Behaviour of Mutual Fund investors
(As a part of Special Study of Finance)



YEAR: 2010 [SEM III]

There is much difference between saying and doing. Without practical knowledge and experience no one can be perfect. Investing the money where the risk is less has always been risky to decide. The diversification of risk has given the birth to the phenomenon called mutual fund. We are preparing comprehensive report of Mutual Fund industry in India. The basic idea of assignment of this project is to augment our knowledge about the industry in its totality and appreciate the use of an integrated loom. It is concerned the environmental issues and tribulations. This makes us more conscious about Industry and its pose and makes us capable of analyzing Industry¶s position in the competitive market. This may also enhance our logical abilities. There are various aspects, which have been studied in detail in the project and have been added to this project report. The project provides some insights in to the mutual fund industry, its operations and practices etc. the objective behind this study is to know the mechanism of mutual fund industry.

We are very happy to present this report before you. We express our gratitude to the Gujarat University and our college, B.K. school of business management to provide us this opportunity for our practical study. We are very much thankful to our director Dr. Sarla Achutan for providing us the practical knowledge and sources of information about mutual fund and its investor¶s behavior in mutual funds as a part of M.B.A. curriculum. We are also thankful to Prof. Dharmesh Shah (visiting faculty guide, MBA) under whose guidance; we are able to prepare this project report. Without their encouragement, this work would have never been completed. At last but not least, we would like to be thankful to all those who directly or indirectly contributed to the project, which are very useful to us for preparing this report.

We, hereby, declare that the Project titled ³study of mutual fund investment´ is original to best to our knowledge & has not published elsewhere. This is for the purpose of partial fulfillment of SEM-III, MBA-II.

Date: Ahmedabad Jay Gandhi (1919)

Mahesh metkal (1966)

As a part of my study curriculum it is necessary to conduct a grand project. It provides us an opportunity to understand the particular topic in depth and which leads to through to that topic. My topic for the grand project is titled as ³Portfolio management in mutual funds performance´ in which emphasis given to the study of different mutual funds in respect to the risk and return involved in it. Since mutual funds are a relatively recent phenomenon in India, general public or investors don¶t have clarity about this concept. As we have started witnessing the concept of more saving now being entrusted to the funds than to keeping it in banks. This report has divided into two phases. First phase covered investor¶s portfolio part where we have included, Introduction of mutual funds, Indian mutual fund industry, Investment options available with individuals Second phase the preferences of the investors in the mutual funds. Mutual funds are also known as diversification tool which reduces overall risk involved in the investment. The project report has included the various kinds of risk associated with mutual funds.

Summery  Project about ± The mutual funds investor¶s behaviour  Data collection method ± structured (closed) questionnaire  Sample size ± 100 mutual fund investors  Research approaches ± survey method 

Objectives  To know the investor¶s preference level about the mutual funds.  To know investor¶s opinion about the service provided by different companies.  To know how the investors are affected when any new scheme is offered.  Sources Of Data All market research requires a vast reservoir of information there may be different type of information and data some of the information may be published while some are unpublished. Some are complete and reliable and some are may be biased. The research problem or objective decides the nature of the sources of data. The following are the two types of data that are collected for the purpose of project report.  Primary data ± The primary data can be described as the data that have been observed and recorded by researcher for the first time to their opinion or knowledge. These data are organized by the researcher for investigation at hand. The type of data which we use to conduct market survey is primary data.

i.e. survey, research etc.  Secondary data ± The secondary data are statistic no gathered for the immediate use or study at level but for some other purpose. They may be described as the data that have been complied by some other person or any agency. i.e. magazines, internet etc.  Sampling  Sampling unit ± who is to be surveyed? The market research must decide the target population that will be sampled. We have reached to the investors of mutual funds and asked about the mutual fund services.  Sampling size - how many people should be surveyed? Large sample gives more reliable result than small sample. So, we did the survey of 100 samples for getting the primary data.  Sampling procedures ± how should the respondent be chosen? To obtain representative sample a probability sample of the population should be drawn, probability sampling allows a catenation of confidence limits for sampling error.

Index 1. Introduction of mutual funds 1.1. What is a mutual fund? 1.2. Characteristics of mutual funds 1.3. Structure 1.4. Advantages of MF 1.5. Disadvantages of MF 1.6. List of Assets Management Company 2. History of mutual funds industry 2.1. Phases in MF 3. Regulatory body of MF in India 4. Types of mutual funds 5. Calculation of net asset value (NAV) 6. Tax benefits 7. Investors psychology 8. When you buy a mutual fund unit what exactly do you buy? 9. How to invest in mutual funds? 10. How to read fee table? 11. Documents required in investment 12. Knowledge required in investment

13. Investment process of MF 14. Investor·s right 15. Analysis of survey 16. Future trends in mutual funds 17. Suggestions 18. Conclusion 19. Bibliography 20. Annexure 20.1. Questionnaire 20.2. Glossary

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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them (pro rata). 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 portfolio at a relatively low cost. Anybody with an inventible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A Mutual Fund is the ideal investment vehicle for today¶s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A Mutual Fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the Mutual Fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the Mutual Fund in its present form is a 20th century phenomenon. In fact, Mutual Funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of Mutual Funds with different investment objectives. Today, Mutual Funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations.

A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different Mutual Funds schemes and also acts as an asset manager for the funds collected under the schemes.

