CHAPTER 1

INTRODUCTION
A mutual fund is a type of professionally-managed collective investment vehicle that
pools money from many investors to purchase securities. As there is no legal definition of mutual
fund, the term is frequently applied only to those collective investments that are regulated,
available to the general public and open-ended in nature. Unit Trust of India is the first mutual
fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the
issue of units under the scheme US-64. In India, mutual funds must be registered with Securities
Exchange Board of India (SEBI) is the regulatory body for all the mutual funds. The only
exception is the UTI, since it is a corporation formed under a separate Act of Parliament. Mutual
funds have both advantages and disadvantages compared to direct investing in individual
securities. Today they play an important role in household finances. The first mutual funds were
established in Europe in 1774. The first mutual fund outside the Netherlands was the Foreign &
Colonial Government Trust, which was established in London in 1868. Mutual funds were
introduced into the United States in the 1890s. They became popular during the 1920s. These
early funds were generally of the closed-end type with a fixed number of shares which often
traded at prices above the value of the portfolio. The first open-end mutual fund with redeemable
shares was established on March 21, 1924. MUTUAL FUNDS IN INDIA In India mutual funds
are divided in to balanced funds, Income fund, Growth funds, Sector funds, etc. Equity funds
mainly consist of common shares and stocks of companies listed in the stock exchanges. They
are considered risky but are likely to give higher return in the longer run. Fixed income funds:
Also known as low risk funds, these funds mainly invest in government and corporate securities
(debentures) with fixed amount of returns, which are generally moderate. Balanced funds are
basically a combination of both bonds and stocks, which involves moderate to little risk. Hybrid
funds include other investment classes in their portfolio like gold apart from equity and debt.
Since April 2011, the mutual fund industry clocked a 3% growth in its average Assets Under
Management (AUM) to touch Rs. 7.53 lakh cr in August (month-on-month) on the back of
higher inflows into liquid and income funds. (Crisil Report-September 2012). Mutual funds have
advantages compared to direct investing in individual securities. These include increased
diversification, daily liquidity, professional investment management, ability to participate in
investments that may be available only to larger investors, service and convenience, government
oversight and ease of comparison. Mutual funds have disadvantages as well, which include fees,
less control over timing of recognition of gains, less predictable income and no opportunity to
customize. Top 10 mutual funds in India are ICICI Prudential Top 100, Escorts Income Plan-
Gro, Reliance RSF – Balanced, DSP Black Rock MIP Fund, Escorts Liquid Plan – Gr, Reliance
Equity Linked S, MOSt Shares NASDAQ 100, Baroda Pioneer Gilt Fund, IDFC Nifty Fund –
Growth. SEBI Guidelines Pertaining to Mutual Funds: SEBI is the regulatory authority of MFs.
SEBI has the following broad guidelines pertaining to mutual funds: They are MFs should be
formed as a Trust under Indian Trust Act and should be operated by Asset Management
Companies (AMCs). MFs need to set up a Board of Trustees and Trustee Companies. They
should also have their Board of Directors. The net worth of the AMCs should be at least Rs. 5 cr.
AMCs and Trustees of a MF should be two separate and distinct legal entities. The AMC or any
of its companies cannot act as managers for any other fund. AMCs have to get the approval of
SEBI for its Articles and Memorandum of Association. All MF schemes should be registered
with SEBI. MFs should distribute minimum of 90% of their profits among the investors. There
are other guidelines also that govern investment strategy, disclosure norms and advertising code
for mutual funds.
INDUSTRY PROFILE

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. The flow chart below describes broadly the working of a mutual fund
ORGANIZATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizatio
nal set up of a mutual fund

ADVANTAGES OF MUTUAL FUNDS

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity
 Transparency
 Flexibility
 Choice of schemes
 Tax benefits
 Well regulated
TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial
position, risk tolerance and return expectations etc. The table below gives an overview into the
existing types of schemes in the Industry.

TERMS USED IN MUTUAL FUND

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.

Sale Price

Is the price we pay when we invest in a scheme. Also called Offer Price. It may include
a sales load.
Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it may include a
back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended schemes
redeem their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load.
Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the unit holders.

