A study of Mutual fund investor behaviour in Federal bank

Summer Intern Project report submitted in partial fulfilment of the requirements for the degree of Master of Business Administration

By Pooja RajUnder the guidance ofMr. Charly DevasiaManagerFederal bankBangalore

Acknowledgement

Any accomplishment requires effort of many people and this work is no difference. I have been fortunate enough to get help and guidance from many people. Firstly, I would like to thank Federal Bank for giving me an opportunity to do an internship study at their branch in Bangalore.I would not have completed this study without the help, guidance and support of my Corporate mentor Mr. Charly Devasia who has been supporting and guiding me throughout the study of my project. I would like to express my deepest and sincere gratitude to my Faculty mentor Prof. Padma Srinivasan for her invaluable guidance, support and advice. This project would not be completed without their guidance as they were motivating and inspiring me throughout the duration of the project.

EXECUTIVE SUMMARYMutual funds are apparently the least demanding and the minimum upsetting approach to put resources into stocks. Quite a lot of cash has been put resources into mutual funds amid the previous couple of years. Any speculator might want to put resources into reputed Mutual Fund association. Federal bank is one such association that aims to give superior schemes of Mutual Fund. Understanding the attitude of investors on their speculation would help the organization to expand their investor profile in mutual fund by giving superior schemes indirectly resulting in an increase in their income as well as bottom line profit. In Federal bank they accept that the investors mentality would bring about benefits. The study was done on the topic Mutual fund investors behaviour in Federal Bank. The study goes for investigating the state of mind of the investors towards Federal Bank Mutual Funds. The information was gathered with the assistance of a survey. The example size considered for the study was 50 wherein all the samples were Customers and investors of Federal Bank in Bangalore. The analysis was in regards to the factors considered for investment and the type and kind of mutual funds preferred with stated objectives behind the investment and the tools used was simple percentage analysis. The study uncovered that the financial specialists aren't totally fulfilled by the mutual fund choices provided and there is absence of mindfulness made by the bank to investors, along these lines taking into account the analysis Suggestions for development are given..

TABLE OF CONTENTSPage No.

1Introduction2-11

2Industry Profile13-20

3Company Profile22-27

4Objectives of the study29

5Project / Process Design and Methodology31-32

6Data Analysis / Process Study 34-45

7Findings from the study47-49

8Learning outcome from the study and during the period of internship at the company51-52

9References, Bibliography and Appendices53

CHAPTER 1

INTRODUCTION

Mutual fund is a type of professionally managed investment fund that pools money from many investors to purchase securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors.Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such asshares,debentures andother securities. Theincome earned through these investments and the capital appreciation realised are shared by its unit holders inproportiontothenumberofunitsownedbythem .ThusaMutualFundisthemost suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flowchart below describes broadly the workingof a mutual fund:

The simplest mutual funds definition is that they are an investment group set upby professional investors and headed by an investment manager. Individuals are then able to invest small amounts of money into the fund for making a reasonable profit. There are an incredibly large number of mutual funds. While some mutual funds aim to produce short term, high yield profits, others look for the longterm profit.The benefits on offer are manywith good post-tax returns and reasonable safety being the hallmark that we normally associate with them. Some of the other major benefits ofinvesting in them are:

Manage Inflation Mutual Funds help investors generate better inflation-adjusted returns, without spending a lot of time and energy on it. While most people consider letting their savings 'grow' in a bank, they don't consider that inflation may be nibbling away its value. Mutual Funds provide an ideal investment option to place your savings for a long-term inflation adjusted growth, so that the purchasing power of your hard earned money does not plummet over the years.Expert Managers Backed by a dedicated research team, investors are provided with the services of an experienced fund manager who handles the financial decisions based on the performance and prospects available in the market to achieve the objectives of the mutual fund scheme. Mutual fund managers and analysts wake up each morning dedicating their professional lives to researching and analysing current and potential holdings for their mutual fund.Number of available optionsMutual funds invest according to the underlying investment objective as specified at the time of launching a scheme. So, we have equity funds, debt funds, gilt funds and many others that cater to the different needs of the investor. The availability of these options makes them a good option. While equity funds can be as risky as the stockmarkets themselves, debt funds offer the kind of security that is aimed for at the time ofmakinginvestments. Moneymarketfundsoffertheliquiditythatisdesiredbybiginvestors who wish to park surplus funds for very short-term periods. Balance Funds cater to the investors having an appetite for risk greater than the debt funds but less than the equity funds. The only pertinent factor here isthat the fund has tobe selected keeping theriskprofileoftheinvestorinmindbecausetheproductslistedabovehavedifferentrisksassociated with them. So, while equity funds are a good bet for a long term, they may not find favourwith corporates or High Net worth Individuals (HNIs) who haveshort-term needs.DiversificationInvestmentsare spreadacross awide cross-section ofindustriesand sectors and so therisk is reduced. Diversificationreducesthe risk becauseall stocks dont movein the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money than one can on his own.Professional ManagementMutual Funds employ the services of skilled professionals who have years ofexperience to back them up. They use intensive research techniques to analyse each investment option for the potential of returns along with their risk levels to come up with the figures for performance that determine the suitability of any potential investment.Potential of ReturnsReturns in the mutual funds are generally better than any other option in any otheravenue over a reasonable period of time. People can pick their investment horizon and stay put in the chosen fund for the duration. Equity funds can outperform most otherinvestments over long periods by placing long-term calls on fundamentally good stocks. The debt funds too will outperform other options such as banks. Though they are affectedbythe interestrate riskin general,the returnsgenerated aremore astheypick securities with different duration that have different yields and so are able to increase the overall returns from the portfolio.LiquidityFixed depositswith companies orin banksare usually notwithdrawn prematurebecausethereisapenalclauseattachedtoit.Theinvestorscanwithdraworredeemmoney at the Net Asset Value related prices in the open-end schemes. In closed-end schemes, theunits can betransacted at theprevailing market price onastock exchange. Mutual funds also provide the facility of direct repurchase at NAV related prices.The market prices of these schemes are dependent on the NAVs of funds and may trade at more than NAV (known as Premium) or less than NAV (known as Discount)depending on the expected future trend of NAV which in turn is linked to general market conditions. Bullish market may result in schemes trading at Premium while in bearish markets the funds usually trade at Discount. This means thatthe money can bewithdrawn anytime, without much reduction in yield. Some mutual funds however, charge exit loads for withdrawal within a period linked toWell-RegulatedUnlikethecompanyfixeddeposits,wherethereislittlecontrolwiththeinvestment being considered asunsecured debt fromthe legal point ofview, the Mutual Fund industry is very well regulated. All investments have to be accounted for, decisionsjudiciously taken.SEBI actsas atrue watchdogin thiscase andcan imposepenalties on the AMCs at fault. The regulations, designed to protect the investors interests are also implemented effectively.TransparencyBeingunderaregulatoryframework,mutualfundshavetodisclosetheirholdings, investment pattern and all the information that can be considered as material,beforeall investors.This meansthat theinvestment strategy,outlooks ofthe marketandschemerelateddetailsaredisclosedwithreasonablefrequencytoensurethattransparency exists in the system. This is unlike any other investment option in India where the investor knows nothing as nothing is disclosed.Flexible, Affordable and a Low Cost affairMutual Funds offer a relatively less expensive way to invest when compared to other avenues such as capital market operations. The fee in terms of brokerages, custodial feesandothermanagementfeesaresubstantiallylowerthanotheroptionsandaredirectly linked to the performance of the scheme. Investment in mutual funds also offers a lot of flexibility with features such as regularinvestment plans, regularwithdrawal plansanddividendreinvestmentplans enabling systematic investment or withdrawal of funds. Even the investors, who could otherwise not enter stock markets with low investible funds, can benefit from a portfolio comprising of high-priced stocks because they are purchased from pooled funds.It all depends really on the overallinvestment climate and the sectors in which funds are flowing in. Diversification is definitely a good approach when it comes to successful investing by a reasonable investor. But with mutual funds, there is that the controllers may over-diversify. Diversification minimizes the inherent risks of stock trading by spreading out the capital over many stocks. But over-diversification is again a bad thing.Types of Mutual funds

Based on the maturity periodOpen-ended Fund An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is available for subscription throughout the year and investors can buy and sell units at NAV related prices. These funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.Close-ended FundA close-ended fund or scheme has a stipulated maturity period eg five and seven 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 ie either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.Interval FundsInterval funds combine the features of open-ended and close-ended funds. These funds may trade on stock exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.Based on investment objectivesEquity/Growth Funds Equity/Growth funds invest a major part of its corpus in stocks and the investment objective of these funds is long-term capital growth. When you buy shares of an equity mutual fund, you effectively become a part owner of each of the securities in your funds portfolio. Equity funds invest minimum 65% of its corpus in equity and equity related securities. These funds may invest in a wide range of industries or focus on one or more industry sectors. These types of funds are suitable for investors with a long-term outlook and higher risk appetite.Debt/Income Funds Debt/ Income funds generally invest in securities such as bonds, corporate debentures, government securities (gilts) and money market instruments. These funds invest minimum 65% of its corpus in fixed income securities. By investing in debt instruments, these funds provide low risk and stable income to investors with preservation of capital. These funds tend to be less volatile than equity funds and produce regular income. These funds are suitable for investors whose main objective is safety of capital with moderate growth.Balanced Funds Balanced funds invest in both equities and fixed income instruments in line with the pre-determined investment objective of the scheme. These funds provide both stability of returns and capital appreciation to investors. These funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth. They generally have an investment pattern of investing around 60% in Equity and 40% in Debt instruments.Money Market/ Liquid FundsMoney market/ Liquid funds invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit and Commercial Paper for a period of less than 91 days. The aim of Money Market /Liquid Funds is to provide easy liquidity, preservation of capital and moderate income. These funds are ideal for corporate and individual investors looking for moderate returns on their surplus funds.Gilt FundsGilt funds invest exclusively in government securities. Although these funds carry no credit risk, they are associated with interest rate risk. These funds are safer as they invest in government securities.Index FundsThese funds aim to track the performance of a specific index such as the S&P/TSX Composite Index. The value of the mutual fund will go up or down as the index goes up or down. Index funds typically have lower costs than actively managed mutual funds because the portfolio manager doesnt have to do as much research or make as many investment decisions. 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. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.Sector specific funds/schemesThese are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. Eg 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 schemesThese 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. Eg Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.Load or no-load fundA load fund is one that charges a percentage of NAV for exit. That is, each time one sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses.A no-load fund is one that does not charge for exit. It means the investors can exit the fund/scheme at no additional charges are payable on sale of units.Assured return schemeAssured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.Major mutual fund companies in India:Large cap oriented equity fundsDiversified equity fundsSmall and mid-cap equity funds