1.1 What is a Mutual Fund?
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. The small savings of all the investors are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

Mutual fund flow chart

1.2 Characteristics of mutual fund
The traditional, distinguishing characteristics of the mutual fund may include the following: 1. Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market 2. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads). 3. Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund (or to a broker acting for the fund). 4. Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large. 5. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEBI

1.3 Mutual fund structure
The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new regulations is indicated as under.

The sponsor: The Sponsor is the creator of the fund, establishes the mutual fund and gets it registered with SEBI and will typically hold a number of voting shares (perhaps 100) in the fund, but these are not entitled to any distributions or share in the equity. All of the equity belongs to the investors; typically in the form of non-voting "preferred redeemable shares" The voting shares generally control management of the fund, apart from limited major decisions. The sponsor is the Settler of the Trust that holds Trust property on behalf of investors who are the beneficiaries of the Trust. The sponsor is also required to contribute at least 40% of the capital of the asset management company, which is formed for managing the assets of the Trust. The board of trustees: The mutual fund needs to be constituted in the form of a trust and the instrument of the trust should be in the form of a deed registered under the provisions of the Indian Registration Act, 1908. The supervisory role is fulfilled by the Board of Trustees of the Investment Company. The board of trustees manages the MF and the sponsor executes the trust deeds in favour of the trustees. It is the job of

the MF trustees to see that schemes floated and managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines. The asset management company (AMC): The Company that manages a mutual fund is called an AMC. For all practical purposes, it is an organized form of a "money portfolio manager". An AMC may have several mutual fund schemes with similar or varied investment objectives. The AMC hires a professional money manager, who buys and sells securities in line with the fund's stated objective. All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is promoted by a bank). In addition, every mutual fund has a board of directors that represents the unit holders' interests in the mutual fund. This entity that undertakes the designing and marketing of schemes raises money from the public under the schemes and manages the money on behalf of its owners. To segregate the collected funds from this entity's own funds, the corpus is placed in a legal vehicle. It is the character of this legal vehicle that determines the character of the Fund itself. Irrespective of the nature of the structure, what is more fundamental is that in view of the fiduciary role of the AMC or the fund manager towards the public, there is a need for supervision of the activities of the AMC or fund manager by a separate body. The assets of the Trust comprise of properties of the schemes, which are floated by the asset management company with the approval of the Trustees Schemes may have different characteristics - they may be open or closed ended or may have a particular investment focus or portfolio composition. Finally, the safe custody of assets of the Trust is entrusted to one or more custodians. The custodian: Custodian holds the fund's cash and investment assets. Commonly, parts of the fund's assets are held by one or more brokers who execute trades on behalf of the fund Custodial Fees can also be a fixed fee or a percentage of NAV. Where a broker acts as de facto custodian, it usually charges on a transactional basis. The administrator: Administrator acts as registrar and transfer agent, keeps the books and records of the fund, and calculates the NAV. Depending on the complexity of the fund, the administrator's fees could be as little as a few thousand dollars a year or as much as 0.5 to 0.65 % of the NAV per annum. Sometimes the administrator's fees are included within the management fee. In certain situations, the administrator subcontracts a part of the work, particularly the NAV certification, to the investment manager.

1.4 Advantages of mutual funds
Mutual funds make saving and investing simple, accessible, and affordable. The advantages of mutual funds include professional management, diversification, variety, liquidity, affordability, convenience, and ease of recordkeeping²as well as strict government regulation and full disclosure.

Diversification: The best mutual funds design their portfolios so individual investments will react differently to the same economic conditions. For example, economic conditions like a rise in interest rates may cause certain securities in a diversified portfolio to decrease in value. Other securities in the portfolio will respond to the same economic conditions by increasing in value. When a portfolio is balanced in this way, the value of the overall portfolio should gradually increase over time, even if some securities lose value. Professional Management: Most mutual funds pay topflight professionals to manage their investments. These managers decide what securities the fund will buy and sell. Regulatory oversight: Mutual funds are subject to many government regulations that protect investors from fraud. Liquidity: It's easy to get your money out of a mutual fund. Write a check, make a call, and you've got the cash. Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet. Low cost: Mutual fund expenses are often no more than 1.5 percent of your investment. Expenses for Index Funds are less than that, because index funds are not actively managed. Instead, they automatically buy stock in companies that are listed on a specific index Transparency Flexibility Tax benefits






y y y

1.5 Drawbacks of mutual funds

No Guarantees: No investment is risk free. If the entire stock market declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. However, anyone who invests through a mutual fund runs the risk of losing money. Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. Some funds also charge sales commissions or "loads" to compensate brokers, financial consultants, or financial planners. Even if you don't use a broker or other financial adviser, you will pay a sales commission if you buy shares in a Load Fund. Taxes: During a typical year, most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. If your fund makes a profit on its sales, you will pay taxes on the income you receive, even if you reinvest the money you made. Management risk: When you invest in a mutual fund, you depend on the fund's manager to make the right decisions regarding the fund's portfolio. If the manager does not perform as well as you had hoped, you might not make as much money on your investment as you expected. Of course, if you invest in Index Funds, you forego management risk, because these funds do not employ managers.




