CHAPTER - 1

INTRODUCTION

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1(A) EXECUTIVE SUMMARY
Primary investment objective of any individual or organization is to maximize the returns and
minimizing Market risk and Credit risk through diversification

Mutual Funds (MF) have become one of the most attractive ways for the average person to invest
their money. It is said that Bank investment is the first priority of people to invest their savings
and the second place is for investment in Mutual Funds and other avenues. A Mutual Fund pools
resources from thousands of investors and then diversifies its investment into many different
holdings such as stocks, bonds, or Government securities in order to provide high relative safety
and returns.

The project includes a brief idea about the growth of MF industry (History), the broad idea about
the organization and concept of MF and SEBI Guidelines on Mutual Funds.

This project tries to explain about the history, growth, & pros and cons of investing in Mutual
Funds and the second part of it deals with the study about the opinion of investors to invest in
mutual funds.

The main objective of the project was to get an Overview of Mutual Fund Industry, its setup, its
working and to find out the opinion of investors, on various schemes available to customers.

Mutual funds pool money from different investors and invest in different investment sources like
stocks, shares, bonds etc. A professional fund manager manages these and returns are paid in form
of dividends. Some schemes assured fixed returns that are less in risk and some offer dividends
based on the market fluctuations and prices. Mutual funds have to be subscribed in units and the
purchase or sale is dependent on NAV (Net Asset Value), taking into consideration
The exit and entry load factors into account.

In this project, we collected the opinion about 50 customers and analyzed how the investor deals
with opinion regard to mutual funds that are the schemes they prefer, the plans they are opting, the
reasons behind such selections and also this project dealt with different investment options, which
people prefer along with and apart from mutual funds.

The past performance of MF is not necessarily indicative of future performance of the scheme and
no AMC guarantees returns and or safety of principal.

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1.1 INTRODUCTION

Mutual funds are basically financial intermediaries, which collect the savings of
investors and invest them in a large and well -diversified portfolio of securities such as
money market instruments, corporate and government bonds and equity shares of joint
companies. A mutual fund is a pool of common funds invested by different investors, who have
no contact with each other.
Mutual funds are conceived as institutions for providing small investors with avenues
of investments in the capital market. Since small investors generally do not have adequate
time, knowledge, experience and resources for directly accessing the capital market, they
have to rely on an intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise.
The raison of mutual funds is their ability to bring down the transaction
costs. The advantages for the investors are reduction in risk expert professional management,
diversified portfolios, liquidity of investment and tax benefits.
By pooling their assets in mutual funds, investors achieve economies of scale. The
interests of the investors are protected by the SEBI.

1.2 THE GOAL OF MUTUAL FUND

The goal of a mutual fund is to provide an individual to make money. There are several
thousand mutual funds with different investments strategies and goals to chosen from.
Choosing one can be overwhelming, even though it need not be different mutual funds
have different risks, which differ because of the fund’s goals fund manager, and investment
style.
The fund itself will still increase in value, and in that way we may also make money
therefore the value of shares we hold in mutual fund will increase in value the holdings increases
in value capital gains and income or dividend payments are best reinvested for younger investors
retires often seeks the income from dividend distribution to augment their income with
reinvestment of dividends and capital distribution your money increase at an even greater rate.
When you redeem your share what you receive is the value of the share.

1.3 ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the organizational setup of a
mutual fund:

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1.3.1 SPONSER:
A company established under the companies Act establishes a mutual fund. Thus, for
instance, Sundaram Finance Ltd, a company registered under the companies Act, and sets up the
Sundaram Mutual Fund. Sundaram Finance Ltd is the sponsor company.

1.3.2 TRUST:
The trust is headed by a Board of Trustees. The entity holds the property of the mutual
fund in trust for the benefit of the unit holders and ensures that all legal requirements in
connection with the operation and functioning of the mutual fund are met. In some, the trustee is
also established as a limited company under the companies Act. HDFC Mutual fund is an
example.

1.3.3 SEBI:
Every mutual fund must be registered with SEBI and registration is granted only where
SEBI is satisfied with the background of the fund.

1.3.4 AMC: Asset Management Company (AMC)

This entity is registered under the companies Act, to manage the money invested in the
mutual fund and to operate the schemes of the mutual funds in accordance with the governing
regulations. The AMC is thus charged with the responsibility of investing and managing the
investor’s resources.

FIGURE 1.1: ORGANISATION OF MUTUAL FUND

(SOURCE: Strategic financial management – V. Pattabhi Ram)

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1.4 HISTORICAL VIEW:
History and Structure of Indian Mutual Fund Industry
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,
at the initiative of the Government of India and Reserve Bank.
The history of mutual funds in India can be broadly divided into four distinct
phases:

1.4.1 FIRST PHASE (1964-87):

Unit Trust of India (UTI) was established on 1963 by an Act of parliament. It was setup
by the Reserve Bank of India and functioned under the Regulatory and administrative control of
the Reserve Bank of India.
In 1978 UTI was de- linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of
RBI.
T h e f i r s t s c h e m e launched by UTI was Unit Scheme 1964. At the end of 1988 UTI
had Rs.6700crores of assets under management.

1.4.2 SECOND PHASE (1987 – 1993) (ENTRY OF PUBLIC SECTOR

FUNDS):
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
Life Insurance Corporation of India (LIC)and General Insurance Corporation of India
(GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed
by (1) Can-bank Mutual Fund (Dec 87),
( 2 ) P u n j a b N a t i o n a l B a n k M u t u a l Fund (Aug 89),
(3) Indian Bank Mutual Fund (Nov 89),
(4) Bank of India (Jun90),
(5)Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in December1990.
At the end of 1993, the mutual fund industry had assets under management of Rs. 47, 004crores.

1.4.3 THIRD PHASE (1993 – 2003) (ENTRY OF PRIVATE SECTOR

FUNDS):

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first mutual fund regulations came into being, under which all mutual funds, except
UTI were to be registered and governed.
The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnesses several mergers and acquisitions.

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 As at the end of January 2003, there were 33 mutual funds with total assets of
Rs.1,21,805crores. The unit Trust of India with Rs.44,541crores of assets under management
was way ahead of other mutual funds.

1.4.4 FOURTH PHASE SINCE FEBUARY 2003:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets
under management of Rs.29, 835crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes.
The specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the
Mutual Fund Regulations.
The second is the UTI mutual fund Ltd, sponsored by SEBI, PNB, BOB AND LIC. It is
registered with SEBI and functions under the Mutual Fund regulations.
With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,
000crores of assets under management and with the setting of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual funds industry has entered its current phase of consolidation and
growth. As at the end of September, 2004, there were 29funds, which manage assets of Rs.1, 53,
108 crores under 421 schemes.

1.5 MUTUAL FUNDS

A Mutual Fund is a trust that pools together the resources of like – minded investors
for investment in the capital market. By investing in the units of the mutual fund, the investor
becomes a part owner of the assets of the mutual fund.

FIGURE 1.5: PROCESS OF MUTUAL FUNDS

(SOURCE: Strategic financial management – V. Pattabhi Ram)

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 When the value of the mutual funds’ investments goes up, the return for the investor
increases. When the value of the investor comes down, the return for the investor comes down.

The income earned on the funds, including unrealized capital appreciation, is shared
amongst the investors (called unit holders) in proportion to the number of units owned by them.
Thus a mutual fund becomes the indirect vehicle for the investor to invest in the capital markets.

