1

“ A DISSERTATION ON MUTUAL FUND AND

INVESTORS BEHAVIOR ”

A DISSERTATION REPORT
SUBMITTED IN THE PARTIAL FULFILLMENT OF THE THE
REQUIREMENTS OF ARKA JAIN UNIVERSITY

For The Award Of The Degree Of

BACHELOR OF BUSINESS ADMINISTRATION
For The Session 2020-2023

Name – SAGAR JENA

University Enrollment Number- AJU/200889

FACULTY MENTOR Name - ATUL PATHAK Designation - ASST. PROF.

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CERTIFICATE OF APPROVAL

This Dissertation Report Of ‘SAGAR JENA’ Titled ‘A DISSERTATION ON MUTUAL

FUND AND INVESTORS BEHAVIOR’ is approved in quality and form and has been found
to be fit for the Partial Fulfillment of the Requirements of
ARKA JAIN UNIVERSITY for the award of the degree of Bachelor of Business
Administration.

Approval of the Programme Coordinator,

Dept. of BBA

Approval of the Dean, School Of Commerce and Management,

ARKA JAIN University

Approval of the Examiner

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CERTIFICATE FROM THE FACULTY

MENTOR

This is to certify that So SAGAR JENA, AJU/200889a student of BBA (2020-2023) has
undertaken the ‘A DISSERTATION ON MUTUAL FUND AND INVESTORS
BEHAVIOR’ for the partial fulfillment of the requirements of ARKA JAIN UNIVERSITY for
the award of the degree of Bachelor of Business Administration, under my supervision.

To the best of my knowledge, this project is the record of authentic work carried out during the
academic year (2020-2023) and has not been submitted anywhere else for the award of any
Certificate/Degree/Diploma, etc.

Signature of the Faculty Mentor

Name of the Faculty Mentor
Designation of the Faculty Mentor
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DECLARATION BY THE STUDENT

I SAGAR JENA, hereby declare that the project titled ‘‘A DISSERTATION ON MUTUAL
FUND AND INVESTORS BEHAVIOR’, has been carried out by me during my ‘SUMMER
INTERNSHIP’ and is hereby submitted in the partial fulfillment of the requirements of the
ARKA JAIN UNIVERSITY for the award of the degree of Bachelor of Business Administration.

To the best of my knowledge, the project undertaken has been carried out by me and is my own
work. The contents of this report are original and this report has been submitted to ARKA JAIN
UNIVERSITY, Jamshedpur and it has not been submitted elsewhere for the award of any
Certificate/Diploma/degree, etc.

Signature of the student

Name of the Student – SAGAR JENA
University Enrolment No – AJU/200889 B.B.A. – 2020-2023.
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ACKNOWLEDGEMENT

I take this opportunity to thank my faculty mentor Atul Pathak, Assistant Professor, ARKA JAIN
UNIVERSITY, for her valuable guidance, closely supervising this work with helpful
suggestions, which helped me to complete the report properly and present it.

More importantly, her valuable advice and support helped me to put some creative efforts into
my project. She has really been an inspiration and driver for me and has constantly enriched my
raw ideas with her vast knowledge and experience.

Specifically, I would also give my special thanks to my parents whose blessings and love
enabled me to complete this work properly as well.

Name of the student – SAGAR JENA

University Enrolment No - AJU/200889
B.B.A. – 2020 – 2023.
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TABLE OF CONTENTS

Executive Summary…………………………………….………………9

Introduction..……………………………………….…….……………10

Literature Review…………………………………….….…………….17

Project Objective………………………………………….………...…19

Research Methodology……………………………….…….………….20

History of Mutual Fund...……………………………….……..…...….21

Major Mutual Funds in India…………………………………..……..26

Asset Management Company…………………………...……………..35

Investment Plans………………………………………………………..42

Net Asset Value………………………………………………………….52

Mutual Fund Performance………………………………...…………..55

Analysis Of Questionnaire…………………………………...………...63

Conclusion……..………………..............................................................65

Limitations of the study…………………………………………….......66

Suggestions………………………………………………..…….............67

Reference ……………………………………………..……..……….....69
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EXECUTIVE SUMMARY

The mutual fund industry is still in growth stage and retail investors have not
really warmed up to the idea of investing in the stock market owing to the
volatility which jeopardizes the continuous above average returns starting
from a very short period which a retail customer wants & also there is a
plethora of choices which as many as 35 AMCs in India & every one with
almost all types of funds. In the debt market people still feel comfortable
accepting a lower post tax return from bank FDs, post office savings &
bonds rather than going for a debt fund which indicates a higher yield. This
report talks about classification of mutual funds schemes according to
different objectives & later on performance evaluation is done using NAV
and finally a questionnaire has been prepared to know the consumer
behavior towards mutual funds.
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INTRODUCTION

Mutual fund is a pool of money collected from investors and is invested

according to certain investment options. A mutual fund is a trust that pools
the savings of a no. of investors who share a common financial goal. A
mutual fund is created when investors put their money together. It is,
therefore, a pool of investor’s funds. The money thus collected is then
invested in capital market instruments such as shares, debentures and other
securities. The income earned through these investments and the capital
appreciation realized are shared by its unit holders in proportion to the no. of
units owned by them. The most important characteristics of a fund are that
the contributors and the beneficiaries of the fund are the same class of
people, namely the investors. The term mutual fund means the investors
contribute to the pool and also benefit from the pool. The pool of funds held
mutually by investors is the mutual fund. A mutual fund business is to invest
the funds thus collected according to the wishes of the investors who created
the pool. Usually the investors appoint professional investment managers to
create a product and offer it for investment to the investors. This project
represents a share in the pool and pre-status investment objectives. Thus, a
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mutual fund is the most suitable investment for a common man as it offers
an opportunity to invest in a diversified, professionally managed basket of
securities at relatively low cost.
ORGANIZATION OF MUTUAL FUNDS

There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund:

FEATURES THOSE INVESTORS LIKE IN MUTUAL FUND:

If mutual funds are emerging as the favorite investment vehicle it is because

of the many advantages. They have over other forms and avenues of
investing parties for the investors who has limited resources available in
terms of capital and ability to carry out detailed reserves and market
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monitoring.
These are the major advantages offered by mutual fund to all investors:

• Professional Management: Mutual Funds provide the services of

experienced and skilled professionals, backed by a dedicated
investment research team that analyses the performance and prospects
of companies and selects suitable investments to achieve the
objectives of the scheme.

