1

PROJECT ON
COMPARETIVE STUDY OF MUTUAL FUNDS AND
FIXED DEPOSIT
BY
SANGRAM KESHARI DASH
UNIVERSITY REGD NO-
IN PARTIAL FULLFILLMENT OF THE
BACHELOR OF BUSSINESS ADMINISTRATION
UNDER THE GUIDANCE OF

External Guide
Mr. Sagar kamal,
Channel Manager of ICICI Securities
Internal guide
Mr. Soumya P. Bala

TRIDENT ACADEMY OF TECHNOLOGY

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ACKNOWLEDGEMENT

It is really a great pleasure to have this opportunity to desire the

feeling of gratitude imprisoned in the core of my heart Mr. Sagar
Kamal, channel manager of ICICI Securities Ltd for giving me the
opportunity to prepare my project work in Performance analysis of
mutual fund. I express my sincere thanks to all the staff members of
ICICI Securities Ltd. I am thankful to our project guide Mr. Soumya P
Bala for checking my project work and sparing his valuable time for
the same. I am also thankful to my family members for their co-
operation.
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DECLARATION

I do hereby declare that this project work entitles

“Comparative study of mutual funds and fixed deposit ”
submitted by me for the partial fulfilment of the requirement
for the award of Bachelor in Business Administration (BBA) is
a record of my own research work. The report embodies the
finding based on my study and observation and has not been
submitted earlier for award of any degree or diploma to any
Institute or University.

Date Sangram keshari Dash

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TABLE OF CONTENTS

CHAPTER TOPIC PAGE.NO

External Guide Certificate
Internal Guide Certificate
Acknowledgment 2
Declaration 3
Objective 5
Executive Summery 6
About the company 7
1 Bank fixed deposit 8
2 Mutual Funds 11
3 Types of mutual fund 14
4 Advantages of mutual fund 16
5 Disadvantages of mutual fund 17
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6 Mutual funds vs Fixed deposit 18

7 Data analysis and Interpretation 20
Conclusion 31
Reference 32

OBJECTIVES:
The study will give an overview about mutual funds and bank fixed deposit. And
also will give brief comparison between mutual fund and bank fixed deposit. It will
help investors to take effective investment decision.

The research has been undertaken from the investor point of view and hence will be
important to investors as follow:

1. To study/ find the various scheme at mutual fund investment as well as bank
fixed deposit.

2. To study the pros and consequences of the mutual fund and bank fixed deposit
investment.

3. To study the consumers preferences about mutual fund investment as against

bank fixed deposit.
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EXECUTIVE SUMMARY
A growing India offers opportunity across the various investments, a substantial part of
financial wealth. Therefore investment plays an important role in growth of these
economies. Also there is rapid growth in income of peoples in India due to some factors
because of this investment is increased day by day in various investment options. As
income range rapidly increasing there is need to increase awareness among the people
related with various investment option and different schemes.

The project is an attempt to study or awareness among the people related with some
investment option and also the preference of people while implementing the same. It
provides thorough knowledge of different aspects related with the behavior of people for
mutual fund as compare to bank fixed deposit. The report is divided in four parts. The first
part is dealing with information related with advantage and disadvantage Bank fixed
deposit. Second is concept of advantage and disadvantage mutual fund. Third is concept
of research methodology. Fourth deals with interpretation of data collected.
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Most of metro cities people like to put the money in market related schemes instead of
dumping it in the bank lockers, so it is quite obvious that they want to invest their money
in profitable venture. But still people prefer to go for traditional schemes as well for safety
and security purpose.

Now a day’s people become more sensible while choosing any type of investment. It is
more important to have good knowledge and understanding related with such scheme
which will help to choose better and safety investment tools.

ABOUT THE COMPANY

ICICI Securities Ltd is an integrated securities firm offering a wide range of
services including investment banking, institutional broking, retail broking,
private wealth management, and financial product distribution.

ICICI Securities sees its role as 'Creating Informed Access to the Wealth of
the Nation' for its diversified set of clients that include corporates,
financial institutions, high net-worth individuals and retail investors.
Headquartered in Mumbai, ICICI Securities operates out of 66 cities and
towns in India and global offices in Singapore and New York.

