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“Investors Decision Regarding Investment in

MUTUAL FUND”

Summer Training Project Report

Submitted to

Uttar Pradesh Technical University, Lucknow

In partial fulfillment of the requirements of the degree of

Master of Business Administration

Prepared by Training Supervisor:

Jagriti Rai Mr. Raghvendra SinghM.B.A 3rd Semester (Branch Manager)Roll No. 0804070413 Unicon Investment Solution

2009-10

Department of Business Administration

Technical Education & Research Institute



Post-Graduate College, Ghazipur-233001 (U.P)

DECLARATION

I Jagriti Rai, here by declare that this summer training project report

entitled “Investors Decision Regarding Investment in MUTUAL FUND”

has been prepared by me on the basis of summer training done at Unicon

investment solution Varanasi during the period of 1st July to 15th August

under the supervision of Mr. Raghvendra Singh. (Branch manager)

This summer training project report is my bona fide work and has not

been submitted in any university or Institute for the award of any degree or

diploma prior to the under mentioned date. I bear the entire responsibility of

submission of this project report.

Jagriti Rai

M.B.A. 3rd Semester



P.G. College, Ghazipur

2



INDEX OF CONTENTS

Page No.

PREFACE 1

ACKONWLEDGEMENT. 3

PART-I

CHAPTER -1

Introduction to the organization 4

Brief History 7

Mission & Vision 9

Organizational Structure 10

Products & Services offered by the company 12

SWOT Analysis 27

CHAPTER-2

Introduction 29

Overview 36

Major Mutual Fund company in India 61

PART-II

3



CHAPTER-3

MICRO RESEARCH PROBLEM 73

OBJECTIVES 75

SCOPE 76

IMPORTANCE 77

CHAPTER-4

RESEACH METHODOLOGY 78

CHAPTER-5

DATA ANALYSIS & INTERPRETATION 88

CHAPTER-6

FINDINGS AND RECOMMENDATIONS 107

CHAPTER-7

CONCLUSION AND LIMITATION 110

BIBLIOGRAPHY 112

ANNEXURE 114

4



PREFACE

It has been said that Finance is the life blood of business; without finance the heart

and brain of business cannot function implying there by its natural death.

In present scenario financial market, investment has became, complicated and is

both art and a science. One make investments for a return higher than what he can get by

keeping the money in commercial or cooperative Bank or even in an Investment Bank. In

Finance field, it is common knowledge that money is scarce and investor try to maximize

their return But the return is higher if the risk is also higher Return and risk go together and

they have a trade off. The art of investment is to see that return is maximized with the

minimum of risk if the investor keep his money in a Bank in saving account, he takes the

least risk as the money is safe and he will get back when he want it but he runs the risk that

the return in real terms, adjusted for inflation negative or small and even if positive it may

net come up to his expectations or needs.

To utilize the theoretical knowledge, I decided to choose my topic which may cover

all and as result I selected “Investors decision regarding investment in Mutual Fund” I was

placed for my summer training in “Unicon investment solution varansi”.

Unicon is a financial service company which has emerged as a one-stop investment

solution provided. After deciding the topic, I went to field and took survey of several

mutual funds and customers. This project report has been divided into seven chapters, the

1



first chapter starts with organization history, its product profile, financial analysis

marketing strategies and SWOT analysis of UNICON. The second chapter starts with

introduction describing the history of mutual fund and different mutual fund’s industry. In

chapter three described the micro research problem. Objectives Importance and scope of

the study in chapter four. I focused the research methodology. In chapter five I discussed

detail regarding survey analysis means DATA ANALAYSIS AND INTERPRETATION.

Chapter six consists of findings and recommendation. In chapter seven consist of

conclusions and limitations of the study and lastly bibliography and Questionnaire of the

REPORT.

Jagriti Rai

MBA 3rd Semester



P.G. College, Ghazipur

2



ACKNOWLEDGEMENT

A research project report is never the sole product of a person whose name has

appeared on the cover. Even the best effort may not prove successful without proper

guidance. For a good project one needs proper time, energy, efforts, patience and

knowledge. But without any guidance it remains unsuccessful. I have done this research

project report with the best of my ability and hope that it will serve its purpose. First of all

I wish to express my indebtness to Mr. Raghvendera Singh (Branch Manager)

It was really a great learning experience and I am really thankful to Mr. Rahul

Anand Singh (HOD), master of business administration, who not only helped me in the

successful completion of this report but also spread his precious and valuable time in

expending on my knowledge base. I am very grateful to Dr. Neetu Singh, Lecturer MBA

for her great is part while completing my survey report She not only guides me but also

helped me to perform this research in the efficient and effective way. She support me not

only physically but also morally and this is the result of his great effort towards me.

After the completion of this research project report I feel myself as a well aware person

about the research procedure and the complexities that can arose during the process. Also I

get an insight of the training and development activities in an organization. Finally, I am

also grateful to all those personalities who have helped me directly or indirectly in bringing

up this project report.

Jagriti Rai

3



PART-I

4



CHAPTER-1

INTRODUCTION

ABOUT COMPANY

5



INTRODUCTION TO MUTUAL FUND

A mutual fund is a pool money, collected form investors, and is invested according to certain

investment options. A mutual fund is a trust that pools the savings of a number 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 the investor’s founds. 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 is shared by its unit holders in proportion to

the number 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. There are no other claimants to the funds.

The pool of funds held mutually by investors in the mutual fund.

A mutual funds 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 manage their funds. The same objective is achieved when professional investment managers

create a product and offer it for investment to the investor. This product represents a share in the

pool, and pre states investment objectives. Thus a mutual fund is the most suitable investment for

the common man as it offers an opportunity to invest in a diversified, professionally managed

basket of securities at a relatively low cost.

6



Investors in the mutual fund industry today have a choice of 39 mutual funds, offering nearly 500

products. Though the categories of product offer can be classified under about a dozen generic

heads, competition in the industry has led to innovative alterations to standard products. The most

important benefit of product choice is that it enables investors to choose options that suit their

return requirements and risk appetite. Investors can combine the options to arrive at their own

mutual fund portfolios that fit with their financial planning objectives.

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 Reserve Bank and the Government of India. The objective then was to attract the

small investors and introduce them to market investments. Since the, the history of mutual funds in

India can be broadly divided into three distinct phases.

PHASE 1: 1964-87 (UNIT TRUST OF INDIA)

In 1963, UTI was established by an Act of Parliament and given a monopoly. Operationally, UTI

was set up by the Reserve Bank of India, but was later de-linked from the RBI. The first, and still

one of the largest schemes, launched by UTI was Unit Scheme 1964. Over the years, US-64

attracted, and probably still has, the largest number of investors in any single investment scheme. It

was also at least partially the first open-end scheme in the country, now moving towards becoming

fully open-end.

Later in 1970s and 80s, UTI started innovating and offering different schemes to suit the needs of

different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in 1971. Six new

7



schemes were introduced between 1981 and 1984. During 1984-87, new schemes like Children’s

Gift Growth Fund (1986) and Mastershare (1987) were launched. Mastershare could be termed as

the first diversified equity investment scheme in India. The first Indian offshore fund, India Fund,

was launched in August 1986. During 1990s, UTI catered to the demand for income-oriented

schemes by launching Monthly Income Schemes, a somewhat unusual mutual fund product

offering “assured returns”.

The mutual fund industry in India not only started with UTI, but still counts UTI as its largest

player with the largest corpus of investible fnds among all mutual funds currently operating in

India. Until 1980s, UTI operations in the stock market often determined the direction of marekt

movements. The investible funds corpus of even UTI was still relatively small at about Rs. 600

crores in 1984. But, at the end of this Phase One, UTI had grown large as evidenced by the

following statistics:

1987-88

Amount

Mobilised

(Rs. Crores)

Assets Under

Management

(Rs. Crores)

UTI 2175 6700

Total 2175 6700

PHASE 2: 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS)

1987 marked the entry of non-UTI, Public Sector mutual funds, bringing in competition. With the

opening up of economy, many public sector banks and financial institutions were allowed to

establish mutual funds. The State Bank of India established the first non-UTI mutual fund – SBI

Mutual Fund – in November 1987. This was followed by Canbank Mutual Fund (launched in

8



December, 1987), LIC Mutual Fund (1989), and Indian Bank Mutual Fund (1990) followed by

Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. These mutual funds helped

enlarge the investor community and the investible funds. From 1987 to 1992-93, the fund industry

expanded nearly seen times in terms of Assets Under Management, as seen in the following

figures:

1992-93

Amount

Mobilised

(Rs. Crores)

Assets Under

Management

(Rs. Crores)

UTI 11057 38247Public sector 1964 8757

Total 13021 47004

During this period, investors were shifting away from bank deposits to mutual funds, as they

started allocating larger part of their financial assets and savings (5.2% in 1992, 3.1% in 1998) to

fund investments. UTI was still the largest segment of the industry, although with nearly 20%

market share ceded to the Public Sector Funds.

