MF Submission Final

Study and Research on Mutual Fund
INTRODUCTION
A Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by the (pro rata). Thus a Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an inventible surplus of as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for today's complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual fund gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC).
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E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. A mutual fund is a collective investment fund formed with the objective of raising money from a large number of investors and investing it in accordance with a specified objective to provide returns that accrue pro rata to all the investors in proportion to their investment. The units held by an investor represent the stake of the investors in the fund. A professionally qualified and experienced team manages the investments and all other functions. With the large pool of money, a mutual fund is able to exploit economies of scale in the areas of research, investing, shuffling the investments and transaction processing - it is able to hire professionals in these functions at a very low cost per investor. As per SEBI regulations, mutual funds can offer guaranteed returns for a maximum period of one year. In case returns are guaranteed, the name of the guarantor and how the guarantee would be honored is required to be disclosed in the offer document.
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HISTORY & BACKGROUND
Mutual Fund in India (1964-2000)

The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter the capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small" His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust. One thing is certain - the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs 1130bn. The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debate in 1993-94, the stock market was booming. The opening up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. 3 DBIM, SURAT
1999-2000 year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw3 immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF's. This time around all the participants are involved in the revival of the funds the AMC's, the unit holders, the other related parties. However the sole factor that gave lift to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. It provided center stage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business, which would mean to increase asset base, and to get asset base, and investor base they had to be fully armed with a whole lot of schemes for every investor. So new schemes for new IPO's were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI) One can say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions. 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 nonUTI players entered the industry. In the past decade, Indian mutual fund industry had seen a dramatic improvements, 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 raised the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn.
Four Phases of Mutual Fund in India

The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.
First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It
was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.
Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI
Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual 4 DBIM, SURAT

Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.
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 2003 This phase had bitter experience for UTI. It was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes. Fifth Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.
Growth in Assets under Management

If size is the measure of dominance, then the Indian mutual fund industry can now boast of that.. With the total Assets Under Management (AUM) increasing from Rs.1,01,565 cr in January 2000 to Rs. 1,67,978 cr by May 2005, according to the Association of Mutual Funds in India (AMFI), the industrys growth has been nothing but exceptional. It has indeed come a long way from being a single player, single scheme (US-64) industry to having 30 players currently offering 460 schemes as on May 31, 2005 5 DBIM, SURAT
What has driven this growth? A slew of factors have contributed to the surge in the industrys growth. First and foremost, a buoyant domestic economy coupled with a booming stock market has been one of the major drivers of growth in recent times, particularly in the last five years. Another significant factor facilitating this growth has been a conducive regulatory regime, thanks to increased efforts by SEBI to improve market surveillance and protect investors interests. Further, incentives, such as making dividends tax-free in the hands of investors and removal of long- term capital gains tax, have also provided strong impetus to the growth. Increased focus on product and distribution innovations on part of the industry players have also helped fuel the growth.
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A. Classification of Mutual Fund
UNDERSTANDING OF MUTUAL FUND
Mutual fund schemes may be classified on the basis of its structure and its investments.
By Structure:
Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.
By Investment Objective
Income Funds
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The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and government securities. Income Funds are ideal for capital stability and regular income.
Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.
Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes 8 DBIM, SURAT

may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds: A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds: A no-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.
Other Schemes
Tax saving Schemes Investors (individuals and Hindu Undivided Families (HUFs)) are being encouraged to invest in equity markets through Equity Linked Savings Scheme (ELSS) by offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched out until completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS. These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000 Fixed- Income Funds Fixed- Income Funds in India are also known as debt funds or income funds. Fixed- Income Funds in India make investments in debt securities that have been issued either by the banks, government or companies. The debt securities in which Fixed- Income Funds in India makes investments are also known as commercial papers of deposit or treasury bills if the duration is less than one year and in case the duration is more than one year then the debt securities are known as bonds or debentures. The issuer of the debt securities has the obligation to pay the interest and principal on the time schedule that has been fixed. Fixed- Income Funds in India have a face value and it is on this that the calculation of interest takes place. Investors who are investing in Fixed- Income Funds in India are mainly concerned with the time period, maturity value, rate of interest payment, rate of interest, and face value. Fixed- Income Funds in India are usually held till maturity.
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Mid-Cap Funds Mid-cap funds are a special type of mutual fund wherein, the corpus accumulated is invested in small or medium sized companies. In the absence of any standardized definition or definite classification of small or medium sized company, each mutual fund classifies small and medium sized companies according to its own policies. In general, companies with a market capitalization up to Rs 500 crores are regarded as small and companies with a market capitalization over Rs 500 crores but below Rs 1,000 crores are defined as medium sized by the mutual fund industry. Midcap funds bear high risk factors and thus offer high returns in case of positive movements of the indexes International Mutual Funds International mutual funds are a very special type of mutual fund, wherein investments are being made in the non-domestic securities markets across the world. The popularity of the International mutual funds has gone up in the recent years since it provides a high level of diversification of the portfolio. Further, the International mutual funds also help in capitalizing on some of the world's best opportunities. International mutual funds can offer its investors with high returns if chosen properly. One of the significant features of the International mutual funds are that it accrues profit when some markets are rising and others are falling in the international market. A strict vigil on the foreign currencies and world markets is needed while investing in the International mutual funds. Value Funds Amongst the wide variety of mutual funds are available in India, value funds is a type of mutual fund wherein the main focus is on the safety of the investment and not on the growth of the investment made on such funds. Value funds represent stocks of mature companies, whose growth has become stagnant. Further, these stocks of the value funds utilize their earnings to pay off dividends to the investors. One of the typical characteristics of the value fund is that, they generate income from the dividends and they also offer long term growth from capital appreciation. The returns on Value funds are more conservative in nature. Another important feature of the value funds is that, they invest in stocks of companies that have lesser appeal to the mainstream investors and the stocks have lost its sheen. Sector Funds The Sector Funds are those types of mutual funds which accumulate stocks of particular sector. In other words sector funds invest in a single type of industry, like Information Technology, Telecommunication, Pharmaceuticals, Infrastructure, etc. The Sector Funds are structured in this particular manner in order to take advantage of growth of particular type of industry. The Sector Funds can offer tremendous profit to the investor if the funds are carefully chosen. Fund of Funds Amongst the wide variety of mutual funds are available in India, fund of funds is a type of mutual fund wherein, the corpus accumulated is invested in types of other mutual funds. Further, the most significant feature of fund of funds is that it holds shares of a variety of mutual funds. Furthermore, Funds of funds are structured in such a way so as to attain a more diversified approach than what the other types of mutual funds offer. Generally, the Fund of Funds costs higher than any other type 10 DBIM, SURAT

of mutual fund. This is due to the fact that the cost of Fund of Funds involves part of the expense fees charged by the component funds. Sector- Specific Funds Sector- Specific Funds in India are those funds that make investments only in those industries or sectors that have been specified in the prospectus of the funds. Sector- Specific Funds in India usually make investments in sectors such as power, pharmaceuticals, petroleum, and technology. The amount of returns that Sector- Specific Funds in India give depends totally on the performance of the industries or sectors in which investments have been made. Sector- Specific Funds in India give very high returns but at the same time they are also very risky in comparison to the funds that are diversified. This is the reason that the investors that have invested in Sector- Specific Funds in India need to carefully watch the operation of those industries or sectors and then at the correct time make an exit. Large Cap Funds Large Cap Funds in India are a kind of mutual fund that looks for appreciation of capital by investing mainly in the shares of companies that are big blue chip. The big blue chip companies in which Large Cap Funds in India make their investments have above- average potential for growth in earnings. The large cap companies in which Large Cap Funds in India makes investments are usually companies that have a market capitalization that is more than Rs. 1000 crores. The main advantage of Large Cap Funds in India is that they are considered to be of low return and low risk category. This ensures that the investments of the investors are relatively safe. Exchange Traded Funds Exchange traded funds popularly also known as ETFs, is a type of mutual fund wherein, the corpus is invested in a basket of securities, which is being traded on an exchange. Further, an Exchange traded fund investments are being made either on all the securities or on a sample of the representative securities that are being traded in the said index. The exchange traded funds employ the process of arbitration during trading, in order to keep its trading value in sync with the values of the underlying stocks, which makes up the portfolio Regional Mutual Funds The Regional Mutual Fund as the name suggests, is a special type of mutual fund, wherein the investment made in such funds are confined to the securities from a specified geography. In other words, the investments made in the Regional Mutual Fund are dependent on the geographical origin of the fund. The most important feature of this fund is that it invests in portfolio of companies operating in a particular geographical area. The main objective of investing in the Regional Mutual Funds is to take leverage of the geographical growth of that particular area. These funds are created on regions which are supposed to undergo tremendous modernization. The Regional Mutual Funds picks up securities that are not confined to geographical criteria. Index Funds The Index funds are those types of funds which accumulates stocks of each and every company that make up a particular index. The performance of the Index fund thus depends on the performance of that particular index. Investments in Index funds are cheaper and are regarded as passive form of investments. Another advantage of investing in the Index funds is that their values are so high that 11 DBIM, SURAT

most of the other funds fail to supersede the value of the Index funds. The most popular type of Index funds is the Standard & Poor's 500. Investments in index funds are subject to income tax exemptions
B. Banks v/s Mutual Funds

Banks Returns Administrative exp. Risk Investment options Network Liquidity Quality of assets Interest calculation Guarantee Low High Low Less High penetration At a cost Not transparent Minimum balance between 10th. & 30th. Of every month Maximum Rs.1 lakhs on deposits Mutual Funds Better Low Moderate More Low but improving Better Transparent Everyday None
From the above table we can say that in overall comparison Mutual Fund is becoming strong option as investment against the Banks. It can be seen that the Banks are not totally free from risk, while generally giving lower returns. Mutual Fund can give higher returns then a Bank, even if there is no contractually guarantee as in a Bank. Mutual Fund provides better investment options as well as high liquidity compare to Banks.
C.
Choosing a Mutual Fund
Investors should note the following points while choosing a mutual fund: (1) Investment objective The schemes offered by mutual funds should be chosen based on investment objectives such as: Regular income Pure growth oriented Balanced fund Tax savings Period of scheme Liquidity/Open-ended schemes/listing. (2) Past performance The past performance of fund manager should be checked even though it does not: assure about or indicate the future performance. The risks are however lower if the fund managers capability is superior.
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(3) Equity research Equity research capability and other fund management techniques are important factors in deciding about a fund. (4) Global linkages The fund managers understanding of Indian capital markets and the global linkages is critical to the process of investment decision making. (5) Transparency in fund accounting Choose a mutual fund which assures full transparency of the investments made and discloses NAV periodically to assist the investor in understanding the value of investment, and the area where investments have been/are to be made. (6) Investor service Funds which pay emphasis to investor servicing help in sorting out procedural grievances, if any.
D. Judged the Efficiency of Mutual Fund

The test of efficiency of a good mutual fund shall comprise of evaluation of mutual fund on the basis of its: Stability whether a mutual fund is stable or not so far as its schemes are concerned. Liquidity whether the schemes offer liquidity by way of their listing on stock exchange. Growth whether the mutual funds are offering increase in net asset value, and there is consistent growth in dividend and capital appreciation. Credibility of issuer Previous track record of issuer should be checked. Returns Assured or otherwise Management approach Risk taking, portfolio, diversification, return maximization, bonus, etc.
E. Comparison of Investment Product

Investors tend to constantly compare one form of investment with another. However, such comparisons ought to be done carefully, comparing only options that are comparable. Until 1980s, Indian investors had bank deposits as virtually the only investment option. The only Mutual Fund scheme UTIs US-64 Scheme was perceived by investors and managed as a fixed return investment, as safe as banks, and paying out comparable though slightly higher dividends. Later, the investors were introduced to direct investing on the stock markets including direct purchases of capital market securities in the primary markets. This form of high-risk investment was not perceived as such because of the under-pricing of primary share issues. Only after the crises of 1992 and the introduction of free market pricing of shares, the virtual guarantee of secondary market prices being higher than issue prices ended. Faced with the risks of direct investing, the investors are now turning to indirect investing through Mutual Funds that provide the benefits of professional management and lower risk through diversification.
Comparison by Nature of Investment and By Performance
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There are tow kinds of comparisons possible among different investment options. First, one must compare the options by the nature of investments their characteristics, benefits and risks. From this comparison will emerge certain types of investment which may be considered superior to other types. Next, one needs to look at the specifics of each investment option in terms of its current performance and its suitability for the investor in the light of the investors specific situation (taxability, age, etc.). From this comparison at a given point of time will emerge the options considered superior to others for a given investor. 1) Comparison by Nature of Investment Investors certainly look for the best returns on different options. However, to determine which option is better, the comparison should also be made in terms of other benefits that the investor ought to look for in any investment. Besides returns, other potential benefits of any investment also include the safety of the capital, the risk or the stability of returns, the liquidity of access to the funds when needed, and the convenience with which the investment can be managed. The table below compares the investment options discussed in the previous section under the broad heads viz. return, safety, volatility, liquidity and convenience. Although the table provides a qualitative evaluation of various financial products, the comparison serves as a useful guide toward determining the best option. It is clear from the above that equity investing in general has good potential in terms of return, liquidity and convenience. However, as discussed in the previous section, individual stocks can give varied performance, one stock being more liquid than another or one stock giving lower return that another. For this reason, equity investing is fraught with risk and is not ideal for every individual investor. It is recommended only for investors who are willing to invest the time required for research in stock selection (or have access to sound financial advice) and possess the capacity to bear the inherent risk. Bonds issued by institutions are an attractive option, particularly now with the liquidity that accompanies their listing on stock exchanges. Bonds are a stable option in terms of fixed returns, and are recommended for the risk-averse investor. However, bonds can lose value when general interest rates go up. Bonds are also subject to credit risk or risk of default by the borrower. In indicated by the credit rating assigned to the bonds. In the absence of credit rating, it is extremely difficult for the investor to decide on the quality of the bonds or debentures. The secondary market in corporate bonds in India is also very thin, leading to lack of liquidity for the investors who wish to sell. Company fixed deposits fall short on several counts and recommended only if the issuing company and the deposits on offer are rated highly by credit rating agencies. The major advantage of bank deposits relative to other product is the liquidity they offer. Banks are usually willing to give loans against fixed deposits at a nominal charge over the interest rate applicable to the deposits. Deposit rates offered by banks vary as per RBI directives and the interest rate scenario in the economy. Bank deposits score high on safety, as the return of capital is guaranteed to the depositor by the bank. However, the financial soundness of the bank is important to look at.
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PPF combines stability with a respectable return. Its tax-exempt status makes it an attractive mechanism for the small investor to build his saving portfolio. However, the lock in period involved in PPF means that the investor loses out in terms of liquidity, particularly during the early years of the scheme. Being a government supported investment, PPF scores very high on safety, compared even to bank deposits. Insurance could become a serious investment vehicle once the insurance market in India is opened to private players. In todays scenario, the opportunity cost in terns of return is too high for insurance to be compared on even terms with the other options. Its liquidity is also extremely low, though safety is considered high at present for the government-owned LIC as the only insurer. 2) Comparison by Current Performance Besides the inherent advantages of investing through Mutual Funds, recent tax amendments have also helped to enhance the attractiveness of Mutual Funds. Dividends distributed by Mutual Funds are exempt from tax in the hands of the investor. Investments in recognized Mutual Funds also qualify for tax rebate under section 88 and as approved investments under Section 54EAJEB. Comparisons among different investment options are not valid for all time as the financial markets are now deregulated and dynamic, causing frequent changes in comparative returns form time to time. Each year, the Mutual Funds and other options may give different returns. For example, when the banks increase or reduce the deposit interest rates, the Mutual Funds performance may look better or worse. If the government changes the PPF interest rate, again there will be an impact on the comparative status of different options. Similarly, the individual taxpayers situation may change, whereby he may pay higher or lower tax on his income. That will make a difference in his after-tax return on different options. That is why; it is recommended that the specific comparisons of different investment options be made at a given point of time, using the then prevalent return data. Direct Equity Investment versus Mutual Fund Investing Investors have the option to invest directly in equities through the stock market instead of investing through Mutual Funds. However, a practical evaluation reveals that Mutual Funds are indeed a more recommended option for the individual investor. Identifying stocks that have growth potential is difficult process involving detailed research and monitoring of the market. Mutual Funds specialize in this area and possess the requisite resources to carry out research and continuous market monitoring. This is clearly beyond the capability of most individual investors. Another critical element towards successful equity investing is diversification. A diversified portfolio serves to minimize risk by ensuring that a downtrend in some securities/sectors is offset by an upswing in the others. Clearly, diversification requires substantial investment that may be beyond the means of most individual investors. Mutual Funds pool the resources of many investors and thus have the funds necessary to build a diversified portfolio, and by investing even a small amount in a Mutual Fund, an investor can, through his proportionate share, reap the benefit of diversification.
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Mutual Funds specialize in the business of investment management, and therefore employ professional management for carrying out their activities. Professional management ensures that the best investment avenues are tapped with the aid of comprehensive information and detailed research. It also ensures that expenses are kept under tight control and market opportunities are fully utilized. An investor who opts for direct equity investing loses out on these benefits. Mutual Funds focus their investment activities based on investment objectives such as income, growth or tax savings. An investor can choose a fund that has investment objectives in line with his objectives. Therefore, funds provide the investor with a vehicle to attain his objectives in a planned manner. Mutual Funds offer liquidity through listing on stock exchanges (for closed- end funds) and repurchase options (for open-end funds). This is in contrast to direct equity investing where several stocks are often not traded for long periods. Direct equity investing involves a high level of transaction costs per rupee invested in the form of brokerage, commissions, stamp duty, etc. while Mutual Funds charge a management fee, they succeed in keeping transaction costs under control because of the economies of scale they enjoy. In terms of convenience, Mutual Funds score over direct equity investing. Funds serve investors not only through their investor services networks, but also through associates such as banks and other distributors. Many funds allow investors the flexibility to switch between schemes within a family of funds. They also offer facilities such as check writing and accumulation plans. These benefits are not matched by direct equity investing. The Investor Perspective: Funds Vs. Other Products Investment option Equity Fl Bonds Debentures Deposits Bank Deposits PPF Life Insurance Investment Objective Capital Appreciation Income Income Income Income Income Risk Cover Risk Tolerance High Low H-M-Low The Same Generally Low Low Low Investment Horizon LongTerm Medium to Long Term The Same Medium Flexible All Terms Long Term Long Term 16 DBIM, SURAT
Gold Real Estate Mutual Funds
Inflation Hedge Inflation Hedge Capital Growth, Income
Low Low H-M-Low
Long Term Long Term,Flexible All Short term, medium term and long term
The comparison above highlights the flexibility offered by Mutual Funds from the investors perspective. An investors can choose from a wide variety of fund to suit his risk tolerance, investment horizon and investment objective. Bank Deposits offer similar flexibility in investment horizon and risk level, but only a fixed income. An investor looking for capital growth has to consider Mutual Fund, both equity and debt. Direct equity investment offers the capital growth potential, but a high risk and without benefits of diversification and professional management offered by Mutual Fund. Gold and real Estate are attractive only in high inflation economies. Other options are largely for the riskaverse, income-oriented investor. Mutual Funds present the widest choice to the investors. F. Advantages of Mutual Fund Mutual funds serve as a link between the saving public and the capital markets. They mobilize savings from the investors and bring them to borrowers in the capital markets. Today mutual funds are fast emerging as the favorite investment vehicle because of the many advantages they have over other forms and avenues of investing. The major advantages offered by mutual funds to all investors are: Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.
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Low Cost Mutual Finds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stock. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provision of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.
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G. Drawbacks of Investing In Mutual Funds Potential loss Unlike a bank deposit, the investment in a mutual fund could fall in value, as the fund is nothing bur a portfolio of different securities. Apart from a few assured returns schemes, the fund does not guarantee any minimum percentage of return. The Diversification Penalty While diversification reduces the risk of loss from holding a single security, it also limits the larger gains if a single security increases dramatically in value. Also, diversification does not protect the unit holders totally from an overall decline in the market. H. Shortcomings in Operation of Mutual Funds The mutual funds have been operating for the last twelve years in India. Thus, it is too early to evaluate their operation. However, one should not lose sight of the fact that in the formal years of any institution, evaluation is very important as this reveals the real character of the systems. Following are some of the shortcomings in operation of mutual funds: (1) The mutual funds are all externally managed. They do not have employees of their own. Also there is no specific law to supervise the mutual finds in India. There are multiple regulations while UTI is governed by its own regulations; the banks are supervised by Reserve Bank of India and the central government. The insurance company mutual funds are regulated under the central government regulations. (2) Many of the investors are not willing to invest in mutual funds unless there is a promise of a minimum return. (3) Unrestrained fund raising by schemes without adequate supply of scripts creates severe imbalance in the market. (4) Many small companies did very well but mutual funds cannot reap their benefits because they are not allowed to invest in smaller companies. Not only this, mutual fund is allowed to hold only a fixed maximum percentage of shares in a particular industry. (5) The mutual funds in India are formed as trusts. As there is no distinction made between sponsors, trustee and fund managers, the trustees play the role of fund managers. (6) The increase in the number of mutual funds under various schemes has increased competition. As a result the funds lose their stabilizing factor in the markets. (7) While UTI publishes details of accounts about their investments, mutual funds are still not publishing the profit and loss accounts and balance sheets after their operation. (8) The mutual funds have eroded the financial clout of the institutions in the stock market for which cross transaction between mutual funds and financial institutions not only allow speculators to manipulate price but also provide cash leading to the distortion in the balanced growth of the market. 19 DBIM, SURAT