ICICI Securities Inc., the stepdown wholly owned US subsidiary of the

company is a member of the Financial Industry Regulatory
Authority (FINRA) / Securities Investors Protection Corporation (SIPC).
ICICI Securities Inc. activities include Dealing in Securities and Corporate
Advisory Services in the United States.
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ICICI Securities Inc. is also registered with the Monetary Authority of

Singapore (MAS)and operates a branch office in Singapore.

1)BANK FIXED DEPOSIT:

A fixed deposit is a financial instrument provided by banks which provides investors
with a higher rate of interest than a regular saving account, until the date of
maturity date. It may or may not require the creation of a separate account.

It is also term as TERM OR TIME Deposit. They are considered to be very safe
investment as it denotes a larger class of investments with varying levels of
liquidity. Here, interest rate varies between from 4 to 11 percent. The tenure of a
Fixed Deposit is vary from 7, 15, or 45 days to 1.5 years and can be high as 10 years.

TYPES OF FIXED DEPOSIT :

BASICALLY, THERE ARE TWO TYPES OF DEPOSIT:

A. DEMAND DEPOSIT:- The money we keep in our saving accounts is like a

medium of exchange and this is called Demand Deposit. There is no fixed term to
maturity for demand deposits.

B. TIME DEPOSIT:- If we deposit our money has an FD in the bank it becomes a Time
Deposit on which No cheque is drawn. They are paid on maturity at a particular
time.
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a. FIXED DEPOSIT:- A fixed rate of interest is paid at fixed, regular intervals.

b. RECURRING DEPOSIT:- Fixed amount is deposited at regular intervals for

a fixed term and the repayment of principal and accumulated interest is made
at the end of the term.

ADVANTAGES OF BANK FIXED DEPOSIT:

A. SAFETY :- The fixed deposits of reputed banks and financial institution

regulated by RBI the banking regulator in India are very secure and considered
as one of the safest investment methods.

B. REGULAR INCOME:- Fixed deposit earn fixed interest rates for their
entire tenure, which is usually compounded quarterly. So, those who want an
income on a regular basis can invest into fixed deposit and use the interest rate
as their income. This makes a fixed deposit very popular way of investing money
for retirees.

C. LIQUIDITY:- Bank deposits have good liquidity. They can be closed and the
principal withdrawn within a few hours in some banks to a couple of days in
others.

The other option is to take a loan on the fixed deposit. Banks lend up to 90%
of the principal of the deposit. Interest charged for this is only about 1 to 2 per
cent and only for the period that we have used the cash (The feature works
like an over-draft against the fixed deposit).
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DISADVANTAGES OF BANK FIXED DEPOSIT:

A. CAPITAL APPRECIATION: - Capital appreciation does not

apply to bank fixed deposits. Only the principal invested is returned back at the time
of maturity.

A. TAX TREATMENT:- Bank fixed deposits are not tax efficient.

The interest is taxed. Also there is no benefit from making the investment.
There are the 5-year bank deposits (tax saving) that give benefit under
section 80C of the Income Tax Act. But the benefits such as partial
withdrawal or closure, and loan facility are not available. The deposit rates
are also lower compared to the normal fixed deposits. This effectively
negates the tax saved.

B. RISK:- Perhaps the main reason for investment in bank deposits is safety
of the principal. The capital (only up to Rs1,00,000 though) has the highest
safety compared to any other investment as it is guaranteed by the Deposit
Insurance & Credit Guarantee Scheme of India. All banks operating in India
are covered under this scheme.

IN SHORT
The risk faced when investing in bank deposits is the interest rate risk. This is
associated with the lost opportunity to invest in an instrument that has a
higher return. Getting out of a fixed deposit can be costly (up to 1 per cent of
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the principal), when we exit prematurely. So we may have to forgo potential

earnings when the interest rate has risen only by about 1 per cent.
The highest risk faced with fixed deposits is the effect of inflation. The real
return after adjusting for inflation is very less or sometimes negative for fixed
deposits of banks. This is a big burden, particularly for retired people, who
have invested their retirement proceeds to get regular income. Their income
may be regular and steady but the money's worth keeps going down during
the tenure of the fixed deposit.
The bank deposit primarily serves us to preserve capital. Banks now-a-days
have added a lot of additional benefits to the traditionally benign service.
Retired people could make the best use of this avenue for securing a fixed and
steady income.
The caution is not to use the fixed deposit as a long term investment avenue.
The reason is that the real return is very less when adjusted for inflation. The
tax treatment of the interest also eats into the returns.

