(Submitted for the Degree of B.Com.

(Honours in Accounting & Finance)

under the University of Calcutta)

Title of the Project

A STUDY OF MUTUAL FUND

Submitted by

RUPAM BAJORIA
C.U Registration No.:-017-1121-1595-14
THE BHAWANIPUR EDUCATION SOCITEY COLLEGE
C.U Roll No.:-1017-61-1136
Supervised by
KAUSHIK BANERJEE
THE BHAWANIPUR EDUCATION SOCITEY COLLEGE

SUBMITTED ON

February, 2017
 Annexure-IA

Supervisor’s certificate

This is to certify that RUPAM BAJORIA a student of B.Com. (Honours in

Accounting & finance) of THE BHAWANIPUR EDUCATION SOCITEY
COLLEGE under the University of Calcutta has worked under my supervision
and guidance for his Project Work and prepared a Project Report with the title
“A STUDY OF MUTUAL FUND” which he is submitting, is his genuine and
original work to the best of my knowledge.

Signature:
Name: KAUSHIK BANERJEE
Designation: Professor
Name of the college: The Bhawanipur Education Society College
Place: Kolkata
Date:
 Annexure-IB

Student’s Declaration

I hereby declare that the Project Work with the title “A STUDY OF
MUTUAL FUND” submitted by me for the partial fulfilment of the degree of
B.Com. (Honours in Accounting & Finance) under the University of Calcutta
is my original work and has not been submitted earlier to any other University
/ Institution for the fulfilment of the requirement for any course of study.

I also declare that no chapter of this manuscript in whole or in part has been
incorporated in this report from any earlier work done by others or by me.
However, extracts of any literature which has been used for this report has
been duly acknowledged providing details of such literature in references.

Rupam Bajoria
4/6,Amrit Pyne Lane
Kali babu bazar,howrah-1
C.U Registration No-017-1121-1595-14
C.U. Roll No-1017-61-1136
 ACKNOWLEDGEMENT
As a student of commerce, I have gone through a vast amount of literature and
materials available on the topic “A STUDY OF MUTUAL FUND” I feel
indebted to several authors and researchers who helped me a lot in understanding
various issues relating to my topic.
Many thanks and gratitude to KAUSHIK BANERJEE respectable guide for the
project. The guidelines laid down by him are very instrumental towards the
successful completion of this project. I felt motivated and exceedingly encouraged
under his supervision. He guided me to a wide range of resources that became a
catalyst in the project development.
In addition, I sincerely thank my friends circle & my family for providing their
support in the successful completion of the project.

Rupam Bajoria
B. Com (H) – 3rd Year
C.U. Roll No.-1017-61-1136
The Bhawanipur Education Society College
 INDEX

CHAPTER CONTENT PG.NO.

1 Introduction 1
Brief review of literature 2
Objectives of the study 3
Research methodology 3
Limitation of the study 3
Chapter planning 4

2 Conceptual frame work 5

What is mutual fund? 5
Brief history of mutual fund in India 6
Advantages of mutual funds 7
Disadvantages of mutual fund 8
Risk factor of mutual funds 10
Different plan of mutual fund 11
Different type of option of mutual fund 12