(9) Net asset value (NAV) is one of the important factors which decide the performances of a mutual fund scheme. Regulation 45 of SEBI states that every mutual fund shall follow a formula approved by the SEBI for computing the NAV for each of the schemes. But till date no regulation specifies the formula to be used for computation of NAV. (10) India is a vast country with a comprehensive demographic profile. But mutual funds are only confined to urban and semi-urban markets. Moreover mutual funds till now, not have been able to introduce the schemes suitable to the needs of farmers, small entrepreneurs, and merchants to tap the rural savings. (11) Investor relations play a vital role in mobilizing the resources. Most of the Indian companies and mutual funds have ignored this and failed to communicate to the investors about their organization and operation. (12) Unlike banks, mutual funds do not have a strong distribution network. Apart from few, most MFs have to depend on the broker networks. (13) Mutual funds have not yet developed product structuring to tap target customers. (14) Most of the older schemes have been designed with complicated exit procedures. Further, investors are not adequately informed about the available exist options which creates a lot of confusion for the investors and they are compelled to liquidate their investments in the market at a highly discounted price. (15) Fund managers invest in unlisted securities, sometimes in private limited companies to get better returns which lead to new risk profile. (16) Long-term capital gains have been reduced from 20% with indexation benefits to 10% without indexation. But this is available only to securities under section 112 of the Income Tax Act. For mutual funds, it is an edge for the listed funds. (17) There is a restriction on corporate investments up to a maximum of 60% of net worth of mutual funds. But there is no such stipulation for bank fixed deposits and gilt securities. (18) There is a lack of access to call money market. As a result, redemption risk which is the second most important risk of open- ended schemes arises could not be mitigated. (19) The cheque writing facility is available only to the money market mutual fund investors. So the mutual funds cannot issue cheques on behalf of another bank. (20) The high cost of fruitless search for good buys or undervalued securities reduces the funds return to their shareholders to below what they could have expected if they had selected randomly. The cost factor is another problem facing the mutual fund industry.
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(21) The development of mutual fund industry depends upon the maturity of the merchant banking industry. But unfortunately, the merchant banking industry in the Indian capital market is not sufficiently matured. (22) There is a lack of product conceptualization and innovation in mutual fund industry. (23) The most important aspect for success of a mutual fund is the ability to outsource certain critical activities. This concept is already prevalent manufacturing but has not been introduced in fund management. (24) Lack of well-informed institutional market is the cause of market inefficiencies. (25) Perhaps mutual funds are the most misunderstood financial products in India. Neither the investor nor the corporate finance manager perceives the product in a proper perspective. Further, mutual funds are not making efforts in investor awareness programme which is the need of the day. (26) The lack of proper marketing and distribution system is another problem facing the mutual fund industry in India. (27) Internet and thereby e-commerce which is inevitable now-a-days has not been introduced in mutual funds. (28) The biggest problem the mutual funds face today in India is the lack of investors confidence. (29) Few mutual funds have already shown full portfolio disclosures but most mutual funds hesitate to declare their portfolios. (30) The absence of proper benchmarks against which performance can be measured. Constitutes another big problem plaguing mutual fund research in India. Possible causes for nonsatisfactory performance of mutual fund
I. Importance of Mutual Funds

Owing to the size, operating economics and ability to commit large sums of money for long periods, the mutual funds enjoy ample resources at their disposal by mobilizing resources of the investors. The mutual funds with the expert and experienced management cadre can secure large varieties of high yielding Blue chip securities and show better results to the investing public. Therefore, the investors now prefer investing their resources in various mutual fund schemes, than managing themselves. The following reasons can be stated for the rising popularity of mutual funds: (1) With an emphasis on increase in domestic savings and improvement in deployment of investment through markets, the need and scope for mutual fund operation, has increased tremendously. The basic purpose of reforms in the financial sector was to enhance the generation of domestic resources by reducing the dependence on outside funds. This calls for a market-based institution which can tap the vast potential of domestic savings and channelize them for profitable investments. Mutual funds are not only best suited for this purpose but also capable of meeting this challenge.
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(2) An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. But mutual funds, those subscribe to the capital issue made by companies get firm allotment of shares. Mutual funds, later sell these shares in the share market and to the promoters of the company at a much higher price. Hence mutual funds help develop confidence among the investors. (3) The psyche of the typical Indian investor has been summed up by Mr. S.A. Dave, former chairman of UTI, in three wordsyield, liquidity, and security. The mutual funds, being set up in the public sector, have given the impression of being as safe a conduit for investment as bank deposits. Besides, the assured returns promised by them have been great for the typical Indian investors. (4) As mutual funds are managed by professionals, they are considered to have a better knowledge of market behavior. Besides, they bring a certain competence to their job. They also maximize gains by proper selection and timing of investment. (5) Another important thing is that the dividend and capital gains are reinvested automatically in mutual funds and hence are not fritted away. The automatic reinvestment nature of a mutual fund is a form of forced saving and can make a big difference in the long run. (6) The mutual fund operations provide a reasonable protection to the investors. Besides, presently all schemes of mutual funds provide tax relief under section 80L of the Income Tax Act and in addition, some schemes provide tax relief under section 88 of the Income Tax Act which leads to the growth of mutual funds. (7) Mutual fund creates awareness among urban and rural middle class people about the benefits of investment in capital market through profitable and safe avenues. Therefore, mutual fund could be able to mop up a large amount of the surplus funds available with these people. (8) The mutual fund attracts foreign capital flow to the country and secures profitable investment avenues abroad for domestic savings through the opening of offshore funds in various foreign countries. In view of recent liberalized economic and industrial policies and concessions such as excise and customs given in recent budget for the growth of industrial sector, the capital market both primary issue market and secondaryhave been witnessing unprecedented boom. Hence mutual funds have been able to speed their wings by spreading their funds in various industrial sectors. (9) Risk of loss due to ill-informed and misinformed purchase/sales is reduced as the managers of mutual funds have better access to information. Many investors have fell prey to misleading and motivated headline leads and lips. This risk is reduced by diversification of portfolio in terms of companies and industries. Even a small investor in mutual fund can get the benefit of diversification. (10) Lastly, another notable thing is that mutual funds are controlled and regulated by SEBI and hence are considered safe. Due to all the benefits, the importance of mutual funds has been increasing.
J. Defining Mutual Fund Risk
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Different Mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. A bond fund with below average risk. For example should not be compared t a stock fund with below average risk. Even though both funds have low risk for their respective categories, stock funds overall have a higher risk/return potential than bond funds. Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stability but have yielded the lowest long-term return. Bond typically experience mote short term price swings, and in turn have generated higher long term returns. However, stocks historically have been subject to the greatest short term price fluctuations and have provided the highest long term returns. Investors looking for a fund which incorporates ass asset classes may consider a balanced or hybrid mutual fund width different asset classes. At the discretion of the manager(s), securities are bought, sold and shifted between funds with different asset classes according to market conditions. Mutual funds face risks based on the investments they hold. For example, a bonk fund faces interest rate risk and income risk. Bond values are inversely related to interest rates. If interest rates go up, bonk values will go down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly related to interest rates falling as interest rates fall and finding as interest rise. Income risk is greater for a short term bond fund than for long term bond fund. Similarly, a sector stock fund (which invests in a single industry, such as telecommunications) is at risk that its price will decline due to developments in its industry. A stock fund that invests across many industries is more sheltered from this risk. Following is a glossary of some risks to consider when investing in Mutual Funds: Call Risk: The possibility that falling interest rates will cause a bond issuer to redeem-or callits high-yielding bond before the bonds maturity date. Country Risk: The possibility that political events (a war, national elections), financial problems (rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will waken a countrys economy and cause investments in that country to decline. Credit Risk: The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default risk. Currency Risk: The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called exchange-rate risk. Income Risk: The possibility that a fixed-income funds dividends will decline as a result of falling overall interest rates. Industry Risk: The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. Inflation Risk: The possibility that increases in the cost of living will reduce or eliminate a funds real inflation-adjusted returns. 23 DBIM, SURAT

Interest Rate Risk: The possibility that a bond fund will decline in value because of an increase in interest rates. Manager Risk: The possibility that an actively managed Mutual Funds investment adviser will fail to execute the funds investment strategy effectively resulting in the failure of stated objectives. Market Risk: The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices fall. Principal Risk: The possibility that an investment will go down in value, or lose money, from the original or invested amount.
K. Net Assets Value (Nav)

The performance of a particular scheme of mutual fund is denoted by Net Assets Value (NAV).Mutual fund invest the money collected from the investors in securities markets. In simple word, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the market vale of securities of a scheme divided buy the total no of units of the scheme o any particular date. For example if the market value if securities of a mutual fund scheme is Rs. 200 lakhs and mutual fund has issue 10 lakhs units of Rs.10 each to the investors, then the NAV per unit of the fund is Rs. 20 . NAV is required to be disclosed by the mutual funds on a regular basis daily of weekly- depending on the type of scheme. The net assets value (NAV) is the actual value of one unit of a given scheme n any given business day. The NAV reflect the liquidation value of the funds investments on that particular day after accounting for all expenses. It is calculated by deducting all liabilities except unit capital of the fund from the realizable value of all assets and dividing it by number of units outstanding. So NAV is equals toMarket / fair value of schemes (+) Receivables (+) Accrued income (+) Other assets (-) Accrued expenses (-) Payables (-) Other liability (/) Number of unit outstanding. L. Measurements of Performance 1) Total return is generally regarded as the best measure of fund performance because it is the most comprehensive. Total return includes dividend and capital gains distributions along with any changes 24 DBIM, SURAT

in the funds share price. A dividend distribution comes from the interest and dividends earned by the securities held by a fund; a capital gains distribution represents any net gains resulting from the sale of the securities held by a fund. Total return, expressed as a percentage of an initial investment in a fund, represents the change in that investments value over a given period, assuming any distributions were reinvested in the fund. 2) Yield is the measure of net income (dividends and interest less expenses) earned by the securities in the funds portfolio during a specified period. Yield is expressed as a percentage of the funds NAV (including the highest applicable sales charge, if any). Yield does not include the change, if any, in the investments value over a given period.
M. Eligibility for Investing In Mutual Funds In India

Mutual funds have been emerging as big financial intermediary in India. In a vast country like India it is a challenge to market these funds. Fund distributors are a very important link between the fund management industries and the investors. However, it is equally essential to know who can invest in Mutual Funds in India. Mutual Funds in India are open to investment for. 1. Residents Including: Resident Indian Individuals Indian Companies Indian Trusts / Charitable Institutions Banks Non-Banking Finance Companies Insurance Companies Provident Funds 2. Non Residents Including: Non-Residents IncludesOther Corporate Bodies (OCBs) 3. Foreign Entities: Foreign Institutional Investors (FIIs) registered with SEBI Foreign citizens and other foreign entities are not allowed to invest in Mutual Funds India
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BRIEF INTRODUCTION OF MF COMPANIES
Classification of Indian Mutual Fund Industry
The private sector players, after an indifferent start in the early years, have made a strong impression especially in the larger cities, with a high quality of fund management, sales and customer service. This sector has dented UTI's dominance resulting in a falling market share towards the end of the last millennium.
UTI Mutual Fund

UTI was set up in 1964 by an act of parliament and commenced its operation from July 1964, with a view to encouraging saving and investment and participation in the income, profit and gain accruing to corporation from the acquisition, holding, management and disposal of securities. Unit trust of India (UTI) is the India's largest Mutual Fund organization. UTI manages funds over Rs. 58,221 crore as on 30/6/2001 and over 41.80 million investors account under 85 schemes. UTI is a trust without ownership capital and independent Board of trustees. The first scheme was Unit scheme 1964. The contributors of initial capital of Rs. 5 crore for US-64 scheme were RBI, LIC, SBI and some contributors of initial capital of Rs. 5 crore for US-64 scheme were RBI, LIC foreign banks. Under the provision of the act, the Government of India would appoint chairman of the board. Today it has 54 branch offices, 266 chief representatives and about 67,000 agents. It provides complete range of services to its investors.
ICICI Prudential Mutual Fund

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The Industrial Credit and Investment Corporation of India Limited (ICICI) was founded by the World Bank, the Government of India and representatives of private industry on January 5, 1995 to encourage and assist industrial development and investment in India. The sponsors of the Fund are prudential plc of the United Kingdom (UK) and ICICI Limited. Prudential is one of the largest life insurance companies in the UK and one of the leading life insurance companies in the world. It operates on over 15 countries and markets medium to long-term savings product, including life insurance, pensions and unit trusts. It has a total of over 10 million customers worldwide. ICICI is a premier financial institution and its principal business is to provide medium and long-term project financing/leasing, consumer finance and other types of financial services to industry and individuals in India. The total financial assistance extended by ICICI since inception is Rs. 1,46,167 crores as of March 31,2001.Prudential ICICI Asset Management Company Limited, the investment Manager to the Prudential ICICI Mutual Fund, manages assets over Rs.6242.07 crores as of July 31, 2001 through 13 schemes.
IDBI Principal Mutual Fund

