CHAPTER-1

INTRODUCTION

1
 SUMMARY

Growth of Mutual Funds in India

The performance of mutual funds (MFs) in India was initially, not even close to satisfactory
levels. But 24 million shareholders got accustomed to MFs with guaranteed high returns by
the beginning of liberalization era in 1992. The credible past record of the MFs operating up
until that point of time (primarily UTI) became a marketing tool for new entrants. The
investors expected sky high returns while at the same time they were unprepared for absorbing
the risks resulting as a consequence of the post liberalization India Inc.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There was no choice apart from holding the cash or to continue
investing in shares. Moreover, since only closed-end funds were floated in the market then, the
investors had to disinvest by selling at a loss in the secondary market. The 1992 stock market
scandal that led to losses due to disinvestments and the lack of transparent rules in the
fledgling business environment rocked investors' confidences.

The MF industry in India today has come a long way in offering a wide variety of products,
backed by stringent monitoring. The number of funds operating in the country and the
schemes offered by them have increased manifold. The MFs not only serve as a savings
scheme but also offer several investment objectives to prospective investors.

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Exhibit 1. Growth of Mutual Funds in India

Deregulation of the sector, allowing up to 100% FDI has permitted the industry to grow
rapidly (Exhibit 1). However, the regulator has treaded deregulation with caution by
mandating minimum capitalization requirements for risk minimization and ensuring long term
commitment. At the same time, private sector players have rapidly garnered market share,
eating into UTI's share of the pie. The pictorial representation in Exhibit 2 gives us an
overview of the major industry players.

Exhibit 2. Overview of Indian Mutual Funds Industry

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Conscious of the competition from the large number of fund houses and an even larger
number of schemes operative in India, MF houses have strived to differentiate along the
performance dimension. Several performance measures are looked at by the investors to
evaluate the superiority of a fund. More than these measures, retail investors often base their
investment decision on performance ratings (ICRA/CRISIL) as they provide easy guidance to
a superior fund. Therefore, for MF houses it becomes important to identify the influential
ratings and use it in promoting their funds. To prevent the erosion of investor confidence, it is
also important that these ratings provide a certain degree of guidance regarding the fund's
future performance.

4
 Introduction

According to Shakespeare ‘out of this nettle, danger, we pluck this flower, safety'. The economic
development model adopted by India in the post-independence era has been characterized by
mixed economy with the public sector playing a dominating role and the activities in private
industrial sector control measures emaciated from time to time. The industrial policy resolution
was introduced by the government in the 1948, immediately after the independence. This
outlined the approach to industrial growth and development. The industrial policy statement of
1980 focussed attention on the need for promoting competition in the domestic market,
technological upgradation and modernisation. A number of policy and procedural changes were
introduced in 1985 and 1986, aimed at increasing productivity, reducing costs, improving
quality, opening domestic market to increase competition and making free the public sector from
constraints. Overall, in the seventh plan period (1985-86 to 1989-90), Indian industries grew by
an impressive average annual rate of 8.5 percent. The last two decades have seen a phenomenal
expansion in the geographical coverage and financial spread of our financial system. The spread
of the banking system has been a major factor in promoting financial intermediation in the
economy and in the growth of financial savings. With progressive liberalization of economic
policies, there has been a rapid growth of capital market, money market and financial services
industry including merchant banking, leasing and venture capital. Consistent with this evolution
of the financial sector, the mutual fund industry has also come to occupy an important place.

5
 REVIEW OF PREVIOUS RESEARCH STUDIES

1. Financial Management of Private and Public Equity Mutual Funds in India: An Analysis
of Profitability (By H.J Sondhi and PK Jain from The ICFAI Journal of applied
finance,Dec(2013)

This article examines the rates of returns generated by equity mutual funds,vis-à-vis,364
days T-bills and the Bombay Stock Exchange-100(BSE-100) National Index during the
period 2003-2013.Rate of return on 365 days T-bill is the surrogate measure for risk free
return and the BSE-100 National index has been chosen as proxy for market portfolio in
our analysis. Equity mutual funds predominantly invest in company equities and hence
are risky investments while choosing to invest in equity mutual funds, the investors
expect not only risk premium but also better returns than the market portfolio.
The paper has been divided in to four sections.Section1 outlines the scope and
methodology of the study that includes, inter alia, the basis of computation of rate of
return earned by the equity mutual funds,365 days T-bills and BSE-100 National Index,
Section 2 computes and analyzes rates of return.Section3 is concerned with comparisons
of rates of return of private sector company sponsored equity mutual funds and PSU
sponsored equity mutual funds Concluding observations have been recapitulated in
Section 4.

2. Relative Risk Return Analysis

Use the Proprietary Bubble Analysis of the Relative Risk and Return Analysis of Mutual
Funds developed by the ICICI Bank Private Bank Advisory Group.

3. Mutual Fund Investments are subject to Market Risks (Portfolio Organizer, October
2013).

This article deals with the risk of Mutual Fund Investments, Types of risks, and the
common mistakes done by investor while choosing the funds for the purpose of investing,

6
 Investors responsibility in Investing. To identify suitable fund can be done in two step
manner as follows:

• Selecting a fund with investment objectives and preferences, return objectives, time
horizon and risk tolerances that meet the requirements of investor.
• Selecting a fund that has a detailed asset allocation strategy by fund type category to
reflect the investment objectives of the fund.

4. Empirical Investigation on the Investment Managers’ Stock Selection Abilities: The

Indian Experience (By Ramesh Chander from The ICFAI Journal of applied finance,
August 2013.

The study examined the stock selection abilities of investment managers in India across
the fund characteristics as well as the persistence of such performance. It also
investigated performance variability for a sample of 80 investment schemes for the period
starting from January 2009-December 2012.On the whole, the results reported documents
significant statistical evidences for passive stock selection abilities of Indian investment
managers. It points to the consistency of performance across the measurement criteria.
Investment Performance depends on the stock selection and pertains to the successful
micro forecasting for company specific events. It refers to the manager’s ability to
identify under or overvalued securities.

5. Mutual Fund Industry in India: On a growth Trail

(Cover Story, Chartered Financial Analyst, July 2013)

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The mutual fund industry in India has been on a roll as the assets under management
continue to see strong spurt in growth. The assets under management swelled to Rs. 1,
67,978 cr. By May 31, 2013 from Rs.1, 01,565 cr. In January 2009.This apart, the
industry has also seen a spurt in the number of schemes on offer which amount to 460 at
present, catering to varied needs of investors. A booming economy, soaring stock market
and a conducive regulatory environment, amongst a slew of other factors have added to
the growth of the industry. Given the huge opportunity in sub-urban and rural markets,
which lie hitherto untapped and growing income levels in the country, the industry’s
future look bright

6.Managing Mutual Fund Investments in the Era of change

(By Kulbhushan Chandel and OP Verma from the ICFAI Journal of applied finance,
October 2016)

The study is confined to evaluate the performance of mutual funds on the basis of weekly
returns compared with risk free security returns and BSE Index. The present study
includes the five different sector specific schemes. Among these 25 schemes, only sector
specific schemes floated by different institutions have been studied .To evaluate the
performance of funds only three performance measures have been applied i.e. Sharpe
Index, Treynor Index and Jensen’s measure. It is observed that the performance of
sample schemes during the study period is best. However; there are some instances where
poor performance has been reflected. It may lead to regain investor’s confidence

8
 Industry profile

Mutual funds go back to the times of the Egyptians and Phoenicians when they sold shares in
caravans and vessels to spread the risk of these ventures. The foreign and colonial government
Trust of London of 1868 is considered to be the fore-runner of the modern concept of mutual
funds. The USA is, however, considered to be the mecca of modern mutual funds. By the early -
1930s quite a large number of close - ended mutual funds were in operation in the U.S.A. Much
latter in 1954, the committee on finance for the private sector recommended mobilization of
savings of the middle class investors through unit trusts. Finally in July 1964, the concept took
root in India when Unit Trust of India was set up with the twin objective of mobilizing
household savings and investing the funds in the capital market for industrial growth. Household
sector accounted for about 80 percent of nation’s savings and only about one third of such
savings was available to the corporate sector, It was felt that UTI could be an effective vehicle
for channelizing progressively larger shares of household savings to productive investments in
the corporate sector. The process of economic liberalization in the eighties not only brought in
dramatic changes in the environment for Indian industries, Corporate sector and the capital
market but also led to the emergence of demand for newer financial services such as issue
management, corporate counseling, capital restructuring and loan syndication. After two decades
of UTI monopoly, recently some other public sector organizations like LIC (1989), GIC (1991 ),
SBI (1987), Can Bank (1987), Indian Bank (1990), Bank of India (1990), Punjab National Bank
(1990) have been permitted to set up mutual funds. Mr. M.R. Mayya the Executive Director of
Bombay Stock Exchange opined recently that the decade of nineties will belong to mutual funds
because the ordinary investor does not have the time, experience and patience to take
independent investment decisions on his own.

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 THE EVOLUTION

The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in
the year 1963. The primary objective at that time was to attract the small investors and it was
made possible through the collective efforts of the Government of India and the Reserve Bank of
India. The history of mutual fund industry in India can be better understood divided into
following phases:

Phase 1. Establishment and Growth of Unit Trust of India - 1964-87

Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an
act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under
the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was
transferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first
scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of
investors in any single investment scheme over the years. UTI launched more innovative schemes
in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more
schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore
fund) in 1986, Master share (India's first equity diversified scheme) in 1987 and Monthly Income
Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under
management grew ten times to Rs 6700 crores.

Phase II. Entry of Public Sector Funds - 1987-1993

The Indian mutual fund industry witnessed a number of public sector players entering the market
in the year 1987. In November 1987, SBI Mutual Fund from the State Bank of India became the
first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Can bank Mutual

10
Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual
Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased
seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80%
market share.

Mobilisatio
Assets
Amount n as % of
Under
1992-93 Mobilise gross
Managemen
d Domestic
t
Savings
UTI 11,057 38,247 5.2%
Public
1,964 8,757 0.9%
Sector
Total 13,021 47,004 6.1%

Phase III. Emergence of Private Sector Funds - 1993-96

The permission given to private sector funds including foreign fund management companies
(most of them entering through joint ventures with Indian promoters) to enter the mutal fund
industry in 1993, provided a wide range of choice to investors and more competition in the
industry. Private funds introduced innovative products, investment techniques and investor-
servicing technology. By 1994-95, about 11 private sector funds had launched their schemes.

Phase IV. Growth and SEBI Regulation - 1996-2004

The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the
year 1996. The mobilization of funds and the number of players operating in the industry reached
new heights as investors started showing more interest in mutual funds.

Investor’s' interests were safeguarded by SEBI and the Government offered tax benefits to the
investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by

11
SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999
exempted all dividend incomes in the hands of investors from income tax. Various Investor
Awareness Programs were launched during this phase, both by SEBI and AMFI, with an
objective to educate investors and make them informed about the mutual fund industry.

