1) INTRODUCTION

Investment in share markets are influenced by the analysis & reasoning which help in predicting the market to some extent. Over the past years a number of techniques & theories for analysis have evolved, these combined with modern technology guides the investor. The big players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertise for various analytical tools & make use of them. The small investors are not in a position to benefit from the market the way Mutual Funds can do. Golaghat is not a very commercially developed area and is still in the developing mode. So, there is enough scope for mutual funds to capture the market. Generally, here investor¶s investments are based on market sentiments, inside information, through grapevine, tips & intuition. The small investors depend on brokers and brokerage house for his investments. There is enough scope on the part of these brokers to learn the movements of the market which leave their client¶s investments too in danger, so there is a need of expertise in the field from the big managers. These small investors can invest through the Mutual Funds who are more experienced and expert in this field than a small investor himself.

In recent years, a large number of players have entered into this market. The project has been carried out to have an overview of Mutual Fund Industry and to understand investor¶s perception about Mutual Funds in the context of their trading preference, explore investor¶s risk perception & find out their preference over the various schemes.

1.1

INDUSTRY PROFILE

Structure of the Indian Mutual Fund industry
The largest categories of Mutual Funds are the ones floated by the private sector and by Foreign Asset Management Companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs.350 billion. Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has a total corpus of Rs.700 billion collected from more than 20 million investors. UTI was floated by financial institutions and is governed by a special Act of Parliament. The second largest categories of mutual funds are the ones floated by nationalized banks. SBI Funds Management floated by the State Bank of India is the largest of these. GIC AMC floated by the General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs.200 billion.

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2) ABOUT MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund.

2.1)

WHY MUTUAL FUNDS

An investor normally prioritizes his investment needs before undertaking an investment. So, different goals will be allocated in different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance. This is the area for the risk-averse investors and here, mutual funds are generally the best option. The reasons are not difficult to see. One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk. Many people have burnt their fingers by investing in fixed deposits of companies who were assuring high returns but have gone bust in course of time leading to distraught investors as well as pending cases in the Company Law Board. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies¶ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. On an average debt funds have posted returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last oneyear period. Though they are charged with a dividend distribution tax on dividend payout at 10 percent with a surcharge of 10 percent, the net income received is still tax free in the hands of investor

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This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies¶ financials more minutely than an individual can do as they have the expertise to do so.

They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. Next comes, the risk takers, risk takers by their very nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached. Capital markets interest people, albeit not all for there are several problems associated. First issue is that of expertise. While investing directly into capital market one has to be analytical enough to judge the valuation of the stock and understand the complex undertones of the stock. It is very difficult for a small investor to keep track of the movements of the market. Entrusting the job to experts, who watch the trends of the market and analyze the valuations of the stocks will solve this problem for an investor. Next problem is that of funds/money. A single person can¶t invest in multiple highpriced stocks due to lack of adequate funds. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. This not only diversifies the portfolio and helps in generating returns from a number of sectors but reduces the risk as well. Though identification of the right fund might not be an easy task, availability of good investment consultants and counselors will help investors take informed decision.

2.2)

How are the Mutual Funds Structured?

The Mutual Funds are structured in two forms: y y Company Form: - These forms of mutual funds are more popular in US. Trust Form: - In India, mutual funds are organized as Trusts. The Trust is either managed by a Board of Trustees or by a Trustee Company. There must be at least 4 members in the Board of Trustees and at least 2 / 3 of the members of the board must

