Study and Research on Mutual Fund

1

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).

1 DBIM, SURAT

Study and Research on Mutual Fund
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.

2 DBIM, SURAT

Study and Research on Mutual Fund

2

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

Though the growth was slow. No longer were the mutual funds interested in selling the concept of mutual fund. both quality wise as well as quantity wise. First Phase . but it accelerated from the year 1987 when nonUTI players entered the industry. An insight of the Union Budget on mutual funds taxation benefits is provided later. made them more attractive and provides acceptability among the investors.Study and Research on Mutual Fund 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. 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. In the past decade.1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87). No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF's. The quest to attract investors extended beyond just new schemes. So new schemes for new IPO's were inevitable. the other related parties. The budget brought about a large number of changes in one stroke. the unit holders. which would mean to increase asset base. it reached the height of 1. SURAT . Each phase is briefly described as under.6. 470 bn in March 1993 and till April 2004. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax. It provided center stage to the mutual funds. 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. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. the Assets Under Management (AUM) was Rs. Punjab National Bank Mutual 4 DBIM. and to get asset base. and investor base they had to be fully armed with a whole lot of schemes for every investor. 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. The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Indian mutual fund industry had seen a dramatic improvements. both at the hands of the investor as well as the mutual fund.700 crores of assets under management. the monopoly of the market had seen an ending phase. Second Phase . the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions. 67bn. However the sole factor that gave lift to the revival of the funds was the Union Budget. This time around all the participants are involved in the revival of the funds the AMC's. At the end of 1988 UTI had Rs. The private sector entry to the fund family raised the AUM to Rs. Before.1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds.540 bn. The first scheme launched by UTI was Unit Scheme 1964.

a new era started in the Indian mutual fund industry. Bank of India (Jun 90). Bank of Baroda Mutual Fund (Oct 92). The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The end of 1993 marked Rs. The Specified Undertaking of Unit Trust of India.Study and Research on Mutual Fund Fund (Aug 89). sponsored by SBI. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. LIC in 1989 and GIC in 1990. examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life. Growth and Consolidation . Growth in Assets under Management If size is the measure of dominance. according to the Association of Mutual Funds in India (AMFI).1.004 as assets under management.153108 crores under 421 schemes. 2005 5 DBIM. conforming to the SEBI Mutual Fund Regulations. under which all mutual funds.2004 Onwards The industry has also witnessed several mergers and acquisitions recently. The Unit Trust of India with Rs. 1. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. the industry’s growth has been nothing but exceptional.76.since February 2003 This phase had bitter experience for UTI. With the total Assets Under Management (AUM) increasing from Rs. PNB.The number of mutual fund houses went on increasing. As at the end of January 2003. Third Phase . The second is the UTI Mutual Fund Ltd.47.44. there were 29 funds.. 1. which manage assets of Rs. 1993 was the year in which the first Mutual Fund Regulations came into being. BOB and LIC.67.805 crores. except UTI were to be registered and governed. more international mutual fund players have entered India like Fidelity. As at the end of September. 2004. Fourth Phase . Also. single scheme (US-64) industry to having 30 players currently offering 460 schemes as on May 31. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. Indian Bank Mutual Fund (Nov 89). the mutual fund industry has entered its current phase of consolidation and growth. then the Indian mutual fund industry can now boast of that.565 cr in January 2000 to Rs.21. there were 33 mutual funds with total assets of Rs. Fifth Phase V. 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.978 cr by May 2005. It is registered with SEBI and functions under the Mutual Fund Regulations.01. Franklin Templeton Mutual Fund etc. It has indeed come a long way from being a single player. giving the Indian investors a wider choice of fund families.541 crores of assets under management was way ahead of other mutual funds. It was bifurcated into two separate entities. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.29. Simultaneously. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs. There were 29 funds as at the end of March 2006. 000 crores of AUM and with the setting up of a UTI Mutual Fund.1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. 835 crores (as on January 2003). and with recent mergers taking place among different private sector funds. SURAT . with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions.

6 DBIM. 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. Another significant factor facilitating this growth has been a conducive regulatory regime. particularly in the last five years.term capital gains tax. SURAT .Study and Research on Mutual Fund What has driven this growth? A slew of factors have contributed to the surge in the industry’s growth. incentives. Increased focus on product and distribution innovations on part of the industry players have also helped fuel the growth. Further. have also provided strong impetus to the growth. such as making dividends tax-free in the hands of investors and removal of long. thanks to increased efforts by SEBI to improve market surveillance and protect investors’ interests.

The fund is open for subscription only during a specified period. SURAT . SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices.  By Investment Objective • Income Funds 7 DBIM. 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. They are open for sale or redemption during pre-determined intervals at NAV related prices. In order to provide an exit route to the investors.  By Structure: • Open-ended Funds An open-end fund is one that is available for subscription all through the year. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. These do not have a fixed maturity. • Interval Funds Interval funds combine the features of open-ended and close-ended schemes. Classification of Mutual Fund UNDERSTANDING OF MUTUAL FUND Mutual fund schemes may be classified on the basis of its structure and its investments.Study and Research on Mutual Fund 3 A. 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.

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. Such schemes normally invest a majority of their corpus in equities. Returns on these schemes 8 DBIM. • Balanced Funds The aim of balanced funds is to provide both growth and regular income. preservation of capital and moderate income. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. It has been proven that returns from stocks. In a rising stock market. • Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes generally invest in fixed income securities such as bonds. These schemes generally invest in safer short-term instruments such as treasury bills. certificates of deposit. SURAT . These are ideal for investors looking for a combination of income and moderate growth. Income Funds are ideal for capital stability and regular income.Study and Research on Mutual Fund The aim of income funds is to provide regular and steady income to investors. corporate debentures and government securities. or fall equally when the market falls. the NAV of these schemes may not normally keep pace. have outperformed most other kind of investments held over the long term. commercial paper and inter-bank call money. • Money Market Funds The aim of money market funds is to provide easy liquidity.

1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs). 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. a commission will be payable. Fixed. Typically entry and exit loads range from 1% to 2%. maturity value. provided the capital asset has been sold prior to April 1. SURAT . No-Load Funds: A no-Load Fund is one that does not charge a commission for entry or exit.Income Funds in India make investments in debt securities that have been issued either by the banks. no commission is payable on purchase or sale of units in the fund. 9 DBIM. Fixed. That is. 2000 Fixed.Income Funds in India are mainly concerned with the time period. rate of interest. each time you buy or sell units in the fund. Fixed. The advantage of a no load fund is that the entire corpus is put to work. if the fund has a good performance history.Income Funds in India have a face value and it is on this that the calculation of interest takes place. government or companies. That is. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds.Income Funds in India are usually held till maturity. 1961. and face value. rate of interest payment. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched – out until completion of 3 years from the date of allotment of the respective Units. 2000 and the amount is invested before September 30. • Load Funds: A Load Fund is one that charges a commission for entry or exit. Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations. The issuer of the debt securities has the obligation to pay the interest and principal on the time schedule that has been fixed.Income Funds in India are also known as debt funds or income funds. Government of India regarding ELSS.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.Income Funds Fixed. It could be worth paying the load. Investors who are investing in Fixed. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. The debt securities in which Fixed. •  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.Study and Research on Mutual Fund may fluctuate depending upon the interest rates prevailing in the market.

Value funds represent stocks of mature companies. they generate income from the dividends and they also offer long term growth from capital appreciation. 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. Another important feature of the value funds is that. A strict vigil on the foreign currencies and world markets is needed while investing in the International mutual funds. Fund of Funds Amongst the wide variety of mutual funds are available in India. One of the typical characteristics of the value fund is that. Further. like Information Technology. the most significant feature of fund of funds is that it holds shares of a variety of mutual funds. Further. The Sector Funds can offer tremendous profit to the investor if the funds are carefully chosen. the corpus accumulated is invested in small or medium sized companies. SURAT . these stocks of the value funds utilize their earnings to pay off dividends to the investors. 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. Telecommunication. the Fund of Funds costs higher than any other type 10 DBIM.Study and Research on Mutual Fund Mid-Cap Funds Mid-cap funds are a special type of mutual fund wherein. International mutual funds can offer its investors with high returns if chosen properly. etc. The Sector Funds are structured in this particular manner in order to take advantage of growth of particular type of industry. Infrastructure. Sector Funds The Sector Funds are those types of mutual funds which accumulate stocks of particular sector. wherein investments are being made in the non-domestic securities markets across the world. the corpus accumulated is invested in types of other mutual funds. Further.000 crores are defined as medium sized by the mutual fund industry. The returns on Value funds are more conservative in nature. 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. Pharmaceuticals. 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. they invest in stocks of companies that have lesser appeal to the mainstream investors and the stocks have lost its sheen. In other words sector funds invest in a single type of industry. whose growth has become stagnant. each mutual fund classifies small and medium sized companies according to its own policies. 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. the International mutual funds also help in capitalizing on some of the world's best opportunities. fund of funds is a type of mutual fund wherein. Furthermore. In the absence of any standardized definition or definite classification of small or medium sized company. 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. Generally. In general. Value Funds Amongst the wide variety of mutual funds are available in India.

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

Study and Research on Mutual Fund most of the other funds fail to supersede the value of the Index funds. Mutual Fund provides better investment options as well as high liquidity compare to Banks. 12 DBIM. It can be seen that the Banks are not totally free from risk. C. The risks are however lower if the fund manager’s capability is superior.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. 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. Banks v/s Mutual Funds Banks Returns Administrative exp. Investments in index funds are subject to income tax exemptions B. while generally giving lower returns. SURAT . & 30th. The most popular type of Index funds is the Standard & Poor's 500. Mutual Fund can give higher returns then a Bank. even if there is no contractually guarantee as in a Bank. Of every month Maximum Rs. 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.

This form of high-risk investment was not perceived as such because of the under-pricing of primary share issues. SURAT . diversification. Indian investors had bank deposits as virtually the only investment option.  Credibility of issuer — Previous track record of issuer should be checked. (6) Investor service Funds which pay emphasis to investor servicing help in sorting out procedural grievances. the virtual guarantee of secondary market prices being higher than issue prices ended. if any.  Liquidity — whether the schemes offer liquidity by way of their listing on stock exchange. E. 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 it’s:  Stability — whether a mutual fund is stable or not so far as its schemes are concerned. return maximization. as safe as banks.  Growth — whether the mutual funds are offering increase in net asset value. etc.Study and Research on Mutual Fund (3) Equity research Equity research capability and other fund management techniques are important factors in deciding about a fund. and the area where investments have been/are to be made. The only Mutual Fund scheme UTI’s US-64 Scheme was perceived by investors and managed as a fixed return investment. bonus.  Returns — Assured or otherwise  Management approach — Risk taking. and paying out comparable though slightly higher dividends. Only after the crises of 1992 and the introduction of free market pricing of shares. Later. comparing only options that are comparable. Faced with the risks of direct investing. (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. portfolio. Comparison by Nature of Investment and By Performance 13 DBIM. D. the investors are now turning to indirect investing through Mutual Funds that provide the benefits of professional management and lower risk through diversification. However. Until 1980s. Comparison of Investment Product Investors tend to constantly compare one form of investment with another. (4) Global linkages The fund manager’s understanding of Indian capital markets and the global linkages is critical to the process of investment decision making. the investors were introduced to direct investing on the stock markets including direct purchases of capital market securities in the primary markets. such comparisons ought to be done carefully. and there is consistent growth in dividend and capital appreciation.

leading to lack of liquidity for the investors who wish to sell. volatility. individual stocks can give varied performance. the financial soundness of the bank is important to look at. one stock being more liquid than another or one stock giving lower return that another. safety. From this comparison will emerge certain types of investment which may be considered superior to other types. and are recommended for the risk-averse investor. Bonds issued by institutions are an attractive option. age. benefits and risks. the comparison serves as a useful guide toward determining the best option. etc. However. Bonds are also subject to credit risk or risk of default by the borrower.Study and Research on Mutual Fund There are tow kinds of comparisons possible among different investment options. For this reason. the risk or the stability of returns. 14 DBIM. Next. The table below compares the investment options discussed in the previous section under the broad heads viz. However. as discussed in the previous section. Bank deposits score high on safety. First. other potential benefits of any investment also include the safety of the capital. liquidity and convenience. In the absence of credit rating. 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. SURAT . return.). The major advantage of bank deposits relative to other product is the liquidity they offer. the comparison should also be made in terms of other benefits that the investor ought to look for in any investment. one must compare the options by the nature of investments — their characteristics. 1) Comparison by Nature of Investment Investors certainly look for the best returns on different options. bonds can lose value when general interest rates go up. Deposit rates offered by banks vary as per RBI directives and the interest rate scenario in the economy. Bonds are a stable option in terms of fixed returns. Although the table provides a qualitative evaluation of various financial products. The secondary market in corporate bonds in India is also very thin. Banks are usually willing to give loans against fixed deposits at a nominal charge over the interest rate applicable to the deposits. It is clear from the above that equity investing in general has good potential in terms of return. However. Besides returns. From this comparison at a given point of time will emerge the options considered superior to others for a given investor. liquidity and convenience. as the return of capital is guaranteed to the depositor by the bank. and the convenience with which the investment can be managed. particularly now with the liquidity that accompanies their listing on stock exchanges. to determine which option is better. 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 investor’s specific situation (taxability. 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. it is extremely difficult for the investor to decide on the quality of the bonds or debentures. the liquidity of access to the funds when needed. In indicated by the credit rating assigned to the bonds. However. equity investing is fraught with risk and is not ideal for every individual investor.