In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a
trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual
fund players on the same level. UTI was re-organized into two parts:

1. The Specified Undertaking, 2. The UTI Mutual Fund

Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes
(like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual
Fund is still the largest player in the industry. In 1999, there was a significant growth in
mobilization of funds from investors and assets under management which is supported by the
following data:

GROSS FUND MOBILISATION (RS. CRORES)

FROM TO UTI PUBLIC PRIVATE TOTAL

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 SECTOR SECTOR

01-April-06 31-March-07 11,679 1,732 7,966 21,377

01-April-07 31-March-08 13,536 4,039 42,173 59,748

01-April-09 31-March-10 12,413 6,192 74,352 92,957

01-April-10 31-March-11 4,643 13,613 1,46,267 1,64,523

01-April-11 31-Jan-12 5,505 22,923 2,20,551 2,48,979

01-Feb.-12 31-March-13 * 7,259* 58,435 65,694

01-April-13 31-March-14 - 68,558 5,21,632 5,90,190

01-April-14 31-March-15 - 1,03,246 7,36,416 8,39,662

ASSETS UNDER MANAGEMENT (RS. CRORES)

PUBLIC PRIVATE TOTA
AS ON UTI
SECTOR SECTOR L
31- 53,32
8,292 6,860 68,472
March-15 0

Phase V. Growth and Consolidation - 2013 Onwards

The industry has also witnessed several mergers and acquisitions recently, examples of which are
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acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and
PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutual fund
players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29
funds as at the end of March 2013. This is a continuing phase of growth of the industry through
consolidation and entry of new international and private sector players.

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

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

AMFI is an apex body of all Asset Management Companies (AMC) which has been registered
with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members.
It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a
professional and healthy market with ethical lines enhancing and maintaining standards. It
follows the principle of both protecting and promoting the interests of mutual funds as well as
their unit holders.

The objectives of Association of Mutual Funds in India

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

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

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

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

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

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

programme of training and certification for all intermediaries and other engaged in the
mutual fund industry.

 AMFI undertakes all India awareness programme for investors in order to promote proper
understanding of the concept and working of mutual funds.

 At last but not the least association of mutual fund of India also disseminate information
on Mutual Fund Industry and undertakes studies and research either directly or in
association with other bodies.

The Sponsors of Association of Mutual Funds in India

Bank Sponsored

 SBI Fund Management Ltd.

 BOB Asset Management Co. Ltd.
 Canbank Investment Management Services Ltd.
 UTI Asset Management Company Pvt. Ltd.

Institutions

 GIC Asset Management Co. Ltd.

 Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector

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Indian:-

 BenchMark Asset Management Co. Pvt. Ltd.

 Cholamandalam Asset Management Co. Ltd.
 Credit Capital Asset Management Co. Ltd.
 Escorts Asset Management Ltd.
 JM Financial Mutual Fund
 Kotak Mahindra Asset Management Co. Ltd.
 Reliance Capital Asset Management Ltd.
 Sahara Asset Management Co. Pvt. Ltd
 Sundaram Asset Management Company Ltd.
 Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

 Birla Sun Life Asset Management Co. Ltd.

 DSP Merrill Lynch Fund Managers Limited
 HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:-

 ABN AMRO Asset Management (I) Ltd.

 Alliance Capital Asset Management (India) Pvt. Ltd.
 Deutsche Asset Management (India) Pvt. Ltd.
 Fidelity Fund Management Private Limited
 Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.
 HSBC Asset Management (India) Private Ltd.
 ING Investment Management (India) Pvt. Ltd.
 Morgan Stanley Investment Management Pvt. Ltd.
 Principal Asset Management Co. Pvt. Ltd.
 Prudential ICICI Asset Management Co. Ltd.

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  Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Association of Mutual Funds in India Publications

AMFI publishes mainly two types of bulletin. One is on the monthly basis and the other is
quarterly. These publications are of great support for the investors to get intimation of the
knowhow of their parked money.

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 MUTUAL FUND COMPANIES IN INDIA

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

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

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

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

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MAJOR MUTUAL FUND COMPANIES IN INDIA

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2014 with ABN AMRO Trustee (India) Pvt.
Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was
incorporated on November 4, 2013. Deutsche Bank A G is the custodian of ABN AMRO Mutual
Fund.

Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial.
Sun Life Financial is a global organisation evolved in 1871 and is being represented in Canada,
the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual
Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs.
10,000 crores.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the
sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB
Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers nemely Housing
Development Finance Corporation Limited and Standard Life Investments Limited.

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HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets
(India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee
Company of HSBC Mutual Fund.

ING Vysya Mutual Fund

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee
Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management
(India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest
life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of
October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed
is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company
Limited incorporated on 22nd of June, 1993.

Sahara Mutual Fund

Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as
the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31,
1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs
25.8 crore.

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State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshor fund,
the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank
sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have
already yielded handsome returns to investors. State Bank of India Mutual Fund has more than
Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata
Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager
is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset
Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on
April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is

presently having more than 1,99,818 investors in its various schemes. KMAMC started its
operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors
with varying risk - return profiles. It was the first company to launch dedicated gilt scheme
investing only in government securities.

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Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI
Mutual Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management
Company presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual
Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and
Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds,
Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The
sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the
Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed
on March 11, 2004. 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.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard
Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard
Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI
on December 20, 1999.

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Franklin Templeton India Mutual Fund

The group, Frnaklin Templeton Investments is a California (USA) based company with a global
AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in
the world. Investors can buy or sell the Mutual Fund through their financial advisor or through
mail or through their website. They have Open end Diversified Equity schemes, Open end Sector
Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income
and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India

Morgan Stanley is a worldwide financial services company and its leading in the market in
securities, investmenty management and credit services. Morgan Stanley Investment
Management (MISM) was established in the year 1975. It provides customized asset
management services and products to governments, corporations, pension funds and non-profit
organisations. Its services are also extended to high net worth individuals and retail investors. In
India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and
its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity
scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its sponsor.
The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on
December 1, 1995 with the name Escorts Asset Management Limited.

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Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital
Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust Company Pvt.
Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office
in Mumbai.

Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12, 2013 with Niche Financial Services Pvt. Ltd. as
the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated
on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company
Pvt. Ltd. is the AMC.

Canbank Mutual Fund

Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor.
Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The
Corporate Office of the AMC is in Mumbai.

Chola Mutual Fund

Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company
Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and
AMC is Cholamandalam AMC Limited.

LIC Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed
Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in

25
accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business
on 29th April 1994. 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, sponsored by General Insurance Corporation of India (GIC), a Government of
India undertaking and the four Public Sector General Insurance Companies, viz. National
Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co.
Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance
with the provisions of the Indian Trusts Act, 1882.

26
 FEATURES OF THIS FINANCIAL INSTRUMENT
(MUTUAL FUND)

Various investment options in Mutual Funds offer

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

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

Dividend Payout Option:

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

Dividend Re-investment Option:

Here the dividend accrued on mutual funds is automatically re-invested in purchasing additional
units in open-ended funds. In most cases mutual funds offer the investor an option of collecting
dividends or re-investing the same.

Retirement Pension Option:

Some schemes are linked with retirement pension. Individuals participate in these options for
themselves, and corporates participate for their employees.

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

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

Systematic Withdrawal Plan (SWP):

As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the
investor the facility to withdraw a pre-determined amount / units from his fund at a pre-
determined interval. The investor's units will be redeemed at the applicable NAV as on that day.

28
 TYPES OF MUTUAL FUNDS

All mutual fund would be either close ended or open ended or either load or no load. These
classifications are general. For example all open – end funds operate the same way; or in case of
a load a deduction is made from investor’s subscription or redemption and only the net amount
used to determine his number of shares purchased or sold.

Funds are generally distinguished from each other by their investment objectives and types of
securities they invest in. The major types of funds available:-

 Money Market Funds

Often considered to be at the lowest ring in the order of risk level . Money Market Funds invest
insecurities of short term nature which generally means securities of less than one year maturity.
The typical short term interest bearing instruments these funds invest in Treasury Bills issued by
governments, Certificate of Deposits issued by banks and Commercial Paper issued by
companies. The major strengths of money market funds are the liquidity and safety of principal
that the investors can normally expect from short term investments.

 Gilt Funds
Gilts are the governments’ securities with medium to long term maturities typically of over one
year (under one year instruments being money market securities). In India, we have now seen the
emergence of government securities or gilt funds that invest in government paper called dated
securities. Since the issuer is the government, these funds have little risk of default and hence
offer better protection of principal. However, investors have to recognize the potential changes in
values of debt securities held by the funds that are caused by changes

29
in the market price of debt securities held by the funds that are caused by changes in the market
price of debt securities quoted on the stock exchanges.

 Debt Funds (Income Funds)

These funds invest in debt instruments issued not only by the governments, but also by private
companies, banks and financial institutions and other entities such as infrastructure companies.
By investing in debt these funds target low risk and stable income for the investor as their key
objectives.

Debt funds are largely considered as income funds as they do not target capital appreciation, look
for high current income and therefore distribute a substantial part of their surplus to investors.
The income funds fall largely in the category of debt funds as they invest primarily in fixed
income generating debt instruments

 Equity Fund
As investors move from debt funds category to equity funds, they face increased risk level.
However there are a large variety of equity funds and all of them is not equally risk prone.
Investor and their advisors need to sort out and select the right equity fund that risk appetite.

Equity funds invest a major portion of their corpus in equity shares issued by the companies,
acquired directly in initial public offerings or through the secondary

market. Equity funds would be exposed to the equity price fluctuations risk at the market level, at
the industry or the sector level and the company specific level .Equity Funds NAV fluctuates
with all these price movement. These price movements are caused by all kinds of external
factors, political and social as well economic. The issuers of equity shares offer no guaranteed
repayments in case of debt instruments. Hence, equity funds are generally considered at the
higher end of the risk spectrum among all funds available in the market. On the other hand,
unlike debt instruments that offer fixed amounts of repayments, equities can appreciate in value
in line with the issuers’ earning potential and so offer the greatest potential for growth in capital.

30
Equity funds adopt different investment strategies resulting in different levels of risk. Hence they
are generally separated into different types in terms of their investment styles. Some of these
equity funds are as under:

 Equity Income Funds

Usually income funds are in the debt funds category, as they target fixed income investments.
However there are equity funds that can be designed to give the investors a high level of current
income along with some steady capital appreciation, investing mainly in shares of companies
with high dividend yields.

As an example an equity income fund would invest largely in power/ utility companies’ shares of
established companies that pay higher dividend and whose

price do not fluctuate as much as the other shares. These equity funds should therefore be less
volatile and less risky than nearly all other equity funds.

 Hybrid Funds
We have seen that in terms of the nature of financial securities held, there are three major mutual
fund types: money market, debt and equity. Many mutual funds mix these different types of
securities in their portfolios. Thus, most funds equity or debt always have some money market
securities in their portfolios as these securities offer the much needed liquidity. However money
market holdings will constitute a lower proportion in the overall portfolios. These are the funds
that seek to hold a relatively balanced holding of debt or equity in their portfolios. Such funds are
termed as “hybrid funds” as they have a dual equity/ bond focus.

