INTRODUCTION Investment can be defined as an item of value purchased for income or capital appreciation, Investments are made to achieve a specific objective and savings are made to meet an unforeseen event. ‘There are various avenues of investments in aecordance with individual preferences. Investments are made in different asset classes depending on an individual's risk and return characteristics Investment choices are physical assets and financial assets Gold and Real estates are examples of physical assets, which have a physical form to them. There is a strong preference for these assets, as these assets can be purchased with cash and held for a long term. The obvious disadvantages with physical assets are the risks of loss and theft, lower levels of return; illiquid secondary markets; and adhoc valuations and transactions. Financial assets are securities, which are certificates embodying a financial contract between parties. Bonds, Equity shares, Deposits and Insurance policies are some of the examples of financial assets. In financial assets investors only hold the proof of their investments in the form of'a certificate or account. These products are usually liquid, transferable and in most cases, stored electronically with high degree of safety. Buta minimum amount of cash is always kept in hand for nd conti transactions yencies. To face the contingencies and unexpected events the insurance came into istence. Another avenue of investment is mutual funds. It is created when investors put their money together. It is therefore a pool of the investor’s funds. The most important characteristics of a mutual fund is that the contributors and the beneficiaries of the fund are the same class of people, namely the investors The term mutual means that investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors is the mutual fund.A mutual fund pools the money of people with similar investment goals. The money in tum is invested in various securities depending on the objectives of the mutual fund scheme, and the profits (or loss) are shared among investors in proportion to their investments. ‘Mutual fund schemes are usually open-ended (perpetually open for investments and redemptions) or closed end (with a fixed term). A mutual fund scheme issues units that are normally priced at Rs.10 during the initial offer. Thus, the number of units you own as against the total number of units issued by the mutual fund scheme determines your share in the profits or loss of a scheme. In the case of open-end schemes, units can be purchased from or sold back to the fund at a Net Asset Value (NAV) based price on all business days. ‘The NAV is the actual value of a unit of the fund on a given day. Thus, when you invest in a mutual fund scheme, you normally get an account statement mentioning the number of units that have been allotted to you and the NAV based price at which the units have been allotted. The account statement is similar to your bank statement. ‘Mutual funds invest basically in three types of asset classes: ‘Stocks: Stocks represent ownership or equity in a company, popularly known as shares. Bonds: These represent debt from companies, financial institutions or Government agencies.Money market instruments: These include short-term debt instruments such as and inter-bank call mon treasury bills, certificate of deposit A mutual fund’s business is to invest the funds thus collected, according to the wishes of the investors who created the pool. In many markets these wishes are articulated as investment mandates, these mutual funds is done here Analysis of The perception towa -stors look before inv Iso be ictors the inv Even what in this proje ing can observed.To study the level of awareness of mutual funds To analyse the perception of investors towards mutual funds, ‘To study the factors considered by the investors and those which ultimately influence him while investing, ‘To determine the type of mutual fund investor prefers the most RESEARCH METHODOLOGYPrimary data is data that is tailored to a company's needs, by customizing true approach focus groups, survey, field-tests, interviews or observation, Primary data delivers more specific results than secondary research, which is an especially important consideration when one launching a new product or service. In addition, primary research is usually based on statistical methodologies. The tiny sample can give an accurate representation of a particular market, Secondary data is based on information gleaned from studi previously performed by government agencies, chambers of commerce, trade associations and other organizations. This includes census bureau information. Much kind of this information can be found in libraries or on the web, but looks and business publications, as well as magazines and newspapers, Analysis of individual investment patterns ean be done by this primary data analysis. In this project E have done a survey with a questionnaire with a sample size of 100 individuals who are employees and tax payees, The questionnaire includes the economic status of the individuals, age group, marital status, investments made etc, As Karvy sceurities ltd. distributes several investment products like mutual funds, insurance, shares, debentures ete, This survey will help them in developing marketing strategies for their investment productsLIMITATIONS Geographic Scope: The sample used for the study has been taken from the investors of the twin cities Hyderabad and Secunderabad. Frame work: Sampling frame (ie the list of population members) from which the sample units are selected was incomplete as it takes into consideration only those (target investors) who have made their investments during March and April 2000. Although adequate care was taken to elicit the accurate information from the respondents, some of them have felt difficulty in crystallizing their feelings into words. Apart from the problem faced in articulating, it is the validity of the feedback can be speculated. Despite the above limitations the study is useful in that it does point out the trends and helps to identify the dimensions for improving the scope of mutual funds.THEORITICAL BACKGROUND Mutual fund is a mechanism for pooling the resources by is suing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. A mutual fund is an investment vehicle for investors who pool their savings for investing in diversified portfolio of securities with the aim of attractive yields and appreciation in their value. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced Mutual funds issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit-holders. The profit or losses are shared by the investors in proportion to their investments, The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time, A mutual fund is required to be registered with securities and exchange board of India ‘A mutual fund is setup in the form of a trust, which has 1, Sponsor 2. Trustees 3. Asset Management Company and 4, Custodian, The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of mutual fund hold its property for the benefit of the unit-holders. Asset management company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Respective asset management companies (AMC) management mutual fund schemes. Different business groups have sponsored these AMC s. some international funds are also operation independently in India like Aliens and ‘Template 10A BRIEF HISTORY OF MUTUAL FUND The concept of" mutual fund” is a new feather in Indian capital market but not to international capital markets, The formal origin of mutual funds ean be traced to Belgium where society generated Belgium was established in 1822 as an investment company to finance investments in National Industries with high associated risk. The concept of mutual funds spread to USA in the beginning of 20" century and three investment companies were started in 1924 since then the concept of mutual funds has been growing all around the world In India, first mutual fund was started in 1964 when unit trust of India (UTI) was established in the similar line of operation of the UK. The term *Mutual fund" has not been explained in British literature but it is considered as synonym of investment trust of DEFINITIONS The concept of mutual fund has been defined in various ways “The mutual fund as an important vehicle for bringing wealth holders and deficit units together indirectly” Mr. James pierce “Mutual fisnd as financial intermediaries which being a wide variety of securities with in the reach of the most modest of investors” ..Frank Relicy According to SEBI mutual fund regulations 1993, “Mutual fund means a fund established in the form of trust by sponsor to raise moneys by the trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulationsCONCEPT OF MUTUAL FUNDS A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal, The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income eared through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund; Investors passed e pool their back to money with Returns@® Grrsceas: Generates Invest in SecuritiesA transfer agent is employed by a mutual fund to maintain records of shareholder accounts calculate and disburse dividends and prepare and mail shareholder account statements, federal income tax information and other shareholder notices. Custodian Mutual funds are required by law to protect their portfolio securities by placing them with a custodian, Nearly all mutual funds use qualified bank custodians, Unit Holder A person who is holding units in a scheme of a mutual fund, CLASSIFICATION OF SCHEMES * ByStructure Open-ended ‘A scheme where investors ean buy and redeem their units on any business day. Its units are not listed on any stock exchange but are bought from and sold to the mutual fund. Close-cnded A mutual fund scheme that offers a limited number of units, which have a lock- in period, usually of three to five years. The units of closed-end funds are often listed on one of the major stock exchanges and traded like securities at pr which may be higher or lower than its NAV In India 90% of the schemes is open-ended fund and the rest 10% is close-ended funds. There are 1062 open- ended funds and 119 close-ended funds.TYPES OF MUTUAL FUND SCHEMES BY STRUCTURE * Open + Ended Schemes * Close - Ended Schemes + Interval Schemes BY INVESTMENT OBJECTIVE, * Growth Schemes * Income Schemes * Balanced Schemes * Money Market Schermes OTHER SCHEMES + ‘Tax Saving Schemes © Special Schemes Index Schemes Sector Specfic Schemes, By Objective A scheme can also be cl ified as growth scheme, income scheme, or balanced scheme considering its investment objective, Such schemes may be open-ended or clos -ended schemes as described earlier, Such schemes may be classified mainly as follow: Growth / Equity Oriented Scheme The aim of growth funds is to provide capital appreciation over the medium to long- tem, Such schemes nonnally invest a major part of their corpus in equities. Such funds have comparatively high risks, These schemes provide different options to the investors like dividend option, capital appreciation, ete and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form, The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time,Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates: fall, NAVs of such funds are likely to inerease in the short run and viee versa, However, long-term investors may not bother about these fluctuations. Balanced Fund uch, The aim of balanced funds is to provide both growth and regular income schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents, These are appropriate for investors looking for moderate growth They generally invest 40-60% in equity and debt instruments. The funds are also affected because of fluctuations in share prices in the stock markets, However, NAVs of such funds are likely to be less volatile compared to pure equity funds. Money Market or Liquid Fund These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short 1m instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank eall mone; urities, ete, Returns , government on these schemes fluctuate much less compared to other funds, These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods Gilt Fund These funds invest exclusively in govemment securities. Government securitiesone rune ies. Government securities ‘These funds invest exclusively in government securi have no default risk. NAVs of these schemes also fluctuate duc to change in interest rates and other economic factors as, is the case with income or debt oriented schemes. Index Funds Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), ete These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as “tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the nvutual funds that are traded on the stock exchanges. AVENUES OF INVESTMENTS Savings form an important part of the economy of any nation, With the savings invested in various options available to the people, the money acts as the driver for growth of the country, Indian financial scene too presents a plethora of avenues to the investors. Banks: Considered as the safest of all options, banks have been the roots of the financial system in India. For an ordinary person though, they have acted as the safest investment avenue wherein a person deposits money and earns interest on it. One and all have effectively used the two main modes of investment in banks, savings accounts and fixed deposits. However, today the interest rate structure in the 7country is headed southwards, keeping in line with global trends, With the banks offering little above 7% in their fixed deposits for one year, the yields have come down substantially in recent times. Add to this, the inflationary pressures in economy and you have a position where the savings are not earning, The inflation is creeping up, to almost 8% at times, and this means