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Management Thesis

2010

BHAVNAGAR

Prepared By:

Faculty Guide:

Alpesh Lathia Majumdar

Mrs. Gutam

Final Thesis

8NBBG010
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Final Thesis

A THESIS ON
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A competitive of study on consumer investor behaviors with reference to TATA Mutual Fund and HDFC Mutual Fund

Prepared By: ALPESH LATHIA 8NBBG010

A report submitted in partial fulfillment of the requirements of THE MBA PROGRAM

(The Class of 2008-10)

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Preface
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Management thesis provides an opportunity to the MBA students to

apply their theoritical and practical concepts, which they have been studying in the business school to the practicle world. As we all know that practicle world is far different than the theoritical, every MBA student is required to acquire both theoritical as well as practicle knowledge in order to survive the increasing competition in the field of management. The period of management thesis is very important for a student, as he has to work in the market for the thesis and he has to do some survey for finding actual production position in the market. As my area of interst from beginning is Finance and retail, I was interested, to undergo my Management Topic-II in some prestigious financial institution. At present mutual fund is doing very well in India. It has given a safe option to the investors when the bank and other institutions are loosing faith amongst the people. Many companies having realised mutual fund sector provides the market potential and opportunity for growth this has given more employment opportunity in this sector, which is deadly required by Indian Economy.

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Table Of Content
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1. Acknowledgement 2. Review of Literature 3. Objective of the Study 4. Research Methodology 5. Limitation of the Study 6. Introduction 7. Industry Profile 8. History & Background 9. Drawbacks of Investing in Mutual Funds 10. A big Mutual Fund Industry today 11. Process of Mutual Fund 12. Investment Avenues Preferred 13. Facts for the growth of Mutual Funds 14. TATA Mutual Fund 15. HDFC Mutual Fund 16. Empirical Analysis 17. Findings & Suggestions 18. Conclusion 19. Appendix 20. References

05 06 07 08 10 11 13 18 25 29 35 37 38 40 43 46 55 59 64 66

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Acknowledgement
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I have the opportunity to express my sincere gratitude towrds all the people who have helped me in the successful completion of my half management thesis. I feel glad to put this Management Thesis Report as a part of submission of subject Management Thesis-II of MBA with present era of Mutual Fund. I am greatly thankful to our respected Campus Head Mr. Gautam Majumdar who has given me an opportunity to express my views for this topic. I appreciate the efforts, guidance and inspiration of my Faculty Supervisor Mr. Gutam Majumdar who leads me to the proper rules and regulations regarding the thesis. She helped me to search and refine title on this topic successfully. Only because of the above efforts, advise and co-operations of our respected faculty members, I can reach to the last mark.

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Review Of Literature
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Global Mutual Fund Mutual fund

Author: Prof. John Bang Author: Dr. Admon mrSatin

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Objectives Of The Study


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In order to examine the issues rose above, this survey has the following objectives before it: 1) To understand the savings avenue preference among MF investors 2) To identify the features the investors look for in Mutual Fund products. 3) To identify the schemes preference of investors. 4) To identify the factors that influencing the investors fund/scheme selection. 5) To identify the information sources influencing the scheme selection decision. 6) To identify the preferred communication mode.

IMPORTANCE AND BENEFITS:


Though many MF are giving nearly 100% returns in a year, only 2% of total population has invested in MF. The research would help to understand the reasons why people invest less in MF. This research would help AMCs to understand what steps can be taken to increase the investment in MF.

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Resarch Methodology
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HYPOTHESIS:
Investors still prefer investment in safety instrument then mutual fund and shares. And because of this mutual fund investment in market is only 4%.

RESEARCH OBJECTIVE To study


Investment pattern of investors. Key factors to be considered before investing. Mutual funds scope and acceptance of mutual funds of HDFC or TATA..

TYPE OF SURVEY
The questionnaire based survey is selected for conducting the research. The questionnaire based survey is selected because it is the most effective and efficient way to conduct research of investors investing in mutual fund since they just have to give their opinion for the question asked by the researcher and also they can just select from the alternatives given in the questionnaire.

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SAMPLING
Simple Random Sampling For the study the sampling technique used is that of Simple random Sampling in this every people has equal chance of selection.
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SAMPLE SIZE
The population defined for the study is any investor and into any kind of investment. The population defined would give inferences. So the population is divided here in different classes. All the professionals, service, businessmen and would include any person who make any kind of investment became my population. The sample size is approximately size is kept 100 randomly.

TYPE OF QUESTIONNAIRE
The questionnaire designed contained Dichotomous questions Multiple-choice questions Thus it was easy for the investors to select from the alternatives, the alternative which suits them the best. The data or the data the information collected from the respondents were the respondents were then compiled, tabulated and classified for analysis and interpretation with the use of Microsoft Excel, Microsoft Word etc.

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Limitation Of The Study


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1. Sample size is limited to 150 educated investors in Bhavnagar only. The sample size may not adequately represent the National market. 2. This study has not been conducted over an extended period of the time having both market ups and downs. The market state has significance influence on the buying patterns and preferences of investors. For example, the July 2001 fall has sent violent shock waves across the MF investor community and is bound to influence the scheme preference/ selection of the investors. The study has not captured such situations. 3. We have to depend on a small sample size of investors to find out the results of the study which may become biased and this sample might be small to gather an in depth knowledge of MF. 4. Investors behavior is affected by various factors and in a short span of time it is not possible to study all this factors. 5. It may not be possible to take proportional sample size from each area.