1.6 REGULATORY BODY FOR MUTUAL FUNDS:

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds. All
the mutual funds must get registered with SEBI.

1.6.1 SEBI
Securities and Exchange Board of India (SEBI) formed under the SEBI Act, 1992 with the prime
objective of
 Protecting the interests of investors in securities,
 Promoting the development of, and
 Regulating, the securities market and for matters connected there with or incidental
thereto.

Every mutual fund must be registered with SEBI and registration is granted only where
SEBI is satisfied with the background of the fund. It has the authority to inspect the books of
accounts, records and documents of a mutual fund, its trustees, AMC and custodian where it
deems it necessary.

1.7 BENEFITS OF INVESTING IN MUTUAL FUNDS:

There are several benefits from investing in a Mutual Fund:

1.7.1 Small investments:

Mutual funds help you to reap the benefit of returns by a portfolio spread across a
wide spectrum of companies with small investments.

1.7.2 Professional Fund Management:

Professionals having considerable expertise, experience and resources manage the
pool of money collected by a mutual fund. They thoroughly analyze the markets and
economy to pick good investment opportunities.

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1.7.3 Spreading Risk:
An investor with limited funds might be able to invest in only one or two
stocks/bonds, thus increasing his or her risk. However, a mutual fund will spread its risk by
investing a number of sound stocks or bonds. A fund normally invests in companies across a
wide range of industries, so the risk is diversified.

1.7.4 Transparency:
Mutual Funds regularly provide investors with information on the value of their
investments. Mutual Funds also provide complete portfolio disclosure of the investments
made by various schemes and also the proportion invested in each asset type.

1.7.5 Choice:
The large amount of Mutual Funds offers the investor a wide variety to choose
from. An investor can pick up a scheme depending upon his risk/return profile.

1.7.6 Regulations:
All the mutual funds are registered with SEBI and they function within the
provisions of strict regulation designed to protect the interests of the investor.

1.8 MUTUAL FUNDS FOR WHOM?

These funds can survive and thrive only if they can live up to the hopes and trusts of
their individual members. These hopes and trusts echo the peculiarities which support the
emergence and growth of such insecurity of such investors who come to the rescue of such
investors who face following constraints while making direct investments:
Limited resources in the hands of investors quite often take them away from stock
market transactions.
 Lack of funds forbids investors to have a balanced and diversified portfolio.
 Lack of professional knowledge associated with investment business unable
investors to operate gainfully in the market. Small investors can hardly afford to
have ex-pensive investment consultations.
 To buy shares, investors have to engage share brokers who are the members of
stock exchange and have to pay their brokerage.
 They hardly have access to price sensitive information in time.
 It is difficult for them to know the development taking place in share market and
corporate sector.
 Firm allotments are not possible for small investors on when there is a trend of
over subscription to public issues.

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1.9 FEATURES
The following are the crucial features of a mutual fund.

1.9.1 POOLING OF RESOURCES:

Investors place money with a mutual fund. The fund invests the money in the
capital market. That way, mutual funds channelize peoples saving into investments.

1.9.2 PROFESSIONAL MANAGEMENT:

Mutual funds are manned by professional who are trained in the science and art
of security analysis.

1.9.3 OWNERSHIP, NOT LENDING:

An investor is a part owner of the mutual fund. He is not a lender. This has two
implications.
 As a part owner he participates in the gains and losses of the fund. He is not entitled to an
guaranteed return.
 He is not entitled to any interest on his investment since he is an owner and not a lender.

1.9.4 A SHARE IN THE FUND:

When the fund takes money, it issues units to the investor. Each unit represents
ownership of a part of the funds underlying securities. The investor owns units in proportion to
the amount invested.
If you hold 100 units in a mutual fund, which has 10,000 units, it means that your
share in the fund is 1% of the total corpus of the fund.

1.9.5 OWNING A UNIT, NOT THE ASSET:

An investor who has bought a certain percentage of the mutual fund units owns
that percentage of every asset and every liability of the fund. However, if he wants to exit the
mutual fund he cannot demand that he would take over his portion of the assets and liabilities of
the funds. Instead, he can Ancash his share of the fund by selling the units back to the mutual
fund.

1.9.6 NET ASSET VALUE:

Each day, the mutual funds compute the Net asset value of unit. The NAV of
mutual fund is the amount which a unit holder would receive if the mutual fund were wound up
that day. This value is obtained by deducting the total liabilities of fund from the closing market
value of the holdings and dividing it by the number of units outstanding.

1.9.7 TAXATION:
The income of mutual fund registered with SEBI is exempt from tax under section
10(23D) of income tax act, 1961.for the unit holder, the dividends received from are free from
tax. Sale of mutual funds investment will attract capital gains tax. Investment in mutual funds is
exempt from wealth tax.

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1.10 STRUCTURE OF MUTUAL FUNDS IN INDIA
A Mutual fund is constituted in the form of a trust. The sponsor sets up the business, the
asset management company invests the money and the trustee oversees the operations.
There are five principal constituents involved in the formation and functioning with three
market intermediaries.
A mutual fund is established under the Indian Trust Act to raise moneys through the sale
of sale of units to the units to the public for investment in the capital markets. The funds so
raised are handed over to the asset management company for investment. The mutual fund is
required to be registered with SEBI.

Figure 1.10: STRUCTURE OF MUTUAL FUNDS

(SOURCE: Strategic financial management – V. Pattabhi Ram)

The three market intermediaries are:

 Custodian
 Transfer agents
 Depository

1.10.1 CUSTODIAN:
A custodian is “any person who has been granted a certificate of registration to
carry on the business of custodial services under the Securities and Exchange Board of
India (custodian of securities) Regulations 1996”. Custodial services means safekeeping of

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 securities of a client and providing all incidental services. These include maintaining
accounts of securities of a client and collecting the benefits or rights accruing to a client.
Mutual funds use custodians so that the AMC can focus on its area of one competence,
namely, investing and managing money.

1.10.2 TRANSFER AGENTS:

A transfer agent is a person who has been granted a certificate of registration to
carry on the business of transfer agent under the Securities and Exchange Board of India
(Registrars to an Issue and Share Transfer Agents) Regulations, 1993. The transfer agent’s
business includes issuing and redeeming units of mutual funds, preparing transfer documents and
maintains updated investor records. The role of transfer agents is also to record transfer of units
between investors in situations where the concepts in depository is not in vogue.
1.10.3 DEPOSITORY:
A body corporate as defined in the Depositories Act, 1996. In role is to
effectualise the transfer of units to the unit holder in dematerialized form and maintain records
thereof.

1.11 RISKS INVOLVED IN INVESTING IN MUTUAL FUNDS:

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

Some of the Risk to which Mutual Funds are exposed to is given below:

1.11.1 Market risk:

If the overall stock or bond markets fall on account of overall economic factors, the
value of stock or bond holdings in the fund’s portfolio can drop, thereby impacting the fund
performance.

1.11.2 Non-market risk:

Bad news about an individual company can pull down its stock price, which can
negatively affect fund holdings. This risk can be reduced by having a diversified portfolio that
consists of a wide variety of stocks drawn from different industries.

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 1.11.3 Interest rate risk:
Bond prices and interest rates move in opposite directions. When interest rates rise,
bond prices fall and this decline in underlying securities affects the fund negatively.

1.11.4 Credit Risk:

Bonds are debt obligations. So when the funds invest in corporate bonds, they run the
risk of the corporate defaulting on their interest and principal payment obligations and when
that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of the fund to
take a beating.

