Chapter 1: Introduction

Mutual funds have become a very popular way to take some of the
risk out of investing in individual stocks by investors. Mutual funds are a collection of
stocks selected by mutual fund seller and sold to investors as shares in a fund. There are
several types of funds that you can invest in. Some of the more popular types are
technology funds, growth funds, security funds, and income funds. Mutual funds are
very popular because they allow you to invest in a numbers of stocks therefore greatly
reducing the risks associated with putting you money in an individual stock. Mutual
funds have become one of the most attractive ways for the average person to invest
their money. A mutual fund pools resources from thousands of investors and then
diversifies its investment into many different holdings such as stocks, bonds, or
government securities in order to provide high relative safety and returns. Mutual
Funds now represents perhaps the most appropriate opportunity for most investors. It is
no wonder that birthplace of mutual funds - the U.S.A.- the fund industry has already
overtaken the banking industry. The Indian industry has already started opening up
many of the exciting investment opportunities to Indian investors. Though not insured
like banks, mutual funds generally provide more return than the current one to two
percent obtainable through banks while still being one of the safest ways to grow your
money. There are an endless variety of mutual fund investment choices depending on
the degree of risk you feel comfortable with. Mutual Funds have emerged as
professional intermediaries. Besides providing the expertise in stock market investing,
these funds allow investing in small amounts and yet holding a diversified portfolio to a
limit.
Investment goals vary from person to person. While somebody wants security, others
might give more weightage to returns alone. Somebody else might want to plan for his
child’s education while somebody might be saving for the life after retirement. These
factors include risk, return, safety, volatility of shares and liquidity. The main objective
of comparing investment in equity shares with mutual fund schemes is to analyze the
 comparison of mutual funds with equities by considering risk, return, safety, volatility
of shares and liquidity.
In the current economic scenario interest rates are fluctuating in the share market as put
investor is in confusion. One find difficult to take decision on investment. This is
primary because the investment is risky and investor has to consider various factors
before investing in various securities. Therefore the study aims to compare equity and
mutual fund schemes with respect to risk, return & liquidity and also create awareness
about equity and mutual fund schemes among investors. Hence the title “Investor
avenues and awareness: A comparative study of mutual funds.

Mutual Funds

Before we understand what is mutual fund, it’s very important to know the area
in which mutual funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of

public companies include Reliance, ONGC and Infosys. Stocks are considered to be the
most common owned investment traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a
company, and in return you can receive interest on your invested amount, which is
back over predetermined amounts of time. Bonds are considered to be the most
common lending investment traded on the market. There are many other types of
investments other than stocks and bonds (including annuities, real estate, and precious
metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a
group of investors to pool their money together with a predetermined investment objective. The
mutual fund will have a fund manager who is responsible for investing the gathered money into
specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or
portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the
fund.

Mutual funds are considered as one of the best available investments as compare to others
they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing
risk & maximizing returns.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual
fund
Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. The table below gives an
overview into the existing types of schemes in the Industry.
 When an investor subscribes for the units of a mutual fund, he becomes part

owner of the assets of the fund in the same proportion as his contribution amount

put up with the corpus (the total amount of the fund). Mutual Fund investor is also

known as a mutual fund shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments

(such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the

scheme. NAV is defined as the market value of the Mutual Fund scheme's assets

net of its liabilities. NAV of a scheme is calculated by dividing the market value

of scheme's assets by the total number of units issued to the investors.

