AN ANALYSIS OF FINANCIAL CRISIS AND ITS IMPACT ON MUTUAL FUND D.

SASIKALA LECTURER, DEPARTMENT OF COMMERCE ALPHA ARTS AND SCIENCE COLLEGE, THUNDALUM, CHENNAI -116 9884583827 sasidaya@yahoo.co.in Abstract: A globalising economy, while formulating and evaluating its domestic policy cannot afford to ignore the possible actions and reactions of policies and developments in the rest of the world.Increased productivity flowing from improved skills is the real answer to globalization.Globalization today seems like a double edged sword. If we were celebrating the big way in which major FIIs of the world were queuing up to invest in the Indian stock markets and also in major projects through FDIs, today, that same investment looks like a big burden. What we used to say with pride yesterday of being globally aligned seems like a curse now. In the wake of the financial crisis, financial institutions throughout the world have lost almost $1.2 trillion, and in the last quarter alone, equity investors suffered a paper loss of $3 trillion. Economic Meltdown, The Financial Tsunami, speed-breaker is the "worst global financial crisis since the Great Depression". The volatility of the developed economies has come to the developing economies in the era of transnationalisation. Wall Street is clearly impacting the Indian job market. Banks are folding up. Deals are getting postponed. Outsourcing Industry is feeling the insidious effect of banks going bout of business and everyone is trying to protect his/her job. This paper mainly deals with the analysis of the reasons for financial crisis and its impact on the performance of mutual fund.

Globalization and its Meaning Broadly speaking, the term globalization means integration of economies and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people. Cross border integration can have several dimensions cultural, social, political and economic. In fact, some people fear cultural and social integration even more than economic integration. The fear of cultural hegemony haunts many. Limiting ourselves to economic integration, one can see this happen through the three channels of (a) trade in goods and services, (b) movement of capital and (c) flow of finance. Besides, there is also the channel through movement of people. Globalization has ensured that the Indian economy and financial markets cannot stay insulated from the present financial crisis in the developed economies. Indian companies which had access to cheap foreign currency funds for financing their import and export will be the worst hit. The impact on the financial markets will be the following: Equity market will continue to remain in bearish mood with reduced off-shore flows, limited domestic appetite due to liquidity pressure and pressure on corporate earnings; while the inflation would stay under control, increased demand for domestic liquidity will push interest rates higher and we are likely to witness gradual rupee depreciation and depleted currency reserves. Overall, while RBI would inject liquidity through CRR/SLR cuts, maintaining growth beyond 7% will be a struggle. In India we have market crashes, recessions, depressions, runs on banks, bankruptcies of countries....in the last 40 years we have participated in an incredible array of financial crises from the oil shock, LDC crisis, 21% interest rates in 1981, commercial real estate debacle, 1987 and 1991 market crash, Asian currency crises of 1999, dot com bubble bursting and so on. However, in none of those events was confidence in the pillars eroded...now it is in shambles. We rose up from the earlier crises stronger than before, however, this time the very pillars have been demolished. For countries like India which are in need of capital to initiate projects to build infrastructure the situation has grown grim. . The problem is not just money and losses; it

is the discrediting of Accounting firms, Rating agencies and Regulators that will haunt this post Crisis world. UNDERSTANDING MUTUAL FUND Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally form the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. DEFINITION : The securities and exchange board of India regulations.1993 defines a mutual fund as a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations.

PRIMARY OBJECTIVES: To analyze the reasons for financial crisis and its impact on performance of mutual fund. SECONDARY OBJECTIVES: To analyze the investors perception towards financial crisis To identify the factors which influences the financial crisis. To analyze the impact of financial crisis on the performance of mutual fund Research Methodology Questionnaire A well structured questionnaire was framed to obtain investors opinion on financial crisis and its impact on mutual fund. Sources of data Primary data: Primary data was collected by administering the structured questionnaire and interview with the respondents. Secondary data: Secondary data is obtained from website of different operators, different magazines, newspapers and libraries, internet. Sample size: The sample size is 50 respondents. Method of sampling: Convenient Random sampling method was adopted to collect information from the study. Tools used: Chi-square test method LIMITATION OF THE STUDY The sample size is limited i.e. 50 respondents only. Due to financial crisis more number of investors are threatened to invest in most of the investment. Though mutual funds are having several profit seeking funds there are some poor performance in returns fund also available. FINANCIAL CRISIS: The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and

early 20th centuries, many financial crises were associated with banking panics and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises and sovereign defaults and so on. The main reasons for the present financial crisis are as follows: 1. Boom and burst in the housing market 2. speculation 3. High risk mortgage loans lending/borrowing practices 4. Inaccurate credit ratings 5. Government policies 6. Policies of central bank 7. Financial Institutions debt level and incentives 8. Credit default swaps Global Financial crisis and India Indian economy has been hurt by the global financial crisis like: 1. Reduction in capital flow 2. Slow down in the sectoral growth 3. Drying up of liquidity 4. Adverse effect on our export of goods and services 5. Decline in the internal accruals of the corporate, 6. 51 million to be rendered jobless soon The global financial crisis is one of 5 major crisis coming together: 1. Economic (system breakdown) 2. Environmental (global warming and other problems) 3. Cultural (intolerance, clash of religions, Western cultural dominance) 4. Political (democratic deficits everywhere, lack of hope and political interest in media and among young) 5. Security (drug-like, ever increasing military expenditures to satisfy the MilitaryIndustrial-Media-Academic Complex, MIMAC yielding ever less human security).

