be given
back to the investor.
2. Risk Involved:
As different from security risk involved is risk associated with type of investment.
It is said risk and returns go hand in hand, mainly there are four types of risk –
inflation risk, business risk, rate of returns and uncertainty (of the future) risk.

3. Capital Appreciation:
The worth of investment when redeemed must be more than the initial
 investment.
4. Periodical Returns:
Most people would like to have assured periodical returns regularly. Better rates
of returns surely attract good number of investors.
5. Liquidity:
It is the case with which we can convert investments into cash or can be
transferred to another individuals for some consideration.
6. Investor Services:
These are the backbone of any organizations marketing activity. They are:
Convenience of Investing

Consultancy

Restricted Early Redemption

Flexible Maturity Period and Liquidity

Good Rates of Returns

Trust Worthy and Able Management

2.4 INVESTMENT BASICS

In the wonderful world of finance, there are a wide variety of choices available. One
needs to understand the different investment vehicles such as
stocks and bonds, and how these investment options work and what they can do for
an investor. One can invest in stocks and bonds through mutual funds and take
advantages of each of these vehicles and use them to invest and generate wealth in
the most effective way.
It is practical to diversify the investor’s money among different types of investment
vehicles, such as stocks, bonds and money market instruments.
The goal is to help reduce risk and enhance returns. Establishing a well-diversified
portfolio may allow the investor to avoid the risks associated with putting all his eggs
in one basket.
As the investor’s financial goals are diverse, his investment choices need to be as
well. No single investment is likely to meet all of his needs, so he should keep some
money in bank deposits to meet any urgent needs for cash and keep the balance in
other schemes that maximize his return and minimize the risk.
Depending on the investor’s age, lifestyle, family commitments and the level of
income and expensed, his financial goals will vary. In order to assess his needs, the
investor needs to define his investment objectives which could be for example,
receiving a regular income, buying a house, financing a wedding, paying for
children’s education, or it could even be a combination of these.
Besides defining the investor’s objectives, one also needs to take into consideration
the amount of risk the investor is willing to take or can tolerate and what his cash
flow requirements are.

2.5 INVESTMENT AVENUES

The various investments avenues available here in India to today’s investors are
briefly mentioned below. A portfolio can contain investments from one or all of the
following categories.
STOCKS
The term is used to describe the ownership in companies is stocks. When a
company needs to grow or expand, it may sell part of its ownership to the public in
the form of shares (stock). In exchange for the money received from the sale, the
company gives shareholders a portion of its future profits, s well as a measure of its
decision-making power. Stock prices can change greatly from day to day, depending
on the supply and demand for the stock. If many investors want to buy the stock, the
price may go up; if fewer investors are interested in buying the stock, the price may
go down. This is one of the types of investment, which can make up part of an
investor’s portfolio.

FINANCIAL SECURITIES
Direct financial investments, which are represented by negotiable securities, are
referred to as financial securities. The major financial securities available
in India are:
1. Equity shares
2. Preference shares
3. Convertible shares
4. Non convertible shares
5. Public sector bonds
6. Savings certificates
7. Gilt-edged securities
8. Money market securities
Since the project will be dealing with mainly such investments, a detailed description
follows.

NON- SECURITIES FINANCIAL INVESTMENTS

A non-securitized financial investment, unlike a financial security, represents a
financial investment that is not transferable or negotiable. The major non-securitized
financial investments available in India are:
1. Bank deposits
2. Post office deposits
3. Company fixed deposits
4. Provident fund schemes
5. National savings scheme
6. Life insurance

REAL ASSETS
The investments avenues discussed so far are broadly referred to as financial
investments as they represent financial claims. Real assets, on the other hand,
represent physical investment. The important categories of real asset are:
1. Real estate
2. Gold and silver
3. Precious stones
4. Art objects

EQUITY SHARES
Of all the forms of securities, equity shares appear to be the most romantic. While
fixed income investment avenues may be more important to most of the investors,
equity shares seem to capture the interest the most.

PREFERENCE SHARES
Preference shares represent a hybrid security that partly assumes some
characteristics of equity shares and some attributes of debentures. The salient
features of preference shares are as follows:
1. Preference shares carry a fixed of dividend
2. Preference dividend is payable only out of distributable profits.
3. Dividend on preference shares is generally cumulative.
4. Preference shares are redeemable-the redemption period is around 12
months.

CONVERTIBLE BONDS (DEBENTURES)

A convertible bond is a bond that may be compulsorily or optionally converted into
equity shares in future. The general features of a convertible bond include the
conversion ratio, conversion price, conversion timing and conversion (or stock)
value.

NON-CONVERTIBLE DEBENTURES
Akin to promissory notes, non-convertible debentures are instruments for raising
long-term debt capital. The obligation of a company towards its debenture holders is
similar to that of a borrower who promises to pay interest and principal at specified
times.

CORPORATE BONDS
Many types of companies issue corporate bonds in order to finance projects ranging
from building a new plant to modernizing at a current location. Risk and return vary,
depending on the financial strength of a corporation.
Bonds issued by corporations with lower credit quality generally pay a
higher rate of interest to compensate investors for the higher repayment risk; bonds
issued by corporations with excellent credit ratings and established profitability pay
lower interest due to the relatively low degree of risk. Depending on the issuing
company, these securities can vary widely in yield, maturity and credit quality.

STATE GOVERNMENT BONDS

Local governments issue state Government Bonds in order to finance a variety of
projects, ranging from water systems and public schools, to hospitals and police
protection. Since these bonds are unique in that the interest paid by the bond is
generally free from income tax, it is important to consider the equivalent taxable yield
(the rate of return on a taxable investment needs to match that of a tax-free

State Government Bonds investments). State Government Bonds are generally

considered to be relatively low risk investments, second only to securities issued by
the government and its agencies. However, within State Government Bonds
themselves, there is a wide range of credit quality.

PUBLIC SECTOR BONDS

Two schemes have been introduced in recent years to enable central public sector
undertakings to issue bonds for raising long-term finance. The salient
features between the two schemes are as follows:

Scheme 1 Scheme 2

Maturity period 7-10 years 10 years

Interest rate 13 percent 9 percent

Tax benefits Exemption of interest Total exemption

As per section 80L of Of interest
The Income Tax Act

The similar features of the two schemes are:

1. The bonds are not guaranteed by the government of India
2. The bonds are exempt form wealth tax, like any other financial asset
3. There is no deduction of tax at source on the interest paid on these bonds
4. They are transferable by mere endorsement and delivery
5. There’s no stamp duty applicable on transfer
6. These bonds are traded on the stock exchanges. In addition SBI Capital
Markets and other institutions are ready to buy and sell with a small price
difference.
 7. There is a buy back scheme under which individuals holding bonds up to its
40,000 can sell them back to the company after a lock- in period of three
years.

SAVINGS CERTIFICATES
Issued by the post offices, savings certificates are a part of small savings schemes.
The important Savings Certificates are:


Indira Vikas Patra



Kisan Vikas Patra

GOVERNMENT SECURITIES
Debt securities issued by the central government, State government and quasi-
governmental agencies are referred to as government securities or gilt-edged
securities. Three types of instruments are issued:
An Investment that resembles a company debenture
It carries the name of the holder/s and is registered with the public debt office (PDO).
For transfer, it has to be lodged with the PDO along with a duly completed transfer
deed.
The PDO pays interest to the holders registered with it on the specified date of
payments.
A promissory note, issued to the original holder, which contains a promise
by the president of India (or the governor of a state) to pay as per a given schedule.
It can be transferred to a buyer by an endorsement of the seller. The current holder
has to present the note to the government treasury (or a designated authorized
agency) to receive interest and other payments.
A bearer security, where the interest and other payments are made to the holder of
the security.
MONEY MARKET SECURITIES
A money market security is a debt instrument that has a very short maturity. The
common money market securities in India are treasury bills, commercial paper, and
certificates of deposit.
In many respects, most money market instruments are just short-term versions of
bonds. For example Treasury Bills (T-Bills), commercial paper, and certificates of
deposit are just three of the dozens of fixed-income investments that mature in one
year or less. While bonds are used primarily to receive a steady income, money
market instruments are used more like savings accounts. They generally preserve
your initial investment whilst generating a more modest level of income giving you
yields that are usually only slightly higher than interest rates offered by banks on
savings accounts. This type of investment has the lowest risk out of the three types
of investment described.

2.6 PORTFOLIO MANAGEMENT

“The art and science of decisions about investment mix and policy, matching
investments to objectives, asset allocation for individuals and institutions, and
balancing risk vs. performance.”
Portfolio management is all about strengths, weaknesses, opportunities and threats
in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and
numerous other trade-offs encountered in the attempt to maximize return at a given
appetite for risk.
The primary allocation methodology uses the precise statistical calculation approach
that has proven that a mix of uncorrelated investments can produce a more efficient
portfolio that has a high rate of return and less volatility (risk).
Applying these techniques allows Companies to provide continuous asset
management on a scientific and objective basis. This consistent approach avoids the
plight of most money managers who end up chasing the markets
for short-term yields. These methods substantially increase the potential for
consistently higher returns and greatly reduce the risk of loss of capital and
purchasing power.

2.7 MUTUAL FUNDS

The competition among funds has led to the launch of newer products, tailor-made
to suit the requirements of investors. Mutual funds now offer products for the entire
range of needs of investors. The encouraging response to index funds and sector
funds shows the growing maturity among investors.
Open-end funds, which provide liquidity to investors at daily NAV related prices are
growing in popularity. The funds have been adopting technology to provide good
service to investors and with the proposed introduction of electronic funds transfer
and the growing trend towards E-Commerce; the efficiency of service will increase
even further.
In the coming years mutual funds as saving intermediaries will play a greater role in
bringing the gap between investors and issuers, especially in the area of equity
funds. At present these funds represents 13% of BSE market capitalization. This is
expected to go up with increasing flows into financial savings, especially the mutual
fund with the growth and stability in the capital market flows into equity funds are
expected to go up.
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 then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized are shared by its
unit holders in proportion to the number of units owned by them. 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 basket of securities at a relatively low
cost.
Mutual funds, also referred to as investment companies, offer an alternative
investment choice for individuals with a long-term horizon. The way they operate is
that individual investor money are pooled and invested in many different companies.
Assets are professionally managed to meet various investment objectives. They
issue and sell shares to share holders and also redeem them (buy them back) upon
request. Prices of shares are set daily at the close of business, based on the value
of all investments in the mutual fund’s portfolio. Their major advantages are
diversification and professional management, which are not readily available to small
investors outside the mutual fund arena. Money market mutual funds are short-term
funds. They invest in short-term cash and cash equivalent instruments, such as
Treasury bills, certificates of deposit, and short-term notes. Mutual funds may own
stocks and bonds of many different companies.
A mutual fund is the ideal investment vehicle for today’s complex and modern
financial scenario. Markets for equity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets have become mature and
information driven. Price changes in these assets are driven by global events
occurring in faraway places. A typical individual is unlikely to have the knowledge,
skills, inclination and time to keep track of events, understand their implications and
act speedily. An individual also finds it difficult to keep track of ownership of his
assets, investments, brokerage dues and bank transactions etc.
History of Mutual Funds
In 1924 three Boston securities executives pooled their money together to create the
first mutual fund. The idea of pooling money together for investing purposes started
in Europe in the mid-1800s. The first pooled fund in the U.S was created in 1893 for
the faculty and staff of Harvard University on March 21st, 1924 the first official mutual
fund was born. It was called the Massachusetts Investors Trust.
However in India UTI was the first to introduce mutual funds in the Indian markets
and it commenced its operations from July 1964, Government allowed public sector
banks and institutions to set up mutual funds.
In the year 1992, Securities and exchange Board of India (SEBI) Act was passed.
The objectives of SEBI are – to protect the interest of investors in securities and to
promote the development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors. SEBI notified regulations for the
mutual funds in1993. Thereafter, mutual funds sponsored by private sector entities
were allowed to enter the capital market. The regulations were fully revised in 1996
and have been amended thereafter from time to time. SEBI has also issued
guidelines to the mutual funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. There is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored
by these entities are of similar type. It may be mentioned here that Unit Trust of India
(UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002.
The end of millennium marks 36 years of existence of mutual funds in our country.
The ride through these 36 years is not been smooth. Investor opinion is still divided.
While some are for mutual funds others are against it.
Benefits of Mutual Fund Investment
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed
by a dedicated investment research team that analyses the performance and
prospects of companies and selects suitable investments to achieve the objectives
of the scheme.