The Mutual Fund is sponsored by two leading names in the financial services industry- Industrial Development Bank of India (IDBI) and Principal Financial Services Inc. IDBI is a premier financial institution of India and one of the largest development banks in the world. Principal Financial Services Inc. is a member of the Principal Financial Group - a leading global provider of financial products and services, including Retirement and Investment Services, Mutual Funds, Life and Health Insurance, Annuities and Mortgage Banking, to business and individuals.IDBI Mutual fund has been constituted as a Trust in accordance with the provisions of the Indian trust Act,1882.The Mutual fund is registered with SEBI under registrationno.MF/019/94/0 dated December 13, 1994. The Fund was set up by Industrial Development Bank of India (IDBI) in 1994 by execution of a Trust Deed dated November25, 1994 under which IDBI was the sole Sponsor, Settler and Principal Trustee. IDBI, as sponsor to the fund, has irrevocably settled a Sum of Rs. 25 crore as the Trust corpus, which is held and managed as per the provisions of the Trust Deed. The Board of Trustees with IDBI as principal trustee discharges the Trusteeship functions of IDBI Mutual fund. The trustee had appointed IDBI mutual fund, since inception. IIMCO was a wholly owned subsidiary of IDBI and is registered under the Companies Act, 1956. Since March 31, 2000, the principal Financial Services Inc. has acquired 50% stake in the paid up equity capital of IIMCO through its subsidiary, Principal Financial Group (Maturities) Limited. With this move, the name has been changed to IDBI-PRINCIPAL Asset Management Company Limited (IDBI-PRINCIPAL) to reflect the change in ownership. IDBI was established in 1964 by the Government of India under IDBI Act. It is the premier development financial institution in the country and one of the largest development banks in the world with an asset base of over Rs 72,000 crore (US$ 16 billion) and net worth of over Rs 9,000 crore (US$ 2 billion). It currently has an investor base of 3.3 million. It has played a major role in institution building by setting up various specialized institutions to cater to the changing needs of Indian industry and capital market.
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Study and Research on Mutual Fund Birla Sun Life Mutual Fund
The sponsor of Birla Mutual Fund is Birla Global Finance Ltd. (BGFL) is an Aditya Birla Co. engaged in asset based financing, corporate finance, trade finance, treasury and capital market operations. The Birla Global Finance Ltd. Was responsible for setting up and establishing the Mutual Fund to be called Birla Mutual Fund. Birla Mutual Fund has been constituted as a trust under the provisions of the Indian Trust Act, 1982 with SEBI. The objective of the Mutual fund is to offer to the public and other eligible investors units in one or more schemes in the Mutual Fund for making group or collective investments primarily in Indian securities in accordance with and as permitted under the directions and guidelines issued from time to time by SEBI.
ABN AMRO Mutual Fund

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

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

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing Development Finance Corporation Limited and Standard Life Investments Limited.
HSBC Mutual Fund

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

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.
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 incorporated 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 off share fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. 28 DBIM, SURAT
Study and Research on Mutual Fund Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.
Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.
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 Trustee 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 investors the opportunities to make investments in diversified securities.
Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999.
Franklin Templeton India Mutual Fund

The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.
Morgan Stanley Mutual Fund India

Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investmenty management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation.
Escorts Mutual Fund

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Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited.
Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai.
Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsored and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC.
Canbank Mutual Fund

Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.
Chola Mutual Fund

Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.
LIC Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.
GIC Mutual Fund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882
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MUTUAL FUND REGULATION
There was no uniform regulation of the mutual funds industry till a few years ago. The UTI was regulated by a special Act of Parliament while funds promoted by public sector banks were subject to RBI Guidelines of July 1989. The Securities & Exchange Board of India (SEBI) was formed in 1993 as a capital market regulator. One of its responsibilities was to regulate the mutual fund industry and it came up with comprehensive regulations for the industry in 1993. The rules for the formation, administration and management of mutual funds in India were clearly laid down. Regulations also prescribed disclosure requirements. The regulations were thoroughly reviewed and re-notified in December 1996. The revised guidelines tighten the accounting and disclosure requirements in line with recommendations of The Expert Committee on Accounting Policies, Net Asset Values and Pricing of Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996 have been further amended in 1997, 1998 and 1999. Today, all mutual funds are regulated by SEBI. Efforts have been made to bring UTI schemes under SEBI's ambit with the result that all schemes, with the exception of Unit 64, are now regulated by the capital market regulator. Some facts for the growth of mutual funds in India 100% growth in the last 6 years. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 30 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices.
Mutual Funds Organization
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There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund: How important is an AMC (Asset Management Company) behind a mutual fund? AMC controls the operations and functioning of a mutual fund. It is very critical to the performance of a mutual fund as it decides on the style of functioning, people who are going to manage the funds, the commitment to service quality and overall supervision.
The financial strength and the commitment of the AMC sponsors to the business are very key issues. This is because most AMCs lose money in the first few years of operations. In most cases, these losses are much more than the capital requirements stipulated by SEBI. Hence, a sponsor which is financially weak or which cannot capital to the business either because of its inability or unwillingness will result in an unhealthy operation. There will be a tendency to cut corners and unwillingness to spend money to expand operations. This is the last place where high quality persons would want to remain and work. The AMC then remains stunted and the sponsors lose interest. The worst affected are the investors. This is exactly what has happened with some AMCs promoted by Indian business houses.This is also a problem that has afflicted some of the AMCs floated by nationalized banks. In these organizations, the traditional thinking is prevalent which can be summarized as "money is power". Since mutual fund business did not have access to too much money, a posting in the AMC became punishment postings for some personnel who were not doing well in the parent organization or who lost out in the organizational politics. The management of the banks also did not allow these AMCs to become independent viable businesses. The CEOs of the AMCs did not have any clue of the mutual fund business and neither were they interested in it the entire effort was spent in getting a posting back in the parent. The fund managers had no experience in the activity making a mockery of "professional management". The sad results are there to see. Some of the parents had to provide funds to bridge the gap in "assured return schemes". It looks extremely likely that some of these AMCs will no longer exist in a few years.
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Organization structure of a Mutual Fund
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Steps for Investing In Mutual Fund

Step one - Identify your Investment needs Your financial goals will vary, based on your age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step is to assess your needs. You can begin by defining your investment objectives and needs which could be regular income, buying a home or finance a wedding or educate your children or a combination of all these needs, the quantum of risk you are willing to take and your cash flow requirements. Step Two - Choose the right Mutual Fund The important thing is to choose the right mutual fund scheme which suits your requirements. The offer document of the scheme tells you its objectives and provides supplementary details like the track record of other schemes managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the track record of the performance of the fund over the last few years in relation to the appropriate yardstick and similar funds in the same category. Other factors could be the portfolio allocation, the dividend yield and the degree of transparency as reflected in the frequency and quality of their communications. For selecting the right scheme as per your specific requirements. Step Three - Select the ideal mix of Schemes Investing in just one Mutual Fund scheme may not meet all your investment needs. You may consider investing in a combination of schemes to achieve your specific goals.
Step four - Invest regularly The best approach is to invest a fixed amount at specific intervals, say every month. By investing a fixed sum each month, you buy fewer units when the price is higher and more units when the price is low, thus bringing down your average cost per unit. This is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. You can also avail the systematic investment plan facility offered by many open end funds. Step Five- Start early 35 DBIM, SURAT

It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more than if you wait and invest later. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return. Step Six - The final step All you need to do now is to Click here for online application forms of various mutual fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor - whether starting a career or retiring, conservative or risk taking, growth oriented or income seeking.
Rights of a Mutual Fund Unit holder

A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations is entitled to: 1. Receive unit certificates or statements of accounts confirming the title within 6 weeks from the date of closure of the subscription or within 6 weeks from the date of request for a unit certificate is received by the Mutual Fund. 2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme. 3. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase. 4. Vote in accordance with the Regulations to:a. Approve or disapprove any change in the fundamental investment policies of the scheme, which are likely to modify the scheme or affect the interest of the unit holder. The dissenting unit holder has a right to redeem the investment. b. Change the Asset Management Company. c. Wind up the schemes. 5. Inspect the documents of the Mutual Funds specified in the scheme's offer document.
Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The role of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:
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1. This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry. 2. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. 3. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. 4. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. 5. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. 6. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. 7. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.
The sponsors of Association of Mutual Funds in India

A BANK SPONSORED BOB Asset Management Co. Ltd. Can bank Investment Management Services Ltd. SBI Funds Management Ltd. UTI Asset Management Company Pvt. Ltd. INSTITUTIONS GIC Asset Management Co. Ltd. Jeevan Bima Sahayog Asset Management Co. Ltd. PRIVATE SECTOR Benchmark Asset Management Co. Pvt. Ltd. Cholamandalam Asset Management Co. Ltd. Escorts Asset Management Ltd. J.M. Capital Management Pvt. Ltd. Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. Sahara Asset Management Co. Pvt. Ltd Sundaram Asset Management Company Ltd. Tata Asset Management Private Ltd. 37 DBIM, SURAT
B C1

C2 JOINT VENTURES- PREDOMINANTLY INDIAN Birla Sun Life Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. DSP Merrill Lynch Fund Managers Ltd. HDFC Asset Management Co. Ltd. JOINT VENTURES - PREDOMINANTLY FOREIGN Alliance Capital Asset Management (India) Pvt. Ltd. Deutsche Asset Management (India) Pvt. Ltd. Franklin Templeton Asset Management (India) Pvt. Ltd. HSBC Asset Management (India) Private Ltd. ING Investment Management (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt. Ltd. Prudential ICICI Asset Management Co. Ltd. Principal Asset Management Co. Pvt. Ltd. Standard Chartered Asset Mgmt Co. Pvt. Ltd. (Source: Association of Mutual Funds in India Publications)
C3
SEBI Regulations Regarding Mutual Fund

The SEBI regulations for the establishment and issue of schemes by mutual funds are as follows: Mutual fund shall be established in the form of trusts under the Indian Trust Act and managed by separately formed asset management company. Money market mutual fund would be regulated by the RBI and other mutual funds would be regulated by SEBI. Fifty per cent members of the board of AMC must be independent directors and must have no connection with sponsoring organization. The directors should have at least 10 years experience in the field of portfolio management, financial administration, etc. The AMC should have a minimum net worth of Rs. 10 crores. The SEBI has the authority to withdraw the authorization of AMC if they fail to work for the interest of investors. This stipulation is not applicable to banks sponsoring mutual funds. An AMC cannot act as the AMC for another mutual fund. AMCs are also allowed to do other fund based businesses such as providing investment management services to offshore funds, other mutual funds, venture capital funds, and insurance companies. The minimum amount to be raised with each closed-end scheme should be Rs. 20 crores and for the open-ended scheme Rs. 50 crores. Each scheme of the mutual fund is registered with SEBI before it is floated in the market. Closed-end schemes should not be kept open for subscription for more than 45 days. For openended schemes, the first 45 days should be considered for determining the target figure. If the minimum amount or 60% of the target amount is not raised, the entire subscription has to be returned to the investors. For each scheme, there should be a separate and responsible fund manager.
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The SEBI guidelines (1999) restrict MFs to invest not more than 10% of NAV of a scheme in shares or share related instruments of a single company. SEBI increased the maximum investment limit for MFs in listed companies from 5 to 10% of NAV in respect of the open-ended funds. The initial issue expenses should not exceed 6% of the funds raised under each scheme. All mutual funds must distribute a minimum of 90% of their profits in any given year. Every mutual fund is required to send the audited annual statements of accounts and six months un audited accounts of net assets for each of its schemes to the SEBI. The SEBI shall lay down a common advertising code for all mutual funds to comply with. The SEBI after due investigation may impose penalty on mutual funds for violating the guidelines
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6
Global Scenario
Some basic facts

GLOBAL & INDIAN SCENARIO
The money market mutual fund segment has a total corpus of $ 1.48 trillion in the U.S. against a corpus of $ 100 million in India. Out of the top 10 mutual funds worldwide, eight are bank- sponsored. Only Fidelity and Capital are non-bank mutual funds in this group. In the U.S. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally, mutual funds are allowed to go short. In India fund managers do not have such leeway. In the U.S. about 9.7 million households will manage their assets on-line by the year 2003, such a facility is not yet of avail in India. On- line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0.75 % of the total assets. 72% of the core customer base of mutual funds in the top 50-broking firms in the U.S. are expected to trade on-line by 2003. (Source: The Financial Express: September, 04,2005)
Internationally, on-line investing continues its meteoric rise. Many have debated about the success of e- commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. They have realized the potential of the Internet and are equipping themselves to perform better. In fact in advanced countries like the U.S.A, mutual funds buy- sell transactions have already begun on the Net, while in India the Net is used as a source of Information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded online will grow ten folds from $ 128 billion to $ 1,227 billion ; whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual funds from 34% to 40% during the period. (Source: The Financial Express : September 04,2005)
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Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business. Here are some of the basic changes that have taken place since the advent of the Net.
Lower Costs: Distribution of funds will fall in the online trading regime by 2003 . Mutual funds could bring down their administrative costs to 0.75% if trading is done online. As per SEBI regulations , bond funds can charge a maximum of 2.25% and equity funds can charge 2.5% as administrative fees. Therefore if the administrative costs are low , the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India , brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net. New investors would prefer online : Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary. With smaller administrative costs more funds would be mobilized .A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption. Net based advertisements: There will be more sites involved in ads and promotion of mutual funds. In the U.S. sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics. a is witnessing a genesis in this area.
Indian scenario
Why had mutual funds in India performed so poorly in the past?
Most investors associate mutual funds with Mastergain, Monthly Equity Plans of SBI Mutual Fund, UTI and Canbank Mutual Fund and of course Morgan Stanley Growth Fund. This is so because these funds truly had participation from masses, with a fund like Morgan Stanley having more than 1 million investors. Investors feel that after 5 years, Morgan Stanley Growth Fund units still trade below the original IPO price of Rs 10. It is incorrect to think that all mutual funds have performed poorly. If one looks at some income funds, they have come with reasonable returns. It is only the performance of equity funds, which has been poor. Their poor performance has been amplified by the closed end discounts i.e. units of these funds quoting at sharp discounts to their NAV resulting in an even poorer return to the investor.
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One must remember that a Mutual Fund does not provide assured returns and neither can it "manufacture" returns out of thin air. Returns provided by mutual funds are a function of the returns in the underlying asset class in which the fund invests. Good funds can beat returns in their asset class to some extent but thats all. E.g. take the case of a sector specific fund like a Pharma fund which invests only in shares of pharmaceutical companies. If the Govt. comes with new regulation that severely restricts the pricing freedom of these companies resulting in negative outlook for the sector, the prices of all stocks in the sector could fall substantially resulting in a severe erosion in the NAV of the fund. No one can do anything about it. A good fund manager would probably sell part of the fund before prices fall too much and wait for an opportune time to reinvest at lower levels once the dust has settled. In that case, the NAV of the fund would fall to a lesser extent but fall it will. If the investor in the fund has invested in some stocks in the sector on his own, in all probability, his personal investments may have depreciated to a larger extent. Let us extend this example to an analysis of the investment climate in the last 7 years. The stock markets have done very badly in the last seven years. The BSE Sensex crossed 3000 for the first time in early 1992. Since then it has gone up and come down several times but has remained in the same range. Effectively, for a seven-year investment period, the total return has been almost zero. The prices of many leading stocks of yesteryear have fallen by more than 50% in these seven years. If one considers the fact that the Sensex has been changed several times, with all the weak stocks having been weeded out, the effective returns on the old Sensex, existing in 1992, have been substantially negative. The following table gives some of the prices of stocks considered "blue chips" in 1992, in 1994 and the prices prevailing at present.
What went wrong with US64?

Basically, for a period of 2-3 years, the UTI distributed more dividend to the unit holders of US 64 than the return earned from the investments in the scheme. This reduced the value of the residual investments in the scheme. This problem was compounded by the persistent fall in the prices of shares, especially the shares of companies in basic commodity industries like cement, steel, manmade fibers etc. and shares of public sector units. Throughout this period, when the NAV of US 64 was going down, UTI kept increasing the sale and repurchase prices of US 64 units. The stock market collapse after the Pokhran II nuclear tests was the last straw, which resulted in the erosion of the schemes book reserves and a wide difference between the actual NAV and the sale/repurchase price. When this became known, it set a panic amongst investors of US 64. Many people felt that if there were large-scale redemptions, UTI would not be able to meet them without support of outside bodies like the RBI. Further, theoretically, if all investors wanted to redeem their US 64 units on the same day, the US 64 simply did not have the money to meet the redemptions on its own (due to the difference between NAV and the repurchase price).
What went wrong with Morgan Stanley?