STATEMENT OF THE PROBLEM

Mutual funds pool the funds of small investor and invest it in the securities. As the
investors do not know in which portfolio the fund managers will go investment, the performance
such as the risk and the return associated with each fund type will only affect the investor. Here
the risk associated with each type will vary, hence the return will also vary. Since the investors
are investing based on the scheme category such as private or public sector funds.

Costs are the biggest problems with mutual funds. These costs eat into our return and
they are the main reason why the majority of funds reason why the majority of funds end up with
sub par performance. Some cities of the industry say that mutual funds companies get away with
the fees they charges only the average investors does not understand what he/she is paying for:
fees can be broken allow into two categories.

1. On going yearly fees to keep is invested in the fund.

2. Transaction fees paid when we buy or sell shares in a fund.
Benefits of Investing in Mutual Funds:

Professional Management

When you invest in a mutual fund, your money is managed by finance professionals. Investors
who do not have the time or skill to manage their own portfolio can invest in mutual funds. By
investing in mutual funds, you can gain the services of professional fund managers, which would
otherwise be costly for an individual investor.

Diversification

Mutual funds provide the benefit of diversification across different sectors and companies.
Mutual funds widen investments across various industries and asset classes. Thus, by investing
in a mutual fund, you can gain from the benefits of diversification and asset allocation, without
investing a large amount of money that would be required to build an individual portfolio.

Liquidity

Mutual funds are usually very liquid investments. Unless they have a pre-specified lock-in
period, your money is available to you anytime you want subject to exit load, if any. Normally
funds take a couple of days for returning your money to you. Since they are well integrated with
the banking system, most funds can transfer the money directly to your bank account.

Flexibility

Investors can benefit from the convenience and flexibility offered by mutual funds to invest in a
wide range of schemes. The option of systematic (at regular intervals) investment and
withdrawal is also offered to investors in most open-ended schemes. Depending on one’s
inclinations and convenience one can invest or withdraw funds.

Low Transaction Cost

Due to economies of scale, mutual funds pay lower transaction costs. The benefits are passed on
to mutual fund investors, which may not be enjoyed by an individual who enters the market
directly.
Transparency Funds

provide investors with updated information pertaining to the markets and schemes through
factsheets; offer documents, annual reports etc.

Well Regulated

Mutual funds in India are regulated and monitored by the Securities and Exchange Board of
India (SEBI), which endeavors to protect the interests of investors. All funds are registered with
SEBI and complete transparency is enforced. Mutual funds are required to provide investors with
standard information about their investments, in addition to other disclosures like specific
investments made by the scheme and the quantity of investment in each asset class.

Risk Involved in Investing in Mutual Funds

 The biggest risk of investing in a mutual fund is one of underperformance. When an investor
decides to invest in a particular asset class, he typically expects to get the return that the
benchmark of the asset provides.

 For example, if someone is investing in large-cap equity stocks, he would expect to make at
least as much return (with similar risk) as a benchmark index, say Sensex or Nifty.

 Mutual funds try to maximize the returns on the funds invested through them -- but all of the
funds cannot succeed an outperforming each other or the benchmark. Hence, some of them
under-perform the benchmark.

 Similarly, the cost of investing in a mutual fund (discussed below), eats in the returns. In high
return years (like the last few years, where returns have been in the high 30% in equity, 2% costs
may not make a material impact: however, at more moderate or negative returns, costs can be a
big inch).

 The other risk with mutual funds is 'style drift.' If you invest in a large cap fund and it begins to
invest in mid cap stocks, or if you invest in a long term debt fund but it starts to invest a greater
proportion in cash instruments, you might not the type of risk return reward that you have been
expecting.

 Change of the fund manager can also introduce an element of risk into your portfolio. There is
a wide debate as to whether investing is a science or an art: most authorities concede that it is a
blend of the two. If so, the artist may contribute to the success of the returns

SCOPE OF THE STUDY

This study was undertaken with the existing mutual funds in the websites. This funds are
already used by the researcher for the analysis.

This study covers various schemes for analysis. They are Escorts mutual fund, GIC
mutual fund, JM mutual fund, Kotak mutual fund, ING Vysya mutual fund, Taurus mutual fund,
Reliance mutual fund.
OBJECTIVES

 To identify the preference level of investment in mutual fund.