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It could do it alone or through a joint venture. 2.3 Unit Trusts ± Constituents: - A Mutual Fund is set up in the form of a Trust which has the following constituents:1. Trustees Trustees are like internal regulators in a mutual fund. track record (at least five years in financial services). helps. In order to run a mutual fund in India. so long as it is complemented by good fund management. and their job is to protect the interests of the unit holders. the sponsor has to obtain a license from SEBI. The sponsor initiates the idea to set up a mutual fund. Custodian and Depositors Brokers Transfer Agent Fund Sponsors What a promoter is to a company. Like the company promoter. Other Fund Constituents: 3. For this. the sponsor should inspire confidence in you as a money manager and. a sponsor is to a mutual fund. It could be Indian or foreign. invest in technology and continuously offer high service standards to the investors. be profitable. default-free dealings and a general reputation for fairness.it can hire the best talent. Trustees are appointed by the sponsors. Financial muscle. Asset Management Company 3. such as on capital and profits. preferably. custodian and the AMC with the prior approval of SEBI and in accordance with SEBI regulations. The sponsor appoints the trustees. Fund Sponsor 2. a bank or a financial institution.1.2. It could be a financial services company. it has to satisfy certain conditions.be independent. as money is then not an impediment for the mutual fund. 3. The sponsor must have been profit making in at least 3 years of the above 5 years.3. 3. and can be either ~4~ . the sponsor takes bigpicture decisions related to the mutual fund. Trustee of one mutual fund cannot be a trustee of another mutual fund.

They check if the AMCs investments are within defined limits and whether the fund¶s assets are protected. AMC must have a minimum net worth of Rs.e.. and other personnel. Trustees float and market schemes.25 Crores (1. Regulatory requirements for the AMC:  Only SEBI registered AMC can be appointed as investment managers of mutual funds. Each scheme pays the AMC an annual µfund management fee¶. from launching schemes to managing them to interacting with investors. other than that of asset management At least half of the members of the Board of an AMC have to be independent. it pays 1. Asset Management Company (AMC) An AMC is the legal entity formed by the sponsor to run a mutual fund. It is the AMC that handles all operational matters of a mutual fund i. seeks their approval for the work it does. if a fund house has two schemes.10 Crores at all times. sectors and companies. So. In order to ensure they are impartial and fair. who pay their salaries. If a scheme¶s corpus is up to Rs. which is linked to the scheme size and results in a corresponding drop in your return. The trustees sign an investment agreement with the AMC. the AMC will earn Rs.200 Crores respectively.3.25% of its corpus a year.individuals or corporate bodies. which spells out the functions of the AMC. i.     ~5~ . There is the head of the fund house. who manages its schemes. and secure necessary approvals. partly or wholly. Although these people are employed by the AMC. SEBI rules mandate that at least two-thirds of the trustees be independent. generally referred to as the Chief Executive Officer (CEO). Trustees can be held accountable for financial irregularities in the mutual fund. AMCs cannot indulge in any other business. An AMC cannot be an AMC or Trustee of another Mutual Fund. it¶s the unit holders. The AMC is usually a private limited company in which the sponsors and their associates or joint venture partners are the shareholders. Trustees appoint the AMC. who track markets. and fund managers. which subsequently. who shapes the fund¶s investment philosophy. They are assisted by a team of analysts.100 Crores and Rs. with a corpus of Rs.100 Crores. It is the AMC that employs fund managers and analysts.e. and reports periodically to them on how the business being run.25+2) as fund management fee for that year. Under him comes the Chief Investment Officer (CIO). not have any association with the sponsor.

collection of income. ~6~ . as long as it is prompt and efficient in servicing you. Registrar or transfer agents Registrars. For example. Karvy and CAMS are the more popular ones. In some cases. also known as the transfer agents. its mutual fund arm. Most mutual funds. Brokers are the registered members of the stock exchange. provide investment managers with research reports. Some of the investor ± related services are:Processing investor applications. This condition. sending fact sheets and annual reports. Act as an important source of market information. Deutsche Bank is a custodian. distribution of dividends and segregation of assets between the schemes. The sponsor of a mutual fund cannot act as a custodian to the fund. They charge a commission for their services. ensures that the assets of a mutual fund are not in the hands of its sponsor. Custodian & Depositors: A custodian handles the investment back office of a mutual fund. Brokers Role of Brokers in a Mutual Fund: They enable the investment managers to buy and sell securities. buy back and open offers for acquisition. in addition to registrars. It doesn¶t really matter which model your mutual fund opt for. right offers. Others outsource it to the Registrars. The 4th schedule of SEBI Regulations spells out rights and obligations of both trustees and AMCs. are responsible for the investor servicing functions. It also track corporate actions like bonus issues. Some fund houses handle such functions in-house. formulated in the interest of investors. offer for sale. This includes issuing and redeeming units. but it cannot service Deutsche Mutual Fund. also have investor service centers of their own in some cities. Recording details of the investors. Its responsibilities include receipt and delivery of securities.