3 Analysis 13
Valuation of mutual funds 13
Current position of mutual funds in India 15
Findings 17

4 Conclusion and Recommendation 18

5 Bibliography 19
Chapter-1

Introduction
There are a lot of investment avenues available today in the financial market for an
investor with an investable surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock of
companies where the risk is high and the returns are also proportionately high. The recent
trends in the Stock Market have shown that an average retail investor always lost with
periodic bearish tends. People began opting for portfolio managers with expertise in stock
markets who would invest on their behalf. Thus we had wealth management services
provided by many institutions Mutual fund industry has seen a lot of changes in past few
years with multinational companies coming into the country, bringing in their professional
expertise in managing funds worldwide. In the past few months there has been a
consolidation phase going on in the mutual fund industry in India. Now investors have a
wide range of Schemes to choose from depending on their individual My study gives an
overview of mutual funds – definition, types, benefits, risks, limitations, history of mutual
funds in India, latest trends, global scenarios. I have analyzed a few prominent mutual
funds schemes and have given my findings.
The main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from its
inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds. Because my study
depends upon prominent funds in India and their schemes like equity, income, balance as
well as the returns associated with those schemes.
The project study was done to ascertain the asset allocation, entry load, exit load,
associated with the mutual funds. Ultimately this would help in understanding the benefits
of mutual funds to investors.
In my project the scope is limited to some prominent mutual funds in the mutual fund
industry. I analyzed the funds depending on their schemes like equity, income, balance.
But there is so many other schemes in mutual fund industry like specialized (banking,
infrastructure, pharmacy) funds, index funds etc.
My study is mainly concentrated on equity schemes, the returns, in income schemes the
rating of CRISIL, ICRA and other credit rating agencies.
 Review of Literature

Literature on mutual fund performance evaluation is enormous. A few research studies

that have influenced the preparation of this project substantially are discussed in this
section.
L.M Bhole and his book “FINANCIAL INSTITUTIONS AND MARKETS” has
examined that the information of different type of scheme of mutual fund like open ended
scheme, close ended scheme, debt scheme, balanced scheme.

V.K.Bhalla and his book “INVESTMENT MANAGEMENT” deals with concept and
theories of risk factor of mutual fund have been elaborately discussed in the book.

Sushil Mukherjee’s book has studies the various type of advantages of mutual fund and
also examined that how the risk factor of mutual fund influenced the investment of mutual
fund.

Abhipsa Mishra and his book “INDIAN MUTUAL FUND AND MARKET
DEVLOPMENT IN INDIA” concerned with history of mutual fund as well as how
mutual fund industry grow and developed and also deals with how mutual fund industry
influenced with a increase the saving of Household savings.
 Objective of the Study

• To give a brief idea about the benefits available from Mutual Fund investment
• To give an idea of the types of schemes available.
• To discuss about the market trends of Mutual Fund investment.
• To study some of the mutual fund schemes and analyse them
• Observe the fund management process of mutual funds
• Explore the recent developments in the mutual funds in India
• To give an idea about the regulations of mutual funds
Research Methodology
Research Methodology is a systematic method of discovering new facts or verifying old
facts, their sequence, inter-relationship, casual explanation and the natural laws which
governs them.
There are mainly two types of research methodology i.e. Primary research and Secondary
research.
To achieve the objective of studying the stock market data has been collected
This study is completely based on the secondary data. This data is collected from various
sources especially from the journals, magazines, articles, books and mainly from internet.
Limitation of the Study
• The study depend only secondary data.
• The study is limited to the different schemes available under the mutual funds selected
• The study is limited to selected mutual fund schemes.
• The lack of information sources for the analysis part.

4
Chapter planning

INTRODUCTION

 Brief review of literature

 Objectives of the study
 Research methodology
 Limitation of the study
Chapter-2
Conceptual framework

CONCEPTUAL FRAMEWORK

 What is mutual fund?

 Brief history of mutual fund in india
 Advantages of mutual funds
 Risk factor of mutual funds

WHAT IS A MUTUALFUND?

A Mutual Fund is a trust that pools the savings of a Number of investors who share a
common financial Goal. Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds.
These investors buy units of a particular Mutual Fund Scheme that has a defined
investment objective and Strategy. The money thus collected is then invested by the fund
manager in different types of securities.These could range from shares to debentures to
money market instruments, depending upon the scheme's stated objectives. The income
earned through these investments and the capital appreciation realised by the scheme 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.Mutual funds are open-ended investment funds, meaning that new
investors can contribute money to the fund at any time, and existing investors can return
their units or shares to the fund for redemption at any time.

When you redeem your units or shares of a mutual fund you will receive a cheque based
on the current market value of the fund s portfolio. Mutual fund investment process is
shown in the diagram above. An investor invest in the mutual fund scheme putting
appropriate fund. Proceeds from this investment to the fund manager who, in turn, invest
that money in the capital market. The fund has a strong
technical team that analyzes and make prudent financial decisions including purchase as
well as redemption of fund. At last stage, the profit (or loss) generated out of financial act
is appropriated to each investor of mutual fund.