PHASE 3: 1993-96 (EMERGENCE OF PRIVATE FUNDS)

A new era in the mutual fund industry began with the permission granted for the entry of private

sector funds in 1993, giving the Indian investors a broader choice of ‘fund families’ and increasing

competition for the existing public sector funds.

During the year 1993-94, five private sector mutual funds launched their schemes followed by six

others in 1994-95. Initially, the mobilization of funds by the private mutual funds was slow. But,

this segment of the fund industry now has been witnessing much greater investor confidence in

9



them. One influencing factor has been the development of a SEBI driven regulatory framework for

mutual funds.

PHASE 4: 1996 (SEBI REGULATION FOR MUTUAL FUNDS)

Deregulation and liberalization of the Indian economy has introduced competition and provided

impetus to the growth of the industry. Finally, most investors – small or large – have started

shifting towards mutual funds as opposed to banks or direct market investments.

More investor friendly regulatory measures have been taken both by SEBI to protect the investor

and by the Government to enhance investors’ return through tax benefits. A comprehensive set of

regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund)

Regulations, 1996. These regulations set uniform standards for all funds and will eventually be

applied in full to Unit Trust of India as well, even though UTI is governed by its own UTI Act. In

fact, UTI has been voluntarily adopting SEBI guidelines for most of its schemes. Similarly, the

1999 Union Government Budget took a big step in exempting all mutual fund dividends from

income tax in the hands of investors. Both the 1996 regulations and the 1999 Budget must be

considered of historic importance, given their far-reaching impact on the fund industry and

investors.

1999 marks the beginning of a new phase in the history of the mutual fund industry in India, a

phase of significant growth in terms of both amounts mobilized from investors and assets under

management. Consider the growth in assets as seen in the figures below:

Gross amount mobilized (Rs.

Crore)

Assets under management

(Rs. Crores)

1998-99 1999-00 1998-99 1999-00

UTI 11679 13536 53320 76547

10



(77.87%) (67.75%)

Pubic sector 1732 4039 8292 11412

(12.11%) (10.09%)

Private sector 7966 42173 6860 25046

(10.02%) (22.16%)

Total 21377 59748 68472 113005

The size of the industry is growing rapidly, as seen the figure of assets under management which

have gone from over Rs. 68000 crores to Rs. 113005 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 under management have undergone a change.

Phase 5: 2002 (BIFURCATION OF UTI)

The year 2002 was a historic year for the mutual fund industry. The govt. passed legislation

scrapping the UTI Act in the winter session. UTI was simmering in deep trouble for several years

& the govt. had to give bail out packages. but , giving the last bailout package of 15000 crs , it

divided the institution into 2 parts:

UTI –I (includes all the assured return schemes & trouble d flagship of US- 64. An

administrator will monitor these schemes.)

UTI- II (all the NAV based, SEBI compliance schemes, which will function like any other

mutual fund.)

The govt. will privatize the scheme in the next 3 – 5 years, separating itself from the fund.

11



Gross amount mobilized (Rs. Crore)

Apr 2000-01 Oct 2001-02

UTI 71905 44703

Private sector 23682 58023

The year also opened up new avenues for the mutual fund industry, like:

Entry of Mutual funds in the real estate sector,

Increasing of equity investments limit’s in foreign equities to $1bn,

Entry into derivatives market.

SECTOR-WISE MOBILISATION BY MFs (FY02)

13049.89

1409.31

-7284

-10000

-5000

0

5000

10000

15000

Ð-†hPRIVAT ¶-NhPUBLI 1-

(Rs Crores)

12



THE EMERGENCE OF MUTUAL FUND INDUSTRY

Over the past 75 years there has been no better way to experience financial growth than to have

been a long-term investor in the Indian stock market. Even though they have experienced some

dramatic downturns, stocks, which are ownership shares in public corporations, have outperform

all other types of investments including bonds, CDs and Government securities and have stayed

ahead of inflation. Like the stock market, successful investing is never a sure thing, since one can’t

predict what the value of his investment or the rate of return, will be at any point in time. Yet,

despite this uncertainty, the stock market remains among the best choices for long term investing.

75 YEARS OF INVESTMENT PERFORMANCE

Compound Annual percent Return (1925-1999)

13



Mutual funds now represent perhaps for most appropriate investment

opportunity for most investors. Since financial market has become more sophisticated and

complex, investor need a financial intermediary who provides the required knowledge and

professional expertise on successful investing. It is no wonder that in the birth place of mutual

funds - the USA – the fund industry has already overtaken the banking industry, more funds being

order mutual fund management than deposited with banks.

The Indian Mutual Fund Industry has already started opening up many of the exciting investment

opportunities to Indian Investors. We have started witnessing the phenomenon of more saving &

14



now being entrusted to the mutual funds than to banks. Despite the expected continuing growth in

the industry, mutual funds are still a new financial intermediary in India. Hence it is important that

the investor acquires better knowledge of what mutual funds are, what they can do for investors

and what they cannot, and how they function differently from other intermediaries such as the

Banks.

SECURITY, GROWTH AND PROFESSIONAL MANAGEMENT

Suppose one has just started as an investor and have Rs. 20000 to invest and have three

important goals you want to achieve.

First, don’t want to lose the money in a risk venture so wants security, like that found in a

certificate of deposit or other fixed income investment.

Want to maximize the returns so one also wants the prospect for growth potential.

Finally, since one doesn’t have the time or knowledge to actively manage his money, he wants

professional money management – occasionally diversifying his investment into promising

new opportunities.

That sounds like a very good plan, but where can you invest his money and have a chance to

meet all three criteria?

Certificates of deposit and other fixed income investments offer security, but often with low

rates of interest and a fixed potential for growth. Individual stocks may carry greater potential for

growth but Rs. 20000 isn’t a lot to invest and if you put it all in one stock, one risk everything if it

perform poorly. And, brokers and investment advisors can offer advice and money management,

but at a price to be paid for their services, which reduces further the amount one has to invest.

15



So where can one invest money? The answer for more and more Indians is to invest in mutual

funds.

MUTUAL FUNDS - THE YEAR AHEAD

A after a difficult year for equity markets & equity funds alike, all the eyes are now on year 2007.

Last year saw one of the lowest net flows ever into equity schemes, with debt schemes being the

major gainers on account of continued decline in the interest rates.

Hopes are high that the performance of equity schemes should be better this year, as the market

history indicates such trends. It is only twice in the last 100 years that markets have remained

under that controls of bears for three consecutive years. Therefore, chances are those both domestic

& international markets will rebound sharply, which would result in much better performance by

equity funds. Thus, if one is looking at investing in equity funds, INDEX FUND is the best choice.

Though some sect oral funds have been able to give decent returns but overall they haven’t lived

up to the expectation of the market. Every year one or the other sectors strongly outperform the

market, but it would still be a better choice to go in for DIVERSIFIED FUNDS, that have features

of dynamic plan.

The MF industry is expecting tax break, which were withdrawn in the last budget, to be restored.

And that is expecting to bring a section of investor’s back to the markets. Merger V& Acquisitions

developments, which started in 2002, are likely to continue. In the few weeks time we will know

the winner for ALLIANCE. Another important development in the current year is going to be a

big- bang entry of MFs in DERIVATIVES ES market followed by their investments in FOREIGN

markets

16



Mutual Funds can be structured in the following ways:

Company in which investors hold shares of the mutual fund. In this structure management of the

fund in the4 hands of on elected board. Which in turn appoints investment managers to manage the

fund? Trust from, in which the investors are held by the trust, on behalf of the investors. They

appoint investment managers and monitor their functioning in the interest of the investors.

The company form of organization is very popular in the United States. In India mutual funds are

organized as trusts. The trust is created by the sponsors who is actually the entity interested in

creating the mutual fund business. The trust is either managed by a Board of trustees or by a trustee

company formed for this purpose. The investor’s funds arte held by the trust.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first

functionary to be appointed, and is involved in the appointment of all the other functionaries. The

AMC structures the mutual fund products, markets them and mobilizes the funds and services the

investors. It seeks the services of the functionaries in carrying out these functions. All the

functionaries are required to the trustees, who lay down the ground rules and monitor them,

working.