Franklin India opportunitiesIndex fundFranklin India high growth companies fundCanara Robeco emerging equities

SBI Blue chip fundICICI Prudential exports andOther services fundPrinciple emerging blue-chip funds

Tata equity opportunities fundICICI Prudential value Discovery fundTata mid cap growth fund

Birla sun life top 100 fundTata ethical fundBirla sun life MNC fund

Kotak opportunitiesUTI MNC fundDSP blackrop micro-cap fund

Index fundsGilt fundsBalanced funds

Goldman Sachs exchange traded schemeL&T GiltTata balanced funds

Kotak Nifty ETFSBI Magnum gilt fund- long termFranklin India balance fund

HDFC Index fundBirla sun life gilt plusHDFC balanced fund

Reliance Index fundHDFC Gilt fundSBI Magnum balanced fund

UTI Nifty Index fundIDFC G sec fundBirla sun life 95 fund

How to calculate mutual fund performanceThere are many ways in calculating mutual fund performance depending upon the type of one is looking into, the objective stated behind investment as well as the financial market condition. The few common measures are as follows: Change in NAV For changes in NAV in absolute terms: NAV = NAV at the end of the period NAV at the beginning of the periodFor NAV changes in percentage terms:NAV = Absolute change in NAV/ NAV at the beginning*100 Income Ratio:

Income Ratio = Net Investment Income / Net assets for the period

CHAPTER-2

INDUSTRY PROFILE

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of1,540 bn putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The mutual fund industry is alot like the film star of the financebusiness. Though it is perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young industry where there are changes in the rules of the game every day, and there are constant shifts and upheavals. The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a largebucket.Yetithasbeenthesubjectofperhapsthemostelaborateandprolonged regulatory effort in the history of the country.The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market theproduct correctly abreast of selling. Mutual funds are an excellent way to invest in stocks, bonds and other securities. They are a good choice of investment because:They are managed by professional money managers, so most of the investment research is done for you. (Most investors dont have the time or know-how to do all the necessary research.)You diversify your investment risk by owning shares in a mutual fund, instead ofbuying individual stocks or bonds directly.Transaction costs are often lower than what you would pay if you invested in individual securities (the mutual fund buys and sells large amounts of securities at time).For those who are not adept at understanding the stock market, the task of generating superior returns at similar levels of risk is arduous to say the least. This is where Mutual Funds come intOpicture.MutualFundsareessentiallyinvestmentvehicleswherepeoplewithsimilarinvestment objective come together to pool their money and then invest accordingly. Each unit of any scheme represents the proportion of pool owned by the unit holder(investor). Appreciation or reduction in value of investments is reflected in net asset value (NAV) of the concerned scheme, which is declared by the fund from time to time. Mutual fund schemes are managed by respective Asset Management Companies (AMC).Different business groups/ financial institutions/ banks have sponsored these AMCs, either alone or in collaboration with reputed international firms. Several international funds like Alliance and Templeton are also operating independently in India. Many more international Mutual Fund giants are expected to come into Indian markets in the nearfuture.The Evolution:The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phasesFirst Phase - 1964-1987Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6,700 crores of assets under management.Second Phase - 1987-1993 (Entry of Public Sector Funds)1987 marked the entry of non-UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crores.Third Phase - 1993-2003 (Entry of Private Sector Funds)With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under management was way ahead of other mutual funds.Fourth Phase - since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 crores as at the end of January 2003,representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.The second is the UTI Mutual Fund, 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.Structure of Mutual Fund in India