Punjab National Bank Mutual Fund (Aug 89). Indian Bank Mutual Fund (Nov 89).UTI.The 1993 SEBI ~7~ . 3) HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. The first scheme launched by UTI was Unit Scheme 1964. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. giving the Indian investors a wider choice of fund families. In 1978. At the end of 1993. UTI had Rs. Bank of India (Jun 90).47. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. Second Phase ± 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non. Securities and exchange Board of India (SEBI) Act was passed. At the end of 1988. 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.6.UTI Mutual Fund established in June 1987 followed by. Incorporating changes in the investor information. In the year 1992. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). 700 Crores of assets under management. Bank of Baroda Mutual Fund (Oct 92). 004 Crores. Thereafter. SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. Keeping investor information up to date. a new era started in the Indian mutual fund industry. at the initiative of the Government of India and Reserve Bank In early 1990s. Also. Government allowed only public sector banks and institutions to set up mutual funds. 1993 was the year in which the first Mutual Fund Regulations came into being. Third Phase ± 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993. the mutual fund industry had assets under management of Rs. mutual funds sponsored by private sector entities were allowed to enter the capital market. The history of mutual funds in India can be broadly divided into four distinct phases: First Phase ± 1964-87 (Era of the UTI) Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. The erstwhile Kothari Pioneer was the first private sector mutual fund registered in July 1993. SEBI notified regulations for the mutual funds in 1993. SBI Mutual Fund was the first non. Processing dividend payout.Sending information to the investors.

2004. It is registered with SEBI and functions under the Mutual Fund Regulations. The number of mutual fund houses went on increasing. representing broadly. One should notice. 21. which manage assets of Rs. It rose as high as Rs.44. Fourth Phase ± since February 2003 In February 2003. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 1. As at the end of January 2003. BOB and LIC. The performance of mutual funds in India through figures is appreciable. 541 Crores of assets under management was way ahead of other mutual funds. the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. PNB. with many national & foreign mutual funds setting up funds in India. As at the end of September. 1. The Specified Undertaking of Unit Trust of India. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. the investors disinvested by selling at a loss in the secondary market. sponsored by SBI. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. there were 29 funds.540 billion and as for the last year they hold around 8 lakhs Crore of assets. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. 4) GROWTH IN ASSETS UNDER MANAGEMENT The Assets under Management of UTI was Rs.153108 Crores under 421 schemes. The Unit Trust of India with Rs. ~8~ . the assets of US 64 scheme. assured return and certain other schemes. functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The 1992 stock market scandal.76. 67 billion by the end of 1987. The second is the UTI Mutual Fund Ltd. The performance figures have risen to three times higher till April 2004. 835 Crores as at the end of January 2003.805 Crores. conforming to the SEBI Mutual Fund Regulations. since only closed-end funds were floated in the market. there were 33 mutual funds with total assets of Rs. and with recent mergers taking place among different private sector funds. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. the mutual fund industry has entered its current phase of consolidation and growth.29. 000 Crores of assets under management and with the setting up of a UTI Mutual Fund. The performance of mutual funds in India suffered qualitatively.(Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996.

