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CHAPTER NO.

RESEARCH METHODOLOGY
1.Literature Review

[ CITATION Ste04 \l 16393 ]

This paper presents the results of a detailed comparison of the perceptions by individual
consumers and expert financial advisers of the investment risk involved in various UK
personal financial services' products. Factor similarity tests show that there are significant
differences between expert and lay investors in the way financial risks are perceived.
Financial experts are likely to be less loss averse than lay investors, but are prone to
affiliation bias (trusting providers and salesmen more than lay investors do), believe that the
products are less complex, and are less cynical and distrustful about the protection provided
by the regulators. The traditional response to the finding that experts and nonexperts have
different perceptions and understandings about risk is to institute risk communication
programmes designed to reeducate consumers. However, this approach is unlikely to be
successful in an environment where individual consumers distrust regulators and other
experts.

[ CITATION Pam05 \l 16393 ]

Every year, millions of dollars flow into 401(k)-type and other savings plans. As large
numbers of Baby Boomers begin to retire in a few short years, millions of dollars will start to
flow out. Most workers will be on their own in managing their savings during retirement
because most plan sponsors deliberately restrict their plans to lump sum distributions. This
paper explains how legal reforms in the early 1990s increased the risk of fiduciary liability
associated with annuities, a well-respected technique for managing income in retirement, and
decreased their popularity among plan sponsors. It argues that those reforms, largely intended
to protect participants in defined benefit plans, have proved counter-productive for savings
plan participants. It then describes how a proposal for a federal charter option for life
insurance companies could hold some promise for persuading plan sponsors to put annuities
back into savings plans.

[ CITATION Shi05 \l 16393 ]


Can dysfunction in neural systems subserving emotion lead, under certain circumstances, to
more advantageous decisions? To answer this question, we investigated how normal
participants, patients with stable focal lesions in brain regions related to emotion (target
patients), and patients with stable focal lesions in brain regions unrelated to emotion (control
patients) made 20 rounds of investment decisions. Target patients made more advantageous
decisions and ultimately earned more money from their investments than the normal
participants and control patients. When normal participants and control patients either won or
lost money on an investment round, they adopted a conservative strategy and became more
reluctant to invest on the subsequent round; these results suggest that they were more affected
than target patients by the outcomes of decisions made in the previous rounds.

[ CITATION Kim05 \l 16393 ]

The purpose of this study is to examine factors contributing to individuals retirement


confidence using the 2004 Retirement Confidence Survey. Retirement confidence includes
the views and attitudes of Americans regarding retirement, their preparations for retirement,
their confidence with regard to various aspects of retirement, and related issues. The results
suggest that those who calculated their retirement fund needs, had more savings, higher levels
of confidence in government programs such as Social Security and Medicare, higher
household income, better health, and who received workplace financial education and advice
had higher levels of retirement confidence than others. The findings provide implications for
financial professionals, employers, and policymaker.

[ CITATION JrJ06 \l 16393 ]

The baby boomer generation is quickly moving to the time of retirement. Signs point to the
need for boomers to assume more responsibility for their financial security in retirement. In
general, older women today do not have the financial resources that men do and are poorer in
retirement. Conditions seem to be pointing to the fact that boomer women are moving in that
direction as well. However, women seem to prepare less for retirement. This article looks at
some of the reasons for women's lack of planning and saving for financial security in
retirement. Economic and psychosocial reasons that contribute to this lack of preparation are
examined, and some recommendations for change are suggested.
[ CITATION Lus07 \l 16393 ]

We compare wealth holdings across two cohorts of the Health and Retirement Study: the
early Baby Boomers in 2004, and individuals in the same age group in 1992. Levels and
patterns of total net worth have changed relatively little over time, though Boomers rely more
on housing equity than their predecessors. Most important, planners in both cohorts arrive
close to retirement with much higher wealth levels and display higher financial literacy than
non-planners. Instrumental variables estimates show that planning behavior can explain the
differences in savings and why some people arrive close to retirement with very little or no
wealth.

[ CITATION Bec08 \l 16393 ]

There are robust gender differences in the domains of risk taking, overconfidence and
competition behavior. However, as expertise tends to level these differences, we ask whether
financial experts still show gender dissimilarities in their domains of decision making? We
analyze survey responses of 649 fund managers in the U.S., Germany, Italy and Thailand, and
find that female fund managers tend to behave as expected from gender studies: they are
more risk averse and shy away from competition in the tournament scenario. The expected
lower degree of overconfidence by women is yet so small that it becomes insignificant in
fund management.

[ CITATION Baz09 \l 16393 ]

They drew attention to the puzzle that investors buy actively managed equity mutual funds,
even though on average such funds underperform index funds. We uncover another puzzling
fact about the market for equity mutual funds: Funds with worse before-fee performance
charge higher fees. This negative relation between fees and performance is robust and can be
explained as the outcome of strategic fee-setting by mutual funds in the presence of investors
with different degrees of sensitivity to performance. We also find some evidence that better
fund governance may bring fees more in line with performance.
[ CITATION Nic09 \l 16393 ]

I Studied the dynamics of investor fund flows in a sample of socially screened equity mutual
funds and compared the relation between annual funds flows & lagged performance in SR
funds to the same relation in a matched sample of conventional funds. The result revealed
that the extra-financial SR attribute serves to dampen the rate at which SR investors trade
mutual funds. The study noted that the differences between SR funds and their conventional
counterparts are robust over time and persist as funds age. The study found that the
preferences of SR investors may be represented by conditional multi-attribute utility function
(especially when SR funds deliver positive returns). The study remarked that mutual fund
companies can expect SR investors to be more loyal than investors in ordinary funds

[ CITATION Roo12 \l 16393 ]

Relying on comprehensive measures of financial knowledge, we provide evidence of a strong


positive association between financial literacy and net worth, even after controlling for many
determinants of wealth. We discuss two channels through which financial literacy might
facilitate wealth accumulation. First, financial knowledge increases the likelihood of
investing in the stock market, allowing individuals to benefit from the equity premium.
Second, financial literacy is positively related to retirement planning and the development of
a savings plan has been shown to boost wealth.

