A STUDY ON PREFERENCE OF MUTUAL FUNDS BY

INVESTORS BASED ON PERFORMANCE OF DEBT

AND EQUITY SCHEMES.

Introduction To Mutual Funds History

A mutual fund is a trust or a pool of investments by investors

who share a common financial goal. This pool is invested in

several financial instruments such as shares, debt

instruments, bonds etc. by the company managing that trust.

This company is called an Asset Management Company.

Returns so generated are later distributed among the

members of the pool in the ratio of their investments. The

AMC invests its money in a manner that while the returns are

maximized, the risks are kept to a minimum level. In India, it is

mandatory for every Asset Management Firm to be registered

with the Securities and Exchange Board of India (SEBI), a

body that regulates all securities instruments.

The first company that dealt in mutual funds was the Unit

Trust of India. It was set up in 1963 as a joint venture of the

Reserve Bank of India and the Government of India. The

objective of the UTI was to guide small and uninformed

investors who wanted to buy shares and other financial

products in larger firms. The UTI was a monopoly in those

days. One of its mutual fund products that ran for several

years was the Unit Scheme 1964.

The mutual fund industry in India has undergone at least 4

phases. Let us now look at each phase in brief:

Mutual Funds History: Phase Of Inception

(1964-87)
The first phase was marked by the setting up of the UTI.

Though it was a collaboration between the RBI and the Indian

Government, the latter was soon delinked from the day-to-day

operations of the Unit Trust of India. In this phase, the

company was the sole operator in the Indian mutual fund

industry. In 1971, the UTI launched the Unit Linked Insurance

Plan or the ULIP. From that year until 1986, UTI introduced
several plans and played a very big role in introducing the

concept of mutual funds in India.

When UTI was set up several years ago, the idea was to not

just introduce the concept of mutual funds in India; an

associated idea was to set up a corpus for nation-building as

well. Therefore, to encourage the small Indian investor, the

government built in several income-tax rebates in the UTI

schemes. Not surprisingly, the investible corpus of UTI

swelled from 600 crores in 1984 to 6,700 crores in 1988.

Clearly, the time had come for the Indian mutual industry to

move into the next phase.

Mutual Funds History: Entry Of Public Sector (1987-1993)By

the end of 1988, the mutual fund industry had acquired its

own identity. From 1987, many public sector banks had begun

lobbying the government for starting their own mutual fund

arms. In November 1987, the first non-UTI Asset

Management Fund was set up by the State Bank of India.

This AMC was quickly followed by the creation of other AMCs

by banks like Canara Bank, Indian Bank, Life Insurance

Corporation, General Insurance Corporation, and Punjab

National Bank.

This opening up of the mutual fund industry delivered the

desired results. In 1993, the cumulative corpus of all the

AMCs went up to a whopping Rs. 44,000 crores. Observers of

this industry say that in the second phase, not only the base

of the industry increased but also it encouraged investors to

spend a higher percentage of their savings in mutual funds. It

was evident that the mutual fund industry in India was poised

for higher growth.

Mutual Fund History: Entry Private Sector

Phase (1993-1996)
In the period 1991-1996, the Government of India had

realized the importance of the liberalization of the Indian

economy. Financial sector reforms were the need of the hour.

India needed private sector participation for the rebuilding of

the economy.

Keeping this in mind, the government opened up the mutual

fund industry for the private players as well. The foreign

players welcomed this move and entered the Indian market in

significant numbers. In this period, 11 private players –in

collaboration with foreign entities- launched their Asset

Management Funds.

SEBI Interventions And Growth, And

AMFI
As the mutual fund industry grew further in the 1990s, the

AMCs and the government felt that it was time for regulation

and some control. Investors had to be protected as well as a

level playing ground had also to be laid down. A few years

ago, the Indian industry had suffered a lot because of bank

scams and there was a real threat that investors might lose

their monies yet again.

Consequently, the government introduced the SEBI

Regulation Act in 1996 which laid down a set of fair and

transparent rules for all the stakeholders. In 1999, the Indian

government declared that all mutual fund dividends would be

exempt from income tax. The idea behind this decision was to

spur further growth in the mutual fund industry.

Meanwhile, the mutual fund industry also realized the

importance of self-regulation. As a result, it set up an industry

body- the Association of Mutual Funds of India (AMFI). One of

the goals of this body is investor education.

Debt Mutual Funds.

Debt mutual funds – an introduction
Many retail investors tend to equate mutual funds with equity mutual
funds. However did you know that  it is Debt mutual funds which
account for nearly two-thirds of the industry AUM? (Source: AMFI).
Debt mutual funds invest in various fixed-income instruments. At the
risk of broad generalization, one could define fixed-income
instruments as those which pay a fixed rate of interest for the life of
the instrument and then return the principal amount back at maturity.
Now all of us are already aware of one major instrument that fulfills
this criteria – the ubiquitous bank fixed deposit or FD.
However what distinguishes the fixed-income instruments that debt
funds invest in from your typical FD is that these instruments have a
secondary market where they can be bought and sold. Prices of fixed-
income instruments can fluctuate a lot. Because of this even though
the rate of interest on these instruments is fixed, the returns that can
be earned are not.
To understand, how the prices of fixed-income instruments fluctuate,
read: Understanding bonds and debt funds through a simple
comparison with FDs 
Also read:  How is it possible for debt funds to give double digit returns
when they are holding bonds which give them fixed returns
Debt mutual funds can be classified according to the type of fixed-
income instruments that they hold.
1. Liquid funds:
What they invest in:
These funds invest in debt instruments with very little time to maturity
left (less than 91 days). These instruments can be issued by different
kinds of issuers such as government, corporate etc.
Should you be investing in them:
Liquid funds are considered extremely safe. There are two kinds of
risk in any debt instrument. First, the risk of default by the issuer of the
instrument and Second, is the interest rate risk or the risk that interest
rates in the market will go up compared to what is paid by the
instrument because of which price of the instrument will come down.
For liquid funds, since instruments have very little time left for expiry,
therefore the risk of default is quite small. Also the interest rate risk
also depends on the maturity because the maturity determines that for
how long you are locked in the lower rate of interest. Hence the
interest rate risk in liquid funds is also negligible. As a result, liquid
funds are safe. However for these very reasons the upside in liquid
funds is also limited. Investors can think of liquid funds as an
alternative to bank deposits/FDs. They give returns similar to
FDs/slightly higher than bank deposits, have a more favorable tax
treatment and are nearly as liquid as your current accounts.
Liquid funds are best suited for investors who are looking for stable
returns even if they are a bit low. This kind of return profile is best
suitable for someone who has a short (less than 1 year) investment
horizon or someone who wants to park funds which can be needed at
any time such as emergency funds.
2. Ultra Short-term Funds:
What they invest in:
These funds invest in debt instruments with slightly longer time to
maturity ( 91 days to  1 year). These instruments can be issued by
different kinds of issuers such as government, corporate etc.
Should you be investing in them:
Since the maturity of instruments is higher than liquid funds, therefore
the risk (both default risk and interest rate risk) is slightly higher but so
in the potential for returns. Ultra short-term funds are suited for those
investors who are willing to take slightly higher risk for more returns
and have a time horizon of 1-2 years.
3. Floater Funds:
What they invest in:
These funds invest in special kind of debt instrument where the
interest is reset regularly (typically one a quarter or once in 6 months),
based on the market interest rate. These instruments can be issued
by different kinds of issuers such as government, corporate etc.
Should you be investing in them:
Floating-rate instruments and hence floater funds have very little
interest rate risk because the interest keeps getting reset regularly.
Rather than being suited for a particular type of investor, these funds
are suited for particular times. Floater funds make sense if you expect
interest rates to go up and hence do not want to lock today’s low
interest rate.
4. Short-term Income Funds:
What they invest in:
These funds invest in debt instruments with maturity of up to 3 years
though there is some scope for flexibility in the time period which
separates short term income funds from regular income funds. Short-
term income funds also invest in paper issued by various entities such
as government, corporate etc.
Should you be investing in them:
Due to the longer maturity of short-term income funds (compared to
liquid and ultra short-term funds), they have more credit risk or risk of
default and also more interest rate risk. As a result if interest rates in
the market go down, the returns of short-term funds will increase and
can even be in double digits. There is commensurate risk if interest
rates go up. These funds are most suited for investors with a 1-3 year
investment horizon.
5. Income Funds:
What they invest in:
These funds invest in debt instruments from different issuers with an
average maturity of greater than 3 years.
Should you be investing in them:
The longer maturity of income funds means they have
significant interest rate risk. As a result if interest rates in the market
go down, income funds generate double digit returns due a significant
increase in prices of the underlying instruments. If interest rates go up
then  investors will see losses. The interest rate cycle (central bank
going through a complete of hiking interest rates and then cutting
them or cutting and then hiking) is typically of 3-5 years. Hence an
investor with 3-5 year horizon can invest in income funds. Over this
horizon, they should expect to see positive returns which are higher
than that of liquid funds due to the fact that the investor took more
credit and interest rate risk.
6. Gilt Funds:
What they invest in:
Gilt funds can be thought of as a special kind of Income funds that
only invest in instruments issued by the government. These funds can
either be short-term or long-term based on the maturity of instruments
that they invest in. The average maturity of a long-term gilt fund is
usually more than that of income funds. This is  because of the easier
availability of government paper at longer maturities.
Should you be investing in them:
Since the government is considered to be an extremely safe borrower
(they can always print money in case they run out of it!), so gilt funds
do not take credit risk. They only take interest rate risk. However the
interest rate risk in gilt funds is typically more because of higher
average maturity since the government typically issues more longer-
dated paper  than corporate.Conservative investors with a 1-3 year
investment horizon can consider short-term gilt funds. More risk-
oriented investors with 3-5 year horizon can consider long-term gilt
funds.
Additional points to note about debt mutual funds
While investing in debt funds, it is important to be careful about “Plus”
or “Enhanced” funds. Such suffixes usually denote that the fund is
investing a small percentage of its portfolio in some higher return (and
higher risk) financial instruments. These could either be equities or
more risky interest rate instruments than in the main portfolio. For
instance a “Liquid Plus” fund could be investing in some longer
maturity debt instruments. Hence it is important to carefully go through
the fund factsheet when investing in such funds to make sure there
are no unpleasant surprises.

While all fund managers have some amount of discretion on what to

hold in their portfolio, they are still bound by the objective or mandate
of the fund in terms of maturity and credit quality. However there is a
special category of funds called “Dynamic Bond Funds” where the
manager has the explicit mandate that they can pick debt instruments
of any maturity. In theory, such a manager will invest in longer
maturity instruments when interest rates are expected to come down
and will invest in shorter maturity/floating rate instruments when
interest rates are expected to go up, thereby giving consistent returns.
In practice, interest rate timing is not that easy and evidence of
dynamic bond funds outperforming their more passive counterparts is
unclear. Hence investors may be better-off creating their own portfolio
of liquid, short-term and long-term debt funds based on their
investment horizon and risk appetite.