1.6 Major mutual fund companies
y ABN AMRO Mutual Fund y AIG Global Investment Group Mutual Fund y Benchmark Mutual Fund y Birla Mutual Fund y BOB Mutual Fund y Canara Robeco Mutual Fund y DBS Chola Mutual Fund y Deutsche Mutual Fund y DSP Merrill Lynch Mutual Fund y Escorts Mutual Fund y Fidelity Mutual Fund y Franklin Templeton Investments y HDFC Mutual Fund y HSBC Mutual Fund y ICICI Prudential Mutual Fund y ING Mutual Fund y y y y y y y y y y y y y y y y JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Morgan Stanley Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Sahara Mutual Fund SBI Mutual Fund Standard Chartered Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund UTI Mutual Fund

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 and started its operations in 1964 with the issue of units under the scheme US-64. The history of mutual funds in India can be broadly divided into four distinct phases: First Phase- 1964-87 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 under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under 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 Canbank 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, the 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 all mutual funds, except LTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993

Fourth Phase - since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly., the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. Currently Public Sector Banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like HDFC, Prudential ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual funds.

In India SEBI and RBI act as regulators of mutual fund. y SEBI (Mutual Fund) REGULATIONS,1996 The provisions of this regulations pertaining to AMC are: y All the schemes to be launched by the AMC need to be approved by the trustees and copies of offer document of such schemes are to be filed with SEBI. y The offer document shall contain adequate disclosure to enables the investor to make informed decision. y Advertisement in respect of schemes should be in conformity with the SEBI prescribed advertisement code, and discloses the method and periodicity of the valuation of investment sales and repurchase in addition to the investment objectives. y The listing of close ended schemes is mandatory and every close ended scheme should be listed on a recognized stock exchange within six months from the closure of subscription. However, listing is not mandatory in case the scheme provides for monthly income or caters to the special classes of persons like senior citizen, women, children, and physically handicapped. If the scheme discloses detail of repurchase in the offer document: if the schemes opens for repurchase with in six months of closure of subscription. y Units of a close ended scheme can be opened for sale or redemption at a predetermined fixed interval if the minimum and maximum amount of sale, redemption, and periodicity is disclosed in the offer document. y Units of a close ended scheme can also be converted into an open ended scheme with the consent of majority of the unit holder and disclosure is made in the offer document about the option and period of conversion. y Units of a close ended scheme may be rolled over by passing resolution by a majority of the shareholders. y No scheme other than unit linked schemes can be opened for more than 45 days. y The AMC must specify in the offer document about the minimum subscription and the extent of over subscription, which is intended to be retained. In the case of over subscription, all applicants applying up to 500 units must be given full allotment subjected to over subscription. y The AMC must refund the application money if minimum subscription is not received and also the excess over subscription with in the six weeks of closure of subscription.

y Guaranteed returns can be provided in a scheme if such returns are fully guaranteed by the AMC or sponsor. In such cases, there should be a statement indicating the name of the person, and the manner in which the guarantee is to be made must be stated in the offer document. y A close ended scheme shall be wound up on redemption date, unless it is rolled over, or if 75% of the unit holders of a scheme pass a resolution of winding up of the scheme : if the trustee on happening of any event, requires the scheme to be wound up: or if SEBI, so directed in the interest of investors.


Mutual fund schemes may be classified on the basis of its structure and its investment objective.



1.Open-end Funds 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.

2. Closed-end Funds
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.

3. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.


1. Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. 2. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. 3. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally

when the market falls. These are ideal for investors looking for a combination of income and moderate growth. 4. Money Market Funds The aim of money market funds is 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. 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.

OTHER SCHEMES 1. 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. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds. 2. Special Schemes y Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50 y Sectoral Schemes Sectoral Funds are those that invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings. There are some other types also which are as follow,

Type of Mutual Fund Money market Funds


Scope of Investments

Income oriented, liquidity Treasury bills, certificate and safety for short term of deposit , commercial papers & inter-bank call money market Income oriented Government paper- dated Gilt Funds: securities Debt Funds (or Income Regular Income oriented Debt instruments issued by government and Funds private companies, banks and financial institutions Diversified Debt Funds Regular Income Oriented Debt securities, issued by entities across all industries and the sectors Regular income oriented Debt securities, issued by Focused Debt Funds entities across all industries and the sectors Regular Income Oriented debt instruments that are High Yield Debt Funds considered ³below investment grades´. Growth and income Equity shares of company Equity Funds oriented Invest in less researched Aggressive Growth Growth oriented or speculative shares and Fund adopt speculative investment strategies to attain their objective of higher returns Capital Appreciation Companies whose Growth Funds: earnings are expected to rise at an above average rate Capital Appreciation Invest in companies that Specialty Funds meet only pre-defined criteria

Investments in only one industry or sector of the market Capital Appreciation Invest in equities in one Offshore funds or more foreign countries Invest in shares of Small-Cap Equity Capital Appreciation companies with relatively Funds lower market capitalization Invest only in equities, Diversified Equity Capital Appreciation except for a very small Funds portion in liquid money market securities Growth Invests in shares that Equity Index Funds constitute the index Growth shares that are selling at a Value Funds low price-earnings ratios, low market to book value ratios and are undervalued by other yardsticks Growth and income Invest mainly in shares of Equity Income Fund: companies with high dividends yields Income, Moderate Capital Debt instruments, Balanced Funds: Appreciation And convertible securities, and Preservation Of Capital preference and equity shares Growth and Income Stocks of companies with Growth-and-Income good dividend paying Funds: records and those with potential for capital appreciation Sector Funds