• Diversification: Mutual Funds invest in a number of companies

across a broad cross-section of industries and sectors. This
diversification reduces the risk because seldom do all stocks decline at
the same time and in the same proportion. You achieve this
diversification through a Mutual Fund with far less money than you
can do on your own.

• Convenient Administration: Investing in a Mutual Fund reduces

paperwork and helps you avoid many problems such as bad deliveries,
delayed payments and follow up with brokers and companies. Mutual
Funds save your time and make investing easy and convenient.
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• Return Potential: Over a medium to long-term, Mutual Funds have

the potential to provide a higher return as they invest in a diversified
basket of selected securities.

• Low Costs: Mutual Funds are a relatively less expensive way to

invest compared to directly investing in the capital markets because
the benefits of scale in brokerage, custodial and other fees translate
into lower costs for investors.

• Liquidity: In open-end schemes, the investor gets the money back

promptly at net asset value related prices from the Mutual Fund. In
closed-end schemes, the units can be sold on a stock exchange at the
prevailing market price or the investor can avail of the facility of
direct repurchase at NAV related prices by the Mutual Fund.

• Transparency: You get regular information on the value of your

investment in addition to disclosure on the specific investments made
by your scheme, the proportion invested in each class of assets and the
fund manager's investment strategy and outlook.
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• Flexibility: Through features such as regular investment plans,

regular withdrawal plans and dividend reinvestment plans, you can
systematically invest or withdraw funds according to your needs and
convenience. • Affordability: Investors individually may lack
sufficient funds to invest in high-grade stocks. A mutual fund because
of its large corpus allows even a small investor to take the benefit of
its investment strategy.

• Well Regulated: All Mutual Funds are registered with SEBI and they
function within the provisions of strict regulations designed to protect
the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS:

Above I have mentioned the various advantages of Mutual Funds but it also
suffers from a lot of drawbacks as the market is volatile and it is ever
affected by national as well as international factors. These days we can see
that crude oil prices in the International market have become an important
factor in determining market movement.
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Here are some disadvantages as cited by me and by survey:

• Fluctuating Returns: Mutual funds are like many other investments

without a guaranteed return: there is always the possibility that the
value of your mutual fund will depreciate. Unlike fixed-income
products, such as bonds and Treasury bills, mutual funds experience
price fluctuations along with the stocks that make up the fund. When
deciding on a particular fund to buy, you need to research the risks
involved - just because a professional manager is looking after the
fund, that doesn't mean the performance will always be good.

• Diversification: Although diversification is one of the keys to

successful investing, many mutual fund investors tend to over
diversify. The idea of diversification is to reduce the risks associated
with holding a single security; over diversification (also known as
diversification) occurs when investors acquire many funds that are
highly related and, as a result, don't get the risk-reducing benefits of
diversification. At the other extreme, just because you own mutual
funds doesn't mean you are automatically diversified. For example, a
fund that invests only in a particular industry or region is still
relatively risky. For example: Sectoral Funds
• Cash, Cash and More Cash: As you know already, mutual funds
pool money from thousands of investors, so everyday investors are
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putting money into the fund as well as withdrawing investments. To

maintain liquidity and the capacity to accommodate withdrawals,
funds typically have to keep a large portion of their portfolios as cash.
Having ample cash is great for liquidity, but money sitting around as
cash is not working for you and thus is not very advantageous.

• Costs: Mutual funds provide investors with professional management,

but it comes at a cost. Funds will typically have a range of different
fees that reduce the overall payout. In mutual funds, the fees are
classified into two categories: shareholder fees and annual operating
fees.

The shareholder fees, in the forms of loads and redemption fees are paid
directly by shareholders purchasing or selling the funds. The annual fund
operating fees are charged as an annual percentage - usually ranging from 1-
3%. These fees are assessed to mutual fund investors regardless of the
performance of the fund. As you can imagine, in years when the fund doesn't
make money, these fees only magnify losses.
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REVIEW OF LITERATURE

Mutual funds as an area of knowledge has drawn interest from academic as

well as practitioner communities. Literature reviews have been done related
to Fund Selection Behavior.

Kahneman and Tversky (1979) found in their work, “Prospect Theory - An

Analysis of Decision under Risk”, individuals make decisions based on the
potential value of losses and gains rather than the final outcome, and people
evaluate these losses and gains using interesting heuristics.

Phillip (1995) reported changes in financial decision-making and investor

behaviour as a result of participating in investor education programs
sponsored by employees. In India, SEBI started such awareness program for
small investors, which has started giving benefits, in terms of value investing
and informed investing from retail investors.

Ippolito (1992) and Bogle (1992) reported that fund selection by investors
is based on past performance of the funds and money flows into winning
funds more rapidly than they flow out of losing funds.

Kavita Ranganathan’s (2004) conducted a survey in Mumbai revealed that

investors prefer performance records, brand name, expense ratio, portfolio of
investment, reputation portfolio manager, withdrawal/exit facility, products
with tax benefits and load charges for taking decisions on investment.
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Singh and Chander (2004) study reveals that salaried investors prefer daily
disclosure of NAV by funds and also wished for higher tax rebates on
investment in Mutual Funds.

Madhusudhan (1996) conducted a study and revealed that income schemes

and open-ended schemes are preferred over growth schemes and close-ended
schemes during the prevalent market conditions. Investors look for Safety of
Principal, Liquidity and Capital Appreciation in order of importance in the
selection of mutual funds
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PROJECT OBJECTIVES
The main objective of this study is:

• To know various factors considered by the customers while going to

invest in the mutual fund.
• To study the working of mutual funds.
• To study the characteristics of mutual funds, this attracts the
customers.
• What investors consider for safe investment and better returns.