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Introduction

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BACKGROUND &NEED FOR THE STUDY


It is widely believed that MF is a retail product designed to target small investors, salaried people and others who are intimidated by the stock market but nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, designing a general product and expecting a good response will be futile, through UTI could do this nearly for three decades (19641987) due to its monopoly in the industry. In the second phase of oligopolistic competition (1987-1992), the public sector banks and financial institutions entered the field, but with the then existing boom condition, it was a smooth sailing for the industry. Further, the globalization and liberalization measures announced by the government led to a paradigm shift in the mindset of investors and the capital market environment become more unfriendly to retail investors. They had no other choice but to turn to MFs to reap the benefits of stock market investing. Hence, the need to be innovative in designing the product was not felt and investors had to choose from the limited schemes offered. During the third phase (1992 hence) the industry was thrown open to the private sector and the stage got set for competition.

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Currently there are more than 477 schemes with varied

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objectives and 33 AMCs compete against one another by launching new products or repositioning old ones. Now Mutual Fund industry is facing competition not only from within the industry but also from other financial products that may provide many of the same economic functions, as MFs but are not strictly MFs. For example, in US, one saving institution has patented a product that promises to deliver consumers a pay off indexed to college tuition costs, thus attempting to meet a common consumer requirement. This product is structured as a certificate of deposit, but it could have been set up as a Mutual Fund. Such products will shortly appear in the Indian market also. Other examples could be ULIP plans which are giving a good competition to MFs. All this, in aggregate, heightens the consumer confusion in his selection of the product.

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Industry Profile
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WHAT EXACTLY MUTUAL FUND IS?

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 then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund. The Situation could vary as per age groups, mindsets and risk taking ability, but the solution, in each case wants money to grow. Most of the investors dont have sufficient knowledge about different investment options, financial instruments nature, market information, analytical skills and therefore their funds are lacking proper management and diversification to get market-linked return with flexibility as well as liquidity. These kinds of investors should prefer mutual funds to channelize their funds properly.

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A security that gives small investors access to a well-diversified


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portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. Mutual Funds are the unique instrument that offers an

individual professional management, diversification, flexibility, liquidity and a chance to get market linked returns. Mutual funds are indeed the best tool for wealth creation. Whatever other instruments can do, mutual funds can do too and more efficiently.

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Mutual Fund Industry


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Alone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now pass with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before.

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Final Thesis Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are
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improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 199899. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investors savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99.

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Final Thesis India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank
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deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Think-tank, the Financial Express September 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets, which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.

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History & Background

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Four Phases of Mutual Fund in India The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase - 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management. Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase - since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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Growth in assets under management

MUTUAL FUND A GLOBALLY PROVEN INVESTMENT


Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, has long and successful history. The popularity of the Mutual Fund has increased manifold. In developed financial markets, like the United States, Mutual Funds have almost overtaken bank deposits and total assets of insurance funds. 1. As at the end of December 1999, in the US alone there were 7,791 Mutual Funds with total assets of over US $ 6.8 Trillion (296 Lac Crores). 2. Out of the top 10 mutual funds worldwide, eight are bank sponsored. Only Fidelity and Capital are non-bank mutual funds in the group 3. In US about 9.7 million households are managing their assets on-line, such a facility is not yet available in India. 4. On-line trading is a great idea to reduce management expenses from the current 2% of total assets to about 0.75% of the total assets.

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Internationally, on-line investing continues its meteoric rise. Many have debated about the success of e-commerce and its breakthroughs, but it is true that this aspect of technology could and will change the way financial sectors function. However, mutual funds cannot be left far behind. In fact advanced countries like US, mutual funds buy-sell transactions have already begun on the net, while in India the net is used as a source of information. Such changes could facilitate easy access, lower intermediation costs and better services for all. A research agency that specializes in Internet technology estimates that over the next four to five years mutual fund assets trading will grow by ten folds, where equity trading will increase during the period by seven to eight folds. This will increase the share of mutual funds from 34% to 40% during the period.

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DIFFERENT TYPE OF MUTUAL FUND


Type of fund Sector fund Characteristics Recommendati on time frame investment 5 year

Concentration on specific sectors and are designed to give diversification in that sector Diversified Gives superior returns but Growth highly volatile in the short Fund term. Best suited for wealth accumulation and long term goal Balance fund Gives an optimal mix of capital appreciation and stability of capital Income fund Gives modest returns but are more stable in value. Best suited for current regular income Money market Provides total principal fund safety and more attractive yields compared to bank deposits. Best suited for instant access to money
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3-5 year

2-3 year 1-3 year

Less than month

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MUTUAL FUNDS FOR WHOM AND WHY?


For whom

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Mutual Funds target the small investors. Most schemes keep their minimum investment at Rs. 1000-5000. For an affordable amount such as this, investors get lots more through a mutual fund than what would ever manage on own. e.g. on 22 April 2004, for instance, one share of Infosys alone cost Rs. 5400, one share of Wipro Rs. 1600. If an investor wanted to invest Rs. 5400 he would get only one stock of Infosys while investing the same amount in mutual fund he would get more numbers of diversified stocks. These funds can survive and thrive only if they can live up to the hopes and trusts of their individual members. These hopes and trusts echo the peculiarities, which support the emergence and growth of such in rescue of such investors who come to the rescue of such investors who face following constraints while making direct investments: 1. 2. 3. 4. 5. 6. 7. Limited resources in the hands of investors quite often take them away from stock market transactions. Lack of funds forbids investors to have a balanced and diversified portfolio. Lack of professional knowledge associated with investment business unable investors to operate gainfully in the market. Small investors can hardly afford to have expensive investment consultations. To buy shares, investors have to engage share brokers who are the members of stock exchange and have to pay their brokerage. They hardly have access to price sensitive information in time. It is difficult for them to know the development taking place in share market and corporate sector. Firm allotments are not possible for small investors on when there is a trend of over subscription to public issues.

WHY?

