CHAPTER:1

INTRODUCATION
There is a lot of opportunity for an investor to invest in financial m a r k e t with an
investable surplus. There are various investment opport unities such as Bank its,
corporate debenture, and Bonds where there are low risks involved b u t m e a n
while ret urns are also low. Simultaneously he can opt for stock of companies where
ret urns and risks on i nvestment both are very high. The recent trends i n the stock
market shows a result that an average retail investor always lost with periodic bearish
tends. So, by such tends people starts opting for portfolio managers with i n stock
markets who invest on their behalf. Thus, we had wealth management serv ices
provided by many institutions. However, they proved too costly for a small investor.
Therefore, these investors have found a good shelter with the mutual funds.
1.1 CONCEPT OF MUTUAL FUND:
A mutual fund is a common pool of money were i nvestors plays an important
role in contributing the investment according to stated objective. The ownership of the
fund may be joint or mutual belongs to all the investors. A single investor 's ownership
of the fund is the same proportion as the amount of the contributions made by him or
her bears to the total amount of the fund. Mutual funds are trusts, which accept
savings from investors and invest the same in d iversified financial instruments in
terms of objectives set out in the trusts deed with the view to reduce the risk and
maximize the income and capital appreciations for distributions for the members. A
mutual fund is a corporation and the fund manager 's interest is to professionally
manage the funds provided by the investors and provide a return on them after
deducting reasonable management fees.

2.1 DEFINITIONS:
"A mutual fund is an investment that pools your money with the money of an

unlimited number of other investors. In ret urn, you and other investors each own
shares of the fund. The Fund 's assets are invested according to an i nv est m e nt
objective i n t o the fund's portfolio of investments. Aggressive growth fund seeks
long term capital growth by investing primarily in stock of fast-growing smaller
companies or market segments. Aggressive growth funds are also called capital
appreciation funds".
 1.3 ADVANTAGES OF MUTUAL FUNDS:
If mutual funds are emerging as the favourite investment vehicle, it
is because of the many advantages they have over other forms and the avenues of
investing, particularly for the investor who has limited resources available in
terms of capital the ability to carry out detailed research and market monitoring.
The following are the major advantages offered by mutual funds to all investor.

1. Portfolio Diversifications:
Each investor in the fund is a part of all the fund's assets, thus enabling
him to hold a diversified investment portfolio even with a small amount of
investment that would otherwise require big capital.

2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits
from the professional management skills brought in by the fund i n the management
of the investor's portfolio. Few investors have the skills and resources of their
own to succeed in today' s fast moving, global and sophisticated markets.

3. Red uction/Diversifications of Risk:

When an investor invests directly, all the risks of potential loss in his
own, whether he places a deposit with a company or a bank, or he buys a share or
debenture on his own or i n any other form. While investi ng in the pool of funds
with investors, the potential losses are also shared with other investors . The risk
reduction is one of the most important benefits of a collect ive investment vehicle
like the mutual fund.

4. Reduction of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor
bears all the costs of investing such as brokerage or custody of securities. When going
through a fund, he has the benefit of economies of scale; the funds pay lesser costs
because of larger vo'1mes, a benefit passed on to its investors.

5. Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and
quickly sell. When they invest in the units of a fund, they can generally cash
their investments any time, by selling their units to the fund if open-ended, or
selling them in the market if the fund is close-end. Liquidity of investment is
clearly a big benefit.

6. Convenience and Flexibility:

Mutual fund management companies offer many investor services
that a direct market investor cannot get. Investors can easily transfer t heir holding
from one scheme to the other, get u pdated market information and so on.
7. Tax Benefits:
Any income d istributed 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-orient ed funds, income distributions for the year
end ing March 31, 2003, will be taxed at a concessional rate of 10.5%.

I n case of individuals and Hindu Undivided Families a deduct ion up to

Rs.9,000 from the Total Income will be admissible in respect of income from
investments specified in sect ion 80L, including income from units of the mutual
fund. Units of the schemes are not subject to wealth-tax and Gift-Tax .

8. Choice of schemes:
Mutual Funds offer a family of scheme to suit your varying needs over
lifetime.

9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within
the provisions of strict regulations designed to protect the interests of investors.
The operations of Mutua! funds are regularly monitored by SEBI.
1.4 LIMITATION OF INVESTING THROUGH MUTUAL FUNDS:

1. No Control Over Costs

An Investor in a mutual fund has no control of the overall costs of

investing. The investor pays investment management fees as long as he remains
with the fund, albeit in return for the professional management and research. Fees
are payable even if the value of his investment is declining.

2. No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolio of shares
and bonds and other securities, investing through fund means he delegates this
decision to the fund manager. The very high net worth individuals or large corporate
investors may find this to be a constraint in achieving their objectives.

3. Managing A Portfolio of Funds:

Availability of a large number of fund’s can actually mean too much choice for
the investor. He may again need adv ice on how to select a fund to achieve on
how to select a fund to achieve his objectives quite similar to the situation when
he has individual shares or bonds to select.

4. The Wisdom of Professional management:

That's right, this is not an advantage. The average mutual manager is no better at
picking stocks than the average nonprofessional, but charges fees.

5. No Control:
Unlike picking your own individual stocks, mutual fund puts you in the passenger
seat of somebody else's car.

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

7. Buried Costs:

Many mutual funds specialize in buying their costs and in hiring salesman who do
not make those costs clear to their clients.
1.5HISTORY OF MUTUAL FUNDS IN INDIA:
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 distinct phases.

FIRST PHASE-1964-84:

Unit Trust of India (UTI) was established on 1963 by an act of parliament. It was
set up by the reserve bank of India and functioned u nder t h e R e g u l a t o r y 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. The first scheme launched by UTI was unit scheme
1964. At the end of 1988 UTI had Rs.6, 700 crores of assets u nder management.

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 Can bank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90),
Bank of Baroda Mutual Fund (Oct 92), LIC established its Mutual Fund in June 1989
While GIC had set up its Mutual Fund in December 1990.
At the end of 1993, mutual fund industry had assets under management of Rs.47,
004 crores.
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 al l
Mutual Funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Frankl in Templeton) was the private sector mutual fund
registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.