The Mutual Funds in India are regulated by SEBI MF Regulations, 1996. Under the regulations mutual fund is formed as a Public Trust under the Indian Trusts Act, 1882. These regulations stipulate a three tiered structure of entities sponsor (creation), trustees, and Asset Management Company (fund management) for carrying out different functions of a mutual fund, but place the primary responsibility on the trustees.The Fund Sponsor SEBI regulations define Sponsor as any person who either itself or in association with another body corporate establishes a mutual fund. Sponsor sets up a mutual fund to earn money by doing fund management through its subsidiary company which acts as Investment manager of the fund. Largely, a sponsor can be compared with a promoter of a company. Sponsors activities include setting up a Public Trust under Indian Trust Act, 1882 (the mutual fund), appointing trustees to manage the trust with the approval of SEBI, creating an Asset Management Company under Companies Act, 1956 (the Investment Manager) and getting the trust registered with SEBI.Trustees The trust is created through a document called the trust deed which is executed by the fund sponsor in favour of the trustees. Trustees manage the trust and are responsible to the investors in the mutual funds. They are the primary guardians of the unit-holders funds and assets. Trustees can be formed in either of the following two ways -Board of Trustees, or a Trustee Company. The provisions of Indian Trust Act, 1882, govern board of trustees or the Trustee Company. A trustee company is also subject to provisions of Companies Act, 1956.Asset Management Company The Asset Management Company (AMC) is the investment Manager of the Trust. The sponsor, or the trustees is so authorized by the trust deed, appoints the AMC as the Investment Manager of the trust (Mutual Fund) via an agreement called as Investment Management Agreement. An asset management company is a company registered under the Companies Act, 1956. Sponsor creates the asset management company and this is the entity, which manages the funds of the mutual fund (trust). The mutual fund pays a small fee to the AMC for management of its fund. The AMC acts under the supervision of Trustees and is subject to the regulations of SEBI too.Role of AMC The AMC is an operational arm of the mutual fund .AMC is responsible for all carrying out all functions related to management of the assets of the trust. The AMC structures various schemes, launches the scheme and mobilizes initial amount, manages the funds and give services to the investors .In fact, AMC is the first major constituent appointed .Later on AMC solicits the services of other constituents like Registrar, Bankers, Brokers, Auditors, Lawyers etc and works in close co-ordination with them.Custodian Though the securities are bought and held in the name of trustees, they are not kept with them. The responsibility of safe keeping the securities is on the custodian. Securities, which are in material form, are kept in safe custody of a custodian and securities, which are in De-Materialized form, are kept with a Depository participant, who acts on the advice of custodian. Custodian performs a very important back office operation. They ensure that delivery has been taken of the securities, which are bought, and that they are transferred in the name of the mutual fund. They also ensure that funds are paid out when securities are bought. Custodians keep the investment account of the mutual fund. They collect and account for the dividends and interest receivables on mutual fund investments. They also keep track of various corporate actions like bonus issue, rights issue, and stock split; buy back offers, open offer etc. and act on these as per instructions of the Investment manager. Other constituents Regulation imposes responsibility on the trustees to ensure that the AMC has proper system and procedures in place and has appointed key personnel and other constituents like R&T agents, brokers etc.Registrar and transfer agent A mutual fund manages money of many unit-holders across cities and towns of the country. Investor servicing not only becomes important but challenging as well. This would typically include processing investors application, recording the details of investors, sending them account statements and other reports on periodical basis, processing dividend payouts, making changes in investor details and keeping investor records updated by adding details of new investors and by removing details of investors who withdraw their funds from the mutual funds. It is very impractical and expensive for any mutual fund to have adequate workforce all over India for this purpose. Instead, they use entities called as Registrars and transfer agents, which generally provide services to many mutual funds. This ensures quality services across all location and keeps the costs lower for the unit-holders.Auditor Investor money is held by the trustees in trust. Regulation has ensured proper accounting norms to ensure fair and responsible record keeping of investors money. Separate books of account are maintained for each scheme of the mutual fund and individual annual report is prepared. The books of accounts and the annual reports of the scheme are audited by auditors. The AMC is a company under companies act, 1956 and therefore is required to get its accounts audited as per the provisions of the companies act. In order to maintain high standards of integrity and transparency regulations stipulate that the auditor of the mutual fund schemes and the auditor of the AMC will have to be different.Brokers Brokers are registered members of the stock exchange whose services are utilized by AMCs to buy and sells securities on the stock exchanges. Many brokers also provide the Investment Manager (AMC) with research reports on the performance of various companies, sector and market outlook, investment recommendations etc. Regulations have imposes restrictions on the involvement of brokers in the investment process of any mutual fund in the following ways- a. If a broker is related to the sponsor or its associate, then the AMC shall not purchase or sell securities through that broker in excess of 5% of the aggregate of purchase and sale of securities made by the mutual fund in all its schemes. b. For transactions through any other broker the AMC can exceed the limit of 5% provided it has recorded justification in writing and report of such exceeding has been sent to the trustee on a quarterly basis.

Current Industry AssessmentThe Indian mutual fund industry has shown relatively slow growth in the period FY 10-13 growing at a CAGR of approximately 3.2 per cent. Average (AUM) stood at ~ INR 8,140 billion as of September 2013. However, AUM increased to ~ INR 8,800 billion as of December 2013. Lacklustre stock market performance, rising inflation and anticipation of a rise in interest rates has led to a tapering of growth in the Indian mutual fund industry in the recent years. In comparison to global markets, Indias AUM penetration as a per cent of GDP is between 5-6 per cent while it is around 77 per cent for the U.S., 40 per cent for Brazil and 31 per cent for South Africa. Despite the relatively low penetration of mutual funds in India, the market is highly concentrated. Though, there are 44 AMCs operating in the sector, approximately 80 per cent of the AUM is concentrated with 8 of the leading players in the market. There have been recent instances of consolidation in the market and market concentration is expected to remain in the near-term.

Source: pwc report

Future potential of Mutual FundWhile the long-term outlook for the asset management industry in India seems to be positive, our stance on short to medium term outlook is moderate. This can be attributed to the existing performance in financial markets and the evolving market and regulatory landscape. Equity markets havent performed since the global financial crisis. The broad equity stock index NSE has grown only by 2 per cent y-o-y and was below the 3 year mark as of Sept 2013. This was well reflected in the equity AUM growth, which has undergone a negative growth in AUM base at 10 per cent and 20 per cent over the same time period. The investors have redeemed their investments and moved to products with stable yields. The performance of equity markets will continue to reflect in the Equity AUM till the equity markets stabilize. HNIs have emerged as the fastest growing investor class in the debt oriented products. In particular, Fixed Maturity Plan (FMPs) continue to remain a popular product and have consistently given better performance and tax advantage over Bank FDs. Debt oriented products are slowly gaining recognition among the retail investors. Retail investments increased from INR 228.3 billion in Sept 2010 to INR 331.6 billion in Sept 2013. But they still have a long way to go and capture the small ticket market.There is an opportunity for the mutual fund industry to morph itself into a broader asset management industry. This will bring in additional investors and flows as the product basket will offer a holistic array of products with myriad combinations of risk reward, attracting different classes of investors. An investor then will likely be offered a product that meets his or her needs at every point in life.

