CHAPTER 1 INTRODUCTION

1.1 BACKGROUND

A mutual fund is a type of professionally-managed collective investment vehicle that

pools money from many investors to purchase securities. As there is no legal definition of
mutual fund, the term is frequently applied only to those collective investments that are
regulated, available to the general public and open-ended in nature. Mutual funds have
both advantages and disadvantages compared to direct investing in individual securities.
Today they play an important role in household finances. So the present study aims at
consumer behaviour towards mutual funds with special reference to ICICI LOMBARD
Mutual Funds Limited,kalyan-dombivli. Data was collected through primary and
secondary sources. Primary data was collected through structured questionnaire.
Convenience sampling method was used to collect the data and entire study was
conducted in kalyan-dombivli City. The study explains about investors awareness
towards mutual funds, investor perceptions, their preferences and the extent of
satisfaction towards mutual funds. Some suggestions were also made to increase the
awareness towards mutual funds and measures to select appropriate mutual funds to
maximize the returns.

1.2 STATEMENT OF THE PROBLEM

Mutual funds are normally classified by their principal investments, as described in the
prospectus and investment objective. The four main categories of funds are money market
funds, bond or fixed income funds, stock or equity funds and hybrid funds. Within these
categories, funds may be sub classified by investment objective, investment approach or
specific focus.
Increase awareness among investors: Many investors are still restricting their choices to the
non-governmental options like gold and fixed deposits even the market is flooded with
countless investment opportunities. This is because of lack of awareness about mutual funds
which makes many investors restrict their choice to traditional options like gold and fixed
deposits.Mutual funds must be increased among the investors to encourage them to invest in
mutual funds.

1.3CONCEPT AND DEFINITION 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 earned through
these investments and the capital appreciations 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.

1.4OBJECTIVE OF THE STUDY

The main objective of the study is to know about the potential of the market
regarding people dealing in mutual funds.
To know the role of mutual funds services.
To know the procedure of investing in mutual funds.
The objective is to know that how many people in the city are aware of mutual
fund services.
To know whether prople have alredy invested in mutual funds.

1.5 HYPOTHESIS
An important debate among stock market investors is whether the market is
efficient - that is, whether it reflects all the information made available to market
participants at any given time. The efficient market hypothesis (EMH) maintains that all
stocks are perfectly priced according to their inherent investment properties, the
knowledge of which all market participants possess equally. At first glance, it may be
easy to see a number of deficiencies in the efficient market theory, created in the 1970s
by Eugene Fama. At the same time, however, it's important to explore its relevancy in the
modern investing environment.
Hypothesis testing provides a basis for taking ideas or theories that someone
initially develops about the economy or investing or markets, and then deciding whether
these ideas are true or false. More precisely, hypothesis testing helps decide whether the
tested ideas are probably true or probably false as the conclusions made with the
hypothesis-testing process are never made with 100% confidence - which we found in the
sampling and estimating

1.6 METHODOLOGY

Research Design selected for this research is descriptive design and the
Universe is Vijayawada City. Data was collected in two ways, i.e., Primary data and
Secondary data. The data collection method used for collection of primary data was
survey method and the data collection instrument used is structured questionnaire. The
sampling technique used is non probability convenience sampling. Sample size is 100
respondents and sampling units include businessmen, Government servants, professional
and retired Individuals. The secondary data was collected through journals, magazines,
books, company manuals, websites, etc.

1.7 MEASURE ASSUMPTIONS BEHIND THE STUDY

There are five main indicators of investment risk that apply to the analysis
of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard
deviation and the Sharpe ratio. These statistical measures are historical predictors of
investment risk/volatility and are all major components of modern portfolio theory (MPT).
The MPT is a standard financial and academic methodology used for assessing the
performance of equity, fixed-income and mutual fund investments by comparing them to
market benchmarks.
All of these risk measurements are intended to help investors determine the riskreward parameters of their investments. In this article, we'll give a brief explanation of each
of these commonly used indicators.

1.8 RESEARCH QUESTION

How to study the customer satisfaction with respect to mutual funds and the services provided
by ICICI Lombard in Thane region?

1.9 SCOPE OF THE STUDY

For retail investor who does not have the time and expertise to analyze and invest
in stocks and bonds, mutual funds offer a viable investment alternative. This is because
mutual funds provide the benefit of cheap access to expensive stocks. Mutual funds diversify
the risk of the investor by investing in a basket of assets. A team of professional fund
managers manages them with in-depth research inputs from investment analysts. Being
institutions with good bargaining power in markets, mutual funds have access to crucial
corporate information which individual investors cannot access. So the present study has
taken up to know the extent of awareness about mutual funds and to analyze the investors
perception towards mutual funds.

1.10 LIMITATIONS
1. Sample size was limited to 100 because of limited time which is small to represent the
whole population.
2. The research was limited to Kalyan-Dombivli city only and if the same research would
have been carried in another city, the results may vary.
3. Sometimes the respondents because of their business didnt able to concentrate while
filling up the questions. However the researcher tried her level best to overcome the
limitation by explaining the importance of research.

