INVESTOR PERCEPTION IN MUTUAL FUNDS IN LUCKNOW

DECLARATION

I ABID ALI, Roll no.1300122007, a student of MBA 4th semester,

INTEGRAL UNIVERSITY, LUCKNOW hereby declares that I have

successfully completed my project report on ‘INVESTOR;S TOWORDS

PERCEPTION REGARDING MUTUAL FUND IN LUCKNOW .I

hereby declare that all the information provided in this project report are true

to the fullest of my knowledge and it bear no resemblance to any other written

material whatsoever.

In the event of any information provided in this report being found incorrect or

misleading, I shall be liable to any outcome at any at any given day.

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 ACKNOWLEDGEMENT

I am thankful to DR. FARHINA S. KHAN Integral University for his valuable

inspiration and guidance provided me throughout the course of this project. He has
patience and critically gone through the subject matter.

I would like to take opportunity to express my gratitude towards all of them who have
contributed directly or indirectly in my project work.

At last I would like to extend my deep sense of gratitude to my friends, colleagues

and each individual who directly or indirectly help me during the project work.

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 Executive Summary

The above saying highlights the importance of Practical knowledge.

Practical training is an important part of the theoretical studies. It is of an
immense importance in the field of management. It offers the student to
explore the valuable treasure of experience and an exposure to real work
culture followed by the industries and thereby helping the students to
bridge gap between the theories explained in the books and their practical
implementations.
Research Project plays an important role in future building of an
individual so that he/she can better understand the real world in which he
has to work in future. The theory greatly enhances our knowledge and
provides opportunities to blend theoretical with the practical knowledge.
I have completed the Research Project on INVESTORS
TOWORDS PERCEPTION REGARDING MUTUAL FUND IN
LUCKNOW I have tried to cover each and every aspect related to the
topic with best of my capability.
I hope research would help many people in the future.

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 CONTENTS

S.No. Topic Pages

1. Introduction 1-4
2. Review of Literature 5-23
3. Industry Profile 24-28
4. Company profile 29-36
5. Objectives 37
6. Methodology 38
7. Scope and limitation 39
8. Analysis and data interpretations 40-63
9. Findings 64
10. Suggestions and Recommendations 65-66
11. Conclusion 67
12. Annexure 68-71
13. Bibliography 72-73

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4
 INTRODUCTION

Investment can be defined as an item of value purchased for income or

capital appreciation. Investments are made to achieve a specific objective and
savings are made to meet an unforeseen event.

There are various avenues of investments in accordance with individual

preferences. Investments are made in different asset classes depending on an
individual’s risk and return characteristics Investment choices are physical
assets and financial assets.
Gold and Real estates are examples of physical assets, which have a
physical form to them. There is a strong preference for these assets, as these
assets can be purchased with cash and held for a long term. The obvious
disadvantages with physical assets are the risks of loss and theft, lower levels
of return; illiquid secondary markets; and adhoc valuations and transactions.
Financial assets are securities, which are certificates embodying a
financial contract between parties. Bonds, Equity shares, Deposits and
Insurance policies are some of the examples of financial assets. In financial
assets investors only hold the proof of their investments in the form of a
certificate or account. These products are usually liquid, transferable and in
most cases, stored electronically with high degree of safety.
But a minimum amount of cash is always kept in hand for
transactions and contingencies. To face the contingencies and unexpected
events the insurance came into existence.
Another avenue of investment is mutual funds. It is created when
investors put their money together. It is therefore a pool of the investor’s funds.
The most important characteristics of a mutual fund is that the contributors and
the beneficiaries of the fund are the same class of people, namely the investors.
The term mutual means that investors contribute to the pool, and also benefit
from the pool. There are no other claimants to the funds. The pool of funds held
mutually by investors is the mutual fund.

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 A mutual fund pools the money of people with similar investment
goals. The money in turn is invested in various securities depending on the
objectives of the mutual fund scheme, and the profits (or loss) are shared
among investors in proportion to their investments.

Mutual fund schemes are usually open-ended (perpetually open for

investments and redemptions) or closed end (with a fixed term). A mutual fund
scheme issues units that are normally priced at Rs.10 during the initial offer.
Thus, the number of units you own as against the total number of units issued
by the mutual fund scheme determines your share in the profits or loss of a
scheme.
In the case of open-end schemes, units can be purchased from or
sold back to the fund at a Net Asset Value (NAV) based price on all business
days.
The NAV is the actual value of a unit of the fund on a given day.
Thus, when you invest in a mutual fund scheme, you normally get an account
statement mentioning the number of units that have been allotted to you and the
NAV based price at which the units have been allotted. The account statement
is similar to your bank statement.
Mutual funds invest basically in three types of asset classes:

Stocks: Stocks represent ownership or equity in a company, popularly known

as shares.

Bonds: These represent debt from companies, financial institutions or

Government agencies.

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Money market instruments: These include short-term debt instruments such
as treasury bills, certificate of deposits and inter-bank call money.
A mutual fund’s business is to invest the funds thus collected, according to the
wishes of the investors who created the pool. In many markets these wishes are
articulated as investment mandates.

Analysis of The perception towards these mutual funds is done

here in this project. Even what factors the investors look before investing can
also be observed.

MUTUAL FUNDS

THEORITICAL BACKGROUND

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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.
A mutual fund is an investment vehicle for investors who pool their savings for
investing in diversified portfolio of securities with the aim of attractive yields
and appreciation in their value.
Investments in securities are spread across a wide cross-section of industries
and sectors and thus the risk is reduced .Mutual funds 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 losses are shared by the
investors in proportion to their investments. The mutual funds normally come
out with a number of schemes with different investment objectives, which are
launched from time to time. A mutual fund is required to be registered with
securities and exchange board of India.
A mutual fund is setup in the form of a trust, which has
1. Sponsor
2. Trustees
3. Asset Management Company and
4. Custodian.
The trust is established by a sponsor or more than one sponsor who is like
promoter of a company. The trustees of mutual fund hold its property for the
benefit of the unit-holders. Asset management company (AMC) approved by
SEBI manages the funds by making investments in various types of securities.
Respective asset management companies (AMC) management mutual fund
schemes. Different business groups have sponsored these AMC s. some
international funds are also operation independently in India like Aliens and
Template.

A BRIEF HISTORY OF MUTUAL FUND

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The concept of” mutual fund” is a new feather in Indian capital market but not
to international capital markets. The formal origin of mutual funds can be
traced to Belgium where society generated Belgium was established in 1822 as
an investment company to finance investments in National Industries with high
associated risk. The concept of mutual funds spread to USA in the beginning of
20th century and three investment companies were started in 1924 since then the
concept of mutual funds has been growing all around the world

In India, first mutual fund was started in 1964 when unit trust of India (UTI)
was established in the similar line of operation of the UK.

The term ‘Mutual fund’ has not been explained in British literature but it is
considered as synonym of investment trust of

DEFINITIONS

The concept of mutual fund has been defined in various ways.

“The mutual fund as an important vehicle for bringing wealth holders and
deficit units together indirectly”
...Mr. James pierce
“Mutual fund as financial intermediaries which being a wide variety of
securities with in the reach of the most modest of investors”.
…Frank Relicy

According to SEBI mutual fund regulations 1993, “Mutual fund means a fund
established in the form of trust by sponsor to raise moneys by the trustees
through the sale of units to the public under one or more schemes for investing
in securities in accordance with these regulations.

CONCEPT OF MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors

who share a common financial goal. The money thus collected is then invested

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in capital market instruments such as shares, debentures and other securities.
The income earned through these investments and the capital appreciation
realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.

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

VALUE CHAIN OF MUTUAL FUND

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SPONSOR:

Any person who, acting alone or in combination with another body

corporate, establishes a mutual fund.

Asset Management Company

A firm that invests the pooled funds of retail investors in securities in line
with the stated investment objectives. For a fee, the investment company
provides more than diversification, liquidity, and professional management
service than is normally available to individual investors.

Trustee

The Board of Trustees or the Trustee company who hold the property of the
Mutual Fund in trust for the benefit of the unit holders.

Mutual Fund

A fund established in the form of a 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.

Transfer Agent

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 A transfer agent is employed by a mutual fund to maintain records of
shareholder accounts calculate and disburse dividends and prepare and mail
shareholder account statements, federal income tax information and other
shareholder notices.

Custodian

Mutual funds are required by law to protect their portfolio securities by

placing them with a custodian. Nearly all mutual funds use qualified bank
custodians.

Unit Holder

A person who is holding units in a scheme of a mutual fund.