Investor

INVEST IN

Mutual Fund Managed By Professional

Capital Market
Invest in

Return

Generates

Brief History of Mutual Fund in India

The mutual fund industry in India started in 1963 with the formation of unit trust of India,
an initiative the Government of India and Reserve Bank of India. The first scheme
 launched by UTI was Unit scheme 1964. At the end of 1988 UTI had Rs. 6700 Cr. Of
Assets Under Management (AMU). In the year 1993, private sector full came into
existence that offered more option in the investor. The history of mutual funds in India
can be broadly divided into four distinct phases:

 In the first phase (1964-1987), UTI established on 1963 by an act of parliament. It

was set up by the RBI and the Government of India and functioned under the regulatory
and administrative control of the RBI. In 1978 UTI was delinked from the RBI and
Industrial Development Bank of India (IDBI) took over the regulatory and administrative
control in the place of RBI.
 In the second phase (1987-1993), public sector mutual fund was set up by public
sector bank, Life Insurance Corporation of India (LICI) and General Insurance
Corporation of India (GICI).
 In the third phase (1993-2003), private sector were allowed to set up mutual fund. In
1993, the first mutual fund regulation came to force, under which all mutual fund, except
UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
 In the fourth phase (since February, 2003), following the repeal of the UTI Act,
1963, UTI was bifurcated into two separate entities. The first one is the specified
undertaking of the UTI with assets under management of Rs. 29,835 crore as at the end of
January, 2003 representing broadly, the assets of US-64 scheme, assured return and
certain other schemes. The second is the UTI Mutual Fund Ltd. Sponsored by SBI, PNB,
BOB and LICI.

Advantages of Mutual Funds

There are numerous benefits of investing in mutual funds and one of the key reasons for
its phenomenal success in the developed markets like US and UK is the range of benefits
they offer, which are unmatched by most other investment avenues. We have explained
the key benefits in this section. The benefits have been broadly split into universal
benefits, applicable to all schemes and benefits applicable specifically to open-ended
schemes. Universal Benefits

1. Affordability: A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor can buy in to a
portfolio of equities, which would otherwise be extremely expensive. Each unit holder
thus gets an exposure to such portfolios with an investment as modest as Rs.500/-. This
amount today would get you less than quarter of an Infosys share! Thus it would be
affordable for an investor to build a portfolio of investments through a mutual fund rather
than investing directly in the stock market. Diversification of the nuclear weapon in your
arsenal for your fight against risk. It simply means that you must spread your investment
across different securities (stocks, bonds, money market instruments, real estate, fixed
deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of
a diversification may add to the stability of your returns, for example during one period of
time equities might underperform but bonds and money market instruments might do well
enough to offset the effect of a slump in the equity markets. Similarly the information
technology sector might be faring poorly but the auto and textile sectors might do well and
may protect your principal investment as well as help you meet your return objectives.
Variety Mutual funds offer a tremendous variety of schemes. This variety is beneficial in
two ways: first, it offers different types of schemes to investors with different needs and
risk appetites; secondly, it offers an opportunity to an investor to invest sums across a
variety of schemes, both debt and equity. For example, an investor can invest his money
in a Growth Fund (equity scheme) and Income Fund (debt scheme) depending on his risk
appetite and thus create a balanced portfolio easily or simply just buy a Balanced Scheme.

2. Professional Management: Qualified investment professionals who seek to maximize

returns and minimize risk monitor investor's money. When you buy in to a mutual fund,
you are handing your money to an investment professional who has experience in making
investment decisions. It is the Fund Manager's job to (a) find the best securities for the
fund, given the fund's stated investment objectives; and (b) keep track of investments and
changes in market conditions and adjust the mix of the portfolio, as and when required.