[ CITATION Tah12 \l 16393 ]

The financial sector particularly the mutual funds in Oman market have shown limited
potential to attract consumers. Consumer attitudes towards financial investments have always
been a challenge for the finance companies due to limited risk appetite of consumers which
are largely attributed to both cognitive and affective components of attitude. Through a
process of methodological triangulation data was collected from experts in the finance sector
from a sample of 200 consumers. Pearson product moment correlation and standard multiple
regressions through SPSS version 20 were used to study the hypothesized relationships in this
study. This study throws light on critical variables that shape consumer attitudes towards
mutual funds and recommends the scope for introducing new mutual funds which has
significant implications on capital markets in Oman.

[ CITATION Agr13 \l 16393 ]

In todays competitive environment, different kinds of investment avenues are available to the
investors. All investment modes have advantages & disadvantages. An investor tries to
balance these benefits and shortcomings of different investment modes before investing in
them. Among various investment modes, Mutual Fund is the most suitable investment mode
for the common man, as it offers an opportunity to invest in a diversified and professionally
managed portfolio at a relatively low cost. In this paper, an attempt is made to study mainly
the investment avenue preferred by the investors of Mathura, and we have tried to analyze the
investors preference towards investment in mutual funds when other investment avenues are
also available in the market.

[ CITATION Cha13 \l 16393 ]

There has been theoretical as well as applied evidence about gender differences in investment
behaviour and investor perceptions. The present study investigates the important factors for
choice of mutual funds and critically analyses the satisfaction level for various mutual fund
schemes. Mutual fund is a retail product designed to target small investors, salaried people
and others who are intimidated by the mysteries of stock market but like to reap the benefits
of stock market investing. At the retail level, investors are unique and a highly heterogeneous
group and their fund/scheme selections also widely differ. The study favours Asset
Management Companies for designing suitable products to meet the changing financial needs
of the investors. Thus, examination of a sample of 200 (83 females and 117 males) investor
engineer respondents discerned the differences in the choice of mutual funds and its likely
implications on future investment for male and female engineer investors. A higher level of
awareness and satisfaction among the male respondents was observed in the study. The
results of the study will have some useful implications for the engineers in selecting
investment products and for Asset Management Companies for their product designing and
marketing.
[CITATION MAg13 \l 16393 ]

in today's competitive environment, different kinds of investment avenues are available to the
investors. All investment modes have advantages & disadvantages. An investor tries to
balance these benefits and shortcomings of different investment modes before investing in
them. Among various investment modes, Mutual Fund is the most suitable investment mode
for the common man, as it offers an opportunity to invest in a diversified and professionally
managed portfolio at a relatively low cost. In this paper, an attempt is made to study mainly
the investment avenue preferred by the investors of Mathura, and we have tried to analyze the
investors preference towards investment in mutual funds when other investment avenues are
also available in the market.

[ CITATION Duy13 \l 16393 ]

The events following Lehman's failure in 2008 and the current turmoil emanating from
Europe highlight the structural vulnerabilities of short-term credit markets and the role of
central banks as back-stop liquidity providers. The Federal Reserve's response to financial
disruptions in the United States importantly included the creation of liquidity facilities. Using
a differences-in-differences approach, we evaluate one of the most unusual of these
interventionsthe Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
Facility. We find that this facility helped stabilize asset outflows from money market funds
and reduced asset-backed commercial paper yields significantly.

[ CITATION Nai15 \l 16393 ]

Mutual Funds provide a platform for a common investor to participate in the Indian capital
market with professional fund management irrespective of the amount invested. The Indian
mutual fund industry is growing rapidly and this is reflected in the increase in Assets under
management of various fund houses. Mutual fund investment is less risky than directly
investing in stocks and is therefore a safer option for risk averse investors. This project aims
at finding out the factors affecting investment decision on mutual funds and its preference
over retail investors. This project also aims at finding about the factors that prevent the
people to invest in mutual funds. The findings will help mutual fund companies to identify
the areas required for improvement and can also improve their marketing strategies. It will
help the MF companies to create new and innovative product according to the orientation of
investors.

[ CITATION Pri16 \l 16393 ]

Mutual Fund has emerged as a tool for ensuring ones financial well being. As information
and awareness is rising more and more people are enjoying the benefits of investing in
mutual funds. This research will introduce the customer perception with regard to mutual
funds that is the schemes they prefer, the plans they are opting, the reasons behind such
selections and also this research dealt with different investment options, which people prefer
along with and apart from mutual funds. Like postal saving schemes, recurring deposits,
bonds, and shares. The findings from this project is that most of the people are hesitant in
going for new age investments like mutual funds and prefer to avert risks by investing in less
riskier investment options like recurring deposits.

[ CITATION Deb16 \l 16393 ]

Risk is an inherent feature of all types of financial investments. The concept 'risk perception'
means the way in which investors view the risk of financial assets, based on their concerns
and experience. The risk perception of investors is an important factor that influences the
investment behaviour. In the present paper, impact of risk perception of the bank employees
in Tripura on their investment behaviour in mutual funds is analyzed. It is found that overall
level of risk perception of bank employees in Tripura towards mutual fund is of moderate
level. It is also found that risk perception and volume of investment in mutual fund is
inversely related.

