ANALYSIS OF MUTUAL FUNDS

ACKNOWLEDGEMENT
CERTIFICATE
 INDEX
SR.NO TOPIC PAGE NO.
1.1 NEED AND JUSTIFICATION

In order to build your wealth, you will want to invest your money. Investing allows you to put
your money in vehicles that have the potential to earn strong rates of return. If you don’t invest,
you are missing out on opportunities to increase your financial worth. Of course, you have the
potential to lose your money in investments, but if you invest wisely, the potential to gain money
is higher than if you never invest.

Whereas on the other hand there are two types of investments, short term investments and long
term investments. Mutual Funds are the type of long term investments wherein one gets a
specific amount of return after a specific period of time depending on the various schemes one
may apply into. Similarly, Mutual funds are versatile tools that can be put to many uses such as
generating emergency funds and retirement income.

Very often, we think we don’t need mutual funds in our portfolio and that our existing
investments are enough to meet our future goals. But, to reach our goals we need a vehicle. But
that doesn’t mean mutual funds are the only vehicle for reaching our goals, but they are certainly
one of them.

Many investors in the stock market lack the necessary time and knowledge to properly manage
their securities portfolios. Mutual funds are designed to solve this problem. Mutual funds are
established and managed by securities experts. Starting a mutual fund in stock market is actually
very much like founding a company. A group of investors pool their money, hire a fund manager
(fulfilling the role of the manager of a company), and appoint a trustee to supervise the manager
(similar to the functions of a board of directors). Also, they will maintain the interests of the
owners of units in the fund (similar to a company’s shareholders).
Many individuals believe that mutual funds are all about investing in stocks. Some also know
that they can invest in Mutual fund and save taxes. However, very few investors realize that they
don't have to look beyond mutual funds for any of their investment requirement, say mutual fund
advisors.
Mutual funds offer substitutes for almost all other investments products. For instance, FD
investors may go for credit opportunity funds or other debt funds, depending on the tenure they
wish to invest. Those who invest in gold may go for gold funds.
Mutual funds give you all the investment options for all risk profiles. You do not need to go
anywhere else.

Let’s take an example of bank FDs and small saving products like PPF. Bank FDs penalize you
for breaking your deposits before maturity, and you also have to deal with the headache of
TDS. PPF has a lock-in period of 15 long years and Senior citizen savings scheme (SCSS) comes
with a lock-in of five years. More importantly, bank savings accounts will earn you 4 per cent
return on your idle money. Some banks offer higher interest as well if you maintain a higher
required minimum balance in your savings account. For these investors, mutual funds
have liquid funds from which you can take out your money in one working days time.

Those investing in gold through gold sovereign bonds may argue that it is the best way to hold
gold in a paper-less form. But it has limitations as it comes with a lock-in period and they can be
traded only through stock exchanges. These bonds lack liquidity, which is not the case in mutual
funds.

Liquidity is a major concern with investment options other than mutual funds. Thus, Mutual
funds allow an open-ended structure which allows you an easy access to your money.

Mutual Funds as a source of financial investment is the best option to beat the inflation and is
also the best tax saving investment. It helps you to create a second source of income helping you
to later meet the sudden mounting expenses without breaking into your savings account. Once
you have identified your goals you can get the help of financial advisor to guide you.
1.2 INTRODUCTION

There are many investment avenues available in the financial market for an investor. Investors
can invest in bank deposits, corporate debentures and bonds, post office saving schemes etc.
where, there is low risk together with low return. They may invest in stock of companies where
the risk is high and sometimes the returns are also proportionately high. For retail investors, who
do not have the time and expertise to analyze and invest in stock, Mutual Funds is a viable
investment alternative. This is because Mutual Funds provide the benefit of cheap access to
expensive stocks. A Mutual Fund is a collective investment vehicle formed with the specific
objective of raising money from a large number of individuals and investing it according to a
pre-specified objective, with the benefits accrued to be shared among the investors on a pro-rata
basis in proportion to their investment. According to Encyclopedia Americana, “Mutual funds
are open end investment companies that invest shareholders‟ money in portfolio or securities.
They are open ended in that they normally offer new shares to the public on a continuing basis
and promise to redeem outstanding shares on any business day.” According to Securities and
Exchange Board of India Regulations, 1996 a mutual fund means “a fund established in the form
of trust to raise money through the sale of units to the public or a section of the public under one
or more schemes for investing in securities, including money market instruments”.

