B.K.

SCHOOL OF BUSINESS MANAGEMENT

GUJARAT UNIVERSITY
 A
REPORT ON

ANALYSIS OF MUTUAL FUND

INVESTOR’S BEHAVIOUR

YEAR: 2010 [SEM III]

SUBMITTED TO

B.K. SCHOOL OF BUSINESS MANAGEMENT

GUJARAT UNIVERSITY

SUBMITTED BY

JAY GANDHI (1919)

MAHESH METKAL (1966)
PREFACE

There is much difference between saying and doing. Without practical

knowledge and experience no one can be perfect. Investing the money where
the risk is less has always been risky to decide. The diversification of risk has
given the birth to the phenomenon called mutual fund.

We are preparing comprehensive report of Mutual Fund industry in

India. The basic idea of assignment of this project is to augment our knowledge
about the industry in its totality and appreciate the use of an integrated loom. It
is concerned the environmental issues and tribulations. This makes us more
conscious about Industry and its pose and makes us capable of analyzing
Industry’s position in the competitive market. This may also enhance our
logical abilities.

There are various aspects, which have been studied in detail in the
project and have been added to this project report. The project provides some
insights in to the mutual fund industry, its operations and practices etc. the
objective behind this study is to know the mechanism of mutual fund industry.
ACKNOWLEDGEMENT

We are very happy to present this report before you. We express

our gratitude to the Gujarat University and our college, B.K. school of business
management to provide us this opportunity for our practical study.

We are very much thankful to our director Dr. Sarla Achutan for
providing us the practical knowledge and sources of information about mutual
fund and its investor’s behavior in mutual funds as a part of M.B.A.
curriculum.

We are also thankful to Prof. Dharmesh Shah (visiting faculty

guide, MBA) under whose guidance; we are able to prepare this project report.
Without their encouragement, this work would have never been completed.

At last but not least, we would like to be thankful to all those

who directly or indirectly contributed to the project, which are very useful to us
for preparing this report.
DECLARATION

We, hereby, declare that the Project titled “study of mutual

fund investment” is original to best to our knowledge & has not
published elsewhere. This is for the purpose of partial fulfillment of
SEM-III, MBA-II.

Date:
Ahmedabad
Jay Gandhi (1919)

Mahesh metkal (1966)

EXECUTIVE SUMMERY
As a part of my study curriculum it is necessary to conduct a grand
project. It provides us an opportunity to understand the particular topic in depth
and which leads to through to that topic. My topic for the grand project is titled
as “Portfolio management in mutual funds performance” in which emphasis
given to the study of different mutual funds in respect to the risk and return
involved in it. Since mutual funds are a relatively recent phenomenon in India,
general public or investors don’t have clarity about this concept. As we have
started witnessing the concept of more saving now being entrusted to the funds
than to keeping it in banks.

This report has divided into two phases. First phase covered investor’s
portfolio part where we have included, Introduction of mutual funds, Indian
mutual fund industry, Investment options available with individuals Second
phase the preferences of the investors in the mutual funds.

Mutual funds are also known as diversification tool which reduces

overall risk involved in the investment. The project report has included the
various kinds of risk associated with mutual funds.
RESEARCH METHODOLOGY

 Summery

 Project about – The mutual funds investor’s behaviour

 Data collection method – structured (closed) questionnaire

 Sample size – 100 mutual fund investors

 Research approaches – survey method

 Objectives

 To know the investor’s preference level about the mutual funds.

 To know investor’s opinion about the service provided by different

companies.

 To know how the investors are affected when any new scheme is offered.

 Sources Of Data

All market research requires a vast reservoir of information there may be

different type of information and data some of the information may be
published while some are unpublished. Some are complete and reliable and
some are may be biased. The research problem or objective decides the nature
of the sources of data.

The following are the two types of data that are collected for the purpose of
project report.

 Primary data –

The primary data can be described as the data that have been observed
and recorded by researcher for the first time to their opinion or knowledge.
These data are organized by the researcher for investigation at hand. The
type of data which we use to conduct market survey is primary data.
 i.e. survey, research etc.

 Secondary data –

The secondary data are statistic no gathered for the immediate use or
study at level but for some other purpose. They may be described as the data
that have been complied by some other person or any agency.

i.e. magazines, internet etc.

 Sampling

 Sampling unit – who is to be surveyed?

The market research must decide the target population that will be sampled.
We have reached to the investors of mutual funds and asked about the mutual
fund services.

 Sampling size - how many people should be surveyed?

Large sample gives more reliable result than small sample. So, we did the
survey of 100 samples for getting the primary data.

 Sampling procedures – how should the respondent be chosen?

To obtain representative sample a probability sample of the population

should be drawn, probability sampling allows a catenation of confidence limits
for sampling error.
Index

1. Introduction of mutual funds

1.1. What is a mutual fund?
1.2. Characteristics of mutual funds
1.3. Structure
1.4. Advantages of MF
1.5. Disadvantages of MF
1.6. List of Assets Management Company

2. History of mutual funds industry

2.1. Phases in MF

3. Regulatory body of MF in India

4. Types of mutual funds

5. Calculation of net asset value (NAV)

6. Tax benefits

7. Investors psychology

8. When you buy a mutual fund unit what exactly do you buy?

9. How to invest in mutual funds?

10.How to read fee table?

11. Documents required in investment

12.Knowledge required in investment

13.Investment process of MF

14.Investor’s right

15.Analysis of survey

16.Future trends in mutual funds

17.Suggestions

18.Conclusion

19.Bibliography

20. Annexure
20.1. Questionnaire
20.2. Glossary
1. INTRODUCTION TO MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is invested by the fund
manager in different types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market instruments. The
income earned through these investments and the capital appreciation realized by the
scheme is shared by its unit holders in proportion to the number of units owned by
them (pro rata). 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
portfolio at a relatively low cost. Anybody with an inventible surplus of as little as a
few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a
defined investment objective and strategy.

