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Safety
Perhaps there is truth to the axiom that there is no such thing as a
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completely safe and secure investment. Yet we can get close to ultimate safety f
or our investment funds through the purchase of government-issued securities in
stable economic systems, or through the purchase of the highest quality corporat
e bonds issued by the economy s top companies. Such securities are arguably the
best means of preserving principal while receiving a specified rate of return. T
he safest investments are usually found in the money market and include such sec
urities as Treasury bills (T-bills), certificates of deposit, commercial paper o
r bankers acceptance slips; or in the fixed income (bond) market in the form of
municipal and other government bonds, and in corporate bonds. The securities li
sted above are ordered according to the typical spectrum of increasing risk and,
in turn, increasing potential yield. To compensate for their higher risk, corpo
rate bonds return a greater yield than T-bills.
Income
However, the safest investments are also the ones that are likely to have the lo
west rate of income return, or yield. Investors must inevitably sacrifice a degr
ee of safety if they want to increase their yields. This is the inverse relation
ship between safety and yield: as yield increases, safety generally goes down, a
nd vice versa. Most investors, even the most conservative-minded ones, want some
level of income generation in their portfolios, even if it s just to keep up wi
th the economy s rate of inflation. But maximizing income return can be an overa
rching principle for a portfolio, especially for individuals who require a fixed
sum from their portfolio every month. A retired person who requires a
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certain amount of money every month is well served by holding reasonably safe as
sets that provide funds over and above other income-generating assets, such as p
ension plans.
Growth Of Capital
This discussion has thus far been concerned only with safety and yield as invest
ing objectives, and has not considered the potential of other assets to provide
a rate of return from an increase in value, often referred to as a capital gain.
Capital gains are entirely different from yield in that they are only realized
when the security is sold for a price that is higher than the price at which it
was originally purchased. (Selling at a lower price is referred to as a capital
loss.) Therefore, investors seeking capital gains are likely not those who need
a fixed, ongoing source of investment returns from their portfolio, but rather t
hose who seek the possibility of longer-term growth. Growth of capital is most c
losely associated with the purchase of common stock, particularly growth securit
ies, which offer low yields but considerable opportunity for increase in value.
For this reason, common stock generally ranks among the most speculative of inve
stments as their return depends on what will happen in an unpredictable future.
Blue-chip stocks, by contrast, can potentially offer the best of all worlds by p
ossessing reasonable safety, modest income and potential for growth in capital g
enerated by long-term increases in corporate revenues and earnings as the compan
y matures. Yet rarely is any common stock able to provide the near-absolute safe
ty and Income-generation of government bonds.
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Secondary Objectives Tax Minimization
An investor may pursue certain investments in order to adopt tax minimization as
part of his or her investment strategy. A highly paid executive, for example, m
ay want to seek investments with favorable tax treatment in order to lessen his
or her overall income tax burden. Making contributions to an IRA or other tax-sh
eltered retirement plan, such as a 401k, can be an effective tax minimization st
rategy.
Marketability Liquidity
Many of the investments we have discussed are reasonably illiquid, which means t
hey cannot be immediately sold and easily converted into cash. Achieving a degre
e of liquidity, however, requires the sacrifice of a certain level of income or
potential for capital gains. Common stock is often considered the most liquid of
investments, since it can usually be sold within a day or two of the decision t
o sell. Bonds can also be fairly marketable, but some bonds are highly illiquid,
or non-tradable, possessing a fixed term. Similarly, money market instruments m
ay only be redeemable at the precise date at which the fixed term ends. If an in
vestor seeks liquidity, money market assets and non-tradable bonds aren t likely
to be held in his or her portfolio. In brief, choosing a single strategic objec
tive and assigning weightings to all other possible objectives is a process that
depends on such factors as the investor s temperament, his or her stage of life
, marital status, family situation, and so forth. Out of the multitude of possib
ilities out there, each
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investor is sure to find an appropriate mix of investment opportunities. You nee
d only be concerned with spending the appropriate amount of time and effort in f
inding, studying and deciding on the opportunities that match your objectives.