Diversification
Mutual Funds invest in a 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 less money than you can do on your
own.
Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems
such as bad deliveries, delayed payments and follow up with brokers and
companies. Mutual Funds save your time and make investing easy and convenient.
Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher
return as they invest in a diversified basket of selected securities.
Low Costs
Mutual Funds are a 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.
Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value
related prices from the Mutual Fund. In closed-end schemes, the units can be sold
on a stock exchange at the prevailing market price or the investor can avail of the
facility of direct repurchase at NAV related prices by the Mutual Fund.
Transparency
You get regular information on the value of your investment in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund manager’s investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and
dividend reinvestment plans, you can systematically invest or withdraw funds
according to your needs and convenience.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A
mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.
Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of
strict regulations designed to protect the interests of investors. The operations of
Mutual Funds are regularly monitored by SEBI.

Advantages of mutual funds include:



Diversification of risk,


Professional management


Different investment options and ability to purchase a large selection of

investments at a modest cost.


Their large size permits them to buy larger volumes of stocks at a discount


The investor can be a part owner of many different companies even with a
modest investment
Disadvantages of mutual funds include:


Inability to make one’s own decisions



No guarantee that the professional managers will provide anticipated results



Investment company managers can switch styles of investing, even while

adhering to the objectives and policy agreed upon by the mutual fund. This
makes it difficult for the investor to keep track of the investments owned by
the fund and the activity of fund managers.


Past performance, a highly reported indicator is just that, one of many

indicators; it is no guarantee for future performance. Careful scrutiny is
warranted when reading a fund’s advertisement about past stellar
performance.

Risk Involved in Mutual Funds

All investments involve some form of risk, which should be evaluated them potential
rewards when an investment is selected.


Managing risk
At times the prices or yields of all the securities in a particular market rise or fall due
to broad outside influences. When this happens, the stock prices of both an
outstanding, highly profitable company and a fledgling corporation may be affected.
This change in price is due to “market risk”.


Interest rate risk

Sometimes referred to as “loss of purchasing power”. Whenever inflation sprints
forward faster than the earnings on your investment, you run the risk that you will
actually be able to buy less, not more. Inflation risk also occurs when prices rise
faster than your returns.


Credit risk
In short, how stable is the company or entity to which you lend your money when
you invest? How certain are you that it will be able to pay the interest you are
promised, or repay your principal when the investment matures?


Inflation risk
Changing interest rates affect both equities and bonds in many ways. Investors are
reminded that “predicting” which way rates will go is rarely successful. A diversified
portfolio can help in offsetting these changes.

Effect of loss of key professional and inability to adopt

An industries’ key asset is often the personnel who run the business i.e. intellectual
properties of the key employees of the respective companies. Given the ever-
changing complexion of few industries and the high obsolescence levels, availability
of qualified, trained and motivated personnel is very critical for the success of
industries in few sectors. It is, therefore, necessary to attract key personnel and also
to retain them to meet the changing environment and challenges the sector offers.
Failure or inability to attract/retain such qualified key personnel may impact the
prospects of the companies in the particular sector in which the fund invests.


Exchange risks
A number of companies generate revenues in foreign currencies and may have
investments or expenses also denominated in foreign currencies. Changes in
exchange rates may, therefore, have a positive or negative impact on companies
which in turn would have an effect on the investment of the fund.


Investment risks
The sectoral fund schemes, investments will be predominantly in equities of select
companies in the particular sectors. Accordingly, the NAV of the schemes are linked
to the equity performance of such companies and may be more volatile than a more
diversified portfolio of equities.


Changes in government policy

Changes in Government policy especially in regard to the tax benefits may impact
the business prospects of the companies leading to an impact on the investments
made by the fund.

Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and its
investment objectives.
1.By Structure:


Open-ended Funds
An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net
Asset Value (NAV) related prices.
The key feature of open-end schemes is liquidity.


Closed-ended Funds
A closed-end fund has a stipulated maturity period which generally ranging from 3 to
15 years. The fund is open for subscription only during a specified period. Investors
can invest in the scheme at the time of the initial public issue and thereafter they can
buy or sell the units of the scheme on the stock exchanges where they are listed. In
order to provide an exit route to the investors, some close-ended funds give an
option of selling back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI regulations stipulate that at least one of the two exit routes
is provided to the investor.


Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related
prices.

1. By Investment Objective:


Growth Funds
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a majority of their corpus in equities. It has
been proven that returns from stocks, have outperformed most other kind of
investments held over the long term. Growth schemes are ideal for investors having
a long-term outlook seeking growth over a period of time.


Income Funds
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital stability
and regular income.


Balanced Funds
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities and
fixed income securities in the proportion indicated in their offer documents. In a
rising stock market, the NAV of these schemes may not normally keep pace, or fall
equally when the market falls. These are ideal for investors looking for a combination
of income and moderate growth.


Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term
instruments such as treasury bills, certificates of deposit, commercial paper and
inter-bank call money. Returns on these schemes may fluctuate depending upon the
interest rates prevailing in the market. These are ideal for Corporate and individual
investors as a means to part their surplus funds for short periods.


Load Funds
A Load Fund is one that charges a commission for entry or exit. That is, each time
you buy or sell units in the fund, a commission will be payable. Typically

entry and exit loads range from 1% to 2%. It could be worth paying the load, if the
fund has a good performance history.


No-Load Funds
A No-Load Fund is one that does not charge a commission for entry or exit. That is,
no commission is payable on purchase or sale of units in the fund. The advantage of
a no load fund is that the entire corpus is put to work.
2. Other Schemes:


Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment in
specified avenues. Investments made in Equity Linked Savings Schemes and
Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The
Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB
by investing in Mutual Funds, provided the capital asset has been sold prior to April
1, 2000 and the amount is invested before September 30, 2000.
3. Special Schemes


Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
InfoTech, Fast moving consumer goods Pharmaceuticals etc.


Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50.


Sectoral Schemes
Sectoral Funds are those, which invest exclusively in a specified industry or a group
of industries or various segments such as ‘A’ Group shares or initial public offerings.

2.8 RISKS AND RETURN

Investors’ interest in investments is largely pecuniary – to earn a return on their
money. However, selecting stocks exclusively on the basis of maximization of
returns is not enough.
The fact that most investors do not place available funds into the one, two or even
three stocks promising the greatest returns suggests that other factors must be
considered besides returns in the selection process. Investors not only like returns
but they also dislike risk. Their holding of an assortment of securities attests to that
fact.
To say that investors like returns and dislike risk is however, simplistic. Before we
can analyze securities and portfolios within a risk – return context, we must begin
with a clear understanding of the meaning of both, risk and return, what creates
them and how they should be measured.
The ultimate decisions to be made in investments are:

What mutual funds should be held?

How much to allocate to each.

Security analysis and portfolio management is built around the idea that investors
are concerned with two principal properties inherent in securities: the return that can
be expected from holding a security, and the risk that the return that is achieved will
be less than the return that was expected. Investors want to maximize expected
returns subject to their tolerance for risk.
The level of risk you are willing to take typically determines the funds you decide to
invest in. Mutual funds offer 3 levels of risk - low, medium and high. In general, the
higher the risk, the greater the potential gain or loss. As a result, unit prices for high-
risk mutual funds fluctuate far more widely than for lower risk funds. People who are
more cautious would tend to purchase lower risk funds, while more aggressive
investors tend to purchase higher risk units. One method of investment that many
people like to use is diversification - that is, buying a variety of funds across the
various risk levels. As a result, they will never totally
miss out on major market gains, and their losses will be less than if they invested
only in high risk funds. Depending on how quickly you want to build your capital, you
can choose from a number of investment styles, ranging from conservative to
aggressive.
2.9 BUDGET HIGHLIGHTS

Distribution tax on dividends abolished

Dividends will be taxable in the hands of the investor

Section 80M provides benefits to mutual funds

Dividends on equity to be charged tax at 10% for the year 2002 to 2003.

Dividends on the debt funds to be clubbed in the individual income

SEBI to be given more powers

Penalty on capital markets offenses increased to Rs. 25 crores or thrice the

gains, which ever is higher.
 CHAPTER 3

REVIEW OF LITERATURE
LITERATURE REVIEW
Literature review is the beginning of the primary data collection. It acts as a
gateway to the familiarity exercise by getting exposed to the study field in details.
Literature review included texts, databases, internet, journals and dailies.

3.1 PURPOSE
The purpose of literature review is innumerable in research work. Specific
need for references and citations makes secondary data quite valid. Literature
review forms the integral part of larger research. Secondary data forms the sole
basis for research in some instances. Above all, secondary data has proven to be
less costly, readily available, less time consuming and less effort required compared
to primary data.
Literature reviews provides support to validate secondary data hence
complementing the field data conclusion. It has also been observed that secondary
data gives insight into the research details. It is mandatory to examine secondary
data as a prerequisite for accuracy and relevance for primary data and subsequent
analysis.

Document Review
This report has been supplemented by observational fieldwork and
interviewing with and gathering and analyzing documentary material. These kinds of
documents are a useful source of information on program activities and processes,
and they can generate ideas for questions that can be pursued through observation
and interviewing.
3.2 METHODOLOGY FOR LITERATURE REVIEW
Literature review heavily relied on published materials like journals,
newspaper articles; magazines and write-ups of Current issues on the internet
concerning inventory management were constantly reviewed. Dailies and journals
were visited from time to time as articles appeared in the newspapers and
magazines. Methodology is the concept of methods used in conducting the study.
The methodology used for data collection is mainly through primary and secondary
data.
The secondary data is collected in the form of Balance sheets, Profit & Loss
accounts and Financial Statements from the annual reports published by the
company and other records, documents, journals, facts and figures of the company.

3.3 CONCLUSION
The collection of data depends on the nature of particular problem and on the
time and resources available. It also depends upon the ability and the experience of
the researcher. Secondary data may be either published data or unpublished data.
The researcher before using the secondary data must see that the data is reliable,
suitable and adequate.
 CHAPTER 4
METHODOLOGY
4.1 RESEARCH DESIGN
The research design includes an outline of the study. The research design contains
information stating the objectives of the study, meaning of mutual funds, sample
size, and techniques used for data collection, tools used to analyze data, limitations
of the study and the chapter overview of the project.
In India, the only mutual fund operating for a long time since 1964 was the UTI. It
was a public sector undertaking enjoying the monopoly position and some unique
tax benefits such as exemption from income tax of its entire income. During the
1960s, government wanted to mobilize huge sums from the public. Thus this gave
rise to mutual funds. Contribution towards the mutual funds was only from the high
net worth individuals and the other individuals were not contributing. Overall the
investors were not actively participating in the stock market mainly because of lack
of knowledge. To fill the gap between mobilization of huge sums to the government
as well as to increase the knowledge of the investors in relation to risk and return,
mutual funds were created. Until 1991, the private mutual funds were not
encouraged. But after privatization, which brought about changes in the economic
policies and the reforms, it has caught the imagination of financial community and is
in a growing stage. These funds mainly cater to the individual investors and small
savers. It was thrown open to the private sector and the foreign sector in 1992-93.
Thus mutual funds were liberated and this gave rise to competition between the
various players offering mutual funds. This gave rise to the various schemes of
mutual funds.
Throughout life, one may experience many changes, such as marriage, having
children, buying a home, financing college education, and even caring for ageing
parents. All of these situations can put a dent in one’s finances. That’s why it’s
important to set goals and follow a financial plan.
With liberalization and opening of the global markets countries like India have made
rapid advancements in the fields of finance. A country that was used to plain vanilla
products like Fixed Deposits, PPFs, NSS and LIC as investment
avenues suddenly saw a plethora of complex financial products storming the Indian
market and mentality. People now have a wide range of choices to exercise when it
came to investments. The only aspect, which did suffer, was that of awareness of
these products.
The company responsive to customer expectation places a strong emphasis on
existing emergency and latent needs. A strong orientation towards personalized
value service has made a force to reckon with.
The entire process of portfolio management is triggered by clearly articulating the
client’s risk return profile and his investment objectives. Such an investment
objective is then suitably qualified by constraint such as liquidity needs and
investments time horizon to determine the information in proprietary in-house an
external database to identify various mutual funds and to arrive at an optimum
portfolio.

4.2 STATEMENT OF PROBLEM

Investors are not aware about mutual funds, which are the higher return investment
option because of the enormous flow of foreign exchange investment avenues in the
country. Another problem is in meeting the requirements of investors belonging to
different profiles while investing in mutual funds so that there is maximum return at
optimal risk and proper resource allocation.
Hence, the criteria are to develop a mutual fund portfolio, which ensures satisfaction
to an investor.

4.3 OBJECTIVES OF THE STUDY

1. To study the array of investment products available in the market and
evaluate the performance of various mutual funds.
2. To ascertain the various investment goals of various investors.
3. To device a standardized portfolio for the investors keeping in mind their
investment capacities.
4.4 SCOPE OF THE STUDY
The study is focused primarily at Bangalore and in potential individual
investors. This study seeks to explain a practical approach to
mutual fund investments and portfolio management. It would
serve as a guide for Investment Advisors in advising investors
regarding the Mutual Fund Investments, the returns they
would fetch for the risk a client is willing to take.