1.12 DIFFERENT TYPES OF MUTUAL FUNDS:

Mutual funds are classified in the following manner:

FIGURE 1.12: TYPES OF MUTUAL FUNDS

(SOURCE: Arihanth.com)

1.12.1 On the Basis of Objective Equity Funds or Growth Funds:

Funds that invest in equity shares are called equity funds. They carry
the principal objective of capital appreciation of the investment over the

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medium to long-term. They are best suited for investors who are seek ing
capital appreciation. There are different types of equity funds such as
Diversified funds, Sector specific funds and Index based funds.

1.12.1.1 Diversified funds:

These funds invest in companies spread across sectors. These funds are generally meant for
risk-averse investors who want a diversified portfolio across sectors.

 1.12.1.2 Sector funds:

These funds invest primarily in equity shares of companies in a particular business sector
or industry. These funds are targeted at investors who are bullish or fancy the prospects of a
particular sector.

 1.12.1.3 Index funds:

These funds invest in the same pattern as popular market indices like CNX Nifty or CNX
500. The money collected from the investors is invested only in the stocks, which represent the
index. For e.g. a Nifty index fund will invest only in the Nifty 51 stocks. The objective of such
funds is not to beat the market but to give a return equivalent to the market returns.

 1.12.1.4 Tax Saving Funds:

These funds offer tax benefits to investors under the Income Tax Act. Opportunities provided
under this scheme are in the form of tax rebates under the Income Tax act.

 1.12.1.5 Debt/Income Funds:

These funds invest predominantly in high-rated fixed-income-bearing instruments like
bonds, debentures, government securities, commercial paper and other money market instruments.
They are best suited for the medium to long-term investors who are averse to risk and seek capital
preservation. They provide a regular income to the investor.

 1.12.1.6 Liquid Funds/Money Market Funds:

These funds invest in highly liquid money market instruments. The period of investment
could be as short as a day. They provide easy liquidity. They have emerged as an alternative for
savings and short-term fixed deposit accounts with comparatively higher returns. These funds are
ideal for corporate, institutional investors and business houses that invest their funds for very short
periods.

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  1.12.1.7 Gilt Funds:
These funds invest in Central and State Government securities. Since they are Government
backed bonds they give a secured return and also ensure safety of the principal amount. They are
best suited for the medium to long-term investors who are averse to risk.

 1.12.1.8 Balanced Funds:

These funds invest both in equity shares and fixed-income-bearing instruments (debt) in
some proportion. They provide a steady return and reduce the volatility of the fund while providing
some upside for capital appreciation. They are ideal for medium to long-term investors who are
willing to take moderate risks.

1.12.2 On the Basis of Flexibility Open – Ended Funds:

These funds do not have a fixed date of redemption. Generally they are open for
subscription and redemption throughout the year. Their prices are linked to the daily net asset value
(NAV). From the investors’ perspective, they are much more liquid than closed-ended funds.

1.12.2.1 Close-ended Funds:

These funds are open initially for entry during the Initial Public Offering (IPO) and
thereafter closed for entry as well as exit. These funds have a fixed date of redemption. One of the
characteristics of the close-ended schemes is that they are generally traded at a discount to NAV;
but the discount narrows as maturity nears. These funds are open for subscription only once and
can be redeemed only on the fixed date of redemption.
The units of these funds are listed on stock exchanges (with certain exceptions), are
tradable and the subscribers to the fund would be able to exit from the fund at any time through
the secondary market.

1.13 DIFFERENT INVESTMENT PLANS THAT MUTUAL

FUNDS OFFER:
The term ‘investment plans’ generally refers to the services that the funds provide to
investors offering different ways to invest or reinvest. The different investment plans are an
important consideration in the investment decision, because they determine the flexibility available
to the investor.
Some of the investment plans offered by mutual funds in India are:

1.13.1 GROWTH PLAN AND DIVIDEND PLAN:

A growth plan is a plan under a scheme wherein the returns from investments are
reinvested and very few income distributions, if any, are made. The investor thus only realizes
capital appreciation on the investment. Under the dividend plan, income is distributed from time
to time. This plan is ideal to those investors requiring regular income.

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 1.13.2 DIVIDEND REINVESTMENT PLAN:
Dividend plans of schemes carry an additional option for reinvestment of income
distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends
declared by a fund are reinvested in the scheme on behalf of the investor, thus increasing the
number of units held by the investors.

1.14 THE RIGHTS THAT IS AVAILABLE TO A MUTUAL

FUNDS:
As per SEBI Regulations on Mutual Funds, an investor is entitled to:

• Receive Unit certificates or statements of accounts confirming your title within 6 weeks
from the date your request for a unit certificate is received by the Mutual Fund Information
about the investment policies, investment objectives, financial position and general affairs
of the scheme.

• Receive dividend within 30 days of their declaration and receive the redemption or
repurchase proceeds within 10 days from the date of redemption or repurchase.

• The trustees shall be bound to make such disclosures to the unit holders as are essential in
order to keep them informed about any information, which may have an adverse bearing on
their investments.

• 75% of the unit holders with the prior approval of SEBI can terminate the AMC of the fund.

• 75% of the unit holders can pass a resolution to wind-up the scheme.

• An investor can send complaints to SEBI, who will take up the matter with the concerned
Mutual Funds and follow up with them till they are resolved.

1.15 FUND OFFER DOCUMENT:

A Fund Offer document is a document that offers you all the information you could possibly
need about a particular scheme and the fund launching that scheme. That way, before you put in
your money, you’re well aware of the risks involved. This has to be designed in accordance with
the guidelines stipulated by SEBI and the prospectus must disclose details about:

• Investment objectives

• Risk factors and special considerations

• Summary of expenses

• Constitution of the fund

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• Guidelines on how to invest

• Organization and capital structure

• Tax provisions related to transactions

• Financial information

1.16 ACTIVE AND PASSIVE FUND MANAGEMENT

1.16.1 ACTIVE FUND MANAGEMENT:
When investment decisions of the fund are at the discretion of a fund manager(s) and he
or she decides which company, instrument or class of assets the fund should invest in based on
research, analysis, market news, etc. such a fund is called as an actively managed fund.
The fund buys and sells securities actively based on changed perceptions of investment
from time to time. Based on the classifications of shares with different characteristics, active
Investment managers construct different portfolio. Two basic investment styles prevalent among
the mutual funds are Growth Investing and Value Investing:

1.16.1.1 Growth Investing Style:

The primary objective of equity investment is to obtain capital appreciation. A growth
manager looks for companies that are expected to give above average earnings growth, where
the manager feels that the earning prospects and therefore the stock prices in future will be
even higher. Identifying such growth sectors is the challenge before the growth investment
manager.

1.16.1.2 Value investment Style:

A Value Manager looks to buy companies that they believe are currently undervalued in the
market, but whose worth they estimate will be recognized in the market valuations eventually.

1.16.2 PASSIVE FUND MANAGEMENT

When an investor invests in an actively managed mutual fund, he or she leaves the
decision of investing to the fund manager. The fund manager is the decision-maker as to which
company or instrument to invest in. Sometimes such decisions may be right, rewarding the investor
handsomely. However, chances are that the decisions might go wrong or may not be right all the
time which can lead to substantial losses for the investor.
There are mutual funds that offer Index funds whose objective is to equal the return given
by a select market index. Such funds follow a passive investment style. They do not analyze
companies, markets, economic factors and then narrow down on stocks to invest in. Instead they
prefer to invest in a portfolio of stocks that reflect a market index, such as the Nifty index.