WHAT IS A MUTUAL FUND?
A Mutual Fund is a trust that pools the savings of a number of investors who sha
re 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 appreciations realized are shar
ed 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 securi
ties at a relatively low cost.
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TYPES OF MUTUAL FUNDS BY STRUCTURE • Open-Ended Schemes • Close-Ended Schemes • Interv
al Schemes BY INVESTMENT OBJECTIVE • Growth Schemes • Income Schemes • Balanced Scheme
s • Money Market Schemes OTHER SCHEMES • Tax Saving Schemes • Special Schemes Index Sc
hemes Sector Specific Schemes
Features that investors like in Mutual Fund
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If mutual funds are emerging as the favorite investment vehicle, it is because o
f the many advantages they have over other forms and avenues of investing, parti
cularly for the investor who has limited resources available in terms of capital
and ability to carry out detailed research and market monitoring. The following
are the major advantages offered by mutual funds to all investors. Portfolio di
versification : Mutual Funds normally invest in a well-diversified portfolio or
securities. Each investor in a fund is a part owner of all of the fund’s assets. T
his enables him to hold a diversified investment portfolio even with a small amo
unt of investment that would otherwise require big capital. Professional managem
ent ; Even if an investor has a big amount of capital available to him, he lacks
the professional attitude that is generally present in the experienced fund man
ager who, ensures a much better return than what an investor can manage on his o
wn. Few investors have the skills and resources of their own to succeed in today’s
fast moving, global and sophisticated markets. Reduction/ diversification of ri
sk : An investor in a mutual fund acquires a diversified portfolio, no matter ho
w small his investment. Diversification reduces the risk of loss, as compared to
investing directly in one or two shares or debentures or other instruments. Whe
n an investor invests directly, all the risk of potential loss is his own. A
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fund investor also reduces his risk in another way. While investing in the pool
of funds with other investors any loss on one or two securities is also shared w
ith other investors. This risk reduction is one of the most important benefits o
f a collective investment vehicle like the mutual fund. Reduction of transaction
costs : What is true of risk is also true of the transaction costs. A direct in
vestor bears all the costs of investing such as brokerage or custody of securiti
es. When going through a fund, he has the benefit of economies of scale; the fun
ds pay lesser costs because of larger volumes, a benefit passed on to its invest
ors.
Liquidity: Often, investors hold shares or bonds they
cannot directly, easily and quickly sell. Investment in a mutual fund, on the ot
her hand, is more liquid. An investor can liquidate the investment by selling th
e units to the fund if open-end, or selling them in the market if the fund is cl
osed-end, and collect funds at the end of a period specified by the mutual fund
or the stock market.
Convenience and flexibility : Mutual fund management companies offer many invest
or services that a direct market investor cannot get. Investors can easily trans
fer their holdings from one scheme to the other, get updated market information
But roses have thorns as well …
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While the benefits of investing through mutual funds far outweigh the disadvanta
ges, an investor and his advisor will do well to be aware of a few shortcomings
of using the mutual funds as investment vehicles.
No Control over Costs : an investor in a mutual fund
has any control over the overall cost of investing. He pays investment managemen
t fees as long as he remains with the fund, albeit in return for the professiona
l management and research. Fees are usually payable as a percentage of the value
of his investments. Whether the fund value is rising or declining. A mutual fun
d investor also pays fund distribution costs, which he would not incur in direct
investing. However, this shortcoming only means that there is a cost to obtain
the benefits of mutual fund services. However, this cost is often less than the
cost of direct investing by the investors.