that the value of money saved goes down instead of going up. This effectively mars any change f gaining from the investments in banks. Post office Schemes Among all saving options, post offi hemes have been offering the highest rates, Added to it is that the investments are safe with the department being a eatures, those government of India entity, So the two basic and most sought f of return safety and quantum of returns were being handsomely taken care of Public Provident Funds act as options to 3% ve for the post retirement period for mest people and have been considered good option largely due to the fact that returns were higher than most other options and also helped people gain from tax benefits under various sections, The following are the post office avings schemes available for the investors: Monthly Income scheme: This scheme offers an interest of 8%p.a, payable monthly and a bonus of 10% payable at maturity afier 6 years, There is no tax deductible at source (TDS) applicable on investments made in this scheme. National Savings Scheme: This scheme offers an interest of 8% p.a; compounded half yearly and payable at maturity in 6 years, Post Office Time Deposits: ‘There are 4 options available to investors depending on the term of investmentPost Office Time Deposits: ‘There are 4 options available to investors depending on the term of investment desired by the investor. They are: 1 year) this gives an interest of 6.25% pia 2 year) This gives an interest of 6.5% p.a 3 year) This gives an interest of 7.25% p.a 4 year) This ives an interest of 7.5% p.a Kisan Vikas Patr: An important feature of this scheme is that it assures that the money invested doubles in 8 years and 7 months. Public Provident Fund: This scheme gives a return of 8% per annum, compounded annually for maturity of 15 years. Government of India Bonds: ‘The GOI Bonds have the following investment options: 6.5% Tax free bonds There is no ceiling on the amount of investment in these bonds. The effective yields of these bonds are 9.28% p.a for the period of $ years and premature cencashment option available to investors only after the completion of 3 years8% Taxable Bonds These bonds do not have any TDS charged on them. There is no maximum. limit of investment in these bonds but there should be a minimum investment of Rs. 1, 000. The maturity period is 6 years. The investor has the option of interest payable half yearly or cumulative. The investors can also avail tax benefit under section 80L of income Tax Act, up to Rs. 15,000. ‘Company Fixed Deposits: ‘Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. The safer a company is rated, the lesser the return offered has been the thumb rule. However, there are several potential radblocksin these The danger of financial position of the company not being understood by the investor lurks, 1. Liquidity is a major problem with the amount being received monthly after the due dates. 2. The safety of principal amount has been found lacking, Stock markets: Stock markets provide an option to invest in a high risk, high retum game. While the potential retum is much more than 10-11% any of the options discussed above can generally generate, the risk is undoubtedly of the highest onder. However, as it might appear, people generally are clueless as to how the stock market finetions and in the process can endanger the hard-earned money. For those who are not adept at understanding the stock market, the task of generating superior retums at similar levels of risk is arduous to say the least. This is where mutual funds come into picture. 20 COMPARISION OF OTHER AVENUES WITH MUTUAL FUNDS‘The mutual fund sector operates under stricter regulations as compared to most other investment avenues. Apart from offering investors tax efficiency and legal comfort, how do mutual funds compare with other products’? Company Fixed Deposits versus Mutual Funds Fixed deposits are unsecured borrowings by the company accepting the deposit, Credit rating of the fixed deposit program is an indication of the inherent default risk int he investment. The money of investors in a mutual fund scheme are invested by the AMC in specified investments under that scheme, These investments are held and managed in-trust for the benefit of the scheme’: investors, On the other hand, there is no such direct correlation between a company's fixed deposit mobilization, and the avenues where it deploys these resources. There can be no certainty of yield, unless a named guarantor assures a return or to a lesser extent, if the investment is in a serial gilt scheme. O the other of hand, the retum under a fixed deposit is certain, subject only to the default ri the borrower, ‘The basic value at which fixed deposits are encashable is not subject to market risk, However, the value at which units of a scheme are redeemed entirely depends on the market. If securities have gained value during the period, then the investor can even eam that is higher than what she anticipated when she invested. Conversely, she could also end up with a lo Early encashment of fixed deposits is always subject to a penalty charged by the company that accepted the fixed deposit, Mutual fund schemes also have the option of charging a penalty on “early” redemption of units (by way of an “exit load”),Bank Fixed Deposits versus Mutual Funds ___ Bank fixed deposits are similar to company fixed deposits, The major difference is that banks are more stringently regulated than are companies. They even operate under regarding Statutory Liquidity ter requirements ratio(SLR) and Cash Reserve Ratio (CRR) mandated by RBI While the above are for comfort, bank deposits too are subject to default risk, However, given the political and economic impact of bank defaults, the government as Well as Reserve Bank of India (RBI) ties to ensure that banks do not fail Further, the Deposit insurance and Credit Guarantee Corporation (DICGC) protect bank deposits up to Rs. 100,000, The monetary ceiling of Rs.100,000 is for all the deposits in all the branches of a bank, held by the depositor in the same capacity and right. Bonds and Debentures versus Mutual funds As in the case of fixed deposits, credit rating of a bond or debenture is an indication of the inherent default risk in the investment, However, unlike fixed deposits, bonds and debentures are transferable securities. While an investor may have an early encashment option from the issuer ( for instance through a “put” option), liquidity is generally through a listing in the market, implications of this are: The value that the investor would realize in an early exit is subject to market risk. The investor could have a capital gain or a loss. This aspect is similar to a mutual fund scheme. A hypothecation or mortgage of identified fixed and / or current assets could back debt securities, e. secured bonds or debentures. In such a case, if there isa default, the identified assets become available