CHAPTER 1: INTRODUCTION

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1.1: INTRODUCTION TO MUTUAL FUNDS
There are a lot of investment avenues available today in the financial market for an investor with
an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds where
there is low risk but low return. He may invest in Stock of companies where the risk is high and
the returns are also proportionately high. The recent trends in the Stock Market have shown that
an average retail investor always lost with periodic bearish tends. People began opting for
portfolio managers with expertise in stock markets who would invest on their behalf. Thus we
had wealth management services provided by many institutions. However they proved too costly
for a small investor. These investors have found a good shelter with the mutual funds.

1.2: CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their contributions that are
to be invested in accordance with a stated objective. The ownership of the fund is thus joint or
“mutual”; the fund belongs to all investors. A single investor’s ownership of the fund is in the
same proportion as the amount of the contribution made by him or her bears to the total amount
of the fund Mutual Funds are trusts, which accept savings from investors and invest the same in
diversified financial instruments in terms of objectives set out in the trusts deed with the view to
reduce the risk and maximize the income and capital appreciation for distribution for the
members. A Mutual Fund is a corporation and the fund manager’s interest is to professionally
manage the funds provided by the investors and provide a return on them after deducting
reasonable management fees.
The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower
income groups to acquire without much difficulty financial assets. They cater mainly to the
needs of the individual investor whose means are small and to manage investors portfolio in a
manner that provides a regular income, growth, safety, liquidity and diversification
opportunities.

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FIG 1: CONCEPT OF MUTUAL FUNDS

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DEFINITION:
“Mutual funds are collective savings and investment vehicles where savings of small (or
sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately”.
“A mutual fund is an investment that pools your money with the money of an unlimited
Number of other investors. In return, you and the other investors each own shares of the fund.
The fund's assets are invested according to an investment objective into the fund's portfolio of
Investments. Aggressive growth funds seek long-term capital growth by investing primarily in
stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also
called capital appreciation funds”.

WHY SELECT MUTUAL FUND?

The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for bank
FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital
protected funds and the profit-bonds that give out more return which is slightly higher as
compared to the bank deposits but the risk involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesn’t mean
mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which are less
riskier but are also invested in the stock markets which involves a higher risk but can expect
higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives
market which is considered very volatile.

1.3: HISTORY OF MUTUAL FUNDS IN INDIA

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. The history of mutual funds in India can
be broadly divided into four distinct phases

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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
UTI 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.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual
Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds setting
up funds in India and also the industry has witnessed several mergers and acquisitions. As at the
end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The
Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other
mutual funds.

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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
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.

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1.4: CATEGORIES OF MUTUAL FUND

FIG 2: CATEGORIES OF MUTUAL FUNDS

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TYPES OF MUTUAL FUND SCHEMES:-

Mutual funds can be done depending upon various factors and variables, such as, maturity
period, investment objectives etc... Funds schemes again can be classified into three broad
categories: equity schemes funds invest in three broad categories of assets—stocks, bonds and
cash. Depending upon the asset mix, mutual Classification of mutual, hybrid schemes, and debt
schemes. However the following are the various types of mutual funds available to the investors.

1. SCHEMES ACCORDING TO MATURITY PERIOD:

A mutual fund can be classified into close-ended or open-ended scheme depending upon its
maturity period:

A. Open-ended fund/scheme:

An open-ended fund is one that is available for subscription and repurchase on continuous basis.
These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units
at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of
open-end scheme is liquidity.

B. Close-ended fund/scheme:

A close-ended scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for
subscription only during a specified period at the time of launch of the scheme. Investors can
invest in the scheme at the time of initial public issue and thereafter they can buy or sell the units
of the scheme on the stock exchanges where the units 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 mutual funds
through periodic repurchase at NAV related prices. SEBI regulation stipulated that at least one of
the two exit routes is provided to the investors i.e. either repurchase facility or through listing on
stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

2. SCHEMES ACCORDING TO INVESTMENT OBJECTIVES:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended schemes
as described earlier. Such schemes may be classified mainly as follows:
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 A. Growth or equity oriented Scheme:

The aim of growth funds is to provide capital appreciation over the medium to long term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively
high risk. These schemes provide different options to the investors like dividend option, capital
appreciation etc... And the investors may choose an option depending on their performance. The
investors must indicate the option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are good for investors having a
long term outlook seeking appreciation over a period of time.

B. Income / debt oriented schemes:

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, Govt. securities
and money market instruments. Such funds are less risky compared to equity schemes. These
funds are not affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are affected because
of change in interest rates in the country. If the interest fall, NAVs of such funds are likely to
increase in the short run and vice-versa. However, long term investors may not bother about
these fluctuations.

C. Balanced Funds:

The aim of balanced funds is to provide both growth and regular income as such schemes invest
both in equity and fixed income securities in the proportion indicated in their offer document.
These are appropriate for the investors looking for moderate growth. They generally invest 40%
to 60% in equity and debt instruments. These funds are also affected because of fluctuation in
share prices in the stock markets. However, NAVs of such funds are likely to be less volatile
compare to pure equity funds.

D. Money market or liquid funds:

These funds are income funds and their aim is to provide easy liquidity, preservation of capital
and moderate income. These schemes invest exclusively in safer short-term instruments such as
treasury bills, certificates of deposits, commercial paper and inter-bank call money, government
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securities, etc. Returns on these schemes fluctuate much less compared to other funds. These
funds are appropriate for corporate and individual investors as a means to park their surplus
funds for short periods.

E. Gilt funds:

These funds invest exclusively in Govt. securities. Govt. securities have no default risk. NAVs of
these schemes also fluctuate due to change in interest rates and other economic factors as is the
case with income or debt oriented schemes.

F. Index funds:

Index funds replicate the portfolio of a particular index such as the BSE sensitive index, S&P
NSE-50 index (Nifty) etc. These schemes invest in the securities in the same weightage
comprising of an index. The NAVs of such schemes would rise or fall in accordance with the rise
or fall in the index, though not exactly by same percentage due to some factors known as
―tracking error‖ in technical terms. Necessary disclosures in this regards are made in the offer
document of the mutual fund scheme. These are also exchange traded index funds launched by
the mutual funds which are traded on the stock exchange.

G. ELSS:

Equity linked savings scheme (ELSS) are equity funds floated by mutual funds. This scheme is
suited for young people as they have the ability to take on higher risk. The ELSS funds should
invest more than 80 per cent of their money in equity and related instruments. It is ideal to invest
in them when the markets are down. These funds are now open all the year round. The other way
of investing in these funds could be a systematic investment, which essentially means investing a
small sum regularly (monthly or quarterly). It is a market-linked security and therefore there will
be risks accordingly.

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)
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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.

MUTUAL FUND OPERATION FLOW CHART:

FIG 3: MUTUAL FUND OPERATION FLOW CHART

WORKING OF MUTUAL FUND:

A Mutual Fund is a collection of stocks, bonds, or other securities owned by a group of investors
and managed by a professional investment company. For an individual investor to have a
diversified portfolio is difficult. But he can approach to such company and can invest into shares.
Mutual funds have become very popular since they make individual investors to invest in equity
and debt securities easy. When investors invest a particular amount in mutual funds, he becomes
the unit holder of corresponding units. In turn, mutual funds invest unit holder‘s money in stocks,
bonds or other securities that earn interest or dividend. This money is distributed to unit holders.
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If the fund gets money by selling some stocks at higher price the unit holders also are liable to
get capital gains.

1.5: STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In India open and
close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual Fund in
India is allowed to issue open-end and close-end schemes under a common legal structure. The
structure that is required to be followed by any Mutual Fund in India is laid down under SEBI
(Mutual Fund) Regulations, 1996.

FIG 4: STRUCTURE OF A MUTUAL FUND

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in combination of
another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the
promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust and
appoints a Board of Trustees. The sponsor also appoints the Asset Management Company as
fund managers. The sponsor either directly or acting through the trustees will also appoint a

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custodian to hold funds assets. All these are made in accordance with the regulation and
guidelines of SEBI.
As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least
40% of the net worth of the Asset Management Company and possesses a sound financial track
record over 5 years prior to registration.