[ CITATION Stu16 \l 16393 ]


The indian financial market has achieved tremendous growth over the last 15 years with
systems that make it on par with developed markets. The important feature of developed
markets is the growing number of investors and investment avenues. This paper examines
financial planning,the impact of various variables on investors in making their investment
decision and try to develop conceptual framework based on it.

[ CITATION Kar16 \l 16393 ]

With an aim to enhance mutual fund investments from smaller cities, in the year 2012 SEBI
issued a mandate stipulating minimum level of investment from beyond -15 cities (B-15,
tier II and tier III cities). Total contribution of (B-15) cities in total assets under management
(AUM) of mutual fund companies in India on 31st December 2014 revealed a disappointing
figure of 13%. On this premise a study was conducted to understand awareness and
knowledge about mutual funds (MF) amongst residents of Sangli district. A questionnaire
was circulated amongst 100 educated individuals to assess the level of penetration of mutual
funds, and understand attitude of investors in Sangli region. The influence of demographic
variables such as gender, age, educational qualification and profession on the extent of
knowledge about mutual funds was assessed with the use of one way ANOVA test. It was
concluded that knowledge of mutual funds was independent of educational qualification but
was influenced by age and occupation as determining variables. The study pans out that
AMCs (asset management companies) should educate investors about mutual funds through
regular awareness programs. The findings will guide mutual fund companies to draw out a
specific plan and devise strategies to augment investments from B-15 cities.

CHAPTER NO.2

INDUSTRY PROFILE
INTRODUCTION TO MUTUAL FUND

HISTORY

In India, Mutual fund industry stated in 1963 with the formulation of UTI (Unit Trust of
India, at the initiative of Government of India and Reserve Bank of India. Much later, in
1987, SBI Mutual Fund became the first non-UTI mutual fund in India.
Subsequently, the year 1993 heralded a new era in the mutual fund industry. This was marked
by the entry of private companies in the sector. After the Securities and Exchange Board of
India (SEBI) Act was passed in 1992, the SEBI Mutual Fund Regulations came into being in
1996. Since then, the Mutual fund companies have continued to grow exponentially with
foreign institutions setting shop in India, through joint ventures and acquisitions.

As the industry expanded, a non-profit organization, the Association of Mutual Funds in India
(AMFI), was established on 1995. Its objective is to promote healthy and ethical marketing
practices in the Indian mutual fund Industry. SEBI has made AMFI certification mandatory
for all those engaged in selling or marketing mutual fund products.

As the name suggests, a 'mutual fund' is an investment vehicle that allows several investors to
pool their resources in order to purchase stocks, bonds and other securities. These collective
funds (referred to as Assets under Management or AUM) are then invested by an expert fund
manager appointed by a mutual fund company called Asset Management Company (AMC).

The combined underlying holding of the fund is known as the 'portfolio', and each investor
owns a portion of this portfolio in the form of units.

These are classified according to their maturity period, or investment objective. One can also
classify mutual funds as 'open ended funds' - where investors may invest or redeem at any
point in time and 'close ended funds' - where investors can invest only during the initial
launch period known as the NFO (New Fund Offer) period.

What is Mutual Fund?

A mutual fund is a professionally-managed trust that pools the savings of many investors and
invests them in securities like stocks, bonds, short-term money market instruments and
commodities such as precious metals. Investors in a mutual fund have a common financial
goal and their money is invested in different asset classes in accordance with the funds
investment objective.
Mutual funds are pooled investment vehicles actively managed either by professional fund
mnagers or passively tracked by an index or induatry. The funds generally well diversified to
offset potential losses. They offer an attractive way for savings to be managed in a passive
manner without paying high fees or requiring constant attention from individual investors.
Mutual funds presents an option for investors who lack the time or knowledge to make
traditional and complex inveatment decisions. By putting your money in mutual fund, you
permit the portfolio manager to make those essential decision for you.

In simple Words, Mutual Fund is a mechanism for pooling the resources by issuing units to
the investors and investing funds in securities in accordance with objectives as disclosed in
offer document.

In the Mutual funds, Diversification reduces the risk because all stocks may not move in the
same direction in the same proportion at the same time. Mutual Fund issues units to the
investors in accordance with Quantum of money invested by them. Investors of Mutual funds
are known as unit holders.

The profit or loses are shared by the investors in proportion to their investments. The Mutual
finds normally come out with a number of schemes with different investment objectives
which are launched from time to time. In India, A Mutual fund is required to be required to be
registered with Securities and Exchange Board of India (SEBI) which regulates securities
markets securities makes before it can collect funds from the public.

SEBI
In short, a Mutual fund is a common pool of money in to which investors with common
investment objective place their contribution that are to be invested in accordance with the
stated investment objective of the scheme. The investment manager would invest the money
collected from the investor in to assets that are defined/permitted by the stated objective of
the scheme. For example, an equity fund would invest in equity and equity related
instruments and a debt fund would invest in bonds, debentures, gilts etc. Mutual fund is a
suitableTRUSTEE
investment or the common man as it offers an opportunity to SPONSOR
invest in a diversified,
professionally managed basket of securities at a relatively low cost.

Structure AMC
of Mutual fund Industry
OPERATIONS

FUND MANAGER

MKT. / SALES
MUTUAL FUND
MKT. / SALES

SCHEMES DISTRIBUTORS

INVESTORS
A VEHICLE FOR INVESTING IN PORTFOLIO OF STOCKS AND
BONDS

Characteristics of Mutual Funds:

A Mutual Fund actually belongs to the investors who have pool their funds. The
mutualfind is in the hands of the investors.
A Mutual Fund is managed by the investment professionals and other service
providers, who earn a fee for theirservices, from the fund, manage a mutual fund.