EQUITY FUNDS

WHAT IS AN 'EQUITY FUND'

An equity fund is a mutual fund scheme that invests predominantly in

equity stocks.
In the Indian context, as per current SEBI Mutual Fund Regulations,
an equity mutual fund scheme must invest at least 65% of the
scheme’s assets in equities and equity related instruments.

Under the tax regime in India, equity funds enjoy certain tax
advantages (such as, there is no incidence of long term capital gains
tax on equity shares or equity funds which are held for at least 12
months from the date of acquisition). As per current Income Tax rules,
an "Equity Oriented Fund" means a Mutual Fund Scheme where the
investible funds are invested in equity shares in domestic companies
to the extent of more than 65% of the total proceeds of such fund.

An Equity Fund can be actively managed or passively managed. Index

funds and ETFs are passively managed.

Equity mutual funds are principally categorized according to company

size, the investment style of the holdings in the portfolio and
geography.

The size of an equity fund is determined by a market capitalization,

while the investment style, reflected in the fund's stock holdings, is
also used to categorize equity mutual funds.

Equity funds are also categorized by whether they are domestic

(investing in stocks of only Indian companies) or international
(investing in stocks of overseas companies). These can be broad
market, regional or single-country funds.

Some specialty equity funds target business sectors, such as health

care, commodities and real estate and are known as Sectoral Funds.

IDEAL INVESTMENT VEHICLE

In many ways, equity funds are ideal investment vehicles for investors
that are not as well-versed in financial investing or do not possess a
large amount of capital with which to invest. Equity funds are practical
investments for most people.
The attributes that make equity funds most suitable for small individual
investors are the reduction of risk resulting from a fund's portfolio
diversification and the relatively small amount of capital required to
acquire shares of an equity fund. A large amount of investment capital
would be required for an individual investor to achieve a similar
degree of risk reduction through diversification of a portfolio of direct
stock holdings. Pooling small investors' capital allows an equity fund
to diversify effectively without burdening each investor with large
capital requirements.

The price of the equity fund is based on the fund's net asset value
(NAV) less its liabilities. A more diversified fund means that there is
less negative effect of an individual stock's adverse price movement
on the overall portfolio and on the share price of the equity fund.

Equity funds are managed by experienced professional portfolio

managers, and their past performance is a matter of public record.
Transparency and reporting requirements for equity funds are heavily
regulated by the federal government.

A FUND FOR EVERYONE

Equity funds are very popular amongst the retail investors among
various categories of mutual fund products. Whether it’s a particular
market sector (technology, financial, pharmaceutical), a specific stock
exchange (such as the BSE or NSE), foreign or domestic markets,
income or growth stocks, high or low risk, or a specific interest group
(political, religious, brand), there are equity funds of every type and
characteristic available to match every risk profile and investment
objective that investors may have.

WHAT ARE DIFFERENT CATEGORIES OF EQUITY FUNDS

There are different types of equity mutual fund schemes and each
offers a different type of underlying portfolio that have different levels
of market risk.
Large Cap Equity Funds invest a large portion of their corpus in
companies with large market capitalization are called large-cap funds.
This type of fund is known to offer stability and sustainable returns,
over a period of time.

Large Cap companies are generally very stable and dominate their
industry. Large-cap stocks tend to hold up better in recessions, but
they also tend to underperform small-cap stocks when the economy
emerges from a recession. Large-cap tend to be less volatile than
mid-cap and small-cap stocks and are therefore considered less risky.

Mid-Cap Equity Funds invest in stocks of mid-size companies, which

are still considered developing companies. Mid-cap stocks tend to be
riskier than large-cap stocks but less risky than small-cap stocks. Mid-
cap stocks, however, tend to offer more growth potential than large-
cap stocks.

Small Cap Funds invest in stocks of smaller-sized companies. Small

cap is a term used to classify companies with a relatively small market
capitalization. However, the definition of small cap can vary among
market intermediaries, but it is generally regarded as a company with
a market capitalization of less than ₹ 100 crores. Many small caps are
young companies with significant growth potential. However, the risk
of failure is greater with small-cap stocks than with large-cap and mid-
cap stocks. As a result, small-cap stocks tend to be the more volatile
(and therefore riskier) than large-cap and mid-cap stocks. Historically,
small-cap stocks have typically underperformed large-cap stocks
during recessions but have outperformed large-cap stocks as the
economy has emerged from recessions.

The smallest stocks of the small caps are called micro-cap stocks.
While the opportunity for these companies to experience extreme
growth is great, the risk to lose a large amount of money is also
possible

Multi Cap Equity Funds or Diversified Equity Funds invests in stocks

of companies across the stock market regardless of size and sector.
These funds provide the benefit of diversification by investing in
companies spread across sectors and market capitalisation. They are
generally meant for investors who seek exposure across the market
and do not want to be restricted to any particular sector. They invest in
companies across different market caps and hence reduce the
amount of risk in the fund. Diversification helps prevent events that
could affect a single sector for affecting the fund, and hence reduce
risk.

Market capitalization (commonly known as market cap) is calculated

by multiplying a company’s outstanding shares by its stock price per
share. A company’s stock price by itself does not tell much about the
total value or size of a company; a company whose stock price is say
₹500 is not necessarily worth more than a company whose stock price
is say, ₹250. For example, a company with a stock price of ₹500 and
10 million shares outstanding (a market cap of ₹5 billion) is actually
smaller in size than a company with a stock price of ₹250 and 50
million shares outstanding (a market cap of ₹12.5 billion).

Thematic Equity Funds: These funds invest in securities of specific

sectors such as Information Technology, Banking, Service and
pharma sector etc., which is specified in their scheme information
documents. So, the performance of these schemes depends on the
performance of the respective sector. These funds may give higher
returns, but they also come with increased risks

EQUITY LINKED SAVINGS SCHEME (ELSS):

Equity-Linked Savings Scheme (ELSS) is an equity mutual fund
investment that invests at least 80 per cent of its assets in equity and
equity-related instruments. ELSS can be open-ended or close ended.
Investments in an ELSS qualify for tax deductions under Section 80C
of the Income Tax Act within the overall limit of ₹1.5 lakh. The amount
you invest in ELSS is deducted from your taxable income, which helps
you lower the amount of income tax you are liable to pay. Investments
in ELSS are subject to a three-year lock-in period and the returns from
the scheme, i.e. dividends and capital gains, are tax-free

What Are Equity Funds?

An equity fund is a form of mutual fund investment that mainly

invests in equities or stocks. Equity funds are also known as

stock funds. Equity means ownership in businesses or firms

(privately or publicly traded). These funds can be traded either

actively or passively. The objective of this ownership is to

contribute to the growth of the business over a

significant amount of time. Equity funds or stock mutual funds

are basically categorized according to the size of the

company, investment style, and geography.

Depending on their objective, equity funds can be managed

either actively or passively. There are multiple types of equity

funds such as large-cap equity funds, mid-cap equity funds,

small-cap equity funds, diversified equity funds, etc.

How Does Equity Fund Work?

An equity fund primarily invests up to 60% or more of the

assets in the equity shares of the businesses in different

proportions as per their investment mandate. The style of

investing can be either growth oriented or value oriented.

After the allocation of a large section of equity shares, the

remaining amount can be invested in either money

market or debt instruments. This is done to take care of the

redemption queries raised by the investors. The fund

manager constantly keeps selling or buying a specific stock to

leverage the market fluctuations.

A frequent buying and selling of equity funds affect their

expense ratio. Currently, SEBI has set 2.5% as the upper limit

for expense ratio; though it plans to reduce it further. A lower

expense ratio reflects into better returns for the investors.

Who Should Invest In Equity Mutual

Funds?
The decision to invest in equity mutual funds should be

directed by a clear assessment of the risk appetite of the

investor along with their investment horizon. Usually, any

investor who can afford to stay invested for five years or more

can invest in equity funds. Investors with a short-time

investment horizon should avoid investing in equity, as there

are constant market fluctuations, which might hamper their

investment. The investment objective must also be

considered such as is the investor looking for a tax benefit, or

wants a peek at the stock market, or is ready to take a

calculated risk in the market. Different types of equity funds

cater to all such objectives.

For instance, if you are a new investor and want to experience

the share market with steady returns, you can think of

investing in large-cap equity funds. On the other hand, if your

investment objective is of tax planning under Section 80C,

then you must consider investing in Equity Linked Saving

Schemes (ELSS).  In case you have a strong risk profile and

want to generate maximum returns, you can consider

investing in small-cap equity funds. Thus, the channel of your

investment depends on your investment objective and your

overall risk profile.

Types Of Equity Funds

On October 6th, 2017, SEBI issued a new categorization for

equity mutual funds to bring consistency among similar

schemes offered by various mutual fund houses. The

objective behind this is to make sure that it becomes easier

for an investor to compare products and evaluate their options

before choosing the best possible scheme.

According to the new circular by SEBI,

Let’s now take a quick glance at the different types of equity

funds and their investment requirements:

1. Large-Cap Equity Mutual Funds

Large-cap equity funds usually invest with companies having

a solid market capitalization. The companies in this category

are large companies with big businesses and a huge

workforce. Some common examples would be ITC, SBI, ICICI

Bank, Unilever etc. Large-cap equity funds invest in such

companies that have the ability to show year on year steady

growth and profits. This, in return, provides stability to the

investors. You can expect steady returns from such an

investment.

2. Mid-Cap Equity Mutual Funds

As the name suggests, mid-cap equity funds invest in stocks

of mid-sized companies. Generally, the market capitalization

of such companies is somewhere between INR 50 billion to

INR 200 billion. From an investing point of view, the period of

investment in mid-cap equities should be considerably higher

than that of large-cap equities. This is due to the chances of

fluctuations in the market.

3. Small-Cap Equity Mutual Funds

Small-cap equity funds invest in companies that are at the

lower end of rankings in terms of market capitalization.

Companies in this category are generally start-ups or

businesses in their initial phases of development with

comparatively smaller revenues. These companies have the

maximum growth potential and can generate very high

returns. However, the risk involved in this category is also on

the higher side due to their small size.

4. Large-Cap And Mid-Cap Equity Mutual Funds

These funds are a combination of large-cap and mid-cap.

These schemes can invest in both large and mid-cap equities.

5. Equity Linked Savings Scheme (ELSS)

These are a type of equity mutual funds that give you

guaranteed tax benefit under the Section 80C of the Income

Tax Act. They offer a dual advantage of tax benefit as well as

capital gain. However, these schemes come with a minimum

lock-in period of three years.

6. Sector Funds And Thematic Equity Funds
Sector funds are a type of equity schemes that strictly invest

in companies operating in a specific domain or sector such as

pharma or technology. On the other hand, Thematic equity

funds invest in companies with a broader sector such as

media and entertainment. However, the risk associated with

thematic equity funds is at its peak due to little diversification

in it.

7. Diversified Equity Funds

These type of equity funds invest across the market, i.e.

across all three sections of companies in terms of market

capitalization. They generally invest about 40% to 60% in

large-cap shares, 10% to 40% in mid-cap shares, and about

10% in small-cap shares.