FOURTH PHASE-SINCE F E B R U A R Y 2003:

In February 2003, following the repeal of the Unit Trust Act 1963 UTI was
bifurcated ir.to two separate entities. One is the Specified Undertaking of the U n it Trust
of India with assets under management of Rs.29, 835 crores as at the end of January 2003.
1.6 TYPES OF MUTUAL F U N D S S C H E M E S IN INDIA

Wide variety of Mutua l Funds schemes exists in cater to the needs such as financial positions,
risks tolerance and return expectations etc. Thus, mutual funds have variety of flavours, being
a collect ion of ma ny stocks, an investor can go for picking a mutual fund might be easy.
There are over hund reds of mutual funds schemes to choose from. I t is easier to think of mutual
funds in categories , mentioned below.
A). BY STRUCTURE

 Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These
do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset
Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

 Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3
to 15 years. The fund is open for subscription only during a specified period. 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 they 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.

 Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and
close- ended schemes. The units may be traded on the stock exchange or may be open
for sale or redemption during pre-determined intervals at NAV related prices.

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B). BY NATURE
 Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund manager’s outlook
on different stocks. The Equity Funds are sub-classified depending upon their investment
objective, as follows:
 Diversified Equity Funds
 Mid-Cap Funds
 Sector Specific Funds
 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high
on the risk-return matrix.

 Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities,
private companies, banks and financial institutions are some of the major issuers of debt
papers. By investing in debt instruments, these funds ensure low risk and provide stable
income to the investors. Debt funds are further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known
as Government of India debt papers. These Funds carry zero Default risk but are
associated with Interest Rate risk. These schemes are safer as they invest in
papers backed by Government.
 Income Funds: Invest a major portion into various debt instruments such as
bonds, corporate debentures and Government securities.
 MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market.
These scheme ranks slightly high on the risk-return matrix when compared with
other debt schemes.

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  Short Term Plans (STPs): Meant for investment horizon for three to six months.
These funds primarily invest in short term papers like Certificate of Deposits (CDs)
and Commercial Papers (CPs). Some portion of the corpus is also invested in
corporate debentures.
 Liquid Funds: Also known as Money Market Schemes, These funds provides
easy liquidity and preservation of capital. These schemes invest in short-term
instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These
funds are meant for short-term cash management of corporate houses and are meant
for an investment horizon of 1day to 3 months. These schemes rank low on
risk-return matrix and are considered to be the safest amongst all categories of
mutual funds.

 Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined investment
objective of the scheme. These schemes aim to provide investors with the best of both the
worlds. Equity part provides growth and the debt part provides stability in returns.

Each category of funds is backed by an investment philosophy, which is pre-defined

in the objectives of the fund. The investor can align his own investment needs with the funds
objective and invest accordingly.
C). BY INVESTMENT OBJECTIVE:
Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes
is to provide capital appreciation over medium to long term. These schemes normally invest
a major part of their fund in equities and are willing to bear short-term decline in value
for possible future appreciation.

Income Schemes:
Income Schemes are also known as debt schemes. The aim of these schemes is to
provide regular and steady income to investors. These schemes generally invest in fixed
income securities such as bonds and corporate debentures. Capital appreciation in such
schemes may be limited.

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.

Load Funds:
A Load Fund is one that charges a commission for entry or exit. That is, each time
you buy or sell units in the fund, a commission will be payable. Typically, entry and exit
loads range from 1% to 2%. It could be worth paying the load, if the fund has a good
performance history.

No-Load Funds:
A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The advantage of a
no-load fund is that the entire corpus is put to work.
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.
1.7 Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly, he can expect higher returns and vice versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investor opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to
invest in capital protected funds and the profit-bonds that give out more return which is
slightly higher as compared to the bank deposits but the risk involved also increases in the
same proportion.
Thus, investors choose mutual funds as their primary means of investing, as Mutual
funds provide professional management, diversification, convenience and liquidity. That
doesn’t mean mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds
which are less riskier but are also invested in the stock markets which involves a higher
risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly
traded in the derivatives market which is considered very volatile.

RETURN RISK MATRIX

HIGHIER RISK HIGHER RISK
MODERATE RETURNS HIGHIER RETURNS

Venture
Capital Equity

Bank FD Mutual
Funds
Postal
Savings
LOWER RISK LOWER RISK
LOWER RETURNS HIGIER RETURNS
1.8 NET ASSET VALUE (NAV):
Since each owner is a part owner of a mutual fund, it is necessary to establish the value
of his part. In other words, each share or unit that an investor holds needs to be assigned
a value. Since the units held by investor evidence the ownership of the fund’s assets, the
value of the total assets of the fund when divided by the total number of units issued by the
mutual fund gives us the value of one unit. This is generally called the Net Asset Value
(NAV) of one unit or one share. The value of an investor’s part ownership is thus determined
by the NAV of the number of units held.

Calculation of NAV:

Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has
10 investors who have bought 10 units each, the total numbers of units issued are 100, and
the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units,
the value of his ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value
of the fund’s investments will keep fluctuating with the market-price movements, causing
the Net Asset Value also to fluctuate. For example, if the value of our fund’s asset increased
from Rs. 1000 to 1200, the value of our investors holding of 3 units will now be
(1200/100*3) Rs. 36. The investment value can go up or down, depending on the markets
value of the fund’s assets.
1.9 MUTUAL FUND FEES AND EXPENSES
Mutual fund fees and expenses are charges that may be incurred by investors who hold
mutual funds. Running a mutual fund involves costs, including shareholder transaction costs,
investment advisory fees, and marketing and distribution expenses. Funds pass along these
costs to investors in a number of ways.

1. TRANSACTION FEES
i) Purchase Fee:
It is a type of fee that some funds charge their shareholders when they buy shares. Unlike a
front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed
to defray some of the fund's costs associated with the purchase.

ii) Redemption Fee:

It is another type of fee that some funds charge their shareholders when they sell or redeem
shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and
is typically used to defray fund costs associated with a shareholder's redemption.

iii) Exchange Fee:

Exchange fee that some funds impose on shareholders if they exchange (transfer) to another
fund within the same fund group or "family of funds."