31
  Balanced Funds

A balanced fund is the one that has a portfolio comprising debt instruments, convertible
securities, preference and equity shares. Their assets are generally held in more or less equal
proportion between debt / money market securities and equities. By investing in a mix of this
nature, balanced funds seek to attain the objectives of the income, moderate capital appreciation
and preservation of capital and are ideal for investors with a conservative and long term
orientation.

 Growth and Income Funds

Unlike income or growth focused funds, these funds seek to strike a balance between capital
appreciation and income for the investor. Their portfolios are a mix between companies with
good dividends paying records and those with

potential for capital appreciation. These funds would be less risky than the pure growth funds
though more risky than the income funds.

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 MUTUAL FUNDS: STRUCTURE IN INDIA

For anybody to become well aware about mutual funds, it is imperative for him or her to know
the structure of a mutual fund. How does a mutual fund come into being? Who are the important
people in a mutual fund? What are their roles? etc. We will start our understanding by looking at
the mutual fund structure in brief.
Mutual Funds in India follow a 3-tier structure. There is a Sponsor (the First tier), who thinks
of starting a mutual fund. The Sponsor approaches the Securities & Exchange Board of India
(SEBI), which is the market regulator and also the regulator for mutual funds.
Not everyone can start a mutual fund. SEBI checks whether the person is of integrity, whether he
has enough experience in the financial sector, his net worth etc. Once SEBI is convinced, the
sponsor creates a Public Trust (the Second tier) as per the Indian Trusts Act, 1882. Trusts have
no legal identity in India and cannot enter into contracts, hence the Trustees are the people
authorized to act on behalf of the Trust. Contracts are entered into in the name of the Trustees.
Once the Trust is created, it is registered with SEBI after which this trust is known as the
mutual fund.
It is important to understand the difference between the Sponsor and the Trust. They are two
separate entities. Sponsor is not the Trust; i.e. Sponsor is not the Mutual Fund. It is the Trust
which is the Mutual Fund.
The Trustees role is not to manage the money. Their job is only to see, whether the money is
being managed as per stated objectives. Trustees may be seen as the internal regulators of a
mutual fund.

33
STRUCTURE OF INDIAN MUTUAL FUND INDUSTRY

34
 ECONOMIC ENVIRONMENT

While the Indian mutual fund industry has grown in size by about 320% from March, 1993 (Rs.
470 billion) to December, 2013 (Rs. 1505 billion) in terms of AUM, the AUM of the sector
excluding UTI has grown over 8 times from Rs. 152 billion in March 1999 to $ 148 billion as at
March 2008.Though India is a minor player in the global mutual fund industry, its AUM as a
proportion of the global AUM has steadily increased and has doubled over its levels in 1999.
The growth rate of Indian mutual fund industry has been increasing for the last few years. It was
approximately 0.12% in the year of 1999 and it is noticed 0.25% in 2004 in terms of AUM as
percentage of global AUM.

Some facts for the growth of mutual funds in India

•100% growth in the last 6 years.

•Number of foreign AMC’s is in the queue to enter the Indian markets.

•Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual
funds sector is required.

•We have approximately 29 mutual funds which is much less than US having more than 800.
There is a big scope for expansion.

•Mutual fund can penetrate rural like the Indian insurance industry with simple and limited
products.

•SEBI allowing the MF's to launch commodity mutual funds.

•Emphasis on better corporate governance.

•Trying to curb the late trading practices.

•Introduction of Financial Planners who can provide need based advice.

Recent trends in mutual fund industry

35
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 the nationalized
banks and smaller private sector players.

TECHNOLOGICAL ENVIRONMENT

IMPACT OF TECHNOLOGY

•Electronic fund transfer facility.

•Investment and re-purchase facility through internet.

•Added features like accident insurance cover, medi-claim etc.

•Holding the investment in electronic form, doing away with the traditional form of unit
certificates.

•Cheque writing facilities.

•Systematic withdrawal and deposit facility.

ONLINE MUTUAL FUND TRADING

The innovation the industry saw was in the field of distribution to make it more easily accessible
to an ever increasing number of investors across the country.

LEGAL AND POLITICAL ENVIRONMENT

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

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

36
 FUTURE OF MUTUAL FUNDS IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that
by 2011 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000
crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last
5 years we have seen annual growth rate of 9%. According to the current growth rate, by year
20152, mutual fund assets will be double.

37
 CHAPTER- 2
LITERATURE
REVIEW

38
 CONCEPT OF MUTUAL FUNDS

Literature on mutual fund performance evaluation is enormous. A few research studies that have
influenced the preparation of this paper substantially are discussed in this section. Sharpe,
William F. (1966) suggested a measure for the evaluation of portfolio performance.
Drawing on results obtained in the field of portfolio analysis, economist Jack L.
Trenyor has suggested a new predictor of mutual fund performance, one that differs from
virtually all those used previously by incorporating the volatility of a fund's return in
a simple yet meaningfulmanner.Michael C. Jensen (1967) derived a risk-adjusted
measure of portfolio performance (Jensen’s alpha) that estimates how much a manager’s
forecasting ability contributes to fund’s returns. As indicated by Statman (2000), the e SDAR of
a fund portfolio is the excess return of the portfolio over the return of the benchmark index,
where the portfolio is leveraged to have the benchmark index’s standard deviation.

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 realised are shared by its unit holders in proportion to the number of units
owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it
offers an opportunity to invest in a diversified, professionally managed basket of securities at a
relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Fig-2

Mutual Fund Operation Flow Chart

39
“….Mutual funds are popular among all income levels. With a mutual fund, we get a
diversified basket of stocks managed by a professional……”
“…A mutual fund is a company that brings together money from many people and invests it
in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the
fund owns are known as its portfolio. Each investor in the fund owns shares, which represent
a part of these holdings……..”

-The U.S. Securities and Exchange Commission

A mutual fund is a professionally managed type of collective investment Scheme that pools
money from many investors and invests it in stocks, bonds, short-term money market
instruments and other securities. Mutual funds have a fund manager who invests the money on
behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of
all mutual funds totals more than $US 26 trillion. The United States leads with the number of
mutual fund schemes. There are more than 8000 mutual fund schemes in the U.S.A.
Comparatively, India has around 1000 mutual fund schemes, but this number has grown
exponentially in the last few years. The Total Assets under Management in India of all Mutual
funds put together touched a peak of Rs. 5,44,535 crs. at the end of August 2016. There are
various investment avenues available to an investor such as real estate, bank deposits, post office
deposits, shares, debentures, bonds etc. A mutual fund is one more type of investment avenue
available to investors.
There are many reasons why investors prefer mutual funds. Buying shares directly from the
market is one way of investing. But this requires spending time to find out the performance of
the company whose share is being purchased, understanding the future business prospects of the
company, finding out the track record of the promoters and the dividend, bonus issue history of
the company etc. An informed investor needs to do research before investing. However, many
investors find it cumbersome and time consuming to pore over so much of information, get
access to so much of details before investing in the shares. Investors therefore prefer the mutual
fund route.
They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks
and shares after due analysis and research. The investor need not bother with researching

40
hundreds of stocks. It leaves it to the mutual fund and it’s professional fund management team.
Another reason why investors prefer mutual funds is because mutual funds offer diversification.
An investor’s money is invested by the mutual fund in a variety of shares, bonds and other
securities thus diversifying the investors portfolio across different companies and sectors. This
diversification helps in reducing the overall risk of the portfolio. It is also less expensive to
invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low
(Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the
desired diversification. These are some of the reasons why mutual funds have gained in
popularity over the years.
Indians have been traditionally savers and invested money in traditional savings instruments such
as bank deposits. Against this background, if we look at approximately Rs. 5 lakh crores which
Indian Mutual Funds are managing, then it is no mean an achievement. A country traditionally
putting money in safe, risk-free investments like Bank FDs, Post Office and Life Insurance, has
started to invest in stocks, bonds and shares – thanks to the mutual fund industry.
However, there is still a lot to be done. The Rs. 5 Lakh crores stated above, includes investments
by the corporate sector as well. Going by various reports, not more than 5% of household savings
are chanellised into the markets, either directly or through the mutual fund route. Not all parts of
the country are contributing equally into the mutual fund corpus. 8 cities account for over 60% of
the total assets under management in mutual funds. The total number of certified Mutual Funds
Advisors is around 50,000 whereas there are over 20 lakhs life insurance advisors. These are
issues which need to be addressed jointly by all concerned with the mutual fund industry.
Market dynamics are making industry players to look at smaller cities to increase penetration.
Competition is ensuring that costs incurred in managing the funds are kept low and fund houses
are trying to give more value for money by increasing operational efficiencies and cutting
expenses. As of today there are 41 Mutual Funds in the country. Together they offer over 1000
schemes to the investor. Many more mutual funds are expected to enter India in the next few
years.
All these developments will lead to far more participation by the retail investor and ample of job
opportunities for young Indians in the mutual fund industry. Investors need to understand the
nuances of mutual funds, the workings of various schemes before they invest, since their money
is being invested in risky assets like stocks/ bonds (bonds also carry risk).

41
Let us now try and understand the characteristics of mutual funds in India and the different types
of mutual fund schemes available in the market.

WHO MANAGES INVESTOR’S MONEY?

This is the role of the Asset Management Company (the Third tier). Trustees appoint the Asset
Management Company (AMC), to manage investor’s money. The AMC in return charges a fee
for the services provided and this fee is borne by the investors as it is deducted from the money
Collected from them. The AMC’s Board of Directors must have at least 50% of Directors who
are independent directors. The AMC has to be approved by SEBI. The AMC functions under the
supervision of it’s Board of Directors, and also under the direction of the Trustees and SEBI. It is
the AMC, which in the name of the Trust, floats new schemes and manage these schemes by
buying and selling securities. In order to do this the AMC needs to follow all rules and
regulations prescribed by SEBI and as per the Investment Management Agreement it signs with
the Trustees.
If any fund manager, analyst intends to buy/ sell some securities, the permission of the
Compliance Officer is a must. A compliance Officer is one of the most important persons in the
AMC. Whenever the fund intends to launch a new scheme, the AMC has to submit a Draft Offer
Document to SEBI. This draft offer document, after getting SEBI approval becomes the offer
document of the scheme. The Offer Document (OD) is a legal document and investors rely upon
the information provided in the OD for investing in the mutual fund scheme. The Compliance
Officer has to sign the Due Diligence Certificate in the OD. This certificate says that all the
information provided inside the OD is true and correct. This ensures that there is accountability
and somebody is responsible for the OD. In case there is no compliance officer, then senior
executives like CEO, Chairman of the AMC has to sign the due diligence certificate. The
certificate ensures that the AMC takes responsibility of the OD and its contents.