Capital Appreciation

Any meaningful evaluation of performance will necessarily have to measure total return per unit of risk or the ability to earn superior returns for a given risk class. There are various statistical techniques to measure this factor. One of the technique estimates the realized portfolio returns in excess of the risk free return, as a multiple of the factor of the portfolio. The factor of portfolio, in turn, measures the systematic or non-diversifiable risk of the portfolio, the relation to the market index. Mutual funds sell their shares to public and redeem them to current net asset value (NAV) which is calculated as underTotal market value of all MF holdings - All MF liabilities NAV of MF = --------------------------------------------------------------------No. of MF units or shares OR Market value of Scheme's Investments + Receivables + Accrued Income + Other Assets - Accrued Expenses - Payables - Other Liabilities NAV= -----------------------------------------------------------------------------------------No. of Units outstanding under the Scheme The net asset Value of a mutual fund scheme is basically the per unit market value of all the assets of the scheme. To illustrate this better, a simple example will help. Scheme name XYZ Scheme size Rs. 50, 00, 00,000 (Rs. Fifty crores) Face value of units Rs. 10 No. Of Units (Scheme size) 5,00,00,000 Face value of units Investments In shares Market value of shares Rs. 75,00,00,000 (Rs Seventy Five crores) NAV(Market value of Investments / No. of units) = Rs. 75,00,00,000 ----------------------5,00,00,000 = Rs.15 Thus, each unit of Rs. 10 is worth Rs. 15.

The tax benefits for investing in mutual funds are as follows: Twenty percent of the amount invested in specified mutual funds (called equity linked savings schemes or ELSS and loosely referred to as "tax savings schemes") is deductible from the tax payable by the investor in a particular year subject to a maximum of Rs2000 per investor. This benefit is available under section 88 of the I.T. Act. Investment of the entire proceeds obtained from the sale of capital assets for a period of three years or investment of only the profits for a period of 7 years, exempts the asset holder from paying capital gains tax. This benefit is available under section 54EA and 54EB of the I.T. Act, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000.The mutual fund is completely exempt from paying taxes on dividends/interest/capital gains earned by it. While this is a benefit to the fund, it is the indirect benefit of unit holders as well. This benefit is available to the mutual fund under section 10 (23D) of the I.T. Act. A mutual fund has to pay a withholding tax of 10% on the dividends distributed by it under the revised provisions of the I.T. Act putting them on par with corporate. However, if a mutual fund has invested more than 50% of its assets into equity shares, then it is exempt from paying any tax on the dividend distributed by it, for a period of three years, by an overriding provision. This benefit is available under section 115R of the I.T. Act. The investor in a mutual fund is exempt from paying any tax on the dividend received by him from the mutual fund, irrespective of the type of the mutual fund. This benefit is available under section 10(33) of the I.T. Act. The units of mutual funds are treated as capital assets and the investor has to pay capital gains tax on the sale proceeds of mutual fund units sold by him. For investments held for less than one year the tax is equal to 30% of the capital gain. For investments held for more than one year, the tax is equal to 10% of the capital gains. The investor is entitled to indexation benefit while computing capital gains tax. Thus if a typical growth scheme of an income fund shows a rise of 12% in the NAV after one year and the investor sells it, he will pay a 10% tax on the selling price less cost price and indexation component. This reduces the incidence of tax considerably. This concession is available under section 48 of the I.T. Act. The following calculations show this in more detail:

Purchase NAV = Rs 10 Sale NAV = Rs 11.2 Indexation component = 8% Capital gains = 11.2 ± 10(1.08) = 11.2 ± 10.8 = 0.4 Capital gains tax = 0.4*0.1 = 0.04. If an investor buys a fresh unit in the closing days of March and sells it in the first week of April of the following year, he is entitled to indexation benefit for two financial years which close in the two March ending periods. This is termed as double indexation and lowers the tax even further especially for income funds. In the above example, the calculation would be as follows:

Capital gains = 11.2 ± 10(1.08)(1.08) = 11.2 ± 11.7 = -0.5

Thus there would be no capital gains tax.

Due to immense competition the Mutual Fund Industry is emerging to be more customers oriented. All Fund managers are in the pursuit to attract the investor towards his fund, by meeting and excelling his expectations. The Marketing effort of the Funds would be the most successful factor for the funds success. Therefore the marketing and distribution activity of the firm should be designed keeping the customer and his behaviour in mind. The study of the Indian customer and his psychology would enable the fund to devise effective marketing mix. Thus before going on to the µMarketing and Distribution aspect of Mutual Funds we should look at the Indian investor¶s psychology.

The following points can summarize the psyche of the Indian investor  He is risk averse and is more passive than active.  Equity is satisfied with safety and reasonable returns  He is not interested in frequently changing his portfolio  He understands more by emotions and sentiments than quantitative comparison of funds performance with respect to an index.  Mere growth prospect in an uncertain market does not attract him.  He prefers one bird in the hand and two in the bush.  He is happy if assured a rate of reasonable return that he would get on his investments.  The expectation of a typical investor is shown in the triangle, with the highest priority being at the apex.