2. PERIODIC FEES

i) Management Fee:

Management fees are fees that are paid out of fund assets to the fund's investment adviser for
investment portfolio management, any other management fees payable to the fund's investment
adviser or its affiliates, and administrative fees payable to the investment adviser that are not
included in the "Other Expenses" category. They are also called maintenance fees.

ii) Account Fee:

Account fees are fees that some funds separately impose on investors in
connection with the maintenance of their accounts. For example, some funds impose an account
maintenance fee on accounts whose value is less than a certain dollar amount.

.
1.10 LOADS
Definition of a load

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale of
shares. A load is a type of Commission (remuneration). Depending on the type of load a mutual
fund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of both. The
different types of loads are outlined below.

Front-end load:

Also known as Sales Charge, this is a fee paid when shares are purchased. Also known as a
"front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end
loads reduce the amount of your investment. For example, let's say you have Rs.10,000 and
want to invest it in a mutual fund with a 5% front-end load. The Rs.500 sales load you must
pay comes off the top, and the remaining Rs.9500 will be invested in the fund. According to
NASD rules, a front-end load cannot be higher than 8.5% of your investment.

Back-end load:

Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Also known as
a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The
amount of this type of load will depend on how long the investor holds his or her shares and
typically decreases to zero if the investor holds his or her shares long enough.

Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the fund. Instead
a back-end load may be charged if the shares purchased are sold within a given time frame.
The distinction between level loads and low loads as opposed to back-end loads, is that this
time frame where charges are levied is shorter.

No-load Fund:

As the name implies, this means that the fund does not charge any type of sales load. But, as
outlined above, not every type of shareholder fee is a "sales load." A no-load fund may
charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees,
and account fees.
1.11 SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:
The first point to note before investing in a fund is to find out whether your
objective matches with the scheme. It is necessary, as any conflict would directly affect
your prospective returns. Similarly, you should pick schemes that meet your specific
needs. Examples: pension plans, children’s plans, sector-specific schemes, etc.

Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for
debt schemes, as they are relatively safer. Aggressive investors can go for equity
investments. Investors that are even more aggressive can try schemes that invest in
specific industry or sectors.

Fund Manager’s and scheme track record:

Since you are giving your hard-earned money to someone to manage it, it is
imperative that he manages it well. It is also essential that the fund house you choose has
excellent track record. It also should be professional and maintain high transparency in
operations. Look at the performance of the scheme against relevant market benchmarks and
its competitors. Look at the performance of a longer period, as it will give you how the
scheme fared in different market conditions.

Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund
before investing. This is because the money is deducted from your investments. A higher
entry load or exit load also will eat into your returns. A higher expense ratio can be justified
only by superlative returns. It is very crucial in a debt fund, as it will devour a few
percentages from your modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list
the year's best performing mutual funds. Naturally, very eager investors will rush out to
purchase shares of last year's top performers. That's a big mistake. Remember, changing
market conditions make it rare that last year's top performer repeats that ranking for the
current year. Mutual fund investors would be well advised to consider the fund
prospectus, the fund manager, and the current market conditions. Never rely on last year's
top performers
1.12 Types of Returns on Mutual Fund:
There are three ways, where the total returns provided by mutual funds can be enjoyed
by investors:

 Income is earned from dividends on stocks and interest on bonds. A fund pays out
nearly all income it receives over the year to fund owners in the form of a
distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain.
Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the
earnings and get more shares.
1.13 RISK FACTORS OF MUTUAL FUND:

The Risk-Return Trade-Off:

The most important relationshi p to understand is the risk-return trade-off. Higher the risk
greater the returns/loss and lower the risk lesser the ret urns/ loss. Hence it is up to 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 to do 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 Ru pee cost averaging ("RCA") might help mitigate the risk.

Credit Risk:

The debt servicing ability (may it be interest payments or repayments of principal) of a

company through its cash flows determines the cred it risks faced by you. This cred it risk
is measured by independent rating agencies like CR ISIL who rate companies and their
paper. A 'AAA ' rating is considered the safest whereas a 'D ' rating is considered poor cred
its quality. A well-diversified portfolio might help mitigate the risk.

Inflation Risk:

Things you hear people talk about:

"Rs. I 00 today is worth more than Rs. I 00 tomorrow."
"Remember the time when a bus when a bus r ide costed 50 paise?"
"Mehangai ka jamana Hai."
The root cause, 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 inflations grow factor than a return on your investment. A well-diversified
portfolio with the investment i n equities might help mitigate help mitigate the risk.
Interest Rate Risk:

In a free market economy interest rates are difficult if not impossible to predict. Charges
in indirect rates affect the prices of bonds as well as equities. If the interest rates rise the
prices of bonds fall and vice versa. Equity might be negatively affected a s well i n a
risking i n t e r e s t rat e environment. A well diversified po1tfolio might help mitigate
this risk.

Political/Government Policy Risk:

Changes in government policy and political decisions can change the investment
environment. They can create a favourable environment for investment or vice versa.

Liquidity Risk:
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased
liquidity ty risk can be partly mitigated by diversification, staggeri ng of maturities as well
as internal risk controls that lean towards purchase of liquid securities.
1.14 STRUCTURE OF A MUTUAL FUND:
India has a legal framework within which Mutual Fund have to be constituted. In
India open and close-end funds operate under the same regulatory structure i.e. as unit
Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes under
a common legal structure. The structure that is required to be followed by any Mutual Fund
in India is laid down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in
combination of another corporate body establishes a Mutual Fund. The sponsor of the
fund is akin to the promoter of a company as he gets the fund registered with SEBI. The
sponsor forms a trust and appoints a Board of Trustees. The sponsor also appoints the
Asset Management Company as fund managers. The sponsor either directly or acting
through the trustees will also appoint a custodian to hold funds assets. All these are made
in accordance with the regulation and guidelines of SEBI.
 As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute
at least 40% of the net worth of the Asset Management Company and possesses a sound
financial track record over 5 years prior to registration.

Mutual Funds as Trusts:

A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The
Fund sponsor acts as a settlor of the Trust, contributing to its initial capital and appoints
a trustee to hold the assets of the trust for the benefit of the unit-holders, who are the
beneficiaries of the trust. The fund then invites investors to contribute their money in
common pool, by scribing to “units” issued by various schemes established by the Trusts
as evidence of their beneficial interest in the fund.
It should be understood that the fund should be just a “pass through” vehicle. Under
the Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather
it is the Trustee or the Trustees who have the legal capacity and therefore all acts in relation
to the trusts are taken on its behalf by the Trustees. In legal parlance the investors or the
unit-holders are the beneficial owners of the investment held by the Trusts, even as these
investments are held in the name of the Trustees on a day-to-day basis. Being public
trusts, Mutual Fund can invite any number of investors as beneficial owners in their
investment schemes.