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation
of Unit Trust of India, at the initiative of the Government of India and Reserve Bank
and started its operations in 1964 with the issue of units under the scheme US-64. The
history of mutual funds in India can be broadly divided into four distinct phases: - First
Phase- 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of
Parliament. It was set up by the Reserve Bank of India and functioned under the
Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was
de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over
the regulatory and administrative control in place of RBI The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets
under management. Second Phase- 1987-1993 (Entry of Public Sector Funds) 1987
marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set
up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had
assets under management of Rs.47,004 crores. Third Phase- 1993-2003 (Entry of
Private Sector Funds With the entry of private sector funds in 1993, a new era started
in the Indian mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except LTI were to be registered and governed.
The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first
private sector mutual fund registered in July 1993 Fourth Phase - since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs.29,835 crores as at the end of January
2003, representing broadly., the assets of US 64 scheme, assured return and certain
other schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations. The second is the UTI Mutual
Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and
functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than Rs. 76,000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of October 31, 2003, there were 31 funds,
which manage assets of Rs. 126726 crores under 386 schemes. Erstwhile UTI was
bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of
India effective from February 2003. The Assets under management of the Specified
Undertaking of the Unit Trust of India has therefore been excluded from the total assets
of the industry as a whole from February 2003 onwards. Currently Public Sector Banks
like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign
Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies
like HDFC, Prudential ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc.
have floated their own mutual funds.
In the current economic scenario interest rates are fluctuating in the share market as put
investor is in confusion. One find difficult to take decision on investment. This is
primary because the investment is risky and investor has to consider various factors
before investing in various securities. Therefore the study aims to compare equity and
mutual fund schemes with respect to risk, return & liquidity and also create awareness
about equity and mutual fund schemes among investors. Hence the title “Investor
avenues and awareness: A comparative study of mutual funds and equity”

WHAT IS MUTUAL FUND?

A Mutual Fund is a vehicle for investing in stocks and bonds. It is not an alternative
investment option to stocks and bonds; rather it pools the money of several investors
and invests this in stocks, bonds, money market instruments and other types of
securities. Buying a mutual fund is like buying a small slice of a big pizza. The owner
of a mutual fund unit gets a proportional share of the fund's gains, losses, income and
expenses. A Mutual Fund is a body corporate registered with the Securities and
Exchange Board of India (SEBI), that pools up the money from individual/ corporate
investors and invests the same on behalf of the investors /unit holders, in equity shares,
Government securities, Bonds, Call money markets etc., and distributes the profits. In
other words, a mutual fund allows an investor to indirectly take a position in a basket
of assets. A mutual fund pools together sums from individual investors and invests it in
various financial instruments. Each mutual fund has its own investment objective.
Mutual funds have become one of the most attractive ways for the average person to
invest their money. A mutual fund pools resources from thousand of investors and then
diversifies its investment into many different holdings such as stock, bonds, and
securities in order to provide highly relative safety and returns. Each Mutual Fund with
different type of schemes is managed by respective Asset Management Company
(AMC). An investor can invest his money in one or more schemes of Mutual Fund
according to his choice and becomes the unit holder of the scheme. The invested
money in a particular scheme of a Mutual Fund is then invested by fund manager in
different types of suitable stock and securities, bonds and money market instruments.
Each Mutual Fund is managed by qualified professional man, who use this money to
create a portfolio which includes stock and shares, bonds, gilt, money-market
instruments or combination of all.

DISTINGUISHING CHARACTERISTICS OF MUTUAL FUND

The traditional, distinguishing characteristics of the mutual fund may

include the following: #> Investors purchase mutual fund shares from the fund itself
(or through a broker for the fund) instead of from other investors on a secondary
market #> The price that investors pay for mutual fund shares is the fund's per share
net asset value (NAV) plus any shareholder fees that the fund imposes at the time of
purchase (such as sales loads). #> Mutual fund shares are "redeemable," meaning
investors can sell their shares back to the fund (or to a broker acting for the fund). #>
Mutual funds generally create and sell new shares to accommodate new investors. In
other words, they sell their shares on a continuous basis, although some funds stop
selling when, for example, they become too large. #> The investment portfolios of
mutual funds typically are managed by separate entities known as "investment
advisers" that are registered with the SEBI. MAJOR RIGHTS AS A UNIT HOLDER
IN A MUTUAL FUND Some important rights are mentioned below: • Unit holders
have a proportionate right in the beneficial ownership of the assets of the scheme and
to the dividend declared. • They are entitled to receive dividend warrants within 42
days of the date of declaration of the dividend. • They are entitled to receive
redemption cheques within 10 working days from the date of redemption. • 75% of the
unit holders with the prior approval of SEBI can terminate AMC of the fund. • 75% of
the unit holders can pass a resolution to wind-up the scheme