42
WHO IS A CUSTODIAN?

A custodian’s role is safe keeping of physical securities and also keeping a tab on the corporate
actions like rights, bonus and dividends declared by the companies in which the fund has
invested. The Custodian is appointed by the Board of Trustees. The custodian also participates in
a clearing and settlement system through approved depository companies on behalf of mutual
funds, in case of dematerialized securities. In India today, securities (and units of mutual funds)
are no longer held in physical form but mostly in dematerialized form with the Depositories. The
holdings are held in the Depository through Depository Participants (DPs). Only the physical
securities are held by the Custodian. The deliveries and receipt of units of a mutual fund are done
by the custodian or a depository participant at the instruction of the AMC and under the overall
direction and responsibility of the Trustees. Regulations provide that the Sponsor and the
Custodian must be separate entities.

WHAT IS THE ROLE OF THE AMC?

The role of the AMC is to manage investor’s money on a day to day basis. Thus it is imperative
that people with the highest integrity are involved with this activity. The AMC cannot deal with
a single broker beyond a certain limit of transactions. The AMC cannot act as a Trustee for some
other Mutual Fund.
The responsibility of preparing the OD lies with the AMC. Appointments of intermediaries like
independent financial advisors (IFAs), national and regional distributors, banks, etc. is also done
by the AMC. Finally, it is the AMC which is responsible for the acts of its employees and service
providers.
As can be seen, it is the AMC that does all the operations. All activities by the AMC are done
under the name of the Trust, i.e. the mutual fund. The AMC charges a fee for providing its
services. SEBI has prescribed limits for this.This fee is borne by the investor as the fee is
charged to the scheme, in fact, the fee is charged as a percentage of the scheme’s net assets. An
important point to note here is that this fee is included in the overall expenses permitted by SEBI.
There is a maximum limit to the amount that can be charged as expense to the scheme, and this

43
fee has to be within that limit. Thus regulations ensure that beyond a certain limit, investor’s
money is not used for meeting expenses.

WHAT IS AN NFO?

Once the 3 – tier structure is in place, the AMC launches new schemes, under the name of the
Trust, after getting approval from the Trustees and SEBI. The launch of a new scheme is known
as a New Fund Offer (NFO). We see NFOs hitting markets regularly. It is like an invitation to
the investors to put their money into the mutual fund scheme by subscribing to its units. When a
scheme is launched, the distributors talk to potential investors and collect money from them by
way of cheques or demand drafts. Mutual funds cannot accept cash. (Mutual funds units can also
be purchased on-line through a number of intermediaries who offer on-line purchase /
redemption facilities). Before investing, it is expected that the investor reads the Offer Document
(OD) carefully to understand the risks associated with the scheme.

WHAT IS THE ROLE OF A REGISTRAR AND

TRANSFER AGENTS?

Registrars and Transfer Agents (RTAs) perform the important role of maintaining investor
records. All the New Fund Offer (NFO) forms, redemption forms (i.e. when an investor wants to
exit from a scheme, it requests for redemption) go to the RTA’s office where the information is
converted from physical to electronic form. How many units will the investor get, at what price,
what is the applicable NAV, what is the entry load, how much money will he get in case of
redemption, exit loads, folio number, etc. is all taken care of by the RTA.

WHAT IS THE PROCEDURE FOR INVESTING IN AN NFO?

The investor has to fill a form, which is available with the distributor. The investor must read the
Offer Document (OD) before investing in a mutual fund scheme. In case the investor does not

44
read the OD, he must read the Key Information Memorandum (KIM), which is available with the
application form. Investors have the right to ask for the KIM/ OD from the distributor.
Once the form is filled and the cheque is given to the distributor, he forwards both these
documents to the RTA. The RTA after capturing all the information from the application form
into the system, sends the form to a location where all the forms are stored and the cheque is sent
to the bank where the mutual fund has an account. After the cheque is cleared, the RTA then
creates units for the investor. The same process is followed in case an investor intends to
invest in a scheme, whose units are available for subscription on an on-going basis, even after the
NFO period is over.

Fig-3

Fund Constituents

45
WHAT ARE THE INVESTOR’S RIGHTS & OBLIGATIONS?

Some of the Rights and Obligations of investors are :-

Investors are mutual, beneficial and proportional owners of the scheme’s assets. The
investments are held by the trust in fiduciary capacity (The fiduciary duty is a legal relationship
of confidence or trust between two or more parties).
In case of dividend declaration, investors have a right to receive the dividend within 30 days
of declaration.
On redemption request by investors, the AMC must dispatch the redemption proceeds
within 10 working days of the request. In case the AMC fails to do so, it has to pay an interest @
15%. This rate may change from time to time subject to regulations.
In case the investor fails to claim the redemption proceeds immediately, then the applicable
NAV depends upon when the investor claims the redemption proceeds.
Investors can obtain relevant information from the trustees and inspect documents like trust
deed, investment management agreement, annual reports, offer documents, etc. They must
receive audited annual reports within 6 months from the financial year end.
Investors can wind up a scheme or even terminate the AMC if unit holders representing
75% of scheme’s assets pass a resolution to that respect.
Investors have a right to be informed about changes in the fundamental attributes of a
scheme. Fundamental attributes include type of scheme, investment objectives and policies and
terms of issue.

Lastly, investors can approach the investor relations officer for grievance redressal. In case
the investor does not get appropriate solution, he can approach the investor grievance cell of
SEBI.
The investor can also sue the trustees.

46
The offer document is a legal document and it is the investor’s obligation to read the OD
carefully before investing. The OD contains all the material information that the investor would
require to make an informed decision.
It contains the risk factors, dividend policy, investment objective, expenses expected to be
incurred by the proposed scheme, fund manager’s experience, historical performance of other
schemes of the fund and a lot of other vital information.
It is not mandatory for the fund house to distribute the OD with each application form but if the
investor asks for it, the fund house has to give it to the investor. However, an abridged version of
the OD, known as the Key Information Memorandum (KIM) has to be provided with the
application form.

TYPES OF MUTUAL FUNDS SCHEME IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk
tolerance and return expectations etc. The table below gives an overview into the existing types
of schemes in the Industry.

 By Structure
o Open - Ended Schemes
o Close - Ended Schemes
o Interval Schemes

 By Investment Objective
o Growth Schemes
o Income Schemes
o Balanced Schemes
o Money Market Schemes

 Other Schemes

47
 o Tax Saving Schemes
o Special Schemes
 Index Schemes
 Sector Specific Schemes

MUTUAL FUND SCHEMES AND THEIR IMPLICATIONS

By Structure
• Open–ended funds: Investors can buy and sell units of open-ended funds at NAV-
related price every day. Open-end funds do not have a fixed maturity and it is available
for subscription every day of the year. Open-end funds also offer liquidity to investments,
as one can sell units whenever there is a need for money.
• Close-ended funds: These funds have a stipulated maturity period, which may vary from
three to 15 years. They are open for subscription only during a specified period. Investors
have the option of investing in the scheme during initial public offer period or buy or sell
units of the scheme on the stock exchanges. Some close-ended funds repurchase the units
at NAV-related prices periodically to provide an exit route to the investors.
• Interval Funds: These funds combine the features of both open and close-ended funds.
They are open for sale and repurchase at a predetermined period.

By Investment objective

• Growth funds: They normally invest most of their corpus in equities, as their objective
is to provide capital appreciation over the medium-to-long term. Growth schemes are
ideal for investors with risk appetite.
• Income funds: As the name suggests, the aim of these funds is to provide regular and
steady income to investors. They generally invest their corpus in fixed income securities
like bonds, corporate debentures, and government securities. Income funds are ideal for
those looking for capital stability and regular income.
• Balanced funds: The objective of balanced funds is to provide growth along with regular
income. They invest their corpus in both equities and fixed income securities as indicated

48
 in the offer documents. Balanced funds are ideal for those looking for income and
moderate growth.
• Money market funds: These funds strive to provide easy liquidity, preservation of
capital and modest income. MMFs generally invest the corpus in safer short-term
instruments like treasury bills, certificates of deposit, commercial paper and inter-bank
call money. Returns on these schemes hinges on the interest rates prevailing in the
market. MMFs are ideal for corporate and individual investors looking to park funds for
short periods.

Other schemes
• Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer tax
rebates to investors under section 88 of the Income Tax Act. They generally have a lock-
in period of three years. They are ideal for investors looking to exploit tax rebates as well
as growth in investments.

• Special schemes: These schemes invest only in the industries specified in the offer
document. Examples are Infotech funds, FMCG funds, Pharma funds, etc. These schemes
are meant for aggressive and well-informed investors.

• Index funds: Index Funds invest their corpus on the specified index such as BSE Sensex,
NSE index, etc. as mentioned in the offer document. They try to mimic the composition
of the index in their portfolio. Not only the shares, even their weightage is replicated.
Index funds are a passive investment strategy and the fund manager has a limited role to
play here. The NAVs of these funds move along with the index they are trying to mimic
save for a few points here and there. This difference is called tracking error.

• Sector specific schemes: These funds invest only specified sectors like an industry or a
group of industries or various segments like ‘A’ Group shares or initial public offerings.

49
WHAT IS AN ENTRY LOAD?

Investors have to bear expenses for availing of the services (professional management) of the
mutual fund. The first expense that an investor has to incur is by way of Entry Load. This is
charged to meet the selling and distribution expenses of the scheme. A major portion of the Entry
Load is used for paying commissions to the distributor. The distributor (also called a mutual fund
advisor) could be an Independent Financial Advisor, a bank or a large national distributor or a
regional distributor etc. They are the intermediaries who help an investor with choosing the right
scheme, financial planning and investing in schemes from time to time to meet one’s
requirements. Investors must ensure that his Advisor has passed the AMFI – Mutual Fund
(Advisors) module certification.

WHAT IS EXPENSE RATIO?

Among other things that an investor must look at before finalizing a scheme, is that he must
check out the Expense Ratio.

Concept Clarifier – Expense Ratio

Expense Ratio is defined as the ratio of expenses incurred by a scheme to its Average Weekly
Net Assets. It means how much of investors money is going for expenses and how much is
getting invested. This ratio should be as low as possible.
Assume that a scheme has average weekly net assets of Rs 100 cr. and the scheme incurs Rs. 1 cr
as annual expenses, then the expense ratio would be 1/ 100 = 1%. In case this scheme’s expense
ratio is comparable to or better than its peers then this scheme would qualify as a good
investment, based on this parameter only.
If this scheme performs well and its AUM increases to Rs. 150 cr in the next year whereas its
annual expenses increase to Rs. 2 cr, then its expense would be 2/ 150 = 1.33%.