Trustees:
A Trust is created through a document called the Trust Deed that is executed by the
fund sponsor in favour of the trustees. The Trust- the Mutual Fund – may be managed by
a board of trustees- a body of individuals, or a trust company- a corporate body. Most of
the funds in India are managed by Boards of Trustees. While the boards of trustees are
governed by the Indian Trusts Act, where the trusts are a corporate body, it would also
require to comply with the Companies Act, 1956. The Board or the Trust company as
an independent body, acts as a protector of the of the unit-holders interests. The Trustees
do not directly manage the portfolio of securities. For this specialist function, the appoint an
Asset Management Company. They ensure that the Fund is managed by ht AMC as per
the defined objectives and in accordance with the trusts deeds and SEBI regulations.
1.15 The Asset Management Companies:
The role of an Asset Management Company (AMC) is to act as the investment
manager of the Trust under the board supervision and the guidance of the Trustees. The
AMC is required to be approved and registered with SEBI as an AMC. The AMC of a
Mutual Fund must have a net worth of at least Rs. 10 Crores at all times. Directors of the
AMC, both independent and non- independent, should have adequate professional
expertise in financial services and should be individuals of high morale standing, a
condition also applicable to other key personnel of the AMC. The AMC cannot act as a
Trustee of any other Mutual Fund. Besides its role as a fund manager, it may undertake
specified activities such as advisory services and financial consulting, provided these
activities are run independent of one another and the AMC’s resources (such as personnel,
systems etc.) are properly segregated by the activity. The AMC must always act in the
interest of the unit-holders and reports to the trustees with respect to its activities.

Custodian and Depositories:

Mutual Fund is in the business of buying and selling of securities in large
volumes. Handling these securities in terms of physical delivery and eventual safekeeping
is a specialized activity. The custodian is appointed by the Board of Trustees for
safekeeping of securities or participating in any clearance system through approved
depository companies on behalf of the Mutual Fund and it must fulfill its responsibilities
in accordance with its agreement with the Mutual Fund. The custodian should be an entity
independent of the sponsors and is required to be registered with SEBI. With the
introduction of the concept of dematerialization of shares the dematerialized shares are
kept with the Depository participant while the custodian holds the physical securities.
Thus, deliveries of a fund’s securities are given or received by a custodian or a depository
participant, at the instructions of the AMC, although under the overall direction and
responsibilities of the Trustees.
Bankers:
A Fund’s activities involve dealing in money on a continuous basis primarily with
respect to buying and selling units, paying for investment made, receiving the proceeds
from sale of the investments and discharging its obligations towards operating expenses.
Thus the Fund’s banker plays an important role to determine quality of service that the fund
gives in timely delivery of remittances etc.

Transfer Agents:
Transfer agents are responsible for issuing and redeeming units of the Mutual Fund
and provide other related services such as preparation of transfer documents and updating
investor records. A fund may choose to carry out its activity in-house and charge the
scheme for the service at a competitive market rate. Where an outside Transfer agent is
used, the fund investor will find the agent to be an important interface to deal with, since all
of the investor services that a fund provides are going to be dependent on the transfer agent.
1.16 REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:
The structure of mutual funds in India is guided by the SEBI. Regulations,
1996.These regulations make it mandatory for mutual fund to have three structures of
sponsor trustee and asset Management Company. The sponsor of the mutual fund and
appoints the trustees. The trustees are responsible to the investors in mutual fund and
appoint the AMC for managing the investment portfolio. The AMC is the business face
of the mutual fund, as it manages all the affairs of the mutual fund. The AMC and the
mutual fund have to be registered with SEBI.

SEBI REGULATION

 As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors.

 SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.

 The regulations were fully revised in 1996 and have been amended thereafter from
time to time.

 SEBI has also issued guidelines to the mutual funds from time to time to protect the
interests of investors.

 All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. The risks associated with the schemes launched by the mutual funds
sponsored by these entities are of similar type. There is no distinction in regulatory
requirements for these mutual funds and all are subject to monitoring and inspections
by SEBI.

 SEBI Regulations require that at least two thirds of the directors of trustee company
or board of trustees must be independent i.e. they should not be associated with the
sponsors.

 Also, 50% of the directors of AMC must be independent. All mutual funds are
required to be registered with SEBI before they launch any scheme.
1.17ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the increase in mutual fund players in India, a need for mutual fund association in India
was generated to function as a non-profit organisation. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been
registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are
its members. It functions under the supervision and guidelines of its Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a
professional and healthy market with ethical lines enhancing and maintaining standards. It
follows the principle of both protecting and promoting the interests of mutual funds as well as
their unit holders.

The Objectives of Association of Mutual Funds in India:

 The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its Board
of Directors. The objectives are as follows:

 This mutual fund association of India maintains high professional and ethical standards
in all areas of operation of the industry.

 It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of mutual
fund and asset management. The agencies who are by any means connected or involved
in the field of capital markets and financial services also involved in this code of
conduct of the association.

 AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund
industry.

 Association of Mutual Fund of India do represent the Government of India, the Reserve
Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

 It develops a team of well qualified and trained Agent distributors. It implements a

programme of training and certification for all intermediaries and other engaged in the
mutual fund industry.
1.18 MUTUAL FUND COMPANIES IN INDIA:

The concept of mutual funds in India dates back to the year 1963. The era between
1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67bm
assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI).
By the end of the 80s decade, few other mutual fund companies in India took their position in
mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund, Can bank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India
Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the
end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started
penetrating the fund families. In the same year the first Mutual Fund Regulations came into
existence with re-registering all mutual funds except UTI. The regulations were further given
a revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India which has
now merged with Franklin Templeton. Just after ten years with private sector players
penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund
companies in
India.