The pool of fund is invested in a portfolio of marketing investment. The value of


the portfolio ids updated every day.

The investers shares in the fund is denominated by units. The value of the unit
changes with changes in the portfolio value, every day. The value of one unit of
ivestment is called as the net asset value (NAV). The investment portfolio of the
mutual fund is created according to the stated investment objectives of the fund.

Benefits of Investing in a Mutual Fund

As an investor, you would like to get maximum returns on your investments, but you may not
have the time to continuously study the stock market to keep track of them. You need a lot of
time and knowledge to decide what to buy or when to sell. A lot of people take a chance and
speculate, some get lucky, most don t. This is where mutual funds come in. Mutual funds
offer you the following advantages :
Professional management

Regulations Diversification

Transparency More choice

Rupee cost averaging Affordability

Liquidity Tax benefits

Professional management:-

Qualified professionals manage your money, but they are not alone. They have a research
team that continuously analyses the performance and prospects of companies. They also
select suitable investments to achieve the objectives of the scheme. It is a continuous process
that takes time and expertise which will add value to your investment. Fund managers are in a
better position to manage your investments and get higher returns.
Diversification:-

The clich, "don't put all your eggs in one basket" really applies to the concept of intelligent
investing. Diversification lowers your risk of loss by spreading your money across various
industries and geographic regions. It is a rare occasion when all stocks decline at the same
time and in the same proportion. Sector funds spread your investment across only one
industry so they are less diversified and therefore generally more volatile.

More choice:-

Mutual funds offer a variety of schemes that will suit your needs over a lifetime. When you
enter a new stage in your life, all you need to do is sit down with your financial advisor who
will help you to rearrange your portfolio to suit your altered lifestyle. Professional
management Diversification More choice Affordability Tax benefitsLiquidity Rupee-cost
averaging Transparency Regulations

Affordability:-

As a small investor, you may find that it is not possible to buy shares of larger corporations.
Mutual funds generally buy and sell securities in large volumes which allow investors to
benefit from lower trading costs. The smallest investor can get started on mutual funds
because of the minimal investment requirements. You can invest with a minimum of Rs.500
in a Systematic Investment Plan on a regular basis.

Tax benefits: Investments held by investors for a period of 12 months or more qualify for
capital gains and will be taxed accordingly. These investments also get the benefit of
indexation.

Liquidity:-

With open-end funds, you can redeem all or part of your investment any time you wish and
receive the current value of the shares. Funds are more liquid than most investments in
shares, deposits and bonds. Moreover, the process is standardised, making it quick and
efficient so that you can get your cash in hand as soon as possible.

Rupee-cost averaging:-

With rupee-cost averaging, you invest a specific rupee amount at regular intervals regardless
of the investment's unit price. As a result, your money buys more units when the price is low
and fewer units when the price is high, which can mean a lower average cost per unit over
time. Rupee-cost averaging allows you to discipline yourself by investing every month or
quarter rather than making sporadic investments.

Transparency:-

The performance of a mutual fund is reviewed by various publications and rating agencies,
making it easy for investors to compare fund to another. As a unitholder, you are provided
with regular updates, for example daily NAVs, as well as information on the fund's holdings
and the fund manager's strategy.

Regulations:-

All mutual funds are required to register with SEBI (Securities Exchange Board of India).
They are obliged to follow strict regulations designed to protect investors. All operations are
also regularly monitored by the SEBI.

Disadvantages of Mutual Fund


No insurance

Too many choices Dilution

Inefficiency of cash reserves Fees and Expenses

Size Poor performance

Trading limitation Loss of control

No Insurance:-
Mutual funds, although regulated by the government, are not insured against losses. The
Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at banks,
credit unions, and savings and loans, not mutual funds. That means that despite the risk-
reducing diversification benefits provided by mutual funds, losses can occur, and it is
possible (although extremely unlikely) that you could even lose your entire investment.

Dilution:-

Although diversification reduces the amount of risk involved in investing in mutual funds, it
can also be a disadvantage due to dilution. For example, if a single security held by a mutual
fund doubles in value, the mutual fund itself would not double in value because that security
is only one small part of the fund's holdings. By holding a large number of different
investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.

Fees and Expenses:-

Most mutual funds charge management and operating fees that pay for the fund's
management expenses (usually around 1.0% to 1.5% per year for actively managed funds). In
addition, some mutual funds charge high sales commissions, 12b-1 fees, and redemption fees.
And some funds buy and trade shares so often that the transaction costs add up significantly.
Some of these expenses are charged on an ongoing basis, unlike stock investments, for which
a commission is paid only when you buy and sell .

Poor Performance:-

Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all
mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number
of critics now question whether or not professional money managers have better stock-
picking capabilities than the average investor.

Loss of Control:-
The managers of mutual funds make all of the decisions about which securities to buy and
sell and when to do so. This can make it difficult for you when trying to manage your
portfolio. For example, the tax consequences of a decision by the manager to buy or sell an
asset at a certain time might not be optimal for you. You also should remember that you are
trusting someone else with your money when you invest in a mutual fund.

Trading Limitations:-

Although mutual funds are highly liquid in general, most mutual funds (called open-ended
funds) cannot be bought or sold in the middle of the trading day. You can only buy and sell
them at the end of the day, after they've calculated the current value of their holdings.