Mutual Funds are becoming a very popular form of investment characterized by many advantages that they share with other forms of investment characterized by many advantages that they share with other forms of investments and what they possess uniquely themselves. The primary objectives of an investment proposal
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would fit into one or combination of the two broad categories, i.e., Income and Capital gains. How mutual fund is expected to be over and above an individual in achieving the two said objectives is what attracts investors to opt for mutual funds. Mutual fund route offers several important advantages.

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1. Diversification A proven principle of sound investment is that of diversification which is the idea of not putting all your eggs in one basket. By investing in many companies the mutual funds can protect themselves from unexpected drop in values of some shares. The small investors can achieve wide diversification on his own because of many reasons mainly funds at his disposal. Mutual funds on the other hand, pool funds of lakhs of investors and thus can participate in a large basket of shares of many different Companies. Majority of people consider diversification as the major strength of mutual funds.
2. Professional Management:

Making investments is not a full time assignment of investors. So they hardly have a professional attitude towards their investment. When investors buy mutual fund scheme, an essential benefit one acquires is expert management of the money he puts in the fund. The professional fund managers who supervise funds portfolio take desirable decisions viz., what scripts are to be bought, what investments are to be sold and more appropriate decision as to timings of such buy and sell. 3. Liquidity of Investment:

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A distinct advantage of a mutual fund over other investments is that there is always a market for its unit/ shares. Moreover, Securities and Exchange Board of India (SEBI)requires the mutual funds in India have to ensure liquidity. Mutual funds units can either be sold in the share market as SEBI has made it obligatory for closed-ended schemes to list themselves on stock exchanges. For open-ended schemes investors can always approach the fund for repurchase at net asset value (NAV) of the scheme. Such repurchase price and NAV is advertised in newspaper for the convenience of investor. 4. Convenient Administration: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save time and make investing easy and convenient. 5. Transparency: Regular information on the value of investment in addition to disclosure on the specific investments made by investors, the proportion invested in each class of assets and the fund managers investment strategy and outlook is provided on regular basis by different fund houses. 6. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, investors can systematically invest or withdraw funds according to investors needs and conveniences. 7. Reduced risks: Risk in investment is as to recovery of the principal amount and as to return on it. Mutual fund investments on both fronts provide a comfortable situation for investors. The expert supervision, diversification and liquidity of units ensured in mutual funds minimize the risks. Investors are no longer expected to come to grief by falling prey to misleading and motivating headline leads and tips, if they invest in mutual funds.

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8. Safety of Investment: Besides depending on the expert supervision of fund managers, the legislation in a country (like SEBI in India) also provides for the safety of investments. Mutual funds have to broadly follow the laid down provisions for their regulations, SEBI acts as a watchdog and attempts whole-heartedly to safeguard investors interests. 9. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is also available. As per the union budget-99, income earned through dividends from mutual funds is 100% tax free to investors. 10. Well Regulated: All Mutual Funds are registered with SEBI and they function within the provisions of strict relations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. 11. Minimize Operating Costs: Mutual funds having large investible funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. The reduced operating cost obviously increases the income available for investors. Investing in securities through mutual funds has many advantages like option to reinvest dividends, strong possibility of capital appreciation, regular returns, etc. DRAWBACKS OF INVESTING IN MUTUAL FUNDS Potential loss Unlike a bank deposit, the investment in a mutual fund could fall in value, as the fund is nothing but a portfolio of different securities. Apart from a few assured returns schemes, the fund does not guarantee any minimum percentage of return. The Diversification Penalty

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While diversification reduces the risk of loss from holding a single security, it also limits the larger gains if a single security increases dramatically in value. Also, diversification does not protect the unit holders totally from an overall decline in the market. No tailor made portfolio Mutual fund portfolios are created and marked by AMCs, in to which investors invest. They cannot made tailor made portfolio

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CLASSIFICATION OF MUTUAL FUND SCHEMES Any mutual fund has an objective of earning income for investors and/ or getting increased value of their investments. To achieve these objectives mutual funds adopt different strategies and accordingly offer different schemes of investments. On this basis the simplest way to categories schemes would be to group these into two broad, Operational classification: Highlights the two main types of schemes, i.e., open-ended and close-ended which are offered by the mutual funds. Portfolio classification: Projects the combination of investment instruments and Investment avenues available to mutual funds to manage their funds. Any portfolio scheme can be either open ended or close ended. A. OPERATIONAL CLASSIFICATION (a) Open Ended Schemes: As the name implies the size of the scheme (Fund) is open i.e., not specified or predetermined. Entry to the fund is always open to the investor who can subscribe at any time. Such fund stands ready to buy or sell its securities at any time. It implies that the capitalization of the fund is constantly changing as investors sell or buy their shares. Further, the shares or units are normally not
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traded on the stock exchange but are comparatively Better liquidity despite the fact that these are not listed. The reason is that investor can Any time approach mutual fund for sale of such units. No intermediaries are required Moreover, the realizable amount is certain since repurchase is at a price based on declared net asset value (NAV). No minute to minute fluctuations in rates haunt the Investors. The portfolio mix of such schemes has to be investments, which are actively traded in the market. Otherwise, it will not be possible to calculate NAV. This is the reason that generally open-ended schemes are equity based. Moreover, desiring frequently traded securities, open-ended schemes hardly have in their portfolio shares of comparatively new and smaller companies since these are not generally traded. In such funds, option to reinvest its dividend is also available. Since there is always a possibility of withdrawals, the management of such funds becomes more tedious as managers have to work from crisis to crisis. Crisis may be on two fronts, one is, that unexpected withdrawals require funds to maintain a high level of cash available every time implying thereby idle cash. Fund managers have to face questions like what to sell. He could very well have to sell his most liquid assets. Second, by virtue of this situation such funds may fail to grab favorable opportunities. Further, to match quick cash payments, funds cannot have matching realization from their portfolio due to intricacies of the stock market. Thus, success of the open-ended schemes to a great extent depends on the efficiency of the capital (b) Close Ended Schemes: Such schemes have a definite period after which their shares/ units are redeemed. Unlike open-ended funds, these funds have fixed capitalisation, i.e., their corpus normally does not change throughout its life period. Close ended fund units trade among the investors in the secondary market since these are to be quoted on the stock exchanges. Their price is determined on the
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Final Thesis
basis of demand and supply in the market. Their liquidity depends on the efficiency and understanding of the engaged broker. Their price is free to deviate from NAV, i.e., there is every possibility that the market price may be above or below its NAV. If one takes into account the issue expenses, conceptually close ended fund units cannot be traded at a premium or over NAV because the price of a package of investments, i.e., cannot exceed the sum of the prices of the investments constituting the package. Whatever premium exists that may exist only on account of speculative activities. In India as per SEBI (MF) Regulations every mutual fund is free to launch any or both types of schemes. B. PORTFOLIO CLASSIFICATION OF FUNDS: Following are the portfolio classification of funds, which may be offered. This classification may be on the basis of (a) Return, (b) Investment Pattern, (c) Specialized sector of investment, (d) Leverage and (e) Others.