8. Value Equity Fund

Value funds usually invest in companies that are undervalued

in the market.

9. Dividend Yield Fund

In this type of equity fund, the fund manager designs the

portfolio according to the dividend yield strategy. Investors

looking for a regular income along with capital gain usually

prefer these type of funds.

10. Focused Fund
In this, you can invest in a variety of equity funds but with a

stock limit. According to SEBI, focused funds can invest in a

maximum of 30 stocks.

Benefits Of Investing In Equity Funds

There are numerous benefits of investing in equity funds.

Some of them are:

A. Easy Liquidity
Equity funds can be easily liquidated. You can redeem them

at any point of time (except ELSS that has a lock-in period of

3 years)

B. Tax Benefits
You can claim exemption from tax on the capital gains of your

investment aging more than a year.

C. Systematic Investments
While investing in equity schemes you have the option to

invest in small sums at specific intervals through SIPs.

D. Low-Cost
You can start investing in equity funds with a sum as low as

INR 500.

E. Diversification
When you invest in equity mutual funds, you can invest in a

wider range of stocks. Portfolio diversification allows you to

lower the risk factor associated with your investments.

F. Expert Money Management
AMC set specific objectives for their schemes and appoint

experts and experienced professionals to take care of your

money.

Investing In Equity Funds Through SIP

The most effective method to invest in equity funds is through

SIP. It is a systematic investment that occurs on the pre-set

date of each month. With the SIP investment, you get the
benefit of rupee-cost averaging meaning fewer units will be

allocated to you when the market is high and vice versa. This

allows you to invest at multiple levels of the ongoing market.

Moreover, investing through SIP inculcates the habit of saving

and helps you build up wealth over time.

Tax Of Equity Mutual Funds

When you pull out units from your equity fund investment, you

get capital returns. These capital gains are taxable by law.

Your holding period – the amount of time you remain invested

– defines the rate of taxation on the capital gains.

Capital gains generated on the holding period of one year or

less are taxed at 15%. These gains are called short-term

capital gains or STCG. On the other hand, the long-term

capital gains or LTCG are the ones generated on holding

period of more than one year. According to the 2018 budget,

LTCG of over INR 1 Lakh are taxed at 10% without the

indexation benefit.
ELSS is another tax-saving equity instrument. You can save

up to INR 45,000 on direct tax and can claim deductions up to

INR 1.5 lakhs by investing in ELSS

DEBT AND EQUITY FUNDS

DIFFERENCE
For far too long, there has been much confusion and
debate over where one should invest in - equity
or debt funds. Understanding the difference between
debt and equity funds will help an investor decide on
where to allocate their assets.
First, let's know what is debt and equity funds:

Debt funds: A debt fund is a type of mutual fund that

invests shareholder's money in fixed income
securities such as bonds and treasury bills. A debt
fund may invest in short-term or long-term bonds,
securitized products, money market instruments or
floating rate debt.
Equity funds: An equity fund, also known as stock
fund, is a type of mutual fund that invests
shareholder's money principally in stocks. The equity
mutual funds are principally categorized according to
company size, the investment style of the holdings in
the portfolio and geography.

Here are the major differences between debt

and equity funds:

Nature of the fund

Debt: In Debt funds, the money pooled from people

are invested in fixed income instruments like
government bonds, corporate bonds, non-convertible
debentures and other highly-rated instruments.

Equity: In Equity funds, the money raised from

investors are put into equity and equity-linked
instruments. For example, if a fund invests more than
65 per cent of their portfolio in stocks, they are
generally considered as equity funds.
Risk factor

Debt: Debt funds are safer as compared to equity

funds as they primarily invest in rated and risk-free
government and corporate bonds. There is virtually no
risk in government bonds but for corporate bonds -
the investor should check rating of the bond by
different credit rating agencies. The bond prices are
sensitive to interest rate changes and hence there will
be a corresponding fluctuation in the NAV of the fund.

Equity: Equity funds are considered risky as

compared to debt funds. Equity securities are volatile
by nature and are sensitive to economic factors such
as inflation, tax rates, currency fluctuations, bank
policies etc. Thus any change in market prices will
have a corresponding impact on the Net Asset Value
(NAV) of the fund. The best way to be safe in market
volatility is to select a good equity mutual
fund scheme that will invest their corpus in multiple
companies or industries providing diversification.
Tax Liabilities

Debt: Debt funds, which are held for more than 36

months, are taxed at 20 per cent with indexation. In
case of short-term debt funds, the capital gain is
added to the total income of the investor and then
taxed according to the income tax slab he/she falls
under.

Equity: The long term equity funds (which are kept

for 12 months or more) are exempt from capital gains
tax. Equity funds held for 12 months or less are taxed
at a flat rate of 15%.

Return

Debt: Debt funds can give you steady returns but in a

constant range. Since debt funds invest money in
treasury bonds, there’s much less risk associated with
them. Debt funds are good investment option when
market is volatile.
Equity: Equity mutual funds give good returns over
the long period to time as compared to debt funds.
However, the possibility of losses and negative
returns is also higher when market is volatile. Equity
funds are good when the markets are booming.

Now that you know the difference between debt and

equity mutual funds, it's time to start investing. Check
out ETMONEY app where you can invest directly
without any commission charges.

REVIEW OF
LILTERATURE
In India, there are a few studies on mutual funds, which have a
complete scientific analysis, primarily due to the comparatively
short period of existence of mutual funds. Samir et al. (1994)
reviewed the work done with respect to capital markets during
the 15-year period from 1977 to 1992.1 They mentioned that a
large number of works are merely descriptive or prescriptive
without rigorous analysis. However, a rigorous scientific
research was carried out in this subject in other countries.
Besides this, now we can obtain a lot of information through
different websites or portals like ‘mutualfundsindia. com’.2 This
chapter focuses on review of some select studies which are
categorized into three sections: (1) Performance evaluation
studies (Table 2.1 represents an overview of these studies), (2)
Modelling dimension-literature (3) Fund selection
behaviour/investors behaviour and (4) Other relevant studies.
2.1 Performance evaluation methods Friend, Brown, Herman
and Vickers (1962) offered the first empirical analysis of mutual
funds’ performance.3 Sharpe (1964), Treynor and Mazuy
(1966), Jensen (1968), Fama (1972) and Grinblatt and Titman
(1989, 1994) are considered to be classical studies in
performance evaluation methods. The following paragraphs
indicate a brief description of the studies on ‘performance
evaluation of mutual funds’. Sharpe (1964) made a significant
contribution to the methods of evaluating mutual funds.4 His
measure is based on capital asset prices, market conditions
with the help of risk and return probabilities. Sharpe (1966)
developed a theoretical measure better known as ‘reward to
variability ratio’ that considers both average return and risk
simultaneously in its ambit. The measure tested efficacy
through a sample of 34 open-ended funds considering annual
returns and standard deviation of annual return risk surrogate
for the period 1954–1963. The average reward to variability
ratio of 34 funds was considerably smaller than Dow Jones
portfolio, and was considered enough 39 The Indian Mutual
Fund Industry © G. V. Satya Sekhar 2014 G. V. S. Sekhar, 40 The
Indian Mutual Fund Industry to conclude that average mutual
funds’ performance was distinctly inferior to an investment in
Dow Jones portfolio.5 Treynor (1965) advocated the use of Beta
Coefficient instead of the total risk.6 He argues that using only
naïve diversification, the unsystematic variability of returns of
the individual assets in a portfolio typically average out of zero.
So he considers measuring a portfolio’s return relative to its
systematic risk more appropriate. Teynor and Mazuy (1966)
devised a test of ability of the investment managers to
anticipate market movements.7 The study used the investment
performance outcomes of 57 investment managers to find out
evidence of market timing abilities and found no statistical
evidence that the investment managers of any of the sample
funds had successfully outguessed the market. The study
exhibited that the investment managers had no ability to
outguess the market as a whole but they could identify under-
priced securities. Jensen (1967) conducted an empirical study of
mutual funds during the period 1954–1964 for 115 mutual
funds.8 His results indicate that these funds are not able to
predict security prices well enough to outperform a buy-the-
market and hold policy. His study ignores the gross
management expenses to be free. There was very little
evidence that any individual fund was able to do significantly
better than which investors expected from mere random
chance. Jensen (1968) measured the performance as the return
in excess of equilibrium return mandated by Capital Asset
Pricing model. Jensen’s measure is based on the theory of the
pricing of capital assets by Sharpe (1964) and Teynor (1965).
Smith and Tito (1969) conducted a study of 38 funds for 1958–
1967 and published results relating to performance of mutual
funds.9 However, Mc Donald (1974) examined the performance
of selected 123 mutual funds during the period 1960–1969. He
found that on an average, mutual funds perform about as well
as native ‘Buy and Hold’ strategy. Fama (1972) suggested
alternative methods for evaluating investment performance
with somewhat finer breakdowns of performance on stock
selection, market timing, diversification and risk bearing.10 He
devised a mechanism for the segregation part of an observed
investment return due to managers’ ability to pick up the best
securities at a given level of risk from part that is due to the
prediction of general market price movements. Dunn and
Theisen’s (1983) study is about ranking by the annual
performance of 201 institutional portfolios for the period 1973–
1982 without controlling for fund risk.11 They found no
evidence that funds performed within the same quartile over
the ten-year period. They also found that ranks of individual
managers based on five-year compound returns revealed no
consistency.