50
WHAT IS PORTFOLIO TURNOVER?

Fund managers keep churning their portfolio depending upon their outlook for the market, sector
or company. This churning can be done very frequently or may be done after sufficient time
gaps. There is no rule which governs this and it is the mandate of the scheme and the fund
managers’ outlook and style that determine the churning. However, what is important to
understand is that a very high churning frequency will lead to higher trading and transaction
costs, which may eat into investor returns. Portfolio Turnover is the ratio which helps us to find
how aggressively the portfolio is being churned.
While churning increases the costs, it does not have any impact on the Expense Ratio, as
transaction costs are not considered while calculating expense ratio. Transaction costs are
included in the buying & selling price of the scrip by way of brokerage, STT, cess, etc. Thus the
portfolio value is computed net of these expenses and hence considering them while calculating
Expense Ratio as well would mean recording them twice – which would be incorrect.

Concept Clarifier – Portfolio Turnover

Portfolio Turnover is defined as ‘Lesser of Assets bought or sold/ Net Assets’. A scheme with
Rs. 100 cr as net assets sells Rs 20 cr of its investments. Thus its Portfolio Turnover Rate would
be 20/ 100 = 20%.
If this scheme’s net assets increase to Rs. 120 cr and the fund manager decides to churn the
entire portfolio by exiting all stocks, then the Portfolio Turnover would be 120/ 120 = 100%.
If the fund manager churns the entire portfolio twice in a single year then we would say that the
Portfolio Turnover rate is 200% or that the portfolio is churned once every 6 months. Liquid
funds have very high portfolio turnover due to less maturity of the paper. Once the paper
matures, the fund manager has to buy another security, thus churning the portfolio.

51
 HOW DOES AUM AFFECT PORTFOLIO TURNOVER?

The scheme’s AUM can also have an impact on the performance of the scheme. In case the
scheme performs well and thereby attracts a lot of money flow, it may happen that the fund
manager may not be able to deploy that extra money successfully as he may not find enough
opportunities. Thus an increased fund size may result in lower returns. If the fund manager tries
to acquire significantly large quantities of a stock, the buying pressure may lead to higher stock
prices, thereby higher average cost for the scheme. Also, if the holdings by the scheme in any
stock are huge, then exit may be difficult as selling from the scheme itself can put pressure on
the prices. Thus the first share may be sold at a higher price and as the supply increases the
prices may fall, and the last share may get sold at a lower price.

A scheme with a very small AUM does not face these problems but has its own set of problems.
The Expense Ratio of such a scheme will be very high as expenses are calculated as a percent of
Average Weekly Net Assets. As the fund size increases, the Expense Ratio tends to go down.

Similarly Portfolio Turnover will be magnified as the denominator (Average Net Assets) is small
and hence the turnover appears to be very high. Thus, the investor must look at AUM for the
previous few months, say last 12 months and compare the same with that of the industry and also
similar schemes. If it is found that the scheme’s performance is in line or better than its peers
consistently, even though the AUM is increasing, then it can be a fair indicator that increased
AUM is not a problem for the fund manager.

52
WHAT ARE EXIT LOADS?

As there are Entry Loads, there exist Exit Loads as well. As Entry Loads increase the cost of
buying, similarly Exit Loads reduce the amount received by the investor. Not all schemes have
an Exit Load, and not all schemes have similar exit loads as well. Some schemes have
Contingent Deferred Sales Charge (CDSC). This is nothing but a modified form of Exit Load,
wherein the investor has to pay different Exit Loads depending upon his investment period.
If the investor exits early, he will have to bear more Exit Load and if he remains invested for a
longer period of time, his Exit Load will reduce. Thus the longer the investor remains invested,
lesser is the Exit Load. After some time the Exit Load reduces to nil; i.e. if the investor exits after
a specified time period, he will not have to bear any Exit Load.

FINANCIAL SERVICES IN INDIA

With market sentiment turning positive due to the formation of a stable newly elected
government, the ripple effect is likely to be felt across all the financial services in India. The
sectors, including banking and insurance, and mutual funds are all beginning to reap the benefits
of a good closure for 2008-09. The Indian economy is estimated to have grown by 6.7 per cent in
2011-12. According to the latest Central Statistical Organisation (CSO) data, financial services
and real estate sector rose by 9.5 per cent in the first quarter of 2011-12.

The government has taken a number of steps in recent months to revive the economy, including
slashing interest rates, lowering factory levies and more than doubling the limit on foreign
investment in corporate bonds. The financial services space is a rapidly growing one in India.
The country received US$ 45 billion in foreign currency remittances from non-resident Indians
in 2008, the highest in the world.

Foreign institutional investors' (FIIs) net investments in Indian equities crossed US$ 8 billion in
calendar year 2012.

53
The mutual fund industry has seen an 8.7 per cent increase in the asset base for the month of
August 2012, against an increase of 2.8 per cent in July 2012, largely due to significant inflows
into debt schemes.

The average assets under management of the mutual fund industry stood at US$ 153.89 billion as
at end August 2009, according to the data released by Association of Mutual Funds in India
(AMFI).

With the capital market showing signs of revival, banks and financial companies that had put
their mutual fund plans on hold are gearing up to enter the segment.

At present, nine players from the financial services sector are in various stages of entering the
space. The list includes Bank of India, IDBI Bank, Axis Bank, Mahindra and Mahindra Financial
Services (M&M Finance), SREI Infrastructure Finance, Bajaj Allianz, Indiabulls Fiancial
Services, L&T Finance and Motilal Oswal.

India has increased its exposure to American debt securities by over three-fold to US$ 38.2
billion till March 2013 as against US$ 11.8 billion in March 2012, according to the data from the
US Treasury Department.

The country's foreign exchange reserves rose by US$ 1.28 billion to touch US$ 277.64 billion for
the week ended September 4, 2009, according to the figures released in the Reserve Bank of
India’s Weekly Statistical Supplement.

The World Bank and India have concluded negotiations for loans worth US$ 3.2 billion for
recapitalising state-run banks and funding for the India Infrastructure Finance Company Ltd.

Stock markets

India’s market capitalisation (m-cap) has touched US$ 1.04 trillion making it the ninth largest in
the world. India’s share in the total world m-cap has risen to 2.79 per cent currently. The Indian
stock market has currently responded to the optimism of reforms by the new stable government
and its continuity in policies.

54
Fund raising by India Inc through initial public offers (IPOs) rose by a whopping 62 per cent
since the beginning of 2008 to May 29, 2008 to US$ 4.2 billion, against US$ 2.6 billion during
the same period in 2013, according to global deal data provider, Dealogic. According to
Goldman Sachs, Indian companies may raise US$ 4 billion-US$ 6 billion from IPOs in the fiscal
year ending March 31, 2014.

Insurance

India is the fifth largest life insurance market in the emerging insurance economies globally and
the segment is growing at a healthy 32–34 per cent annually.

According to a report by research firm RNCOS—'Booming Insurance Market in India (2008–

2011)'—the total life insurance premium in India is projected to grow to US$ 259.72 billion by
2010–11. Life Insurance Corporation (LIC) is bullish on growth and is targetting business in
excess of US$ 59.14 billion by 2011–12.

The government is planning to ease restrictions on foreign investments in insurance, banking and
pensions, and allow foreign direct investment (FDI) of 49 per cent from the present 26 per cent.

The ‘Mallassurance’ delivery channel is first of its kind in India's insurance sector, selling life
and general insurance policies through all Future Group retail outlets across the country. For
Future Generali Insurance, a sizeable chunk of their customers now comes through the
Mallassurance route.

Online sales take place through two major channels through direct sales by the insurers and
through online insurance portals which offer a range of products from various insurers. The most
active insurers online are ICICI Lombard, Bajaj Allianz etc.

Banking services

During 2013-14, State Bank of India (SBI) and associate banks advanced US$ 16.8 billion for
infrastructure projects such as power plants and petroleum refineries. The big-sized credits have
made SBI and group one of the largest project financiers in the country.

55
COMPARISONS OF MUTUAL FUND WITH OTHER DEPOSITS
BANKS V/S MUTUAL FUNDS
Banks v/s Mutual Funds
BANKS MUTUAL FUNDS
Returns Low Better
Administrative High Low
exp.
Risk Low Moderate
Investment Less More
options
Network High Penetration Low put improving
Liquidity At a cost Better
Quality of assets Not Transparent Transparent
Interest calculation Min. bal. between 10th & 30th of every Everyday
month
Guarantee Max. Rs. 1Lakh on deposit None

SHARES V/S MUTUAL FUNDS

SHARES MUTUAL FUNDS
Know-how is needed Superficial know. Is sufficient
High cost involved Low Cost
Time needed one can sleep over Professional
Management

INSURANCE VS MUTUAL FUNDS

56
Both these instruments are designed to serve different purposes and are not comparable. A unit-linked
plan from an insurance company is an insurance policy designed to pay a lump sum on maturity or on
death if earlier. Premium paid under these plans is eligible for tax deduction under Section 88 of the
Income Tax Act. On the other hand, mutual funds are investment avenues to participate in the growth of
financial markets and do not provide any tax deduction (except ELSS and pension funds).

For a unit-linked insurance plan, providing life cover is the most important function; returns are just an
added benefit, which gets magnified, given the tax rebates. Though unit-linked plans offer transparency in
returns in terms of net asset value and flexibility in investment options in debt, equity or mixes of both,
these advantages remain secondary, whereas for a mutual fund, the main objective is to provide returns.

Moreover, unit-linked plans are not as liquid as mutual funds. There is a lock-in of three years. Even if
one redeems after three years, you would be at a loss because of higher initial administrative charges. For
example, the upfront charges for the first two premium amounts are as high as 20-27 per cent. Then there
is an annual management fee of 0.8-1.25 per cent and a flat fee of Rs 15-20 per month. Finally, there is a
deduction for risk cover. This goes towards contribution to the sum assured or the life insurance cover,
which is based on mortality rates as calculated by actuaries. Though mutual funds too have entry and exit
loads (maximum 2 per cent) and expenses (maximum 2.5 per cent), these costs are lower than unit-linked
plans.

IMPORTANCE OF MUTUAL FUND

57
Small investors face a lot of problems in the sharemarket, limited resources, lack of professional
advice, lack of information etc. Mutual funds have come as a much needed help to these
investors. It is a special type of institutional device or an investment vehicle through which the
investors pool their savings which are to be invested under the guidance of a team of experts in
wide variety of portfolio’s of Corporate securities in such a way, so as to minimise risk, while
ensuring safety and steady return on investment.
It forms an important part of the capital market, providing the benefits of a diversified portfolio
and expert fund management to a large number, particularly small investors. Now a days, mutual
fund is gaining its popularity due to the following reasons :

l. With the emphasis on increase in domestic savings and improvement in deployment of

investment through markets, the need and scope for mutual fund operation has increased
tremendously. The basic purpose of reforms in the financial sector was to enhance the generation
of domestic resources by reducing the dependence on outside funds. This calls for a market
based institution which can tap the vast potential of domestic savings and chanalise them for
profitable investments. Mutual funds are not only best suited for the purpose but also capable of
meeting this challenge.

2. An ordinary investor who applies for share in a public issue of any company is not assured of
any firm allotment. But mutual funds who subscribe to the capital issue made by companies get
firm allotment of shares. Mutual fund latter sell these shares in the same market and to the
Promoters of the company at a much higher price. Hence, mutual
fund creates the investors confidence.