for meeting redemptionthere is a default, the identified assets become available for meeting redemption requirements. An unsecured bond or debenture is for all practical purposes like a fixed deposit, as far as access to assets is concerned. A custodian for the benefit of investors in the scheme holds the investment ‘of a mutual fund scheme. Equity versus Mutual fund Investment n both equity and mutual funds are subject to market risk Investment in an open-end mutual fund eliminates this direct risk of not being able to dell the investment in the market. An indirect risk remains, because the scheme has to realize its investments to pay investors. The AMC is however in a ituation. Further, on account of various SEBI better position to handle the s regulations, such as illiquid securities are likely to be only a part of the scheme's portfolio. Another benefit of equity mutual fund scheme is that they give investors the benefit of portfolio diversification through a small investment.RISK AND RETURN GRID: An investor has mainly three investment objectives. 1. Safety of Principal 2, Return 3. Liquidity BANKS FIXED] BONDS AND] EQUITY MUTUAL DEPOSIT | DEBENTURE | MARKET FUND s Retums Tow Tow to] Low to | Moderate to high | Better Moderate_| moderate Administrativ | High ‘Moderate | Moderate to | Low 10] Low e expenses toHigh | high Moderate Risk Low Low 0] Low to | High Moderate Moderate _| moderate Investment | Less Few Few Many More options Network Tigh Tow Low Low but] Low but penetratio | penetratio | penetration | improving fast | improving, Liquidity ‘Atacost | Low Low to| Moderate to | Better moderate High Quality of [Not Not ‘Not transparent | Transparent "Transparent Assets transparent | transparent Guarantee | Maximum ‘None Rs Lakh Pricing The net asset value of the fund is the cumulative market value of the asset fund net of its liabilities, In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own, This gives rise to the cor ept of the net asset value per Unit, which is the value, represented by the ownership of one unit in the fund, tt is calculated simply by dividing the net asset value of the fund by the number of units, However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”, We also abide by the same convention Calculation of NAV 4 ‘The most important part of the calculation is the valuation of the assets owned by the fund. Onee it is calculated, the NAV is simply the net value ofCalculation of NAV ‘The most important part of the calculation is the valuation of the assets imply the net value of owned by the fund. Once it is calculated, the NAV is assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value = (Value of investments+ receivables+ accrued income+ other current assets- liabilities- accrued expenses) /Number of units outstanding. Number of options available Mutual funds invest according to the underlying investment objective as specified at the time of launching a scheme, Mutual fund have equity funds, debt funds, gilt funds and many others that cater to the different needs of the investor While equity funds can be as risky as the stock markets themselves, debt funds offer the kind of security that is aimed for at the time making investments. The only pertinent factor here is that the fund has to be selected keeping the risk profile of the investor in mind because the products listed above have different risks associated with therm. Diversification Diversification reduces the risk because all stocks don't move in the same direction at the same time. One can achieve this diversification through a Mutual Fund with far less money that one can on his own, Professional ManagementMatual Funds employ the vices of the illed professionals who have years of experience to back them up, They use intensive rescarch techniques to analyze each investment option for the potential of returns along with their risk levels to come up with the figures for the performance that determine the suitability of any potential investment Potential of returns Retums in the mutual are generally better than any option in any other avenue over a reasonable period of time, People can pick their investment horizon and stay put in the chosen fund for the duration Liquidity The investors ean withdraw or redeem money at the Net Asset Value related prices in the open-end schemes. In the Closed-end Schemes, the units can be transucted at the prevailing market price on a stock exchange. Mutual Fun also provide the facility of direct repurchase at NAV related prices. Well Regulated The Mutual Fund industry is very well regulated. All investment has to be accounted for, decisions judiciously taken, SEBL acts as a true wateh dog in this cas and can impose penalties on the AMC’s at fault, The regulations designed to protect the investors interests are implemented effectively. ransparency Being under a regulatory frame work, Mutual Funds have to disclose their holdings, investment pattem and all the information that can be considered as ‘material, before all investors, This means that investment s ategy, outlooks of the markets and scheme related details are disclosed with reasonable frequency. to ensure that transparency exisis in the system, 20 Flexible, Affordable and Low cost Mutual Funds offer a r latively less expensive way to invest when compared to other avenues such us capital market operations, ‘The fee in terms ofMutual Funds employ the services of the skilled professionals who have years of experience to back them up. They use intensive n analyze each investment option for the potential of returns along with their risk levels to come up with the figures for the performance that determine the suitability of any potential investment Potential of returns Returns in the mutual are generally better than any option in any other avenue over a reasonable period of time, People can pick their inves ment horizon and stay put in the chosen fund for the duration, Liquidity ‘The investors can withdraw or redeem money at the Net Asset Value end Schemes, the units can related prices in the open-end schemes, In the Closed: be transacted a al Funds the prevailing market price on a siock exchange. Mu also provide the ficility of direet repurchase at NAV related prices. Well Regulated ‘The Mutual Fund industry is very well regulated, Al investment has to be accounted for, decisions judiciously taken, SEBI acts as « true watch dog in this, case and can impose penalties on the AMC’ fault, The regulations designed to protect the investors interests are implemented effectively, ‘Transparency me work, Mutual Funds have to disclose their Being under a regulatory fi holdings, investment pattem and all the information that ean be considered as material, before all investors, This means that inves ment strategy, outlooks of the markets and scheme related details are disclosed with reasonable frequency to ensure that transparency exisis in the system, Flexible, Affordable and Low e Mutual