A Mutual Fund is the ideal investment vehicle for today’s complex and modern
financial scenario. Markets for equity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets have become mature and
information driven. Price changes in these assets are driven by global events
occurring in faraway places. A typical individual is unlikely to have the knowledge,
skills, inclination and time to keep track of events, understand their implications and
act speedily. An individual also finds it difficult to keep track of ownership of his
assets, investments, brokerage dues and bank transactions etc.

A Mutual Fund is the answer to all these situations. It appoints professionally

qualified and experienced staff that manages each of these functions on a full time
basis. The large pool of money collected in the fund allows it to hire such staff at a
very low cost to each investor. In effect, the Mutual Fund vehicle exploits economies
of scale in all three areas - research, investments and transaction processing. While the
concept of individuals coming together to invest money collectively is not new, the
Mutual Fund in its present form is a 20th century phenomenon. In fact, Mutual Funds
gained popularity only after the Second World War. Globally, there are thousands of
firms offering tens of thousands of Mutual Funds with different investment objectives.
Today, Mutual Funds collectively manage almost as much as or more money as
compared to banks.

A draft offer document is to be prepared at the time of launching the fund.

Typically, it pre specifies the investment objectives of the fund, the risk associated,
the costs involved in the process and the broad rules for entry into and exit from the
fund and other areas of operation. In India, as in most countries, these sponsors need
approval from a regulator, SEBI (Securities exchange Board of India) in our case.
SEBI looks at track records of the sponsor and its financial strength in granting
approval to the fund for commencing operations.
 A sponsor then hires an asset management company to invest the funds
according to the investment objective. It also hires another entity to be the custodian
of the assets of the fund and perhaps a third one to handle registry work for the unit
holders (subscribers) of the fund.

In the Indian context, the sponsors promote the Asset Management Company
also, in which it holds a majority stake. In many cases a sponsor can hold a 100%
stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the
sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated
different Mutual Funds schemes and also acts as an asset manager for the funds
collected under the schemes.
1.1 What is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is invested by the fund
manager in different types of securities depending upon the objective of the scheme.
These could range from shares to debentures to money market instruments. The
income earned through these investments and the capital appreciations realized by the
scheme are shared by its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. The small savings of all the investors are put together to increase
the buying power and hire a professional manager to invest and monitor the money.
Anybody with an investible surplus of as little as a few thousand rupees can invest in
Mutual Funds. Each Mutual Fund scheme has a defined investment objective and
strategy.

Mutual fund flow chart

1.2 Characteristics of mutual fund

The traditional, distinguishing characteristics of the mutual fund may include the
following:
1. 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

2. 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).

3. Mutual fund shares are "redeemable," meaning investors can sell their shares
back to the fund (or to a broker acting for the fund).

4. 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.

5. The investment portfolios of mutual funds typically are managed by separate

entities known as "investment advisers" that are registered with the SEBI
1.3 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 Settler 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.

The administrator: Administrator acts as registrar and transfer agent, keeps the
books and records of the fund, and calculates the NAV. Depending on the complexity
of the fund, the administrator's fees could be as little as a few thousand dollars a year
or as much as 0.5 to 0.65 % of the NAV per annum. Sometimes the administrator's
fees are included within the management fee. In certain situations, the administrator
subcontracts a part of the work, particularly the NAV certification, to the investment
manager.
1.4 Advantages of mutual funds

Mutual funds make saving and investing simple, accessible, and affordable. The
advantages of mutual funds include professional management, diversification, variety,
liquidity, affordability, convenience, and ease of recordkeeping—as well as strict
government regulation and full disclosure.

 Diversification:
The best mutual funds design their portfolios so individual investments will
react differently to the same economic conditions. For example, economic
conditions like a rise in interest rates may cause certain securities in a
diversified portfolio to decrease in value. Other securities in the portfolio will
respond to the same economic conditions by increasing in value. When a
portfolio is balanced in this way, the value of the overall portfolio should
gradually increase over time, even if some securities lose value.

 Professional Management:
Most mutual funds pay topflight professionals to manage their investments.
These managers decide what securities the fund will buy and sell.

 Regulatory oversight:
Mutual funds are subject to many government regulations that protect investors
from fraud.

 Liquidity:
It's easy to get your money out of a mutual fund. Write a check, make a call,
and you've got the cash.

 Convenience:
You can usually buy mutual fund shares by mail, phone, or over the Internet.

 Low cost:
Mutual fund expenses are often no more than 1.5 percent of your investment.
Expenses for Index Funds are less than that, because index funds are not
actively managed. Instead, they automatically buy stock in companies that are
listed on a specific index

 Transparency
 Flexibility
 Tax benefits
1.5 Drawbacks of mutual funds

 No Guarantees: No investment is risk free. If the entire stock market declines

in value, the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they invest in
mutual funds than when they buy and sell stocks on their own. However,
anyone who invests through a mutual fund runs the risk of losing money.

 Fees and commissions: All funds charge administrative fees to cover their
day-to-day expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if you
don't use a broker or other financial adviser, you will pay a sales commission if
you buy shares in a Load Fund.

 Taxes: During a typical year, most actively managed mutual funds sell
anywhere from 20 to 70 percent of the securities in their portfolios. If your
fund makes a profit on its sales, you will pay taxes on the income you receive,
even if you reinvest the money you made.

 Management risk: When you invest in a mutual fund, you depend on the
fund's manager to make the right decisions regarding the fund's portfolio. If the
manager does not perform as well as you had hoped, you might not make as
much money on your investment as you expected. Of course, if you invest in
Index Funds, you forego management risk, because these funds do not employ
managers.
1.6 Major mutual fund companies
 ABN AMRO Mutual Fund
 AIG Global Investment Group
Mutual Fund
 Benchmark Mutual Fund
 Birla Mutual Fund
 BOB Mutual Fund
 Canara Robeco Mutual Fund
 DBS Chola Mutual Fund
 Deutsche Mutual Fund
 DSP Merrill Lynch Mutual
Fund
 Escorts Mutual Fund
 Fidelity Mutual Fund
 Franklin Templeton Investments
 HDFC Mutual Fund
 HSBC Mutual Fund
 ICICI Prudential Mutual Fund
 ING Mutual Fund
 JM Financial Mutual Fund
 JPMorgan Mutual Fund
 Kotak Mahindra Mutual Fund
 LIC Mutual Fund
 Lotus India Mutual Fund
 Morgan Stanley Mutual Fund
 PRINCIPAL Mutual Fund
 Quantum Mutual Fund
 Reliance Mutual Fund
 Sahara Mutual Fund
 SBI Mutual Fund
 Standard Chartered Mutual
Fund
 Sundaram Mutual Fund
 Tata Mutual Fund
 Taurus Mutual Fund
 UTI Mutual Fund
2. 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.