No Tailor-made Portfolios : Investors who invest on their own can build their ow
n portfolios of shares, bonds and other securities. Investing through funds mean
s he delegates this decision to the fund managers. The very high-net-worth indiv
iduals or large corporate investors may find this to be a constraint in achievin
g their objectives. However. Most mutual funds help investors overcome this cons
traint by offering families of schemes-a large number of different schemes – withi
n the same fund. An investor
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can choose from different investment plans and construct a portfolio of his choi
ce.
Business Statistics by “S.P Gupta &M.P. Gupta”- The information regarding the statis
tical tools and their limitations in different fields the research is given in t
his section. This section explains why to use correlation and what are the
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situations in which correlation can be used, and what does correlation means.
Research Methodology by “C.R. Kothari” The information regarding the basics of resea
rch and research methodology , what are the different types of research designs,
what is problem statement, what are the sources of data collection and what are
the methods of data collection is given in this section Financial Management by
“I.M. Pandey”- The information regarding nature of financial management, portfolio
management, risk-return relationship,options,derivatives and valuation of shares
have been understood from this book. WORK BOOK by “Association Of Mutual Funda In
India”-The information about the basic knowledge and working of mutual funds in I
ndia is taken from this book.
RESEARCH METHODOLOGY
Research is a systematic and continues method of defining a problem, collecting
the facts and analyzing them, reaching conclusion forming generalizations. Resea
rch methodology is a way to systematically solve the problem. It may be understo
od has a science of studying how research is done scientifically. In it we study
the various steps that all generally adopted by a researcher in studying his re
search problem along with the logic behind them.
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The scope of research methodology is wider than that of research method. Thus wh
en we talk of research methodology we not only talk of research methods but also
consider the logic behind the method we use in the context of our research stud
y and explain why we are using a particular method. So we should consider the fo
llowing steps in research methodology: Problem statement Objective of study Rese
arch design Data collection Sample design Statistical tool Limitation of study
PROBLEM STATEMENT
The research problems, in general refers to sum difficulty with a researcher exp
erience in the contest of either a particular a theoretical situation and want t
o obtain a salutation for same, there are so many investment options available f
or the investors, how they invest or choose a particular investment option and w
hat factor they consider more for investing or choosing a particular investment
option and also to find out are they satisfied with their investment decision.
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RESEARCH OBJECTIVE
• To understand the investor pattern of investment • To find out the difficulties of
investors while investing. • To find out that which is more popular among investo
r between Life Insurance & Mutual Fund. • To find out that are investor satisfied
with their investment decision or not.
RESEARCH DESIGN
A research design is the arrangement of the conditions for the collections and a
nalysis of the data in a manner that aims to combine relevance to the research p
urpose with economy in procedure. In fact, the research design is the conceptual
structure within which research is conducted; it constitutes the blue print of
the collection, measurement and analysis of the data. As search design includes
an outline of what the researcher will do from writing the hypothesis and its op
erational implication to the final analysis of data. I used descriptive research
design in this project. The research design focus on the following . o What is
the study about? o Why is the study being made? o Where will the study be carrie
d out? o What type of data is required?
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o Where can be required data be found? o What period of time will the study incl
ude? o What will be sample design? o What techniques of data collection will be
used? o How will the data be analyzed? o In what style will the report be prepar
ed?
DATA COLLECTION
The task of data collection is begins after a research problem has been defined
and research designed/ plan chalked out. Data collection is to gather the data f
rom the population. The data can be collected of two types: Primary data Seconda
ry data
Primary data
The Primary data are those, which are collected afresh and for the first time, a
nd thus happened to be original in character.
Methods of collection of Primary data are as follows: o Interview o Questionnair
e
Secondary data
The Secondary data are those which have already been collected by some one else
and which have already been passed through the statistical tool. Methods of coll
ection of Secondary data are Journals, Websites and books.