Investor Expectation Hierarchy

Safety of Funds

Reasonable return


Figure 2.1 Investor Expectation Hierarchy

When you buy a mutual fund unit you are buying a part of the equity or debt portfolio owned by the mutual fund. In other words you are buying a part ownership of various companies and when you buy a debt mutual fund you are buying a part right to title to debt securities. In other words you step into the shoes of owners or lenders indirectly. The value of your part of the assets will fluctuate in line with the value of the individual components of the portfolio on the stock or the bond market. In effect, you are buying a bundle of services as follows:

Investment management ± which means investment advice and execution rolled into one Diversification of investment risk ± buying a larger basket of securities reduces the overall risk of investment Asset custody ± which means registration and physical custody of assets, ensuring corporate actions like payment of dividend and interest, bonus, rights entitlements etc Portfolio information ± which means calculating and disseminating ownership information like NAV, assets owned, etc on a periodic basis Liquidity ± Ability to speedily disinvest assets and obtain disinvestment proceeds The mutual fund exploits economies of scale in research, execution and transaction processing to provide the first three services at low costs. The pooling of money makes it possible to offer the fourth service (since all investors are unlikely to exit at the same time). In addition, one also gets benefits like special tax concessions. What you do not get is a guaranteed way of making money. There is no way that a mutual fund can insulate the investor from the vagaries of the market place and ensure that he always makes money. In addition, one is implicitly taking the risk of bad service quality in any of the four elements above including investment management.

Once the investor decides his investment needs, he may invest in mutual funds in two ways: 1.Investing in existing funds 2.Investing in new fund offers Open-ended schemes would available for investment on any working day from the fund house. Exchange traded funds also would be available for investment. An investor can invest in a fund either directly from a fund house or through an intermediary. Mutual fund intermediary is also known as mutual fund broker. One can invest in many funds through a mutual fund broker. If the investor chooses to invest directly, he has to approach the fund houses himself. New funds are offered by the fund house and will be open for subscription, similar to an initial public offer of a share. But these two are not the same. New funds, after initial period, may be instituted as open ended or close ended funds. Who are eligible to invest in mutual funds? Following persons/entities are eligible to invest in mutual funds in India: y Resident Individuals, including minors and housewives y Hindu Undivided Families y Partnership firms y Companies, Bodies Corporate, Public Sector Undertakings, y Association of Persons or bodies of individuals and societies Registered under the Societies Registration Act, 1860; y Religious and Charitable trusts y Nonresident Indian (NRI)/Person of Indian Origin (PIO) y Foreign Institutional Investors y Provident Funds, Pension Funds, Superannuation Funds

There are two basic types of costs associated with mutual funds. Some funds charge shareholder fees when you purchase or redeem shares of the fund, i.e., sales commissions. In addition, all funds have operating expenses, which represent the costs of running the fund. A mutual fund¶s fees and expenses are required by law to be clearly disclosed to investors in a fee table at the front of the fund¶s prospectus. Mutual funds compete vigorously to keep costs low, since the performance figures reported by the fund ,and the total value of your mutual fund account, are provided after all fees and expenses have been deducted. For example, the fund returns published in newspapers, advertisements, and official fund documents already are ³net´ of any fees the fund charges you. Thus, any time you consider a fund¶s past performance, your decision reflects the impact fees have had on the fund in the past. Particularly important to your assessment of costs is the fund¶s expense ratio. The availability of this figure in all fund prospectuses allows you to easily compare how much more or less one fund costs versus another²an important part of making an informed investment decision.

An investor who wishes to invest in a mutual fund should possess Permanent Account Number (PAN) allotted by Income Tax Department. If an investor wishes to invest Rs.50000/- or more at a time, he should additional complete Know Your Client (KYC) requirements. KYC needs an investor to provide identity and address proofs along with PAN to central record keeping institution and get KYC registration done. In addition to the above requirements, mutual fund investment can be done only if the investor holds a bank account. He can invest through a cheque or demand draft and cash is not acceptable.

Investor must go through the offer document before investing in a mutual fund. Offer document provides an investor with information such as objective of the fund and risk factors. Offer document would also provide information on sponsor, AMC, trustee and custodian. All investments carry several risks. Investing in a mutual fund also is not an exception to this rule. The risk factors that affect the underlying assets of a fund also affect the performance of a mutual fund. An investor must first identify his needs by asking questions such as, y What are his investment needs and objectives? y How much risk he is willing to take? y When his investments should generate cash flows? Once investor answers these questions, he can select the fund or funds that meet his needs. An ideal mix of asset classes should be selected in order to diversify the risks. An intermediary, who is specially trained, can guide the investor in this process. Although mutual funds provide a superior framework for an investor, he should be well aware of the factors such as entry and exit loads, management expense and other costs and fees.

The psychology of the investors while purchasing a Mutual Fund can be better understood by the following:
Attitudes of Others Evaluation of Alternatives Purchase Intention Unanticipated situational Purchase

Figure : Purchase Process

y Evaluation of alternatives: The Indian investor first evaluates various available options. He would check out various financial instruments, if he wants to invest his money, and evaluate each of the options. y Purchase intention: after the evaluation of various alternatives he then decides on a particular product and expresses his intention to purchase it. In executing a purchase intention an investors makes the following 5 sub-decisions: y Brand decision (which firms fund to buy, UTI/TATA Mutual Fund / Reliance) y Vendor decision: decision about the preferred dealer/ which dealer/ agent to go to? y Quantity Decision: how many units of the Mutual Fund should be purchased? y Timing decision: when should these units is purchased. Should I wait for ht NAV to slide down depending upon the market conditions? y Payment method decision: which mode of payment to be used? y Attitudes of others: The Indian investors purchases the product only after in consultation with other fellow friends or colleagues. The attitude and perception about others on the investor purchase intention matter a lot. He can change his purchase intension based on the advice y Unanticipated situational factors: these are factors such as loss of job, some other expenditure that might be more urgent. These factors are unpredictable and the purchase decision of the investors can change at the last moment because of these factors.