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.
3. REGULATIONS OF MUTUAL FUNDS IN INDIA

In India SEBI and RBI act as regulators of mutual fund.

 SEBI (Mutual Fund) REGULATIONS,1996

The provisions of this regulations pertaining to AMC are:

 All the schemes to be launched by the AMC need to be approved by the

trustees and copies of offer document of such schemes are to be filed with
SEBI.
 The offer document shall contain adequate disclosure to enables the investor to
make informed decision.
 Advertisement in respect of schemes should be in conformity with the SEBI
prescribed advertisement code, and discloses the method and periodicity of the
valuation of investment sales and repurchase in addition to the investment
objectives.
 The listing of close ended schemes is mandatory and every close ended scheme
should be listed on a recognized stock exchange within six months from the
closure of subscription. However, listing is not mandatory in case the scheme
provides for monthly income or caters to the special classes of persons like
senior citizen, women, children, and physically handicapped. If the scheme
discloses detail of repurchase in the offer document: if the schemes opens for
repurchase with in six months of closure of subscription.
 Units of a close ended scheme can be opened for sale or redemption at a
predetermined fixed interval if the minimum and maximum amount of sale,
redemption, and periodicity is disclosed in the offer document.
 Units of a close ended scheme can also be converted into an open ended
scheme with the consent of majority of the unit holder and disclosure is made
in the offer document about the option and period of conversion.
 Units of a close ended scheme may be rolled over by passing resolution by a
majority of the shareholders.
 No scheme other than unit linked schemes can be opened for more than 45
days.
 The AMC must specify in the offer document about the minimum subscription
and the extent of over subscription, which is intended to be retained. In the
case of over subscription, all applicants applying up to 500 units must be given
full allotment subjected to over subscription.
 The AMC must refund the application money if minimum subscription is not
received and also the excess over subscription with in the six weeks of closure
of subscription.
 Guaranteed returns can be provided in a scheme if such returns are fully
guaranteed by the AMC or sponsor. In such cases, there should be a statement
indicating the name of the person, and the manner in which the guarantee is to
be made must be stated in the offer document.
 A close ended scheme shall be wound up on redemption date, unless it is rolled
over, or if 75% of the unit holders of a scheme pass a resolution of winding up
of the scheme : if the trustee on happening of any event, requires the scheme to
be wound up: or if SEBI, so directed in the interest of investors.
4. TYPES OF MUTUAL FUND SCHEME

Mutual fund schemes may be classified on the basis of its structure and its
investment objective.

BY STRUCTURE

1.Open-end Funds

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.

2. Closed-end Funds
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.

3. Interval Funds
Interval funds combine the features of open-ended and close-ended schemes. They are
open for sale or redemption during pre-determined intervals at NAV related prices.

BY INVESTMENT OBJECTIVE

1. Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long
term. Such schemes normally invest a majority of their corpus in equities. It has been
proved that returns from stocks, have outperformed most other kind of investments
held over the long term. Growth schemes are ideal for investors having a long-term
outlook seeking growth over a period of time.

2. Income Funds

The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures and Government securities. Income Funds are ideal for capital stability
and regular income.

3. Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities and
fixed income securities in the proportion indicated in their offer documents. In a rising
stock market, the NAV of these schemes may not normally keep pace, or fall equally
when the market falls. These are ideal for investors looking for a combination of
income and moderate growth.

4. Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital
and moderate income. These schemes generally invest in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call
money. Returns on these schemes may fluctuate depending upon the interest rates
prevailing in the market. These are ideal for Corporate and individual investors as a
means to park their surplus funds for short periods.

OTHER SCHEMES

1. Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the
Indian Income Tax laws as the Government offers tax incentives for investment in
specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and
Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The
Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB
by investing in Mutual Funds.

2. Special Schemes
 Index Schemes
Index Funds attempt to replicate the performance of a particular index such as
the BSE Sensex or the NSE 50
 Sectoral Schemes
Sectoral Funds are those that invest exclusively in a specified sector. This
could be an industry or a group of industries or various segments such as 'A'
Group shares or initial public offerings.

There are some other types also which are as follow,

 Type of Mutual Fund Objective Scope of Investments

Money market Funds Income oriented, liquidity Treasury bills, certificate

and safety for short term of deposit , commercial
papers & inter-bank call
money market

Gilt Funds: Income oriented Government paper- dated

securities

Debt Funds (or Income Regular Income oriented Debt instruments issued
Funds by government and
private companies, banks
and financial institutions

Diversified Debt Funds Regular Income Oriented Debt securities, issued by

entities across all
industries and the sectors

Focused Debt Funds Regular income oriented Debt securities, issued by

entities across all
industries and the sectors

High Yield Debt Funds Regular Income Oriented debt instruments that are
considered “below
investment grades”.