2)MUTUAL FUND
The first introduction of a mutual fund in India occurred in 1961, when the Government
of India launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the
Indian mutual fund market. Then a host of other government-controlled Indian financial
companies came up with their own funds. These included State Bank of India, Canara
Bank, and Punjab National Bank. This market was made open to private players in 1993.

As a result of the historic constitutional amendments brought forward by the then

Congress-led government under the existing regime of Liberalization, Privatization and
Globalization (LPG). The first private sector fund to operate in India was Kothari Pioneer,
which later merged with Franklin Templeton.

An investment vehicle that is made up of a pool of funds collected from many investors
for the purpose of investing in securities such as stocks, bonds, money market
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instruments and similar assets. Mutual funds are operated by money managers, who
invest the fund's capital and attempt to produce capital gains and income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match the investment
objectives.

One of the main advantages of mutual funds is that they give small investors access to
professionally managed, diversified portfolios of equities, bonds and other securities,
which would be quite difficult (if not impossible) to create with a small amount of capital.
Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund
units, or shares, are issued and can typically be purchased or redeemed as needed at the
fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.

NET ASSET VALUE – NAV

A mutual fund's price per units, the per- units Rupee amount of the fund is calculated by
dividing the total value of all the securities in its portfolio, less any liabilities, by the
number of fund units outstanding.

In the context of mutual funds, NAV per units is computed once a day based on the closing
market prices of the securities in the fund’s portfolio. All mutual funds buy and sell orders
are processed at the NAV of the trade date.
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3) TYPES OF MUTUAL FUNDS

1. OPEN-ENDED:- This scheme allows investors to buy or sell units at any point in
time. This does not have a fixed maturity date.
A. DEBT/ INCOME:- A major part of the investable fund is channelized
towards debentures, government securities, and other debt instruments.
Although capital appreciation is low (compared to the equity mutual funds),
this is a relatively low risk-low return investment avenue which is ideal for
investors seeing a steady income.

B. MONEY MARKET/ LIQUID:- This is ideal for investors looking to utilize

their surplus funds in short term instruments while awaiting better options.
These schemes invest in short-term debt instruments and seek to provide
reasonable returns for the investors.
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C. EQUITY/ GROWTH:- Equities are a popular mutual fund category

amongst retail investors. Although it could be a high-risk investment in the
short term, investors can expect capital appreciation in the long run.

a. Index Scheme:- Index schemes are a widely popular concept in the

west. These follow a passive investment strategy where our
investments replicate the movements of benchmark indices like Nifty,
Sensex, etc.

b. Sectoral Scheme:- Sectoral funds are invested in a specific sector like

infrastructure, IT, pharmaceuticals, etc. or segments of the capital
market like large caps, mid-caps, etc. This scheme provides a relatively
high risk-high return opportunity within the equity space.

c. Tax Saving:- As the name suggests, this scheme offers tax benefits to
its investors. The funds are invested in equities thereby offering long-
term growth opportunities. Tax saving mutual funds (called Equity
Linked Savings Schemes) has a 3-year lock-in period.

D. BALANCED:- This scheme allows investors to enjoy growth and income at

regular intervals. Funds are invested in both equities and fixed income
securities; the proportion is pre-determined and disclosed in the scheme
related offer document. These are ideal for the cautiously aggressive
investors
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2. CLOSED-ENDED:- In India, this type of scheme has a stipulated maturity

period and investors can invest only during the initial launch period known as the
NFO (New Fund Offer) period.

A. CAPITAL PROTECTION:- The primary objective of this scheme is to

safeguard the principal amount while trying to deliver reasonable returns.
These invest in high-quality fixed income securities with marginal exposure
to equities and mature along with the maturity period of the scheme.