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(a) Return Based Classification: To meet the diversified needs of the investors, the mutual fund schemes are made to enjoy a good return. Returns expected are in form of regular dividends or capital appreciation or a combination of these two. # Income Funds: For investors who are more curious for returns, Income funds are floated. Their objective is to maximize current income. Such funds distribute periodically the income earned by them. These funds can further be splitters up into categories those that stress constant income at relatively low risk and those that attempt to achieve maximum income possible, even with the use of leverage. Obviously, the higher the expected returns, the higher the potential risk of the investment. # Growth Funds: Such funds aim to achieve increase in the value of the underlying investments through capital appreciation. Such funds invest in growth oriented securities which can appreciate through the expansion production facilities in long run?.An investor who selects such funds should be able to assume a higher than normal degree of risk. # Conservative Funds: The fund with a philosophy of all things to all issue offer document announcing objectives as: (i) To provide a reasonable rate of return, (ii) To protect the value of investment and, (iii) To achieve capital appreciation consistent with the fulfillment of the first two objectives. Such funds which offer a blend of immediate average return and reasonable capital appreciation are known as Conservative fund.

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A Big Mutual Fund Industry Today


Funds Balance Fund Growth Fund Income Fund Liquidity money markets Share in the market 11% 12% 63% 10%

TOTAL ASSETS : Rs. 1.2 Lakh Crore across 401 Schemes

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(b) Investment Based Classification: Mutual funds may also be classified on the basis of securities in which they invest. Basically, it is renaming the subcategories of return based classification. # Equity Fund: Such funds as the name implies, invest most of their investible shares in equity shares of companies and undertake the risk associated with the investment in equity shares. Such funds are clearly expected to outdo other funds in rising market, because these have almost all their capital in equity. Equity funds again can be of different categories varying from those that invest exclusively in high quality blue chip companies to those that invest solely in the new, un established companies. The strength of these funds is the expected capital appreciation. Naturally, they have a higher degree of risk. # Debt Funds: Such funds have their portfolio consisted of bonds, debentures, etc. this type of fund is expected to be very secure with a steady income and little or no chance of capital appreciation. Obviously risk is low in such funds. In this category we may come across the funds called Liquid Funds which specialize in investing short term money market instruments. The emphasis is on liquidity and is associated with lower risks and low returns. # Balanced Fund: The funds, which have in their portfolio a reasonable mix of equity and debt, are known as balanced funds. Such funds will put more emphasis on equity share investments when the outlook is bright and will tend to switch to debentures when the future is expected to be poor for shares. (c) Sector Based Funds: There are number of funds that invest in a specified sector of economy. While such
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funds do have the disadvantage of low diversification by putting all their all eggs in one basket, the policy of specializing has the advantage of developing in the fund managers an intensive knowledge of the specific sector in which they are investing. Sector based funds are aggressive growth funds which make

investments on the basis of assessed bright future for a particular sector. These funds are characterized by high viability, hence more risky.

OTHER INVESTMENT PLANS AND SERVICES IN MUTUAL FUNDS 1) SYSTEMATIC INVESTMENT PLAN Systematic Investment Plan (SIP) is a simple, time-honored strategy designed to help investors to accumulate wealth in a discipline manner over the long-term and to plan a better future for them. SIP is more suitable for a salaried employee with investible savings every month and who wishes to generate better returns than other instruments at a low risk of price volatility. # How do SIPs work? Instead of a lumpsum amount, you invest a prespecified amounting a scheme at pre-specified intervals. The number of units that accrue to you on each periodic investment is a function of the then prevailing net asset value (NAV) of the scheme you have opted for. Thus irrespective of market conditions, your cost of investment will be mostly lower than the average cost of market prices. This disciplined approach for investing will provide the investors with the following benefits: 1) Reduces average cost 2) Can be done regularly even for savings of Rs 1000 3) Encourages disciplined investing, 4) Eliminates the need to decide when to invest 5) Avoids the temptation to time the market.

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How Do Sips Better Market Average?


Month 1 2 3 4 Total Average Cost per Units Amount invetsted 1000 1000 1000 1000 4000 Rising market Nav Unit allotted 10 100 12 83.33 14 71.43 16 62.5 52 317.26 12.61 (Average Cost 13) Falling market Nav Unit allotted 10 100 8 125 6 166.67 4 250 28 641.67 6.23 (Average Cost 7) Volatile market Nav Unit allotted 10 12 8 10 40 100 83.33 125 100 408.33 9.8 (Average Cost 10)

As one can see, the average cost per unit under an SIP programme results in an average cost which is lower than most of the prices at which one bought units.
2. Convenience Save yourself the trouble of doing the same thing Investor does not have to take time out from his busy schedule for managing his investments. Enroll for the SIP by starting an account and providing the fund with post-dated cheques of periodic investment (monthly, quarterly) based on his convenience. Investor can relax once he has enrolled the form along with postdated cheques. Fund then bank his cheques on the requested date and credit the units to his account. Besides the fund will send quarterly reports giving complete transparency about his investments. 3. A boon for small investors (Low income group)

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SIP has proved to be a boon for small investors, who has got a small saving every month, but cannot find a suitable scheme to invest. Mutual funds SIP plan provides a higher return than other small saving scheme.