4.5 METHODOLOGY OF RESEARCH

The type of research used in the study is primary analytical research design.
Survey method of data collection was adopted.
The research instrument used for collection of primary data was a questionnaire.
The secondary data was obtained from various company journals, annual reports,
books from the library and websites.

4.6 SAMPLING TECHNIQUE

Since the size of the investors was large, sampling was adopted. Cluster random
sampling was adopted and further, convenience random sampling was adopted to
conduct the research. Depending on the availability of respondents, the sample was
selected.
SAMPLE SIZE
A sample of 100 was targeted for the study. The sample consists of individual
investors classified as:
High Net worth individuals with an annual income of Rs. 600000 and above.
Medium Net worth Individuals with an annual income of Rs.300000 - Rs.600000.
Low Net worth Individuals with an annual income less than Rs.300000.
4.7 SOURCES, TOOLS AND TECHNIQUES OF DATA
COLLECTION
Data was collected from both primary and secondary sources.
Primary Data
An interview schedule that is a questionnaire was designed, pre-tested and
administrated on the individual potential investors.
Secondary Data
It is collected from a wide array of research papers, capital market, finance journals,
various websites and company’s database.
TOOLS OF DATA COLLECTION
Purpose based questionnaire have been designed seeking relevant information.
Furthermore, past history of investors and market watch is also used. Data has also
been collected through specific search engines over the Internet.

4.8 PLAN OF ANALYSIS

All data collected was carefully classified, tabulated and interpreted on the basis of
which, tables, charts and graphs were drawn up. Percentages were drawn from the
tabulated frequencies and the data have been analyzed. The analysis helped in
drawing inferences and for better understanding graphs were plotted.
4.9 OPERATIONAL DEFINITION OF CONCEPTS
Portfolio

A collection of investment all owned by the same individual or organization.

Mutual Fund

A fund operated by an investment company, which raises money from shareholders

and invests in a group of assets, in accordance with a stated set of objectives.
Benefits include diversification and professional money management.
Fund manager
A person who manages a mutual fund scheme.
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities.
The per unit NAV is the net asset value of the scheme divided by the number of
units outstanding on the Valuation Date.
Diversification
When one invests in the mutual fund, he instantly spreads his risk over a number of
different companies. He can also diversify over several different kinds of securities
by investing in different mutual funds, further reducing the potential risk.
Diversification is a basic risk management tool that will be used in the portfolio to
meet changing needs and goals. Based on their objectives schemes have been
clubbed together in categories. These are broad market classifications and help
investors narrow down their search for a scheme. After short-listing schemes by their
common objectives one can further look into each scheme for more specific
differences in their objectives.
Investment
An item of value purchased for income or capital appreciation.
Composition
The break down of portfolio by investment type.
4.10 LIMITATIONS


Most quantum algorithms deal in probabilities rather than absolutes.



The portfolio mix is highly dependent on a number of external factors that are
very volatile in nature, such as market movement for instance. This might
reduce the certainty of gain to an extent.


Free, continuous and reliable information is not always available.



Hence, availability of information or the lack of it is a serious constraint.

Besides, information could also be misleading, thus leading to an undesirable
impact as a result of such information based decision-making.


The sample size consists of 100 clients. Being a small sample size,
generalization arrived at is not 100% accurate.


The study is restricted only to Bangalore City.

 CHAPTER 4

DATA ANALYSIS AND

INTERPRETATION
The study was conducted to develop a mutual fund portfolio, which ensures
satisfaction to an investor. The study was based on the following objectives.
a. To study the array of investment products available in the market and
evaluate the performance of various mutual funds.
b. To ascertain the various investment goals of investors.
c. To device a standardized portfolio for the investors keeping in mind their
investment capacities.
All of the three objectives of the study are dealt with in detail in this chapter. The
data, which was collected by administrating questionnaires to potential investors of
diversified profiles, was carefully tabulated. On the basis of the data analysis and
inferences is drawn. Charts, graphs and diagrams support the analysis wherever
necessary.
I. To study the array of investment products available in the market

GRAPH 1:CHART SHOWING THE PERFORMANCE OF

VARIOUS INSTRUMENTS

20.16%
% RETURN

14.47%

9.19% 19.74%
7.62%

Inflation Gold BankFD CO.FD Equities

20 Year CAGR
Source – RBI reports (1997-98) and BSE sensitive index of equity prices – BSE
 OBSERVATIONS
As inflation grew at a rate of 9.19%, Gold has shown a growth rate of 7.62%.
Bank fixed deposits have risen at a rate of 9.74% while Company fixed deposits
have shown a growth rate of 14.47%. However, equity investments have
emerged with a growth rate of 20.16%.

TABLE 1: TABLE SHOWING THE % GROWTH RATE OF RETURN OF

MUTUAL FUNDS

Zurich Equity Fund 3 year SIP 5 year SIP 7 year SIP

Total Money Invested 3,700,000.00 6,100,000.00 8,500,000.00

Value of Investment 5,020,228.20 10,448,972.76 20,364,198.88

IRR - % 18.57 19.45 21.89

Franklin Blue-chip Fund 3 year SIP 5 year SIP 7 year SIP

Total Money Invested 3,700,000.00 6,100,000.00 8,500,000.00

Value of Investment 4,486,327.20 9,448,229.53 14,151,427.17

IRR - % 11.88 16.00 13.29

Source: Cholamandalam Investment and Finance Limited

ANALYSIS:
The above table indicates the rate of returns the investor can derive from his
investments in mutual fund. It shows that the investor can get up to 21.89% from an
equity or growth fund and as much as 13.29% in a blue-chip fund. Considered as the
safest of all options, banks have been the roots of the financial systems in
India. The two main modes of investment in banks, savings accounts and fixed
deposits have been effectively used by one and all. However, today the interest rate
structure in the country is headed southwards, keeping in line with global trends.
With the banks offering little above 9 percent in their fixed deposits for one year, the
yields have come down substantially in recent times. Add to this, the inflationary
pressures in economy and you have a position where the savings are not earning.
Another oft-used route to invest has been the fixed deposit schemes floated by
companies. Companies have used fixed deposit schemes as a means of mobilizing
funds for their operations and have paid interest on them. The safer a company is
rated, the lesser the return offered has been the thumb rule. However, there are
several potential roadblocks in these. First of all, the danger of financial position of
the company not being understood by the investor lurks. The investors rely on
intermediaries who more often than not, don’t reveal the entire truth. Secondly,
liquidity is a major problem with the amount being received months after the due
dates. Premature redemption is generally not entertained without cuts in the returns
offered and though they present a reasonable option to counter interest rate risk
(especially when the economy is headed for a low interest regime), the safety of
principal amount has been found lacking. Stock markets provide an option to invest
in a high risk, high return game. While the potential return is much more than 10-11
percent any of the options discussed above can generally generate, the risk is
undoubtedly of the highest order. But then, the general principle of encountering
greater risks and uncertainty when one seeks higher returns holds true. However, as
enticing as it might appear, people generally are clueless as to how the stock market
functions and in the process can endanger the hard-earned money.
INFERENCE
For those who are not adept at understanding the stock market, the task of
generating superior returns at similar levels of risk is arduous to say the least. This is
where Mutual Funds come into picture, which gives a higher rate of
return, which extends from 13% onwards. Thus mutual funds give better rate of
returns compared to various other financial instruments.

TABLE 2: TABLE SHOWING THE COMPARISON BETWEEN BANKS VS

MUTUAL FUNDS AS AN INVESTMENT AVENUE

BASES BANKS MUTUAL FUNDS

Returns Low Better

Administrative Expenses High Low

Risk Low Moderate

Investment Options Less More

Network High Penetration Low but improving

Liquidity At a cost Better

Quality of Assets Not transparent Transparent

Interest Calculation Minimum Balance Every day

between 10th and 30th of
every month

Guarantee Maximum Rs.1 lakh on None

deposits

Source: Prudential ICICI Ltd

ANALYSIS
The above table clearly indicates the demarcation between the investments in banks
and mutual funds. It can be inferred that mutual fund proves to be a better
investment avenue because of its better returns and liquidity and the transparency in
the quality of assets.
INFERENCE
Banks have been the roots of the financial system in India. However, today, the
interest rate structure in the country is headed southwards, keeping in line with
global trends. With the banks offering little above 9% in their fixed deposits for 1
year, the yields have come down substantially in recent times. Add to this, the
inflationary pressure in economy have reduced the earnings on savings. Thus
mutual funds come into the picture, which gives a higher rate of return, which
extends from 13% onwards. This proves that mutual fund is a brighter and a more
attractive investment avenue for an investor.

EVALUATION OF THE PERFORMANCE OF THE VARIOUS MUTUAL FUNDS

TABLE 3: TABLE SHOWING THE FUND MONITOR

• Funds with at least a 24-month track record have been ranked on the basis of
Sharpe ratio. Sharpe ratio measure is the ratio of the risk premium and the
standard deviation of the returns. The NAV growth is the growth from the date
of inception till 9th May 2004.
Source: HSBC – Financial Planning Services
LIQUID FUNDS

NAV ON 9TH ABSOLUTE RETURNS (%) – RANKIN

FUND DATE MAY 2004 (CAGR) GS
OF (INR) BASED
INCEPTI ON
ON SHARPE
GROW DIVIDE 24 12 6 1
RATIO
TH ND MONTH MONTH MONT MONT
S S H H

Alliance
cash
18-05-98 14.92 10.00 7.18 6.54 2.97 0.44 1
manag
er

Zurich
India
17-11-99 12.61 10.64 7.34 6.73 3.07 0.47 2
liquidity
fund

Temple
ton
India 1514.4
30-04-98 1245.20 7.48 6.77 2.96 0.45 3
treasur 3
y mgmt
A/C
The aim of the Liquid Fund is to provide preservation of capital and moderate
income. The above table indicates the returns a person would get when they part
their surplus funds for short periods. The above table shows the top 3 Liquid Funds
and an investor has got the best growth up to 14.92 (INR) on the NAV of liquid fund.

BALANCED FUND

ABSOLUTE RETURNS (%) –

NAV ON 9TH MAY RANKIN
(CAGR)
FUND 2004 (INR) GS
DATE OF
BASED
INCEPTI
ON
ON GROWT DIVIDEN 6 1
24 12 SHARPE
H D MON MON
MON MON RATIO
TH TH
TH TH

Allianc
e 95 27-03-95 47.58 26.37 5.03 -4.03 10.04 -0.92 1
fund

Prude
ntial 11-11-99 9.73 8.99 5.88 0.21 9.33 -0.10 2
ICICI

Birla
balanc 1-11-99 9.06 9.06 3.00 -0.98 12.69 0.22 3
e fund

The Balance Fund provides both growth and regular income. The above table shows
the top 3 Balanced Funds and that an investor has got a best growth of up to 47.58
INR on NAV of balanced fund.

EQUITY OR GROWTH FUNDS

 ABSOLUTE RETURNS (%) –
NAV ON 9TH MAY RANKIN
(CAGR)
FUND DATE 2004 (INR) GS
OF BASED
INCEPTI ON
GROWT DIVIDEN 6 1
ON 24 12 SHARPE
H D MON MON
MON MON RATIO
TH TH
TH TH

Zurich
(I)
23-12-94 23.97 13.10 16.34 1.78 20.27 1.52 1
Equity
Fund

Zurich
(I) top
4-09-96 17.97 12.25 12.06 4.17 17.76 3.10 2
200
Fund

Frankli
n India
13-12-94 23.95 13.06 8.54 -1.28 13.61 1.44 3
Prima
Plus

Equity Fund is suitable for investors to get capital appreciation over the medium to
long term. It is ideal for investors having a long-term outlook seeking growth over a
period of time. The Franklin India Prima Plus has shown a negative absolute return
for 12 months-this means that there would be a high rise only after 24 months. The
above table shows the top 3 funds where an investor has got a growth up to 23.97
(INR) on NAV of equity or growth funds.
SECTOR FUNDS

ABSOLUTE RETURNS (%) –

NAV ON 9TH MAY
DATE (CAGR)
FUND 2004 (INR)
OF
INCEPTI
ON GROWT DIVIDEN 24 12 6 1
H D MON MON MON MON
TH TH TH TH

Alliance
Basic
25-02-00 13.07 13.06 25.19 19.69 33.91 6.17
Industrie
s Fund

Alliance
-
Buy India 25-02-00 4.30 4.30 -5.94 -6.52 -0.49
23.89
Fund

Alliance
New - -
25-02-00 3.63 3.62 -3.21 -6.46
Millenniu 12.61 29.84
m Fund

The above table indicates that an investor has got a growth up to 13.07 (INR) on
NAV of sector funds.
Sharpe ratio is not available for Sector Fund Category during the particular period.

