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Project submitted for the partial fulfillment of



Greater Noida



SUBMITTED BY:Premchandra Jha

Roll No.- 1409070007
MBA 2nd yr


The project is the synergy of the efforts of a number of people. I would like to thank all
for providing the support and the guidance during the course of the project.
I thank IEC college of Engineering & Technology giving me the opportunity to
undergo summer training with MAHINDRA FINANCEE.
I would like to extend my special thanks to Dr. Ajay Kumar company guide for
providing me the direction during the course of my project.
Lastly I would like to thank MAHINDRA FINANCE for giving me the opportunity to
be a part of the organization.

Premchandra Jha
Roll No: 1409070007


I Premchandra Jha student of IEC college of engineering &technology Batch

(2014-16) declare that every part of the Project Report Working Capital Management
that I have submitted is original.
I was in regular contact with the nominated guide and contacted 15 times for
discussing the project.

Date of Project submission:

Signature of the student

Signature of the Faculty guide



1.1 Company Profile
1.2 Project Brief/Objective
1.3 Value Addition
1.4 Limitations
1.5 Steps Taken to overcome the limitations

Mutual Funds
mutual Fund industry


Journey So Far


Types of Mutual Fund5


Basic Terms Used in Mutual Fund


various plans offered by mutual fund

Systematic Investment Plan


advantages of mutual fund


how we stand today

2.10 Risks Involved with Mutual Funds


CHAPTER 3:Litrature Review

3.1 Research Design

3.2 Source of Data

3.3 Period of Study
3.4 Sampling
3.5 Tools for Data Analysis




When I embarked this project, it appeared to me an onerous work. Slowly as I progressed, I

did realize that I was not alone after all!! There were friends and well wishers, who with their
magnanimous and generous help and support made it a relative easier affair.
I wish to express my gratitude to all that concerned persons who have extended their kind
help, guidance and suggestions without which it could not have been possible for me to complete this
project report.
I am deeply indebted to my guide Mr. Alok Sahu (Finance Manager) for not only his
valuable and enlightened guidance but also for the freedom he rendered to me during this project
work. I would also like to thanks Miss Chhabi Gupta for helping me to carry my project smoothly.
My heart goes out to my parents who bear with all types of troubles I caused them
with smile during the entire study period and beyond.
Premchandra Jha


During my training period under the guidance of my Mahindra Finance guide

I have

tried to understand the working environment of the company along with working of an AMC and
look into its operations. Through working at the branch office for the past six weeks, I have been
able to observe certain factors like customer footfall in the branch, their relation with branch
members, and kind of support given to them which have an impact on customer perception and my
understanding regarding the same.
Further more working on my project simultaneously, Project aims at Market study of
behavioral approach of consumer toward mutual fund industry. Market study involves the complete
study products like Mutual Fund, SIP, Ulips and Gold schemes etc. This will be done through
training given to me by Mahindra Finance, reference material provided by company, magazines,
books, newspapers and web sites. I reached to the various customers with the help of a
questionnaire and even some contacts are provided through companys database. There responses
are analyzed with the help of Microsoft Excel and Chi Square test is also performed and the results
are matched with Null Hypothesis
Working as the marketer I am dealing with Mutual Fund of various AMCs like HSBC,





TEMPLETON, FIDELITY, ICICI, HDFC, BIRLA SUN LIFE etc. Complete understanding of
their funds dealt during training. In studying the
Consumer behavior my prime focus will be on Mutual Fund and sale of mutual fund.
The result of Chi square test comes out to be in supportive of Null Hypothesis that is Hypothesis H0 there is significant difference in the perception of the Customers about the KOTAK
schemes and the way it is projected by the Company Itself.
Further more the recommendations from investors point of view and for the company are
suggested and these are well accepted by company guide.


1.1 Company Profile

Mahindra & Mahindra Limited
A. Brief History :
Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2.5 bn
Group, which has a significant presence in key sectors of the Indian economy. A consistently high
performer, M&M is one of the most respected companies in the country. Set up in 1945 to make
general-purpose utility vehicles for the Indian market, M&M soon branched out into manufacturing
agricultural tractors and light commercial vehicles (LCVs). The company later expanded its
operations from automobiles and tractors to secure a significant presence in many more important
sectors. The Company has, over the years, transformed itself into a Group that caters to the Indian and
overseas markets with a presence in vehicles, farm equipment, information technology, trade and
finance related services, and infrastructure development.
M&M has two main operating divisions:
The Automotive Division manufactures utility vehicles, light commercial vehicles and three
wheelers. The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are
used in conjunction with tractors, and has also ventured into manufacturing of industrial engines. The
Tractor Division has won the coveted Deming Application Prize 2003, making it the only tractor
Manufacturing company in the world to secure this prize.
The resurgence of the automotive industry and M&Ms success in exploiting it, has created an
Opportunity to strengthen the company through an entry into the Auto Components business, the
Growth of which is being fuelled by both, domestic and export demand.
M&M employs around 11,500 people and has six state-of-the-art manufacturing facilities
spread over 500,000 square meters. M&M has also set up two satellite plants for tractor assembly. It
has 49 sales offices that are supported by a network of over 780 dealers across the country. This
network is
Connected to the Company's sales departments by an extensive IT infrastructure.
M&M's outstanding manufacturing and engineering skills allow it to constantly innovate and
launch new products for the Indian market. The Company's significant recent product launch, the
"Scorpio, resulted in the Company winning the National Award for outstanding in-house research

Development from the Department of Science and Industry of the Government in 2003. The
has launched Indias first tractor with turbo technology the Mahindra Sarpanch 595 DI Super Turbo.
The Company's commitment to technology-driven innovation is reflected in Company's plans of
setting up of the Mahindra Research Valley, a facility that will house the Company's engineering
research and product development wings, under one roof.
The M&M philosophy of growth is centred on its belief in people. As a result, the company
has put in place initiatives that seek to reward and retain the best talent in the industry. M&M is also
for its progressive labour management practices. In the community development sphere, the company
has implemented several programs that have benefited the people and institutions in its areas of
B. Board of Directors
The Board of Directors comprises seventeen members and has a mix of executive and nonexecutive directors. A majority of the directors on the Board are non-executive directors. The
Company's Board of Directors as on 31st December, 2004 is as follows:
Mr. Keshub Mahindra Chairman
Mr. Anand G. Mahindra Vice-Chairman & Managing Director
Mr. R. K. Pitamber
Mr. Deepak S. Parekh
Mr. Nadir B. Godrej
Mr. M. M. Murugappan
Mr. David Friedman
Mr. V. K. Chanana Nominee of Unit Trust of India
Mr. R. N. Bhardwaj Nominee of Life Insurance Corporation of India
Mr. K.J. Davasia Executive Director
Mr. Bharat Doshi Executive Director
Mr. Alan E Durante Executive Director
Mahindra & Mahindra Financial Services Ltd.

The Company was incorporated on 1st January, 1991 as Maxi Motors Financial Services
Limited and received Certificate of Commencement of Business on 19th February, 1991. The name
has been
changed to Mahindra & Mahindra Financial Services Limited and Fresh Certificate of Incorporation
was received on 3rd November, 1992. The Registration Certificate from Reserve Bank of India (RBI)
was received on 4th September 1998 in terms of Section 45 A of the Reserve Bank of India Act 1934.
It must be distinctly understood, however, that the issuing of Certificate by RBI / Central
Government should not, in any way, be deemed or construed to be an approval by RBI / Central
Government, to this Umbrella Information Memorandum nor should it be deemed that RBI / Central
Government has not approved it nor do RBI / Central Government take any responsibility either for
The financial soundness of the Company or for the correctness of the statements made or opinions
expressed in this connection.
Mahindra & Mahindra Financial Services Limited, a subsidiary of Mahindra &
Mahindra Limited, was established in the year 1991 with a vision to become the number one semiurban and rural Finance Company. In a short span of 12 years, it has become one of the Indias
leading non-banking finance company providing finance for acquisition of utility vehicles, tractors
and cars. It has more than 350 branches covering the entire India and services over 6,00,000 customer
It is a part of US $3 bln Mahindra Group, which is among the top 10 industrial houses in India.
Mahindra & Mahindra is the only Indian company among the top five tractor manufacturers in the
world and is the market leader in multi-utility vehicles in India. The Group is celebrating its 60th
anniversary in 2005-06. It has a leading presence in key sectors of the Indian economy, including
trade and financial services (Mahindra Intertrade, Mahindra & Mahindra Financial Services
Ltd.), automotive components, information technology & telecom (Tech Mahindra, Bristlecone), and
infrastructure development (Mahindra GESCO, Mahindra Holidays & Resorts India Ltd.,
Mahindra World City). With around 60 years of manufacturing experience, the Mahindra Group has
built a strong base in technology, engineering, marketing and distribution. The Group employs around
30,000 people and has eight state-of-the-art manufacturing facilities in India spread over 500,000
square meters.


