PROJECT REPORT ON

Mutual Fund Industry In India

CONTENT
CHAPTER 1
INTRODUCTION OF MUTUAL FUNDS
Mutual funds have become a very popular way to take some of the risk out of investing in individual

stocks by investors. Mutual funds are a collection of stocks selected by mutual fund seller and sold to

investors as shares in a fund. There are several types of funds that you can invest in. Some of the more

popular types are technology funds, growth funds, security funds, and income funds. Mutual funds are

very popular because they allow you to invest in a numbers of stocks therefore greatly reducing the risks

associated with putting you money in an individual stock. Mutual funds have become one of the most

attractive ways for the average person to invest their money. A mutual fund pools resources from

thousands of investors and then diversifies its investment into many different holdings such as stocks,

bonds, or government securities in order to provide high relative safety and returns. Mutual Funds now

represents perhaps the most appropriate opportunity for most investors. It is no wonder that birthplace

of mutual funds - the U.S.A.- the fund industry has already overtaken the banking industry. The Indian

industry has already started opening up many of the exciting investment opportunities to Indian

investors. Though not insured like banks, mutual funds generally provide more return than the current

one to two percent obtainable through banks while still being one of the safest ways to grow your

money. There are an endless variety of mutual fund investment choices depending on the degree of risk

you feel comfortable with. Mutual Funds have emerged as professional intermediaries. Besides

providing the expertise in stock market investing, these funds allow investing in small amounts and yet

holding a diversified portfolio to a limit.

HISTORY OF THE INDIAN MUTUAL FUND

INDUSTRY
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the

initiative of the Government of India and Reserve Bank and started its operations in 1964 with the issue
of units under the scheme US-64. The history of mutual funds in India can be broadly divided into four

distinct phases: -

First Phase- 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It
was

set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of

the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank

of India (IDBI) took over the regulatory and administrative control in place of RBI The first scheme

launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under

management.

Second Phase- 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI,
public

sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund

established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct

92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase- 1993-2003 (Entry of Private Sector Funds With the entry of private sector funds in
1993, a

new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund

families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under

which all mutual funds, except LTI were to be registered and governed. The erstwhile Kothari Pioneer

(now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993

Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two

separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under
management of Rs.29,835 crores as at the end of January 2003, representing broadly., the assets of US

64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of

India,functioning under an administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd,

sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund

Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000

crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the

SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector

funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end

of October 31, 2003, there were 31 funds, which manage assets of Rs. 126726 crores under 386

schemes. Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit

Trust of India effective from February 2003. The Assets under management of the Specified Undertaking

of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole

from February 2003 onwards. Currently Public Sector Banks like SBI, Canara Bank, Bank of India,

institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private

financial companies like HDFC, Prudential ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have

floated their own mutual funds.

WHAT IS MUTUAL FUND?

A Mutual Fund is a vehicle for investing in stocks and bonds. It is not an alternative investment option to

stocks and bonds; rather it pools the money of several investors and invests this in stocks, bonds, money

market instruments and other types of securities. Buying a mutual fund is like buying a small slice of a

big pizza. The owner of a mutual fund unit gets a proportional share of the fund's gains, losses, income

and expenses. A Mutual Fund is a body corporate registered with the Securities and Exchange Board of

India (SEBI), that pools up the money from individual/ corporate investors and invests the same on

behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money
markets etc., and distributes the profits. In other words, a mutual fund allows an investor to indirectly

take a position in a basket of assets. A mutual fund pools together sums from individual investors and

invests it in various financial instruments. Each mutual fund has its own investment objective. Mutual

funds have become one of the most attractive ways for the average person to invest their money. A

mutual fund pools resources from thousand of investors and then diversifies its investment into many

different holdings such as stock, bonds, and securities in order to provide highly relative safety and

returns. Each Mutual Fund with different type of schemes is managed by respective Asset Management

Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund according to

his choice and becomes the unit holder of the scheme. The invested money in a particular scheme of a

Mutual Fund is then invested by fund manager in different types of suitable stock and securities, bonds

and money market instruments. Each Mutual Fund is managed by qualified professional man, who use

this money to create a portfolio which includes stock and shares, bonds, gilt, money-market instruments

or combination of all.

DISTINGUISHING CHARACTERISTICS OF
MUTUAL FUND
The traditional, distinguishing characteristics of the mutual fund may include the following: #> Investors

purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from

other investors on a secondary market #> The price that investors pay for mutual fund shares is the

fund's per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of

purchase (such as sales loads). #> Mutual fund shares are "redeemable," meaning investors can sell their

shares back to the fund (or to a broker acting for the fund). #> Mutual funds generally create and sell

new shares to accommodate new investors. In other words, they sell their shares on a continuous basis,

although some funds stop selling when, for example, they become too large. #> The investment

portfolios of mutual funds typically are managed by separate entities known as "investment advisers"
that are registered with the SEBI. MAJOR RIGHTS AS A UNIT HOLDER IN A MUTUAL FUND Some

important rights are mentioned below: • Unit holders have a proportionate right in the beneficial

ownership of the assets of the scheme and to the dividend declared. • They are entitled to receive

dividend warrants within 42 days of the date of declaration of the dividend. • They are entitled to

receive redemption cheques within 10 working days from the date of redemption. • 75% of the unit

holders with the prior approval of SEBI can terminate AMC of the fund. • 75% of the unit holders can

pass a resolution to wind-up the scheme

REGULATORY BODY FOR MUTUAL

FUNDS Securities Exchange Board of
India (SEBI)
SEBI is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get

registered with SEBl. The only exception is the UTI, since it is a corporation formed under a separate Act

of Parliament. Broad Guidelines Issued by SEBI for a MF: - SEBI is the regulatory authority of Mutual

Funds. SEBl has the following broad guidelines pertaining to mutual funds: • Mutual Funds should be

formed as a Trust under Indian Trust Act and should be operated by Asset Management Companies

(AMCs).