A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI)
which pools up the money from individual/corporate investors and invests the same on behalf of
the investors/units holders, in equity shares, government securities, bonds, call money market
etc. 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. This pooled
income is professionally managed on behalf the unit-holders, and each investor holds a
proportion of the portfolio.

“Mutual funds are collective savings and investment vehicles where savings of small (or
sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately”.

“A mutual fund is an investment that pools your money with the money of an unlimited number
of other investors. In return, you and the other investors each own shares of the fund. The fund's
assets are invested according to an investment objective into the fund's portfolio of investments.
Aggressive growth funds seek long-term capital growth by investing primarily in stocks of fast-
growing smaller companies or market segments. Aggressive growth funds are also called capital
appreciation funds”
 OPERATIONAL FLOW OF MUTUAL FUND

The diagram below depicts the operational flow of Mutual Fund.

Here, various investors firstly make decisions and pool their money into mutual funds according
to their priorities, interests and needs by consulting various fund manager experts.

Secondly, these fund managers after analyzing their interests invests the pooled money in
securities.

The returns are generated thereafter. Fund Managers are the mutual fund experts who handle
and keep a track of all the various ongoing successful mutual fund schemes and thereby helps
investors to invest their money into a profitable scheme which yields good amount of returns
back to them.

Lastly, the returns generated are distributed amongst the investors accordingly.
ORGANIZATIONAL STRUCTURE OF MUTUAL FUNDS

SPONSOR

TRUSTEES
ASSET MANAGEMENT
CUSTODIAN
COMPANY

DISTRIBUTORS/
BANKER
AGENT

REGISTRAR AND
TRANSFER
AGENT

1. TRUSTEES

Trustees are an important link in the working of any mutual fund. They are responsible
for ensuring that investors‟ interests in a scheme are taken care of properly. They do this
by a constant monitoring of the operations of the various schemes. In return for their
services, they are paid trustee fees, which are normally charged to the scheme.
An AMC or any of its officers or employers or employees is not eligible to act as a
trustee of any mutual fund. No person who is appointed as a trustee of a mutual fund can
be appointed as a trustee of any other mutual fund unless such a person is an independent
trustee and he/she has taken prior approval of the mutual fund of which he is a trustee.
1. ASSET MANAGEMENT COMPANY (AMC)

The asset management company carries out the business of the mutual fund. The AMC
shall not undertake any other business activities except activities in the nature of
management and advisory services to offshore funds, pension funds, provident funds,
venture capital funds, management of insurance funds, financial consultancy and
exchange of research on commercial basis, if any of such activities are not in conflict
with the activities of the mutual fund. The AMC is appointed by the sponsor or if so
authorized by the trust deed, the trustee, the appointment can be terminated by majority
of the trustees or by 75% of Unit holders of the scheme.

2. SPONSORS

Sponsor is the company, which sets up the Mutual Fund as per the provisions laid down
by the Securities and Exchange Board of India (SEBI). SEBI mainly fixes the criteria of
sponsors based on sufficient experience, net worth, and past track record.
 3. CUSTODIAN / DEPOSITORY

The custodian maintains custody of the securities in which the scheme invests. This ensures an
ongoing independent record of the investments of the scheme. The custodian also follows up on
various corporate actions, such as rights, bonus and dividends declared by investee companies.
At present, when the securities are being dematerialized, the role of the depository for such
independent record of investments is growing. No custodian in which the sponsor or its
associates hold 50 percent or more of the voting rights of the share capital of the custodian or
where 50 per cent or more of the directors of the custodian represent the interest of the sponsor
or its associates shall act as custodian for a mutual fund constituted by the same sponsor or any
of its associates or subsidiary company.

4. REGISTRARS
An investors holding in mutual fund schemes is typically tracked by the schemes‟ Registrar and
Transfer Agent (R & T). Some AMC‟S prefer to handle this role on their own instead of
appointing R & T. The Registrar or the AMC as the case may be maintains an account of the
investors‟ investments and disinvestments from the schemes. Requests to invest more money
into a scheme or to redeem money against existing investments in a scheme are processed by the
R & T.

5. DISTRIBUTORS

Distributors earn a commission for bringing investors into the schemes of a mutual fund. This
commission is an expense for the scheme. Depending on the financial and physical resources at
their disposal, the distributors could be:

A) Tier 1 distributors who have their own or franchised network reaching out to investors all
across the country; or 6

B) Tier 2 distributors who are generally regional players with some reach within their region; or

C) Tier 3 distributors who are small and marginal players with limited reach. The distributors
earn a commission from the AMC.
 6. BANKER:

Funds activities involve dealing in money on a continuous basis primarily with respect to buying
and selling units, paying for investment made, receiving the proceeds from sale of the
investments and discharging its obligations towards operating expenses. Thus the Funds banker
plays an important role to determine quality of service that the fund gives in timely delivery of
remittances etc.