Major Mutual Fund Companies in India

 ABN AMRO Mutual Fund

 Birla Sun Life Mutual Fund
 Bank of Baroda Mutual Fund
 HDFC Mutual Fund
 HSBC Mutual Fund
 ING Vysya Mutual Fund
 Prudential ICICI Mutual Fund
 Tata Mutual Fund
 Unit Trust of India Mutual Fund
 Reliance Mutual Fund
 Standard Chartered Mutual Fund
 Franklin Templeton India Mutual Fund
  State Bank of India Mutual Fund
 Morgan Stanley Mutual Fund India
 Escorts Mutual Fund
 Chola Mutual Fund
 LIC Mutual Fund
 GIC Mutual Fund
 Alliance Capital Mutual Fund
 Benchmark Mutual Fund
 Canbank Mutual Fund

For the first time in the history of Indian mutual fund industry, Unit Trust of India Mutual
Fund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund
was ranked at the number one slot in terms of total assets
.
In the very next month, the UTIMF had regained its top position as the largest fund house in
India.

Now, according to the current pegging order and the data released by Association of Mutual
Funds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs 39,020
crore has become the largest mutual fund in India

On the other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone to second position.
The Prudential ICICI MF has slipped to the third position with an AUM of Rs 34,746 crore.

It happened for the first time in last one year that a private sector mutual fund house has
reached to the top slot in terms of asset under management (AUM). In the last one year to
January, AUM of the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.

According to the data released by Association of Mutual Funds in India (AMFI), the
combined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billion
in April compared to Rs 4,932.86 billion in March
 CHAPTER :2

RESEARCH METHODOLOGY
Research Methodology: -

It is a way to systematically solve a problem. The methodology adopted in this study

explained below: -

Research Design-

2.1 Objectives:-

1. To analyses which provides better returns from H DFC and ICI CI.

2. To analyses the concept and parameters of mutual funds.

3. To know about customer satisfaction.

4. To know people 's behaviour regarding risk factor involved in mutual funds.

2.2 Hypothesis: - 1 awareness about mutual funds

HO= Customers have no awareness about mutual funds

.H1 =Customers are aware about mutual funds.

HYOTHESIS 2: Satisfaction of customers a b o u t HDFC mutual fund

HO=Customers are not satisfied with ICICI

H l =Customers are satisfied with HDFC .

2.4 Scope of the study: -

1. To make people aware about the mutual fund.

2. To provide information regardi n g advantages and disadvant ages of

mutual funds.
3. To advice where to invest or not to invest.

4. To provide information regarding types of mutual funds which beneficial for

whom.

2.5 Limitation of the study: -

1. I t is difficult to cover all the functions of the company.

2. Because of the limited time period, the survey work was conducted in the Thane
reg ion and the same size was taken as 30 respondents only.
3. The analysis and conclusion made by me as per my limited understanding and
there may be some variation in actual situation.
4. The information about the company is mostly based on secondary data from the
company websites, other books as primary data was not accessible.

2.6 Need of the study: -

1. The need of study arises for learning the variables available that distinguish the
mutual fund of two companies.
2. To know the risk & return associated with mutual fund.
3. To choose best companies for mutual investment between HDFC & ICICI.
2.7 Sampling Techniques: -

 Deliberate.

 Convenience Sampl ing.

2.8 Sample Size: -

Sampling s defined as a selection of some part of an aggregate based on w h ich a

judgement or interface about the aggregate or totality is made. It represents how many
candidates you have chosen to fill your questionnaire or candidates upon whom you have
studied. I have a chosen a sample size of 30 candidates.

2.9 Data Collection: -

Source of data

Primary Data-I have used questionnaire as primary source for collect i ng data for my
study.

Secondary Data-I have collected m y secondary data from websites and journals.

2.10 Tools: -

I have used some charts (Pie chart, column chart) and hypothesis test.
 CHAPTER:3
REVIEW OF LITERATURE
The literature review shows the way for the researcher to have the better aptitude to
discover the research methodology used by a variety of other researchers in the earlier
period. It also directs about the limitations of a range of available procedures and the facts
and figures, well-expressed, revelation and understanding of the ambiguous results. It
discovers the avenues for future research on the basis of the present research efforts related
to the particular subject. The available works of the other researchers assist the
researchers in case of the contradictory and surprising results.

As far as comparative study of mutual funds and insurance products are concerned, a
number of researches have been carried out on its diverse facets by the researchers,
economists, academicians in the sub continent and overseas. Different researchers have
accomplished research on mutual funds and insurance products & industry from different
perspectives.

An attempt to incorporate literature review of empirical work on different aspects of

mutual funds, insurance products & industry has been made in this section.

Meyr & Tennyson (2015) provides the first investigation of information markets as a
reaction to deregulation of product forms in insurance markets. The article studies the case
of Germany, where insurance product ratings entered the market after relaxation of product
regulation in 1994. The ratings’ potential for enhancing the performance of a deregulated
insurance market is analyzed by considering both market structure and governance
characteristics of the rating market. Results suggest that market governance and
competition characteristics are favourable for the production of unbiased and informative
ratings. Ratings for disability insurance support this interpretation, since the
characteristics of the ratings conform to theoretical predictions about ratings in well‐
functioning rating markets.

Athma & Kumar (2012) in an analysis of mutual funds from investors’ perspective
concluded that there is no association between the satisfaction level of the investors and
the length of service of the MF Company.
Kumar et al., (2012) in their study of globalization and growth of Indian life insurance
industry have concluded that it is clear that private insurance companies are all set to
penetrate the untapped Indian insurance market and capture it with high pace. Figures
related to growth of life insurance market penetration support the same. A large
number of companies have jumped into the field with competitive pricing, services and
process, which has not only changed the industry numerically and more policies sold but
also in dimensions of competitive pricing, better and fast services, and personal security
and so healthy life styles. They have also concluded that objectives of globalizing this
industry is being fulfilled in terms of safety to rural and urban population, encouraging
savings, and utilizing the fund in creating long term funds for infrastructure development.

Negi & Singh (2012) in his study of demographic analysis of factors influencing
purchase of life insurance products in India have concluded that ‘Product Quality and
Brand Image’ has got the highest mean. The insurance companies thus should try to
maintain the timely and satisfactory service along with maintaining their reputation and
goodwill. The companies should pay more attention in timely and hassle free settlement
of the claims. Further customer relationship management should be of utmost
importance for such companies. ‘Brand Loyalty’ has been rated lowest among customers
while selecting and purchasing insurance product which signifies the healthy competition
among the insurance industry.