B. FIXED MATURITY PLANS (FMPS):- Mutual fund schemes with a

defined maturity period. These schemes normally comprise of debt
instruments which mature in line with the maturity of the scheme, thereby
earning through the interest component (also called coupons) of the
securities in the portfolio. FMPs are normally passively managed, i.e. there
is no active trading of debt instruments in the portfolio. The expenses which
are charged to the scheme are hence, generally lower than actively managed
schemes.

3. INTERVAL:- Operating as a combination of open and closed ended schemes, it

allows investors to trade units at pre-defined intervals.
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4)ADVANTAGES OF MUTUAL FUNDS

Mutual funds have been a popular investment vehicle for investors. Their simplicity along
with other attributes provides great benefit to investors with limited knowledge, time or
money. To help us decide whether mutual funds are best for us, we are going to look at
some reasons to consider investing in mutual funds.

A. DIVERSIFICATION:- One rule of investing, for both large and small

investors, is asset diversification. Diversification involves the mixing of
investments within a portfolio and is used to manage risk. Mutual fund
provides immediate benefit of instant diversification and asset allocation
without the large amounts of cash needed to create individual portfolios.

B. ADVANCED PORTFOLIO MANAGEMENT:- We pay a

management fee as part of our expense ratio, which is used to hire a
professional portfolio manager who buys and sells stocks, bonds, etc. This is
a relatively small price to pay for help in the management of an investment
portfolio.

C. CONVENIENCE AND FAIR PRICING:- Mutual funds are common

and easy to buy. They typically have low minimum investments and they are
traded only once per day at the closing NET ASSET VALUE (NAV). This
eliminates price fluctuation throughout the day and various arbitrage
opportunities that day traders practice.

D. LIQUIDITY AND SIMPLICITY:- We can sell or buy mutual funds

anytime. So mutual funds are good if we want to invest in something which
we can liquidate easily. Also mutual funds are very simple to buy and sell.

E. DIVIDEND REINVESTMENT:- As dividends and other interest

income is declared for the fund, it can be used to purchase additional units
in the mutual fund, thus helping your investment grow.
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5)DISADVANTAGES OF MUTUAL FUNDS

There are risks involved in buying mutual funds. These investment vehicles can experience
market fluctuations and sometimes provide returns below the overall market. Also, the
advantages gained from mutual funds are not free: many of them carry loads, annual
expense fees and penalties for early withdrawal.

A. RISKS AND COSTS:- Changing market conditions can create

fluctuations in the value of a mutual fund investment. Also there are fees
and expenses associated with investing in mutual funds that do not usually
occur when purchasing individual securities directly.

B. NO GUARANTEES:- As Mutual funds invest in debt as well equities,

there are no sure returns. Returns depend on the market conditions.

C. NO CONTROL:- Investor does not have control on investment; all the

decisions are taken by the fund manager. Investor can just join or leave the
show.

D. TAX INEFFICIENCY:- Investors do not have a choice when it comes

to capital gain payouts in mutual funds. Due to the turnover, redemptions,
gains and losses in security holdings throughout the year, investors typically
receive distributions from the fund that are an uncontrollable tax event.
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6)MUTUAL FUND VS BANK FIXED DEPOSIT

PARAMETERS MUTUAL FUNDS FIXED

DEPOSITS
A. Rate of Returns No Assured Returns Fixed Returns

B. Inflation Adjusted Returns Potential for High Inflation Usually Low

Adjusted Returns Inflation Adjusted
Returns
C. Risk Medium to High Risk Low Risk

D. Liquidity Liquid Medium to Low

Liquidity
E. Premature Withdrawal Allowed with Exit Load Allowed with
Penalty

F. Cost Of Investment Management Cost No Cost

G. Tax Status Favourable Tax Status As Per Tax Slab
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The chart above shows that while fixed deposits assure capital safety and guaranteed returns,
mutual funds over a sufficiently long horizon have given much higher returns. Mutual fund
returns are much higher in the 5 year time horizons starting 2002 to 2006. In the 2006 – 2011
and 2007 – 2012 time horizons, fixed deposits have given higher returns, no doubt as a result of
the severe market downturns in 2008 and 2011. Again starting 2009, mutual funds have started
to give better returns. When evaluating risk return trade-off between mutual funds and fixed
deposits, investors should compare their returns over sufficiently long period comprising of both
bull markets and bear markets, as discussed above. The investment horizon is also of vital
importance in determining the risk return trade off. It suffices to say that, if the investment
horizon in our example was short, say 1 to 2 years, mutual funds would have had more periods
of underperformance.