SCOPE

• The project will provide us the better platform to understand the

history, growth and various aspects of mutual fund.
• It will also help to understand the behavior of Indian investment
towards mutual fund.
• Also with the help of this project one can better understand the
different types of mutual funds working in India.
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RESEARCH METHODOLOGY
Introduction
Marketing research is the process of collecting and analyzing marketing
information and ultimately arriving at a certain conclusion. Management in
any organization needs information about potential marketing plans and to
change the marketplace. Marketing Research includes all the activities that
enable an organization to obtain the information. This research is very
important in strategy formulation and feedback of any organizational plan.
Research Design:

DATA:

Primary data: Personal interaction with the respondent through

questionnaire.

Secondary data: Information through websites, books, fact sheet of various

funds etc.

• SOURCES: Books, Magazines, articles, Journals.

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• AREA OF STUDY: Jamshedpur.

• SAMPLING PROCEDURE: Random sampling method.
• TOOLS & TECHNIQUES: Simple statistical methods.
HISTORY OF MUTUAL FUNDS

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Reserve Bank and the Government of
India. The objective was to attract small investors and introduce them to
market investments. Since the, the history of mutual fund in India can be
broadly divided into three distinct phases.

Phase 1- 1964-1987 (Unit Trust of India)

An Act of Parliament established Unit Trust of India (UTI) on 1963. 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, followed by
ULIP in 1971, CGGA 1986 Mastershare 1987. UTI was the only player in
the market enjoying the monopoly. At the end of 1988 UTI had Rs.6, 700
crores of assets under management .It was a huge mobilization of funds.

So, Unit Trust of India was the first mutual fund set up in India in the year
1963. In early 1990s, Government allowed public sector banks and
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institutions to set up mutual funds.

In the year 1992, Securities and exchange Board of India (SEBI) Act was
passed. The objectives of SEBI are – to protect the interest of investors in
securities and to promote the development of and to regulate the securities
market.

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. There is no distinction in regulatory requirements for these
mutual funds and all are subject to monitoring and inspections by SEBI. The
risks associated with the schemes launched by the mutual funds sponsored
by these entities are of similar type. It may be mentioned here that Unit Trust
of India (UTI) is not registered with SEBI as a mutual fund (as on January
15, 2002). The total amount mobilized was 2175 crores and assets under
management were 6700 crores.
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Phase 2- 1987-1993(entry of public sector)

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 Can bank
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.In phase 2 also UTI was
the undisputed leader.

At the end of 1993, the mutual fund industry had assets under management
of Rs.47,004 crores. It was the time when the mindset of the consumer
changed to some extent.

Phase 3- 1993-1996(emergence of private 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.
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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. Indian mutual fund industry also saw many
joint venture of foreign fund management companies with Indian promoters.
Competition increased the investor servicing technique. Investor started
becoming selective. 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.

Phase 4-1996(SEBI regulation for mutual funds)

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. 1999 marks
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the beginning of a new phase in the history of the mutual fund industry in
India, a phase of significant in terms of both amounts mobilized from
investor and asset under management.

The size of the industry is growing rapidly, as seen by the figure of asset
under management that has gone from over Rs. 113,005 crores, a growth of
nearly 60%in just one year. Within the growing industry, by March 2000,
the relative market shares of different players in terms of amount mobilized
and assets management having undergone a change.

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 June 2007 there are 33 players in
the mutual fund industry.
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Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was set up on April 15, 2004 with ABN AMRO
Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO
Asset Management (India) Ltd. was incorporated on November 4, 2003.
Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October
30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management
Company Limited is the AMC of BOB Mutual Fund and was incorporated
on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC Mutual Fund

HDFC Mutual Fund was set up on June 30, 2000 with two sponsors namely
Housing Development Finance Corporation Limited and Standard Life
Investments Limited.

HSBC Mutual Fund

HSBC Mutual Fund was set up on May 27, 2002 with HSBC Securities and
Capital Markets (India) Private Limited as the sponsor. Board of Trustees,
HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.
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State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to
launch an offshore fund, the India Magnum Fund with a corpus of Rs. 225
cr. approximately. Today it is the largest Bank sponsored Mutual Fund in
India. They have already launched 35 Schemes out of which 15 have already
yielded handsome returns to investors. State Bank of India Mutual Fund has
more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8
Lakhs spread over 18 schemes.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established on Jan 14,

2003, manages the UTI Mutual Fund with the support of UTI Trustee
Company Private Limited. UTI Asset Management Company presently
manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual
Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank
of India (SBI), and Life Insurance Corporation of India (LIC). The schemes
of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management
Funds, Index Funds, Equity Funds and Balance Funds.

Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA) based

company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is
one of the largest financial services groups in the world. Investors can buy or
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sell the Mutual Fund through their financial advisor or through mail or
through their website. They have Open end Diversified Equity schemes,

Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax
Saving schemes, Open end Income and Liquid schemes, closed end Income
schemes and Open end Fund of Funds schemes to offer.

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 organization.
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 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 Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional 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.
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The objectives of Association of Mutual Funds (AMFI) 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:

• This mutual fund association of India maintains a high professional

and ethical standard 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 are 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.
• The Association of Mutual Fund of India does 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 program of training and certification for all
intermediaries and others engaged in the mutual fund industry.
• AMFI undertakes an all India awareness programme for investors in
order to promote proper understanding of the concept and working of
mutual funds.
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• At last but not the least, the association of mutual funds of India also
disseminates information on Mutual Fund Industry and undertakes
studies and research either directly or in association with other bodies.
Regulatory Framework

Regulatory Jurisdictions of SEBI:

SEBI is the apex regulatory of capital markets. SEBI has enacted the SEBI
(Mutual Fund) regulation 1996 which provides the scope of regulation of
Mutual Fund in India. All mutual funds are required to be mandatory
registered with SEBI. The structure and formation of Mutual Funds,
appointment of key functionaries, operations of Mutual Funds, accounting
and disclosure norms, rights and obligations of functionaries and investors,
investment restrictions, compliance and penalties all are defined under the
SEBI registration. Mutual Fund has to be sending half yearly compliance
reports to SEBI and promote all information about their operations.