CLASSIFCATION OF MUTUAL FUND PRODUCTS

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk
tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a
collection of many stocks, an investors can go for picking a mutual fund might be easy. There
are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in
categories, mentioned below.
1.3 COMPANY BACKGROUND

First custodian in
India to offer
services to foreign
It offers custodial and portfolio Investors.
post trading services, It is also a point of
adding depository presence for
services and other National Pension
stock trading services System (NPS) and a
Stock Market and
and also a capital sole custodian of
Financial Services
market service NPS.
Industry and has pan
provider since last 30
network of 186
years.
branches spread
across more than 150
A Government cities and towns.
company
promoted by
leading financial
institutions like
LIC, IFCI, GIC etc
IMPORTANT PRODUCTS AND SERVICES

NATIONAL
PENSION
SYSTEM

DEMAT AND
TRADING DERIVATIVES
ACCOUNT

GOI AND
MUTUAL
OTHER
FUNDS
BONDS

Apart from these services stockholding also provides additional services like E-Stamping , Gold and
Silver Coins etc.

Also, All the branches offers full spectrum of NPS services to all citizens including NRI’S and corporate
as well.
1.4 DATA COLLECTION AND DATA ANALYSIS
1.5 PROCESS AND PROCEDURE

INVESTEMNT PROCEDURE IN MUTUAL FUNDS

An offer document is issued when the AMC’s make New Fund Offer (NFO). It’s advisable to
every investor to ask for the offer document and read it before investing. An offer document
consists of the following: Standard Offer Document for Mutual Funds (SEBI Format)
Summary Information
Glossary of Defined Terms
Risk Disclosures
Legal and Regulatory Compliance
Expenses
Condensed Financial Information of Schemes
Constitution of the Mutual Fund
Investment Objectives and Policies

Offer Related Information.

Key Information Memorandum: A key information memorandum, popularly known as KIM,

is attached along with the mutual fund form. And thus every investor gets to read it. Its contents
are:
1. Name of the fund.
2. Investment objective
3. Asset allocation pattern of the scheme.
4. Risk profile of the scheme
5. Plans & options
6. Minimum application amount/ no. Of units
7. Benchmark index
8. Dividend policy
9. Name of the fund manager(s)
 10. Expenses of the scheme: load structure, recurring expenses
11. Performance of the scheme (scheme return v/s. Benchmark return)
12. Year- wise return for the last 5 financial years.

STEPS IN MUTUAL FUND INVESTMENT

• IDENTIFICATION OF NEEDS
1.

• CHOOSING THE APPROPRIATE FUND

2.

• SELECTION OF MIX
3.

• REGULAR INVESTMENT
4.

• COST AND TAX IMPLICATIONS

5.

• COMMENCEMENT OF
6. INVESTMENT

• REVIEW AND STRATEGY

7.
Steps One - Identify your investment needs.
Your financial goals will vary, based on your age, lifestyle, financial independence, family
commitments, level of income and expenses among many other factors. Therefore, the first step
is to assess your needs. Begin by asking yourself these questions: 1. What are my investment
objectives and needs? Probable Answers: I need regular income or need to buy a home or finance
a wedding or educate my children or a combination of all these needs. 2. How much risk am I
willing to take?
Probable Answers: I can only take a minimum amount of risk or I am willing to accept the fact
that my investment value may fluctuate or that there may be a short term loss in order to achieve
a long term potential gain. 3. What are my cash flow requirements? Probable Answers: I need a
regular cash flow or I need a lump sum amount to meet a specific need after a certain period or I
don’t require a current cash flow but I want to build my assets for the future. By going through
such an exercise, you will know what you want out of your investment and can set the
foundation for a sound Mutual Fund Investment strategy.

Step Two - Choose the right Mutual Fund.

Once you have a clear strategy in mind, you now have to choose which Mutual Fund and scheme
you want to invest in. The offer document of the scheme tells you its objectives and provides
supplementary details like the track record of other schemes managed by the same Fund
Manager. Some factors to evaluate before choosing a particular Mutual Fund are:

The track record of performance over the last few years in relation to the appropriate yardstick
and similar funds in the same category.