Mutual Funds as Trusts:

A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor
acts as a settler of the Trust, contributing to its initial capital and appoints a trustee to hold the
assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust. The
fund then invites investors to contribute their money in common pool, by scribing to “units”
issued by various schemes established by the Trusts as evidence of their beneficial interest in the
fund.
It should be understood that the fund should be just a “pass through” vehicle. Under the Indian
Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the Trustee or
the Trustees who have the legal capacity and therefore all acts in relation to the trusts are taken
on its behalf by the Trustees. In legal parlance the investors or the unit-holders are the beneficial
owners of the investment held by the Trusts, even as these investments are held in the name of
the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite any number of
investors as beneficial owners in their investment schemes.

Trustees:
A Trust is created through a document called the Trust Deed that is executed by the fund sponsor
in favour of the trustees. The Trust- the Mutual Fund – may be managed by a board of trustees- a
body of individuals, or a trust company- a corporate body. Most of the funds in India are
managed by Boards of Trustees. While the boards of trustees are governed by the Indian Trusts
Act, where the trusts are a corporate body, it would also require to comply with the Companies
Act, 1956. The Board or the Trust company as an independent body, acts as a protector of the of
the unit-holders interests. The Trustees do not directly manage the portfolio of securities. For this
specialist function, the appoint an Asset Management Company. They ensure that the Fund is
managed by ht AMC as per the defined objectives and in accordance with the trusts deeds and
SEBI regulations.

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The Asset Management Companies:
The role of an Asset Management Company (AMC) is to act as the investment manager of the
Trust under the board supervision and the guidance of the Trustees. The AMC is required to be
approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have a net
worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non-
independent, should have adequate professional expertise in financial services and should be
individuals of high morale standing, a condition also applicable to other key personnel of the
AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund
manager, it may undertake specified activities such as advisory services and financial consulting,
provided these activities are run independent of one another and the AMC’s resources (such as
personnel, systems etc.) are properly segregated by the activity. The AMC must always act in the
interest of the unit-holders and reports to the trustees with respect to its activities.

Custodian and Depositories:

Mutual Fund is in the business of buying and selling of securities in large volumes. Handling
these securities in terms of physical delivery and eventual safekeeping is a specialized activity.
The custodian is appointed by the Board of Trustees for safekeeping of securities or participating
in any clearance system through approved depository companies on behalf of the Mutual Fund
and it must fulfill its responsibilities in accordance with its agreement with the Mutual Fund. The
custodian should be an entity independent of the sponsors and is required to be registered with
SEBI. With the introduction of the concept of dematerialization of shares the dematerialized
shares are kept with the Depository participant while the custodian holds the physical securities.
Thus, deliveries of a fund’s securities are given or received by a custodian or a depository
participant, at the instructions of the AMC, although under the overall direction and
responsibilities of the Trustees.

Bankers:
A Fund’s activities involve dealing in money on a continuous basis primarily with respect to
buying and selling units, paying for investment made, receiving the proceeds from sale of the
investments and discharging its obligations towards operating expenses. Thus the Fund’s banker
plays an important role to determine quality of service that the fund gives in timely delivery of
remittances etc.

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Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and provide
other related services such as preparation of transfer documents and updating investor records. A
fund may choose to carry out its activity in-house and charge the scheme for the service at a
competitive market rate. Where an outside Transfer agent is used, the fund investor will find the
agent to be an important interface to deal with, since all of the investor services that a fund
provides are going to be dependent on the transfer agent.

HOW RISKY YOUR MUTUAL FUND IS:

Investors always judge a fund by the return it gives, never by the risk it took. In any historical
analysis of a mutual fund, the return is remembered but the risk is quickly forgotten. So a fund
manager may have used very high-risk strategies (that are bound to fail disastrously in the long
run), hoping that his wins will be remembered (as they often are), but the risk he took will soon
be forgotten.

WHAT IS RISK?
Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this
term, what is actually being talked about is volatility. Volatility is nothing but the fluctuation of
the Net Asset Value (price of a unit of a fund). The higher the volatility, the greater the
fluctuations of the NAV. Generally, past volatility is taken as an indicator of future risk and for
the task of evaluating mutual fund; this is an adequate (even if not ideal) approximation.

Defining Mutual fund risk:

Mutual funds face risks based on the investments they hold. For example, a bond fund faces
interest rate risk and income risk. Bond values are inversely related to interest rates. If interest
rates go up, bond values will go down and vice versa. Bond income is also affected by the
change in interest rates. Bond yields are directly related to interest rates falling as interest rates
fall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-
term bond fund.

Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is
at risk that its price will decline due to developments in its industry. A stock fund that invests
across many industries is more sheltered from this risk defined as industry risk.
Following is a glossary of some risks to consider when investing in mutual funds:

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 1. CALL RISK:-

The possibility that falling interest rates will cause a bond issuer to redeem or call its high-
yielding bond before the bond's maturity date.

2. COUNTRY RISK:-

The possibility that political events (a war, national elections), financial problems (rising
inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken a
country's economy and cause investments in that country to decline.

3. CREDIT RISK:

The possibility that a bond issuer will fail to repay interest and principal in a timely manner.
Also called default risk.

4. CURRENCY RISK:-

The possibility that returns could be reduced for Americans investing in foreign securities
because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-
rate risk.

5. INCOME RISK:-

The possibility that a fixed-income fund's dividends will decline as a result of falling overall
interest rates.

6. INDUSTRY RISK:-

The possibility that a group of stocks in a single industry will decline in price due to
developments in that industry.

7. INFLATION RISK:-

The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation-
adjusted returns.

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 8. INTEREST RATE RISK:-

The possibility that a bond fund will decline in value because of an increase in interest rates.

9. MANAGER RISK:-

The possibility that an actively managed mutual fund's investment adviser will fail to execute the
fund's investment strategy effectively resulting in the failure of stated objectives.

10. MARKET RISK:-

The possibility that stock fund or bond fund prices overall will decline over short or even
extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise
and other periods when prices fall.
11. PRINCIPAL RISK:-

The possibility that an investment will go down in value, or "lose money," from the original or
invested amount.

1.6: ADVANTAGES OF MUTUAL FUND:

1. NUMBER OF OPTIONS AVAILABLE:

Mutual funds invest according to the underlying investment objective as specified at the
time of launching a scheme. Mutual fund has equity funds, debt funds, gilt funds & many
others that cater to the different needs of the investor. While equity funds can be as risky as
the stock markets themselves, debt funds offer the kind of security that is aimed for at the
time making investments. The only pertinent factor here is that the fund has to be selected
keeping the risk profile of the investor in mind because the products listed above have
different risks associated with them.

2. Diversification:

Diversification reduces the risk because all stocks don‘t move in the same direction at the
same time. One can achieve this diversification through a mutual fund with far less money
that one can on his own.

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 3. PROFESSIONAL MANAGEMENT:

Mutual fund employ the services of the skilled professionals who have years of experience
to back them up. They use intensive research techniques to analyze each investment option
for the potential of returns along with their risk levels to come up with the figures for the
performance that determine the suitability of any potential investment.

4. POTENTIAL OF RETURNS:

Return‘s in the mutual are generally better than any avenue over a reasonable period of
time. People can pick their investment horizon & stay put in the chosen fund for the
duration.

5. LIQUIDITY:

The investors can withdraw or redeem money at the net asset value related prices in the
open end schemes in the close ended schemes. In the close end schemes, the units can be
transacted at the prevailing market price on a stock exchange. Mutual funds also provide
the facility of direct repurchase at NAV related prices.

6. WELL REGULATED:

The mutual fund industry is very well regulated. All investment has to be accounted for,
decision judiciously taken. SEBI acts as a true watch dog in this case & can impose
penalties on the AMC‘s at fault. The regulations designed to protect the investors interests
are implemented effectively.

7. TRANSPARENCY:

Being under a regulatory framework, mutual funds have to disclose their holdings,
investment pattern & all the information that can be considered as material, before all
investors. This means that investment strategy, outlooks of the markets & scheme related
details are disclosed with reasonable frequency to ensure that transparency exists in the
system.

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 8. CONVENIENT ADMINISTRATION:

Investment in the mutual fund reduces paperwork & helps you avoid many problems such
as bad deliveries, delayed payments & follow up with brokers & companies. Mutual funds
save your time & make investing easy & convenient.

9. TAXATION ON MUTUAL FUNDS:

An Indian mutual fund registered with SEBI, or schemes sponsored by specified public
sector banks/financial institutions & approved by the central government or authorized by
the RBI are tax exempt as per the provisions of section 10(23D) of the income tax act. The
mutual fund will receive all income without any deduction of tax at source under the
provisions of section 196(iv), of the income tax act.