This is clearly beyond the capability of most individual investors. and by investing even a small amount in a Mutual Fund. A diversified portfolio serves to minimize risk by ensuring that a downtrend in some securities/sectors is offset by an upswing in the others. reap the benefit of diversification. 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. Insurance could become a serious investment vehicle once the insurance market in India is opened to private players. again there will be an impact on the comparative status of different options. Its liquidity is also extremely low. If the government changes the PPF interest rate. diversification requires substantial investment that may be beyond the means of most individual investors.Study and Research on Mutual Fund PPF combines stability with a respectable return. Clearly. through his proportionate share. the lock in period involved in PPF means that the investor loses out in terms of liquidity. the Mutual Funds and other options may give different returns. Each year. For example. Its tax-exempt status makes it an attractive mechanism for the small investor to build his saving portfolio. Similarly. Investments in recognized Mutual Funds also qualify for tax rebate under section 88 and as approved investments under Section 54EAJEB. However. Dividends distributed by Mutual Funds are exempt from tax in the hands of the investor. Comparisons among different investment options are not valid for all time as the financial markets are now deregulated and dynamic. it is recommended that the specific comparisons of different investment options be made at a given point of time. though safety is considered high at present for the government-owned LIC as the only insurer. recent tax amendments have also helped to enhance the attractiveness of Mutual Funds. an investor can. • Identifying stocks that have growth potential is difficult process involving detailed research and monitoring of the market. using the then prevalent return data. 2) Comparison by Current Performance Besides the inherent advantages of investing through Mutual Funds. 15 DBIM. • Another critical element towards successful equity investing is diversification. Mutual Funds pool the resources of many investors and thus have the funds necessary to build a diversified portfolio. whereby he may pay higher or lower tax on his income. That will make a difference in his after-tax return on different options. when the banks increase or reduce the deposit interest rates. causing frequent changes in comparative returns form time to time. the individual taxpayer’s situation may change. a practical evaluation reveals that Mutual Funds are indeed a more recommended option for the individual investor. Being a government supported investment. In today’s scenario. the Mutual Funds performance may look better or worse. compared even to bank deposits. Mutual Funds specialize in this area and possess the requisite resources to carry out research and continuous market monitoring. That is why. the opportunity cost in terns of return is too high for insurance to be compared on even terms with the other options. SURAT . However. particularly during the early years of the scheme. PPF scores very high on safety.

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. Therefore. • Mutual Funds focus their investment activities based on investment objectives such as income. and therefore employ professional management for carrying out their activities. growth or tax savings. • Mutual Funds offer liquidity through listing on stock exchanges (for closed. An investor can choose a fund that has investment objectives in line with his objectives. Funds serve investors not only through their investor services networks. They also offer facilities such as check writing and accumulation plans. funds provide the investor with a vehicle to attain his objectives in a planned manner. but also through associates such as banks and other distributors. while Mutual Funds charge a management fee. The Investor Perspective: Funds Vs. commissions. SURAT . Professional management ensures that the best investment avenues are tapped with the aid of comprehensive information and detailed research. • Direct equity investing involves a high level of transaction costs per rupee invested in the form of brokerage. An investor who opts for direct equity investing loses out on these benefits. Many funds allow investors the flexibility to switch between schemes within a family of funds. • In terms of convenience. This is in contrast to direct equity investing where several stocks are often not traded for long periods. Mutual Funds score over direct equity investing. These benefits are not matched by direct equity investing. etc.Study and Research on Mutual Fund • Mutual Funds specialize in the business of investment management. they succeed in keeping transaction costs under control because of the economies of scale they enjoy. It also ensures that expenses are kept under tight control and market opportunities are fully utilized.end funds) and repurchase options (for open-end funds). stamp duty.

This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. An investor looking for capital growth has to consider Mutual Fund. SURAT . They mobilize savings from the investors and bring them to borrowers in the capital markets. Mutual Funds present the widest choice to the investors. An investors can choose from a wide variety of fund to suit his risk tolerance.Flexible All Short term. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. both equity and debt. Advantages of Mutual Fund Mutual funds serve as a link between the saving public and the capital markets. 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. income-oriented investor.  Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. Gold and real Estate are attractive only in high inflation economies. investment horizon and investment objective. Other options are largely for the riskaverse. but only a fixed income. but a high risk and without benefits of diversification and professional management offered by Mutual Fund. 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. 17 DBIM. Direct equity investment offers the capital growth potential. Mutual Funds save your time and make investing easy and convenient. F.  Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries.Study and Research on Mutual Fund Gold Real Estate Mutual Funds Inflation Hedge Inflation Hedge Capital Growth. Bank Deposits offer similar flexibility in investment horizon and risk level. medium term and long term The comparison above highlights the flexibility offered by Mutual Funds from the investor’s perspective. delayed payments and follow up with brokers and companies. Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Income Low Low H-M-Low Long Term Long Term.  Return Potential Over a medium to long-term.

the proportion invested in each class of assets and the fund manager's investment strategy and outlook.  Choice of schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. custodial and other fees translate into lower costs for investors.  Flexibility Through features such as regular investment plans.  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. regular withdrawal plans and dividend reinvestment plans. you can systematically invest or withdraw funds according to your needs and convenience.  Liquidity In open-end schemes. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. 18 DBIM.  Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. 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. In closed-end schemes. The operations of Mutual Funds are regularly monitored by SEBI. SURAT .Study and Research on Mutual Fund  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. the investor gets the money back promptly at net asset value related prices from the Mutual Fund.  Affordability Investors individually may lack sufficient funds to invest in high-grade stock.

(2) Many of the investors are not willing to invest in mutual funds unless there is a promise of a minimum return.  The Diversification Penalty While diversification reduces the risk of loss from holding a single security. SURAT . The insurance company mutual funds are regulated under the central government regulations. Drawbacks of Investing In Mutual Funds  Potential loss Unlike a bank deposit. (4) Many small companies did very well but mutual funds cannot reap their benefits because they are not allowed to invest in smaller companies. (5) The mutual funds in India are formed as trusts. diversification does not protect the unit holders totally from an overall decline in the market. They do not have employees of their own. H. (6) The increase in the number of mutual funds under various schemes has increased competition. (7) While UTI publishes details of accounts about their investments.Study and Research on Mutual Fund G. evaluation is very important as this reveals the real character of the systems. as the fund is nothing bur a portfolio of different securities. the trustees play the role of fund managers. mutual fund is allowed to hold only a fixed maximum percentage of shares in a particular industry. mutual funds are still not publishing the profit and loss accounts and balance sheets after their operation. Not only this. There are multiple regulations while UTI is governed by its own regulations. it also limits the larger gains if a single security increases dramatically in value. As a result the funds lose their stabilizing factor in the markets. Thus. Also there is no specific law to supervise the mutual finds in India. one should not lose sight of the fact that in the formal years of any institution. 19 DBIM. the banks are supervised by Reserve Bank of India and the central government. However. Apart from a few assured returns schemes. it is too early to evaluate their operation. trustee and fund managers. As there is no distinction made between sponsors. the fund does not guarantee any minimum percentage of return. Shortcomings in Operation of Mutual Funds The mutual funds have been operating for the last twelve years in India. the investment in a mutual fund could fall in value. (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. Following are some of the shortcomings in operation of mutual funds: (1) The mutual funds are all externally managed. (3) Unrestrained fund raising by schemes without adequate supply of scripts creates severe imbalance in the market. Also.

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. (10) India is a vast country with a comprehensive demographic profile. SURAT . 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. The cost factor is another problem facing the mutual fund industry. So the mutual funds cannot issue cheques on behalf of another bank. (14) Most of the older schemes have been designed with complicated exit procedures. (19) The cheque writing facility is available only to the money market mutual fund investors. (13) Mutual funds have not yet developed product structuring to tap target customers. 20 DBIM. (12) Unlike banks. Moreover mutual funds till now. (11) Investor relations play a vital role in mobilizing the resources. mutual funds do not have a strong distribution network. But till date no regulation specifies the formula to be used for computation of NAV. But there is no such stipulation for bank fixed deposits and gilt securities. redemption risk which is the second most important risk of open. (16) Long-term capital gains have been reduced from 20% with indexation benefits to 10% without indexation. But mutual funds are only confined to urban and semi-urban markets. As a result. Further. small entrepreneurs. Most of the Indian companies and mutual funds have ignored this and failed to communicate to the investors about their organization and operation. (18) There is a lack of access to call money market. (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. Apart from few. it is an edge for the listed funds. not have been able to introduce the schemes suitable to the needs of farmers. But this is available only to securities under section 112 of the Income Tax Act.ended schemes arises could not be mitigated. and merchants to tap the rural savings. For mutual funds.Study and Research on Mutual Fund (9) Net asset value (NAV) is one of the important factors which decide the performances of a mutual fund scheme. most MFs have to depend on the broker networks. (17) There is a restriction on corporate investments up to a maximum of 60% of net worth of mutual funds. (15) Fund managers invest in unlisted securities. sometimes in private limited companies to get better returns which lead to new risk profile.

(24) Lack of well-informed institutional market is the cause of market inefficiencies. 21 DBIM. 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. Importance of Mutual Funds Owing to the size. operating economics and ability to commit large sums of money for long periods. than managing themselves. SURAT . But unfortunately. the need and scope for mutual fund operation. the investors now prefer investing their resources in various mutual fund schemes.Study and Research on Mutual Fund (21) The development of mutual fund industry depends upon the maturity of the merchant banking industry. Possible causes for nonsatisfactory performance of mutual fund I. Mutual funds are not only best suited for this purpose but also capable of meeting this challenge. (28) The biggest problem the mutual funds face today in India is the lack of investors’ confidence. the merchant banking industry in the Indian capital market is not sufficiently matured. (25) Perhaps mutual funds are the most misunderstood financial products in India. (23) The most important aspect for success of a mutual fund is the ability to outsource certain critical activities. 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. 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. (22) There is a lack of product conceptualization and innovation in mutual fund industry. (30) The absence of proper benchmarks against which performance can be measured. 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. Therefore. (27) Internet and thereby e-commerce which is inevitable now-a-days has not been introduced in mutual funds. Neither the investor nor the corporate finance manager perceives the product in a proper perspective. Constitutes another big problem plaguing mutual fund research in India. the mutual funds enjoy ample resources at their disposal by mobilizing resources of the investors. (29) Few mutual funds have already shown full portfolio disclosures but most mutual funds hesitate to declare their portfolios. This concept is already prevalent manufacturing but has not been introduced in fund management. Further. has increased tremendously.

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. But mutual funds. in three words—yield. Hence mutual funds help develop confidence among the investors. Defining Mutual Fund Risk 22 DBIM. Mutual funds. Therefore. Many investors have fell prey to misleading and motivated “headline” leads and lips. the importance of mutual funds has been increasing.Study and Research on Mutual Fund (2) An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. (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. being set up in the public sector. those subscribe to the capital issue made by companies get firm allotment of shares. (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. Besides. former chairman of UTI. later sell these shares in the share market and to the promoters of the company at a much higher price. Due to all the benefits. another notable thing is that mutual funds are controlled and regulated by SEBI and hence are considered safe. (3) The psyche of the typical Indian investor has been summed up by Mr. Besides. (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. (10) Lastly. they bring a certain competence to their job. (4) As mutual funds are managed by professionals. The mutual funds. the capital market— both primary issue market and secondary—have been witnessing unprecedented boom. The automatic reinvestment nature of a mutual fund is a form of forced saving and can make a big difference in the long run. some schemes provide tax relief under section 88 of the Income Tax Act which leads to the growth of mutual funds. mutual fund could be able to mop up a large amount of the surplus funds available with these people. They also maximize gains by proper selection and timing of investment. SURAT . (5) Another important thing is that the dividend and capital gains are reinvested automatically in mutual funds and hence are not fritted away. S. presently all schemes of mutual funds provide tax relief under section 80L of the Income Tax Act and in addition. Besides. Dave. they are considered to have a better knowledge of market behavior. J. (6) The mutual fund operations provide a reasonable protection to the investors. This risk is reduced by diversification of portfolio in terms of companies and industries.A. and security. have given the impression of being as safe a conduit for investment as bank deposits. Hence mutual funds have been able to speed their wings by spreading their funds in various industrial sectors. Even a small investor in mutual fund can get the benefit of diversification. liquidity. the assured returns promised by them have been great for the typical Indian investors.

However. money markets) offer the greatest price stability but have yielded the lowest long-term return. For example should not be compared t a stock fund with below average risk.e. government default). financial problems (rising inflation. stocks historically have been subject to the greatest short term price fluctuations and have provided the highest long term returns. Also called default risk. Bond values are inversely related to interest rates. Similarly. a sector stock fund (which invests in a single industry. Of all the asset classes. bonk values will go down and vice versa. and in turn have generated higher long term returns. Inflation Risk: The possibility that increases in the cost of living will reduce or eliminate a fund’s real inflation-adjusted returns. or natural disasters (an earthquake. cash investments (i. Credit Risk: The possibility that a bond issuer will fail to repay interest and principal in a timely manner. If interest rates go up. Income Risk: The possibility that a fixed-income fund’s dividends will decline as a result of falling overall interest rates. SURAT • • • • • . Bond yields are directly related to interest rates falling as interest rates fall and finding as interest rise. Investors looking for a fund which incorporates ass asset classes may consider a balanced or hybrid mutual fund width different asset classes. national elections). At the discretion of the manager(s). 23 DBIM. A bond fund with below average risk. dollar against foreign currencies. Income risk is greater for a short term bond fund than for long term bond fund.Study and Research on Mutual Fund Different Mutual fund categories as previously defined have inherently different risk characteristics and should not be compared side by side. securities are bought. Industry Risk: The possibility that a group of stocks in a single industry will decline in price due to developments in that industry. sold and shifted between funds with different asset classes according to market conditions. Bond typically experience mote short term price swings. Even though both funds have low risk for their respective categories. stock funds overall have a higher risk/return potential than bond funds. Mutual funds face risks based on the investments they hold. a bonk fund faces interest rate risk and income risk.S. such as telecommunications) is at risk that its price will decline due to developments in its industry. Country Risk: The possibility that political events (a war. a poor harvest) will waken a country’s economy and cause investments in that country to decline. 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. A stock fund that invests across many industries is more sheltered from this risk. For example. Bond income is also affected by the change in interest rates. 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 bond’s maturity date. Also called exchange-rate risk.

Manager Risk: The possibility that an actively managed Mutual Fund’s investment adviser will fail to execute the fund’s investment strategy effectively resulting in the failure of stated objectives.Mutual fund invest the money collected from the investors in securities markets. In simple word. 20 . • • K. Measurements of Performance 1) Total return is generally regarded as the best measure of fund performance because it is the most comprehensive.depending on the type of scheme. NAV is required to be disclosed by the mutual funds on a regular basis –daily of weekly. L. 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. then the NAV per unit of the fund is Rs. SURAT .10 each to the investors. 200 lakhs and mutual fund has issue 10 lakhs units of Rs. Total return includes dividend and capital gains distributions along with any changes 24 DBIM. with periods when prices rise and other periods when prices fall. Since market value of securities changes every day. So NAV is equals toMarket / fair value of schemes (+) Receivables (+) Accrued income (+) Other assets (-) Accrued expenses (-) Payables (-) Other liability (/) Number of unit outstanding. 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. For example if the market value if securities of a mutual fund scheme is Rs. Market Risk: The possibility that stock fund or bond fund prices overall will decline over short or even extended periods. Net Assets Value (Nav) The performance of a particular scheme of mutual fund is denoted by Net Assets Value (NAV). Net Asset Value is the market value of the securities held by the scheme. from the original or invested amount. Principal Risk: The possibility that an investment will go down in value. or “lose money”.Study and Research on Mutual Fund • • Interest Rate Risk: The possibility that a bond fund will decline in value because of an increase in interest rates. 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. Stock and bond markets tend to move in cycles. NAV of a scheme also varies on day to day basis.