• Mutual Funds 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 crore.

• AMCs and Trustees of a Mutual Fund 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 Mutual Funds schemes should be registered with SEBI.

•Mutual Funds 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.

ROLE OF A FUND MANAGER Fund managers are responsible for implementing a consistent
investment

strategy that reflects the goals and objectives of the fund. Normally, fund managers monitor market and

economic trends and analyze securities in order to make informed investment decisions. Thus the role

of fund manager is very crucial. ACCOUNT STATEMENT When the units are bought or get allotted a

statement will be issued mentioning the number of units allotted/bought and redeemed by you. The

recording of entries would be similar to the passbook entries in the bank. In mutual fund terminology it

is called Account Statement. After investing in a mutual fund investor gets an account statement, which

shows his holding and the price at which bought units. The account statement is computer generated

and cannot be traded or transferred. The account statement shows the: -•S holding details #> holding

details #> the number of units outstanding #> value of the holdings All transactions relating to purchase

units, redemption of units, dividend, reinvestment, etc are shown in the account statement.

MUTUAL FUND STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form

of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one

or more schemes for investing in securities in accordance with these regulations. These regulations have

since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new

regulations is indicated as under.

THE SPONSOR: The Sponsor is the creator of the fund, establishes the
mutual fund and gets it registered with SEBI and will typically hold a number of voting shares (perhaps

100) in the fund, but these are not entitled to any distributions or share in the equity. All of the equity

belongs to the investors, typically in the form of non-voting "preferred redeemable shares" The voting
shares generally control management of the fund, apart from limited major decisions. The sponsor is the

Settlor of the Trust that holds Trust property on behalf of investors who are the beneficiaries of the

Trust. The sponsor is also required to contribute at least 40% of the capital of the asset management

company, which is formed for managing the assets of the Trust.

THE BOARD OF TRUSTEES: The mutual

fund needs to be constituted in the form of a trust and the instrument of the trust should be in the form

of a deed registered under the provisions of the Indian Registration Act, 1908. The supervisory role is

fulfilled by the Board of Trustees of the Investment Company. The board of trustees manages the MF

and the sponsor executes the trust deeds in favour of the trustees. It is the job of the MF trustees to see

that schemes floated and managed by the AMC appointed by the trustees are in accordance with the

trust deed and SEBI guidelines.

THE ASSET MANAGEMENT COMPANY (AMC): The company that

manages a mutual fund is called an AMC. For all practical purposes, it is an organized form of a "money

portfolio manager". An AMC may have several mutual fund schemes with similar or varied investment

objectives. The AMC hires a professional money manager, who buys and sells securities in line with the

fund's stated objective. All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI

(in case the AMC is promoted by a bank). In addition, every mutual fund has a board of directors that

represents the unit holders' interests in the mutual fund.

This entity that undertakes the designing and marketing of schemes, raises money from the public under

the schemes and manages the money on behalf of its owners. To segregate the collected funds from this

entity's own funds, the corpus is placed in a legal vehicle. It is the character of this legal vehicle that

determines the character of the Fund itself. Irrespective of the nature of the structure, what is more

fundamental is that in view of the fiduciary role of the AMC or the fund manager towards the public,

there is a need for supervision of the activities of the AMC or fund manager by a separate body. The

assets of the Trust comprise of properties of the schemes, which are floated by the asset management
company with the approval of the Trustees Schemes may have different characteristics - they may be

open or closed ended or may have a particular investment focus or portfolio composition. Finally, the

safe custody of assets of the Trust is entrusted to one or more custodians.

THE CUSTODIAN: Custodian

holds the fund's cash and investment assets. Commonly, parts of the fund's assets are held by one or

more brokers who execute trades on behalf of the fund Custodial Fees can also be a fixed fee or a

percentage of NAV. Where a broker acts as de facto custodian, it usually charges on a transactional

basis. Apart from these four there is registrar or a transfer agent who acts as a key party THE

ADMINISTRATOR: Administrator acts as registrar and transfer agent, keeps the books and records
of the

fund, and calculates the NAV. Depending on the complexity of the fund, the administrator's fees could

be as little as a few thousand dollars a year or as much as 0.5 to 0.65 % of the NAV per annum.

Sometimes the administrator's fees are included within the management fee. In certain situations, the

administrator subcontracts a part of the work, particularly the NAV certification, to the investment

manager.

REGULATIONS OF MUTUAL FUNDS IN

INDIA
In India SEBI and RBI act as regulators of mutual fund. SEBI (Mutual Fund) REGULATIONS,1996 The

provisions of this regulations pertaining to AMC are:

• All the schemes to be launched by the AMC need to be approved by the trustees and copies of offer

document of such schemes are to be filed with SEBI.

• The offer document shall contain adequate disclosure to enables the investor to make informed

decision.

• Advertisement in respect of schemes should be in conformity with the SEBI prescribed advertisement
code, and discloses the method and periodicity of the valuation of investment sales and repurchase in

addition to the investment objectives.

• The listing of close ended schemes is mandatory and every close ended scheme should be listed on a

recognized stock exchange with in six months from the closure of subscription. However, listing is not

mandatory in case the scheme provides for monthly income or caters to the special classes of persons

like senior citizen, women, children, and physically handicapped. If the scheme discloses detail of

repurchase in the offer document: if the schemes opens for repurchase with in six months of closure of

subscription.