INCOME FUNDS
 ABSOLUTE RETURNS (%) –
NAV ON 9TH MAY RANKIN
(CAGR)
FUND 2004 (INR) GS
DATE OF
BASED
INCEPTI
ON
ON GROWT DIVIDEN 6 1
24 12 SHARPE
H D MON MON
MON MON RATIO
TH TH
TH TH

Allianc
e
26-03-97 21.55 10.65 14.76 13.22 5.70 0.62 1
Income
Fund

Zurich
(I) High
19-05-97 21.58 11.54 15.13 13.87 5.91 0.67 2
Interes
t Fund

Birla
Income 10-11-95 26.33 10.63 15.22 14.12 6.27 0.76 3
Plus

The aim of the income fund is to provide regular and steady income to investors.
The above table shows the top Mutual Funds and indicates an investor has got a
growth up to 21.55 (INR) on NAV of Income Funds.

ANALYSIS:
The above tables clearly indicate that the rate of return from the mutual funds is
higher when compared to the other investment options. Thus this clearly shows that
mutual funds are a better investment avenue to trade off between risk and return.

II. To study the Financial Goals of the Investors

TABLE 4: TABLE SHOWING CLASSIFICATION OF INVESTORS BASED ON

AGE GROUP

PERCENTAGE
AGE (YEARS) NO. OF RESPONDENTS

Below 25 ---------- -----------

25-30 20 20

30-35 22 22

35-40 12 12

40-45 14 14

45-50 20 20

50 and above 12 12

Total 100 100

GRAPH 2: CHART SHOWING THE INVESTORS
CLASSIFICATION BASED ON AGE

25 22
20 20
No of investors

20
14
15 12 12
10
5
0
0
Below 25-30 30-35 35-40 40-45 45-50 50 and
25 above
Age(years)
ANALYSIS:
The above table indicates that there are no investors below the age group of 25
years. 20% of the investors belong to the age group of 25 - 30 years and 20% of the
investors also belong to the age group of 45-50 years.22% of the investors belong to
the age group of 30-35 years. The remaining percentage of investors lies in the age
group of 35-45 years and 50years and above.

INFERENCE:
Age is one of the important demographic characteristics that influence the
investment habits. It can be inferred that people in the age group of 30-35 years are
keen investors. It is also shown that disposable income is there even in the age
group of 45-50 and 25-30 years. So this age group can also be taken as potential
investors.

TABLE 5: TABLE SHOWING THE ANNUAL INCOME OF INVESTORS

ANNUAL INCOME (RS.) NO OF RESPONDENTS PERCENTAGES

LESS THAN 300000 20 20

300000-600000 42 42

600000 & ABOVE 38 38

TOTAL 100 100

GRAPH 3: CHART SHOWING THE ANNUAL INCOME

OF INVESTORS

600000 & ABOVE 38

Annual Income

300000-600000 42

LESS THAN
20
300000

No of Investors

ANALYSIS
The above table shows that out of 100 respondents, 20% belong to the income
category of less than Rs.300000, 42% of the investors belong to the income
category of Rs.300000-Rs.600000 and the remaining 38% of the investors belong to
the income category of Rs.600000.

INFERENCE
From the above table, one can infer that the investors lie in the income category of
Rs.300000 and above. This shows that the potential investors belong to the medium
and high net worth category that are willing to invest and get returns at minimal
levels of risk.

TABLE 6: TABLE SHOWING THE RELATIONSHIP BETWEEN THE INVESTORS

AGE AND INCOME

AGE
(YRS) BELOW 50 &
25-30 30-35 35-40 40-45 45-50
25 ABOVE
(%) (%) (%) (%) (%)
INCOME (%) (%)
(RS)

LESS
THAN 0 4 7 3 2 3 1
300000

300000-
0 11 12 3 8 6 2
600000

600000 &
0 5 3 6 4 11 9
ABOVE

GRAPH 4: CHART SHOWING THE RELATIONSHIP BETWEEN

THE INVESTORS AGE AND ANNUAL INCOME

100%
Annual Income

80%
600000 & ABOVE
60%
300000-600000
40%
LESS T HAN 300000
20%
0%
BELOW 30-35 40-45 50 &
25 ABOVE

Age of Investors
ANALYSIS
The above table shows that most of the investors lie in the annual income category
of Rs.300000 and above. It also shows that most of the investors lie in the age
category of 30-35 years followed by 25-30 and 45-50 years.

INFERENCE
From the above table, we can infer that any investor having an income of above
Rs.300000 will make investments according to his financial goals and in accordance
with his age. An investor would make an income based on the risk factor (risk = 100-
Age). It shows that most of the investors would basically invest at the age above 30
years.
TABLE 7: TABLE SHOWING THE DECISION VARIABLES THAT GOVERN
INVESTMENTS

DECISION VARIABLES NO OF RESPONDENTS PERCENTAGES

Safety of principle 53 53

Beat inflation 10 10

Earn high returns at high

risks 7 7

Fixed rate of return from

investment 15 15

Liquidity 15 15

Total 100 100

GRAPH 5: CHART SHOWING THE DECISION

VARIABLES THAT GOVERN INVESTMENTS

Liquidity 15
Decision Variables

Fixed rate of return

from investment
15

Earn high returns at

high risks 7

Beat inflation 10

Safety of principle 53

No of respondents
ANALYSIS:
The above table shows that out of 100 respondents, 53% believe that their
investments should be 100% safe, 25% want fixed rate of return from investments,
15% want their investments in the form of liquidity and the remaining want
investments that can beat inflation and earn high returns at high risks.
INFERENCE:
The above figures help us to come to the conclusion that majority of the Indian
investors are not ready to take high risk. They would rather ensure that their
investments are 100% safe than make investments that earn higher than the
inflation rate. In fact this is the reason why people prefer to invest in fixed and public
deposits.

TABLE 8: TABLE SHOWING INVESTORS PREFERENCE PRIOR TO INVESTING

OPTIONS NO OF RESPONDENTS PERCENTAGES

Evaluate investment options 38 38

Based decisions on friendly advice 21 21

Rely on advisor 41 41

Total 100 100

 GRAPH 6:CHART SHOWING INVESTORS PREFERENCE PRIOR
TO INVESTING

38 41

21
No of
Respondents

Evaluate Based Rely on

investmentdecisions on advisor
options friendly
advice
Options

ANALYSIS:
The above table shows that out of 100 respondents 38% evaluate investment
options, 21% invest based on friendly advice and 41% invest in accordance with the
advisor.
INFERENCE:
The above figures clearly show that most of the investors prefer to invest relying on
the advisors because the advisor has the latest information relating to the risk and
return which ensures an optimum investment portfolio relating to mutual funds.
TABLE 9: TABLE SHOWING THE LOCK-IN-PERIOD OF THE FUNDS INVESTED

LOCK-IN-PERIOD NO OF RESPONDENTS PERCENTAGES

Up to 2 years 37 37

2-5 years 36 36

6 years and above 27 27

Total 100 100

GRAPH 7:CHART SHOWING THE LOCK-IN-PERIOD OF

FUNDS INVESTED

6 Years and above

27%
37%

Upto 2 Years

36%
2-5 Years

ANALYSIS:
The table above gives the time period that the investors like to stay invested. 37%
wanted to invest for less than 2 years, 36% wanted to stay invested for 2-5 years
and 27% wanted to make investments for a period of over 6 years.
INFERENCE:
The time frame within which the investors want to stay invested helps to create a
portfolio for them. Those who want to invest for less than 2 years invest in debt
funds while others can invest in equity-based funds, which include sector specific
funds, balanced funds and thus ensuring tax benefits.

TABLE 10: TABLE SHOWING THE PERCENTAGE OF MONTHLY INCOME THAT

CAN BE INVESTED

Percentage of monthly Number of respondents Percentages

income that can be
invested

Less than 10% 28 28

10% - 25% 44 44

25% - 40% 18 18

40% and above 10 10

Total 100 100

 GRAPH 8: CHART SHOWING THE PERCENTAGE OF MONTHLY
INCOME THAT CAN BE INVESTED BY POTENTIAL INVESTORS

40% & above

10%
28%
18% Less than 10%
25%-40%

44%
10%-25%
ANALYSIS:
The table shows that out of 100 respondents, 44% would like to invest any amount
between 10%-25% of their monthly income, 28% would like to invest less than 10%
while the balance 28% want to invest in more than 25%.
INFERENCE:
The fact that more respondents would like to invest between 10-25% of their monthly
income goes to show that they want to generate income through investments, which
they can use on a later date. These investors can avail the systematic investment
schemes, which allow them to make installment payments.

TABLE 11: TABLE SHOWING THE RELATIONSHIP BETWEEN AGE AND %

MONTHLY INCOME INVESTED

MONTHLY
INCOME LESS 10%-25% 25%-40% 40% AND
THAN 10% (%) (%) ABOVE
INVESTED (%) (%)
AGE (YEARS)

Less than 25 0 0 0 0

25-30 6 8 6 0

30-35 10 7 3 2

35-40 0 8 1 2

40-45 4 7 2 1

45-50 4 7 4 5

50 and above 4 6 2 0
 GRAPH 9: CHART SHOWING THE RELATIONSHIP BETWEEN THE AGE
AND % MONTHLY INCOME INVESTED
Monthly Income Invested

LESS THAN 10%

10%-25%
25%-40%
40% AND ABOVE

Less 30-35 40-45 50 and

than 25 above
Age in Years

ANALYSIS:
The above table indicates that there are more number of investors within the age
group of 25-30 and 30-35 years. It also shows that there is more investment in the
monthly income investment category of less than 10% and 10-25%.
INFERENCE:
The above figure shows that the maximum number of investors is in the age group
of 25-35 years. This shows that monthly income invested is inversely proportional to
age. More number of investors would like to invest 10-25% of their monthly income
rather than make an investment 25% and above.
TABLE 12: TABLE SHOWING THE RELATIONSHIP BETWEEN INCOME OF
INVESTORS AND THEIR % MONTHLY INVESTMENT.

MONTHLY
INCOME LESS THAN 10%-25% 25%-40% 40% AND
10% (%) (%) ABOVE
INVESTED (%) (%)
INCOME (Rs)

Less than 300000 8 10 2 0

300000-600000 15 20 7 0

600000 and 5 14 9 10
above

GRAPH 10: CHART SHOWING THE RELATIONSHIP BETWEEN THE

INCOME OF INVESTORS AND THEIR MONTHLY INVESTMENT

20
15
14
Monthly
Investment 10 10 INCOME (Rs)
8 9
7 Less than 300000
5
300000-600000
2
0 0 600000-900000

LESS 10%-25% 25%-40% 40% AND

THAN 10% ABOVE
Incom e of Investors
ANALYSIS:
The above table indicates that out of 100 respondents 42% of them earn 300000-
600000 per annum, 38% earn 600000-900000 and 20% earn less than 300000. It
also indicates that 44% of the respondents would like to invest 10-25% of their
monthly income and 28% would like to invest less than 10% of their monthly income.
The remaining 28% of the respondents would like to invest 25% and above.
INFERENCE:
From the above table, we can infer that a rise in income increases the percentage of
monthly income that can be invested but Indian investors would rather prefer to
invest mostly 10-25% of their monthly income.

TABLE 13: TABLE SHOWING THE VOLATILITY LEVEL OF INVESTORS

 RISK LEVEL NO OF PERCENTAGES
RESPONDENTS

Minimal 36 36

Some 42 42

Moderate 18 18

Considerate/substantial 4 4

Total 100 100

GRAPH 11: CHART SHOWING THE RISK LEVEL OF

INVESTORS
No of Respondents

42
36

18
4
Moderate

Considerate/s
Some
Minimal

ubstantial

Risk Level

ANALYSIS:
The above table clearly indicates that 42% of the respondents would take up some
risk, 36% fall in the category of minimal risk level, 18% in the moderate risk level and
a very small percentage would fall under the considerate or substantial risk level of
investment.
INFERENCE:
From the above table one can infer that most of the investors are in a position to
accept decline in value as long as the portfolio generates current income and
exhibits some capital appreciation over time. People would also prefer that the result
should be relatively stable with the majority of return derived from current income,
even if it means that the total returns are relatively small. Indian investors do not like
to fall in the substantial risk category. Substantial risk can be undertaken while
pursuing larger potential total returns which is inversely proportional to the Indian
investors.
TABLE 14: TABLE SHOWING THE TOLERATION TOWARDS TEMPORARY
DECLINE OF INVESTMENTS

LEVEL OF DECLINE PERCENTAGES

NO OF RESPONDENTS

No Decline 34 34

5%-10% 62 62

10%-15% 4 4

15% and above 0 0

Total 100 100

GRAPH 12: CHART SHOWING THE TOLERATION TOWARDS

THE TEMPORARY DECLINE OF INVESTMENTS

10%-15%

No Decline
4%

34%
62%
5%-10%

ANALYSIS:
The above table gives the response of 100 people when asked how much of
temporary decline they would tolerate. 34% said that they would not tolerate any
amount of decline, 62% would tolerate 5-10% decline, 4% of the respondents would
tolerate 10%-15% while no respondents would tolerate any decline above 15%.
INFERENCE:
From the above table, one can infer that 34% of the people are looking for 100%
safe investments while the rest 66% of the respondents feel that they would be able
to take decline in investments from anywhere between 5-15%.