 To examine the factors influencing while investing in mutual fund.
 To analyse the investor’s satisfaction with investment in mutual fund.
 To study the problems faced in investment of mutual fund.
LIMITATIONS OF THE STUDY
 Analysis and interpretation is only based on the open - end schemes.
 Dividend schemes were not taken into consideration in this study.
 This study considers the period between 2018-2019 and before and after this period
were not taken into consideration.
 The analysis and interpretation of the fund is based only on the past performance.
RESEARCH METHODOLOGY

Source of Data

The present study is based on primary data which was collected using questionnaire method.

Sample Size

The sample size is 150

Data Collection

The data was collected using questionnaire from professionals like those who wants invest in
mutual funds and other investment option.

Statistical Tools

Research design

For this study descriptive method is used for analyzing the performance of the funds.
Descriptive research study is concerned with describing the characteristics of particular
individual or of a group. In descriptive analysis the researcher must be able to define clearly,
what he wants to measure and must find adequate methods for measuring analysis.
LITERATURE REVIEW

Dr. Ravi Vyas,

conducted study on mutual fund investor’s behavior and perception in Indore city It was found
that mutual funds were not that much known to investors, still investor rely upon bank and post
office deposits, most of the investor used to invest in mutual fund for not more than 3 years and
they used to quit from The fund which was not giving desired results. Equity option and SIP
mode of investment were on top priority in investors’ list. It was also found that maximum
number of investors did not analyze risk in their investment and they were depending upon their
broker and agent.

Dr. Binod Kumar Singh

In this paper, structure of mutual fund, operations of mutual fund, comparison between
investment in mutual fund and bank and calculation of NAV etc. have been considered. In this
paper, the impacts of various demographic factors on investors’ attitude towards mutual fund
have been studied. For measuring various phenomena and analyzing the collected data
effectively and efficiently for drawing sound conclusions, Chi-square ( ) test has been used and
for analyzing the various factors responsible for investment in mutual funds, ranking was done
on the basis of weighted scores and scoring was also done on the basis of scale. The study shows
that most of respondents are still confused about the mutual funds and have not formed any
attitude towards the mutual fund for investment purpose. It has been observed that most of the
respondents having lack of awareness about the various function of mutual funds. Moreover, as
far as the demographic factors are concerned, gender, income and level of education have
significantly influence the investors’ ’ attitude towards mutual funds. On the other hand the other
two demographic factors like age and occupation have not been found influencing the attitude of
investors’ ’ towards mutual funds. As far as the benefits provided by mutual funds are
concerned, return potential and liquidity have been perceived to be most attractive by the
invertors’ followed by flexibility, transparency and affordability. Apart form the above, in India
there is a lot of scope for the growth of mutual fund International Journal of Research in
Management ISSN 2249-5908 Issue2, Vol. 2 (March-2012) Page 68 companies provided that the
funds satisfy everybody’s needs and sharp improvements in service standards and disclosure.

Prof Gauri Prabhu, Dr N.M. Vechalekar

Mutual Funds provide a platform for a common investor to participate in the Indian capital
market with professional fund management irrespective of the amount invested. The Indian
mutual fund industry is growing rapidly and this is reflected in the increase in Assets under
management of various fund houses. Mutual fund investment is less risky than directly investing
in stocks and is therefore a safer option for risk averse investors. Monthly Income Plan funds
offer monthly returns and invest majorly in debt oriented instruments with little exposure to
equity. However it has been observed that most of the investors are not aware of the benefits of
investment in mutual funds. This is reflected from the study conducted in this research paper.
This paper makes an attempt to identify various factors affecting perception of investors
regarding investment in Mutual funds. The findings will help mutual fund companies to identify
the areas required for improvement in order to create greater awareness among investors
regarding investment in mutual funds.

Dr. Shantanu Mehta, Charmi Shah

The survey is undertaken of 100 educated investors of Ahmedabad and Baroda city and the
major findings reveal the major factors that influence buying behavior mutual funds investors,
sources that investor rely more while making investment and preferable mode to invest in mutual
funds market. The study will be immensely useful to the AMC';s, Brokers, distributors and to the
other potential investors and last but not least to academician as well.

