Gupta Nutan Nandu

PRAHLADRAI DALMIA LIONS COLLEGE OF COMMERCE AND ECONOMICS
CHAPTER 1
A COMPARATIVE STUDY ON MUTUAL FUNDS RETURNS & BANK SAVINGS IN MUMBAI Page 1
INTRODUCTION
 INVESTMENT
An investment is essentially an asset that is created with the intention of allowing money to
grow. The wealth created can be used for a variety of objectives such as meeting shortages in
income, saving up for retirement, or fulfilling certain specific obligations such as repayment of
loans, payment of tuition fees, or purchase of other assets. Financially speaking, an investment
means an asset that is obtained with the intention of allowing it to appreciate value over time.
Generally, investments fall in any one of three basic categories, as explained below.
 Categories of investments:
a. Ownership Investments:
Ownership investments, as the name clearly suggests, are assets that are purchased and
owned by the investor. Examples of this kind of investment include stocks, real estate
properties, and bullion, among others. Funding a business is also a kind of ownership
investment.
b. Lending Investments
When you invest in lending instruments, you‘re essentially behaving like the bank.
Corporate bonds, government bonds, and even savings accounts are all examples of
lending investments. The money you park in a savings account is basically a loan that you
give the bank. This money is used by the bank to fund the loans it gives out to its
customers.
c. Cash Equivalents
These are investments that are highly liquid and can easily be converted into cash. Money
market instruments, for instance, are excellent examples of cash equivalents. Cash
equivalents generally offer low returns, but correspondingly, the risk associated with them
is also negligible.
Objectives of Investment:
Before you decide to invest your earnings in any one of the many investment plans available in
India, it is essential to understand the reasons behind investing. While the individual objectives of
investment may vary from one investor to another, the overall goals of investing money.
Importance of Investment:
a. To Keep Money Safe

Capital preservation is one of the primary reasons people invest their money. Some
investments help keep hard-earned money safe from being eroded with time. By parking
your funds in these instruments or schemes, you can ensure that you don‘t outlive your
savings. Fixed deposits, government bonds, and even an ordinary savings account can help
keep your money safe. Although the return on investment may be lower here, the objective
of capital preservation is easily met.
b. To Help Money Grow

Another common objective of investing money is to ensure that it grows into a sizable
corpus over time. Capital appreciation is generally a long-term goal that helps people
secure their financial future. To make the money you earn grow into wealth, you need to
consider investment options that offer a significant return on the initial amount invested.
Some of the best investments to achieve growth include real estate, mutual funds,
commodities, and equity. The risk associated with these options may be high, but the return
is also generally significant.
c. To Minimize the Burden of Tax

Aside from capital growth or preservation, investors also have another compelling
incentive to consider certain investments. This motivation comes in the form of tax
benefits offered by the Income Tax Act, 1961. Investing in options such as Unit Linked
Insurance Plans (ULIPs), Public Provident Fund (PPF), and Equity Linked Savings
Schemes (ELSS) can be deducted from your total income. This has the effect of reducing
your taxable income, thereby bringing down your tax liability.
d. To Earn a Steady Stream of Income

Investments can also help you earn a steady source of secondary (or primary) income.
Examples of such investments include fixed deposits that pay out regular interest or stocks
of companies that pay investors dividends consistently. Income-generating investments can
help you pay for your everyday expenses after you‘ve retired. Alternatively, they can also
act as excellent sources of supplementary income during your working years by providing
you with additional money to meet outlays like college expenses or EMIs.
e. To Save up for Retirement

Saving up for retirement is a necessity. It‘s essential to have a retirement fund you can fall
back on in your golden years, because you may not be able to continue working forever.
Additionally, it would be unfair to depend on your children to support you later in life,
particularly if they have children of their own to raise. By investing the money you earn
during your working years in the right investment options, you can allow your funds to grow
enough to sustain you after you‘ve retired.
f. To Meet your Financial Goals

Investing can also help you achieve your short-term and long-term financial goals without
too much stress or trouble. Some investment options, for instance, come with short lock-in
periods and high liquidity. These investments are ideal instruments to park your funds in if
you wish to save up for short-term targets like funding home improvements or creating an
emergency fund.
Types of Investment in India:
The Indian investor has a number of investment options to choose from. Some are traditional
investments that have been used across generations, while some are relatively newer options that
have become popular in recent years. Here are some popular investment options available in India.
Stocks
Stocks, also known as company shares, are probably the most famous investment vehicle in India.
When you buy a company‘s stock, you buy ownership in that company that allows you to
participate in the company‘s growth. Stocks are offered by companies that are publicly listed on
stock exchanges and can be bought by any investor. are ideal long-term investments. But investing
in stocks should not be equated to trading in the stock market, which is a speculative activity.
Mutual Funds
Mutual funds have been around for the past few decades but they have gained popularity only in the
last few years. These are investment vehicles that pool the money of many investors and invest it
in a way to earn optimum returns. Different types of mutual funds invest in different securities.
Equity mutual funds invest primarily in stocks and equity-related instruments, while debt mutual
funds invest in bonds and papers. There are also hybrid mutual funds that invest in equity as well
as debt. Mutual funds are flexible investment vehicles, in which you can begin and stop investing
as per your convenience. Apart from tax-saving mutual funds, you can redeem investments from
mutual funds any time as well.
Bank Savings
The Bank savings consist of Fixed Deposits & Recurring Deposits. Fixed deposits are investment
vehicles that are for a specific, pre-defined time period. They offer complete capital protection as
well as guaranteed returns. They are ideal for conservative investors who stay away from risks.
Fixed deposits are offered by banks and for different time periods. Fixed deposit interest rates
change as per economic conditions and are decided by the banks themselves. Fixed deposits are
typically locked-in investments, but investors are often allowed to avail loans or overdraft
facilities against them. There is also a tax saving variant of fixed deposit, which comes with a
lock-in of 5 years. A recurring deposit (RD) is another fixed tenure investment that allows
investors to put in a specific amount every month for a pre- defined period of time. are offered by
banks and post offices. The interest rates are defined by the institution offering it. An RD allows
the investor to invest a small amount every month to build a corpus over a defined time period.
RDs offer capital protection as well as guaranteed returns.
Public Provident Fund
The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a
lock- in period of 15 years. Investments made in PPF can be used to earn a tax break. The PPF rate
is decided by the Government of India every quarter. The corpus withdrawn at the end of the 15-
year period is completely tax-free in the hands of the investor. PPF also allows loans and partial
withdrawals after certain conditions have been met.
Public Provident Fund
The Public Provident Fund (PPF) is a long-term tax-saving investment vehicle that comes with a
lock- in period of 15 years. Investments made in PPF can be used to earn a tax break. The PPF rate
is decided by the Government of India every quarter. The corpus withdrawn at the end of the 15-
year period is completely tax-free in the hands of the investor. PPF also allows loans and partial
withdrawals after certain conditions have been met.
Employee Provident Fund
The Employee Provident Fund (EPF) is another retirement-oriented investment vehicle that earns
a tax break under Section 80C. EPF deductions are typically a part of an earner‘s monthly salary
and the same amount is matched by the employer as well. Upon maturity, the withdrawn corpus
from EPF is also entirely tax-free. EPF rates are also decided by the Government of India
everyquarter.
National Pension System
The National Pension System (NPS) is a relatively new tax-saving investment option. Investors in
the NPS stay locked-in till retirement and can earn higher returns than PPF or EPF since the NPS
offers plan options that invest in equities as well. The maturity corpus from the NPS is not
entirely tax-free and a part of it has to be used to purchase an annuity that will give the investor a
regular pension.
 INTRODUCTION TO FINANCIAL SYSTEM
Every country's financial system consists of financial markets, financial intermediaries, financial
instruments, or financial instruments. Finance is the science of money management. Finance
represents resources as funds needed for specific activities.
When reference is made to the financial needs of an organization, the financing is also called
"funds" or "capital". "System" in the term "financial system" means a complex or closely related
group of institutions, agents, practices, markets, transactions, claims and obligations in the
economy.
There are people with territories, people, and surplus funds. The financial system or banking sector
acts as a facilitator to facilitate surplus-to-deficit flows. The financial system is a combination of
multiple institutions, markets, regulations, laws, practices, fund managers, analysts, operations,
claims and debts. The Indian financial system consists of organized sector and unorganized sector.
The organized sector is structured and largely falls under the regulation and control of governing
bodies, whereas unorganized sector is more of unstructured and has the freeways in terms of
regulations and controlling power. The stability of financial markets has an impact on the
functioning of the economy and thus the financial system plays a vital role in the economic
prosperity.
 CONCEPT OF MUTUAL FUNDS
As you may know, mutual funds are very popular in the past 26 years. It was another obscure
financial product that became part of our daily lives. In the United States, more than half of eight
million individuals or households invest in mutual funds. In other words, in the United States alone,
it is invested in trillions of dollars in mutual funds. After this, it is all common sense that investing
in a mutual fund is better than simply saving money but leaving it in a savings account. However,
most people are about to finish understanding of funds. It cannot help people in mutual fund sales to
speak strange words separated by terminology that many investors do not understand.
The investment trust industry in India was led by the government of India, and in 1964 the unit
trust of India was established. In 1993, SEBI regulations were replaced by the comprehensively
revised Mutual Fund Regulations in 1996. It has been 36 years for mutual funds to exist in this
country at the end of the millennium. The ride for the last 36 years was not smooth. The opinions of
investors are still divided. Some are for mutual funds and others are against mutual funds. UTI
began its activity in July 1964. The impulse to build formal systems comes from a desire to
strengthen the tendency to save and invest in low and intermediate groups. UTI was born in an era
characterized by the large political and economic turmoil that set the financial markets back.
Entrepreneurs were very reluctant to enter the capital market.
 Meaning of Mutual Fund

Mutual funds are a type of investment investors use to raise money so that each investor can
participate in a portfolio of securities. Individual investors do not actually own each security.
He invests in mutual funds. The main advantage of mutual funds is that they provide a way for
investors to achieve investment diversification without having to invest a lot of money. The
first mutual fund was the Massachusetts Trust Fund, which was introduced in 1924. At the
end of the first year, the fund had 250 investors and $ 63,600 in assets. By the end of 1995, the
fund had reached $ 1.8 billion with 73,500 investors. There are now more than 7,000 mutual
funds to choose from. You may wonder why you should choose mutual funds. funds have two
big advantages overpaying stocks individually.
Decentralization is important to reduce risk. By owning several companies' shares, the value of
the fund shares will not be compromised even if the performance of individual companies is
low. The choice of securities to buy, cash and securities distribution, and when to buy are all
made by the fund manager or management. Fund managers have the training, time and
resources to make the best investment decisions based on information. This fund is also part of
a fund where investors can switch funds at no additional cost. Most mutual funds can check
the amount set on a regular basis and automatically transfer funds on a regular basis once a
month, including the privilege of receiving checks. This type of investment is called the dollar
cost average, which is the same as the monthly average for people who are investing in
regularly set dollar amounts. This type of investment is the average of the dollar cost.
What Is an Asset Management Company (AMC)?
An asset management company (AMC) is a firm that invests pooled funds from clients, putting
the capital to work through different investments including stocks, bonds, real estate, master
limited partnerships, and more. Along with high-net-worth individual portfolios, AMCs
manage hedge funds and pension plans, and—to better serve smaller investors—create pooled
structures such as mutual funds, index funds, or exchange-traded funds, which they can
manage in a single centralized portfolio.
Asset management companies are colloquially referred to as money managers or money

management firms. Those that offer public mutual funds or exchange-traded funds (ETFs) are
also known as investment companies or mutual fund companies.
 HISTORY OF MUTUAL FUNDS IN INDIA
First Stage 1964-1987 (Growth of UTI)