TABLE 15: TABLE SHOWING THE PRIORITY OF IMPORTANT VARIABLES

WHILE INVESTING IN MUTUAL FUNDS.
PRIORITY 1 2 3 4 5

CRITERIA

Safety 18 6 12 0 4

Liquidity 4 12 16 8 0

Returns 2 12 2 20 4

Convenience 0 2 6 6 26

Tax Benefits 16 8 4 6 6

WEIGHT SCORE WEIGHT AVERAGE PERCENTAGES

154 1.54 30.80

132 1.32 26.40

108 1.08 21.6

64 0.64 12.8

142 1.42 28.4

TOTAL 6 100

Weighted Average = Weighted Score / No of Respondents

Total Weighted Average =6
Maximum Possible Score = 5*5 = 25
Weighted Average Percentage = 6/25 * 100 = 24%

Likert Scale – a predetermined scale used to determine as to where this weighted

average percentage falls.
The scale for measuring priority is given below as:
1 Very important
2 Important
3 Considerably important
4 Moderately important
5 Least important
The weighted average percentage has been calculated using the following formula
for each question.
a) Safety
Weighted Average Percentage = Weighted Average / Maximum Possible Score
Weighted Average = 1.54
Maximum Possible Score = 1*5 = 5
Weighted Average Percentage = 1.54 / 5 * 100 = 30.80%

ANALYSIS:
The table given above shows the ranks assigned by prospective investors when
asked the order in which they would consider the following while investing in mutual
funds – safety, tax benefits, convenience, returns and liquidity. 100 respondents
were asked to rank the above 5 factors on the scale of 1-5 in descending order of
priority.

INFERENCE:
The overall weighted average of the priority of important variables while investing
was 24% which fell in the 4th slab i.e. convenience – indicating that people give least
importance. Majority of the people rank safety as number 1 factor to be considered
in investing in mutual funds followed by returns and tax benefits. This shows that
most of the prospective investors are safe investors while very few are versatile
investors.
TABLE 16: TABLE SHOWING THE PRIME CONCERN FOR INVESTMENTS

PRIME CONCERN NO OF RESPONDENTS PERCENTAGES

Optimized Returns 30 30

Capital Appreciation 22 22

Tax Benefits 25 25

Stable Returns 23 23

Total 100 100

GRAPH 13: GRAPH SHOWING THE CRITERIA FOR

INVESTING

30
25
22 23

No of
Responden

Optimized Capital Tax Benefits Stable Returns

Returns Appreciation
Prim e concern

ANALYSIS:
The above table shows that out of 100 respondents 30% would like to optimize
returns, 25% invest to get tax benefits while the rest invest to get capital appreciation
and stable returns.

INFERENCE:
The above figures clearly show that the prime concern for most of the investors is to
optimize returns compared to the risk and the decline rate. Thus this shows that
most of the prospective investors invest to optimize returns along with tax benefits
rather than to get stable returns.

TABLE 17: TABLE SHOWING THE RELATIONSHIP BETWEEN AGE AND PRIME
CONCERN FOR INVESTMENTS.

AGE 50
BELOW
PRIME 25-30 30-35 35-40 40-45 45-50 YEARS
25
CONCERN YEARS YEARS YEARS YEARS YEARS &
YEARS
(%) (%) (%) (%) (%) ABOVE
(%)
(%)

Optimized
0 7 6 4 4 5 3
Returns

Capital
0 3 3 2 6 3 5
Appreciation

Tax
0 6 8 3 3 3 2
Benefits

Stable
0 4 5 3 1 8 2
Returns
 GRAPH 14: CHART SHOWING THE RELATIONSHIP BETWEEN AGE
AND PRIME CONCERN FOR INVESTMENTS

100%
Prime Concern

80% Stable Returns

60% Tax Benefits

40% Capital Appreciation

20% Optimized Returns
0%
BELOW 25 25-30 30-35 35-40 40-45 45-50 50 YEARS
YEARS (%) YEARS (%) YEARS (%) YEARS (%) YEARS (%) YEARS (%) & ABOVE
(%)

Age Of Investors

ANALYSIS
The above table shows that a large number of investors are in the age category of
30-35 years. It indicates that most of the investors prefer to optimize returns followed
by tax benefits, stable returns and capital appreciation. It indicates that 30% of the
investors would like to optimize returns. It shows that 22% of the investors lie in the
age category of 30-35 years while deciding the prime concern for investments.

INFERENCE
An increase in age increases the prime concern towards capital appreciation and tax
benefits along with the concern to optimize returns and to get stable returns.
Investors in the age group of 25-30 years prefer to optimize returns, 30-45 years
prefer to get tax benefits and people above the age group of 45 years will have
equal concern for all the variables leading to investments.

TABLE 18: TABLE SHOWING THE RELATIONSHIP BETWEEN INCOME AND

PRIME CONCERN FOR INVESTMENTS
 LESS THAN 300000 – 600000 600000 & ABOVE
INCOME
300000 (%) (%) (%)
PRIME CONCERN

Optimize Returns 7 15 8

Capital
3 6 13
Appreciation

Tax Benefits 4 7 14

Stable Returns 6 14 3

GRAPH 15: CHART SHOWING THE RELATIONSHIP BETWEEN

INVESTORS INCOME AND PRIME CONCERN FOR
INVESTMENTS

100%
Prime Concern

80%
Stable Returns
60%
Tax Benefits
40% Capital Appreciation
20% Optimize Returns

0%
LESS THAN 300000 300000 – 600000 (%) 600000 & ABOVE
(%) (%)
Investors Income

ANALYSIS
The above table indicates that more number of investors lie in the income category
of Rs.300000 – 600000 followed by the income category of Rs.600000 and above. It
also indicates that the investors are more concerned to optimize returns when they
make investments.
INFERENCE
From the above table we can infer that income plays a very important role for
deciding the prime concern for investments. Investors lying in the income bracket of
Rs.300000-600000 show their prime concern towards optimization of returns and
stable returns where as an increase in income bracket shows tax benefits as their
prime concern. Thus investors lie in the income group of more than Rs.300000.

TABLE 19: TABLE SHOWING THE SAFETY QUOTIENT

 SAFETY QUOTIENT NO OF RESPONDENTS PERCENTAGES

Money should be 100%

safe even if returns do
58 58
not keep pace with
inflation

Investments keep pace

28 28
with inflation

Investments grow faster

14 14
than inflation

Total 100 100

GRAPH 16: CHART SHOWING THE SAFETY QUOTIENT

Investments grow faster than inflation 14

Quotient
Safety

Investments keep pace w ith inflation 28

58
Money should be 100% safe even if returns do not keep
pace w ith inflation

No of Respondents

ANALYSIS:
The above table helps in analyzing the risk the respondents are willing to take in
order to earn returns keeping in mind the inflation rate.58% of the investors think
their money should be 100% safe even though it does not keep pace with
inflation.28% want their investments to be in pace with inflation and 14% are willing
to take small amounts of risk provided they have a chance to earn greater than the
inflation rate.
INFERENCE:
Indian economy largely consists of safe and cautious investors and an extremely
small amount of versatile investors.

TABLE 20: TABLE SHOWING THE RELATIONSHIP BETWEEN SAFETY

QUOTIENT AND AGE.
 50
BELOW
AGE 25-30 30-35 35-40 40-45 45-50 YEARS
25
YEARS YEARS YEARS YEARS YEARS &
YEARS
SAFETY (%) (%) (%) (%) (%) ABOVE
(%)
QUOTIENT (%)

Money
should be
100% safe
even if
0 11 13 5 9 7 8
returns do
not keep
pace with
inflation

Investments
keep pace 0 6 4 3 3 7 3
with inflation

Investments
grow faster 0 3 5 4 2 6 1
than inflation
 GRAPH 17: CHART SHOWING THE RELATIONSHIP BETWEEN
SAFETY QUOTIENT AND AGE

100%
Investments grow
faster than inflation
Safety Quotient

80%

60%
Investments keep pace
40% with inflation

20%
M oney should be
0% 100% safe even if
BELOW 25-30 30-35 35-40 40-45 45-50 50 returns do not keep
25 YEARS YEARS YEARS YEARS YEARS YEARS pace with inflation
YEARS (%) (%) (%) (%) (%) &
(%) ABOVE
(%)
Age of Investors

ANALYSIS
The above table shows that most of the investors lie in the age group of 30-35 years
and would prefer their money to be 100% safe even if returns do not keep pace with
inflation. 58% of the investors want their money to be 100% safe, 28% want their
investments to keep pace with inflation and 14% of the investors want their
investments to grow faster than inflation.
INFERENCE
The above figure indicates that Indian investors would prefer to at least get back
their initial investment than to loose their investments. Investors are ready to take
minimal risk to increase their returns rather than taking a considerable risk.
TABLE 21: TABLE SHOWING THE RELATIONSHIP BETWEEN SAFETY
QUOTIENT AND INCOME

INCOME LESS THAN 300000 – 600000 600000 & ABOVE

SAFETY 300000 (%) (%) (%)
QUOTIENT

Money should be
100% safe even if
9 22 27
returns do not keep
pace with inflation

Investments keep
7 12 9
pace with inflation

Investments grow
4 8 2
faster than inflation

GRAPH 18: CHART SHOWING THE RELATIONSHIP BETWEEN THE

SAFETY QUOTIENT AND INCOME

100% Investments grow

faster than inflation
80%
Safety Quotient

60%
Investments keep
40% pace with inflation

20%
M oney should be
0%
100% safe even if
LESS THAN 300000 – 600000 600000 & ABOVE returns do not keep
300000 (%) (%) (%) pace with inflation
Income of Investors

ANALYSIS
The above table shows that there are more number of investors in the income group
of Rs.300000 – 600000 followed by Rs.600000 and above. More number of
investors would want their money to be 100% safe even if returns do not keep pace
with inflation. 42% of the investors lie in the income category between Rs.300000 –
600000 whereas 58% of the investors would like their money to be 100% safe.

INFERENCE
From the above graph we can infer that investors with an income category of more
than Rs.300000 will want their money to be 100% safe. Thus income is inversely
proportional to the safety quotient. This indicates that Indian investors will invest in
only those investments that are 100% safe even though returns are not in
accordance with inflation.

TABLE 22: TABLE SHOWING THE REACTION OF INVESTORS IN CASE OF

FLUCTUATIONS

REACTION NO OF RESPONDENTS PERCENTAGES

Sell 44 44

Hold Investments 32 32

Use Decline to Invest 10 10

Diversify across Markets 14 14

Total 100 100

 GRAPH 19: CHART SHOWING REACTION OF INVESTORS IN
CASE OF FLUCTUATION

Diversify across markets

14%
10%
Use Decline to
44%
Invest Sell

32%

Hold Investments

ANALYSIS:
The above table gives us the reaction of 100 respondents when asked about their
reaction in case of fluctuation in the value of investments. 44% said that they would
sell their investments and not invest further, 32% will hold
investments, 16% will use the decline to invest in various other schemes of mutual
funds and 14% would diversify across markets in case of fluctuations.
INFERENCE:
Most of the investors do not want to invest into different schemes but would rather
wait and see how the fund is performing compared to the benchmark before taking
out all its investments from mutual funds.

TABLE 23: TABLE SHOWING THE RELATIONSHIP BETWEEN REACTION OF

INVESTORS INCASE OF FLUCTUATIONS AND THEIR ANNUAL INCOME

LESS THAN 300000- 600000 &

INCOME
300000 600000 ABOVE
(%) (%) (%)
(RS)
 REACTION

SELL 9 15 20

HOLD
7 15 10
INVESTMENTS

USE DECLINE
2 5 3
TO INVEST

DIVERSIFY
ACROSS 2 7 5
MARKETS

GRAPH 20: CHART SHOWING THE REACTION OF

INVESTORS INCASE OF FLUCTUATIONS

100%
DIVERSIFY ACROSS
80% MARKET S
Reaction

60% USE DECLINE T O INVEST

40%
HOLD INVEST MENT S
20%
0% SELL
LESS THAN 300000-600000 600000 &
300000 ABOVE

Income of Investors

ANALYSIS
The above table shows that most of the investors lie in the income category of
Rs.300000 – 600000. It shows that most of the investors prefer to sell their
investments incase of fluctuations followed by to hold investments. Investors least
prefer to use decline to invest and diversify across markets incase of fluctuations.
INFERENCE
We can infer that the investors would not like to take further risk in case of
fluctuations but prefer to sell and realize at least the principal though the return
doesn’t keep in pace as expected. But some of the versatile investors would prefer
to hold and take a minimal amount of risk incase of fluctuations. This shows that
most of the investors are safe investors than versatile investors.