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 The returns generated by the index are the returns given by the fund. No attempt is made
to try and beat the index. Research has shown that most fund managers are unable to constantly
beat the market index year after year.
Also it is not possible to identify which fund will beat the market index. Therefore, there
is an element of going wrong in selecting a fund to invest in. This has led to a huge interest in
passively managed funds such as Index Funds where the choice of investments is not left to the
discretion of the fund manager.
Index Funds hold a diversified basket of securities which represents the index while at
the same time since there is not much active turnover of the portfolio the cost of managing the
fund also remains low. This gives a dual advantage to the investor of having a diversified portfolio
while at the same time having low expenses in fund.

1.17 EXCHANGE – TRADED FUND

Think of an exchange-traded fund as a mutual fund that trades like a stock. Just like an
index fund, an ETF represents a basket of stocks that reflect an index such as the Nifty. An ETF,
however, isn’t a mutual fund; it trades just like any other company on a stock exchange.
Unlike a mutual fund that has its net-asset value (NAV) calculated at the end of each
trading day, an ETF’s price changes throughout the day, fluctuating with supply and demand. It is
important to remember that while ETFs attempt to replicate the return on indexes, there is no
guarantee that they will do so exactly.

By owning an ETF, you get the diversification of an index fund plus the flexibility of
a stock. Because, ETFs trade like stocks, you can short sell them, buy them on margin and purchase
as little as one share. Another advantage is that the expense ratios of most ETFs are lower than
that of the average mutual fund. When buying and selling ETFs, you pay your broker the same
commission that you’d pay on any regular trade.

1.18 SIPs, SWPs and STPs:

SIPS or Systematic Investment Plans Systematic Investment Plans (SIPs) allow you to invest in a
fund by way of monthly installments. Now, fund houses are offering a host of other facilities that
allow booking of profits on fund investments, shifting money from one fund to another and even
re-investing dividends, based on the instructions you leave with the fund.

1.18.1 Systematic Withdrawal Plans (SWPs) allow the investor to withdraw

money from a debt or an equity fund in equal installments at periodic intervals. Just like a
systematic investment, a systematic withdrawal plan reduces the impact of timing when you
liquidate your investments in a fund. An SWP allows you to choose the quantum and periodicity
of withdrawals from the fund.

1.18.2 A Systematic Transfer Plan (STP) allows you to make periodic transfers
from one fund into another managed by the same fund house. As with an SWP, you have to specify
the installment and the periodicity of the transfer. The STP can be a useful facility to re-balance
your portfolio or to phase out investments in a fund over a period. You can invest a lump sum in

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a liquid or floating rate fund and leave instructions to transfer Rs. 1000 every month into an equity
fund.
Mutual Funds are investment vehicles that pool in the money of many investors and
professionally manage the funds so collected. They then share out the returns with the investors.
The investors can also buy and sell mutual fund units from the fund or on the stock exchanges.
Mutual funds offer various types of investment objectives like growth, income and mixed. They
open for offer through a new fund offer.
The scheme may be open or close ended. There are various types of funds/schemes based
on the objective like debt funds, sector funds, growth funds, etc. ETF is a mutual fund traded on a
stock exchange.

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 CHAPTER-2
THEORETICAL
FRAMEWORK FOR
CONSUMER BEHAVIOR

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2.1 CONSUMER BUYING BEHAVIOR:

To Study Consumer Buying Behavior Has Become One Of The Most Important
And Complex Task For The Organizations. In Order To Gain A Competitive Advantage Over Its
Competitors Huge Amount Of Money And Time Is Devoted To Understand The Nature Of
Consumer Buying Process. This Paper Aims To Understand the Process Of Consumer Buying And
The Factors That Influences Such Decision Making Process.
Consumer Buying Behavior Focuses On How Individuals Make Decisions To
Spend Their Available Resources (Time, Money, Effort) On Consumption-Related Items That
Includes What They Buy, Why They Buy, When They Buy It, Where They Buy It, How Often
They Buy It, How Often They Use It, How They Evaluate It After The Purchase And The Impact
Of Such Evaluations On Future Purchases, And How They Dispose Of It.
Consumer Buying Decision Process:
When purchasing any product, a consumer goes through a decision process. This
process consists of up to five stages
NEED RECOGNITION

INFORMATION SEARCH

EVALUATION OF ALTERNATIVES

BUYING DECISION

POST PURCHASE BEHAVIOUR

FIGURE 2.1 BUYING DECISION PROCESS

(SOURCE: Strategic financial management – V. Pattabhi Ram)
Consumer's buying behavior and the resulting purchase decision are strongly
influenced by cultural, social, personal and psychological characteristics. An understanding of
these factors is essential for marketers to develop suitable marketing mix to appeal to the target
customer.

20
 1

ORIGIN AND IMPORTANCE OF CONSUMER BEHAVIOR:

The origin and importance of consumer behavior According to Engel et al. (1990: 22)
and Schiffman & Kanuk (1997: 8), consumer behavior is regarded as a relatively new field of
study with no historical body of research of its own. The concepts of the development, therefore,
were heavily and sometimes indiscriminately borrowed from other scientific disciplines, such as
psychology (the study of the individual), sociology (the study of groups), social psychology (the
study of how individuals operate in groups), anthropology (the influence of society on the
individual) and economics.
From a marketing perspective, consumer behavior most probably became an
important field of study with the development of the so-called marketing concept. Assael (1995:
5) emphasizes the influence of the marketing concept in marketing by stating that, according to
the marketing concept, marketer’s first need to define benefits sought by consumers in the
marketplace, followed by the drafting of marketing plans supporting the needs of consumers.
The marketing concept was formulated during the 1950s and although it seems
logical, marketers never considered the concept thereof earlier. Assael (1995: 8) provides two
reasons why marketers did not use the concept earlier. The first is that marketing institutions
were not sufficiently developed to accept the marketing concept prior to the 1950s. Advertising
and distribution were geared for the mass production and mass marketing strategies of that time.
The importance of understanding consumer behavior can most probably be
summarized in a simple, yet powerful, statement by Assael (1995: 3): "Consumers determine the
sales and profits of a firm by their purchasing decisions. As such, their motives and actions
determine the economic viability of the firm".
To be a successful seller of products and services (as can be concluded from the
statement above), organizations need to understand consumer needs and behavior and draft their
marketing strategies to incorporate such behavioral needs of consumers.

21
2.2 THE 4 MARKETING P’S TO BE FOCUSED ON BY
INVESTOR

Factors that investors should focus on while evaluating a fund:

2.2.1 PEOPLE:
Find out more about the individuals responsible for running the fund, i.e. the
portfolio manager and the investment team supporting him. Focus on the manager’s
experience and his or her areas of expertise.

2.2.2 PROCESS:
This entails evaluating the investment strategy being plied on the fund. Broadly
speaking, a process which is simple, well-defined and repeatable is preferable.

2.2.3 PERFORMANCE:
Evaluate if the fund’s performance matches what one expects given the process
being plied. For instance, a valuation – conscious process is unlikely to deliver at a time
when markets are rewarding expensive stocks.