3. The phyche of the typical Indian investor has been summed up by Mr. S.A. Dave, Chairman of
UTI, in three words; Yield, Liquidity and Security. The mutual funds, being set up in the public
sector, have given the impression of being as safe a conduit for investment as bank deposits.
Besides, the assured returns promised by them have investors had great appeal for the typical
Indian investor.

58
4. As mutual funds are managed by professionals, they are considered to have a better
knowledge of market behaviours. Besides, they bring a certain competence to their job. They
also maximise gains by proper selection and timing of investment.

5. Another important thing is that the dividends and capital gains are reinvested automatically in
mutual funds and hence are not fritted away. The automatic reinvestment feature of a mutual
fund is a form of forced saving and can make a big difference in the long run.

6. The mutual fund operation provides a reasonable protection to investors. Besides, presently all
Schemes of mutual funds provide tax relief under Section 80 L of the Income Tax Act and in
addition, some schemes provide tax relief under Section 88 of the Income Tax Act lead to the
growth of importance of mutual fund in the minds of the investors.

7. As mutual funds creates awareness among urban and rural middle class people about the
benefits of investment in capital market, through profitable and safe avenues, mutual fund could
be able to make up a large amount of the surplus funds available with these people.

8. The mutual fund attracts foreign capital flow in the country and secure profitable investment
avenues abroad for domestic savings through the opening of off shore funds in various foreign
investors. Lastly another notable thing is that mutual funds are controlled and regulated by S E B
I and hence are considered safe. Due to all these benefits the importance of mutual fund has been
increasing.

WHY INVEST THROUGH A MUTUAL FUND

59
• Affordability: Mutual funds allow you to start with small investments. For example, if
you want to buy a portfolio of blue chips of modest size, you should at least have a few
lakhs of rupees. A mutual fund gives you the same portfolio for meagre investment of Rs
1,000-5,000. A mutual fund can do that because it collects money from many people and
it has a large corpus.

• Professional management: The major advantage of investing in a mutual fund is that

you get a professional money manager for a small fee. You can leave the investment
decisions to him and only have to monitor the performance of the fund at regular
intervals.

• Diversification: Considered the essential tool in risk management, mutual funds makes it
possible for even small investors to diversify their portfolio. A mutual fund can
effectively diversify its portfolio because of the large corpus. However, a small investor
cannot have a well-diversified portfolio because it calls for large investment. For
example, a modest portfolio of 10 blue-chip stocks calls for a few a few thousands.

• Convenience: Mutual funds offer tailor-made solutions like systematic investment plans
and systematic withdrawal plans to investors, which is very convenient to investors.
Investors also do not have to worry about the investment decisions or they do not have to
deal with their brokerage or depository, etc. for buying or selling of securities. Mutual
funds also offer specialized schemes like retirement plan, children’s plan, industry
specific schemes, etc. to suit personal preference of investors. These schemes also help
small investors with asset allocation of their corpus. It also saves a lot of paper work.

• Cost effectiveness: A small investor will find that a mutual fund route is a cost effective
method. AMC fee is normally 2.5% and they also save a lot of transaction costs as they
get concession from brokerages. Also, they get the service of a financial professional for
a very small fee. If they were to seek a financial advisor's help directly, they may end up
pay more. Also, the size of the corpus should be large to get the service of investment
experts, who offer portfolio management.

60
 • Liquidity: You can liquidate your investments anytime you want. Most mutual funds
dispatch checks for redemption proceeds within two or three working days. You also do
not have to pay any penal interest in most cases. However, some schemes charge an exit
load.

• Tax breaks: You do not have to pay any taxes on dividends issued by mutual funds. You
also have the advantage of capital gains taxation. Tax-saving schemes and pension
schemes give you the added advantage of benefits under Section 88. Investments up to Rs
10,000 in them qualify for tax rebate.

• Transparency: Mutual funds offer daily NAVs of schemes, which help you to monitor
your investments on a regular basis. They also send quarterly newsletters, which give
details of the portfolio, performance of schemes against various benchmarks, etc. They
are also well regulated and SEBI monitors their actions closely

SELECTION PARAMETERS

61
• Your objective: The first point to note before investing in a fund is to find out whether
your objective matches with the scheme. It is necessary, as any conflict would directly
affect your prospective returns. For example, a scheme that invests heavily in mid-cap
stocks is not suited for a conservative equity investor. He should be better off in a
scheme, which invests mainly in blue chips. Similarly, you should pick schemes that
meet your specific needs. Examples: pension plans, children’s plans, sector-specific
schemes, etc.

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

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

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

62
 CHAPTER 3
OBJECTIVE, SCOPE AND IMPORTANCE OF THE
STUDY

OBJECTIVE OF THE REPORT

63
 TO ANALYSE THE GROWTH OF MUTUAL FUND INDUSTRY IN INDIA

 To study the different mutual funds of various company for comparison.

 To choose best company for investment among available mutual funds .
 To project mutual fund as the ‘productive avenue for investing activitie

 To make people aware about concept of mutual fund.

 To provide information regarding advantages and demerits of mutual fund.

 To advice where to invest or not to invest.

SCOPE OF THE STUDY

64
1. Professional Management
The investor avails of the services of experienced and skilled professionals who are backed
by a dedicated investment research team which analyses the performance and prospects of
companies and selects suitable investments to achieve the objectives of the scheme.

2. Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and
sectors. This diversification reduces the risk because seldom do all stocks decline at the same
time and in the same proportion. You achieve this diversification through a Mutual Fund
with far less money than you can do on your own.

3. Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as
bad deliveries, delayed payments and unnecessary follow up with brokers and companies.
Mutual Funds save your time and make investing easy and convenient.

4. Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as
they invest in a diversified basket of selected securities.

5. 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, custodial and other fees
translate into lower costs for investors.

6. Liquidity
In open-ended schemes, you can get your money back promptly at net asset value related
prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a
stock exchange at the prevailing market price or avail of the facility of direct repurchase at
NAV related prices which some close-ended and interval schemes offer you periodically.

7. Transparency
You get regular information on the value of your investment in addition to disclosure on the

65
 specific investments made by your scheme, the proportion invested in each class of assets
and the fund manager's investment strategy and outlook.

8. Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend
reinvestment plans, you can systematically invest or withdraw funds according to your needs
and convenience.

9. Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

10. Well Regulated

All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.

In my project the scope is limited to some prominent mutual funds in the mutual fund
industry. I analyzed the funds depending on their schemes like equity, income, balance.
But there is so many other schemes in mutual fund industry like specialized (banking,
infrastructure, pharmacy) funds, index funds etc.

My study is mainly concentrated on equity schemes, the returns, in income schemes the
rating of CRISIL, ICRA and other credit rating agencies.

66
 HYPOTHESIS

“Growth of Mutual Funds in India”

The performance of mutual funds (MFs) in India was initially, not even close to satisfactory
levels. But 24 million shareholders got accustomed to MFs with guaranteed high returns by
the beginning of liberalization era in 1992. The credible past record of the MFs operating up
until that point of time (primarily UTI) became a marketing tool for new entrants. The
investors expected sky high returns while at the same time they were unprepared for absorbing
the risks resulting as a consequence of the post liberalization India Inc.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. Those days, the market regulations did not allow portfolio shifts into
alternative investments. There was no choice apart from holding the cash or to continue
investing in shares. Moreover, since only closed-end funds were floated in the market then, the
investors had to disinvest by selling at a loss in the secondary market. The 1992 stock market
scandal that led to losses due to disinvestments and the lack of transparent rules in the
fledgling business environment rocked investors' confidences.

The MF industry in India today has come a long way in offering a wide variety of products,
backed by stringent monitoring. The number of funds operating in the country and the
schemes offered by them have increased manifold. The MFs not only serve as a savings
scheme but also offer several investment objectives to prospective investors.

67
 LIMITATIONS

• The time constraint was one of the major problems.

• The study is limited to the different schemes available under the mutual funds
selected.

• The study is limited to selected mutual fund schemes.

• The lack of information sources for the analysis part.

68
 SIGNIFICANCE OF THE STUDY

In India, the mutual fund industry started late as compared to other parts of the world, like USA
and Europe. Starting with the Unit Trust in India (UTI) in 1964, there has been entry of other
public sector companies since 1987 and the private companies since 1993, following the
financial crisis.

After the emergence of private players in this field, Mutual Fund Industry in India has seen the
growth rate of 18 percent by the year end 2013 with total assets under management(AUM) of Rs.
6050 billion.

In this report, a comparison has been made between India and other countries on the basis of
‘AUM to GDP ratio’. It can be seen that of India lags behind other countries, i.e., India’s ratio in
2013 was 9% as compared to that of USA, France and Brazil, which was 78%, 77% and 45%
respectively. On comparing ‘AUM to Market capitalization’ of India and USA it has been
observed that India’s ratio is 6& and that of USA’s is 30%; making a gap of around 25% over a
period of time.

Only a small part of an Indian household’s savings get channelized into financial instruments.
For instance, during the year 2013-2014, only 12% of the total savings was in financial
instruments, out of which only 0.4% was invested in the mutual funds. The savings in the form
of mutual funds increased to 3.5% during 2013-14, which was still very low.

It has been observed that majority of savings (approximately 65%) are kept in the form of cash,
with only 35% left for investing in different financial and physical instruments. Further in the
report, a mention has been made about the distribution of mutual funds in India. The sale of
mutual fund in India is through agents, distribution companies, national/regional brokers, banks,
post offices or directly through the Asset Management Companies. They all try to cater to the
needs of different financial and physical instruments.

69
Further in the report, a mention has been made about the distribution of mutual funds in India.
The sale of mutual fund in India is through individual agents, distribution companies,
national/regional brokers, banks, post offices or directly through the Asset Management
Companies. They all try to cater to the needs of different types of investors in India.

Technology has emerged as an important channel of communication to the investors about the
new schemes, disclosure materials (such as prospectuses), clarifications of unit holder’s inquiries
and providing other customer care services. But still there are lots of challenges to be faced in
this area, when it comes to convergence, creating value propositions for the customers and
constantly improvising on the operating efficiency.

Though India’s mutual fund industry has grown in the past few years, still there is a lot of
potential left un-tapped, which if covered can make this industry a booming one. The various
measures which can be taken in this direction are proper channelizing of the resources, new
products development and creating awareness among masses.