Equity Funds Growth and income Equity shares of company

oriented

Aggressive Growth Growth oriented Invest in less researched

Fund or speculative shares and
adopt speculative
investment strategies to
attain their objective of
higher returns

Growth Funds: Capital Appreciation Companies whose

 earnings are expected to
rise at an above average
rate

Specialty Funds Capital Appreciation Invest in companies that

meet only pre-defined
criteria

Sector Funds Capital Appreciation Investments in only one

industry or sector of the
market

Offshore funds Capital Appreciation Invest in equities in one

or more foreign countries

Small-Cap Equity Capital Appreciation Invest in shares of

Funds companies with relatively
lower market
capitalization

Diversified Equity Capital Appreciation Invest only in equities,

Funds except for a very small
portion in liquid money
market securities

Equity Index Funds Growth Invests in shares that

constitute the index

Value Funds Growth shares that are selling at a

low price-earnings ratios,
low market to book value
ratios and are
undervalued by other
yardsticks

Equity Income Fund: Growth and income Invest mainly in shares of

companies with high
dividends yields
 Balanced Funds: Income, Moderate Capital Debt instruments,
Appreciation And convertible securities, and
Preservation Of Capital preference and equity
shares

Growth-and-Income Growth and Income Stocks of companies with

Funds: good dividend paying
records and those with
potential for capital
appreciation

5. HOW TO CALCULATE NAV

Any meaningful evaluation of performance will necessarily have to measure total

return per unit of risk or the ability to earn superior returns for a given risk class.
There are various statistical techniques to measure this factor. One of the technique
estimates the realized portfolio returns in excess of the risk free return, as a multiple
of the factor of the portfolio. The factor of portfolio, in turn, measures the systematic
or non-diversifiable risk of the portfolio, the relation to the market index.

Mutual funds sell their shares to public and redeem them to current net asset value
(NAV) which is calculated as under-

           
                                  Total market value of all MF holdings - All MF liabilities
        NAV of MF =   ---------------------------------------------------------------------
                                                             No. of MF units or shares

       OR

              Market value of Scheme's Investments + Receivables + Accrued

            Income + Other Assets - Accrued Expenses - Payables - Other Liabilities
 NAV= ------------------------------------------------------------------------------------------
                                    No. of Units outstanding under the Scheme
 The net asset Value of a mutual fund scheme is basically the per unit market
value of all the assets of the scheme. To illustrate this better, a simple example will
help.

Scheme name                           XYZ

Scheme size                            Rs. 50, 00, 00,000 (Rs. Fifty crores)
Face value of units                   Rs. 10
No. Of Units (Scheme size)  5,00,00,000
Face value of units
Investments                           In shares
Market value of shares           Rs. 75,00,00,000 (Rs Seventy Five crores)
NAV(Market value of
Investments / No. of units) = Rs. 75,00,00,000
                                              -----------------------
                                                      5,00,00,000
                                        =       Rs.15

Thus, each unit of Rs. 10 is worth Rs. 15.

6. TAX BENEFITS

The tax benefits for investing in mutual funds are as follows:

Twenty percent of the amount invested in specified mutual funds (called equity
linked savings schemes or ELSS and loosely referred to as "tax savings schemes") is
deductible from the tax payable by the investor in a particular year subject to a
maximum of Rs2000 per investor. This benefit is available under section 88 of the
I.T. Act. Investment of the entire proceeds obtained from the sale of capital assets for
a period of three years or investment of only the profits for a period of 7 years,
exempts the asset holder from paying capital gains tax. This benefit is available under
section 54EA and 54EB of the I.T. Act, provided the capital asset has been sold prior
to April 1, 2000 and the amount is invested before September 30, 2000.The mutual
fund is completely exempt from paying taxes on dividends/interest/capital gains
earned by it. While this is a benefit to the fund, it is the indirect benefit of unit holders
as well. This benefit is available to the mutual fund under section 10 (23D) of the I.T.
Act.

A mutual fund has to pay a withholding tax of 10% on the dividends

distributed by it under the revised provisions of the I.T. Act putting them on par with
corporate. However, if a mutual fund has invested more than 50% of its assets into
equity shares, then it is exempt from paying any tax on the dividend distributed by it,
for a period of three years, by an overriding provision. This benefit is available under
section 115R of the I.T. Act. The investor in a mutual fund is exempt from paying any
tax on the dividend received by him from the mutual fund, irrespective of the type of
the mutual fund. This benefit is available under section 10(33) of the I.T. Act.

The units of mutual funds are treated as capital assets and the investor has to
pay capital gains tax on the sale proceeds of mutual fund units sold by him. For
investments held for less than one year the tax is equal to 30% of the capital gain. For
investments held for more than one year, the tax is equal to 10% of the capital gains.
The investor is entitled to indexation benefit while computing capital gains tax. Thus
if a typical growth scheme of an income fund shows a rise of 12% in the NAV after
one year and the investor sells it, he will pay a 10% tax on the selling price less cost
price and indexation component. This reduces the incidence of tax considerably. This
concession is available under section 48 of the I.T. Act. The following calculations
show this in more detail:

Purchase NAV = Rs 10

Sale NAV = Rs 11.2

Indexation component = 8%

Capital gains = 11.2 – 10(1.08)

= 11.2 – 10.8

= 0.4

Capital gains tax = 0.4*0.1 = 0.04.

If an investor buys a fresh unit in the closing days of March and sells it in the
first week of April of the following year, he is entitled to indexation benefit for two
financial years which close in the two March ending periods. This is termed as double
indexation and lowers the tax even further especially for income funds. In the above
example, the calculation would be as follows:

Capital gains = 11.2 – 10(1.08)(1.08)

= 11.2 – 11.7
 = -0.5

Thus there would be no capital gains tax.

7. INVESTOR PSYCHOLOGY

Due to immense competition the Mutual Fund Industry is emerging to be more

customers oriented. All Fund managers are in the pursuit to attract the investor
towards his fund, by meeting and excelling his expectations. The Marketing effort of
the Funds would be the most successful factor for the funds success. Therefore the
marketing and distribution activity of the firm should be designed keeping the
customer and his behaviour in mind. The study of the Indian customer and his
psychology would enable the fund to devise effective marketing mix. Thus before
going on to the ‘Marketing and Distribution aspect of Mutual Funds we should look at
the Indian investor’s psychology.

The following points can summarize the psyche of the Indian investor

 He is risk averse and is more passive than active.

 Equity is satisfied with safety and reasonable returns

 He is not interested in frequently changing his portfolio

 He understands more by emotions and sentiments than quantitative comparison

of funds performance with respect to an index.