• Units of a close ended scheme can be opened for sale or redemption at a predetermined fixed interval

if the minimum and maximum amount of sale, redemption, and periodicity is disclosed in the offer

document.

• Units of a close ended scheme can also be converted into an open ended scheme with the consent of

majority of the unit holder and disclosure is made in the offer document about the option and period of

conversion.

• Units of a close ended scheme may be rolled over by passing resolution by a majority of the

shareholders.

• No scheme other than unit linked schemes can be opened for more than 45 days. • The AMC must

specify in the offer document about the minimum subscription and the extent of over subscription,

which is intended to be retained. In the case of over subscription, all applicants applying up to 500 units

must be given full allotment subjected to over subscription. • The AMC must refund the application

money if minimum subscription is not received and also the excess over subscription with in the six

weeks of closure of subscription.

• Mutual funds are required to disclose large unit-holding in the scheme, which are over 25% of the

NAV. RBI as supervisor of bank owned Mutual Funds

The first non-UTI mutual funds were started by public sector banks. Banks come under the regulatory
jurisdiction of RBI. So Bank owned mutual funds are regulated by RBI, but it has been clarified that all

the mutual funds, being primarily capital market players come under the regulatory framework of SEBI.

Thus, the bank owned fund continue to be under the joint supervision of both RBI and SEBI. It is

generally understood that all market related and investor related activities of the fund are to be

supervised by SEBI, while any issue concerning the ownership of the AMC by bank fall under the

regulatory ambit of RBI. But RBI on bank fund should not conflict with SEBI guidelines. #> RBI as

supervisor of money market mutual funds RBI is the only Government agency that is charged with the

sole responsibility of overall entities that operates in money market. So money market mutual funds

were regulated by RBI guidelines till 23.11.1995. Recently it has been decided that money market

mutual funds of registered mutual fund will be regulated by SEBI through the same guidelines issued for

other mutual funds, i.e. SEBI (MF) regulations, 1996. However RBI does retain the right to decide

whether mutual funds will be allowed to access inter-call money market. Accordingly, RBI has placed

certain restrictions through latest credit policy, with the intention of moving toward a pure inter bank

money market. CALCULATION OF NAV Net asset value on a particular date reflects the realizable value

of a mutual fund's portfolio in per share or per unit terms. It is the worth of an investment with an
openend

mutual fund quoted in terms of its net asset value. That is also the amount an investor can expect if

he or she were to sell his or her units back to the issuer. Daily closing prices of all securities held by the

fund are used as a starting point. Subtract this amount for liabilities (including expenses and

commissions). And divide the result by the number of outstanding shares. If the realizable worth of the

portfolio is Rs 12 million, divided it by shares outstanding, let's say one million units, then the NAV is Rs

12 (12/1). If a fund's NAV a year ago was Rs 10.5 and is currently Rs 12, then your pre-tax return is 14.28

percent((12-10.5)/(10.5)*100). An NAV signifies nothing more than the current worth of a portfolio. The

NAV of a fund only starts to make sense when compared to a benchmark index. First, it tells you the

extent to which the securities that comprise the fund's portfolio have outperformed or under performed

the index. Second, the use of certain statistical measures can also tell you whether a fund was able to
derive above-average, risk-returned schemes.

The NAV of such a fund will tend to be erratic, since these so-called growth shares experience high price

volatility. They also make quick profits by investing in small cap shares and by investing in initial public

offerings of small companies. However, growth strategy may differ from one fund to another. Not all

growth funds operate similarly. Some of the common equity funds are:

#> Sector funds: The goal is once again pure capita! appreciation, but the strategy is to buy into
shares

of only one industry. And not diversify like a growth fund. Such funds forgo the principle of asset

allocation for high returns. That's why they are also the riskiest.

#> Tax planning funds: Also known as equity linked savings schemes, they operate like any other
growth

fund (and that's why are as risky). However, an investor in these schemes gets an income-tax rebate of

20 per cent (for a maximum of Rs 10,000) under Section 88 of the Income Tax Act. Essentially an

incentive for the investor (who is otherwise investing in fixed-income instruments like the Public

Provident Fund primarily for saving tax on his or her annual salary or business income) a chance to

participate in capital appreciation that can be delivered by investing in equity shares. That's also why

these schemes also come with a three-year lock-in period. Also while other tax planning schemes

guarantee returns, an ELSS offers no such assurance.

#> Index fund: Their goal is to match the performance of the markets. They do not involve stock
picking

by so called professional fund managers. An index fund essentially buys into the stock market in a way

determined by some market index (BSE Sensex or S&P CNX Nifty) and does almost no further trading.

Index funds are optimally diversified portfolios and only carry along with it the due to economy-wide

factors.

#> DEBT FUNDS: They aim to provide safety of principal and regular (monthly, quarterly or semi
annually) income by investing in bonds, corporate debentures and other fixed income instruments. The
AMC in this case will also be guided by ratings given to the issuer of debt by credit rating agencies.

Wherever a debt instrument is not rated, specific approval of the board of the AMC is required. Since

most of corporate debt is illiquid, the fund tries to provide liquidity by investing in debt of varying

maturity. Some of the common debt funds are:

#> Money market funds: Also known as liquid plans, these funds are a play on volatility in
interest rates.

Most of their investment is in fixed-income instruments with maturity period of less than a year. Since

they accept money even for a few days, they are best used to park short-term money, which otherwise

earns a lower return in a savings bank account.