TYPES OF MUTUAL FUNDS

17



General Classification of Mutual Funds

Open- end Funds/Closed-end Funds

Open-end Funds :- Funds that can sell and purchase units at nay point in time are

classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps

changing) because of continuous selling (to investors) and repurchases (from the investors) by the

fund. An open-end fund is not repurchasing, when an investor wants to sell his units. The NAV of

an open-end fund is calculated every day.

Closed – end Funds :-Funds that can sell a fixed number of units only during the New

Fund (NFO) period are known as Closed- end Funds. The corpus of a closed – end Funds. The

corpus of end Fund remains unchanged at all times. After the closure of the offer, buying and

redemption of units by the investors directly form the Funds is not allowed. However, to protect

the interests of the investors, SEBL provides investors with two avenues to liquidate their

positions.

1. Closed- end Funds are listed on the stock exchanges where investors can buy/sell units for/

to each other/ the trading is generally done at a discount to the NAV of the scheme. The

NAV of a closed –end fund is computed on a weekly basis (updated every Thursday).

2. Closed-end Funds may also offer “buy-back of units” to the unit holders. In this case, the

corpus of the Fund and its outstanding units do get changed.

Load Funds/ No-load Funds

18



Load Funds

Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning,

fund manager’s salary etc; many funds recover these expenses from the investors in the form of

load. These funds are known as Load Funds. A load fund may impose following types of loads on

the investors.

Entry Load-

Also known as front-end load, it refers to the load charged to an investor at the time of his entry

into a scheme. Entry load is deducted from the investor’s contribution amount to the fund.

Exit Load-

Also known as Back-end load, these charges re imposed on an investor when he redeems his units

(exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing

investor.

• Deferred Load- Deferred load is charged to the scheme over a period of time.

• Contingent Deferred Sales Charge (CDSC)-I some schemes, the percentage

of exit load reduces as the investor stays longer with the fund. This type of load

is known as Contingent Deferred Sales Charge.

19



No-load Funds

All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

Tax- exempt Funds/ Non- Tax exempt Funds

Tax- exempts Funds

Funds that invest in securities free tax are known as Tax-exempt Funds. All open- end equity

oriented funds are exempt from distribution tax (tax for distributing income to investors). Long

term capital gains and dividend income in the hands of investors are tax free.

Non- Tax-exempt Funds

Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds,

except open-end equity oriented funds are liable to pay tax on distribution income.

Profits arising out of sale of units by an investor within 12 months of purchase are3 categorized as

short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to

Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

EQUITY FUND:-

20



a. Aggressive Growth Funds- In Aggressive Growth Funds, Funds, fund

managers aspire for maximum capital appreciation and invest in less researched

shares of speculative nature. Because of these speculative investments Aggressive

Growth Funds become move volatile and thus, are prone to higher risk than other

equity funds.

b. Growth Funds- Growth Funds also invest for capital appreciation (with time

horizon of 3 to 5 years) but they are different from aggressive Growth Funds in the

sense that they invest in companies that are expected to out perform the market in

the future. Without entirely adopting speculative strategies, Growth Funds invest in

those companies that ate expected to post above average earnings in the future.

c. Specialty Funds- Specialty Funds have stated criteria for investments and their

portfolio comprised of only those companies that met their criteria. Criteria for

some specialty funds could be to invest/not to invest in particular regions/

companies. Specialty funds are concentrated and thus, are comparatively riskier

than diversified funds. There are following types of specialty funds.

i. Sector Funds: Equity funds that invest in a particular sector/ industry of the

market are known as Sector Funds. The exposure of these funds is limited to a

21



particular sector (say Information Technology, Auto, Banking, Pharmaceuticals of

Fast Moving Consumer Goods) which is why they are more risky than equity funds

that invest in multiple sectors.

ii. Foreign Securities Funds: Foreign securities funds achieve international

diversification and hence they are less risky than sector funds. However, foreign

securities funds are exposed to foreign exchange rate risk and country risk.

iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having

lower market capitalization than large capitalization companies are called Med-Cap

or Small-Cap funds. Market capitalization of mid-Cap companies is less than that

of big, blue chip companies (less than Rs.2500 crores but more than Rs.500 crores )

and Small-Cap companies have market capitalization of les than Rs.500 crores

Market Capitalization of a company can be calculated by multiplying the market

price of the company’s share by the total number of its outstanding shares in the

market. The shares of Mid-Cap or Small-Cap Companies are not as liquid ads of

Large-Cap Companies which gives rise to volatility in share prices of these

companies and consequently, investment gets risky.

iv. Option Income Funds: While not yet available in India. Option Income Funds

write options on large fraction of their portfolio. Proper use of options can help to

reduce volatility, which is otherwise considered as a risky instrument. These funds

22



invest in big, high dividend yielding companies, and then sell options against their

stock positions, which generate stable income for investors.

d. Diversified Equity Funds-Except for a small portion of investment in liquid

money market, diversified equity funds invest mainly in equities without any

concentration on a particular sector (s) these funds arte well diversified and reduce

sector-specific or company-specific risk. However like all other funds diversified

equity funds too are exposed to equity market risk .One prominent type of

diversified equity fund in India is Equity Linked Saving Scheme (ELSS). As per the

mandate, a minimum of 90% of investments by ELSS should be in equities at all

times. ELSS investors are eligible to claim deduction from taxable income (up to

Rs 1lakh) at the time of filing the income tax return. ELSS usually has a lock-in

period and in case of any redemption by the investor before the expiry of the lock-

in period makes him liable to pay income tax on such income(s) for which he may

have received any tax exemption(s) in the past.

e. Equity Index Funds- Equity Index Funds have the objective to match the

performance of a specific stock market index. The portfolio of these funds

comprises of the same companies that form the index and is substituted in the same

proportion as the index. Equity index funds that follow broad indices (like S&P

CNX Nifty Sensex) are less risky than equity index funds that follow narrow sect

oral indices (like BSEBANKEX or CNX Bank Index etc.) Narrow indices are less

diversified and therefore, are more risky.

23



f. Value Funds- Value Funds invest in those companies that have sound

fundamentals and whose share prices are currently under-valued. The portfolio of

these funds comprises of shares that are trading at a low Price to Earning Ratio

(Market Price per Share/Earning per Share) and a low Market to Book Value

(Fundamental Value) Ratio. Value Funds may select companies from diversified

sectors and are exposed to lower risk level as compared to growth funds or

specialty funds. Value stocks are generally from cyclical industries (such as

cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it

is advisable to invest in Value funds with a long- term time horizon as risk in the

long term to a large extent, is reduced.

Equity Income or Dividend Yield Funds-

The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring

income and steady capital appreciation for investors by investing in those companies which issue

high dividends (such as power of Utility companies whose share price fluctuate comparatively

lesser than other companies’ share price). Equity Income or Dividend Yield Equity Funds are

generally exposed to the lowest risk level as compared to other equity funds.

Debt/Income Funds-

Funds that invest in medium to long- term debt instruments issued by private companies, banks,

financial institutions, governments and other entities belonging to various sectors (like

infrastructure companies etc. ) are known as Debt/ Income Funds. Debt funds are low risk profile

24



funds that seek to generate fixed current income (and not capital appreciation) to investors. In

order to ensure regular income to investors Debt (or income) funds distribute large fraction of their

surplus to investors. Although debt securities are generally less risky than equities, they are subject

to credit risk (Risk of default) by the issuer at the time of interest or principal payment. To

minimize the risk of default, debt funds usually invest in securities from issuers who are rated by

credit rating agencies and are considered to be of “Investment Grade”. Debt funds that target high

returns are more risky. Based on different investment objectives, there can be following types of

debt funds:

a. Diversified Debt Funds – Debt funds that invest in all securities issued by entities

belonging to all sectors of the market are known as diversified debt funds. The best

feature of diversified debt funds is that investments arte properly diversified into all

sectors which result in risk reduction. Any loss incurred. On account of default by a

debt issuer, is shared by all investors which further reduces risk for an individual

investor.

b. Focused Debt Funds- Unlike diversified debt funds, focused debt funds are narrow

focus funds that arte confined to investment in selective debt securities, issued by

companies of a specific sector or industry or origin. Some examples of focused debt

funds are sector, specialized and offshore debt funds, funds that invest only in Tax free

Infrastructure or Municipal Bonds. Because of their narrow orientation focused debt