 Mere growth prospect in an uncertain market does not attract him.

 He prefers one bird in the hand and two in the bush.

 He is happy if assured a rate of reasonable return that he would get on his

investments.

 The expectation of a typical investor is shown in the triangle, with the highest
priority being at the apex.
 Investor Expectation Hierarchy

Safety of Funds

Reasonable return

Liquidity

Figure 2.1 Investor Expectation Hierarchy

8. WHEN YOU BUY A MUTUAL FUND UNIT WHAT EXACTLY DO YOU
BUY?

When you buy a mutual fund unit you are buying a part of the equity or debt
portfolio owned by the mutual fund. In other words you are buying a part ownership
of various companies and when you buy a debt mutual fund you are buying a part
right to title to debt securities. In other words you step into the shoes of owners or
lenders indirectly. The value of your part of the assets will fluctuate in line with the
value of the individual components of the portfolio on the stock or the bond market.
In effect, you are buying a bundle of services as follows:

Investment management – which means investment advice and execution rolled into
one

Diversification of investment risk – buying a larger basket of securities reduces the

overall risk of investment

Asset custody – which means registration and physical custody of assets, ensuring
corporate actions like payment of dividend and interest,
bonus, rights entitlements etc

Portfolio information – which means calculating and disseminating ownership

information like NAV, assets owned, etc on a periodic
basis

Liquidity – Ability to speedily disinvest assets and obtain disinvestment proceeds

The mutual fund exploits economies of scale in research, execution and

transaction processing to provide the first three services at low costs. The pooling of
money makes it possible to offer the fourth service (since all investors are unlikely to
exit at the same time). In addition, one also gets benefits like special tax concessions.
What you do not get is a guaranteed way of making money. There is no way that a
mutual fund can insulate the investor from the vagaries of the market place and ensure
that he always makes money. In addition, one is implicitly taking the risk of bad
service quality in any of the four elements above including investment management.

9. HOW TO INVESTMENT IN A MUTUAL FUND?

Once the investor decides his investment needs, he may invest in mutual funds in
two ways:

1.Investing in existing funds

2.Investing in new fund offers

Open-ended schemes would available for investment on any working day from
the fund house. Exchange traded funds also would be available for investment.
An investor can invest in a fund either directly from a fund house or through an
intermediary. Mutual fund intermediary is also known as mutual fund broker. One can
invest in many funds through a mutual fund broker. If the investor chooses to invest
directly, he has to approach the fund houses himself.
New funds are offered by the fund house and will be open for subscription,
similar to an initial public offer of a share. But these two are not the same. New funds,
after initial period, may be instituted as open ended or close ended funds.
Who are eligible to invest in mutual funds?

Following persons/entities are eligible to invest in mutual funds in India:

 Resident Individuals, including minors and housewives
 Hindu Undivided Families
 Partnership firms
 Companies, Bodies Corporate, Public Sector Undertakings,
 Association of Persons or bodies of individuals and societies
Registered under the Societies Registration Act, 1860;
 Religious and Charitable trusts
 Nonresident Indian (NRI)/Person of Indian Origin (PIO)
 Foreign Institutional Investors
 Provident Funds, Pension Funds, Superannuation Funds
10. HOW TO READ A MUTUAL FUND FEE TABLE

There are two basic types of costs associated with mutual funds. Some funds
charge shareholder fees when you purchase or redeem shares of the fund, i.e., sales
commissions. In addition, all funds have operating expenses, which represent the
costs of running the fund. A mutual fund’s fees and expenses are required by law to
be clearly disclosed to investors in a fee table at the front of the fund’s prospectus.
Mutual funds compete vigorously to keep costs low, since the performance figures
reported by the fund ,and the total value of your mutual fund account, are provided
after all fees and expenses have been deducted. For example, the fund returns
published in newspapers, advertisements, and official fund documents already are
“net” of any fees the fund charges you. Thus, any time you consider a fund’s past
performance, your decision reflects the impact fees have had on the fund in the past.
Particularly important to your assessment of costs is the fund’s expense ratio. The
availability of this figure in all fund prospectuses allows you to easily compare how
much more or less one fund costs versus another—an important part of making an
informed investment decision.
11. DOCUMENTS REQUIRED FOR INVESTING IN A MUTUAL FUND

An investor who wishes to invest in a mutual fund should possess Permanent

Account Number (PAN) allotted by Income Tax Department. If an investor wishes to
invest Rs.50000/- or more at a time, he should additional complete Know Your Client
(KYC) requirements. KYC needs an investor to provide identity and address proofs
along with PAN to central record keeping institution and get KYC registration done.
In addition to the above requirements, mutual fund investment can be done only if the
investor holds a bank account. He can invest through a cheque or demand draft and
cash is not acceptable.
12. WHAT AN INVESTOR SHOULD KNOW BEFORE INVESTING IN A
MUTUAL FUND?

Investor must go through the offer document before investing in a mutual fund.
Offer document provides an investor with information such as objective of the fund
and risk factors. Offer document would also provide information on sponsor, AMC,
trustee and custodian.
All investments carry several risks. Investing in a mutual fund also is not an exception
to this rule. The risk factors that affect the underlying assets of a fund also affect the
performance of a mutual fund.
An investor must first identify his needs by asking questions such as,

 What are his investment needs and objectives?

 How much risk he is willing to take?
 When his investments should generate cash flows?

Once investor answers these questions, he can select the fund or funds that meet
his needs. An ideal mix of asset classes should be selected in order to diversify the
risks. An intermediary, who is specially trained, can guide the investor in this process.
Although mutual funds provide a superior framework for an investor, he should be
well aware of the factors such as entry and exit loads, management expense and other
costs and fees.
13. THE PURCHASE PROCESS

The psychology of the investors while purchasing a Mutual Fund can be better
understood by the following:

Attitudes of Others

Evaluation of Alternatives
Purchase Intention Purchase

Unanticipated situational factors

Figure : Purchase Process

 Evaluation of alternatives: The Indian investor first evaluates various available

options. He would check out various financial instruments, if he wants to invest
his money, and evaluate each of the options.