Note: While UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. Total collection for the financial year ending March 2000 reached Rs. mutual fund assets went up by 115% whereas bank deposits rose by only 17%. The graph indicates the growth of assets over the years. India had been at the first stage of a revolution that has already peaked in the U. Their role as intermediaries cannot be ignored.1) Structure: Open-ended Funds:- ~9~ .Funds now have shifted their focus to the recession free sectors like pharmaceuticals. The basic fact lies that banks cannot be ignored and they will not close down completely.S. over 5 year period spanning 1993-98 doubled to Rs210 billion in 1998-99. Funds collection. FMCG and technology sector. The Assets under management of the Specified undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards. 100billion p. 5. 450billion. The figures indicate that in the 1st quarter of the year 1999-2000. which averaged at less than Rs. 5) TYPES OF MUTUAL FUNDS Mutual fund schemes may be basically be classified on the basis of its structure and its investment objective.a.

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. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. corporate debentures and Government securities. Income Funds:The aim of income funds is to provide regular and steady income to investors. some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. They are open for sale or redemption during pre-determined intervals at NAV related prices. In order to provide an exit route to the investors. Balanced Funds:The aim of balanced funds is to provide both growth and regular income. have outperformed most other kind of investments held over the long term. Income Funds are ideal for capital stability and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income ~ 10 ~ . Such schemes generally invest in fixed income securities such as bonds. Interval Funds:Interval funds combine the features of open-ended and close-ended schemes. Such schemes normally invest a majority of their corpus in equities. 5.2) Investment Objective: Growth Funds:The aim of growth funds is to provide capital appreciation over the medium to longterm. Closed-ended Funds:A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.An open-end fund is one that is available for subscription all through the year. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. It has been proven that returns from stocks. These do not have a fixed maturity. The fund is open for subscription only during a specified period. The key feature of open-end schemes is liquidity.

These are ideal for investors looking for a combination of income and moderate growth. In a rising stock market. commercial paper and inter-bank call money.securities in the proportion indicated in their offer documents. or fall equally when the market falls.4) Special Schemes: Index Schemes:Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. 2000 and the amount is invested before September 30.3) Other Schemes: Tax Saving Schemes:These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. provided the capital asset has been sold prior to April 1. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act. These schemes generally invest in safer short-term instruments such as treasury bills. preservation of capital and moderate income. 1961. which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. 2000. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. the NAV of these schemes may not normally keep pace. Sectoral Schemes:Sectoral Funds are those. Money Market Funds The aim of money market funds is to provide easy liquidity. 6) BANKS V/S MUTUAL FUNDS ~ 11 ~ . 5. certificates of deposit. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. 5.

The coming few years will show that the traditional saving avenues are losing out in the current scenario.1 MUTUAL FUNDS High Moderate More Low but improving Better Transparent 7) BENEFITS OF MUTUAL FUND INVESTMENT 1) Professional Management ~ 12 ~ .Mutual Funds are now also competing with commercial banks in the race for retail investor¶s savings and corporate float money. but this trend is beginning to change. mutual fund assets are not even 10 per cent of the bank deposits. The fund mobilization trend by mutual funds indicates that money is going to mutual fund in a big way. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. Their role as intermediaries cannot be ignored. The basic fact lies that banks cannot be ignored and they will not close down completely.1 CATEGORY Returns Risk Investment options Network Liquidity Quality of assets BANKS Low Low Less High penetration At a cost Not transparent Table 1. In India. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. A comparison between the both is made in the Table 1.