REVIEW OF LITERATURE A large number of studies on the growth and

financial performance of mutual funds have been carried out during the
past, in the developed and developing countries. Brief reviews of the
following research works reveal the wealth of contributions towards
the performance evaluation of mutual fund, market timing and stock
selection abilities of fund managers. In India, one of the earliest
attempts was made by National Council of Applied Economics Research
(NCAER) in 1964 when a survey of households was undertaken to
understand the attitude towards and motivation for savings of
individuals. Another NCAER study in 1996 analyzed the structure of the
capital market and presented the views and attitudes of individual
shareholders. SEBI – NCAER Survey (2000) was carried out to estimate
the number of households and the population of individual investors,
their economic and demographic profile, portfolio size, and investment
preference for equity as well as other savings instruments. Data was
collected from 30, 00,000 geographically dispersed rural and urban
households. Some of the relevant findings of the study are : Households
preference for instruments match their risk perception; Bank Deposit
has an appeal across all income class; 43% of the non-investor
households equivalent to around 60 million households apparently lack
awareness about stock markets; and, compared with low income
groups, the higher income groups have higher share of investments in
Mutual Funds signifying that Mutual funds have still not become truly
the investment vehicle for small investors. Since 1986, a number of
articles and brief essays have been published in financial dailies,
periodicals, and professional and research journals, 20explaining the
basic concept of Mutual Funds and highlighted their importance in the
Indian capital market environment. They touched upon varied aspects
like regulation of Mutual Funds, Investor expectations, Investor
protection, and growth of Mutual Funds and some on the performance
and functioning of Mutual Funds. A few among them are Vidyashankar
(1990), Sarkar (1991), Agarwal (1992), Sadhak (1991), Sharma C. Lall
(1991), Samir K. Barua et al., (1991), Sandeep Bamzai (2001),
Atmaramani (1995), Atmaramani (1996), Subramanyam (1999),
Krishnan (1999), Ajay Srinivsasn (1999). Segmentation of investors on
the basis of their characteristics was highlighted by Raja Rajan (1997).
Investor’s characteristics on the basis of their investment size Raja
Rajan (1997), and the relationship between stages in life cycle of the
investors and their investment pattern was studied Raja Rajan (1998).
Friend, et al., (1962) made an extensive and systematic study of 152
mutual funds found that mutual fund schemes earned an average
annual return of 12.4 percent, while their composite benchmark earned
a return of 12.6 percent. Their alpha was negative with 20 basis points.
Overall results did not suggest widespread inefficiency in the industry.
Comparison of fund returns with turnover and expense categories did
not reveal a strong relationship. Irwin, Brown, FE (1965) analyzed issues
relating to investment policy, portfolio turnover rate, performance of
mutual funds and its impact on the stock markets. They identified that
mutual funds had a significant impact on the price movement in the
stock market. They concluded that, on an average, funds did not
perform better than the composite markets and there was no
persistent relationship between portfolio turnover and fund
performance. Treynor (1965) used ‘characteristic line’ for relating
expected rate of return of a fund to the rate of return of a suitable
market average. He coined a fund performance measure taking
investment risk into account. Further, to deal with a portfolio,
‘portfolio-possibility line’ was used to relate expected return to the
portfolio owner’s risk preference. Sharpe, William F (1966) developed a
composite measure of return and risk. He evaluated 34 open-end
mutual funds for the period 1944-63. Reward to variability ratio for
each scheme was significantly less than DJIA (Dow Jones Industrial
Average) and ranged from 0.43 to 0.78. Expense ratio was inversely
related with the fund performance, as correlation coefficient was
0.0505. The results depicted that good performance was associated
with low expense ratio and not with the size. Sample schemes showed
consistency in risk measure. Treynor and Mazuy (1966) evaluated the
performance of 57 fund managers in terms of their market timing
abilities and found that, fund managers had not successfully
outguessed the market. The results suggested that, investors were
completely dependent on fluctuations in the market. Improvement in
the rates of return was due to the fund managers’ ability to identify
under-priced industries and companies. The study adopted Treynor’s
(1965) methodology for reviewing the performance of mutual funds.
Jensen (1968) developed a composite portfolio evaluation technique
concerning riskadjusted returns. He evaluated the ability of 115 fund
managers in selecting securities during the period 1945-66. Analysis of
net returns indicated that, 39 funds had above average returns, while
76 funds yielded abnormally poor returns. Using gross returns, 48 funds
showed above average results and 67 funds below average results.
Jensen concluded that, there was very little evidence that funds were
able to 22perform significantly better than expected as fund managers
were not able to forecast securities price movements. Fama (1972)
developed methods to distinguish observed return due to the ability to
pick up the best securities at a given level of risk from that of
predictions of price movements in the market. He introduced a
multiperiod model allowing evaluation on a period-byperiod and on a
cumulative basis. He concluded that, return on a portfolio constitutes of
return for security selection and return for bearing risk. His
contributions combined the concepts from modern theories of portfolio
selection and capital market equilibrium with more traditional concepts
of good portfolio management. Williamson (1972) compared ranks of
180 funds between 1961-65 and 1966-70. There was no correlation
between the rankings of the two periods. The investment abilities of
most of the fund managers were identical. He highlighted the growing
prominence of volatility in the measurement of investment risk.
Klemosky (1973) analyzed investment performance of 40 funds based
on quarterly returns during the period 1966-71. He acknowledged that,
biases in Sharpe, Treynor, and Jensen’s measures, could be removed by
using mean absolute deviation and semistandard deviation as risk
surrogates compared to the composite measures derived from the
CAPM (Capital Asset Pricing Modal). McDonald and John (1974)
examined 123 mutual funds and identified the existence of positive
relationship between objectives and risk. The study identified the
existence of positive relationship between return and risk. The
relationship between objective and risk-adjusted performance
indicated that, more aggressive funds experienced better results. Gupta
(1974) evaluated the performance of mutual fund industry for the
period 1962-71 using Sharpe, Treynor, and Jensen models. All the funds
covered under the study outperformed the market irrespective of the
choice of market index. The results indicated that all the three models
provided identical results. Return per unit of risk varied with the level of
volatility assumed and he concluded that, funds with higher volatility
exhibited superior performance. Klemosky (1977) examined
performance consistency of 158 fund managers for the period 1968-75.
The ranking of performance showed better consistency between four-
year periods and relatively lower consistency between adjacent two-
year periods. Chang and Lewellen (1984) used the method processed
by Henryksson Merton and studied 67 mutual funds between 1971 and
1979. They divided data into up and down market components and
computed two separate slope coefficient b1 and b2. Of the 67 mutual
fund studied, only in 5 cases, data displayed statistically significant
difference between b1 and b2. Majority of them were in the negative
direction, suggesting poor market timings and they concluded that
neither skillful market timing nor clever security selection abilities are
evident in abundance in the observed mutual fund return data. De
Bondt and Thaler (1985) while investigating the possible psychological
basis for investor behavior, argue that mean revision in stock prices is
an evidence of investor over reaction where investors overemphasize
recent firm performance in forming future expectations. William fung
and David a. hsieh (1988) explored the investment styles in mutual fund
hedge funds. The results indicated that there were 39 dominants
mutual fund styles that were mixed or specialized subsets of 9 broadly
defined user classes. There was little evidence of market timing of asset
class rotation in these dominants mutual fund style Ippolito’s (1989)
results and conclusions were relevant and consistent with the theory of
efficiency of informed investors. He estimated that risk-adjusted return
for the mutual fund industry was greater than zero and attributed
positive alpha before load charges and identified that fund
performance was not related to expenses and turnover as predicted by
efficiency arguments. Elton and Gruber, Grindblatt and Titman (1989)
found that there is some empirical evidence that mutual fund investors
make purchase decision on the basis of past performance et all (1990).
Some studies reveal that there is only a slight positive relationship or no
relationship at all between previous performance and current returns
Blake et al (1993) Bogle (1992) Brown and Goetz man (1995) raised the
question of why poorly performing funds still survive. Harless and
Peterson (1998) explained that investors tend to choose funds based on
previous performance but stick to these funds despite their poor return
in a recent study of consumers rationally and the mutual fund purchase
decision.

RESEARCH METHODOLOGY
RESEARCH METHODOLGY INTRODUCTION Mutual fund is a mechanism
for pooling the resources by issuing units to the investors and investing
funds in securities in accordance with the objective as disclosed in offer
document. Investment in securities is spread across a wide section of
industry and sector and the risk is reduced. Diversification reduces the
risk because all stock may or may not move in the same direction in the
same proportion to their proportion at the same time. Mutual fund
issues units to the investors in accordance with quantum of money
invested by them. Investor of mutual are called unit holders. The profit
or losses are shared by the investors in proportion to their investment.
The mutual fund usually comes out with a number of schemes with
different investment objectives which are launched from time to time.
A mutual fund is required to be registered with the SEBI, which
regulates securities markets before it can collect fund from the public
The research work titled “A Study on Intensity of Mutual Fund
Attributes on investor decisions” is paving a way to the fund houses
determining the salient characteristics of mutual funds or Attributes of
mutual funds as demanded by professional investors is of great
importance for the mutual fund founder when introducing new funds
and structuring the funds under their management. Furthermore,
identifying such characteristic or attributes will guide the mutual fund
houses and other small investors in their investment decision. Mutual
fund is a topic which is of enormous interest not only researchers all
over the world but also to investors. Mutual as a medium –to-long-term
investment option is preferred as a suitable investment option by
investors. However, with several market entrants the question is the
choice of mutual fund . The study focuses on this problem of mutual
fund selection by investors. Though the investment objective define
investors intensity among fund types (Equity or Growth oriented fund,
Debt, Balanced fund) and their attributes . NATURE OF THE STUDY The
research study involves exploration of which attribute of mutual fund is
more intense effect on the investor decision and which attributes of
mutual funds are relatively significant or insignificant for investors, and
also to determine which level of each attributes is most or least
preferred. The study involves collecting data through questionnaire and
formulating the data in the required format to apply statistical tools like
CWA, chi-square tests, to find out whether the investor are influenced
by the attributes of mutual funds in mutual fund industry, are attributes
are really significant in helping the users or not and to convey the same
to mutual fund houses to use the findings for effective design and
redesigning of mutual fund products. SIGNIFICANCE OF THE STUDY
Becoming increasingly competitive, the mutual fund industry has
registered rapid growth dramatically with more complex structure and
increasing diversification. Determining the salient characteristics of
mutual funds or Attributes of mutual funds as demanded by
professional investors is of great importance for the mutual fund
founder when introducing new funds and structuring the funds under
their management. Furthermore, identifying such characteristics or
attributes will guide the mutual fund houses and other small investors
in their investment decision.