Regulatory Jurisdiction of RBI:

RBI is the monetary authority of the country and is also the regulatory of
banking system. Earlier bank sponsored mutual fund were under the dual
regulatory control of RBI and SEBI. These provisions are no longer in
vogue. SEBI is the regulator of all mutual funds. The present position is that
RBI is involved with the mutual fund industry only to the limited extent of
being the regulator of the sponsor of bank sponsored mutual funds.
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Role of Ministry of Finance in Mutual Fund:

The finance ministry is the supervisor of both RBI and SEBI. The ministry
of finance is also the appellate authority under SEBI Regulation. Aggrieved
parties can make appeal to the Ministry of Finance on the SEBI ruling

relating the Mutual Fund.

Role of Companies Act in Mutual Fund:

The AMC and the Trustee Company may be structured as limited

companies, which may come under the regulatory purview of the Company
Law Board (CLB). The provisions of the Companies Act 1956, is applicable
to these forms of organization. The company law Board is the apex
regulatory authority for company. Any grievance agency the AMC or the
trustee can be addressed to the company law board for redresses.

Role of Stock Exchange:

If a mutual fund is listed its scheme on stock exchange such listing are
subject to the listing regulation of Stock Exchange. Mutual Funds have to
sign the listing agreement and abide by its provisions which primarily deal
with the periodic notification and disclosure of information that may impart
the trading of listed units.
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Legal Structure

Mutual Fund has a unique structure not shared with other entities such as
companies or the firms. It is important for the employees and agents to be
aware of the special nature of the structure because it determines the rights
and responsibilities of the fund’s constitutes viz. sponsor trustee, custodian,
transfer agents and of course the AMC. The legal structure also drives the

inter relationship between these constituents.

Like other countries India has a legal framework within which Mutual Funds
must be constituted along one unique structure as unit trust. A mutual fund
in India is allowed to issue open ended and a close ended under a common
legal structure. Therefore, a mutual fund may have several different schemes
under it at any point of time.

THE FUND SPONSOR:

Sponsor is defined by the SEBI regulation as any person who acting alone or
in combination with another body corporate establishes a mutual fund. The
sponsor of a fund is taken as he gets the fund registered with the SEBI. The
sponsor will form a trust and appoints the Board of trustee. The sponsor will
also generally appoint the AMC as the fund managers.
 35

The sponsor, either directly or acting through the trustee will also appoints a
custodian to hold the fund asset. All these appointments are made in
accordance with the guidelines of SEBI. As per the existing SEBI
regulations for a person to quantify as the sponsor he must contribute at least
40% of the net worth of the AMC and possess a second final track over a
period of 5 years prior to registration.
MUTUAL FUND AS A TRUST:

A mutual fund is constituted in the form of a public trust created under the
INDIA TRUST ACT, 1882. The fund sponsor act as the settlers of the trust
contributing to its initial capital and appoints a Trustee to hold the asset of
the trust for the benefits of the unit holders who are the beneficiaries of the
trust. The fund then invites investors to contribute their money in a common
pool by subscribing to units issued by various schemes established by the
trust unit being the evidence of their beneficial interest in the fund.

TRUSTEE:

The trust – the mutual fund may be managed by a board of trustee – a body
of individuals or a trust company- a corporate body. Most of the funds in
India are managed by the board of trustee while the board is governed by the
provisions of the Indian Trust Act where the trustee is a corporate body, it
would also be required to comply the provisions of the Companies Act 1956
the board as an independent body act as the protector of the interest of the
unit holders. The trustees do not directly manage the portfolio of securities.
 36

For this specialist function, they appoint the AMC. They ensure that the fund
is managed by the AMC as per the defined objective in accordance with the
trust deed and regulations of SEBI. The trust is created through a document
called the Trust Deed and is executed by the fund sponsor in favor of the
trustee. The trust deed is required to be stamped as registered under the
provisions of the Indian Regulatory Act and regulation with SEBI clause in
the trust deed, inter alias, deal with the establishment of the trust, the
appointment of the trustee , their powers and duties and the obligation of the
trustee towards the unit holders and the AMC. These clauses also specify
activity that the fund / AMC can’t undertake. The third schedule of the SEBI
(Mutual Fund) Regulatory Act,1996 specifies the content of the Trust Deed.
 37

ASSET MANAGEMENT COMPANY

Its appointment and function:

The role of AMC is to act as the investment manager of the trust. The
sponsor, or the trustee, if so authorized by the trust deed appoints the AMC.
The AMC so appointed is required to be approved by the SEBI. Once
approved, the AMC functions under the supervision of its own directors and
also under the direction of the trustee and the SEBI. The trustees are
empowered to terminate the appointment of the AMC by majority and
appoint a new one with the prior approval of the SEBI and the unit holders.

The AMC would, in the name of the trust, float and then manage the direct
investment schemes as per regulations of the SEBI and as per Investment
Management Agreement it signs with the trustee. Chapter IV of SEBI (MF)
Regulations, 1996 describes the issue relevant to appointment, eligibility
criteria and the restrictions on the business activities and obligations of the
AMC.

The AMC of the mutual fund have a net worth of at least Rs. 10 crores at all
the time. Directors of the AMC, both independent and non independent
should have adequate professional experience in the financial services and
should be individuals of high moral 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 it’s role as advisory services and consulting,
 38

provided these activities are run independently of one another rand the AMC
resources ( such as personnel, system etc.) are properly segregated by
activity. The AMC must always act in the interest of the unit holders and
report to the trustee with respect to its activities.