25



funds are more risky as compared to diversified debt funds, although not yet available

in India; these funds are conceivable and may be offered to investors very soon.

c. High Yield Debt funds- As we now understand that risk of default is present in all

debt funds, and therefore, debt funds generally try to minimize the risk of default by

investing in securities issued by only those borrowers who are considered to be of

“investment grade” But, high Yield Debt Funds adopt a different strategy and prefer

securities issued by those issuers who are considered to be of “investment grade’. The

motive behind adopting this sort of risky strategy is to earn higher interest returns form

these issuers. These funds are more volatile and bear higher default risk, although they

may earn at times higher returns for investors.

d. Assured Return Funds- Although it is not necessary that a fund will meet its

objectives or provide assured returns to investors, but there can be funds that come with

a lock – in period and offer assurance of annual returns to investors during the lock-in

period. Any shortfall in returns in suffered by the sponsors or the Asset Management

Companies (AMCs). These funds are generally debt funds and provide investors with

low-risk investment opportunity. However, the security of investments depends upon

the net worth of the guarantor (whose name inn specified in advance on the offer

document). To safeguard the interests of investors, SEBI permits only those funds to

offer assured return schemes whose sponsors have adequate net-worth to guarantee

26



returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly

Income Plans of UTI) that assured specified returns to investors in the future. UTI was

not able to fulfill its promises and faced large shortfalls in returns. Eventually,

government had to intervene and took over UTI’s payment obligation on itself.

Currently, no AMC in India offers assured return scheme to investors, though possible.

Gilt Funds

Also known as Government securities in India, Gilt Funds invest in government papers (named

dated securities) having medium to long term maturity period. Issued by the Government of India,

these investments have little credit risk (risk of default) and provide safety of principal to the

investors. However, like all debt funds, gilt funds too are exposed to interest risk, Interest rates and

prices of debt securities are inversely related and any change in the interest results in a change in

the NAV of debt/gilt funds in an opposite direction.

Money Market/Liquid Funds

Money market / liquid funds invest in short- term (maturing within one year) interest bearing

debt instruments. These securities are highly liquid and provide safety of investment, thus making

money market/liquid funds the safest investment option when compared with other mutual fund

types. However, even money market / liquid funds are exposed to the interest rate risk. The typical

27



investment option for liquid funds includes Treasury Bills (issued by governments), Commercial

papers (issued by companies) and Certificates of Deposit (issued by banks).

Hybrid Funds-

As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities,

debts and money market securities. Hybrid funds have an equal proportion debt and equity in their

portfolio. There are following types of hybrid funds in India.

a. Balanced Funds- The portfolio of balanced funds include assets like debt

securities, convertible securities, and equity and preference shares help in a

relatively equal proportion, the objectives of balanced funds are to reward

investors with a regular income, moderate capital appreciation and at the same

time minimizing the risk of capital erosion. Balanced funds are appropriate for

conservative investors having a long term investment horizon.

b. Growth- and- Income Funds that combine features of funds are known as

Growth-and-Income Funds. These funds invest in companies having potential for

capital appreciation and those known for insuring high dividends. The level of risks

involved in these funds in lower than growth funds and higher than income funds.

Asset Allocation Funds-

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Mutual may invest in financial assets like equity, debt money market or non-financial (physical)

assets like real estate, commodities etc. Asset allocation funds adopt a variable asset allocation

strategy that allows fund managers to switch over from one asset class to another at nay time

depending upon their outlook for specific markets, in other words, fund managers may switch over

to equity if they expect equity market to provide good returns and switch over to debt if they

expect debt market to provide better returns. It should be noted that switching over from one asset

class to another is a decision taken by the fund manager on the basis of his own judgment and

understanding of specific markets, and therefore, the success of these funds depends upon the skill

of a fund manager in anticipating market trends.

Commodity Funds-

Those funds that focus on investing in different commodities (like metals, food grains, crude oil

etc.0 or commodity companies or commodity futures contracts are termed as Commodity Funds. A

commodity fund that invests in a single commodity or a group of commodities is a specialized

commodity fund and a commodity fund that invests in all available commodities is a diversified

commodity fund and a bears less risk than a specialized commodity fund. “Precious Metals Fund”

and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of

commodity funds.

Real Estate Funds

29



Funds that invest directly in real estate or lend to real estate developers or invest in shares/

securitized assets of housing finance company are known as Specialized Real Estate Funds. The

objective of the funds may be to generate regular income for investors or capital appreciation

Exchange Traded Funds (ETF)

Exchange Traded Funds provide investor with combined benefits of a closed- end and an open-

end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock

exchanges like a single stock at index linked prices. The biggest advantage offered by these funds

is that they offer diversification flexibility of holding a single share (tradable at index linked

prices) at the same time. Recently introduced in India, these funds are quite popular abroad

Fund of Funds

Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund

schemes offered by different AMCs, are known as Funds of Funds, of Funds maintain a portfolio

comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a

portfolio comprising of equity/debt/ money market instrument or non financial assets. Fund of

Funds provide investors with an added advantage of diversifying into different mutual fund

scheme with even a small amount of investment, which further helps in diversification of risks.

30



However, the expenses of Fund of Funds are quite high on account of compounding expenses of

investments into Different mutual fund schemes.

ADVANTAGES OF MUTUAL FUND

S.NO. Advantage Particulars1. Professional

Management

Fund manager undergoes through various research works and ha

better investment management skills which ensure higher return

to the investor than what he can manage on his own.

2. Less Risk Investors acquire a diversified portfolio of securities even with

small investment in a Mutual Fund. The risk in a diversifie

portfolio is lesser than investing merely 2 or 3 securities.

3. Low Transaction Due to the economies of scale (benefits of larger volumes

31



costs mutual funds pay lesser transaction costs. These benefits ar

passed on to the investors.

4. Liquidity An investor may not be able to sell some of the shares held b

him very easily and quickly, whereas units of a mutual fund ar

far more liquid.

5. Choice of Schemes Mutual funds provide investors with various schemes wit

different investment objectives. Investors have the option o

investing in a scheme having a correlation between its investmen

objectives and their own financial goals. These schemes furthe

have different plans/options.

6. Transparency Funds provide investors with updated information pertaining t

the markets and the schemes. All material facts are disclosed t

investors as required by the regulator.

7. Flexibility Investors also benefit form the convenience and flexibility offere

by Mutual Funds. Investors can switch their holding from a deb

scheme to an equity scheme and vice-versa. Option of systemati

(at regular intervals) Investment and withdrawal is also offered t

the investors in most open-end schemes.

8. Safety Mutual Fund industry is part of a well- regulated investmen

environment where the interests of the investors are protected b

the regulator. All funds are registered with SEBI and complet

transparency is forced.

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DISADVANTAGES OF MUTUAL FUND

S.NO. Disadvantages Particulars

1. Costs Control Not in the

Hands of an Investor

Investor has to pay investment management fees and fun

distribution costs as a percentage of the value of his investment

(as long as he holds the units), irrespective of the performanc

of the fund.

2. No Customized

Portfolios

The portfolio of securities in which a fund invests is a decisio

taken by the funds manager. Investors have no right to interfer

in the decision making process of a fund manager, which som

investors find as a constraint in achieving their financia

objectives.

3. Difficulty in Selecting a

Suitable Fund scheme

Many investors find it difficult to select one option form th

plethora of funds/ schemes/ plans available. For this, they ma

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have to take advice from financial planners in order to invest i

the right fund to achieve their objectives.

MUTUAL FUND: COST TO INVESTOR

The utility that mutual fund can offer to investors has been discussed and often eulogized in great

detail. However there is another vital aspect to mutual funds that is rarely spoken about – the costs.

Investing in mutual funds entails bearing certain cost on the investor’s part. These costs in turn

have an impact on the returns clocked by the investor. In this article, we take a closer look at the

various costs and expenses borne by investors while investing in a mutual fund scheme.

One-time charges

Entry/exit loads and initial issue expenses qualify as one-time charges, as opposed to recurring

expenses which have been dealt with later in the article. First, let’s consider the case of new fund

offers (NFOs). Over the last few years, investors have been faced with a deluge of NFOs. But in

recent times a perceptible trend in NFOs has been a rise in the number of close-ended funds. This

phenomenon can be traced to the rules governing initial issue expenses.