Size:-

Some mutual funds are too big to find enough good investments. This is especially true of
funds that focus on small companies, given that there are strict rules about how much of a
single company a fund may own. If a mutual fund has $5 billion to invest and is only able to
invest an average of $50 million in each, then it needs to find at least 100 such companies to
invest in; as a result, the fund might be forced to lower its standards when selecting
companies to invest in.

Inefficiency of Cash Reserves:-

Mutual funds usually maintain large cash reserves as protection against a large number of
simultaneous withdrawals. Although this provides investors with liquidity, it means that some
of the fund's money is invested in cash instead of assets, which tends to lower the investor's
potential return.

Too Many Choices:-


The advantages and disadvantages listed above apply to mutual funds in general. However,
there are over 10,000 mutual funds in operation, and these funds vary greatly according to
investment objective, size, strategy, and style. Mutual funds are available for virtually every
investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and every
country or region of the world. So even the process of selecting a fund can be tedious.
ROLE OF MUTUAL FUNDS

Mutual Funds & Financial Market

In the process of development Indian mutual funds have emerged as strong financial
intermediaries & are playing a very important role in bringing stability to the financial system
& efficiency to resource allocation. Mutual Funds have opened new vistas to investors &
imparted a much-needed liquidity to the system. In the process they have challenged the
hitherto role of commercial banks in the financial market & national economy.

Mutual Fund & Capital Market The active involvement of Mutual Funds in promoting
economic development can be seen not only in terms of their participation in the savings
market but also in their dominant presence in the money & capital market. A developed
financial market is critical to overall economic development, & Mutual Funds play an active
role in promoting a healthy capital market. The asset holding pattern of mutual funds in the
USA indicates the dominant role of Mutual Funds in the capital market & money market.
Moreover they have also rendered critical support to securities mortgage loans & municipal
bond market in the USA. In the USA, Mutual Funds provide very active support to the
secondary market in terms of purchase of securities.

Investors preferences pattern in India has undergone a tremendous change during recent
times, along with the changes in the share of financial assets in the total annual savings.
Indian investors have moved towards more liquid & growth oriented trade able instruments
likes shares/debentures & units of Mutual Funds. The shift is asset holding pattern of
investors has been significantly influenced by the equity & unit culture while the holders
of company shares & debentures are concentrated in the urban areas, small/medium investors
in the semi- urban & rural areas are tending towards Mutual Funds.

Mutual Funds in India have certainly created awareness among investors about equity
oriented investments & its benefits.
KEY INVESTMENT CONSIDERATION BY THE INVESTORS

Y o u g e t y o u r m o n e y b a c k

Y o u g e t y o u r m o n e y b a c k w h e n y o u w a n t it.

H o w e a s y is it to in v e s t, d is in v e s t a n d a d ju s t to y o u r n e e d s ?

Y o u g e t y o u r m o n e y b a c k

H o w m u c h is r e a lly le f t f o r y o u p o s t ta x ?
TYPES OF MUTUAL FUNDS

The mutual fund industry of India is continuously evolving. Along the way, several industry
bodies are also investing towards investor education. Yet, according to a report by Boston
Analytics, less than 10% of our households consider mutual funds as an investment avenue. It
is still considered as a high-risk option.

In fact, a basic inquiry about the types of mutual funds reveals that these are perhaps one of
the most flexible, comprehensive and hassle free modes of investments that can
accommodate various types of investor needs.

Various types of mutual funds categories are designed to allow investors to choose a
scheme based on the risk they are willing to take, the investable amount, their goals, the
investment term, etc.

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By Constitution:-

a) Close Ended: In India, this type of scheme has a stipulated maturity period and investors
can invest only during the initial launch period known as the NFO (New Fund Offer) period.

b) Open Ended: This scheme allows investors to buy or sell units at any point in time. This
does not have a fixed maturity date.

c) Interval: Operating as a combination of open and closed ended schemes, it allows


investors to trade units at pre-defined intervals.

By Investment Objective:-

a) Equity Funds: Equities are a popular mutual fund category amongst retail investors.
Although it could be a high-risk investment in the short term, investors can expect capital
appreciation in the long run. If you are at your prime earning stage and looking for long-term
benefits, growth schemes could be an ideal investment.

b) Debt Funds: In a debt/income scheme, a major part of the investable fund are channelized
towards debentures, government securities, and other debt instruments. Although capital
appreciation is low (compared to the equity mutual funds), this is a relatively low risk-low
return investment avenue which is ideal for investors seeing a steady income.

c) Cash/Balanced Funds: This scheme allows investors to enjoy growth and income at
regular intervals. Funds are invested in both equities and fixed income securities; the
proportion is pre-determined and disclosed in the scheme related offer document. These are
ideal for the cautiously aggressive investors. These schemes are also known as Hybrid
Schemes.
TAXATION BENEFITS INVESTING IN MUTUAL FUNDS

Taxation of dividends of mutual fund schemes

Category Tax Rates for Individuals


Liquid Funds 28.325%
Other debt funds 28.325%
Equity funds Nil

Capital Gains

Capital Short term capital gains Long term term capital gains
gains (units held for 12 months or less) (units held for more than 12 months)

Equity 15%+10%surcharge+3%cess=16.995% Nil

Capital Short term capital gains Long term term capital gains
gains (units held for less than 3 years) (units held for more than 12 months)

Debt and
With indexation:20%
Liquid 30%^+10%surcharge+3%cess=33.99%
+10%surcharge+3%cess=22.66%
Funds

The amount invested in tax-saving funds (ELSS) is eligible for deduction under Section 80C,
However the aggregate amount deductible under the said section cannot exceed Rs 150,000
(in a financial year).