The India Trust Unit (UTI) was established in 1963 under the National Assembly. It was
founded by the Reserve Bank of India and is managed and controlled by the Reserve Bank of
India. In 1978, UTI was separated from RBI and the Indian Industrial Development Bank
(IDBI) replaced the administration's regulations, not the RBI. The first plan launched by UTI
was the 1964 unit system, and as of the end of 1988, UTI manages 6,700 core assets.
Stage 2 1987-1993 (Entry of Public Sector Funds)

Invested in non-UTI public investment funds established by General Banking and Life
Insurance (LIC) in India in 1987 and General Insurance Corporation (GIC) in India. The SEBI
Mutual Fund was the first non-UTI mutual fund established in June 1987. The SEBI Mutual
Fund is the first non- UTI mutual fund established in June 1987, with the Canbank co-fund
(December 87), Punjab Punjab Bank (August 1989), India Cooperative Fund, 90 days). GIC
established a joint venture in December 1990 and LIC founded a joint venture in June 1989. By
the end of 1993, the mutual fund sector managed assets of Rs. 47005.
Stage 3 of 1993-2003 (Emergence of Private Funds)

With the launch of the private fund in 1993, a new era has opened in the Indian investment
fund industry, allowing investors in India to choose from a broad range of funding products. In
1993, the first rule of mutual funds was established, and all mutual funds were registered and
managed. During the year 1993-94, five private sector fund houses launched their schemes
followed by six others in 1994-95. Kuthary Pioneer (now merged with Franklin Templeton) is
the first private investment fund registered in July 1993.
Stage 4-From Feb 2003

In February 2003, UTI was divided into two independent agencies with the unit trust that
cancelled Indian law in 1963. One of them, as of the end of January 2003, is the unit assets of
the Indian Rupee unit managed at 29,835 rupees, especially the US 64 plan, guaranteed income
and other specific planned assets. The management of the Indian government unit trust and the
specific business are under the framework of the Indian government. It is not included in the
scope of mutual fund rules.
 REGULATORY FRAMEWORK IN INDIA
 INDIAN SECURITIES AND EXCHANGE COMMISSION

(SEBI):
The Government of India is the main regulatory body of all groups. These groups raise capital
in the capital markets or invest in securities in capital markets such as stocks and listed bonds.
The proceedings of the Parliament were conducted by the Securities and Exchange Commission
of India in 1992. Investment funds have become important investors in stock market securities.
They are therefore under SEBI's jurisdiction. SEBI authorizes all investment funds, including
investment sites, to comply with investment restrictions and restrictions, how to record revenue
and expenses, how to disclose information to investors, and how to protect investors in
general. To protect investors' interests, SEBI develops policies and regulates investment funds.
This rule applies to investment funds promoted by public or private institutions, including
investment funds promoting foreign institutions. SEBI's Asset Management Corporation
(AMC) manages funds by investing in various programs from the funds it manages. According
to SEBI regulations, two-thirds of board members or members of a trustworthy independent
company.
 ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

With the growth of Indian investment trusts, India needs to establish mutual fund associations
as a non-profit organization. The Indian Investment Trust Association (AMFI) was established
on August 22, 1995. AMFI is the highest authority of all asset management companies (AMCs)
registered with SEBI. To date, all asset management companies have been members of the
mutual fund program. It operates under the supervision and guidance of the board of directors.
The Indian Mutual Funds Association is leading the mutual fund industry in India and is
building a professional and sound market with ethical standards that encourage and sustain
standards. The principles to protect and promote the interests of mutual funds and their
owners.
 FEATURES OF MUTUAL FUNDS
Portfolio Diversification – Mutual Funds diversifies your investments by investing in

different asset classes. As an individual investor, one cannot afford to invest in variety of
sectors, mutual funds offers diversification and exposure to multiple sectors through minimal
investment.
Professional Management – Mutual Funds are managed by qualified experienced

professionals who works towards fulfilment of investment objective of the fund.
Affordability – You can start your investment in Mutual Fund systematic investment plan
with a minimum investment of as low as Rs. 500.
Liquidity – Open ended Mutual Funds can be redeemed totally or partially at the present value.
Transparency – Mutual Funds Performance is easily available on their own website as well
the performance is reviewed and published by esteemed publications and rating agencies.
Rupee Cost Averaging – Regular investing irrespective of the market trends help you
average your investment cost over a period of time. You get higher number of units when the
markets are falling. Similarly, if the markets are rising, the overall value of the portfolio
increases.
Consistent Savings – Help you make periodical and consistent investments. Adds
financial discipline into your life through regular investing.
Choice of Investment – There is a wide range of mutual funds schemes available to meet
individual goals. It also offers flexibility in the mode of investments such as SIP and Lump
sum.
Flexibility – Mutual fund investments are flexible in nature. Investors can either choose to
make partial withdrawals or withdraw the entire amount from their fund, depending on the
lock-in period.
 TYPES OF MUTUAL FUNDS
d. Based on Structure
i. Open-Ended Funds
These are funds in which units are open for purchase or redemption through the
year. All purchases/redemption of these fund units are done at prevailing NAVs.
Basically these funds will allow investors to keep invest as long as they want.
There are no limits on how much can be invested in the fund. They also tend to
be actively managed which means that there is a fund manager who picks the
places where investments will be made. These funds also charge a fee which can
be higher than passively managed funds because of the active management.
They are an ideal investment for those who want investment along with liquidity
because they are not bound to any specific maturity periods. Which means that
investors can withdraw their funds at any time they want thus giving them the
liquidity they need.
ii. Close-Ended Funds

These are funds in which units can be purchased only during the initial offer
period. Units can be redeemed at a specified maturity date. To provide for
liquidity, these schemes are often listed for trade on a stock exchange. Unlike
open ended mutual funds, once the units or stocks are bought, they cannot be
sold back to the mutual fund, instead they need to be sold through the stock
market at the prevailing price of the shares.
iii. Interval Funds
These are funds that have the features of open-ended and close-ended funds in
that they are opened for repurchase of shares at different intervals during the
fund tenure. The fund management company offers to repurchase units from
existing unitholders during these intervals. If unitholders wish to they can
offload shares in favour of the fund.
e. Based on Risk
i. Low risk
These are the mutual funds where the investments made are by those who do not
want to take a risk with their money. The investment in such cases are made in
places like the debt market and tend to be long term investments. As a result of
them being low risk, the returns on these investments is also low. One example
of a low risk fund would be gift funds where investments are made in
government securities.
ii. Medium risk

These are the investments that come with a medium amount of risk to the
investor. They are ideal for those who are willing to take some risk with the
investment and tends to offer higher returns. These funds can be used as an
investment to build wealth over a longer period.
iii. High risk
These are those mutual funds that are ideal for those who are willing to take
higher risks with their money and are looking to build their wealth. One example
of high- risk funds would be inverse mutual funds. Even though the risks are
high with these funds, they also offer higher returns.
f. Based on Investment Objective
i. Growth funds
Under these schemes, money is invested primarily in equity stocks with the
purpose of providing capital appreciation. They are risky funds ideal for investors
with a long- term investment timeline. Since they are risky funds they are also
ideal for those who are looking for higher returns on their investments.
ii. Income funds
Under these schemes, money is invested primarily in fixed-income instruments
e.g. bonds, debentures etc. with the purpose of providing capital protection and
regular income to investors.
iii. Liquid funds
Under these schemes, money is invested primarily in short-term or very short-
term instruments e.g. T-Bills, CPs etc. with the purpose of providing liquidity.
They are low on risk with moderate returns and are ideal for investors with
short-term investment timelines.
iv. Tax-Saving Funds (ELSS)
These are funds that invest primarily in equity shares. Investments made in these
funds qualify for deductions under the Income Tax Act. They are considered
high on risk but also offer high returns if the fund performs well.
v. Capital Protection Funds
These are funds where funds are are split between investment in fixed income
instruments and equity markets. This is done to ensure protection of the principal
that has been invested.
vi. Fixed Maturity Funds
Fixed maturity funds are those in which the assets are invested in debt and
money market instruments where the maturity date is either the same as that of
the fund or earlier than it.
vii. Pension Funds

Pension funds are mutual funds that are invested in with a really long term goal
in mind. The investments in such a fund may be split between equities and debt
markets where equities act as the risky part of the investment providing higher
return and debt markets balance the risk and provide lower but steady returns.
The returns from these funds can be taken in lump sums, as a pension or a
combination of the two.
g. Based on Asset Class
i. Equity Funds
These are funds that invest in equity stocks/shares of companies. These are
considered high-risk funds but also tend to provide high returns. Equity funds
can include specialty funds like infrastructure, fast moving consumer goods and
banking to name a few.
ii. Debt Funds
These are funds that invest in debt instruments e.g. company debentures,
government bonds and other fixed income assets. They are considered safe
investments and provide fixed returns. These funds do not deduct tax at source
so if the earning from the investment is more than Rs. 10,000 then the investor
is liable to pay the tax on it himself.
iii. Money Market Funds
These are funds that invest in liquid instruments e.g. T-Bills, CPs etc. They are
considered safe investments for those looking to park surplus funds for
immediate but moderate returns. Money markets are also referred to as cash
markets and come with risks in terms of interest risk, reinvestment risk and
credit risks.
iv. Balanced or Hybrid Funds
These are funds that invest in a mix of asset classes. In some cases, the
proportion of equity is higher than debt while in others it is the other way round.
Risk and returns are balanced out this way. An example of a hybrid fund would
be Franklin India Balanced Fund-DP (G) because in this fund, 65% to 80% of
the investment is made in equities and the remaining 20% to 35% is invested in
the debt market. This is so because the debt markets offer a lower risk than the
equity market.
h. Based on Specialty
i. Sector Funds
These are funds that invest in a particular sector of the market e.g. Infrastructure
funds invest only in those instruments or companies that relate to the
infrastructure sector. Returns are tied to the performance of the chosen sector.
The risk involved in these schemes depends on the nature of the sector.
ii. Index Funds
These arje funds that invest in instruments that represent a particular index on an
exchange so as to mirror the movement and returns of the index e.g. buying
shares representative of the BSE Sensex.
iii. Fund of funds
These are funds that invest in other mutual funds and returns depend on the
performance of the target fund. These funds can also be referred to as multi
manager funds. These investments can be considered relatively safe because the
funds that investors invest in actually hold other funds under them thereby
adjusting for risk from any one fund.
iv. Asset allocation funds

The asset allocation fund comes in two variants, the target date fund and the
target allocation funds. In these funds, the portfolio managers can adjust the
allocated assets to achieve results. These funds split the invested amounts and
invest it in various instruments like bonds and equity.
v. Gilt Funds
Gift funds are mutual funds where the funds are invested in government securities
for a long term. Since they are invested in government securities, they are
virtually risk free and can be the ideal investment to those who don‘t want to
take risks.
vi. Exchange traded funds
These are funds that are a mix of both open and close ended mutual funds and
are traded on the stock markets. These funds are not actively managed, they are
managed passively and can offer a lot of liquidity. As a result of their being
managed passively, they tend to have lower service charges (entry/exit load)
associated with them.
 TYPES OF INVESTMENT PLANS IN MUTUAL FUNDS:

Almost everyone has a set of defined financial goals which they want to achieve. Some set
short term goals, while others have long term financial goals. In a majority of situations, the
monthly income isn‘t sufficient to meet all the necessary expenses. To be successful in
reaching the financial goal, one can inculcate the discipline of savings. These regular savings
can later be converted into goal-based investments. Mutual fund investments have the
potential to reap high growths and can help investors reach their ultimate financial goals.
Mutual fund investments have the potential to provide returns, are actively managed by
professionals, and have the quality of balancing risk. All these qualities do make mutual fund
investments a wiser option to choose from. What mutual funds do is that they collect money
from investors and invest this pool of funds in various assets like the equity market, gold,
bonds and other debt and money market instruments, government securities etc. They can be
one way to diversify an investor‘s financial portfolio as they balance risk by allocating assets
belonging to different sectors.
A. SIP (SYSTEMATIC INVESTMENT PLAN)

SIP can be an ideal solution to invest in mutual funds to achieve life goals, which can range
from planning the future of your children to retirement planning or any other needs.
Systematic Investment Plan or SIP is a type of investment method where you can invest a
fixed amount at regular intervals in a scheme. When an investor chooses to pay his/her
investment amount through SIP, a fixed amount is debited from their debit account and is
invested in the scheme which they‘ve chosen. The best part about investing in mutual funds
through SIP that one can start investing in them with an amount as low as Rs. 500 per month.
SIP investors can also make the most out of compounding. The power of compounding is
nothing but interest earned on interest or profits earned on profits. The power of
compounding gives your investments a chance to grow further.
Benefits of Systematic Investment Plan:
Power of saving: The power of saving underlines the essence of making money work if only
invested at an early age. The longer one delays in investing, the greater the financial burden to
meet desired goals. Saving a small sum of money regularly at an early age makes money
work with significant impact on wealth accumulation explained through the illustration below
Rupee Cost Averaging: Timing the market is a difficult task. Rupee cost averaging is an
automatic market-timing mechanism that eliminates the need to time one`s investments.
Here, one need not worry about where share prices or interest are headed as investment of a
regular sum is done at regular intervals; with fewer units being bought in a declining market
and more units in a rising market. Although SIP does not guarantee profit, it can go a long
way in minimizing the effects of investing in volatile markets.
Convenience: Three simple paperless steps to invest in an SIP: 1. Register for an SIP online
2. Fill the required details 3. Ensure availability of funds.
Disciplined Investing: It‘s the key to investing success. Regular investment makes you
disciplined in your savings and also leads to wealth accumulation. Systematic investing is a
time-tested discipline that makes it easy to invest automatically. Investing regularly in small
amounts can often lead to better results than investing in a lump sum.
How Systematic Investment Plan works?
A SIP means you commit yourself to investing a fixed amount every month let‘s say it is Rs.
1000/-. When the market price of shares fall, the investor benefits by purchasing more units;
and is protected by-purchasing less when the price rises. Thus, the average cost of unit sis
always closer to the lower end making the investment profitable. The illustration below explains
the benefit of a SIP over a lump sum.
SIP - Rupee Cost Averaging
Lump-Sum Investor SIP Investor
Investment Unit Investment Units

Month Unit Price (Rs.)
(Rs.) Purchased^ (Rs.) Purchased^
1 50 9,000 180 1,000 20
2 47 1,000 21
3 45 1,000 22
4 44 1,000 23
5 46 1,000 22
6 48 1,000 21
7 49 1,000 20
8 50 1,000 20
9 52 1,000 19
Total Investment Rs.9,000 Rs.9,000
Total Units Purchased 180 188
Average Unit Price Rs.50 Rs.48
Value After 9 Months Rs.9,360 Rs.9,799
Hence at the end of the period total units purchased will be 188 & cost per unit will be Rs.
48/-. Thus, the profit from the above investment will amount to Rs. 799/- (Rs. 9,799 – Rs.
9,000).
B. SYSTEMATIC WITHDRAWAL PLAN (SWP)

While it is essential to plan well for creating wealth, it is equally important to plan for
additional expenses as well. That is when SWP (Systematic Withdrawal Plan) comes into
the picture, a powerful tool that works just like SIP. But here, instead of investing at
regular intervals, you get to withdraw at regular intervals. The withdrawals can be
customized basis of the investor‘s requirement as they continue investing in a mutual fund
scheme. SWP not only helps one withdraw money at regular intervals but the remaining
invested amount after the withdrawals have the potential to grow. So this way, you can
get more than what you have planned for, which in turn proves to be beneficial in the long
run keeping the inflation rates in mind.
How does SWP work?
When you want to sell mutual fund you usually have two options either sell all at once or
opt for a systematic withdrawal plan. Systematic Withdrawal Plan allows you to
withdraw a fixed sum of money every month or quarter depending on the option chosen
and instructions given by you.
As per your instructions the Mutual fund will redeem an equivalent amount of mutual
funds from your account as per the prevailing Net asset Value (NAV). This process helps
investor to get a fixed amount of money every month or quarter. Let's understand this
process with the help of an example: -
Let's say you have 5,000 units in a Mutual Fund scheme. You have given instructions to
the fund house that you want to withdraw Rs. 8,000 every month through SWP. Now let's
assume that on 1 December, the Net Asset Value (NAV) of the scheme is Rs. 20
Equivalent number of MF units = Rs. 8,000 / Rs. 20 = 400.
400 units would be redeemed from your MF holdings, and Rs. 8,000 would be given to
you. Your remaining units = 5,000 - 400 = 4600 Now say, on 1 January, the NAV is Rs.
16.
Equivalent number of units = Rs. 8,000 / Rs. 16 = 500.
500 units would be redeemed from your MF holdings, and Rs. 8,000 would be given to
you. Your remaining units = 4600 - 500 = 4100.
In this way, units from your mutual fund holdings are redeemed in a systematic way to
provide you with continuous income.
Under SWP, withdrawals can be fixed or variable amounts at regular intervals. These
withdrawals can be made on a monthly, quarterly, semi-annual, or annual schedule. The
holder of the plan may choose withdrawal intervals based on his or her commitments and
needs.
What are the types of SWPs?
Under SWP, withdrawals can be fixed or variable amounts at regular intervals. These
withdrawals can be made on a monthly, quarterly, semi-annual or annual schedule. The
holder of the plan may choose withdrawal intervals based on his or her commitments and
needs.
SWP is usually available in two options:
Fixed Withdrawal: Under this you specify amount you wish to withdraw from your
investment on a monthly/quarterly basis.
Appreciation Withdrawal: Under this you can withdraw your appreciated amount
on a monthly/quarterly basis.
Advantages of a Systematic Withdrawal Plan (SWP)
Regular income: - SWP is good way to get a fixed amount of money periodically i.e.
monthly or quarterly.
Tax Benefit: - Rather than selling all the units at once, spreading the income across
multiple intervals can lower the total tax. It is a tax efficient way of receiving regular
income.
Avoid market fluctuations: - It saves an investor from market fluctuations, as regular

withdrawal average out return value.
A systematic withdrawal plan allows the account holder a certain level of independence
from market fluctuations. By making periodic withdrawals, account holders are able to
enjoy average return values that often exceed average sale prices. In this way, systematic
withdrawal plan holders can secure higher unit prices than those attainable by withdrawing
everything at once.
C. STP (Systematic Transfer Plan)
Systematic Transfer Plan or STP is a type of plan where the amount of investment gets
transferred from one Scheme to another scheme. As mutual fund investments are subject
to market risk and returns are never guaranteed, an STP helps the investor to transfer
investments from one Scheme to another depending on the volatility in the market. For
example, if the equity market is on the collapse, an investor can transfer investments made
in the equity market to debt-oriented schemes.
Benefits of a Systematic Transfer Plan
There are several characteristics of a systematic transfer plan Mutual Funds which makes
it an attractive option for investors with varying risk appetite.
Higher returns: STPs allows you to earn higher returns on your investments by shifting
to a more profitable venture during market swings. Gaining market advantage in this
method maximizes the profits through securities bought and sold in the capital sector.
Stability: During times of high degree of volatility in the stock market, investors can
transfer their funds via an STP into relatively safer investment schemes such as debt
funds and money market instruments. This allows an investor to ensure the safekeeping
of his/her financial resources while earning stable returns at the same time.
Rupee Cost Averaging: This method is implemented while investing in Mutual Funds
via STP, allowing investors to lower their average costs incurred on investments.
Rupee Cost Averaging follows the technique of investing in funds when their average
price is low and selling them when their market value increases, thereby realizing
capital gains on the individual securities.
Optimal balance: Top systematic transfer plans aim to create a portfolio with a mixture
of equity and debt instruments, to provide an optimal combination of risk and returns. In
the case of risk-averse investors, the transfer of funds is made to mainly debt securities,
while equity instruments are meant for investors with an aptitude for risk.
Taxability: Each transfer under the systematic transfer plan is subjected to tax
deductions, provided capital gains are incurred. Redemption of the investment from
such Mutual Funds before 3 years makes the gains deductible at 15% under short term
gains. Long term capital gains are subject tax deductions but depend upon the annual
income of the investor.
 HOW TO CALCULATE MUTUAL FUND RETURNS?

In simple terms, ‗return‘ is the yield that your investment generates over a period. It is the
percentage increase or decrease in the value of the investment in that period.
To understand in detail about the returns we need to understand the significance of Net Asset Value
(NAV) in Mutual Fund calculations.
According to SEBI, the performance of a particular scheme of a mutual fund is denoted by Net
Asset Value (NAV). NAV is the market value of the securities held by the scheme. Since the market
value of securities changes every day, NAV of a scheme also varies on day to day basis.
The NAV per unit is the market value of securities of a scheme divided by the total number of
units of the scheme on any particular date.
Purchase NAV and sale NAV are two important numbers for mutual fund profit
calculation. Net Asset Value is the value of a fund's asset less the value of its liabilities
per unit.
NAV = (Value of Assets-Value of Liabilities)/number of units outstanding
Example: How to calculate NAV of mutual fund
If the market value of securities of a mutual fund scheme is Rs 300 lakhs and the mutual fund
has issued 20 lakh units of Rs. 10 each to the investors, then the NAV per unit of the fund is
Rs.15.
i.e. 300 Lakhs / 20 Lakhs = 15
A. Absolute Returns
This method is common when the holding period of your investment is less than 12
months. It helps you calculate the simple returns on your initial investment. Absolute
Returns refers to the returns that a fund achieves over a period.
It measures the percentage appreciation or depreciation in the value of the NAV over a
certain time frame.
To calculate absolute returns, all you need is the current NAV and the initial NAV of
your investment.
Simply put,
Example: Calculation of the absolute returns of a Mutual Fund:

If you have purchased it at Rs.11 per unit and after 3 years, if NAV appreciates to Rs. 15
per unit, here the absolute return is 36.36% as calculated below:
(15 – 11) x 100 / 11 = 36.36%
B. Simple Annualized Returns

This method is used when the investment duration is exactly 1
year. The formula to find out the simple annualized returns is
given as:
Example: The NAV of Rs. 20 may shoot to Rs. 25 in the next 8 months, that is, 240 days.
The absolute returns can be calculated as (25-20)/20 = 0.25.
To find the simple annualized returns, we use the formula described above,
(1 + 0.25)^(365/240) – 1 = 40.4%
C. CAGR (Compounded Annual Growth Rate)