REGULATORY BODY FOR MUTUAL FUNDS

Securities Exchange Board of India (SEBI) is the regulatory body for all the
mutual funds mentioned above. All the mutual funds must get registered with SEBl.
The only exception is the UTI, since it is a corporation formed under a separate Act of
Parliament. Broad Guidelines Issued by SEBI for a MF: -

SEBI is the regulatory authority of Mutual Funds. SEBl has the following broad
guidelines pertaining to mutual funds:

• Mutual Funds should be formed as a Trust under Indian Trust Act and should be
operated by Asset Management Companies (AMCs).

• Mutual Funds need to set up a Board of Trustees and Trustee Companies. They
should also have their Board of Directors.

• The net worth of the AMCs should be at least Rs.5 crore.

• AMCs and Trustees of a Mutual Fund should be two separate and distinct legal
entities

• The AMC or any of its companies cannot act as managers for any other fund

• AMCs have to get the approval of SEBI for its Articles and Memorandum of
Association

• All Mutual Funds schemes should be registered with SEBI.

• Mutual Funds should distribute minimum of 90% of their profits among the investors
There are other guidelines also that govern investment strategy, disclosure norms and
advertising code for mutual funds.

ROLE OF A FUND MANAGER

Fund managers are responsible for implementing a consistent

investment strategy that reflects the goals and objectives of the fund. Normally, fund
managers monitor market and economic trends and analyze securities in order to make
informed investment decisions. Thus the role of fund manager is very crucial.
ACCOUNT STATEMENT When the units are bought or get allotted a statement will
be issued mentioning the number of units allotted/bought and redeemed by you. The
recording of entries would be similar to the passbook entries in the bank. In mutual
fund terminology it is called Account Statement. After investing in a mutual fund
investor gets an account statement, which shows his holding and the price at which
bought units. The account statement is computer generated and cannot be traded or
transferred. The account statement shows the: -•S holding details #> holding details #>
the number of units outstanding #> value of the holdings All transactions relating to
purchase units, redemption of units, dividend, reinvestment, etc are shown in the
account statement.