^- Assuming that the investor falls into highest tax bracket


INDEXATION:

Under Indexation, you are allowed by law to inflate the cost of your asset by a
government notified inflation factor.
This factor is called the Cost Inflation Index, from which the word Indexation
has been derived.
This inflation index is used to artificially inflate your asset price.
This helps to counter erosion of value in the price of value in the price of an asset and
brings the value of an asset at par with prevailing market price.
This cost inflation index factor is notified by the government every year. This index
gradually increases every year due to inflation.

INDEXATION CALCULATION:

Invested amount X (CII of the year when the redemption has happened / CII of the year
when the investment has been done).
So the indexed cost of investment for an investment of Rs 100,000 done in the year 2011-
12(CII=785) in the year 2014-15 (CII=1024) will be as follows:

130445.9 = 1024*100000

785

More about Mutual Fund


Net Asset Value (NAV) Net Asset Value of the fund is the cumulative market value
of the assets of the fund net of its liabilities. NAV per unit is simply the net value of
assets divided by the number of units outstanding. Buying and selling into funds is
done on the basis of NAV- related prices.

The NAV of a Mutual Fund are required to published in newspaper. The NAV of an
open end scheme should be disclosed at least on a weekly basis.
The following are the requirements and accounting definitions laid down by SEBI.

NAV Per Share =total assests of funds-accured expenses-payables-other liabilities

Number of units outstanding

Entry/ Exit Load:

A load is a charge, which the mutual fund may collect on entry and /or exit from a fund. A
load is levied to cover thr up-front cost incuured by the mutual fund for selling the fund. It
also covers one time processing costs. Some funds do not charge any entry or exit load. These
fuds are refered to as No Load Fund. Funds usually charge an entry load ranging between
1.00% and 2.00%. Exit load vary between 0.25% and 2.00%.

For e.g. Let us assume an investor invest Rs. 10,000/- and current NAV is Rs. 13/-. If the
entry load levied is 1.00%, the price at which the investor investsis Rs. 13.13 per unit. The
investors receives 10000/13.13 = 761.6146 units. (Note that units are allotted to an investor
based on the amount invested and not on the basis of no. of units purchased). Let us now
assume that the same investor decides to redeem his 761.6146 units.

Let us also assume that the NAV is Rs.15/- and the exit load is 0.50%. therefore the
redemption price per units works out to Rs.14.925. The investor therefore receives 761.6146
14.925 = Rs.11367.10.

Sale or Repurchase/Redemption price


The price or NAV a unit holder is charged while investing in a open-ended scheme is called
sales price. It may include sales load if applicable.

Repurchase or Redemption price is the price or NAV at which open-ended scheme purchases
or redeems is units from the holders. It may include exit load if applicable.

Risk involved in investing in Mutual Funds:

The level of risk in a mutual fund depends on what it invests in. Usually, the higher the
potential returns, the higher the risk will be. For example, stocks are generally riskier than
bonds, so an equity fund tends to be riskier than a fixed income fund.

Some specialty mutual funds focus on certain kinds of investments, such as emerging
markets, to try to earn a higher return. These kinds of funds also tend to have a greater risk of
a larger drop in value.

Mutual Funds do not provide assured returns. Their returns are linked to their performance.
They invest in shares, debentures, bonds, etc. All these investments involve an element of
risk. The unit value may vary depending upon the performance of the company and if a
company defaults in payments of interest/principal on their debentures/bonds the
performance of the fund may get affected. Besides incase there is a sudden downturn in the
industry or the government comes up with new a regulation which affects a particular
industry or company the fund can again be adversely affected. All these factor influence the
performance of Mutual funds.

Types of Risks:

1. Market Risk: If the overall stock or bond markets fall on account of overall economic
factors, the value of stocks or bonds holdings in the funds portfolio can drop. Thereby
impacting the fund performance.

2. Non-market Risk: Bad news about an individual company can pull down its stock price,
which can negatively affect fund holdings. This risk can be reduced by having a diversified
portfolio that consists of a wide variety of stocks drawn from different industries.
3. Interest rate Risk: Bond prices and interest rates moves in opposite directions. When
interest rates rise, bond prices fall and this decline in underlying securities affects the fund
negatively.

4. Credit Risk Bonds: are debt obligation. So when the funds invested in corporate bonds,
they run the risk of corporate defaulting on their interest and principal paymen obligations
and when that risk. crystalizes, it leads to a fall n the value of the bond causing the NAV of
the fund to take a beating.

5. Inflation risk: Sometimes referred to as 'loss of purchasing power'. Whenever the


rate of inflation exceeds the earnings on your investment, you run the risk that
you'll actually be able to buy less, not more.