#> Gilt funds: They are aimed at generating returns commensurate with zero credit risk, which is by
investing securities created and issued by the central and/or the state government securities and/or

other instruments permitted by the Reserve Bank of India. Since they ensure zero risk, instant liquidity,

tax-free income, their return is lower than an income fund.

#> A Dividend Plan entails a regular payment of dividend to the investors.

#> A Reinvestment Plan is a plan where these dividends are reinvested in the scheme itself.

#> A Growth Plan is one where no dividends are declared and the investor only gains through capital

appreciation in the NAV of the fund. The term 'growth' is often used in a very generic sense to denote

every equity mutual fund. Also 'growth' in fixed income funds, comes from reinvesting dividends. That's

why in such fixed income funds, investors have an option, and they can choose either growth through

reinvestment of dividends, or regular income by ticking on the income option.

HOW TO CHOOSE A PLAN

It depends on investment object of the investor, which again depends on his income, age, financial

responsibilities, risk taking capacity and tax status. For example a retired government employee is most

likely to opt for monthly income plan while a high-income youngster is most likely to opt for growth

plan.
The mutual fund issues shares of stock and bonds (just like any other corporation) to investors in

exchange for cash. It is interesting to note that funds do not issue a pre-determined amount of stock, as

do most corporations; new shares are issued as each new investment is made. Investors thus become

part owners of the fund itself, and thereby the assets of the fund. The fund, in turn, uses investors' cash

to purchase securities, such as stocks and bonds. The primary assets of a fund are the securities it

invests in (other assets, such as equipment, are a relatively small part of the total assets of a fund).

Following are the various descriptions needed for the working of mutual fund: How mutual funds work

Buy shares Receive incc-me in a fund Invest in securities Returns increase fund value

STOCKS BONDS PRICING AND VALUATION DESCRIPTION. The value of the shares of an
open-end mutual fund is readily

determined Each day, the accounting staff of a fund simply adds up the value of all the securities in the

portfolio, adds in other assets, deducts liabilities, and comes up with a net overall value. It is then a

simple matter to divide the net assets by the number of shares outstanding. This is called the net asset

value, and is the price at which investors buy and sell shares from the fund. The net asset value is listed

in the financial section of many major newspapers.

LOAD AND NO-LOAD FUNDS DESCRIPTION

A load, or loaded, fund is one that has a sales charge. A no-load fund has no sales charge. As noted

above, not all funds have sales charges. Those that do simply add them on to the net asset value of the

fund, thus coming up with a new, higher offering price per share It is important to note that the

underlying value of the fund's shares do not change, and further, that an investor selling shares will still

receive only the net asset value A no-load fund is simpler. The net asset value is used for both the

purchase price and the selling price. Therefore, the two prices are always identical. In the case of a load

fund, the broker usually takes care of the details for you. In the case of a no-load fund, investors usually

deal directly with the fund in question.

BUYING AND SELLING FUND SHARES DESCRIPTION.

When you buy shares, you pay the current NAV per share plus any fee the fund assesses at the time of

purchase, such as a purchase sales load or other type of purchase fee. When you sell your shares, the

fund will pay you the NAV minus any fee the fund assesses at the time of redemption, such as a deferred

(or back-end) sales load or redemption fee. A fund's NAV goes up or down daily as its holdings change in

value.

FUND OBJECTIVES AND PROSPECTUS DESCRIPTION A fund's objective, described in the

prospectus, gives

broad indications of the types of investments a fund may make. The most important aspect of a fund is

its investment objective. The fund's objective tells investors the goals the fund seeks to achieve, and a

good deal about how it intends to achieve them. A balanced fund will generally hold stocks and bonds. A

fund seeking growth fund will utilize stocks. A fund seeking income with little or no concern for growth

will generally hold bonds. The objective of a fund is so fundamental that it generally determines the

category into which a fund will be assigned. Listed below are some examples of major investment

objective categories: - > Preservation of Capital & Liquidity—Achieved by investing in very short-term

bonds > Income—Achieved by investing in bonds > Balanced—Achieved by investing in bonds and stocks

> Growth—Achieved by investing in stocks The prospectus: The Securities and Exchange Commission

(SEC) requires all mutual funds to publish a plain English prospectus and issue a copy to all potential

investors either before they buy or along with the confirmation of their initial investment. The

prospectus must explain the programs and policies the management follows to achieve the fund's

investment goals. The prospectus includes: #> Statement of objective #> Investor programs #> Fund fees

and expenses #> Fund performance history #> Results of investment #> How to purchase and redeem

shares #> Shareholder services

HOW MUTUAL FUNDS CAN EARN

MONEY
A mutual fund can earn money in three different ways.

Dividend Payments — A fund may earn income in the form of dividends and interest on the
securities in

its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it

has earned in the form of dividends.

Capital Gains Distributions — They are paid from any profits the fund realizes from selling
investments.

The price of the securities a fund owns may , increase. When a fund sells a security that has increased in

price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains

DISTRIBUTIONS (minus any capital losses) to investors.

Increased NAV — If the market value of a fund's

portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its

shares increases. The higher NAV reflects the higher value of your investment. With respect to dividend

payments and capital gains distributions, funds usually will give a choice: the fund can send a check or

other form of payment, or the dividends or distributions reinvested in the fund to buy more shares

(often without paying an additional sales load.

A fund may sell investments for a number of reasons:

> To capitalize on an investment's increased value

> To achieve performance targets

> To free up money to make new investments > To prevent additional losses in a security that is losing
value

> To have enough cash to redeem shares its investors want to sell back to the fund

INFORMATION NEEDS TO EVALUATE MUTUAL FUNDS

There are three key pieces of information that help to evaluate a mutual

fund.