Morgan Stanley raised large corpus (more than Rs10bn) in around early 1994. The entire exercise in fund raising was centered on the hype of the fund being the first fund promoted by an internationally acclaimed asset management company. It was marketed like any other public issue and fund investors rushed to invest in the scheme hoping to get superior returns. No one bothered to explain to them that Morgan Stanley AMC was a service provider - providing them the service of investment advice and management. No one explained to them that they were not investing in a share of a company in fact the artificial gray market premium served to perpetrate this feeling. 42 DBIM, SURAT

The IPO was a great success. It ensured that the name "Morgan Stanley" was now a part of the dreams of more than 1 million Indians. The fund raising exercise, unfortunately, coincided with the peak of stock market boom. Indian stock markets lack depth and are quite illiquid. The fund managers were compelled to invest in equities in a big hurry as a number of Foreign Institutional Investors were investing huge sums of money in the country resulting in a mad rush for equity stocks. The funds managers invested a considerable amount of money in smaller companies with low floating stock and low market capitalization, either through the secondary market or through private placements. These companies had experienced the highest appreciation in prices in the immediate past. The market position started changing from late 1994. The boom in the market made it possible for many companies to raise equity capital and literally hundreds of public/rights issues opened for subscriptions every week, many of them at high issue prices. There were also massive private placements of equity shares and GDR issues at huge premiums. There were very few companies which did not wash their hands in this great gravy train. This deluge of paper soaked up money and reduced the amount available for fresh investment both from resident Indians, domestic mutual funds and from foreign institutional investors. At this time, the RBI commenced on its tight money policy in a bid to control inflation from raising its head. Money supply tightened and bond yields started increasing dramatically. High industrial growth and tight money created a shortage for credit and rates started going sky high. Many corporates and banks started redeeming their holdings in the Unit Trust of India and other mutual funds. This put major pressure on the market, which was already showing signs of weakness. What followed was the great crash. And in this crash, the biggest losers were the smaller capitalization stocks. Many of these stocks lost more than 90% of their peak prices. Morgan Stanley AMC restructured the funds portfolio at big losses. As the NAV went below par, investors confidence was shattered. Being a closed-ended scheme the Morgan Stanleys mutual fund unit is also listed on the stock markets. Crisis of confidence led to its price on the stock exchange crashing and it started quoting at a steep discount to its NAV. The fund started buying back units in order to reduce the discount and also to boost the NAV (buying back units at prices below the NAV results in a profit, which will reduce the NAV). Given its large corpus size no amount of buy back or otherwise support could help boost the investor confidence. Since then the equity markets have gone nowhere with the index still below the level at which the fund was invested. Most of the stocks in the Sensex have performed poorly with markets punishing commodity companies and companies with non-transparent Indian managements. To top it, many erstwhile blue chips have reported disastrous financial performances. Consequently, the NAV of MSGF mirrors this gory saga of the Indian markets. In fact, the fund invested considerable amount of money in FMCG, pharmaceutical and software companies at the right time which improved the NAV from 1998 onwards.
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Study and Research on Mutual Fund Mutual Fund in various Sectors of India
Sector
Engineering Banking/Finance Oil & Gas Metals & Mining Cement Information Technology Telecom Pharmaceuticals Automotive Manufacturing Utilities Media Chemicals Conglomerates Services Miscellaneous Food & Beverage Tobacco Real Estate Consumer Non-Durables Consumer Durables
TOTAL
Investment (Rs. cr) 22,664.06 22,138.85 14,158.01 10,816.87 9,237.30 6,813.55 6,800.30 6,037.35 4,983.40 4,799.01 4,766.93 4,316.36 4,205.24 4,141.20 3,072.35 2,854.27 2,644.33 2,037.43 1,965.39 1,435.68 355.31 140,243.18
Weightage 16.2% 15.8% 10.1% 7.7% 6.6% 4.9% 4.8% 4.3% 3.6% 3.4% 3.4% 3.1% 3.0% 3.0% 2.2% 2.0% 1.9% 1.5% 1.4% 1.0% 0.3% 100.0%
Some Facts for the Growth of Mutual Funds In India

100% growth in the last 6 years. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. 44
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Emphasis on better corporate governance. Trying to curb the late trading practices.
Market Penetration
Redefining distribution The Indian mutual fund industry is going through a phase of transformation since liberalization. Liberalization has paved the way for foreign investors in the MF industry. These has increased the pace of evolution in the industry and made more products and services available to investors. Institutional investors dominate these industry. They hold about 65% of the Indian Mutual Fund assets, where as retrial investors accounts for only 1.3%. The miniscule penetration among retail investors can be attributed to their lack of awareness and risk aversion attitude. Until now, distribution has been confined to the metros, which offer high opportunities. But intensifying competition and steady growth of Mutual Funds has forced AMCs to increase their reach in non metro cities and small towns, where the potential is high and penetration is low. To realize the potential of the retail segment, MF AMCs are beefing their distribution channel, which aill help them expand their reach. The big opportunity The Indian mutual fund industry is worth around Rs. 150,000 cr. It is poised to grow by a CAGR of 89%. Savings contribute about 25% of the GDP to Mutual Fund assets, which is one of the highest in the Asia region. This is mainly attributed to the huge saving tendency among Indians. In contrast, their investment is lower. Mutual Fund players are formulating their strategies to have a share of the growing market. They are developing their products for both the mass and the niche market, considering clients financial goals, risk-taking ability and time duration. They are meticulously segmenting and targeting their needs. The segmentation is based on the customers psychographic profile, demography/ socio-economic condition. For the mass-market, AMCs perform psychographic segmentation, which helps in innovating and developing new products by analyzing customers expectancy gap, whereas demographic segmentation helps in launching specialized or niche products. Small families are being targeted using the balanced schemes, middle-ages people by pension schemes and retired people by income schemes. Usually, government-sponsored, risk-free products are the proffered option for retail investors. In contrast, institutional investors prefer to invest in mutual fund schemes because of the professional management of the funds, wider product mix, high liquidity and cost efficiency. They are targeted by institutional schemes and money market schemes.
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7
PEST ANALYSIS
ENVIRONMENTAL ANALYSIS
1. Political and Legal Factors :
Regulators in India
SEBI- The Capital Market Regulator The Govt. of India constituted SEBI, by an act of Parliament in 1992, as the apex regulator of all entities that either raise funds in the capital markets or invest in capital market securities such as shares and debentures listed on stock exchanges. Mutual Funds have emerged as an important institutional investor in capital market securities. Hence they come under the purview of SEBI. SEBI requires all Mutual Funds to be registered with them. It issues guidelines for all Mutual Fund operations including where they can invest, what investment limits and restrictions must be complied with, how they should account for income and expenses, how they should make disclosures of information to the investor and generally acts in the interest of investor protection. Other entities that SEBI also regulates are companies when they issue equity or debt, share registrars, custodians, bankers in the primary markets, stock exchanges and brokers in the secondary markets, and foreign and institutional investors such as FIIs, offshore Mutual Funds with dedicated Indian Mutual Funds or venture capital investors. RBI The Money Markets Regulator RBI as Supervisor of Bank-Owned Mutual Funds The first non-UTI Mutual Funds were started by public sector banks. Banks come under the regulatory jurisdiction of the RBI. Therefore, the operations of bank-owned Mutual Funds are governed by guidelines issued by the Reserve Bank of India. Subsequently, it has been clarified that all Mutual Funds, being primarily capital market players, come under the 46 DBIM, SURAT

regulatory umbrella of SEBI. Thus, the bank-owned funs continue to be under the joint supervision of both the RBI and the SEBI. It is generally understood that all market related and investor related activities of the funds are to be supervised by SEBI, while any issues concerning the ownership of the AMCs by banks fall under the regulatory ambit of the RBI. For example, if banks as funds sponsors have offered assured return schemes, RBI would have to review the capital adequacy and financial implications of the guaranteeing bank. Any fund mergers of bank-sponsored funds with others will also involve RBI approvals. However, the RBI guidelines on bank funds avoid issuing instructions on investment and market operations that may conflict with SEBI instructions. RBI as Supervisor of Money Market Mutual Funds Reserve Bank of India is the only government agency that is charged with the sole responsibility to control the money supply in the country. They also, therefore, have the sole supervisory responsibility over all entities that operate in the money markets, be it banks and companies that issue securities such as certificates of deposit or commercial paper, or banks and Mutual Funds who are allowed to borrow from or lend in the call money market. For this reason, if a Mutual Fund manager offers a Money Market Mutual Fund scheme; such MMMF has to abide by the policies laid down by the RBI. Ministry of Finance The Ministry of Finance, which is charged with implementing the government policies, ultimately supervises both the RBI and the SEBI. Besides being the ultimate policy making and supervising entity, the MOE has also been playing the role of an appellate authority for any major disputes over SEBI guidelines on certain specific capital market related guidelines- in particular any cases of insider trading or merger and acquisition. Company Law Board, Department of company affairs and register of companies Mutual Fund Asset Management Companies corporate trustees are companies registered under companies act 1956 and therefore answerable to regulatory authority empowered by the companies act. The primary legal interface for all companies is the Registrar of companies (R0C). Rocs in turn are supervised by the department of company affairs. The DCA forms part of the company law board, which is part of the Ministry of Law and Justice of the Govt. of India. The R0C ensures that the AM, or the trustee company as the case may be is in compliance with all companies act provisions. All AMC accounts and records are filled with the RoC, who may demand additional information and documents from the company. The RoC plays the role of a watch dog with respect to regulatory compliance by companies. The overall responsibility for formulating and modifying regulation relating to companies lies with the DCA. The DCA has legal power to prosecute company directors for failure to comply with any of companys law provisions as also for non repayment of deposits or frauds and other offences. The company law board (CLB) is the apex regulatory authority under the companies Act. While the CLB guides the DCA, another arm of the CLB called the company law bench is the appellate authority for corporate offences. The company Law Board is a body specially constituted by the central Government for carrying out judicial proceeding with respect to company affairs. Since Mutual Fund AMOs are companies, the CLBs role assumes importance. Member of a company who feel that the company is being managed in a manner which is oppressive to any member or which is against public interest or the companys interests can appeal to the CLB for redressal. The CLB, in such 47 DBIM, SURAT

cases, may regulate the conduct of the companys affairs, have the shares of the aggrieved members purchased by other members and/or terminate/modify the companys arrangement with the managing director, other director(s) or senior officials. The CLB has the legal standing of a civil court, and may call for inspection of documents, enforce attendance and examine witness on oath and pass judgments in the same manner as a civil Court. Any person aggrieved by a decision of the CLB may appeal to the High Court. As the members of AMC or Trustee companies will usually be the sponsors and their joint venture partners or associates, it is unlikely that Mutual Fund investors will have anything to do with any of these regulators. The authorities would generally regulate the AMCs whose shareholders may have recourse to them in specific cases. Stock Exchanges Stock Exchanges are self regulatory organization supervised by SEBI. Many closed-end schemes of Mutual Funds are listed on one or more stock exchanges. Such schemes are subject to regulation by the concerned stock exchanges through a listing agreement between the fund and the stock exchange. Exchange Rules and the companies Act provisions would generally decide on trading clearing, transfer and settlement of the buying and selling of Mutual Fund units on the markets. Funds or AMCs do not get directly involved with purchase and sales of units of such listed closed-end schemes, as the registrars handle all such transfers as in case of shares. Office of the Public Trustee Mutual Funds, being Public Trusts are governed by the India Trust Act, 1882. The Board of Trustees or the Trustee Company is accountable to the Office of the Public Trustee, which in turn reports to the Charity Commissioner. These Regulators enforce provisions of the Indian Trusts Act, to be complied with by the fund trustees.
Legal and Regulatory Framework

Mutual funds are regulated by the SEBI (Mutual Fund) regulations, 1996. SEBI is the regulator of all funds, except offshore funds. Bank sponsored mutual finds are jointly regulated by SEBI and RBI permission. If there is a bank sponsored find, it cannot provide a guarantee without RBI permission. RBI regulates money and govt securities in which mutual fund invest. Listed mutual funds are subject to the listing regulations of stock exchanges. Since the AMC and trustee co, are Co.s they are regulated by the department of co affairs, they have to send periodic report to the roc and the co law board is the appellate authority. Investors cannot sue the trust, as they are the same as the trust and cant sure themselves. UTI is governed by the UTI act, 1963 and is voluntarily under SEBI regulations. UTI can borrow as well as lend and also engage in other financial services activities. SROs are the second tier in the regulatory structure; SROs cannot do any legislation on their own. All stock exchanges are SROs. AMFI is an industry association of mutual funds. AMFI is not yet a SEBI registered SRO. AMFI has created code for mutual funds. AMFI aims at increasing investor awareness about mutual finds, encouraging best practices and bringing about high standards of professional behavior in the industry. Mutual Fund regulation How is it important?
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While the Mutual fund industry in India is four decades old major developments in improving regulatory framework haves taken place only during the past five years. Many regulatory changes have been implemented to improve surveillance and protect the rights of investors. After the UTI debacle the marker regulator Sebi has taken several measures to develops a comprehensive regulatory framework for mutual funds in association with AMFI.Regulatory guidelines relating to insider trading, late trading, switching assets, minimum number of investors for each scheme and marketing of mutual funds have now been issued to protect small investors.Sebi has also been closely monitoring investment decisions in unlisted securities and mergers between schemes and fund houses. Regulatory environment in India- What has been done so far?

Late trading: Guidelines have just been issued by sebi (after consultation with AMFI) for uniform cut-off times. Guidelines issued with respect to non-traded/thinly-traded debt and equity securities, to bring uniformity in valuation across funds. Comprehensives risk management systems put in to place with which mutual funds most comply. Minimum of 20 investors; no single investor should hold more than 25% of the schemes corpus. All individuals involves in mutual fund selling, marketing an investor service activities required to be AMFI-certified.
2. Economical Environment
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Study and Research on Mutual Fund Indian Economy Overview

Economics experts and various studies conducted across the globe envisage India and China to rule the world in the 21st century. For over a century the United States has been the largest economy in the world but major developments have taken place in the world economy since then, leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants- India and China. The rich countries of Europe have seen the greatest decline in global GDP share by 4.9 percentage points, followed by the US and Japan with a decline of about 1 percentage point each. Within Asia, the rising share of China and India has more than made up the declining global share of Japan since 1990. During the seventies and the eighties, ASEAN countries and during the eighties South Korea, along with China and India, contributed to the rising share of Asia in world GDP. According to some experts, the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India to rise (from 6 per cent to 11 per cent in 2025), and hence the latter will emerge as the third pole in the global economy after the US and China. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. By 2035, India is likely to be a larger growth driver than the six largest countries in the EU, though its impact will be a little over half that of the US. India, which is now the fourth largest economy in terms of purchasing power parity, will overtake Japan and become third major economic power within 10 years.
Issues and priorities for India

As India prepares herself for becoming an economic superpower, it must expedite socio-economic reforms and take steps for overcoming institutional and infrastructure bottlenecks inherent in the system. Availability of both physical and social infrastructure is central to sustainable economic growth. Since independence Indian economy has thrived hard for improving its pace of development. Notably in the past few years the cities in India have undergone tremendous infrastructure up gradation but the situation in not similar in most part of rural India. Similarly in the realm of health and education and other human development indicators India's performance has been far from satisfactory, showing a wide range of regional inequalities with urban areas getting most of the benefits. In order to attain the status that currently only a few countries in the world enjoy and to provide a more egalitarian society to its mounting population, appropriate measures need to be taken. Currently Indian economy is facing these challenges: Sustaining the growth momentum and achieving an annual average growth of 7-8 % in the next five years. Simplifying procedures and relaxing entry barriers for business activities.
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Checking the growth of population; India is the second highest populated country in the world after China. However in terms of density India exceeds China as India's land area is almost half of China's total land. Due to a high population growth, GNI per capita remains very poor. It was only $ 2880 in 2003 (world bank figures). Boosting agricultural growth through diversification and development of agro processing. Expanding industry fast, by at least 10% per year to integrate not only the surplus labour in agriculture but also the unprecedented number of women and teenagers joining the labour force every year. Developing world-class infrastructure for sustaining growth in all the sectors of the economy. Allowing foreign investment in more areas Effecting fiscal consolidation and eliminating the revenue deficit through revenue enhancement and expenditure management. Empowering the population through universal education and health care. India needs to improve its HDI rank, as at 127 it is way below many other developing countries' performance. The UPA government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation, telecom and insurance sector in the future.
India - A Growing Economy
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A growth rate of above 8% was achieved by the Indian economy during the year 2003-04 and in the advanced estimates for 2004-05, Indian economy has been predicted to grow at a level of 6.9 %. Growth in the Indian economy has steadily increased since 1979, averaging 5.7% per year in the 23-year growth record. In fact, the Indian economy has posted an excellent average GDP growth of 6.8% since 1994 ( the period when India's external crisis was brought under control). However, in comparison to many East Asian economies, having growth rates above 7%, the Indian growth experience lags behind. The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years. Though, the growth rate for 2004-05 is less than that of 2003-04, it is still among the high growth rates seen in India since independence. Many factors are behind this robust performance of the Indian economy in 2004-05. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. However, agriculture fell sharply from its 2003-04 level of 9 % to 1.1% in the current year primarily because of a bad monsoon. Thus, there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. This can be achieved by bringing more area under irrigation and by better water management.
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Because of the weakening of the US dollar for the last two years, (caused mainly by widening US deficits), Indian Rupee has steadily appreciated vis--vis US dollar. Though, this trend saw a brief reversal during may-august 2004. The latest Re/$ Exchange rate (March 2005) stood close to 44. Despite strengthening nominally against US $, Rupee depreciated against other major non-dollar currencies. Thus, the Real Effective Exchange rate of the Rupee depreciated and this trend continued until end 2004. A strong BOP position in recent years has resulted in a steady accumulation of foreign exchange reserves. The level of foreign exchange reserves crossed the US $100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18, 2005. The capital inflows, current account surplus and the valuation gains arising from appreciation of the major non-US dollar global currencies against US dollar contributed to such a rise in Forex reserves. The current account of BOP having been in surplus since 2001-02, turned into deficit in the first half of the current year( April-September 2004-05). Such a reversal was observed on the back of rise in POL and non POL imports which overwhelmed the growth of exports in US dollar terms at over 23 per cent. Growth momentum in exports was maintained; India's exports during AprNov registered a growth of 24% from the last period but India's position was down from 30th to 31st rank in the top exporting countries of the world. The main contributors to capital account surplus were the banking capital inflows, foreign institutional investments and other capital inflows. Alike current account, capital account too witnessed decline. The capital account surplus in April-September was also down by around US $ 1.5 million. Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03, driven entirely by the increase in the net foreign exchange assets of the RBI. However, it declined to 6.4% in the current year to January 28, 2005. During the current financial year 2004-05, broad money stock (M3) (up to December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-banking entity into banking entity, 7.3 per cent) as compared with the growth rate of 10.3 per cent registered during the corresponding period of the last year. The downward trend in interest rates continued in 2004-05, with bank rate standing at 6% as on Dec 10, 2004. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. During the current financial year (up to December 10, 2004) incremental gross bank credit increased by 20.5 per cent (exclusive of conversion, 16.6 per cent) as compared with a growth of 5.9 per cent in the same period of the previous year. Non-Food credit during the financial year so far, registered a growth of 20.5 per cent (exclusive of conversion, 16.5 per cent) as compared with an increase of 8.4 per cent during the same period of the last year indicated a positive outlook. Equity market return was 85% in 2003-04, second highest in Asia. With continued higher corporate earnings in 2004-05, the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. The expectation of sensex crossing 7 K mark is not yet realized. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years, corrective measures have been adopted. The fiscal deficit decreased to 7.9% in 2004-05 from a 9.4% of GDP in 2003-04. According to recent estimates, fiscal deficit in April-October 2004 is 45.2 per cent of BE compared with 56.0 per cent of BE in the corresponding period last year. Having given the broad picture of Indian economy, we now turn to the sectoral performance.
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Study and Research on Mutual Fund The Saving Pattern of India