6. Other risks associated are:

-Investment risks

-Liquidity risk

-Changes in the government policy


CHAPTER NO.3

COMPANY PROFILE
ICICI SECURITIES

ICICI Securities Ltd is an integrated securities firm offering a wide range of services
including investment banking, institutional broking, retail broking, private wealth
management, and financial product distribution.
ICICI Securities sees its role as 'Creating Informed Access to the Wealth of the
Nation' for its diversified set of client that includes corporates, financial institutions,
high net-worth individuals and retail investors.
Headquartered in Mumbai, ICICI Securities has 250 stores across 66 cities in India
and global offices in Singapore and New York.
ICICI Securities empowers over 2 million Indians to seamlessly access the capital
market with ICICIdirect.com, an award winning and pioneering online broking
platform. The platform nit only offer convenient way to invest in Equity, Derivatives,
and Currency Futures, Mutual Funds but also other services Fixed Deposits, Loans,
Tax Services, New Pension System and Insurance are available. ICICIdirect.com
offers a covenant and easy to use platform to invest in equity and various financial
instruments using its unique 3-in-1account which integrates customers savings,
trading and Demat account.
Apart from convenience, ICICIdirect.com also offers access to comprehensive
research information, stock picks and Mutual Funds recommendations among other
offerings. Tailored services and trading strategies are available to different types of
customers; long term investors, day traders, high volume traders and derivatives
traders to name some.
ICICI Securities Inc., the step-down wholly owned US subsidiary of the company is a
member of the Financial Industry Regulatory Authority (FINRA) / Securities
Investors Protection Corporation (SIPC). ICICI Securities Inc. activities include
Dealing in Securities and Corporate Advisory Services in the United States.
ICICIdirect.com uses the most advanced commercially available 128-bit encryption
technology enabled Secure Socket Layer (SSL). To ensure that the information
transmitted between the client and ICICIdirect.com across the internet is safe and
cannot be accessed by any third party.
ICICIdirect.com is the first brokers in India to introduce Digitally Signed Contract
Note to its customers. As a result, the process of generating contract notes has been
automated and the same would be instantly available to its customers in a safe and
secure manner through the website.
ICICI Securities has set-up neighborhood financial stores which offer a variety of
financial products and services under one roof. It is a one-stop shop that facilitates
existing and potential customer to speak to our team and understand their financial
plans and goals.
ICICI Securities Inc. is also registered with the Monetary Authority of Singapore
(MAS) and operates a branch office in Singapore.

More about ICICIdirect.com

IF I invest in Equity:

A unique 3-in-1 On-line Trading Account Seamless, Secure and Integrated 3-in-1
trading platform... Our 3-in-1 online trading platform links your banking, trading and
demat accounts, ensuring unmatched convenience for customers. With an
ICICIdirect.com account, you get the following benefits:

a) Seamless Trading: You can trade in shares without going through the hassle of
tracking settlement cycles, writing cheques and transfer instructions. Absolutely hassle free!

b) Security: Instead of transferring monies to a broker's pool or towards deposits, you can
manage your own demat and bank accounts when you trade through ICICIdirect.com. It
provides you the flexibility to pay only when you trade.

c) Wide range of products: Share trading in both NSE and BSE, innovative offerings like -
Margin, MarginPlus, BTST, and SPOT. Derivatives trading, overseas trading, mutual funds,
mutual funds, IPOs and on-line life insurance.

d) Award Winning Research: We understand the need for the right research to make the
right investment decision and have focused heavily in this area. Our team with its consistent
delivery has been voted as the 'Most preferred brand of financial advisory services' at the
CNBC Awaaz Consumer Awards, 2007.

e) Control: You can be rest assured, that your order will be precisely for the amount you
wanted it to be, without any deviation, giving you full control of your money and your trades

f) Tracking: and Review Monitoring your investments is as important if not more than
making that investment itself. Our portfolio tracker and watchlist along with sms alerts will
always keep you updated on the status of your investments with us and act on them when
required.
IF I dont invest in Equity:

A unique 2-in-1 On-line Trading Account

A Unique 2-in-1 account that gives you:

a) Convenience: The 2-in-1 account integrates your banking and investment accounts. When
you invest, the system checks for the funds in your account and then executes your request
online. The bank account is automatically debited or credited. This enables you to invest
without going through the hassles of filling up long forms, writing cheques, following up
with different brokers for different investments etc.

b) Speed: Your investment reduces to choosing the investment option and a few clicks and
your investment request is placed online instantly!

c) Control: A comprehensive account for all your investment needs thereby giving you
control over your investments!

d) Rich Content: ICICIdirect.com offers rich content on mutual funds and helps you take
informed decisions

e) Trust: ICICIdirect.com comes to you from ICICI, the organization trusted by millions of
Indians.

f) Tracking and Review: Monitoring your investments is as important if not more than
making that investment itself. Our portfolio tracker and watch list along with sms alerts will
always keep you updated on the status of your investments with us and act on them when
required.

Awards and Recognition

ICICIdirect.com, won the Outlook Money ' Best e- Brokerage Award' for 10th time in
a row in 2014. Previously, the firm won the award in 2004, 2005, 2007, 2008, 2009,
2010, 2011, 2012 and 2013.
ICICIdirect won the Franchisor of the year award 2014.
ICICIdirect won the BSE - D&B Equity Broking Awards 2014
ICICI Securities won the Award for Outstanding Social Impacts at the Global
Sustainability Leadership Awards 2014 These awards recognize institutions for their
contribution to the society in their domain as well as businesses that deliver products
and services in ways that takes full account of their responsibility towards the
communities they touch.
Ranked 2 at the THOMSON REUTERS STARMINE ANALYST AWARDS 2014 -
TOP BROKERS
ICICI Securities was awarded the "MOST ADMIRED SERVICE PROVIDER IN
FINANCIAL SECTOR at the BANKING FINANCIAL SERVICES &
INSURANCE AWARDS 2014 presented by ABP News.
ICICIdirect.com won the Mobbys award for the "Best Mobile application in Mobile
Trading".
ICICI Securities Business Partners has been conferred the Franchise India Awards
2013, for being the 'Franchisor of the year' in the Financial Services category.
ICICIdirect.com, won the award for Innovation at Banking Frontiers Finnoviti
Awards 2013. The award was conferred on ICICIDirect' for its `Valid Till Cancel
Order' (VTC) facility, which was awarded amongst the top 3 innovations in BFSI
industry by 'Peer Voting'.
ICICI Securities won the Outlook Smart use Technology eRetailer of the year 2013
conferred by FIHL in association with HomeShop18.com.
ICICIdirect.com won the 'Stock Broker of the Year' award at the Money Today FPCIL
Awards 2012
ICICI Securities Business Partners (Sub Broker channel) won the 'Franchisor of the
Year' at the Franchise Awards 2012 for the fourth time in a row. o
ICICI Securities won the 'BSE IPF D&B Equity Broking Awards 2012' under two
categories:

o Best Equity Broking House - Cash Segment


o Largest E-Broking House
ICICI Securities won the Chief Learning Officer Award from World HRD Congress
for Innovation in learning category.
ICICI Securities won the Grand Jury Award for 'Commendable performance by
National Financial Advisor (Retail) - Online' at the CNBC TV 18 - Financial
Advisor Awards 2011. The awards recognize India's best Financial Advisors.
ICICI Securities Business Partners (Sub Broker channel) won the 'Franchisor of the
Year at the Franchise Awards 2011', third time in a row.
ICICI Securities was the winner of the Smart use Technology eRetailer of the
year' 2012 award conferred by Franchise India in association with UTV Bloomberg
for the first time.
ICICIdirect.com, won the Outlook Money ' Best e- Brokerage Award' seventh time
in a row. Previously, the firm won the award in 2004, 2005, 2007, 2008, 2009 and
2010.
ICICI Securities' Business Partners (Sub Broker channel) won the 'Franchisor of the
Year 2011' for the third consecutive year.
Anup Bagchi, MD & CEO has been honoured with the Zee Business 'Industry
Newsmaker Award 2010' for his tremendous and unmatched contribution in the field
of Finance
Pankaj Pandey, Head- Research - ICICIdirect has won the Zee Business Best
Market Analyst 2010 award in the Equities Fundamental Category
CMO Asia Awards for Excellence in Branding and Marketing 2010: o
o Brand Leadership Award (overall) o
o Campaign of the Year' for the Trade Racer Campaign
o Brand Excellence in Banking and Financial Services for the store format
o Award for Brand Excellence in the Internet Business
Franchisor of the year award 2009
Retail concept of the year awards 2009
Frost and Sullivan 2009 Award for Customer Service Leadership
ICICIdirect, the neighborhood financial superstore won the prestigious Franchise
India `Service Retailer of the Year 2008 award.
ICICIdirect has also won the CNBC AWAAZ 2007 Consumer Award for the Most
Preferred Brand of Financial Advisory Services.
Best Broker - Web 18 Genius of the Web Awards 2007
ICICI Securities awarded the Asiamoney `Best Domestic Equity House' for 2012
Vikash Mantri tops The Wall Street Journal's Asia's Best Analysts survey in the
media sector for 2010
ICICI Securities has awarded as the Best Investment Bank 2008 by Global Finance
Magazine
The Corporate Finance group also was awarded a runner-up Best Merchant Banker
by Outlook Money in 2007.
ICICI Securities topped the Prime Database League Tables 2007 for money raised
through IPOs/FPOs.
The equities team was adjudged the 'Best Indian Brokerage House-2003' by
Asiamoney.
ICICI Securities Ltd was awarded the The Indian Merchants Chamber - IT Awards
2015 for the category "End Users of IT" by the Indian Merchants? Chamber under
the BFSI domain.
ICICI Securities recently won the Innovation Award for Oracle Fusion
Middleware.ICICI Securities has consistently demonstrated the best usage of Oracle
Tuxedo as an OLTP engine. These Asia-Pacific awards honor customers for their
optimum and innovative solutions using Oracle Fusion Middleware.
Fairfax Business Media has recognized ICICI Securities as a recipient of CIO 100
Asia award in 2013.
ICICI Securities has been awarded the NASSCOM IT Innovation Awards 2013.
CIO Masters for Collaboration and Cloud was awarded by Biztech2 (Network 18) in
2013.
ICICI Securities has been conferred by Dataquest in 2012
o Business Technology Excellence award
o Business Technology Innovation award
IDG India has recognized ICICI Securities as a recipient of CIO 100 award in 2009,
2010, 2011 and 2012, four times in a row.
IDG India has conferred the CIO Hall of Fame award in 2012.
EMC Transformers Award was presented for best use of IT to transform business in
2012
CIO Masters for Virtualization was awarded by Biztech2 (Network 18) in 2012
ICICI Securities was the Bloomberg UTV CXO Awards Finalist for Best Utilization
of IT to Transform Business in 2011
ICICI Securities was conferred the Gold CIO award jointly by CIOL and Dataquest at
the Enterprise Awards 2010
ICICI Securities was the NASSCOM CNBC IT User Awards Finalist in 2009 and
2010
Indian Bank's Association Business Technology Awards was presented for Best
Online Trading Platform in 2006 and 2007
SWOT ANALYSIS

Strength:

The biggest strength of ICICI SECURITIES is the online portal for the investment. Company
is pioneer in the online investment portal and at no. 1 for the best services and they are
having unique 3 in 1 account that no other broker is having. They are having user friendly
website having 27 unique investment tools from IPO to FD except MCX market.

Weakness:

All companies are having some weaknesses ICICI SECURITIES is also having weakness like
the charges, ICICI SECURITIES are having the highest charges than other brokers.

Opportunity:

The biggest opportunity is that there are many customers who are not investing through
ICICIdirect.com and then also they are having account and using just research
recommendation and investing at other broker if they reduce charges than the investors likes
to invest through ICICIdirect.com.
Threat:

The biggest threat that ICICI SECURITIES is having that now a days every brokerage
services are giving online facility and now a days all banking companies like HDFC, AXIS,
etc. are giving online demat trading services.