 Purchase intention: after the evaluation of various alternatives he then decides on

a particular product and expresses his intention to purchase it. In executing a
purchase intention an investors makes the following 5 sub-decisions:

 Brand decision (which firms fund to buy, UTI/TATA Mutual Fund / Reliance)

 Vendor decision: decision about the preferred dealer/ which dealer/ agent to go
to?

 Quantity Decision: how many units of the Mutual Fund should be purchased?

 Timing decision: when should these units is purchased. Should I wait for ht NAV
to slide down depending upon the market conditions?

 Payment method decision: which mode of payment to be used?

 Attitudes of others: The Indian investors purchases the product only after in
consultation with other fellow friends or colleagues. The attitude and perception
 about others on the investor purchase intention matter a lot. He can change his
purchase intension based on the advice
 Unanticipated situational factors: these are factors such as loss of job, some
other expenditure that might be more urgent. These factors are unpredictable and
the purchase decision of the investors can change at the last moment because of
these factors.
14. 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
15. ANALYSIS OF SURVEY

1. Do you invest regularly in Mutual Fund?

Yes 17%

No 83%

17%

Yes
No

83%
2. What is the frequency of investment?

Once a month 0%

Once a quarter 3%

Once a year 18%

Whenever there is enough money 79%

Chart Title

3% 18%
Once a month
Once a quarter
Once a year
Whenever there is enough
money

79%
3 .What percent of income you invest?

o - 5% of income 37%

5% -10% of income 52%

More than 10% of income 11%

11%
37%

o - 5% of income
5% -10% of income
More than 10% of income

52%
4. How you take investment decision?

With the reference of Friends/Relatives 36%

With the reference of Chartered Account/Tax

consultant 18%

By reading prospectus and other important

documents 32%

With the advice of Agents/portfolio Manager 14%

 14%
36%
With the reference of
Friends/Relatives
With the reference of
Chartered Account/Tax
consultant
32% By reading prospectus and
other important documents
18% With the advice of
Agents/portfolio Manager

5. Which criteria you prefer the most for investing (selecting) Mutual Fund
Scheme
 Return on investment 100
Diversification 16

Liquidity 69

Investment in small sums 22

Transparency 30

Well regulated 63

100
90
80
70
60
100
50
40 69 63
30
20 30
16 22
10
0
t ity s cy
en on um at
ed
ts m cati uid s r en l
ve sifi Liq all pa re
gu
in r sm ns l
ve Tr
a el
on Di ti
n
W
rn en
etu tm
R v es
In
6. Which kind of mutual funds schemes you prefer the most?

Open Ended 68%

Close Ended 5%

Interval 27%
Growth 20%

Income 33%

Balance Fund 19%

Money Market 28%

Tax Saving 77%

Special 23%
7. Are you satisfied with the performance of you Mutual Funds Company and
scheme which it has provided?
 Yes 64%

No 36%

36%

Yes
No

64%

8. Due to recent volatility in the stock market do you have confidence in mutual
funds?

Yes 71%
No 29%
9. Are you aware about various charges and expenses related with Mutual Fund?

Yes 58%

No 42%
 42%

Yes
58% No

H0: there is no significance difference between investment and age

H1: there is significance difference between investment and age

fo fe fo-fe (fo-fe)2 (fo-fe)2 /fe

4 4.44 -0.44 0.1936 0.04

7 6.24 0.76 0.5776 0.09

 1 1.32 -0.32 0.1024 0.08

7 6.66 0.34 0.1156 0.02

9 9.36 -0.36 0.1296 0.01

2 1.98 0.02 0.0004 0.00

19 15.54 3.46 11.9716 0.77

19 21.84 -2.84 8.0656 0.37

4 4.62 -0.62 0.3844 0.08

7 10.36 -3.36 11.2896 1.09

17 14.56 2.44 5.9536 0.41

4 3.08 0.92 0.8464 0.27

100        3.24

Degree of Freedom
(4-1) * (3-1) =6

Looking in the table of chi-square for the degree of 6 and significance level 0.05, we get
the value 1.685. as the chi-square calculated is 3.24 value falls in the acceptance region , the
null hypothesis will be accepted.
H0: there is no significance difference between kind of scheme investors prefer and
age

H1: there is significance difference between kind of scheme investors prefer and age

(fo-fe)2
fo fe fo-fe (fo-fe)2 /fe

4 8.16 -4.16 17.31 2.12

7 3.24 3.76 14.14 4.36

1 0.6 0.4 0.16 0.27

7 12.24 -5.24 27.46 2.24

9 4.86 4.14 17.14 3.53

2 0.9 1.1 1.21 1.34

19 28.56 -9.56 91.39 3.20

19 11.34 7.66 58.68 5.17

4 2.1 1.9 3.61 1.72

7 19.04 -12.04 144.96 7.61

17 7.56 9.44 89.11 11.79

4 1.4 2.6 6.76 4.83

100       48.19

Looking in the table of chi-square for the degree of 6 and significance level 0.05, we get
the value 1.685. as the chi-square calculated is 48.19 value falls in the rejection region , the
null hypothesis will be rejected.
16. FUTURE TRENDS IN THE INDIAN MUTUAL FUND INDUSTRY

Product:
There would be increase in the types of Mutual Fund being offered. New types of
fund would be introduces at regular intervals depending upon the market conditions
and investors needs. In the short run there would be increase in debt funds. The
industry is expecting index fund to be introduced soon. The money market funds are
also expected to gear up. The normal investor would demand income funds rather
than growth funds.

Place:
The distribution channel is expected to grow. There would be major emphasis on
retail channels. Companies would be looking at the B and C grade towns for business.
Post offices, cooperative societies, Internet are supposed to be the new distribution
channels coming in as the new channel structures. The distribution channel in the
urban areas would see a lot of consolidation. There would be decrease in the number
of individual agents selling sole funds. All these agents would come together and
would transform into fund supermarkets/ one stop shop of financial services.