Funds offer a relatiy re ote avenues sueh ye cui muro operations “The fee ines of cly loss expensive way to invest whenStandard Chartered Mutual Fund ‘Schemes: Grindlays cash fund: It is an Open-ended Income scheme with high liquidity. A scheme that invests in money market instruments like Treasury Bills, Call money, Repos , Short-term Corporate Debentures, Commercial Papers, Certificate of Deposits, ete that provide a high level of stability and easy liquidity Tax: The GCF is also very taxed efficient. It comes with a daily (compulsory reinvestment), Weekly (compulsory reinvestment), Monthly and Bi-monthly dividend options. Each day gains are declared in the form of dividends and then reinvested after netting it off against Dividend Distribution Tax (currently 20.91%).This dividend is completely tax free, So the net tax incidence is just 20.91% as compared to 36.5925% for comparable non mutual fund option Grindlay Eloating Rate Func! I sect strategy by creating a portfolio that is substantially invested in good quality © generate stable returns with a low ris floating rate debt or money market instruments, fixed rate debt and money market instruments, 46 GFRF primarily invests in Floating rate debentures and bonds, Short tenor fixed rate instraments and long tenor fixed rate instruments swapped to floating rate. Plans: The fund comes in two plans > Short term plan for investors with a time horizon of 1-0 months. > Long term plan for investors with atime horizon of beyond months,GFRF primarily invests in Floating rate debentures and bonds, Short tenor fixed rate instruments and long tenor fixed rate instruments swapped to floating rate, sin two plans ort term plan for investors with a time horizon of 1-6 months > Long term plan for investors with a time horizon of beyond 6 months. Grindlays Debt Funds; Debt funds are finds that invest only in debt securities and are designed to pri narily protect your capital and provide better returns by investing in high quality debt securities Operations of Debt funds: There are two important sources of revenue that a debt fund earns: a) Interest income When you invest in a Bank / Company deposit, it offers you a fixed rate of interest with the principal being returned on maturity, Similarly when a debt fund invests in various debt securities the issuers of these securities offer a rate of interest and the principal on maturity. The issuers of these securities could either could either be various corporates like Reliance, Hindalco, ICICI, Bharat Petroleum or the Government of India. b) Mark to Market gain/loss As interest rates on bank fixed deposits change frequently so do interes rates on debt securities. Interest rates and debt security prices are in faet the two sides in fall when interest rates rise and rise when interest rates seesaw, In general, prilower interest rates than existing bonds. Consequently old bonds would be dearer and hence prices of these older bonds would rise. Similarly if interest rates were to raise then value of old bonds would: newer bonds would bear higher interest rates. The traded price ofa bond may thus differ from its face value. The longer a bonds period to maturity, the more its price tend to fluctuate as market interest rates change, DSP Merrill lynch Mutual Fund: Schemes Liquidity Fund: It is an open-ended fund liquid scheme seeking to generate a reasonable return commensurate with low risk and high degree of liquidity from a portfolio constituted of money market securities and high quality debt s curities, Hloating rate Fund: It is an open-ended income scheme seeking to generate income commensurate with prudent risk from a portfolio substantially constituted of floating rate debt securities and fixed rate debt securities swapped for floating rate returns, The scheme may also invest in fixed rate debt securities and money market securities. Short term Fund: It is an open-ended income scheme seeking to generate income commensurate with prudent risk, from a portfolio constituting of money market securiti floating rate debt securities and debt securitie: Bond fund: 48Tt is an open-ended income scheme seeking to generate an attractive return, consistent with prudent risk from a portfolio, which is substantially constituted of high quality debt securities of issuers predominantly domiciled in India. Equity Fund: Itis an open ended growth scheme seeking to generate long term capital appreciation, from a portfolio which is substantially constituted of equity and equity related securities of issuers domiciled in India. The scheme may also invest a certain portion of corpus in debt and money market securities, in order to meet liquidity requirements from time to time It is an open ended growth scheme whose primary investment objective is to seek to generate capital appreciation, from a portfolio that is substantially constituted of equity securities of corporates, which could benefits from structural changes brought about by continuing liberalization in economic policies by the government and / or from continuing investments in infrastructure, both by public and private sector. 49It is an open-ended equity linked saving scheme with a lock-in period of 3 yrs seeking to generate long term growth of capital, HDEC Gilt Fund: It is an open-ended income scheme seeking to generate credit risk-free returns through inv stments in sovercign securities issued by central government or state government. Birla Sun Life Mutual Fund: Schemes It is an open-ended diversified equity fund and portfolio remains over wait across banks MNC pharma, IT and Telecom. Birla Dividend Yield Plus: Itis an open-ended growth scheme investing in high dividend yield companies and continuously having a positive outlook on banking sector It is an open ended growth scheme investing primarily in mid cap stocks and the portfolio remains well diversified across pharmaccutical, banking, consumer non durable, IT, Hotels, Birla MNC Fund: It is an open-ended growth scheme investing in multi national companies and the portfolio remains over weight across consumer non-durable, IT, Agro chemicals. Birla Gilt Plus: StIt is an open-ended go scheme, ment security Birla Equity Plan: It is an open-ended equity linked savings scheme with a lock-in for three years, Kotak Mutual Fund Schemes: Kotak 30: It is an open-ended equity growth scheme seeking to generate capital appreciation from a portfolio of predominantly and equity related securities with investment in, generally, not more than 30 stock: It is an open-ended equity growth scheme seeking to generate capital appreciation from a diversified portfolio of equity and equity related securities. Kotak Global India: Itis an open-ended growth scheme seeking to generate capital appre ion from a diversified portfolio of equity and equity related securities issued by globally competitive Indian companies. Kotak Liquid: It is an open-ended debt scheme to provide reasonable returns and high level