3. Tax Benefits: Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit holders of
open-ended equity-oriented funds, income distributions for the year ending March 31,
2003, will be taxed at a concessional rate of 10.5%.In case of Individuals and Hindu
Undivided Families a deduction upto Rs. 9,000 from the Total Income will be admissible
in respect of income from investments specified in Section 80L, including income from
Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-
Tax.

4. Regulations: Securities Exchange Board of India (“SEBI”), the mutual funds regulator
has clearly defined rules, which govern mutual funds. These rules relate to the formation,
administration and management of mutual funds and also prescribe disclosure and
accounting requirements. Such a high level of regulation seeks to protect the interest of
investors

Disadvantages of mutual fund

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

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

3. Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on

average, around 75% of all mutual funds fail to beat the major market indexes, like the
S&P 500, and a growing number of critics now question whether or not professional
money managers have better stock-picking capabilities than the average investor.

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

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

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

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

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

9. Tax issues: Although, the returns on investments are quite high, a mutual fund cannot
guarantee lower tax bills. The tax amounts are usually high, especially in case of short-
term gains. Moreover, it is the fund manager who handles these issues and you cannot
dictate terms on the amount of tax to be paid.

Risk Factors of Mutual Funds

The Risk-Return Trade-off:

The most important relationship to understand is the risk-return trade-off. Higher the risk
greater the returns/loss and lower the risk lesser the returns/loss.Hence it is upto you, the
investor to decide how much risk you are willing to take. In order to do this you must first
be aware of the different types of risks involved with your investment decision.

Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be big
corporations or smaller mid-sized companies. This is known as Market Risk. A
Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging
(“RCA”) might help mitigate this risk.

Credit Risk: The debt servicing ability (may it be interest payments or repayment of
principal) of a company through its cashflows determines the Credit Risk faced by you.
This credit risk is measured by independent rating agencies like CRISIL who rate
companies and their paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is
considered poor credit quality. A well-diversified portfolio might help mitigate this risk.

Inflation Risk: Things you hear people talk about:"Rs. 100 today is worth more than Rs.
100 tomorrow.""Remember the time when a bus ride costed 50 paise?""Mehangai Ka
Jamana Hai."

The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of
times people make conservative investment decisions to protect their capital but end up
with a sum of money that can buy less than what the principal could at the time of the
investment. This happens when inflation grows faster than the return on your investment.
A well-diversified portfolio with some investment in equities might help mitigate this risk.

Interest Rate Risk: In a free market economy interest rates are difficult if not impossible
to predict. Changes in interest rates affect the prices of bonds as well as equities. If
interest rates rise the prices of bonds fall and vice versa. Equity might be negatively
affected as well in a rising interest rate environment. A well-diversified portfolio might
help mitigate this risk.

Political/Government Policy Risk: Changes in government policy and political decision

can change the investment environment. They can create a favorable environment for
investment or vice versa.

Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that
one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid securities.

Different Plan

1. Open-ended scheme
An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared
on a daily basis. The key feature of open-end schemes is liquidity.

2. Close-ended fund scheme

A close-ended fund or scheme has a stipulated maturity period eg five and seven years. The
fund is open for subscription only during a specified period at the time of launch of the
scheme. Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges where the
units are listed. In order to provide an exit route to the investors, some close-ended funds
give an option of selling back the units to the mutual fund through periodic repurchase at
NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is
provided to the investor ie either repurchase facility or through listing on stock exchanges.
These mutual funds schemes disclose NAV generally on weekly basis.

3. Index funds scheme

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 which are traded on the stock exchanges.

4. 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.

5. 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.

Different type of option of mutual fund

Various investment options in Mutual Funds offerTo cater to different investment needs,
Mutual Funds offer various investment options. Some of the important investment options
include:

1. Growth Option: Dividend is not paid-out under a Growth Option and the investor
realises only the capital appreciation on the investment (by an increase in NAV).

2. Dividend Payout Option: Dividends are paid-out to investors under the Dividend
Payout Option. However, the NAV of the mutual fund scheme falls to the extent of the
dividend payout.