1.7: DISADVANTAGES OF INVESTING THROUGH MUTUAL

FUNDS:

1. NO CONTROL OVER COSTS:

An investor in a mutual fund has no control of the overall costs of investing. The investor pays
investment management fees as long as he remains with the fund, albeit in return for the
professional management and research. Fees are payable even if the value of his investments is
declining. A mutual fund investor also pays fund distribution costs, which he would not incur in
direct investing. However, this shortcoming only means that there is a cost to obtain the mutual
fund services.

2. NO TAILOR-MADE PORTFOLIO:

Investors who invest on their own can build their own portfolios of shares and bonds and other
securities. Investing through fund means he delegates this decision to the fund managers. The
very-high-net-worth individuals or large corporate investors may find this to be a constraint in
achieving their objectives. However, most mutual fund managers help investors overcome this
constraint by offering families of funds- a large number of different schemes- within their own
management company. An investor can choose from different investment plans and constructs a
portfolio to his choice.

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 3. MANAGING A PORTFOLIO OF FUNDS:

Availability of a large number of funds can actually mean too much choice for the investor. He
may again need advice on how to select a fund to achieve his objectives, quite similar to the
situation when he has individual shares or bonds to select.

4. NO CONTROL:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of
somebody else's car.

5. DILUTION:

Mutual funds generally have such small holdings of so many different stocks that insanely great
performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's
total performance.

1.8: MUTUAL FUND FEES AND EXPENSES:

Mutual fund fees and expenses are charges that may be incurred by investors who hold mutual
funds. Running a mutual fund involves costs, including shareholder transaction costs, investment
advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors
in a number of ways.

1. TRANSACTION FEES
I. Purchase Fee:

It is a type of fee that some funds charge their shareholders when they buy shares. Unlike a front-
end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to
defray some of the fund's costs associated with the purchase.

II. Redemption Fee:

It is another type of fee that some funds charge their shareholders when they sell or redeem
shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is
typically used to defray fund costs associated with a shareholder's redemption.
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III. Exchange Fee:

Exchange fee that some funds impose on shareholders if they exchange (transfer) to another fund
within the same fund group or "family of funds."

2. PERIODIC FEES:
I. Management Fee:

Management fees are fees that are paid out of fund assets to the fund's investment adviser for
investment portfolio management, any other management fees payable to the fund's investment
adviser or its affiliates, and administrative fees payable to the investment adviser that are not
included in the "Other Expenses" category. They are also called maintenance fees.

II. Account Fee:

Account fees are fees that some funds separately impose on investors in connection with the
maintenance of their accounts. For example, some funds impose an account maintenance fee on
accounts whose value is less than a certain dollar amount.

3. OTHER OPERATING EXPENSES:

Transaction Costs:
These costs are incurred in the trading of the fund's assets. Funds with a high turnover
ratio or investing in illiquid or exotic markets usually face higher transaction costs. Unlike the
Total Expense Ratio these costs are usually not reported.

4. LOADS:

Definition of a load:
Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale of
shares. A load is a type of Commission (remuneration). Depending on the type of load a mutual
fund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of both. The
different types of loads are outlined below.

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 i. Front-end load:

lso known as Sales Charge, this is a fee paid when shares are purchased. Also known as a "front-
end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce
the amount of your investment. For example, let's say you have Rs.10, 000 and want to invest it
in a mutual fund with a 5% front-end load. The Rs.500 sales load you must pay comes off the
top, and the remaining Rs.9500 will be invested in the fund. According to NASD rules, a front-
end load cannot be higher than 8.5% of your invest.

ii. Back-end load:

Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Also known as a
"back-end load," this fee typically goes to the brokers that sell the fund's shares. The amount of
this type of load will depend on how long the investor holds his or her shares and typically
decreases to zero if the investor holds his or her shares long enough.

iii. Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the fund. Instead a
back-end load may be charged if the shares purchased are sold within a given time frame. The
distinction between level loads and low loads as opposed to back-end loads, is that this time
frame where charges are levied is shorter.

iv. No-load Fund:

As the name implies, this means that the fund does not charge any type of sales load. But, as
outlined above, not every type of shareholder fee is a "sales load." A no-load fund may charge
fees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and account
fees.

1.9: SELECTION PARAMETERS FOR MUTUAL FUND:

 Your objective:

The first point to note before investing in a fund is to find out whether your objective
matches with the scheme. It is necessary, as any conflict would directly affect your prospective

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returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension
plans, children’s plans, sector-specific schemes, etc.

 Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt
schemes, as they are relatively safer. Aggressive investors can go for equity investments.
Investors that are even more aggressive can try schemes that invest in specific industry or
sectors.

 Fund Manager’s and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is imperative
that he manages it well. It is also essential that the fund house you choose has excellent track
record. It also should be professional and maintain high transparency in operations. Look at the
performance of the scheme against relevant market benchmarks and its competitors. Look at the
performance of a longer period, as it will give you how the scheme fared in different market
conditions.

 Cost factor:

Though the AMC fee is regulated, you should look at the expense ratio of the fund before
investing. This is because the money is deducted from your investments. A higher entry load or
exit load also will eat into your returns. A higher expense ratio can be justified only by
superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your
modest returns.
Also, Morningstar rates mutual funds. Each year end, many financial publications list the year’s
best performing mutual funds. Naturally, very eager investors will rush out to purchase shares of
last year's top performers. That's a big mistake. Remember, changing market conditions make it
rare that last year's top performer repeats that ranking for the current year. Mutual fund investors
would be well advised to consider the fund prospectus, the fund manager, and the current market
conditions. Never rely on last year's top performers.

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Types of Returns on Mutual Fund:
There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:
 Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly
all income it receives over the year to fund owners in the form of a distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution. If fund holdings increase in
price but are not sold by the fund manager, the fund's shares increase in price. You can
then sell your mutual fund shares for a profit.
 Funds will also usually give you a choice either to receive a check for distributions or to
reinvest the earnings and get more shares.

1.10: REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:

The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These
regulations make it mandatory for mutual fund to have three structures of sponsor trustee and
asset Management Company. The sponsor of the mutual fund and appoints the trustees. The
trustees are responsible to the investors in mutual fund and appoint the AMC for managing the
investment portfolio. The AMC is the business face of the mutual fund, as it manages all the
affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI.

SEBI REGULATIONS:
 As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual
funds to protect the interest of the investors.
 SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.
 The regulations were fully revised in 1996 and have been amended thereafter from time
to time.
 SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.
 All mutual funds whether promoted by public sector or private sector entities including
those promoted by foreign entities are governed by the same set of Regulations. The
risks associated with the schemes launched by the mutual funds sponsored by these

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 entities are of similar type. There is no distinction in regulatory requirements for these
mutual funds and all are subject to monitoring and inspections by SEBI.
 SEBI Regulations require that at least two thirds of the directors of trustee company or
board of trustees must be independent i.e. they should not be associated with the
sponsors.
 Also, 50% of the directors of AMC must be independent. All mutual funds are required
to be registered with SEBI before they launch any scheme.
 Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in any
scheme and that each scheme is subject to 20 : 25 condition [I.e. minimum 20 investors
per scheme and one investor can hold more than 25% stake in the corpus in that one
scheme].
 Also SEBI has permitted MFs to launch schemes overseas subject various restrictions
and also to launch schemes linked to Real Estate, Options and Futures, Commodities,
etc.

1.11: ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organisation. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.
AMFI is an apex body of all Asset Management Companies (AMC) which has been registered
with
Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional SEBI.
Till date all the AMCs are that have launched mutual fund schemes are its members. It functions
under the supervision and guidelines of its Board of Directors.
Association of and healthy market with ethical lines enhancing and maintaining standards. It
follows the principle of both protecting and promoting the interests of mutual funds as well as
their unit holders.