How well the Mutual Fund is organized to provide efficient, prompt and personalized service.

Degree of transparency as reflected in frequency and quality of their communications.

Step Three - Select the ideal mix of Schemes.

Investing in just one Mutual Fund scheme may not meet all your investment needs. You may
consider investing in a combination of schemes to achieve your specific goals.

Step four - Invest regularly

For most of us, the approach that works best is to invest a fixed amount at specific intervals, say
every month. By investing a fixed sum each month, you get fewer units when the price is high
and more units when the price is low, thus Bringing down your average cost per unit. This is
called rupee cost averaging and is a disciplined investment strategy followed by investors all
over the world. With many open-ended schemes offering systematic investment plans, this
regular investing habit is made easy for you.

Step Five - Keep your taxes in mind

As per the current tax laws, Dividend/Income Distribution made by mutual funds is exempt from
Income Tax in the hands of investor. However, in case of debt schemes Dividend/Income
Distribution is subject to Dividend Distribution Tax. Further, there are other benefits available
for investment in Mutual Funds under the provisions of the prevailing tax laws. You may
therefore consult your tax advisor or Chartered Accountant for specific advice to achieve
maximum tax efficiency by investing in mutual funds.

Step six - Start early

It is desirable to start investing early and stick to a regular investment plan. If you start now, you
will make more than if you wait and invest later. The power of compounding lets you earn
income on income and your money multiplies at a compounded rate of return.

Step Seven - The final step

All you need to do now is to get in touch with a Mutual Fund or your advisor and start investing.
Reap the rewards in the years to come. Mutual Funds are suitable for every kind of investor
whether starting a career or retiring, conservative or risk taking, growth oriented or income
seeking.
The mutual fund collects money directly or through brokers from investors. The money is invested
in various instruments depending on the objective of the scheme. The income generated by selling
securities or capital appreciation of these securities is passed on to the investors in proportion to
their investment in the scheme. The investments are divided into units and the value of the units
will be reflected in Net Asset Value or NAV of the unit. NAV is the market value of the assets of the
scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the
number of units outstanding on the valuation date. Mutual fund companies provide daily net asset
value of their schemes to their investors. NAV is important, as it will determine the price at which
you buy or redeem the units of a scheme. Depending on the load structure of the scheme, you have
to pay entry or exit load.

CRITERIA FOR SELECTING MUTUAL FUND:

1. Financial profile

Mutual funds offer a whole bouquet of products such as aggressive equity funds, index funds,
gilt funds, income funds, liquid funds, gold funds, thematic funds, etc. - the list is quite
exhaustive. But beware! You don’t have to buy all these types of funds. As you would observe,
all funds have a specific objective, a specific risk profile, a specific liquidity profile and a
specific time profile. Hence, it is not possible that all funds will match your needs, risk-appetite,
investment horizon etc. Therefore, you must first decide on the types of funds that would suit
your needs. Only then should you start selecting the best funds within those categories.

2. Past performance

The past performance of the fund is one of the most important criteria in fund selection. It is
true that a fund‟s good performance in the past does not guarantee that in future too it will do
 well. However, history also shows that funds with consistently good performance - good here
means in the top quartile and not necessarily the top performer - can be expected to be among
the top in their category in future too. Similarly, a fund with poor performance will find it
extremely difficult to move to the top quartile and remain there. Therefore, don‟t chase the
top performers of the year. Instead, focus on funds that have delivered good returns
consistently.

3. Portfolio characteristics
Characteristics of a portfolio will also play an important role in fund selection. For example, the
percentage of top 5 or 10 holding will determine how diversified or concentrated a particular
fund is. If about more than 60-70% of the corpus is invested in just 5 shares or bonds, the
portfolio would be comparatively riskier than a fund with just 20-30% corpus in 5 scripts.
Typically, an aggressive equity fund would have higher turnover ratio. Comparatively speaking
this is perfectly fine. But an index fund with a higher turnover ratio vis-vis its peers could be a
cause for concern.

4. Is the AUM appropriate?

There is, of course, no mathematical rule that would suggest the best size for a given mutual
fund. In other words, there is no guarantee that if a fund’s assets under management (AUM) are
less (or more) than a specific level, only then will it perform well. Having said that, Aum could
be an important factor in the fund’s overall performance! In all probability, a very small fund
will not be able to diversify itself reasonable well. It will also find it difficult to make the best of
the investment opportunities available. As such, the performance could be very erratic, one year
they would be the best performers and the next the worst. It would be preferable to avoid them.
A fund too large could also be an issue. Since a fund cannot invest more than 10% of its corpus
in one company, a very large fund would invariably have too many companies in its portfolio.
This could affect its overall performance.