CLASSIFICATION OF SCHEMES

 By Structure

Open-ended

A scheme where investors can buy and redeem their units on any business day.
Its units are not listed on any stock exchange but are bought from and sold to
the mutual fund.

Close-ended

A mutual fund scheme that offers a limited number of units, which have a lock-
in period, usually of three to five years. The units of closed-end funds are often
listed on one of the major stock exchanges and traded like securities at prices,
which may be higher or lower than its NAV.In India 90% of the schemes is
open-ended fund and the rest 10% is close-ended funds. There are 1062 open-
ended funds and 119 close-ended funds.

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By Objective

A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended
or close-ended schemes as described earlier. Such schemes may be classified
mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to
long- term. Such schemes normally invest a major part of their corpus in
equities. Such funds have comparatively high risks. These schemes provide
different options to the investors like dividend option, capital appreciation, etc.
and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds
also allow the investors to change the options at a later date. Growth schemes
are good for investors having a long-term outlook seeking appreciation over a
period of time.

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Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures, Government securities and money market instruments.
Such funds are less risky compared to equity schemes. These funds are not
affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are
affected because of change in interest rates in the country. If the interest rates
fall, NAVs of such funds are likely to increase in the short run and vice versa.
However, long-term investors may not bother about these fluctuations.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as
such schemes invest both in equities and fixed income securities in the
proportion indicated in their offer documents. These are appropriate for
investors looking for moderate growth. They generally invest 40-60% in equity
and debt instruments. These funds are also affected because of fluctuations in
share prices in the stock markets. However, NAVs of such funds are likely to be
less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively
in safer short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government securities, etc.
Returns on these schemes fluctuate much less compared to other funds. These
funds are appropriate for corporate and individual investors as a means to park
their surplus funds for short periods.

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Gilt Fund

These funds invest exclusively in government securities. Government securities

have no default risk. NAVs of these schemes also fluctuate due to change in
interest rates and other economic factors as, is the case with income or debt
oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular index such as the BSE
Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the
securities in the same weightage comprising of an index. NAVs of such
schemes would rise or fall in accordance with the rise or fall in the index,
though not exactly by the same percentage due to some factors known as
"tracking error" in technical terms. Necessary disclosures in this regard are
made in the offer document of the mutual fund scheme.

There are also exchange traded index funds launched by the mutual funds that
are traded on the stock exchanges.

AVENUES OF INVESTMENTS

Savings form an important part of the economy of any nation. With the savings
invested in various options available to the people, the money acts as the driver
for growth of the country. Indian financial scene too presents a plethora of
avenues to the investors.

Banks:

Considered as the safest of all options, banks have been the roots of the
financial system in India. For an ordinary person though, they have acted as the
safest investment avenue wherein a person deposits money and earns interest
on it. One and all have effectively used the two main modes of investment in
banks, savings accounts and fixed deposits. However, today the interest rate

15
structure in the country is headed southwards, keeping in line with global
trends. With the banks offering little above 7% in their fixed deposits for one
year, the yields have come down substantially in recent times. Add to this, the
inflationary pressures in economy and you have a position where the savings
are not earning. The inflation is creeping up, to almost 8% at times, and this
means that the value of money saved goes down instead of going up. This
effectively mars any change f gaining from the investments in banks.

Post office Schemes

Among all saving options, post office schemes have been offering the highest
rates. Added to it is that the investments are safe with the department being a
government of India entity. So the two basic and most sought for features,
those of return safety and quantum of returns were being handsomely taken
care of Public Provident Funds act as options to save for the post retirement
period for most people and have been considered good option largely due to the
fact that returns were higher than most other options and also helped people
gain from tax benefits under various sections. The following are the post office
savings schemes available for the investors:

Monthly Income scheme:

This scheme offers an interest of 8%p.a, payable monthly and a bonus of

10% payable at maturity after 6 years. There is no tax deductible at source
(TDS) applicable on investments made in this scheme.

National Savings Scheme:

This scheme offers an interest of 8% p.a; compounded half yearly and

payable at maturity in 6 years.

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Post Office Time Deposits:

There are 4 options available to investors depending on the term of

investment desired by the investor. They are:

1 year) this gives an interest of 6.25% p.a

2 year) This gives an interest of 6.5% p.a

3 year) This gives an interest of 7.25% p.a

4 year) This gives an interest of 7.5% p.a

Kisan Vikas Patra:

An important feature of this scheme is that it assures that the money invested
doubles in 8 years and 7 months.

Public Provident Fund:

This scheme gives a return of 8% per annum, compounded annually for

maturity of 15 years.

Government of India Bonds:

The GOI Bonds have the following investment options:

6.5% Tax free bonds

There is no ceiling on the amount of investment in these bonds. The effective

yields of these bonds are 9.28% p.a for the period of 5 years and premature
encashment option available to investors only after the completion of 3 years.

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8% Taxable Bonds:

These bonds do not have any TDS charged on them. There is no maximum
limit of investment in these bonds but there should be a minimum investment
of Rs.1, 000. The maturity period is 6 years. The investor has the option of
interest payable half yearly or cumulative. The investors can also avail tax
benefit under section 80L of income Tax Act, up to Rs. 15,000.

Company Fixed Deposits:

Companies have used fixed deposit schemes as a means of mobilizing funds

for their operations and have paid interest on them. The safer a company is
rated, the lesser the return offered has been the thumb rule. However, there are
several potential roadblocks in these.

The danger of financial position of the company not being understood by the
investor lurks.

1. Liquidity is a major problem with the amount being received monthly

after the due dates.

2. The safety of principal amount has been found lacking.

Stock markets:

Stock markets provide an option to invest in a high risk, high return game.
While the potential return is much more than 10-11% any of the options
discussed above can generally generate, the risk is undoubtedly of the highest
order. However, as it might appear, people generally are clueless as to how the
stock market functions and in the process can endanger the hard-earned money.

For those who are not adept at understanding the stock market, the task
of generating superior returns at similar levels of risk is arduous to say the
least. This is where mutual funds come into picture.

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COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS

The mutual fund sector operates under stricter regulations as compared

to most other investment avenues. Apart from offering investors tax efficiency
and legal comfort, how do mutual funds compare with other products?

Company Fixed Deposits versus Mutual Funds

Fixed deposits are unsecured borrowings by the company accepting the

deposit. Credit rating of the fixed deposit program is an indication of the
inherent default risk in t he investment. The money of investors in a mutual
fund scheme are invested by the AMC in specified investments under that
scheme. These investments are held and managed in-trust for the benefit of the
scheme’s investors. On the other hand, there is no such direct correlation
between a company’s fixed deposit mobilization, and the avenues where it
deploys these resources.

There can be no certainty of yield, unless a named guarantor assures a

return or to a lesser extent, if the investment is in a serial gilt scheme. O the
other hand, the return under a fixed deposit is certain, subject only to the
default risk of the borrower.

The basic value at which fixed deposits are encashable is not subject to
market risk. However, the value at which units of a scheme are redeemed
entirely depends on the market. If securities have gained value during the
period, then the investor can even earn that is higher than what she anticipated
when she invested. Conversely, she could also end up with a loss.

Early encashment of fixed deposits is always subject to a penalty

charged by the company that accepted the fixed deposit. Mutual fund schemes
also have the option of charging a penalty on ”early” redemption of units (by
way of an “exit load”).

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Bank Fixed Deposits versus Mutual Funds

Bank fixed deposits are similar to company fixed deposits. The major
difference is that banks are more stringently regulated than are companies.
They even operate under stricter requirements regarding Statutory Liquidity
ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI.

While the above are for comfort, bank deposits too are subject to default
risk. However, given the political and economic impact of bank defaults, the
government as well as Reserve Bank of India (RBI) tries to ensure that banks
do not fail.

Further, the Deposit Insurance and Credit Guarantee Corporation

(DICGC) protect bank deposits up to Rs. 100,000. The monetary ceiling of
Rs.100,000 is for all the deposits in all the branches of a bank, held by the
depositor in the same capacity and right.

Bonds and Debentures versus Mutual funds

As in the case of fixed deposits, credit rating of a bond or debenture is an

indication of the inherent default risk in the investment. However, unlike fixed
deposits, bonds and debentures are transferable securities.

While an investor may have an early encashment option from the issuer ( for
instance through a “put” option), liquidity is generally through a listing in the
market, implications of this are:

The value that the investor would realize in an early exit is subject to
market risk. The investor could have a capital gain or a loss. This aspect is
similar to a mutual fund scheme.