6) 3) 8) RISKS ASSOCIATED WITH MUTUAL FUNDS The most important relationship to understand is the risk-return trade-off. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. In closed-end schemes. the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. 2) Return Potential with lower costs Over a medium to long-term. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. the investor gets the money back promptly at net asset value related prices from the Mutual Fund. Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Hence it¶s up to the investor to decide how much risk they are willing to take. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss. backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. custodial and other fees translate into lower costs for investors. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. 5) Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. 4) Liquidity In open-end schemes. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage.Mutual Funds provide the services of experienced and skilled professionals. In order to do this they must first ~ 13 ~ .

e) Liquidity risk Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. An µAAA¶ rating is considered the safest whereas a µD¶ rating is considered poor credit quality. This happens when inflation grows faster than the return on your investment. Some of the possible risks associated are outlined as follow ± a) Market risk Sometimes prices and yields of all securities rise and fall. A well-diversified portfolio might help mitigate this risk. d) Political risk Changes in government policy and political decision can change the investment environment. A well-diversified portfolio with some investment in equities might help mitigate this risk. This is true. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. They can create a favorable environment for investment or vice versa. Changes in interest rates affect the prices of bonds as well as equities. Liquidity Risk can be partly mitigated by diversification. may it be big corporations or smaller mid-sized companies. Interest rate risk In a free market economy interest rates are difficult if not impossible to predict. A well-diversified portfolio might help mitigate this risk. Equity might be negatively affected as well in a rising interest rate environment. This is known as Market Risk. Credit risk The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cash flows determines the Credit Risk faced by you. f) ~ 14 ~ . Broad outside influences affecting the market in general lead to this. A Systematic Investment Plan (³SIP´) that works on the concept of Rupee Cost Averaging (³RCA´) might help mitigate this risk. 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.be aware of the different types of risks involved with their investment decision. If interest rates rise the prices of bonds fall and vice versa. staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. b) c) Inflation risk Inflation is the loss of purchasing power over time.

) and different sectors (auto.). 9) VALUATION 9.3) Other Important terms ~ 15 ~ .1 Net Asset Value (NAV) The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. However. ignoring the ³per unit´. fixed deposits etc. which is the value represented by the ownership of one unit in the fund. IT etc. most people refer loosely to the NAV per unit as NAV. textile. that you must spread your investment across different securities (stocks.2) Calculation of Net Asset Value The most important part of the calculation is the valuation of the assets owned by the fund.Diversification. It is calculated simply by dividing the net asset value of the fund by the number of units. simply means. this is the amount that the shareholders would collectively own. if the fund is dissolved or liquidated by selling off all the assets in the fund. bonds. 9. We also abide by the same convention. Once it is calculated. In other words. The detailed methodology for the calculation of the net asset value is given below: NAV = Market value of investments XXX ADD:Current assets and other assets Accrued income XXX XXX XXX XXX LESS:Current liabilities and other liabilities Accrued expenses Net Assets Value XXX XXX XXX XXXX 9. This gives rise to the concept of net asset value per unit. the NAV is simply the net value of assets divided by the number of the units outstanding. This kind of a diversification may add to the stability of your returns.

SHARP RATIO High returns are generally associated with a high degree of volatility. At the same time it also factors in the desire to generate returns. Some have sold out to foreign owned companies. An R-squared of 100 means that all movements of a security are completely explained by movements in index C. They quickly realized that the AMC business is a business.BETA RATIO A Beta ratio is the ratio of movement of securities variably with the market. EXPENSE RATIO The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns were huge. These expenses include management fees and operating expenses 10) COMPETITION IN MUTUAL FUNDS INDUSTRY The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. A high beta is good or bad depending on the state of the market. some have merged with others and there is general restructuring going on. The service levels were also very bad. i. the market is seeing a rise in general. R-squared values range from 0 to 100. They can be credited with introducing many new practices ~ 16 ~ . If the market sentiments are bullish. B. R_SQUARED It¶s a statistical measure that represents the rate of percentage of fund or security movements that are explained by movements in a benchmark index. then a high beta stock is better and if the market sentiment is bearish then low beta is preferred. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. D.e. which are higher than those from risk free returns. The experience of some of the AMCs floated by private sector Indian companies was also very similar. The Sharpe ratio represents this trade off between risk and returns. A. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul.. which makes money in a long term and requires deep-pocketed support in the intermediate years.