CHAPTER -3COMPANY PROFILE

TypePrivate

TradedasNSE:FEDERALBNKBSE:500469LSE:FEDS

IndustryBanking and allied industries

FoundedKochi, 1945

HeadquartersFederal Towers,Aluva,Kochi- 683 101,Kerala,India.

Area servedRepublic of India

Key peopleShyam Srinivasan(Managing Director & CEO), Prof Abraham Koshy (Chairman)

ProductsLoans, Savings, etc.

Revenue69.4 billion(US$1.1billion) (2014)

The Federal Bank Limited is a major Indian commercial bank in the private sector, headquartered at Aluva, Kochi, Kerala. It is the fourth largest bank in India in terms of capital base. As of 29 October 2014, Federal Bank has 1216 branches spread across 24 states and 1449 ATMs across the country. The company provides numerous banking services to consumers and corporate entities such as Housing Loans, Personal Loan, Car Loan, Life Insurance, Mutual Funds, Debit Cards, Business Loan, etc. The Bank also has an Express Remittance Facility enabling Non-Resident Indians in the Gulf to carry out a quick transfer of funds to their accounts.VISION & MISSIONVision Be a "customer-centric" organisation setting standards for customer experience. Be the trusted' partner of choice for target (SME, Retail, NRI) customers. Become the numero Uno bank in Kerala and a leading player in our chosen segments/markets. Offer innovative yet simple products supported by state-of-the art technology. Have a dynamic and energised workforce with a strong sense of belonging. Deliver top tier financial performance and superior value to stakeholders. Be a role model for corporate governance and social responsibility.MissionDevote balanced attention to the interests and expectations of stakeholders, and in particular:Shareholders:Achieve a consistent annual post-tax return of at least 20% on net worth.Employees:Develop in every employee a high degree of pride and loyalty in serving the Bank.Customers:Meet and even exceed expectations of target customers by delivering appropriate products and services, employing, as far as feasible, the single-window and 24-hour-seven-day-week concepts, leveraging strengthened branch infrastructure, ATMs, and other alternative distribution channels, cross-selling a range of products and services to meet customer needs varying over time, and ensuring the highest standards of service at all times.COMPETITORS: HDFC Bank ICICI Bank Axis Bank Kotak Mahindra Bank Yes bankSTOCK MARKET PERFORMANCE:Federal bankHDFC bankAxis bankKotak Mahindra bankYes bank

12.18%27.92%51.76%54.40%57.4%

Beta = 1.56OTHER INCOME: (In Rs.cr)Federal bankHDFC bankAxis bankKotak Mahindra bankYes bank

693.857919.647405.222028.452046.46

SHAREHOLDING PATTERN:Individuals16.43

Institutions20.83

FIIs42.25

Others20.49

PRODUCTS& SERVICES OFFERED BY FEDERAL BANK: PERSONAL BANKING ACCOUNTS & DEPOSITS

1. Savings Account: Federal Bank has a wide range of Savings accounts with smart features like Internet Banking, fund transfers, e-statements, online bill payments to make banking a smoother experience.2. Freedom SB: Freedom SB is not just a regular savings account. Along with saving your money, you can get access to a wide variety of services. With exciting features like International Debit Card, Free account statements and new age banking channels, Freedom SB Account takes the hassle out of everyday banking.3. Young Champ: A fully loaded product for the next generation- Young Champ, an exclusive savings account for children.4. Fed Excel: An exclusive feature-rich savings account for professionals, budding entrepreneurs, with no minimum balance requirement.5. SB Plus: Designed for the dynamic consumer, SB Plus Savings Bank account has exciting features like Debit Card, new age banking channels and free monthly Demand Draft issuance.6. Mahilamitra: International Gold Debit Card, Free Demand Draft, Mobile & Internet Banking, RTGS/NEFT - because every woman deserves more.7. Yuvamitra: Endowed with futuristic features like Debit Card, Mobile & Internet Banking and Fed Book, this account is designed for the students.8. Fed Smart: The SMART savings account has action packed features like New-Age banking channels, high daily cash withdrawal limits, anywhere banking, International Debit Card and lot of free services.9. Basic Savings Bank Deposit Account (BSBDA): With Free ATM card, monthly statement, and cheque book this account takes care of your simple banking needs.10. FISA (Federal Institutional Savings Accounts): High cash withdrawal limits, free DD, 100 free transactions/ quarter-this account takes care of all your Institutional Banking needs. SALARY ACCOUNTS:1. Fed Classic: A Zero-balance account for salaried individuals with free Debit Card, AWB and New Age banking Channels.2. Fed classic premium: A feature rich salary account for high end salary earners, which comes with a bundle of benefits - no minimum balance requirement, VISA Gold/Platinum debit card, auto sweep facility, temporary overdraft facility and much more. DEPOSITS LOANS:1. Gold Loan2. Housing Loan3. Car Loan4. Property Loan5. Other Loans

CARDS:1. Debit card2. Credit Card3. Gift card4. Travel card Banking Services:1. ATM2. Internet banking3. Mobile Banking4. Services5. Online Services6. Value Added Services Insurance & Investments:1. Life Insurance2. General Insurance3. Mutual Funds4. Online Trading5. New Pension Scheme