A hypothecation or mortgage of identified fixed and / or current assets

could back debt securities, e.g secured bonds or debentures. In such a case, if

20
there is a default, the identified assets become available for meeting redemption
requirements.

An unsecured bond or debenture is for all practical purposes like a fixed

deposit, as far as access to assets is concerned.

A custodian for the benefit of investors in the scheme holds the investment
of a mutual fund scheme.

Equity versus Mutual fund

Investment in both equity and mutual funds are subject to market risk.
Investment in an open-end mutual fund eliminates this direct risk of not being
able to dell the investment in the market. An indirect risk remains, because the
scheme has to realize its investments to pay investors. The AMC is however in
a better position to handle the situation. Further, on account of various SEBI
regulations, such as illiquid securities are likely to be only a part of the
scheme’s portfolio.

Another benefit of equity mutual fund scheme is that they give investors the
benefit of portfolio diversification through a small investment.

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 RISK AND RETURN GRID:

An investor has mainly three investment objectives.

1. Safety of Principal

2. Return

3. Liquidity

BANKS FIXED BONDS AND EQUITY MUTUAL

DEPOSIT DEBENTURE MARKET FUND
S
Returns Low Low to Low to Moderate to Better
Moderate moderate high
Administrativ High Moderate Moderate to Low to Low
e expenses to High high Moderate
Risk Low Low to Low to High Moderate
Moderate moderate
Investment Less Few Few Many More
options
Network High Low Low Low but Low but
penetratio penetratio penetration improving fast improving
n n
Liquidity At a cost Low Low to Moderate to Better
moderate High
Quality of Not Not Not Transparent Transparent
Assets transparen transparen transparent
t t
Guarantee Maximum None
Rs 1 lakh

Pricing

The net asset value of the fund is the cumulative market value of the asset fund
net of its liabilities. In other words, if the fund is dissolved or liquidated, by
selling off all the assets in the fund, this is the amount that the shareholders
would collectively own. This gives rise to the concept of the net asset value per
unit, which is the value, represented by the ownership of one unit in the fund. It
is calculated simply by dividing the net asset value of the fund by the number

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of units. However, most people refer loosely to the NAV per unit as NAV,
ignoring the “per unit”. We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
assets divided by the number of units outstanding. The detailed methodology
for the calculation of the asset value is given below.

Asset value = (Value of investments+ receivables+ accrued income+ other

current assets- liabilities- accrued expenses) /Number of units outstanding.

ADVANTAGES OF INVESTING IN MUTUAL FUND:

Number of options available

Mutual funds invest according to the underlying investment objective

as specified at the time of launching a scheme. Mutual fund have equity funds,
debt funds, gilt funds and many others that cater to the different needs of the
investor. While equity funds can be as risky as the stock markets themselves,
debt funds offer the kind of security that is aimed for at the time making
investments. The only pertinent factor here is that the fund has to be selected
keeping the risk profile of the investor in mind because the products listed
above have different risks associated with them.

Diversification

Diversification reduces the risk because all stocks don’t move in the same
direction at the same time. One can achieve this diversification through a
Mutual Fund with far less money that one can on his own.

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Professional Management

Mutual Funds employ the services of the skilled professionals who have
years of experience to back them up. They use intensive research techniques to
analyze each investment option for the potential of returns along with their risk
levels to come up with the figures for the performance that determine the
suitability of any potential investment.

Potential of returns

Returns in the mutual are generally better than any option in any other
avenue over a reasonable period of time. People can pick their investment
horizon and stay put in the chosen fund for the duration.

Liquidity

The investors can withdraw or redeem money at the Net Asset Value
related prices in the open-end schemes. In the Closed-end Schemes, the units
can be transacted at the prevailing market price on a stock exchange. Mutual
Funds also provide the facility of direct repurchase at NAV related prices.

Well Regulated

The Mutual Fund industry is very well regulated. All investment has to
be accounted for, decisions judiciously taken. SEBI acts as a true watch dog in
this case and can impose penalties on the AMC’s at fault. The regulations
designed to protect the investors interests are implemented effectively.

Transparency

Being under a regulatory frame work, Mutual Funds have to disclose

their holdings, investment pattern and all the information that can be
considered as material, before all investors. This means that investment

24
strategy, outlooks of the markets and scheme related details are disclosed with
reasonable frequency to ensure that transparency exists in the system.

Flexible, Affordable and Low cost

Mutual Funds offer a relatively less expensive way to invest when

compared to other avenues such as capital market operations. The fee in terms
of brokerages, custodial fees and other management fees are substantially
lower than other options and are directly linked to the performance of the
scheme. Investment in Mutual Funds also offer a lot of flexibility with features
such as regular investment plans, regular withdrawal plans and dividend
investment plans enabling systematic investment or withdrawal of funds.

Convenient Administration

Investment in the mutual fund reduces paper work and helps you avoid
many problems such as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and make investing easy
and convenient.

TAXATION ON MUTUAL FUNDS

An Indian mutual fund registered with the SEBI, or schemes sponsored

by specified public sector banks/financial institutions and approved by the
central government or authorized by the RBI are tax exempt as per the
provisions of section 10(23D) of the income tax act. The mutual fund will
receive all income without any deduction of tax at source under the provisions
of section 196(iv), of the income tax act.

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26
 MUTUAL FUND INDUSTRY

INDUSTRY OVERVIEW

The Indian Mutual fund industry has witnessed considerable growth since its
inception in 1963. The assets under management (AUM) have surged to Rs
4,173 bn in Mar-09 from just Rs 250 mn in Mar-65. In a span of 10 years (from
1999 to 2009), the industry has registered a CAGR of 22.3%, albeit
encompassing some shortfalls in AUM due to business cycles.

The impressive growth in the Indian Mutual fund industry in recent years can
largely be attributed to various factors such as rising household savings,
comprehensive regulatory framework, favourable tax policies, introduction of

several new products, INVESTOR education campaign and role of

distributors.

In the last few years, household’s income levels have grown significantly, leading
to commensurate increase in household’s savings. Household financial savings
(at current prices) registered growth rate of around 17.4% on an average during
the period FY04-FY08 as against 11.8% on an average during the period FY99-
FY03. The considerable rise in household’s financial savings, point towards the
huge market potential of the Mutual fund industry in India.

Besides, SEBI has introduced various regulatory measures in order to protect the
interest of small investors that augurs well for the long term growth of the
industry. The tax benefits allowed on mutual fund schemes (for

example INVESTMENT made in Equity Linked Saving Scheme (ELSS) is

qualified for tax deductions under section 80C of the Income Tax Act) also have
helped mutual funds to evolve as the preferred form of investment among the
salaried income earners.

Besides, the Indian Mutual fund industry that started with traditional products
like equity fund, debt fund and balanced fund has significantly expanded its
product portfolio. Today, the industry has introduced an array of products such
as liquid/money market funds, sector-specific funds, index funds, gilt funds,
capital protection oriented schemes, special category funds, insurance linked
funds, exchange traded funds, etc. It also has introduced Gold ETF fund in 2007
with an aim to allow mutual funds to INVEST in gold or gold related
instruments. Further, the industry has launched special schemes to invest in
foreign securities. The wide variety of schemes offered by the Indian Mutual fund
industry provides multiple options of investment to common man.

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With a strong growth in the AUM of domestic Mutual fund industry, the ratio of
AUM to GDP increased gradually from 4.7% in 2001 to 8.5% in 2009. The share
of mutual funds in households’ financial savings also witnessed a substantial
increase to 7.7% in 2008 as against 1.3% in 2001.

The investor-wise pattern of asset-holding as well as INVESTORS

accounts reveals that individual investors account for almost 96.75% of
total investors account and contribute Rs 1552.8 bn which is 37.0% of

28
the total net assets as on March 31, 2009. The comparatively lower share
of net assets of individual investors in total net assets is mainly because
of lower penetration of mutual fund as an INVESTMENT instrument
among working population (age group 18-59 years). A majority of
investors in the age group 18-59 years are not aware of mutual funds or
of investing in mutual funds through Systematic Investment Plan (SIP).
However, take up of mutual fund as an investment opportunity by
individual investors, particularly in Tier 2 and Tier 3 towns, is expected to
increase in the near future.

Corporate/institutions sector on the other hand, though account for only

1.2% of the total number of investors’ accounts in Mutual funds industry,
contribute as much as 56.3% to the total net assets of the industry as on
March 31, 2009. Despite a rise in net FII inflows in the domestic mutual
funds, FIIs constitute a very small percentage of investors’ accounts
(0.0003%) and contribute Rs 49.83 bn to the total net assets (1% of
total net assets of the Indian Mutual fund industry as on March 31,
2009).