Panda & Panda (2012) has studied a comparative study of factorial analysis of Mutual
Fund Investment and Insurance Fund Investment and found that for stock option
(mutual fund schemes), Risk and Expectation – Higher, whereas Return , Knowledge level
and rate of volatility are lower in each case. But in case of insurance fund investment,
the investors are self conscious, get right information at right time along with the proper
investment. They have also suggested that before making any investment decision,
evaluate how it affects the current asset allocation plan. As time passes by, life stage
changes with the needs as well as income change. So one should need to monitor and
review investment periodically.
Shsnmuganathan & Muthian (2012) has done a comparative analysis on standing of
ULIPs in an individual investment portfolio and concluded that Investment in ULIP with
equity investment options is than that of traditional investment. If investment horizon
is long and equity should generate decent returns in the long run. Simultaneously, if
we can think of investing in Mutual Funds, ULIPs are the smart choice for people who
want to enjoy market returns and keep the controls in their hands. Add to that it gives
insurance cover with the flexibility to adapt changing lifestyle needs. This is a viable
option for those who want a convenient, economical, one-stop solution.

Nissim (2011) examines the accuracy of relative valuation methods in the U.S. insurance
industry, using price as a proxy for intrinsic value. The study found that unlike for non-
financial firms, book value multiples perform relatively well in valuing insurance
companies and are not dominated by earnings multiples. However, the gap between the
valuation performance of forecasted EPS and the conditional price-to- book approach
was relatively small during the last decade.

Barathi et al., (2011) in their study examined the impact factor of reforms on the
world fastest growing insurance market. They found that due to private participation
entire industry has changed in all regards. The finding of the study suggests that
insurance companies may not only focus on developing and improving the verity of
products but explore new segments and develop effective strategies to achieve profitable
growth.

Chaudhry & Kiran (2011) analyzed that life insurance industry expanded tremendously
from 2000 onwards in terms of number of offices, number of agents, new business
policies, premium income etc. Further, many new products (like ULIPs, pension plans
etc.) and riders were provided by the life insurers to suit the requirements of various
customers. However, the new business of such companies was more skewed in favor of
selected states and union territories. During the period of study, most of life insurance
business was underwritten in the last four months of the year. Private life insurers used
the new business channels of marketing to a great extent when compared with LIC.
Investment pattern of LIC and private insurers also showed some differences. Solvency
ratio of private life insurers was much better than LIC in spite of big losses suffered by
them. Lapsation ratio of private insurers was higher than LIC and servicing of death
claims was better in case of LIC as compared to private life insurers.
Jaiswal & Nigam (2011) has studied that Mutual Fund’s are able to provide better
return than any return on risk free securities but unable to outperform the benchmark
portfolio in terms of average return. The correlation between fund return and fund risk
justify the fact that higher the returns, high the risk. There is also positive association
between fund return and market return. The sample funds are not adequately diversified
with a diversification of about 60.3%. Due to inadequate diversification, a substantial part
of the variation in fund return is not explained by market and the fund is exposed to large
diversification risk.

Das et al., (2008) has conducted a behavioral analysis of retail investor on Mutual
Fund vs. Life Insurance. They have concluded that with some important findings that will
be valuable for both the investors and the companies having investment opportunities
in both Mutual Fund and Life Insurance.

Jagendra (2008) pointed out the development of Indian life insurance industry during the
globalization phase. He also mentioned about the reasons of high awareness, low
penetration, and untapped potential of the industry.

Prasanna (2008) has examined the contribution of foreign institutional investment

particularly among companies included in sensitivity index (Sensex) of Bombay Stock
exchange. Also examined is the relationship between foreign institutional investment and
firm specific characteristics in terms of ownership structure, financial performance and
stock performance. It is observed that foreign investors invested more in companies
with a higher volume of shares owned by the general public. The promoters’ holdings
and the foreign investments are inversely related. Foreign investors choose the companies
where family shareholding of promoters is not substantial. Among the financial
performance variables the share returns and earnings per share are significant factors
influencing their investment decision.

Alinvi & Babri (2007) are of view that customers’ preferences change on a constant
basis, and organizations adjust in order to meet these changes to remain competitive and
profitable. Kavitha (2007) analyzed the fund selection behavior of individual investors
toward MF in Mumbai city during the period July 2004- December 2004. It
was found that there is a fair opportunity to mutual investment in Future. Rao (2007)
reported that insurance is a vital economic activity and there is an excellent scope for its
growth in emerging markets. He also said that opening up of the insurance sector has
raised high hopes among people both in India and abroad.

Sabera (2007) indicated that Government decisions to liberalize the insurance sector has
allowed foreign players to enter into the market and start their operations in India, which
has resulted in restructuring and revitalizing of public sector companies. Sukla (2006)
reviewed that in last six years into competitive market, the Indian insurance industry
exhibited a healthy growth trend of new business and market share. He also viewed that
with liberalization, India is penning the script of “insurance convergence (catch up) and
not insurance divergence (falling behind)”. Laukkanen (2006) explains that varied
attributes present in a product or service facilitate customer’s achievement of desired end-
state and the indicative facts of study show that electronic services create value for
customers in service consumption. Kulshresth & Kulshresth (2006) highlighted that
demand for life insurance in rural India was expanding at the annual rate of 18 per cent
as compared to 3.9 per cent in urban areas which provided good opportunity for life
insurers to perform. Omar & Owusu-Frimpong (2007) stressed the importance of life
insurance and regarded it as a saving medium, financial investment, or a way of dealing
with risks.

Bhattacharya (2005) advocated that banc assurance provided the best opportunities to tap
the large potential in rural and semi urban areas as banks have a strong network of more
than 40000 branches in these areas. He suggested that the insurers should focus on Single
Premium policies, Unit Linked Insurance, Pension Market and Health Insurance. Keli
(2005) is of opinion that Past performance and Fund’s Investment Strategy continued
to be the top two drivers in the selection of a new fund manager. Krishnamurthy et al.,
(2005) in their paper tried to explain the status, growth and impact of insurance sector
after liberalization and reforms. They revealed that growth of insurance sector depends
on penetration which depends on awareness and quality services of insurance companies.
Satisfaction of customer and increased saving will give pace to growth.