SURAT . Non Residents Including: • Non-Residents IncludesOther Corporate Bodies (OCBs) 3. Total return. Fund distributors are a very important link between the fund management industries and the investors. M.Study and Research on Mutual Fund in the fund’s share price. A dividend distribution comes from the interest and dividends earned by the securities held by a fund. represents the change in that investment’s value over a given period. 1. In a vast country like India it is a challenge to market these funds. Residents Including: • Resident Indian Individuals • Indian Companies • Indian Trusts / Charitable Institutions • Banks • Non-Banking Finance Companies • Insurance Companies • Provident Funds 2. it is equally essential to know who can invest in Mutual Funds in India. Foreign Entities: • Foreign Institutional Investors (FIIs) registered with SEBI • Foreign citizens and other foreign entities are not allowed to invest in Mutual Funds India 25 DBIM. Yield is expressed as a percentage of the fund’s NAV (including the highest applicable sales charge. if any). in the investment’s value over a given period. 2) Yield is the measure of net income (dividends and interest less expenses) earned by the securities in the fund’s portfolio during a specified period. assuming any distributions were reinvested in the fund. if any. Yield does not include the change. Eligibility for Investing In Mutual Funds In India Mutual funds have been emerging as big financial intermediary in India. However. a capital gains distribution represents any net gains resulting from the sale of the securities held by a fund. Mutual Funds in India are open to investment for. expressed as a percentage of an initial investment in a fund.

5 crore for US-64 scheme were RBI.80 million investors account under 85 schemes. The contributors of initial capital of Rs. Unit trust of India (UTI) is the India's largest Mutual Fund organization. after an indifferent start in the early years. Under the provision of the act. LIC. 266 chief representatives and about 67. SBI and some contributors of initial capital of Rs. sales and customer service.221 crore as on 30/6/2001 and over 41. UTI Mutual Fund UTI was set up in 1964 by an act of parliament and commenced its operation from July 1964.Study and Research on Mutual Fund 4 BRIEF INTRODUCTION OF MF COMPANIES Classification of Indian Mutual Fund Industry The private sector players. UTI is a trust without ownership capital and independent Board of trustees. The first scheme was Unit scheme 1964. the Government of India would appoint chairman of the board. profit and gain accruing to corporation from the acquisition. SURAT . with a view to encouraging saving and investment and participation in the income. It provides complete range of services to its investors. LIC foreign banks. management and disposal of securities. UTI manages funds over Rs. Today it has 54 branch offices. This sector has dented UTI's dominance resulting in a falling market share towards the end of the last millennium. ICICI Prudential Mutual Fund 26 DBIM. holding. 58.000 agents. have made a strong impression especially in the larger cities. with a high quality of fund management. 5 crore for US-64 scheme were RBI.

Study and Research on Mutual Fund
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.

27 DBIM, SURAT

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
29 DBIM, SURAT

The Trustee Company is Escorts Investment Trust Limited. 1882. 1996 with Excorts Finance Limited as its sponsor. Incorporated on October 16. Ltd. viz. 1994 with Alliance Capital Management Corp. and AMC. Its AMC was incorporated on December 1. 1997. SURAT . Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30. a Government of India undertaking and the four Public Sector General Insurance Companies. Ltd (NIC). LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. National Insurance Co. 1987 with Canara Bank acting as the sponsor. 2000 and headquartered in Mumbai. The Corporate Office of the AMC is in Mumbai. 1995 with the name Escorts Asset Management Limited. (NIA). (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act.Study and Research on Mutual Fund Escorts Mutual Fund was setup on April 15. Ltd. of Delaware (USA) as sponsorer. Ltd. 2001 with Niche Financial Services Pvt. Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. The New India Assurance Co. It contributed Rs. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act. GIC Mutual Fund GIC Mutual Fund. is the AMC. 1882 30 DBIM. The Oriental Insurance Co. . 1993 is the AMC. the Alliance Capital Asset Management India (Pvt) Ltd. The Company started its business on 29th April 1994. The Trustee is ACAM Trust Company Pvt. Cholamandalam Trustee Co. Ltd. Ltd. Ltd (OIC) and United India Insurance Co. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. as the sponsored and Benchmark Trustee Company Pvt. 2 Crores towards the corpus of the Fund. Canbank Investment Management Services Ltd. incorporated on March 2. Ltd. Benchmark Asset Management Company Pvt. is the Trustee Company and AMC is Cholamandalam AMC Limited. as the Trustee Company. was setup on January 3. Canbank Mutual Fund Canbank Mutual Fund was setup on December 19. with the corporate office in Mumbai. Ltd. Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12. sponsored by General Insurance Corporation of India (GIC).

Net Asset Values and Pricing of Mutual Funds. highest in the world. The regulations were thoroughly reviewed and re-notified in December 1996.  Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.Study and Research on Mutual Fund 5 MUTUAL FUND REGULATION There was no uniform regulation of the mutual funds industry till a few years ago. 1996 have been further amended in 1997. Efforts have been made to bring UTI schemes under SEBI's ambit with the result that all schemes.  Trying to curb the late trading practices. 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.  SEBI allowing the MF's to launch commodity mutual funds.  We have approximately 30 mutual funds which is much less than US having more than 800. The rules for the formation. with the exception of Unit 64. Some facts for the growth of mutual funds in India  100% growth in the last 6 years. are now regulated by the capital market regulator. with over US$1trillion assets under management worldwide.  Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments. administration and management of mutual funds in India were clearly laid down.  Our saving rate is over 23%.  'B' and 'C' class cities are growing rapidly. Mutual Funds – Organization 31 DBIM. Soon they will find scope in the growing cities. The revised guidelines tighten the accounting and disclosure requirements in line with recommendations of The Expert Committee on Accounting Policies.  Emphasis on better corporate governance. Today most of the mutual funds are concentrating on the 'A' class cities. Only channelizing these savings in mutual funds sector is required. There is a big scope for expansion. Today. 1998 and 1999. SURAT . One of its responsibilities was to regulate the mutual fund industry and it came up with comprehensive regulations for the industry in 1993. US based. all mutual funds are regulated by SEBI. Regulations also prescribed disclosure requirements. The SEBI (Mutual Funds) Regulations.

There will be a tendency to cut corners and unwillingness to spend money to expand operations. 32 DBIM. The CEO’s 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.This is also a problem that has afflicted some of the AMCs floated by nationalized banks. Some of the parents had to provide funds to bridge the gap in "assured return schemes". This is the last place where high quality persons would want to remain and work. This is because most AMCs lose money in the first few years of operations. Since mutual fund business did not have access to too much money. The fund managers had no experience in the activity making a mockery of "professional management". This is exactly what has happened with some AMCs promoted by Indian business houses. The sad results are there to see. the traditional thinking is prevalent which can be summarized as "money is power".Study and Research on Mutual Fund 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. The AMC then remains stunted and the sponsors lose interest. SURAT . In these organizations. 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. 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 worst affected are the investors. The management of the banks also did not allow these AMCs to become independent viable businesses. people who are going to manage the funds. In most cases. Hence. It is very critical to the performance of a mutual fund as it decides on the style of functioning. The financial strength and the commitment of the AMC sponsors to the business are very key issues. It looks extremely likely that some of these AMCs will no longer exist in a few years. these losses are much more than the capital requirements stipulated by SEBI. the commitment to service quality and overall supervision.

SURAT .Study and Research on Mutual Fund 33 DBIM.

Study and Research on Mutual Fund Organization structure of a Mutual Fund 34 DBIM. SURAT .

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

The role of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. Change the Asset Management Company. c. conservative or risk taking. Approve or disapprove any change in the fundamental investment policies of the scheme. Wind up the schemes. 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. growth oriented or income seeking. The dissenting unit holder has a right to redeem the investment. Till date all the AMCs are that have launched mutual fund schemes are its members.whether starting a career or retiring. The objectives are as follows: 36 DBIM. Mutual Funds are suitable for every kind of investor . SURAT . which are likely to modify the scheme or affect the interest of the unit holder. Receive information about the investment policies. 1995. b. you will make more than if you wait and invest later. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. You may reap the rewards in the years to come. Association of Mutual Funds in India (AMFI) With the increase in mutual fund players in India. 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. financial position and general affairs of the scheme.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. investment objectives. The power of compounding lets you earn income on income and your money multiplies at a compounded rate of return. 4. 5. a need for mutual fund association in India was generated to function as a non-profit organisation. 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. If you start now.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. Step Six . 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. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August. Inspect the documents of the Mutual Funds specified in the scheme's offer document. Vote in accordance with the Regulations to:a. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors.Study and Research on Mutual Fund It is desirable to start investing early and stick to a regular investment plan. It functions under the supervision and guidelines of its Board of Directors. 3.

SURAT B C1 . Reliance Capital Asset Management Ltd.M. INSTITUTIONS GIC Asset Management Co. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. Can bank Investment Management Services Ltd. 37 DBIM. Ltd. 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. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Ltd. 6. Capital Management Pvt. 5. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry. Ltd. UTI Asset Management Company Pvt. Association of Mutual Fund of India do represent the Government of India. J. Pvt. Escorts Asset Management Ltd. Tata Asset Management Private Ltd. 3. Sahara Asset Management Co. SBI Funds Management Ltd. Ltd. 7. Ltd. Ltd. It develops a team of well qualified and trained Agent distributors. 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. Ltd. Ltd Sundaram Asset Management Company Ltd. the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. 4.Study and Research on Mutual Fund 1. Ltd. Cholamandalam Asset Management Co. PRIVATE SECTOR Benchmark Asset Management Co. The sponsors of Association of Mutual Funds in India A BANK SPONSORED BOB Asset Management Co. Pvt. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. Kotak Mahindra Asset Management Co. 2. Jeevan Bima Sahayog Asset Management Co.

For openended schemes. Ltd. Ltd. Standard Chartered Asset Mgmt Co. (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. DSP Merrill Lynch Fund Managers Ltd.  AMCs are also allowed to do other fund based businesses such as providing investment management services to offshore funds. Ltd. other mutual funds. Principal Asset Management Co.  Each scheme of the mutual fund is registered with SEBI before it is floated in the market.  The minimum amount to be raised with each closed-end scheme should be Rs. there should be a separate and responsible fund manager. the entire subscription has to be returned to the investors. Ltd. Morgan Stanley Investment Management Pvt.  The SEBI has the authority to withdraw the authorization of AMC if they fail to work for the interest of investors. Pvt.Study and Research on Mutual Fund C2 JOINT VENTURES. Prudential ICICI Asset Management Co.PREDOMINANTLY FOREIGN Alliance Capital Asset Management (India) Pvt. Deutsche Asset Management (India) Pvt. Credit Capital Asset Management Co. Ltd.  The AMC should have a minimum net worth of Rs.  Fifty per cent members of the board of AMC must be independent directors and must have no connection with sponsoring organization.  Money market mutual fund would be regulated by the RBI and other mutual funds would be regulated by SEBI.  An AMC cannot act as the AMC for another mutual fund. Ltd.  If the minimum amount or 60% of the target amount is not raised. venture capital funds. Pvt. JOINT VENTURES . the first 45 days should be considered for determining the target figure. Ltd.PREDOMINANTLY INDIAN Birla Sun Life Asset Management Co. HSBC Asset Management (India) Private Ltd. ING Investment Management (India) Pvt. SURAT . Ltd.  The directors should have at least 10 years experience in the field of portfolio management. 20 crores and for the open-ended scheme Rs. Ltd. and insurance companies. 10 crores. This stipulation is not applicable to banks sponsoring mutual funds. Ltd. 50 crores.  For each scheme. HDFC Asset Management Co. 38 DBIM.  Closed-end schemes should not be kept open for subscription for more than 45 days. Ltd. financial administration. Franklin Templeton Asset Management (India) Pvt. etc.

 The SEBI after due investigation may impose penalty on mutual funds for violating the guidelines 39 DBIM.Study and Research on Mutual Fund  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.  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.  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.  The SEBI shall lay down a common advertising code for all mutual funds to comply with. SURAT .

mutual funds cannot be left far behind.48 trillion in the U. However. 72% of the core customer base of mutual funds in the top 50-broking firms in the U. mutual funds buy. 04.line trading is a great idea to reduce management expenses from the current 2 % of total assets to about 0. A research agency that specializes in internet technology estimates that over the next four years Mutual Fund Assets traded on.S. while in India the Net is used as a source of Information.sell transactions have already begun on the Net.line will grow ten folds from $ 128 billion to $ 1. but it is true that this aspect of technology could and will change the way financial sectors function.A.227 billion . Such changes could facilitate easy access. In the U. In the U.sponsored. eight are bank. on-line investing continues its meteoric rise. such a facility is not yet of avail in India.S. against a corpus of $ 100 million in India. In fact in advanced countries like the U. whereas equity assets traded on-line will increase during the period from $ 246 billion to $ 1. They have realized the potential of the Internet and are equipping themselves to perform better.S.2005) • • • • • Internationally. Only Fidelity and Capital are non-bank mutual funds in this group. about 9. (Source: The Financial Express: September. Out of the top 10 mutual funds worldwide. are expected to trade on-line by 2003.S.commerce and its breakthroughs. mutual funds are allowed to go short. Many have debated about the success of e. lower intermediation costs and better services for all. SURAT . On. This will increase the share of mutual funds from 34% to 40% during the period.2005) 40 DBIM.75 % of the total assets.561 billion. the total number of schemes is higher than that of the listed companies while in India we have just 277 schemes Internationally.S.7 million households will manage their assets on-line by the year 2003.Study and Research on Mutual Fund 6 Global Scenario Some basic facts • • GLOBAL & INDIAN SCENARIO The money market mutual fund segment has a total corpus of $ 1. (Source: The Financial Express : September 04. In India fund managers do not have such leeway.

they have come with reasonable returns. Investors feel that after 5 years. with a fund like Morgan Stanley having more than 1 million investors. If one looks at some income funds. Mutual funds could bring down their administrative costs to 0. Their poor performance has been amplified by the closed end discounts i.6 million net users who are prime target for these funds and this could just be the beginning. SURAT . sites like AOL offer detailed research and financial details about the functioning of different funds and their performance statistics.line.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.e. Net based advertisements: There will be more sites involved in ads and promotion of mutual funds.S. With smaller administrative costs more funds would be mobilized . As per SEBI regulations . In India . 41 DBIM. UTI and Canbank Mutual Fund and of course Morgan Stanley Growth Fund. a is witnessing a genesis in this area.25% and equity funds can charge 2. In the U. • Lower Costs: Distribution of funds will fall in the online trading regime by 2003 . Direct dealing with the fund could help the investor with their financial planning.5% as administrative fees. Morgan Stanley Growth Fund units still trade below the original IPO price of Rs 10. the benefits are passed down and hence Mutual Funds are able to attract mire investors and increase their asset base. It is only the performance of equity funds. Monthly Equity Plans of SBI Mutual Fund. • • • • • Indian scenario Why had mutual funds in India performed so poorly in the past? Most investors associate mutual funds with Mastergain. It is incorrect to think that all mutual funds have performed poorly. India has around 1. which has been poor. Therefore if the administrative costs are low . New investors would prefer online : Mutual funds can target investors who are young individuals and who are Net savvy. 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.Study and Research on Mutual Fund Such increases in volumes are expected to bring about large changes in the way Mutual Funds conduct their business. since servicing them would be easier on the Net. bond funds can charge a maximum of 2. This is so because these funds truly had participation from masses. brokers could get more Net savvy than investors and could help the investors with the knowledge through get from the Net. units of these funds quoting at sharp discounts to their NAV resulting in an even poorer return to the investor. Here are some of the basic changes that have taken place since the advent of the Net.75% if trading is done on. The Internet users are going to increase dramatically and mutual funds are going to be the best beneficiary.