3. Dividend Re-investment Option: Here the dividend accrued on mutual funds is

automatically re-invested in purchasing additional units in open-ended funds. In most
cases mutual funds offer the investor an option of collecting dividends or re-investing the
same.
4. Retirement Pension Option: Some schemes are linked with retirement pension.
Individuals participate in these options for themselves, and corporates participate for their
employees.

5. Insurance Option: Certain Mutual Funds offer schemes that provide insurance cover
to investors as an added benefit.

6. Systematic Investment Plan (SIP): Here the investor is given the option of preparing a
pre-determined number of post-dated cheques in favour of the fund. The investor is
allotted units on a predetermined date specified in the offer document at the applicable
NAV.
Chapter-3
ANALYSIS

 Valuation of mutual funds

 Current position of mutual funds in India
ANALYSIS

Valuation of Mutual Fund

The net asset value of the Fund is the cumulative market value of the assets 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 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 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 net asset
value is given below.

The net asset value is the actual value of a unit on any business day. NAV is the barometer
of the performance of the scheme.
The net asset value is the market value of the assets of the scheme minus its liabilities and
expenses. The per unit NAV is the net asset value of the scheme divided by the number of
the units outstanding on the valuation date.

Equity or Growth Scheme

These schemes, also commonly called Growth Schemes, seek to invest a majority of their
funds in equities and a small portion in money market instruments. Such schemes have the
potential to deliver superior returns over the long term. However, because they invest in
equities, these schemes are exposed to fluctuations in value especially in the short term.

In this equity or growth scheme segment I selected the following schemes in the selected
AMC’s

Balanced Scheme

The aim of Balanced Funds is to provide both growth and regular income. Such schemes
periodically distribute a part of their earning and invest both in equities and fixed income
securities in the proportion indicated in their offer documents. This proportion affects the
risks and the returns associated with the balanced fund - in case equities are allocated a
higher proportion, investors would be exposed to risks similar to that of the equity market.

Balanced funds with equal allocation to equities and fixed income securities are ideal for
investors looking for a combination of income and moderate growth.

In this balanced fund scheme segment I selected the following schemes in the selected
AMC’s

SBI Magnum Balance Fund has not been given any rating by CRISIL but it has been
performing well. The investments of the Funds are well diversified in both Equity and
Debt. The total Equity Holdings as on April 30th stands at 67.77% of the total assets. It
has out performed CRISIL Balanced Fund Index by 45.38% for the 52 weeks period.
Principal Balanced Fund has ranked CP3 by CRISAL, which means average in the open-
ended balanced Fund category and ranks within the top 70% of the 19 schemes in this
category. It has invested 67% in Equity and about 16% in Government Securities. In
Equity it invested primarily in Pharmaceuticals, Construction Materials, Automobiles and
banks.

Franklin Templeton India Balanced Fund invested about 70% of its assets in Equity and
75% in Debts. The recent additions to its portfolio are Reliance Industries, Asian paints
and BPCL. It invests primarily in IT consulting, auto parts equipment, Banks, Tele
Electrical industrial conglomerates. It invested mainly in the AAA rated Debts.

Kotak Balance Fund has invested close to 70% in Equity and about 30% in Debt
instruments and Short Term Deposits. The Fund has a well-diversified portfolio of equity
with prime investments in BHEL, Siemens EID parry, Bulrampur Chini and SBI. In the
debt Instruments it has invested in Railway Bonds and 2003 maturing Government Stock.

SBI Magnum Income Fund is performing very well right from the inception with generous
payment of dividends has been assigned AAA rating by CRISIL. The Fund invests about
90% in AAA rated securities and more than 60% of its investments have a maturity
ranging between 3 to 10 years. I has come with bonuses in Jan 2003 1:3 and September
2003 1:10. However, it under perform vis-à-vis CRISIL Comp. Bond Fund index by 0.14.