MMFSL is a focused automotive and equipment Hire Purchase and Leasing Company. It
finances dealers of M&M, their customers and small businesses by extending short term finance as
well as Lease and Hire Purchase Finance. With the onset of boom in the automotive business and
general growth in the economy as a sequel to liberalized government policies, MMFSL can play a
much bigger role in meeting the requirement of small businesses, small transport companies and
With effect from 7th April, 2004 Mahindra Insurance Brokers Ltd. (previously known as Mahindra
Allied Investments Ltd.) Has become subsidy of the company carrying on the business of direct
Insurance broking.
Mutual Fund Distribution
Recently it has received the necessary permission from Reserve Bank of India (RBI) to start
the distribution of Mutual Fund products through its network. Hitherto the company was only
participating in the liability requirements of its customers and with mutual fund distribution business;
it can also participate in their asset allocation.
When it comes to investing everyone has unique needs based on their own objective and risk profile.
Even though many investment avenues such as fixed deposit, bonds etc. exists, equities typically
outperform these investments, over a longer period of time. We are of the opinion that, systematic
investment in equity will allow you to create Wealth.
Hence only through proper allocation of your portfolio, you can get the maximum return with
moderate risk. Investing in equity is not as straight forward as investing in bonds or bank deposits. It
requires expertise and time. Our Investment Advisory services will help you to invest your money in
equity through different Mutual Fund Schemes. For instance there are some products of Mutual Fund,
which allows you to manage your cash flow by providing liquidity (liquid Funds) as well give you tax
free return.


1.2 Project Brief/objectives

The project involves the Market study of Perception and preference of consumer toward
Mutual Fund.
The main objectives of the study will involve the following:
1. To find out the changes in consumers perception regarding various available Investment
Options .
2. To understand the various Investment Option existing in the market
3. To know the awareness level of consumers towards various Investment Option.
4. To know the reason of buying mutual funds.
Investment decisions of the customers are affected by their perception regarding the product.
This project has been helpful in understanding how a customer perceives a product, how
different factors affect his behavior and purchase decisions.
Direct contact with customers (during training period) belonging to different age group,
income group, background etc has been useful in understanding customer/investor needs. The
study has also helped in identifying the factors that have a positive impact on investor, which
can influence him to buy the product and the factors that have a negative impact on him and
subsequently prevent him from buying the product
Apart from the Market Study this project will also deal with understanding the operating
environment of the Mahindra Finance as how they deal with the customers and in what way other
activities are carried out.


1.3 Value Addition

Insight into Customer Perception: The project will help Mahindra Finance in identifying the key
factors influencing investor decisions.

Mahindra Finance might introduce new product catering to a sub segment in the market, based
on competitor product success.

Additional Sales: In the whole learning process, there will be additional sale of Mahindra
Finance investment products, thus contributing to their top line as well as bottom line.

1.4 Limitations
There are few challenges associated with achieving the desired objectives of the project. These
challenges are due to some limitations. Some of the associated challenges and limitations are:
1. Lack of access to data due to constrains of data sharing. As per the company policy, it is not
allowed to share their data with non-authorized people. I will be collecting all the necessary
information on my own which might not be up to the level of information given by
Mahindra data.
2. Lack of co-operation from the employees: employees will not be able to give full
cooperation because of their work schedules. Source of getting the expert opinion will be
3. Time Constraint: As there are lots of investment product available, performance evaluation
of all these in such a short span is not possible.
4. Selective Study: Consumer Perception is a very vast topic and analysis of each component
of Consumer Perception is not possible so we will have to base our Inferences on selected
components of Consumer Perception


1.5 Steps Taken to overcome the limitations


Collected the data/information vetted by Project guide at Mahindra and other publicly
available sources of data.

2. Tried to seek assistance on personal level and refer to industry sources for expert


Mutual Funds
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.
A mutual fund is a financial intermediary that pools the savings of investors for
collective investment in a diversified portfolio of securities. A fund is mutual as all of its
returns, minus its expenses, are shared by fund investor.
The Securities and Exchange Board of India (mutual fund) regulations, 1996 defines
a mutual fund as a fund established in the form of a trust to raise money through the sale of
units to the public or a section of public under one or more schemes for investing in
securities, including money market instruments.
According to the above definition, a mutual fund in India can raise resources through the
sale of units to the public. It can be setup in a form of trust under the Indian Trust Act. The
definition has been further extended by allowing mutual fund to diversify their activities in
the following areas:

Portfolio management service

Management of offshore funds

Providing advice to offshore funds

Management of pension or provident funds.


Management of venture capital funds.

Management of money market funds.

Management of real estate funds.

A mutual fund serves as a link between the investor and the securities market by mobilizing
savings from the investors and investing them in the securities market to generate returns.
Thus, a mutual fund is a keen to portfolio management services. Although both are
conceptually same, they are different from each other. Portfolio management services are
offered to high net worth individuals; taking into account their risk profile, their investments
are managed separately. In the case of mutual funds, savings of small investors are pooled
under a scheme and the returns are distributed in the same proportion in which the
investments are made by the investors/unit-holders.
Mutual fund is a collective savings schemes. Mutual funds play an important role in
mobilizing the savings of small investors and channel sing same for productive ventures in
the Indian economy.
A mutual fund is a corporation (trust) that pools the savings, which are then invested in
money market, debt market and capital market instruments such as shares, debentures and
other securities. Thus the MF serves as a link between the public and the capital markets so
as to mobilize savings from the investors and invest them in the capital markets to generate
The following are some of the more popular definitions of a Mutual Fund.
A Mutual Fund is an investment tool that allows small investors access to
well-diversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed as needed.
The fund's Net Asset Value (NAV) is determined each day.
Mutual Funds are financial intermediaries. They are companies set up to receive your
money, and then having received it, make investments with the money Via an AMC. It is an
ideal tool for people who want to invest but don't want to be bothered with deciphering the
numbers and deciding whether the stock is a good buy or not. A mutual fund manager
proceeds to buy a number of stocks from various markets and industries. Depending on the
amount you invest, you own part of the overall fund.

The beauty of mutual funds is that anyone with an ingestible surplus of a few hundred
rupees can invest and reap returns as high as those provided by the equity markets or have a
steady and comparatively secure investment as offered by debt instruments.

Mutual Fund process-

The flow chart below describes broadly the working of a mutual fund:
Fig-1 working of mutual fund

Mutual Funds Organization

Three key players namely sponsor, mutual fund trust, and asset management company (AMC) are
involved in setting up a mutual fund. They are assisted by other independent administrative entities
like banks, registrars, transfer agents and custodians (depositorys participants)


The diagram below illustrates the organizational set up of a mutual fund:

Fig-2 mutual fund organization

What a promoter is to a company, a sponsor is to a mutual fund. The sponsor initiates the idea to set
up a mutual fund. It could be a financial services company, a bank or a financial institution. It could
be Indian or foreign. It could do it alone or through a joint venture. In order to run a mutual fund in
India, the sponsor has to obtain a license from SEBI.

it has to satisfy certain conditions, such as on capital and profits, track record (at least five years in
financial services), default-free dealings and a general reputation for fairness. The sponsor must have
been profit making in at least 3 years of the above 5 years.
The Sponsor appoints the Trustees, Custodian and the AMC with the prior approval of SEBI and in
accordance with SEBI Regulations.
Like the company promoter, the sponsor takes big-picture decisions related to the mutual fund,
leaving money management and other such nitty-gritty to the other constituents, whom it appoints.


The sponsor should inspire confidence in you as a money manager and, preferably, be profitable.
Financial muscle, so long as it is complemented by good fund management, helps, as money is then
not an impediment for the mutual fund- it can hire the best talent, invest in technology and
continuously offer high service standards to the investors.
In the days of assured return schemes, sponsors also had to fulfill return promises made to the unit
holders. This sometimes meant meeting shortfalls from their own pockets, as the government did for
UTI. Now that assured return schemes are passed, such bailouts wont be required. All things
considered, choose sponsors who are good money managers, who have a reputation for fair business
practices and who have deep pockets

The Mutual Fund is constituted as a Trust in accordance with the provisions of the Indian Trusts Act,
1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. The Trust
appoints the Trustees who are responsible to the investors of the fund.