TYPES OF MUTUAL FUNDS

Schemes according to Maturity Period

A mutual fund scheme can be classified into open-ended scheme or close-

ended scheme depending on its maturity period.
Open-ended Fund/ Scheme
 39

An open-ended fund or scheme is one that is available for subscription and

repurchase on a 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 schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or 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 the
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 the mutual fund through periodic repurchase at NAV related
prices. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor i.e. either repurchase facility or through listing on
stock exchanges. These mutual funds schemes disclose NAV
generally on a weekly basis.
 40

Schemes according to Investment Objective

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:

Growth / 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 risks. These schemes provide
different options to the investors like dividend option, capital appreciation,
etc. and the investors may choose an option depending on their preferences.
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.

Income / Debt Oriented Scheme:

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, Government 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
 41

country. If the interest rates 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.

Balanced Fund:

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

Money Market or Liquid Fund:

These funds are also 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 deposit, commercial paper and inter-bank call money, government
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.

Gilt Fund:
 42

These funds invest exclusively in government securities. Government

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. 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. NAVs of such schemes would rise or fall
in accordance with the rise or fall in the index, though not exactly by the
same percentage due to some factors known as "tracking error" in technical
terms. Necessary disclosures in this regard are made in the offer document
of the mutual fund scheme.

Sector specific funds/schemes:

These are the funds/schemes which invest in the securities of only those
sectors or industries as specified in the offer documents. e.g.
Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. The returns in these funds are dependent on the
performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors
need to keep a watch on the performance of those sectors/industries and
must exit at an appropriate time. They may also seek advice of an expert.

Tax Saving Schemes

 43

These schemes offer tax rebates to the investors under specific provisions of
the Income Tax Act, 1961 as the Government offers tax incentives for
investment in specified avenues. e.g. Equity Linked Savings Schemes
(ELSS). Pension schemes launched by the mutual funds also offer tax
benefits. These schemes are growth oriented and invest predominantly in
equities. Their growth opportunities and risks associated are like any
equity-oriented scheme.

Load or no-load Fund

A Load Fund is one that charges a percentage of NAV for entry or exit. That
is, each time one buys or sells units in the fund, a charge will be payable.
This charge is used by the mutual fund for marketing and distribution
expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit
load charged is 1%, then the investors who buy would be required to pay
Rs.10.10 and those who offer their units for repurchase to the mutual fund
will get only Rs.9.90 per unit. The investors should take the loads into
consideration while making investment as these affect their yields/returns.

However, the investors should also consider the performance track record
and service standards of the mutual fund which are more important. Efficient
funds may give higher returns in spite of loads. A no-load fund is one that
does not charge for entry or exit. It means the investors can enter the
fund/scheme at NAV and no additional charges are payable on purchase or
sale of units.
 44

INVESTMENT PLANS

The term investment plans generally refers to the services that the funds
provide to the investors offering different ways to invest. The different
investment plans are important consideration in the investment decisions
because they determine the level of flexibility available to the investors.
Alternate investment plans offered by the fund allow the investor freedom
with respect to investing at one time or at regular intervals, making transfers
to different schemes within the same fund family or receiving income at
specified intervals or accumulating distributions. Some of the investment
plans offered are as follows:

Automatic Reinvestment Plans (ARP):

In India many funds offered two options under the same scheme the
dividend option and growth option. The dividend option or the automatic
reinvestment plan (ARP) allows the investors to reinvest in additional units
the amount of dividend or other distribution made by the fund, instead of
receiving them in cash. Reinvestment takes place at the ex-dividend NAV.
The ARP ensures that the investors reap the benefits of compounding in his
investments. Some funds allow reinvestments into other schemes in the fund
family.
 45

By using an automatic reinvestment plan, an investor is able to easily make

use of his or her investment gains to produce further gains, taking advantage
of compounding. Over a period of years, the added value produced by

automatic reinvestment can turn out to be worth a substantial sum.

Automatic Investment Plans (AIP):

These requires the investor to invest a fixed sum periodically, thereby

lettering the investor save in a disciplined and phased manner. The mode of
investment could be through debit to the investor’s salary or bank account.

Such plans are also known as Systematic Investment Plans. But mutual
funds do not offer this facility on all schemes. Typically they restrict it to
their plain vanilla scheme like diversified equity funds, income funds and
balanced funds. SIP works best in equity funds. It enforces saving discipline
and helps you profit from market volatility – you buy more units when the
market is down and fewer when the market is up.

This is one of the best ways to save money. By "paying themselves first"
many people find they invest more in the long run. Their investments are
treated as another part of their regular budget. It also forces a person to pay
for investments automatically, which prevents them from being able to
spend
all of their disposable income.
 46

Systematic Withdrawal Plan:

Such plans allow the investors to make systematic withdrawal from his fund
investment account on a periodic basis, thereby providing the same benefit
as regular income. The investor must withdraw a specific minimum amount
with the facility to have withdrawal amounts sent to his residence by cheque
or credited directly into his bank account. The amount withdrawn is treated
as redemption of units at the applicable NAV as specified in the offer
document. For example: the withdrawal could be at NAV on the first day of
the month of payment. The investor is usually required to maintain a
minimum balance in his bank account under this plan. Agents and the
investors should understand that the systematic withdrawal plans are
different from the monthly income plans, as the former allow investors to get
back the principal amount invested while the latter only pay the income part
on a regular basis.

In short we can say that a systematic withdrawal plan is a financial plan that
allows a shareholder to withdraw money from an existing mutual fund
portfolio at predetermined intervals. The money withdrawn through a
systematic withdrawal plan can be reinvested in another portfolio or used to
pay for something else. Often, a systematic withdrawal plan is used to fund
expenses during retirement. However, this type of plan may be used for
other purposes as well.
 47

Systematic Transfer Plans (STP):

These plans allow the customers to transfer on a periodic basis a specified

amount from one scheme to another within the same fund family- meaning
two schemes by the same AMC and belonging to the same fund. A transfer
will be treated as the redemption of the units from the scheme from which
the transfer is made. Such redemption or investment will be at the applicable
NAV for the respective schemes as specified in the offer document. It is
necessary for the investor to maintain a minimum balance in the scheme
from which the transfer is made. Both UTI and other private funds now
generally offer these services to the investors in India. The service allows the
investors to maintain his investment actively to achieve his objectives. Many
funds do not even change any transaction fees for this service.