Kumar (2005) highlighted that private insurance players introduced a wider range of
insurance products and set up brand promotion as part of their new strategy. These
new covers had flexibility and added benefits to suit the needs of customers who were
unsatisfied with the traditional and rigid plans. Rajeshwari & Moorthy (2005) observed
that investors demand inter-temporal wealth shifting as they progress through the life
cycle.

Chen & Wong (2004) focuses on the solvency of general (property-liability) and life
insurance companies in Asia using firm data and macro data separately. It uses different
classification methods to classify the financial status of both general and life insurance
companies. With the exception of Japan, failures of insurers in Singapore, Malaysia, and
Taiwan are nonexistent. They find that, first, the factors that significantly affect general
insurers' financial health in Asian economies are firm size, investment performance,
liquidity ratio, surplus growth, combined ratio, and operating margin. Second, the factors
that significantly affect life insurers' financial health are firm size, change in asset mix,
investment performance, and change in product mix, but the last three factors are more
applicable to Japan. Third, the financial health of insurance companies in Singapore seems
to be significantly weakened by the Asian Financial Crisis.

Taneja & Kumar (2004) highlighted the opportunities and challenges before the insurance
industry in India due to liberalization, globalization and privatization. Verma (2004)
analyzed the various types of products offered by public sector giant and the new global
players in the private sector.

Vijaykumar (2004) argues that opening up of the insurance sector will foster
competition, innovation, and product variations. However, in this context one has to
consider various issues at stake including demand for pension plan, separateness of
banking from insurance sector, role of IT, possible use of postal network for selling
insurance products and above all, the role of Insurance Regulatory Authority.

Elmiger & Kim (2003) elucidate risk as the trade-off that every investor has to make
between the higher rewards that potentially come with the opportunity and the higher risk
that has to be borne as a consequence of the danger.

Lynch & Musto (2003) were of opinion that this decade will belong to mutual funds
because the ordinary investor does not have the time, experience and patience to take
independent investment decisions on his own.
Otten and Bams (2002)’ paper on European mutual funds use a sample of 506 funds
from 5 countries (France, Germany, Italy, Netherlands, and U.K.) to investigate mutual
fund performance. They find that the expense ratio and fund age are negatively related
to performance, while fund size is positively related to performance. Arora (2002)
highlighted that LIC was likely to face tough competition from private insurers having
large established network and their trained intermediaries throughout India.

Stanley (2002) has examined that FIIs have played a very important role in building up
India’s forex reserves, which have enabled a host of economic reforms. Secondly, FIIs
are now important investors in the country’s economic growth despite sluggish domestic
sentiment. The Morgan Stanley report notes that FII strongly influence short-term
market movements during bear markets. However, the correlation between returns and
flows reduces during bull markets as other market participants raise their involvement
reducing the influence of FIIs. Research by Morgan Stanley shows that the correlation
between foreign inflows and market returns are high during bear and it weakens with
strengthening equity prices due to increased participation by other players.

Chen et al., (2001) revealed that insurance demand of baby boomer generation is quite
different from that of previous generations using cohort analysis.

Kumar (2001) investigated the effects of FII inflows on the Indian stock market
represented by the Sensex using monthly data from January 1993 to December 1997. He
inferred that FII investments are more driven by Fundamentals and they do not respond
to short-term changes or technical position of the market. In testing whether Net FII
Investment (NFI) has any impact on Sensex, a regression of NFI was estimated on lagged
values of the first difference of NFI, first difference of Sensex and one lagged value of
the error correction term (the residual obtained by estimating the regression between NFI
and Sensex). The study concluded that Sensex causes NFI. Similarly, regression with
Sensex as dependent variable showed that one month lag of NFI is significant, meaning
that there is causality from FII to Sensex.

In his study “Are Retail Investors Better off Today?” Black & Skipper (2000) observed
that in recent years, investors' attitudes towards the securities industry plummeted, in
reaction to both the conflicted research and the mutual fund scandals.
He concluded that the most optimistic assessment is that the SEC has plenty of
unfinished business to attend to.

Chakrabarti & Rungta (2000) stressed the importance of brand effect in determining
the competitive position of the AMCs. Their study reveals that brand image factor,
though cannot be easily captured by computable performance measures, influences the
investor’s perception and hence his fund/scheme selection.

Lexington & Harrison (2000) found that majority of investors who invest in MF
themselves are not clear with the objective and constraints of their investment but in
addition to this most important critical gap that exist in this process is lack of awareness
about presence of risk elements in MF investment. The new marketing philosophy and
strategies place special emphasis on recognition of customer needs in an effort to provide
high level of quality services.

Rao (2000) stated the year 1999-2000 as landmark in the history of Indian insurance
industry. He further said that year 2007 is going to be another turning point for the
industry. According to him, detariffication from January 2007 will bring a lot of
changes in the non-life industry. The insurance industry will have to play an important role
by providing many other products for the poor.

Shanmugham (2000) conducted a survey of 201 individual investors to study the

information sourcing by investors, their perceptions of various investment strategy
dimensions and the factors motivating share investment decisions, and reports that
among the various factors, psychological and sociological factors dominate the economic
factors in investment decisions.

Khorana & Servaes (1999) had experimented that the decision to introduce a new type of
fund is affected by a number of variables, including investor demand for the fund’s
attributes.

Sundar (1998) conducted a survey to get an insight into the mutual fund operations of
private institutions with special reference to Kothari Pioneer. The survey revealed that
agents play a vital role in spreading the Mutual Fund culture; open-end schemes were
much preferred then age and income are the two important determinants in the selection
of the fund/scheme; brand image and return are the prime considerations while investing
in any Mutual Fund.
Goetzman & Peles (1997) established that there is evidence of investor psychology
affecting fund/scheme selection and switching.

Bernstein (1996) risk averse behavior of investor reflects the choice of investor to avid
risk or take negligible risk that means whenever an individual investor is given option to
go for guaranteed return with probability one which are comparatively less than gambling
return with probability one which are comparatively less than gambling return with
probability less than one, chances are that he may go for guaranteed return.