Factors influencing Financial crisis

Factors

US RECESSION INFLATION RATE GLOBAL MARKET MORE BORROWINGS CORPORATE FAILURE ECONOMY SLOW DOWN BANKRUPTCY EXCHANGE RATE GOVERNEMT POLICY

S.A(5) A(4) N(3) D.S(2) 20 25 5 0 40 0 10 0 0 40 10 0 35 10 0 5 0 20 20 10 0 10 20 5 35 25 0 0 0 10 40 0 0 10 20 0

S(1) -

Factors influencing financial crisis

100% Different views 80% D.S(2) 60% 40% 20% 0% 1 2 3 4 5 6 7 8 9 Different factors N(3) A(4) S.A(5)

A -- AGREE, N ---- NEUTRAL, D.S----- DISAGREE, S - STRONGLY DISAGREE

Interpretation
The table shows that the reason for financial crisis has been graded and their ranks are Bankruptcy 1, US recession and More borrowings 2, globalization 3.

FUNDS LIQUDITY CREDIT AVAILABILITY GLOBAL ECONOMY CASH FLOW MOVEMENT INDIAN ECONOMY WEALTH EMPLOYABILITY CAPITAL INVESTED INVESTMENT IN FIXED DEPOSIT INVESTMENT IN SHARES INVESTMENT IN MUTUAL FUND

H(5)
45 30 0 20 15 5 0 0 0 45 35

A(4)
5 20 20 20 10 35 5 35 25 5 15

I(3)
0 0 30 10 15 5 15 20 20 0 0

L.A(2 )
0 0 0 0 5 0 15 0 5 0 0

N.E

Impact of financial crisis

100% 90% 80% 70% Respondents' view 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 Affected areas L.A(2) I(3) A(4) H(5)

H -- HIGHLY AFFECTED, A --- AFFECTED, I --- INDIFFERENT,L.A--- LEAST AFFECTED, N.E-- NO EFFECT

Interpretation
The above table shows that the impact of financial crisis has been ranked and their position are investments in shares, in mutual fund, liquidity and credit availability are highly affected, wealth, cash flow movement are affected secondly

Comparison between Age group and their Level of risk

Age 20-30 30-40 40-50 50 & above Total High risk 2 10 2 1 15 Medium risk 6 10 1 3 20 Low risk 2 10 2 1 15 Total 10 30 5 5 50

COMPARISON BETWEEN AGE WITH RISK

12 LEVEL OF RISK 10 8 6 4 2 0 20-30 30-40 AGE 40-50 50 & above HIGH MED LOW

H0: there is
risk

no significant difference between age group and their level of

H1: there is significant difference between age group and their level of
E= row total *column total grand total

risk

(O-E)2

(O-E)2 /E

2 10 2 1 6 10 1 3 2 10 2 1

3 9 1.5 1.5 4 12 2 2 3 9 1.5 1.5

1 1 0.25 0.25 4 4 1 1 1 1 0.25 0.25

0.33 0.11 0.16 0.16 1 0.33 0.5 0.5 0.33 0.11 0.16 0.16 3.88

Degree of freedom = (r-1) (c-1) = (4-1) (3-1) = (3) (2) Degree of freedom = 6 Table value @5% calculated value = 12.592 = 3.88

Hence we accept our HO. There is no significant difference between age group and their level of risk FINDINGS The analysis shows that 50% of people have no idea of investing now and 50% does not want to invest in mutual fund, because of the level of risk during recession . The current market seems to be very fair and moderate. Financial crisis is mainly due to the bankruptcy and US Recession. Many suggested that this is the strongly agreeable factor for financial crisis. In the current market position most of the investors are willing to take risk at a moderate level only. All the investors are preferring only steady returns at long term, because they want to play in safe. SUGGESTIONS Soon the financial crisis problem will be overcome.

 Finally the financial crisis had affected so much of people in the whole world even some people had lost their wealth. Mutual fund was affected very much too, because mutual funds returns are calculated from the sensex ups and down. CONCLUSION The global financial crisis expected to last for "several more quarters", the International Monetary Fund has called for a large and timely fiscal stimulus with targeted tax cuts, increased spending and even insurance cover from governments. To deal with recession governments attempt to stimulate the economy. By Increase borrowing, Reduce interest rates, Reduce taxes, and Spend on public works such as infrastructure

Though we have negative Impacts of recession like Unemployment: Job losses, Deterioration in purchasing power, Slowdown in economic activity India may be able to turn this crisis into a permanent place at a new high table," India is one of the Emerging economic superpowers of the future. That is bcos Asian savings may have provided the rope; but America hanged itself.