When the investment duration is more than 1 year, CAGR is a better way to depict returns.
The value of CAGR indicates that how the investment would have grown had it generated
a steady return.
The CAGR returns are annualized returns, with the compounding
effect. The formula used to find CAGR is given below:
Example: CAGR Calculation
The purchase NAV of your MF is Rs.15 per unit. After two years NAV rises to
Rs.25. Then CAGR will be 29.09% i.e. [(25/15)^(1/2) -1].
The CAGR calculates the growth rate of investment every year with the compounding
effect. In the above example in case your investment was Rs1500 which has appreciated
by 29.09% each year to become Rs.2500 at the end of two years.
Absolute Returns Vs Annualized Returns
When you are calculating returns for less than a year, you can calculate absolute return.
For calculating mutual fund returns for an investment period of more than a year then you
can use annualised returns.
When you need to calculate point to point returns, you can use absolute return. When you
want to calculate the average yearly return, then you can use annualised return.
D. XIRR (for calculating SIP Returns)

XIRR is a function in Excel for calculating the Internal Rate of Returns for an array of
cash flows occurring at an irregular interval. To calculate XIRR, you need the data given
below
 SIP Amount
 Dates of SIP investments
 Date of redemption; and
 Maturity (Redemption) Amount
Let us take an example:
Suppose you have invested Rs. 2000 every month for the last 1 year and the value of
your investment rose to Rs. 26000 due to appreciation in NAV. The following table
illustrates your SIP investment:
Returns on SIP (Systematic Investment Plans)

Suppose you have invested Rs. 2000 every month for the last 1 year and value of your
investment rose to Rs. 26000 due to appreciation in NAV. The following table illustrates
your SIP investment:
As the investor invests Rs.2000 per month for 1 year, the absolute returns formula will not
work as the money is invested for different periods of time. The IRR (Internal Rate of
return) considers the time value of money for investment made at different point of time.
Therefore, we may use XIRR returns (which is nothing but IRR) in MS Excel to find out
the return on SIP in the above example, which is 15.65%.
 BANK SAVINGS
Saving is income not spent, or deferred consumption. Methods of saving include putting
money aside in, for example, a deposit account, a pension account, an investment fund, or as
cash. Saving also involves reducing expenditures, such as recurring costs. In terms of
personal finance, saving generally specifies low-risk preservation of money, as in a deposit
account, versus investment, wherein risk is a lot higher; in economics more broadly, it refers
to any income not used for immediate consumption. Saving does not automatically include
interest.
Generally, people keep their savings in bank as deposits to earn a rate of return for future needs.
Primarily, banks offer two kinds of deposit accounts. These are demand deposits like
current/saving account and term deposits like fixed or recurring deposits. When you open a
deposit account in a bank, you become an account holder or a depositor.
Saving accounts are used to meet daily on-demand requirements of cash. For example, you
hold a saving bank account with the bank having cheque book facility. The bank asks you to
maintain a minimum balance of Rs 1000. In return, the bank pays you an interest at the rate of
4% per annum. You may operate the saving account using an ATM card also. Banks impose
limits on the frequency and amount of withdrawal using ATMs.
The deposit rates on saving account keeps changing based on RBI‘s revision of policy rates.
Banks offer lower interest rates on saving account as compared to term deposits. It is because
of this reason; investors opt for term deposit accounts.

A term deposit account is used to hold money for a fixed period of time. In return for this, the
bank pays interest on the term deposits. However, you are not allowed to withdraw your
money before expiry of the fixed duration.
For example, you hold a fixed deposit (FD) of Rs 10,000 for a period of five years with the
bank. In return, the bank pays you an interest at the rate of 10% per annum.
 TYPES OF BANK SAVINGS
A. SAVINGS ACCOUNT
A savings account is a like a bank vault in which you store your hard-earned money.
Unlike a current account, a savings account does not allow unlimited transactions and has
no overdraft facility. There are different types of savings account that can be opened
depending on the customer‘s need:
 Regular Savings Account: These are the easiest to open. Such accounts do not
see huge transactions and are mostly a virtual safe for storing excess cash.
 Salary Based Savings Account: Many corporations tie up with banks to help
their employees open a salaried account. This helps the company as the task of
disbursing the monthly salaries becomes easier
 Savings Accounts for Senior Citizens: These accounts are created exclusively for
senior citizens with added privileges and benefits.
 Savings Accounts for Children and Minors: These accounts are created
exclusively for children and minors under the guardianship of their parents.
 Exclusive Benefits Accounts for Women: As the name suggests, this is an
account exclusively for female customers and entrepreneurs. It is a relatively new
offering from some banks and comes with added benefits.
 Zero Balance Savings Account: A savings account where the customer need not
maintain a minimum balance for the account to remain functional.
 Linked Savings Account: A linked account is one which is linked to either a
given Checking Account or a NOW Account (Negotiable Order of Withdrawal).
 Post Office Savings Account: These are savings accounts which can be opened in
a Post Office.
B. CURRENT ACCOUNT
Current bank accounts are very popular among companies, firms, public enterprises,
businessmen who generally have higher number of regular transactions with the bank.
The current account includes deposits, withdrawals, and contra transactions. Such
accounts are also called the Demand Deposit Account. A Current account can be opened
in most of the commercial banks. A current account being a zero-account, is generally
associated with huge transactions on a regular basis. Because of the fluidity that these
accounts offer, they don‘t earn any interest. These also usually do not carry a limit on the
number of transactions which can be made.
Advantages of having a Current Account:

 Current accounts allow handling of large volumes of receipts and/or
payments systematically
 Under these accounts, limitless withdrawals are allowed in line with the levied
cash transaction fees.
 Current accounts allow handling of large volumes of receipts and/or
payments systematically.
 Under these accounts, limitless withdrawals are allowed in line with the levied
cash transaction fees.
Disadvantages of having a Current Account

 There is an opportunity cost of losing on the interest rates due to low or zero
interest on money in current account.
 There is an operational burden attached since most package accounts offer
services at additional costs.
 The involved paperwork and fine print serves to be lengthy and confusing
 Huge fees due to corporate business transactions.
C. FIXED DEPOSIT
Fixed deposits are an investment instrument provided by banks and other financial
institutions such as non-banking financial institutions (NBFCs) and housing finance
companies (HFCs). Under this, investors would deposit a lump sum over a period. In turn,
they would get a fixed rate of interest throughout the investment. The rate of interest
provided on FDs is much higher than that of a regular savings bank account. Once the
tenure of the deposit ends, investors
can withdraw their investment. However, they have a choice of reinvesting their
money for another term.
Who Offers Fixed Deposits?
All scheduled commercial banks and some NBFCs and HFCs in India offer fixed
deposits. However, if investors are to invest in FDs provided by an NBFC or HFC, then
they first need to check the ratings provided by agencies such as CRISIL. This is to make
sure that your money is safe. Private sector banks and other financial institutions may
offer a slightly higher rate of interest than the public sector banks.
Features of Fixed Deposit:
The following are the key features of fixed deposits:
 The investment tenure of FDs ranges from one day to several years, and it
varies across banks.
 The return on investment is compounded periodically, and it may be
monthly, quarterly, or annually.
 Senior citizens are provided with slightly higher returns (0.5% higher)
 Partial or full withdrawals are permitted (with penalties).
 Taxpayers can invest in tax-saver FDs to save taxes under Section 80C.
 Once the investment matures, investors can reinvest for another term.
 Investors will accumulate higher returns if they invest for a more extended period
Advantages of Fixed Deposit:
 Returns are assured as they are not tied with the market
 At times of financial emergencies, one can avail a loan against their FDs
 Investment is safe as banks and other financial institutions are always under
the purview of the Reserve Bank of India (RBI)
 Compounded interest makes your investment grow at a much faster rate
 Premature withdrawals are allowed, so you will always have a corpus to fall
back on at times of crisis.
How do they work?
Fixed Deposits have been a tried-and-tested savings method for a long time. Almost all
banks in India have Fixed Deposits schemes available for their customers. While FDs
have been the conventional investment tools, you need to keep some things in mind
before going for one:
 Spread your investments

In case you are an FD junkie, do not concentrate all your investments in a single
bank. You need to know that bank FDs aren‘t as secure as you think. In case of
bank default, you will be eligible for a maximum compensation of Rs 1 lakh
from Deposit Insurance and Credit Guarantee Corporation (DICGC). This
happens even though you held deposits of amount higher than Rs 1 lakh. If you
have Rs 5 Lakh to invest, then hold FDs of Rs 1 lakh in five banks rather than Rs
5 lakh in a single bank.
 Premature withdrawals attract penalty
You need to know that FD involves a lock-in period equal to duration of the
investment. Before going for an FD, review your income needs for the horizon.
If you institute an FD for a 5-year term, then the bank won‘t allow for
withdrawals before completion of 5 years. In case you need your money before
maturity, bank will impose a penalty. If the penalty is 1%, then you may lose
more than you earned during the tenure. Thus, it‘s advisable not to break your
FDs before maturity.
 Interest earned is clubbed in your income

FDs aren‘t as tax efficient as mutual funds and equities. The interest earned on
FDs will be clubbed in your total income and taxed as per your income slab. Suppose
you create an FD in the name of your spouse. The money deployed to create FD
won‘t attract tax but the interest earned will form part of your income and be taxed.
Equity- Linked Saving Scheme (ELSS) can be a tax-efficient way to invest and grow
wealth. It has the shortest lock-in period. Moreover, it offers higher returns than FD.
D. RECURRING DEPOSITS
Recurring deposits are an investment instrument offered by banks and post office.
Under this, investors can invest a nominal amount monthly. The banks provide a fixed
rate of return on the investment, which is compounded periodically. RDs are an
excellent option for those looking to invest their monthly savings and risk-averse
investors. The returns offered on RDs are not tied to the market movements, and
hence, investors consider RDs to be a safe investment option. However, the returns
offered on RDs are revised on a periodic basis, depending on various economic
factors such as RBI monetary policy decisions, lending rates, and so on. Nevertheless,
RDs provide much higher returns than a regular saving bank account.
Features of Recurring Deposit:

 As you invest in RDs with a bank, investment is considered to be safe.
 RDs provide much higher returns than a regular savings bank account.
 Investors are provided with assured returns as they are not tied to the
market movements.
 The investment tenure of RD ranges from 6 months to 10 years.
 Investors can avail loan against their RD investments at times of a financial crisis.
Investing in recurring deposits is an excellent way of investing small amounts regularly.