Trustees are like internal regulators in a mutual fund, and their job is to protect the interests of the
unit holders. Trustees are appointed by the sponsors, and can be either individuals or corporate
bodies. In order to ensure they are impartial and fair, SEBI rules mandate that at least two-thirds of
the trustees be independent, i.e., not have any association with the sponsor.
Trustees appoint the AMC, which subsequently, seeks their approval for the work it does, and reports
periodically to them on how the business being run. Trustees float and market schemes, and secure
necessary approvals. They check if the AMCs investments are within defined limits and whether the


funds assets are protected. Trustees can be held accountable for financial irregularities in the
mutual fund.


An AMC is the legal entity formed by the sponsor under the Companies Act and registered with the
Securities and Exchange Board of India (SEBI) to manage investor's funds collected through different
schemes to run a mutual fund. The AMC is usually a private limited company in which the sponsors
and their associates or joint venture partners are the shareholders. The trustees sign an investment
agreement with the AMC, which spells out the functions of the AMC. It is the AMC that employs
fund managers and analysts, and other personnel. It is the AMC that handles all operational matters of
a mutual fund from launching schemes to managing them to interacting with investors.
AMC charges a fee for the services it renders to the MF trust. Thus the AMC acts as the investment
manager of the trust under the broad supervision and direction of the trustees
Net asset value
NAV means Net Asset Value. This is the main performance indicator of a fund, especially when
viewed in terms of its appreciation over time. The NAV breaks down the performance of a scheme in
terms of the market value of every outstanding unit of the scheme. A fund's NAV is calculated as total
assets minus all expenses and divided by the number of its total outstanding units

A unit in a mutual fund scheme means one share in the assets of a particular scheme. So, a person
holding units in a scheme is referred to as a unit holder.


A custodian handles the investment back office of a mutual fund. Its responsibilities include receipt
and delivery of securities, collection of income, and distribution of dividends and segregation of
assets between the schemes. It also track corporate actions like bonus issues, right offers, offer for
sale, buy back and open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian
to the fund. This condition, formulated in the interest of investors, ensures that the assets of a mutual
fund are not in the hands of its sponsor. For example, Deutsche Bank is a custodian, but it cannot
service Deutsche Mutual Fund, its mutual fund arm.

Registrars, also known as the transfer agents, are responsible for the investor servicing functions.
This includes issuing and redeeming units, sending fact sheets and annual reports. Some fund
houses handle such functions in-house. Others outsource it to the Registrars; Karvy and CAMS are
the more popular ones. It doesnt really matter which model Some of the investor related services

Processing investor applications.

Recording details of the investors.

Sending information to the investors.

Processing dividend payout.

Incorporating changes in the investor information.

Keeping investor information up to date.


2.2Mutual Fund Industry

The mutual fund industry is a lot like the film star of the finance business. Though it is
perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young
industry where there are changes in the rules of the game everyday, and there are constant shifts and
upheavals. The mutual fund is structured around a fairly simple concept, the mitigation of risk
through the spreading of investments across multiple entities, which is achieved by the pooling of a
number of small investments into a large bucket. Yet it has been the subject of perhaps the most
elaborate and prolonged regulatory effort in the history of the country.
Starting out as an industry with a single player, the UTI, in 1963, the mutual fund industry in
India has come a long way since then. Today, close to 30 players, offering over 460 schemes, dot the
industry landscape. The industry has gained enormously in size as reflected in its assets under
management which now stand at a whopping Rs.1,75,918 cr., as on July 31, 2005 from Rs.1,00,000
crore in early 2000.
The journey of the industry has been nothing less than spectacular, particularly in the last 5
years or so. A host of factors has contributed to the phenomenal growth of the industry. First and
foremost, as a result of the increased competition, industry players have focused on product
innovation to drive growth. This has not only helped the industry players to tap the latent needs of the
investors, but also enabled them to expand markets as more and more investors, including retail
investors, have begun to look at mutual funds as a suitable investment avenue. Second, the need for
greater market penetration has forced industry players to devise innovative channels of delivery to
gain and strengthen their market share. Today, we see new channels and models of distribution
emerging as the race among the fund houses heats up to enhance reach to potential investors. Third, a
slew of tax incentives, which include rationalizing of capital gains tax, aiming to boost equity


investing coupled with a benign interest rate regime have helped mutual funds gain popularity with
investors. Finally, a slew of regulatory measures taken by SEBI have played a crucial role in instilling
confidence among investors, especially
retail investors. No doubt these factors
have attributed significantly to the
growth of the mutual fund industry in the
country, particularly in recent times.
Further, the emergence of India
as a major investment destination has
done a world of good to the mutual fund
industry in the country as it is witnessing
entry of many big names in the global investment management business. The entry of major global
players like Morgan Stanley, Principal, Sunlife, and Fidelity, while Vanguard is mulling over its India
debut, augurs well for the industry as not only these global investment management firms bring with
them the expertise gained internationally but also bring the best international practices in terms of
performances and investor services which will benefit the industry and will go a long way in helping
it catch up with its counter parts in developed markets like the US and the UK.
A host of things suggests that the industry is all set to enter a period of high growth. A robust
economy, fledgling stock market, increasing awareness and acceptance of mutual funds among
investors, strong domestic currency, and healthy corporate performances are among some of the
major factors which suggest that the industrys future is bright. However, to gain size, and catch up
with developed markets like the US, the industry has to remove certain obstacles which pose
significant challenges.



The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at
the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India
can be broadly divided into four distinct phases.
PHASE 1: 1964 to 1987
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by
the Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700crores of
assets under management.
PHASE 2: 1987 to 1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank
Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov
89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund
in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual
fund industry had assets under management of Rs.47, 004crores.

PHASE 3: 1993 to 2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in

which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual
Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations
in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number
of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India
and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003,
there were 33 mutual funds with total assets of Rs.1,21,805crores. The Unit Trust of India with
Rs.44,541crores of assets under management was way ahead of other mutual funds.


PHASE 4: Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29 835crores as at the end of January 2003, representing broadly, the assets
of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust
of India, functioning under an administrator and under the rules framed by Government of India and
does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual
Fund 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, 000crores of assets under management and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among
different private sector funds, the mutual fund industry has entered its current phase of consolidation
and growth. As at the end of September 2004, there were 29 funds, which manage assets of
Rs.153108crores under 421 schemes.


Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk
tolerance and return expectations etc. The table below gives an overview into the existing types of
schemes in the Industry.

According to Ownership
1. Public Sector Mutual Funds
2. Private Sector Mutual Funds

According to Scheme of Operation


1. Open-Ended Schemes.
2. Close-Ended Schemes

According to Portfolio

Income funds

2. Growth Funds
3. Balanced or Conservative Funds
4. Stock/Equity Funds
5. Bond Funds
6. Specialized Funds
7. Taxation Funds
8. Money Market Mutual Funds

According to Location
1. Domestic Funds
2. Off-shore Funds

Other Types of Mutual Funds


1. Loan Funds
2. Non-Loan Funds
According to ownership, mutual funds in India may be classified as Public Sector Mutual Funds and
Private Sector Mutual Funds.
UTI has been functioning in the arena of Mutual-Fund-Business in India since 1963-64.
However, it was only after 23years, in 1987 that second mutual fund was established in India by the
State Bank of India. Although UTI was functioning successfully, it was found inadequate to meet the
requirements of small and medium household sectors. Thus, UTIs monopoly in Mutual Fund
Business was curtailed by the central Government by opening the operation of Mutual Funds to the
Public-Sector Commercial Banks in 1987, in order to meet the requirements of the common



Seeing the success and growth of Mutual Funds in the Indian Capital Market, the Government of
India allowed the private sector corporate to join the Mutual Fund Industry on February 14, 1992.
Since then, a number of private sector companies have approached SEBI for permission to set up
private mutual funds. SEBI (Mutual Funds) Regulations, 1993 which were replaced by SEBI (Mutual
Funds) Regulations, 1996 provide guidelines for registration, constitution, management and schemes
of Mutual Funds.
According to the scheme of operations, the mutual funds could be divided into three categories,
i.e. open-ended funds, close-ended funds and the interval funds.
The units offered by these schemes are available for sale and repurchase on any business day
at NAV based prices. Hence, the unit capital of the schemes keeps changing each day. Such schemes
thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note
that an open-ended fund is NOT obliged to keep selling/issuing new units at all times, and may stop
issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to
its investor the facility to redeem existing units.
The unit capital of a close-ended product is fixed as it makes a one-time sale of fixed number of
units. These schemes are launched with an initial public offer (IPO) with a stated maturity period after
which the units are fully redeemed at NAV linked prices. In the interim, investors can buy or sell units


on the stock exchanges where they are listed. Unlike open-ended schemes, the unit capital in closedended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct
repurchase facility to the investors. Closed-ended schemes are usually more illiquid as compared to
open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV
closer to the maturity date of the scheme.
Mutual funds can also be classified according to portfolio or the objectives of the fund. Some of
these funds are Income funds, Growth funds, Balanced or Conservative funds, Stock/Equity funds,
Bond funds, specialized funds, Leverage funds, Taxation funds, Money Market Mutual Funds.