The Objectives of Association of Mutual Funds in India:

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has
certain defined objectives which juxtaposes the guidelines of its Board of Directors. The
objectives are as follows:

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  This mutual fund association of India maintains high professional and ethical standards in
all areas of operation of the industry.
 It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual
fund and asset management. The agencies who are by any means connected or involved
in the field of capital markets and financial services also involved in this code of conduct
of the association.
 AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.
 Association of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.
 It develops a team of well qualified and trained Agent distributors. It implements a
programed of training and certification for all intermediaries and other engaged in the
mutual fund industry.
 AMFI undertakes all India awareness programme for investors in order to promote proper
understanding of the concept and working of mutual funds.
 At last but not the least association of mutual fund of India also disseminate informations
on Mutual Fund Industry and undertakes studies and research either directly or in
association with other bodies.

AMFI Publications:

AMFI publish mainly two types of bulletin. One is on the monthly basis and the other is
quarterly. These publications are of great support for the investors to get intimation of the
knowhow of their parked money.

1.12: MUTUAL FUNDS IN INDIA:

In 1963, the day the concept of Mutual Fund took birth in India. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988 year saw some new
mutual fund companies, but UTI remained in a monopoly position.

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 The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. People rarely understood, and of course investing was out of question. But yes,
some 24 million shareholders were accustomed with guaranteed high returns by the beginning of
liberalization of the industry in 1992. This good record of UTI became marketing tool for new
entrants. The expectations of investors touched the sky in profitability factor. However, people
were miles away from the preparedness of risks factor after the liberalization.
The net asset value (NAV) of mutual funds in India declined when stock prices started
falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There was rather no choice apart from holding the cash or to further
continue investing in shares. One more thing to be noted, since only closed-end funds were
floated in the market, the investors disinvested by selling at a loss in the secondary market.
The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal,
the losses by disinvestments and of course the lack of transparent rules in the whereabouts
rocked confidence among the investors. Partly owing to a relatively weak stock market
performance, mutual funds have not yet recovered, with funds trading at an average discount of
1020 percent of their net asset value.
The securities and Exchange Board of India (SEBI) came out with comprehensive
regulation in 1993 which defined the structure of Mutual Fund and Asset Management
Companies for the first time.
The supervisory authority adopted a set of measures to create a transparent and
competitive environment in mutual funds. Some of them were like relaxing investment.
Restrictions into the market, introduction of open-ended funds, and paving the gateway
for mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for long-term saving.
The more the variety offered, the quantitative will be investors.
Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the
private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations in
India managing 1, 02,000 crores.
At last to mention, as long as mutual fund companies are performing with lower risks and
higher profitability within a short span of time, more and more people will be inclined to invest
until and unless they are fully educated with the dos and don’ts of mutual funds.
Mutual fund industry has seen a lot of changes in past few years with multinational companies
coming into the country, bringing in their professional expertise in managing funds worldwide.

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In the past few months there has been a consolidation phase going on in the mutual fund industry
in India. Now investors have a wide range of Schemes to choose from depending on their
individual profiles.

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FIG 5:STRCTURE OF THE INDIAN MUTUAL FUND INDUSTRY

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1.13: MUTUAL FUND COMPANIES IN INDIA:
The concept of mutual funds in India dates back to the year 1963. The era between 1963 and
1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under
management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end
of the 80s decade, few other mutual fund companies in India took their position in mutual fund
market.
The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India
Mutual Fund.
The succeeding decade showed a new horizon in Indian mutual fund industry. By the end
of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started
penetrating the fund families. In the same year the first Mutual Fund Regulations came into
existence with re-registering all mutual funds except UTI. The regulations were further given a
revised shape in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which has now
merged with Franklin Templeton. Just after ten years with private sector players penetration, the
total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
Mutual Fund Companies in India:
i. ABN AMRO Mutual Fund,
ii. Birla Sun Life Mutual Fund,
iii. Bank of Baroda Mutual Fund,
iv. HDFC Mutual Fund,
v. HSBC Mutual Fund,
vi. ING Vysya Mutual Fund,
vii. Prudential ICICI Mutual Fund,
viii. State Bank of India Mutual Fund,
ix. Tata Mutual Fund,
x. Unit Trust of India Mutual Fund,
xi. Reliance Mutual Fund,
xii. Standard Chartered Mutual Fund,
xiii. Franklin Templeton India Mutual Fund,
xiv. Morgan Stanley Mutual Fund India,
xv. Escorts Mutual Fund,

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 xvi. Alliance Capital Mutual Fund,
xvii. Benchmark Mutual Fund,
xviii. Can bank Mutual Fund,
xix. Chola Mutual Fund,
xx. LIC Mutual Fund,
xxi. GIC Mutual Fund.

1.14: COMPARISON BETWEEN MUTUAL FUND & OTHER

INVESTMENTS:

Mutual funds offer several advantages over investing in individual stocks. For example,
the transaction costs are divided among all the mutual fund shareholders, which allows for cost-
effective diversification. Investors may also benefit by having a third party (professional fund
managers) apply expertise and dedicate time to manage and research investment options,
although there is dispute over whether professional fund managers can, on average, outperform
simple index funds that mimic public indexes.

Whether actively managed or passively indexed, mutual funds are not immune to risks.
They share the same risks associated with the investments made. If the fund invests primarily in
stocks, it is usually subject to the same ups and downs and risks as the stock market.

SHARE CLASSES:-
Many mutual funds offer more than one class of shares. For example, you may have seen
a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool (or
investment portfolio) of securities and will have the same investment objectives and policies. But
each class will have different shareholder services and/or distribution arrangements with
different fees and expenses.
These differences are supposed to reflect different costs involved in servicing investors in
various classes; for example, one class may be sold through brokers with a front-end load, and
another class may be sold.

INDEX FUNDS VS. ACTIVE MANAGEMENT:-

An index fund maintains investments in companies that are part of major stock (or bond) indices,
such as the S&P 500, while an actively managed fund attempts to outperform a relevant index
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through superior stock-picking techniques. The assets of an index fund are managed to closely
approximate the performance of a particular published index.
Since the composition of an index changes infrequently, an index fund manager makes
fewer trades, on average, than does an active fund manager. For this reason, index funds
generally have lower trading expenses than actively managed funds, and typically incur fewer
short-term capital gains which must be passed on to shareholders.

BONDS FUNDS:-
Bond funds account for 18% of mutual fund assets. Types of bond funds include term
funds, which have a fixed set of time (short-, medium-, or long-term) before they mature.
Municipal bond funds generally have lower returns, but have tax advantages and lower risk.
High-yield bond funds invest in corporate bonds, including high-yield or junk bonds. With the
potential for high yield, these bonds also come with greater risk

MONEY MARKET FUNDS:

Money market funds hold 26% of mutual fund assets in the United States. Money market
funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs),
money market shares are liquid and redeemable at any time. The interest rate quoted by money
market funds is known as the 7 Day SEC Yield.

FUNDS OF FUNDS;-
Funds of funds (FoF) are mutual funds which invest in other underlying mutual funds
(i.e., they are funds comprised of other funds). The funds at the underlying level are typically
funds which an investor can invest in individually. A fund of funds will typically charge a
management fee which is smaller than that of a normal fund because it is considered a fee
charged for asset allocation services.
The fees charged at the underlying fund level do not pass through the statement of
operations, but are usually disclosed in the fund's annual report, prospectus, or statement of
additional information. The fund should be evaluated on the combination of the fund-level
expenses and underlying fund.

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EQUITY FUNDS:-
Equity funds, which consist mainly of stock investments, are the most common type of mutual
fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States.
Often equity funds focus investments on particular strategies and certain types of issuers.

GROWTH VS. VALUE:

Another distinction is made between growth funds, which invest in stocks of companies that
have the potential for large capital gains, and value funds, which concentrate on stocks that are
undervalued. Value stocks have historically produced higher returns; however, financial theory
states this is compensation for their greater risk. Growth funds tend not to pay regular dividends.

Income funds tend to be more conservative investments, with a focus on stocks that pay
dividends. A balanced fund may use a combination of strategies, typically including some level
of investment in bonds, to stay more conservative when it comes to risk, yet aim for some
growth direct to the public with no load but a "12b-1 fee" included in the class's expenses
(sometimes referred to as "Class shares). Still a third class might have a minimum investment of
$10,000,000 and be available only to financial institutions (a so-called "institutional" share
class).

LOAD AND EXPENSES:

A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares
are purchased, taken as a percentage of funds invested. The value of the investment is reduced by
the amount of the load. Some funds have a deferred sales charge or back-end load. In this type of
fund an investor pays no sales charge when purchasing shares, but will pay a commission out of
the proceeds when shares are redeemed depending on how long they are held.