of liquidity by investing in debt and money market instruments of different maturities so as to spread the risk across different kinds of issuers in debt markets.Schemes:Cholamandalam growth fund; It is an open ended scheme seeking to generate long term capital appreciation, income through investments in equity & equity related instruments; the secondary objective is to generate some current income and distributive dividend. Chola midcap fund: It is an open ended scheme seeking to generate capital appreciation by investing primarily in mid cap stocks, The scheme willl invest primarily that have a market capitalization between Rs.300 crores to Rs. 3000 crore, Chola opportunities fund; It is an open ended scheme which will invest mainly to generate long term capital appreciation from a diversified portfolio of equity and equity related securities. Chola Multi-cap fund: It is an open-ended growth scheme which will provide long term capital ting in a well diversified portfolio of equity and equity appreciation by inv related instruments across all ranges of market capitalization, Chola Gilt investment plan:by investing in Govemment securities. Chola monthly income plan: Itis an open-ended growth scheme seeking to generate monthly income through investment in range of debt, equity and money market instruments, CHOOSING FUNDS When it comes down to it, the decision to invest in a mutual fund is one you have to make on your own, When you try to choose an investment, however, it is a good idea to seck the guidance of a financial advisor who will review its objective to make sure it supports your financialgoal.. As an investor, your goals are unique, and a financial advisor can help match you with the best funds. Remember, however, when you are choosing funds, to consider how much risk you are comfortable with and when you'll need the money. If'you have the time to weather the market's ups and downs, you may want to consider equity investments, Before you select a mutual fund, itis essential to read the prospectus carefully to lear all you can about the fund's performance, investment goals, and expensi DECISION MAKING FACTORS WHILE INVESTING IN MUTUAL Before looking at the mutual funds available to you, it may be best to decide the mix of stock, bond, and money market funds you prefer. Some experts believe this is the most important decision in investing. Here are some general points to keep in mind when deciding what your investment strategy should be. 34invest in different types of securities. Stocks, bonds, and money market securities work differently. Each offers different advantages and disadvantages. You may also want to diversify within the same class of securities. Diversifying can keep you from putting all your eggs in one basket and therefore, may increase your retums over along period of time. Consider the effects of inflation. Since the money you set aside today may be intended to be used several years down the road, you need to look at inflation. Inflation measures the increase of general prices over time. Conservative investments like money market funds often may be popular because they are managed to keep a steady value. But theirreturn after accounting for the inflation rate can be very low, perhaps even negative. For example, a4% flation rate over a period of many years could erase a noney market fund's 3% yield over the same period of time. So even though such an investment may give some safety of principal, it may not be able to grow enough in value over the years or even keep up with the rate of inflation. Patience is a virtue. I's no secret—the prices of common stocks can change quite a bit from day to day. Therefore, the part of your account invested in stock funds would likely fluctuate in value much the same way. Ifyou don't need your money right away (for at least 5 years), you probably don't need to panic if the stock market declines or you find that your quarterly statement shows the value of your investment has fallen. In the past, the stock market has regained lost value over time. Although you are not assured it will do so in the future, try to be patient and allow your stock funds time to recover. aRemember the saying, "buy low, and sell high." Switching out of a stock mutual fund when prices are low is usually not the way to make the most of your investment. Of course, if a fund continues to under-perform over time as well as your other fund choices, you may wantto consider changing —_funds. Look at your age, Younger investors may be more at ease with stock funds. because they have time to wait out the short-term ups and downs of stock prices By investing ina stock fund, they might be able to receive high returns over the long-term. On the other hand, people who are closer to retirement may be more interested in protecting their money from possible drops in prices, since they'll need to use it soon. In this case, it may be wise to place a greater percentage of money in bond and/or money market funds, which may not have such large changes in value. How can you determine an investment mix appropriate for your age? One way is to subtract your age from 100, The answer you come up with may be a good number to start with in deciding what portion of your total investments to put into stock" mutualfunds. Risk, When you are choosing funds, be sure to consider how much risk you are comfortable with and how close you are to retirement, If retirement is around the comer, you may want a portfolio with very little risk. On the other hand, if you are younger, and have the time to weather the market's ups and downs, you may want to choose a more aggressive investment strategy. READ FUND DOCUMENTS Your primary source of data concerning the mutual fund will be the prospectus. Itis a legal document illustrating the rules and regulations that a mutual fund must follow and contains information on the fund's goal and strategy, risks. sperformance, financial highlights fees and expenses, and a wide variety of information that you should know before investing. What are the fund’ s goal and strategy? Goals vary from fund to fund, and they can decide if they match your personal objectives. Some funds generate ‘¢ important to understand so you income for their shareholders, while others concentrate on capital appreciation. Some focus on a combination of the two, and others are oriented towards tax benefits or preservation of capital. Funds also implement differing strategies to help accomplish their goals. The Goals and Strategies section of a prospectus details the types of securities in which fund managers can invest and how managers analyze them Funds can be limited to domestic investments, focus on a certain country or region, or invest anywhere in the world. In addition, some funds invest only in specific industries or in particular types of companies. Others invest in large-, medium- or small-capitalization companies. What are the risks? As with all