70
 CHAPTER- 4
RESEARCH METHODOLOGY

71
INTRODUCTION:-
Mutual Fund is one of the financial instruments in capital market, here the study based on the
empirical investigation on the performance of Mutual Fund schemes, main purpose of the study
is to identify which of the month and year schemes provided highest return and minimize the
risk. Research need because of the capital market is unexpected volatility and some time reaction
was positive and negative. Good and bad news affects price movement, that needs to identify
how much market or bench mark provided return. On years 2008 started with large IPO offering
of Reliance Power, which sucked the liquidity from the market and more companies have lined
up plans to raise money from the markets.
Investors need to identify trade – off return and risk. The year 2009 had unprecedented global
liquidity crisis that led to a share slowdown in growth. The industrial growth index was zero.
Time valuations are attractive for investment decision and strategies for active diversification of
portfolio. March 2009 sensex and Nifty down by 37% & 36 % respectively. Mutual fund
industry has been affected by stock market movements. Mutual fund increased their stock/ scrip
fund holding from 4.1% to 21.2% of the total market capitalization. It had opportunity to
research in this field, with focus on competitive structure of the mutual fund industry. Equity
diversified fund directly affect the stock movements while index, income and balance fund are
less affects.
Assets Management Company design fund for particular investors and sectors like information
technology, fast moving consumer goods, international financial instruments…. So mutual fund
industry is high competitive and fund manager investment style and research team also affecting
risk and return of the funds. An important practical motivation for mutual fund performance
evaluation is to help an investor decide in which funds to invest.
Indian capital market is extremely unanticipated due to political risk, liquidity risk and others
factors affecting it. The Indian equity markets rallied smartly ever-increasing on December 2009,
it gains by the end of the December month. The Sensex and Nifty fell 2.31 % and 2.85%
respectively while mid cap index was down sharply by 10%. 3

72
February 2009 Global equity markets also fared poorly aimed rising recession, the Dow Jones
closing the month down 8.83% and NASDAQ down 6.38%. Domestic mutual funds were also
net sellers of Rs. 864 crs this month. 2009 shows equity market had been high fluctuation during
year and Budget 2009 shows high debt fund fiscal policy.

PROBLEM IDENTIFICATION
“An Empirical Investigation on Performance of Mutual Fund Industry in India.”
As per the past research, no of articles and research paper s should highlight the performance of
mutual fund industry. As we have been seen that research is very essential for this filed because
it’s guide the investors when and how to take decision about which of the financial instrument
select for invest. Capital market is not so easy to predict, so many point need to count the predict
the capital market like fundamental analysis, efficient market, technical analysis and theory of
portfolio management like Markowitz, portfolio optimization, single index model, factor analysis
and Sharpe index model.
Here the researcher took many tools for analysis of performance of mutual fund. Its’ included
Price Earnings Ratio, Book Price Ratio, Return and Net Asset value and Assets Under
Management. Further take to considering the performance index model. Sharpe performance
evaluation model, model represents return on security with risk free return on investment and
then take into considering the variance on security. Jenson model represents same liked sharpe’s
model difference is that under these model beta considering for portfolio measurement. Treynors
performance model indicates alpha from market return. Pricing earnings ratio, price book ratio
researcher follow the model of F – test, test of one way classification of rows and columns. The
model indicates rows variance from the average and columns variance from the average of the
averages.

73
RESEARCH DESIGN:

The research design is the conceptual framework within which researcher

study is conducted and it construct the blue print for collection of data, measurement of data,
statistical tools for analysis and analysis of variance. Research design included an outline of what
the researcher will do from writing the hypothesis and its operational implication to the final
analysis of data. Decisions regarding what, when, how much, by what means concerning an
inquiry or a research study constitute a research design, further more researcher design means
arrangement of conditions for collection and analysis of data in a manner that aims to 11
combine relevance to the research purpose with economy in procedure. Good researcher design
is often features like flexible, appropriate, efficient, and economical. Here hypothesis testing
research is those where the researcher tests the hypothesis of casual relationship between
variables. Researcher ensures the minimization of bias and maximization reliability of the
evidence collected. Coding should be done carefully to avoid error in coding and for this purpose
the reliability of researcher to be believed.
Fund managers of the assets management company also do the researcher to identify the market
and would find period to buy, to hold and to sell the scrip. Fund managers having good
researcher team who continuous analysis of economic market, fundamental analysis, efficient
market and technical analysis of the particular index. Today researcher team should identify the
international financial market and how international financial instruments value could identified.
Financial crisis affect market total risk and total return, its indicate how to diversified the
portfolio, how to totally remove the unsystematic risk.
Researcher decided proper plan to action and define variable. Variable also identified dependent
and independent. Researcher specified research processing and analyzing of the data.

OBJECTIVES OF THE STUDY:

74
The objectives of the study imposed which of the criteria researcher believed to require research.
1) To evaluate the growth of mutual funds
2) To examine the return from selected MF
3) To documents investments on selected assets allocation trends of mutual funds
4) To minimize risk and remove the unsystematic risk
5) To identified systematic risk
6) To identified return variance
7) To identified capital market return with security market return.
8) To evaluate the overall performance of mutual funds

SAMPLING DESIGN:
1. Universe:
The universe of the study consists of the all the assets management companies (AMC), included
selected five start mutual funds under the different objective of the study.
Sampling Unit:
The sample unit included Equity Schemes Diversification Funds, Balanced Schemes, Income
Balanced Schemes, Monthly Income Funds, Long – Term and Short – Term Funds. All the
schemes rating the five starts by Mutual fund Insight. 13

75
Sources List:
Sample should collect on secondary sources. It’s included the mutual fund fact sheet and
magazine the ―Mutual Fund Insight‖. and addition to others journals, magazines, articles, books
and the publisher and unpublished documents of the mutual funds have been consider in the
research.
Sample Period:
Sample study should take from period January 2005 to December 2009.
Sample Size:
Sample size of the study was as below:
§ Equity Diversified Mutual Fund 19th Schemes
Birla Sun Life Equity Fund 3.A
DSPML Equity Fund 3.B
Franklin India Prima Fund 3.C
HDFC Equity Fund 3.D
HDFC Top 200 3.E
Prudential Growth Fund 3.F
Kotak Opportunities Fund 3.G
Magnum Contra Fund 3.H
Magnum Global Fund 3.I
Reliance Growth Fund 3.J
Reliance Vision Fund 3.K
Sundaram Select Midcap Fund 3.L
Tata Pure Equity Fund 3.M 14

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UTI Master Value Fund 3.N
HDFC Taxsaver Fund 3.O
Magnum Tax Gain Fund 3.P
Sahara Tax Gain Fund 3.Q
Principal Personal Tax Saver Fund 3.R
Sundaram Paribas Tax saver Fund 3.S
§ Balance, Index and Income 15th Schemes
Birla Sun Life Midcap Fund 4.A
HDFC Balance Fund 4.B
HDFC Prudence Fund 4.C
Magnum Balanced Fund 4.D
Principal Child Benefits Fund 4.E
UTI CRT’s 81 Fund 4.F
UTI Mahila Unit Fund 4.G
Birla Sun Life Index Fund 4.H
Magnum Index Fund 4.I
Tata Index Sensex A Fund 4.J
UTI Sunder Fund 4.K
Franklin Infotech Fund 4.L
Magnum Pharam Fund 4.M
Magnum FMCG Fund 4.N
Prudential ICICI Fund 4.O 15

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§ Long and Short term Period 10th Schemes
Birla Bond Index Fund 5.A
DSPML Bond Retail Fund 5.B
Kotak Bond Regular Fund 5.C
Templeton India Income Fund 5.D
UTI Bond Advantages Fund 5.E
Birla Monthly Income Plan 5.F
DSPML Saving Plus Moderate Fund 5.G
LIC Monthly Income Plan Fund 5.H
Prudential Monthly Income Plan Fund 5.I
Tata Monthly Income Plan Fund 5.J
Prudential Flexible Plans 5.K
SIGNIFICANE OF THE RESEARCH:
Mutual fund is one of the financial instruments play in capital market, after 2002 high growth of
mutual fund industry in India. Mutual fund provides more benefit to small investors, who cannot
easily play in capital market. Mutual fund pool the money for saving to investment.
Mutual Fund main feature is to analysis before investment how much risk and return. The
confidential level or reliability is the expected percentages of times that the actual value will fall
within the stated precision limits. The significance level indicates the likelihood that the answer
will fall outside that range. 16

78
HYPOTHESIS
The broader hypothesis for the study would be as under.
Ho: There would be no significant difference in performance of various five starts Mutual Fund
in various sectors.
H1: There would be significant difference in performance of various five starts Mutual Fund in
various sectors.
Above Hypothesis would be expected to review with following sub – parameters which are as
under.
a) Level of Risk

b) Level of Return

c) Correlation of Book Value Ratio and Price Earnings Ratio.

d) Assets Under Management

e) Diversification of Assets

f) Net Assets Value.

DATA COLLECTION
This study is completely based on the secondary data. This data is collected from various source
specially from the journal – ― Mutual Funds – Insight ― based on Value Research Magazines ,
and addition to others journals, magazines, articles, books and the publisher and unpublished
documents of the mutual funds have been consider in the research.
FINANCIAL AND STATISTICAL TOOLS FOR MEASUREMENT
Here the researcher has used following techniques to study the performance of Mutual Funds
which are as under: 17

79
Average;-
Average means numbers or names, arrays or references that contained numbers. Other words
average means number representations of numbers.
Standard Deviation;-
The Standard Deviation is a measure of how widely values are dispersed from the average value
(the mean). Standard Deviation assumes that its arguments are a sample of the population. If data
represents the entire population, then compute the Standard is calculating suing the ―n-
1‖method.
Beta; -
A relative measure of the sensitivity return on security is to change in the broad market index
return. Beta measure the systematic risk, it shows how prices of securities respond to the market
forces. Beta is calculated by relating the return on a security with return for the market. Market
will have 1.0, if the beta is greater than 1 than the stock is said to be very riskier than market risk,
beta less than 1 than the stock is said to be not that much riskier as compare to the market risk.
Beta involved market risk, and market risk involved political risk, inflation risk, and interest rate
risk.
R – Square; -
R – Square measures the funds correlations to the market R – Square are between the 0 and 1.
Sharpe– Ratio; -
A Sharpe ratio indicates the risk premium of portfolio relative to the total amount of risk in the
portfolio. Sharpe ratio summarizes. The risk and return of a portfolio in a single measure that
categories the performance of funds on the risk adjusted basis. The larger the Sharpe ratio, the
portfolio is over performing the market and vice – versa. 18

80
Earnings Per Share;-
P / E Ratio are the weighted average price to earnings ratio of all the stocks in fund’s portfolio.
P/E ratios are ratios of share prices to earnings. The P/E ratio of a stock is equal to the price of a
share of the stock divided by per share earnings of the stock. The focus of this article, however,
is the P/E ratio of the overall stock market index rather than P/E ratios of individual stocks. For a
stock index, the P/E ratio is calculated the same way—the average share price of the firms in the
index is divided by the average earnings per share of these firms.3Two types of measurement
issues arise in computing P/E ratios. One of them concerns the time period over which share
prices and earnings are measured. The price in a P/E ratio is usually the current market price of
the stock or index, such as the weekly or monthly average of the daily closing prices.
NAV;-
NAV means the market value of the assets minus the liabilities on the day of valuation. In the
other words, it is the amount which the shareholder will collectively get if the fund is dissolved
or liquidated.
NAV: Assets + Accrued Income – Liabilities – Accrued Liabilities
_____________________________________________
Number of Share or Units Outstanding
Price to Book Ratio; -
A very basic price ratio for a company is price book ratio, sometimes called the market book
ratio. A price book ratio is measured as the market value of a company’s equity issued divided
by its book value of equity.
Price – book ratio are applying because book values represents in principle historical costs. The
stock price is an indicator of current value. So a price book ratio simply measures what the
equity is worth today relative to what it cost. 19