OBJECTIVES OF THE STUDY

The Basic factors necessitating the need for the study is
changes in the financial markets and changing investor’s
comprehension level towards mutual funds. A number of
newly invented Mutual funds are now available in the
financial markets. The incomes of the investors and their
saving habits are also under gone a lot of changes in
recent times. The investor’s conception levels are also
increased hastily. Once they used to select mutual funds
only considering basis on risk and return attribute of
mutual fund only. But now it is not the case. The
investors are giving more importance to considering all
other attributes like Objective of fund, port folio
composition, Total risk ,Total Return, Fund inception,
Funds past performance, Fund manager experience,
Fund size Funds managed by fund manager, Expense
ratio, Diversification, Tax benefits, Liquidity, stability for
fund and income, Fund manager style and their level. So
there is a great need for evaluating the attributes
considered by investor in selecting mutual fund. So the
emphasis is on attribute evaluation of mutual funds.. The
scope of the study is reasonably broader and includes
attribute evaluation by considering all the attributes like,
Objective of fund, port folio composition, Total risk, Total
Return, Fund inception, Funds past performance, Fund
manager experience, Fund size, Funds managed by fund
manager, Expense ratio, Diversification, Tax benefits,
Liquidity, stability for fund and income, Fund manager
style and their level. The scope of the study is confined to
three mutual fund organizations and three mutual funds
in the districts of Ananthapuram, Kadapa and Kurnool
during the period 2007-2012. RESEARCH METHODOLOGY
The present research study strictly adides by conceptual
frame work of research process. All elements in various
stages of research process are explained hereafter.
Secondary data, the detailed information from
publications, internal records, books, magazines,
journals, web services. Primary data, it is the detailed
information from respondents. Statement of the
Problem “Mutual Fund investment is today flooded with
innumerable number of players both indigenous, Foreign
and collaboration. Annual Growth rate of Mutual Fund
increasing offer of investment patterns and plans open
the Crepitate innumerable research study aiming to
throw light on various aspect of Mutual Fund Investment.
These Developments resulted in offer of many products
to customers by various investment agencies. The
present research forms of the proposals endeavoring to
establish the influence of Mutual Funds Attributes on
Investors” OBJECTIVES OF THE STUDY 1. Assessing the
Attribute Impact of Equity Fund or Growth oriented fund
on investor decisions. 2. Assessing the Attribute Impact
of Income or Debt oriented fund on investor decisions. 3.
Assessing the Attribute Impact of Balanced or Incomes &
Growth oriented fund on investor decisions.
HYPOTHESES 1. Ho - Investor analysis of Equity or
Growth oriented Fund attributes does not influence
investment decisions. H1 - Investor analysis of Equity or
Growth oriented Attributes has an impact on Investor. 2.
Ho - Investor analysis of Income or Debt oriented Fund
attributes does not influence investment decisions. H1 -
Investor analysis of Income or Debt oriented fund
Attributes of has an impact on Investor. 3. Ho - Investor
analysis of Balanced or Income and Growth oriented
fund attributes does not influence investment decisions.
H1 Investor analysis of Balanced or Income and Growth
oriented fund attributes has an Impact on Investors.
Sample Universe Covers maximum Investors (Male and
Female) of HDFC, RELIANCE and SBI Mutual funds houses
in Anantapuram, Kurnool and Kadapa Sampling Plan The
area selected for the present study has been confined to
Anantapuram, Kadapa and Kurnool districts of Andhra
Pradesh. So, it would be useful to study the Attributes of
Equity, Income and balanced funds has been selected on
Sample Size Sample size of 432 respondents is selected
for the study to make the study meaningful and relevant.
Sample Distribution For the purpose of effective
evaluation both Male and Female investors of HDFC,
RELIANCE, and SBI Mutual Funds houses in
Anantapuram, Kurnool and Kadapa districts are
considered for offering proportionate representation.
LOCATION COMPANY ANANTAPUR KURNOOL KADAPA
TOTAL HDFC 53 69 60 182 RELIANCE 45 59 51 156 SBI 27
36 31 94 TOTAL 125 164 143 432 Sampling Technique
Clustered sampling is used for offering proportionate
representation to investors at three mutual fund houses
are HDFC, RELIANCE and SBI. Purposive sampling
technique is used to select the sample investors. A
sample size of 432(HDFC-192, RELIANCE- 156, SBI-92) has
been taken. Data is collected from the respondents of
various cities in Andhra Pradesh like Kurnool,
Anantapuram, Kadapa etc. Most of the mutual fund
houses opened their offices in these cities and Cams
online where applications are preliminarily processed
and sends the information to the respective mutual fund
head quarters through online is also having its offices in
these cities. So we can easily meet the mutual fund
investors at the offices of these AMCs. That is why I
selected these cities for data collection. Sampling Frame
Work Male and Female investors from HDFC, RELIANCE
and SBI mutual fund houses in Anantapuram, Kadapa and
Kurnool. Sample Characteristics Male and Female
investors from Three selected Mutual Fund organization
houses in Anantapuram, Kurnool and Kadapa. Sample
Unit Male and female investor from selected HDFC,
RELIANCE and SBI mutual fund houses, from the districts
Anantapuram, Kurnool, and Kadapa Districts.
QUESTIONNAIRE The questionnaire for the study is based
on attributes of Equity, Debt and Balanced Mutual funds
and consists 14 sets of attributes of Equity, Debt and
Balanced containing a total of 57 questions
encompassing all elements of the these funds. This
questionnaire aims at to provide the data which is of
most important in nature to enable a comprehensive
analysis of impact attributes of Equity, Debt and
Balanced funds on investors. The questions consists of
statements, the intensities of which are measured on a 5
point Likert scale, from the respondents to extract the
opinion of respondents. These questions evaluate the
intensity of respondent on various parameters with high
and low extremes on the scale. DATA SOURCES An
empirical study of this nature should generate sufficient
data through survey to base its findings on evaluation of
data. The data collected for the present study comprises
of both primary and secondary sources. Primary Data It is
the detailed information from respondent collected
through questionnaire. The respondent were interviewed
and asked to fill the questionnaire. The first part of
questionnaire deals with questions concerning the
respondents profile in terms of their Age, Gender,
Education, profession background and income. The
second part of the questionnaire contains the attributes
evaluation of mutual funds towards equity debt and
balanced funds. Secondary Data In order to lend initial
direction, development of relationship and formulation
of hypotheses, secondary data was collected from all the
sources available. The sources of secondary data
pertaining to Equity, Debt and Balanced fund are
government publications, magazines, journals, Survey
reports and reference books etc. Major source of
secondary data being SEBI Web site. STATISTICAL TOOLS
APPLIED FOR ANALYSIS The data collected through
questionnaire is in the form of offered by investors for a
specific attribute. Number of respondent indicating
different weightages. For each element of the attribute is
displayed, finally leading to the number respondents
indicating different weightages. Weighted averages are
arrived at, which lead to the cumulative weighted
average for each concept by 432 respondents.
Cumulative weighted average: is used to describe the
profile of the respondent and attributes evaluation of
mutual funds of Equity, Debt and Balanced. Chi-Square
test - Chi-Square test is used for the purpose of testing
the influence of one variable on the other the test has
been administered to study the influence of the
demographic variables, attributes of mutual funds.
LIMITATIONS OF THE STUDY A research study of the
nature could not be carried our without any limitation.
Hence this research study is limited to principally the
population, target population and sample population as
their opinions; attribute evaluation there on the findings
of the study. Second factor is the time factor which
exerts magnificent influence on the intensify of sample
population. In a study of this magnitude thought,
meticulous care has been taken in each and every aspect
of the study. 1. Some respondents are unaware of
certain attributes and their levels. 2. A few respondents
are hesitant to give exact details 3. There might be a
sense of bias crept in answers given by respondents. 4.
Despite the above limitations, the researcher put in all
his best efforts in overcoming the limitation and
completing the study. 5. The period of the study is six
year and also a limitation.