MUTUAL FUND CONSTITUENTS All mutual funds comprise four constituents Sponsors, Trustees, Asset Management Company (AMC) and Custodians.

a) Sponsors: The sponsors initiate the idea to set up a mutual fund. It could be a registered company, scheduled bank or financial institution. A sponsor has to satisfy certain conditions, such as capital, record (at least five years operation in financial services), de-fault free dealings and general reputation of fairness. The sponsors appoint the Trustee, AMC and Custodian. Once the AMC is formed, the sponsor is just a stakeholder. b) Trust/ Board of Trustees: Trustees are like internal regulators in a mutual fund, and their job is to protect the
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interest of unit holders. Sponsors appoint trustees. Trustees float and market schemes, and secure necessary approvals. They check if the AMCs investments are within well defined limits, whether the funds assets are protected, and also ensure that unit holders get their due returns. They also review any due diligence by the AMC. For major decisions concerning the fund, they have to take the unit holders consent.

c) Fund Managers/ AMC: An AMC-Asset Management Company is the legal entity formed by the sponsor to run a mutual fund. They are the ones who manage money of the investors. There is the head of the fund house, generally referred to as the chief executive officer (CEO). Under him comes the chief investment officer (CIO), who shapes the fund investment philosophy, and the fund managers, who manage its schemes. They are assisted by a team of analysts, who track markets, sectors and companies. An AMC takes decisions, compensates investors through dividends, maintains proper accounting and information for pricing of units, calculates the NAV, and provides information on listed schemes. It also exercises due diligence on investments, and submits quarterly reports to the trustees. A funds AMC can neither act for any other fund nor undertake any business other than asset management. Its net worth should not fall below Rs. 10 Crore. And, its fee should not exceed 1.25 percent if collections are below Rs. 100 Crore and 1 percent if collections are above Rs. 100 Crore. SEBI can pull up an AMC if it deviates from its prescribed role. d) Custodian: Often an independent organization, it takes custody of securities and other assets of Mutual fund. Its responsibilities include receipt and delivery of securities, collecting income-distributing dividends, safekeeping of the units and segregating assets and settlements between schemes. Their charges range between 0.15-0.2 percent of the net value of the holding. Custodians can service more than one fund.
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PROCESS OF MUTUAL FUND

In the above graph shows how Mutual Fund works and how investor earns money by investing in the Mutual Fund. Investors put their saving as an investment in mutual fund. The fund manager, who is a person who takes the decisions where the money should be invested in securities according to the schemes objective. Securities include Equities, Debentures, Govt. securities, Bonds and Commercial Paper etc. These securities generate returns to the fund manager. The fund manager passes beck return to the investor.

OTHER INVESTMENT OPTIONS COMPARISION WITH MUTUAL FUND


Investment Avenues available to the Indian Investors are as follows: 1. Bank Deposits 2. Equity Instruments

AND

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3. Debentures 4. Fixed Deposits by Companies 5. Bonds 6. RBI Relief Bonds 7. Public Provident Fund 8. National Saving Certificates / National Saving Schemes 9. Monthly Income Schemes 10. Life Insurance 11. Mutual Funds

INVESTMENT AVENUES
100 90 80 70 60 50 40 30 20 10 0

95 79 67 58 75 50

RES PON DEN TS

19 6 1 8

Insurance Post Office Savings Gold/Silver Mutual Fund Others

Bank FD/Company FD Government Securities Stocks IPO

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Investment Avenues Prefered


Mutual fund Vs other investment:

Product Bank Deposit Equity Instrument Debentures Fixed Deposits by Companies Bonds Life Insurance Mutual Funds (Openended) Mutual Funds (Closeended)

Return Low High

Safety High Low

Liquidity Tax benefit High No No No No

Convenience High Moderate Low Moderate Moderate Moderate High

High or low Moderate Moderate Low Moderate Low Low

Moderate Moderate Moderate Yes Moderate High Low Yes Moderate Moderate High No

Moderate Moderate High

Yes

High

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RBI Relief Bonds PPF NNS

Moderate High Moderate High Moderate High

Low Low Low

Yes Yes Yes

Moderate Moderate Moderate

Some facts for the growth of mutual funds in India


100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. FUTURE SCENARIO

The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investors shift their assets from banks and
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other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by corporate who want to hedge their exposure to the commodities they deal with. For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of its corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short term and long-term U.S. treasuries etc. In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end.

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In developed countries like the U.S.A there are funds to satisfy everybodys requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds. The mutual fund industry is awaiting the introduction of DERIVATIVES in the country as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in Derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

Tata Mutual Fund


Backed by one of the most trusted and valued brands in India, Tata Mutual Fund has earned the trust of lakhs of investors with its consistent performance and world-class service. Tata Mutual Fund manages around Rs. 21,197.00 crores (average AUM for the month) as on August 31, 2008 worth of assets across its varied offerings. Tata Mutual Fund offers an investment option for everyone, whether you are a businessman or salaried professional, a retired person or housewife, an aggressive investor or a conservative capital builder. The Tata Asset Management philosophy is centered on seeking consistent, long-term results. Tata Asset Management aims at overall excellence, within the framework of transparent and rigorous risk controls. We constantly benchmark our efforts against these tenets of performance:

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Consistency: We strive to deliver consistent results through our valuebased investing methodology, keeping alive the credo of the late doyen of the Tata Group, Mr. J.R.D. Tata, that money received from the people should go back to them several times over. Flexibility: Tata Mutual Fund offers investors a broad range of managed investment products in various asset classes and risk parameters, with operational flexibility to suit their varied investment needs. Stability: Our commitment to the highest quality of service and integrity is the foundation upon which we build trust with our clients. Service: We offer a wide range of services to assist investors have a fulfilling and rewarding financial planning experience with us.