29
30
31
BANKING IN INDIA:

Without a sound and effective banking system in India it cannot have a healthy

economy. The banking system of India should not only be hassle free but it should be

able to meet new challenges posed by the technology and any other external and

internal factors. For the past three decades India's banking system has several

outstanding achievements to its credit. The most striking is its extensive reach. It is no

longer confined to only metropolitans or cosmopolitans in India. In fact, Indian

banking system has reached even to the remote corners of the country. This is one of

the main reasons of India's growth process.

HISTORY:

The first bank in India, though conservative, was established in 1786. From 1786 till

today, the journey of Indian Banking System can be segregated into three distinct

phases. They are as mentioned below:

 PHASE I - Early phase from 1786 to 1969 of Indian Banks

 PHASE II - Nationalization of Indian Banks and up to 1991

 PHASE III - Indian Financial & Banking Sector Reforms after 1991.

PHASE I:

32
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan

and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank

of Bombay (1840) and Bank of Madras (1843) as independent units and called it

Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank

of India was established which started as private shareholders banks, mostly

Europeans shareholders. During the first phase the growth was very slow and banks

also experienced periodic failures between 1913 and 1948. There were approximately

1100 banks, mostly small. To streamline the functioning and activities of commercial

banks, the Government of India came up with The Banking Companies Act, 1949

which was later changed to Banking Regulation Act 1949 as per amending Act of

1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers

for the supervision of banking in India as the Central Banking Authority. During those

day’s public has lesser confidence in the banks. As an aftermath deposit mobilization

was slow. Abreast of it the savings bank facility provided by the Postal department

was comparatively safer. Moreover, funds were largely given to the traders.

PHASE II:

Government took major steps in this Indian Banking Sector Reform after

independence. In 1955, it nationalized Imperial Bank of India with extensive banking

facilities on a large scale especially in rural and semi-urban areas. Second phase of

nationalization Indian Banking Sector Reform was carried out in 1980 with seven

more banks. This step brought 80% of the banking segment in India under

Government ownership.

The following are the steps taken by the Government of India to Regulate Banking

Institutions in the Country:

33
  1949: Enactment of Banking Regulation Act.

 1955: Nationalization of State Bank of India.

 1959: Nationalization of SBI subsidiaries.

 1961: Insurance cover extended to deposits.

 1969: Nationalization of 14 major banks.

 1971: Creation of credit guarantee corporation.

 1975: Creation of regional rural banks.

 1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector bank India raised

to approximately 800% in deposits and advances took a huge jump by

11,000%.Banking in the sunshine of Government ownership gave the public implicit

faith and immense confidence about the sustainability of these institutions.

PHASE III

This phase has introduced many more products and facilities in the banking sector in

its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee

was set up by his name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being

put to give a satisfactory service to customers. Phone banking and net banking is

introduced. The entire system became more convenient and swift. The financial

system of India has shown a great deal of resilience. It is sheltered from any crisis

triggered by any external macroeconomics shock as other East Asian Countries

suffered. This is all due to a flexible exchange rate regime, the foreign reserves are

high, the capital account is not yet fully convertible, and banks and their customers

have limited foreign exchange exposure.

34
FIGURE: SCHEDULED COMMERCIAL BANK IN INDIA:

COMPANY PROFILE: AXIS BANK

35
Axis Bank India, the first bank to begin operations as new private banks in 1994 after

the Government of India allowed new private banks to be established. Axis Bank was

jointly promoted by the Administrator of the specified undertaking of the

 Unit Trust of India (UTI-I)

 Life Insurance Corporation of India (LIC)
 General Insurance Corporation Ltd.

Also with associates viz. National Insurance Company Ltd., The New India Assurance

Company, The Oriental Insurance Corporation and United Insurance Company Ltd.

Axis Bank in India today is capitalised with Rs. 232.86 Crores with 47.50% public

holding other than promoters. It has more than 200 branch offices and Extension

Counters in the country with over 1250 Axis Bank ATM proving to be one of the

largest ATM networks in the country. Axis Bank India commits to adopt the best

industry practices internationally to achieve excellence. Axis Bank has strengths in

retail as well as corporate banking. By the end of December 2004, Axis Bank in India

had over 2.7 million debit cards. This is the first bank in India to offer the AT PAR

Cheque facility, without any charges, to all its Savings Bank customers in all the

places across the country where it has presence.

With the AT PAR cheque facility, customers can make cheque payments to any

beneficiary at any of its existence place. The ceiling per instrument is Rs.

50,000/-.The latest offerings of the bank along with Dollar variant is the Euro and

Pound Sterling variants of the International Travel Currency Card. The Travel

Currency Card is a signature based pre-paid travel card which enables traveler’s

global access to their money in local currency of the visiting country in a safe and

convenient way. The Bank has strengths in both retail and corporate banking and is

committed to adopting the best industry practices internationally in order to achieve

excellence

36
EVOLUTION:

UTI was established in 1964 by an Act of Parliament; neither did the Government of

India own it nor contributes any capital. The RBI was asked to contribute one-half of

its initial capital of Rs 5 crore, and given the mandate of running the UTI in the

interest of the unit-holders. The State Bank of India and the Life Insurance

Corporation contributed 15 per cent of the capital each, and the rest was contributed

by scheduled commercial banks which were not nationalized then. This kind of

structure for a unit trust is not found anywhere else in the world. Again, unlike other

unit trusts and mutual funds, the UTI was not created to earn profits.

In the course of nearly four decades of its existence, it (the UTI) has succeeded

phenomenally in achieving its objective and has the largest share anywhere in the

world of the domestic mutual fund industry.'' The emergence of a "foreign expert"

during the setting up of the UTI makes an interesting story. The announcement by the

then Finance Minister that the Government of India was contemplating the

establishment of a unit trust caught the eye of Mr. George Woods, the then President

of the World Bank. Mr. Woods took a great deal of interest in the Indian financial

system, as he was one of the principal architects of the ICICI, in which his bank, First

Boston Corporation Bank, had a sizeable shareholding. Mr. Woods offered, through

Mr. B.K. Nehru, who was India's Executive Director on the World Bank, the services

of an expert.

37
The Centre jumped at the offer, and asked the RBI to hold up the finalization of the

unit trust proposals till the expert visited India. The only point Mr. Sullivan made was

that the provision to limit the ownership of units to individuals might result in

unnecessarily restricting the market for units. While making this point, he had in mind

the practice in the US, where small pension funds are an important class of customers

for the unit trusts. The Centre accepted the foreign expert's suggestion, and the

necessary amendments were made in the draft Bill. Thus, began corporate investment

in the UTI, which received a boost from the tax concession given by the government

in the 1990-91 Budget. According to this concession, the dividends received by a

company from investments in other companies, including the UTI, were completely

exempt from corporate income tax, and provided the dividends declared by the

investing company were higher than the dividends received.

The result was a phenomenal increase in corporate investment which accounted for 57

per cent of the total capital under US-64 scheme. Because of high liquidity the

corporate sector used the UTI to park its liquid funds. This added to the volatility of

the UTI funds. The corporate lobby which perhaps subtly opposed the establishment

of the UTI in the public sector made use of it for its own benefits later. The

Government-RBI power game started with the finalization of the UTI charter itself.

The RBI draft of the UTI charter stipulated that the Chairman will be nominated by it,

and one more nominee would be on the Board of Trustees. While finalizing the draft

Bill, the Centre changed this stipulation. The Chairman was to be nominated by the

Government, albeit in consultation with RBI. Although the appointment was to be

made in consultation with the Reserve Bank, the Government could appoint a person

of its choice as Chairman even if the Bank did not approve of him.

38
BUSINESS DESCRIPTION:

The Bank's principal activities are to provide commercial banking services which

include merchant banking, direct finance, infrastructure finance, venture capital fund,

advisory, trusteeship, forex, treasury and other related financial services. The Bank

has 463 branches and 263 extension counters throughout India. During April, 2006 the

Bank open-end 1 overseas branch in Singapore.

PROMOTERS:

UTI Bank Ltd. has been promoted by the largest and the best Financial Institution of

the country, UTI. The Bank was set up with a capital of Rs. 115 crore, with

 UTI contributing Rs. 100 crore,

 LIC - Rs. 7.5 crore
 GIC and its four subsidiaries contributing Rs. 1.5 crore each.