» PAST PERFORMANCE: It measures the fund's historical returns, whether the returns are consistent,
and how they stack up against the returns of comparable funds. While there's no guarantee that a

fund's future performance will equal its current or past record.

» RISK: It measures how likely you are to earn money or lose it. Risk isn't bad if you're investing for the

long term and you can tolerate some setbacks without selling in a panic if the fund drops in value. But if

you're investing to meet short-term goals or preserve capital, you may want a fund that poses less risk

to principal.

» COST: It measures how much you pay in sales charges or commissions, fees, and annual asset-based

expenses. Since these costs directly affect your return, you may want to compare the expense ratios and

sales charges of various funds as part of your evaluation process. Higher fees may correlate with higher

risk if the fund manager takes added risk to help reduce the impact of fees on return.

FACTORS TO CONSIDER Thinking about long-term investment strategies and tolerance for risk can help

to decide what type of fund is best suited. But one should also consider the effect that fees and taxes

will have on the returns over time.

DEGREES OF RISK Mutual fund investments are not totally risk free.

In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference

being that due to professional management of funds the controllable risks are substantially reduced. A

very important risk involved in mutual fund investments is the market risk. When the market is in

doldrums, most of the equity funds will also experience a downturn. However, the company specific

risks are largely eliminated due to professional fund management All funds carry some level of risk. One

can lose some or all of the money invests principal -because the securities held by a fund go up and

down in value. Dividend or interest payments may also fluctuate as market conditions change. Before

investing, be sure to read a fund's prospectus and shareholder reports to learn about its investment

strategy and the potential risks. Funds with higher rates of return may take risks that are beyond your

comfort level and are inconsistent with your financial goals. Financial theory-states that an investor can

reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding
all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By

creating a portfolio of a variety of assets, this risk is substantially reduced.

HOW SAFE ARE MUTUAL FUNDS: As financial intermediaries, they do not come without risk. Also when
defined in terms of losing

money, the risk in mutual funds is not dramatically different than that present in other financial

instruments. Still, they are relatively safer and offer a more convenient way on investing. With mutual

funds you can control risk by choosing a fund that given your risk profile., you believe is the best. On the

other hand, picking stocks individually that will both meet your objectives and match your profile can be

tough.

A mutual fund portfolio is also easier to monitor than individual shares. They also come without

systemic risks (like bad deliveries). They offer quick liquidity Most private mutual funds can be

redeemed in three to four working days, unlike a fixed deposit that is more likely to be received a month

after its maturity, or an equity share after the end of its settlement period (or depending up on your

broker). This too cuts the overall risk associated with investing, often not so visible and hence not

accounted by many investors. TAX CONSEQUENCES When an individual stock or bond is bought and

hold, income tax has to be paid each year on the dividends or interest received. Mutual funds are

different. When you buy and hold mutual fund shares, you will owe income tax on any ordinary

dividends in the year you receive or reinvest them. And, in addition to owing taxes on any personal

capital gains when you sell your shares, you may also have to pay taxes each year on the fund's capital

gains. That's because the law requires mutual funds to distribute capital gains to shareholders if they sell

securities for a profit that can't be offset by a loss Tax Exempt Funds If you invest in a tax-exempt fund -

- such as a municipal bond fund - - some or all of your dividends will be exempt from federal (and

sometimes state and local) income tax. But if you receive a capital gains distribution, you will likely owe

taxes — even if the fund has had a negative return from the point during the year when you purchased

your shares. SEC rules require mutual funds to disclose in their prospectuses after-tax returns. In

calculating after-tax returns, mutual funds must use standardized formulas similar to the ones used to
calculate before-tax average annual total returns. When comparing funds, be sure to take taxes into

account. RETURNS As per SEBI Regulations, mutual funds are not allowed to assure returns. However,

funds floated by AMCs of public sector banks and financial institutions were permitted to assure returns

to the unit holders provided the parent sponsor was willing to give an explicit guarantee to honor such a

commitment. But in general, mutual funds cannot assure fixed returns to their investors. Investors need

to be clear that mutual funds are essentially medium to long-term investments Hence, short-term

abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds

tend to outperform most other avenues of investments at the same time avoiding the risk of direct

investment accompanied with professional fund management.

ADVANTAGES AND DISADVANTAGES

Every investment has advantages and disadvantages. But it's important to remember that features that

matter to one investor may not be important to you. Whether any particular feature is an advantage for

you will depend on your unique circumstances. For some investors, mutual funds provide an attractive

investment choice because they generally offer the following advantages:

Professional Management —
Professional money managers research, select, and monitor the performance of the securities the fund

purchases.

Diversification - - Diversification is an investing strategy that can be neatly summed up as

"Don't put all your eggs in one basket." Spreading your investments across a wide range of companies

and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to

achieve diversification through ownership of mutual funds rather than through ownership of individual

stocks or bonds.

Affordability - - Some mutual funds accommodate investors who don't have a lot of
money to invest by setting relatively low amounts for initial purchases, subsequent monthly purchases

or both. Liquidity & flexibility— Mutual fund investors can readily redeem their shares at the current
NAV plus any fees and charges assessed on redemption at any time 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. Easy entry and exit -- Filling a

mutual fund application or a redemption form is all that it takes while entering or exiting a mutual fund.