MUTUAL FUND STRUCTURE

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF)
as a fund established in the form of a trust by a sponsor to raise monies by the Trustees
through the sale of units to the public under one or more schemes for investing in
securities in accordance with these regulations. These regulations have since been
replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the
new regulations is indicated as under. THE SPONSOR: The Sponsor is the creator of
the fund, establishes the mutual fund and gets it registered with SEBI and will typically
hold a number of voting shares (perhaps 100) in the fund, but these are not entitled to
any distributions or share in the equity. All of the equity belongs to the investors,
typically in the form of non-voting "preferred redeemable shares" The voting shares
generally control management of the fund, apart from limited major decisions. The
sponsor is the Settlor of the Trust that holds Trust property on behalf of investors who
are the beneficiaries of the Trust. The sponsor is also required to contribute at least
40% of the capital of the asset management company, which is formed for managing
the assets of the Trust. THE BOARD OF TRUSTEES: The mutual fund needs to be
constituted in the form of a trust and the instrument of the trust should be in the form of
a deed registered under the provisions of the Indian Registration Act, 1908. The
supervisory role is fulfilled by the Board of Trustees of the Investment Company. The
board of trustees manages the MF and the sponsor executes the trust deeds in favour of
the trustees. It is the job of the MF trustees to see that schemes floated and managed by
the AMC appointed by the trustees are in accordance with the trust deed and SEBI
guidelines. THE ASSET MANAGEMENT COMPANY (AMC): The company that
manages a mutual fund is called an AMC. For all practical purposes, it is an organized
form of a "money portfolio manager". An AMC may have several mutual fund
schemes with similar or varied investment objectives. The AMC hires a professional
money manager, who buys and sells securities in line with the fund's stated objective.
All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in
case the AMC is promoted by a bank). In addition, every mutual fund has a board of
directors that represents the unit holders' interests in the mutual fund. This entity that
undertakes the designing and marketing of schemes, raises money from the public
under the schemes and manages the money on behalf of its owners. To segregate the
collected funds from this entity's own funds, the corpus is placed in a legal vehicle. It is
the character of this legal vehicle that determines the character of the Fund itself.
Irrespective of the nature of the structure, what is more fundamental is that in view of
the fiduciary role of the AMC or the fund manager towards the public, there is a need
for supervision of the activities of the AMC or fund manager by a separate body. The
assets of the Trust comprise of properties of the schemes, which are floated by the asset
management company with the approval of the Trustees Schemes may have different
characteristics - they may be open or closed ended or may have a particular investment
focus or portfolio composition. Finally, the safe custody of assets of the Trust is
entrusted to one or more custodians. THE CUSTODIAN: Custodian holds the fund's
cash and investment assets. Commonly, parts of the fund's assets are held by one or
more brokers who execute trades on behalf of the fund Custodial Fees can also be a
fixed fee or a percentage of NAV. Where a broker acts as de facto custodian, it usually
charges on a transactional basis. Apart from these four there is registrar or a transfer
agent who acts as a key party THE ADMINISTRATOR: Administrator acts as registrar
and transfer agent, keeps the books and records of the fund, and calculates the NAV.
Depending on the complexity of the fund, the administrator's fees could be as little as a
few thousand dollars a year or as much as 0.5 to 0.65 % of the NAV per annum.
Sometimes the administrator's fees are included within the management fee. In certain
situations, the administrator subcontracts a part of the work, particularly the NAV
certification, to the invest
ent manager.
CATEGORIES OF MUTUAL FUND :-

Mutual funds can be classified as follow :

 Based on their structure:

 Open-ended funds: Investors can buy and sell the units from the fund, at any

point of time.

 Close-ended funds: These funds raise money from investors only once.

Therefore, after the offer period, fresh investments can not be made into the fund. If

the fund is listed on a stocks exchange the units can be traded like stocks (E.g.,

Morgan Stanley Growth Fund). Recently, most of the New Fund Offers of close-

ended funds provided liquidity window on a periodic basis such as monthly or

weekly. Redemption of units can be made during specified intervals. Therefore,

such funds have relatively low liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments.

With fluctuating share prices, such funds show volatile performance, even losses.

However, short term fluctuations in the market, generally smoothens out in the

long term, thereby offering higher returns at relatively lower volatility. At the

same time, such funds can yield great capital appreciation as, historically, equities

have outperformed all asset classes in the long term. Hence, investment in equity

funds should be considered for a period of at least 3-5 years. It can be further

classified as:
 i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty

is tracked. Their portfolio mirrors the benchmark index both in terms of

composition and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading

across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that

they invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related

through some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking

sector fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a

result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds

are the ideal mutual funds vehicle for investors who prefer spreading their risk across

various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for

investors averse to idea of taking risk associated with equities. Therefore, they

invest exclusively in fixed-income instruments like bonds, debentures,

Government of India securities; and money market instruments such as

certificates of deposit (CD), commercial paper (CP) and call money. Put your

money into any of these debt funds depending on your investment horizon and

needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large

portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of

and T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities due to

mis-pricing between cash market and derivatives market. Funds are allocated to

equities, derivatives and money markets. Higher proportion (around 75%) is put in

money markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.
vi) Income funds LT- Typically, such funds invest a major portion of the

portfolio in long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line

with that of the fund.