NRI ACCOUNTS & DEPOSITS:1. NRE Savings Account2. NRO Savings Account3. NRE Current Account4. NRO Current Account5. Deposits6. Priority Banking NRI LOANS:1. NRI Housing Loans2. NRI Car Loans3. NRI Gold Loans4. NRI Other Loans SME-Business & Corporate:1. Current Account2. Business Loans3. Business Debit Cards4. Trade Finance5. E-commerce6. Corporate Internet Banking Agri- Business1. Agri Loans2. Agri Allied loans

CHAPTER 4OBJECTIVE OF THE STUDY

Primary ObjectiveA) To study the level of awareness of mutual fundsB) To analyse the perception of investors towards mutual funds.C) To study the factors considered by the investors and those which ultimately influence him while investing.D) Find out the investors behaviour towards Federal Banks Mutual FundsSecondary ObjectiveA) Suggest ways to improve the income from mutual fund in Federal Bank

CHAPTER 5PROCESS DESIGN AND METHODOLY

A research method refers to the methods the researchers use in performing research operations. Research Methodology is a way to systematically solve the researchproblem.Scope of the study:The study undertaken does not probe too much about whether the respondents have a very fine insight into mutual funds. The research involves only a general study related to the investment attitude of investors towards Federal Bank Mutual Funds. The study would reveal results regarding the investment attitude of various investors about Federal bank mutual funds and thus in turn helps the organization to identify the attitude of various investors and to improve the marketing of mutual funds. The study is on the attitude of the investors in Federal Bank mutual fund and has also analysed their satisfaction level from the investors point of view. The research was conducted with 50 samples and was restricted to the Koramangala branch in Bangalore.The study has helped to gain real time experience by interacting with the investors and has helped to analyse The attitude of the investors towards Federal Bank Mutual Funds. The study will help Federal bank to work on the areas of importance for further planning and has been done with a motive to learn about the attitude of the investors and help them gain more knowledge on their investment.

1. Process Design:The focus of this study was on self-reported decisions madebyvarious customers regardingtheviews on investmentinmutualfunds.Thus itinvolves Identification of information needed to solve the problem, Identification oftarget population and determination of sampling procedure, Design of procedure forinformationcollection,Collectionofinformation,Analysisofinformation and prediction.2. Sampling design :Population It was the customers of federal bank in Koramangala Branch , Bangalore.Sampling technique- The sampling technique used is simple random sampling. The samples were walk-in customers in the random and they were picked randomnly for the study.Sample size- The sample size is 50 customers of Federal Bank.3. Sources of data:Data were collected through both primary and secondary data sources. Primary data was collected through questionnaires. The research was done in the form of direct personal interviews.a) Primary data: A primary data is a data, which is collected afresh and for the first time, and thus happen to be original in character. The primary data with the help of questionnaire were collected from various investors.b) Secondary data: Secondary dataconsist ofinformationthat already exists have been collected. Secondary data is collected from company websites, other websites, etc.4. Questionnaire Design: Proper care has been taken to ensure that the information needed match the objectives, which in turn match the data collected through the questionnaire. The basic cardinal rules of Questionnaire design like using simple and clear words, the logical and sequential arrangement of questions has been taken care of.5. Statistical tools :The statistical tool used for this study is simple percentage analysis. Limitations of the Study: As the survey was pertaining to investment attitude of investors, biased information may restrict validity of inferencepossible. The raw data was collected with the help of structured questionnaire technique. Therefore study is bounded by the limitation of this technique. The study done is restricted to Federal Banks Koramangala branch , Bangalore . The study had a limited time constraint.

CHAPTER 6DATA ANALYSIS AND INTERPRETATION

Q.1 kind of investment you prefer the most?

Bank deposits56%28

Mutual Funds24%12

Shares10%5

Bonds/debentures10%5

Interpretation:

The data collected reveals that the 56% investors opted bank deposits to be the mode of investment they prefer following to which 24% opted for mutual funds, 10% for shares and remaining 10% for bonds and debentures as a mode of investment by the customers in Federal Bank who were interviewed, as they feel bank deposits are the safest form of investment as the returns are assured when compared to other forms of investment. Mutual funds are investors second priority for an investment .

Q.2 Do you invest regularly in Mutual funds?

Yes56%28

No44%22

Interpretation:

As per the investors view, 56% are regular investors in mutual fund and 44% said they are not a regular investor as they are not aware about mutual funds and the risk-return associated , so they are hesitant to invest in mutual fund.

Q.3

If no, What is the reason for not investing in mutual fund?

High Risk30%15

Low option26%13

Lack of knowledge40%20

Better bonds in market4%2

Interpretation:

The customers of the bank were hesitant to invest in mutual fund as 40% lack knowledge about mutual funds and the safety of investment,30% believe that mutual funds provided are risky , 26% feels that the banks mutual fund has few options when compared to other banks mutual fund and the remaining 4% said that there are better bonds in the market which is a better option than mutual fund.

Q.4 Frequency of investment?

once a month40%20

once a quarter24%12

once a year16%8

whenever there is enough money20%10

Interpretation:

40% investors invest once a month as they feel that investing gives them a sense of safety of the principle amount invested , whereas 24% invest once a quarter as they have lack knowledge about various form of investment on the other hand, 20% invest only when there is money left with them to invest and remaining 16% said that they invest only once a year as they do not prefer to invest much .

Q.5 Objective behind any investment?