1.15: MUTUAL FUNDS VS. OTHER INVESTMENTS:

i. Company Fixed Deposits versus Mutual Funds:

Fixed deposits are unsecured borrowings by the company accepting the deposit.
Credit rating of the fixed deposit program is an indication of the inherent default risk in
the investment.

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 The moneys of investors in a mutual fund scheme are invested by the AMC in specific
investments under that scheme. These investments are held and managedin-tr us t for the benefit
of scheme’s investors. On the other hand, there is no such direct correlation between a
company’s fixed deposit mobilisation, and the avenues where these resources are deployed.
A corollary of such linkage between mobilisation and investment is that the gains and
losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can
be no certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the
investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is
certain, subject only to the default risk of the borrower.

ii. Both fixed deposits and mutual funds offer liquidity, but subject to some
differences:
The provider of liquidity in the case of fixed deposits is the borrowing company. In
mutual funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in
the case of closed-end schemes).

The basic value at which fixed deposits are enchased is not subject to a market risk.
However, the value at which units of a scheme are redeemed depends on the market. If securities
have gained in value during the period, then the investor can even earn a return that is higher
than what he anticipated when he invested. But he could also end up with a loss.
Early encashment of fixed deposits is always subject to a penalty charged by the
company that accepted the fixed deposit. Mutual fund schemes also have the option of charging a
penalty on “early” redemption of units (through by way of an ‘exit load’) If the NAV has
appreciated adequately, then even after the exit load, the investor could earn a capital gain on his
investment.

iii. Bank Fixed Deposits verses Mutual Fund:

Bank fixed deposits are similar to company fixed deposits. The major difference is that
banks are generally more stringently regulated than companies. They even operate under stricter
requirements regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR).
While the above are causes for comfort, bank deposits too are subject to default risk.
However, given the political and economic impact of bank defaults, the government as well as
Reserve Bank of India (RBI) tries to ensure that banks do not fail.
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 Further, bank deposits up to Rs 100,000 are protected by the Deposit Insurance and
Credit Guarantee Corporation (DICGC), so long as the bank has paid the required insurance
premium of 5 paisa per annum for every Rs 100 of deposits. The monetary ceiling of Rs 100,000
is for all the deposits in all the branches of a bank, held by the depositor in the same capacity and
right.

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of Assets Not Transparent Transparent

Interest calculation Quarterly Every Month

i.e. 3rd 6th 9th & 12th.
Guarantor Guarantor is needed. Guarantor is not needed.

Account Needed Not Needed.

iv. Bonds and Debentures versus Mutual Funds:

As in the case of fixed deposits, credit rating of the bond / debenture is an indication of
the inherent default risk in the investment. However, unlike FD, bonds and debentures are
transferable securities.
While an investor may have an early encashment option from the issuer (for instance
through a “put” option), generally liquidity is through a listing in the market.

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Implications of this are:
 If the security does not get traded in the market, then the liquidity remains on paper. In
this respect, an open-end scheme offering continuous sale / re-purchase option is
superior.
 The value that the investor would realise in an early exit is subject to market risk. The
investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme.
 It is possible for a professional investor to earn attractive returns by directly investing in
the debt market, and actively managing the positions. Given the market realities in India,
it is difficult for most investors to actively manage their debt portfolio. Further, at times,
it is difficult to execute trades in the debt market even when the transaction size is as high
as Rs 1 crore. In this respect, investment in a debt scheme would be beneficial.
 Debt securities could be backed by a hypothecation or mortgage of identified fixed and /
or current assets (secured bonds / debentures). In such a case, if there is a default, the
identified assets become available for meeting redemption requirements. An unsecured
bond / debenture is for all practical purposes like a fixed deposit, as far as access to assets
is concerned. The investments of a mutual fund scheme are held by a custodian for the
benefit of investors in the scheme. Thus, the securities that relate to a scheme are ring-
fenced for the benefit of its investors.

v. Advantages of Mutual Funds over Stocks:

 A mutual fund offers a great deal of diversification starting with the very first dollar
invested, because a mutual fund may own tens or hundreds of different securities. This
diversification helps reduce the risk of loss because even if any one holding tanks, the
overall value doesn't drop by much. If you're buying individual stocks, you can't get
much diversity unless you have $10K or so.
 Small sums of money get you much further in mutual funds than in stocks. First, you can
set up an automatic investment plan with many fund companies that lets you put in as
little as $50 per month. Second, the commissions for stock purchases will be higher than
the cost of buying no-load fund (Of course, the fund's various expenses like commissions
are already taken out of the NAV). Smaller sized purchases of stocks will have relatively
high commissions on a percentage basis, although with the $10 trade becoming common,
this is a bit less of a concern than it once was.

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  You can exit a fund without getting caught on the bid/ask spread.
 Funds provide a cheap and easy method for reinvesting dividends.
 Last but most certainly not least, when you buy a fund you're in essence hiring a
professional to manage your money for you. That professional is (presumably) monitor in
the economy and the markets to adjust the fund's holdings appropriately.

vi. Advantages of Stock over Mutual Funds:

 The opposite of the diversification issue: If you own just one stock and it doubles, you
are up 100%. If a mutual fund owns 50 stocks and one doubles, it is up 2%. On the other
hand, if you own just one stock and it drops in half, you are down 50% but the mutual
fund is down 1%. Cuts both ways.
 If you hold your stocks several years, you aren't nicked a 1% or so management fee every
year (although some brokerage firms charge if there aren't enough trades).
 You can take your profits when you want to and won't inadvertently buy a tax liability.
(This refers to the common practice among funds of distributing capital gains around
November or December of each year. See the article elsewhere in this FAQ for more
details.)You can do a covered write option strategy. (See the article on options on stocks
for more details.)
 You can structure your portfolio differently from any existing mutual fund portfolio.
(Although with the current universe of funds I'm not certain what could possibly be
missing out there!)
 You can buy smaller cap stocks which aren't suitable for mutual funds to invest in.
 You have a potential profit opportunity by shorting stocks. (You cannot, in general, short
mutual funds.)
 The argument is offered that the funds have a "herd" mentality and they all end up
owning the same stocks. You may be able to pick stocks better.

vii. Life Insurance versus Mutual Fund:

Life insurance is a hedge against risk – and not really an investment option. So, it
would be wrong to compare life insurance against any other financial product.
Occasionally on account of market inefficiencies or miss-pricing of products in
India, life insurance products have offered a return that is higher than a comparable

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 “safe” fixed return security – thus, you are effectively paid for getting insured! Such
opportunities are not sustainable in the long run.

RELATIVE TO OTHER COMPARABLE FINANCIAL PRODUCTS

Schemes Return Safety Volatility Liquidity

convenience
Equity High moderate Low High High
Fi bonds Moderate high High Moderate Moderate
Corporate Moderate low Moderate Moderate Low
debentures
Company deposits Moderate low Low low
Moderate
Bank deposits Low High Low Low
High
PPF Moderate high High Low Moderate
Life insurance Low Moderate High Low Low
Gold Moderate low High Moderate Moderate
Real estate High Moderate High Low
Mutual funds High High Moderate High
High

Schemes Investment objective Risk tolerance Investment horizon

Equity term Capital association High Long
Fi bonds Income Low Medium to long term
Corporate debenture Outcome High moderate Medium to long term
Company deposits Income Moderate low Medium
Bank deposits Income Generally Flexible all terms
PPF Income Low Long
Life insurance Risk cover Low Long
Gold Inflation hedge Low Long
Real estate Inflation hedge Low long

How to invest in Mutual funds?

Step one – Identify your investment needs
Your financial goals will vary, based on your age, lifestyle, financial independence, family
commitments, level of income & expenses among many other factors. Therefore the first step
is to assess your needs. Begin by asking yourself these questions:

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 1. What are my investment objectives & need?

Probable answers: I need regular income or need to buy a home or finance a wedding or
educate my children or a combination of all these needs.\
2. How much risk i am willing to take?

Probable answer: I can take a minimum amount of risk or I am willing to accept the fact that
my investment value may fluctuate or that there may be a short term loss in order to achieve
a long term potential gain.

3. What are my cash flow requirements?

Probable answer: I need a regular cash flow or I need a lump sum amount to meet a specific
need after a certain period or I don‘t require a current cash flow but I want to build my assets
for the future.