INVESTMENT STRATEGIES:-

1. Systematic Investment Plan: under this a fixed sum is invested each month on

a fixed date of a month. Payment is made through post dated cheques or direct

debit facilities. The investor gets fewer units when the NAV is high and more

units when the NAV is low. This is called as the benefit of Rupee Cost Averaging

(RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund

and give instructions to transfer a fixed sum, at a fixed interval, to an equity

scheme of the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual

fund then he can withdraw a fixed amount each month.

RISK V/S. RETURN:
ADVANTAGES OF MUTUAL FUND

 Portfolio Diversification

 Professional management

 Reduction / Diversification of Risk

 Liquidity

 Flexibility & Convenience

 Reduction in Transaction cost

 Safety of regulated environment

 Choice of schemes

 Transparency

DISADVANTAGE OF MUTUAL FUND

 No control over Cost in the Hands of an Investor

 No tailor-made Portfolios

 Managing a Portfolio Funds

 Difficulty in selecting a Suitable Fund Scheme

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are

professional managed, by well qualified professional. Investors purchase funds because
they do not have the time or the expertise to manage their own portfolio. A mutual fund
is considered to be relatively less expensive way to make and monitor their
investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual

stocks or bonds, the investors risk is spread out and minimized up to certain extent. The
idea behind diversification is to invest in a large number of assets so that a loss in any
particular investment is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time,
thus help to reducing transaction costs, and help to bring down the average cost of the
unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to
liquidate their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other

available instruments in the market, and the minimum investment is small. Most AMC
also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with
just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as

their management is not dynamic enough to explore the available opportunity in the
market, thus many investors debate over whether or not the so-called professionals are
any better than mutual fund or investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load
which they charge from an investors, at the time of purchase. The mutual fund
industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the overall return.
Dilution is also the result of a successful fund getting too big. When money pours into
funds that have had strong success, the manager often has trouble finding a good
investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is from the
sale. It might have been more advantageous for the individual to defer the capital gains
liability.

RESEARCH & METHODOLOGY:-

NEEDS OF THE STUDY:-

Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of
mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated
from the year 1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements, both
quality wise as well as quantity wise. Before, the monopoly of the market had seen an
ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector
entry to the fund family rose the AUM to Rs. 470 in in March 1993 and till April 2004, it
reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is
less than the deposits of SBI alone, constitute less than 11% of the total deposits held by
the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the
country. Large sections of Indian investors are yet to be intellectuated with the concept.
Hence, it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development
of the sector. Each phase is briefly described as under.

Working of a Mutual fund:

The entire mutual fund industry operates in a very organized way. The investors,
known as unit holders,handover their savings to the AMCs under various schemes. The
objective of the investment should match with the objective of the fund to best suit the
investors’ needs. The AMCs further invest the funds into various securities according
to the investment objective. The return generated from the investments is passed on to
the investors or reinvested as mentioned in the offer document.
OBJECTIVES OF THE STUDY:-

1. To find out the Preferences of the investors for Asset Management

Company.
2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.

SCOPE OF THE STUDY:-

Before we understand what is mutual fund, it’s very important to know the area
in which mutual funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of

public companies include Reliance, ONGC and Infosys. Stocks are considered to be the
most common owned investment traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a
company, and in return you can receive interest on your invested amount, which is
back over predetermined amounts of time. Bonds are considered to be the most
common lending investment traded on the market. There are many other types of
investments other than stocks and bonds (including annuities, real estate, and precious
metals), but the majority of mutual funds invest in stocks and/or bonds.
METHODOLOGY OF THE STUDY:-

Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes

An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset
Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

Close Ended Schemes

A closed-end fund has a stipulated maturity period which generally ranging
from 3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and thereafter
they can buy or sell the units of the scheme on the stock exchanges where they are
listed. In order to provide an exit route to the investors, some close-ended funds give an
option of selling back the units to the Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes
is provided to the investor.