These funds aim at providing maximum current return to the investors. The investments are
made in stocks yielding higher returns and capital appreciation is of small importance. Such funds
distribute the income earned by them periodically amongst the investors.
These funds aim at providing capital appreciation in the value of investments. Such funds invest
in growth oriented securities which have a potential to appreciate in long run. These funds
concentrate on value appreciation of securities and not on the regularity of income and are also
known as Nest eggs or Long haul investments. However, the risk involved in such funds is higher
than the income funds.
Balanced funds spend both on common stock and preferred stock. These funds ensure both
appreciations in stock as well as regular return in the shape of interest and dividend. The investors
have advantage of regular income and appreciation in value of securities. These funds are also known
as Conservative Funds or Income and Growth Funds.

These funds mainly invest in shares of the companies. The investments may vary from blue
chip companies to newly established companies. They undertake risk associated with investment in
equity shares of companies. Stock funds may have further sub-divisions such as income funds and
growth funds. A special type of equity fund is also known as index fund or never beat market fund.


These funds employ their resources in bonds. These investments ensure fixed and regular
income. Some companies offer non-convertible bonds along with the shares. The shareholder is saved
of the botheration of buying bonds compulsorily while the bond fund will pay less than the face value
of the bond, thus saving some money.

These funds invest in a particular type of securities. The funds may specialize in securities of
companies dealing in a particular product, firms in a particular industry or of certain income
producing securities. Any investor wanting to invest in a particular security will prefer a fund dealing
in such securities.


Investors (individuals and Hindu Undivided Families (HUFs)) are being encouraged to
invest in equity markets through Equity Linked Savings Scheme (ELSS) by offering them a tax
rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched out until
completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to
Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued
by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,
1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from
income tax, of an amount equal to 20% of the amount subscribed.


These schemes invest in short term instruments such as commercial paper (CP), certificates of
deposit (CD), treasury bills (T-Bill) and overnight money (Call). The schemes are the least
volatile of all the types of schemes because of their investments in money market instrument with
short-term maturities. These schemes have become popular with institutional investors and high net
worth individuals having short-term surplus funds.

Mutual fund can also be classified on the basis of location from where they mobilize funds, as
Domestic Funds and Off-shore Funds.


These are the funds, which mobilize savings of people within the country where investments
are made.
These are the funds, which raise or mobilize the savings in countries other than where investments
are to be made. These funds attract foreign savings for investment in India.


In addition to the above mentioned funds, there can be some other types of mutual funds also,
such as, LOAN FUNDS and NON-LOAN FUNDS based upon the expenses or fees to be charged;
HUB AND SPOKE FUNDS which are basically fund of funds, etc.


Two important prices for shares in a closed-end fund:
Market price - The price at which the shares trade; determined by supply and demand.
Net Asset Value (NAV)
NAV = (Value of Total Assets - Total Liabilities) / Shares Outstanding
Though some funds sell above their NAV (premium), most CEFs trade below (discount) their net
asset value, often as much as 15% - 20% or more.
Premium/Discount = (Market Price - NAV) / NAV
Example: NAV = $10 per share; market price per share = $8.

= ($8 - $10) / $10

= - $2 / $10 = - 20%

The premium or discount isnt constant, but usually fluctuates with market conditions. A fund
trading at a discount may rise to a steep premium or vice versa, as investors perceptions of the
market changes.

The majority of CEFs are bond funds; next in importance to world equity funds. CEFs are
most useful for buying assets that are infrequently traded or hard to price. Thus, very few CEFs
specialize in U.S. equities.
Generally, CEFs are not as highly marketable as many exchanged-traded stocks and one
should use limit as opposed to market orders.

Load is a charge collected by a mutual fund when it sells units. It can be levied as an entry
load (i.e., the charge is collected when an investor buys the units) and as an exit load (i.e., the charge
is collected when the investor sells back the units). Schemes that do not charge any load and are
called No Load Schemes
Some Mutual Funds provide the investor with an option to shift his investment from one
scheme to another within that fund. For this option the fund may levy a switching fee. Switching
allows the Investor to alter the allocation of their investment among the schemes in order to meet
their changed investment needs, risk profiles or changing circumstances during their lifetime.
Purchase Price
Purchase price is the price paid by a customer to purchase a unit of the fund. If the fund has no
entry load, then the sales price is the same as the NAV. If the fund levies an entry load, then the sales
price would be higher than the NAV, to the extent of the entry load levied.
Redemption Price
Redemption price is the price received by the customer on selling units of an open-ended
scheme to the fund. If the fund does not levy an exit load, the redemption price will be same as the
NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.



Mutual Funds, in order to cater to a range of investor needs, have various investment plans.
Some of the important investment plans include:
Dividend is not paid-out under a Growth Plan and the investor realizes only the capital
Appreciation on the investment (by an increase in NAV)
Dividends are paid-out to investors under an Income Plan to the investors. However, the NAV
of the mutual fund scheme under an Income Plan falls to the extent of the dividend payout


Here the dividend accrued on mutual funds is automatically re-invested in purchasing
additional units in open-ended funds. In most cases mutual funds offer the investor an option of
collecting dividends or re-investment the same
Some schemes are linked with Insurance and retirement pension. Individuals participate in
these plans for themselves, and corporate participate for their employees.
Here the investor is given the option of preparing a pre-determined number of post-dated
cheques in favor of the fund. The investor is allotted units on the date of the respective cheques at the
applicable NAV.


As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the
investor the facility to withdraw a pre-determined amount / units from his fund at a pre-determined
interval. The investors units will be redeemed at the applicable NAV as on that day.


The bread and butter of the Mutual Funds industry
Buy Low and sell high, just four words sum up a winning strategy for the stock markets I ndian
Market is a synonym for volatility and dynamism. National Stock Exchange is the most liquid
exchange in the world. Predicting Indian Market is the most difficult task, almost an impossible one.
The inability to time the market on a regular basis can leave an investor high and dry. However,
ironically, the time in the market has historically shown more consistent success than timing the
Though great returns from the market may not always be possible, stable and consistent returns
are. And one of the best ways to get this return in this market of ours is the Systematic Investment
Plan (SIP) offered by the mutual funds. SIP is a powerful tool with a strategy of not only preserving
capital but also translating into substantial creation of wealth in the long run.
Under this plan Investors invests a specific amount for a continuous period, at regular intervals.
By doing this, the investor gets the advantage of rupee cost averaging, which means that by investing
the same amount at regular intervals, the average cost per unit remains lower than the average market
price, irrespective of how the market is - rising, falling or fluctuating i.e. with every fluctuation in the
market the units are purchased systematically, thus resulting in averaging the purchase price.
Whereas this is not true for a one-time investment. This is the reason why a SIP investor gets
phenomenal rate of return compared to a one-time investor.
Features of a systematic investment plan
1. To get a disciplined investment
2. To create value/wealth.
3. To avoid short-term fluctuations in the market.
4. Avoid risk of timing the market.


How to start an SIP?

Start with an initial investment
Invest a fixed sum every month
Minimum investment Rs.1000 per month
Post-dated cheques/standing instructions to the bank
Investments happen on the preset date in the specified scheme every month


Advantages of Systematic Investment Plan

An SIP reduces these risks by spreading the investments over a longer period of time, at various
levels of the market.