investments, each fund, whether domestic, international or sector specific, carries different risks. The Main Risks section of a prospectus explains which ones are associated with the securities in that particular fund, which may help you decide what level of risk you're comfortable having in your investment portfolio. How has a fund performed?While historical performance doesn't predict how a fund will do in the futur you may be interested in how it performed in past market environments Depending on the age of the fund, a prospectus will provide its 1 5~and 10-year average annual returns, including a comparison to its benchmark index over the same period, What are financial highlights? In this seetion a prospectus lists § years of annual financial information, if a fund is less than 5 years old, provides data since inception, Information includes net t values at the beginning and end of each year, and details the gains or lo ividends and distributions that account for any changes. ancial Highlights also show fund asset information such as net assets ratios to average net assets for expenses and net investment income, and portfolio turnover rates, What are the expenses of a fund? Operating a fund entails some costs you should be aware of, The Fees and Expenses section breaks out these costs and who pays them. In addition, an example of fund expenses is provided to help you compare the cost of investing in one fund versus another. Who's managing the fund? In the Management section, a prospectus gives a br £ biography of a fund’ managers, including how long they have worked on the fund and their overall industry experience. .MARKET SEGMENTATION ss Market segmentation is the division of market into homogeneous groups, which will respond differently to promotions, communications, advertising and other marketing mix variables. A different marketing mix ean ta et each group,Market segmentation is the division of market into homogeneous groups, which will respond differently to promotions, communications, advertising and other marketing mix variables. A different marketing mix can target cach group, or “segment”, because the segments are created to minimize inherent differences between respondents within cach segment and maximize differences between each segment, Market segmentation was first described in the 1950's. when product differentiation was the primary marketing strategy used. In the 1970s and 1980's, market segmentation began to take off'as a means of expanding sales and obtaining competitive advantages. Uses of Market Segmentation There are many good reasons for dividing a market into smaller segments. The primary reasons: Easier marketing It is easier to address the needs of smaller groups of customers, particularly if they have many characteristics in common (e.g, seek the same benefits, same age, gender, etc.). Find niches Identify under-served or un-served markets. Using “niche marketing”, segmentation can allow a new company or new product to target less contested buyers and helps a mature product seek new buyers. Efficient More efficient use of marketing resources is by focusing on the best segments for the investor offering—produet, price, promotion, and place (distribution), Segmentation can help avoid sending the wrong message or sending message to the wrong people. Classification variablesClassification Variables are used to classify survey respondents into market segments. Almost any demographic, geographic, Psychographic or behavioral variable can be used to classify people into segments Demographic variables — Age, gender, income, ethnicity, martial status, education, occupation, household size, length of residence, type of residence, ete. Geographic variables — . slate, zip code, census tract, country, region, metropolitan or rural location, population density, climate, ete Psychographic variables — Attitudes, lifestyle, hobbies, risk aversion, personality traits, leadership traits, magazines read, television programs watched, PRIZM clusters, ete Behavioral variables ~ Brand loyalty, usage level, benefits sought, distribution channels used, reaction to marketing factors, ete. Summary Target marketing or market segmentation based on customer needs and wants can increase profits. Target market identifies customer groups and the reasons hey purchase. Market segmentation helps a business be more responsive to changing customer needs. An overall marketing plan or strategy visually shows how all aspects of a marketing effort work together. The ultimate goal of any business isto sell the product or servive PRIMARY DATA FOR THE PROJECT: For the customized needs o the project, primary data was collected through a survey in the twin cities of Hyderabad & Secunderabad, A Random sample of 100 investors were surveyed. They were all asked to answer a questionnaire truc to their knowledge, The feedback obtained from the customer ‘was instrumental, gauging the perception of the investors towards mutual funds, 0 Italso throws light on the factors, which influence them to make devisions while investing, Further the interaction with few of the investors goes a long way inIt also throws light on the factors, which influence them to make decisions while investing. Further the interaction with few of the investors goes a long way in understanding the inlaid reasons for their decisions, SECONDARY DATA: The main sourc of secondary data are the web sites of various mutual fund hor like cholamandalam mutual fund, Franklintempletonindia, ICICI, BIRLA SUNLIFE, KOTAK and more such houses. Many references were collected ftom different libraries to gain an insight on mutual funds, Previous studies conducted in this field provided valuable help, In addition to the above sources, Working with Karvy associates and interaction with their personnel provided a pragmatic edge to my theoretical concepts, Survey Details Total Sample Size 100 Economic Status Criterion Tax payees & Non tax payees. Age groups 23 years and above Martial Status Criterion Married, Married with children & UnmarriedFACTORS CONSIDERED BY INVESTORS WHILE INVESTING ‘ral factors while investing in any of the products as siders se Every investor con it deals with the most important need of life “money”. The five main factors that were considered are: 1, Safety & security 2. Tax exemption 3, Liquidity 4. Profitability 5. Return pattern Factors considered by investors While investing u 1% 14%| 49% nn z Safety & security "Tax exemption 5 Liquidity 4 Profitability ™ Return pattern.SAMPLE SIZE 100 ECONOMIC STATUS TAX PAYEES AND NON-TAX PAYEES The above graph shows that 31% people consider safety & security as the main factor while inves ng, 26% goes for Tax exemption, 17% considered return pattern in the investment, 14% went with profitability and 12% showed interest in liquidity. ANALYSIS OF THE ABOVE GRAPH: Ina developing country like India most of the people fall in the lower middle class and middle class