Some important rights are mentioned below: y Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme and to the dividend declared. y They are entitled to receive dividend warrants within 42 days of the date of declaration of the dividend.

y They are entitled to receive redemption cheques within 10 working days from the date of redemption . y 75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund. y 75% of the unit holders can pass a resolution to wind-up the scheme

15. ANALYSIS OF SURVEY 1. Do you invest regularly in Mutual Fund?

Yes No

17% 83%


Yes No 83%

2. What is the frequency of investment?

Once a month Once a quarter Once a year Whenever there is enough money

0% 3% 18% 79%

0% 3% 18% Once a month Once a quarter Once a year Whenever there is enough money


3 .What percent of income you invest? o - 5% of income 5% -10% of income More than 10% of income 37% 52% 11%

11% 37% o - 5% of income 5% -10% of income 52% More than 10% of income

4. How you take investment decision?

With the reference of Friends/Relatives With the reference of Chartered Account/Tax consultant By reading prospectus and other important documents With the advice of Agents/portfolio Manager

36% 18% 32% 14%

14% 36%

With the reference of Friends/Relatives With the reference of Chartered cco nt/Tax cons ltant 18% By reading prospect s and other important doc ments With the advice of gents/portfolio Manager

¡ ¡






5. Which criteria you prefer the most for investing (selecting) Mutual Fund Scheme

Return on investment Diversification Liquidity Investment in small sums Transparency Well regulated

100 16 69 22 30 63

100 90 80 70 60 50 40 30 20 10 0

100 69 22 30 63


6. Which kind of mutual funds schemes you prefer the most? Open Ended Close Ended Interval 68% 5% 27%

Growth Income Balance Fund Money Market

20% 33% 19% 28%

Tax Saving Special

77% 23%

7. Are you satisfied with the performance of you Mutual Funds Company and scheme which it has provided?

Yes No

64% 36%


Yes 64% No

8. Due to recent volatility in the stock market do you have confidence in mutual funds?

Yes No

71% 29%

9. Are you aware about various charges and expenses related with Mutual Fund?

Yes No

58% 42%

42% 58% Yes No

H0: there is no significance difference between investment and age H1: there is significance difference between investment and age

fo 4 7 1 7 9 2 19 19 4 7 17 4 100

fe 4.44 6.24 1.32 6.66 9.36 1.98 15.54 21.84 4.62 10.36 14.56 3.08

fo-fe -0.44 0.76 -0.32 0.34 -0.36 0.02 3.46 -2.84 -0.62 -3.36 2.44 0.92

(fo-fe)2 0.1936 0.5776 0.1024 0.1156 0.1296 0.0004 11.9716 8.0656 0.3844 11.2896 5.9536 0.8464

(fo-fe)2 /fe 0.04 0.09 0.08 0.02 0.01 0.00 0.77 0.37 0.08 1.09 0.41 0.27 3.24

Degree of Freedom
(4-1) * (3-1) =6 Looking in the table of chi-square for the degree of 6 and significance level 0.05, we get the value 1.685. as the chi-square calculated is 3.24 value falls in the acceptance region , the null hypothesis will be accepted.

H0: there is no significance difference between kind of scheme investors prefer and age H1: there is significance difference between kind of scheme investors prefer and age

fo 4 7 1 7 9 2 19 19 4 7 17 4 100

fe 8.16 3.24 0.6 12.24 4.86 0.9 28.56 11.34 2.1 19.04 7.56 1.4

fo-fe -4.16 3.76 0.4 -5.24 4.14 1.1 -9.56 7.66 1.9 -12.04 9.44 2.6

(fo-fe) 17.31 14.14 0.16 27.46 17.14 1.21 91.39 58.68 3.61 144.96 89.11 6.76


(fo-fe)2 /fe 2.12 4.36 0.27 2.24 3.53 1.34 3.20 5.17 1.72 7.61 11.79 4.83 48.19

(4-1) * (3-1) =6 Looking in the table of chi-square for the degree of 6 and significance level 0.05, we get the value 1.685. as the chi-square calculated is 48.19 value falls in the rejection region , the null hypothesis will be rejected.

Product: There would be increase in the types of Mutual Fund being offered. New types of fund would be introduces at regular intervals depending upon the market conditions and investors needs. In the short run there would be increase in debt funds. The industry is expecting index fund to be introduced soon. The money market funds are also expected to gear up. The normal investor would demand income funds rather than growth funds. Place: The distribution channel is expected to grow. There would be major emphasis on retail channels. Companies would be looking at the B and C grade towns for business. Post offices, cooperative societies, Internet are supposed to be the new distribution channels coming in as the new channel structures. The distribution channel in the urban areas would see a lot of consolidation. There would be decrease in the number of individual agents selling sole funds. All these agents would come together and would transform into fund supermarkets/ one stop shop of financial services. Promotion: The companies have realized the importance of promotion in the industry. More and more companies are increasing their promotion budgets. The coming years AMCs would increase their spending in Television and print media. Rural advertising is also gaining importance. The Mutual Fund industry would be on the top clients list of the advertising firms. The firms are using advertising medium to create brand awareness and trying to differentiate their products based on the brand and performance of the fund. Size of the cake The Mutual Fund industry is expected to grow. Mutual Funds are expected to emerge as the best investment option in the future. It would surpass the bank deposits. Though the Mutual Fund industry is expected to grow the number of players in the industry are expected to grow at a much faster rate thus ensuring fierce competition in the industry. The cake is expected to grow but the numbers of cake eaters are expected to grow at a much faster rate.