2.2.4 PRICE:
Expenses charged to the fund can do have a bearing on its long-term
performance. In debt fund categories where margins can be wafer thin, the importance of
keeping expenses low is further accentuated.
The aforesaid factors should be considered in combination (and not
individually) while forming an opinion on the fund. Lastly, investors must remember that
they are investing their monies for the future and hence the need to focus on more than
more than just the past performance

2.3 TYPES OF INVESTORS

The Economic Times survey on retail equity investors in the secondary market has identified
different categories of investors based on their characteristics. Many questions are raised about the
behavior of the small investor under different circumstances. The answers too many of these
questions and similar others is not difficult to interpret once we identify the different types of retail
investors in the stock markets.
The survey shows that there are five different kinds of retail investors:
 Intellectuals
 Cavaliers
 Reactivates
 Opportunists
 Gamblers

22
This classification is based on the attitudes of investors towards secondary market investments.
Let’s explain each type of investor and understand their investment psyche and behavioral patterns.
2.3.1 INTELLECTUALS:
This retail investor group forms around 17% of the total retail investment class.
They are the intelligent investors who follow an intelligent, individualist approach to
investment planning and a well- defined and deliberate strategy for stock investment.

2.3.2 CAVALIERS:
As high as 49% of the small retail equity investors are ‘cavaliers’. They are those
who have lost money in ‘fly-by –night ‘schemes. Therefore, much of their investments are driven
by the desire to recover past losses and make profits in the future. As such, they invest aggressively
into equities, mostly in volatile sectors in order to make big gains.

2.3.3 REACTIVISTS:
About 5% of the retail equity investors fall under this category. These investors’
basically short-term investors, are impulsive info addicts who are vulnerable to external
influences and as such, they have no specific investment patterns, They believe that dynamic
and ad hoc investments will result in better profits and are prompted to act on popular opinion
rather than systematic planning.

2.3.4 OPPORTUNISTS:
This class of investors account for 10% of the retail equity investor universe. This
category is defensively pessimistic and prefers to take only familiar risks. As they have a low risk
tolerance, they are wary of volatility in the equity market.

2.3.5 GAMBLERS:
19% the retail investor population is made up of not actual investors. But gamblers’
they are the typical thrill seeking traders who link profitability to personal achievement. They
experiment a lot, mostly driven by instinct and self-confidence; as such their stock selection is
more a random exercise that lacks rationale

2.4 MARKETING STRATEGIES ADOPTED BY THE MUTUAL

FUNDS

The present marketing strategies of mutual funds can be divided into two main headings:
1. Direct marketing
2. Selling through intermediaries
3. Joint calls

23
 2.4.1 DIRECT MARKETING:
This constitutes 20 percent of the total sales of mutual funds.
Some of the important tools used in this type of selling are:

2.4.1.1 PERSONAL SELLING:

In this case the customer support officer or Relationship Manager of the fund at a
particular branch takes appointment from the potential prospect.

2.4.1.2 TELEMARKETING:
In this case the emphasis is to inform the people about the fund. The names and phone
numbers of the people are picked at random from telephone directory.

2.4.1.3 DIRECT MAIL:

This one of the most common method followed by all mutual funds. Addresses of
people are picked at random from telephone directory, business directory, professional directory
etc. The customer support officer (CSO) then mails the literature of the schemes offered by the
fund. The follow up starts after 3 – 4 days of mailing the literature

2.4.1.4 ADVERTISEMENTS IN NEWSPAPERS AND MAGAZINES:

The funds regularly advertise in business newspapers and magazines besides in
leading national dailies. The purpose to keep investors aware about the schemes offered by the
fund and their performance in recent past. Advertisement in TV/FM Channel.
2.4.1.5 HOARDINGS AND BANNERS :
In this case the hoardings and banners of the fund are put at important locations of
the city where the movement of the people is very high. The hoarding and banner generally
contains information either about one particular scheme or brief information about all schemes of
fund.

2.4.2 SELLING THROUGH INTERMEDIARIES:

Intermediaries contribute towards 80% of the total sales of mutual funds. These are
the people/ distributors who are in direct touch with the investors. They perform an important role
in attracting new customers. Most of these intermediaries are also involved in selling
Shares and other investment instruments.

2.4.2.1 REGULAR MEETINGS WITH DISTRIBUTORS:

Most of the funds conduct monthly/bi-monthly meetings with their distributors. The
objective is to hear their complaints regarding service aspects from funds side and other queries
related to the market situation.
JOINT CALLS:
This is generally done when the prospect seems to be a high net worth investor. The
BDA and the agent (who is located close to the HNI’s residence or area of operation) together visit
the prospect and brief him about the fund.

24
 2.5 ADVANTAGES:

 PORTFOLIO DIVERSIFICATION:
Mutual Funds invest in a well-diversified portfolio of securities which enables
investor to hold a diversified investment portfolio (whether the amount of investment is big or
small)
 PROFESSIONAL MANAGEMENT:
Fund manager undergoes through various research works and has better investment
management skills which ensure higher returns to the investor than what he can manage on his
own.

 LESS RISK:
Investors acquire a diversified portfolio of securities even with a small investment in a
Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

 LOW TRANSACTION COST:

Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser
transaction costs. These benefits are passed on to the investors.

 LIQUIDITY:
An investor may not be able to sell some of the shares held by him very easily and quickly,
whereas units of a mutual fund are far more liquid.

 CHOICE OF SCHEME:
Mutual funds provide investors with various schemes with different investment objectives.
Investors have the option of investing in a scheme having a correlation between its investment
objectives and their own financial goals. These schemes further have different plans/options

 TRANSPARENCY:
Funds provide investors with updated information pertaining to the markets and the
schemes. All material facts are disclosed to investors as required by the regulator. Flexibility: -
Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors
can switch their holdings from a debt scheme to an equity scheme and vice-verse. Option of
systematic (at regular intervals) investment and withdrawal is also offered to the investors in most
open-end schemes.

 SAFETY:
Mutual Fund industry is part of a well-regulated investment environment where the
interests of the investors are protected by the regulator. All funds are registered with SEBI and
complete transparency is forced.

25
2.6 DISADVANTAGES:

 COST CONTROL NOT IN THE HANDS OF INVESTORS:

Investor has to pay investment management fees and fund distribution costs as a
percentage of the value of his investments (as long as he holds the units), irrespective of the
performance of the fund.

NO CUSTOMIZED PORTFOLIO:
The portfolio of securities in which a fund invests is a decision taken by the fund
manager. Investors have no right to interfere in the decision making process of a fund manager,
which some investors find as a constraint in achieving their financial objectives.

 DIFFICULTY IN SELECTING A SUITABLE FUND SCHEME:

Many investors find it difficult to select one option from the plethora of
funds/schemes/plans available. For this, they may have to take advice from financial planners in
order to invest in the right fund to achieve their objectives.

 LOAD STRUCTURE:
Load Funds Mutual Funds incur various expenses on marketing, distribution,
advertising, portfolio churning, fund manager's salary etc. Many funds recover these expenses
from the investors in the form of load. These funds are known as Load Funds.
A load fund may impose following types of loads on the investors:

1. Entry Load
Also known as Front-end load, it refers to the load charged to an investor at the time of
his entry into a scheme. Entry load is deducted from the investor's contribution amount to the fund.

2. Exit Load
Also known as Back-end load, these charges are imposed on an investor when he redeems
his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an
outgoing investor.