Interval Schemes

Interval Schemes are that scheme, which combines the features of open-ended
and close-ended schemes. The units may be traded on the stock exchange or may be
open for sale or redemption during pre-determined intervals at NAV related prices.
BY NATURE

Under this the mutual fund is categorized on the basis of Investment Objective. By
nature the mutual fund is categorized as follow:
1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund manager’s
outlook on different stocks. The Equity Funds are sub-classified depending upon their
investment objective, as follows:

 Diversified Equity Funds

 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank
high on the risk-return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities,

private companies, banks and financial institutions are some of the major issuers of
debt papers. By investing in debt instruments, these funds ensure low risk and provide
stable income to the investors. Debt funds are further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated
with Interest Rate risk. These schemes are safer as they invest in papers backed by
Government.

 Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.
 MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. These
scheme ranks slightly high on the risk-return matrix when compared with other debt
schemes.

 Short Term Plans (STPs): Meant for investment horizon for three to six months. These
funds primarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.

 Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term instruments like
Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for
short-term cash management of corporate houses and are meant for an investment
horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are
considered to be the safest amongst all categories of mutual funds.
LIMITATION OF THE STUDY:-
RIVIEW OF LITRATURE:-
PRIMARY AND SECONDARY SECTOR:-

The primary and secondary data has been collected by using simple random sampling
technique. The collected data has been analysed and interpreted by pie charts, bar
diagrams and graphical representation. The questionnaire and interview schedule,
personal interview will be relied upon for gathering primary data. An aggregate of
respondents from various Depository Participants responded to the questionnaire.

DATA ANALYSIS:-
 16 Chart Title
1
14
Investors invested in Mutual Fund

12
2
10
3
8
14 4
6
10
4 8
5 5
2

0
30 31-40 41-50 50
Age group of the Investors

1. Age distribution of the Investors :

Interpretation:

According to this chart out of 14 Mutual Fund investors of the most are in the age

group of 30 yrs. i.e. 14%, the second most investors are in the age group of 41-45yrs

i.e. 10% and the least investors are in the age group of above 50 yrs.
2. Educational Qualification of investors:-

Educational Qualification Number of Investors

Graduate 26
Post Graduate 16
Under Graduate 8
Total 50

Graduate Post Graduate Under Graduate

Interpretation:
 Out of 50 Mutual Fund investors 26% of the investors are Graduate 16 % Post

Graduate, 23% are Under Graduate.

3. Occupation of the investors :-

Occupation No. of Investors

Govt. Service 10
. Pvt. Service 29
Business 8
Agriculture 3

35
30 2
25
No. of Investors

20
15 29
10 1 3
5 10 8 4
3 5
0
Govt. Service Pvt. Service Business Agriculture
Interpretation: Occupation of the customers

In Occupation group out of 50 investors, 29% are Pvt. Employees, 8% are Businessman,
29% are Govt. Employees, 3% are in Agriculture.
 4.Monthly Family Income of the Investors :-

Income Group No. of Investors

10000 4
10001-20000 6
20001-30000 28
30000 11
30

25

20
No. of Investors

15
28

10

5 11
6
4
0
10000 10001-20000 20001-30000 30000
Income Group of the Investorsn (Rs. in Th.)

Interpretation:

In the Income Group of the investors, out of 50 investors, 28% investors

that is the maximum investors are in the monthly income group Rs.

20,001 to Rs. 30,000, Second one i.e. 11% investors are in the monthly

income group of more than Rs. 30,000 and the minimum investors i.e.

4% are in the monthly income group of below Rs. 10,000.

5. How many mutual funds one can invest:-

No. of investment No. of Respondents

1 13
2 32
3 5

1
2
3

Interpretation:

Out of 50 people response for single investment were 13%, 32% were

recomending for two investment , 5% were for the option of three investments.
6.Investors invested in different kind of investments.