Conclusion

In conclusion, we will go back to risk perception. Ultimately, the investor’s perception of risk
influences his or her risk appetite. As discussed in our article, Measuring Risk Tolerance of
Investors, the investment decision of the investor should be governed by his or her risk
tolerance and not risk appetite. However, when it comes to actual decision making, one cannot
wish away the influence of the investor’s perception of equity markets on their decision making.
In this article, we have shown that if the investor remains invested for a sufficiently long time
horizon, equity funds can give good returns despite difficult market conditions.
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7)DATA ANALYSIS AND INTERPRETATION:-

Data analysis and interpretation is the process of inspecting, cleaning,
transforming and modeling data with the goal of discoveries useful
information, suggesting conclusion and supporting decision making.

Data interpretation is that in which we analysis the whole collected data &
tries to give it in simple words to be understandable.

We have used some charts (Pie chart, column chart, cylinder chart, cone
chart) and hypothesis tests (chi-square one sample T- test etc.)

3.5 LIMITATIONS:-

A. The study is limited to selected investment avenues.

B. Due to shortage or less availability of time it may be possible that all the related
and concerned aspects may not be covered in this project.
C. As we have used sampling method to collect data so there was lack of support
from respondent in some cases. Maximum respondents were not interested to
entertain us.
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TABLE 3.2 AGE GROUP:

Age Group 21-30 31-40 41-50 Above 50 Total
Frequency 24 11 11 5 51

Percentage 51 24 24 1 100

The above schedule and the diagram mentioned below explain the relationship
between different ages of respondents investing either in Mutual Fund or Bank Fixed
Deposits.

FIG.3.2

AGE GROUP
1%

24% 21-30
31-40
51% 41-50
24% Above 50

The above figure shows that the age group of 21-30 respondents investing more
either in Mutual Fund or Bank Fixed Deposits i.e. (51%) and age group of above 50
makes less investment i.e. (1%).
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Table 3.3 Date Was Collected For Analyzing Whether Customer Have Ever
Invested In Any Kind Of Investment:
Yes/No Yes No Total
Frequency 45 6 51

Percentage 88 12 100

The above schedule and the diagram mentioned below reflects whether customer
have ever Invested in any kind of Investment.

FIG.3.3

INVESTMENT

12%

Yes
No

88%

The above figure shows that 88% of Customer are interested in of Investment and
12% Customers are not interested in any type of investment.

Table 3.4 Date was collected for analyzing Investment Options most
preferable for investment either in Mutual Fund or in Bank Fixed Deposits:
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Investment Bank Fixed Mutual Fund Total

Options Deposits
Frequency 31 20 51

Percentage 61 39 100

The above Investment Option’s schedule and the Investment Option diagram
mentioned below reflects number of respondents investing either in Mutual Fund or
in Bank Fixed Deposits.

FIG.3.4

INVESTMENT OPTION

Bank Fixed Deposits

39%
Mutual Fund

61%

The above figure shows that Bank fixed deposits is more preferable (61%) than
Mutual Funds (39%).

Table 3.5 Date Was Collected For Analyzing Reasons For Selecting Mutual
Fund Or Bank Fixed Deposits:
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Reasons Rate Of Low risk Tax Saving Total

Interest
Frequency 21 24 6 51
Percentage 41 47 12 100

The above schedule and the diagram mentioned below reflects number of
respondent’s reason for investing either in Mutual Fund or in Bank Fixed Deposits.

FIG.3.5

REASON FOR INVESTMENT

12%
Rate Of Interest
41% Low risk
Tax Saving

47%

The above figure shows that bank fixed deposit is more preferable if Risk is Low i.e.
(47%) then Tax Saving (12%).