It will help investors develop financial discipline in the long run as they are forced to set
aside a fixed sum each month. Recurring deposits offer fixed returns as they are not
associated with the market movements.
Recurring deposits are an investment tool which allows investors to make regular
monthly payments and save money for the long term. Investors can choose the tenure of
the deposit and the minimum monthly payment they wish to make according to their
convenience. RD schemes are generally more flexible than FD schemes and are
generally preferred by those who want to start an account for the purpose of saving
money and building a rainy-day fund.
Here are some things you should keep in mind while opting for a Recurring Deposit:
 Use RDs for short-term goals

Recurring deposits are the ideal products to opt for when planning short-term
goals you wish to realize in the next 1-3 yrs. These may include saving up for a
down payment of your new home, paying for your children‘s education,
renovating your home, saving up for a degree abroad and so on.
 Be aware of the rules and penalties
Recurring deposits are very easy to open. Most banks in the country have this
facility. But they do come with some hidden charges. For instance, if you were to
withdraw the amount in the RD account before the tenure finishes, you may have
to pay certain charges. It is important to know these rules before you start an RD
account so you can be better prepared for the future.
 INTEREST-RELATED FACTORS TO CONSIDER IN

BANK SAVINGS:
The following factors can be taken into consideration while opting for a term deposit
plan:-
 The returns are usually obtained as direct credit unless one opts for a rollover term.
 In case the bank with your savings account is not offering a lucrative term deposit
plan, one can opt for a different bank. However, it is recommended that the latter
is willing to credit the interest income in the savings account of the former bank.
 According to their financial needs, an investor can either choose to receive their
accumulated interest income upon maturity or receive the interest at period
intervals. These intervals could be fortnightly, monthly, quarterly, or yearly.
 It is recommended to carefully know about the customer reviews of the term
deposit plan that one is considering and compare viable options.
 An investor could also ensure that if a savings account could offer a higher interest
rate than the term deposit plan that they are considering.
CHAPTER 2
RESEARCH
METHODOLOGY
RESEARCH
METHODOLOGY
Research methodology is the specific procedures or techniques used to identify, select, process,
and analyse information about a topic. In a research paper, the methodology section allows the
reader to critically evaluate a study‘s overall validity and reliability. The methodology section
answers two main questions: How was the data collected or generated? How was it analysed?
The methodology adopted for studying the objective of the project was surveying the people
who invest either in banks of in mutual funds in Mumbai region. So keeping in view the nature
of requirement of the study to collect all the relevant information regarding a comparative
study of mutual funds return and banks savings in Mumbai interview method with the help of
structured questionnaire was adopted for collection of primary data.
Secondary data has been collected through the various articles and books also by surfing on
internet. Secondary data is the data which is available in readymade form and which has already
been used by other people for various purposes. The sources of secondary data are newspaper,
internet, websites of IBA, journals and other published documents.
2.1 OBJECTIVES OF THE STUDY
This study has been conducted with a variety of important objectives in mind. The following
provides us with the chief objectives that I have tried to achieve through the study. The extent
to which these objectives have been met could be judged from the conclusions and suggestions,
which appear of this study.
The Chief Objectives of this study (with respect to Mumbai) are: -
1. To find the investment option largely preferred by the investors.
2. To find out the factors which influences the customers to choose the mode ofinvestment.
3. To study the main reason why they chose one option over the other.
2.3 LIMITATTIONS OF THE STUDY
To carry out the research study the following limitations were expected and faced during the
research study:
(a) Availability of secondary data from sales records of the companies were difficult.
(b) Market conditions change from time to time. Due to this the preferences of the
people in investment options tends to keep changing.
(c) People invest where they receive high returns. They tend to switch from one investment
plan to other if the other investment plan gives higher returns.
(d) Time, cost and location factors become major difficulties in completion of research.
However, to overcome the limitations and maintain the effectiveness of research work
sincere efforts were put.
CHAPTER 3
REVIEW OF
LITERATURE
REVIEW OF LITERATURE
A literature review provides an overview and a critical evaluation of a body of literature relating to a
research topic or a research problem. It analyses a body of literature in order to classify it by themes
or categories, rather than simply discussing individual works one after the other.
A literature review often forms part of a larger research project such as within a thesis, or it
may be an independent written work, such as a synthesis written paper.
 PURPOSE OF A LITERATURE REVIEW -

A literature review situates our topic in relation to previous researches and illuminates a spot for
our research. It accomplishes several goals –
a). Provides background for topic using previous research.
b) Shows we are familiar with previous, relevant research.
c) Evaluates the depth and breadth of the research with regards to our topic.
d) Determines relating questions or aspects of our topic in need of research
A comparative study on mutual funds return and bank savings deposits shows that people
invest where there is high return with minimal risk.
Irwin, Brown, FE (1965):- Analysed issues relating to investment policy, portfolio

turnover rate, the performance of mutual funds and its impact on the stock markets. The mutual
funds had identified that a significant impact on the price movement in the stock market. They
concluded that, on an average, funds did not perform better than the composite markets and
there was no persistent relationship between portfolio turnover and fund performance.
Mc Kelvey (1966):- Study entitled ―Intangible factors in stock evaluation‖ work pointed out
that when making an investment decision, one should look for certain factors beyond current
earnings and dividends. The factor suggested in his study are growth trend, quality of growth,
qualitative factors, management factors, the validity of earnings, use of leverages,
diversification, shareholder relations and other intangible factors. The intangible factors are
stocks with restricted voting rights, full of voting right, the reputation of the underwriter and
the length of time the shares which have been marketed. The study emphasizes that current
earnings and yield are important factors in determining the attractiveness of the stock, but they
are not the only ones.
Jensen (1968):- Has developed a composite portfolio evaluation technique concerning risk-
adjusted returns. The researcher evaluated the ability of 115 fund managers in selecting
securities during the period 1945-66. Analysis of net returns indicated that 39 funds have above-
average returns, while 76 funds yielded abnormally poor returns. Using gross returns, 48 funds
showed above average results and 67 funds below average results. Jensen concluded that there
was very little evidence that funds were able to perform significantly better than expected as
fund managers were not able to forecast securities price movements.
Smith and Tito (1969):- Have examined the inter-relationships between the three widely
used composite measures of investment performance and suggested a fourth alternative,
identified some aspects of differentiation in the process. While ranking the funds on the basis of
ex-post performance, alternative measures produced little differences. However, conclusions
differed widely when performance was compared with the market. In view of this, they
suggested modified Jensen‟s measure based on estimating equation and slope coefficient.
Friend, Blume and Crockett (1970):- Has compared the performance of 86 funds with
random portfolios. The study concluded that mutual funds performed badly in terms of total
risk. Funds with higher turnover outperformed the market. The size of the fund did not have
any impact on their performance.
Roger E. Potler (1970):- Has found empirical evidence suggesting the same basic factors
motivating professional and non- professional investors. The factors were a desire for income
from dividends, rapid growth and quick profits through and purposeful investment as a
protective outlet for savings.
Arditti (1971):- found that Sharpe‟s conclusion got altered when the annual rate of return
was introduced as a third dimension. He found that contrary to Sharpe‟s findings the average
fund performance could no longer be judged inferior to the performance of DJIA. Fund
managers opted higher risk for better annual returns.
Williamson (1972):- compared ranks of 180 funds between 1961-65 and 1966-70. There
was no correlation between the rankings of the two periods. The investment abilities of most
of the fund managers were identical.
Fama (1972):- Developed methods to distinguish observed return due to the ability to pick
up the best securities at a given level of risk from that of predictions of price movements in the
market. He introduced a multi-period model allowing evaluation on a period-by- period and on
a cumulative basis. He branded that, return on a portfolio constitutes of return for security
selection and return for bearing risk. His contributions combined the concepts from modern
theories of portfolio selection and capital market equilibrium with more traditional concepts of
good portfolio management.
Klemosky(1973):- Analyzed investment performance of 40 funds based on quarterly returns

during the period 1966-71. He acknowledged that biases in Sharpe, Treynor, and Jensen‟s
measures, could be removed by using mean absolute deviation and semi- standard deviation as
risk surrogates compared to the composite measures derived from the CAPM.
McDonald and John (1974):- Has examined 123 mutual funds and identified the existence
of a positive relationship between objectives and risk. The study identified the existence of a
positive relationship between return and risk. The relationship between objective and risk-
adjusted performanceindicated that more aggressive funds experienced better results.
Gupta (1974):- Evaluated the performance of mutual fund industry for the period 1962-71
using Sharpe, Treynor, and Jensen models. All the funds covered under the study outperformed
the market irrespective of the choice of market index. The results indicated that all the three
models provided identical results. All the mutual fund subgroups outperformed the market
using DJIA while income and balanced groups underperformed S&P 500. Return per unit of
risk varied with the level of volatility assumed and he concluded that, funds with higher volatility
exhibited superior performance.
Meyer’s (1977):- Findings based on stochastic dominance model revalidated Sharpe‟s

findings with the caution that it was relevant for mutual funds in the designated past, rather
than for the future period.
Klemosky (1977):- Examined performance consistency of 158 fund managers for the
period 1968- 75.The ranking of performance showed better consistency between four-year
periods and relatively lower consistency between adjacent two-year periods.
Gupta Ramesh (1989):- Evaluated fund performance in India comparing the returns earned
by schemes of similar risk and similar constraints. An explicit risk-return relationship was
developed to make comparison across funds with different risk levels. His study decomposed
total return into a return from investors risk, return from managers‟ risk and target risk. Mutual
fund return due to selectivity was decomposed into return due to the selection of securities and
timing of investment in a particular class of securities.
Vidhyashankar S (1990):- Identified a shift from bank or company deposits to mutual

funds due to its superiority by way of ensuring a healthy and orderly development of capital
market with adequate investor protection through SEBI interference. The study identified that
mutual funds in the Indian capital market have a bright future as one of the predominant
instruments of savings by the end of the century.
Bansal L K (1991):- Identified that mutual fund like other financial institutions is a
potential intermediary between the prospective investor and the capital market. The mutual
fund, as an investment agency was preferred since 1985-86 due to the benefits of liquidity,
safety and reasonable appreciation assured by the industry. The schemes with assured returns
showed tremendous progress. The majority of the funds floated by commercial banks gave an
impression that the responsibility of funds laid with the respective banks and their investment
was secured.
Sarkar A K (1991):- Critically examined mutual fund evaluation methodology and pointed
out that Sharpe and Treynor performance measures ranked mutual funds in spite of their
differences in terms of risk. The Sharpe and Treynor index could be used to rank the
performance of portfolios with different risk levels.
Batra and Bhatia (1992):- Appreciated the performance of various funds in terms of
return and funds mobilized. UTI, LIC and SBI Mutual Fund are in the capital market for many
years declaring dividends ranging from 11 percent to 16 percent. The performance of Canbank
Mutual Fund, Indian Bank Mutual Fund and PNB Mutual Fund were highly commendable.
The performance of many schemes was equally good compared to industrial securities.
Gupta L C (1992):- Attempted a household survey of investors with the objective of

identifying investors‟ preferences for mutual funds so as to help policy makers and mutual
funds in designing mutual fund products and in shaping the mutual fund industry.
Gangadhar V (1992):- Identified mutual funds as the prime vehicle for mobilization of
household sectors‟ savings as it ensures the triple benefits of steady return, capital appreciation
and low risk. He identified that open-end funds were very popular in India due to its size,
economies of operations and for its liquidity. Investors opted for mutual funds with the
expectation of higher return for a given risk, greater convenience and liquidity.
Lal C and Sharma Seema (1992):- Identified that the household sector‟s share in the
Indian domestic savings increased from 73.6 percent in 1950-51 to 83.6 percent in 1988-89.
The share of financial assets increased from 56 percent in 1970-71 to over 60 percent in 1989-90
bringing out a tremendous impact on all the constituents of the financial market.
Sahu R K (1992):- Identified mutual funds as a suitable investment vehicle to strengthen

the capital market, as the total assets were around Rs.30,000 crores while the total resources in
equity were less than 15 percent of market capitalization.
Venugopalan S (1992):- Opined that India (15 million) ranks third in the World next to
U.S.A. (50 million) and Japan (25 million) in terms of a number of shareholders ensuring the
spread of equity cult. However, many investors face hardships in the share market due to lack of
professional advice, inability to minimize risk, limited resources and information.
Anagol (1992):- Identified the urgent need for a comprehensive self-regulatory regime for
mutual funds in India, in the context of divergence in its size, constitution, regulation among
funds and sweeping deregulation and liberalization in the financial sector.
Shashikant Uma (1993):- Critically examined the rationale and relevance of mutual fund
operations in Indian Money Markets. She pointed out that money market mutual funds with
low-risk and low return offered conservative investors a reliable investment avenue for short-
term investment.
Ansari (1993):- Stressed the need for mutual funds to bring in innovative schemes suitable to
the varied needs of the small savers in order to become predominant financial service institution
in the country.
Sahu R K and Panda J (1993):- Identified that the savings of the Indian public in mutual
funds was 5 to 6 percent of total financial savings, 11 to 12 percent of bank deposits and less
than 15 percent of equity market capitalization. The study suggested that mutual funds should
develop suitable strategies keeping in view the savings potentials, growth prospects of
investment outlets, national policies and priorities.
Saha Asish and Rama Murthy Y Sree (1993-94):- Identified that return, liquidity,
safety and capital appreciation played a predominant role in the preference of the schemes by
investors. The preference of the households towards shares and debentures was 7 percent by
1989-90. Mutual funds being an alternative way for the direct purchase of stocks should be
managed effectively adopting investment analysis, valuation models, and portfolio management
techniques. The study suggested that fund managers could adopt portfolio selection techniques
to make more informed judgments rather than making investments on an intuition basis.
Shukla and Singh (1994):- Attempted to identify whether portfolio manager‟s

