CONCEPT OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common
financial goal. The money thus collected is then invested in capital market instruments such as
shares, debentures and other securities. The income earned through these investments and the
capital 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.

Corpus of fund
Corpus is the total money that mutual fund collected from the investors and the managing
the corpus can be for asset international specific scheme or for the fund itself.

Net Asset Value (NAV)

The return received by the scheme is highlighted in the form of higher NAV.
NAV goes up and down based on the performance
the scheme, which in turn related to the performance of market.

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ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

• Professional Management
• Diversification
• Convenient Administration
• Return Potential
• Low Costs
• Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Tax Benefits
• Well regulated

DEMERITS OF MUTUAL FUNDS INVESTMENT

• Chances of poor fund management

• Dilution
• Buried and confusing cost
• Market Fluctuations
• Taxes
• Risk of fund Manager

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TYPES OF MUTUAL FUND SCHEMES

By STRUCTURE

• Open- Ended Schemes

• Close-Ended Schemes
• Interval- Schemes

BY INVESTMENT OBJECTIVE

• Growth Schemes
• Income Schemes
• Balanced Schemes
• Money Market Schemes

OTHER SCHEME

• Tax Saving Schemes

• Special schemes

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OPEN ENDED SCHEMES

These funds are sold at the NAV based prices, generally calculated on every
business day. These schemes have unlimited capitalization.
Open-ended schemes do not have a fixed maturity- i.e, there is no cap on the
amount you can buy from the fund and the unit capital can keep growing. These funds are
not generally listed on ready liquidity to the investors and avoid reliance on transfer
deeds, signature verifications any exchange.
Open-ended funds score over close-ended ones on several counts. Some of
these are listed below:

a) Any time exit option : The issuing company directly takes the responsibility of
providing an entry and an exit. This provides and bad deliveries
b) Tax advantage : Though Budget 2000 proposals envisage a tax rate of 20% on
dividend distribution made by the debt funds, the funds continue to remain
attractive investment vehicles, in equity plans there is no distribution tax.
c) Any time entry option : An open–ended fund allows one to enter the fund at any
time and even to invest at regular intervals (a systematic investment plan)

CLOSED ENDED SCHEMES

Schemes that have a stipulated maturity period, limited capitalization and the
units are listed on the stock exchange are called close ended schemes.
These schemes have historical seen a lot of subscription. This popularity is
estimated to be on account of firstly, public sector MFs having floated a lot of close-
ended income schemes with quarnted returns and secondly easy liquidity on account
of listing on the stock exchange.

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OBJECTIVES
Mutual funds have specific investment objectives such as:

Growth of capital
Safety of principal
Current income
Tax-exempt income

In general mutual funds fall into three general categories:

1 Equity funds invest in shares or equity of companies.

2 Fixed-Income funds invest in government or corporate
Securities that offer fixed rates of return.
3 Balanced Funds invest in a combination of both stocks and
Bonds.

i) Growth Funds

These funds seek to provide growth of capital with secondary emphasis on

dividend, They invest in shares with a potential for growth and capital appreciation.
Because they invest in well- established companies where the company itself and
the industry in which it operates are thought to have good long-term growth
potential, growth funds provide low current income, Growth fund generally incur
higher risks than income funds in an effort to secure more pronounced growth.
Growth funds are suitable for investors who can afford to assume the
risk of potential loss in value of their investment in the hope of achieving
substantial and rapid gains.
They are not suitable for investors who must conserve their principal or
who must maximize current income.

ii) Growth and Income Funds

Growth and Income funds seek long-term growth of capital as well as current
income. The investment strategies used to reach these goals vary among funds.
Some invest in a dual portfolio consisting of growth stocks and dividends, preferred
stocks, convertible securities or fixed-income securities such as corporate bonds and
money market instruments. Others may invest in growth stocks and earn current
income by selling covered call options on their portfolio stocks,
Growth and income funds have low moderate stability of principal and
moderate potential for current income and growth. They are suitable for investors
who can assume some risk to achieve growth of capital but who also want to
maintain a moderate level of current income.

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 iii) Fixed-Income Funds

The goal of fixed income funds is to provide current

income consistent with the preservation of capita.These funds invest in corporate
bonds or government-backed mortgage securities that have a fixed rate of return.
Within the fixed-income category, funds vary.Greatly in their stability of principal
and in their dividend yields. Some fixed-income funds seek to minimize risk by
investing exclusively in securities whose timely payment of interest and principal is
backed by the full faith and credit of the Indian Government. Fixed-income

• Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These
schemes invest in both shares and fixed income securities, in the proportion
indicated in their offer documents (normally 50:50).
• Money Market Schemes: Money Market Schemes aim to provide easy liquidity,
preservation of capital and moderate income. These schemes generally invest in
safer, short-term instruments, such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money.
Other schemes
• Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
• Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the
BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total
holding will be identical to the stocks index weightage. And hence, the returns from
such schemes would be more or less equivalent to those of the Index.
• Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast
Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these
funds are dependent on the performance of the respective sectors/industries. While
these funds may give higher returns, they are more risky compared to diversified
funds. Investors need to keep a watch on the performance of those sectors/industries
and must exit at an appropriate time.