5. The fund house/fund manager

Investment is both a science and an art. Good research teams i.e. the science part of investing,
are necessary in identifying the opportunities available in the market. However, if you give the
same set of scrips to two different people, they could deliver vastly different returns. This means
that apart from knowing what the good stocks are, you need something more. This something
more is the art of investing. When to buy/sell/hold; how a fund manager reacts to market
volatilities; how s/he responds to the pressure of performance; and such other psychological
aspects have a very important role to play. As such, you have to consider the fund manager’s
past performance before investing. That apart you should also evaluate the particular fund house
- how many funds does it offer, how many of these are good performers, how much AUM does it
manage, what are the service standards, etc.

6. Risk parameters
Two funds may deliver the same returns. But the better of the two would be the one that does so:
- by taking lesser risk (i.e. It has a higher sharp ratio) - more consistently (i.e. It has lower
standard deviation) - with less volatility than the market (i.e. It has a lower beta) therefore, after
you have short-listed the funds based on the performance, portfolio, fund house etc., check the
risk parameters and opt for those that tend to deliver good returns despite taking lesser risks.

7. Annual recurring expenses

The expenses that will eat into your returns in an mf would typically include management fees,
custodial fees, marketing & selling expenses, trustee fees, audit fees etc. But before you get
worried, you will be glad to know that the association of mutual funds in India (amfi) and sebi
have simplified the issue of expenses. They have specified the maximum limit that a fund can
charge as overall expenses by whatever name it may be called. For example, the maximum expense
ratio for an equity fund is fixed at 2.50%, for debt funds at 2.25%, for index funds at 1.5%, for fund
of funds at 0.75%, etc. It goes without saying that lower the expenses the better it is. But beware!
Don’t give too much weight age to the expenses. Other parameters, discussed above, are far more
important than expenses that anyway are quite reasonable.

8.Entry / Exit Loads:

As per the recent regulation, sebi has mandated that with effect from august 1, 2009 there will be
no entry loads for all mutual fund schemes. Exit load: this is the load payable when you sell of
your mf units. The exit load is generally payable only if you fail to satisfy certain pre-specified
conditions. Therefore, in most cases you may not find a compulsory exit load, but what is termed
as contingent deferred sales charge (cdsc) and payable:

if you sell a debt fund before 6 months or some such period

If you sell equity fund before 1 year or some such period a lower load is better.

However, since the load is nominal, sometimes even paying higher loads may be alright if the
fund‟s performance and other factors are very good.

9. NAV Is A Meaningless Number

The NAV of the fund has no impact on the returns it will deliver in the future. Let‟s assume you
plan to invest in an index fund and you have two choices - fund a is a new fund with an NAV of
RS. 10, which will mimic the nifty and a fund b, which is an existing nifty index fund with an
NAV of RS. 200. Suppose you invest RS. 10,000 in fund A and Rs. 10,000 in fund B. You will
get 1000 units of fund a and 20 units of fund b. After 1 year, the nifty has appreciated by 25%,
which means that both funds would have also appreciated by 25%, as they are a replica of the
nifty.

10. Dividend or growth?

Like NAV, it is immaterial whether you choose the dividend option or growth option as far as the
performance of the fund is concerned. In fact, even though you have different options, the
underlying fund is the same. As such, the basic returns from all the three options i.e. Growth or
dividend payout or dividend reinvestment will be the same. However, the final returns in your hand
could be different due to taxation. Tax rates are different, depending on whether you get this
return in the form of dividend or capital gains. Therefore, the post-tax returns in your hand may
vary depending on your tax profile. As such, you have to choose the option from the point of view
of where your tax will be minimal and not from the point of view of the returns. To keep things
simple, just remember to opt for growth option if your investment horizon is more than 1 year and
dividend option for less than 1 year (assuming you are in the highest tax bracket).
1.6 PROBLEM FRAMING AND PROBLEM ANALYSIS

DISADVANTAGES OF MUTUAL FUNDS

MANAGING A
NO CONTROL NO TAILOR MADE
OVER COST PORTFOLIO PORTFOLIO OF
FUNDS

NO CONTROL DILUTION BURRIED COSTS

WISDOM OF
PROFESSIONAL
MANAGEMENT

1. No Control over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The investor pays
investment management fees as long as he remains with the fund, albeit in return for the
professional management and research. Fees are payable even if the value of his investments is
declining. A mutual fund investor also pays fund distribution costs, which he would not incur in
direct investing. However, this shortcoming only means that there is a cost to obtain the mutual
fund services.