Gaurav Agrawal & Dr. Mini Jain

In today’s competitive environment, different kinds of investment avenues are available to the
investors. All investment modes have advantages & disadvantages. An investor tries to balance
these benefits and shortcomings of different investment modes before investing in them. Among
various investment modes, Mutual Fund is the most suitable investment mode for the common
man, as it offers an opportunity to invest in a diversified and professionally managed portfolio at
a relatively low cost. In this paper, an attempt is made to study mainly the investment avenue
preferred by the investors of Mathura, and we have tried to analyze the investor’s preference
towards investment in mutual funds when other investment avenues are also available in the
market.

R Padmaja

A mutual fund is a type of professionally-managed collective investment vehicle that pools

money from many investors to purchase securities. As there is no legal definition of mutual fund,
the term is frequently applied only to those collective investments that are regulated, available to
the general public and open-ended in nature. Mutual funds have both advantages and
disadvantages compared to direct investing in individual securities. Today they play an important
role in household finances. So the present study aims at consumer behavior towards mutual
funds with special reference to ICICI Prudential Mutual Funds Limited, Vijayawada. Data was
collected through primary and secondary sources. Primary data was collected through structured
questionnaire. Convenience sampling method was used to collect the data and entire study was
conducted in Vijayawada City. The study explains about investors’ awareness towards mutual
funds, investor perceptions, their preferences and the extent of satisfaction towards mutual funds.
Some suggestions were also made to increase the awareness towards mutual funds and measures
to select appropriate mutual funds to maximize the returns .

Dr. D. Rajasekar

A Study on Investor’s preference of mutual funds with reference to reliance private limited‖ a
project which is mainly carried out to know about the investor’s perception with regard to their
profile, income, savings pattern, investment patterns and their personality traits. In order to
understand the level of investor’s preference, a survey was conducted taking in to consideration
various parameters involved in investors decision making. For the purpose of evaluation, a
questionnaire survey method was selected keeping in mind objectives of the study. The data was
collected from primary and secondary sources. The primary sources were collected from the
investors who invested in various avenues. The secondary sources are from books, journals and
internet. Since the investor population is vast a sample size of 150 was taken for the project. The
data was analyzed using the statistical tools like percentage analysis, chi square, weighted
average. The report was concluded with findings and suggestions and summary. From the
findings, it was inferred overall that the investor are highly concerned about safety and growth
and liquidity of investments. Most of the respondents are highly satisfied with the benefits and
the service rendered by the reliance mutual funds.

Dr. Geeta Kesavaraj

The researcher carried out the study with the aim to measure the ―Customer Perception towards
various types of Mutual Funds". It focuses its attention towards the possibilities of measuring the
expectations and satisfaction level of more mutual fund products. It also aims to suggest
techniques to improve the present level of perception. The study will help the firm in
understanding the expectations, future needs and requirements and complaints of the consumers.
The study had been dedicated mainly towards the promotion of product or concept in the
Chennai Market. The researcher used the Descriptive type of research design in her study. The
researcher used the Primary data collection method in her study by framing a structured
Questionnaire. The researcher went with convenient type of sampling method in her study. The
sample is taken as 204 by the researcher. For the purpose of Analysis and Interpretation the
researcher used the following statistical tools namely Simple Percentage Analysis, Chi-Square
Test, Karl Pearson's Correlation and One way Anova. Based on the Analysis and Interpretation
the researcher arrived out with the major findings in her study and Suggestions are given in such
a way so that the customers can attain the wealth maximization.

Y. Prabhavathi, N.T. Krishna Kishore

The advent of Mutual Funds changed the way the world invested their money. The start of
Mutual Funds gave an opportunity to the common man to hope of high returns from their
investments when compared to other traditional sources of investment .The main focus of the
study is to understand the attitude, awareness and preferences of mutual fund investors. Most of
the respondents prefer systematic investment plans and got their source of information primarily
from banks and financial advisors. Investors preferred mutual funds mainly for professional fund
management and better returns and assessed funds mainly through Net Asset Values and past
performance.
Pritam P. Kothari & Shivganga C. Mindargi

This study analyzes the impact of different demographic variables on the attitude of investors
towards mutual funds. Apart from this, it also focuses on the benefits delivered by mutual funds
to investors. To this end, 200 respondents of Solapur City, having different demographic profiles
were surveyed. The study reveals that the majority of investors have still not formed any attitude
towards mutual fund investments.