Promotion:
The companies have realized the importance of promotion in the industry. More and
more companies are increasing their promotion budgets. The coming years AMCs
would increase their spending in Television and print media. Rural advertising is also
gaining importance. The Mutual Fund industry would be on the top clients list of the
advertising firms. The firms are using advertising medium to create brand awareness
and trying to differentiate their products based on the brand and performance of the
fund.

Size of the cake

The Mutual Fund industry is expected to grow. Mutual Funds are expected to emerge
as the best investment option in the future. It would surpass the bank deposits. Though
the Mutual Fund industry is expected to grow the number of players in the industry
are expected to grow at a much faster rate thus ensuring fierce competition in the
industry. The cake is expected to grow but the numbers of cake eaters are expected to
grow at a much faster rate.

Customer orientation:
Investors would have a wide variety to choose form. He would enjoy a high
bargaining power. All the companies would increase their customer orientation. All
the functions of the companies would revolve round the investors. There would be
increased in transparency in the functioning of Mutual Fund. New and detailed
guidelines would be issued by SEBI to regulate the market. The market is expected to
open up with more inflow of foreign capital in this sector.
17. SUGGESTIONS

1. Mutual Fund Companies should promote mutual fund industry and their
products a lot. As we have seen, most of the investment decisions are made
depending upon the reference of the friends/relatives, if proper promotion is
made, then there would be more chances of success.

2. As investors prefer those schemes which are having the higher return and
liquidity. So, emphasis should be placed upon such factors in mutual funds

3. To Build awareness of the funds among the distributors and investors

 By making more clear the concepts of Mutual Funds, its objectives,

types, Advantages etc. and how they are different from other available

 Investors should be made clear that Mutual Funds do not offer assured
Returns as FDs and relief Bonds.
 The idea of Mutual Funds is limited to mainly urban areas and not to
small Towns. So they should be promoted over there.

4. The problem area for MF industry to confront is investor education. Most of

the investors are investing without any specific plan in mind. Many believe that
the MF managers are financial expert and they will be able to provide solid
absolute returns year after year. They fail to differentiate that MF managers
seek relative return rather than absolute return
18. CONCLUSION

With the market going up and down frequently there are lots of investors
who would love to invest in equity shares but don’t want to do so directly. Some
of them are simply not inclined to the amount of research required for it.

While others think that it is too risky for lay investors. For such investors
mutual funds provide a good alternative. Even in the days of streams of investment
avenues, mutual fund had got a very good place and successful in providing
opportunities for small and medium income group people to take part in capital
market. But, the future of any mutual fund lies in the hands of Asset Management
Company (AMC) as they are professionals who take decisions of investing the
funds collected. The study “mutual funds investor’s behaviour” was carried out by
collecting information from various sources and through the tools like
questionnaires and relevant interactions with concerned persons.

Our best wishes to the all service provider to carry on their business in best
way as much as they can so that investors can get maximum of return. It should be
make all the possible ways to provide the best services to their investors.
19. BIBLIOGRAPHY

Books:

 The financial system 2nd edition

- Bharti pathak

 3.” Mutual Fund testing program Book” AMFI Publication.

 Association of Mutual Fund in India work book.

Websites:

 www.amfi.com
 www.indiainfoline.com
 www.rbi.org.in
 www.valueresearchonline.com
 www.myiris.com
 www.google.com
 www.karvy.com
 www.mutualfundresearchonline.com

Magazine & Newspaper:

  Business World

 Business Standard
 The Economic Times

20. ANNEXURE

Annexure 1 Questionnaire for finding Buyer’s Behaviour in Mutual Fund

Industry

(I am the students of MBA semester III studying in B K School of Management and I

am carrying out a survey for our academic project to know the behaviour of consumers
regarding Mutual Funds. So please fill this questionnaire. Your identity would not be
revealed and information will be used for academic purpose only.)

1. Do you invest regularly in Mutual Fund?

A. Yes

B. No

2. What is the frequency of investment?

A. Once a month

B. Once a quarter

C. Once a year
 D. Whenever there is enough money

3 .What percent of income you invest?

A. o - 5% of income

B. 5% -10% of income

C. More than 10% of income

4. How you take investment decision?

A. With the reference of Friends/Relatives

B. With the reference of Chartered Account/Tax consultant

C. By reading prospectus and other important documents

D. With the advice of Agents/portfolio Manager

5. Which criteria you prefer the most for investing (selecting) Mutual Fund Scheme

(Select any three)

A. Return on investment

B. Diversification

C. Liquidity

D. Investment in small sums

E. Transparency

F. Well regulated
6. Which kind of mutual funds schemes you prefer the most?

A. Open-end Funds

B. Closed-end Funds

C. Interval Funds

A. Growth Funds

B. Money Market Funds

C. Income Funds

D. Balanced Funds

A. Tax Saving Schemes

B. Special Schemes

7. Are you satisfied with the performance of you Mutual Funds Company and scheme
which it has provided?

A. Yes

B. No

8. Due to recent volatility in the stock market do you have confidence in mutual funds?

A. Yes

B. No

9. Are you aware about various charges and expenses related with Mutual Fund?
 A. Yes

B. No

Name : __________________________________

Age : ----------------------------------------------------

Occupation : __________________________________

Designation : __________________________________

Address : __________________________________

__________________________________

__________________________________

Contact No. : __________________________________

Annexure: 2 Glossaries
Advisor

The organization employed by a mutual fund to give professional advice on the fund's

Investments and to supervise the management of its assets.

Asked or Offering Price

The price at which a mutual fund's shares can be purchased. The asked or offering
price means the current net asset value (NAV) per share plus sales charge, if any. For
a no-load fund, the asked price is the same as the NAV.

Balanced Fund

A mutual fund that maintains a balanced portfolio, generally 60% bonds or preferred
stocks and 40% common stocks.

Bid or Sell Price

The price at which a mutual fund's shares are redeemed (bought back) by the fund.
The bid or redemption price means the current net asset value per share, less any
redemption fee or backend load.