34



Close-ended funds are not permitted to charge any entry load; instead 6% of the sum mobilized

during the NFO period can be utilized to meet the initial issue expenses The same can be amortized

(charged to the fund ) over the fund’s close-ended tenure. For example, if a close-end fund were to

mobilize Rs 5 billion (Rs 500 crores) during the NFO period, the asset management company

(AMC) can utilize Rs 300 million (Rs 30crores) to meet the sales, marketing and distribution

expenses. Furthermore, the stated sum will be charged to the fund. This will impact the returns

clocked by the fund. Any amount over the stated 6% has to be borne by the AMC.

Conversely in the case of open- ended NFOs, funds are required to meet all the sales, marketing

and distribution expenses from the entry load. They are not permitted to charge any initial issue

expenses. The rules governing entry/exit loads state that taken together, the two cannot account for

more the 6% of the net asset value (NAV). Charging an entry load for the entire 6% upfront would

adversely affect the fund’s performance in the initial period. Hence AMCs choose to have rater

“rational’ entry loads ion the range of 2.25%-2.20%. Like initial issue expenses, entry loads also

eat the investor’s returns, since the investor has that much less money working for him.

For example, Say an invests Rs 5,000 in an open- ended fund that charge s an entry load of 2.50%.

Effectively, only Rs 4,875 is invested in the fund. If is not difficult to understand why AMCs have

a newfound liking for close-ended funds. With the provision for charging 6% of amount mobilized

towards initial issue expenses, AMCs are better equipped to compensate toe distributors and

agents, who in turn help the fund houses in accumulating more assets. Higher assets translate into

higher revenues for the AMCs of courses; close-ended funds do offer advantages as well. For

example, the fund manager can make investments from a long-term perspective and investors are

35



given the opportunity to invest for a pre-defined investment horizon. However investors would do

well to factor in the costs involved.

Recurring expenses-

Investors also have to contend with recurring expenses, which are charged annually to the fund.

These expenses are revealed in the form of an expense ratio that is declared twice a year. Recurring

expenses (as is the case with amortized issue expenses) are “silent’ in nature since they don’t

necessarily attract the investor’s attention. The reason being that the fund’s NAV is declared after

the recurring expenses have been accounted for.

The Securities and Exchange Board of India (SEBI) has laid out guidelines defining the manner in

which recurring expenses can be charged: the same is a factor of the fund’s average weekly assets

(however most AMCs choose to compute it as a percentage.

The expense ratio

Average daily net assets %LimitFirst Rs 1,000m 2.50%

Next Rs 3,000m 2.50%

Next Rs 3,000m 2.00%

On balance assets 1.75%

As can be seen form the table above, the grid for recurring expenses has been structured in a

manner to ensure that the expenses charged to the fund reduce with an increase in the asset size.

The recurring expenses include marketing and selling expenses (including agents’ commission),

36



brokerage and transaction cost, custodian fees and fund management expenses (paid to the AMC),

among other expenses. A typical list of recurring expenses for an equity fund would look like the

following:

Recurring expenses for an equity fund-

Expenses % Of average daily net assetsFund Management 1.25%

Marketing & Selling 0.50%

Custodian Fees 0.25%

Investor Communication 0.20%Registrar Fees 0.15%

37



Some Mutual Fund Industry in India

Sahara Mutual Fund

Sahara mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. As

the sponsor. Sahara Asset Management Company Private Limited inculpated on August 31, 1995

Works as the AMC of Sahara Mutual Fund. The paid-up capital of The AMC stands at Rs.25.8

crore.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund,

the India Magnum Fund with a corpus of Rs. 225 er. 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.

Tata Mutual Fund

Tata Mutual Fund (*TMF) is a Trust under the India Trust Act, 1882. The sponsor for Tata Mutual

Fund is Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata

Asset Management Limited is one of the fastest in the country with more than Rs, 7,703 crores (as

on April30, 2005) of AUM.

38



Kotak Mahindra Mutual Fund

Korak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBl. It is presently

having more than 1,99,818 investors in it various schemes. KMAMC started its operations in

December 1998. Kotak Mahindra Mutual Fund offers schemes fcatering to investor s with varying

risk- return profiles. It was the first company to launch dedicated gilt scheme investing only in

government securities.

Unit Trust of India Mutual Fund

UTI Asset Management Company private Limited, established in 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.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor

of RMF is Reliance Capital Limited and Reliance Capital Turstee Co. Limited is the Trustee. It

was registered on june 30 1995 as Reliance Capital Mutual Fund which was changed on March 11,

2004 Reliance Mutual Fund was formed for launching of various schemes under which units are

issued to the Public with a view to contribute to the capital market and to provide investor the

opportunities to make investments in diversified securities.

39



TOP 5 MUTUAL FUNDS COMPANIES IN INDIA

Quiz question: what percentage of household savings is in mutual funds? Answer: 2 per cent.

That‘s a pittance. Which is why mutual fund houses are trying new ways to not only entice

investor, but also entice investor, but also new way to add value and woo you, the customer?

There are old scheme, new schemes, old schemes masquerading as new ones, innovative schemes,

and value- added schemes—there’s no telling when this flood will end. And that’s not a bad thing

at all. This is one case where more is definitely merrier, because it simply enforces the fact that the

customer is king.

But enough of such clichés, and on to look at those fund houses that lead the rest in sheer

innovative schemes, and value-added schemes—there’s no telling when this flood will end. And

that’s not a bad thing at all. This is one case where is definitely merrier, because it simply enforces

the fact that the customer is king.

But enough of such clichés, and on to look at those fund houses that lead the rest in sheer

innovativeness. These MFs have done a lot to add value to your investing experience, whether in

the form of unique schemes or innovative management or sheer professionalism.

Leading our list of five is a fund that most people thought was a loser. Looks are not always what

they seem. The MF was actually just sticking to its high ethical ground. This fund house’s belief

that its way would triumph put it on the top of the heap. Now, on to the list.

40



1. Quantum Mutual Fund

Rule1: keep launching new schemes. Size matters and bigger is better. Rule 2: Woo distributors to

increase collections and to overtake competition. Rule3: Bargain about commission with the

distributor but don’t worry about it too much: at the end of the day, it is the customer who pays.

Shocked? You may well be, but these are the rules almost every mutual fund follows religiously.

And that’s where Quantum MF part company with the crowd.

“Mutual funds should be bought, not sold”, says Dayal, director, Quantum MF. And that’s the

foundation of the allow-new Quantum. Launched in February 2006, the fund house has

deliberately chosen to avoid distributing its schemes through distributors, a first in this industry.

The only way you can buy Quantum schemes is to download the forms from the company site or

by asking them to courier the forms to you.

Avoiding distributors in peak markets could prove costly. Because they can sell schemes

aggressively and help the fund mop up huge collections. Which is possibly why Quantum Long –

Term Equity fund collected just? Rs 11 crore. Not that they are complaining, “We’ll be very happy

after five years when we’ll be able to demonstrate the cost saving move obviously,” says Dayal.

Incidentally, the fund is also among the very few open-ended equity schemes to levy high exit

loads on early withdrawals, yes, Quantum seeks to set an example of how mutual funds should be

approached, but this means that it will take it several years before it can accomplish its mission.

We’ll keep you posted.

2- Benchmark Mutual Fund

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Not many funds have launched index funds in India, and those that did generally made a low-key

entrance into that space. And then comes benchmark MF inn 2001, which made no bones about

the fact that it was going to launch only index funds.

To be precise, it planned to launch only ETFs (exchange- traded funds)- close cousins of index

funds. The difference is that ETFs are listyed on the stock exchanges and you can buy and sell

units throughout the day and not just at the end of the day’s price like an index fund or any other

open-ended mutual fund. Highlights of Benchmark’s portfolio include innovative schemes like its

Arbitrage Fund, Split Capital Fund and Liquid BeEs.

Benchmark is also the country’s first and only fund with solely passively managed schemes. The

MF does not believe in active management: rather, it believes that indexing and quantitative fund

management is the way to go.

Set up by Rajan Mehta and Sanjiv Shah, the fund’s philosophy is to remain invested in the index

and let it do its own thing. Says Mehta: ‘Over the last three years, the gap of out-performance by

actively managed funds over the indices is reducing. It does not mean that fund managers have run

out of ideas, but there are some structural changes like better corporate disclosures and the

increasing number of informed and professional investors in the market.

“Due to this, the ability to ad value becomes less, which is why indexing is a much more

sustainable strategy over the longer term.”

As we’ve seen elsewhere in the world, the more the markets mature and become efficient, the more

difficult it becomes to outperform the index.