Dhimen Jagdishbhai Jani,

Bhautik Alpeshkumar Patel & Rajeev V. Jain This study focused on the consumer’s perception
towards mutual fund as an investment option in Valsad city from Gujarat. They revealed that
Consumers perception were positive toward investment in mutual funds.
Age

Option No of Respondents Percentage

Below 30 33 22

30 – 40 26 17

40 - 50 67 45

Above 50 24 16

Total 150 100

Age

160
140
120
100
Axis Title

80
60
40
20
0
Below 30 30 – 40 40 - 50 Above 50 Total
No of Respondents 33 26 67 24 150
Percentage 22 17 45 16 100
Marital status

Option No of Respondents Percentage

Single 41 27

Married 109 73

Total 150 100

Marital status

160

140

120

100

80 No of Respondents
Percentage
60

40

20

0
Single Married Total
Family type

Option No of Respondents Percentage

Joint 37 25

Nuclear 113 75

Total 150 100

Family type

160
140
120
100
Axis Title

80
60
40
20
0
Joint Nuclear Total
No of Respondents 37 113 150
Percentage 25 75 100
Gender

Option No of Respondents Percentage

Male 93 62

Female 57 38

Total 150 100

Gender

160
140
120
100
Axis Title

80
60
40
20
0
Male Female Total
No of Respondents 93 57 150
Percentage 62 38 100
Occupation status

Option No of Respondents Percentage

Private Job 44 29

Government Job 40 27

Business 66 44

Total 150 100

Occupation status

160
140
120
100
Axis Title

80
60
40
20
0
Governmen
Private Job Business Total
t Job
No of Respondents 44 40 66 150
Percentage 29 27 44 100
Monthly income

Option No of Respondents Percentage

below 50000 33 22

50000-100000 26 17

100000-150000 67 45

150000 above 24 16

Total 150 100

Monthly income

160
140
120
100
Axis Title

80
60
40
20
0
below 50000- 100000- 150000
Total
50000 100000 150000 above
No of Respondents 33 26 67 24 150
Percentage 22 17 45 16 100
What do you look before investing in a particular investment

Option No of Respondents Percentage

Return 25 17

Minimum Investment Amount 30 20

Locking period 45 30

Risk 30 20
Type of investment option 20 13

Total 150 100

What do you look before investing in a particular investment

160

140

120

100
Axis Title

80

60

40

20

0
Minimum Type of
Locking
Return Investment Risk investment Total
period
Amount option
No of Respondents 25 30 45 30 20 150
Percentage 17 20 30 20 13 100
Sources of knowledge about mutual fund investment

Option No of Respondents Percentage

Television 27 18
Internet 38 25
Newspaper/ Journals 45 30
Friends and Relatives 22 15
Sales representative 18 12

Total 150 100

Sources of knowledge about mutual fund investment

160

140

120

100
Axis Title

80

60

40

20

0
Sales
Newspaper Friends and
Television Internet representa Total
/ Journals Relatives
tive
No of Respondents 27 38 45 22 18 150
Percentage 18 25 30 15 12 100
To which period you prefer to invest in mutual fund

Option No of Respondents Percentage

Less than 1 Year 26 17

1 - 3 years 58 39

3 - 5 Years 66 44

Total 150 100

To which period you prefer to invest in mutual fund

160
140
120
100
Axis Title

80
60
40
20
0
Less than 1
1 - 3 years 3 - 5 Years Total
Year
No of Respondents 26 58 66 150
Percentage 17 39 44 100
To which types of investment schemes you prefer to invest in Mutual fund

Option No of Respondents Percentage

Equity 16 11

Debt 21 14

Hybrid 0 0

Gilt fund 0 0

growth schemes 36 24

Income schemes 46 31

Balanced schemes 20 13

liquid schemes 11 7

Total 150 100

To which types of investment schemes you prefer to invest in Mutual fund

160

140

120

100
Axis Title

80

60

40

20

0
Balance
growth Income liquid
Gilt d
Equity Debt Hybrid scheme scheme scheme Total
fund scheme
s s s
s
No of Respondents 16 21 0 0 36 46 20 11 150
Percentage 11 14 0 0 24 31 13 7 100