Bond Fund

A mutual fund whose portfolio consists primarily of corporate or Government bonds.

These funds generally emphasize income rather than growth.

Bond Rating
System of evaluating the probability of whether a bond issuer will default. Various
firms analyze the financial stability of both corporate and government bond issuers.
Ratings range from AAA or Aaa (extremely unlikely to default) to D (currently in
default). Bonds rated BBB or below are not considered to be of investment grade.
Mutual funds generally restrict their bond purchases to issues of certain quality
ratings, which are specified in their prospectuses.

Capital Appreciation Fund

A mutual fund that seeks maximum capital appreciation through the use of investment
techniques involving greater than ordinary risk, such as borrowing money in order to
provide leverage, short selling and high portfolio turnover.

Capital Growth

A rise in market value of a mutual fund's securities, reflected in its net asset value per
share. This is a specific long-term objective of many mutual funds.

Closed-End Investment Company

An investment company that offers a limited number of shares. They are traded in the
securities markets, usually through brokers. Price is determined by supply and
demand. Unlike open-end investment companies (mutual funds), closed-end funds do
not redeem their shares.

Commercial Paper

Short-term, unsecured promissory notes with maturities no longer than 270 days.
They are issued by corporations, to fund short-term credit needs.
Custodian

The bank or trust company that maintains a mutual fund's assets, including its
portfolio of securities or some record of them. Provides safekeeping of securities but
has no role in portfolio management.

Daily Dividend Fund

This term applies to funds that declare their income dividends on a daily basis and
reinvest or distribute monthly.

Diversification

The policy of spreading investments among a range of different securities to reduce

the risks inherent in investing.

Rupee-Cost Averaging

The technique of investing a fixed sum at regular intervals regardless of stock market

movements. This reduces average share costs to the investor, who acquires more
shares in periods of lower securities prices and fewer shares in periods of high prices.
In this way, investing risk is spread over time.

Ex-Dividend Date

The date on which a fund's Net Asset Value (NAV) will fall by an amount equal to
the dividend and/or capital gains distribution (although market movements may alter
the fund's closing NAV somewhat). Most publications which list closing NAVs place
an "X" after a fund’ name on its ex-dividend date.
Expense Ratio

The ratio of total expenses to net assets of the fund. Expenses include management
fees, the cost of shareholder mailings and other administrative expenses. The ratio is
listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather
than of its success in controlling expenses.

Fiscal Year

An accounting period consisting of 12 consecutive months.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of capital. It

invests principally in common stocks with significant growth potential.

Income Fund

A mutual fund that primarily seeks current income rather than growth of capital. It
will tend to invest in stocks and bonds that normally pay high dividends and interest.

Index Fund

A mutual fund that seeks to mirror general stock-market performance by matching its
portfolio to a broad-based index, most often the S&P CNX Nifty index.

Investment Objective

The financial goal (long-term growth, current income, etc.) that an investor or a
mutual fund pursues.
Load

A sales charge or commission assessed by certain mutual funds ("load funds,") to

cover their selling costs. The commission is generally stated as a portion of the fund's
offering price, usually on a sliding scale from one to 8.5%.

Load Fund

A mutual fund that levies a sales charge up to 6%, which is included in the offering
price of its shares, and is sold by a broker or salesman. A front-end load is the fee
charged when buying into a fund; a back-end load is the fee charged when getting out
of a fund.

Management Fee

The amount a mutual fund pays to its investment adviser for services rendered,
including management of the fund's portfolio. In general, this fee ranges from .5% to
1% of the fund's asset value.

Money Market Fund

A mutual fund that aims to pay money market interest rates. This is accomplished by
investing in safe, highly liquid securities, including bank certificates of deposit,
commercial paper, government securities and repurchase agreements. Money Market
funds make these high interest securities available to the average investor seeking
immediate income and high investment safety.

Mutual Fund
An open-end investment company that buys back or redeems its shares at current net
asset value. Most mutual funds continuously offer new shares to investors.

Net Asset Value Per Share

The current market worth of a mutual fund share. Calculated daily by taking the funds
total assets securities, cash and any accrued earnings deducting liabilities, and
dividing the remainder by the number of shares outstanding.

No-Load Fund

A commission-free mutual fund that sells its shares at net asset value, either directly
to the public or through an affiliated distributor, without the addition of a sales charge.

Prospectus

An official document that each investment company must publish, describing the
mutual fund and offering its shares for sale. It contains information required by the
Securities and Exchange Commission.

Regional Fund

A mutual fund that concentrates its investments within a specific geographic area,
usually the fund's local region. The objective is to take advantage of regional growth
potential before the national investment community does.

Reinvestment Privilege
A service that most mutual funds offer whereby a shareholder's income dividends and
capital gains distributions are automatically reinvested in additional shares.

Sector Fund

A fund that operates several specialized industry sector portfolios under one umbrella.
Transfers between the various portfolios can usually be executed by telephone at little
or no cost.

Short Selling

The sale of a security which is not owned by the seller. The "short seller" borrows
stock for delivery to the buyer, and must eventually purchase the security for return to
the lender.

Underwriter

The organization that acts as the distributor of a mutual fund's shares to broker/dealers
and the public.

Variable Annuity

A type of insurance contract that guarantees future payments to the holder, or

annuitant, usually at retirement. The annuity's value varies with that of the underlying
portfolio securities, which may include mutual fund shares. All monies held in the
annuity accumulate tax-deferred.

Voluntary Plan
A flexible plan for capital accumulation, involving no specified time frame or total
sum to be invested.

Yield

Income or return received from an investment, usually expressed as a percentage of

market price, over a designated period. For a mutual fund, yield is interest or dividend
before any gain or loss in the price per share.

Zero Coupon Bond

Bond sold at a fraction of its face value. It appreciates gradually, but no periodic
interest payments are made. Earnings accumulate until maturity, when the bond is
redeemable at full face value. Nonetheless, interest is taxable as it accrues.