81
PERIOD OF STUDY
The Performance of sampled scheme would be plan review for two and half years.
Tools of Analysis
Sharpe’s Performance
Sharpe’s performance index gives a single value to be used for the performance ranking of
various funds or portfolios. Sharpe Index measures the risk premium of the portfolio relative to
the total amount of the risk in the portfolio. This risk premium is the Different between the
portfolio’s average rate of return and the risk less rate of return. The standard deviation indicates
portfolio the risk. The index assigns the highest values to assets that have best risk-adjusted
average rate of return.
St = Rp – Rf / 6p
Sharpe’s index = portfolio average return – risk free rate of return / S.D. Of the portfolio return
Jenson Measure
The absolute risk adjusted return measure was developed by Michael Jensen and commonly
known as Jensen’s measure. It is mentioned as a measure of absolute performance because a
definite standard is set and against that the performance is measured. The standard is based on
the manager’s predictive ability successful prediction of security price would enable the
manager’s to earn higher returns than the ordinary investor expects to earn in a given level of
risk.
Jenson = Portfolio Average Return – Risk Free Rate of Return/Beta
Treynor’s Performance Index
The Treynor index, an investor should know the concept of characteristic line. The relationship
between a given market return and the fund’s return is given by the characteristic line. The
fund’s performance is measured in relation to the market 20

82
performance. The ideal fund’s return rises at a faster rate than the general market performance
when the market is moving upwards and it’s rate of return declines slowly than the market
return, in the decline. The ideal fund may place its fund in the treasury bills or short sell the stock
during the decline and earn positive return.
Rp = a + B ( Rm – Rf)
Rp = Average return of portfolio
Rf = Risk less rate of return
a = The intercept
B = A measure of systematic risk
Rm = Average market return
ANOVA TEST (ONE WAY CLASSIFICATION)
The F- test was developed by R.A. Fisher. The object of the test is to find out whether the two
independent estimates of population variance differ significantly or whether the two samples be
regards as drawn from the normal populations. F- Test is based on ratio of variance. That
variance represents rows and columns and degree of freedom, it’s also represents how rows
affect and column affect. The ANOVA single factor imply ratio of variance, the average
variation with the average of the average. 21

83
LIMITATION OF THE STUDY
1. The research done only selected a scheme which was related with five rating star and the value
research magazine.

2. The data would not collect to the Assets Management Company data sheet, but collection
from the market or secondary source.

3. The research analysis was based on the past performance of the only selected Equity
Diversified Scheme.

4. The research had been based on the Net Assets Value, that NAV continuous fluctuation

5. The research analysis compares the Net Assets Value and Expense Ratio, but NAV continuous
fluctuation.

6. Fund manager investment style based on capital market situation. It could not possible always
pursue the mentioned objectives.

7. Equity Diversified schemes having different objectives due to sector wise allocation of the
fund.

8. Performance measurement techniques should not give equal weight to each of the schemes.

9. Sharpen Performance evaluation is based on variance, not cover market risk and that risk also
affect fund return.
22

84
 CHAPTER-5
ANALYSIS OF DATA

85
Among the long term debt fund TATA DYNAMIC BOND-REGULAR PLAN has given a
maximum return in the last 3 yrs.
Among the short term debt fund DHFL PRAMERICA BANKING& PSU DEBT-RP has
given a maximum return in the last 3 yrs.

86
Among the long term hybrid fund L&T india prudence fund has given a maximum return
in the last 3 yrs.
Among the short term hybrid fund BIRLA SL MIP II- WEALTH 25 has given maximum
return in the last 3 yrs.

87
Among the money market funds AXIS,HDFC, SUNDARAM has given maximum return
in the last 3 yrs.

88
Among the long term equity funds KOTAK has given maximum return in the last 3 yrs.

Among the short term equity funds DSP-BR MICRO CAP FUND has given maximum
return in the last 3 yrs.

89
Equity-oriented schemes are now 32.1% of the industry’s assets, up from
27.8% in September 2014. The proportionate share of debt oriented schemes
has fallen from 43.6% in September 2014 to 44.8 %in September 2015

90
91
 ANALYSIS OF PERFORMANCE OF MUTUAL FUNDS
PERFORMANCE COMPARISON OF FOLOWING MUTUAL FUNDS HAS BEEN DONE:

 Reliance Growth-G
 Escorts Growth
 ICICI Prudential Growth
 LICMF Growth
 Principal Growth

INDIVIDUAL PERFORMANCE OF EACH FUND

1) RELIANCE GROWTH FUND (GROWTH)

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 Inception: 8-oct- 1995
 Amt of sip- Rs. 1000/- per month
 Total month: 241(till 05-nov-15)
 Total investment value :ars. 241000/-
 Value of investment: Rs 4988980/-
 Annualised returns: 25.52 %
 Annualised returns of index : 12.78

2) .ESCORTS GROWTH FUND

93
3) ICICI PRUDENTIAL GROWTH FUND

4) Principal growth

94
5) LICMF GROWTH

95
CHAPTER- 6

96
 CONCLUSION &
RECOMMENDATION

CONCLUSION

With the structural liberalization policies no doubt Indian economy is likely to return to a high
grow path in few years. Hence mutual fund organizations are needed to upgrade their skills and
technology. Success of mutual fund however would bright depending upon the implementation
of suggestions. We can infer from the analysis that the concept of mutual fund in the place like
Delhi is still in its growing phase.

ö Huge opportunities of mutual fund exist in the Delhi. In short the market in the city is a
growing market.

ö As because many companies exist in the market, competition is cut to throat. And over

ö big competitor in mutual fund sector is HDFC, Reliance and other brokers (who charge
less).

97
ö Mindsets of the investors are not towards mutual funds. They still thinking for fixed rate
of returns like FDs.

ö Many of the respondents have wrong perception about MF, they thinking MF is very
risky investment.

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The value of assets held by individual investors in mutual funds increased from Rs. 4.80 lackh
cr. In September 2014 to Rs. 5.92 lakh cr. In September 2015, an absolute increased of 23.51%.

This was higher than the 21%overall growth in assets for the mutual fund industry.

This was also higher than the growth in institutional assets from Rs. 5.90 lakh cr. to Rs.7.02 lakh
cr., an absolute growth of 19.01%

RECOMMENDATIONS & SUGGESTIONS

99
Tapping the upcoming market - Semi Urban Market as there is a lot of opportunity. Most of the
Mutual Funds are operating in the metros and big cities as per their present branch office
locations. If they have to increase their market size they have to open more distribution centers at
the various urban and semi-urban markets.

To create the awareness about the different products of Mutual Fund and not about the generic
product. Various respondents were not aware of the mutual fund products and the type of mutual
fund schemes and the risk associated with mutual fund products.

To provide some kind of curriculum at the school/college level to create awareness regarding
Mutual Fund.

The shift of preference may change the market leadership in terms of AUM in years to come.
Therefore, the change of strategy and tactics is required to maintain their market position, those
who are holding today and those who want to hold in future.

LACK OF PROPER GUIDANCE MAKE MUTUAL FUND FALL

From the days of the Unit Trust of India till now when private sector funds have assumed a
dominant position, what do you see as the industry's greatest achievements? And what are the
challenges? The achievements are manifold. The performance record of both equity and debt
funds have been excellent. Plus, there is a robust risk-management system in place and the
atmosphere is very vibrant. We have also seen improvements on the service side. The investor
now has the liberty to switch schemes and redemptions are credited to bank accounts in less than
24 hours. There are many other facilities available like monthly fact-sheets, quarterly holding-
statements, online trading, etc. We have done many things, but much more needs to be done.

 The greatest challenge, of course, is to get more retail participation in funds. We have
made tremendous efforts in this direction. About 250 mutual fund outlets, including
branches, franchisees and collection centers, were opened across the country in the last

100
 two years. Today, in metros and non-metros, there are more than 1,000 outlets to
provide services to investors.

 Mutual Funds are still not the most preferred investment vehicle in the country. How do
you think this could change? In our country, people want to buy only sacred assets.
Unless this mindset changes, it will be difficult to get investors interested in mutual
funds. Government securities and post-office investments offer 8 per cent assured
returns, while banks offer 6 per cent. So, competition is very high. Only sustained efforts
by a trained and qualified distributor class can bring success.

BIBLIOGRAPHY

Magazines :

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  Outlook Money
 Mutual Funds review :(SBI investment guide meant for internal circulation)
 Standard charted Mutual Funds Concepts booklet on INDEXATION
 Capital Market
 SBI Presentation booklet (for internal circulation)

 books
 1. C.R.Kothari, Research Methodology. New Delhi, Vikas Publishing house
Pvt.Ltd.2013.
 ICICI and HDFC Brochure

Newspapers :

 Economic Times
Websites :

 www.personalfinance.com
 www.sbimf.com
 www.statebankofindia.com
 www.mutualfundsindia.com
 www.amfiindia.com
 www.indiainfoline.com
 www.navindia.com
 www.equitymaster.com

Questionnaire

1. Name of the customer

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 Mr./Mrs./Ms.

2. Address /Contact

3. Bank you are dealing with

4. What occupation you are in?

5. What is the age group you fall in?

a) 20-30 b) 30-40 c) 40-50 d) 50-60 e) above 60

6. What is the per month income of your family?

a) Less than 10,000 b)10,000-30,000 c)30,000-50,000 d)Above 50,000

7. Type of investment

a) Current b) Savings c) Fixed Deposits d) Shares

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 e) Bonds/Debentures f) Mutual Funds g) Gold/Real Estate

8. Preference

a) Liquidity b) Return c) Tax benefit d) Safety

9. Are you aware of the Mutual Funds?

Yes/No

10. If yes, then please attempt next question else go to ?

11. Have you ever invested in Mutual Funds?

12. If yes, please attempt next five questions else go to ?

i) Which scheme did you last invest in?

ii) What returns did you get out of that scheme?

iii) Since how long you are in that scheme?

iv) Would you like to switch to current NPO?

104
YES/NO

v) Do you have any knowledge of the tax benefits?

vi) From where do you get information about Mutual Funds?

a) Print Mediab) Electronic Media c) Friends/Relatives d)

Broker/Investment e) Bank

If you’ve never invested in the Mutual funds then attempt the next question

i) What has been the reason of your not investing into the mutual funds?

a) Lack of confidence b) Imperfect knowledge c) Finds

Government securities/bonds better d) other reasons

ii) Are you aware of the SEBI/RBI guidelines?

If you are not aware of the Mutual Funds then attempt the next

Are you not interested in generating higher returns?

105