2. No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of shares and bonds and other
securities. Investing through fund means he delegates this decision to the fund managers. The very-
high-net-worth individuals or large corporate investors may find this to be a constraint in achieving
their objectives. However, most mutual fund managers help investors overcome this constraint by
offering families of funds- a large number of different schemes- within their own management
company. An investor can choose from different investment plans and constructs a portfolio to his
choice.
3. Managing a Portfolio of Funds:
Availability of a large number of funds can actually mean too much choice for the investor. He
may again need advice on how to select a fund to achieve his objectives, quite similar to the
situation when he has individual shares or bonds to select.
4. The Wisdom of Professional Management:
That's right, this is not an advantage. The average mutual fund manager is no better at picking
stocks than the average nonprofessional, but charges fees.
5. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the
passenger seat of somebody else's car

6. Dilution:
Mutual funds generally have such small holdings of so many different stocks that insanely great
performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's
total performance.

7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen who do not make
those costs clear to their clients.

RISK INVOLVED IN MUTUAL FUND

Mutual funds investment is subject to market risks. As mutual funds investment is made
primarily in the capital market they are subject to various kinds of risks. The following are some
of the risks associated with the investment in mutual funds.
1. Market Risk
The net asset values of mutual funds may rise and fall dramatically which may be due to
prevailing market conditions. This is known as Market risk.
2. Credit Risk
The debt servicing ability (may it be interest payments or repayment of principal) of a company
through its cash flows determines the Credit risk faced by the company. This credit risk is
measured by independent rating agencies like CRISIL who rate companies and their paper. An
“AAA” rating is considered the safest whereas a “D” rating is considered Poor credit quality.

3. Inflation Risk
Inflation is the loss of purchasing power over time. Many times people make conservative
investment decisions to protect their capital but end up with a sum of money that can buy less
than what the principal could at the time of the investment. This happens when inflation grows
faster than the return on investment.
4. Interest Rate Risk
In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rises the prices of
bonds fall and vice versa.
Equity might be negatively affected in a rising interest rate environment.
5. Political/ Government Policy Risk
Changes in government policy and political decision can change the investment environment.
They can create a positive environment for investment or vice versa. Thus the growth and
development of mutual funds depends to a large extent on the policy of the government.
6. Liquidity Risk
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities.
1.7 SUGGESTION AND RECOMMENDATIONS
After a thorough study and analysis of the data and information, the following are the few
recommendations and suggestions, if adopted, would definitely benefit the financial market,
which is in its booming stage, in the short run and in the long run as well. Recommendations and
suggestions are normally given when there are some problems or difficulties lying in the market.
Here in this research report my recommendations and suggestions are totally based on the facts,
reactions, attitudes, perceptions, and many other things of the respondents which I have received
from them during my research work. The recommendation part of this research work has three
parts only, which I feel can push the mutual fund market to a higher level.
The three parts are –
1. Market Development
2. Marketing techniques
3. Marketing plans

1. Market development:

My consumer survey has revealed the fact that the market for mutual fund is still in its expansion
stage. Hence the companies have to do a lot of things and activities to develop the market for
mutual fund in this capital city. Because the market development is as important as STP of any
marketing plan. Market development means doing anything and everything for the growth of the
mutual fund industry. Hence in the following ways the market of mutual fund can be developed
more significantly:
Awareness:

Awareness of mutual fund products must be increased in this city. The awareness can be
enhanced in the following ways---
Conference or seminars on ―mutual funds‖ can be conducted on regular basis. This will no
doubt increase the awareness of mutual fund in the minds of the investors.
All the companies must join hands and work together for this.