professional education brought out superior performance. They found that equity mutual funds
managed by professionally qualified managers were riskier but better diversified than the
others. Though the performance differences were not statistically significant, the three
professionally qualified fund managers reviewed outperformed by others.
Shah Ajay and Thomas Susan (1994):- Studied the performance of 11 mutual fund
schemes on the basis of market prices. Weekly returns computed for these schemes since their
launch of the scheme to April 1994 were evaluated using Jensen and Sharpe measures. They
concluded that, except UTI UGS 2000, none of the sample schemes earned superior returns than
the market due to very high risk and inadequate diversification.
Kale and Uma (1995):- Conducted a study on the performance of 77 schemes managed by
8 mutual funds. The study revealed that growth schemes yielded 47 percent CAGR, tax-
planning schemes 30 percent CAGR followed by balanced schemes with 28 percent CAGR and
income schemes with 18 percent CAGR.The Delhi-based Value Research India Pvt. Ltd
(1996)33 conducted a survey covering the bearish phase of Indian stock markets from 30th June
1994 to 31st December 1995. The survey examined 83 mutual fund schemes. The study
revealed that 15 schemes provided negative returns, of which, 13 were growth schemes. Returns
from income schemes and income-cum-growth schemes were more than 20 percent. From the
point of risk-adjusted monthly returns, of the 53 growth schemes, 28 (52.8 percent) could beat
the index even in a bear phase.
Tripathy Nalini Prava (1996):- Identified that the Indian capital market expanded
tremendously as a result of economic reforms, globalization and privatization. The household
sector accounted for about 80 percent of country‟s savings and only about one-third of such
savings were available for the corporate sector. The study suggested that mutual funds should
build investors confidence through schemes meeting the diversified needs of investors, speedy
disposal of information, improved transparency in operation, better customer service and
assured benefits of professionalism.
Yadav R A and Mishra, Biswadeep (1996):- Evaluated 14 close end schemes over the
period of April 1992 to March 1995 with BSE National Index as a benchmark. Their analysis
indicated that 57 percent of sample schemes had a mean return higher than that of the market,
higher Sharpe Index and lower Treynor index. Schemes performed well in terms of
diversification and total variability of returns but failed to provide adequate risk-premium per
unit of systematic risk. 57 percent had positive alpha signifying superior performance in terms
of timing ability of fund managers. Fund managers of growth schemes adopted a conservative
investment policy and maintained a low portfolio beta to restrict losses in a rapidly falling
stock market.
Jayadev M (1996):- Studied the performance of UTI Mastergain 1991 and SBI Magnum
Express from 1992-94 with 13 percent return offered by post office monthly income deposits as
a risk-free return. Mastergain earned an average return of 2.89 percent as against market
earnings of 2.84 percent. The volatility of Magnum Express was high compared to Mastergain.
Master gain had a superior performance over its benchmark (Economic Times Ordinary Share
Price Index) by taking greater risk than the market. Mastergain indicated a lesser degree of
diversification of the portfolio with lower R2 value and very high unique risk. Magnum
Express portfolio was well diversified with higher R2 value along with lower unique risk and
total risk. Both the funds did not earn superior returns because of lack of selectivity on the part
of the fund managers indicating that the funds did not offer the advantages of professionalism
to the investors.
Sahadevan S and Thiripalraju M (1997):- Stated that mutual funds provided an

opportunity for the middle and lower income groups to acquire shares. The savings of household
sector constituted more than 75 percent of the GDS along with a shift in the preference from
physical assets to financial assets and also identified that savings pattern of households shifted
from bank deposits to shares, debentures and mutual funds.
Gupta and Sehgal (1998):- In their research paper ―Investment Performance of Mutual
Funds: The Indian Experience‖ tried to find out the investment performance of 80 mutual fund
schemes managed by 25 mutual funds, 15 in the private sector and 10 in the public sector for
the time period of June 1992-1996. The study has examined the performance in terms of fund
diversification and consistency of performance. The paper concludes that mutual fund
industry‟s portfolio has performed well. But it supported the consistency of performance
pattern.
Kumar V K (1999):- Analyzed the roles, products and the problems faced by the IMFI. He
suggested the turnaround strategies of awareness programs, transparency of information, distinct
marketing and distribution systems to rebuild confidence.
Irissappane Aravazhi (2000):- Evaluated the investment pattern and performance of 34

close-end schemes from 1988-98 and elicited the views of investors and managers belonging to
Chennai, Mumbai, Pune and Delhi. The survey identified that the investors desired a return
equivalent to market. 16 schemes reported greater risk than the market volatility. The majority
of the schemes had a lower beta. Negative values in the case of Treynor and Sharpe index among
many schemes indicated the mockery of the market. He further identified that the fund
managers of 26 schemes had missed the chance of gaining from scheduling with response to
changes in the market.
Gupta Amitabh (2000):- Identified that the IMFI had come a long way since its inception
in 1964. The transformation in the previous decade was the outcome of policy initiatives taken
by the Government of India to break the monolithic structure of the industry in 1987 by
permitting public sector banks and insurance sectors to enter the market.
Agrawal, Ashok Motilal (2000):- Opined that mutual funds have made a remarkable
progress during 1987-95. The cumulative investible funds of the mutual funds industry
recorded a skyrocketing growth since 1987 and reached Rs.8,059 crores by December 31, 1995,
from Rs.4,564 crores during 1986-87.
Ramesh Chander (2000):- Examined 34 mutual fund schemes with reference to the three
fund characteristics with 91-days treasury bills rated as risk-free investment from January 1994
to December 1997. Returns based on NAV of many sample schemes were superior and highly
volatile compared to BSE SENSEX. Open-end schemes outperformed close-end schemes in
term of return. Income funds outsmarted growth and balanced funds. Banks and UTI sponsored
schemes performed fairly well in relation to sponsorship. Average annual return of sample
schemes was 7.34 percent due to diversification and 4.1 percent due to stock selectivity. The
study revealed the poor market timing ability of mutual fund investment. The researcher also
identified that 12 factors explained the majority of total variance in portfolio management
practices.
Gupta Amitabh (2001):- 44 evaluated the performance of 73 selected schemes with

different investment objectives, both from the public and private sector using Market Index and
Fundex. NAV of both close-end and open-end schemes from April 1994 to March 1999 was
tested. The sample schemes were not adequately diversified, risk and return of schemes were not
in conformity with their objectives, and there was no evidence of market timing abilities of
mutual fund industry in India.
Narasimhan M S and Vijayalakshmi S (2001):- Analyzed the top holding of 76

mutual fund schemes from January 1998 to March 1999. The study showed that 62 stocks were
held in the portfolio of several schemes of which only 26 companies provided positive gains.
The top holdings represented more than 90 percent of the total corpus in the case of 11 funds.
The top holdings showed higher risk levels compared to the return. The correlation between
portfolio stocks and diversification benefits was significant at one percent level for 30 pairs and
at five percent level for 53 pairs.
From this review, one is logically led to believe that a lot of research has been pursued in the
field of a mutual fund over the years. To sum up the review of the literature, it may be seen that
research has been pursued on various aspects of investment, such as investment experience,
investor styles, investment decision factors, statistical tools used in investment strategy,
regulation of the financial market and so on .
A lot of ground is yet to be covered in the direction of individual investors perception towards
the mutual fund. The various changes in technology, media, communication, human behaviour,
growth in the number of companies and the changing phase of corporate issues have all
contributed to changes in the individual investment attitude and it has provided scope for
research in this direction.
CHAPTER 4
ANALYSIS AND
INTERPRETATION
ANALYSIS AND INTERPRETATION
 MUTUAL FUNDS
Mutual fund investments in stocks, bonds and other instruments require considerable expertise
and constant supervision, to allow an investor to take the right decisions. Small investors
usually do not have the necessary expertise and time to undertake any study that can facilitate
informed decisions. While this is the predominant reason for the popularity of mutual funds,
there are many other benefits that make mutual funds appealing.
 PROS OF MUTUAL FUNDS
Diversification Benefits:
Diversified investment improves the risk return profile of the portfolio. Optimal diversification
has limitations due to low liquidity among small investors. The large corpus of a mutual fund
as compared to individual investments makes optimal diversification possible. Due to the
pooling of capital, individual investors can derive benefits of diversification.
Low Transaction Costs:

Mutual fund transactions are generally very large. These large volumes attract lower
brokerage commissions and other costs as compared to smaller volumes of the transactions
that individual investors enter into. The brokers quote a lower rate of commission due to two
reasons. The first is competition for the institutional investors business. The second reason is
that the overhead cost of executing a trade does not differ much for large and small orders.
Hence for a large order these costs spread over a large volume enabling the broker to quote a
lower commission rate.
Availability of Various Schemes:
There are four basic types of mutual funds: equity, bond, hybrid and money market. Equity
funds concentrate their investments in stocks. Similarly bond funds primarily invest in bonds
and other securities. Equity, bond and hybrid funds are called long-term funds. Money market
funds are referred to as short-term funds because they invest in securities that generally
mature in about one year or less. Mutual funds generally offer a number of schemes to suit
the requirement of the investors.
Liquidity:
Liquidating a portfolio is not always easy. There may not be a liquid market for all securities
held. In case only a part of the portfolio is required to be liquidated, it may not be possible to
see all the securities forming a part of the portfolio in the same proportion as they are
represented in the portfolio; investing in mutual funds can solve these problems. A fund house
generally stands ready to buy and sell its units on a regular basis. Thus it is easier to liquidate
holdings in a Mutual Fund as compared to direct investment in securities.
Returns:
In India dividend received by investors is tax-free. This enhances the yield on mutual funds
marginally as compared to income from other investment options. Also in case of long-term
capital gains, the investor benefits from indexation and lower capital gain tax.
Flexibility:
Features of a MF scheme such as regular investment plan, regular withdrawal plans and
dividend reinvestment plan allows investors to systematically invest or withdraw funds
according to the needs and convenience.
Well Regulated:
All mutual funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interest of investors. The SEBI regularly monitors the
operations of an AMC.
 CON’S OF MUTUAL FUND