SUUTI SHARE HOLDINGS-27.33%

Erstwhile Unit Trust of India was set up as a body corporate under the UTI Act, 1963,

with a view to encourage savings and investment. In December 2002, the UTI Act,

1963 was repealed with the passage of Unit Trust of India (Transfer of Undertaking

and Repeal) Act, 2002 by the Parliament, paving the way for the bifurcation of UTI

into 2 entities, UTI-I and UTI-II with effect from 1st February 2003.

SHARE HOLDING PATTERN:

AS ON 25-05-07

Sr. No. Name of the Shareholders No. of Shares Held % Stake to

Total
A. Promoter Shareholding
1 Administrator of the Specified 7,72,45,070 27.33

Undertaking of the Unit Trust of

39
 India (UTI - I)
2 Life Insurance Corporation of 2,92,22,936 10.34

India
3 General Insurance Corporation of 1,49,26,224 5.28

India and four PSU Insurance

Companies.
Total Promoter Shareholding A 12,13,94,230 42.95
B. Non-Promoter Holding
4 Indian Financial Institutions (IFIs) 3,24,084 0.12
5 Mutual Fund 2,36,82,394 8.38
6 Others (Individuals/Corporate 2,39,26,557 8.46

Bodies/HUF/Trusts/Banks)
Total Non-Promoter Indian Shareholding B 4,79,33,035 16.96
C. Foreign Shareholding
7 FDI Route GDR Issue 1,11,62,661 3.95
8 Foreign Financial Institutions 10,16,51,067 35.96

(FIIs)
9 NRIs/OCBs 5,08,786 0.18
Total Non-Promoter Foreign Shareholding 11,33,22,514 40.09

C
Total A+ B + C 28,26,49,779 100

BOARD OF DIRECTORS:

The Bank has 11 members on the Board. Dr. P. J. Nayak is the Chairman and

Managing Director of the Bank. The members of the Board are:

NAME DESIGNATION
Dr. P.J. Nayak Chairman & Managing Director
Shri Surendra Singh Director
Shri N.C. Singhal Director
Shri A.T. Pannir Selvam Director
Shri J.R. Varma Director
Dr. R.H. Patil Director
Smt. Rama Bijapurkar Director
Shri R.B.L. Vaish Director
Shri S.B. Mathur Director
Shri M.V. Subbiah Director

40
Shri Ramesh Ramanathan Director

MISSION AND VALUES:

OUR VALUES:

 Customer Service and Product Innovation tuned to diverse needs of individual

and corporate clientele.

 Continuous technology upgradation while maintaining human values.

 Progressive globalization and achieving international standards.

 Efficiency and effectiveness built on ethical practices.

CORE VALUES:

 Customer Satisfaction through

o Providing quality service effectively and efficiently

o "Smile, it enhances your face value" is a service quality stressed on

o Periodic Customer Service Audits

 Maximization of Stakeholder value

 Success through Teamwork, Integrity and People.

41
 OBJECTIVES

 To study the level of awareness of mutual funds

 To analyse the perception of investors towards mutual funds.

 To study the factors considered by the investors and those which

ultimately influence him while investing.

 To determine the type of mutual fund investor prefers the most.

42
 RESEARCH METHODOLOGY

Primary data is data that is tailored to a company’s needs, by customizing true

approach focus groups, survey, field-tests, interviews or observation.

Primary data delivers more specific results than secondary research,

which is an especially important consideration when one launching a new
product or service. In addition, primary research is usually based on statistical
methodologies. The tiny sample can give an accurate representation of a
particular market.
Secondary data is based on information gleaned from studies
previously performed by government agencies, chambers of commerce, trade
associations and other organizations. This includes census bureau information.
Much kind of this information can be found in libraries or on the web, but
looks and business publications, as well as magazines and newspapers.

Analysis of individual investment patterns can be done by this

primary data analysis. In this project I have done a survey with a questionnaire
with a sample size of 100 individuals who are employees and tax payees. The
questionnaire includes the economic status of the individuals, age group,
marital status, investments made etc.

As Axis Bank distributes several investment products like mutual

funds, insurance, shares, debentures etc. This survey will help them in
developing marketing strategies for their investment products.

43
 LIMITATIONS

Geographic Scope: The sample used for the study has been taken from the
investors of the twin cities Hyderabad and Secunderabad.

Frame work: Sampling frame (i.e the list of population members) from which
the sample units are selected was incomplete as it takes into consideration only
those (target investors) who have made their investments during March and
April 2013

Although adequate care was taken to elicit the accurate information from the
respondents, some of them have felt difficulty in crystallizing their feelings into
words. Apart from the problem faced in articulating, it is the validity of the
feedback can be speculated.

Despite the above limitations the study is useful in that it does point out the
trends and helps to identify the dimensions for improving the scope of mutual
funds.

44
45
 DATA ANALYSYS

SOME OF THE SCHEMES OF MUTUAL FUNDS:

Standard Chartered Mutual Fund

Schemes:

Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A

scheme that invests in money market instruments like Treasury Bills, Call
money, Repos , Short-term Corporate Debentures, Commercial Papers,
Certificate of Deposits, etc that provide a high level of stability and easy
liquidity .

Tax:

The GCF is also very taxed efficient. It comes with a daily (compulsory
reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly
dividend options. Each day gains are declared in the form of dividends and then
reinvested after netting it off against Dividend Distribution Tax (currently
20.91%).This dividend is completely tax free. So the net tax incidence is just
20.91% as compared to 36.5925% for comparable non mutual fund option.

Grindlays Floating Rate Fund: It seeks to generate stable returns with a low
risk strategy by creating a portfolio that is substantially invested in good quality
floating rate debt or money market instruments, fixed rate debt and money
market instruments.

46
 GFRF primarily invests in Floating rate debentures and bonds, Short
tenor fixed rate instruments and long tenor fixed rate instruments swapped to
floating rate.

Plans: The fund comes in two plans

 Short term plan for investors with a time horizon of 1-6 months.
 Long term plan for investors with a time horizon of beyond 6 months.

Grindlays Debt Funds: Debt funds are funds that invest only in debt securities
and are designed to primarily protect your capital and provide better returns
by investing in high quality debt securities.

Operations of Debt funds: There are two important sources of revenue

that a debt fund earns:

a) Interest income

When you invest in a Bank / Company deposit, it offers you a fixed rate of
interest with the principal being returned on maturity. Similarly when a debt
fund invests in various debt securities the issuers of these securities offer a rate
of interest and the principal on maturity. The issuers of these securities could
either could either be various corporates like Reliance, Hindalco, ICICI, Bharat
Petroleum or the Government of India.

b) Mark to Market gain/loss

As interest rates on bank fixed deposits change frequently so do interest rates

on debt securities. Interest rates and debt security prices are in fact the two
sides in seesaw. In general, prices fall when interest rates rise and rise when
interest rates fall. If the interest rates were to decline then newer bonds would

47
be issued at lower interest rates than existing bonds. Consequently old bonds
would be dearer and hence prices of these older bonds would rise.

Similarly if interest rates were to raise then value of old bonds would fall, as
newer bonds would bear higher interest rates. The traded price of a bond may
thus differ from its face value. The longer a bonds period to maturity, the more
its price tend to fluctuate as market interest rates change.

DSP Merrill lynch Mutual Fund:

Schemes

Liquidity Fund:

It is an open-ended fund liquid scheme seeking to generate a reasonable

return commensurate with low risk and high degree of liquidity from a
portfolio constituted of money market securities and high quality debt
securities.

Floating rate Fund:

It is an open-ended income scheme seeking to generate income

commensurate with prudent risk from a portfolio substantially constituted of
floating rate debt securities and fixed rate debt securities swapped for floating
rate returns. The scheme may also invest in fixed rate debt securities and
money market securities.

Short term Fund:

It is an open-ended income scheme seeking to generate income commensurate

with prudent risk, from a portfolio constituting of money market securities,
floating rate debt securities and debt securities.

Bond fund:

48
 It is an open-ended income scheme seeking to generate an attractive
return, consistent with prudent risk from a portfolio, which is substantially
constituted of high quality debt securities of issuers predominantly domiciled in
India.

Equity Fund:

It is an open ended growth scheme seeking to generate long term capital

appreciation, from a portfolio which is substantially constituted of equity and
equity related securities of issuers domiciled in India. The scheme may also
invest a certain portion of its corpus in debt and money market securities, in
order to meet liquidity requirements from time to time.

T.I.G.E.R Fund:

It is an open ended growth scheme whose primary investment objective

is to seek to generate capital appreciation, from a portfolio that is substantially
constituted of equity securities of corporates, which could benefits from
structural changes brought about by continuing liberalization in economic
policies by the government and / or from continuing investments in
infrastructure, both by public and private sector.