A Proud Pedigree Tata Asset Management Ltd is a part of the Tata group, one of India's largest and most respected industrial groups, renowned for its adherence to business ethics. The Group has always believed in returning wealth to the society that it serves. Thus, nearly two-thirds of the equity of Tata Sons, the Group's promoter company, is held by philanthropic trusts, which have created a host of national institutions in the natural sciences, medical care, energy and the arts. The trusts also give substantial annual grants and endowments to deserving individuals and institutions in the areas of education, healthcare and social uplift. By combining ethical values with business acumen, globalization with national interests and core businesses with emerging ones, the Tata Group aims to be the largest and most respected global brand from India. This
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way, it fulfills its long-standing commitment to improving the quality of life of its stakeholders. Leadership with Trust Our purpose at the Tata Group is to improve the quality of life of the communities we serve. We do this by attaining leadership positions in sectors of national economic significance, to which the Group brings a unique set of capabilities. This requires us to grow aggressively in focused areas of business. Our heritage of returning to society what we earn evokes trust among consumers, employees, shareholders and the community. It is an ongoing process, continuously enriched by the formalization of the high standards of behavior that we expect from employees and companies. Overview At Tata Asset Management Company, we believe that your investment needs depend on personal and financial goals. Identifying your financial goals is the key to achieving the big things in your life, be it your child's education or a carefree and comfortable retired life. After identifying and defining your financial goals, you now need to plan for each of them in an organized and a professional way. Investment experts around the world advise instruments like equity funds and stocks for long-term (more than 5 years), income funds for medium-term and liquid funds for short-term needs. The investment matrix here depicts the entire available variety of investment options. Those at the top provide for a greater opportunity for long-term capital growth while those at the bottom take care of current income and reasonable return & liquidity. Tata Mutual Fund offers a wide range of funds for different investment instruments designed to cater to your individual profile and life-stage.

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Product of Tata Mutual Fund:


Tata Dynamic Bond Fund Tata Fixed Income Portfolio Fund Tata Income Plus Fund Tata Short Term Bond Fund Tata Treasury Manager Fund Tata Monthly Income Fund Tata M I P Plus Fund Tata bonus fund

Promotion of Mutual Fund:


Tata Mutual Fund Company promotes his mutual fund through TV advertising. Outdoor media and agents.

HDFC Mutual Fund

HDFC Asset Management Company Limited (AMC)

Vision To be a dominant player in the Indian mutual fund space recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests. Sponsors Housing Development Financial Corporation Limited (HDFC) HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals,
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corporate and developers for the purchase or construction of residential housing. It also provide property related services (e.g. property identification, sales services and valuation), training and consultancy. Of course activities, housing finance remains the dominant activity. HDFC currently has a client base of over 800000 borrowers, 1200000 depositors, 92000 shareholders and 50000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the 9 th year in succession. HDFC Standard Life Insurance Company Limited. Promoted by HDFC was the 1st life insurance company in the private sector to be granted a Certificate of Registration(on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India.

Standard Life Investment Limited


The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investment Limited became the dedicated investment management company of The Standard Life Group and is owned 100% by the Standard Life Assurance Company. With the global assets under management of approximately US$186.45 billion as at March 31, 2005, Standard Life Investment Limited is one of the worlds major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide. With its headquarters in Edinburgh, Standard Life Investment Limited has an extensive and developing global presence with operations in the United Kingdom, Ireland, Canada, USA, China, Korea and Hong Kong. In order to meet the different needs and risk profiles of its clients, Standard Life Investment Limited manages a diverse portfolio covering all the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments.

HDFC Trustee Company Ltd.


A company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to
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time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited.

HDFC asset Management Company (AMC)


HDFC AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the Mutual Fund by SEBI on July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Back bay Reclamation, Church gate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 75.161 crore. Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals.

On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now migrated to HDFC Mutual Fund on June 19, 2003.AMC is managing 18 open-ended schemes of the Mutual Fund HDFC Growth Fund (HGF) HDFC Balanced Fund (HBF) HDFC Income Fund (HIF) HDFC Liquid Fund (HLF) HDFC Tax Plan 2000 (HTP) HDFC Children's Gift Fund (HDFC CGF) HDFC Gilt Fund (HGILT) HDFC Short Term Plan (HSTP) HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF) HDFC Equity Fund (HEF) HDFC Top 200 Fund,(HT200) HDFC Capital Builder Fund (HCBF)
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HDFC TaxSaver (HTS) HDFC Prudence Fund (HPF) HDFC High Interest Fund (HHIF) HDFC Sovereign Gilt Fund (HSGF) HDFC Cash Management Fund (HCMF) The AMC is also managing the respective Plans of HDFC Fixed Investment Plan, a closed ended Income Scheme. The AMC has obtained registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2001 to December 31, 2003. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund.

Promotion of Mutual Fund:


Tata Mutual Fund Company promotes his mutual fund through TV advertising. Outdoor media and agents.

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Empirical Analysis
Investment instrument

People invest their money in different investment instrument for different purpose; above I have draw graphs of people invest their money in different instrument. In above graphs I have done survey of 100 people, out of 100 people 27% of people invest in bank Deposits, 24% of people invest in Direct equity, 14% of people invest in mutual fund and 9% of people invest in Postal Scheme. So from above data we can say that most of people prefer investment in Bank Deposits then other instrument.