The double task of alleviating poverty and keeping up with fast-growing Asian neighbors prompted the Indian government to announce a target of 7 percent or more for annual GDP growth over the next 10 years. A key question is whether India will be able to finance the investment necessary to reach this target through increased domestic saving and avoid a much greater recourse to foreign saving with its associated risks on the external front. A strategy to improve India's saving performance needs to take account of recent insights in the saving literature. Over the past few years, several studies of saving in developing countries have found that tax and interest rate incentives have been largely ineffective. Moreover, empirical studies suggest that higher growth generally tends to precede higher saving. In light of this evidence, it may be more effective to increase domestic saving by rising public saving and implementing a strong structural reform program, including financial liberalization. Sufficient savings? Econometric regression analysis suggests that private saving is likely to continue to increase--albeit gradually--over the coming years, driven by rising per capita income and continued financial deepening. In addition, a lower share of agriculture in the economy and an increase in the age dependency ratio would tend to increase private saving. Taking into account likely developments in public saving, this would result in a saving rate of about 28 percent of GDP after 2000. But this is not likely to be enough to finance the investment needed to reach the government's growth objective. Even assuming some improvement in investment efficiency (in the absence of reliable employment and capital stock data, there are no estimates of total factor productivity growth), the growth target implies that the investment rate would need to increase to well above 30 percent, which--even with higher recourse to foreign saving--would require a domestic saving rate of around 30 percent by the turn of the century. If the growth target is to be achieved, stronger action on both the public and private saving fronts is called for. Strategy for higher saving While higher domestic saving is needed to finance faster growth, policies aimed directly at mobilizing saving are not necessarily the best instrument to achieve this target. In the case of India, it has been argued that growth has suffered less from a low saving rate than from inefficient investment, in part because of the dominant role of the public sector in the economy. There is also a growing literature that, based on cross-country studies, has found little evidence that policy efforts to boost saving have been very effective. This research suggests that the main policy focus should be on initiating a virtuous growth-saving circle by fostering growth through fiscal consolidation and strong structural reforms, including privatization and financial liberalization. Under such a strategy, initially, growth would need to be financed mainly through higher public saving. Private saving, which eventually would have to provide the bulk of additional investment financing, would follow with a lag, responding to higher growth. Financial liberalization--in particular, reform of long-term saving instruments--would help to ensure that private saving was efficiently allocated. The case for an indirect approach to higher private saving is supported by recent findings that traditional saving policy instruments--like higher interest rates or special tax incentives--fail to raise the private saving rate in the long run. Although these results were established mainly for industrial countries, they are likely to apply just as forcefully in developing countries. For example, Ogaki, 54 DBIM, SURAT

Ostry, and Reinhart (1996) have found that the responsiveness of private saving to changes in real interest rates is less at lower levels of per capita income, as a higher share of income must be devoted to subsistence consumption. They estimated that the response of saving to changes in interest rates in India was among the lowest in the developing world. Moreover, Chelliah (1996) and others have pointed out that most Indian households do not pay income tax, either because their income is too low or because they fail to report to the tax authorities. Changes in the tax regime would therefore affect only a small part of the population, and would be unlikely to significantly alter overall saving behavior.
Financial & Economical Development

An important aspect of performance, which has a direct bearing on the longer-term growth potential of the economy, is the ability to mobilize resources for investment. Indias recent performance in this dimension is commendable. The rate of gross domestic investment in the economy, which increased only marginally from 17 percent in 1960-61 to 18 percent in 1970-71, then increased sharply thereafter to reach 24.7 percent in 1980-81. It has stayed at that level in the eighties. This investment rate is not high compared with rates achieved in the more rapidly growing middle-income countries, but it is much higher than the rates achieved in all the other low-income countries except China. What is more, the high rate of investment is being financed almost entirely from higher domestic savings, testifying to the success of self-reliance in this sense of the term. The gross domestic savings rate, which was 17 percent in 1970-71, had increased to 23 percent by 1985-86. There is certainly need and scope for further increased the rate of savings and thereby also the rate of investment. But the levels already achieved, and their evident sustainability, reflect on important structural transformation in the economy in terms of its resource mobilization capability. Even if the investment rate is only maintained at around 24-35 percent, it should be possible not only to maintain the present 5 percent growth rate, but perhaps even to achieve some further acceleration. This is because all available evidence suggests that the incremental capital-output ratio is higher in India than in other countries. This points to the scope for increased efficiency in resource use, a possibility which is confirmed by recent studies of total factor productivity such as Ahluwalia and Goldar which show slower growth in these indices of industrial productivity in India compared with other developing countries. An important feature of the increase in the aggregate savings rate is that it has occurred entirely because of the rapid growth in private household savings as a percent of GDP. The ratios of private corporate sector savings and public sector savings to GDP have remained more or less constant at 2 percent and 3 percent of GDP respectively, while private sector savings increased from 12 percent of GDP in 1970-71 to 18 percent of GDP in 1985-86. This rapid growth reflects the cumulative impact of a conscious policy of giving strong incentives for private household savings, especially in the form of financial assets. Following nationalization of the Indian commercial banks in 1969 (foreign banks were not nationalized) there was a massive expansion of the banking system spreading bank branches to all parts of the country, including also rural areas. The spread of bank branches definitely helped to mobilize private savings for investment in the organized sector. Interest rate policy was also geared to encourage household savings and for the past ten years or so, rates paid on term deposits with banks and other government-sponsored small savings schemes have yielded positive real rates of return for savers, especially for maturities of three years and above. More recently positive real rates of return have been available even for shorter maturities.
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This favorable interest rate policy was reinforced by fiscal incentives for savings built into the direct tax structure which provide deductions from taxable income of the interest earned on a wide range of financial instruments. For certain types of long-term savings instruments, a deduction is aloes allowed for a part of the amount invested. These incentives, which have been steadily strengthened and expanded in the past ten years, have had the effect of raising the effective pretax return on eligible financial investments. They certainly encouraged the flow of savings into these investments and on the whole probably also stimulated total savings. The institutional mechanisms for mobilizing household savings for productive investment have been further strengthened in the eighties by the remarkable development of the domestic capital market. Until about 1980 the volume of funds sought to be raised directly from the capital market through equity and bonds was only about Rs 500 crores per year. By 1986-87 this had increased more than tenfold. This is an impressive rate of expansion by any standard and is indicative of a structural transformation taking place in an important area, which would have very important implications for mobilizing capital and allocating it efficiently. The process is as yet far from complete. The capital market remains thin and vulnerable to manipulation. It lacks adequate depth in terms of the existence of large numbers of active participants, including institutional investors. It is also inadequately regulated in terms of rules for full disclosure and restrictions on trading malpractices, including, in particular, insider trading. These limitations are fully recognized and a number of initiatives have been taken to overcome these problems. The Unit Trust of India, until now the only mutual fund operating in India, and hitherto a conservative income-oriented operation at that, floated a second fund aimed at capital appreciation. The State Bank of India is to float a second mutual fund to complete with the Unit Trust. The term lending financial institutions, which up to now have played only a limited role in the capital market, have been more active in it in the past two years. The 1986 and 1987 budgets liberalized the treatment of long-term capital gains on sale of shares so that the maximum tax on capital gains on shares is only 20 percent for shares held for more than one year. The Government also proposes to set up a National Securities and Exchange Board which will serve as an agency supervising the functioning of the stock markets and setting clear rules on issues such as disclosure, insider trading, etc, to protect the investor. It will also serve as a forum for the development and implementation of ideas aimed at developing a healthy capital market. In the area of resource mobilization therefore, the economy has shown a reasonably good performance with important structural changes taking place which have strengthened its capability to mobilize and allocate resources efficiently. The principal weak area has been the generations of investable surpluses form the public sector. This weakness has been widely recognized and it is to be hoped that the various measures being taken to improve public sector performance will correct this problem.
3. Social Environment
Rules regarding Advertisement - Social Aspects
The advertisement for each scheme shall disclose investment objective for each scheme. An advertisement shall be truthful, fair and clear and shall not contain a statement, promise or forecast which is untrue or misleading.
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Advertisements shall not be so framed as to exploit the lack of experience or knowledge of the investors. All advertisements issued by a mutual fund or its sponsor or asset management company, shall state "all investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market". The advertisement shall not compare one fund with another, implicitly or explicitly, unless the comparison is fair and all information relevant to the comparison is included in the advertisement. The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.
Investment objectives and valuation policies

The moneys collected under any scheme of a mutual fund shall be invested only in transferable securities in the money market or in the capital market or in privately placed debentures or securitised debts. Provided that moneys collected under any money market scheme of a mutual fund shall be invested only in money market instruments in accordance with directions issued by the Reserve Bank of India; The mutual fund shall not borrow except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders. The mutual fund shall not advance any loans for any purpose. Every mutual fund shall compute and carry out valuation of its investments in its portfolio and publish the same in accordance with the valuation norms specified in Eighth Schedule Every mutual fund shall compute the Net Asset Value of each scheme by dividing the net assets of the scheme by the number of units outstanding on the valuation date. The Net Asset Value of the scheme shall be calculated and published at least in two daily newspapers at intervals of not exceeding one week: The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.
General Obligations
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Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained. The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule. Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.
Changing Lifestyles
In addition to the annual review, whenever you make a major life change, its time to reassess your overall financial situation. Some common examples of life changes: switching careers; retiring; getting married or divorced; having a child; buying a house; starting your own business; and entering college or paying tuition for a child. Most of these events are likely to affect your ability to invest, your time horizon, and your overall financial picture, both short term and long-term. Its never easy to find the time to review your investment plan when youre in the midst of any of these life changes, but its worth making the effort. You dont want to enter a new phase of your life with a plan that was designed for different circumstances. By staying on course with your asset allocations, you will help ensure that your overall portfolio continues to work effectively toward achieving your investment goals.
4. Technological Factor:
The technology wave, which have transform many industry in how they operates and survive has also come to the aid of MF industry to widen its reach, offers flexibilities to investors. The advantage includes lower distribution cost through online transactions, more customized and personal advised to customers and reaching out to growing young and net-savvy population of India. Technology plays an important role especially to the MF industry. The MF transaction become fast and it provides the services to the client very rapidly the technology is the only reason to meet such kind of qualitative service. Market reach ness is also possible through the technologies. Still MF industry requires some sort of technological innovation to tap the market of small town and cities so as to grow in a rapid manner. (Source: Analyst, July 2005)
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PORTERS FIVE FORCE MODEL
Suppliers of Key Inputs
I)
Rivalry Among Competitor

The competition of competitor will depend upon 5 pillar where MF cos really compete. First is performance. AMCs have to have a good enough performance at least in the top quartile, which AMCs have to maintain. Second is strict control on cost. AMCs dont really splurge that much or AMCs dont charge so high for the fund. Third is good service transparency reliability and timely service. People should get their statement on time through e-mail, phone call or by walking in to an investor serviced center. Forth is a brand .AMCs has to spend marketing building awareness about and the co as such .fifth is new product innovation. That is really driving growth in this industry. So, AMCs need to think about new products. New entrance increased in the competition and decline market share of existing co.s. In the MF industry the investors loyalty level is very low. So, the investors will switch over the new co which gives them higher return. So, we can at last say that the rivalry among competitor is high. II) The Potential Entry Of New Competitors Until 1987, the UTI was the sole mutual fund in India. Then banks, LIC, and GIC floated MF. In the past 1992 public and private financial institution with foreign collaboration came in the mkt. Thus we can see the entry of new competitors is high. Banking co.s, NBFCs, Merchant bankers, insurance cos are now entering in the MF as the purpose of diversified business. 59 DBIM, SURAT
Substitute Products
(Of firms in other industries)
Rivalry Among Competing Sellers
Buyers
Potential New Entrants

Competition is most welcome because Mf is an underserved marker long term competition coming in, is always welcome. The MF industry will have to educate the investors, who are totally of some what unaware about MF. On really need to have an industry wide focus on build8ing the retail corpus and the saving habit. Competition will only intensify. There will always be people who find India valuable at a particular point and people who will want to exit out at that point. So consolidation, Mergers entry of new strong players form aboard and new Indian players getting in , all this dill continue. The size of market is very large. Completion is nothing as compared t the size of market and if all of them co-operate and growth the marker will still be large enough to accommodate all of them and many more. So, the threats from new entry are very high due to potentiality of market and favorable government policy.
III) Competitive Pressure From Substitute Products

Capital Market, Bank deposits, post office, company deposit, insurance, real estate investment, bullion market are substitute of Mutual fund. Recently there is boom period prevail in the stock market as investor prefers to invest directly to stock market. FIIs movements toward stock market which lead to boom in the stock market. Risk aversion people prefer to invest in Bank fixed deposits, insurance, and post scheme. New insurance companies give better product and securities for the long term plan. Again still today people would like to invest in real estate which gives even higher returns than the equi9ty market or even equity fund of mutual fund. When we try to compare bank deposit an mutual fund AUM , the AUM of the Indian Mutual fund industry worth Rs.1,50,537 crores in dece.,2004 while bank deposits figure was a mammoth re 16,22,579 cr. So, one can say that MF industry still behind. The biggest hindrance to the growth of industry lies in its inability to attract the saving of the public, which constitute the major investme5tn sources in other developed MF market. A large pool of money in sasvingi9n India is still with the state bank and Pvt. Banks. Bullion market is one of these competitive pressures for MF industry. India enjoys the distinction of being major consumer of gold. According to the world gold council, the association of worlds leading gold producers, Indians hold around a seventh of the total global stocks gold i.e. 15000 tons worth Rs 9,50,000 cr. .Indians spend around Rs 40000 crs, annually on gold jewelry and investment. Now interesting things to consider that the total investment consumption on gold can be 85% utilized for jewel purpose 10%-15% for investment purposes and 5% for production usages. So, still 10%-15% is huge investment proportion with bullion market
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Lets compare various Investment option with MF. Investment Classes 1) Bank Saving 2) Bank Fixed Deposits 3) RBI Bond 4) NSC 5) LIC 6) PPF 7) Debt MF 8) Diversified and Equity MF Returns (%) 3.50% 5%-6% 6%-8% 8% 9.50% 9.50% 4 %- 6% 10.50% (Source: Reliance Capital Asset Management Book let.) So, these are the substitute product which should be taken care by MF industry. And that is why the threats from substitute product is very high.
(IV) Bargaining Power of Supplier (Investors)

We can consider the investor investing in MF is the supplier for the AMCs. AMCs provide various schemes of MF so as to reach or facilitate the objective of investor like high liquidity, high return, low risk, safety against investment. Investors prefer those schemes which fulfill their investment objective. There are many MF companies, who are now a day busy in promoting the various schemes so as to fulfill the investors need and tap as much market as possible. Investors choose those schemes, which best suit to his/her investment objective and bargain for the same. The switching cost in the form of entry load and exit load is high. Investor can not easily switch over form one scheme to another. But when we see over all situations then companies are facing threats from investors. On the other way round investor full utilizes their bargaining power which choosing a fund. So, through over all situations we can say that the bargaining power of investor is high.
(V) Bargaining power of buyers (Investors)

We can consider Indian investor as a buyer and supplier both as the supply of money to AMCs and investment from AMCs both done by investor only. As there are around 31 mutual fund company and there are large cluster of investor to supply and invest in various schemes of AMCs So, the investor having a strong bargaining power So in a nut shell we can say that, the no of AMCs are very low, but the investment volume is very high that is why the bargaining power of buyers is high.
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Strategic Map of Mutual Fund Industry
In strategic group mapping, generally same strategic groups compete against one another more intensely than against firm in different strategic group. Competition within a strategic group is often more heated than that between strategic groups. These phenomenons result from the fact that firm within the same strategic group display similar product characteristics, strategy behavior and same profitability. As a result, it is difficult for rival to distinguish them selves easily from another. As Franklin Templeton, Pru. ICICI and UTI are within the same strategic group they are facing same kind of situation. They are following the same kind of strategy to penetrate in the new market, they all try to make awareness in the market, they introduce newer and newer scheme in the market by days lapses. The reason why these AMCs within the same strategic group tend to compete more fiercely within each other is their similarities or their lack of opportunities to make themselves distinctive. The players of strategic group are likely to pursue a similar competitive strategy for a similar type of buyer. Strategic groups can shift over time, so manager must continue to be aware of how AMCs may differ in their future competitive postures and strategies. In the recent years, various AMCs have apparently 62 DBIM, SURAT