An SIP reduces the average cost of investment in fluctuating markets

SIP gives the advantage by allowing one to buy fewer units when the market is up and more units
when the market moves down, thus an investor buys at an average price.
There are numerous benefits of investing in mutual funds and one of the key reasons for its
phenomenal success in the developed markets like US and UK is the range of benefits they offer,
which are unmatched by most other investment avenues. We have explained the key benefits in this
section. The benefits have been broadly split into universal benefits, applicable to all schemes and
benefits applicable specifically to open-ended schemes.








The performance of mutual funds in India from the day the concept of mutual fund took birth
in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in
savings, to park their money in UTI Mutual Fund.
For 30 years it goaled without a single second player. Though the 1988-year saw some new









The performance of mutual funds in India in the initial phase was not even closer to satisfactory level.
People rarely understood, and of course investing was out of question. But yes, some 24 million
shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the
industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations
of investors touched the sky in profitability factor. However, people were miles away from the
preparedness of risks factor after the liberalization.


The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate
about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under
Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance
by April 2004. It rose as high as Rs. 1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative
investments. There was rather no choice apart from holding the cash or to further continue investing
in shares. One more thing to be noted, since only closed-end funds were floated in the market, the










The performance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts
rocked confidence among the investors. Partly owing to a relatively weak stock market performance,
mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of
their net asset value.
The supervisory authority adopted a set of measures to create a transparent and competitive
environment in mutual funds. Some of them were like relaxing investment restrictions into the
introduction of open-ended funds, and paving the gateway for mutual funds to launch pension
The measure was taken to make mutual funds the key instrument for long-term saving. The more the
variety offered, the quantitative would be investors.


At last to mention, as long as mutual fund companies are performing with lower risks and
higher profitability within a short span of time, more and more people will be inclined to invest until
and unless they are fully educated with the dos and donts of mutual funds.

The graph indicates the growth of assets over the years:

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of
the Unit Trust of India effective from February 2003. The Assets under management of the Specified
Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the
industry as a whole from February 2003 onwards.

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crores. It is estimated that by
2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crores.
The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5
years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010,
mutual fund assets will be double.


Some facts for the growth of mutual funds in India

100% growth in the last 6 years.
Numbers of foreign AMCs 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 channel zing these savings in mutual
funds sector is required.
We have approximately 29 mutual funds, which are 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
SEBI allowing the MFs to launch commodity mutual funds.
Emphasis on better corporate governance.
Trying to curb the late trading practices.
Introduction of Financial Planners who can provide need based advice.


Sales during the month of March, 2013

All Schemes

Amount in Rs. Crores

Open End

Close End







Liquid/Money Market














Mutual Fund Industry update 2013

The total asset under management of mutual fund industry has increased by 11% from Rs
231358 crore to Rs 257528 crore as of April end. The rise in assets could be attributed to accretions in
liquid fund assets. April also saw a change in pecking order, with Prudential ICICI Mutual Fund
regaining its top slot among private sector funds in terms of AUM having Rs27503 crores of AUM
with 10.67% of market share. Reliance Mutual Fund slipped to third position with total asset under
management at Rs
26420 crore having 10.25% of market share. UTI retained its top position with total assets under
management at 30108 crore with 11.69% of market share as shown in the fig below.
Mutual Fund Industry update 2013
Mutual fund assets jumped 7% in April. With the market staging a gradual recovery, the
mutual fund industry recouped as well with its assets growing by Rs 36,584 crore in the past month.
The combined assets under management of all the fund houses soared to Rs 5,65,441.03 crore at the
end of April as against Rs 5,28,857.07 crore in the previous month, according to latest data available










Experts believe the growth in the mutual fund assets is due to attractive valuations of the stock after




Reliance Mutual fund, which had also seen its assets fall in the previous month, retained its position
as the top fund house in the country.
However at the end of April, there was a jump of Rs 5,448.46 crore in the AUM of Reliance MF
which stood at Rs 96,386.40 crore compared to previous months Rs 90,937.94 crore.
ICICI Prudential follows at the second position with its assets growing by Rs 1,386 crore to Rs




Assets of state-run UTI MF increased to Rs 52,549.40 crore in April and it continues to be at the third





Among the top five mutual funds HDFCMF and Franklin Templetons AUMs also increased to Rs








However, Reliance MF, which was aiming to become the first fund house in the country to cross the
Rs one trillion mark in assets under management, fell short by less than Rs 4,000 crore. Prior to the
release of AUM figures, media reports had said Reliance MF had achieved the Rs 1 trillion mark in
AUM in the last month.
Risks Involved with Mutual Funds
Mutual Funds are subjected to various risks and there is no assurance that a scheme objective
will be achieved. These risks should be properly understood by investors so that they can understand
how much risky their investment avenue is. Equity and fixed income bearing securities have different
risks associated with them. Various risks associated with mutual funds can be described as below.


Risks associated with Fixed Income Bearing Securities:

1. Interest Rate Risk
As with all the securities, changes in interest rates may affect the schemes Net Asset Value (NAV) as
the prices of the securities generally increase as interest rates decline and generally decrease as
interest rates raise. Prices of long-term securities generally fluctuate more in response to interest rates
changes than short term securities do. Indian Debt markets can be volatile leading to the possibility of
price movements up or down in the fixed income securities and thereby to the possible movements in
the NAV.

Liquidity Or Marketable Risk

This refers to the ease with which a security can be sold at near to its valuation yield to maturity. The
primary measure of liquidity risk is the spread between the bid price and the offer price quoted by the
dealer. Liquidity risk is inherent to the Indian Debt market.
3. Credit Risk
Credit risk or default risk refers to the risk that an issuer of fixed income security may default (i.e.,
will be unable to make timely principal and interest payments on the security). Because of this risk
corporate debentures are sold at a yield above those offered on Government securities, which are
sovereign obligations and free of credit risk. Normally the value of fixed income security will
fluctuate depending upon the perceived level of credit risks well as the actual event of default. The
greater the credit risk the greater the yield require for someone to be compensated for increased risk.
Risk associated with Equities
1. Market Risk

The NAV of the scheme investing in equity will fluctuate as the daily prices of the individual
securities in which they invest fluctuate and the units when redeemed may be worth more or less than
the original cost.

2. Timing The Market

It is difficult to identify which is the right time to invest and which is the right time to take out the
money. There may be situations where stocks may not be rightly timed according to the market
leading to loss in the value of scheme.
3. Liquidity
Investment made in unlisted equities or equity related securities might only be realizable upon the
listing of the securities. Settlement problems could cause the scheme to miss certain investment
2.11 SWOT Analysis of
Good for new investor as the fund has to be managed by specialized fund manager.
Only product, which invests in money market, debt market and equity market at same time.
Investment needed is comparatively less than other investments.
Customers do not prefer it because of risk attached to it that is market risk.
Fund manager if not going to be good than customer will not go for that fund as return depends
on fund managers analysis.

Creating positive image about the fund and changing the nature of the market itself.


Market for mutual fund is expanding.

Great scope for new instrument.
Now there are many other investment instruments, which are more lucrative than mutual fund.
Unawareness among investor regarding mutual fun



A Lot of study have been done on the Mutual Fund Performances by Asset Management
Company (AMC), Universities, and reacherhouses. Among all some of them are follow:
1 .Sharpe, William F. (1966)
The evaluation of portfolio performance. Drawing on results obtained in the field of
portfolio analysis, economist Jack L. Treynor has suggested a new predictor of mutual
fund performance, one that differs from virtually all those used previously by
incorporating the volatility of a fund's return in a simple yet meaningful manner

2 Michael C. Jensen (1967)

A risk-adjusted measure of portfolio performance (Jensens alpha) that estimates how
much a managers forecasting ability contributes to funds returns. As indicated by
Statman (2000), the e SDAR of a fund portfolio is the excess return of the portfolio over


the return of the benchmark index, where the portfolio is leveraged to have the benchmark
indexs standard deviation. S.Narayan Rao , et. al., evaluated performance of Indian
mutual funds in a bear market through relative performance index, risk-return analysis,
Treynors ratio, Sharpes ratio, Sharpes measure , Jensens measure, and Famas measure.
The study used 269 open-ended schemes (out of total schemes of 433) for computing
relative performance index. Then after excluding funds whose returns are less than riskfree returns, 58 schemes are finally used for further analysis. The results of performance
measures suggest that most of mutual fund schemes in the sample of 58 were able to
satisfy investors .