broker education and support etc. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada. The Trustee Company formed is Prudential ICICI Trust Ltd. Indonesia and Bermuda apart from India. ~ 17 ~ . 1993 with two sponsors. State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund.such as new product innovation. the India Magnum Fund with a corpus of Rs. sharp improvement in service standards and disclosure.000 Crores. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June. 225 cr. and ICICI Ltd. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. State Bank of India Mutual Fund has more than Rs. 5. the US. one of the largest life insurance companies in the US of A. Now it has an investor base of over 8 Lakhs spread over 18 schemes. Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. 11) MAJOR PLAYERS IN MUTUAL FUNDS INDUSTRY Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. In fact. of America. Prudential Plc. Japan. the Philippines. Today it is the largest Bank sponsored Mutual Fund in India.500 Crores as AUM. approximately. It has also crossed an AUM of Rs. they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these. 1993. 10. Prudential ICICI Mutual Fund was setup on 13th of October. usage of technology.

Punjab National Bank (PNB). It contributed Rs. 2004. The schemes of UTI Mutual Fund are Liquid Funds. and Life Insurance Corporation of India (LIC). State Bank of India (SBI). The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund GIC Mutual Fund GIC Mutual Fund. a Government of India undertaking and the four Public Sector General Insurance Companies. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. The Company started its business on 29th April 1994. 1882. It was registered on June 30. 1995 as Reliance Capital Mutual Fund which was changed on March 11. established in Jan 14. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act. LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. Income Funds. Limited is the Trustee. Index Funds. Asset Management Funds. 1882. 2 Crores towards the corpus of the Fund.Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited. manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB). ~ 18 ~ . 2003. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Equity Funds and Balance Funds. Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act. sponsored by General Insurance Corporation of India (GIC).

National Insurance Co. Ltd (NIC). 1882. 12) DATA ANALYSIS AND INTERPRETATION ~ 19 ~ . (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act. (NIA). The Oriental Insurance Co.viz. Ltd. Ltd (OIC) and United India Insurance Co. The New India Assurance Co. Ltd.

Franklin Templeton. Trading Preference of the Investors ~ 20 ~ .now stopped Interpretation: . The demand for the mutual funds have increased in the past few years with many Foreign players entering in the Indian market.The major part of the sample taken has invested in the Mutual Funds. 2. Still there are few who are not investing in MF. Fidelity. Investment in mutual funds 9% yes 28% 63% no earlier. DSP Meryll Lynch to name few.1.

They considered it as a safer avenue for investment rather than going to Share Market which is much risky as compared to MF. The smart investor decides it in ~ 21 ~ .More Than Series1 23% 10% 42% 25% Interpretation: . The timing must be right enough to benefit from fluctuations.The presence in the market is because of two reasons. 3. Few still prefer to speculate and wait for NAVs to appreciate. Either the investors prefer to speculate and benefit out of it or it is simply to have it as one more investment avenue just like the fixed deposits.Trading Preference 16% 28% Speculation Investment Both 56% Interpretation: . Main purpose of investment in MF by people was not to speculate.The investment period is very important to increase the profits.More Than 3 months 2 Year 2 Year Investment Period Less Than 3-9 Months 9 months . etc. Average Investment Period of Investors Average Investment Period 50% 23% 10% 0% 42% 25% S1 Less Than 3-9 Months 9 months .

Income Funds. Still some want to be invested for over 2 years. The least responded to the 3-9 months period. Bonds. Some ~ 22 ~ .There are different types of mutual funds available in the market according to the needs of the investors. etc. SIP. the more the Profits´. It was also seen that Equity Fund which offers higher returns gives high risk to the investments also and so is moderately invested in. 4.advance for how much time he would be keeping his money in the market and when he should leave squaring-up. Most of the people would like moderate level of risk in there investments. Balanced Funds. Preference in mutual funds Preference in Mutual Funds Equity ELSS Balanced SIP Income Others Money Market 17% 2% 19% 15% 9% 20% 18% Interpretation: . Many people consider the investment for 9 months ± 2 years as a right option. The highest sought after fund is the Income fund which offers a regular income through investments in the Govt. The people need to take the risk to enjoy the benefits. There are Equity funds. Some investors were willing to take lower risk and this was the reason they gave for investing in the MF.³The higher the Risk. Risk Taking Interpretation: . 5.