EQUITY FUND

An open ended

Equity scheme:

Fund features:

Who should invest?

 48

The scheme is suitable for investors seeking effective diversification by

spreading the risks without compromising the return.

Investment objective

The objective is to provide investors long term capital appreciation.

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax.

Minimum applicable amount

New investors: Rs. 5000

Existing investors: Rs. 500

 49

INDEX FUND

An open ended

Index scheme:

Fund features:

Who should invest?

The scheme is suitable for investors seeking capital appreciation

commensurate with that of the market.
Investment objective

The objective is to invest in the securities that comprise S&P CNX Nifty in
the same proportion so as to attain results commensurate with the Nifty.

Investment option

a. Growth

b. Dividend

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

 50

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax

Minimum applicable amount

New investors: Rs. 5000

BALANCED FUND

An open ended balanced scheme:

Fund features:

Who should invest?

The scheme is suitable for investors who seek long term growth and wish to
avoid the risk if investing solely in equities. It provides a balanced exposure
to both growth and income producing assets.

Investment objective

The objective is to provide periodic return and capital appreciation through a

judicious equity and debt instruments, while simultaneously aiming to
minimize capital erosion.
 51

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax

Minimum applicable amount

New investors: Rs. 5000

Existing investors: Rs. 500

TAX SAVING FUND

Open- ended linked saving scheme:

Fund features:

Who should invest?

 52

The scheme is suitable for investors seeking income tax rebate under section
88(2) of Income Tax Act along with long term appreciation from investment
in equities.

Investment objective

The objective of the scheme is to build a high quality growth oriented

portfolio to provide long term capital gains to investors. The scheme aims at
providing return through capital appreciation over the file of the scheme.
Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Tax –rebate under section 88, indexation benefits, No Gift tax, No wealth
tax.

Special features
 53

Personal accident insurance.

Lock –in period 3 years

Minimum applicable amount: Rs. 500

The importance of accounting knowledge

The balance sheet of a mutual fund is different from the normal balance
sheet of a bank or a company. All the fund assets belong to the investors and
are held in the fiduciary capacity for them. Mutual fund employees need to
be aware of the special requirement concerning accounting for the fund’s
assets, liabilities and transactions with investors and the outsiders like banks,
custodians and registrars. This knowledge will help them better understand
their responsibilities and their place in the organization, by getting an
overview of the functioning of the fund.

Even the mutual fund agents need to understand the accounting for the funds
transaction with investors and how the fund accounts for its assets and
liabilities, as the knowledge is essential for them to perform their basic role
in explaining the mutual fund performance to the investor.

For example, unless the agent knows how the NAV is computed, he cannot
use even simple measures such as NAV change to assess the fund
performance. He also should understand the impact of dividends paid out by
the fund or entry/exit loads paid by the investors on the calculation of the
 54

NAV and therefore the fund performance. The mutual funds in India are
required to follow the accounting policies as laid down by the SEBI (Mutual
Fund) Regulations 1996 and amendments in 1998.
NET ASSET VALUE

The performance of a particular scheme of a mutual fund is denoted by Net

Asset Value (NAV). Mutual funds invest the money collected from the
investors in securities markets. In simple words, Net Asset Value is the
market value of the securities held by the scheme. Since market value of
securities changes every day, NAV of a scheme also varies on day to day
basis. The NAV per unit is the market value of securities of a scheme
divided by the total number of units of the scheme on any particular date.

For example, if the market value of securities of a mutual fund scheme is Rs

200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the
investors, then the NAV per unit of the fund is Rs.20. NAV is required to be
disclosed by the mutual funds on a regular basis - daily or weekly depending
on the type of scheme. The net asset value of the fund is the cumulative
market value of the assets fund net of its liabilities. In other words, if the
fund is dissolved or liquidated, by selling off all the assets in the fund, this is
the amount that the shareholders would collectively own. This gives rise to
the concept of net asset value per unit, which is the value, represented by the
ownership of one unit in the fund. It is calculated simply by dividing the net
asset value of the fund by the number of units. However, most people refer
loosely to the NAV per unit as NAV, ignoring the "per
 55

unit". We also abide by the same convention.

Calculation of NAV:

The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
assets divided by the number of units outstanding. The detailed methodology
for the calculation of the asset value is given below.

Asset value is equal to

Sum of market value of shares/debentures + Liquid assets/cash held,

if any + Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

For liquid shares/debentures, valuation is done on the basis of the last or

closing market price on the principal For illiquid and unlisted and/or thinly
traded shares/debentures, the value has to be estimated. For shares, this
could be the book value per share or an estimated market price if suitable
benchmarks are available. For debentures and bonds, value is estimated on
the basis of yields of comparable liquid securities after adjusting for
 56

illiquidity. The value of fixed interest bearing securities moves in a direction

opposite to interest rate changes.

Valuation of debentures and bonds is a big problem since most of them are
unlisted and thinly traded. This gives considerable leeway to the AMCs on
valuation and some of the AMCs are believed to take advantage of this and
adopt flexible valuation policies depending on the situation where the

security is traded.

Interest is payable on debentures/bonds on a periodic basis say every 6

months. But, with every passing day, interest is said to be accrued, at the
daily interest rate, which is calculated by dividing the periodic interest
payment with the number of days in each period. Thus, accrued interest on a
particular day is equal to the daily interest rate multiplied by the number of
days since the last interest payment date. Usually, dividends are proposed at
the time of the Annual General meeting and become due on the record date.
There is a gap between the dates on which it becomes due and the actual
payment date. In the intermediate period, it is deemed to be "accrued".
Expenses including management fees, custody charges etc. are calculated on
a daily basis.
 57

MUTUAL FUND PERFORMANCE

THE INVESTOR'S PERSPECTIVE:

The investor would actually be interested in tracking the value of

investment, whether he invests directly in the market or indirectly through
the mutual funds. He would have to make intelligent decisions on whether
he gets an acceptable return on his investment in the fund selected by him or
if he needs to switch to the fund. He, therefore, needs to understand the basis
of appropriate performance measurement for the funds and acquire the basic
knowledge of the different measures of evaluating the performance of a
fund. Only then would he be in the position to judge correctly whether his
fund is performing well or not.