Kind of Investments No. of

Respondents
Saving A/C 195
Fixed deposits 148
Insurance 152
Mutual Fund 120
Post office (NSC) 75
Shares/Debentures 50
Gold/Silver 30
Real Estate 65

8 65
) s r e
A/ o sit an c u n NSC u re ilve tat

7
n g p r l F e( t / S E s

30
vi e s u a c en ld l
In u tu Offi eb Go Rea

6 50
Kinds of Investment

5 75
4 120
t /D

c s e d
o s re s

3 152
a
Sh

2
P

148
M

1 195
D
S a ed

0 50 100 150 200 250

Fix

No.of Respondents

Interpretation: From the above graph it can be inferred that out of 200 people,

97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed

Deposits, 60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or

Debentures, 15% in Gold/Silver and 32.5% in Real Estate.

Preference of factors while investing

Factors (a) (b (c) (d)

Liqui ) Hig Tr

dity L h us

o Ret t

w urn

is

k
No. of 40 6 64 36

Respond 0

ents
 18% 20%

32% 30%

Liquidity Low Risk High Return Trust

Interpretation:
Out of 200 People, 32% People prefer to invest where there is High Return, 30%

prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18%

prefer Trust

Awareness about Mutual Fund and its Operations

Response Yes No
No. of 135 65

Respondents

33%

68%

Yes No
 Interpretation:

From the above chart it is inferred that 67% People are aware of Mutual Fund and

its operations and 33% are not aware of Mutual Fund and its operations.

Source of information for customers about Mutual Fund

Source of information No. of

Respondents
Advertisement 18
Peer Group 25
Bank 30
Financial Advisors 62

4
4
70
No. of Respondents

60
50
3
3
40 2 62
2
30 1
25 30
20 18
10
0
Advertisement Peer Group Bank Financial Advisors
Source of Information

Interpretation:

From the above chart it can be inferred that the Financial Advisor is the most

important source of information about Mutual Fund. Out of 135 Respondents,

46% know about Mutual fund Through Financial Advisor, 22% through Bank,

19% through Peer Group and 13% through Advertisement.

Investors invested in Mutual Fund

Response No. of Respondents

YES 120
NO 80
Total 200

No
40%

Yes
60%

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have

invested in Mutual Fund.

Reason for not invested in Mutual Fund

 Reason No. of

Respondents
Not Aware 65
Higher Risk 5
Not any Specific 10
Reason

13%

6%

81%

Not Aware Higher Risk Not Any

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of

Mutual Fund, 13% said there is likely to be higher risk and 6% do not have any

specific reason.

Mode of Investment Preferred by the Investors

Mode of One time Systematic Investment

Investment Investment Plan (SIP)

 No. of 78 42

Respondents

35%

65%

One time Investment SIP

Interpretation:

Out of 120 Investors 65% preferred One time Investment and 35 % Preferred

through Systematic Investment Plan.

Preference of Investors for future investment in Mutual Fund

Name of AMC No. of

Investors
SBIMF 76
UTI 45
HDFC 35
Reliance 82
 ICICI Prudential 80
Kotak 60
Others 75

Others 75 7 7

Kotak 60 6 6

ICICI Prudential 80 5 5
Name of AMC

Reliance 82 4 4

HDFC 35 3 3

UTI 45 22

SBIMF 76 11

0 10 20 30 40 50 60 70 80 90

No. of Investors

Interpretation:

Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential,

63% in SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC

Mutual Fund.

Investors invested in Mutual Fund

Response No. of Respondents

YES 120
 NO 80
Total 200

No
40%

Yes
60%

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have

invested in Mutual Fund.

FINDINGS AND SUGGESTION:-

 In Dehradoon in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of 41-

45 years and the least were in the age group of below 30 years.

 In Dehradoon most of the Investors were Graduate or Post

Graduate and below HSC there were very few in numbers.

 In Occupation group most of the Investors were Govt.

employees, the second most Investors were Private employees

and the least were associated with Agriculture.