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INVESTMENT ATTRIBUTE

Attibute of investment
40 35 35 30 25 20 15 10 5 0

Responde nts

20

20

22 3

People invest his money in different way, they are invest in safe instrument, at moderate risk, in risky instrument and in other, from above graph we can say that 35% of people invest in safe instrument,20% invest at moderate risk, 20% invest in those instrument which give high return and 22% people invest in risky instrument. So from above data we can say that the most of people prefer to invest in safe instrument is 35%.

ru M m od en er t at e Ri H sk ig h R is re ky tu rn In st ru O m th en er t pu rp os e

Sa f

in st

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INCOME LEVEL OF PEOPLE

In my survey 30% of peoples annual income is between 1.5-2.5 lakh, 20% in between 2.5-3.5lakh, 20% in between 3.5-5 lakh and 15% above 5lakh

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Attribute that people look before investment

In present situation people are more knowledgeable than before, people know everything about investment instrument available in the market. They also know which are more profitable and which are not profitable for him. People invest money for different purpose like some people invest money which instrument has high liquidity, The main purpose of investing in liquidity instrument is to get money back whenever require. Some invest in those instruments which has high safety of money like FD and Postal Scheme. Some people invest in those instruments which give high return like Shares and mutual Fund From above pie chart we can say that the 40% of people invest in safety instrument and 30% of people invest in those instruments which have high liquidity and 25% invest which give high return.

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90 80 70 60 50 40 30 20 10 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr East West N orth

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PERFORMANCE OF PORTFOLIO

Many investors manage his portfolio through professional. Some investor satisfied with the existing portfolio or some may be not. From survey we can say that only 15% investor satisfied with existing portfolio, 40% are only satisfied and 45% investor are dissatisfied with existing portfolio.

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PROFESSIONAL SERVICE FOR MANAGING PORTFOLIO

In survey I find that the 68% of people want some professional service from expert for managing their portfolio, these type of people have large portfolio of investment in different instrument. 35% of people does not want any portfolio management service from expert

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FREQUENCY

Today rich people have no time to see where their money was invested and it is difficult to manage all this thing so they hire expert to manage his portfolio or outsource it to agency. From above graphs we can say that 25% of people want his statement monthly, 20% people want daily statement and 18% of people quarterly.

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PEOPLE PREFERENCE

Today people are more aware about market and performance of investment instrument in market, they prefer that instrument which is more profitable. Second image of investment instrument in the mind of people,Third because word of mouth publicity. Fourth loyalty People prefer different company mutual fund because of above reasons like Ex, in case of two wheeler we prefer Hero Honda. In Mutual fund 30% of people prefer Reliance Mutual Fund, 23% of people prefer SBI Mutual Fund, 20% of people prefer TATA Mutual Fund and 15% prefer HDFC mutual Fund.

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Finding And Suggestion


The findings from the study are as under: The people are basically of conservative nature and hence are very precautious about their hard earned money. Hence they would like to play it safe when it comes to spending of their money. Security and returns are the two main reasons that are taken into consideration before making an investment. Bank fixed deposits and post office savings seem to be most preferred one among the investors because it is considered to be the most secured one. Shares and mutual funds were considered to be very risky and hence that seemed to be the last choice of the general mass Amongst mutual fund and shares people preferred shares because the possessed complete knowledge about the shares but had very little knowledge about the mutual fund industry. The people who do not invest in mutual fund basically fear that they are less secured as compared with other investments. The others were aware about the concept of mutual fund but were not full aware of its intricacy hence were not interested in investing in it. Most of the investors who invest in Mutual Fund substitute the same against the Bank Deposits, insurance and other saving schemes. The
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investors are not willing to invest in mutual fund industry unless they are guaranteed about minimum returns. Most of investor invests in safe instrument which has high security of capital. The increase in Mutual fund and various schemes have increased competition. Hence it has been remarked by many investors they prefer Reliance mutual fund than other because it give higher return than other Many investor want professional service to manage his portfolio. Many Investors prefer his statement monthly.

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SUGGESTION
The Indian Investment Industrys development and success would depend on various issues such as: Educate the people: There are lots of alternatives available in the present time. But because of lack of knowledge people are not ready to try them. Even because of the fear to try new ones the investment industry has limited itself. The same can be done through arranging events that promote such innovations. Preconceptions rule: The preconceptions that a person carries tries rule his investment decisions. The past record of shares and mutual fund restrict the people in investing in the same. Though the rules and regulations have changed a lot but there are still people who are not ready to accept such facts. Let them know where there amount in reinvested: The investors should know that the amount that is invested in the company how the funds are used and for what purpose .They have the right to know where are their funds reinvested i.e. the companies should be transparent. Do not cut others line for showing yourself bigger: The promoters to promote their funds degrading the other modes of investment and hence this limits their investment scopes itself because this act degrades the company in the eyes of the customers

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Lead through Innovation: Although there is enough room in the market, unfortunately in Indian market, all mutual funds have been chasing the same set of investors with the same set of products and inducements. Product differentiation is the first step towards escaping competition and attracting more investors. Rebuild investors confidence: For a long term growth of the industry, it is a must to win the confidence of the investors and there is no way to do this other than bringing in more transparency in the operations, proper communications between the market players and their customers. Manage risks through derivatives: India has a wide range of derivatives products in the market. Mutual Fund should also come forward with more of such products. In the Business World dated 24th November 2003 there was news that Benchmark fund is coming out with an Equity Arbitrage Fund called Dynamic Arbitrage Fund. Otherwise SEBI has not allowed any AMC to float a hedge fund in India. Educate investors about the principles: There is no doubt that investors education is one area, which has to be concentrated upon in the mutual fund industry. The Mutual funds must come forward to make funds understandable to them. The must be made aware about various asset allocation principles.