decided to enter in to the new geographical region especially the semi-urban area where the huge market is prevail, which is still untapped. AMCs should considered that the no. of firm within a group can also change, as some of the firm in the recent year coming with new scheme offering , that may possible that their AUM can be increase and they can shift from one strategic group to another. TATA AMC, Birla AMC, HDFC AMC, Reliance AMC and SBI AMC having a opportunity to increase their scheme to compete the huge giant like UTI, Franklin, HDFC and Pru. ICICI to increase their AUM. Now, when we see the strategic map then we find that UTI, Franklin Temp. And Pru.ICICI are dominating the industry. They are fall in High-High quadrant i.e. they are having high AUM as well as high plans (schemes). But as we discuss they are facing a stiff competition with in the same strategic group .As we see that UTI only the AMC who is bank sponsor other two, i.e. Franklin and Pru.ICICI both are joint venture pre-dominant foreign AMC. So, we can say that pvt. player dominate the industry, although UTI having a huge market share around 71% with in the bank sponsored AMC which having a highest share of 13.36% considering overall MF industry. while the foreign players like Pru.ICICI contend 10.23% and Franklin contend with 10.16% over all marker share. So, the market share of leader is only 13.36% which is very negligible, it is the reason because there is a more no. of player around 31 AMCs, which are operating in MF industry. Now when we concentrate on that players which is having a medium level of AUM even though higher no. of schemes, they are Birla and TATA. This is quick wondering situation that even though Birla having a more scheme than the leader UTI, even though the AUM is medium in nature. Similarly TATA having a slight less than UTI, Franklin and Pru.ICICI, even though the AUM is medium in nature.
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OT Analysis
Opportunities
1) Rural market is untapped One of the biggest opportunity with the mutual fund industry is the rural market, which is almost untapped. When we see the mutual fund industry growth in the urban areas, especially in the metro cities, it is incredible but the growth in the rural areas is very low as well as the market is very huge but partly untapped which the opportunity for the mutual fund industry is. 2) Favorable Govt. Policy Mutual fund industry should follows the rules and regulations made by Indian govt. regarding taxation, and other rules related to mutual fund industry. Even MF industry should comply the regulation made by SEBI and AMFI. But as far as budget 2005 is concern it is totally favorable to the MF industry. Earlier there is tax on long term capital gain (LTCG), which is removed in these year. That means dividend and LTCG is totally tax exempt in the hand of investors. So this is good opportunity to MF to tapped with. 3) Rapid growth in Economy and Savings Indian economy is currently at growing stage. India is in the category of developing countries. The GDP growth rate growing around 8%. Again the saving ratio of Indians are 28% which is also favoring to the MF industry. So, from these one can say that it is one of the greatest opportunity to the MF industry. 4) Sectoral Growth Along with economy, particular sector like power sector, banking sector, pharma sector, automobile sector and so on, growing very rapidly. As Mutual Funds one of the scheme which specifically invest in particular sector only, there is huge opportunity with MF industry to invest in these growing sector and grow along with favorable situations. 5) Bull Capital Market Since couple of years, there is a boom period in the equity market. Sensex now cross the limit of 9000 (as on13th December, 2005). The equity holder getting a huge return. So, MF industry has good potential especially for equity oriented schemes, which can easily track the equity investors perspective. It provides long term capital appreciation as well as dividend. 6) Market Risk Now a days investment is being riskier. Private bank and company went in to scam or bankruptcy. So, the investment is very risky. Investor has to be very careful at the time of choosing right investment media. This fact has been one of the opportunity for the MF industry. The objective of MF is minimize risk and increase the mutual benefit leads it to the way of success. 7) Interest Rate
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Govt. has let the interest rate down. Before some years. The rate was around 13%. So, investors were preferred to invest in the bank deposits for getting a higher return. Now a days economic condition is strong which has let interest rate down to 5% -6%. These is an opportunity for the MF that it can give the more return on diversified portfolio management. Investor can get more return than he can anticipate. 8) Investment Pattern In the present scenario investors investment pattern is getting higher return with a less risk. Today investors is more trust worthy with government banks and post office. But still MF is one of the preferable option for the investors. These can lead to success of MF. MF is the only investment media where one can have all type of investment pattern so these can be stated for investors attractiveness to the industry. 9) Sound Execution of Regulation from SEBI and AMFI SEBI and AMFIs initiative for registration, certification and code of conduct have been vital in building a strong and informed selling forced for the industry. So biggest opportunity with MF industry is to develop and grow the industry along with the favorable execution of AMFI and SEBI. 10) Investors Profile The growth of any AMCs is depends upon the investors profile. The literacy level is very important especially for the investment . The literacy level in India is growing. Investors are being educated so they consider all facts and have good investment opportunity. So MF concept can be well explain to the qualified investors, it is opportunity for the industry. 11) Technology Related Opportunity Technology plays an important role in capital market as well as in the MF industry. With the application of technology and wider use of telecom facilities MF are attempting to reach of wider cross section of our society. 12) Mutual Fund is 1/10th of banking sector When we see the bank rate, it is only 5-6%. Even though banking is 10 times bigger than MF industry. Now, MF provides more return than banks. So there is a 10 time more growth opportunity for the MF industry in near future.
Threats
1) Fail to Aware the investor Still investors are not well aware about investment in MF and its schemes. Investor have lower awareness regarding the companies concerning with Mutual Fund. Some investors still feel difficulty in understanding MF concept and its schemes objectives. These unawareness was proved to be failure aspects for the industry. Even though there is a huge potential for the MF industry but due to lack of awareness these potential turns in to the threats for the industry.
Reach ness
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For the MF industry the reach ness is very much important. When we see the growth of MF in metro cities it is very good but the rural areas and semi urban area are still untapped by the MF industry. MF is failed to reach the interior of the country. Currently major players have their market from metro and big cities. Still the way to the small town and villages is open. Industry is in lack of reach ness which is a big threat and hindrance for the growth of industry. Bank Dominance The biggest hindrance to the growth of industry lies in its inability to attract the saving of public, which constitute the major investment sources in other developed MF markets. A large pool of money in saving in India is still with the state-run and private banks. 4) Impact of Global Developments Though the economic reforms have brought India on the global investment map, these also expose Indian financial market, including Indian MF industry, to the volatility in international markets. Fluctuation in the global markets and financial system will now be evident as the Indian markets get link to other foreign markets. Managing risk in such a scenario will be a key threats and challenge for the Indian MF industry. 5) Operational Hassles Operational inefficiency are still hampering the growth prospects of the industry. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. Investments in technology take up huge capital and are pretty risky for the MF companies to invest in. The rapid obsolescence of technology huge up front investment costs are also getting in the way of mutual funds from embracing the technology waves. 6) Lack of investment advisors The lack of investment advisors, especially to give personalize investment advice to the investor is creating road blocks for the growth in MF. Further, the awareness level in India about MF industry is largely restricted to high income investors and A class cities. These rules out the potentially huge B,C class cities and rural areas, which have strong growth potential. Lack of access, distribution models and advisors in these areas have blocked out a large pool of potential investors for the industry. 7) Competition from various investment option One of the great threats to the MF industry is the competition from various investments options available in the market like post office, insurance and so on. As insurance and post office provides the return which is comparable to the MF industry with less risk so these is one of the huge threat to the MF industry which should be taken care of.
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8
8 C's Model
MARKETING & MUTUAL FUND
Commodity (Scheme) Planning Customer Service Marketing Plan Cost
Campaign
Commodity Branding
Customization Channels
Convenience
1. Commodity (scheme) Planning Mutual fund commodity (scheme) are basically investment-oriented and the savings mobilized by the Mutual Fund are invariably invested in the instruments (shares, debentures) projected in the schemes. There is little scope for flexibility. Therefore, due care needs to be taken while designing particular commodity taking into account excepted changes in capital / stock market in view of future investment returns. The changing profile of customers (investors) must be taken into account in identifying the savings market. Different segments of the potential savings market have different expectations-long term growth, regular income, tax benefits, and so on. New commodities must be aimed at satisfying one or more objectives. Tax laws and other related regulations also play an important role in designing a new product because benefits can be offered to investors within the exiting framework of tax regulations. Most of the schemes launched in India are either income or income-cum-growth schemes; few are pure growth schemes. Investor's options have been restricted due to limited commodity range. This has probably happened on account of lack of experience and the risk-averse, conservative attitude of mutual fund managers.
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Like, commodity planning, commodity launching is a crucial element in marketing. Many Indian Mutual Funds have performed poorly due to wrong timing of launch. Market research can help to assess the needs of potential customers, availability of existing schemes and future growth in demand. Before formally launching a new commodity, test marketing can be conducted.
2. Cost
The cost of Mutual Fund products is inextricably linked with returns. Indian Mutual Funds follow the historic costing structure. The scheme may provide for the price (cost) at which the units may be subscribed or sold to the independent participants in the scheme. The scheme may also declare the price at which such units may at any time be purchased by the Mutual Fund. This repurchase price (cost) is based on the Net Asset Value (NAV). It signifies the realizable value that the investor will get for each unit that one is holding, if the scheme is liquidated on that date. It is computed by deducting all liabilities (except unit capital) of the fund from the realizable value of all assets and dividing it by number of units outstanding. The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. Mutual Fund is also to publish the sale and repurchase prices at least once in a week. Mutual Fund Management should also ensure that the difference between the sale and repurchase price does not exceed 7% of the sale price. While deciding on the price, incentives, brokerage charges, and commissions are also to be decided in advance because the expenses towards these items will affect the ultimate returns to investors.
3. Commodity Branding
An important function of scheme development is the selection of brand name and pricing of the scheme. Brand name highlights the market segments, inherent benefits and investment objectives, and ensures customer loyalty. Brand identity is an important marketing factor because it facilitates product identification at the market place. In India, most of the schemes are linked to the names of organizations: the "DHAN Series" is identified with LIC Mutual fund, "Master Series" with Unit Trust of India and "Magnum" with SBI Mutual Funds. It can be said that Indian funds have been quite successful in brand policy and brand identification.
4. Convenience
Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes only, where there is an additional channel to deal with the Brokers. Direct dealing with the fund could help the investor with their financial planning. In India, brokers could get more Net savvy than investors and could help the investors with the knowledge they get from the Net. New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy, since servicing them would be easier on the Net. India has around 1.6 million net users who are prime target for these funds and this could just be the beginning. The Internet users are going to increase dramatically and mutual funds are going to be the best 68 DBIM, SURAT

beneficiary. With smaller administrative costs more funds would be mobilized. A fund manager must be ready to tackle the volatility and will have to maintain sufficient amount of investments which are high liquidity and low yielding investments to honor redemption.
5. Channel
A new mutual fund scheme may have all the qualities but that does not ensure its spontaneous acceptance by customers. Success would greatly depend on appropriate channel. The identification of appropriate market segment for the product, selection of channel and promotional aids are essential. Mutual Fund is mainly sold through marketing intermediaries whose job is really marketing of these types of financial services. Mutual funds are also marketing of these types of financial services. Mutual funds are also marketed through stockbrokers who are members of stock exchanges, institutional, merchant bankers, corporate agents etc. They are also marketed by distribution of application forms through a tie-up with newspapers. Public sector mutual funds like LIC MF, UTI have an edge over others due to their well-established agency network, Through the corporate offices formulated the overall marketing strategy and co-ordinate the activities relating to publicity and product distribution, local level activities are supervised and coordinated by the zonal and branch offices. In order to tap the savings tendency of the rural India, mutual fund are paying greater attention to rural marketing. Investors can also buy units through direct subscription. Some of the innovative distribution channels to attract prospective investors are: Direct sales:- In the case of direct sales funds are offered to investors directly at NAV and no sales load is charged. Sales through Underwriters:- Shares of open-ended mutual funds are available through distributors (also called brokers / dealers / sponsors) who act as underwriters. An underwriter purchases shares at NAV and sells them to the investing public. The commission of the underwriters depends on the spread of bid and offering price. Underwriters / distributors are prohibited from buying mutual funds shares for themselves unless it is for a bona fide investment account. Group selling:- many underwriters for maximum market penetration practice Group selling. The entire members get shares at reduced prices, which enable distributors to realize economies of scales. Automatic Monthly Investing:- This is a very convenient way to acquire mutual fund shares. Many companies operate this plan that allows shareholders to authorize a fund to debit their bank accounts monthly for the purchase of bank shares. Telephone or mail purchase:- Shares can be purchased over telephone or through mail by sending filled application forms along with cheques to the mutual fund. Share exchange plan:- Mutual fund investor can exchange there existing investment in the mutual fund with another mutual fund of similar amount.
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Study and Research on Mutual Fund 6. Campaign

Scheme campaign / promotion in India has taken the usual routes of advertisement and publicity. Mutual fund advertisements are regulated by SEBI, which prohibits material and contents of publicity, which may mislead the investing public. Advertisement campaigns mainly aims at creating awareness of the product, its comparative advantages and future potential, past performance of similar products and superiority of the fund in relation to others in terms of assets, management and performing servicing. Many mutual funds offer incentives for early subscription; some mutual fund also offers insurance benefits to attract investors. 7 Customization The financial goals will very, based on investor's age, lifestyle, financial independence, family commitments, and level of income and expenses among many other factors. Therefore, the first step should be to assess your needs. One can being by defining the investment objectives, which could be regular income, buying a home or finance a wedding or educate your children or combination of all these needs. Also the risk appetite of the investor and his cash flow requirements need to be mentioned clearly.
8.
Customer Service
The marketing of services is significantly influenced by the quality of service and the interpersonal relationship between customers and the service organization. Servicing has great significance in mutual funds, as in any other financial service industry. Prompt and timely service in issuing certificates / cheques and in attending to any customer problems would make a distinct difference. Expected return being more or less same for all the schemes, it is the quality of services which becomes the deciding factor. In India most mutual funds provide after-sales service through both external agencies and internal service department, although they rely on external agencies and internal agencies (transfer and registrar agents) who are specialized in these jobs. Mutual fund does need to develop to in-house expertise to render after-sales service more promptly and cost effectively.
Marketing of FMCG v/s Financial Product

FMCG is a low outlay area. FMCG products, specially chocolates come in impulse purchase category. Usually 15 to 20 rupees is the maximum outlay that you would want from a consumer in one go. In gifting yes, it is higher, but only to the extent of 100 to 150 rupees. In case of a financial product, it is a totally different ball game. Minimum outlay is 3000 - 3500 rupees. While you would be making million - two million transactions in FMCGs, here you would need to make only 10,000 transactions. And hence, the probability of holding on to your target group through direct contact is fairly high. The need to use the other mediums beyond TV is fantastic.
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Importance of Brand in Mutual Fund

Most important thing that people see is longevity of the company's offerings. Secondly, it is very important to have good brand name to develop trust in people's minds. Investors are actually going to invest your money into it, so the brand becomes very important. The brand, more so in financial sector, stands for trust and care. And it is extremely important to get people to invest with company. If company look at the standard pyramid, at the first level they build brand awareness, they have already attained that, they have been in India for five years now. And one of the things right at the top is getting the consumer to invest in your brand. As Prudential ICICI was new, company started off with building basic awareness. Has the brand been able to build realistic expectations? Has it performed up to the expectations? How many have considered it? It is like an education program.
Mutual Fund Guidelines on Advertisements

SEBI has prescribed an advertisement code for mutual funds, the important features of which are as follows: (1) Advertisement should not be published unless approved by the designated person. (2) Advertisement should be true, fair, and clear. It should not contain a statement, assurance, promise, or forecast which is false or misleading. (3) The sale offer should contain only information, substance of which is included in the funds current prospectus. (4) The advertisement should not be so framed as to exploit the lack of experience or knowledge of the investors. (5) It should not contain any information, the accuracy of which is dependent on an assumption. (6) It should not compare on fund with another unless comparison is fair. (7) The mutual funds, which advertise yield must use standardized computations such as tax/value, annual yield, etc. (8) If the advertisement guarantees a minimum return, it should also indicate the resources available to back such guarantee. (9) Mutual funds shall indicate in their advertisementsthe settlers, trustees, managers, and financial advisors to the fund. (10) Mutual funds which advertise past performance should state that these are not indicative of future returns.
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Media vehicles chosen by Mutual Fund Industry

Companies have very synergistic view on media planning. They try and are there in all the mediums at the same time. Companies believe that it actually gives them synergies. If they feel that their target audience is male thirty plus, they get him wherever he is. They want to target him at home, they will use television and print, may be he travels a lot during weekdays, so use outdoor and radio and maybe again print. And as research shows that 60% of all surfers check net from office, so the company get him in office through the Web. On weekend, again company get him through television advertising, they get him through in-cinema advertising, and through magazines. Research shows that weekend reading of magazines is far higher than weekday reading of magazines. If companies want to use one medium, sheer outlays that you need to put to create enough impact tends to be very high. So, if they say that I would have presence six months an year and be present in all the mediums v/s I will have a presence all the twelve months, and half of that time I would not be present on other media, and measure the effect that you would have in terms of increased brand recall and other fronts, first option works far better. So media multiplier works.
A Role of Advertising Message

A very important aspect where an agency comes in is to move away from only obvious benefit to a benefit that addresses particular needs of a customer. For example if you plan to invest in equity, the obvious benefit would be I would take care of your investment you don't need to worry about taking calls on stocks etc. That is what we as a mutual fund are supposed to do anyway- so that is the obvious benefit. What is not so obvious is that a person from 25 to 35 age group is willing to take a high degree of risk. But he also wants a high degree of returns, because he is looking at a number of things, he is looking at building assets for himself, at taking a new house, maybe buying a second car and henceforth. Over a period of five years, equity outperforms all other investments, so he would get a far higher accumulation of wealth five or ten years later than he would by investing in any other financial tool. So this is a need state that 10 years later he will get a larger chunk of money. From the obvious reason for investing to a 'state of need' that leads to investment, is the jump an agency has to take.
Indian Television Advertisements for Mutual Fund