Customer orientation: Investors would have a wide variety to choose form. He would enjoy a high bargaining power. All the companies would increase their customer orientation. All the functions of the companies would revolve round the investors. There would be increased in transparency in the functioning of Mutual Fund. New and detailed guidelines would be issued by SEBI to regulate the market. The market is expected to open up with more inflow of foreign capital in this sector.

1. Mutual Fund Companies should promote mutual fund industry and their products a lot. As we have seen, most of the investment decisions are made depending upon the reference of the friends/relatives, if proper promotion is made, then there would be more chances of success. 2. As investors prefer those schemes which are having the higher return and liquidity. So, emphasis should be placed upon such factors in mutual funds 3. To Build awareness of the funds among the distributors and investors  By making more clear the concepts of Mutual Funds, its objectives, types, Advantages etc. and how they are different from other available  Investors should be made clear that Mutual Funds do not offer assured Returns as FDs and relief Bonds.  The idea of Mutual Funds is limited to mainly urban areas and not to small Towns. So they should be promoted over there. 4. The problem area for MF industry to confront is investor education. Most of the investors are investing without any specific plan in mind. Many believe that the MF managers are financial expert and they will be able to provide solid absolute returns year after year. They fail to differentiate that MF managers seek relative return rather than absolute return

With the market going up and down frequently there are lots of investors who would love to invest in equity shares but don¶t want to do so directly. Some of them are simply not inclined to the amount of research required for it. While others think that it is too risky for lay investors. For such investors mutual funds provide a good alternative. Even in the days of streams of investment avenues, mutual fund had got a very good place and successful in providing opportunities for small and medium income group people to take part in capital market. But, the future of any mutual fund lies in the hands of Asset Management Company (AMC) as they are professionals who take decisions of investing the funds collected. The study ³mutual funds investor¶s behaviour´ was carried out by collecting information from various sources and through the tools like questionnaires and relevant interactions with concerned persons. Our best wishes to the all service provider to carry on their business in best way as much as they can so that investors can get maximum of return. It should be make all the possible ways to provide the best services to their investors.


Books: y The financial system 2nd edition - Bharti pathak y 3.´ Mutual Fund testing program Book´ AMFI Publication. y Association of Mutual Fund in India work book.

Websites: y www.amfi.com y www.indiainfoline.com y www.rbi.org.in y www.valueresearchonline.com y www.myiris.com y www.google.com y www.karvy.com y www.mutualfundresearchonline.com Magazine & Newspaper: y Business World y Business Standard y The Economic Times

Annexure 1 Questionnaire for finding Buyer¶s Behaviour in Mutual Fund Industry
(I am the students of MBA semester III studying in B K School of Management and I am carrying out a survey for our academic project to know the behaviour of consumers regarding Mutual Funds. So please fill this questionnaire. Your identity would not be revealed and information will be used for academic purpose only.) 1. Do you invest regularly in Mutual Fund? A. Yes B. No 2. What is the frequency of investment? A. Once a month B. Once a quarter C. Once a year D. Whenever there is enough money 3 .What percent of income you invest? A. o - 5% of income B. 5% -10% of income C. More than 10% of income 4. How you take investment decision? A. With the reference of Friends/Relatives B. With the reference of Chartered Account/Tax consultant C. By reading prospectus and other important documents D. With the advice of Agents/portfolio Manager 5. Which criteria you prefer the most for investing (selecting) Mutual Fund Scheme (Select any three) A. B. C. D. E. F. Return on investment Diversification Liquidity Investment in small sums Transparency Well regulated

6. Which kind of mutual funds schemes you prefer the most? A. Open-end Funds

B. Closed-end Funds C. Interval Funds

A. B. C. D.

Growth Funds Money Market Funds Income Funds Balanced Funds

A. Tax Saving Schemes B. Special Schemes 7. Are you satisfied with the performance of you Mutual Funds Company and scheme which it has provided? A. Yes B. No 8. Due to recent volatility in the stock market do you have confidence in mutual funds? A. Yes B. No 9. Are you aware about various charges and expenses related with Mutual Fund? A. Yes B. No Name : Age : __________________________________ ----------------------------------------------------

Occupation : __________________________________ Designation : __________________________________ Address : __________________________________ __________________________________ __________________________________ Contact No. : __________________________________

Annexure: 2 Glossaries Advisor The organization employed by a mutual fund to give professional advice on the fund's Investments and to supervise the management of its assets. Asked or Offering Price The price at which a mutual fund's shares can be purchased. The asked or offering price means the current net asset value (NAV) per share plus sales charge, if any. For a no-load fund, the asked price is the same as the NAV. Balanced Fund A mutual fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks and 40% common stocks. Bid or Sell Price The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or redemption price means the current net asset value per share, less any redemption fee or backend load. Bond Fund A mutual fund whose portfolio consists primarily of corporate or Government bonds. These funds generally emphasize income rather than growth. Bond Rating System of evaluating the probability of whether a bond issuer will default. Various firms analyze the financial stability of both corporate and government bond issuers. Ratings range from AAA or Aaa (extremely unlikely to default) to D (currently in default). Bonds rated BBB or below are not considered to be of investment grade. Mutual funds generally restrict their bond purchases to issues of certain quality ratings, which are specified in their prospectuses. Capital Appreciation Fund A mutual fund that seeks maximum capital appreciation through the use of investment techniques involving greater than ordinary risk, such as borrowing money in order to provide leverage, short selling and high portfolio turnover.