By going through such an exercise, you will know what you want out of your investment &
can set the foundation for a sound mutual fund investment strategy.

Step Two- Choose the right Mutual Fund.

Once you have a clear strategy in mind, you now have to choose which Mutual fund &
scheme you want to invest in. The offer document of the scheme tells you its objectives &
provides supplementary details like the track record of other schemes managed by the same
fund manager. Some factors to evaluate before choosing a particular Mutual fund are:

 The track record of performance over the last few years in relation to the appropriate
yardstick & similar funds in the same category.

 How well the Mutual fund is organized to provide efficient, prompt & personalized
service.

Step Three – Select the ideal mix of schemes:

Investing in just one Mutual fund scheme may not meet all your investment needs. You may
consider investing in a combination of schemes that satisfy your needs.

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Investor may decide on the basis of growth & risk levels which may be categorized as follows

 Aggressive plans

 Moderate plans

 Defensive plans

Factors considered in this may be

 Growth schemes

 Income schemes

 Balanced schemes

 Money market schemes

Step four –Investment regularly

For most of us, the approach that works best is to invest a fixed amount at specific intervals, say
every month. By investing a fixed sum each month, you get fewer units when the price is high &
more units wen the price is low, Thus bringing down your average cost per unit. This is called
rupee cost averaging & is a disciplined investment strategy followed by investors all over the
world. With many open-ended schemes offering systematic investment plans, this regular
investing habit is made easy for you.

Step Five- Keep your taxes in mind

As per the current tax laws, Dividend/income distribution made by Mutual Funds is exempt from
income tax in the hands of investor. However, in case of debt schemes dividend/income
distribution is subject to dividend distribution tax. Further there are other benefits available for
investment in Mutual Funds under the provisions of the prevailing tax laws. You may therefore

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consult your tax advisor or Chartered Accountant for specific advice to achieve maximum tax
efficiency by investing in mutual funds.

Step Six –Start early

It is desirable to start investing early & stick to a regular investment plan. If you start now, you
will make more than if you wait 7 invest later. The power of compounding lets you earn
income on income & your money multiplies at compounded rate of return.

Step Seven – The final step

All you need to do now is to get in touch with a Mutual Fund or your advisor & start
investing. Reap the rewards in the years to come. Mutual Funds are suitable for every kind of
investor whether starting a career or retiring, conservative or risk taking, growth oriented or
income seeking.

1.16: QUANTITATIVE ANALYSIS FOR MUTUAL FUNDS:

Beta
Beta, also known as the "beta coefficient," is a measure of the volatility, or systematic risk, of a
security or a portfolio in comparison to the market as a whole. Beta is calculated
using regression analysis, and you can think of it as the tendency of an investment's return to
respond to swings in the market. By definition, the market has a beta of 1.0. Individual security
and portfolio values are measured according to how they deviate from the market.

A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta
of less than 1.0 indicates that the investment will be less volatile than the market, and,
correspondingly, a beta of more than 1.0 indicates that the investment's price will be more
volatile than the market

Standard Deviation
Standard deviation measures the dispersion of data from its mean. In plain English, the more that
data is spread apart, the higher the difference is from the norm. In finance, standard deviation is
applied to the annual rate of return of an investment to measure its volatility (risk). A volatile
stock would have a high standard deviation. With mutual funds, the standard deviation tells us

41 | P a g e
how much the return on a fund is deviating from the expected returns based on its historical
performance.

Sharpe Ratio
Developed by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted
performance. It is calculated by subtracting the risk-free rate of return (U.S. Treasury Bond)
from the rate of return for an investment and dividing the result by the investment's standard
deviation of its return.

The Sharpe ratio tells investors whether an investment's returns are due to smart
investment decisions or the result of excess risk. This measurement is very useful because
although one portfolio or security can reap higher returns than its peers, it is only a good
investment if those higher returns do not come with too much additional risk. The greater an
investment's Sharpe ratio, the better its risk-adjusted performance.

Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio

return

Portfolio Turnover

Portfolio turnover is a measure of how frequently assets within a fund are bought and sold by the
managers. Portfolio turnover is calculated by taking either the total amount of new securities
purchased or the amount of securities sold - whichever is less - over a particular period, divided
by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-
month time period.

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CHAPTER 2: COMPANY PROFILE

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2.1: OVERVIEW:

Barakah Finserve LLP is promoted by a team of professionals who have spent credible years
with leading Institutions in Retail Banking, Investment Banking and Private Wealth Management

Barakah Finserve LLP is empanelled with leading Asset Management Companies, PMS Service
Providers, Real estate Firms, Chartered Accountancy and Law firms.

We also work with service providers on your behalf and provide you access to the best in class
solutions across the market without any bias. The practice covers Wealth Management, Property
Management, and Taxation & Legal Assistance.

2.2: PHILOSOPHY:

Barakah Finserve LLP is a financial services company that recognizes the diverse and complex
needs of its clients to provide a comprehensive solution. We work with individuals, families,
businesses and institutions to provide solutions that help build, preserve and manage wealth.

Our mission is to provide personalized financial services by adhering to the highest ethical
standards. We help our clients, organize, protect, grow, and preserve their wealth by
utilizing advanced financial strategies.

We wish to become the preferred financial services firm and have a life changing impact on the
relationships we manage.

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2.3: TEAM BARAKAH FINSERVE

Syed Younus Kabir

Co-Founder & Managing Partner

Syed Younus Kabir has over 14 years’ experience in the Financial Services Industry in India
with a profound understanding of Wealth Management and the dynamics of Financial Markets.
Prior to founding Barakah, Kabir has worked with Standard Chartered Bank, responsible for
growing and managing the Wealth Management Business in the important centres in Southern
India. Prior to SCB he has worked with IL&FS Investsmart, responsible for the Primary Markets
and Channel Sales Business. He started his career with Global Trust Bank and did his internship
at JM Morgan Stanley. Kabir in his professional career has worked in multiple locations in India
with a proven track record in leading and developing high performing teams. He has done his
MBA, ICWA and holds a Diploma in Islamic Finance from CIMA, UK.

Anees Ahmed

Co-Founder & Managing Partner

Anees Ahmed has over 18 years’ experience in the Retail Banking, Wealth Management &
Financial Research. He has worked as a Senior Relationship Manager, Standard Chartered Bank,
Bangalore & Centre Manager- NRI Services, Standard Chartered Bank, Hyderabad. He was
responsible for growing and managing the NRI Business. Prior to SCB he has worked with IDBI
Bank and was responsible for Branch Sales & Operations. Anees started his career with SIS
Infotech as a Research Associate. He has worked in different geographies in India and has an
excellent track record in Client Relationships. He has done his MBA.

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2.4: OUR APPROACH

To master the discipline of any art, you need to master the art of discipline. This belief is deeply
embedded in our thought process. At Barakah Finserve LLP, we aim to combine an
understanding of your priorities with a systematic, step-by-step process. We start by spending
time getting to know you and your needs. And we maintain this kind of personal attention
throughout all the steps which follow

FIG 6: SYSTEMATIC PROCESS

Need Analysis: A careful evaluation of your needs and help you define your objectives

Risk Profiling: Helps us assess and understand your risk appetite

Discussion: Based on the objectives and risk profiling, suitable products are discussed

Execution: Implementation basis customer instruction in a seamless manner

Reporting: Regular update to keep you informed on the performance of the holdings

Monitoring & Review: Periodic evaluation of the holdings in line with the set objectives

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2.5: WHAT DO WE DO?

2.5.1: Retail Wealth Management:

Retail Wealth Management: At Barakah Finserve LLP we understand that your financial needs
require special attention. In order to help you on your wealth journey, we offer you a range of
carefully evaluated investment products. We work with you to plan for your short, medium and
long term goals, be it building a corpus for buying a house, planning for kids’ education or
retirement planning.

We begin with understanding your risk profile and investment needs, basis which investment
goals can be set and appropriate products can be chosen.We offer the following suite of
investment solutions across all the major asset classes

 EQUITY:
Investments in equity through Mutual Funds, IPOs.
 SHARIAH COMPLIANT MUTUAL FUNDS:

Equity funds which invests in a diversified equity portfolio based on principles of

Shariah.

 FIXED INCOME:

Investments in Fixed Income through Bonds, Corporate Fixed Deposits, Debt Funds.