7. This provides some exemption in the Tax also. The exit load refrain the person from quitting earlier. closed ended and open ended. Types of Schemes yp S h 44% 56% Closed Ended Funds Open Ended Funds Interpretation: . The more demand was for the Close ended funds with a locking period of around 2-3 years. 6.The schemes offered in the market are of two types.people would like to have Equity Linked Saving Schemes (ELSS). Brand name effectiveness ~ 23 ~ .

From the data collected it is clear that most of the people are not influenced by the company name while investing in a Fund 8. Influence 56% 60% 50% 40% 30% 20% 10% 0% BY N V 23% 21% RE URN Both Interpretation: . ~ 24 ~ .They look at the returns not the current NAV.From the data collected it is clear that most of people look at the returns that the Mutual funds are providing .56% 60% 50% 40% 30% 20% 10% 0% 23% 21% Interpretation: . However there is some class of people who look at these parameters and their percentage is 23% and some consider both factors while investing in funds and their percentage is 21%.

The following were the findings of the study: - ~ 25 ~ . The achievement of 12. Experience in the Market Experience 26% 53% 21% Less T 1-4 Years M re T an 4 Years Year Interpretation: .000 marks by SENSEX was motivational force in this. There are very few who have experience of less than a year. Major part was having vast experience that is of more than 4 years.The experience in the market was the factor which influenced the investments. These are those investors who entered into the market after noticing the rise in the market. These are the ones who have been in the market and saw it rising to conquer the 10.9.000 peak 13) FINDINGS & CONCLUSIONS The study done was a tool to analyze the present setup and to know the investors perception regarding investment in Mutual Funds. The study proved fruitful and many facts came to the light.

investors are not willing to take much risk most of them opted for diversification. most of the people who were not investing held their ignorance responsible for that. The most alluring feature of MFs were. Among others. At the survey conducted upon a no. followed by reduction in risk.y Amongst the survey. that shows a good market area for the mutual funds & proper eagerness of people is present in here to use there savings. It attracted as a safer avenue as compared to share market. some were already mutual fund investors or were interested to invest in future and a few remaining are not interested in it. followed by reduction in risk. 60% are in this favour and only 23% people are there who consider current NAV of the fund before investing into a Mutual Fund 17% were such that choose to move along with the crowd. Young agers were diverted towards direct share trading.e. They lacked knowledge about these schemes of the mutual funds. 14) Recommendations ~ 26 ~ . equity and ELSS are among the few top funds as they suited the above necessities. Experience was the main factor that made them invest in the mutual funds. People tend to gain through long investments rather than through short term. Mutual Funds are more of an investment option than the speculative avenue. except for SBI Mutual Fund. y y y y Most of the people were from GOLAGHAT town itself. Rest of them has multiple sponsors & trusts. most of them opted for diversification. helps in achieving long term goals and helps in achieving long term goals respectively i. which helps in achieving long term goals and helps in achieving long term goals respectively People with less experience were inclined towards investment in the Mutual Funds. the Income funds. of people. a no. Most look at the returns that are being given by a Fund. So. The industry is made up by mostly joint ventures between the various funds houses discussed as above.