49
 HDFC MUTUAL FUND

Schemes

HDFC Growth Fund:

It is a open ended scheme seeking to generate long term capital

appreciation from a portfolio that is invested predominantly in equity and
equity related instruments

HDFC Equity Fund:

It is an open-ended growth scheme to achieve capital appreciation.

HDFC Top 200 Fund:

It is an open-ended growth scheme seeking to generate long-term capital

appreciation from a portfolio of equity and equity-linked instruments primarily
drawn from the companies in BSC 200 index.

HDFC Balanced Fund:

It is an open ended balanced scheme seeking to generate capital

appreciation along with current income from a combined portfolio of equity
and equity related and debt & money market instruments.

HDFC Tax Savers Fund:

50
 It is an open-ended equity linked saving scheme with a lock-in period of 3
yrs seeking to generate long term growth of capital.

HDFC Gilt Fund:

It is an open-ended income scheme seeking to generate credit risk-free

returns through investments in sovereign securities issued by central
government or state government.

Birla Sun Life Mutual Fund:

Schemes

Birla Advantage Fund:

It is an open-ended diversified equity fund and portfolio remains over

wait across banks MNC pharma, IT and Telecom.

Birla Dividend Yield Plus:

It is an open-ended growth scheme investing in high dividend yield companies

and continuously having a positive outlook on banking sector.

Birla Mid cap Fund:

It is an open ended growth scheme investing primarily in mid cap stocks

and the portfolio remains well diversified across pharmaceutical, banking,
consumer non durable, IT, Hotels.

Birla MNC Fund:

It is an open-ended growth scheme investing in multi national companies

and the portfolio remains over weight across consumer non-durable, IT, Agro
chemicals.

Birla Gilt Plus:

51
 It is an open-ended government security scheme.

Birla Equity Plan:

It is an open-ended equity linked savings scheme with a lock-in for three

years.

Kotak Mutual Fund

Schemes:

Kotak 30:

It is an open-ended equity growth scheme seeking to generate capital

appreciation from a portfolio of predominantly and equity related securities
with investment in, generally, not more than 30 stocks.

Kotak opportunities:

It is an open-ended equity growth scheme seeking to generate capital

appreciation from a diversified portfolio of equity and equity related securities.

Kotak Global India:

It is an open-ended growth scheme seeking to generate capital

appreciation from a diversified portfolio of equity and equity related securities
issued by globally competitive Indian companies.

Kotak Liquid:

It is an open-ended debt scheme to provide reasonable returns and high

level of liquidity by investing in debt and money market instruments of
different maturities so as to spread the risk across different kinds of issuers in
debt markets.

52
53
 Chola mutual fund:

Schemes:Cholamandalam growth fund:

It is an open ended scheme seeking to generate long term capital appreciation,

income through investments in equity & equity related instruments; the
secondary objective is to generate some current income and distributive
dividend.

Chola midcap fund:

It is an open ended scheme seeking to generate capital appreciation by

investing primarily in mid cap stocks. The scheme will invest primarily that
have a market capitalization between Rs.300 crores to Rs. 3000 crore.

Chola opportunities fund:

It is an open ended scheme which will invest mainly to generate long term
capital appreciation from a diversified portfolio of equity and equity related
securities.

Chola Multi-cap fund:

It is an open-ended growth scheme which will provide long term capital

appreciation by investing in a well diversified portfolio of equity and equity
related instruments across all ranges of market capitalization.

Chola Gilt investment plan:

It is an open-ended growth scheme seeking to generate returns from a portfolio

by investing in Government securities.

54
Chola monthly income plan:

It is an open-ended growth scheme seeking to generate monthly income

through investment in range of debt, equity and money market instruments.

CHOOSING FUNDS

When it comes down to it, the decision to invest in a mutual fund is

one you have to make on your own. When you try to choose an investment,
however, it is a good idea to seek the guidance of a financial advisor who will
review its objective to make sure it supports your financialgoal.

As an investor, your goals are unique, and a financial advisor can

help match you with the best funds. Remember, however, when you are
choosing funds, to consider how much risk you are comfortable with and when
you'll need the money. If you have the time to weather the market's ups and
downs, you may want to consider equity investments.

Before you select a mutual fund, it is essential to read the

prospectus carefully to learn all you can about the fund's performance,
investment goals, risks, charges and expenses.

DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL

FUNDS

Before looking at the mutual funds available to you, it may be best to decide
the mix of stock, bond, and money market funds you prefer. Some experts
believe this is the most important decision in investing. Here are some general
points to keep in mind when deciding what your investment strategy should be.

Diversify. It is a good idea to spread your investment among mutual funds that
invest in different types of securities. Stocks, bonds, and money market
securities work differently. Each offers different advantages and disadvantages.
You may also want to diversify within the same class of securities. Diversifying

55
can keep you from putting all your eggs in one basket and therefore, may
increase your returns over along period of time.
Consider the effects of inflation. Since the money you set aside today may be
intended to be used several years down the road, you need to look at inflation.
Inflation measures the increase of general prices over time.

Conservative investments like money market funds often may be popular

because they are managed to keep a steady value. But their return after
accounting for the inflation rate can be very low, perhaps even negative.

For example, a 4% inflation rate over a period of many years could erase a
money market fund's 3% yield over the same period of time. So even though
such an investment may give some safety of principal, it may not be able to
grow enough in value over the years or even keep up with the rate of inflation.

Patience is a virtue. It's no secret—the prices of common stocks can change

quite a bit from day to day. Therefore, the part of your account invested in
stock funds would likely fluctuate in value much the same way.

If you don't need your money right away (for at least 5 years), you probably
don't need to panic if the stock market declines or you find that your quarterly
statement shows the value of your investment has fallen. In the past, the stock
market has regained lost value over time. Although you are not assured it will
do so in the future, try to be patient and allow your stock funds time to
recover.
Remember the saying, "buy low, and sell high." Switching out of a stock
mutual fund when prices are low is usually not the way to make the most of
your investment. Of course, if a fund continues to under-perform over time as
well as your other fund choices, you may want to consider changing
funds.

56
Look at your age. Younger investors may be more at ease with stock funds,
because they have time to wait out the short-term ups and downs of stock
prices. By investing in a stock fund, they might be able to receive high returns
over the long-term.
On the other hand, people who are closer to retirement may be more interested
in protecting their money from possible drops in prices, since they'll need to
use it soon. In this case, it may be wise to place a greater percentage of money
in bond and/ or money market funds, which may not have such large changes in
value.

How can you determine an investment mix appropriate for your age? One
way is to subtract your age from 100. The answer you come up with may be a
good number to start with in deciding what portion of your total investments to
put into stock mutual funds.

Risk. When you are choosing funds, be sure to consider how much risk you are
comfortable with and how close you are to retirement. If retirement is around
the corner, you may want a portfolio with very little risk. On the other hand, if
you are younger, and have the time to weather the market's ups and downs, you
may want to choose a more aggressive investment strategy.

READ FUND DOCUMENTS

Your primary source of data concerning the mutual fund will be the
prospectus. It is a legal document illustrating the rules and regulations that a
mutual fund must follow and contains information on the fund's goal and
strategy, risks, performance, financial highlights fees and expenses, and a wide
variety of information that you should know before investing.

57
What are the fund' s goal and strategy?

Goals vary from fund to fund, and they're important to understand so

you can decide if they match your personal objectives. Some funds
generate income for their shareholders, while others concentrate on capital
appreciation. Some focus on a combination of the two, and others are oriented
towards tax benefits or preservation of capital.

Funds also implement differing strategies to help accomplish their goals. The
Goals and Strategies section of a prospectus details the types of securities in
which fund managers can invest and how managers analyze them

Funds can be limited to domestic investments, focus on a certain country or

region, or invest anywhere in the world. In addition, some funds invest only in
specific industries or in particular types of companies. Others invest in large-,
medium- or small-capitalization companies.

What are the risks?

As with all investments, each fund, whether domestic, international or sector

specific, carries different risks. The Main Risks section of a prospectus explains
which ones are associated with the securities in that particular fund, which may
help you decide what level of risk you're comfortable having in your
investment portfolio.

How has a fund performed?

While historical performance doesn't predict how a fund will do in the future,
you may be interested in how it performed in past market environments.
Depending on the age of the fund, a prospectus will provide its 1- 5- and 10-
year average annual returns, including a comparison to its benchmark index
over the same period.