SAMPLE DESIGN
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A sample design is a definite plan for obtaining a sample from a given populatio
n. It refers to the technique or the procedure and the researcher would adopt in
selecting items of sample. Sample design may as well lay down the number of ite
ms to be included in the sample i.e. the size of the sample. Sample design is de
termined before data are collected. Sapling area Sample Size Sampling Technique –C
handigarh –100 - Non-Probability
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STATISTICAL TOOL
Introduction
In our day-to-day life, we find many examples when a mutual relationship exists
between two variables i.e. with fall or rise in the value of one variable, the f
all or rise ay take place in the value of other variable. For example, price of
a commodity rises as the demand for the commodity goes up. Upto a certain time-p
eriod, weight of a person increases with the increase in the age. Similarly, the
temperature rises with the rise in the sunlight. These facts indicate that thre
e is certainly some mutual relationship that exists between the demand for a com
modity and its price, the age of a person and his weight, and the sunlight and t
emperature. The correlation refers to the statistical technique used in measurin
g the closeness of the relationship between the variables.
Definition of Correlation
Some important definitions of correlation are given below: Correlation analysis
deals with the association between two or ore variables. “Simpson and Kafka” If two
or ore quantities vary in sympathy, so that movement in one tend to be accompani
ed by corresponding movements in the other, then they are said to be correlated.
“Conner” Correlation analysis attempts to determine the degree of relationship betw
een variables. “Ya-Lun-Chou”
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Spearman’s Rank Correlation Method
This method of determining correlation was propounded by Prof. Spearman in 1984.
By this method correlation between qualitative data namely beauty, honesty, int
elligence etc, can be computed. Such types of variables can be assigned ranks bu
t their quantitative measurement is not possible. Thus, rank correlation method
is used in such cases. The following is the formula for the computation of rank
correlation coefficient: R = 1 - 6∑D2 or 2 N (N -1) 1- 6∑D2 (N3-N)
Where R = Rank coefficient of correlation, D= Difference between two ranks (R1-R
2) N= Number of pair of observation. The value of rank correlation always lies b
etween –1 and +1. This method can be studied in the following three different situ
ations: 1. When ranks are given 2. When ranks are not given. 3. When equal or ti
ed ranks.
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What are the reasons for choosing a particular company for investing in life ins
urance and mutual funds?
Agent Brand name Track record
Life Insurance 7 37 19
Rank R1 3 1 2
Mutual Fund 12 33 30
Rank R2 3 1 2
(D=R1-R2) 2 0 0 0 ∑D2=0
R = 1 - 6∑D2 or 2 N (N -1) 1- 6.0 =1 (33-3)
1- 6∑D2 (N3-N)
Hence there is a complete agreement in the order of ranks and the ranks are in s
ame direction.
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LIMITATIONS
In every research there are chances of errors and constraints. I have found foll
owing limitations in my study. Sample size, which I have taken, is very small, o
n the basis of which efficient decision can’t be taken.
Respondents were biased in their responses because they were more in favor of th
e brand they were using.
Co-operation from respondents, this was the major problem. Most of the people we
re at their work. So they did not have enough time to give all replies. The popu
lation surveyed was not open to questions related to their personal income i.e.
either they fell hesitant in disclosing the facts about their incomes or they we
re simply not interested.
The respondents were not in the favor to disclose their address and contact numb
er because they believed that they would be contacted through telemarketing.
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Results and Discussions/Findings
Q:Do you invest?
100 90 80 No. of responses 70 60 50 40 30 20 10 0 Yes Response No
Q: If not, what is the reason for that?
8 7 No. of responses 6 5 4 3 2 1 0 Lack of knowledge Lack of interest Inadequate
funds Reasons
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Q:What do you perceive first while investing?
45 40 No. of responses 35 30 25 20 15 10 5 0 1 Perception Security High returns&
Tax benefits Saving&Tax benefits Saving High returns Tax benefits
Q: Do you invest in LIFE INSURANCE or MUTUAL
FUNDS?
50 45 40 No of responses 35 30 25 20 15 10 5 0 Life Insurance Mutual Funds Both
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Q: What are the reasons for investing in LIFE INSURANCE?