3. Deferred Load
Deferred load is charged to the scheme over a period of time

4. Contingent Deferred Sales Charge (CDSC)

26
 In some schemes, the percentage of exit load reduces as the investor stays longer with the
fund. This type of load is known as Contingent Deferred Sales Charge. No-load Funds All those
funds that do not charge any of the above mentioned loads are known as No-load Funds.

 Tax exemption:

1. TAX-EXEMPT FUNDS
Funds that invest in securities free from tax are known as Tax- exempt Funds. All
open-end equity oriented funds are exempt from distribution tax (tax for distributing income to
investors). Long term capital gains and dividend income in the hands of investors are tax- free.

2. NON-TAX-EXEMPT FUNDS
Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India,
all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits
arising out of sale of units by an investor within 12 months of purchase are categorized as short-
term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities
Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

27
 CHAPTER – 3
METHODOLOGY

28
3.1 NEED FOR THE STUDY
In today's complex financial environment, investors have unique needs, which are derived
from their risk appetite and financial goals. Mutual funds (customized portfolios) recognize this,
and manage the investments professionally to achieve specific investment objectives, and not to
forget, relieving the investors from the day-to-day hassles which investment require.
It is offers professional management of equity and debt diversified investment of the investor
with an aim to deliver consistent return with an eye on risk.
Identify the key sectorial stocks in each portfolio.

3.2 OBJECTIVES OF THE STUDY

1. To enhance our knowledge about the mutual funds.
2. How effectively investment houses are reaching their customers.
3. To study the pattern of consumer behavior within the available investment options.
4. To create awareness among the consumer about the various mutual fund houses.
5. To know whether investors are interested in mutual funds or not.

3.3SCOPE OF THE STUDY

To find out the most preferable investment avenue of the investors for investment
towards mutual funds. To analyze the investor’s preference toward investment in mutual fund
when other investment avenues are also available in the market. To find the main bases of
different investment avenues, an investor thinks before investing. To find the overall criterion of
investors regarding investment

3.4 RESEARCH METHODOLGY

Title:
To determine Customer behavior on Investments
Title justification:
The above title is self-explanatory. The study deals mainly with studying the Customer behavior
on Investments, the buying patterns Age groups, satisfaction levels etc. will also be studied.
Research Design
 Exploratory Descriptive
 Experimental Research

The research is primarily both exploratory as well as descriptive in nature. The sources of
information are both primary & secondary. A well-structured questionnaire was prepared and to
collect the customer's perception and buying behavior, through this questionnaire

29
3.5 DATA COLLECTION
Primary data
The questionnaire was used as the data collection instrument.it is a research instrument consisting
of a series of questions for the purpose of gathering information from respondents.
Secondary data
The secondary data has been collected from online sources.
Sample Data:
Sampling Technique Initially, rough draft was prepared keeping in mind the objective of the
research. A pilot study was done in order to know the accuracy of the Questionnaire. The final
Questionnaire was arrived only after certain important Changes done thus my sampling came out
to be Judgemental and Convenient.

Sampling Unit:
The respondents who were ask to fill a Questionnaire are the sampling units. These
comprise of clients, employees, colleagues.
Sample size:
Sample size was restricted to only 53, which comprised of mainly people who are working,
studying and have knowledge about investment.
Sampling Area:
The area of the research was, Bangalore India.
Statistical tools:
For the purpose of analyzing the data factor analysis have been conducted using SPSS.
Methods of spreading the questionnaires:
Since the topic deals with Customer behavior on Investments, online questionnaire was used. A
free service website, Google Spread sheets, used for the survey and allow participants to answer
the questionnaire online. After the online questionnaire has been created, the questionnaire link
was emailed to participants. At the same time, it is also asked them to forward the questionnaire
to their cases. Secondly, the questionnaire distributed through WhatsApp and other social media
channels. The respondents could easily click on the link which directly leads them to the

30
questionnaire. The results are then recorded into an excel document by the Google Spread sheet.
The link of the questionnaire has been sent online. 53 were responded and within the responded
questionnaires .The participation to the survey were voluntary and the respondents had a chance
to stop and leave the questionnaire at any stage.

31
 CHAPTER – 4
ANALYSIS OF THE STUDY

32
RESPONDENTS ANALYSIS:

RESPONDENTS DESIGNATION
business self employed student salaried employed

4%
2%

41%

53%

.
INTERPRETATION:
From the above data, 53 % of the respondents are student, 41% are salaried employees while
the others are either self-employed or have their own businesses.

RESPONDENTS AGE

13%
2%

15%

70%

20-25 25-30 30-40 more than 40

33
INTERPRETATION:
From the above data, 70% of the respondents are students belong to 20-25 age group, 15 %
belongs to 25-30 a age group, 2% belong to 30 -40 age group and 13% belong to age group of
more than 40

INCOME

43%
49%

8%
less than 2 lakhs 2 lakhs - 3 lakhs more than 3 lakhs

INTERPRETATION:
From the above data, 43% of respondent income level is more than 3 lakhs, 8% respondent’s
income level belongs to 2 lakhs -3 lakhs and 49% of respondents income level is less than 2
lakhs

INTERESTED MARKET TO INVEST

securities mutual funds insurances
government bonds treasury bonds FOREX

2%4%
15%
9%

11%

59%

34
INTERPRETATION:
From the data obtained through survey we can observe that majority of respondents are
interested to invest in mutual funds followed by securities, insurance, government bonds,
FOREX and treasury bonds

DO YOU INVEST IN MUTUAL FUNDS

yes no

45%
55%

INTERPRETATION:
From the above data, 55% respondents invested in mutual funds and 45 % are not interested in
investing in mutual funds

IF NO WHAT IS THE REASON

lack of knowledge about mutual funds
investing in other sources
its benefits are not enough to drive you for investment
no trust on fund manager

17%

40%
20%

23%

35
INTERPRETATION:
From the above data, 17% of the respondents do not have trust on fund manager, 40% of
respondents do not have knowledge on mutual fund, 23% of respondents invest in other sources
and 20% of respondents feel mutual fund have less benefits

AVERAGE INVESTMENT
PERIOD
less than 6 months 6-12 months
12 months-2 years greater than 2 years

26%
34%

22%
18%

INTERPRETATION:
From the above data, 26% of respondents investment period is less than 6 months, 22% is 6-12
months,18% is 1 year-2 years and 34% is greater than 2 years.

PRIMARY SOURCE OF
INVESTMENT
television internet
newspapers friends and family

12%

45%
32%

11%

INTERPRETATION:
From the above data, 45% of respondents invest in mutual funds by recommendation of family
and friends, 32% is from internet, 11% is from newspapers and 12 is from television.

36
 RISK
low moderate high

6%

39%

55%

INTERPRETATION:
From the above data, 55% of respondents take moderate risk while investing in mutual funds,
6% take high risk and 39% take low risk.

PREFERENCE IN MUTUAL FUNDS

equity funds income funds
money market funds ELSS tax saver
balanced funds SIP

17%

8% 38%

15%

12% 10%

e
INTERPRETATION:
From the above data, 38% of investors prefer equity funds to maximize their capital, 10% prefer
income funds. 12% prefer money market funds, 15% prefer ELSS tax saver, 8% prefer balanced
funds and 17% prefer SIP

37
 RETURN EXPECTATION
up to 15% 15-25% 25-35% greater than 35%

17% 21%

14%

48%

INTERPRETATION:
From the above data, 48% of respondents expect 15-25% return, 14% expect 25-35% return,21%
expect low return that is up to 15% and 17% expect greater than 35% return by investing for
long term in mutual funds

PREFERENCE OF MUTUAL
FUND
open ended closed ended

23%

77%

INTERPRETATION:
From the above data, 77% of respondents prefer open ended mutual fund the funds do not have a
fixed data of redemption, 23% prefer closed ended mutual fund.