3 Bijan Roy,
An empirical study on conditional performance of Indian mutual funds. This paper uses a
technique called conditional performance evaluation on a sample of eighty-nine Indian
mutual fund schemes .This paper measures the performance of various mutual funds with
both unconditional and conditional form of CAPM, Treynor- Mazuy model and
Henriksson-Merton model. The effect of incorporating lagged information variables into
the evaluation of mutual fund managers performance is examined in the Indian context.
The results suggest that the use of conditioning lagged information variables improves the
performance of mutual fund schemes, causing alphas to shift towards right and reducing
the number of negative timing coefficients.

4 Mishra, (2002)
The mutual fund performance using lower partial moment. In this paper, measures of
evaluating portfolio performance based on lower partial moment are developed. Risk from

the lower partial moment is measured by taking into account only those states in which
return is below a pre-specified target rate like risk-free rate. Kshama Fernandes(2003)
evaluated index fund implementation in India. In this paper, tracking error of index funds
in India is measured .The consistency and level of tracking errors obtained by some wellrun index fund suggests that it is possible to attain low levels of tracking error under
Indian conditions. At the same time, there do seem to be periods where certain index funds
appear to depart from the discipline of indexation.

5 K. Pendaraki
THE construction of mutual fund portfolios, developed a multi-criteria methodology and
applied it to the Greek market of equity mutual funds. The methodology is based on the
combination of discrete and continuous multi-criteria decision aid methods for mutual
fund selection and composition. UTADIS multi-criteria decision aid method is employed
in order to develop mutual funds performance models. Goal programming model is
employed to determine proportion of selected mutual funds in the final portfolios.

6 Zakri Y.Bello (2005)

The responsible stock mutual funds matched to randomly selected conventional funds of
similar net assets to investigate differences in characteristics of assets held, degree of
portfolio diversification and variable effects of diversification on investment performance.
The study found that socially responsible funds do not differ significantly from
conventional funds in terms of any of these attributes. Moreover, the effect of
diversification on investment performance is not different between the two groups.


7 Ang, Chen, and Lin (1998)

Mutual fund management reaction to poor performance using data beginning in 1994. They
observed that management had good reason to be concerned about poor performance, as
management compensation is based upon the amount of money under management and
performance of the fund. Their analysis explores possible management reactions to poor
performance. Management could trade more often, reduce costs, take more risks, or adopt
a more aggressive marketing strategy.

They found that the management of lower performing funds did more trading and had
greater expense ratios than the management of funds that had good performance. We
examine these issues and contribute to the understanding of mutual fund performance by
studying a later time period with a larger sample and by including fixed income as well as
equity funds. We also contribute by considering the role of economies of scale both at the
level of the individual fund and the level of the fund family.

8. Berkowitz and Kotowitz (2002)

There is a relationship between the fees, the structure of the fees charged by asset managers,
and the level of the funds performance. We build on and support these findings.
Droms and Walker (2001), studying 151 mutual funds over a 20-year period found no longterm persistence in returns, expenses, or turnover rates. They examine a longer time period
than this study, but a smaller sample of investment companies. Their findings could support
various explanations. Changes in returns, expenses, and turnover rate could be due to
changes in fund management or management philosophy. The findings are also consistent
the possibility that the quality of oversight from the independent trustees varies over time.


9. Malhotra and McLeod (1997)

Argue that investors ignore aspects of fund management other than performance. They also
argue that this behavior is suboptimal in that net performance after consideration of fees and
taxes is a more appropriate measure. We find that fund expenses and tax costs do
significantly reduce returns. We find that tax costs are of greater magnitude than the costs of
managing the



Research Methodology is described that how the research activities are performed by several
methods by the help of the different date collected from different sources. In this there are mainly two
types of data is selected for the analysis i.e. Primary Data which are collected through the direct
approach to several investors. The direct approach is done to collect the information through the
questionnaire, direct interview, direct personal interview, scheduling the data sources and by the help
of several surveys done on different investors of different mind makeup to know what their hidden
motives towards making a suitable portfolio are. Then after primary data sources it is important to
collect the secondary data and information. These secondary data also keep their importance towards
any findings and conclusion. These are collected through the Internet, Magazines, Articles,
Newspapers, Business Magazines, current Index position of security market and several statements
based on these market position given by the several analysts & Finance Ministers etc. After gathering
information it is quite essential to analyze these information and conclude the result by several tools
of analysis like collecting the information, selecting meaningful information, then their scheduling.
After arranging valuable data in sequential way it is important to analyze these by the help of
common factors repeating in the information which always be in security market to influence the
investors and key to fluctuate their motives. These important matters of fluctuation are important to
know because these help to guide investors in making a suitable portfolio and always be in the mind
of investors perception. After several steps of different way of analyzing the investors perception the
final concluded portion are described in the conclusion part.
The next portion is Analysis and Discussion, in which several approaches and researches previously
done by renowned financial analyst
Conclusion is most important part of any research activity because this include the final answer or
final concluding portion of the final findings. This is the last portion of this my project and this is


only based on my opinions with the help several information from primary and secondary data and
also by the help of previous analysis done facts.
Bibliography portion includes the references taken by several different books, websites etc. because
these references are so scattered that it is not easy to simplify the investors due to unavailability of
required time so it also helps to take brief knowledge about this topic.


RESEARCH DESIGN:For this study a survey research was adopted with the help of primary data. For getting
primary data the research tool was a structured questionnaire.



Primary Data
Primary data required for the analysis is being collected directly from respondents through
questionnaire. The type of primary data collected is primarily quantitative. The questions in the
questionnaire have been structured to provide quantitative data from responses. Therefore, the results
of quantitative data were summarized with numberspercentages, averages, or other statistics.
Secondary Data
Secondary Data for the project is being collected from sources like Internet, Reading
Materials of various Investment and Services Products, Catalog and General Insurance Products,
References and results from similar projects done in the past. Various websites, magazines,
newspaper are also being referred for collection of secondary data.



Study on the consumer perception and preferences toward mutual are done over the period of
two months, that is, June and July. Data are collected over these period for the final analysis while as
to show the growth of mutual fund industry, data is collected from 2003- April 2008.

Consumer Behavior Analysis was done on a sample size of 75 respondents. The data is being

collected using a Questionnaire, which will test different determinant factors. The customers are
analyzed on the following parameters:
Demographic Profile
Socio-Economic and Background Status
Consumer Awareness
Preferences Based on

Risk Involved


Past Performance

Cost of Investment


Customer Satisfaction



On the basis of the various parameters and attributes the awareness for the
industry has been framed. The results have been tested using statistical tools like pie
chart, Bar graph by software to analyze the impact of consumer awareness toward
mutual fund industry.


Analysis was carried out using statistical tools like Pie chart, Bar graph etc. The final analysis
has helped us to understand the Customer Perception and Preferences towards the investment
products offered by MAHINDRA FINANCE and overall about Mutual Fund industry.

The sample composition (Sex, age group, Income group) for the survey has been shown below:

Fig.2 Sample size-75


Fig 3 Sample size-75

Fig.4 Sample size-75



Customer Perception - Mutual Fund

Fig.5 Sample size-75

The above fig shows that out of 75 people 77% were aware about Mutual Funds. This shows
that there is still a chance to make people aware about mutual fund and organizing sessions in the
offices and in the open markets can do this.


Fig.6 Sample size-75

The above fig shows that out of 75 people 29 people know about Mutual Funds through
banks. Other methods like TV advertisements and newspapers are other important modes that make
people aware about the MF.


Fig.7 Sample size-75

The above fig shows that out of 75 people 20 people are associated with about Mutual Funds
less than a year. And important fact is almost every one knows about the Mutual Fund but 25 out of
75 are not associated with Mutual fund and gives me a chance to tell them about various options and
schemes and make them associated with mutual funds.


Fig.8 Sample size-75

The above fig shows that out of 75 people 37 people know about open ended and close-ended
Mutual Funds. And important fact is that less knows about the balanced schemes.


Fig.9 Sample size-50 those who invested in MF

The above fig shows that out of 75 people 20 people have invested in Mutual Funds with less
than 25k.


Fig.10 Sample size-75

The above graph shows that the People are mostly investing for the period of 6-12 months.
The study shows that this is the period which has been mostly suitable the people for maximum
investment. And thus gives me another reason to target people with SIP as it is a open ended
scheme and the returns are also good in this schemes.


Fig.11 Sample size-75

The above graph shows that most of the respondents expect the returns to be around 10%.
This shows that respondents want returns to be more than that of bank. Also major chunk of
respondents want to get returns of 10-15%.