This problem was compounded by the persistent fall in the prices of shares. Effectively. in 1994 and the prices prevailing at present.Study and Research on Mutual Fund One must remember that a Mutual Fund does not provide assured returns and neither can it "manufacture" returns out of thin air. The prices of many leading stocks of yesteryear have fallen by more than 50% in these seven years. SURAT . the total return has been almost zero. in all probability. If one considers the fact that the Sensex has been changed several times. his personal investments may have depreciated to a larger extent. the UTI distributed more dividend to the unit holders of US 64 than the return earned from the investments in the scheme. It was marketed like any other public issue and fund investors rushed to invest in the scheme hoping to get superior returns. take the case of a sector specific fund like a Pharma fund which invests only in shares of pharmaceutical companies. with all the weak stocks having been weeded out. If the investor in the fund has invested in some stocks in the sector on his own. Many people felt that if there were large-scale redemptions. Further. Returns provided by mutual funds are a function of the returns in the underlying asset class in which the fund invests. 42 DBIM. What went wrong with US64? Basically. In that case. UTI kept increasing the sale and repurchase prices of US 64 units. This reduced the value of the residual investments in the scheme.g. the effective returns on the old Sensex.providing them the service of investment advice and management. The following table gives some of the prices of stocks considered "blue chips" in 1992. when the NAV of US 64 was going down. The BSE Sensex crossed 3000 for the first time in early 1992. 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. Good funds can beat returns in their asset class to some extent but that’s all. 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). No one can do anything about it. The stock markets have done very badly in the last seven years. No one bothered to explain to them that Morgan Stanley AMC was a service provider . and shares of public sector units. which resulted in the erosion of the scheme’s book reserves and a wide difference between the actual NAV and the sale/repurchase price. the NAV of the fund would fall to a lesser extent – but fall it will. manmade fibers etc. Let us extend this example to an analysis of the investment climate in the last 7 years. Throughout this period. for a seven-year investment period. steel. UTI would not be able to meet them without support of outside bodies like the RBI. existing in 1992. Since then it has gone up and come down several times but has remained in the same range. it set a panic amongst investors of US 64. the prices of all stocks in the sector could fall substantially resulting in a severe erosion in the NAV of the fund. have been substantially negative. The stock market collapse after the Pokhran II nuclear tests was the last straw. if all investors wanted to redeem their US 64 units on the same day. 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. What went wrong with Morgan Stanley? Morgan Stanley raised large corpus (more than Rs10bn) in around early 1994. When this became known. comes with new regulation that severely restricts the pricing freedom of these companies resulting in negative outlook for the sector. E. especially the shares of companies in basic commodity industries like cement. theoretically. If the Govt. for a period of 2-3 years. 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.

investors’ confidence was shattered. At this time. Many corporates and banks started redeeming their holdings in the Unit Trust of India and other mutual funds. As the NAV went below par. domestic mutual funds and from foreign institutional investors. The fund’s managers invested a considerable amount of money in smaller companies with low floating stock and low market capitalization. Morgan Stanley AMC restructured the funds portfolio at big losses. which will reduce the NAV). the biggest losers were the smaller capitalization stocks. the RBI commenced on its tight money policy in a bid to control inflation from raising its head. SURAT . Crisis of confidence led to its price on the stock exchange crashing and it started quoting at a steep discount to its NAV. And in this crash. The market position started changing from late 1994. 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. 43 DBIM. unfortunately. These companies had experienced the highest appreciation in prices in the immediate past. Since then the equity markets have gone nowhere with the index still below the level at which the fund was invested. the fund invested considerable amount of money in FMCG. Given its large corpus size no amount of buy back or otherwise support could help boost the investor confidence. In fact. There were very few companies which did not wash their hands in this great gravy train. High industrial growth and tight money created a shortage for credit and rates started going sky high. It ensured that the name "Morgan Stanley" was now a part of the dreams of more than 1 million Indians. Many of these stocks lost more than 90% of their peak prices. the NAV of MSGF mirrors this gory saga of the Indian markets. Being a closed-ended scheme the Morgan Stanley’s mutual fund unit is also listed on the stock markets. This put major pressure on the market. 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. Consequently. either through the secondary market or through private placements. What followed was the great crash. Indian stock markets lack depth and are quite illiquid. many erstwhile blue chips have reported disastrous financial performances. pharmaceutical and software companies at the right time which improved the NAV from 1998 onwards. Most of the stocks in the Sensex have performed poorly with markets punishing commodity companies and companies with non-transparent Indian managements. which was already showing signs of weakness. The fund raising exercise. To top it. 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. many of them at high issue prices. There were also massive private placements of equity shares and GDR issues at huge premiums. coincided with the peak of stock market boom. Money supply tightened and bond yields started increasing dramatically.Study and Research on Mutual Fund The IPO was a great success. This deluge of paper soaked up money and reduced the amount available for fresh investment both from resident Indians.

31 140.644.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.24 4.3% 3.68 355.30 6. 44      DBIM.0% 1.8% 4.9% 4.141.2% 2. Soon they will find scope in the growing cities.316.8% 10. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products.4% 3. cr) 22. Number of foreign AMC's are in the que to enter the Indian markets like Fidelity Investments.037.072.0% 0.93 4.813. We have approximately 29 mutual funds which is much less than US having more than 800.854. with over US$1trillion assets under management worldwide. US based.037. SEBI allowing the MF's to launch commodity mutual funds.435.4% 3.965.243.35 4.0% Some Facts for the Growth of Mutual Funds In India   100% growth in the last 6 years.18 Weightage 16. SURAT .0% 3.01 4.799. highest in the world.30 6.27 2.06 22.36 4. Today most of the mutual funds are concentrating on the 'A' class cities.6% 4.40 4.55 6.7% 6.43 1.0% 2.1% 3.3% 100. Our saving rate is over 23%.2% 15.664.20 3.87 9.800.766.983.138.158.4% 1.6% 3.01 10. 'B' and 'C' class cities are growing rapidly.85 14.33 2.816.39 1. Only channelizing these savings in mutual funds sector is required. There is a big scope for expansion.237.205.9% 1.1% 7.5% 1.35 2.

AMCs perform psychographic segmentation. They are targeted by institutional schemes and money market schemes. government-sponsored. The segmentation is based on the customers’ psychographic profile.000 cr. It is poised to grow by a CAGR of 89%. which aill help them expand their reach. To realize the potential of the retail segment. high liquidity and cost efficiency. 45 DBIM. where as retrial investors’ accounts for only 1. where the potential is high and penetration is low. their investment is lower. Institutional investors dominate these industry. Savings contribute about 25% of the GDP to Mutual Fund assets. They hold about 65% of the Indian Mutual Fund assets. MF AMCs are beefing their distribution channel. But intensifying competition and steady growth of Mutual Funds has forced AMCs to increase their reach in non metro cities and small towns. distribution has been confined to the metros. 150. In contrast. Until now. whereas demographic segmentation helps in launching specialized or niche products. The miniscule penetration among retail investors can be attributed to their lack of awareness and risk aversion attitude. which offer high opportunities.Study and Research on Mutual Fund   Emphasis on better corporate governance. which helps in innovating and developing new products by analyzing customer’s expectancy gap. risk-taking ability and time duration. considering clients financial goals. wider product mix. For the mass-market. Usually. SURAT . which is one of the highest in the Asia region. This is mainly attributed to the huge saving tendency among Indians. institutional investors prefer to invest in mutual fund schemes because of the professional management of the funds. Mutual Fund players are formulating their strategies to have a share of the growing market.3%. Market Penetration Redefining distribution The Indian mutual fund industry is going through a phase of transformation since liberalization. They are meticulously segmenting and targeting their needs. risk-free products are the proffered option for retail investors. They are developing their products for both the mass and the niche market. Small families are being targeted using the balanced schemes. demography/ socio-economic condition. The big opportunity The Indian mutual fund industry is worth around Rs. middle-ages people by pension schemes and retired people by income schemes. In contrast. 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. Trying to curb the late trading practices.

share registrars. by an act of Parliament in 1992. Banks come under the regulatory jurisdiction of the RBI.Study and Research on Mutual Fund 7 PEST ANALYSIS ENVIRONMENTAL ANALYSIS 1. SURAT . Mutual Funds have emerged as an important institutional investor in capital market securities. 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. the operations of bank-owned Mutual Funds are governed by guidelines issued by the Reserve Bank of India. Therefore. custodians. offshore Mutual Funds with dedicated Indian Mutual Funds or venture capital investors. and foreign and institutional investors such as FIIs. bankers in the primary markets. Political and Legal Factors : Regulators in India  SEBI. of India constituted SEBI. Subsequently. it has been clarified that all Mutual Funds. come under the 46 DBIM. how they should account for income and expenses. what investment limits and restrictions must be complied with. Hence they come under the purview of SEBI. being primarily capital market players.The Capital Market Regulator The Govt. how they should make disclosures of information to the investor and generally acts in the interest of investor protection. stock exchanges and brokers in the secondary markets. It issues guidelines for all Mutual Fund operations including where they can invest. Other entities that SEBI also regulates are companies when they issue equity or debt.  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. SEBI requires all Mutual Funds to be registered with them.

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

SROs are the second tier in the regulatory structure. AMFI is not yet a SEBI registered SRO. transfer and settlement of the buying and selling of Mutual Fund units on the markets. may regulate the conduct of the company’s affairs. Mutual Fund regulation – How is it important? 48 DBIM. SROs cannot do any legislation on their own. it is unlikely that Mutual Fund investors will have anything to do with any of these regulators. as the registrars handle all such transfers as in case of shares. AMFI aims at increasing investor awareness about mutual finds. being Public Trusts are governed by the India Trust Act. Funds or AMCs do not get directly involved with purchase and sales of units of such listed closed-end schemes. As the members of AMC or Trustee companies will usually be the sponsors and their joint venture partners or associates. Bank sponsored mutual finds are jointly regulated by SEBI and RBI permission. Exchange Rules and the companies Act provisions would generally decide on trading clearing. as they are the same as the trust and cant sure themselves. RBI regulates money and govt securities in which mutual fund invest. AMFI has created code for mutual funds. 1996. except offshore funds. Since the AMC and trustee co. The Board of Trustees or the Trustee Company is accountable to the Office of the Public Trustee. SEBI is the regulator of all funds.Study and Research on Mutual Fund cases. they have to send periodic report to the roc and the co law board is the appellate authority. are Co. 1963 and is voluntarily under SEBI regulations. Listed mutual funds are subject to the listing regulations of stock exchanges. Such schemes are subject to regulation by the concerned stock exchanges through a listing agreement between the fund and the stock exchange. The CLB has the legal standing of a civil court. Legal and Regulatory Framework Mutual funds are regulated by the SEBI (Mutual Fund) regulations.  Office of the Public Trustee Mutual Funds.s they are regulated by the department of co affairs. 1882.  Stock Exchanges Stock Exchanges are self regulatory organization supervised by SEBI. Investors cannot sue the trust. have the shares of the aggrieved members purchased by other members and/or terminate/modify the company’s arrangement with the managing director. All stock exchanges are SROs. If there is a bank sponsored find. encouraging best practices and bringing about high standards of professional behavior in the industry. enforce attendance and examine witness on oath and pass judgments in the same manner as a civil Court. SURAT . AMFI is an industry association of mutual funds. and may call for inspection of documents. These Regulators enforce provisions of the Indian Trusts Act. which in turn reports to the Charity Commissioner. Any person aggrieved by a decision of the CLB may appeal to the High Court. to be complied with by the fund trustees. UTI is governed by the UTI act. other director(s) or senior officials. Many closed-end schemes of Mutual Funds are listed on one or more stock exchanges. The authorities would generally regulate the AMCs whose shareholders may have recourse to them in specific cases. UTI can borrow as well as lend and also engage in other financial services activities. it cannot provide a guarantee without RBI permission.

late trading. to bring uniformity in valuation across funds. marketing an investor – service activities required to be AMFI-certified. Comprehensives risk management systems put in to place with which mutual funds most comply. switching assets. All individuals involves in mutual fund selling.Sebi has also been closely monitoring investment decisions in unlisted securities and mergers between schemes and fund houses.Study and Research on Mutual Fund 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.Regulatory guidelines relating to insider trading. Economical Environment 49 DBIM. 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. no single investor should hold more than 25% of the scheme’s corpus.What has been done so far?      Late trading: Guidelines have just been issued by sebi (after consultation with AMFI) for uniform cut-off times. Minimum of 20 investors. minimum number of investors for each scheme and marketing of mutual funds have now been issued to protect small investors. 2. Guidelines issued with respect to non-traded/thinly-traded debt and equity securities. SURAT . Many regulatory changes have been implemented to improve surveillance and protect the rights of investors. Regulatory environment in India.

with the Indian economy only a little smaller than the US economy but larger than that of Western Europe. 50 DBIM. India is likely to be a larger growth driver than the six largest countries in the EU. Within Asia. Since independence Indian economy has thrived hard for improving its pace of development. showing a wide range of regional inequalities with urban areas getting most of the benefits. By 2025 the Indian economy is projected to be about 60 per cent the size of the US economy.India and China. Availability of both physical and social infrastructure is central to sustainable economic growth.9 percentage points. 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. Simplifying procedures and relaxing entry barriers for business activities. SURAT . The rich countries of Europe have seen the greatest decline in global GDP share by 4. it must expedite socio-economic reforms and take steps for overcoming institutional and infrastructure bottlenecks inherent in the system. The transformation into a tri-polar economy will be complete by 2035. along with China and India. which is now the fourth largest economy in terms of purchasing power parity. followed by the US and Japan with a decline of about 1 percentage point each. the rising share of China and India has more than made up the declining global share of Japan since 1990. 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. ASEAN countries and during the eighties South Korea. contributed to the rising share of Asia in world GDP. appropriate measures need to be taken. 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). will overtake Japan and become third major economic power within 10 years. During the seventies and the eighties. 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. leading to the shift of focus from the US and the rich countries of Europe to the two Asian giants.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. Issues and priorities for India As India prepares herself for becoming an economic superpower. 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. According to some experts. India. and hence the latter will emerge as the third pole in the global economy after the US and China. By 2035. though its impact will be a little over half that of the US.