38
 INFLUENCED BY NAME OF
THE COMPANY
yes no

48% 52%

INTERPRETATION:
From the above data, 52% of the respondents invest by influencing by the name of the company.

FACTOR INFLUENCED
by NAV by return both

19%

46%

35%

INTERPRETATION:
From the above data, 46 % of investors prefer both NAV and return to invest in the mutual
funds.

39
 PURCHASE MUTUAL FUNDS
FROM
directly from AMC brokers only

37%
63%

INTERPRETATION:
From the above data, 63% of investors purchase mutual funds directly from AMC because they
lack the trust on fund manager.

FEATURE ATTRACTED
diversification
professional management
reduction in risk and sansaction cost
help in achieving long term goals

28% 24%

16%

32%

INTERPRETATION:
Based on the above information we can target the customers according to the features they are
looking for.24% investors attracted to diversification, 16% investors attracted to professional
management, 32% attracted to reduction in risk and sansaction cost and 28% attracted to help in
achieving long term goals.

40
CROSS TAB: 1

AGE * FEATUREATTRACTED CROSSTABULATION

Count

featureattracted

reduction in risk
professional and transaction help in achieving
diversification maagement cost long term goals Total

age 20-25 8 5 11 10 34

25-30 2 0 4 2 8

30-40 0 0 0 1 1
more than 40 2 3 1 1 7
Total 12 8 16 14 50

INTERPRETATION:
From the above table, respondents from the category of 20-25years are more attracted towards
low risk and achieving long term goals in order to secure their savings. 25-30years are more
attracted towards low risk whereas more than 40 years category respondents are more interested
in diversification and portfolio management.

income * designation Crosstabulation

Count

designation

salaried
business self employed student employed Total

income less than 2 lakhs 0 1 25 0 26

2 lakhs - 3 lakhs 1 0 0 3 4

more than 3 lakhs 0 1 3 19 23

Total 1 2 28 22 53

INTERPRETATION:
 As per this survey, 26 respondent’s income level is less than 2 lakhs, in which
students(23) and one self employed
 4 respondents income level is between 2 lakhs -3 lakhs, in which business(1), and self-
employed(3)
 23 respondents income level is more than 3 lakhs in which one self-employed, students

41
 (3) and salaried employed (19).

age * designation Cross tabulation

Count

designation

salaried
business self employed student employed Total

age 20-25 0 1 28 8 37

25-30 1 0 0 7 8

30-40 0 0 0 1 1

more than 40 0 1 0 6 7
Total 1 2 28 22 53

INTERPRETATION:
According to the survey,
 37 respondents are between 20-25 years in which students (28), one self-employed, and
salaried employed (8).
 8 respondents are between 25-30 years in which salaried employed(7) and business(1)
 One salaried employed is from 30-40 years group
 7 respondents are more than 40 years in which salaried employed (6) and one self-
employed.

age * Are you investing in mutual funds Cross tabulation

Count

Are you investing in mutual funds

yes no Total

age 20-25 14 23 37

25-30 6 2 8

30-40 1 0 1

more than 40 3 4 7
Total 24 29 53

42
INTERPRETATION:
From the above table out of 53 respondents 24 are interested in mutual funds because they want
to diversify their savings in long term. 29 respondents are not interested because they feel that
their annual income is not sufficient for their savings.

age * risk Crosstabulation

Count

risk

low moderate high Total

age 20-25 15 20 2 37

25-30 2 5 1 8

30-40 0 1 0 1

more than 40 4 3 0 7
Total 21 29 3 53

INTERPRETATION:
From the above table, we observe that the age group of 20-25 are low and moderate risk takers.
Between 25-40 years group are moderate risk takers. The income level more than 40 years are
moderate risk takers.

preferenceinmutualfunds

equity income money ELSS tax balanced

funds funds market funds saver funds

age 20-25 15 1 6 4 3

25-30 4 1 0 3 0

30-40 0 0 0 1 0

more than
1 3 0 0 1
40
Total 20 5 6 8 4

43
 age * preferenceinmutualfunds Crosstabulation
Count

preferenceinmutualfunds

SIP Total

age 20-25 7 36

25-30 0 8
30-40 0 1

more than 40 2 7
Total 9 52

INTERPRETATION:
From the above table, we observe that the respondents highly prefer equity funds and SIP
because they want capital appreciation and they like to invest in a fund by way of monthly
instalments.

age * returnexpectation Crosstabulation

Count

returnexpectation

greater than
upto 15% 15-25% 25-35% 35% Total
age 20-25 8 18 5 6 37

25-30 0 5 1 2 8

30-40 0 0 1 0 1

more than 40 3 2 0 1 6
Total 11 25 7 9 52

INTERPRETATION:
It is observed that, respondents with all age groups highly expect 15-25% return on their
investment.

44
 age * preferanceofmutualfund Crosstabulation
Count

preferanceofmutualfund

open ended closed ended Total

age 20-25 26 7 33

25-30 6 1 7

30-40 1 0 1

more than 40 4 3 7
Total 37 11 48

INTERPRETATION:
From the above table it is observed that the respondents with all age groups prefer open ended
because the funds do not have a fixed data of redemption, they are open throughout the year.

age * purchasemutualfundsfrom Crosstabulation

Count

purchasemutualfundsfrom

directly from
AMC brokers only Total

age 20-25 24 11 35

25-30 4 4 8

30-40 0 1 1

more than 40 4 3 7
Total 32 19 51

INTERPRETATION:
Because of the trust issues with the intermediators, investors want to purchase directly from
AMC. But because of the time constraint and lake of awareness about mutual funds the age
group of 20-25 years like to purchase schemes through mediators.

45
 age * fractorinfluenced Crosstabulation
Count

fractorinfluenced

by NAV by return both Total

age 20-25 6 12 15 33

25-30 0 4 3 7

30-40 0 0 1 1

more than 40 3 1 3 7
Total 9 17 22 48

INTERPRETATION:
From the above table, it is clear that respondents are more likely to invest in schemes that give
high returns on their investment. The age group of 20-25 years they are not only expecting
returns but also invest comparing with NAV

income * Are you investing in mutual funds Crosstabulation

Count

Are you investing in mutual funds

yes no Total

income less than 2 lakhs 7 19 26

2 lakhs - 3 lakhs 3 1 4

more than 3 lakhs 14 9 23

Total 24 29 53

INTERPRETATION:
From the above table out of 53 respondents 24 are interested in mutual funds because they want
to diversify their savings in long term. 29 respondents are not interested because they feel that
their annual income is not sufficient for their savings.

46
 income * risk Crosstabulation
Count

risk

low moderate high Total

income less than 2 lakhs 14 12 0 26

2 lakhs - 3 lakhs 2 1 1 4

more than 3 lakhs 5 16 2 23

Total 21 29 3 53

INTERPRETATION:
From the above table, we observe that Less than 2 lakhs income holders are low and moderate
risk takers. The income level between 2 lakhs-3 lakhs are low risk takers. The income level more
than 3 lakhs are moderate risk takers.