42



3. Fidelity Mutual Fund

It’s the big daddy of mutual funds, and when fidelity entered the Indian market last year, investors

and analysts sat up and took notice. The first launch, Fidelity Equity Fund, collected Rs 1,460

crore (Rs14.6 billion), among the largest inflows till the. The fund is now one year old, and has

passed its first test with flying colours, with returns of 78.9 percent.

So, what’s the difference between Fidelity and other MFs, save size? What caught our attention

one year ago, and still does, is the fact that Fidelity does not encourage investors to wander in and

out of its schemes. It claims to monitor all entries and exits, and if it feels that an investor is

making frequent entries and exits into fund, it will disallow those flows. “Frequent churning has a

negative impact for existing, long-term investors,” Says Ashu Suyash, head- Fidelity M.F. Fidelity

claims that inception , it hasn’t yet come across any instances of investors who churn excessively,

but the policy still stands, perhaps as a deterrent. But what about investors who exit soon after the

fund was listed? Or maybe even in the first year itself?

Suyash says: “We had- and still have- an exit load of 1 per cent investors exiting within six

months.” That may not be enough. If the market goes up phenomenally in a year and so does the

fund, eager investors might still pay the load and get away. With SEBI following a maximum of 7

per cent load, there’s room left for Fidelity to enforce its belief a bit more.

4. Franklin Templeton Mutual Fund.

43



In the 1990s, most equity funds launched were either closed-and or plain vanilla diversified equity

schemes. Enter Franklin Templeton. They launched India’s first equity scheme. Templeton India

Growth Fund, based on the concept of ‘value investing.

India’s liberalization process, which started in the early 1990s, had picked up momentum towards

the middle of that decade and Indian companies that had grown till then in a controlled

environment were now waking up to the realities of competition not just with in the country, but

also from abroad.

En masse, companies began restructuring, Says Chetan Sehgal, director-research, Franklin

Templeton: “In that sense, a ‘value’ fund with a focus on long-term potential was seen as an ideal

platform for capturing the advantages of this metamorphosis through investments in large

companies.”

However, in its early days, TICF did not do well due to the impact of the South Asian crisis on

company’s in1997 and the increased interest in technology stocks. The fund stuck to large-cap

stocks and stayed away form mid- caps. Though it lost out to its more aggressive peers during the

technology boom of 1998-99, it came into its own during 2000-01, when markets crashed. In 2000,

when markets lost 20 per cent and the diversified equity funds category lost 30 percent, TIGF lost

just 2 per cent. In 2001` , the fund was in the top 10; it lost 10 percent , while Sensex lost 18

percent.

Of late, TIGF’s performance has slipped and other value funds, notably prudential ICICI

Discovery fund, have taken the lead. Heavy exposure to the oil sector was also responsible for

44



pulling down its performance. Is this a temporary effect of will TIGF manage an encore? Only

time will tell.

5. Reliance Mutual Fund

The now leader Reliance Mutual Fund has come into its own after years of trailing the likes of

Franklin Templeton, HDFC and Prudential ICICI. According to AMFI’s March-end figures,

Reliance MF is the leading private MF player in terms of corpus and second only to UTI MF

overall.

Its latest NFO, Reliance Equity, had a lot to do with this, as the fund mopped up Rs, 5,750 crore

(Rs 57.5 billion)- the highest inflows ever in a diversified equity fund. But it would be unfair to

attribute all the gains to this one scheme. Reliance’s other funds had a lot to do with this significant

growth.

Launched in 1995, Reliance MF had a tough time in the early years. Its two flagship equity funds,

Reliance Growth and Reliance Vision, showed uninspired performance till 2001. It was only in

2002 when, after a change in fund, management, the schemes started to turn around. And so did

the fund house’s fortunes.

In 2002, both Growth and Vision topped the charts and still continue with their sterling

performances. Reliance MF has developed the art of picking up unheard of companies that turn out

to be multi-baggers. In recent years, the fund house has launched unconventional sector funds and

has done well.

45



While Reliance Diversified Power Fund returned 106 percent, Reliance Media & Entertainment

Fund returned 81 percent in the past one year. Reliance Banking Fund returned 48 percent since

inception.

Over the year, Reliance MF has built up its fixed income side as well. Two of its debt fund,

Reliance Income Fund and Reliance FRF, are five- star rated. From a corpus size of Rs 589 crore

(Rs 5.89 billion) at the end of 2000. The fund’s size has grown to Rs 24,670 crore (Rs, 246.7

billion), There’s on looking back now.

46



Performance of mutual funds in India

Let us start the discussion of the performance of mutual funds in India from the day the concept of

mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather

to those who believed in saving, to park their money in UTI Mutual Fund.

For 30 years it goaled without a single second player. Thought the 1998 year saw some new

mutual fund companies, but UTI remained in a monopoly position.

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 yea, some 24

million shareholders was accustomed with guaranteed high returns by the beginning of

liberalization of the industry in1992. This good record of UTI became marketing took for new

entrants. The expectations of investors touched the sky in profitabi9lity factor. However, people

were miles away from the preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about

the performance of mutual funds in India through figures. From Rs.67bn. The Assets Under

Management rose to Rs. 470 bn. In mach 19923 and the figure had a three times higher

performance by April 2004. It rose as high as Rs. 1,54 obn.

The net asset values (NAV) of mutual funds in India declined when stock price started falling in

the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative

investments. There were rather no choices apart form holding the cash or to further continue

47



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 scandals,

the losses by disinvestments and of course the lack of transparent rules in the where about 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.

48



CHAPTER -3

MICRO RESEARCH PROBLEM

OBJECTIVE

SCOPE

&

IMPORTANCE

49



Micro Research problems

A research problem, in general, refers to some difficulty, which a researcher

experiences in the context of either a theoretical or practical situation and wants to

obtain solutions. For the same.

1- There must be an individual or group, which has some difficulty or the problem.

2- There must be some objective to be attained at. If one wants nothing, one cannot

have problem

3- There must be alternative means or the course of action for obtaining the objective

one wish to attain. This means that there must be at least two means available to a

researcher for if he has no choice of means, he cannot have a problem.

4- Find out the performance of the mutual fund in past years.

5- There must remain some doubt in the mind of researcher with regard to the

selection of alternative. This means that research pro

.

Objective of the study

50



The mutual fund industry is fast gaining popularity in today’s unpredictable scenario. It is

emerging as one of the most locative investment option. The objective of the project is to gain

detailed insight into this industry.

The objective is to analyze the Position of MF in Indian markets & outline the factors which make

MF is the leading player in the mutual funds industry. Also there has been a focus on the rules

regulation and general obligation which are pertaining to the mutual fund scheme offered in the

industry.

The prime objective of the research was to determine the decision of the Indian Investor towards

MF and this demonstrated in this report.

1. To know about growth of mutual fund industry in india.

2. To know the objective behind investment.

3. To know how mutual funds are managed.

4. What is the structure of mutual fund.

5. To know the advantages as well as disadvantages of mutul fund.

6. To know about the various threats and oppertunities involved in the mutual fund industry.

51



Scope of the study

The purpose of the study is to obtain information about the mutual fund industry in india.

Which helps us to determinevarious issues challenges involved in it. The scope of the study

also provide information about the growth of mutual fund industry in india. The research has

done to know the various disadvantages of mutual fund. The research also shows that how

mutual fund can be most suitable investment for the common man as it offer an opportunity

to invest in a diversified,proffesionally managed basket of securities at relatively low cost.

Mutual fund help to reduce risk through diversification of proffesinal management.

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of

new players have entered the market and trying to gain market share in this rapidly

improving market.

The study will help to know the preferences of the customers, which company, portfolio,

mode of investment, option for getting return and so on they prefer. This project report may

help the company to make further planning and strategy

52



Importance of the study

This research help to analyze the Position of MF in Indian markets & outline the factors

which make MF is the leading player in the mutual funds industry. Also there has been a focus on

the rules regulation and general obligation which are pertaining to the mutual fund scheme offered

in the industry.

1- This research determines the decision of the Indian Investor towards MF and this

demonstrated in this report.

2- This research assists to know market growth rate for investment.

3- This research help to know the best option for the investor among different mutual

fund.

4- This research enhance the awareness of the consumer regarding mutual fund.

5- This research help to know the performance of the mutual fund in past years.

53



CHAPTER -4

RESEARCH METHODOLOGY

54



A research design is defined, as the specification of methods and procedures for acquiring the

information needed. It is a plant or organizing framework for doing the study and collecting the

data. Designing a research plan requires decision all the data sources, research approaches,

Research instruments, sampling plan and contact methods.