India needs to improve its HDI rank.Study and Research on Mutual Fund Checking the growth of population. India . as at 127 it is way below many other developing countries' performance. telecom and insurance sector in the future. Due to a high population growth. Developing world-class infrastructure for sustaining growth in all the sectors of the economy. Government had reduced its controls on foreign trade and investment in some areas and has indicated more liberalization in civil aviation. 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. However in terms of density India exceeds China as India's land area is almost half of China's total land. India is the second highest populated country in the world after China. Boosting agricultural growth through diversification and development of agro processing. SURAT . 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. GNI per capita remains very poor.A Growing Economy 51 DBIM. Expanding industry fast. It was only $ 2880 in 2003 (world bank figures). The UPA government is committed to furthering economic reforms and developing basic infrastructure to improve lives of the rural poor and boost economic performance.

in comparison to many East Asian economies. However.9 %.8% since 1994 ( the period when India's external crisis was brought under control). Another positive feature was that the growth was accompanied by continued maintenance of relative stability of prices. averaging 5. the Indian economy has posted an excellent average GDP growth of 6. 52 DBIM.7% per year in the 23-year growth record. In fact. the Indian growth experience lags behind. Indian economy has been predicted to grow at a level of 6. High growth rates in Industry & service sector and a benign world economic environment provided a backdrop conducive to the Indian economy. having growth rates above 7%. it is still among the high growth rates seen in India since independence. the growth rate for 2004-05 is less than that of 2003-04. agriculture fell sharply from its 2003-04 level of 9 % to 1. Many factors are behind this robust performance of the Indian economy in 2004-05. Growth in the Indian economy has steadily increased since 1979. Thus. there is a paramount need to move Indian agriculture beyond its centuries old dependency on monsoon. Though. SURAT .Study and Research on Mutual Fund 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. This can be achieved by bringing more area under irrigation and by better water management. The tenth five year plan aims at achieving a growth rate of 8% for the coming 2-3 years.1% in the current year primarily because of a bad monsoon. However.

Reserve money growth had doubled to 18.4 per cent during the same period of the last year indicated a positive outlook.Study and Research on Mutual Fund Because of the weakening of the US dollar for the last two years. The level of foreign exchange reserves crossed the US $100 billion mark on Dec 19. the sensex crossed 6800 mark in March 2005 but high stock market volatility remained higher in India compared to other Asian countries. The fiscal deficit decreased to 7. 2005.5 per cent) as compared with an increase of 8. 2004. The downward trend in interest rates continued in 2004-05. 7. with bank rate standing at 6% as on Dec 10. driven entirely by the increase in the net foreign exchange assets of the RBI. The expectation of sensex crossing 7 K mark is not yet realized.5 per cent (exclusive of conversion. India's exports during AprNov registered a growth of 24% from the last period but India's position was down from 30th to 31st rank in the top exporting countries of the world. Though. Equity market return was 85% in 2003-04.4% in the current year to January 28.3 per cent) as compared with the growth rate of 10.2 per cent of BE compared with 56.5 per cent (exclusive of conversion. Fiscal deficit of states & center was decreasing in early 90s but due to rise in fiscal deficit in recent years. registered a growth of 20. Banks recovery management improved considerably with gross NPAs declining from Rs 70861 crore in 2001-02 to Rs 68715 in 2002-03. With continued higher corporate earnings in 2004-05. Rupee depreciated against other major non-dollar currencies. we now turn to the sectoral performance. turned into deficit in the first half of the current year( April-September 2004-05).0 per cent of BE in the corresponding period last year.3% in 2003-04 from 9. it declined to 6.9% in 2004-05 from a 9.3 per cent registered during the corresponding period of the last year. The capital inflows.6 per cent) as compared with a growth of 5. the Real Effective Exchange rate of the Rupee depreciated and this trend continued until end 2004. fiscal deficit in April-October 2004 is 45.5 million. The latest Re/$ Exchange rate (March 2005) stood close to 44. Having given the broad picture of Indian economy. Despite strengthening nominally against US $. 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. However.4 per cent (exclusive of conversion of non-banking entity into banking entity. The main contributors to capital account surplus were the banking capital inflows. (caused mainly by widening US deficits). 2003 and was $142.2 in 2002-03. The capital account surplus in April-September was also down by around US $ 1.4% of GDP in 2003-04. Growth momentum in exports was maintained. 2004) incremental gross bank credit increased by 20. second highest in Asia. The current account of BOP having been in surplus since 2001-02. capital account too witnessed decline. 53 DBIM. A strong BOP position in recent years has resulted in a steady accumulation of foreign exchange reserves. Alike current account. Non-Food credit during the financial year so far. During the current financial year 2004-05.13 billion on March 18. corrective measures have been adopted. Thus. According to recent estimates. broad money stock (M3) (up to December 10. During the current financial year (up to December 10.9 per cent in the same period of the previous year. SURAT . this trend saw a brief reversal during may-august 2004. 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. foreign institutional investments and other capital inflows. 16. 16. Indian Rupee has steadily appreciated vis-à-vis US dollar. 2004) increased by 7. 2005.

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

reflect on important structural transformation in the economy in terms of its resource mobilization capability.7 percent in 1980-81. then increased sharply thereafter to reach 24. 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.Study and Research on Mutual Fund Ostry. while private sector savings increased from 12 percent of GDP in 1970-71 to 18 percent of GDP in 1985-86. which increased only marginally from 17 percent in 1960-61 to 18 percent in 1970-71. 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. which has a direct bearing on the longer-term growth potential of the economy. This is because all available evidence suggests that the incremental capital-output ratio is higher in India than in other countries. This investment rate is not high compared with rates achieved in the more rapidly growing middle-income countries. This points to the scope for increased efficiency in resource use. Moreover. This rapid growth reflects the cumulative impact of a conscious policy of giving strong incentives for private household savings. Financial & Economical Development An important aspect of performance. 55 DBIM. is the ability to mobilize resources for investment. as a higher share of income must be devoted to subsistence consumption. What is more. it should be possible not only to maintain the present 5 percent growth rate. The spread of bank branches definitely helped to mobilize private savings for investment in the organized sector. the high rate of investment is being financed almost entirely from higher domestic savings. which was 17 percent in 1970-71. SURAT . 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. Even if the investment rate is only maintained at around 24-35 percent. had increased to 23 percent by 1985-86. They estimated that the response of saving to changes in interest rates in India was among the lowest in the developing world. including also rural areas. It has stayed at that level in the eighties. Changes in the tax regime would therefore affect only a small part of the population. but perhaps even to achieve some further acceleration. either because their income is too low or because they fail to report to the tax authorities. 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. 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. 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. But the levels already achieved. More recently positive real rates of return have been available even for shorter maturities. and would be unlikely to significantly alter overall saving behavior. and their evident sustainability. There is certainly need and scope for further increased the rate of savings and thereby also the rate of investment. but it is much higher than the rates achieved in all the other low-income countries except China. especially for maturities of three years and above. The gross domestic savings rate. Chelliah (1996) and others have pointed out that most Indian households do not pay income tax. India’s recent performance in this dimension is commendable. The rate of gross domestic investment in the economy. testifying to the success of self-reliance in this sense of the term.

and hitherto a conservative income-oriented operation at that. 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. insider trading. 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. which have been steadily strengthened and expanded in the past ten years. which would have very important implications for mobilizing capital and allocating it efficiently. For certain types of long-term savings instruments. a deduction is aloes allowed for a part of the amount invested. 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. These limitations are fully recognized and a number of initiatives have been taken to overcome these problems. etc. They certainly encouraged the flow of savings into these investments and on the whole probably also stimulated total savings. The principal weak area has been the generations of investable surpluses form the public sector. have had the effect of raising the effective pretax return on eligible financial investments. to protect the investor. In the area of resource mobilization therefore. These incentives. 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. 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. 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. SURAT .  An advertisement shall be truthful. This is an impressive rate of expansion by any standard and is indicative of a structural transformation taking place in an important area. in particular. By 1986-87 this had increased more than tenfold. insider trading. Social Environment Rules regarding Advertisement . including institutional investors. The State Bank of India is to float a second mutual fund to complete with the Unit Trust. fair and clear and shall not contain a statement. It is also inadequately regulated in terms of rules for full disclosure and restrictions on trading malpractices. The capital market remains thin and vulnerable to manipulation. The Unit Trust of India.Study and Research on Mutual Fund 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. floated a second fund aimed at capital appreciation. have been more active in it in the past two years. It will also serve as a forum for the development and implementation of ideas aimed at developing a healthy capital market. It lacks adequate depth in terms of the existence of large numbers of active participants. The term lending financial institutions. including.Social Aspects  The advertisement for each scheme shall disclose investment objective for each scheme. promise or forecast which is untrue or misleading. The process is as yet far from complete. until now the only mutual fund operating in India. 3. which up to now have played only a limited role in the capital market. 56 DBIM.

which are incorrect or false. unless the comparison is fair and all information relevant to the comparison is included in the advertisement.Study and Research on Mutual Fund  Advertisements shall not be so framed as to exploit the lack of experience or knowledge of the investors. SURAT .  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. 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. 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".  All advertisements issued by a mutual fund or its sponsor or asset management company. implicitly or explicitly.  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.  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.  The advertisement shall not compare one fund with another. redemption of units or payment of interest or dividend to the unit holders.  The offer document and advertisement materials shall not be misleading or contain any statement or opinion. General Obligations 57 DBIM.  The mutual fund shall not advance any loans for any purpose.

offers flexibilities to investors. Most of these events are likely to affect your ability to invest. 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.  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. it’s time to reassess your overall financial situation.Study and Research on Mutual Fund  Every asset management company for each scheme shall keep and maintain proper books of accounts. getting married or divorced. Some common examples of life changes: switching careers. but it’s worth making the effort. By staying on course with your asset allocations. 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. Technology plays an important role especially to the MF industry. retiring. records and documents. both short term and long-term. which have transform many industry in how they operates and survive has also come to the aid of MF industry to widen its reach. and your overall financial picture. Changing Lifestyles In addition to the annual review. records and documents are maintained.  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. you will help ensure that your overall portfolio continues to work effectively toward achieving your investment goals. more customized and personal advised to customers and reaching out to growing young and net-savvy population of India. having a child.  The financial year for all the schemes shall end as of March 31 of each year. It’s never easy to find the time to review your investment plan when you’re in the midst of any of these life changes. The advantage includes lower distribution cost through online transactions. your time horizon. July 2005) 58 DBIM. whenever you make a major life change. buying a house. starting your own business. (Source: Analyst. Technological Factor: The technology wave. 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. You don’t want to enter a new phase of your life with a plan that was designed for different circumstances. 4. and entering college or paying tuition for a child. Market reach ness is also possible through the technologies. SURAT .

59 DBIM. SURAT Substitute Products (Of firms in other industries) Rivalry Among Competing Sellers Buyers Potential New Entrants . New entrance increased in the competition and decline market share of existing co. II) The Potential Entry Of New Competitors Until 1987.s. Forth is a brand . In the past 1992 public and private financial institution with foreign collaboration came in the mkt.AMCs has to spend marketing building awareness about and the co as such . So. In the MF industry the investor’s loyalty level is very low. which AMCs have to maintain. So. Thus we can see the entry of new competitors is high. First is performance. AMCs need to think about new products.Study and Research on Mutual Fund PORTER’S 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. LIC. the UTI was the sole mutual fund in India. insurance cos are now entering in the MF as the purpose of diversified business.fifth is new product innovation. Then banks. phone call or by walking in to an investor serviced center. Third is good service transparency reliability and timely service. AMCs have to have a good enough performance at least in the top quartile. Banking co. AMCs don’t really splurge that much or AMCs don’t charge so high for the fund. People should get their statement on time through e-mail. NBFCs. So. the investors will switch over the new co which gives them higher return. Merchant bankers. Second is strict control on cost. we can at last say that the rivalry among competitor is high. and GIC floated MF. That is really driving growth in this industry.s.

537 crores in dece. . the AUM of the Indian Mutual fund industry worth Rs. one can say that MF industry still behind.Indians spend around Rs 40000 crs. bullion market are substitute of Mutual fund. who are totally of some what unaware about MF.50. So.1. annually on gold jewelry and investment. which constitute the major investme5tn sources in other developed MF market. company deposit. The MF industry will have to educate the investors. insurance. Mergers entry of new strong players form aboard and new Indian players getting in . still 10%-15% is huge investment proportion with bullion market 60 DBIM. 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. Competition will only intensify. According to the world gold council. and post scheme.Study and Research on Mutual Fund Competition is most welcome because Mf is an underserved marker long term competition coming in. III) Competitive Pressure From Substitute Products Capital Market. insurance. real estate investment. New insurance companies give better product and securities for the long term plan. is always welcome. the association of world’s leading gold producers. 15000 tons worth Rs 9. 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. all this dill continue. Bullion market is one of these competitive pressures for MF industry.2004 while bank deposits figure was a mammoth re 16. So. The biggest hindrance to the growth of industry lies in its inability to attract the saving of the public. So consolidation. Risk aversion people prefer to invest in Bank fixed deposits. Indians hold around a seventh of the total global stocks gold i.22. So. A large pool of money in sasvingi9n India is still with the state bank and Pvt. The size of market is very large. India enjoys the distinction of being major consumer of gold. Recently there is boom period prevail in the stock market as investor prefers to invest directly to stock market. 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 .579 cr. On really need to have an industry wide focus on build8ing the retail corpus and the saving habit. SURAT . FIIs movements toward stock market which lead to boom in the stock market.000 cr.e. post office.50. the threats from new entry are very high due to potentiality of market and favorable government policy. Bank deposits.. There will always be people who find India valuable at a particular point and people who will want to exit out at that point. Banks.