CASE STUDY
Chapter 4 HDFC Mutual Fund: A Case Study 4.1 Introduction 4.2
An Overview of Sponsor and Trustee of Company 4.3 HDFC
Balanced Fund 4.4 HDFC Equity Fund 4.5 HDFC Growth Fund 4.6
HDFC Tax Saver Fund 4.7 HDFC Top 200 Fund 4.8 Empirical
Analysis HDFC Mutual Fund: A Case Study 127 4.1 Introduction
The previous chapter dealt with the impact of liberalization on
the Indian mutual funds industry. The chapter also dealt with
the various issues and challenges of the industry, regulatory
frame work for the industry, and the role of mutual funds in the
mobilization of the house hold sector savings. The present
chapter is devoted to the study of HDFC Asset Management
Company Ltd (AMC), sponsors and trustee. The researcher has
selected five schemes namely HDFC Balanced Funds(HBF),
HDFC growth Funds(HGF), HDFC Equity Funds(HEF), HDFC Tax
Saver(HTS) and HDFC TOP –200(HT200) to find out the
performance of these funds in comparison to the market, their
diversification and the relationships between these funds
objectives and their risk characteristics. 4 .1.2 HDFC Asset
Management Company Limited (AMC): An Overview HDFC
Asset Management Company Ltd (AMC) was established under
the Companies Act, 1956, on December 10, 1999, and was
approved to act as an Asset Management Company for the
HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The
registered office of the AMC is situated at Ramon House, 3rd
Floor, H.T. Parekh Marg, 169, Backbay Reclamation,
Churchgate, Mumbai 400 020. For investment management the
trustee has appointed the HDFC Asset Management Company
Limited. It manages the Mutual Funds. The paid up capital of
the AMC is Rs. 25.161 crore 1.The present equity shareholding
pattern of the AMC is shown in table 4.1. HDFC Mutual Fund: A
Case Study 128 Table 4.1 Equity Shareholding Pattern of HDFC
Mutual Fund Particulars % of the paid up equity capital Housing
Development Finance Corporation Limited 60 Standard Life
Investments Limited 40 Source: Annual Reports of HDFC mutual
funds It can be observed from the table that HDFC is the bigger
partner of the AMC having a share of 60percent while Standard
Life Investment limited has share of 40percent2. To consolidate
its business HDFC Asset Management Company took over
Zurich Insurance Company (ZIC), the sponsor of Zurich India MF.
The AMC entered into an agreement with ZIC to acquire the
said business, subject to necessary regulatory approvals. After
getting necessary clearance, the following schemes as shown in
table 4.2 were acquired by HDFC mutual funds on June 19,
2003. The schemes were than rechristened as can be observed
from table 4.2. It is evident from the table that in total 8
schemes were acquired by HDFC Mutual Fund. Table 4.2 New
name of Zurich Mutual Funds Former Name New Name Zurich
India Equity Fund HDFC Equity Fund Zurich India Prudence Fund
HDFC Prudence Fund Zurich India Capital Builder Fund HDFC
Capital Builder Fund Zurich India TaxSaver Fund HDFC TaxSaver
Zurich India Top 200 Fund HDFC Top 200 Fund Zurich India High
Interest Fund HDFC High Interest Fund Zurich India Liquidity
Fund HDFC Cash Management Fund Zurich India Sovereign Gilt
Fund HDFC Sovereign Gilt Fund* Source: Annual Reports of
HDFC Mutual Funds *HDFC Sovereign Gilt Fund has been
wound up in March 2006 HDFC Mutual Fund: A Case Study 129
The AMC at present managing 24 open-ended schemes and 13
closed ended Schemes of the HDFC Mutual Fund. Besides
managing schemes the AMC is also providing portfolio
management / advisory services and such activities which are
not in conflict with the activities of the Mutual Fund. The AMC
has renewed its registration from SEBI vide Registration No. -
PM / INP000000506 dated December 8, 2006 to act as a
Portfolio Manager under the SEBI (Portfolio Managers)
Regulations, 1993. The Certificate of Registration is valid from
January 1, 2007 to December 31, 2009. 4.2 An Overview of
Sponsor and Trustee of Company The HDFC Mutual Fund is
being constituted as a trust in accordance with the provisions of
the Indian Trusts Act, 1882, as per the terms of the trust deed
dated June 8, 2000 with Housing Development Finance
Corporation Limited (HDFC) and Standard Life Investments
Limited as the Sponsors and HDFC Trustee Company Limited, as
the Trustee. The Trust Deed has been registered under the
Indian Registration Act, 1908. It is registered with SEBI, under
registration code MF / 044 / 00 / 6 on June 30, 2000 3. 4.2.1.
Sponsors The sponsors of HDFC Mutual Fund are Housing
Development Finance Corporation Limited and Standard Life
Investments Limited. Both have contributed sum of Rs. one lakh
each to the trustee in the corpus of the Fund. HDFC Mutual
Fund: A Case Study 130 4.2.2. Housing Development Finance
Corporation Limited (HDFC) HDFC was incorporated in 1977 as
the first specialized Mortgage Company in India. It is a premier
housing finance company in India. It provides financial
assistance to corporate, individuals, and developers for the
purchase or setting of residential housing. It also provides
property related services (e.g. property identification, sales
services and valuation), training and consultancy. Of these
activities, housing finance is the prime activity of HDFC. It has a
client base of around 10 lakh borrowers, around 10 lakh
depositors, over 1, 23,000 shareholders and 50,000 deposit
agents, as at March 31, 2009. The Company has a total asset
size of Rs. 96,993 crore as at March 31, 2009 and cumulative
approvals and disbursements of housing loans of Rs. 237,450
crore and Rs. 191,806 crore respectively as at March 31, 20094.
It has raised funds from international agencies such as the
World Bank, IFC (Washington), USAID, DEG, ADB and KfW,
international syndicated loans, domestic term loans from banks
and insurance companies, bonds and deposits. It has received
the highest rating for its deposits program for the fourteenth
year in succession. HDFC Standard Life Insurance Company
Limited, promoted by HDFC was the first life insurance
company in the private sector to be granted a Certificate of
Registration (on October 23, 2000) by the Insurance Regulatory
and Development Authority to transact life insurance business
in India. Beside housing business it has launched HDFC standard
life insurance company, which was first insurance company to
be granted certificate in 2000. 4.2.3. Standard Life Investments
Limited Standard Life Investments Limited is wholly owned
subsidiary of Standard Life Investments (Holdings) Limited,
which in turn is a wholly HDFC Mutual Fund: A Case Study 131
owned subsidiary of Standard Life plc. It is the investment
management company of standard life. It has global assets
under management of approximately US$ 169 billion as at
March 31, 2009 and is one of the world's largest investment
company5. It invests money on behalf of five million
institutional and retail clients throughout the world. The
company has its operation in USA, UK, Canada, Korea, Ireland
and Australia making it a truly global investment company.
4.2.4 The Trustee The function of the trustee is performed by
the HDFC Trustee Company Limited (the "Trustee"). Its prime
function is to ensure that the working of the AMC is being
carried out in accordance with the "SEBI (MF) Regulations". It
also reviews the activities carried on by the AMC. After having a
comprehensive discussion about the establishment of HDFC
mutual funds, its organizational structure we will have a look at
the sample funds chosen for the purpose of study. The
following sample funds were chosen taking consideration about
their duration of operation and their investment objectives.
Attempts has been made that equal number of observation is
taken to find out the result of empirical analysis. 4.3 HDFC
Balanced Fund This scheme was launched in August 2000. The
primary objective of the Scheme is to generate capital
appreciation. It also aims at to generating income by investing
in portfolio consisting of equity, debt and money market
instruments. The share of equity in portfolio is 60 percent
whereas the share of debt is 40 percent. The entry load for the
fund is 1.5 percent6. The table 4.3 contains basic information of
the schemes. HDFC Mutual Fund: A Case Study 132 Table 4.3
Basic Scheme Information Nature of Scheme Open Ended
Balanced Scheme Inception Date 9/11/2000 Option/Plan
Dividend Option,Growth Option. The Dividend Option offers
Dividend Payout and Reinvestment Facility. Entry Load
Application routed through any distributor/agent/broker : (as a
% of the Applicable NAV) (Other than Systematic Investment
Plan In respect of each purchase / switch-in of Units /
Systematic Transfer Plan (STP)) less than Rs. 5 crore in value, an
Entry Load of 2.25% is payable. In respect of each purchase /
switch-in of Units equal to or greater than Rs. 5 crore in value,
no Entry Load is payable. Application not routed through any
distributor/agent/broker : Nil No Entry Load shall be levied on
bonus units and units allotted on dividend reinvestment. Exit
Load (as a % of the Applicable NAV) (Other than Systematic
Investment Plan In respect of each purchase / switch-in of Units
/ Systematic Transfer Plan (STP) less than Rs. 5 crore in value,
an Exit Load of 1.00% is payable. If Units are
redeemed/switched out within 1 year from the date of
allotment In respect of each purchase / switch-in of Units equal
to or greater than Rs. 5 crore in value, no Exit Load is payable.
HDFC Mutual Fund: A Case Study 133 No Exit Load shall be
levied on bonus units and units allotted on dividend
reinvestment. Minimum Application Amount For new
investors :Rs.5000 and any amount thereafter. (Other than
Systematic Investment Plan For existing investors : Rs. 1000 and
any amount thereafter. / Systematic Transfer Plan (STP) Lock-
In-Period Nill Net Asset Value Periodicity Every Business Day.
Redemption Proceeds Normally despatched within 3 Business
days Source: HDFC Fact Sheet “ In Touch Mutually”Vol.5, Issue
No.9 2.march,2008,p4 4.3.1. Investment Pattern The
investments under the schemes are made primarily in equity
and equity related instruments as well as in debt and in money
market instruments. The table 4.4 provides the asset allocation
of the Scheme's portfolio. Table 4.4 Asset allocation under the
HDFC Balanced Fund Scheme Sr. No. Type of Instruments
Normal Allocation Normal Deviation Risk Profile of (% of Net
Assets) (% of Normal Allocation) the Instrumen t 1 Equity and
Equity Related Instruments 60 20 Medium to High 2 Debt
Securities (including securitized 40 30 Low to Medium debt)
and Money Market instruments Source: HDFC Fact Sheet “In
Touch Mutually”Vol.5, Issue No.9 ,2march, 2008,p.4 HDFC
Mutual Fund: A Case Study 134 However besides the above
mentioned allocation of funds under equity and debt
instruments, the AMC can invest in short term deposits of
scheduled commercial banks as per the investment objectives
of the schemes. 4.3.2. Investment Strategy The investment
strategy of HDFC Balanced Fund is aimed at lowering risk and
maximizing return. In pursuance of this it allocates its fund in
ratio of 6:4 in equity and debt respectively7. The Scheme also
provides the Investment Manager to make investments as per
the worthiness of the securities. This means that fund manager
can exercise their power and make changes in assets allocation
to meet the investment objectives of the schemes. As the
allocation of the balanced fund is based on the mix of equity
and debt their ratio is critical in determining future returns. A
good balance between the two will optimize return and
minimize risks. 4.3.3 Investments in Equity The investment of
HDFC balanced fund in equity is to generate incomes by
investing in select category of assets class. For this, five
principles are followed by the fund manager. They are as
follows: To focus on the long term investment To view
investments as conferring a proportionate ownership of the
business. To maintain a margin of safety (i.e. the price of
purchase represents a discount to the intrinsic value of that
business) HDFC Mutual Fund: A Case Study 135 To maintain a
balanced outlook on the market by regularly monitoring
economic trends and investor sentiment. Thus any decision for
investment taken is purely on the basis of reasons rather than
any other parochial considerations. The decision to sell a
holding would be based on one of three reasons: When the
rise in value of equity has reached its optimum level and
further improvement in the present level is not possible. When
other avenues of investments offers better return, or A
fundamental change has taken place in the company or the
market in which it operates. All these are however subject to
elaborative research based on data and reasoning. 4.3.4 Debt
Investments Debt securities (in the form of non-convertible
debentures, bonds, secured premium notes, zero interest
bonds, deep discount bonds, floating rate bond / notes,
securitised debt, pass through certificates, asset backed
securities, mortgage backed securities and any other domestic
fixed income securities including structured obligations etc.)
include, but are not limited to: Debt obligations of / Securities
issued by the Government of India, State and local
Governments, Government Agencies and statutory bodies
(which may or may not carry a state / central government
guarantee). HDFC Mutual Fund: A Case Study 136 Securities
that have been guaranteed by Government of India and State
Governments. Securities issued by Corporate Entities (Public /
Private sector undertakings) Securities issued by Public /
Private sector banks and development financial institutions.
4.3.5. Money Market Instruments The investment in money
market instruments includes the following: Commercial
papers Commercial bills Treasury bills Government
securities having an unexpired maturity upto one year Call or
notice money Certificate of deposit Permitted securities
under a repo / reverse repo agreement Any other like
instruments as may be permitted by RBI / SEBI from time to
time The investment of HDFC balanced fund are made through
Initial Public Offers, secondary market purchases, placement
and right offers. The AMC has the liberty to invest in all types of
securities, debt and money market instruments. The
investments in debt are usually made in instruments ranked
high investment grade by authorized rating agency. However if
investment is to be made in unrated security than prior
approval of the committee constituted for the purpose is
required. This is in strict adherence to SEBI circular No. MFD/
CIR/9/120/20008. Further HDFC Mutual Fund: A Case Study 137
approval of such investment by the AMC board and the trustee
is required. The AMC also required to communicate details of
such investments in their periodical reports to the trustee
outlining the parameters adopted to compile the reports. The
investment made in debt are less riskier than those in equity,
money market instruments are even less riskier than debt
instruments. The maturity profile of debt instruments is
selected in accordance with the Fund Managers view regarding
current market conditions, interest rate outlook and the
stability of ratings. 4.3.6. Controlling Risk The portfolio
construction of HDFC balanced fund is done in a way by the
fund manager to maintain the risk at moderate level. The Fund
Manager avoids adopting either a very defensive or aggressive
posture at any point of time. To control risk, portfolio is
diversified and adequate level of liquidity is maintained to
mitigate unforeseen circumstances. At the macro level,
continuous review of business and economic environment is
carried out to find out ongoing trend and take corrective
measures likewise to minimize the risk. To earn higher rate of
return the fund manager can make investments in securities
and other instruments not mentioned earlier provided that
such investment are in accordance with SEBI regulations. The
table 4.5 gives details of the portfolio of the HDFC balanced
fund as on 31st March 2008. From the table it is evident that
the total share of equity is 68.59. The reliance industries limited
has maximum of 6.99 percent followed by Coramandal
Fertilizers Ltd. ICICI Bank Ltd. has the least share of 3.45
percent. The debt and money market instruments HDFC Mutual
Fund: A Case Study 138 together constitute a share of 28
percent. The total net asset of HDFC balanced fund as on 31st
March, 2008 was 10047.03 lakh. Table 4.5 Portfolio – Top 10
Holdings (as at March 31, 2008) Company/ issuer Industry /
Rating %to NAV EQUITY & EQUITY RELATED Reliance Industries
Ltd. Petroleum products 6.99 Coramandal Fertilizers Ltd.
Fertilizers 6.33 Balkrishna Industries Ltd. Auto Ancillaries 5.17
Sun Pharmaceuticals Industries Ltd. Pharmaceuticals 4.89 The
Federal bank Ltd. Banks 4.31 KBC International Ltd. Power 3.94
Larsen & Turbo Ltd. Industrial Capital Goods 3.9 ITC Ltd.
Consumer Non Durables 3.8 Crompton Greaves Ltd. Industrial
Capital Goods 3.58 ICICI Bank Ltd. Banks 3.45 Total of Top
Equity Holdings 46.36 Total Equity & Equity Related Holdings
68.59 Debt/Money Market Instruments Loan securitization
trust- Grasim Industries Ltd. AAA(SO) 5.84 housing
development Finance Co. Ltd AAA 4.76 Indian Oil Co. Ltd. LAAA
4.67 Loan securitization trust- Bajaj auto Ltd. AAA(SO) 4.46
CREDIT ASSET TR XVII ( SHRI TRARIN) AA(SO) 3.93 State bank of
India AAA 2.59 Loan securitization trust- Reliance Industries Ltd.
AAA(SO) 1.75 Total Debt/Money Market Instruments
(aggregated holding in a single issuer) 28 Other current assets
(including reverse repos/CBLO 3.31 Grand Total 100 Net asset
(Rs. In Lakh) 10047.03 Source: HDFC Fact Sheet “ In Touch
Mutually”Vol. 5, Issue No.9 ,March,2008,p.15 HDFC Mutual
Fund: A Case Study 139 4.3.7 Performance Evaluation of HDFC
Balanced Scheme The grapph below shows the perfomance of
HDFC Balanced schemes in comparison to the S&P CNX Nifty
index chosen as bench mark for the study. It can been observed
from the graph below that the performance of bench mark
index is superior to that of the balanced schemes. The average
return of the fund is 0.015146 whereas the average return of
the market is 0.01814. However the funds return is more than
that of risk free rate of return which is 0.001551. Figure: 4.1
Comparison of HDFC Balanced Scheme and Market Return
Source: Compiled from appendix II- C and II – F 4.4 HDFC Equity
Fund The scheme was launched in January 1995. Its objective is
to achieve capital appreciation. It can be observed from table
4.6 that it is an open ended scheme with no lock in period.
Further it is also evident from table that NAV of the scheme is
calculated on daily basis. HDFC Mutual Fund: A Case Study 140
Table 4.6 Basic Scheme Information of HDFC Equity Fund
Nature of Scheme Open Ended Balanced Scheme Inception
Date 1/1/1995 Option/Plan Dividend Option,Growth Option.
The Dividend Option offers Dividend Payout and Reinvestment
Facility. Entry Load (as a % of the Applicable NAV) Application
routed through any distributor/agent/broker : (Other than
Systematic Investment Plan In respect of each purchase /
switch-in of Units / Systematic Transfer Plan (STP)) less than Rs.
5 crore in value, an Entry Load of 2.25% is payable. In respect of
each purchase / switch-in of Units equal to or greater than Rs. 5
crore in value, no Entry Load is payable. Application not routed
through any distributor/agent/broker : Nil No Entry Load shall
be levied on bonus units and units allotted on dividend
reinvestment. Exit Load In respect of each purchase / switch-in
of Units (as a % of the Applicable NAV) less than Rs. 5 crore in
value, an Exit (Other than Systematic Investment Plan Load of
1.00% is payable. If Units are redeemed/switched / Systematic
Transfer Plan (STP) out within 1 year from the date of allotment
In respect of each purchase / switch-in of Units equal to or
greater than Rs. 5 crore in value, no Exit Load is payable. No
Exit Load shall be levied on bonus units and units allotted on
dividend reinvestment. Minimum Application Amount For new
investors :Rs.5000 and any amount thereafter. (Other than
Systematic Investment Plan For existing investors : Rs. 1000 and
any amount thereafter. / Systematic Transfer Plan (STP) HDFC
Mutual Fund: A Case Study 141 Lock-In-Period Nill Net Asset
Value Periodicity Every Business Day. Redemption Proceeds
Normally despatched within 3 Business days Source: HDFC Fact
Sheet “In Touch Mutually”Vol.5, Issue No.9, March, 2008, p.3
4.4.1 Investment Pattern The investment under the scheme is
made primarily in equity and debt money market instruments.
The table 4.7 provides the assets allocation of the schemes
portfolio. The asset allocations under the Scheme are as
follows: Table 4.7 HDFC Equity Scheme Sr. No. Asset Type (% of
portfolio) Risk Profile 1 Equity and Equity Related Instruments
80-100 Medium to High 2 Debt % Money Market Instruments
0-20 Low to Medium Source: Compiled from Annual Reports of
HDFC mutual funds The Investment of the scheme in
Securitised debt should not exceed 20% of the net assets of the
schemes. It can also invest upto 25% of the net assets in
derivatives such as futures and options or any such derivatives
instruments launched during the period in order to hedge the
fund and maximize return on investment9. All these are
however subject to SEBI Mutual Funds Regulation. The Scheme
also invest a part of its corpus, not exceeding 40% of its net
assets, in overseas markets in Global Depository Receipts
(GDRs), HDFC Mutual Fund: A Case Study 142 American
Depositary Receipt (ADRs), overseas equity, bonds and mutual
funds and such other instruments as may be allowed under the
Regulations from time to time. The HDFC equity scheme may
engage in stock lending activities as per the SEBI MF
Regulations. If the investment in equities and related
instruments falls below 70% of the portfolio of the Scheme at
any point of time, it would be endeavored to review and
rebalance the composition. However the asset allocation
pattern may change from time to time as per the prevailing
market conditions, market opportunities and other macro
economic factors. This is due to the reason that prime objective
of the scheme is capital appreciation. This can not be sacrificed
at any cost by the fund manager. Therefore in order to protect
depreciation in NAV of the schemes the allocation of fund in
equity, debt or other instruments can vary time to time. This
change impacting basic attributes of the scheme shall be
implemented only if it is in accordance with sub- regulation
(15A) of regulation 18 of SEBI regulations. 4.4.2 Investment
Strategy To achieve long term capital appreciation the scheme
invests in growth companies. The companies selected for
investment are either medium or large sized company which:
are likely achieve above average growth than the industry
enjoy distinct competitive advantages, and have superior
financial strengthBasic Scheme Information of HDFC Growth
Fund Nature of Scheme Open Ended Balanced Scheme
Inception Date 9/11/2000 Option/Plan Dividend Option,
Growth Option. The Dividend Option Offers Dividend Payout
and Reinvestment Facility. Entry Load Application routed
through any distributor/agent/broker : (as a % of the Applicable
NAV) (Other than Systematic Investment Plan In respect of each
purchase / switch-in of Units / Systematic Transfer Plan (STP))
less than Rs. 5 crore in value, an Entry Load of 2.25% is payable.
In respect of each purchase / switch-in of Units equal to or
greater than Rs. 5 crore in value, No Entry Load is payable.
Application not routed through any distributor/agent/broker :
Nil No Entry Load shall be levied on bonus units and Units
allotted on dividend reinvestment. Exit Load (as a % of the
Applicable NAV) (Other than Systematic Investment Plan In
respect of each purchase / switch-in of Units / Systematic
Transfer Plan (STP) less than Rs. 5 crore in value, an Exit Load of
1.00% is payable. If Units are redeemed/switched out within 1
year from the date of allotment In respect of each purchase /
switch-in of Units equal to or greater than Rs. 5 crore in value,
no Exit Load is payable. No Exit Load shall be levied on bonus
units and HDFC Mutual Fund: A Case Study 146 units allotted on
dividend reinvestment. Minimum Application Amount For new
investors: Rs.5000 and any amount thereafter. (Other than
Systematic Investment Plan For existing investors: Rs. 1000 and
any amount thereafter. / Systematic Transfer Plan (STP) Lock-
In-Period Nill Net Asset Value Periodicity Every Business Day.