TABLE 24: TABLE SHOWING THE ARRAY OF PRODUCTS ALREADY

INVESTED BY THE INVESTORS

PRODUCT NO OF INVESTMENTS PERCENTAGES

MADE

Real Estate 30 20.55

Bank Fixed Deposits 41 28.08

Mutual Funds 30 20.55

PPF 13 8.90

Bonds 9 6.16

Shares 23 15.76

ANALYSIS:
The above table gives us the percentage of instruments in which the respondents
have invested the highest in their overall financial plan. 28.08% have invested in
bank fixed deposits, 20.55% are being invested in real estate, 20.55% also being
invested in mutual funds and the remaining being invested in PPF bonds and
shares.
INFERENCE:
Only 20.55% of the respondents having invested in mutual funds, which goes to
show that the Indian investors still prefer vanilla products such as fixed deposits and
real estate. The market available for mutual fund agencies is very large which still
has not been tapped.

TABLE 25: TABLE SHOWING THE RELATIONSHIP BETWEEN THE INVESTORS

AGE AND THE INVESTMENTS IN THE ARRAY OF PRODUCTS

AGE BELOW 50 AND

25-30 30-35 35-40 40-45 45-50
25 ABOVE
(%) (%) (%) (%) (%)
(YRS) (%) (%)
PRODUCT

Real Estate 0 4 4 4 3 4 2

Bank Fixed
0 5 5 4 5 6 3
Deposits

Mutual
0 5 5 2 2 5 2
Funds

PPF 0 2 3 1 1 1 1

Bonds 0 1 2 0 1 1 1

Shares 0 3 3 1 2 3 3
 GRAPH 21: CHART SHOWING THE RELATIONSHIP
BETWEEN AGE AND ARRAY OF INVESTMENTS MADE
Shares
Products Invested

100% Bonds
80%
60% PPF
40% Mutual Funds
20%
0% Bank Fixed Deposits
Real Estate

E
0

0
25

V
-3

-3

-4

-4

-5

BO
W

25

30

35

40

45
LO

A
BE

D
N
A
50
Age of Investors

ANALYSIS
The above table shows that most of the investors have made their investments in
bank fixed deposits as their prime investment avenue, followed by investors having
made their investments in real estate and in mutual funds. The remaining investors
have invested in PPF, Bonds and Shares. It also shows that most of the investors lie
in the age group of 30-35 years followed by investors in the age group of 25-30
years and 45-50 years.
INFERENCE
It shows that most of the investors are used to plain vanilla products like fixed
deposits and real estates as investment avenues. Most of the people do not know
the finer nuances of the product even though they are quite superior in nature like
mutual funds. This shows that an increase in knowledge among the investors would
increase their return by using the most profitable investment avenue like mutual
fund.
TABLE 26: TABLE SHOWING THE RELATIONSHIP BETWEEN INCOME AND
THE INVESTMENTS IN THE ARRAY OF PRODUCTS
 LESS THAN
300000-600000 600000 & ABOVE
INCOME (RS) 300000
(%) (%)
PRODUCTS (%)

Real Estate 7 6 7

Bank Fixed
6 10 12
Deposits

Mutual Funds 3 10 8

PPF 1 5 3

Bonds 1 3 2

Shares 2 8 6

GRAPH 22: CHART SHOWING THE RELATIONSHIP

BETWEEN INCOME AND INVESTMENTS IN THE ARRAY OF
PRODUCTS
Products Invested

100% Shares
80% Bonds
60% PPF
40%
Mutual Funds
20%
Bank Fixed Deposits
0%
LESS T HAN 300000-600000 600000 & Real Estate
300000 ABOVE

Income of Investors

ANALYSIS
The above table shows that most of the investors have made their investments in
bank fixed deposits followed by investments in real estate. It also shows that most of
the investors lie in the income category of Rs.300000 and above.
INFERENCE
We can infer that investors with an income of less than Rs.300000 prefer to invest in
real estate and bank fixed deposits, investors in the income category of above
300000 rupees diversify their investments across the various investment avenues.
This shows that the mutual funds are becoming an investment option as well, for
those investors whose income is greater than Rs.300000.

TABLE 27: TABLE SHOWING THE RELATIONSHIP BETWEEN THE INVESTORS

AGE AND THE RISK FACTOR

RISK
AGE (YEARS) MINIMAL SOME MODERATE CONSIDERABLE
(%) (%) (%) (%)

Less than 25 0 0 0 0

25-30 8 8 4 0

30-35 8 10 0 4

35-40 6 4 2 0

40-45 6 6 2 0

45-50 2 10 13 0

50 and above 6 4 2 0
ANALYSIS:
The above table indicates that people in the age group of 30-35 take the maximum
risk and most of the investors in the different age groups would prefer to take some
risk. It shows that age is inversely proportional to the risk taken.

INFERENCE:
The figures clearly show that Indian investors always prefer to take some risk to get
the maximum amount of return. It also shows that people within the age group of 40
would take more risk than the investors above the age group of 40. Thus inferring
that the lesser the age the more risk can the investor handle.

TABLE 28: TABLE SHOWING THE FINANCIAL GOAL OF INVESTORS

FINANCIAL GOAL NO OF RESPONDENTS PERCENTAGES

Good Education 68 24%

Retirement Needs 76 27%

Better Standard of Living 75 26.5%

Purchase of Assets 40 14.13%

Marriage 24 8.37%

GRAPH 23: CHART SHOWING THE FINANICAL GOALS OF

INVESTORS

24% 27% 26.50%

14.13%
No of
8.37%
Respondents

Good Better Marriage

Education Standard
of Living

Financial Goals
ANALYSIS:
The above graph indicates that 24% would invest for the purpose of good education,
27% for retirement needs, 26.5% for better standard of living, 14.13% for purchase
of assets and 8.37% for marriage.
INFERENCE:
We can infer that retirement needs and better standard of living are the two main
important financial goals towards which investments are being made. This shows
that Indian investors would like to invest more on the growth plans than on the
income plans in order to meet their future financial needs.

TABLE 29: TABLE SHOWING THE RELATIONSHIP BETWEEN INVESTORS

INCOME AND FINANCIAL GOALS

INCOME
LESS THAN 300000 300000 – 600000 600000 & ABOVE
GOALS (%) (%) (%)

Good 4 6 14
education
Retirement 8 12 7
Needs

Better Standard 4 15 7
of Living

Purchase of
Assets 2 7 5

Marriage 2 2 5

ANALYSIS:
The above table indicates that out of 100 respondents, 27% would prefer to invest in
funds for their future retirement needs, 26% would contribute towards better
standard of living, 24% towards good education and the remaining 23% would invest
for purchase of assets and marriage plans. It also indicates that people within the
income bracket of 300000 to 600000 and 600000 and above would invest more
towards the financial goals than the income group of less than 300000.
INFERENCE:
The above table indicates that people in the income bracket of less than 300000
would invest more towards the retirement needs and people within the income
bracket of 300000 to 600000 would invest towards retirement needs and better
standard of living. This shows that the income has a direct effect on the financial
goals. As income increases, people would opt for better standard of living and a
further increase in income will lead to a more or less equal concentration towards all
the financial goals.
TABLE 30: TABLE SHOWING THE RELATIONSHIP BETWEEN THE FINANCIAL
GOALS AND THE AGE OF INVESTORS

AGE
BELOW 50 AND
25-30 30-35 35-40 40-45 45-50
25 ABOVE
(YRS) (%) (%) (%) (%) (%)
(%) (%)
GOALS

Good
0 4 5 3 4 5 3
Education

Retirement
0 5 4 4 5 5 4
Needs

Better
Standard 0 9 6 2 2 6 3
of Living

Purchase
0 2 4 2 2 3 1
of Assets

Marriage 0 1 3 1 1 1 1

ANALYSIS
The above table indicates that more number of investors concentrate on retirement
needs and better standard of living as their financial goals. It shows that the
investors in the age group of 30-35 years, 25-30 and 45-50 years form the potential
group who decide and invest to meet their financial goals.
INFERENCE
From the above table, we can infer that an increase in age increases the relationship
between the various financial goals. With an increase in age, people would tend to
invest to achieve good education for their children, retirement needs and better
standard of living. Most of the investors do not make their investment to meet
marriage as a financial goal.

TABLE 31: TABLE SHOWING THE EXISTING INVESTMENTS IN MUTUAL

FUNDS

MUTUAL FUNDS NO OF RESPONDENTS PERCENTAGES

Alliance 8 8

Birla Sun Life 10 10

Pru ICICI 16 16

Cholamandalam 10 10

UTI 18 18

Zurich 0 0

None 38 38

Total 100 100

 GRAPH 24: CHART SHOWING THE MUTUAL FUNDS
INVESTED IN EARLIER BY INVESTORS

None 38
0
Mutual Funds

UTI 18
10
Pru ICICI 16
10
Alliance 8
Percentages

ANALYSIS:
The above table shows the different mutual fund investments made by 50
respondents. 38% of the respondents had never invested in mutual funds before,
18% had invested in UTI mutual funds, 16% in Prudential ICICI, 10% in
Cholamandalam and Birla sun Life, and 8% in Alliance.
INFERENCE:
Many people do not invest in mutual funds because of the simple fact that they do
not know much about it while among those who do invest a large percentage of
investors invest in UTI because the oldest player in the market. With liberalization
and privatization, the number of mutual funds offered by private companies is large
and thereby providing the investors with a better choice.

III. To device a standardized portfolio for the investors keeping in mind their
investment capacities.
This project aims at establishing standardized portfolio models to accommodate
individual investor preference. The right allocation of the investors investment to
build a portfolio depend on factors such as
¾Investors goals
¾Investment lock-in-period
¾Risks tolerance
Portfolio management is a 2 way process. In addition to learning about a client, the
advisor needs to provide an investor with the information he needs to fully
understand how his objectives and risks are related to an investment strategy.
Every investor’s base of financial knowledge is different and therefore it is imperative
that the investment concepts need to be explained like the relationship between the
risk and return, long term vs. short term investing, diversification of investment and
the investment expectation in order to meet the
client’s objective. It also proves that there is a direct correlation between the risk and
return. It is generally observed that “higher the returns, higher the risk”
Diversification in an investment portfolio will be recommended to achieve an
effective well-rounded investment strategy. Yet the optimum number of funds in
one’s mutual fund portfolio is an issue subject to wide open because there is no
standardized formula to determine the quantity of funds in any given portfolio.
Diversification spreads an investment portfolio among different funds categories to
achieve not only a variety of objectives, but also a reduction in overall risk. Different
fund types offer distinct risk/return objectives and diversification increases as the
combination of different risk/return objectives increases.
Based on the investor’s requirements – risk/return and the diversification to reduce
the risk, an advisor builds a portfolio.
The various models are shown as follows:
GRAPH 25: INVESTMENT MODEL

GROWTH
FUNDS
RISK: MEDIUM
TO HIGH
PERIOD 6 YEARS
AND ABOVE

BALANCED FUNDS
RISK: MEDIUM TO HIGH
PERIOD: 2-5 YEARS

INCOME FUNDS
RISK: MEDIUM TO LOW
PERIOD: 2-1 YEARS
INFERENCE:
The investment triangle indicates a variety of investment options available. The
investment at the top of the pyramid provides greater opportunity for long-term
capital growth, while the investments at the bottom generally provide greater
potential for current income and preservation of capital.

PORTFOLIO BASED ON INVESTMENT MODEL

A. AGGRESSIVE GROWTH PORTFOLIO
 GRAPH 26: CHART SHOWING THE AGGRESSIVE
PORTFOLIO MODEL

25%
Debt Funds

65%
Equity Funds 10%
Liquid Funds

An aggressive growth portfolio suggests 65% of the investor’s portfolio in equity

funds, 25% in debt funds and 10% in liquid funds. This portfolio is suitable for a fresh
investor. The younger the investor greater is his ability to withstand higher risk. The
equity part of the portfolio is meant for capital growth to meet longer-term goals while
the debt funds are to provide for medium term needs.

B. CONSERVATIVE PORTFOLIO
 GRAPH 27: CHART SHOWING THE CONSERVATIVE
PORTFOLIO MODEL

25%
Equity Funds 50%
Debt Funds

25%
Liquid Funds

INFERENCE:
The conservative portfolio suggests 25% in equity funds, 50% in debt funds and
25% in liquid funds. This is ideal for someone who is about to retire or has recently
retired. The source of income after retirement may be limited; the savings would
finally generate enough income for a long way. 25% equity portfolio can assist an
investor in staying ahead of inflation.