Principal Income Fund has ranked CP3 by CRISAL, which means average in the open-
ended debt category and ranks within the top 70% of the 21 schemes in this category. The
investments have average maturity of 7.3 years with more than 50% investments having a
maturity of above 7 years. It has invested close to 50% in Government Securities, above
40% in NCD/Deep Discount Bonds.Franklin Templeton India Income Fund has most of
the investments in low risk AAA and sovereign securities. Above 45% of the investments
are in Gilt, 25% in PSU/PFI bonds and 24% in corporate Debts. The average maturity of
this scheme is at 4.87 years. The performance of the Fund is inline with CRISIL
Composite Bond Fund.Kotak Liquid Fund has invested about close to 25% in corporate
Debt, 10% in public sector undertakings, about 25% in money market instruments. It has
also invested 40% in term deposits. The average maturity of portfolio is 2.3 years. Almost

all the instruments are well rated implying they are safe instruments also their investments
are highly
CURRENT POSITION OF MUTUAL FUNDS IN INDIA

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. 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 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).

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).

The share of Mutual funds in Household’s Gross Financial Savings

Findings

 From this project we find that if investor invests in Mutual fund scheme then he get
Tax benefit on their income.
 If investor invest in higher risk scheme then return also greater and if investor
invest in lower risk scheme then return also lesser.
 From this project we find that the majority of investor of age group 18-59 years are
not aware of mutual funds or of investing in mutual funds through Systematic Investment
Plan (SIP).
 In this project we discuss the various type of scheme of mutual fund like open-
ended scheme, close ended scheme, balanced scheme, thus investor can invest their saving
according to their need and purpose
 The investment of mutual fund increase recent year due to increase of saving of the
investor.
 The growth of household’s saving gradually increase and for the year 2004 to 2008
the growth of saving around 17.4%.
Chapter-4

Conclusion and Recommendation

Four sequential steps will enable investor to decide effectively.

1. Divide the spectrum of Mutual Funds depending on major asset classes invested in.

Presently there are only two.

• Equity Funds investing in stocks.

• Debt Funds investing in interest paying securities issued by government, semi-

government bodies, public sector units and corporates.

2. a) Categorizing equities

• Diversified – invest in large capitalized stocks belonging to multiple sectors.

• Sectorial – Invest in specific sectors like technology, FMCG, Pharma, etc.

b) Categorized Debt.

• Gilt – Invest only in government securities, long maturity securities with average of 9 to
13 years, very sensitive to interest rate movement.

• Medium Term Debt (Income Funds) – Invest in corporate debt, government securities
and PSU bonds. Average maturity is 5 to 7 years.

• Short Term Debt – Average maturity is 1 year. Interest rate sensitivity is very low with
steady returns.

• Liquid – Invest in money market, other short term paper, and cash. Highly liquid.
Average maturity is three months.
3. Review Categories

• Diversified equity has done very well while sectorial categories have fared poorly in
Indian market.

• Index Funds have delivered much less compared to actively managed Funds.

• Gilt and Income Funds have performed very well during the last three years. They
perform best in a falling interest environment. Since interest rates are now much lower,
short term Funds are preferable.

4. Specific scheme selection

Rankings are based on criteria including past performance, risk and resilience in
unfavorable conditions, stability and investment style of Fund management, cost and
service levels. Some recommended schemes are:

• Diversified equity – Zurich Equity, Franklin India Bluechip, Sundaram Growth. These
Funds show good resilience giving positive results.

• Gilt Funds – DSP Merrill Lynch, Tata GSF, HDFC Gilt have done well

• Income Fund – HDFC, Alliance, Escorts and Zurich are top performers

• Short Term Funds – Pru ICICI, Franklin Templeton are recommended

Within debt class, presently more is allocated towards short term Funds, because of low
prevailing interest rates. However if interest rates go up investor can allocate more to
income Funds or gilt Funds.
BIBLIOGRAPHY

Websites:
www.hseindia.com
www.nseindia.com
www.amfiindia.com
www.hdfc.com
www.icicidirect.com

Reference books:

•FINANCIAL INSTITUTIONS AND MARKETS - L.M.BHOLE

•INVESTMENT MANAGEMENT - V.K.BHALLA