THE ADVISOR’S PERSPECTIVE:

If you are an intermediary recommending a mutual fund to a potential

investor, he would expect you to give him proper advice on which funds
have a good performance track record. If you want to be an effective
 58

investment advisor, then you too have to know how to measure and evaluate
the performance of the different funds available to the investors. The need to
compare the performance of the different funds requires the advisors to have
knowledge of the correct and appropriate measures of evaluating the fund
performance.
Different Performance Measures

Remember that there are many ways to evaluate the performance of the fund.
One must find the most suitable measure, depending upon the type of fund
one is looking at, the stated investment objective of the fund and even
depending on the current financial market condition. Let us discuss few
common measures.

Change in NAV: The most common measure.

Purpose: If the investor wants to compute the return on investment between

two dates, he can simply use the Per Unit Net Asset Value at the beginning
and the end periods and calculate the change in the value of the NAV
between the two dates in absolute and percentage terms.

Formula: For NAV change in absolute terms: (NAV at the end of the
period)- (NAV at the beginning of the period)

For NAV change in percentage terms: (Absolute change in NAV/NAV at the

beginning)*100 If period covered is less/more than one year: for annualized
 59

NAV change [{(absolute change in NAV/NAV at the beginning)/months

covered)*12}*100]

Suitability

NAV change is the most commonly used by the investors to evaluate fund
performance and so is also most commonly published by the mutual fund
managers. The advantage of this measure is that it is easily understood and

applies to virtually any type of fund.

Interpretation

Whether the return in term of NAV growth is sufficient or not should be

interpreted in light of the investment objective of the fund, current market
condition and alternative investment returns. Thus, a long term growth fund
or infrastructure fund will give lower returns when the market is in bearish
phase.

Limitation:

However, this measure does not always give the correct picture, in case
where the fund has distributed to the investors a significant amount of the
dividends in the interim period. If in the above example, year end NAV was
Rs.22 after declaration and payment of dividend of Re.1, the NAV change of
10% gives an incomplete picture.
 60

Therefore, it is suitable for evaluating growth funds and accumulation plans

of debt and equity funds, but should be avoided for income funds and funds
with withdrawal plans.

Return on investment:

Purpose: The short coming of the simple total return is overcome by the
total return with reinvestment of the dividends in the funds itself at the NAV
on the date of distribution. The appropriate measure of the growth of the

investor’s mutual fund holding is therefore, the return on investment.

Formula

[(units held dividend/ex-dividend NAV)*end NAV]- begin NAV*100

Suitability

Total return with distributions reinvested at NAV is a measure accepted by

mutual fund tracking agencies such as Cresedence in MUMBAI and value
research in New Delhi. It is appropriate for measuring performance of
accumulation plans, monthly/quarterly income schemes that distribute
interim dividends.
 61

The income ratio:

Formula:

A fund’s income ratio is defined as its net investment income dividend by its
net assets for this period.

Purpose/suitability: This ratio is useful measure for evaluating income-

oriented funds, particularly debt funds. It is not recommended for
the funds that concentrate on capital appreciation.
Limitation: The income ratio can not considered in isolation, it should be
used only to supplement the analysis based on the expense ratio and total
return.

Tracking mutual fund performance

Having identified appropriate measures and benchmarks for the mutual fund
available in the market, the challenge is to track the fund performance on a
regular basis.

This is indeed the key towards maximizing wealth through mutual fund
investing. Proper tracking allow the investor to make informed & timely
decisions regarding his fund portfolio whether to acquire attractive funds,
dispose off poor performers or switch between funds /plans.
 62

To be able to track fund performance, the first step is to find the relevant
information on NAV, expenses cash flow, appropriate indices and so on.
The
following are the sources information in India.

Mutual Funds Annual and Periodic Reports

These include data on the funds financial performance, so indicators such as

income/expense ratios & total return can be computed on the basis of this
data. The annual report includes a listing of the funds portfolios holding at
market value, statement of revenue & expenses, unrealized
appreciation/depreciation at year end and the change in the net assets. On the
basis of the annual report, the investors can develop a perspective on the
quality of the fund’s assets and portfolio concentration and risk profile,
besides computing returns. He can also assess the quality of the fund
management company by reviewing their entire scheme’s performance. The
profit and loss account part of the annual report will also give details of
transaction costs such as brokerage paid, custodian/registrar fees and stamp
duties.
 63

Mutual Fund’s Website

With the increasing spread of the interest as a medium, all mutual funds have
their own websites. SEBI even require funds to disclose certain types of the
information on these sites- for example, the Portfolio Composition.
Similarly, AMFI itself has a websites, which displays its member’s entire
fund NAV information.

Financial papers: Daily newspaper such as Economic Times provides daily

NAV figures for the open end schemes and share prices of the close ended
listed schemes. Besides, weekly supplement of the economic newspaper give
more analytical information on the fund performance. For exampleBusiness
Standard – the smart investor gives total returns over 3 months, 1 year and 3
years periods besides the fund size and ranking with the other funds
separately for Equity, Balanced, Debt, Money Market, short term debt and
tax planning funds. Similarly, Economic Times weekly supplement gives
additional data on open end schemes such as Loads and Dividends besides
the NAV and other information and performance data on closed end scheme.

Fund Tracking Agencies: In India, agencies such as Credence and value

research are a source of information for the mutual fund performance data
 64

and evaluation. This data is available only on request and payment.

Newsletters: Many stockbrokers, mutual fund agent and banks and

non-ranking firms catering to retail investors publish their own newsletters,
sometimes free or else for their subscribes, giving fund performance data
and recommendations.