C. MODERATE GROWTH PORTFOLIO

 GRAPH 28: CHART SHOWING THE MODERATE
GROWTH PORTFOLIO MODEL

30%
50% Debt Funds
Equity Funds

20%
Liquid Funds

INFERENCE:
A moderate growth portfolio seeks to balance growth and stability. It recommends
around 50% of the portfolio in equity funds, 30% in debt funds and 20% in liquid
funds. This portfolio would seek to provide regular income with moderate protection
against inflation. The equity component provides the potential for growth where as
the debt funds and liquid funds help balance out fluctuations. The education needs
could be met from the debt fund portfolio even as investments in equity funds can be
continued for retirement.

MODEL PORTFOLIOS
Based on the investors responses and profile from the questionnaire a portfolio
model can be built. Investors profile is of various types.
a. Safety
b. Income
c. Income and Moderate growth
d. Balanced growth
e. Aggressive growth

f. Maximum growth
 One of the benefits of asset allocation – the process of spreading your money
across a variety of investments – is that it ensures one part of your portfolio will
always be performing better than the other parts. Thus the experts estimate the
investment mix to suit the various investment types.
a. SAFETY

25%
Income Fund
Growth funds may not be a suitable investment option.
He has to consider income and liquid fund as an
investment option.
75%
Liquid Fund

TABLE 32: TABLE SHOWING THE SAFETY MODEL PORTFOLIO.

This is a safety model portfolio given Rs. 100

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE

FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Income 25 25 9 27.25 12 28 5 26.25

Fund

Liquid 75 75 7 80.25 8 81 6 79.5

Fund

Total 100 100 107.25 109 105.75

OBSERVATION:
25% of the investment is in income funds and 75% is in liquid funds. It is evident
from the table that this model can deliver the expected returns of 107.25 and would
reap 109 in the best-case scenario and 105.75 in the worst-case scenario. This
estimate still proves higher returns than would have been generated if the money
would have been invested in bank deposits, PPF.
Since the investor looks for safety of capital as an investment criterion, this portfolio
would generate positive returns even in the worst market conditions.

b. INCOME
 5%
Growth
Fund The investor requires a regular income
15%
Balanced Fund from his investments to meet his financial

70% requirements. He is willing to slightly

Income
Fund increase the risk to his portfolio in order to

generate the required income and have

10%
Money Capital Appreciation.
Market Fund

TABLE 33: TABLE SHOWING INCOME MODEL PORTFOLIO

This is an income model portfolio for Rs.100

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE

FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Growth 5 5 25 6.25 50 7.5 -50 2.5

Fund

Balanced 15 15 15 17.25 30 19.25 -5 14.25

Fund

Income 70 70 8 75.6 10 77 6 74.2

Fund

Liquid 10 10 7 10.7 8 10.8 6 10.6

Fund

Total 100 100 109.8 114.55 101.55

OBSERVATION:
The investment is allocated as follows- 5% of the total investment in equity fund,
15% investment towards balanced fund, 70% in income fund and the remaining 10%
in liquid or money market funds
The equity exposure is curtailed to 12.5% of the portfolio even in the worst market
scenario and the portfolio as a whole remains positive though the growth component
can have negative returns.
 c. INCOME AND MODERATE GROWTH

20% This portfolio is suitable for an investor whose

Growth Fund
primary focus is to create an income but not
necessarily dependent on his portfolios income to
20%
Balanced supplement his standard of living. This portfolio helps
Fund
to build Capital Appreciation and is suitable where the
investor is not willing to put his entire investment at
55% risk.
Income Fund

5% Liquid
Fund

TABLE 34: TABLE SHOWING INCOME AND MODERATE GROWTH PORTFOLIO

This is an income and moderate growth portfolio for Rs. 100

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE

FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Growth 20 20 25 25 50 30 -50 10
Fund

Balance 20 20 15 23 30 26 -5 19
Fund

Income 55 55 8 59.4 10 60.5 6 58.3

Fund

Liquid 5 5 7 5.35 8 5.4 6 5.3

Fund

Total 100 100 112.75 121.9 92.6

OBSERVATION:
The above table indicates that 20% of the total investment is in growth fund, 20% in
balanced fund, 55% in income fund and the remaining 5% investment in money
market or liquid funds. This model can deliver the expected returns of Rs. 112.75
and would reap returns of Rs. 121.9 in the best-case scenario and Rs. 92.6 in the
worst-case scenario.

d. BALANCED GROWTH

This portfolio model is suitable when the

30% investor wants to incorporate risk as a
Growth Fund
component of investing. He wishes to equalize
TABLE 35: TABLE SHOWING THE BALANCED GROWTH PORTFOLIO
 This is a balanced growth portfolio for Rs. 100

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE

FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Growth 30 30 25 37.5 50 45 -50 15

Fund

Balanced 30 30 15 34.5 30 39 -5 28.5

Fund

Income 35 35 8 37.8 10 38.5 6 37.1

Fund

Liquid 5 5 7 5.35 8 5.4 6 5.3

Fund

Total 100 100 115.15 127.9 85.9

OBSERVATIONS
The above table indicates that 30% of the total investment is made in growth
fund, 30% in balanced fund, 35% in income funds and the remaining in money
market funds. This model is capable of delivering the expected returns of
Rs.115.15 and would give Rs. 127.9 in the best-case scenario and Rs. 85.9 in
the worst-case scenario.
This estimate still proves ahead of a return that would have been generated had
the money been invested elsewhere. This portfolio suits investors who are ready
to withstand a little more than 10% capital erosion during worst market scenario.
e. AGGRESSIVE GROWTH PROFILE

20%
Sectoral Funds
 This model is suitable to an investor whose objective
is to maximize his potential investment within
55% reasonable levels of risk. The investor is not
Growth Fund
concerned about generating an income because he
has a long investment time horizon and will take on
additional risk to get rewarded with higher

5% Balanced
investment returns.
Fund

15%
Income Fund

5%
Money Market
Fund

TABLE 36: TABLE SHOWING AGGRESSIVE GROWTH PORTFOLIO

This is aggressive growth portfolio for Rs. 100.

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE
FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Sectoral 20 20 50 30 100 40 -90 2

Fund

Growth 55 55 25 68.75 50 82.5 -50 27.5

Fund

Balanced 5 5 15 5.75 30 6.5 -5 4.75

Fund

Income 15 15 8 16.2 10 16.5 6 15.9

Fund

Liquid 5 5 7 5.35 8 5.4 6 5.3

Fund

Total 100 100 126.05 150.9 55.45

OBSERVATIONS
The above table indicates that 20% of the total investment is made in sectoral
fund, 55% in growth fund, 5% in balanced fund, 15% invested towards income
fund and the remaining 5% towards the money market fund. This model can
deliver the expected return of Rs. 126.05 and it would reap returns of Rs. 150.9
in the best case and Rs.55.45 in the worst-case scenario.
This estimate still proves ahead of a return that would have been generated had
the money been invested elsewhere. It is suitable for an aggressive investor to
get super normal returns but at the same time if the markets fall the investor can
lose 50% of his capital. This shows the financial relationship between the risk
and return.

f. MAXIMUM GROWTH

25%
Sectoral Fund This model is suitable to an investor who is willing
to accept higher levels of risk in spite of market
fluctuations. It is apt for that investor who is
looking to generate long term capital growth and is
70% willing to expose his principal to potentially greater
Growth Fund
investment returns at higher risk.

5%
Money Market
Funds

TABLE 37: TABLE SHOWING THE MAXIMUM GROWTH PORTFOLIO

 This table shows the maximum growth portfolio for Rs.100

MUTUAL PORTFOLIO EXPECTED BEST CASE WORST CASE

FUND ALLOCATION RETURNS SCENARIO SCENARIO
TYPE

% RS % RS % RS % RS

Sectoral 25 25 50 37.5 100 50 -90 2.5

Fund

Growth 70 70 25 82.5 50 105 -50 35

Fund

Liquid 5 5 7 5.35 8 5.4 6 5.3

Fund

Total 100 100 130.35 160.4 42.8

OBSERVATION:
The above table indicates that 25% of the total investment to be invested in sectoral
funds, 70% in growth fund and the remaining 5% in money market fund. This model
is capable of delivering the expected returns of Rs. 130.35 and it would reap returns
of Rs. 160.4 in the best-case scenario and Rs. 42.8 in the worst-case scenario.
This estimate still proves ahead of a return that would have been generated had the
money been invested elsewhere.

EXAMPLE OF MODEL PORTFOLIO

The following is the analysis of the real time investment portfolio involving the
various funds across various market cycles.
The client characteristics:
• High Net worth Client

• Needs regular income and capital appreciation

• No liquidity requirement from capital for 5 years
• High Risk Tolerance
The main objective of the investor was to generate a steady stream of returns and
substantial capital appreciation over the long term. The total amount invested by him
was Rs.30514884.
Based on the client profile and requirements, a portfolio consisting both of equity and
debt funds was constructed.
The dividend options of all schemes was opted since the client requires a regular
income and the equity exposure was selected so that the client gets the additional
benefit due to the incremental investments in the growth funds.

TABLE 38: TABLE SHOWING THE INVESTMENTS OF ABC LTD

 NAV as
Sl Scheme Date of Amount No of Entry on Amount Absolute Annualized
No Investment Units NAV 6-Jun- Returns Returns
03

Alliance
1 9-Apr-02 1000000 52742.616 18.96 21.8073 1150174 15 13
Income Fund

Alliance
2 19-Apr-02 700000 36861.506 18.99 21.8073 803850 15 13
Income Fund

Alliance
3 19-Apr-02 1000000 35958.288 27.81 28.98 1042071 4 4
Equity Fund

Alliance
4 31-Jul-02 500000 20193.861 24.76 28.98 585218 17 20
Equity Fund

Alliance
5 1-Jul-02 500000 18328.446 27.28 28.98 531158 6 7
Equity Fund

HDFC Income
6 14-May-02 1000000 78437.525 12.749 14.9041 1169041 17 16
Fund

HDFC Income
7 10-Apr-03 500000 34162.806 14.636 14.9041 509166 2 12
Fund

HDFC Growth
8 1-Apr-02 1000000 112790.44 8.866 9.69 1092939 9 8
Fund

HDFC Growth
9 24-May-02 500000 57776.751 8.654 9.69 559857 12 12
Fund

HDFC Growth
10 1-Jul-02 500000 56325.335 8.877 9.69 545792 9 10
Fund

HDFC Growth
11 31-Jul-02 500000 60270.01 8.296 9.69 584016 17 20
Fund

Prudential
12 28-Jun-02 500000 25380.711 19.7 20.75 526650 5 6
ICICI Growth
 ICICI Growth

Reliance
13 7-May-03 500000 26281.9 19.025 19.31 507503 2 18
Income Fund

Reliance
14 14-May-03 500000 26373.395 18.959 19.31 509270 2 29
Income Fund

Reliance
15 29-Oct-02 800000 33347.228 23.99 32.24 1075115 34 57
Vision Fund

Reliance
16 24-Apr-03 500000 17921.147 27.9 32.24 577778 16 132
Vision Fund

Reliance
17 10-Apr-03 700000 25017.87 27.98 32.24 806576 15 97
Vision Fund

Reliance
18 1-Aug-02 1000000 41771.094 23.94 32.24 1346700 35 41
Vision Fund

Reliance
19 24-Apr-03 500000 16447.368 30.4 35.24 579605 16 135
Growth Fund

Reliance
20 10-Apr-03 800000 26238.111 30.49 35.24 924631 16 100
Growth Fund

Sundaram
21 7-May-03 500000 24838.549 20.13 20.46 508197 2 20
Bond Saver

Sundaram
22 10-Apr-03 500000 24911.44 20.071 20.46 509688 2 12
Bond Saver

Sundaram
23 24-May-02 500000 39936.102 12.52 13.97 557907 12 11
Growth Fund

Sundaram
24 28-Jun-02 500000 39062.5 12.8 13.97 545703 9 10
Growht Fund
 Sundaram
25 28-Oct-02 800000 70360.598 11.37 13.97 982938 23 38
Growth Fund

T Income
26 10-Apr-03 500000 22605.205 22.119 22.52 509069 2 12
Fund

T Income
27 8-May-03 500000 22480.397 22.242 22.52 506259 1 16
Fund

T Income
28 19-Apr-02 700000 35641.548 19.64 22.52 802648 15 13
Fund

T Income
29 6-May-02 1000000 50916.497 19.64 22.52 1146640 15 14
Fund

T Income
30 8-May-03 500000 22858.188 21.874 22.18 506995 1 18
Builder A/C B

T Income
31 6-May-02 1000000 52328.624 19.11 22.18 1160649 16 15
Builder A/C B

T Bluechip
32 6-May-02 500000 21805.495 22.93 26.19 571086 14 13
Fund

T Bluechip
33 28-Oct-02 800000 39545.23 20.23 26.19 1035690 29 49
Fund

T Bluechip
34 28-Jun-02 500000 22321.429 22.4 26.19 584598 17 18
Fund

T Blue Chip
35 11-May-01 789189 37313.91 21.15 26.19 977251 24 12
Fund

36 T Prima Fund 28-Oct-02 800000 30097.818 26.58 37.46 1127464 41 68

37 T Prima Fund 10-Apr-03 1000000 33422.46 29.92 37.46 1252005 25 161

Zurich India
38 10-Apr-03 500000 23313.61 21.447 21.8251 508822 2 11
Income Fund
 Zurich
39 11-May-01 825694.97 47074.97 17.54 29.08 1368940 66 32
Prudence(Bal)