There are certain benefits to the mutual fund investing, but you should also be aware of the
drawbacks associated with mutual funds.
No Insurance:
Mutual funds, although regulated by the government, are not insured against losses. The
Federal Deposit insurance corporation (FDIC) only insures against certain losses at banks,
credit union, and savings and loans, not mutual funds. That means that despite the risk-
reducing diversification benefits provided by mutual funds, losses can occur, and it is possible
(although extremely unlikely) that you could even lose your entire investment.
Dilution:
Although diversification reduces the amount of risk involved in investing in mutual funds, it can
also be a disadvantage due to dilution. For example, if a single security held by a mutual fund
doubles in value, the mutual fund itself would not double in value because that security is only
one small part of the fund's holdings. By holding a large number of different investments, mutual
funds tend to do neither exceptionally well nor exceptionally poorly.
Fees and Expenses:
Mutual funds charge management and operating fees that pay for the fund's management
expenses (usually around 1.0% to 1.5% per year for actively managed funds). In addition, some
mutual funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds
buy and trade shares so often that the transaction costs add up significantly. Some of these
expenses are charged on an ongoing basis, unlike stock investments, for which a commission is
paid only when you buy and sell.
Poor Performance:
Returns on a mutual fund are by no means guaranteed. In fact, on average, around 75% of all
mutual funds fail to beat the major market indexes, like the S&P 500, and a growing number of
critics now question whether or not professional money managers have better stock-
picking capabilities than the average investor.
Loss of Control:
The managers of mutual funds make all of the decisions about which securities to buy and sell
and when to do so. This can make it difficult for you when trying to manage your portfolio.
For example, the tax consequences of a decision by the manager to buy or sell an asset at a
certain time might not be optimal for you. You also should remember that you are trusting
someone else with your money when you invest in a mutual fund.
Trading Limitations:
Although mutual funds are highly liquid in general, most mutual funds cannot be bought or
sold in the middle of the trading day. You can only buy and sell them at the end of the day,
after they've calculated the current value of their holdings.
Size:
Some mutual funds are too big to find enough good investments. This is especially true of
funds that focus on small companies, given that there are strict rules about how much of a single
company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an
average of $50 million in each, then it needs to find at least 100 such companies to invest in;
as a result, the fund might be forced to lower its standards when selecting companies to invest
in.
Inefficiency of Cash Reserves:
Mutual funds usually maintain large cash reserves as protection against many simultaneous
withdrawals. Although this provides investors with liquidity, it means that some of the fund's
money is invested in cash instead of assets, which tends to lower the investor's potential return.
Too Many Choices: The advantages and disadvantages listed above apply to mutual funds in
general.
However, there are over 10000 mutual funds in operation.
 BANK SAVINGS
 PROS OF BANK SAVINGS
Low-risk:
An FD account is a safe place to park your money, where market risks cannot touch the
investment or the interest. RBI offers insurance for deposits up to Rs. 1 lakh. So, your money is
safe by all means.
Loan against FD:
During emergencies, people rely on investments they can liquidate easily, and FD is one of
them. However, you can avail secured loans against FDs (up to 90% of the amount) at lower
interest. For instance, most banks keep the interest for loans against FDs, just 2% more than that
their current FD rate.
Steady income:
You get the same interest payout throughout your tenure, regardless of the market fluctuations.
The interest sum gets credited annually, monthly or quarterly as per your requirements. More
for senior citizens: Almost every bank offers a higher interest rate to senior citizens. This
appeals to retirees greatly. Example, SBI offers 6-6.75% returns to senior citizens compared to
the 5.25-6.25% it offers regular customers.
Tax perks:
As mentioned above, you can invest in tax-saving fixed deposit for five years to avail 80C tax
deduction.
Option to reinvest:
You can request the bank to transfer the amount to a new FD account, where it will reap more
dividends.
Useful for Planning Short Term Goals:
Investing in a Recurring Deposit is completely risk free and gives guaranteed returns.
Investing in Mutual Funds and Stocks might not be a safe option if you have short term
investment goals. Because of this nature of RD, investors contemplating on short term goals in a
time span of 1 to 3 years choose to involve in Recurring Deposit. Consider the situations given
below, Recurring Deposit might just be the right financial product if you are planning to tackle
short term situations that require financial assistance.
Online Recurring Deposit Features:
With almost all popular banks offering online Recurring Deposit features, investing has just
become easier. The customer can deposit money in Recurring Deposit account, close the RD
account, open another RD, update information, view transactions, deposit details and do much
more online. Think about making an investment and earning interest without even having to
leave your home - investing in a Recurring Deposit is as easy as this.
Recurring Deposit Interest Rates:
Recurring Deposit interest rates depend on the tenure and deposit amount. In most cases, the
Recurring Deposit interest rate is very similar to that of fixed deposits. Interest rates for RD vary
from 7.25% to 9% depending on the bank and the plan chosen by the customer. Also, many
banks offer higher interest rates for senior citizens. You can also use a RD calculator to find
how much interest you will accumulate for the deposit amount, interest rate and tenure
Ease of Investment:
In a Recurring Deposit scheme, the investor has to deposit a fixed sum every month which will
build up a savings discipline. For salaried customers, it will be easier to set aside a particular
amount every month as savings and for this, Recurring Deposit is the best option. Also, RD
schemes come with guaranteed returns and the rate of interest for RD is locked in which will
protect the investor from interest rate swings.
Flexible Recurring:
Deposit Some banks offer flexible Recurring Deposit schemes where the investor will not be
penalized if the amount is not deposited during a particular month. Also, in a flexible RD
scheme, you will be able to withdraw the amount from your RD account anytime you want.
 CONS OF BANK SAVINGS
Returns are not inflation-beating:
Everyone knows that FD is not the best choice for gaining maximum returns. Example, there are
other investment avenues like Equity Linked Savings Scheme (ELSS) that can literally double
your money in the same period while saving your income tax.
Less liquidity:
If you withdraw the FD before maturity, you will lose much of its benefits. Not only will you
earn only part of the promised interest, but the bank will also levy a liquidation fee. Even
partial withdrawal has the same consequences.
Less tax benefits:

Even though it comes under 80C investments, the returns you earn are taxable. A 10% TDS is
deducted on the FD returns if the total interest exceeds Rs. 10,000 in a financial year. For joint
accounts, only the primary account holders can avail tax benefits.
Liquidity:
When you deposit the money in an RD, you will never have the privilege to withdraw any part
of the money until the term of the deposit is over. Hence, if you are looking for an easy liquidity
instrument, recurring deposits are an absolute bad idea. On the other hand, if you want to
discipline your savings this disadvantage may work to your benefit.
Rate of Interest:
The interest rate that you earn on recurring deposit is much lower that regular fixed deposit
schemes, since your deposits are being made in small installments and not as a whole chunk.
Stringent Monthly Installments:
It is not possible in the case of recurring deposits to be able to change your deposit amount,
regardless of your financial situation at the moment. With a fixed amount for investment each
month, someone with chances of extra or less funds for the deposit should be discouraged from
opting for this product.
 MUTUAL FUNDS VS BANK SAVINGS

Mutual Fund vs FD? When thinking of saving money, the first thing that most people
consider doing is investing in fixed deposits (FDs). That‘s usually because it is easy to
understand and is being done since generations. But is it the most appropriate investment?
And does it provide the best returns? Or mutual fund investments can serve the purpose
better?
BANK SAVINGS
Fixed Deposit, also known as FD is a popular bank investment option suitable for both long-
term and short-term investments. FD returns are fixed as the FD interest rate is pre-decided by
the government of India. The interest rate on Fixed Deposits being fixed, there is no effect of
Inflation on these investments. Also, the FD returns are taxable in the hands of investors.
However, FD investments are liable for tax deductions under Section 80C of Income Tax Act.
MUTUAL FUND
Mutual Fund is of three types, Debt, Equity and Balanced Mutual Funds. Debt mutual fund are
those that invest most of the assets in government Bonds, corporate bonds and the rest in
equity markets. Contrarily, Equity Mutual Funds invest more than 65% of its assets in equity
markets and the rest in government bonds, corporate bonds and securities. While Balanced
Mutual Funds are those that invest partially in debt and partially in Equity Funds. Mutual Fund
is an inflation beating instrument, so it is more tax efficient and is expected to offer better
returns on long-term investments.
Which is a Better Long Term Investment?
Now that we know that Mutual Funds and Fixed Deposits (FDs) are both Tax Saving
Investments, the question that arises is - Where should one invest? Though it is a subjective
question and the answer to it may vary from person to person, below is a comparison
mentioned based on various parameters that might help you choose better.
1. Mutual Fund Returns & FD Returns:

The returns on Fixed Deposit is pre-specified and does not change throughout the tenure.
While Mutual Funds, being linked to the financial market, offer better returns on long-term
investments.
2. FD Interest Rates & Mutual Fund Returns:

: The interest rate on FDs are fixed depending on the type of FD or the period of FD, so one
cannot expect higher interest rates on Fixed Deposits. On the other hand, the returns on Mutual
Funds vary as different kinds of funds offer volatile returns. If the market goes high the returns
increase and vice-a-versa.
3. Risk Factors:
Fixed Deposits hardly pose any risk as the returns are pre-determined. Also, if the bank gets
busted all bank accounts are insured up to INR 1 lakh. On the other hand, Mutual Funds carry a
higher risk as they invest their assets in the financial market. Equity Mutual Funds, having
most of its assets invested in equity markets, carry a much higher risk. While investing in Debt
Mutual Funds is less risky, as very less portion of these funds is invested in stock market.
4. The Impact of Inflation:
The interest rate being pre-decided, there is no effect of inflation on Fixed Deposits. While,
for Mutual Funds, the returns are inflation-adjusted that enhances its potential to earn better
returns.
5. Capital Gains:
There are no capital gains possible in the case of FDs. For Mutual funds, capital gains
depend on the holding period. Different Mutual Funds offer varied capital gains.
6. Liquidity:
Fixed deposits are illiquid, as the invested amount is locked for a certain amount of time. If
the money is withdrawn before that period, a certain penalty is deducted. While Mutual
Funds are liquid as they can be sold in a short period of time without causing much
depreciation in the fund value. However, it is important to keep a check the exit loads
applicable on selling a few Mutual Funds.
7. Taxation:
The interest on Fixed Deposit is taxed as per the tax slab of the individual. On the other
hand, Mutual Fund Taxation majorly depends on the holding period. Both Short Term
Capital Gains (STCG) and Long Term Capital Gains (LTCG) are taxed differently.
8. Tax Saving FD's V/S Equity Linked Saving Schemes (ELSS):

For investors who are considering FD's for Tax Saving purpose under section 80c of IT
Act. (5 Year Lock-in) ELSS Mutual Funds are good alternative as they have lock in of 3
Years and has offered better returns historically.
 RETURNS ON BANK SAVINGS & MUTUAL FUNDS