 In family Income group, between Rs. 20,001- 30,000 were more

in numbers, the second most were in the Income group of more

than Rs.30,000 and the least were in the group of below Rs.

10,000.

 About all the Respondents had a Saving A/c in Bank, 76%

Invested in Fixed Deposits, Only 60% Respondents invested in

Mutual fund.

 Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least

preferred Trust.

 Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

 Among 200 Respondents only 60% had invested in Mutual Fund

and 40% did not have invested in Mutual fund.

 Out of 80 Respondents 81% were not aware of Mutual Fund,

13% told there is not any specific reason for not invested in

Mutual Fund and 6% told there is likely to be higher risk in

Mutual Fund.

 Most of the Investors had invested in Reliance or UTI Mutual

Fund, ICICI Prudential has also good Brand Position among

investors, SBIMF places after ICICI Prudential according to the

Respondents.

 Out of 55 investors of SBIMF 64% have invested due to its

association with the Brand SBI, 27% Invested because of

Advisor’s Advice and 9% due to better return.

 Most of the investors who did not invested in SBIMF due to not

Aware of SBIMF, the second most due to Agent’s advice and

rest due to Less Return.

 For Future investment the maximum Respondents preferred

Reliance Mutual Fund, the second most preferred ICICI

Prudential, SBIMF has been preferred after them.

 60% Investors preferred to Invest through Financial Advisors,

25% through AMC (means Direct Investment) and 15% through

Bank.

 65% preferred One Time Investment and 35% preferred SIP

out of both type of Mode of Investment.

 The most preferred Portfolio was Equity, the second most was

Balance (mixture of both equity and debt), and the least preferred

Portfolio was Debt portfolio.

 Maximum Number of Investors Preferred Growth Option for

returns, the second most preferred Dividend Payout and then

Dividend Reinvestment.

 Most of the Investors did not want to invest in Sectoral Fund,

only 21% wanted to invest in Sectoral Fund.

Suggestions and Recommendations

 The most vital problem spotted is of ignorance. Investors

should be made aware of the benefits. Nobody will invest until

and unless he is fully convinced. Investors should be made to

realize that ignorance is no longer bliss and what they are

losing by not investing.

 Mutual funds offer a lot of benefit which no other single option

could offer. But most of the people are not even aware of what

actually a mutual fund is? They only see it as just another

investment option. So the advisors should try to change their

mindsets. The advisors should target for more and more young

investors. Young investors as well as persons at the height of

their career would like to go for advisors due to lack of

expertise and time.

 Mutual Fund Company needs to give the training of the

Individual Financial Advisors about the Fund/Scheme and its

objective, because they are the main source to influence the

investors.
 Before making any investment Financial Advisors should first

enquire about the risk tolerance of the investors/customers, their

need and time (how long they want to invest). By considering

these three things they can take the customers into consideration.

 Younger people aged under 35 will be a key new customer

group into the future, so making greater efforts with younger

customers who show some interest in investing should pay off.

 Customers with graduate level education are easier to sell to

and there is a large untapped market there. To succeed however,

advisors must provide sound advice and high quality.

 Systematic Investment Plan (SIP) is one the innovative

products launched by Assets Management companies very

recently in the industry. SIP is easy for monthly salaried person

as it provides the facility of do the investment in EMI. Though

most of the prospects and potential investors are not aware

about the SIP. There is a large scope for the companies to tap

the salaried persons.

CONCLUTION:-
BIBLOGRAPHY & REFERENCE:-

 NEWS PAPERS

 OUTLOOK MONEY

 TELEVISION CHANNEL (CNBC AAWAJ)

 MUTUAL FUND HAND BOOK

 FACT SHEET AND STATEMENT

 WWW.SBIMF.COM

 WWW.MONEYCONTROL.COM

 WWW.AMFIINDIA.COM

 WWW.ONLINERESEARCHONLINE.COM

 WWW. MUTUALFUNDSINDIA.COM