Income Generation30%15

Retirement Benefit16%8

Safety of investment principle44%22

others10%5

Interpretation:The survey revealed that the objective behind an investors to invest is safety of investment principle as 44% of the investors believe that safety is there is utmost concern while investing, whereas 30% said that their objective is income generation as they invest with an intention to get a good rate of return on the other hand , 16% invest for their retirement benefit so that they have steady income flow through various investment in order to meet their requirements post-retirement and remaining 10% objectives are different such as to repay loans , childrens future , etc.Q.6 Factors preferred while selecting mutual fund scheme?

Return on Investment26%13

Diversification20%10

Liquidity30%15

Savings24%12

Interpretation :

As per the data collected , 30% of the investors prefer liquidity of the investment as a major factor while selecting any mutual fund scheme whereas 26% prefer return on investment as a factor while selecting the mutual fund scheme as their objective behind investment remains the same on the other hand 24% prefer savings while selecting the mutual fund scheme as they require it for their future growth plans and remaining 20% said the factor is diversification which they consider when going for selection of mutual fund schemes so that there is a good risk-return trade off.

Q.7 Kind of mutual funds scheme preferred the most?High rish - high return40%20

Low risk-low return46%23

Average risk- Average return14%7

Interpretation:As per the data, 46% of the investors prefer a mutual fund scheme which has low risk-return as their objective was safety of investment principle over a good rate of return, whereas 40% prefer a high risk-return mutual fund scheme as their objective was to earn higher return on the amount of invested over safety and remaining 14% prefer average risk-return as their objective is a steady income flow for their future or retirement benefits.Q.8 Reason for investing in mutual fund?Security30%15

opportunity for steady growth44%22

Risk-tolerance26%13

Othersnil0

Interpretation:

When investors were asked the reason behind investing in mutual fund, 44% said opportunity for steady growth is the main reason as they feel that mutual fund is less risky and gives good amount of return for the risk taken by the investor, while 30% said security as their concern for investing in mutual fund as there is more liquidity and transparency in case of mutual fund investment and 26% said risk-tolerance as the reason behind investing in mutual fund as its less risky when compared to equity shares .

Q.9 Does Mutual fund give higher return than equity?

Yes70%35

No30%15

Interpretation:70% of the investors said that mutual fund gives higher return when compared to equity for the risk taken by them and the returns are also stable when compared to equity shares , and remaining 30% said that equity gives higher return than mutual fund as the return solely depends on the company performance and if they perform very well they get higher return than mutual funds provide.Q.10Tenure preferred while investing in Mutual fund? short term46%23

long term54%27

Interpretation : 54% of the investors prefer to invest in mutual fund for long term so that they can reap the benefits of long term investment and remaining 46% prefer short term so as to earn the return sooner and invest in future growth plans.

Q.11 Which banks mutual fund have you invested in?

HDFC Mutual fund10%5

SBI mutual fund30%15

Federal Bank Mutual fund40%20

Others (ING , ICICI,Etc)20%10

Interpretation:

40% of the investors interviewed has invested in Federal banks mutual funds as they feel it gives good rate of return , Whereas 30% invested in SBI mutual fund as they feel its more safer when compared to Federal bank on the other 20% have invested in others such as ICICI , ING.etc and the remaining 10% have invested in HDFC mutual fund due to the awareness created by them regarding mutual fund and educating them regarding the same when they go to the bank .

Q.12

Are you aware about federal banks mutual funds?

Yes70%35

No30%15

Interpretation:

70% of the investors were aware about Federal banks mutual fund while 30% were not aware about Federal banks as they have not taken the initiating of creating an awareness among the mutual fund schemes provided by them .

Q.13 Do you feel that the mutual fund schemes provided by federal bank are sufficient?

Yes44%22

No56%28

Interpretation:

As per the data collected, 56% of the investors feel that the mutual fund schemes provided by Federal bank are not sufficient when compared to its competitors whereas, 40% of them feels that its sufficient as it meets their objective behind an investment.

Q.14Are you interested to invest in Federal banks mutual fund?

Yes80%40

no20%10

Interpretation: 80% of the investors are willing to invest in Federal banks whereas 20% are still hesitant to invest indicating that there is Lack of awareness and security in investment but the 80% due to their loyalty towards the bank and they feel secured in investing in Federal Banks mutual fund they are willing to invest provided it gives good return.

Q.15Reason for not investing in Federal Banks mutual fund?

Low Return10%5

Fewer options available40%20

Lack of awareness50%25

Interpretation:Investors were not interested in investing as 50% said that they werent aware and no initiative was taken by the Bank to create the same amongst them , whereas 40% werent interested as Federal bank provided very few options to the investors which discouraged them to choose Federal bank mutual fund as an investing option and remaining 10% said the schemes provided a lower return compared to other banks mutual fund hence they are not interested to invest in Federal Banks mutual fund.

Q.16 How did you learn about mutual funds?

Newspaper/magazines30%15

Television/advertisement36%18

Agents/Broker20%10

others (employees/friend referrals)14%7

Interpretation:

The investors had been aware about mutual fund as a whole , majorly from television/advertisement media which Constituted to 36% as they create more awareness through various advertisement to a large set of audience whereas other Through newspaper/magazines (print medias) which constituted 30% of the investors. Only 20% said they learnt about mutual fund through agents/brokers and remaining 14% through friends/employee referrals indicating that television/ advertisement is a major source to create awareness about mutual fund amongst investors.