Research design is mainly of following types:-

Exploratory research

Descriptive studies

Casual studies

EXPLORATORY RESEARCH

The major purposes of exploratory studies are the identification of problems, the more precise

formulation of problems and the formulation of new alternative courses of action. The design of

exploratory studies us characterized by a great amount of flexibility and ad – hoc veracity.

DESCRIPTIVE RESEARCH

Descriptive research in contrast to exploratory research is marked by the prior formulation of

specific research Questions. The investigator already knows a substantial amount about the

research problem, perhaps as a Result of an exploratory study, before the project is initiated;

Descriptive research is also characterized by a preplanned and structured design.

CASUAL OR EXERIMENTAL RESEARCH

56



A casual design investigates the cause and effect relationships between two or more variables.

The hypothesis is tested and the experiment is done. There are following types of casual

designs:

I. After only design

II. Before after design

III. Before after with control group design

IV. Four groups, six studies design

V. After only with control group design

VI. Consumer panel design

DATA COLLECTION METHOD

PRIMARY SECONDARY

Direct personal Interview

Indirect personal Interview

Information from correspondents Govt. publication

Mailed questionnaire Report Committees & Commissions

Published Sources Unpublished Sources

57



Question filled by enumerators. Private Publication

PRIMARY DATA

These data are collected first time as original data. The data is recorded as observed or

encountered. Essentially they are raw materials. They may be combined, totaled but they have not

extensively been statistically processed. For example, data obtained by the peoples.

SECONDARY DATA

Sources of Secondary Data

Following are the main sources of secondary data:

Period of Study:

This study has been carried out for a maximum period of 8 weeks.

Area of study:

The study is exclusively done in the area of finance. It is a process requiring care, sophistication,

experience, business judgment, and imagination for which there can be no mechanical substitutes.

Sampling Design:

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The convenience sampling is done because any probability sampling procedure would require

detailed information about the universe, which is not easily available further, it being an

exploratory research.

Sample Procedure:

In this study “judgmental sampling procedure is used. Judgmental sampling is preferred because of

some limitation and the complexity of the random sampling. Area sampling is used in combination

with convenience sampling so as to collect the data from different regions of the city and to

increase reliability.

Sampling Size:

The sampling size of the study is 75 users.

Method of the Sampling:

Probability Sampling

It is also known as random sampling. Here, every item of the universe has an equal chance or

probability of being chosen for sample.

Probability sampling may be taken inform of:

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Simple Random Sampling

A simple random sample gives each member of the population an equal chance of being chosen.

It is not a haphazard sample as some people think! One way of achieving a simple random sample

is to number each element in the sampling frame (e.g. give everyone on the Electoral register a

number) and then use random numbers to select the required sample.

Random numbers can be obtained using your calculator, a spreadsheet, printed tables of random

numbers, or by the more traditional methods of drawing slips of paper from a hat, tossing coins or

rolling dice.

Systematic Random Sampling

This is random sampling with a system! From the sampling frame, a starting point is chosen at

random, and thereafter at regular intervals.

Stratified Random Sampling

With stratified random sampling, the population is first divided into a number of parts or 'strata'

according to some characteristic, chosen to be related to the major variables being studied. For this

survey, the variable of interest is the citizen's attitude to the redevelopment scheme, and the

stratification factor will be the values of the respondents' homes. This factor was chosen because it

seems reasonable to suppose that it will be related to people's attitudes.

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Cluster and area Sampling

Cluster sampling is a sampling technique used when "natural" groupings are evident in a

statistical population. It is often used in marketing research. In this technique, the total population

is divided into these groups (or clusters) and a sample of the groups is selected. Then the required

information is collected from the elements within each selected group. This may be done for every

element in these groups or a sub sample of elements may be selected within each of these groups.

Non Probability Sampling

It is also known as deliberate or purposive or judge mental sampling. In this type of sampling,

every item in the universe does not have an equal, chance of being included in a sample.

It is of following type:

Convenience Sampling

A convenience sample chooses the individuals that are easiest to reach or sampling that is done

easy. Convenience sampling does not represent the entire population so it is considered bias.

Quota Sampling

In quota sampling the selection of the sample is made by the interviewer, who has been given

quotas to fill from specified sub-groups of the population.

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Judgment Sampling

The sampling technique used here in probability > Random Sampling.

The total sample size is 75 profiles.

Data Collection: -

Data is collected from various customers through personal interaction. Specific questionnaire is

prepared for colleting data. Data is collected with mere interaction and formal discussion with

different respondents and we collect data in Unicon Investment Solution and face to face contact

with the persons from whom the information is to be obtained (known as informants). The

interviewer asks them questions pertaining to the survey and collects the desired information.

Thus, we collect data about the working conditions of the workers of Unicon Investment Solution;

we worked at Unicon Investment Solution contact the workers and obtain the information. The

information obtained is first hand or original in character.

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CHAPTER -5

DATA ANALYSIS

&

INTERPRETATION

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QUE. 1 To know the growth of mutual fund industry in India.

Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit

Trust of India effective from February 2003. The Assets under management of the Specified

Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the

industry as a whole from February 2003 onwards.

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QUE. 2 How mutual funds are managed or working of mutul fund ?

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QUE. 3 To know the structure of mutual fund?

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QUE. 4 To know the objective behind investment in mutual fund?

Under this the mutual fund is categorized on the basis of Investment Objective. By nature the

mutual fund is categorized as follow:

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QUE. 4 What are the Advantages and Disadvantages of mutual fund?

ADVANTAGES OF MUTUAL FUND

S.NO. Advantage Particulars1. Professional

Management

Fund manager undergoes through various research works and ha

better investment management skills which ensure higher return

to the investor than what he can manage on his own.

2. Less Risk Investors acquire a diversified portfolio of securities even with

small investment in a Mutual Fund. The risk in a diversifie

portfolio is lesser than investing merely 2 or 3 securities.

3. Low Transaction

costs

Due to the economies of scale (benefits of larger volumes

mutual funds pay lesser transaction costs. These benefits ar

passed on to the investors.

4. Liquidity An investor may not be able to sell some of the shares held b

him very easily and quickly, whereas units of a mutual fund ar

far more liquid.

5. Choice of Schemes Mutual funds provide investors with various schemes wit

different investment objectives. Investors have the option o

investing in a scheme having a correlation between its investmen

objectives and their own financial goals. These schemes furthe

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have different plans/options.

6. Transparency Funds provide investors with updated information pertaining t

the markets and the schemes. All material facts are disclosed t

investors as required by the regulator.

7. Flexibility Investors also benefit form the convenience and flexibility offere

by Mutual Funds. Investors can switch their holding from a deb

scheme to an equity scheme and vice-versa. Option of systemati

(at regular intervals) Investment and withdrawal is also offered t

the investors in most open-end schemes.

8. Safety Mutual Fund industry is part of a well- regulated investmen

environment where the interests of the investors are protected b

the regulator. All funds are registered with SEBI and complet

transparency is forced.

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DISADVANTAGES OF MUTUAL FUND

S.NO. Disadvantages Particulars1. Costs Control Not in the

Hands of an Investor

Investor has to pay investment management fees and fun

distribution costs as a percentage of the value of his investment

(as long as he holds the units), irrespective of the performanc

of the fund.

2. No Customized

Portfolios

The portfolio of securities in which a fund invests is a decisio

taken by the funds manager. Investors have no right to interfer

in the decision making process of a fund manager, which som

investors find as a constraint in achieving their financia

objectives.

3. Difficulty in Selecting a

Suitable Fund scheme

Many investors find it difficult to select one option form th

plethora of funds/ schemes/ plans available. For this, they ma

have to take advice from financial planners in order to invest i

the right fund to achieve their objectives.

QUE. 5 To know what are the threats and opportunities involved in mutual fund industry .

OPPORTUNTIES

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Opportunities of Mutual Funds are tremendous specially when investment is concerned. For any

individual who intends to allocate his assets into proper forms of investment and want to diversify

his Investment Portfolio as well as the risks, Mutual Funds can be proved as the biggest

opportunity.

Investors gets a lot of advantages with the Mutual Fund Investment. Firstly, they are not required

to carry on intensive research and detailed analysis on Stock Market and Bond Market. This work

is done by the Fund Mangers of the Investment Management Company on behalf of the

investors. In fact, the professional Fund Managers who handle the mutual funds of any particular

company, are able to speculate the market trend more correctly than any common individual. Good

Speculation about the trends of stock prices and bond prices leads to right allocation of funds in the

right stocks and bonds resulting in good Rate of Returns.