BENEFITS OF OPEN ENDED MUTUAL FUND

• Liquidity

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 • Convenience

• Risk Divesification

• Flexibility

• Transparancy

• Regulated

• Tax Benefits

HOW SHOULD YOU EVALUATE A FUND?

• DOES IT MEET YOUR INVESTMENT OBJECTIVE ?

……STATED OBJECTIVE
……TRACK RECORD

• ARE YOU COMFORTABLE WITH THE SPONSOR ?

…….FINANCIAL STRENGTH AND ACUMEN
…….LONG TERM COMMITMENT

• WHAT IS THE FUND SIZE ?

• HOW TRANSPARENT IS THE FUND?

RISK OF INVESTING IN MUTUAL FUND

• DEBT SCHEME
o Credit risk
o Interst rate risk

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 o Valuation risk

• EQUITY SCHEME

o Mis match between fund objective and investment objective

o “Timing” the market
o Market risk

SOME PERCEPTIONS
o All mutual fund invest in shares

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 …… while the industry has grown with the predominence of equity based product , there are
differnent fund for different needs.

o All mutual funds are poor performance

…….. the boom in equity and equity fund in 1992 -1994

and the subsequent poor stock market conditions has the investors to view all the mutual funds
schemes risky and bed performance

PERCEPTIONS AND REALITY

RETURNS

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 EQUITY FUND MFS
EQUIT
Y
DEBT FUND
FDS

MONEY SAVIN
MARKET G ACC

WHAT LED TO THESE PERCEPTIONS

• The Government stiffled competitions

• The Regulator was inexperienced

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• The Mutual Fund industry did not have skills

• The Intermediaries Missold Mutual Funds

• Plethers of closed ended schemes

• Investors lack of knowledge

WHAT DIFFERENT TODAY

• Keenly competition
• High service standards
• Experienced regulator
• Transparancy

HIGH PROFESSIONAL AND LONG TERM FUND HOUSES

• Market development
• Need based selling
• Professional fund manager

THE INDIAN DEBT MARKET

MAIN PLAYERS

• Banks

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• Primary Dealers

• Financial Institutions

• Mutual Funds

• Insurance

• Providend Fund

• Fii’s

LACK OF RETAIL INVESTORS

The Indian debt market

retail investors: why not
• High transaction cost
• Larger bid/offer
• Lack of liquidity
• High incidence of stamp duty
• Problem of bad deliveries
too many problems

types of instruments
• Government securities: central and state
• Money market instruments: treasury bills, cps, cds
• Convertible and non convertible debentures
• Floating rate notes

The Indian debt market risks:

• interest rate risk
• reinvestment risk
• credit risk
• currency risk
• political/legal risk

A PRUDENT INVESTOR

If an investor who can establish his/her

• Investment objective

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• Risk tolerance

• Liquidity needs

Clearly, his/her investment decisions would not be driven by the external market conditions.

“RUPEE-COST”-AVERAGE CONCEPT
Market –a (Rising market)

Month quaterly nav no. of units investment

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 1 1000 10.00 100.00

2 1000 10.50 95.24

3 1000 11.00 90.91

4 1000 11.50 86.96

5 1000 12.00 83.33

6 1000 12.40 80.65

7 1000 12.90 77.52

8 1000 13.35 74.91

9 1000 14.00 71.43

10 1000 14.50 68.97

11 1000 15.00 66.87

12 1000 15.50 64.52

TOTAL 12000 961.11

UNIT PRICE AT THE BEGINNING OF 13 TH QUARTER 16.00
MARKET VALUE OF THE INVESTMENT 15,378
( 961.11*16.00)

“RUPEE-COST AVERAGING CONCEPT

“Rupee-cost”-averaging concept

Market – b (falling market)

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MONTH QUARTERLY NAV NO.
OF UNITS INVESTMENT

1 1000 10.00 100

2 1000 8.20 121.95
3 1000 7.40 135.14
4 1000 6.10 163.93
5 1000 5.40 185.19
6 1000 6.00 166.67
7 1000 8.20 121.95
8 1000 9.25 108.11
9 1000 10.00 100.00
10 1000 11.25 88.89
11 1000 13.40 74.63
12 1000 14.40 69.44

TOTAL 12000 1435.90

UNIT PRICE AT THE BEGINNING OF 13 TH QUARTER 14.90

MARKET VALUE OF THE INVESTMENT 21,395

(1435.90 * 14.90)

“RUPEE-COST AVERAGING” CONCEPT

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From the above two scenarios, one can see in the volatile market an investors actually get a
return of Rs. 21,395/- verses his/her return of Rs.15,344/- in market A

Where price grew steadily over a period of 12 quarter period

Due to the concept of rupee cost averaging explained above, investor looking for medium to
long term investment may improve their average cost per purchase when the market goes on its
cyclical ups and down hence giving him/her more opportunities for higher returns when he
liquidates his/her investments when the market rebounds.