But with equity shares, you need to have an account with a stockbroker (for buying & selling) and

another with a depository participant. Some investors may find this cumbersome. Tax benefits— Section

88 for Equity Linked Saving Schemes, ability to reinvest your proceeds from capital gains into mutual

funds under section 54EA & 54EB and tax-free status for equity oriented funds for three years starting

from April 1, 1999 are popular benefits that investors in mutual funds can avail of. Transparency—One

get regular information on the value of the investment in addition to disclosure on the specific

investments made by ones scheme, the proportion invested in each class of assets and the fund

manager's investment strategy and outlook. 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.

But mutual funds also have features that some investors might view as Disadvantages, such as: #>

Costs Despite Negative Returns -- Investors must pay sales charges, annual fees, and other expenses

regardless of how the fund performs. And, depending on the timing of their investment, investors may

also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform

poorly after they bought shares.

Lack of Control - - Investors typically cannot ascertain the exact

make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund

manager buys and sells or the timing of those trades.

Price Uncertainty - - With an individual stock,

you can obtain real-time (or close to real ¬time) pricing information with relative ease by checking

financial websites or by calling your broker. You can also monitor how a stock's price changes from hour
to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase

or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many

hours after you've placed your order. In general, mutual funds must calculate their NAV at least once

every business day.

OBJECTIVES OF STUDY
Following are the objectives of the study:

1 To know about investors' investment preferences.

2 To check awareness level of people about mutual funds.

3. To work out potential market for mutual funds.

4. To access the satisfaction level of mutual funds investors and to find out the reasons for

dissatisfaction.

5. To check factors considered by investors while investing in mutual funds.

6. To work out the potential market for Mahindra & Mahindra Finsmart.

RESEARCH METHODOLOGY
Research Methodology - is a way to systematically solve the research

problem. The Research Methodology includes the various methods and techniques for conducting a

research Marketing Research is the systemic design, collection, analysis and reporting of data and

finding relevant solution to a specific marketing situation or problem." D. Slesinger and M. Stephonson

in the encyclopedia of Social Sciences define research as "the manipulation of things, concepts or

symbols for the purpose of generalizing to extend, correct or verify knowledge, whether that knowledge

aids in construction of theory or in the practice of an art." Research is, thus, an original contribution to

the existing stock of knowledge making for its advancement. The purpose of Research is to discover

answers to he questions through the application of scientific procedures. My project had a specific

framework for collecting data in an effective manner. Such framework is called ^'Research Design". I

follow the research process consisted of following steps: A. Defining the problems and research
objectives: It is said, " a problem well defined is half solved." The first step done was to define the

project under study and decided the research objective. The project undertaken by me was- Consumer

awareness about Mutual Funds The objective of my research was to know the customer awareness

about the working of Mutual funds provided by Mahindra & Mahindra and to work out the potential

market for Mahindra & Mahindra. B Developing the research plan: The second stage of my study

consisted of developing the most efficient plan for gathering the relevant data. The method adopted by

me for carrying out study was as followed:

Sampling Plan: Sampling can be defined as the section of

some part of an aggregate or totality on the basis of which the judgment or an inference about

aggregate or totality is made The sampling plan helps in decision making in the following areas: -

Sampling units- The population that was targeted consists of businessmen, service class, students,

housewives etc. #> Sample size- The sample size for my study was -100. #> Sampling procedure-

Random sampling method was used. C. Data Collection: Information was collected from both Primary

and Secondary data #>

Primary sources- Primary data are those, which are collected afresh and for the

first time, and thus happen to be original in character. 1 had collected Primary data by conducting

surveys through Questionnaire, which include both open-ended and close-ended questions.

Secondary sources- Secondary data are those which have already been collected by someone else

and which already had been passed through the statistical processes. I had collected secondary data

through Magazines, Websites, Newspapers, Books, Journals, Mahindra & Mahindra monthly magazine

etc.

Analysis of Data: After collecting the data the analysis of data had been through various statistical

tools and techniques. The analysis of data required a number of closely related operations such as

establishment of categories, the application of these categories to raw data through coding, tabulation

and then drawing the statistical inferences. The unwieldy data was condensed into few manageable
groups and tables for further analysis. Thus it helped to classify the raw data into some purposeful and

usable categories. E. Interpretations: After analysis Interpretations were done i.e. to explain the findings

on the basis of analysis Tabulation of data was done wherein classified data were to put in the form of

tables. After tabulation the analysis work of my project was based on the computation of various

statistical formulae- Percentages, Values, Pie charts and Graphs and Bar Diagrams.

LIMITATIONS
Besides following scientific methodologies the study has come across some limitations. These are:

1. The sample size is small as compared to the population, so it may not he the true representative.

2. Due to limited time countrywide survey was not possible. Hence only Jalandhar city has been taken
for the study.

3. Some people were reluctant to fill the questionnaire. They were not willing to disclose their

investment plans.

4. The possibility of respondents being biased cannot be ruled out.

Q1. Do you know about various financial institutions#> The objective of this question is to know how
many people are

familier with them Responses % Age of Respondents Yes 60.2% No 39.8% Table No. 4.1 Percentage of

Familier people Chart No.4.1 Percentage of Respondents Interpretation: From the above data we can

conclude that 60.2% people are aware of different financial institutions while 39.8% are unaware about

it.

Q.2 Monthly income invested. The objective of this question is to know that how much of the

monthly income people invest.