61 DBIM.50% 9. AMCs provide various schemes of MF so as to reach or facilitate the objective of investor like high liquidity. There are many MF companies. but the investment volume is very high that is why the bargaining power of buyers is high. Investors prefer those schemes which fulfill their investment objective. who are now a day busy in promoting the various schemes so as to fulfill the investor’s need and tap as much market as possible.50% 4 %. Investors choose those schemes. these are the substitute product which should be taken care by MF industry. the investor having a strong bargaining power So in a nut shell we can say that. safety against investment. Investor can not easily switch over form one scheme to another. low risk.) So. the no of AMCs are very low.6% 10. And that is why the threats from substitute product is very 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. SURAT . high return. which best suit to his/her investment objective and bargain for the same. On the other way round investor full utilizes their bargaining power which choosing a fund.Study and Research on Mutual Fund Let’s compare various Investment option with MF. The switching cost in the form of entry load and exit load is high.50% 5%-6% 6%-8% 8% 9. So. through over all situations we can say that the bargaining power of investor is high. 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. But when we see over all situations then companies are facing threats from investors.50% (Source: Reliance Capital Asset Management Book let. 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. (IV) Bargaining Power of Supplier (Investors) We can consider the investor investing in MF is the supplier for the AMCs.

it is difficult for rival to distinguish them selves easily from another. ICICI and UTI are within the same strategic group they are facing same kind of situation. Pru. so manager must continue to be aware of how AMCs may differ in their future competitive postures and strategies. generally same strategic groups compete against one another more intensely than against firm in different strategic group. various AMCs have apparently 62 DBIM.Study and Research on Mutual Fund Strategic Map of Mutual Fund Industry In strategic group mapping. Competition within a strategic group is often more heated than that between strategic groups. 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. SURAT . As Franklin Templeton. These phenomenons result from the fact that firm within the same strategic group display similar product characteristics. Strategic groups can shift over time. In the recent years. The players of strategic group are likely to pursue a similar competitive strategy for a similar type of buyer. They are following the same kind of strategy to penetrate in the new market. strategy behavior and same profitability. As a result. they all try to make awareness in the market.

Study and Research on Mutual Fund decided to enter in to the new geographical region especially the semi-urban area where the huge market is prevail.16% over all marker share.ICICI contend 10. i. of firm within a group can also change.e. player dominate the industry. So. Franklin. AMCs should considered that the no. Now when we concentrate on that players which is having a medium level of AUM even though higher no. of player around 31 AMCs. they are Birla and TATA. Birla AMC. Similarly TATA having a slight less than UTI. Franklin Temp. although UTI having a huge market share around 71% with in the bank sponsored AMC which having a highest share of 13. as some of the firm in the recent year coming with “new scheme offering” . But as we discuss they are facing a stiff competition with in the same strategic group . while the foreign players like Pru. So.ICICI both are “joint venture pre-dominant foreign AMC”. when we see the strategic map then we find that UTI. Now.As we see that UTI only the AMC who is bank sponsor other two.ICICI. They are fall in “High-High” quadrant i. TATA AMC. ICICI to increase their AUM.23% and Franklin contend with 10. we can say that pvt. Franklin and Pru. of schemes. the market share of leader is only 13. This is quick wondering situation that even though Birla having a more scheme than the leader UTI. HDFC AMC. even though the AUM is medium in nature.ICICI are dominating the industry. that may possible that their AUM can be increase and they can shift from one strategic group to another. which is still untapped. And Pru. which are operating in MF industry.36% considering overall MF industry. they are having high AUM as well as high plans (schemes). HDFC and Pru. 63 DBIM. Franklin and Pru. SURAT . even though the AUM is medium in nature.36% which is very negligible. Reliance AMC and SBI AMC having a opportunity to increase their scheme to compete the huge giant like UTI. it is the reason because there is a more no.e.

Policy Mutual fund industry should follows the rules and regulations made by Indian govt. 4) Sectoral Growth Along with economy. the investment is very risky. Even MF industry should comply the regulation made by SEBI and AMFI. SURAT . Sensex now cross the limit of 9000 (as on13th December. India is in the category of developing countries. That means dividend and LTCG is totally tax exempt in the hand of investors. 5) Bull Capital Market Since couple of years. So this is good opportunity to MF to tapped with. banking sector. 2) Favorable Govt. But as far as budget 2005 is concern it is totally favorable to the MF industry. The equity holder getting a huge return. Again the saving ratio of Indians’ are 28% which is also favoring to the MF industry. there is huge opportunity with MF industry to invest in these growing sector and grow along with favorable situations. 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. The objective of MF is minimize risk and increase the mutual benefit leads it to the way of success. from these one can say that it is one of the greatest opportunity to the MF industry. So. Investor has to be very careful at the time of choosing right investment media. which is almost untapped. there is a boom period in the equity market. Earlier there is tax on long term capital gain (LTCG). and other rules related to mutual fund industry. regarding taxation. 7) Interest Rate 64 DBIM. As Mutual Fund’s one of the scheme which specifically invest in particular sector only. So. which can easily track the equity investors perspective. MF industry has good potential especially for equity oriented schemes. 6) Market Risk Now a days investment is being riskier. 2005). 3) Rapid growth in Economy and Savings Indian economy is currently at growing stage.Study and Research on Mutual Fund OT Analysis Opportunities 1) Rural market is untapped One of the biggest opportunity with the mutual fund industry is the rural market. especially in the metro cities. When we see the mutual fund industry growth in the urban areas. The GDP growth rate growing around 8%. pharma sector. automobile sector and so on. Private bank and company went in to scam or bankruptcy. which is removed in these year. It provides long term capital appreciation as well as dividend. So. particular sector like power sector. growing very rapidly. This fact has been one of the opportunity for the MF industry.

Investor have lower awareness regarding the companies concerning with Mutual Fund. SURAT . has let the interest rate down. 12) Mutual Fund is 1/10th of banking sector When we see the bank rate. Even though banking is 10 times bigger than MF industry. Now a days economic condition is strong which has let interest rate down to 5% -6%. The rate was around 13%. Now. These can lead to success of MF. it is opportunity for the industry. Before some years. So.Study and Research on Mutual Fund Govt. So MF concept can be well explain to the qualified investors. These is an opportunity for the MF that it can give the more return on diversified portfolio management. The literacy level is very important especially for the investment . So biggest opportunity with MF industry is to develop and grow the industry along with the favorable execution of AMFI and SEBI. These unawareness was proved to be failure aspects for the industry. Some investors still feel difficulty in understanding MF concept and its schemes objectives. 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. Reach ness 65 DBIM. 9) Sound Execution of Regulation from SEBI and AMFI SEBI and AMFI’s initiative for registration. Threats 1) Fail to Aware the investor Still investors are not well aware about investment in MF and its schemes. Investors are being educated so they consider all facts and have good investment opportunity. certification and code of conduct have been vital in building a strong and informed selling forced for the industry. it is only 5-6%. investors were preferred to invest in the bank deposits for getting a higher return. The literacy level in India is growing. With the application of technology and wider use of telecom facilities MF are attempting to reach of wider cross section of our society. So there is a 10 time more growth opportunity for the MF industry in near future. 10) Investor’s Profile The growth of any AMCs is depends upon the investors profile. But still MF is one of the preferable option for the investors. 11) Technology Related Opportunity Technology plays an important role in capital market as well as in the MF industry. Investor can get more return than he can anticipate. MF provides more return than banks. Today investors is more trust worthy with government banks and post office. 8) Investment Pattern In the present scenario investors investment pattern is getting higher return with a less risk. 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.

These rules out the potentially huge B. 4) Impact of Global Developments Though the economic reforms have brought India on the global investment map. SURAT .C class cities and rural areas. to the volatility in international markets. Bank Dominance The biggest hindrance to the growth of industry lies in its inability to attract the saving of public. the awareness level in India about MF industry is largely restricted to high income investors and A class cities. MF is failed to reach the interior of the country. 6) Lack of investment advisors The lack of investment advisors. Further. 66 DBIM. The rapid obsolescence of technology huge up front investment costs are also getting in the way of mutual funds from embracing the technology waves. distribution models and advisors in these areas have blocked out a large pool of potential investors for the industry. Fluctuation in the global markets and financial system will now be evident as the Indian markets get link to other foreign markets. especially to give personalize investment advice to the investor is creating road blocks for the growth in MF. which have strong growth potential. including Indian MF industry. Investments in technology take up huge capital and are pretty risky for the MF companies to invest in. A large pool of money in saving in India is still with the state-run and private banks.Study and Research on Mutual Fund For the MF industry the reach ness is very much important. 5) Operational Hassles Operational inefficiency are still hampering the growth prospects of the industry. Lack of access. Currently major players have their market from metro and big cities. 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. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. Industry is in lack of reach ness which is a big threat and hindrance for the growth of industry. these also expose Indian financial market. Managing risk in such a scenario will be a key threats and challenge for the Indian MF industry. Still the way to the small town and villages is open. which constitute the major investment sources in other developed MF markets. 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. 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. insurance and so on.

There is little scope for flexibility. New commodities must be aimed at satisfying one or more objectives. conservative attitude of mutual fund managers. This has probably happened on account of lack of experience and the risk-averse. 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. and so on. 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. regular income. tax benefits. 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.Study and Research on Mutual Fund 8 8 C's Model MARKETING & MUTUAL FUND Commodity (Scheme) Planning Customer Service Marketing Plan Cost Campaign Commodity Branding Customization Channels Convenience 1. The changing profile of customers (investors) must be taken into account in identifying the savings market. Investor's options have been restricted due to limited commodity range. SURAT . Therefore. debentures) projected in the schemes. few are pure growth schemes. Different segments of the potential savings market have different expectations-long term growth. Most of the schemes launched in India are either income or income-cum-growth schemes. 67 DBIM.

Brand identity is an important marketing factor because it facilitates product identification at the market place. The scheme may provide for the price (cost) at which the units may be subscribed or sold to the independent participants in the scheme. and ensures customer loyalty. 4. incentives. if the scheme is liquidated on that date. SURAT . commodity planning. brokerage charges. It signifies the realizable value that the investor will get for each unit that one is holding. Brand name highlights the market segments. 3. 2. since servicing them would be easier on the Net. brokers could get more Net savvy than investors and could help the investors with the knowledge they get from the Net. and commissions are also to be decided in advance because the expenses towards these items will affect the ultimate returns to investors. In India. This repurchase price (cost) is based on the Net Asset Value (NAV). The Internet users are going to increase dramatically and mutual funds are going to be the best 68 DBIM. The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. most of the schemes are linked to the names of organizations: the "DHAN Series" is identified with LIC Mutual fund. where there is an additional channel to deal with the Brokers. Cost The cost of Mutual Fund products is inextricably linked with returns. While deciding on the price. India has around 1. Mutual Fund is also to publish the sale and repurchase prices at least once in a week. commodity launching is a crucial element in marketing. New investors would prefer online: Mutual funds can target investors who are young individuals and who are Net savvy. Indian Mutual Funds follow the historic costing structure. In India. Before formally launching a new commodity. 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. Market research can help to assess the needs of potential customers. It can be said that Indian funds have been quite successful in brand policy and brand identification. Commodity Branding An important function of scheme development is the selection of brand name and pricing of the scheme. Convenience Better advice: Mutual funds could provide better advice to their investors through the Net rather than through the traditional investment routes only. test marketing can be conducted. Mutual Fund Management should also ensure that the difference between the sale and repurchase price does not exceed 7% of the sale price. Direct dealing with the fund could help the investor with their financial planning.Study and Research on Mutual Fund Like. availability of existing schemes and future growth in demand. inherent benefits and investment objectives.6 million net users who are prime target for these funds and this could just be the beginning. "Master Series" with Unit Trust of India and "Magnum" with SBI Mutual Funds. Many Indian Mutual Funds have performed poorly due to wrong timing of launch. The scheme may also declare the price at which such units may at any time be purchased by the Mutual Fund.