So the advisors should try to change their mindsets. not only our Adult generation but also the young generation is also so much excited to enter the share market. [3] Luring the investors by showing him the benefits : . After seeing such a boost in the share market. colleges & other Non Governmental Organisations should take initiative and hold seminars for the general public and support them to enter slowly but surely the market.This will be a new step towards a good trust ± builder of market widening in the area. rebalancing etc. rupee cost averaging.What I recommend firstly there should be [1] Creating an enquiry office for investors of the Fund Market: . But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So these are enough to drive the investors towards mutual funds. Now the actual problem starts as they don¶t having enough knowledge & lacking of experience about the market trends just rush and lose their money as happened in my case & later they blames the company about the loss.Mutual funds offer a lot of benefit which no other single option could offer.Now the most important reason for not availing the services of advisors was spotted was being expensive. these benefits are not offered by other options singlehandedly. But if not possible then they could go for ~ 27 ~ . proper guidance giving office should be there. Before this could happen. and systematic transfer plan. local stock brokers.So. (1) Targeting the perfect crowd for investments: . to make them adequate knowledgeable in the field of investments. [2] Provision for Class Room training for the new investors: .The advisors may try to highlight some of the value added benefits of MFs such as tax benefit. The advisors should target for more and more young investors. Investors could also try to increase the spectrum of services offered. The advisors should try to charge a nominal fee at the beginning. (4) Reduction in fees structure of the investors: . Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.

All the recommendations are for the improvement of general investors¶ knowledge base and for the mutual funds industry in relation to Golaghat. Note: The recommendations which I have listed here above are strictly based on the knowledge of the securities market that I have acquired during preparation of this project.offering more services and benefits at the existing rate. They should also maintain their decency and follow the code of ethics so that the investors could trust upon them. Thus the advisors should try to attract more and more persons and turn them into investors and finally their clients. 15) LIMITATIONS ~ 28 ~ . The recommendations are purely based on the interviews made & questionnaires developed by me.

o Approachability.  The total no. of people investing overall is very small as compared to those who don t. o Time available with investor for interaction. 16) ANNEXURE ± 1 ~ 29 ~ . etc.  The area of sample was decided after taking into consideration the major factors like o Availability of investors.  Some people were not willing to disclose the investment profile  The biasness was being taken care of.There were certain limitations faced during the study.

««««««««..) Stocks: Options: ______ ______ Mutual Funds: _______ Govt. 3 to 9 months. do you expect your annual income to change? Increase Decrease Remain the same. ~ 30 ~ .. now Stooped (3) What is your Experience in the market? Less than a year 1-4 years More than 4 years (4) What is your Trading Preference? Speculation Investment Both (5) What is your Average investment period? Less than 3 months.. (2) Do you invest in Mutual Funds? Yes No Earlier.QUESTIONNAIRE Name: . Occupation: ««««««««« Investment Presently Held: Please list the value of the assets in your total investments portfolio :( in Rs. Securities: _______ Bank Deposits: _______ (1) Over the next 3-5 years.

(6) How much Risk are you willing to take? High Low Moderate (7) What is your preference in Mutual Funds? A... ELSS F. 17) BIBLIOGRAPHY ~ 31 ~ .. C.«««««««««««««««««. Money Market Funds Balanced Funds Others B...9 months to 2 year. E. Income D. SIP (8) Which type of Mutual funds scheme do you prefer? Open Ended Schemes Closed Ended Schemes (9) Do you get influenced by the name of Company promoting Mutual Funds? No 3 (10) Do you get influenced by the returns given by a fund or by the current NAV of a fund? By NAV By Returns Both Yes (11) Any suggestions: «««««««««««««««««««««««....... More than 2 year.«« «««««««««««. G.««««««««««..... Equity.

~ 32 ~ .com www.indiainfoline.moneycontrol.com www.com www.amfiindia. 5.bseindia.Sites visited 1.in www. 6. 8. 7.com www.investopedia.gov. 2.com www. www.theeconomictimes.com www.sebi.mutualfundsindia. 4. 3.com Books & Journals Referred a) Money Outlook¶s Guide to Mutual Funds b) The Economic Times c) Business Standard d) ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI) Workbook. Third Edition.

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