Responses % Age of Respondents

Less than Rs.5, 000 42.67% 5,000 - 10,000 30% More than 10,000 27.33% Table No. 4.2 Monthly income

invested Chart No. 4.2 Monthly income invested Interpretation: From the above data we can conclude

that 42.67% of people invest their monthly income less than Rs.5, 000, 30% of people invest Rs.5,000-

10,000% whereas 27.33% of people invest their monthly income more than 10, 000.
Q.3 Various options

for investment and savings. The objective of this question is to find out where people generally like to

invest or save. Various Instruments % Age of Responses Savings 42.07% RDs 6.76% FDs 20.59% RBI

0.59% Shares 4.7% Mutual Funds 3.53% Post Office 21.76% Table No. 4.3 Options for investing or saving

Chart No. 4.3 Options for investing or savings Interpretation: From the data we can conclude that

42.05% people like to invest in savings account, 6.76% in RDs, 20.59% in FDs. 0.59% in RBI Bonds, 4.7%

in shares. 3.53% in Mutual Funds and 21.76% in Post Office Deposits.

Q.4 Awareness about Mutual Fund

as a source of investment. The objective of this question is to know whether people are aware about

that Mutual Fund is also an alternate source of investing their money. Response % Age of Respondents

Yes 37% No 63% Table No. 4.4 Awareness about Mutual Funds CHART NO. 4.4 Awareness about Mutual

Funds Interpretation: From the above data we can conclude that only 37 % people are aware about this

fact while remaining 63% people are unaware of this.

Q5. Percentage of investors in Mutual Funds.

Response % Age of Respondents Yes 32.14% No 67.86% Table No.4.5 Percentage of investors in Mutual

Funds

Chart No. 4.5Percentage of investors in Mutual Funds Interpretation: From the above data we can

conclude that only 32.14% people have invested their money in Mutual Funds.

Q.6 Preferable type of

mutual fund for investment. The objective of this question is to find out the type of Mutual Fund in

which the people generally invest. Responses % Age of Responses Open ended 87% Close ended 13%

Table No. 4.6Percentage of investors in different types Chart No. 4.6 Percentage of investors in different

types Interpretation: From the above data we can conclude that 87% of people invest in open-ended

mutual funds whereas only 13 % of people invest in close-ended mutual funds.

Q.7 a) Various factors

persuade to invest in Mutual Funds. The objective of this question is to find out the various factors that

persuade the people to invest in Mutual Funds.

Factors % Age of Respondents Liquidity and Flexibility 32% Tax benefits 40% Less investment risks 8%

Safety 12% Fixed & Regular income 8% Table No. 4.7a) Various factors persuading to invest Chart No.

4.7a) Various factors persuading to invest Interpretation: From the above data we can conclude that

32% of people are influenced by liquidity and flexibility factor, 40% by tax benefits, 8% by less

investment risk and fixed and regular income both and 12% by safety factor. Q.7b Reasons of

dissatisfaction. The objective of this question is to know why people are not satisfied with their Mutual

Fund investment. Factors % Age of Respondents Irregular income 13% Other alternatives 19% Poor

service 6% Risks 49% Any other reason 13% Table No. 4.7b) Reasons of dissatisfaction Chart No. 4.7b)

Reasons of dissatisfaction

Interpretation: From the above data we can conclude that 49% of people are not satisfied with their

investment in Mutual Funds because of risk involved. 19% because of other alternatives available, 6%

because of poor service and 13% because of irregular income and other reasons.

Q.8 Awareness

regarding advisory services of Mahindra & Mahindra. The objective of this question is to know whether

people are aware that Mahindra & Mahindra acts as an advisory agent not only for one particular

mutual funds but also for other Mutual funds of various banks and institutions. Responses % Age of

Respondents Yes 26.66% No 73.34% Table No. 4.8 Awareness regarding advisory services of Mahindra &

Mahindra. Chart No. 4.8 Awareness regarding advisory services of bank Interpretation: From the above

data we can conclude that only 26.66% people are aware of this fact of Mahindra & Mahindra while

73.34% are unaware about this.

Q9 Interest of people about their investments taken cared by Mahindra

& Mahindra. The objective of this question is to know whether people are interested that Mahindra &

Mahindra should take of their investments. Responses % Age of Respondents Yes 28.9% No 71.1% Table
No. 4.9 Investments taken cared bv Mahindra & Mahindra Yes No Chart No. 4.9 Investments taken cared

by bank

Interpretation: From the above data we can conclude that only 28.9% people are interested that

Mahindra & Mahindra should take care of their investments while 71.1% people not show any interest.

Q.10 Fear of risk involved in Mutual Funds The objective of this question is to know how risky they find

Mutual Funds are. Responses % Age of Respondents Very risky 65.33 Risky 12 Neutral 3.3 Low risk 2.6

No response 16.6 Table No. 4.10 Fear of risk Chart No. 4.10 Fear of risk Interpretation: From the above

data we can conclude that 65.33% people find Mutual funds very risky, 12% find it risky, 3.33% find it

neutral, only'2.6% find low risk while 16.6% gave no response.

Q 11. Awareness regarding various tax

schemes. The objective of this question is to know the awareness level of people regarding the tax

exemptions while investing. Responses % Age of Respondents Yes 19.3% No 80.67%

Table No. 4.11 Awareness regarding tax schemes YES NO Chart No. 4.11 Awareness regarding tax

schemes Interpretation: From the above data we can conclude that only 19.3% people are aware of the

rebates in Mutual funds while 80.67% people do not have any knowledge.

Q.12 Income generated by

investing in Mutual funds. The objective of this question is to know the awareness level of people

regarding income generated by investing in various mutual funds. Responses % Age of Respondents Yes

26% No 74% Table No. 4.12 Income generation by Mutual funds Chart No. 4.12Income generation bv

Mutual funds Interpretation: From the above data we can conclude that 26% people know that they can

earn regular income while investing in Mutual funds.