58
What are financial highlights?

In this section a prospectus lists 5 years of annual financial information, if a

fund is less than 5 years old, provides data since inception. Information
includes net asset values at the beginning and end of each year, and details the
gains or losses, dividends and distributions that account for any changes.

Financial Highlights also show fund asset information such as net assets ratios
to average net assets for expenses and net investment income, and portfolio
turnover rates.

What are the expenses of a fund?

Operating a fund entails some costs you should be aware of. The Fees and
Expenses section breaks out these costs and who pays them. In addition, an
example of fund expenses is provided to help you compare the cost of investing
in one fund versus another.

Who's managing the fund?

In the Management section, a prospectus gives a brief biography of a fund' s

managers, including how long they have worked on the fund and their overall
industry experience.

.MARKET SEGMENTATION

Market segmentation is the division of market into homogeneous

groups, which will respond differently to promotions, communications,
advertising and other marketing mix variables. A different marketing mix can
target each group, or “segment”, because the segments are created to minimize
inherent differences between respondents within each segment and maximize
differences between each segment.

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 Market segmentation was first described in the 1950’s, when product
differentiation was the primary marketing strategy used. In the 1970’s and
1980’s, market segmentation began to take off as a means of expanding sales
and obtaining competitive advantages.

Uses of Market Segmentation

There are many good reasons for dividing a market into smaller segments. The
primary reasons:
Easier marketing
It is easier to address the needs of smaller groups of customers,
particularly if they have many characteristics in common (e.g. seek the same
benefits, same age, gender, etc.).
Find niches
Identify under-served or un-served markets. Using “niche marketing”,
segmentation can allow a new company or new product to target less contested
buyers and helps a mature product seek new buyers.

Efficient
More efficient use of marketing resources is by focusing on the best
segments for the investor offering—product, price, promotion, and place
(distribution). Segmentation can help avoid sending the wrong message or
sending message to the wrong people.
Classification variables
Classification variables are used to classify survey respondents into
market segments. Almost any demographic, geographic, Psychographic or
behavioral variable can be used to classify people into segments.
Demographic variables — Age, gender, income, ethnicity, martial status,
education, occupation, household size, length of residence, type of residence,
etc.

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 Geographic variables – City, state, zip code, census tract, country, region,
metropolitan or rural location, population density, climate, etc.

Psychographic variables – Attitudes, lifestyle, hobbies, risk aversion,

personality traits, leadership traits, magazines read, television programs
watched, PRIZM clusters, etc.

Behavioral variables – Brand loyalty, usage level, benefits sought, distribution

channels used, reaction to marketing factors, etc.
Summary
Target marketing or market segmentation based on customer needs and
wants can increase profits. Target market identifies customer groups and the
reasons they purchase. Market segmentation helps a business be more
responsive to changing customer needs. An overall marketing plan or strategy
visually shows how all aspects of a marketing effort work together. The
ultimate goal of any business is to sell the product or service.

PRIMARY DATA FOR THE PROJECT:

For the customized needs o the project, primary data was collected
through a survey in the twin cities of Hyderabad & Secunderabad. A Random
sample of 100 investors were surveyed. They were all asked to answer a
questionnaire true to their knowledge. The feedback obtained from the
customer was instrumental, gauging the perception of the investors towards
mutual funds. It also throws light on the factors, which influence them to make
decisions while investing. Further the interaction with few of the investors goes
a long way in understanding the inlaid reasons for their decisions.

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 SECONDARY DATA:

The main sources of secondary data are the web sites of various mutual
fund houses like cholamandalam mutual fund, Franklintempletonindia, ICICI,
BIRLA SUNLIFE, KOTAK and more such houses. Many references were
collected from different libraries to gain an insight on mutual funds. Previous
studies conducted in this field provided valuable help. In addition to the above
sources, Working with Axis Bank associates and interaction with their
personnel provided a pragmatic edge to my theoretical concepts.

Survey Details

Total Sample Size 100

Economic Status Criterion Tax payees & Non tax payees

Age groups 23 years and above

Martial Status Criterion Married, Married with children &
Unmarried

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 FACTORS CONSIDERED BY INVESTORS

WHILE INVESTING

Every investor considers several factors while investing in any of the products
as it deals with the most important need of life “money”.

The five main factors that were considered are:

1. Safety & security
2. Tax exemption
3. Liquidity
4. Profitability
5. Return pattern

Factors considered by investors

While investing
17%
31%
14%

12% 26%
Safety & security Tax exemption
Liquidity Profitability
Return pattern

SAMPLE SIZE 100

ECONOMIC STATUS TAX PAYEES AND NON-TAX PAYEES

The above graph shows that 31% people consider safety & security as the main
factor while investing, 26% goes for Tax exemption, 17% considered return
pattern in the investment, 14% went with profitability and 12% showed interest
in liquidity.

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ANALYSIS OF THE ABOVE GRAPH:

In a developing country like India most of the people fall in the lower middle
class and middle class sectors. The attitude of the investors is of primary
concern. As more and more options that warrant high returns are available in
the market, investor tends to be more skeptical. So, while investing in any
avenue, their first priority is safety and security. Even the age of the investor
plays a major role in the decision-making. For example, if the investor is in the
age of 50 and above, he usually looks for low or no risks while investing.
Therefore, 31% of investors surveyed preferred safety & security.

Next is the “tax exemption”; as there is tremendous boom in the

corporate sector and the remuneration system for a particular sector has
changed. This created a change in income levels and thereby affected the
expenditure patterns. In the past, it took employee years of time to reach a five-
figured salary. But, gradually the system has changed. Even the employee in
the lower level or the middle level of the corporate ladder is receiving a
handsome emolument. So, they are opting for the exemption of tax. Therefore,
the next preference is for tax exemption that is 26% of the total.

Besides investors going for Safety & security, there are investors who
opt for return on investments they made. They are mainly in the age group of
23 and 35. Because these investors are likely to think that, at this age they are
mentally more stable and feel that they can cope with financial risks. Any
profits made would further bolster their financial stability. And so, 17% went
with return pattern of their investment. In the same way, 14% of the investors
look for profitability, especially those who are already doing business, i.e. those
who are already accustomed to taking risks.Out of the total, 12% of investors
preferred liquidity. The main reason for this could be that, that making the
invested money liquefied as and when required is important, and this is not
possible if the investments are made in any insurance, Bank deposits, etc.

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 Though there are numerous factors that can be attributed to an investor’s
psyche, by large, we can conclude that maximum number of investors is
investing in those sectors where there is safety & security for their principal.
The other factors antecede safety.

INVESTMENT PATTERN:

Investment pattern

7% 5% 4%
2%
9% 42%

31%

Bank deposits insurance mutual fund

bonds shares Equity
none

Sample size 100

Economic status Tax payees & non-tax payees

From the above graph, it is clear that 42% opted for an investment in bank
deposits, 31% for insurance, 7% for shares, 9% for mutual fund, 2% for bonds,
5% for equity and remaining 4% have invested in some other investments such
as real estates etc.

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ANALYSIS OF THE ABOVE GRAPH:

The investment pattern of an investor is also very important because this shows
the avenues where the people are really interested. Here, 42% have invested in
bank deposits as it is very safe and risk free. Out of the sample of 100,it is
observed that those who opted for an investment in banks in the form of
deposits are found to be in the age group of 40 and above and are in
government services.

The next preference, as observed in the pie chart for investment pattern
is “Insurance”. People generally opt for life insurance because it promotes a
sense of safety & security for the dependents on the person and even his
belongings. So, the next priority is insurance. 7% of the investors went for an
investment in shares as it brings quick returns, although shares are prone to
high risks.

As shown 9% of the investors opted for an investment in mutual funds.

From this we can infer that the market of mutual fund is picking up slowly.
According to the survey, the people who have invested in the mutual funds
belong to high-income range and they want an exemption from tax and a mere
2% opted for bonds, 5% for investment in equity and 4% have invested in other
investments such as Real estate to make quick returns on their investments.

AWARENESS TOWARDS MUTUAL FUNDS:

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In the above pie chart, we can observe that nearly 90% of investors are aware
of mutual funds and only 13% people are not aware of it. This shows that most
of the investors know about mutual funds in one or the other way.

ANALYSIS OF THE ABOVE GRAPH:

Of the sample surveyed, almost all of the people are aware of mutual funds.
They are aware of the term “mutual fund”. Though the questionnaire cannot
identify the extent of the awareness. Through the interaction it is found that
they are not actually aware of the advantages in investing mutual funds, various
types of mutual funds and different schemes offered in it. It is found that
People often have an inhibition that investments in mutual funds can be done
only by those who have surplus amount of money with them and want to avail
tax redemption.