Zurich
40 Prudence 6-May-02 500000 21431.633 23.33 29.08 623232 25 23
(Bal)

Zurich
41 28-May-02 500000 22851.92 21.88 29.08 664534 33 32
Prudence(Bal)

Zurich India
42 27-Jan-02 500000 22251.891 22.47 26.77 595683 19 14
Equity Fund

Zurich India
43 1-Apr-02 1000000 43402.778 23.04 26.77 1161892 16 14
Equity Fund

Zurich India
44 31-Jul-02 500000 23386.342 21.38 26.77 626052 25 30
Equity Fund

Zurich India
45 29-Oct-02 800000 39682.54 20.16 26.77 1062302 33 54
Equity Fund

Zurich India
46 6-May-02 500000 21240.442 23.54 26.77 568607 14 13
Equity Fund

Total 30514884 35891961

OBSERVATION
The portfolio has shown a good performance in the short-term and a normal
performance in the long-term period. This portfolio was marked by a period of boom
in the equity market and the debt market remained stable. All round returns were
good with the equity investment giving super normal returns as can be seen from the
attached return statement.
 CHAPTER 5

CONCLUSIONS AND
RECOMMENDATIONS
SUMMARY OF FINDINGS
The study showed the existence of several types of investors and various
characteristics and their investment goals. The objective of portfolio building for
mutual fund investors has been fulfilled. The results can be summarized as follows:

• The rate of return from the mutual funds is higher when compared to the other
investment options. Thus this clearly shows that mutual funds are a better
investment avenue to trade off between risk and return.
• As inflation grew at a rate of 9.19%, Gold has shown a growth rate of 7.62%.
Bank fixed deposits have risen at a rate of 9.74% while Company fixed
deposits have shown a growth rate of 14.47%. However, equity investments
have emerged with a growth rate of 20.16%.

• Today the interest rate structure in the country has decreased, keeping in line
with foreign investment options. With the banks offering little above 9 percent in
their fixed deposits for one year, the yields have come down substantially in
recent times and can be inferred that mutual fund proves to be a better
investment avenue because of its better returns and liquidity and the
transparency in the quality of assets.
• Age is one of the important demographic characteristics that influence the
investment habits. It can be inferred that people in the age group of 30-35
years are keen investors.

• The investors lie in the income category of Rs.300000 and above. This shows
that the potential investors belong to the medium and high net worth category
that are willing to invest and get returns at minimal levels of risk.

• Any investor having an income of above Rs.300000 will make investments

according to his financial goals and in accordance with his age. An investor
would make an income based on the risk factor (risk = 100-Age). It shows that
most of the investors would basically invest at the age above 30 years.
• The majority of the Indian investors are not ready to take high risk. They would
rather ensure that their investments are 100% safe than make investments that
earn higher than the inflation rate. In fact this is the reason why people prefer
to invest in fixed and public deposits.
• The fact that more respondents would like to invest between 10-25% of their
monthly income goes to show that they want to generate income through
investments, which they can use on a later date.
• The maximum numbers of investors are in the age group of 25-35 years. This
shows that monthly income invested is inversely proportional to age. More
number of investors would like to invest 10-25% of their monthly income rather
than make an investment 25% and above.
• A rise in income increases the percentage of monthly income that can be
invested but Indian investors would rather prefer to invest mostly 10-25% of
their monthly income.
• Most of the investors are in a position to accept decline in value as long as the
portfolio generates current income and exhibits some capital appreciation over
time.
• Majority of the people rank safety as number 1 factor to be considered in
investing in mutual funds followed by returns and tax benefits. This shows that
most of the prospective investors are safe investors while very few are versatile
investors.
• The prime concern for most of the investors is to optimize returns compared to
the risk and the decline rate. Thus this shows that most of the prospective
investors invest to optimize returns along with tax benefits rather than to get
stable returns.

• Most of the investors do not want to invest into different schemes but would
rather wait and see how the fund is performing compared to the benchmark
before taking out all its investments from mutual funds.
• Only 20.55% of the respondents having invested in mutual funds, which goes
to show that the Indian investors still prefer vanilla products such as fixed
deposits and real estate. The market available for mutual fund agencies is very
large which still has not been tapped.
• Investors in the age group of 25-30 years prefer to optimize returns, 30-45
years prefer to get tax benefits and people above the age group of 45 years will
have equal concern for all the variables leading to investments.
• Investors would prefer to at least get back their initial investment than to loose
their investments. Investors are ready to take minimal risk to increase their
returns rather than taking a considerable risk.

• The Indian investors always prefer to take some risk to get the maximum
amount of return. It also shows that people within the age group of 40 would
take more risk than the investors above the age group of 40. Thus inferring that
the lesser the age the more risk can the investor handle.
• We can infer that retirement needs and better standard of living are the two
main important financial goals towards which investments are being made.
This shows that Indian investors would like to invest more on the growth plans
than on the income plans in order to meet their future financial needs.

• Most of the investors prefer to invest relying on the advisors because the
advisor has the latest information relating to the risk and return which ensures
an optimum investment portfolio relating to mutual funds.
CONCLUSION
The inflationary pressures in economy have a position where the savings are not
earning.
For those who are not adept at understanding the stock market, the task of
generating superior returns at similar levels of risk is arduous to say the least. This is
where Mutual Funds come into picture, which gives a higher rate of return, which
extends from 13% onwards. Thus mutual funds give better rate of returns compared
to various other financial instruments.
The investment goals are found to be in the following decreasing order like Returns
– Tax Savings – Safety and Liquidity.
People would also prefer that the result should be relatively stable with the majority
of return derived from current income, even if it means that the total returns are
relatively small. Indian investors do not like to fall in the substantial risk category.
Substantial risk can be undertaken while pursuing larger potential total returns which
is inversely proportional to the Indian investors. This shows that most of the
prospective investors are safe investors while very few are versatile investors.
The study has lead to the understanding of the investment goals, the risk profile and
the expected returns and has helped in suggesting as optimum portfolio for investors
of different diversified profiles in accordance with their budget and objectives.
Therefore, more awareness about mutual funds should be established so that an
investor can realize his financial goals with an appropriate trade off between risk and
return.
Thus this project has been focused towards reducing investment risks and
enhancing returns.
SUGGESTIONS
• The right allocation to build an apt portfolio should depend on factors such as
1. An investors financial goals
2. Investment time horizon
3. Risk tolerance

• Banks have been the roots of the financial system in India. However, today,
the interest rate structure in the country is headed southwards, keeping in line
with global trends. With the banks offering little above 9% in their fixed
deposits for 1 year, the yields have come down substantially in recent times.
Add to this, the inflationary pressure in economy have reduced the earnings
on savings. Thus mutual funds come into the picture, which gives a higher
rate of return, which extends from 13% onwards. This proves that mutual fund
is a brighter and a more attractive investment avenue for an investor.

• The time frame within which the investors want to stay invested helps to
create a portfolio for them. Those who want to invest for less than 2 years
should invest in debt funds while others can invest in equity-based funds,
which include sector specific funds, balanced funds and thus ensuring tax
benefits.

• The fact that more respondents would like to invest between 10-25% of their
monthly income goes to show that they want to generate income through
investments, which they can use on a later date. These investors can avail
the systematic investment schemes, which allow them to make installment
payments.

• Based on the important criterion for investing, an investor seeking safety,

income, income and moderate growth, balanced growth, aggressive growth
and maximum growth, appropriate proportions of the various mutual funds
have been suggested.

• Most of the people do not know the finer nuances of the product even though
they are quite superior in nature like mutual funds. This shows that an
 increase in knowledge among the investors would increase their return by
using the most profitable investment avenue like mutual fund.

• The investment triangle indicates a variety of investment options available.

The investment at the top of the pyramid provides greater opportunity for
long-term capital growth, while the investments at the bottom generally
provide greater potential for current income and preservation of capital.

• The investment goals of the client are found to be varied and thus it is a
challenge of the distribution service to meet the investors expected returns
irrespective of market conditions. Thus appropriate portfolios built with
different proportions of various mutual funds to stay ahead of unpredictable
market and to meet financial goals have been suggested. This would certainly
earn higher returns than the returns generated from the other investment
avenues.

• The example of model portfolio has demonstrated that the appropriate mix of
growth, income and balanced funds will give positive returns in accordance
with the investor’s objectives.

• The models based on safety, income, aggressive growth, income and

moderate growth, balanced growth and maximum growth have been
designed to suit investors with different profiles. This certainly proves that
mutual funds help to get better returns by optimizing risk.

• It is also suggested that the investors can make their investments in the short
term plan of the company which will enhance their returns even in a short
period as much as 3 months. However, client specific solution and needs are
to be modified as per requirements.
• An ideal portfolio should be one that synchronizes with the market as well as
the investors needs. It is thus very important for an advisor to understand the
financial goals of an investor in depth.

• Lastly, since there has been an increase in the cost of living, investors should
start saving early so as to get maximum returns. This can be easily achieved
by an investor if right investment is made in the right kind of mutual funds thus
ensuring a portfolio of mutual funds would help an investor to trade off
between risk and return.
ANNEXURE

QUESTIONNAIRE
Name:…………………………………………
Age: …………………………………………

1.How many dependents do you have?



More than 2


1-2 dependents


None
2. What income bracket do you fall under?


Less than 300000



300000-600000


600000 and above

3. Do you intend to invest funds for a long term?


Yes
o Unto 2 years (short term)
o 2 – 5 years (mid term)
o 6 years & above (long term)


No
4. Your decision to invest is governed by:


The safety of your principle



Beat inflation


Earn high returns even at high risks



Fixed rate of return from investments



Liquidity

5. Prior to investing do you:



Evaluate options


Base decisions on friendly advice

Will rely on advisor

6. How much of monthly income can you invest?

Less than 10%

10% - 25%

25% - 40

40% & above

7. What are your financial goals that you intend to achieve in your lifetime?

Good education for your children

Retirement needs

Better standard of living

Purchase of assets

Marriage
8. You have already invested in:

Real estate

Bank Fixed Deposits /Company’s FD

Mutual Funds

PPF

Bonds

Shares

9. With respect to your goals, how much risk / volatility are you willing to
accept?
 

Minimal – result should be relatively stable with the majority of return

derived from current income, even if it means the total returns are
relatively small.


Some – decline in value as long as the portfolio generates current income

and exhibits capital appreciation over time


Moderate – somewhat volatile performance is acceptable as the portfolio is

invested primarily for capital appreciation over the long term


Considerable/ substantial risk – substantial risk can be undertaken to

pursue larger total returns.
10. What is your prime concern for your investments?


Optimize returns


Capital appreciation


Tax benefits


Stable returns
11. How important are the following factors for your investments (Rank them in
order of priority)


Safety


Liquidity


Returns


Convenience


Tax-benefits
12. How much of a temporary decline would you tolerate?


No decline


5% - 10% decline


10% - 15% decline



More than 15% decline.

13. Which of the following statements do you agree with?

 

Money should be 100% safe even if returns do not keep pace with
inflation


Investments keep pace with inflation



Investments grow faster than inflation

14. In case of fluctuations in the value of investments do you prefer to:


Sell


Hold investments


Use decline as an opportunity to invest



Diversify across markets (bonds, shares& mutual funds)

15. Mutual funds invested in earlier.


Alliance


Prudential ICICI


Birla Sun life



Zurich


UTI


Cholamandalam


Others specify-------

Thank you.
BIBLIOGRAPHY
BIBLIOGRAPHY
Books
ƒPrasanna Chandra, Financial Management, 4th edition, TATA MC GRAW
HILL Book Co., New Delhi, 1997.
ƒI.M. Pandey, Financial Management, 8th edition, Vikas Publications, New
Delhi, 2001.
ƒUnderstanding Indian investors – Jawahar Lal
ƒQ and A on securities market – Leo M Loll, Julian G Buckley
ƒPortfolio Management – Keith V Smith
Magazines
ƒInvestors India
ƒCapital Markets
ƒBusiness World
ƒJournals of various asset management companies
Websites
ƒwww.amfiindia.com
ƒwww.mutualfundsindia.com
ƒwww.indiainfoline.com
ƒwww.myiris.com
ƒwww.walletwatch.com