Q.13 Satisfaction level of people. The objective of

this question is to find the satisfaction level of the people for the services provided by Mahindra &

Mahindra Responses % Age of Respondents Excellent 24 Very good 50 Good 21 Fair 5 . Table No. 4.13

Satisfaction level regarding services of Mahindra & Mahindra Chart No. 4.13 Satisfaction level regarding
services of Mahindra & Mahindra Interpretation: from the above data we can conclude that half of the

people i.e. 50% analyzed find the services of the Mahindra & Mahindra very good, 24% find it excellent,

21% find it good whereas 5% people are also their who are not satisfied with the services of Mahindra &

Mahindra CONCLUSION From this study it is observed that few people like to invest in the Mutual Funds

because of ignorance, lack of knowledge or due to loss in faith. About half of the people invest more

than 10% of their income in various investments avenues. Saving accounts and fixed deposits are the

most preferred investment avenues followed by the Post Office Savings Only 37.33% of the people are

aware of the fact that Mutual Fund is also a source of investing their money and only 32.14 % of people

have actually invested in Mutual Funds. Most of the people like to invest in the open-ended type of

Mutual Funds. The tax benefits and liquidity and flexibility factors involved persuade most of the people

to invest in Mutual funds along with the factors like fixed and regular income. About 65% of the people

considered that to invest in Mutual Funds is a very risky task. Only 28% of the people know that they can

avail rebate under sec. 88 and only 26% of the people have the knowledge that they can earn regular

income by investing in Mutual funds. About 27 % people know about this that Mahindra & Mahindra

acts as an advisory agent not only in Single Mutual Fund but also in other mutual funds offered by

Standard Chartered, Prudential 1C 1C I, Kotak Mahindra, Templeton Birla etc.

From this survey it is clear that besides providing various facilities by Mahindra & Mahindra and other

private Brokers most of the people still have their faith in government banks. However most of the

people are satisfied with the working of the Mutual Funds. SUGGESTIONS After the analysis of the

consumer awareness level of the Mahindra & Mahindra about mutual funds along with other products

and services following suggestions can be given: - #> The Mahindra & Mahindra should try to improve its

market intelligence system. This would keep it know its customer better and it will get more information

about the competitors and the forces affecting the market. #> The Mahindra & Mahindra should

increase its advertising budget to get the benefits of good advertising so that consumers should aware

of their existing products and services as well as new one. #> The Mahindra & Mahindra should increase
its number of branches not only in urban areas but also in rural and semi-urban areas for the ease of the

public. #> The customer should be fully satisfied and delighted so that they go a long way with Mahindra

& Mahindra

BIBLIOGRAPHY Bana Verma, " Mutual Fund Performance: Indian Studies", the ICFAI Journal of Applied

Finance Dian Vujovich & Michael Lippu, "Straight Talk about Mutual Fund", -McGraw Hill Gordon &

Natrajan, "Financial Markets and Services", Himalaya Publishing House, 2003 Huji Mehndi Raja, "Mutual

Fund Offer Wide Net for Investors", Safar, 2000 L. K Bansal, " Merchant Banking and Financial Services",

Unistar Books, 2003 WEBSITES: www.Mahindra &Mahindra.com www. amfiindia.com

QUESTIONNAIRE

I am the student of B.com (Hons.), of the Amrapali group of institute, haldwani conducting a survey on

the 'Consumer Perception about Mutual Funds' Kindly cooperate in filling this questionnaire. Your

information will be kept confidential

Q 1 Do you familier with Mahindra & Mahindra

#> a) Yes b) No

Q 2 How much of your monthly income do you invest

#> a) Less than Rs.5,000 b) 5,000-10,000 c) More than Rs. 10,000

Q.3 In what type of instrument you generally invest or save your money

a) Savings b) Shares c) Recurring deposits d) Mutual Funds e) Fixed deposits f) Post Office Deposits g)

RBI Bonds h) Other (please specify)…….. ……………………………………..

Q.4 Do you know Mutual fund is also a source of investing your money

#> a)Yes b) No

Q5.Have you ever invested your money in Mutual Funds

#> a) Yes b) No

Q.6 In what type of Mutual Fund you have invested

#> a) Open ended b) Close ended

Q.7 Are you satisfied with your Mutual Fund investment

#> If yes , then what factors persuade you to invest in mutual funds

#>a) Liquidity and flexibility . b) Safety c) Fixed and regular income d) More tax benefits e) Less

investment risks f) Any Other (specify) ..

Q.7 (b) If no, then please state the reason why

#> a) Low income b) Other alternatives c) Poor service d) Risks e) Other (please specify)

Q.8 Are you aware that the advices made by Mahindra & Mahindra in Mutual Funds are made after

understanding the customer appetite of risk, return, safety and liquidity

a) Yes b)No

Q .9 Would you like that Mahindra & Mahindra should take of your investments

a) Yes b) No

Q. 10 What do you think about 'fear of risk' in Mutual Fund

a)Very Risky b) Risky c) Neutral d)Low e) Very low

Q. 11 Are you aware of the fact that you can avail rebate under sec.88 up to Rs 10, 000 by investing in

Mutual Funds under ELSS scheme9

a) Yes b) No

Q. 12 Do you know that you can earn regular income in the form of Dividends, MIP, Dividend

Reinvestment Option by investing in various Mutual Funds schemes

#>a) Yes b) No

Q. 13 How do you find the services provided by the Mahindra & Mahindra

#> a) Excellent b) Very Good c) Good d) Fair e) Poor PERSONAL INFORMATION

NAME……………………………………. AGE……………………………………… SEX……………………………………….

OCCUPATION…………………………… TEL. NO. …………………………………. E-MAIL ID ………………………………..