Customer education:
As the awareness of mutual funds is still improving in this market, companies should give focus
on ―customer education‖. For this purpose again the conference and seminars can be the best
way towards educating the customers. Again free training programme to the agents can be
fruitful.
Government intermediation:
Government must also work together with the mutual fund companies in promoting the concept
of mutual fund.
Confidence building activities:
People in this city are not confident in investing their money in mutual funds. Hence there is a
need to do something which will build the confidence in the minds of the investors. Hence the
confidence building activities must be carried out the mutual fund companies. Because most of
the people think that investing in mutual funds is a very risky affair. In the following ways the
confidence can be increased in the minds of the people.
 As the common person has blind faith in all the government institutions, hence they have to
come forward and convey the message that investing in mutual fund is not that risky.
The present performance of the mutual funds is very good indeed. And the companies should
cash in on this opportunity. The performance of the mutual funds can be published in the local
and Other newspapers and magazines, journals. This will no doubt induce the investors towards
investing in mutual funds.
Case study of the investors who have been benefited in investing in mutual funds can be
published in the newspapers, magazines and journals.

2. Marketing techniques:
While the Mutual in India has seen dramatic improvements in quantity as well as quality of
product and service offerings over the past decade. One of the primary reasons for this slow
growth is the fact that mutual funds are a new concept in India, which needs to be still
understood by large sections of Indian investors. In this scenario, the mutual fund companies
have the onerous responsibility of not just selling mutual fund products, but marketing „them
correctly.
3. Marketing plans:

Booklets on mutual funds can be distributed at free of cost to the common people with the
newspapers, magazines, journals. This will help in attitude formation of the investors.
Companies must focus on tailored made mutual fund schemes rather than on the traditional
products/ schemes.
Unlike the case of insurance where there is a restriction on certain age of the investors to invest
on insurance, there is no such restriction on investing in mutual fund. An investor of any age
bracket can invest in mutual fund. Hence the strong and efficient CRM can prove to be very
fruitful.
Selling of mutual funds only through agents and the branch will not serve the purpose.
Distribution network should be increased. Here aggressive strategy must be taken by a company
in selling mutual funds. This will only be possible when the investors are well familiar with the
concept of mutual funds and its advantages and as selling of financial products requires well
trained people, the companies must provide proper training to the agents and financial planners.
For this training institute must be opened in this township.
Continuous brand building activities must be carried out by the companies. For this purpose
companies should initiate some sort of promotional activities like, ads in newspapers, magazines,
journals.
Educational institutes must start some professional courses on mutual funds and other finance
specialized courses. This will create some sort awareness about the mutual funds.
Mutual fund companies must tie up with other financial institute like banks, post office for
reaching to the mass people. Because these financial institutes have tremendous reach to the
mass people in our country. As a result mutual fund companies can have easy access to the
common people. The companies must go in for this kind of strategic alliance with other
companies as well. Because strategic alliance not only benefit the companies but help in
developing the market also.
Handsome incentive:
Push selling of mutual funds products must be stressed on. This push selling must be done
through agents and financial planners. Handsome incentives and commission will no doubt
motivate them to push sell the mutual funds.
Attractive schemes:
As the maximum number of investors of mutual funds in this city are confined to the business
class and upper social class category. Common people rarely invest in mutual funds. Hence the
different attractive schemes can be launched to attract the common people towards mutual fund
investment. These schemes are for promotional purpose only. The main purpose of these
schemes are to draw retail investors towards the mutual funds investment.
The following are some of the schemes:

For opening of new savings bank account, certain units of mutual funds of a company (strategic
alliance company) can be given at free of cost to the account holder. This will no doubt make the
people more familiar with the concept of mutual funds.
On buying of one or some life insurance policies, again certain units of mutual fund can be
given at free of cost to the policy holders this will ultimate lead to the mutual fund buying habit
of the common people.
Again each car loan or other kind loan of a certain amount will get the loan taker certain units
of mutual funds absolutely free of cost.
Sponsorship of management events:
As we all know that management institutes and universities and other educational institutes are
the production houses of the business managers. In these institutes, several kind of management
activities going on throughout the year. The companies must cash this opportunities to make
them know to the students and to the people who are associated with these institutes. Companies
can sponsor some of the management events of these institutes. This will again lead to the
communication of the products of the companies.
1.8 CONCLUSION