1.11 SUMMARY
Mutual funds are good source of returns for majority of households and it is
particularly useful for the people who are at the age of retirement. However, average
investors are still restricting their choices to conventional options like gold and fixed deposits
when the market is flooded with countless investment opportunities, with mutual funds. This
is because of lack of information about how mutual funds work, which makes many investors
hesitant towards mutual fund investments. In fact, many a times, people investing in mutual
funds too are unclear about how they function and how one can manage them. So the
organizations which are offering mutual funds have to provide complete information to the
prospective investors relating to mutual funds. The government also has to take some

measures to encourage people to invest in mutual funds even though it is offering schemes
like Rajiv Gandhi Equity Savings Scheme to the investors. It is believed that some of these
measures could lift the morale of the mutual fund industry which has been crippled for the
last three years.

CHAPTER 2 REVIEW OF LITERATURE

INTRODUCTION
Mutual fund investments are sourced both from institutions (companies) and
individuals. Since January 2013, institutional investors have moved to investing directly with
the mutual funds since doing so saves on the expense ratio incurred. Individual investors are,
however, served mostly by Investment advisor and banks. Since 2009, online platforms for
investing in Mutual funds have also evolved.
The first introduction of a mutual fund in India occurred in 1963, when
the Government of India launched Unit Trust of India(UTI). Until 1987, UTI enjoyed a
monopoly in the Indian mutual fund market. Then a host of other government-controlled
Indian financial companies came up with their own funds. These included State Bank of
India, Canara Bank, and Punjab National Bank. This market was made open to private
players in 1993, as a result of the historic constitutional amendmentsbrought forward by the
then
Congress-led
government
under
the
existing
regime
of Liberalization, Privatization andGlobalization (LPG). The first private sector fund to
operate in India was Kothari Pioneer, which later merged with Franklin Templeton. In 1996,
SEBI formulated the Mutual Fund Regulation which is a comprehensive regulatory
framework.
Mutual funds were heralded as a way for the little guy to get a piece of the
market. Instead of spending all your free time buried in the financial pages of the Wall Street
Journal, all you had to do was buy a mutual fund and you'd be set on your way to financial
freedom. As you might have guessed, it's not that easy. Mutual funds are an excellent idea in
theory, but, in reality, they haven't always delivered. Not all mutual funds are created equal,
and investing in mutuals isn't as easy as throwing your money at the first salesperson who
solicits your business.

REVIEW OF LITERATURE 1

In India, one of the earliest attempts was made by National Council of Applied
Economics Research (NCAER) in 1964 when a survey of households was undertaken to
understand the attitude towards and motivation for savings of individuals. Another NCAER
study in 1996 analyzed the structure of the capital market and presented the views and
attitudes of individual shareholders. SEBI NCAER Survey (2000) was carried out to
estimate the number of households and the population of individual investors, their economic
and demographic profile, portfolio size, and investment preference for equity as well as other
savings instruments. Data was collected from 30,00,000 geographically dispersed rural and
urban households. Some of the relevant findings of the study are : Households preference for
instruments match their risk perception; Bank Deposit has an appeal across all income class;
43% of the non-investor households equivalent to around 60 million households apparently
lack awareness about stock markets; and, compared with low income groups, the higher
income groups have higher share of investments in Mutual Funds signifying that Mutual
funds have still not become truly the investment vehicle for small investors. Since 1986, a
number of articles and brief essays have been published in financial dailies, periodicals,
professional and research journals, 20 explaining the basic concept of Mutual Funds and
highlighted their importance in the Indian capital market environment. They touched upon
varied aspects like regulation of Mutual Funds, Investor expectations, Investor protection,
and growth of Mutual Funds and some on the performance and functioning of Mutual Funds.
A few among them are Vidyashankar (1990), Sarkar (1991), Agarwal (1992), Sadhak (1991),
Sharma C. Lall (1991), Samir K. Barua et al., (1991), Sandeep Bamzai (2001), Atmaramani
(1995), Atmaramani (1996), Subramanyam (1999), Krishnan (1999), Ajay Srinivsasn (1999).
Segmentation of investors on the basis of their characteristics was highlighted by Raja Rajan
(1997). Investors characteristics on the basis of their investment size Raja Rajan (1997), and
the relationship between stages in life cycle of the investors and their investment pattern was
studied Raja Rajan (1998).

REVIEW OF LITERATURE 2
Irwin, Brown, FE (1965) analyzed issues relating to investment policy, portfolio
turnover rate, performance of mutual funds and its impact on the stock markets. They
identified that mutual funds had 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.

REVIEW OF LITERATURE 3
Sharpe, William F (1966) developed a composite measure of return and risk. He
evaluated 34 open-end mutual funds for the period 1944-63. Reward to variability ratio for
each scheme was significantly less than DJIA (Dow Jones Industrial Average) and ranged
from 0.43 to 0.78. Expense ratio was inversely related with the fund performance, as
correlation coefficient was 0.0505. The results depicted that good performance was
associated with low expense ratio and not with the size. Sample schemes showed consistency
in risk measure.

REVIEW OF LITERTURE 4
Treynor and Mazuy (1966) evaluated the performance of 57 fund managers in terms
of their market timing abilities and found that, fund managers had not successfully
outguessed the market. The results suggested that, investors were completely dependent on
fluctuations in the market. Improvement in the rates of return was due to the fund managers
ability to identify under-priced industries and companies. The study adopted Treynors (1965)
methodology for reviewing the performance of mutual funds.

REVIEW OF LITERATURE 5
Jensen (1968) developed a composite portfolio evaluation technique concerning
risk-adjusted returns. He evaluated the ability of 115 fund managers in selecting securities
during the period 1945-66. Analysis of net returns indicated that, 39 funds had 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 22 perform significantly better than
expected as fund managers were not able to forecast securities price movements.