30 Security No. of responses 25 20 15 10 5 0 1 Reasons Saving Tax benefits Secur
ity&Tax benefits Saving&Tax benefits
Q:Give the name of company you prefer for investing in
LIFE INSURANCE?
35 No.of responses 30 25 20 15 10 5 0 1 Company ICICI Prudential LIC Birla Sunli
fe Reliance Insurance Others
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Q:What are the reasons for choosing a particular company for life insurance?
40 35 No.of responses 30 25 20 15 10 5 0 Agent Brand name Reason Track record
Q:In which plan do you invest your money in LI?
35 30 No. of responses 25 20 15 10 5 0 Money back Endowment plan Scheme ULIPS
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Q:Are you satisfied with your decision of investing in LI?
60 50 No. of responses 40 30 20 10 0 Highly satisfied Satisfied Moderate
Q:What are the reasons for investment in Mutual Fund?
30 No. of responses 25 20 15 10 Saving 5 0 1 Reasons High returns&Diversified po
rtfolio Tax benefits&Saving Diversified portfolio Tax benefits
High returns
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Q:Which company do you prefer for investing in MF ?
40 No. of responses 35 30 25 20 15 10 5 0 1 Name of company UT MF I Birla Sunlif
e MF Prudential ICICI Reliance MF Others
Q: What are the reasons for choosing a particular company?
35 30 No. of responses 25 20 15 10 5 0 Agent Brand name Reasons Track record
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Q: In which scheme do you invest?
45 40 No. of responses 35 30 25 20 15 10 5 0 1 Scheme Equity Balanced Income Sec
tor specific Tax saving
Q:Are you satisfied with your decision of investing in MF?
60 50 No. of responses 40 30 20 10 0 Highly satisfied Satisfied Satisfaction lev
el Moderate
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RECOMMENDATIONS
• Investors should make the investment with proper planning keeping in mind their
investment objectives. • Investors should read the offer document carefully before
investing in any scheme of the mutual funds and life insurance.
•
Investors should also consults the brokers or agents to seek information and adv
ice but their decision should not merely be based on agents advice rather the de
cision should be based on their careful investigation.
• The investors should select a particular investment option on basis of their nee
d and risk tolerance. • The investors should diversify their investment portfolio
in order to reduce the risk. • The investors should continuously monitor their inv
estments.
•
The companies should provide all relevant information to the investors.
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EXECUTIVE SUMMARY
Management ideas without any action based on them mean nothing. That is why prac
tical experience is vital for any management studies. Theoretical studies in the
class room are not sufficient to understand the functioning climate and the rea
l problems coming in the way of management. So, practical exposures are indispen
sable to such courses. Thus, practical experience acts as a supplement to the cl
assroom studies. This report deals with “Investment Pattern of Investor’s in Mutual
Fund & Life Insurance- A case study of Chandigarh” has been completed. I have lear
nt a lot of new things which could never been learnt from theory classes. Main o
bjectives of this project is to find out the investment pattern of investor’s in M
utual Fund & Life Insurance, to find out what factors influence them more to cho
ose a particular investment option, particular company & to find out whether the
y are satisfied with their investment decision or not. In this study I used non-
probability sampling technique and collected data from primary and secondary sou
rce. In this study descriptive research design is used. Area of study is Chandig
arh. It is find out that out of 100 people 89 invest their money while 11 do not
invest at all because of
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inadequate funds, lack of interest and lack of knowledge. Majority of people inv
est their money in both Mutual Funds & Life insurance .Majority of people take t
he investment decision on the basis of brand name and track record and are satis
fied from their decision.
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BIBLIOGRAPHY
Books:Financial Management 9th edition by “I.M. Pandey.” Vicas publication house pvt
ltd. Research Methodology 2nd edition by “C.R. Kothari” .New age international publ
ication, Business Statistics 14th edition by “S.P. Gupta &M.P.Gupta.”Sultan Chand &
Sons publication.