Table 3.6 Date Was Collected For Analyzing What Factors Considered By
Customers For Investment In Mutual Fund Or Fixed Deposits:
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Factors Preservati Increase in Aggressi Growth Conservatio n Total

on of current income ve and Growth
Capital Growth Income
Frequency 20 13 8 6 4 51
Percentage 39 24 16 12 8 100

The above schedule and the diagram mentioned below reflects factors
customers consider for investment in Mutual Fund or Fixed Deposits.
FIG.3.6

FACTORS CONSIDERED FOR INVESTMENT

Preservation of
8% Capital
Increase in current
12%
income
40%
Aggressive Growth
16%
Growth and Income

24% Conservation Growth

The above figure shows that Preservation of capital (40%) is a major factor
considered by consumers for investment rather than investing for Conservation
Growth (8%)

Table 3.7 Date Was Collected For Analyzing Which Investments Option Is
More Risky:
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Investment Bank Fixed Mutual Fund Total

Options Deposits
Frequency 2 49 51

Percentage 4 96 100

The above Investment Option’s schedule and the diagram mentioned below reflects
which investments option is more risky between Mutual Fund and Fixed Deposits.
FIG.3.7

INVESTMENT OPTION
4%

Bank Fixed Deposits

Mutual Fund

96%

The above figure shows about 96% of Customer finds more risk in investment in
Mutual Fund then Bank Deposits.
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Table 3.8 Date Was Collected For Analyzing Knowledge Of Schemes In

Investment Options:

KNOWLEDGE YES NO TOTAL

Frequency 27 24 51

Percentage 53 47 100

The schedule and the diagram mentioned below reflects knowledge of Schemes in
investment options between Mutual Fund and Fixed Deposits.

FIG.3.8

KNOWLEDGE OF SCHEMES

Yes
47% No
53%

The above figure shows that about 53% customers have knowledge of Schemes
available in Mutual Fund and Bank Fixed Deposits and 47% don’t have idea about
schemes.
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Table 3.9 Date Was Collected For Analyzing Investment In Which Sector
Will Make Benefit For Customers:

Sector Public Sector Private Sector Total

Frequency 31 20 51

Percentage 61 39 100

The schedule and the diagram mentioned below reflects investment sector which is
more beneficial according to investors.

FIG.3.9

BENEFICIAL SECTOR

Public Sector
39%
Private Sector

61%

The above figure shows that Public Sector (61%) is more beneficial than Private
Sector (39%).
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Table 3.10 Date Was Collected For Analyzing Investment Type Preferred By
Investors:

INVESTMENT SHORT TERM LONG TERM TOTAL

TYPE
Frequency 21 30 51

Percentage 41 59 100

The schedule and the diagram mentioned below reflect Investment type preferred
by investors.

Fig.3.10

INVESTMENT TYPE

Short term
41%
Long Term

59%

The above figure shows that Long Term investment (59%) is more preferred than Short
term investment (41%).
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Table 3.11 Date Was Collected For Analyzing Investment Option Referred
By Investors:

Investment Bank Fixed Mutual Fund Total

Option Deposits
Frequency 32 19 51

Percentage 63 37 100

The schedule and the diagram mentioned below reflect Investment option referred
by investors.

FIG.3.11

INVESTMENT OPTION RECOMMEND

37% Bank Fixed Deposits

Mutual Fund

63%

The above figure shows that Bank Fixed Deposits (63%) is recommended highly
than Mutual Fund investment (37%).
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CONCLUSIONS

A. On the basis of conclusion it has been seen that many people prefer to invest
their money in bank fixed deposit as compare to Mutual funds

B. People will be aware of the risk involved in investments.

C. Mutual fund is introduced in 1961, till 54years after mutual funds not change
the mind set of people. Till present traditional investment is dominating
other investments.

D. Data collected also reveals that peoples are investing their some part of their
income.

E. It also has been found that people are preferring public sector as beneficial.

F. People invest their money in low risk instrument as a first preference not
choose high rate of return. People are more focused preservation of capital
as factor for their investment.

G. Majority of people are feeling mutual fund is more risky than bank fixed
deposits. But people don’t know bank also give only 1 lac grantee of their
fixed deposit investment.

H. More than 50 percent of people don’t know investment scheme of mutual

fund and bank fixed deposit.
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Reference (sources)

WEBSITES

➢ http://mutualfund.birlasunlife.com
➢ http://www.tatamutualfund.com
➢ https://www.valueresearchonline.com
➢ http://www.moneycontrol.com
➢ http://economictimes.indiatimes.com
➢ http://www.sebi.gov.in