 GOLD:
Investment in Gold through Mutual Funds and ETFs.
 GENERAL INSURANCE :
Covering Motor, Travel, Health and Home offered through our General Insurance
Partner.
 LIFE INSURANCE :
Life Insurance through Term Plans offered by our Life Insurance Partner.

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2.5.2: Private Wealth Management:

Private Wealth Management: About fully understands you and your family's specific goals and
vision by utilizing the right strategy, resources and support. It begins with a thorough
understanding of your situation and objectives and continues with thoughtful recommendations.
As external environment or personal circumstances change, effective wealth planning is
consistently continued through meticulous management, the highest standards of service, and
proactive counsel in the following areas:

 CAPITAL GROWTH:

Plan to achieve capital growth through investments into suitable Equity Based Mutual Funds
whose objective is to generate long term capital appreciation by investing in equity and equity
related securities. We help you make informed decisions.

 CAPITAL PRESERVATION:

Plan to preserve your capital through investments into suitable Debt Funds and other Fixed
Income instruments that seek to provide reasonable returns, commensurate with low risk while
providing a high level of liquidity. We help you to make informed decisions.

 INCOME GENERATION:

Seek to generate periodic income through investments into suitable Mutual Funds and other
Fixed Income instruments whose objective is to provide reasonable and regular income along
with possible capital appreciation. We assist you make informed decisions.

 LIQUIDITY MANAGEMENT:

Manage your short term Liquidity requirements through investments into suitable Liquid Funds
whose objective is to generate reasonable returns along with high liquidity and safety by
investing in a portfolio of money market and other short term debt instruments. We assist you
make informed decisions.

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  RISK MANAGEMENT:

Help you identify potential risk in advance, analyzing them and taking precautionary steps to
reduce the risk. We help cover Life, Health, Home and Travel through suitable plans.

 TAX PLANNING:

Help you align your financial goals with efficient tax planning. Tax Planning involves planning
in order to avail exemptions, deductions and rebates provided in Act.

In addition to Mutual funds, Bonds and other traditional products, we also offer alternate
investment avenues of PMS, Real Estate Funds, Private Placements with specific views on the
markets for large investors.

2.5.3: Family Office

Family Office: The Family Office proposition of Barakah goes much beyond wealth
management. It provides solution for building, preserving and transferring family wealth and
legacy. We offer an extensive range of resources that few firms can match. Recognized as
innovative since our inception, we put a lot of thought into integrating our unique capabilities in
a way that makes sense for each client, and continually expand our services to meet clients'
future requirements

FIG 7: FAMILY OFFICE

49 | P a g e
We also work with service providers on your behalf and provide you access to the best in class
solutions across the market without any bias. The practice covers

 WEALTH MANAGEMENT:

Helps affluent families address the complex challenges of managing significant wealth. By
providing an exceptional level of service and access to comprehensive capabilities, we can help
you preserve and grow your financial capital.

 PROPERTY MANAGEMENT

Assist you to effectively manage your portfolio of commercial & residential properties. We
provide Fixed Assets reporting, property search, rental management and many more customized
services to our clients. Currently the service is limited to Hyderabad, India.

 TAXATION AND LEGAL

We would provide assistance to you in the area of Personal Tax Planning and our association
with the leading Chartered Accountant Firms would give you access to the professional advice
and consultancy services. With our network of lawyers across specialties, you have access to
legal services on various matters ranging from real estate to will formation.

 ADMINISTRATIVE SERVICES

We assist you with your day to day requirements. Be it an event to be organized or a ticket to be
booked, you can count on us to get your small but important things to be accomplished.

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 CHAPTER 3

RESEARCH METHODOLOGY

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Research as a care full investigation or enquiry especially through search for a new facts in any

branch of knowledge” Research is an academic activity and such as the term should be used in

technical sense. The manipulation of things , concepts or symbols for the purpose of

generalizing to extend ,correct or verify knowledge ,whether that knowledge through objective.

3.1: ANALYTICAL RESERCH:

In this project work, analytical research is used. In this project has to use facts or information

.Already used available, and analyze these to make a critical evolution of the material.

3.2: METHODS OF DATA COLLECTION:

In this project work primary and secondary data sources of data has been used.

Primary data: Primary data collect through observation, or through direct communication or

doing experiments.

Secondary data: Secondary data means already available through books, journals, magazines,

newspaper.

ANALYSIS: For the proper analysis of data Quantitative Technique such as percentage method

was used.

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 CHAPTER 4
DATA ANALYSIS AND
INTERPRETATION

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Q1: YOUR AGE
o 20-25
o 25-30
o 30-35
o 35-40
o 40-45
o 45-50
o 50 ABOVE

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Q2: YOU BELONG TO WHICH ONE OF THE FOLLOWING CATEGORY:
o Govt. Employee Professional
o Pvt. Firm Employee
o Self Employed
o Business Person
o Student
o Professional
o housewife
o film industry, cinematographer

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Q3: YOUR ANNUAL INCOME IS IN THE RANGE OF:
o Below Rs. 1 Lakh
o Between 1 Lakh to 2 Lakh
o Between 2 Lakh to 3 Lakh
o Between 3 Lakh to 4 Lakh
o Between 4 Lakh to 5 Lakh
o Above Rs. 5 Lakh
o 0THERS

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Q4: WHERE DO YOU INVEST YOUR SAVINGS?
o Savings Bank
o Fixed Deposit
o Shares/Debentures
o Gold/Silver
o Postal savings
o Real Estate
o Mutual Funds
o Insurance
o Others

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Q5: WHAT IS THE PERCENTAGE OF SAVINGS FROM YOUR TOTAL INCOME?
o 25 %
o 50 %
o 75 %
o others

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Q6: WHAT ARE THE FACTORS TO WHICH YOU GIVE PRIORITY WHEN YOU
INVEST?
o Safety
o High Return
o Liquidity
o Less Risk
o Marketability
o OTHERS

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Q7: YOU INVEST IN THE FINANCIAL INSTRUMENTS / SECURITIES WHICH
GIVE:
o High Risk / High Return
o Low Risk /Low return
o Low Risk/ High Return
o OTHERS

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Q8: DO YOU KNOW ABOUT MUTUAL FUNDS?
o Yes
o No

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Q9: ARE YOU AN INVESTOR IN MUTUAL FUNDS ?
o Yes
o No.

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Q10: HOW IS YOUR INVEST PATTERN:
o Monthly (SIP)
o Once in Six Months
o Once in a year
o Very Rare

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Q11: YOU HAVE INVESTED IN WHICH TYPE OF MUTUAL FUND SCHEME
o Equity fund
o Debt funds
o Hybrid Funds
o OTHERS
o NONE

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Q12: SINCE HOW MANY YEARS YOU ARE INVESTING IN MUTUAL FUND
SCHEMES
o One year
o Two Years
o Three Years
o Four Years
o Five Years
o Six years
o Seven Years

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Q13: YOU INVEST IN MUTUAL FUND SCHEMES BECAUSE:
o It is a good investment instrument
o Its better to invest in Mutual funds rather than investing directly in shares
o They give assured and consistent return
o They provide high return with low risk.
o Less calculation is required before investing when compared to share market.
o Very simple to invest & monitor fund performance on a regular basis
o Mutual Funds provide the benefit of cheap access to expensive stocks
o Mutual funds diversify the risk of the investor by investing in a basket of assets
o Professional fund managers manage them with in-depth research inputs from investment
analysts.

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Q14: WHAT ADVANTAGES DO YOU FIND WHEN YOU INVEST IN MUTUAL
FUNDS? GIVE PRIORITY
o Professional management
o Liquidity
o Well regulated
o Diversification
o Return potential low cost
o Transparency
o Flexibility
o Choice of schemes
o Tax benefits
o Simplicity
o Economic of scale

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Q15: WHERE DO YOU GATHER INFORMATION ABOUT THE PERFORMANCE OF
DIFFERENT MUTUAL FUND SCHEMES?
o Financial Institutions
o Brokers
o Financial Consultants
o TV Channels
o Magazines
o Internet

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Q16: YOU HAVE NOT INVESTED IN MUTUAL FUNDS BECAUSE:
o It’s not a lucrative investment instrument
o No satisfactory return on investment when compared to other investment instruments.
o No safety for funds invested
o Risky investment instrument
o No / Less Liquidity
o No knowledge about how to invest
o No knowledge about where to invest / investment centers
o No Mutual Fund investors’ education & service center
o It is related to share market, so it is very risky and the returns are not guaranteed.