 Group selling:. Through the corporate offices formulated the overall marketing strategy and co-ordinate the activities relating to publicity and product distribution.Study and Research on Mutual Fund beneficiary.  Automatic Monthly Investing:. Many companies operate this plan that allows shareholders to authorize a fund to debit their bank accounts monthly for the purchase of bank shares.In the case of direct sales funds are offered to investors directly at NAV and no sales load is charged. Mutual funds are also marketed through stockbrokers who are members of stock exchanges. which enable distributors to realize economies of scales. An underwriter purchases shares at NAV and sells them to the investing public. Channel A new mutual fund scheme may have all the qualities but that does not ensure its spontaneous acceptance by customers.  Sales through Underwriters:. Underwriters / distributors are prohibited from buying mutual funds shares for themselves unless it is for a bona fide investment account.  Telephone or mail purchase:. 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.Shares can be purchased over telephone or through mail by sending filled application forms along with cheques to the mutual fund.This is a very convenient way to acquire mutual fund shares.many underwriters for maximum market penetration practice Group selling. Investors can also buy units through direct subscription. UTI have an edge over others due to their well-established agency network.  Share exchange plan:. mutual fund are paying greater attention to rural marketing. corporate agents etc. selection of channel and promotional aids are essential. institutional.Mutual fund investor can exchange there existing investment in the mutual fund with another mutual fund of similar amount. In order to tap the savings tendency of the rural India. Mutual Fund is mainly sold through marketing intermediaries whose job is really marketing of these types of financial services. Public sector mutual funds like LIC MF. Success would greatly depend on appropriate channel. Mutual funds are also marketing of these types of financial services. merchant bankers. 69 DBIM.Shares of open-ended mutual funds are available through distributors (also called brokers / dealers / sponsors) who act as underwriters. SURAT . They are also marketed by distribution of application forms through a tie-up with newspapers. local level activities are supervised and coordinated by the zonal and branch offices. 5. Some of the innovative distribution channels to attract prospective investors are: Direct sales:. The entire members get shares at reduced prices. The identification of appropriate market segment for the product. The commission of the underwriters depends on the spread of bid and offering price. With smaller administrative costs more funds would be mobilized.

based on investor's age. In gifting yes. Customer Service The marketing of services is significantly influenced by the quality of service and the interpersonal relationship between customers and the service organization. and level of income and expenses among many other factors.3500 rupees. 8. Advertisement campaigns mainly aims at creating awareness of the product. Campaign Scheme campaign / promotion in India has taken the usual routes of advertisement and publicity.two million transactions in FMCGs. Many mutual funds offer incentives for early subscription. the first step should be to assess your needs. its comparative advantages and future potential. the probability of holding on to your target group through direct contact is fairly high. although they rely on external agencies and internal agencies (transfer and registrar agents) who are specialized in these jobs. which may mislead the investing public. FMCG products. Mutual fund advertisements are regulated by SEBI. here you would need to make only 10. And hence. which could be regular income. as in any other financial service industry. Minimum outlay is 3000 . In case of a financial product. Usually 15 to 20 rupees is the maximum outlay that you would want from a consumer in one go. financial independence. The need to use the other mediums beyond TV is fantastic. 70 DBIM. specially chocolates come in impulse purchase category. 7 Customization The financial goals will very. it is the quality of services which becomes the deciding factor. past performance of similar products and superiority of the fund in relation to others in terms of assets. In India most mutual funds provide after-sales service through both external agencies and internal service department. Expected return being more or less same for all the schemes. SURAT . some mutual fund also offers insurance benefits to attract investors. lifestyle. but only to the extent of 100 to 150 rupees. family commitments. management and performing servicing. Servicing has great significance in mutual funds. Mutual fund does need to develop to in-house expertise to render after-sales service more promptly and cost effectively. it is a totally different ball game. Also the risk appetite of the investor and his cash flow requirements need to be mentioned clearly. it is higher. Prompt and timely service in issuing certificates / cheques and in attending to any customer problems would make a distinct difference. which prohibits material and contents of publicity.000 transactions.Study and Research on Mutual Fund 6. buying a home or finance a wedding or educate your children or combination of all these needs. While you would be making million . Marketing of FMCG v/s Financial Product FMCG is a low outlay area. One can being by defining the investment objectives. Therefore.

at the first level they build brand awareness. (4) The advertisement should not be so framed as to exploit the lack of experience or knowledge of the investors. it should also indicate the resources available to back such guarantee. (9) Mutual funds shall indicate in their advertisements—the settlers. and clear. they have already attained that. The brand. As Prudential ICICI was new. 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. Investors are actually going to invest your money into it. the important features of which are as follows: (1) Advertisement should not be published unless approved by the designated person. so the brand becomes very important. assurance. (3) The sale offer should contain only information. (2) Advertisement should be true. etc. substance of which is included in the fund’s current prospectus. SURAT . and financial advisors to the fund.Study and Research on Mutual Fund Importance of Brand in Mutual Fund Most important thing that people see is longevity of the company's offerings. And one of the things right at the top is getting the consumer to invest in your brand. (7) The mutual funds. If company look at the standard pyramid. managers. (8) If the advertisement guarantees a minimum return. which advertise yield must use standardized computations such as tax/value. annual yield. it is very important to have good brand name to develop trust in people's minds. they have been in India for five years now. And it is extremely important to get people to invest with company. (10) Mutual funds which advertise past performance should state that these are not indicative of future returns. company started off with building basic awareness. fair. (6) It should not compare on fund with another unless comparison is fair. the accuracy of which is dependent on an assumption. trustees. promise. It should not contain a statement. 71 DBIM. stands for trust and care. (5) It should not contain any information. Mutual Fund Guidelines on Advertisements SEBI has prescribed an advertisement code for mutual funds. Secondly. or forecast which is false or misleading. more so in financial sector.

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. They want to target him at home. That is what we as a mutual fund are supposed to do anyway. SURAT . So this is a need state that 10 years later he will get a larger chunk of money. If they feel that their target audience is male thirty plus. From the obvious reason for investing to a 'state of need' that leads to investment. Research shows that weekend reading of magazines is far higher than weekday reading of magazines. they get him wherever he is. is the jump an agency has to take. Over a period of five years. So media multiplier works. equity outperforms all other investments. They try and are there in all the mediums at the same time. Indian Television Advertisements for Mutual Fund 72 DBIM. sheer outlays that you need to put to create enough impact tends to be very high. at taking a new house. they get him through in-cinema advertising. On weekend. Companies believe that it actually gives them synergies. so use outdoor and radio and maybe again print. may be he travels a lot during weekdays. the obvious benefit would be I would take care of your investment you don't need to worry about taking calls on stocks etc.so that is the obvious benefit. first option works far better. What is not so obvious is that a person from 25 to 35 age group is willing to take a high degree of risk. And as research shows that 60% of all surfers check net from office. again company get him through television advertising. So. he is looking at building assets for himself. so the company get him in office through the Web. 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. For example if you plan to invest in equity.Study and Research on Mutual Fund Media vehicles chosen by Mutual Fund Industry Companies have very synergistic view on media planning. and through magazines. 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. they will use television and print. maybe buying a second car and henceforth. because he is looking at a number of things. If companies want to use one medium. and half of that time I would not be present on other media. But he also wants a high degree of returns. and measure the effect that you would have in terms of increased brand recall and other fronts.

.ki aagey kya hai. he trips and hurts his foot. MVO: "Invest karte wakt bhi. Everything seems hazy as we see the world through his eyes. Fumbling through the house." Going up to the table....Study and Research on Mutual Fund 1. Finally managing to trace it. aasan nahin hota. a man turns off the shower and dries himself.. Birla Sun Life Hearing a child cry. SURAT .. yeh dekh paana. MVO: "Isiliye aapko sahi raah dikhaye.Birla Sun Life Mutual Fund. . The name that inspires trust. he puts them on and gets back his vision." Super: 'Birla Sun Life Mutual Fund. our friend gropes for his glasses... .' 73 DBIM..

74 DBIM. SURAT . two children walk in. Emotional (sentiment) Appeal  Time duration of Advertisement. two kids carry on with their study. 30 seconds. with great reverence and offer their gurudakshina to their music teacher. Future safety of investment is emphasized with message that we are driving you to proper direction for that you just trust on us. MVO: "Aisa naam jo vishwas jagaye.  Target Segment of advertisement.  Appeal used in Advertisement.Study and Research on Mutual Fund Entering a room we find the baby howling away. Standard Chartered Mutual Fund Enjoying the privacy under the bed." Finally in the arms of her father the baby quietens down and smiles cheerfully.  Message / Theme of the Advertise. upper middle class and upper middle class. as one of them revises and recites his table of five using one rupee coins. Middle class. 2. In the next shot.

75 DBIM.Study and Research on Mutual Fund Accepting his due. Standard Chartered Mutual Fund. Next we get to see a kabadiwala handing over the money from the sale of the papers to a woman."  Message / Theme of the Advertise. SURAT . the boys put them back safely into a box. MVO: "Looking for a safe place for your money. the guru safely puts the money under the cover of his harmonium. 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.

Yuhin nahin koi croron ka vishwaas. UTI Mutual Fund An old man plays with his grandson in their garden when his son approaches..  Target Segment of advertisement.. SURAT . 37 salon se... Sada kaayam.haasil karta hai saalon se. 76 DBIM.Study and Research on Mutual Fund 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.. "Meri rai to kaayam hai.UTI to UTI hai. Rational (Safety & Security) Appeal Time duration of Advertisement. .   3." informs the young man...Aaj mutual fund agent se milke hi aaunga. ..'  Message / Theme of the Advertise." Super: 'UTI Mutual Fund. .. Vishwaas.. General people (who seeks for secured investment option) Appeal used in Advertisement... 60 seconds. Kahi suni baaton par mat jaana.

he begins. Emotional (trust) Appeal Time duration of Advertisement. Prudential ICICI Mutual Fund. MVO: "Just as you are taking care..of your loved ones. SURAT .  Target Segment of advertisement... 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." 77 DBIM. Appeal used in Advertisement. Shushing her protests. the deed is done and the three of them rejoice. as the other is in a cast. but is rewarded with a smack from the little feet. 15 seconds. After much uproar.   5. 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.. The people who seeks trustable AMC for their investments. . Ad also shows the satisfactory trust of old man and his emotional touch with Unit Trust of India. He interrupts and decides to help her out. Prudential ICICI is taking care of your investments.Study and Research on Mutual Fund Ad simply shows they are having trust of lacs of people from about last 37 years.

enjoys the first one's tea. “As parents takes care for their child in similar way we take care for investments”. .Study and Research on Mutual Fund  Message / Theme of the Advertise... Franklin Templeton Mutual Funds mein invest keejiye. Franklin Templeton Investments The film opens with a man in a restaurant. SURAT .....    5. A waiter serves the tea he had ordered for. is the message of this ad. aur tax aapke fixed deposit ko ghata dete hain. Appeal used in Advertisement. Emotional (Sentiment) Appeal Time duration of Advertisement.. Our man is so busy with a paper that he realizes his half-empty glass much later. Mehangai aur tax ka dat ke saamna keejiye. The message shows their core value for presenting themselves as a takes care of their customers. The person who seeks for good take caring of their investment is targeted. MVO: "Isi tarah bina aapke jaane. mehangai. 10 seconds." 78 DBIM. .and leaves comfortably.. Target Segment of advertisement. A little later another man comes from behind.

SURAT . Target Segment of advertisement. 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.. Converting the uniform into a dacoit's dress he comes out shattering his dad's dreams and shouts. Time duration of Advertisement. The excited child rushes to change into it. ad execution technique Humour. 10 seconds. The person who seeks for good take caring of their investment is targeted.Study and Research on Mutual Fund  Message / Theme of the Advertise. UTI Mutual Fund A boy is all smiles celebrating his birthday. Appeal used in Advertisement. "Ab to... Rational (Safety + Security) Appeal. The ad simply shows the safety of investment against the outer risks. His dad wishes him and gifts him a police uniform.    6. 79 DBIM. while dad dreams of his son growing up to be a police officer.

fund listings are very easy to read and can tell you a great deal about the fund in a small amount of space." Multiplying the number of shares you own by the Offer Price tells you how much you would pay to buy those same shares." MVO: "Bachchey to nadan hai.gabar main hi banoonga...Study and Research on Mutual Fund . Rational (Security) Appeal.. The person who seeks for good future for their child is targeted. You can determine the value of your portfolio by multiplying the number of shares you own by the "NAV. Tyar rahe UTI Mutual Fund ke children's career plan ke saath.. The persons who seek for good results for their efforts are to be directly targeted.. The person shows for dreaming in good results of his efforts and suddenly he founds the invert result for it. SURAT ..  . 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. 80 DBIM.    The News Paper Advertisement of Mutual Fund Although they may look pretty cryptic. Appeal used in Advertisement.khel nahin.." Message / Theme of the Advertise. ad execution technique Humour. Target Segment of advertisement. par unka bhavishya koyi. Time duration of Advertisement. The ad simply shows the security for investment against the uncertain future. 15 seconds.

the previous day's prices will be listed and an "f" entered after the fund name. and "x" means quotes are based on ex-dividend values. However. SURAT . so don't reject funds for consideration based only on these tables. "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. 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. you can obtain performance data and daily share prices directly from the fund company by calling their toll-free 81 DBIM. "Offer Price" is the amount you would pay if you wanted to buy the shares and is the same as the "NAV. If the most recent day's numbers are not available for a fund. If you are trying to make a decision about buying a fund. An "e" signifies prices are quoted after capital gains distributions are deducted. A plus (+) value means your shares have increased in value since the close of the last trading day by the amount indicated. newspaper listings can give you some idea about fund families and provide some indication about fees and expenses. "t" means a fund has both a 12b-1 fee and a deferred sales charge or redemption fee. Mutual fund newspaper listings are most useful for keeping track of what is happening to the funds you own. "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. "p" means a fund has a 12b-1 fee.Study and Research on Mutual Fund Funds are listed alphabetically by Fund Company with specific funds listed under each company. This tells how much the net asset value of the fund has changed since the previous trading day. As a long-term investor. Some newspapers provide more detail than others and include investment objectives and total return data. you will probably not find it necessary to check on the daily value of your fund shares. Change shows the amount by which the net asset value of one share of the fund increased or decreased the day before. and a minus (-) value means each of your shares has fallen by that amount. But they don't provide all of the information you need." plus any sales charges. whenever you want to check the progress of your fund.

To unload their work. or visit their website. Relationship play an important role while selling Mutual Fund products. the companies bear huge market expenses in the form of higher commission to lure investors. AMCs are opting for the services of large distributors to sell their products by leveraging their value chain. or directly by the fund to the investor. 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. in turn.Study and Research on Mutual Fund number. sub-broker and agents. by financial planners. by a sales staff employed by the fund management. An agent is an essential channel between investors and the mutual fund products. which comprises of a broker. 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. Agents advice the customers on the kind of needs of the client. These AMCs. So. In either model. The last-named process carries no sales charge. However. Distribution Model of Mutual Fund In a highly competitive environment. 82 DBIM. or a low one. All funds have management fees regardless of distribution methods. To control increasing operational costs. product innovation or development has become a necessity for mutual fund to stay ahead. Bajaj Capital etc. and such funds are called no-load or low-load. appoint their agents to sell the MF AMCs products. SURAT . Increasing commoditization and growing needs of the customers are forcing players to shift to solution-based models form product-based ones. referring to current prices of mutual funds listed daily in most newspapers. they take shelter in third party distribution AMCs like Karvy. it is difficult for AMCs to manage and monitor a large agent force.