Fig.12 Sample size-75

The above graph shows the investment options followed by the people. Still the old
investment options of insurance and fixed deposits are favorite among the people. The new
investment options of Mutual funds and gold are catching up fast.


Fig.13 Sample size-50

The graph above shows the segregation of the people who are invested in mutual fund. About
56% of the investors belong to the business class and 34 % too

professionals. One of the reasons for

this could be financial strength of these people. Service class and retired class form the very small












Services OfferedInformation Provided

Brand Name
Competitive Benefits






Fig.14 Sample size-75








Fig.15 Sample size-60

Sample size for this analysis is 60 people who are using MAHINDRA product.10 people I get
it while filling my questionnaire and rest I get it trough their internal database.
In this fig satisfaction level of the people have been shown. 16% of the people were delighted with
mutual funds of MAHINDRA whereas 14% people were unhappy about the MAHINDRA mutual
funds. Here again the service given by MAHINDRA or the experience they had previously in terms
of losses they bear. There is 24% population which is confused in the sense it is difficult for them
decide their satisfaction level.


Fig.16 Sample size-75

The above graph shows the other important parameter, which is considered by the investors, is the
Trust parameter. The above graph shows the factors because of which people are avoiding
MAHINDRA. And the most important factor of these is lack of trust . MAHINDRA group needs to
create more trust by -;
1. Creating more awareness by putting up canopies and making more influential advertisements.
2. Be more transparent in their dealings.
3. Make customer involvement more and more.

Fig. 17 Sample size-75

The graph shows the Risk factor, which the customers want to avert. The perception of risk
varies, depending upon the person, the product and the situation, and the culture. Those who want to
purchase the Mutual Funds want to avert the financial risk and Time risk more. Financial risk is
related to the product and its performance while Time risk is the risk which is about the time spent in
getting the expected returns.


Fig 18 Sample size 40
Most of the people are influenced by the returns, which they get while investing in the mutual
funds. The research shows that 45% people influenced by the returns, 25% people influenced by the
NAV (Net Asset Value) and 31% people are influenced by the both (Returns and NAV).


Fig.19 Sample size-27

Out of 75, those invested in SIP 27 customers who know about SIP out of 75 have knowledge
and invested in SIP. And research show that most of the people interested in investing in the bracket
of 25000-50000.this again is very useful as in most of the AMCs the minimum amount for SIP is 1k
per month only


1) Let Investment Advisory Services Mean What It Is:
They are not practicing the role of investment advisor in its truest sense. We used to sell only
those products, which needed immediate attention in order to fulfill the targets, even when we
knew that the product was hardly required by the customer.

2) Educate The Customer:

Educating the customer about basic know how about the mutual fund, general insurance and
life insurance products. Given the prospects and the results and the enormous choice of the
various instruments available it is very easy to convert them into an investor.

3) Cold Calling Is The Mantra:

Cold calling means going to a particular customers place without prior contact or appointment.
This practice is considered to be tough as this is the mode of contact, which has the maximum of
rejections but Sooner or later they would be converted and the conversion rate is supposed to be much
better than that of an ordinary contact.


Investment in a sectoral fund is riskier than that in a diversified equity fund. As such,
investors need to ensure that their overall exposure to technology stocks is within the limits dictated
by their individual risk preferences. Also, they need to consider that the risks associated with this
fund are a little higher, given the focus on mid-sized companies in the software services industry.


While this segment as a whole may outperform the larger companies, the risks faced by the
companies are also highermore so in the case of the listed universe of mid-sized companies. Also,
the exposure to the media sector, while providing the benefits of diversification, may not reduce the
risk profile.
The fund only has a dividend payout or a dividend reinvestment facility. Investors can opt for the
dividend payout facility and evaluate the reinvestment option at the time of declaration of dividend.
Do not put all the eggs in one basket:Depending on ones goals and ones attitude towards risk, an investor should spread his
money across different types of investment equities, bonds and cash. An investor should also try to
diversify within each of these categories. With equities, for example a mutual fund will invest your
money in a variety of companies but you may want to ensure you have a range of industry sectors


Invest as soon as possible:The sooner you invest, the more time your money will have to grow. If you delay, you will
almost certainly have to invest much more to achieve a similar result.

Bear In Mind That Inflation Will Eat Into Your Savings

Returns on risk-free cash investments may sound respectable, but when you subtract the current
rate of inflation you may not be so impressed. For significant long term growth you need to make
your money work a little harder. Inflation The Ticking Time Bomb
Invest Regularly
Investing regularly can be a great way to build up a significant lump sum. The investor can also
benefit from what is known as the concept of Rupee cost averaging. This means that, if an investor
is investing in a mutual fund, over the years he will pay the average price for units. If the market
goes up, the unit one already own will increase in value. If the market goes down, the next
installment to be paid by the investor will fetch him more units.

Choose Your Funds Carefully

An investor should select investments on the basis of what is right for ones personal
circumstances and goals. If one is deciding on a mutual fund to invest in, then dont opt for the one
which is the flavor of the month, unless one is sure that it will be right for ones needs in the years to
come. And an investor should not assume that all funds investing in Indian equities are essentially
the same look at the details of what a fund invests in and check if one is comfortable with its
investment style and objectives.


Remember That Time Not Timing Is The Key To Successful Investing

When an investor is planning an investment, it can be tempting to wait for the market to reach a low
point. But how will he know when this happens? The investor runs the risk of missing out on the
significant rises that often occur in the early days of an upward trend. Even the experts cannot time
the market with consistent success. It is better to choose an investment that one feels confident
about and take a long term view, so that one has the time to ride out any ups and downs in the market.

Getting The Right Mix

For the greatest long term growth potential one could simply invest all ones money in equity
mutual funds, right from the start of ones investing period to the end. But, of course this would be a
high risk strategy. The markets could dip just before you need the money.
Thats why one needs to think about changing, modifying and reviewing ones portfolio from time to
time. One may want to aim for strong growth in the early years, and then, as the years go by, lock in
any gains one has made and move into lower risk investments, such as bonds. As one gets closer to
needing ones money, lower risk bond and cash investments could be given more emphasis.

Keep Some Cash Aside

It is always a good idea to have some money in a deposit account in case of emergencies. Enough
to cover three months living expenses is often a rough guide to how much money you need as cash
with you. And make sure you can withdraw it when you need to, without penalties.



In India, mutual funds have a lot of potential to grow. Mutual funds companies have to create and
market innovative products and frame distinct marketing strategies. Product innovation will be
one of key determinants to success. The mutual funds industry has to bring many innovative
concepts such as high yield bond funds, principal protected funds, long & short funds, arbitrate
funds, dynamic Funds, precious metal funds and so on. The penetration of mutual funds can be
increased through investor education, providing investor oriented value added services, an
innovative distribution channels. Mutual funds have filled during the bearish market conditions.
To sell successfully during the bear market, there is a need to educate investors about riskadjusted returns and total portfolio return to enable them to informed decision. Mutual funds need
to develop a wide distribution network to increase its reach and tap investments from all corners
and segments. Increased used of internet and development of alternative channels such as
financial advisors can play vital role in increasing the penetration of mutual fund.

Mutual funds have come a long way, but a lot more can be done.
1. Investment philosophy of all the fund houses are contradictory in nature. Some of them
targeting mostly the retail investor is conservative in nature.
2. It had give a average ,above the average, high return in comparison to its peer as well as
benchmark during the period which its can be observed .
3. Most of the schemes in these funds actually appear to be undiversified which is apparent
from the gap between the standard deviation (measure of total risk) and Beta (Measure of
Systematic risk). This can be justified as Treynor ratio indicates that the fund
outperformed the market whereas Sharpe Ratio indicates that the fund did not perform as

well as the market. This is because the fund had a relatively large amount of unique risk or
unsystematic risk i.e. Standard Error of the Estimate.

1. Almost all the scheme of the funds had given a good positive return. This was because of

The Domestic markets perform good, good economic data, progress on the reforms front
and a feel good budget.

The expectation that the economy will recover. The strong economic prospects and good
earnings potential of corporate India makes a compelling case for further upside, albeit
with some corrections. Sustained retail interest could help boost the markets during this
The continuation of bullish trend of the stock market for the second consecutive quarter.