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1. Birla Sun Life
Hearing a child cry, a man turns off the shower and dries himself.
Everything seems hazy as we see the world through his eyes.
Fumbling through the house, he trips and hurts his foot. MVO: "Invest karte wakt bhi, yeh dekh paana...
...ki aagey kya hai, aasan nahin hota." Going up to the table, our friend gropes for his glasses.
Finally managing to trace it, he puts them on and gets back his vision. MVO: "Isiliye aapko sahi raah dikhaye,...
...Birla Sun Life Mutual Fund." Super: 'Birla Sun Life Mutual Fund. The name that inspires trust.'
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Entering a room we find the baby howling away. MVO: "Aisa naam jo vishwas jagaye."
Finally in the arms of her father the baby quietens down and smiles cheerfully.
Message / Theme of the Advertise. Future safety of investment is emphasized with message that we are driving you to proper direction for that you just trust on us. Target Segment of advertisement. Middle class, upper middle class and upper middle class. Appeal used in Advertisement. Emotional (sentiment) Appeal Time duration of Advertisement. 30 seconds.
2. Standard Chartered Mutual Fund
Enjoying the privacy under the bed, two kids carry on with their study, as one of them revises and recites his table of five using one rupee coins.
In the next shot, two children walk in, with great reverence and offer their gurudakshina to their music teacher.
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Accepting his due, the guru safely puts the money under the cover of his harmonium.
Next we get to see a kabadiwala handing over the money from the sale of the papers to a woman.
The woman then rushes into her kitchen and hides the money inside her sugar jar.
An old man receives some money through post and he too quietly conceals it in his armchair.
Having finished with the coins, the boys put them back safely into a box.
MVO: "Looking for a safe place for your money. Standard Chartered Mutual Fund."
Message / Theme of the Advertise. 75
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We know you are always seeking for a place where you feel your money is safe and we care for you to provide safety to your investments. Target Segment of advertisement. General people (who seeks for secured investment option) Appeal used in Advertisement. Rational (Safety & Security) Appeal Time duration of Advertisement. 60 seconds.
3. UTI Mutual Fund
An old man plays with his grandson in their garden when his son approaches...
...Aaj mutual fund agent se milke hi aaunga," informs the young man. "Meri rai to kaayam hai...
...UTI to UTI hai. Kahi suni baaton par mat jaana. Yuhin nahin koi croron ka vishwaas...
...haasil karta hai saalon se. 37 salon se." Super: 'UTI Mutual Fund. Vishwaas. Sada kaayam.'
Message / Theme of the Advertise. 76
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Ad simply shows they are having trust of lacs of people from about last 37 years. In ad young earning son and retired father is shown in such a way they indirectly shows that we are providing service to both generation. Ad also shows the satisfactory trust of old man and his emotional touch with Unit Trust of India. Target Segment of advertisement. The people who seeks trustable AMC for their investments. Appeal used in Advertisement. Emotional (trust) Appeal Time duration of Advertisement. 15 seconds.
5. Prudential ICICI Mutual Funds
A man about to leave for the office, spots his wife trying to tie a diaper for their newborn with one hand, as the other is in a cast.
He interrupts and decides to help her out. Shushing her protests, he begins, but is rewarded with a smack from the little feet.
After much uproar, the deed is done and the three of them rejoice. MVO: "Just as you are taking care...
...of your loved ones, Prudential ICICI is taking care of your investments. Prudential ICICI Mutual Fund."
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Message / Theme of the Advertise. The message shows their core value for presenting themselves as a takes care of their customers. As parents takes care for their child in similar way we take care for investments, is the message of this ad. Target Segment of advertisement. The person who seeks for good take caring of their investment is targeted. Appeal used in Advertisement. Emotional (Sentiment) Appeal Time duration of Advertisement. 10 seconds.
5. Franklin Templeton Investments
The film opens with a man in a restaurant. A waiter serves the tea he had ordered for.
A little later another man comes from behind, enjoys the first one's tea...
...and leaves comfortably. Our man is so busy with a paper that he realizes his half-empty glass much later. MVO: "Isi tarah bina aapke jaane, mehangai...
... aur tax aapke fixed deposit ko ghata dete hain. Franklin Templeton Mutual Funds mein invest keejiye. Mehangai aur tax ka dat ke saamna keejiye." 78
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Message / Theme of the Advertise. The ad simply shows the safety of investment against the outer risks. The company emphasizes on security of fund and also makes trust in the mind set of customers that we are here to make your investments safe. Target Segment of advertisement. The person who seeks for good take caring of their investment is targeted. Appeal used in Advertisement. Rational (Safety + Security) Appeal, ad execution technique Humour. Time duration of Advertisement. 10 seconds.
6. UTI Mutual Fund
A boy is all smiles celebrating his birthday.
His dad wishes him and gifts him a police uniform.
The excited child rushes to change into it, while dad dreams of his son growing up to be a police officer.
Converting the uniform into a dacoit's dress he comes out shattering his dad's dreams and shouts, "Ab to....
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...gabar main hi banoonga." MVO: "Bachchey to nadan hai, par unka bhavishya koyi....
...khel nahin. Tyar rahe UTI Mutual Fund ke children's career plan ke saath."
Message / Theme of the Advertise. The ad simply shows the security for investment against the uncertain future. The person shows for dreaming in good results of his efforts and suddenly he founds the invert result for it. After that the message shows that like a child one should not carefree for their future and company promise to give secured future of their child. Target Segment of advertisement. The person who seeks for good future for their child is targeted. The persons who seek for good results for their efforts are to be directly targeted. Appeal used in Advertisement. Rational (Security) Appeal, ad execution technique Humour. Time duration of Advertisement. 15 seconds.
The News Paper Advertisement of Mutual Fund

Although they may look pretty cryptic, fund listings are very easy to read and can tell you a great deal about the fund in a small amount of space. You can determine the value of your portfolio by multiplying the number of shares you own by the "NAV." Multiplying the number of shares you own by the Offer Price tells you how much you would pay to buy those same shares.
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Funds are listed alphabetically by Fund Company with specific funds listed under each company. "NAV" means "Net Asset Value" and is the value of stocks being held in the portfolio divided by the number of the shares in the fund being held by the shareholders. "NAV" shows how much each share in the fund is worth. "Offer Price" is the amount you would pay if you wanted to buy the shares and is the same as the "NAV," plus any sales charges. "NL" means it is a no-load fund and you would pay the same price per share to buy it as you would receive if you were to sell it. This tells how much the net asset value of the fund has changed since the previous trading day. A plus (+) value means your shares have increased in value since the close of the last trading day by the amount indicated, and a minus (-) value means each of your shares has fallen by that amount. Change shows the amount by which the net asset value of one share of the fund increased or decreased the day before. Symbols after the fund names provide you with important information about the fund and the charges associated with it: Funds designated with an "r" charge a fee when you redeem (sell) your shares. "p" means a fund has a 12b-1 fee. "t" means a fund has both a 12b-1 fee and a deferred sales charge or redemption fee. If the most recent day's numbers are not available for a fund, the previous day's prices will be listed and an "f" entered after the fund name. An "e" signifies prices are quoted after capital gains distributions are deducted, and "x" means quotes are based on ex-dividend values. Mutual fund newspaper listings are most useful for keeping track of what is happening to the funds you own. Some newspapers provide more detail than others and include investment objectives and total return data. If you are trying to make a decision about buying a fund, newspaper listings can give you some idea about fund families and provide some indication about fees and expenses. But they don't provide all of the information you need, so don't reject funds for consideration based only on these tables. As a long-term investor, you will probably not find it necessary to check on the daily value of your fund shares. However, whenever you want to check the progress of your fund, you can obtain performance data and daily share prices directly from the fund company by calling their toll-free 81 DBIM, SURAT

number, referring to current prices of mutual funds listed daily in most newspapers, or visit their website.
Distribution Model of Mutual Fund

In a highly competitive environment, product innovation or development has become a necessity for mutual fund to stay ahead. Increasing commoditization and growing needs of the customers are forcing players to shift to solution-based models form product-based ones. In either model, the role of the distribution channel remains critical as it is helps stave off competition by maintaining relationship providing advisory services and customizing need-based solutions. Relationship play an important role while selling Mutual Fund products. An agent is an essential channel between investors and the mutual fund products. However, it is difficult for AMCs to manage and monitor a large agent force. So, they take shelter in third party distribution AMCs like Karvy, Bajaj Capital etc. These AMCs, in turn, appoint their agents to sell the MF AMCs products. Agents advice the customers on the kind of needs of the client. To unload their work, the companies bear huge market expenses in the form of higher commission to lure investors. Distribution Channel for Mutual Fund Industry
AMCS
DIRECT SALES
BROKER
BANKS
TIED AGENCY
INTERNET
INSTITUTIONAL BROKERS LARGE CORPORAT E
IFAs
CORPORA TE
HNW CUSTOMERS
RETAIL CUSTOMER
CUSTOMER SEGMENT
Open-end mutual funds may be sold by securities dealers and brokers, by financial planners, by a sales staff employed by the fund management, or directly by the fund to the investor. The last-named process carries no sales charge, or a low one, and such funds are called no-load or low-load. All funds have management fees regardless of distribution methods. To control increasing operational costs, AMCs are opting for the services of large distributors to sell their products by leveraging their value chain, which comprises of a broker, sub-broker and agents. 82 DBIM, SURAT

However, Mutual Fund players have to break splurging marketing expenses to push their products against others. In addition, Mutual fund AMCs are also using bank and non banking financial AMCs (NBFC) as distribution channels to leverage their reach and huge client base. UTI is distributing its offering through selected branches of the Indian Bank of India and Allahabad Bank. Besides, they are also appointing sales personnel to meet investors, educate them and sell their products. The contribution of direct marketing to the total sales is miniscule, but the cost burden is huge. The post office is also being used as a channel of distribution by mutual funds AMCs, given the fact that the post office has the largest distribution network than any other institution or bank in the country. As far as retail penetration is concerned, the post office plays a vital role because its offices are distributed through throughout the country. Mutual Fund player are also using the internet to distribute products because of the cost advantages and increased communication. However, the fact that the internet has its limits in providing customized investment advise to individuals, restricts its use on a large scale.
Challenges With Regard To Distribution of Mutual Fund

Lack of awareness and a risk aversion among retail investors are the major challenges for the industry. Educating investors about the advantages of investing in mutual funds compared to risk-free saving instrument is a big task for the industry. According to the securities Market Infrastructure-Leveraging Expert (SMILE), the transaction cost of establishing collection centers, delay in fund transfer and tardy inter city payment system are the major problem. So, enhancing the reach through the existing distribution model will require more investments. As of now, mutual fund investments are confined to the metros, tier 1 and tier 2 cities (about 50 cities). A major reason for this is the high cost of developing retail infrastructure. So, scaling up the operation by increasing the volumes through increasing investment in other cities doesnt seem feasible. There is also a regulatory entanglement in fund realization. Allotment of units Net Asset Values (NAVs) is done before the realization of funds, except in the liquid and money market schemes. Such delay is quite pervasive in the smaller towns, where it can be 3-5 days or more. Such hassles could prevent investors from investing in mutual funds. However these problem is resolved with appointment of adapt registrars to meet the time lines of recording the transactions. Inaddition, technological advancement of remittance instruments such as Electronic Clea Servicing (ECS), Electronic Funds Transfer(EFT) and real-Time Gross Settlement System (RTGS), is marking the process fast and reducing delay in fund transfer across cities. The extensive availability of the central Governments assured return on small savings products are restricting the competition as well as the penetration of a wide variety of mutual fund products, particularly in the smaller towns, where investors are not willing to take risk. This poses a great challenge for the industry to realize its potential.
Changing paradigms about Mutual Fund Distribution

To overcome the distribution bottleneck and increase penetration, AMCs are exploring distribution models like depository models and distributor model in lieu of the existing collection centers model. The depository model is expected to transform the model of distribution. In the proposed depository model, existing collection center will be replaced by the Depository Participants (DP) as the point where investors and depositors submit the application form. It will be helpful to investors who will be 83 DBIM, SURAT

able to transact different kind of mutual fund through a single point. The depository model can take advantage of already established equity market infrastructure and increase penetration. However, adoption of such a model will lead to channel conflict between distributors and DPs. To avoid such conflict of interest. Sebi has recommended the conversation of the exixting collection centers and registrar and mutual fund offices into limited purpose DPs. This will reduce the apprehension of distributors about approaching DPs, who are also a part of the distribution channel. While it is easy to change from the collection center model to the depository model. It will be very difficult to replace the depository model with the distributor model. In This new model, distributor is linked with the registrar through the depository. If the distributor model is the proffered mode of distribution, then Independent Financial advisers (IFAs) not only be critical in giving advisory services to investors but also in pushing their products. They will help investors buy products as per their financial needs. As a consequence, investors will become more aware of the product frames. It will lead to more demand for specialized/ niche products. The fund can be distinguished or preferred by the buyers on the style of fund management such as value investing style or growth investing style.
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1. Problem Definition
RESEARCH METHODOLOGY
The Mutual fund industry flourishes in the present scenario. The unexpected Growth in the mutual fund industry is due to lot many factors like suitable budget for the mutual Funds, mindset of the investor now a Days change & they are ready to take little risk towards their investment in Which deal to growth in the mutual fund industry? The main problem for which the research work in this management research project has conducted to know the various factors hinder the growth of mutual fund in the same area.
2. Objective of the study

Here I can segregate my research objective in to the two categories. Primary Objective: The main objective of this study is to gain the in knowledge about mutual fund industry as a whole & to know the attitude of investors towards the mutual funds. Secondary Objective: The secondary objectives of this research study are a. To analyze the individual preferences about mutual fund b. To know the investment pattern of small and medium size enterprises, doctors, Charted Accountants (CAs), Agents and stock brokers. c. To know thrust area for mutual fund industry
i)
ii)
3. Sample design
Sample Size The sample size for my research is 150. Sampling Method I have selected the convenient sampling method for my research study. Sampling Area My research objective is to know attitude of investors towards mutual fund in Surat city. So I have selected Surat city as sample area.
4. Sources of data
Source of data collected are: i) Primary Source:Primary sources includes survey of the respondent residing in the Surat city ii) Secondary Source:Secondary Source includesInternet. 85 DBIM, SURAT
a.

b. c. Various Magazines & bulletins Related books
5. Research techniques
Data Collection The research instrument in this study to collect primary data is questionnaire. The questionnaire was frame with the help of faculty member and finance students of my college. The questionnaire was frame in such a way to bring out the relevant information along with allied information in minimum possible time. Method of Data collection: The data collection approach adopted in this study is survey method. The method adopted for primary data collection in this study is personal interview method at the respected place. Most of the time in order to save my time I used to ask question verbally and as per answer of resonance, I fill the questionnaire accordingly. Secondary data collected from various books, magazines, and websites. Method of Contact: The method which we have adopted in my research is Personal Interview
6. Limitation
1) Time constraint. 2) Lack of Resources. 3) Cost constraint. 4) The research is solely based on respondents discretion.
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Study and Research on Mutual Fund 7, Conceptual Framework

Attitudes Definition. Consumer attitudes are a composite of a consumers (1) beliefs about, (2) feelings about, (3) and behavioral intentions toward some object--within the context of marketing, usually a brand or retail store. These components are viewed together since they are highly interdependent and together represent forces that influence how the consumer will react to the object. Beliefs. The first component is beliefs. A consumer may hold both positive beliefs toward an object (e.g., coffee tastes good) as well as negative beliefs (e.g., coffee is easily spilled and stains papers). In addition, some beliefs may be neutral (coffee is black), and some may be differ in valance depending on the person or the situation (e.g., coffee is hot and stimulates--good on a cold morning, but not good on a hot summer evening when one wants to sleep). Note also that the beliefs that consumers hold need not be accurate (e.g., that pork contains little fat), and some beliefs may, upon closer examination, be contradictory (e.g., that a historical figure was a good person but also owned slaves). Since a consumer holds many beliefs, it may often be difficult to get down to a "bottom line" overall belief about whether an object such as McDonalds is overall good or bad. The Multiattribute (also sometimes known as the Fishbein) Model attempts to summarize overall attitudes into one score using the equation:
That is, for each belief, we take the weight, or importance (Wi) of that belief and mutiply it with its evaluation (Xib). For example, a consumer believes that the taste of a beverage is moderately important, or a 4 on a scale from 1 to 7. He or she believes that coffee tastes very good, or a 6 on a scale from 1 to 7. Thus, the product here is 4(6)=24. On the other hand, he or she believes that the potential of a drink to stain is extremely important (7), and coffee fares moderately badly, at a score -4, on this attribute (since this is a negative belief, we now take negative numbers from -1 to -7, with -7 being worst). Thus, we now have 7(-4)=-28. Had these two beliefs been the only beliefs the consumer held, his or her total, or aggregated, attitude would have been 24+(-28)=-4. In practice, of course, consumers tend to have many more beliefs that must each be added to obtain an accurate measurement. Affect. Consumers also hold certain feelings toward brands or other objects. Sometimes these feelings are based on the beliefs (e.g., a person feels nauseated when thinking about a hamburger because of the tremendous amount of fat it contains), but there may also be feelings which are relatively independent of beliefs. For example, an extreme environmentalist may believe that cutting down trees is morally wrong, but may have positive affect toward Christmas trees because he or she unconsciously associates these trees with the experience that he or she had at Christmas as a child. behavioral intention. The behavioral intention is what the consumer plans to do with respect to the object (e.g., buy or not buy the brand). As with affect, this is sometimes a logical consequence of 87 DBIM, SURAT

beliefs (or affect), but may sometimes reflect other circumstances--e.g., although a consumer does not really like a restaurant, he or she will go there because it is a hangout for his or her friends. Attitude-Behavior Consistency. Consumers often do not behave consistently with their attitudes for several reasons: Ability. He or she may be unable to do so. Although junior high school student likes pick-up trucks and would like to buy one, she may lack a drivers license. Competing demands for resources. Although the above student would like to buy a pickup truck on her sixteenth birthday, she would rather have a computer, and has money for only one of the two. Social influence. A student thinks that smoking is really cool, but since his friends think its disgusting, he does not smoke. Measurement problems. Measuring attitudes is difficult. In many situations, consumers do not consciously set out to enumerate how positively or negatively they feel about mopeds, and when a market researcher asks them about their beliefs about mopeds, how important these beliefs are, and their evaluation of the performance of mopeds with respect to these beliefs, consumers often do not give very reliable answers. Thus, the consumers may act consistently with their true attitudes, which were never uncovered because an erroneous measurement was made.
Attitude Change Strategies. Changing attitudes is generally very difficult, particularly when consumers suspect that the marketer has a self-serving agenda in bringing about this change (e.g., to get the consumer to buy more or to switch brands). Changing affect. One approach is to try to change affect, which may or may not involve getting consumers to change their beliefs. One strategy uses the approach of classical conditioning try to "pair" the product with a liked stimulus. For example, we "pair" a car with a beautiful woman. Alternatively, we can try to get people to like the advertisement and hope that this liking will "spill over" into the purchase of a product. For example, the Pillsbury Doughboy does not really emphasize the conveyance of much information to the consumer; instead, it attempts to create a warm, fuzzy image. Although Energizer Bunny ads try to get people to believe that their batteries last longer, the main emphasis is on the likeable bunny. Finally, products which are better known, through the mere exposure effect, tend to be better liked--that is, the more a product is advertised and seen in stores, the more it will generally be liked, even if consumers to do not develop any specific beliefs about the product. Changing behavior. People like to believe that their behavior is rational; thus, once they use our products, chances are that they will continue unless someone is able to get them to switch. One way to get people to switch to our brand is to use temporary price discounts and coupons; however, when consumers buy a product on deal, they may justify the purchase based on that deal (i.e., the low price) and may then switch to other brands on deal later. A better way to get people to switch to our brand is to at least temporarily obtain better shelf space so that the product is more convenient. Consumers are less likely to use this availability as a rationale for their purchase and may continue to buy the product even when the product is less conveniently located. (Notice, by the way, that this represents a case of shaping). 88 DBIM, SURAT