CASE STUDY 2
Performance Evaluation of Mutual Fund in India (A Case Study
on SBI Mutual Fund) Dr. (Prof.) Ashok Kumar Rath Professor in
Finance, Trident Academy of Technology, Bhubaneswar.
ABSTRACT: Different investment avenues are available to
investors. Mutual fund also offers good investment
opportunities to investors.Mutual funds are device for pooling
and investing money in a wide variety and number of securities,
to obtain portfolio diversification and management efficiency in
other words, Mutual funds are non banking financial
intermediaries,which act as matchmakers bringing together the
saving and investment opportunities. Mutual fund units
provides to the investors in accordance with quantum of
money invested by them. Investors of mutual funds are known
as unit holders.The profits of losses are shared by investors in
proportion to the investments.The Mutual funds normally
come out with a number of schemes with different investment
objectives which are launchrd from time to time. Keywords:
Intermediaries, Portfolio, Investment, Diversification. I.
INTRODUCTION A MUTUAL FUND is a professionally managed
firm of collective investments that collects money from many
investors and puts it in stocks, bonds, short term money market
instruments, and /or other securities. Mutual fund now
represent as the most appropriate investment opportunity for
most investors. As the financial marker become more
sophisticated and complex, investor needs afinancial
intermediary which provides the required
knowledge,professional expertise on successful investment.
The fund manager ,also known as portfolio manager trades the
fund underlying securities, realizing capital gains or losses, the
investment proceeds are then passed along to the individual
investors . Anybody,no matter what their age, or income should
and can invest in mutual funds. Mutual funds are an easy and
inexpensive way for an individual to capture the money that is
to be made from stocks and b onds,without buying them
directly.Invesating in mutual funds is the perfect way to save
money for the short term and long term future, such as for,
retirement,a car, a home ,a vacation and more. II. OBJECTIVE
OF THE STUDY i- To study the Investor’s perception towards the
Mutual Fund. ii- To study how the Respondents are influenced
by factors of Mutual Funds? iii- To know how Respondents
prefer most at the time of investment by taking term/time
period into consideration? iv- To study the Respondents
preference to keep their savings in different sectors of
investment avenue: v- How investors respond towards the
Mutual Fund schemes of different Mutual Fund companies? vi-
To know why investors to prefer to Invest in SBI Mutual Fund?
vii- To study how age factor is responsible for (SIP- SBI MF). III.
RESEARCH METHODOLOGY The present article is related to
performance evaluation of different funds, consumers
awareness and attitude which is based on data collection from
different people investing their money in the SBI Mutual Fund.
Sources of DataA) Primary Sources B) Secondary Sources A)
Primary Source :For collecting the primary data survey was
conducted to find out the perception level, product attributes,
brand awareness, brand loyalty etc. The data are collected in
Bhubaneswar because it is commercial and educated city of
Orissa.The data are collected through questionnaire. B)
Secondary Source: consists of all information from Mutual fund
Staff, different websites, Books, Brouchure, Magazines,
Newspapers. Performance Evaluation of Mutual Fund .