Prospectus: SEBI regulations for mutual fund require the fund sponsors to
disclose performance data relating to schemes being managed by the
concerned AMC such as beginning and end of the year.

LIFE CYCLE STAGES

Life cycle guide to financial planning

Financial goal and plans depends to a large extent on the expenses and cash
flow requirements of individuals. It is well known that the age of the
investors is an important determinant of financial goals. Therefore, financial
planners have segmented investors according to certain stages.

CHARACTERISATION OF THE LIFE CYCLE OF INVESTORS

Life cycle can be broadly classified into phases:

• Birth and education

• Earning Years
• Retirement
 65

On an average, the first stage lasts for 22 years, the second for 38 years and
the last for 25-30 years.

The earning year is when income and expenses are highest. The retirement
stage is when incomes are low and expenses are high.

CLASSIFICATION OF INVESTORS NEEDS

Needs are generically classified into protection needs and investment needs.
Protection needs refer to needs that have to be primarily taken care of to
protect the living standards, current requirements and survival requirement
of investors. Need for retirement income and need for insurance cover are
protection needs. Investment needs are additional financial needs that can be
served through saving and investments. These are needs for children’s
professional growth.
Analysis of Questionnaire

I visited 45 people with my questionnaire related to mutual funds out of

them 40 responded to me. I have analyzed my survey on the basis of these
respondents' feedback. Once the questionnaires were filled then the next
work that comes up is the analysis of the data arrived.

We found out that more businessmen were inclined towards investing in

current accounts. The ladies were inclined to invest their money in Gold and
jewelleries. Service class people and retired class people prefer more saving
and fixed deposits. People with high income prefer to take risk for higher
 66

return. They want to invest in the mutual fund.

Similarly, people are interested in knowing what the returns of their

investment are. Similar large numbers of people are equally interested in the
safety of their funds. There are the people who want easy liquidity of money
and these are basically business people who have a deal in the ready cash all
the time. Surprisingly, while a large number of people are aware of the tax
benefit a very small number of them only 9 are interested in it.

While a large number of people are area of mutual fund comparing a very
less number invests into it. On asking how they get knowledge of mutual
fund a large number of them attributed to print media. Even banks today
follow the role of the investment advisors. Very few get any information
from the e- media or
Hence, AMCs must increase the awareness about their product through
Electronic media (TVs, Cables, Radios etc.) as well as and should not just
constrained itself to the print advertisement. Those who do not read
newspaper.
 67

CONCLUSION

The mutual fund industry is growing at a tremendous pace. A large number

of plans have come up from different financial resources. With the stock
market soaring the investors are attracted towards these schemes. Only a
small segment of the investors are still in Mutual Funds and the main
sources of information still are the financial advisors followed by
advertisements in different media. The Indian investors generally invest over
a period of 2-3 years. Also there is a tendency to invest in fixed deposits due
to the security attached to it. In order to excel and make mutual funds a
success, companies still need to create awareness and understand the psyche
of the Indian customer.
 68

LIMITATIONS OF STUDY

● This project is limited in scope as the survey is conducted with a shortage of

time constraint and also based on secondary data.

● The answer given by the respondents may be biased due to several reasons
or could be attachment to a particular bank.

● Due to ignorance, some of the respondents were not able to give the correct
answer.

● The respondents were not disclosing their exact portfolio because they have
a fear in their mind that they can come under tax slab.
 69

SUGGESTION

Investor’s point of view:

The question that the entire customer, irrespective of the age group and
financial status, think of is- Are mutual funds a safe option? What makes
them safe? The basis of mutual fund industry’s safety is the way the business
is defined and regulation of law. Since the mutual fund invests in the capital
market instruments, so proper knowledge is essential. Hence the essential
requirement is well informed seller and equally informed buyer who
understands and helped them to understand the product (here we can say the
capital market and the money market instruments) is the essentialpre-
conditions.
Being prudent investor one should:

• Ask one’s agent to give details of different schemes and match the
appropriate ones. • Go to the company records or the fund house
regarding any queries if one is not satisfied by the agents.
• Investors should always keep an eye on the performance of the scheme
and other good schemes as well which are available in the
market for the closed comparison.
• Never invest blindly in the investments before going through the fact
sheets, annual reports etc. of the company. Since, according to
theguidelines of SEBI, the AMCs are bound to disclose all the
relevant data that is necessary for the investment purpose of investors.
 70

Company’s point of view:

Following measures can be taken by the company for getting higher

investments in the mutual fund schemes:

• Educate the agents or the salesmen properly so that they can take up the
queries of the customer effectively.

• Set up separate customer care divisions where the customers can

anytime pose their query, regarding the scheme or the current NAV etc.
These customer care units can work out in accordance with the
requirements of the customer and facilitates them to choose the scheme
that suits their financial
status.

• Conduct seminars or programs about mutual fund where each and every
minute information about the product is outlined including the risk
factor
associated with the different classes of assets.
 71

REFERENCE

AMFI - https://www.amfiindia.com

RBI - https://www.rbi.org.in

MUTUAL FUND - https://www.mutualfundssahihai.com

SEBI - https://www.sebi.gov.in

Gupta, L.C (1994), Mutual Funds and Asset Preference, Society for Capital
Market Research and Development, Delhi.

Kahneman, Daniel and Amos Tversky (1979), "Prospect Theory: An

Analysis of Decision Making Under Risk," Econometrica.

Madhusudan V. Jambodekar (1996), “Marketing Strategies of Mutual

Funds – Current Practices and Future Directions”, Working Paper, UTI
– IIMB Centre for Capital Markets Education and Research, Bangalore.

Sujit Sikidar and Amrit Pal Singh, (1996), “Financial Services: Investment
in Equity and Mutual Funds – A Behavioral Study”, (in Bhatia B.S., and
Batra G.S., ed.), Management of Financial Services, Deep and Deep
Publications, New Delhi, Chapter 10, 136-145

Ranganathan, Kavitha, (2006), “A Study of Fund Selection Behaviour of