Investors also get the advantage of high Liquidity of the mutual funds. This means the investors

can enjoy easy access to the funds invested in the mutual funds whenever they require the money.

When the investors invest in any mutual fund, they are given some equity position in that fund.

The investors can any time sell their mutual fund shares to get back the money invested in mutual

funds. The only thing is that the Rate of Return that they will get may not be favorable as the return

depends on the present market condition.

The greatest opportunity that the mutual funds offer is the opportunity of diversifying their

investments. Investment Diversification actually diversifies the Risk associated with investment.

This is because, if at a time, if prices of some stocks are declining, deceasing the Value of

Investment, prices of some other stocks and bonds may tend to rise and in this way the loss of the

mutual fund is offset by the strength of the stocks whose prices are rising. As all the mutual funds

diversify their investments in various common stocks, preferred stocks and different bonds, the

risk to be borne by the investors are well diversified and in other terms lowered.

THREATS\CHALLANGES

There are many Challenges Facing Mutual Funds which is of prime concern to the people who

have an investment spree.

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People find mutual fund investment so much interesting because they think they can gain high rate

of return by diversifying their investment and risk. But, in reality this scope of high rate of returns

is just one side of the coin. On the other side, there is the harsh reality of highly Fluctuating Rate of

Returns. Though there are other disadvantages also, this concern of fluctuating returns is most

possibly the greatest challenge faced by the mutual fund.

The Issue of Fluctuating Returns

In spite of being a diversified investment solution, mutual funds investment in no way guarantees

any return. If the market prices of major shares and bonds fall, then the value of mutual fund shares

are sure to go down, no matter how diversified the mutual fund portfolio be. It can be said that

mutual fund investment is somewhat lower risky than Direct Investment in stocks. But, every time

a person invests in mutual fund, he unavoidably carries the risk of losing money.

The Other Challenges

• Diworsification or Over Diversification- In order to diversify the investment, many times

the mutual fund companies get involved in Over Diversification. The risk of holding a single

financial security is removed by diversification. But, in case of over diversification, investors

diversify so much that many time they end up with investing in funds that are highly related and

thus the benefit of risk diversification is ruled out.

• Taxes-Every year, most of the mutual funds sell substantial amount of their holdings. If

they earn profit by this sell, then the investors receive the Profit Income. For most of the mutual

funds,the investors are bound to pay taxes on these incomes, even if they reinvest the income.

• Costs- Most of the mutual funds charge Shareholder Fees and Fund Operating Fees from

the investors. In the year, in which mutual fund fails to make profit and the investors get no return,

these fees only blow up the losses.

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CHAPTER-6

FINDING

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RECOMMENDATIONS

&

LIMITATIONS OF THE STUDY

Findings

The researcher found that the Reliance mutual fund has more demand than other mutual

fund. Pt shows that Reliance mutual fund is the most favorable amongst that people.

The researcher found that the rate of return provided by Reliance mutual fund are best,

cheaper and profitable as compare to other companies mutual fund. that is why most of

respondents have invested in Reliance mutual fund.

The researcher found that most of the respondents are satisfied with Reliance mutual

fund this shows that Reliance has better rate of return.

Most of the respondents are satisfied by Reliance mutual fund because it has large

number of firm & insurance sector in Varanasi.

Most of respondents are influenced by brokers while doing investment it shows that

Broker’s are best option for various mutual fund companies to attract more customers.

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The researcher found that most of respondents would like to opt Reliance mutual fund

in future almost half of the total respondents. This shows that Reliance mutual fund is

the most favorable mutual fund among the People.

Recommendations

The study reveals that competition is very stiff in mutual fund segment, yet these is

need for continuous improve met of service provided by serviced provides,

Consumers are pretty much satisfied with the services provided by Reliance mutual

fund because it has better sate of Saturn compared other company’s mutual fund.

The mutual fund companies should launch new and attraction plans and scheme to

elands it market so as to attract new customer

The companies should concentrate on the customer who had no investment also so as to

increase the number of customer.

Special feature regarding mutual fund may be published in local news paper to create

awareness among in vectors. Investors should be made well a ware about different

changes 7 fees entreated from then by the fund houses in name of unit and entry load.

After the study of whole concept of mutual fund and having done survey many facts

come for the on the bases of observation made from the study following are the

suggestion.

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After having selected a scheme & having invested in it, the investor must angularly

study and follow up his investment after having clearly identified the investment

objective.

CHAPTER-7

CONCLUSION AND LIMITATION

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CONCLUSION

The objective of study was to study the market segment of Reliance MF, Tata MF, Kotak

MF, ICICI MF and their industry structure of Unicon investment solution which provide

these different mutual fund services to the customer.

The study reveals that competition is very much in existing mutual fund. Yet there is a

need of improvement.

Brokers play an important role in creating awareness regarding mutual fund which are

important in helping a customer to make a purchase decision regarding mutual fund.

Consumer inclination towards Reliance mutual fund.

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Majority of the customer like to opt Reliance mutual fund in the near future.

The study reveals that the investors like to do most of investment for 1 year.

Thus we can say that companies which want to make their mutual fund No. one should

need change in trend. However for generalization of the results a study needs to be

undertaken is based on large sample across different industries.

LIMITATIONS OF THE STUDY

The study had the following limitations, mainly in the survey work that was done.

Time was one of the major constraints in the survey, so only 75 samples

were surveyed during the research and assumed to represent the whole class.

The survey sample in only from a small geographic region, a few localities

in Varanasi. These may result in the sample not being a true representation of the

entire market for mutual fund.

The process of collection of data through questionnaire method is time

consuming and tough job.

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The sample size is too small to analyze the market coverage of various

brands offered by various companies.

These days mutual fund industry is very large industry and the area covered

during surveys is too small to analyze the whole market trends, my study is area

bounded.

Since the results have been drawn on the basis of the information provided by the

respondents, biasness during chance of responses might be there

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BIBLIOGRAPHY

BIBLIOGRAPHY

Pandey I.M.: Financial Management, Vikas Publishing house Pvt. Ltd. New Delhi, 9th

Edition.

Khan, M.Y. & Jain P.K.: Basic Financial Management. The Mac Graw-Hill Companies,

New Delhi, 2002, 2nd Edition.

Machiraju, H.R.; Indian Financial System, Vikas Pub. House, Pvt. Ltd. New Delhi, 2 nd

edition.

Kotler Philip: Marketing Management: Analysis, Planning, implementation and Control,

Pearson Education, New Delhi, 2003, 11th edition.

C.R. Kothari Research Methodology

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Kothari C.R, “Research Methodology”, Second Edition, New Age International, 2004.

Journals:-

Analyst magazine

Business Standard

Smart investors

Business world

Economics Times

Business Today

Websites:-

www.uniconindia.com

www.investments.com.ph

www.mutualfundsindia.com

www.mutualfund.com

www.google.com

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http://www.uniconindia.com/

http://www.investments.com.ph/

http://www.mutualfundsindia.com/

http://www.mutualfund.com/

http://www.google.com/

http://www.uniconindia.com/

http://www.investments.com.ph/

http://www.mutualfundsindia.com/

http://www.mutualfund.com/

http://www.google.com/



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ANNEXURE

QUESTIONNAIRE

Name:-……………………………………………………………………………………

Age:………………………………………………………………………………………

Sex:……………………………………………………………………………………….

Occupation:………………………………………………………………………………

Address:………………………………………………………………………………….

1- Have you any investment?

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a. Yes

b. No

2- Do you have D-mat A/c?

a. Yes

b. No

3- Would you like invest in mutual fund?

a. Yes

b. No

4- If customer says yes for the above answer? In which companies’ mutual fund would he like

to invest?

a. Reliance MF

b. Tata MF

c. Kotak MF

d. ICICI MF

5- For how long would you like to invest?

a. 6 Month

b. 1 Year

c. 2 Year

d. Above 2 Year

6- Parameters considered by the investors at the time of investing in particular mutual fund

scheme.

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a. Mutual fund house

b. Portfolio

c. Rate of return

d. Market condition

7- Who influence your decision to invest in mutual fund?

a. Broken

b. Advertisement

c. Friends

d. Other

8- What is your satisfaction level regarding the mutual fund you are opting?

a. Satisfied

b. Somewhat satisfied

c. Not satisfied

9- If you would choose some other companies mutual fund in the near future which one you

would opt. for?

a. Reliance MF

b. Tata MF

c. Kotak MF

ashwani singh

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