Preference inmutual funds

money
equity income market ELSS tax
funds funds funds saver

incom less than 2

13 0 5 1
e lakhs

2 lakhs - 3
3 1 0 0
lakhs

more than 3
4 4 1 7
lakhs
Total 20 5 6 8

.
income * preferenceinmutualfunds Crosstabulation
Count

preferenceinmutualfunds

balanced funds SIP

income less than 2 lakhs 3 3 25

2 lakhs - 3 lakhs 0 0 4

more than 3 lakhs 1 6 23

Total 4 9 52

47
INTERPRETATION::
From the above table, we observe that Less than 2 lakhs income holders are low and moderate
risk takers. The income level between 2 lakhs-3 lakhs are low risk takers. The income level more
than 3 lakhs are moderate risk takers.
income * returnexpectation Crosstabulation
Count

returnexpectation

greater than
upto 15% 15-25% 25-35% 35% Total

income less than 2 lakhs 7 10 5 4 26

2 lakhs - 3 lakhs 0 3 1 0 4
more than 3 lakhs 4 12 1 5 22
Total 11 25 7 9 52

INTERPRETATION:
It is observed that, investors with different income levels highly expect 15-25% return on their
investment.

income * preferanceofmutualfund Crosstabulation

Count

preferanceofmutualfund

open ended closed ended Total

income less than 2 lakhs 17 5 22

2 lakhs - 3 lakhs 3 0 3

more than 3 lakhs 17 6 23

Total 37 11 48

INTERPRETATION:
From the above table it is observed that the investors with different income levels prefer open
ended because the funds do not have a fixed data of redemption, they are open through out the
year.

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 income * purchasemutualfundsfrom Crosstabulation
Count

purchasemutualfundsfrom

directly from
AMC brokers only Total

income less than 2 lakhs 16 8 24

2 lakhs - 3 lakhs 1 3 4

more than 3 lakhs 15 8 23

Total 32 19 51

INTERPRETATION:
Because of the trust issues with the intermediators, investors want to purchase directly from
AMC.

Feature attracted

reduction in
risk and help in
professional sansaction achieving long
diversification maagement cost term goals

income less than 2 lakhs 4 2 10 7

2 lakhs - 3 lakhs 1 0 2 1

more than 3 lakhs 7 6 4 6

Total 12 8 16 14

income * feature attracted Crosstabulation

Count

Total

income less than 2 lakhs 23

2 lakhs - 3 lakhs 4

more than 3 lakhs 23

Total 50

INTERPRETATION:
From the above table, the respondents whose income is less than 3 lakhs, are more attracted
towards low risk to secure their savings, the respondents with more than 3 lakhs income level
attract to diversify their investment into various schemes.

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 income * fractorinfluenced Crosstabulation
Count

fractorinfluenced

by NAV by return both Total

income less than 2 lakhs 3 8 11 22

2 lakhs - 3 lakhs 0 2 1 3

more than 3 lakhs 6 7 10 23

Total 9 17 22 48

INTERPRETATION:
From the above table, it is clear that respondents influence on both the factors NAV and return
on investment.

50
 CHAPTER -5

FINDINGS AND
CONCLUSION

51
FINDINGS

 Usually customers give away their accounts to portfolio management services because
there is high volatility in the market and frequent analysis is required.
 Most of the investors happened to be aged between 25-35 years of age.
 People who had savings more than 1-2lacs have showed interest to invest in insurance and
mutual funds market.
 Many investors relied on portfolio management services as they had no full knowledge
regarding the market.
 Maximum of the investors demand lump sum amount at a particular time no matter if they
gain more profits or in losses.
 Controlling losses is the major aspect an investor should take into consideration.
 Patience and controlling emotions are the two primary things investor should have.
 Economic factors, political factors, market gains and management skills are the key factors
in fund performance. These funds also concentrate on various sectors such as government
bonds, gold or technology stocks.
 During these times it is very difficult to predict prices as the market does not follow a
particular trend which can be analyzed.

CONCLUSION
The large number of people invest in mutual funds by aggregating their money in stocks,
bonds and other securities. Mutual funds are easy to buy and sell. We can either buy directly
from Fund Company or through third party. The main advantage of mutual funds are
professional management, diversification, and economies of scale and wide range of offering.
There are many types of mutual funds based on asset class, investing strategies, region etc.
mutual funds have expenses that can be broken down generally into transaction fees and ongoing
fees. There is also inability of management to guarantee a superior return.one of the biggest
problem with mutual funds are there costs and fees. Investors seek to invest in mutual funds to
get more returns.

52
 CHAPTER – 6

BIBLIOGRAPHY

53
BIBLIOGRAPHY
1. WWW.moneycontrol.com
2. www.investopedia.com
3. www.educba.com
4. https://www.wikipedia.org/
5. www.arihant.com
6. Book: Philip Kotler, Kevin Lane Keller, 15th edition, marketing management, Pearson
7. Book: V Pattabhi Ram, S D Bala, 4th edition, Strategic Financial Management, Prime
knowledge Series.

54
CHAPTER - 7

ANNEXURE

55
INDIVIDUAL PERCEPTION AND CONSUMER BEHAVIOR ON
MUTUAL FUNDS
The questionnaire is for the academic research purpose only, the data collected will be kept
confidential.
* Required
1. Email address *

2. Name *

3. Contact Number *

4. DESIGNATION: *.
 BUSINESS
 SELF – EMPLOYED
 STUDENT
 SALARIED EMPLOYEE
 Other:

5. AGE: *
 20 - 25
 25 - 30
 30-40
 MORE THAN 40

6. What is your income level *

 Less than 2 lakhs
 Lakhs - 3 Lakhs
 More than 3 Lakhs

7. If you are interested in investing in which market you will invest

 Securities
 Mutual funds
 Insurances
 Government bonds
 Treasury bonds
 Unit trust of India
 FOREX
 Chit funds

8. Do you invest in mutual funds?

 Yes
 No

9. If no, what is the important reason for not investing in mutual funds?

56
  Lack of knowledge about mutual funds
 Investing in other sources
 Its benefits are not enough to drive you for investment
 No trust on fund manger

10. What is your average investment period?

 Less than 6 months
 6-12 months
 12 months - 2 years
 Greater than 2 years

11. Which is the primary source of your knowledge about mutual funds as an investment
option
 Television
 Internet
 Newspapers
 Friends and family

12. Are you investing in mutual funds?

 Yes
 No

13. How much risk are you willing to take?

 Low
 Moderate
 High

14. What is your preference in mutual funds?

 Equity funds
 Income funds
 Money market funds
 ELSS(Tax saver)
 Balanced funds
 SIP

15. How much return do you expect from your investment

 Upto 15%
 15 - 25%
 25 - 35%
 Greater than 35%

16. What type of mutual fund you prefer

 Open ended
 Closed ended

57
17. Do you get influenced by the name of the company promoting mutual funds?
 Yes
 No

18. Rank the following companies according to your investment preference (1- least
preferred
And 5 - Most preferred) *
12345
 SBI
 RELIANCE MUTUAL FUNDS
 HDFC
 UTI MUTUAL FUNDS
 ICICI PRUDENTIALS
 BIRLA SUN LIFE
 PRINCIPAL PNB
 FRANKLINE TEMPLETON

19. Do you get influenced by the return given by a fund or by the current NAV of a fund
 By NAV
 By return
 Both

20. From where do you purchase mutual funds?

 Directly from AMC
 Brokers only

21. Which feature attracts you more in mutual funds?

 Diversification
 Professional management
 Reduction in Risk and Sansaction cost
 Helps in achieving long term goals

58