Such delay is quite pervasive in the smaller towns. Educating investors about the advantages of investing in mutual funds compared to risk-free saving instrument is a big task for the industry. Changing paradigms about Mutual Fund Distribution To overcome the distribution bottleneck and increase penetration. In addition. The depository model is expected to transform the model of distribution. Allotment of units Net Asset Values (NAVs) is done before the realization of funds.Study and Research on Mutual Fund However. mutual fund investments are confined to the metros. SURAT . where it can be 3-5 days or more. they are also appointing sales personnel to meet investors. particularly in the smaller towns. existing collection center will be replaced by the Depository Participants (DP) as the point where investors and depositors submit the application form. is marking the process fast and reducing delay in fund transfer across cities. The extensive availability of the central Government’s assured return on small savings products are restricting the competition as well as the penetration of a wide variety of mutual fund products. However these problem is resolved with appointment of adapt registrars to meet the time lines of recording the transactions. As far as retail penetration is concerned. tier 1 and tier 2 cities (about 50 cities). Such hassles could prevent investors from investing in mutual funds. restricts it’s use on a large scale. enhancing the reach through the existing distribution model will require more investments. where investors are not willing to take risk. It will be helpful to investors who will be 83 DBIM. technological advancement of remittance instruments such as Electronic Clea Servicing (ECS). However. According to the securities Market Infrastructure-Leveraging Expert (SMILE). 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. The contribution of direct marketing to the total sales is miniscule. This poses a great challenge for the industry to realize its potential. In the proposed depository model. the transaction cost of establishing collection centers. given the fact that the post office has the largest distribution network than any other institution or bank in the country. As of now. the fact that the internet has its limits in providing customized investment advise to individuals. Inaddition. So. but the cost burden is huge. educate them and sell their products. A major reason for this is the high cost of developing retail infrastructure. AMCs are exploring distribution models like depository models and distributor model in lieu of the existing collection centers model. So. delay in fund transfer and tardy inter city payment system are the major problem. The post office is also being used as a channel of distribution by mutual funds AMCs. scaling up the operation by increasing the volumes through increasing investment in other cities doesn’t seem feasible. Besides. There is also a regulatory entanglement in fund realization. except in the liquid and money market schemes. 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. Electronic Funds Transfer(EFT) and real-Time Gross Settlement System (RTGS). 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. Mutual Fund players have to break splurging marketing expenses to push their products against others.

It will be very difficult to replace the depository model with the distributor model. If the distributor model is the proffered mode of distribution. who are also a part of the distribution channel. It will lead to more demand for specialized/ niche products. investors will become more aware of the product frames. In This new model. adoption of such a model will lead to channel conflict between distributors and DPs. However. SURAT . While it is easy to change from the collection center model to the depository model. To avoid such conflict of interest. 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. The depository model can take advantage of already established equity market infrastructure and increase penetration. 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. 84 DBIM. distributor is linked with the registrar through the depository. Sebi has recommended the conversation of the exixting collection centers and registrar and mutual fund offices into limited purpose DPs.Study and Research on Mutual Fund able to transact different kind of mutual fund through a single point. This will reduce the apprehension of distributors about approaching DPs.

4. 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. 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. 2. c. To analyze the individual preferences about mutual fund b. So I have selected Surat city as sample area. Secondary Objective: The secondary objectives of this research study are… a.Study and Research on Mutual Fund 9 1. Sample design Sample Size The sample size for my research is 150. doctors. 85 DBIM. Objective of the study Here I can segregate my research objective in to the two categories. Charted Accountants (CAs). 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. The unexpected Growth in the mutual fund industry is due to lot many factors like suitable budget for the mutual Funds. Problem Definition RESEARCH METHODOLOGY The Mutual fund industry flourishes in the present scenario. Agents and stock brokers. SURAT a. To know the investment pattern of small and medium size enterprises. Sampling Area My research objective is to know attitude of investors towards mutual fund in Surat city. . Sampling Method I have selected the convenient sampling method for my research study. To know thrust area for mutual fund industry i) ii) 3.

4) The research is solely based on respondents’ discretion. 2) Lack of Resources. Most of the time in order to save my time I used to ask question verbally and as per answer of resonance. The questionnaire was frame in such a way to bring out the relevant information along with allied information in minimum possible time. 86 DBIM. and websites. magazines. SURAT . Method of Data collection: The data collection approach adopted in this study is survey method. Limitation 1) Time constraint. Secondary data collected from various books.Study and Research on Mutual Fund b. 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. c. Various Magazines & bulletins Related books 5. Method of Contact: The method which we have adopted in my research is Personal Interview 6. 3) Cost constraint. I fill the questionnaire accordingly. The method adopted for primary data collection in this study is personal interview method at the respected place.

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

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

elaboration is likely to be more extensive. a pain reliever given to a child that could be harmed by using dangerous substances)..g. Several approaches to belief change exist: Change currently held beliefs. Consumers are less likely to resist the addition of beliefs so long as they do not conflict with existing beliefs.Study and Research on Mutual Fund Changing beliefs. For example.. SURAT . the compliance rate was about fifty percent when people just asked to get ahead." or compatible.. this is often difficult to achieve because consumers tend to resist. which sounds quite plausible to most people. particularly those that are strongly held. a basket ball player is likely to be effective in endorsing athletic shoes. would you bother bringing them up in the first place? However. for products which are either expensive or important for some other reason (e. we found that in the study of people trying to get ahead of others in a line to use photo copiers. with the product.. For example. Most consumers already agree with this.. but the belief can be made stronger. contain overriding arguments why the sponsoring brand is ultimately superior--that is. The Elaboration Likelihood Model (ELM) and Celebrity Endorsements. Hard Candy may have attempted to change the ideal away from traditional beauty toward more unique self expression. However. the "but" part must be emphasized. • Change the importance of beliefs.. "elaboration" was low. Consumers were suspicious and rejected this information. why. and the endorser is expected to be "congruent. in the above examples. Although the sugar manufacturers would undoubtedly like to decrease the importance of healthy teeth. The ELM suggests that consumers will scrutinize claims more in important situations than in unimportant ones. and very risky. and provided extensive factual evidence in its advertising to support this reality.g. Thus. On 89 DBIM. then. the beef industry has added beliefs that beef (1) is convenient and (2) can be used to make a number of creative dishes. • One-sided vs. the petroleum industry advertised for a long time that its profits were lower than were commonly believed. However. compliance increased to 80%. it may be possible to strengthen beliefs that favor us--e. and thus Bill Cosby is able to endorse Coke and Jell-O without having any special credentials to do so.g. For example. even if they are inaccurate. the Volvo is a clumsy car. Vitamin manufacturers attempt to add the belief that stress causes vitamin depletion. and only few firms succeed. Since the reason offered really did not add substantive information. a vitamin supplement manufacturer may advertise that it is extremely important for women to replace iron lost through menstruation. because I have to make copies" was added. • Add beliefs. when the justification ". The ELM suggests that for "unimportant" products. but offers less service and selection). it is usually not feasible to make beliefs less important--consumers are likely to reason. Two-sided appeals must. For example. Although attempting to change beliefs is the obvious way to attempt attitude change. but not in endorsing automobiles. elaboration will be low. • Change ideal. It is generally very difficult to attempt to change beliefs that people hold. to attempt to change ideals. a competing supermarket has slightly lower prices.g. however. but very safe) or (2) admits something positive about a competing brand (e. 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. particularly when consumers hold unfavorable or inaccurate ones. we conclude that it was not extensively analyzed--in the jargon of the theory. It usually difficult. two-sided appeals.

but enough to scare people into action and (2) a way to avoid the feared stimulus is explicitly indicated--e.g. Fear appeals appear to work only if (1) an optimal level of fear is evoked--not so much that people tune it out. All of them. 90 DBIM. Humor appears to be effective in gaining attention. often increases sales for the sponsoring brand. a nationally syndicated auto columnist would be successful in endorsing cars.Study and Research on Mutual Fund the other hand. In addition. The use of affect to induce empathy with advertising characters may increase attraction to a product. Several approaches to appeal may be used. but does not appear to increase persuasion in practice. which is illegal in many countries. Appeal approaches. which may in turn result in increased sales. could endorse fast food restaurants effectively. but may backfire in certain cultures. however. but may backfire if consumers believe that people’s feelings are being exploited. a more favorable attitude toward the advertisement may be created by humorous advertising.. but not athletic shoes. gingivitis and tooth loss can be avoided by using this mouth wash. Comparative advertising. SURAT .

SURAT . of respondents 120 100 80 60 40 20 0 Post Office Insurance BFD NSC B&D Recurring UnOrganized Sector Mutual Fund Equity PPF Options 91 DBIM. 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.Study and Research on Mutual Fund 8.

because of declining return from Bank.28% respectively. Only 27. Equally there are a high number of respondents investing in Mutual Fund. Respondent investing in Post Office & Equity is 62. approx 65. we can see that nearly 70% of respondents invest in Insurance polices & 65. There are a high number of respondents investing in Insurance.71% of respondents in Mutual Fund.14% of respondents invest in Banks.. So we can say that there is definitely a shift towards other investment avenues like Mutual Fund. Banks proportion of respondents’ investment is too low. Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. 92 DBIM. Post Office also provides tax benefit . Equity etc. SURAT . But when we compare Mutual Fund and Insurance with Bank.71% because it helps in making calculated and diversified investment. 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.85% & 54. Insurance. 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.Study and Research on Mutual Fund Data interpretation: From the above data. approx.

SURAT . liquidity. followed by Tax benefit.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. 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. 93 DBIM. saving & safety.33% of respondents return Benefit as the most important criterion while investing in different avenues.

Then the other reason why people invest in Mutual Fund because it takes care about varied needs of investors and provides tax benefits. 94 DBIM. 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.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. SURAT . because it helps in making calculated and diversified investment. People prefer last option to BFD as the return is very low in BFD.

Study and Research on Mutual Fund 4) Average Tenure of Investment Findings: Investment Tenure Long Term Short Term No. 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. of Respondents 114 36 Data interpretation: From the facts & figure we can easily judge that almost 76% respondents invest their fund for Long term. So this kind of result is very much favorable for Mutual Fund Industry. SURAT . 95 DBIM. That means the investor may go for those investment which has maturity of more than one year.

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.7% 7% .13% > 13% No. 96 DBIM. 17 62 58 13 Data interpretation: From the above data we can judge that most of the respondents i. is nearly 38. Similarly the number of respondents expecting 10% to 13% return from portfolio. SURAT . i.57% is also high because respondents one of the main criterion for investment is return. nearly 41. NSC etc. So I order to get higher return people invest in equity. Insurance etc. of Res.e.42% of respondents expect 7% to 10% return from there portfolio.10% 10% .Study and Research on Mutual Fund 5) Expected Return on Port folio Findings: Return 4% . This because people prefer to invest in Post office.e.

The least preferred advisor is Investment Analyst.Study and Research on Mutual Fund 6) Investment Advisory Findings: Advisor Bank Agent Direct Investment CAs Friends & Relatives Investment Analyst No. SURAT . Only 4. 97 DBIM. Almost 55.28% of respondents take advice from Investment Analyst. of Respondents 28 63 83 47 77 6 Data interpretation: Taking into consideration the advice which is taken by investors.71% of respondents invest directly and nearly 51. respondents generally invest directly or they generally take advice of friends & relatives. In Investment Option like Insurance & Mutual Fund Respondents take advice from Agent that is almost 41.43% of respondents.43% of respondents take friends & relatives advice.

almost 81. Ahmedabad is far better. SURAT . As we know the living standard.43% of respondents are aware about Mutual Fund.e.Study and Research on Mutual Fund 7) Mutual fund Awareness Findings: Response Aware Not Aware No. Only 18. 122 28 Data interpretation: Considering the Awareness of Mutual Fund among investors. So due to which we can see the awareness among the respondents is far better. it basically depends upon the area in which the research is conducted. level of education prevailing in the city & so on. of Res. 98 DBIM. level of education etc in the research area i.57% of respondents are not aware about Mutual Fund.

715 of respondents who invest in Mutual Fund while remaining 34. So Mutual Fund companies should try to tap the untapped respondents nearly 34%.Study and Research on Mutual Fund 8) Mutual fund Investment Findings: Response Invested Not Invested No. SURAT .28% of respondents do not invest in Mutual Fund. so as to take the advantage of the opportunities. 99 DBIM. 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.

71% of respondents do not invest due to difficulty on selecting schemes which the fundamental awareness of mutual fund. No.e. they should try to educate the investors. 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. 100 DBIM.Study and Research on Mutual Fund 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. 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. So AMC’s in order to reduce the main hurdle i. lack of knowledge. 15. SURAT .

SURAT . 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. of Res. 29 66 55 Data interpretation: Around 65. invest in balance fund to have moderate return at moderate risk. Investors invest in Findings: Type of MF Debt Equity Balance No.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. 101 DBIM.Study and Research on Mutual Fund 10) Type of MF.While 37% of respondents.

102 DBIM.Study and Research on Mutual Fund 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. 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. 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. SURAT . 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.

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 don’t 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.

103 DBIM, SURAT

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.

104 DBIM, SURAT

Study and Research on Mutual Fund
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.

105 DBIM, SURAT

of Respondents 49 79 84 45 37 28 47 6 13 24 2 28 8 106 DBIM.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. SURAT .

107 DBIM. but the target audience still needed to gain more awareness. today we have the best system and procedure. If Mutual Funds gain investors trust. transparency and sharing of details and dissemination of information at an improved level. Mutual Fund is in the business of managing trust. What is needed is the spread of awareness beyond regional limits. It is important to gain mind-share rather than wallet share of the investors. The future is very bright. Mutual fund industry has been evolving very well for an important reason that. provident fund etc. SURAT . 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. money will follow. good regulatory mechanism.Study and Research on Mutual Fund 10 CONCLUSION Up till now sought after investment avenues like bank deposits. Mutual Fund as a concept is well known. use of technology. gold. 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. and Mutual Fund obviously become a viable alternative. 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. real estate. especially due to fall in interest rates coupled with the rising inflation.

So AMCs should concentrate to make effective their distribution channel. 108 DBIM. 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. 2. 4. 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. 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. Lengthy transaction cycles and old fashion distribution models like cheque based returns are preventing the industry to grow at good rate. 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. 7. One of the great threats to the MF industry is the competition from various investments options available in the market like post office. 6. 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). by providing the material for the basic concept of mutual fund. Companies should educate the people by intimating about favorable budget impact on MF. As we see that there is poor reach as far as mutual fund is concern.AS we know that the situation at the time of US 64 and the today’s scenario is quiet different . Try to avoid the bad and painful experience of US 64 by providing today’s situation of MF and the Advantages from MF. Operational inefficiency is still hampering the growth prospects of the industry. So in short AMCs should understand the investor and make differentiate the both situation as a whole. SURAT .As today there are 31 AMCs exist in the market and still there is expectation to increase more number of AMCs in near future. 3. 5. insurance and so on.Study and Research on Mutual Fund 11 RECOMMENDATION & SUGGESTION 1.