sectors. The attitude of the investors is of primary concern. As more and more options that warrant high returns are available in the market, investor tends to be more skeptical. So, while investing in any avenu their first priority is safety and security, Even the age of the investor plays a major role in the decision-making. For example, if the investor is in the age of 50 and above, he usually looks for low or no risks while investing. Therefore, 31% of investors surveyed preferred safety & security. Next is the “tax exemption” as there is tremendous boom in the corporate sector and the remuneration system for a particular sector has changed. This created a change in income levels and thereby affected the expenditure patterns. In the past, it took employee years of time to reach a five-figured salary. But, gradually the system has changed. Even the employee in the lower level or the middle level of the corporate ladder is receiving a handsome emolument. So, they are opting for the exemption of tax. Therefore, the next preference is for tax exemption that is 26% of the total Besides investors going for Safety & security, there are investors who opt for retum on investments they made. They are mainly in the age group of 23 and 35. Because these investors are likely to think that, at this age they are mentally more stable and feel that they can cope with financial risks, Any profits madeprofitability, especially those who are already doing business, ic. those who are already accustomed to tuking risks Out of the total, 12% of investors preferred liquidity, The main reason for this could be that, that making the invested money liquefied as and when required is important, and this is not possible if the investments are made in any insurance, Bank deposits, ete Though there are numerous factors that can be attributed to an investor's psyche, by large, we can conclude that maximum number of investors is investing in those sectors where there is safety & security for their principal. The other factors antecede safety INVESTMENT PATTERN: Investment pattern 9 a insurance mutual fund . shares 8 Equity Sample size 100 Economic status Tax payees & non-tax payees From the above graph, it is clear that 42% opted for an investment in bank deposits, 31% for insurance, 7% for shares, 9% for mutual fund, 2% for bonds, 5% for equity and remaining 4% have invested in some other investments such as real estates etc.5% for equity and remaining 4% have invested in some other investments such as real estates etc. ANALYSIS OF THE ABOVE GRAPH: The investment pattem of an investor is also very important because this shows the avenues where the people are really interested. Here, 42% have invested in bank deposits as it is very safe and risk frce. Out of the sample of 100i is observed that those who opted for an investment in banks in the form of deposits are found to be in the age group of 40 and above and are in government services. The next preference, as observed in the pie chart for investment pattem is “Insurance”. People generally opt for life insurance because it promotes a sense of safety & security for the dependents on the person and even his belongings. So, the next priority is insurance. 7% of the investors went for an investment in shares as it brings quick retums, although shares are prone to high risks. As shown 9% of the investors opted for an investment in mutual funds. From this we can infer that the market of mutual fund is picking up slowly. According to the survey, the people who have invested in the mutual funds belong to high-income range and they want an exemption from tax and a mere 2% opted for bonds, 3% for investment in equity and 4% have invested in other vestments such as Real estate to make quick retums on their investments.Awareness towards mutual funds 13% 87% 1@ Aware of mutual fund m Not aware of mutual fund) et aac eal In the above pie chart, we can observe that nearly 90% of investors are aware of mutual funds and only 13% people are not aware of it. This shows that most of the investors know about mutual funds in one or the other way. 3 r THE ABOVE GRAPH: Of the sample surveyed, almost all of the people are aware of mutual funds. They are aware of the term “mutual fund”. Though the questionnaire cannot identify the extent of the awareness. Through the interaction it is found that they are not actually aware of the advantages in investing mutual funds, various types of mutual funds and different schemes offered in it. It is found that People often have an inhibition that investments in mutual funds can be done only by those who have surplus amount of money with them and want to avail tax redemption. MUTUAL FUND INVESTMENTS; Mutual funds are medium risk investments, Though Investing in mutual fund doesn’t assure a fixed amount of returns, nevertheless, they are not low, The awareness about mutual funds is the primary criterion.MUTUAL FUND INVESTMENTS: Mutual funds are medium risk investments. Though Investing in mutual fund doesn’t assure a fixed amount of returns, nevertheless, they are not low. The awareness about mutual funds is the primary criterion, Mutual fund investments 19%- 6%- 75% Equity funds m@ Debt funds 0 Liquid funds Sample size 16 Criterion Mutual fund investors in the survey From the graph, it is clear that only 16 out of 100 invested in mutual funds. From those 16, 12 have invested in Equity funds, 3 in liquid funds and the remaining | in debt funds ANALYSIS OF THE ABOVE GRAPH: Only 16 out of 100 invested in mutual funds this can be mainly attributed to the low level of awareness, various inhibitions and a not so clear idea about the mutual funds. It is very important to have a clear perception of mutual funds,how they work and how the money is invested in different portfolios according to the investors’ choice, Is Investors who opted for equity funds are 12 of 16 per vestments to ned. being the majority preference can be reas ious sectors ic, DIVERSIF! en some went for INDEX FUNDS NSE, s they want their be put in va FUNDS so that they can make profits out of it easily, as the investments are made in Bench Nark Index Stock like BS: A few (3%of 16 they ors made investments in liquid funds as want a Short term investments where the investor need not wait for much time for the return, Th for short term. are also called as Money Marke Only a single investor went for debt funds where investments are in various debt products like Certificate of Deposits (CD's), Commercial papers and call stment, which he can avail in Debt money as the investor want a secured inv: Funds,2. Economic times Marketing dictionary A. IVONAVIC S.NO- WEBSITE'S: 1 http:// wow.karvy.com 2 hetp:// wwwamfiindia.com: http:// www.iciorg 4 http: www.google.com http:// www.moncycontrol.com 6 http:/ wwwfranklintempletonindiacom ‘MONTH OF SEARCH May 2007 May2007 May 2007 June 2007 June 2007BIBLIOGRAPHY BIBLIOGRAPHY | ‘S.No. | ‘Name of the Author Publisher Page Nos.