We can infer from the analysis that the concept of mutual fund is still in its growing phase. With
the growing importance of mutual fund in other areas in the country, this place is witnessing the
same rate of growth in mutual funds. Apart from these facts the following are some other
important facts which can easily be inferred from the paper---
Huge opportunities of Mutual funds exist. In short the market in this city is a growing market
As because many companies exist in this market, competition is cut to throat.
Mindsets of the investors are not towards mutual funds. They still think of investing in
traditional investment alternatives. Customers are not properly educated about the mutual funds.
Few private sectors banks like ICICI, HDFC, UTI, ING VYSYA etc. sell mutual funds
through their branches only.
Specialized agents of mutual funds are rarely seen. Financial advisors are not seen there who
can educate the investors.
Posters, banners or other promotional activities are rarely seen in this market.
Mutual fund companies do not have aggressive strategies.
Insurance products are and can be the main competitors of mutual funds.
Mutual fund investors are confined to the upper-middle and upper social class in this market.
Upper-lower class and lower-upper class people are still untouched.
More than half of the respondents have wrong perception about the mutual funds. They feel
mutual funds are very risky investment alternative
Most of the respondents are satisfied with their current return from their investment. Most of
the respondents neither do nor want to take risk in investing their money in mutual funds.
1.9 FUTURE GROWTH ASPECTS
The Indian mutual fund industry is passing through a transformation. On one side it has seen a
number of regulatory developments while on the other the overall economy is just recovering
from the global crisis of 2008. The regulatory changes have been made keeping in mind the best
interests of the investors. However, like all changes these changes will take time to be adapted by
industry, intermediaries and the investing public at large. The industry is looking forward to
early resolution of certain inter-regulatory issues requiring Government / Court intervention.
Market participants are waiting to see how the industry adapts to these changes, while trying to
maintain its pace of growth. Mutual funds are restructuring their business models to provide for
increased efficiencies and investor satisfaction. The industry also faces a number of issues which
are characterized by lack of investor awareness, low penetration levels, high dependence on
corporate sector and spiraling cost of operations. The Growth rate of the industry therefore needs
to be seen from this perspective. Though, it is commendable to note, that, Assets Under
Management have managed to record a compounded growth of 28% over 2006-2010, however,
the AUM of Equity Funds and Balanced Funds where retail investors invest have only grown by
20% in the same period. The net sales of Equity/Balanced funds in 2009-10 have been one of the
lowest in recent years. India has vast growth potential backed by a resilient economy,
commensurate with an accelerated GDP growth rate of 7.4%, high rate of household savings and
investments. This report by PwC seeks to outline the current state of the industry, with its growth
drivers and continuing challenges. It also seeks to draw a comparison with other global
economies, the business and regulatory trends which have been impacting this industry with a
snapshot of some of the regulatory changes anticipated around the corner. According to report of
Business maps of India, Important aspects related to the future of mutual funds in India are -
The growth rate was 100 % in 6 previous years.
The saving rate in India is 23 %.

There is a huge scope in the future for the expansion of the mutual funds industry.
A number of foreign based assets management companies are venturing into Indian markets.
The Securities Exchange Board of India has allowed the introduction of commodity mutual
funds.
The emphasis is being given on the effective corporate governance of Mutual Funds.
The Mutual funds in India has the scope of penetrating into the rural and semi urban areas.
Financial planners are introduced into the market, which would provide the people with better
financial planning.
According to RNCOS research report titled “Current and Future outlook of Mutual Fund
Industry”, key finding are –
The Indian mutual funds retail market, growing at a Compounded Annual Growth Rate
(CAGR) of about 30%, is forecasted to reach US$ 300 Billion by 2015. Income and growth
schemes made up for majority of Assets under Management (AUM) in the country.
 At about 84% (as on March 31, 2008), private sector Asset Management Companies account
for majority of mutual fund sales in India. Individual investors make up for 96.86% of the total
number of investor accounts and contribute 36.9% of the net assets under management.

Whereas, Industry profitability may reduce further as revenues shrink and operating costs
escalate. Product innovation is expected to be limited. Market deepening and widening is
expected with the objective of increased retail penetration and participation in mutual funds. The
regulatory and compliance framework for mutual funds is likely to get aligned with the other
frameworks across the financial services sector.
1.10 BIBLIOGRAPHY

BOOKS REFERRED

o Mutual fund management – ATUL A. SATHE

o AMFI Mutual Fund Test – Workbook.
o Financial services and management- Gordon And Natarajan
o OUTLOOK MONEY
o INVESTIME (VOL8)

o ECONOMICS TIMES
o TIMES OF INDIA
o Pamphlets and newsletters from Franklin Templeton.

o Literature from Stock Holding Corporation of India.
o Key Information Memorandum – Templeton Mutual Fund.
o Fact sheet of Templeton Mutual Fund.

o Web site – www.templetonindia.com

o Web site – www.amfiindia.com
o Web site – www.rbi bulletin.com
o Web site – www.moneycontrol.com
o Web site – www.amfiindia.com
o Web site – www.onlineresearchonline.