2. The basis of performance measures we can say that DBS Cholla opportunity fund
performing well almost all parameter measures such as Sharp ratio, Treynor measure, MSquare measure, Jensen Alpha etc.
3. In the second quarter of 2004 all the funds had given a negative return. This was because
the quarter saw the domestic markets witness a sharp correction due to poll worries and
the ensuing uncertainty over policy direction under the new government. The change in
sentiment was exacerbated by various global factors such as rising interest rates, oil prices
& slowdown in China and concerns over their impact on FII flows and the economy.


4. all the scheme had given a positive return. This was because the market In the third
quarter of 2004 recovery was observed and almost has bounced back sharply from the
lows witnessed in the previous quarter as a result of good corporate earnings, the Union
Budget, as well as the modifications announced to the capital gains tax and the securities
transactions tax (STT).

5. In the fourth quarter of 2004 continuation of the bullish trend was observed and almost all
the scheme had given a positive return. This is because Domestic markets surged on robust
FII flows and closed the quarter and the year at new all-time highs. Expectations of a good
quarterly results season from corporate India, given the possible rise in advance tax
payments also boosted sentiment.

6. UTI Money Market Fund and Templeton India TMA were however not affected by the
Highs and Lows of the economy and the market. And hence was able to give a sustained
earning throughout all the quarter.


Mutual Funds can be classified as open-end and closed-end mutual funds. Closed-end
funds are traded like other securities; they do not redeem units for their investors. Open-end
funds will redeem units for net asset value at the request of the investor.

Net asset value equals the market value of assets held by a fund minus the liabilities of
the fund divided by the shares outstanding.

Mutual funds free the individual from many of the administrative burdens of owning
individual securities and offer professional management of the portfolio.

Mutual funds are often categorized by investment policy. Major policy groups include
money market funds; fixed-income funds; balanced and income funds; asset allocation
funds; index funds; and specialized sector funds.

Qualitative analysis has shown that to a close approximation stock prices seem to
follow a random walk with no discernible predictable patterns that investors can exploit.
Such findings are now taken to be evidence of market efficiency, that is , evidence that
market prices reflect all currently available information.

Quantitative analysis focuses on stock price patterns and on proxies for buy or sell
pressure in the market. Qualitative analysis focuses on the determinants of the underlying
value of the firm, such as current profitability and growth prospects. Because both types of
analysis are based on public information, neither should generate excess profits if market are
operating efficiently.


Event studies are used to evaluate the market impact of events of interest, using

abnormal stock returns. Such studies usually show that there is some leakage of inside
information to some market participants before the public announcement date. Therefore,
insiders do seem to be able to exploit their access to information to at least a limit extent.

The appropriate performance measure depends on the role of the portfolio to be

evaluated. Appropriate performance measures are as follows:

i. Sharpe: when the portfolio represents the entire investment fund.

Information ratio: when the portfolio represents the active portfolio to be

optimally mixed with the passive portfolio.


Treynor or Jensen: when the portfolio represents one sub portfolio of many.

Many observations are required to eliminate the effect of the luck of the draw from
the evaluation process because mutual fund returns commonly are very noisy.

10. The shifting mean and variance of actively managed mutual funds make it even harder to
assess performance. A typical example is the attempt of portfolio managers to time the
market, resulting in ever-changing mutual fund betas.

11. Common attribution procedures partition performance improvements to asset allocation,

sector selection and security selection. Performance is assessed by calculating departures of
mutual funds composition from a benchmark or neutral portfolio.
12. We took risk-adjusted return rather than total return of large sample of mutual fund, paying
more attention on bench mark performances.
13. Best fund consider which are performing better than the market or benchmark.


14. By and large, the performances record of professionally manage funds lends little credence to
claims that most professionals can consistently beat the market.
Mutual fund managers outperforming the market at different periods in the market cycle has
become a topic of much interest after the peculiar markets we have experienced over the last
four to five years. The purpose of this paper is two fold; to examine whether or not fund
managers are able to outperform the market on a risk adjusted basis, and to examine if there
are different periods in the market cycle when managers tend to perform better. More
specifically, the paper examines whether mutual.

The Mutual fund investments are exposed to market risks and are expected to match the Returns from
their benchmark indices are something all aware investors understand. This brings asset Allocation
into play; indicating how much the fund is diversified across stock, sectors & cash. With SEBI
Regulation capping the exposure to individual stocks and sectors, a funds cash holding is something
that purely in hands of the fund manager. Cash allocation is tricky as it is to meet redemptions as well
as for spotting new investment opportunities.
Having large cash protects the fund from a sharp downfall. But it is also implies that
investors miss out On sudden upward spurts. In recent times, we have experienced an increasing
appetite for cash among equity funds, especially in march, 2008. The question is, does holding more
cash than normal reflects inefficient fund management? To find this answer it has to analyses that
equity funds over a three year Period, a fairly long term investment.
Cash is a critical component of equity mutual funds portfolios, but there is opportunity cost of
holding cash. Funds that maximize shareholder wealth should set the funds cash holding at a level
that the marginal benefit of cash holdings equals the marginal cost. A good allocation
to cash can see the fund manager utilize funds optimally and tide over both the markets ups & down.



Since the individual investor with(has) limited capital to invest in market, to get the benefit of
higher return provided by the market in lieu of lower return offered by the banks for this
purpose he/she invested in the Mutual Funds. Where as Mutual Funds are subject to market

There are a wide variety of investment companies the avowed purpose to serve the needs of
both individual as well as institutional investors. For this purpose the prospectus objectives
is to adopt the aggressive strategy to get the benefit of the efficient markets, reason for
investors to utilize mutual funds as investment vehicles.
since fund managers are adopted aggressive approach for getting higher return provided by
the market. Therefore not more consider the risk of the market as well as stock of portfolio. As
an fund manager must consider some fundamental measures which provides the overall
scenario of the mutual funds strategy.


These measures are.

1. Positive and higher sharp ratio.

2.Positive alpha
3.Beta which has lesser value than 1
4.Fund which has positively R-Square
5Positive and higher Treynor Ratio
6.Positive and higher Jensen Alpha
7.Lesser standard deviations
8.Compare funds returns with Benchmark returns(funds returns should be higher).




Research Methodology by C.R Kothari
AMFI Mutual Fund Testing Programme Chap-1 to 15
Financial Management I M Pandey
Marketing Management by Philip Kotler and Kevin Lane Keller
Reading Materials:
Money Outlook 9th April 2008

Business and Economy April 2008

Economic Times

Fact Sheets Of various AMCs ( Asset Management Companies)

Indian Management Journal


Hindustan Time Business



*This questionnaire is only for academic purpose
1) What is your yearly income?
Below 1.5 lakh
3Lakh - 4.5lakh

1.5 lakh- 3lakh

More than 4.5 lakh

2) You come to know about Mutual funds through


Through TV

Any Other

3) Where do you invest the most (Tick more than one)?



Fixed Deposits

Post Office

Government Securities

Mutual Fund


4) For how long you are associated with Mutual Fund

less than 1 year


More than 4 year

No association

5) What are the various schemes you know about Mutual funds.



close ended

Open ended



6) How much money have you invested in Mutual fund?




more than 75k

7) What is your average investment period?

less than 6 months

6months-12 months

1 year- 3 year

more than 3 year

8) How much returns are expected through your investments


more than 20%

9) Which is the most important parameter, you would look on when investing in Mutual fund?
Risk and return

Tax advantage



Brand Name


10) What type of risk you want to avert by taking Mutual fund?
Financial Risk

Time Risk

11) If you know about SIP, how much you invested in SIP yearly?



more than 75k

12) Are you the investor of Kotak?



13) What motivates you to buy a Mutual fund from KOTAK rank according to your preferences ?

Brand name

Competitive benefits

Services Offered

None of these

14) What do you feel about the Mutual funds provided by KOTAK (please tick one option)
Neither Satisfied/Unsatisfied


Nor dissatisfied


15) Are the customer sales promotional activities of KOTAK effective?



16) Other than Mutual Fund, MAHINDRA FINANCE also offers:

Life Insurance
General Insurance (Home insurance, Health insurance and Motor insurance)
Both of above
None of above

17) As far as investment is concerned, how long have you been associated with MAHINDRA ?
Less than a year

1-2 years

3-5 years

6-10 years

More than 10 years

18) Would you refer a friend/relative to buy KOTAK Mutual fund?

Definitely yes

Probably yes

Not sure

Probably not

Definitely not

19) What can be a probable reason for avoiding KOTAK Mutual fund?
Non competitive
Lack of trust
Lack of information
Any other (please specify) _________________________________