CHAPTER 7FINDINGS & RECOMMENDATIONS

1. Investors first preference is bank deposits and mutual fund is the second preference as it just constitutes 24% when compared to bank deposits i.e. 56%. Indicating that mutual funds advantages and awareness should be created more to increase the preference from bank deposits to mutual fund as an investment option for investors.

2. Investors objective behind an investment who regularly invest in mutual fund i.e.56% is majorly safety of investment principle and income generation which constitutes 44% and 30% respectively. Indicates that Federal bank should ensure safety as well as good rate of return in their mutual fund schemes to attract more investors towards their mutual fund.

3. Investors who doesnt invest in mutual fund i.e.44% is not investing as there is lack of awareness created amongst the investors regarding the various mutual fund schemes and they feel its risky to invest in the same .

4. Investors prefer a mutual fund scheme which gives them liquidity provision as well as good return on investment as it constitutes 30% and 26% respectively and they prefer a long-term mutual fund schemes over short-term schemes as they want to reap the benefits of long-term investment.

5. The reason behind choosing mutual fund has been majorly due to the advantage of mutual fund providing opportunity for steady growth i.e.44% and security i.e. 30% when compared to other investment options, since mutual fund is a safe form of investment with expert advice as well as transparency.

6. Investors prefer mutual fund schemes which is high risk- high return as the investors are ready to take up risk if they get the return in proportion or higher to the risk taken. Indicates that Federal bank should provide a mutual fund scheme of high risk-return as it will help them in generating more revenue from the same.

7. SBI Mutual fund and ICICI ,etc is a competition for Federal banks mutual fund as the investors have invested in them as well to an extent of 30% . Therefore, Federal bank should ensure there is more options provided to the investors as well as there is awareness created amongst the investors.

8. Investors had awareness of Federal banks mutual fund to an extent of 70% but only 44% thought the mutual schemes provided were sufficient but they are all interested to invest in the fund due to the brand image that they have about the banks as they have been existing customers of the bank.

9. Investors who werent aware of federal bank mutual fund was 30% out of which 20% werent interested in investing in mutual funds provided by them as they said the schemes and options provided to them were not sufficient when compared to other banks and majorly because they said that there was no awareness regarding federal banks mutual fund schemes and benefits.

10. Investors gets awareness about mutual fund in the market through television/advertisements majorly i.e.36% of them said that, while other major source was through print medias constituting 30%.

RECOMMENDATIONS:1. Federal bank should create more awareness through marketing department i.e. having a separate personnel at the branches to educate them regarding the various mutual fund schemes provided and their advantages so that attract more investors and generate more revenue through the sale of mutual fund as well as advertise in print medias in order to generate more awareness .

2. Federal bank should increase the options provided in their mutual fund scheme in order to retain as well as obtain new investors whereby they can increase their bottom line profit.

3. Federal bank should create mutual fund schemes which as high risk-return portfolios as well as low risk-return so as to gain more investors and also they should provide more long-term schemes which has more liquidity provisions and diversification in order to attain the objective of the investors which will help the bank in gaining more mutual fund investors and

4. Federal bank should try to have some competitive advantage over its competitors such as SBI, ICICI, etc. which are emerging in mutual fund by providing schemes as per the investors objectives and goals and having a kiosk in all the branches to promote as well as learn more requirements of the customers whereby they can increase their other income (fee income) which will help in increasing their overall profitability.

CHAPTER -8LEARNINGS

Concepts of mutual fund :This study has helped in getting more clarity and knowledge regarding the concepts, types and the evolution of mutual fund industry as a whole. From this study, I have got insights into various types of mutual funds and the working of mutual fund. Investors perspective regarding mutual fund:This study has helped in gaining different perspective regarding mutual fund from the investors point of view such as, risk, liquidity, diversification, opportunity for steady growth, etc . Investors view changes depending upon their knowledge regarding mutual fund and objective behind their investment in mutual fund. Efficiency of Federal banks mutual fund:This study has helped in understanding and learning about the efficiency of mutual fund provided by Federal bank which could be understood after interacting with the existing investors ,indicated that the options were less as well as there were no awareness regarding their mutual fund in the bank . Factors considered while selecting an investment by an investor:After doing this study, it helped me in getting insight on the factors that are consider by an investor before choosing any investment option such as diversification, retirement benefits, income generation, safety, etc. and how these factors change with various investment objective considered by an investor. Advantages of investing in mutual fund:During the study, I had learnt about the various advantages that mutual fund investment possess over equity shares and how beneficial and secure it to any investor.

Awareness of mutual fund provided by Federal bank:After the study, it helped me in realising Federal banks mutual fund schemes provided and how well aware are investors about its existence and how the mutual fund schemes are better over its competitors and how well Federal bank is able to reach to its investors with their existing mutual fund schemes.

How Federal banks other income is when compared to its competitorsAfter looking at their financials, it was clear that Federal banks mutual fund income which is included in its other income, is low when compared to its competitors such as HDFC, Kotak, Axis, etc. as they are not promoting much mutual fund schemes in their branches and there is lack of awareness amongst the investors regarding the same.

Bibliography www.federalbank.co.in www.moneycontrol.com www.profit.ndtv.com www.crisil.com www.business-standard.com www.wikipedia.com www.investopedia.com www.inreuters.com www.kpmg.com

21 | PageInstitute of Management, Christ University