REVIEW OF LITERATURE 1- Ajay shah and Susan Thomas (1994)

studied the performance evaluation of eleven mutual fund
schemes and conceded that except one scheme other schemes
earnes inferior return than the market in general. 2- R.A Yadav
and Biswadeep Mishra (1996) have evaluated performance of
14 mutual funds scheme using monthly data. The study
concluded that the funds as a whole performed well in terms of
non risk adjusted measure of average returns and the fund
manager of growth schemes adopted a conservative
investment policy. 3- Amitabh Gupta(2000) has examined
performance of Indian mutual funds in terms of six
performance measures using weekly NAV data for73 mutual
fund schemes from 1994-1999, he found that the schemes have
shown a mixed performance during the period. 4- Sadhak(2003)
investigates the making strategies and investment practice of
Indian mutual fund . 5- Gupta (2002) examine the growth,
regulatory framework and performance evaluation of Indian
mutual fund and reported poor performance. V. COMPANY
PROFILE SBI Mutual Fund is India’s largest bank sponsored
mutual fund and has an enviable track record in judicious
investments and consistent wealth creation. The fund traces its
lineage to SBI- India’s largest banking enterprise. The institution
has grown immensely since its inception and today it is India’s
largest bank,patronized by over 80% of the top corporate
houses of the country. SBI Mutual fund is joint venture
between the state bank of india and Society General Asset
Management , one of the world’s leading fund management
companies that manages over US $ 500 Billion worldwide.In
twenty years of operation , the fund has launched 38 schemes
and successfully redeemed fifteen of them . In the process it
has rewarded it’s investors handsomely with consistently high
returns. COMPETITORS According to the market survey the
main competitors of the SBI mutual fund are:(i)Birla sun Life
Mutual Fund,(ii)HSBC Mutual Fund,(iii)ING Vysya Mutual Fund,
(iv)Reliance Mutual Fund,(v)Tata Mutual Fund,(vi)HDFC Mutual
Fund, (vii) Prudential ICICI-Alliance,(viii)Franklin Templeton,-LIC
Mutual Fund,(ix)J M mutual Fund,(x)UTI Mutual Fund,(xi) Chola
Mutual Fund and Many more. PRODUCTS OF SBI MUTUAL
FUND: (i) Equity Scheme, (ii) Debt Schme,(iii) Balanced Scheme,
(iv) Liquid Scheme VI. DATA ANALYSIS AND INTERPRETATION i-
Investor’s perception towards the Mutual Fund: Table-1 Age of
Investors No of Respondents <=30 8 31-40 10 41-50 7 >50 5
(Sources: SBI Mutuakl Fund News Letter, 2015-16) Fig-1
Performance Evaluation of Mutual Fund in India www.ijbmi.org
56 | Page Interpretation On the basis of above analysis through
table and diagram it is found that the investors under the age
group of 31-40 is more interested in involving in Mutual Fund
Sector. In this age group maximum respondeants are business
men and private employees. ii. Respondents are influenced by
factors of Mutual Funds. Table-2 Factors Investments Capital
Gain 34.34% Return 24.72% Safety 20.69% SecuredFuture
20.25% (Sources: SBI Mutuakl Fund News Letter, 2015-16) Fig-2
Interpretation: The above analysis shows capital gain is
34.34%,return is 24.72%, safety is 20.69% and secured future is
20.25% for the purpose of investment. So Maximum
respondents are preferring capital gain over other factors and
preference is regular income. iii .Respondents prefer most at
the time of investment by taking term/time period into
consideration: Table-3 Duration Investor Preference Long Term
33.95% Mid Term 25.03% Short Term 41.02% (Sources: SBI
Mutuakl Fund News Letter,2015-16) Fig-3: Performance
Evaluation of Mutual Fund in India www.ijbmi.org 57 | Page
Interpretation As we can see here Maximum respondents are
preferring for short term and long term rather than mid term.
Hence investors preferred to keep their money in long term
basis through different equity schemes and also short term
basis through various debt schemes. iv.Respondents prefer to
keep their savings in different sectors of investment avenue:
Table-4 Sector Investors Preference Mutual Funds 40.02%
Banks 20.125% Postal 6.03% Life Insurance 8.32% Share Market
21.51% Others 4.00% (Sources: SBI Mutuakl Fund News
Letter,2015-16) Fig-4: Interpretation From the above analysis
we can say most of the respondents are preferring to invest
mutual funds that is 40.02%.The percentage in case of other
sectors are less in comparison to mutual funds. V. Preference of
Mutual Fund schemes of different Mutual Fund companies:
Table-5 Category No of Respondents SBI MF 7 Reliance MF 6
UTI MF 8 Kotak Mahindra MF 1 ICICI PRU MF 5 HDFC MF 1 Tata
MF 2 (Sources: SBI Mutuakl Fund News Letter,2015-16) Fig-5:
Performance Evaluation of Mutual Fund in India www.ijbmi.org
58 | Page Interpretation Majority of preference goes to UTI MF
being the oldest and govt. regulated Mutual Fund followed by
SBI MF as principal trustee is SBI the largest bank operating
over India.Preference towards other based on the funds past
performance and marketing potential of the IMC operating in
the Bhubaneswar city.also the graphb shows that the gradual
shift of the mindset of people towards the private MF due to
aggressive marketing ,variety of schemes and return potential.
vi. Reason of Investment in SBI Mutual Fund: Table-6 Category
No.of respondents Return Potential 12 Diversification 4
Transparency 3 Verity of Schemes 6 Tax Benefit 5 (Sources: SBI
Mutuakl Fund News Letter,2015-16) Fig-6 Interpretation After
analyzing the respondents query maximum of the respondent
consider the return potential ofr SBI mutual fund are the main
reason of their investment as some of the equity schemes have
performed exceedingly well and have beaten the respective
benchmark by wide margins.Equity schemes like Magnum
Comma Fund.Magnum Tax gain and Magnum Balanced Fund
have won ICRA awards because of good performance. VII.
Different Age Groups(SIP-SBI MF): Table-7 Age Group No. Of
Respondent <=30 4 31-40 11 41-50 9 >50 6 (Sources: SBI
Mutuakl Fund News Letter,2015-16) Fig-7 Performance
Evaluation of Mutual Fund in India www.ijbmi.org 59 | Page
Interpretation On the basis of above analysis more number of
investors is preferred for investing through Systematic Invest
Plan(SIP) on the age group of 31-40. 8.Investment by aware of
people Interpretation If we look at total population only 60%
people are aware of mutual fund. But one important thing here
is that the entire 60% do not have investment in mutual
fund.Out of these 38% public has investment in mutual fund
and the remaining 62% public do not want to take risk or they
do not know the procedure of investment in mutual fund or
they do not know how to get liquidate it and how they will be
benefitted. VII. CONCLUSION Due to simultaneous existence of
number of channels the main problems being faced by AMC is
of managing the multiple channels in delivering quality service
to the customers.There need to be more emphasize placed on
promotional activities to built up the brand image and also
product awareness campaigns need to be staeted a lot of
customers are not still aware of the range of options available
under MF’s and still look at it as equity based investment. In
conclusion, for products like MF with very low brand appeal
and consumption values will have to depend heavily on
distributors to push their product through as they cannot
differentiate themselves from their competitors and being in
margins to the business. Indeed Mutual funds may represent
the only opportunity in which the investors can invest in an
intelligent, diversified fashion in securities of uprising sectors.
REFERENCES [1] Building your Mutual Fund Portfolio-By Albert
Freedman. [2] Mutual funds in India, Marketing Strategies and
Investment Practices-By H.Sadhak. [3] Services Marketing-By
RaviSankar. [4] The investment Game-how to win-By Prasanna
Chandra. [5] Essentials of Business Finance:By R.M Srivastava.
[6] Business World [7] Business India [8] The economic Times
[9] Annual report of S.B.I Mutual Fund Ltd. Websites [10]
www.investopdia.com [11] www.amfiindia.com [12]
www.icicidirect.com [13] www.sbimf.com [14] www.sebi.org.in
[15] www.stocks-investing.com

CONCLUSION
7.1 RECOMMENDATIONS After going through with the study
there are so many things or questions which become crystal
clear & here are some suggestions to improve performance:
Equity market is outperforming but debt market is
underperforming efforts have been made to improve debt
market by launching some new schemes or improve existing.
Private mutual funds (as HDFC is taken in study) should focus
on all the factors to yield more return & at the same time
expenses should also be minimized as in private sector Exit load
is more as compared to public sector. Entry loads are nil in
most public sector SIPs effort should be made to reduce or
remove exit loads also to attract investors. On so many
occasions there are setbacks in public sector efforts should be
made so that these set backs are vanished before they appear.
Private sectors mutual funds are facing tough competition from
public sector mutual funds so fund manager needs to make
portfolio smartly by considering all the aspects & than
investment should be made so that it yield better returns or
more return as presently is. Debt plans maximum investment
in money market may also prove profitable as it is liquid
market with guaranteed return. Public sectors are doing well
but it should also make necessary variations or amendments
as per the Ups & Downs of market. Public sector should make
more efforts to return maximize as well as to capture market.
In spite of launching new schemes in market private sector
have to focus on improving performance of existing plans.
Market research should be undertaken as well as before
investing peers performance should also be considered to
sustain in market for long run. 7.2 CONCLUSION In India,
Mutual Fund concept took roots only in sixties, after a century
old history elsewhere in the world. Realizing the needs for a
more active mobilization of household savings to provide
investible resources to industry. There is no doubt that the
mutual fund industry in India has come a long way witnessing
significant structural changes from a monolithic structure to a
competitive one. With the Indian economy on a high growth
trajectory, improved corporate performance, ongoing
economic reforms, rising income &higher saving’s level makes
the industry future look bright. Mutual funds are the best
available investment vehicle for retail investors. The average
expense ratio is typically in the range of 2.5% per year whereas
the same professional fund management offered by ULIPs
comes at an average cost of over 8% annually. One will not go
wrong if the product category is used appropriately. equity
mutual funds invest in a basket of well chosen companies which
come from a diversified set of industries with the GDP growth
at around 60%,most companies in a 146 | Page portfolio would
grow on an average of 14% (considering around 80% inflation)
this earnings growth would consistently see the share price
moving up in that too a systematic investment plan SIP in a
mutual fund is an effective means to beat market volatility and
benefit from the enormous power of compounding over time
an SIP allows to invest in any mutual fund by making smaller
periodic investments instead of lump sum, one time
investment. Rupee cost averaging is another benefit investors
can reap from a disciplined SIP. The other advantage of
investing through the mutual fund route is the higher expected
rate of return compared to most other investments. Thus the
mutual fund industry in the financial system is working well in
the past few years & gained so much popularity especially SIP
equity schemes of mutual funds because a mutual fund house
is like a garden where you can get fruits, vegetables and flowers
of various types within one compound & here the fund
manager is gardener who understands the garden very well.
Naturally there is a feeling of uncertainty or cautiousness you
feel when you’re handing over your savings to somebody. You
obviously need to be able to trust the person and you definitely
want to know what is happening with your money, at all times.
In the case of Mutual Funds, your money is handed over to a
professional, whose entire job is to keep track of markets and
look out for the best opportunities for you. What’s more,
Mutual Funds publish a monthly fact sheet which basically lists
out all the important facts you need to know about the scheme
you’ve invested in: These facts are: Ones portfolio of holdings,
that shows details of the companies and the amount invested
in each company and the rating of the company’s issuance in
case the instrument is a debt instrument. Past returns,
dividends and performance ratios. In addition, the NAV is
published on AMFI and on each of the fund company websites
on a daily basis, ensuring that you’re always in the loop about
your investments. 7.3 FURTHER RESEARCH SCOPE OF STUDY
Investors behavior pattern are not considered in the study so
investors view point can also be considered for further study.
Study is limited upto Indian Market whereas foreign market can
be considered for future study. Comparison of SIPs of public
sector & foreign sector would also be done in future. Only 10
plans are considered each of Public sectors & from Private
sectors other plans may also give different view point.

BIBLOGRAPHY.
Coupon Rate

Coupon rate means the interest rate that the bond carries. The bond holder gets this interest
on the pre specified dates at the time of the issue. The most common being the semiannual
coupon payment.