Changing beliefs. Although attempting to change beliefs is the obvious way to attempt attitude change, particularly when consumers hold unfavorable or inaccurate ones, this is often difficult to achieve because consumers tend to resist. Several approaches to belief change exist: Change currently held beliefs. It is generally very difficult to attempt to change beliefs that people hold, particularly those that are strongly held, even if they are inaccurate. For example, the petroleum industry advertised for a long time that its profits were lower than were commonly believed, and provided extensive factual evidence in its advertising to support this reality. Consumers were suspicious and rejected this information, however. Change the importance of beliefs. Although the sugar manufacturers would undoubtedly like to decrease the importance of healthy teeth, it is usually not feasible to make beliefs less important--consumers are likely to reason, why, then, would you bother bringing them up in the first place? However, it may be possible to strengthen beliefs that favor us--e.g., a vitamin supplement manufacturer may advertise that it is extremely important for women to replace iron lost through menstruation. Most consumers already agree with this, but the belief can be made stronger. Add beliefs. Consumers are less likely to resist the addition of beliefs so long as they do not conflict with existing beliefs. Thus, the beef industry has added beliefs that beef (1) is convenient and (2) can be used to make a number of creative dishes. Vitamin manufacturers attempt to add the belief that stress causes vitamin depletion, which sounds quite plausible to most people. Change ideal. It usually difficult, and very risky, to attempt to change ideals, and only few firms succeed. For example, Hard Candy may have attempted to change the ideal away from traditional beauty toward more unique self expression.
One-sided vs. two-sided appeals. Attitude research has shown that consumers often tend to react more favorably to advertisements which either (1) admit something negative about the sponsoring brand (e.g., the Volvo is a clumsy car, but very safe) or (2) admits something positive about a competing brand (e.g., a competing supermarket has slightly lower prices, but offers less service and selection). Two-sided appeals must, contain overriding arguments why the sponsoring brand is ultimately superior--that is, in the above examples, the "but" part must be emphasized. The Elaboration Likelihood Model (ELM) and Celebrity Endorsements. The ELM suggests that consumers will scrutinize claims more in important situations than in unimportant ones. For example, we found that in the study of people trying to get ahead of others in a line to use photo copiers, the compliance rate was about fifty percent when people just asked to get ahead. However, when the justification "... because I have to make copies" was added, compliance increased to 80%. Since the reason offered really did not add substantive information, we conclude that it was not extensively analyzed--in the jargon of the theory, "elaboration" was low. The ELM suggests that for "unimportant" products, elaboration will be low, and thus Bill Cosby is able to endorse Coke and Jell-O without having any special credentials to do so. However, for products which are either expensive or important for some other reason (e.g., a pain reliever given to a child that could be harmed by using dangerous substances), elaboration is likely to be more extensive, and the endorser is expected to be "congruent," or compatible, with the product. For example, a basket ball player is likely to be effective in endorsing athletic shoes, but not in endorsing automobiles. On
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the other hand, a nationally syndicated auto columnist would be successful in endorsing cars, but not athletic shoes. All of them, however, could endorse fast food restaurants effectively. Appeal approaches. Several approaches to appeal may be used. The use of affect to induce empathy with advertising characters may increase attraction to a product, but may backfire if consumers believe that peoples feelings are being exploited. Fear appeals appear to work only if (1) an optimal level of fear is evoked--not so much that people tune it out, but enough to scare people into action and (2) a way to avoid the feared stimulus is explicitly indicated--e.g., gingivitis and tooth loss can be avoided by using this mouth wash. Humor appears to be effective in gaining attention, but does not appear to increase persuasion in practice. In addition, a more favorable attitude toward the advertisement may be created by humorous advertising, which may in turn result in increased sales. Comparative advertising, which is illegal in many countries, often increases sales for the sponsoring brand, but may backfire in certain cultures.
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Study and Research on Mutual Fund 8. Data analysis

1) Investment Tool That Respondent Used To Invest In Findings: Investment Options BFD Post Office Insurance Mutual Fund Equity NSC B&D Recurring PPF Un-Organized Sector Respondents 38 88 100 92 76 48 10 14 18 5
Investment Tool
No. of respondents 120 100 80 60 40 20 0 Post Office Insurance BFD NSC B&D Recurring UnOrganized Sector Mutual Fund Equity PPF
Options
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Data interpretation: From the above data, we can see that nearly 70% of respondents invest in Insurance polices & 65.71% of respondents in Mutual Fund. But when we compare Mutual Fund and Insurance with Bank, Banks proportion of respondents investment is too low. Only 27.14% of respondents invest in Banks. So we can say that there is definitely a shift towards other investment avenues like Mutual Fund, Insurance, Equity etc., because of declining return from Bank. There are a high number of respondents investing in Insurance, approx. 70% because saving risk for contingencies reduces and it provides tax benefit to investors which is one of the main & important criterions for investors while investing in different avenues. Equally there are a high number of respondents investing in Mutual Fund, approx 65.71% because it helps in making calculated and diversified investment. Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. Respondent investing in Post Office & Equity is 62.85% & 54.28% respectively. This is just because respondents main objective of investment after tax benefit is return which they receive higher in Post Office & Equity compared to other investment avenues. Post Office also provides tax benefit .
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Study and Research on Mutual Fund 2) Objective of Investment (Rank according to investors)
Findings: Rank 1 2 3 4 5 Tax Benefit 30 79 13 25 3 Return 80 30 19 9 12 Liquidity 10 25 68 24 23 Saving 11 7 28 53 51 Safety 19 9 22 39 61
Data interpretation: From the above data, 53.33% of respondents return Benefit as the most important criterion while investing in different avenues, followed by Tax benefit, liquidity, saving & safety. People give more preference to tax benefit and return as we already saw that there are number of people investing in Insurance & Mutual Fund. As return is one of the main objectives of investment we can see that there are number of respondents investing in Post Office & Equity where they receive higher return.
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Study and Research on Mutual Fund 3) Investment options

Findings: Ranks 1 2 3 4 5 6 7 8 BFD 9 13 13 9 11 19 42 34 Insurance 35 28 29 12 14 2 18 12 B&D 10 7 15 34 10 28 22 24 Post Office 23 15 32 20 23 28 2 7 NSC 25 25 16 34 24 15 4 7 Mutual Fund 32 38 15 8 22 17 11 7 Recurring 8 2 13 8 19 15 38 47 Equity 8 22 17 25 27 26 13 12
Data interpretation: The data reveals the fact hat generally people prefer to invest first is in Insurance, because saving risk for contingencies reduces and it provides tax benefit to investors which are one of the main & important criterions for investors while investing in different avenues. Equally there are a high number of respondents investing in Mutual Fund, because it helps in making calculated and diversified investment. Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. People prefer last option to BFD as the return is very low in BFD.
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4) Average Tenure of Investment Findings: Investment Tenure Long Term Short Term No. of Respondents 114 36
Data interpretation: From the facts & figure we can easily judge that almost 76% respondents invest their fund for Long term. That means the investor may go for those investment which has maturity of more than one year. So this kind of result is very much favorable for Mutual Fund Industry. When we take into consideration Equity fund, it requires lock in period of three or more years. So Mutual Fund can target these long term investors which are nearly 76% of sample of Ahmadabad region.
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5) Expected Return on Port folio Findings: Return 4% - 7% 7% - 10% 10% - 13% > 13% No. of Res. 17 62 58 13
Data interpretation: From the above data we can judge that most of the respondents i.e. nearly 41.42% of respondents expect 7% to 10% return from there portfolio. This because people prefer to invest in Post office, Insurance etc. Similarly the number of respondents expecting 10% to 13% return from portfolio, i.e. is nearly 38.57% is also high because respondents one of the main criterion for investment is return. So I order to get higher return people invest in equity, NSC etc. The number of respondents expecting high return of 10% to 13% from portfolio is more because they like to invest in equity market as the market is showing a positive growth from past few years.
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6) Investment Advisory Findings: Advisor Bank Agent Direct Investment CAs Friends & Relatives Investment Analyst
No. of Respondents 28 63 83 47 77 6
Data interpretation: Taking into consideration the advice which is taken by investors, respondents generally invest directly or they generally take advice of friends & relatives. Almost 55.71% of respondents invest directly and nearly 51.43% of respondents take friends & relatives advice. In Investment Option like Insurance & Mutual Fund Respondents take advice from Agent that is almost 41.43% of respondents. The least preferred advisor is Investment Analyst. Only 4.28% of respondents take advice from Investment Analyst.
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7) Mutual fund Awareness Findings: Response Aware Not Aware No. of Res. 122 28
Data interpretation: Considering the Awareness of Mutual Fund among investors, it basically depends upon the area in which the research is conducted, level of education prevailing in the city & so on. As we know the living standard, level of education etc in the research area i.e. Ahmedabad is far better. So due to which we can see the awareness among the respondents is far better, almost 81.43% of respondents are aware about Mutual Fund. Only 18.57% of respondents are not aware about Mutual Fund.
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Study and Research on Mutual Fund 8) Mutual fund Investment

Findings: Response Invested Not Invested No. of Respondents 99 51
Data interpretation: Considering the awareness factor of Mutual Fund we find that almost 81% of respondents are about Mutual Fund but when we see how many of them invest in Mutual Fund its only 65.715 of respondents who invest in Mutual Fund while remaining 34.28% of respondents do not invest in Mutual Fund. So Mutual Fund companies should try to tap the untapped respondents nearly 34%, so as to take the advantage of the opportunities.
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9) Reason for not Invest in Mutual fund Findings: Reasons Lack of Knowledge Lack of Trust in MF Difficulty in selecting the scheme Inefficient Investment Advisory Bitter past Exp. No. of Respondents 68 30 24 19 9
Data interpretation: As we find there is a wide gap between people who are aware about mutual fund & those who invest in mutual fund. There are some reasons for this gap. Around 45% respondents do not invest in Mutual Fund due to lack of Knowledge while 20% of respondents do not invest due to lack of trust. 15.71% of respondents do not invest due to difficulty on selecting schemes which the fundamental awareness of mutual fund. So AMCs in order to reduce the main hurdle i.e. lack of knowledge, they should try to educate the investors.
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10) Type of MF, Investors invest in Findings:
Type of MF Debt Equity Balance
No. of Res. 29 66 55
Data interpretation: Around 65.71% of respondents invest in Mutual Fund out of those 44% of respondents invest in Equity fund while 37% of respondents invest in Balance Fund and only 19% of respondents invest in Debt Fund. The relative higher investment in Equity fund is due to positive movement of Capital market and the other reason is because respondents receive higher return.While 37% of respondents, invest in balance fund to have moderate return at moderate risk.
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11) Mutual fund as a safe Investment tool Findings: Response Safe Not Safe No. of Respondents 120 30
Data interpretation: The matter of safe investment is subjective. The safe investment for one person may not be safe investment for another. Around 80% of respondents feel that MF fund is safe investment tool as their fund can be well managed by qualified Fund Managers. The other reason why MF is a safe investment too it helps investors to take calculated & diversified risk. It also considers the varied needs of investors & provides tax benefit. Only 20% of respondents believe that MF is not a safe investment tool for them due to systematic risk or due to their past experience.
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Study and Research on Mutual Fund 12) Reasons for thinking MF as a risky investment tool
Findings: Reasons Risk Factor Lack of trust on AMC Longer Procedure Load Charges No. of Respondents 13 7 6 4
Data interpretation: As we saw 20% of respondents dont believe that Mutual Fund is a Safe Investment tool. There is certain reason for that. Around 44% of respondents out of 30 respondents who feel Mutual Fund is risky. Risk may be systematic or unsystematic risk. While around 23% of respondents do to believe Mutual Fund to be safe Investment due to lack of trust.
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Study and Research on Mutual Fund 13) Awareness about Tax Benefit in MF
Findings: Response Aware Not Aware No. of Respondents 101 49
Data interpretation: Around 67% of respondents are aware that Mutual Fund provides tax benefit while around 33% of respondents do not know that Mutual Fund provides tax benefit. So Mutual Fund players should try to increase awareness about tax benefit because Tax Benefit is one of the main Objective of Investors Investment.
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14) Objective to invest in MF Findings: Objective to invest in MF Long term capital gain Safety of Capital Short term capital gain Planned investment for occasion No. of Respondents 120 28 37 55
Data interpretation: From the above data we can see that the main aim behind respondents investing in mutual fund is Long term Capital gain. Around 80% invest in mutual fund with the objective of capital gain. The least considered objective while investing in Mutual fund is safety of Capital.
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Study and Research on Mutual Fund 15) Awareness about various AMCs
Findings: AMCs Tata SBI MF PRU ICICI MF Franklin Templton Kotak MF Reliance MF HDFC Birla Sundaram Fedility BOB JP Morgon Std Chartered No. of Respondents 49 79 84 45 37 28 47 6 13 24 2 28 8
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CONCLUSION
Up till now sought after investment avenues like bank deposits, real estate, gold, provident fund etc. especially due to fall in interest rates coupled with the rising inflation, and Mutual Fund obviously become a viable alternative. Mutual Fund is in the business of managing trust. If Mutual Funds gain investors trust, money will follow. It is important to gain mind-share rather than wallet share of the investors. Currently industry is gradually growing phase and Indian Mutual Fund industry has been definitely maturing over the last few years and the level of awareness today is much more than what it was in the past. But the level of awareness has not yet reached the rural and other smaller towns and it is more of a smaller towns and it is more of an urban phenomenon. What is needed is the spread of awareness beyond regional limits. Mutual Fund as a concept is well known, but the target audience still needed to gain more awareness. The future is very bright. This Mutual Fund industry is playing an important role to provide Alternative Avenue to the entire gamut of investors in a scientific and professional manner. Mutual fund industry has been evolving very well for an important reason that, today we have the best system and procedure, good regulatory mechanism, use of technology, transparency and sharing of details and dissemination of information at an improved level.
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RECOMMENDATION & SUGGESTION
1. As we know that the villages and town are the untapped market for them so for increasing their presence in more village and tap more investor they should aware the investor by conducting seminars, by providing the material for the basic concept of mutual fund. 2. Try to avoid the bad and painful experience of US 64 by providing todays situation of MF and the Advantages from MF.AS we know that the situation at the time of US 64 and the todays scenario is quiet different .As today there are 31 AMCs exist in the market and still there is expectation to increase more number of AMCs in near future. So in short AMCs should understand the investor and make differentiate the both situation as a whole. 3. Generally people know the concept of MF but they are not aware about the various schemes so AMCs should try to make awareness about various scheme. 4. Companies should educate the people by intimating about favorable budget impact on MF. 5. As we see that there is poor reach as far as mutual fund is concern. So AMCs should concentrate to make effective their distribution channel. 6. Operational inefficiency is still hampering the growth prospects of the industry. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. So industry should consider this point in to consideration and try to avoid the hindrance by investing in the technology like punch machine and cash management service(CMS). 7. One of the great threats to the MF industry is the competition from various investments options available in the market like post office, insurance and so on. As insurance and post office provides the return which is comparable to the MF industry with less risk so this is one of the huge threats. So AMCs should reduce the risk which is involved in MF at the time of investing in MF by constructing the special effective risk management department.
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Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

HISTORY & BACKGROUND

Mutual Fund in India (1964-2000)

Study and Research on Mutual Fund

1999-2000 year of the funds

Four Phases of Mutual Fund in India

Study and Research on Mutual Fund

Growth in Assets under Management

Study and Research on Mutual Fund

Study and Research on Mutual Fund

UNDERSTANDING OF MUTUAL FUND

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

B. Banks v/s Mutual Funds

Choosing a Mutual Fund

Study and Research on Mutual Fund

D. Judged the Efficiency of Mutual Fund

E. Comparison of Investment Product

Comparison by Nature of Investment and By Performance

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Gold Real Estate Mutual Funds

Inflation Hedge Inflation Hedge Capital Growth, Income

Low Low H-M-Low

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

Study and Research on Mutual Fund

I. Importance of Mutual Funds

Study and Research on Mutual Fund

J. Defining Mutual Fund Risk

Study and Research on Mutual Fund

Study and Research on Mutual Fund

K. Net Assets Value (Nav)

Study and Research on Mutual Fund

M. Eligibility for Investing In Mutual Funds In India

Study and Research on Mutual Fund

BRIEF INTRODUCTION OF MF COMPANIES

Classification of Indian Mutual Fund Industry

UTI Mutual Fund

ICICI Prudential Mutual Fund

Study and Research on Mutual Fund

IDBI Principal Mutual Fund

ABN AMRO Mutual Fund

Bank of Baroda Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Sahara Mutual Fund

State Bank of India Mutual Fund

Study and Research on Mutual Fund Tata Mutual Fund

Kotak Mahindra Mutual Fund

Reliance Mutual Fund

Standard Chartered Mutual Fund

Franklin Templeton India Mutual Fund

Morgan Stanley Mutual Fund India