Let‘s talk about the performance of both bank savings and mutual funds. If we look at the rates
from different banks in India, the standard interest rate offered comes at about six percent or
less. The highest interest offered is 8 per cent and by the RBL Bank.
There are several categories of mutual funds, so before we even start comparing it with the FD,
let‘s learn a thing or two about the mutual funds and pros and cons of each category.
Balanced funds are those who divide their investment in such a way that majority of it goes to
equities or stocks and remaining to the debt of cash equivalent investments. Now fund
managers do this to maximize the returns from investments and manage the losses with debt
funds.
This way in a long run, good returns are achieved with moderate risk. Moving further, another
category, debt funds, invest almost everything in cash or debt funds. It reduces the risk and also
creates returns high enough to beat FD investments.
Debt funds offer returns of about 9 percent whereas balanced funds can be as high as 22
percent depending on the market scenarios.
Tax Saving on Returns
Investment instruments are also excellent at saving taxes under Income Tax Act Section 80C.
Both the investments allow tax-saving up to 1.5 lakh of investment, beyond that purchases or
deposits are taxed as per the income slab. Same is applicable for the fixed deposits and mutual
funds, however, there‘s a fundamental flaw in how fixed deposits help you save the taxes.
To understand this, we need to understand about how mutual funds work under the section
80C. If investors are investing for one year or more, the returns generated with balanced or
equity funds is almost zero, whereas, in the case of debt funds, which is FDs closest
competitor, the gains are taxed as per your income slab if sold before three years. Meaning if
you sell your units and redeem the investment after three years that tax is almost negligible and
an investor can enjoy the interest without any worries.
On the other hand, in the case of fixed deposits, the tax is levied as per the user‘s income tax
slab irrespective of the tenure and amount in fixed deposit. Breaking it down in more simpler
form, unlike mutual funds, FDs do not have any provision to let the returns be tax-free after a
particular time frame.
In some of the cases, where an enormous amount of money is invested, fixed deposits could
become a reason for the loss to the investor due to the taxes and inflation.
 SWOT ANAYLSIS
A. MUTUAL FUNDS
Mutual funds are among the financial products that benefit from conducting a SWOT analysis.
By reviewing their strengths, weaknesses, opportunities and threats, an individual investor can
be better informed on where to invest their money, and be positioned to shift gears along with
the market.
Strengths: The most critical strength for a mutual fund is its performance. If a fund is
outperforming the market, and particularly if it is at the top of its benchmark, that is a big
selling point. If the fund is part of a well-established company with a track record of success
and a family of high-performing products, that brand name and historical record may also be a
strength. A best-in-class research department or methodology that has a track record of picking
winners is a huge asset as well. Different financial metrics may be key depending on your
investment style and the fund involved: dividend yield may be the key for one investor, total
return over a 10-year period for another.
Weaknesses: One weakness to look at are your fund‘s fees. A high expense ratio is a weakness
even if it pays for an active management currently beating the market with its returns. Even in
good times, expenses are a drag on investor return, and they will be more difficult to accept if
the performance declines. Size can be a weakness as well, since bigger isn‘t always better. As a
small-cap fund gets bigger, for example, it will have a hard time finding growth opportunities
for all of its assets and may have to close or expand outside of its stated objective. Risk may be
a weakness for some investors looking for a smaller beta or standard deviation.
Opportunities: It's not enough to look at the current numbers when evaluating prospective
mutual funds. You also need to look at the overall market and consider whether the fund is best
positioned to take advantage of trends. A lagging fund may offer the best opportunity for
growth if the combination of a management change and economic trends prove beneficial. A
change in the government regulatory environment not only affects different industries, but the
funds that concentrate in those sectors as well.
Threats: To some extent, many funds move along with general economic news. Some types of
funds do better in a recession while others track well in boom times -- those funds are particularly
threatened by a sudden change in the unemployment rate that undermines consumer confidence
or a stimulus plan that gets people spending again. In addition, if a fund is dependent on a
superstar manager, make sure you have a plan in place if that manager suddenly decides to
leave.
B. BANK SAVINGS
Traditionally, saving in the bank was the only investment option known to people. People
highly depended on the bank for investment. The returns on bank savings depends on the
nature and performance of bank. Therefore, to invest ones money in bank, one must do a
SWOT Analysis of the bank. By reviewing their strengths, weaknesses, opportunities and
threats, an individual investor can be better informed on where to invest their money and
be positioned to shift gears along with the market.
Strengths: In the area of strengths, a SWOT analysis should list the areas where the bank
is succeeding and excelling in reaching its goals. These successes should also be internal
components reflective of the bank‘s physical and human resources. For example, a bank‘s
strengths may be high client retention, higher than average checking account balances, high-
yield bond rates, a user-friendly website, product line diversification, low staff turnover
and low overhead.
Weaknesses: The weaknesses in a bank‘s SWOT analysis should list the areas where the
bank is falling short of reaching its goals or is non-competitive. These areas of
improvement should also be internal components reflective of the bank‘s physical and
human resources. For example, a bank‘s weaknesses may be low customer satisfaction,
poor website features, low staff morale, high loan rates, low brand recognition or a
minimal product line.
Opportunities: The opportunities section in a bank‘s SWOT analysis should list the areas
where the bank has room for growth or could take advantage of opportunities in the
marketplace. These areas ripe for development should be external components reflective of
the current business environment. For example, a bank‘s opportunities may include a
growing economy, new high- yield investment products, banking deregulation, less
competitors in the marketplace or an increase in the average savings rate.
Threats: The threats component in a bank‘s SWOT analysis should list the areas where the
bank has the potential to decline or be harmed by other factors in the marketplace.
CONCLUSION
Whenever the topic of mutual funds vs. bank savings arises, fixed deposits end up walking away
with the favourable vote of confidence. For the longest time, fixed deposits were the only kind
of investments that were regarded as safe and dependable. In this article, we aim to explore this
topic further. If you are someone who grew up in Mumbai,India; we can easily assume that you
are no stranger to the concept of fixed deposits. Any financial advice pouring in from senior
family members probably included fixed deposits as a mandatory investment.
Between mutual funds and fixed deposits, which is a better investment? This seems to be the
most common question asked by investors today. Whenever the topic of mutual funds vs. fixed
deposits arise, fixed deposits end up walking away with the favourable vote of confidence. For
the longest time, fixed deposits were the only kind of investments that were regarded as safe
and dependable.
As the financial markets became more sophisticated with time, the investment choices
continued to grow exponentially. Today there are countless financial products that cater to
various financial needs of the different types of investors. One such investment option is mutual
funds.
Mutual funds are an under-tapped market in India. Despite being available in the market less
than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund
Investments in India published by research and analytics firm, Boston Analytics, suggests
investors are holding back from putting their money into mutual funds due to their perceived
high risk and a lack of information on how mutual funds work. There are 46 Mutual Funds as of
June 2013.
The primary reason for not investing appears to be correlated with city size. Among respondents
with a high savings rate, close to 40% of those who live in metros and Tier I cities considered
such investments to be very risky, whereas 33% of those in Tier II cities said they did not know
how or where to invest in such assets.
The population in India between the age of 21-45 years, have started an early investment. They
are goal oriented and determined to achieve these goals. Unlike the earlier generation, this
generation thrives to be independent, morally and financially too. They look for many
investment options for high returns which in return shall increase their Cash Flow which shall
result in achieving their dreams.
Mumbai, being the financial capital of India, has introduced to various options for investment
to people. Traditionally the investment in banks as saings and term deposit was the only way one
would invest money. Very few of the people were willing to take risk and invest in other than
banks. Banks are generally considered to be a safe place to invest your money as there is
guarantee that money invested with government entity will be secured for a longer period and
there would be minimal loss. People refrained from investing in Mutual funds as the risk factor
was very high and the investment in shares would lead to speculative loss or gain which was
unstable. Stability is the one thing that investors find while they wish to invest in money.
Being a part of todays generation in Mumbai, investment at an earlier age would help in
understanding the market conditions and the returns that in offer. So, in long run these
experiences would help us out in choosing the best investment plan scheme for better future
returns. Mutual funds are highly preferred by todays generation, as it is requires low cost for
investment and the financial institutions help in investment.
So which is better, FD or Mutual Fund?
The decision to invest between a bank FD and a mutual fund depend on the investor‘s risk
capacity and the surplus amount he would like to invest. FD usually requires a lump sum
amount whereas Mutual Funds investments can be done with as low as Rs. 500 per month.
However, it makes a greater sense to invest in Mutual Funds as they offer better returns in the
long-term and you can plan them according to the goals that you would like to achieve.
‗Where to invest‘ is a personal decision, one cannot direct other to invest in particular plan or
scheme. Therefore, the following table shall guide us in choosing the best investment option.
BIBLIOGRAPHY
 https://groww.in/blog/fixed-deposits-mutual-funds-investment/
 https://www.edelweiss.in/investology/introduction-to-mutual-funds-f7d345/mutual-fund-and-
other-traditional-investment-comparison-a0a6e7
 https://www.karvyonline.com/knowledge-center/beginner/fd-vs-mutual-fund
 https://www.amfiindia.com/research-information/mf-history
 https://finance.zacks.com/mutual-fund-swot-analysis-9134.html
 https://finance.zacks.com/advantages-disadvantages-investing-bank-account-4394.html
 https://cleartax.in/s/advantages-disadvantages-mutual-funds
 https://www.moneycontrol.com/news/business/mutual-funds/-1326381.html
 https://www.tarrakki.com/blog/6-different-types-of-returns-in-mutual-funds/
 https://www.investopedia.com/terms/d/deposit.asp
 https://www.indiastudychannel.com/projects/666-a-study-on-mutual-funds-in-india.aspx
 https://www.axismf.com/insights/articles/systematic-methods-of-investments-sip-stp-swp
 https://scripbox.com/mf/mutual-funds-vs-fixed-deposit/

Gupta Nutan Nandu

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PRAHLADRAI DALMIA LIONS COLLEGE OF COMMERCE AND ECONOMICS

a. To Keep Money Safe

b. To Help Money Grow

c. To Minimize the Burden of Tax

d. To Earn a Steady Stream of Income

e. To Save up for Retirement

f. To Meet your Financial Goals

Types of Investment in India:

Public Provident Fund

Public Provident Fund

Employee Provident Fund

National Pension System

 INTRODUCTION TO FINANCIAL SYSTEM

 CONCEPT OF MUTUAL FUNDS

 Meaning of Mutual Fund

What Is an Asset Management Company (AMC)?

Asset management companies are colloquially referred to as money managers or money

 HISTORY OF MUTUAL FUNDS IN INDIA

First Stage 1964-1987 (Growth of UTI)

Stage 2 1987-1993 (Entry of Public Sector Funds)

Stage 3 of 1993-2003 (Emergence of Private Funds)

Stage 4-From Feb 2003

 REGULATORY FRAMEWORK IN INDIA

 INDIAN SECURITIES AND EXCHANGE COMMISSION

 ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI):

 FEATURES OF MUTUAL FUNDS

Portfolio Diversification – Mutual Funds diversifies your investments by investing in

Professional Management – Mutual Funds are managed by qualified experienced

 TYPES OF MUTUAL FUNDS

ii. Close-Ended Funds

ii. Medium risk

f. Based on Investment Objective

vii. Pension Funds

g. Based on Asset Class

iv. Asset allocation funds

 TYPES OF INVESTMENT PLANS IN MUTUAL FUNDS:

A. SIP (SYSTEMATIC INVESTMENT PLAN)

How Systematic Investment Plan works?

SIP - Rupee Cost Averaging

Lump-Sum Investor SIP Investor

Investment Unit Investment Units

1 50 9,000 180 1,000 20

Total Investment Rs.9,000 Rs.9,000

Total Units Purchased 180 188

Average Unit Price Rs.50 Rs.48

Value After 9 Months Rs.9,360 Rs.9,799

B. SYSTEMATIC WITHDRAWAL PLAN (SWP)

SWP is usually available in two options:

Advantages of a Systematic Withdrawal Plan (SWP)

Avoid market fluctuations: - It saves an investor from market fluctuations, as regular

C. STP (Systematic Transfer Plan)

Benefits of a Systematic Transfer Plan

 HOW TO CALCULATE MUTUAL FUND RETURNS?

Example: Calculation of the absolute returns of a Mutual Fund:

(15 – 11) x 100 / 11 = 36.36%

B. Simple Annualized Returns

C. CAGR (Compounded Annual Growth Rate)

Example: CAGR Calculation

Rs.25. Then CAGR will be 29.09% i.e. [(25/15)^(1/2) -1].

Absolute Returns Vs Annualized Returns

D. XIRR (for calculating SIP Returns)

Let us take an example:

Returns on SIP (Systematic Investment Plans)