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 CHAPTER- 5
SUMMARY OF FINDINGS

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FINDINGS

 Many of the investors are aware of mutual funds but most of their perception is not
positive due to lack of information about the mutual fund schemes.
 Investors are mainly concerned with the risk factors of mutual funds.
 The investors who have invested in mutual funds mainly go for it because of liquidity &
tax exemption.
 There are numerous schemes of mutual funds about which common man is not aware of.
 Most of the respondents don‘t have proper knowledge about the mutual funds and that is
why probably they don‘t invest in mutual fund.
 Average savings of the people vary between 35% & 40%. This no doubt a good figure to
take in account.
 Most of the respondents consider bank deposit as investment vehicle. As it is the safest
option for them and they don‘t have clear cut idea about the difference between the
savings and investment.

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 CHAPTER-6
SUGGESTION &
CONCLUSION

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6.1: SUGGESTIONS:

After a thorough study and analysis of the data and information, the following are the few
recommendations and suggestions, if implemented , would definitely benefit the financial market
in India, which is in its booming stage, in the short run and in the long run as well.
Recommendations and suggestions are normally given when there are some problems or
difficulties lying in the market. Here in this research report recommendations and suggestions are
totally based on the facts, reactions, attitudes, perceptions, and many other things of the
respondents which were received from them during research work. The recommendation part of
this research work has three parts only, which can push the mutual fund market in India to a
higher level.

Awareness:
Awareness of mutual fund products must be increased in the Bangalore city. The awareness can
be enhanced in the following ways---

 Conference or seminars on ―mutual funds‖ can be conducted on regular basis. This will
no doubt increase the awareness of mutual fund in the minds of the investors.
 All the companies must join hands and work together for this.

Customer education:
As the awareness of mutual funds is still lacking in this market, companies should give focus on
customer education‖. For this purpose again the conference and seminars can be the best way
towards educating the customers. Again free training programme to the agents can be fruitful.

Government intermediation:
Government must also work together with the mutual fund companies in promoting the concept
of mutual fund in India.

Confidence building activities:

People in this city are not confident in investing their money in mutual funds. Hence there is a
need to do something which will build the confidence in the minds of the investors.

73 | P a g e
Hence the confidence building activities must be carried out by the mutual fund companies.
Because most of the people in India think that investing in mutual funds is a very risky affair. In
the following ways the confidence can be increased in the minds of the people in India.
 The present performance of the mutual funds is very good compared with other
investment. And the companies should cash in on this opportunity. The performance of
the mutual funds can be published widely.
 Other newspapers and magazines, journals. This will no doubt induce the investors towards
investing in mutual funds.
 Case study of the investors who have been benefited in investing in mutual funds can be
published in the newspapers, magazines and journals.
 As selling of financial products requires well trained people, the companies must provide
proper training to the agents and financial planners. For this training institute must be
opened in this township.
 Continuous brand building activities must be carried out by the companies. For this
purpose companies should initiate some sort of promotional activities like, ads in
newspapers, magazines, journals.
 Educational institutes must start some professional courses on mutual funds and other
finance specialized courses. This will create some sort of awareness about the mutual
funds.
 Mutual fund companies must tie up with other financial institute like banks, post office
for reaching to the mass people. Because these financial institutes have tremendous reach
to the mass people in our country. As a result mutual fund companies can have easy
access to the common people. The companies must go in for this kind of strategic alliance
with other companies as well. Because strategic alliance not only benefit the companies
but help in developing the market also.
 For opening of new savings bank account, certain units of mutual funds of a company
(strategic alliance company) can be given at free of cost to the account holder. This will
no doubt make the people more familiar with the concept of mutual funds.
 On buying of one or some life insurance policies, again certain units of mutual fund can be given
at free of cost
 Again each car loan or other kind loan of a certain amount will get the loan taker certain units of
mutual funds absolutely free of cost.

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6.2: CONCLUSION

We can infer from the analysis that the concept of mutual fund in India is still in its growing
phase. With the growing importance of mutual fund in other areas in the country, this place is
witnessing the same rate of growth in mutual funds. Apart from these facts the following are
some other important facts which can easily be inferred from the paper.
 Huge opportunities of Mutual funds exist in the India. In short the market in this city is a growing
market
 As because many companies exist in this market, competition is cut to throat.
 Mindsets of the investors are not towards mutual funds. They still think of investing in
traditional investment alternatives. Customers are not properly educated about the mutual
funds.
 Few private sectors banks like ICICI, HDFC, UTI, ING VYSYA etc. sell mutual funds through
their branches only.
 Specialized agents of mutual funds are rarely seen. Financial advisors are not seen there who can
educate the investors.
 Posters, banners or other promotional activities are rarely seen in this market.
 Mutual fund companies do not have aggressive strategies.
 Insurance products are and can be the main competitors of mutual funds.
 Mutual fund investors are confined to the upper-middle and upper social class in this market.
Upper-lower class and lower-upper class people are still untouched.
 More than half of the respondents have wrong perception about the mutual funds. They feel
mutual funds are very risky investment alternative
 Most of the respondents are satisfied with their current return from their investment. Most
of the respondents neither do not want to take risk in investing their money in mutual
funds.

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BIBLIOGRAPHY

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Bibliography:

www.google.co.in

http://www.mutualfundsindia.com

www.utimf.com

www.moneycontrol.com

www.indiafund.net

www.assocham.org

www.amfindia.com

www.moneycontrol.com

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APPENDIX:

Creating awareness on mutual funds

1. Your age
o 20-25
o 25-30
o 30-35
o 35-40
o 40-45
o 45-50
o 50 above

2. You belong to which one of the following category.

o government employee
o professional
o pvt.firm employee
o self employed
o business person
o Other:

3. your annual income is in the range of

o below 1lakh
o between 1 lakh to 2 lakh
o between 2 lakh to 3 lakh
o between 3 lakh to 4 lakh
o between 4 lakh to 5 lakh
o above 5 lakhs
o Other:

4. where do you invest your savings

o savings banks
o fixed deposits
o shares
o debentures

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o gold sliver
o postal savings
o real estate
o mutual funds
o insurance
o Other:

5. What is the percentage of savings from your total income ?

o <=25%
o <=50%
o <=75%
o Other:

6. What are the factors to which you give priority when you invest
o safety
o high return
o liquidity
o less risk
o marketability
o Other:

7. You invest in the financial instruments / securities which give:

o high risk/high return
o low risk/low return
o low risk/ high return
o Other:

8. Do you know about Mutual Funds? Mark only one oval.

o Yes
o No
o Maybe

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9. Are you an investor in Mutual Funds ?
o Yes
o No

10. how is your invest pattern monthly sip

o once in six months
o once in a year
o very rare
o Other:

11. you have invested in which type of mutual fund scheme

o equity fund
o debt fund
o hybrid fund
o Other:

12. Since how many years you are investing in Mutual Fund Schemes
o 1
o 2
o 3
o 4
o 5
o 6
o 7

13. You invest in Mutual Fund Schemes because:

o It is a good investment instrument
o Its better to invest in Mutual funds rather than investing directly in shares
o They give assured and consistent return
o They provide high return with low risk.
o Less calculation is required before investing when compared to share market.
o Very simple to invest & monitor fund performance on a regular basis
80 | P a g e
 o Mutual Funds provide the benefit of cheap access to expensive stocks
o Mutual funds diversify the risk of the investor by investing in a basket of assets
o Professional fund managers manage them with in-depth research inputs from investmen
t analysts.

14. What advantages do you find when you invest in Mutual Funds? Give Priority
o Professional Management
o Liquidity Well regulated
o Diversification
o Return Potential
o Low cost Transparency
o Flexibility
o Choice of schemes
o Tax benefits
o Simplicity
o Economies of scale

15. Where do you gather information about the performance of different mutual fund schems
s?
o Financial Institutions
o Magazines
o Brokers
o Financial Consultants
o TV Channels
o Internet

16. You have not invested in mutual funds because:

o Its not a lucrative investment instrument
o No satisfactory return on investment when compared to other investment instruments.
o No safety for funds invested
o Risky investment instrument
o No / Less Liquidity
o No knowledge about how to invest

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o No knowledge about where to invest / investment centers
o No Mutual Fund investors’ education & service center
o It is related to share market, so it is very risky and the returns are not guaranteed.

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