MUTUAL FUND INVESTMENTS:

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Mutual funds are medium risk investments. Though Investing in mutual fund
doesn’t assure a fixed amount of returns, nevertheless, they are not low. The
awareness about mutual funds is the primary criterion.

Sample size 16

Criterion Mutual fund investors in the survey

From the graph, it is clear that only 16 out of 100 invested in mutual funds.
From those 16, 12 have invested in Equity funds, 3 in liquid funds and the
remaining 1 in debt funds.

ANALYSIS OF THE ABOVE GRAPH:

Only 16 out of 100 invested in mutual funds this can be mainly attributed to
the low level of awareness, various inhibitions and a not so clear idea about the
mutual funds. It is very important to have a clear perception of mutual funds,
how they work and how the money is invested in different portfolios according
to the investors’ choice.

Investors who opted for equity funds are 12 of 16 percent. Equity funds
being the majority preference can be reasoned as they want their investments to
be put in various sectors i.e. DIVERSIFIED FUNDS so that they can make

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profits out of it easily. Even some went for INDEX FUNDS as the investments
are made in Bench Nark Index Stock like BSE, NSE.

A few (3%of 16%) investors made investments in liquid funds as they

want a Short term investments where the investor need not wait for much time
for the return. These are also called as Money Markets for short term.

Only a single investor went for debt funds where investments are in
various debt products like Certificate of Deposits (CD’s), Commercial papers
and call money as the investor want a secured investment, which he can avail
in Debt Funds.

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 FINDINGS

 Many of the investors are aware of mutual funds but most of their
perception towards them is not positive.
 Investors are mainly concerned with the risk factors of mutual funds and
are not directing towards them.

 The investors who have invested in mutual funds mainly go for it

because of the Liquidity matter and Tax exemption.

 Most of the people don’t know the advantages of mutual funds and the
various types of mutual funds.

 There are nearly 1173 schemes of mutual funds offered by various

mutual fund houses, which an ordinary person is not aware.

 A common investor basically looks for the Tax exemption and Safety &
security while investing.

 Investors often feel that those people, who have surplus amount with
them and invest to avail Tax exemption, can do investing in mutual
funds.

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 SUGGESTIONS

Make people aware of mutual funds by:

 Arranging free seminars in different organizations about mutual fund

investments.

 Arranging stalls in Public places is a good publicity.

 More advertisements need to come to explain the various advantages of

mutual funds and even the various schemes offered by them.

What to expect from a financial advisor

The key for mutual fund investors is to define and recognize the value of
professional financial services, and then insist on getting that value. When
you pay a sales charge or a fee, what can you expect a professional to do for
you? Your advisor should at least:

 Understand investor needs and help him formulate long-term investment

goalsandobjectives.
Before making specific recommendations, advisor should try to gain a
whole picture of investors past experience, lifestyle and goals, as well as his
other investments and current financial situation. When the investor
planning to retire, for example? Does the investor have life insurance? Does
he own real estate? How secured is his job?
 Help the investor develop realistic expectations by discussing the risks and
rewardsofeachinvestment.Every investment choice has its strengths and

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 weaknesses, and investor should never feel less than fully informed. When
investor ask questions, or have doubts,
 Investor should expect your financial advisor to answer honestly, and help
him develop a strategy that is both realistic and comfortable for him.

 Match investor’s goals and objectives with appropriate mutual funds.

Investor should expect your advisor to make clear and specific
recommendations, and explain the reasons behind them in terms he can
understand. Of course, the advisor should be confident and well informed
about the management and portfolio
strategiesofanymutualfundsrecommended.
 Continually monitor investor portfolio and help you interpret performance.
Your advisor cannot influence or predict a fund's results. However, he or
she should discuss results with you and help you judge your progress. You
should feel that you canalwaysaskyouradvisor,"HowamIdoing?"

 Conduct regular reviews to ensure that your strategy continues to provide

optimal results for you.

 One of the most valuable services your advisor can provide is to help you
"stay on course" with your investment program. But "staying on course"
long term does not necessarily mean staying put. Expect your financial
advisor to work with you to adjust your portfolio in response to any
significant change in your lifestyle, priorities, assets or responsibilities.
 These are the basic services that investors should expect from their financial
advisors. Beyond the basics, many investors could use even more
specialized assistance, like advice on retirement plan distribution options,
setting up and servicing retirement plans for small businesses and self-
employed individuals,
developing tax-advantaged strategies for children's college education,
insurance, estate, and trust planning; and year-end mutual fund tax advice.

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 If you need specialized services, there are many financial advisors who can
help you obtain the help you n

CONCLUSION

Mutual funds are still and would continue to be the unique financial tool in
the country. One has to appreciate the fact that every aspect of life as its periods
of high and lows. This has been the case with the stock markets. Why not apply
the same logic to mutual funds? Mutual funds have not failed in any country
where they worked with regulatory frame work. Their future is bright. The poor
performance of many mutual funds schemes may be mostly attributed to the
quality of personal involved and their matter of fund management.

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QUESTIONNAIRE

74
 Investor’s perception towards Mutual Funds

PERSONAL INFORMATION

A) Name:
B) Type of Business:
C) Address:
D) Telephone: Mobile:
E) Fax: Email:
F) Annual Income:

QUESTIONNAIRE

1.In which part of these modes have you made your major part of
investment?
[] Shares [] Equity [] Mutual Fund [] Insurance
[] Bank Deposit [] Bonds
[] Others Specify---------------------------------
2.Why do you prefer the above option?
[] Return Pattern [] Tax Exemption
[] Liquidity [] Safety & Security
[] Profitability [] Guaranteed Return
[] Others Specify-----------------------------------
3.How long would you like to invest?
[] Short term (below 1yr) [] Medium term (up to 2yrs)
[] Long term (above 3yrs)

4.Have you seen any advertisements for Mutual Funds?

[] Yes [] No

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5.If yes, what are the advertisement have you seen for?
[] Birla sunlife mutual funds [] Reliance mutual fund
[] Chola mutual funds [] Standard charted mutual funds
[] Franklin Templeton mutual fund [] Sundaram mutual fund
[] HDFC mutual fund [] UTI mutual fund
[] ING VYSA mutual fund [] Any other specify--------------------
[] Prudential ICICI mutual fund
6. Rank the following services preferred by you from a financial Advisory
Institution?
Services Rank
1. Telephone services
2. Online services
3. Mobile services
4. Personal services
7. Mention the names of mutual funds you have invested?
---------------------------------------------------------------------
8. In which scheme of mutual funds have you invested?
[] Debt [] Equity
[] Liquidity [] Mixed (Debt & Equity)
[] Others specify---------------------------
9. What was the approximate return you got on your investment?
[] Debt [] Equity
[] Liquidity [] Mixed
[] Others specify---------------------------
10. Which factors you consider the most while, investing in mutual funds?
[] Return patterns [] Performance
[] Services [] Risk factors
[] Quality of portfolio [] Professional management
[] Wealth creation

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11. Which period of dividend income you prefer the most?
[] Monthly [] Quarterly
[] Half yearly [] Annual
12. How often you need reminders (recall) about mutual fund?
[] Monthly [] Quarterly
[] Half yearly [] Annual
13. If you need so, which mode you would prefer?
[] Account statements [] Remainder letters
[] Television & Internet [] News papers & Magazines
14. Please rank your expectations from a mutual funds Advisory concern
Expectations Rank
1. Right Advice
2. Speed of transaction
3. Research inputs
4. Reputations
5. Reliability
6. Investor facilitation
7. Advertisements
8. Easy procedure
15. Are you willing to invest in mutual funds?
[] Yes [] No
If no, specify the reason------------------------------------------
If yes, do you need further assistance from Wealth Management
Executives from
Axis Bank Consultants Ltd?
[] Yes [] No
16. As investors please specify your needs, expectations and
recommendations to Develop the mutual funds.

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78
BIBLIOGRAPHY
S.No. Name of the Author Publisher Page Nos.

1 Punithavathi Securities Analysis and Portfolio 29,30,411&412

Pandyan Management
2 V.A.Avadhani Investment and Securities Markets in 427,428
India
MAGAZINES:
1. Business standard
2. Economic times
Marketing dictionary A. IVONAVIC

S.NO WEBSITE’S

Write the topic from where u have taken .

1 http:// www.Axis Bank.com

2 http:// www.amfiindia.com

3 http:// www.ici.org

4 http:// www.google.com

5 http:// www.moneycontrol.com

6 http:// www.franklintempletonindia.com

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