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Conclusion
The Ground rules of Investing

Moses gave to his followers 10 commandments that were to be followed till eternity. The world of investments too has several ground rules meant for investors who are novices in their own right and wish to enter the myriad world of investments. These come in handy for there is every possibility of losing what one has if due care is not taken. 1. Assess yourself: Self-assessment of ones needs; expectations and risk profile is of prime importance failing which; one will make more mistakes in putting money in right places than otherwise. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. irritational expectation will only bring pain 2. Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment. One can lose substantially if one picks th e wrong kind of fund. In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that company provide their own fund. 3. Don't rush in picking funds, think first: One first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. One should take a
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look at the portfolio of the funds for the purpose. Excessive exposure to any specific sector should be avoided, as it will only add to the risk of the entire portfolio. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future 4. Invest. Dont speculate: A common investor is limited in the degree of risk that he is willing to take. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reason to exit 5. Dont put all the eggs in one basket: This old age adage is of utmost importance. No matter what the risk profile of a person is, it is always advisable to diversify the risks associated. So putting ones money in different asset classes is generally the best option as it averages the risks in each category. Thus, even investors of equity should be judicious and invest some portion of the investment in debt. Diversification even in any particular asset class (such as equity, debt) is good. Not all fund managers have the same acumen of fund management and with identification of the best man being a tough task; it is good to place money in the hands of several fund managers. This might reduce the maximum return possible, but will also reduce the risk.
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6. Be regular: Investing should be a habit and not an exercise undertaken at ones wishes, if one has to really benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit the market, it is important to beat the market by being systematic. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market, he would stand a better chance of generating more returns than the market for the entire duration. 7. Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. This is important because an informed investor is in a better decision to make right decisions. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. Asking the intermediaries is one of the ways to take care of the problem. 8. Find the right funds: Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes from the pocket of the investor. This is even more important for debt funds as the returns from these funds are not much. Funds that charge more will reduce the yield to the investor. Finding the right funds is important and one should also use these funds for tax efficiency. Investors of equity should keep in mind that all dividends are currently tax-free in India and so their tax liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged a tax on dividend distribution and so can easily avoid the payout options.

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9. Keep track of your investments: Finding the right fund is important but even more important is to keep track of the way they are performing in the market. If the market is beginning to enter a bearish phase, then investors of equity too will benefit by switching to debt funds as the losses can be minimized. One can always switch back to equity if the equity market starts to show some buoyancy.

10 Know when to sell your mutual funds: Knowing when to exit a fund too is of utmost importance. One should book profits immediately when enough has been earned i.e. the initial expectation from the fund has been met with. Other factors like non-performance, hike in fee charged and change in any basic attribute of the fund etc. are some of the reasons for to exit. Investments in any funds are not risk-free and so investments warrant some caution and careful attention of the investor. Investing funds can be a dicey business for people who do not remember to follow these rules diligently, as people are likely to commit mistakes by being ignorant or adventurous enough to take risks more than what they can absorb. This is the reason why people would do well to remember these rules before they set out to invest their hard-earned money.

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NAV CALCULATION Market value of Equities Market value of Debentures Dividends Accrued Interest Accrued Ongoing Fee payable - Rs.100 crore - Asset - Rs.50 crore - Asset - Rs.1 crore -Income

- Rs.2 crore - Income - Rs.0.5 crore - Liability

Amt.payable on shares purchased -Rs.4.5 crore - Liability No. of units held in the Fund : 10 crore units NAV per unit = [(100+50+1+2)-(0.5+4.5)]/10 = [153-5]/10 = Rs. 14.80

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Appendix
QUESTIONNAIR 1. Personal detail: Name: Mobile no: 2. Please tick the investment avenues you generally deal in to? a. Bank Deposits b. Direct Equities c. R.B.I. Bonds d. Postal Schemes e. N.S.C. / K.V.P. / P.P.F. f. Infrastructure and other bonds g. Equity Mutual Funds h. Debt Mutual Funds i. Gold/Jewelry j. Real Estate k. Others (Please specify) -------------------------------------------------------------------------------------------------------------------------------------------------------------3. Please tick the range in to which your annual income falls? a. 1-1.5 Lacks (d) 3.5-5 Lacks b. 1.5-2.5 Lacks c. 2.5-3.5 Lacks 4. If you just received a sum of money, how would you invest it? a. In safe instrument b. You invest in moderate amount of risk. c. You invest in that offered high total return d. You invest in high risky instrument e. Other instrument with other purpose 5. If you have a bank term deposit that is about to mature, the most likely place you would invest the money is: (a) Insurance (b) Bank Deposits (c) Mutual Fund (d) direct equity (e) other
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age:

6. Please tick the following attributes you would consider while making investments? a. Rate of return b. Safety of capital c. Liquidity d. other 7. Please rate the performance of your existing portfolio? a. Highly satisfied b. Satisfied c. Dissatisfied 8. How much weight age you place before investing? a. High fluctuation b. Marginal fluctuation c. Low fluctuation 9. Would you seek any professional advisory services to manage your portfolio? a. Yes b. No 10.If yes, how often would you wish to do your portfolio review with your relationship manager? a. Daily b. Regularly in one month c. Quarterly basis d. Once a year 11.Which companys mutual fund you prefer? a. Tata d. ICICI b. e. Reliance SBI c. HDFC

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References

www.amfi.com www.tatamutualfund.com www.hdfc mutualfund.com www.todaysbusiness.com www.amfi.com www.mutualfundsindia.com www.businesslink.com www.karvy.com www.pruicici.com www.sbi.com Prudential ICICI fact sheet HDFC fact sheet monthly fact sheet: Franklin Templeton

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