BANK V/S MUTUAL FUNDS

BANKS MUTUAL FUNDS

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RETURNS LOW BETTER

ADMINISTRATION EXP. HIGH LOW

RISK LOW MODERATE

INVESTMENT OPTIONS LESS MORE

NETWORK LOW- LOW BUT

PENET RATING IMPROVING

LIQUIDITY AT A COST BETTER

QUALITY AND ASSET NOT TRANSPARENT

TRANSPARENT

INTEREST CALCULATION MIN BAL. EVERY DAY

B/W 10 TH &
30 TH OF EVERY
MONTH

GUARANTEE ON MAX. RS. 1 LAKH NONE

DEPOSITS

TO SUMMARISE
• MUTUAL FUND CATERS TO VARIETY OF NEEDS

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• OPEN ENDED MUTUAL FUND OFFER

Significant Tax Benefits

Risk Diversification
Liquidity

• PERCEPTIONS ABOVE MUTUAL FUNDS ARE CHANGING IN INDIA.

RESEARCH METHODOLGY
MARKETING RESEARCH

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Marketing research is the function which links the consumer customer and public to the public to
the marketer through information- information used to identify and define marketing
opportunities and problems; generate, refine and evaluate marketing actions; monitor marketing
performance and improve understanding of marketing as a process.

OBJECTIVES OF RESEARCH

The customer research was carried out to know:

What customer look for in financial company

Whether the are satisfied with the mutual fund product.
The factors responsible for satisfaction and diversification of customers.

SAMPLING APPROACH

The sample for the customer’s survey was selected by random sampling.Random numbers were
generated for selecting sample. A sample size of 200 customers was taken up for the customer
survey.

SOURCES OF DATA

The data needed for this study has been collected from two main sources:
• Primary sources
• Secondary sources

Primary data has been collected through well-structured direct interview method.
Secondary data helped in collecting information regarding history of the company, division
of the company etc.

DATA COLLECTION METHOD

In this study data was collected by means of questioning. Since the method of observation is
not possible due to nature of research, the questioning is done using a tested personal
interview. The main advantage of this method are its versatility,speed and cost. In this study
the questionnaire was structured, non-disquised and done by personal interviews.

QUESTIONNAIRE

NAME :

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AGE :
ANNUAL INCOME:
OCCUPATION:

1. Where do you like to invest ?

(a) Banks b) post office c) Equity market d) Mutual funds

2. Are you aware of concept of mutual funds ?

a) Yes b) No

3. If you like to invest in mutual fund, then type of fund ?

a) Debt b) Equity c) Balanced

4. Write the names of MF’s that comes in your mind?

………………
……………….
……………….
5. If not, why
a) Risky b) Not aware about MF’s c) Others

6. what according to you decides the returns of the product ?

a) Market conditions b) Participator Company C) Regulator company

7. Have you ever invested in mutual funds ? If yes, write names of them
…………………
…………………
…………………

ANALYSIS
o Awareness

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o Perception

o Return Of The Product

o Recommendation

AWARENESS OF THE PRODUCT

AWARE PERSONS 40%

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SEMI AWARE 25%

NON AWARE 35%

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40 AWARE PERSONS
SEMI AWARE
NON AWARE

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PERCEPTION 75%

REALITY 25%

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PERCEPTION
REALITY
40

RETURNS O F THE PRODUCTS

AS PER PERSONS OPINION

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• DEPEND ON MARKET CONDITION : 60%
• DEPEND ON REGULATOR COMPANY : 25%
• DEPEND ON PARTICULAR COMPANY : 15%

RECOMMENDATIONS

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The detailed study of the project lead to following conclusion:-

• Since mutual fund is considered to a secondary aspect by the organization, the company
should try to give more emphasis on the product.

• Presentation and seminars should be conducted at various public and academic centers such
as school/colleges and universities etc.to bring awareness about the product.

• The company should employ more staff for dealing in this particular product, only that is
well qualified (those who have passed AMFI exam)

• More of the advertisement campaign by the company is required because most of the
people don’t know that the company is dealing in mutual funds also.

• The company should come up with new ideas to attract more customers and make them
aware of the product.

LIMITATIONS
• Lack of awareness about the product.

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• Lack of advertisement

• Entry and exit cost.

• Wait time before investment.

• Fund management cost.

• Cost of churn.

• Investors in the scheme are not offered guaranteed return therefore most of the people
feel risky in investing in mutual funds
.
• Past performance of the sponsors, AMC/fund does not indicate the future performance of
scheme of the fund.

• Changes in the government policy in general and changes in tax benefits applicable to
mutual fund may impact returns to investors in the Scheme

• Company takes the business of mutual fund as a side business.

CONCLUSION

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I have came to following conclusions :-

• Mutual funds company is taking pain to improve their business and is gaining potential.

• Customer feels that there is every possibility of loosing money if they invest in mutual fund though
this is not true.

• Lack of knowledge on the part of customer is there about mutual fund

• Lack of convincing power on part of seller is there.

BIBLIOGRAPHY

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News Paper and Journals

Internet Sites:-

Mutual Fundindia.Com

Aamiindia.Com

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