Gupta & Sehgal (1997) evaluated mutual fund performance over a four year period,
1992‐96. The sample consisted of 80 mutual fund schemes. They concluded that
mutual fund industry performed well during the period of study. The performance was
evaluated in terms of benchmark comparison, performance from one period to the next
& their risk‐return Characteristics. Gupta & Sehgal in another paper “Investment
Performance of Mutual Funds: The Indian Experience,” “presented at UTI‐ICM Second
Capital Market Conference, Dec” has reported that Mutual Fund Industry had performed
reasonably well during their period of study. Gandolfi & Miners (1996) showed that
there are meaningful differences between husbands and wives in their demand for life
insurance.

Jambodekar (1996) conducted a study to assess the awareness of MFs among investors,
to identify the information sources influencing the buying decision and the factors
influencing the choice of a particular fund. The study reveals among other things that
Income Schemes and Open Ended Schemes are more preferred than Growth Schemes and
Close Ended Schemes during the then prevalent market conditions.

Jaydev (1996) evaluated performance of two schemes during the period, June 1992 to
March 1994 in terms of returns/benchmark comparison, diversification, selectivity &
market timing skills. He concluded that the schemes failed to perform better than the
market portfolio (ET’s ordinary share price index). Diversification was unsatisfactory. The
performance did not show any signs of selectivity & timings skills of the fund managers.
Shankar (1996) pointed out that the Indian investors do view Mutual Funds as commodity
products and AMCs, to capture the market should follow the consumer product distribution
model.
Sikidar & Singh (1996) carried out a survey with an objective to understand the
behavioral aspects of the investors of the North Eastern region towards mutual funds
investment portfolio. The survey revealed that the salaried and self-employed formed the
major investors in mutual fund primarily due to tax concessions.

Sarkar & Majumdar (1995) evaluated financial performance of five close‐ended growth
funds for the period February1991 to August 1993, concluded that the performance was
below average in terms of alpha values (all negative & statistically not significant) &
funds possessed high risk. No reference was provided about the timing parameters in
their study.

Gupta (1994) made a household investor survey with the objective to provide data on the
investor preferences on Mutual Funds and other financial assets. The findings of the study
were more appropriate, at that time, to the policy makers of mutual funds to design the
financial products for the future. Kulshreshta (1994) offered certain guidelines to the
investors in selecting the mutual fund schemes.

Showers & Shotick (1994) augment the empirical literature on insurance demand by
examining the impact of selected economic and social factors on the purchase of
insurance. Although income and number of earners are both positively related to the
demand for insurance, the marginal effect from an increase in income is greater for
single earner households than for multi-earner households. Also, as either family size or
age increases, the marginal increase in insurance expenditure diminishes. They
examined that the size of the family and the number of earners in the household are
positively related with expenditures on insurance premium. They also tested the curvilinear
relationship between demand for life insurance and age.

Ippolito (1992) says that fund/scheme selection by investors is based on past

performance of the funds and money flows into winning funds more rapidly than they flow
out of losing funds. Truett & Truett (1990) showed that age, education, and level of income
are factors that affect the demand for life insurance, and that income elasticity of
demand for life insurance is much higher in Mexico than in the United States. Burnett
& Palmer (1984) in the study examined various demographic and psychographic
characteristics in terms of how well they relate to differing levels of life insurance
ownership. Owners of large amounts of life insurance are better educated, have larger
families, have higher incomes, are not opinion leader, are

geographically stable, are greater risk takers, are not price conscious, are not information
seekers, are low in self-esteem, are not brand loyal and believe in community involvement
but they do not rely heavily on the government. They conducted extensive research using
Multiple Classification Analysis. Their study proved that demographic variables, as well
as psychographic variables, are important predictor variables.

Goldsmith (1983) in the paper developed and investigated the relation between a
wife's human capital accumulation and household purchases of life insurance on the
husband. Households with a more educated wife, ceteris paribus, were found to have a
lower likelihood of purchasing term insurance on the husband. He suggested that
household characteristics and the decision-making environment are important determinants
of a household’s insurance purchasing behavior.

Kon (1983) in his paper evaluated performance in terms of selectivity & timing
parameters over a period, January 1960 to June 1976. The sample was 37 funds. The
study concluded that individually few funds have shown positive selectivity & timing skills
but collectively mutual funds failed to perform satisfactorily.

Campbell (1980) found that not only does a portion of currently accumulated household
wealth act as a substitute for insurance; there is also a portion of future human capital
that households should self-insure.

Anderson & Nevin (1975) in the study looked at the life insurance purchasing behavior
of young newly married couples. The study suggested that the wife and the insurance
agent are playing an influential role in the type of insurance purchased by young married
households.

Mantis & Farmer (1968) showed that marriages, births, personal income, population
size, relative price index, and employment could affect the insurance purchase, many
studies have been conducted to estimate the demand for insurance or to test risk-
aversion.
From the above review of empirical works, it is clear that different authors have
approached mutual funds & insurance products analysis in different ways in varying
levels of analysis. These different approaches helped in the emergence of more and more
literature on the subject over time. It gives an idea on extensive and diverse

works on mutual funds & insurance products analysis. It has been noticed that the
studies on mutual funds & insurance products analysis in various aspects provide
divergent results relating to the study period overlap or coincide. The main reason for
divergence in the results is use of different method for the measurement of returns &
features analysis of mutual funds & insurance products. All the studies aimed to
analyse the mutual fund & insurance industry in India & abroad with number of
factors. It has been noticed that studies on mutual funds & insurance analysis in
various factors used the variables like premium collection, servicing, lapsation, fund
performance, customer satisfaction, market share etc. Very few studies appeared which
used most of the tools viz. ratios analysis, trend analysis, ranking & understanding of
mutual fund & insurance products from the view point of customers. The survey of the
existing literature reveals that no specific work has been carried out to examine the mutual
funds & insurance products from investors’ perspective.

The present study is an attempt in this direction and therefore, aims to enrich the
literature of comparative study of mutual funds & insurance products from an investors’
perspective. The present study is also an attempt to employ different sophisticated
statistical and economic techniques before qualifying any aspect of comparative study of
mutual funds and insurance products from investors’ perspective for wider acceptability
and appreciation. The present study is modest and unpretentious attempt in this regard.