Capital Growth A rise in market value of a mutual fund's securities, reflected in its net asset value per share. This is a specific long-term objective of many mutual funds. Closed-End Investment Company An investment company that offers a limited number of shares. They are traded in the securities markets, usually through brokers. Price is determined by supply and demand. Unlike open-end investment companies (mutual funds), closed-end funds do not redeem their shares. Commercial Paper Short-term, unsecured promissory notes with maturities no longer than 270 days. They are issued by corporations, to fund short-term credit needs. Custodian The bank or trust company that maintains a mutual fund's assets, including its portfolio of securities or some record of them. Provides safekeeping of securities but has no role in portfolio management. Daily Dividend Fund This term applies to funds that declare their income dividends on a daily basis and reinvest or distribute monthly. Diversification The policy of spreading investments among a range of different securities to reduce the risks inherent in investing. Rupee-Cost Averaging The technique of investing a fixed sum at regular intervals regardless of stock market movements. This reduces average share costs to the investor, who acquires more shares in periods of lower securities prices and fewer shares in periods of high prices. In this way, investing risk is spread over time. Ex-Dividend Date The date on which a fund's Net Asset Value (NAV) will fall by an amount equal to the dividend and/or capital gains distribution (although market movements may alter

the fund's closing NAV somewhat). Most publications which list closing NAVs place an "X" after a fund¶ name on its ex-dividend date. Expense Ratio The ratio of total expenses to net assets of the fund. Expenses include management fees, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses. Fiscal Year An accounting period consisting of 12 consecutive months. Growth Fund A mutual fund whose primary investment objective is long-term growth of capital. It invests principally in common stocks with significant growth potential. Income Fund A mutual fund that primarily seeks current income rather than growth of capital. It will tend to invest in stocks and bonds that normally pay high dividends and interest. Index Fund A mutual fund that seeks to mirror general stock-market performance by matching its portfolio to a broad-based index, most often the S&P CNX Nifty index. Investment Objective The financial goal (long-term growth, current income, etc.) that an investor or a mutual fund pursues. Load A sales charge or commission assessed by certain mutual funds ("load funds,") to cover their selling costs. The commission is generally stated as a portion of the fund's offering price, usually on a sliding scale from one to 8.5%. Load Fund A mutual fund that levies a sales charge up to 6%, which is included in the offering price of its shares, and is sold by a broker or salesman. A front-end load is the fee

charged when buying into a fund; a back-end load is the fee charged when getting out of a fund. Management Fee The amount a mutual fund pays to its investment adviser for services rendered, including management of the fund's portfolio. In general, this fee ranges from .5% to 1% of the fund's asset value. Money Market Fund A mutual fund that aims to pay money market interest rates. This is accomplished by investing in safe, highly liquid securities, including bank certificates of deposit, commercial paper, government securities and repurchase agreements. Money Market funds make these high interest securities available to the average investor seeking immediate income and high investment safety. Mutual Fund An open-end investment company that buys back or redeems its shares at current net asset value. Most mutual funds continuously offer new shares to investors. Net Asset Value Per Share The current market worth of a mutual fund share. Calculated daily by taking the funds total assets securities, cash and any accrued earnings deducting liabilities, and dividing the remainder by the number of shares outstanding. No-Load Fund A commission-free mutual fund that sells its shares at net asset value, either directly to the public or through an affiliated distributor, without the addition of a sales charge.

Prospectus An official document that each investment company must publish, describing the mutual fund and offering its shares for sale. It contains information required by the Securities and Exchange Commission. Regional Fund

A mutual fund that concentrates its investments within a specific geographic area, usually the fund's local region. The objective is to take advantage of regional growth potential before the national investment community does. Reinvestment Privilege A service that most mutual funds offer whereby a shareholder's income dividends and capital gains distributions are automatically reinvested in additional shares. Sector Fund A fund that operates several specialized industry sector portfolios under one umbrella. Transfers between the various portfolios can usually be executed by telephone at little or no cost. Short Selling The sale of a security which is not owned by the seller. The "short seller" borrows stock for delivery to the buyer, and must eventually purchase the security for return to the lender. Underwriter The organization that acts as the distributor of a mutual fund's shares to broker/dealers and the public. Variable Annuity A type of insurance contract that guarantees future payments to the holder, or annuitant, usually at retirement. The annuity's value varies with that of the underlying portfolio securities, which may include mutual fund shares. All monies held in the annuity accumulate tax-deferred. Voluntary Plan A flexible plan for capital accumulation, involving no specified time frame or total sum to be invested. Yield Income or return received from an investment, usually expressed as a percentage of market price, over a designated period. For a mutual fund, yield is interest or dividend before any gain or loss in the price per share. Zero Coupon Bond

Bond sold at a fraction of its face value. It appreciates gradually, but no periodic interest payments are made. Earnings accumulate until maturity, when the bond is redeemable at full face value. Nonetheless, interest is taxable as it accrues.