Title of the project

LETTER OF AUTHORIZATION
 EXECUTIVE SUMMARY

The role of financial system is to enthusiast economic development. As

investors are getting more educated, aware and prudent they look for
innovative investment instruments so that they are able to reduce
investment risk, minimize transaction costs, and maximize returns along
with certain level of convenience as a result there has been as advent of
numerous innovative financial instrument such as bonds, company
deposits, insurance, and mutual funds. All of which could be matched with
individual’s investment needs. Mutual funds score overall other investment
options in terms of safety, liquidity, returns, and are as transparent,
convenient as it can get. Goal of mutual fund is to provide an efficient way
to make money.

A mutual fund is an investment company that collects money from many

people and invests it in a variety of securities, the company then manages
the money on an ongoing basis for individuals and businesses.

Investment in mutual funds gives you exposure to equity and debt markets.
These funds are marketed as a safe haven or as smart investment vehicles
for no voice investors.

The middle class Indian investor who plays hot tips for a quick buck at the
bourses is the stuff of legends. The middle class Indian investor who runs
out of luck and loses not only his money but his peace of mind too is
somewhat less famous by choice. Mutual funds, on the other hand, sell us
middling miracles. Consequently proof enough for a research on mutual
funds, which has exacting returns.

Every investor requires a healthy return on his or her investments. But

since the market is very volatile and due to lack of expertise they may fail to
do so. So a study of these mutual funds will help one to equip with
unwanted knowledge about the elements that help trade between risk and
return thereby improving effectiveness. A meticulous study on the
scalability at which the mutual funds operate along with diagnosis of the
market conditions would endure managing the investment portfolio
efficiently.

Investment is a sensitive concept, any investor whether professional or

individual needs to be very careful while investing and getting decent
return. Stock markets which gives good returns in the long run does also
have huge amount of risk, it is challenging task for professionals to get the
expected rate of return from their investments. Individual investors who
invest their hard earned money in equities burn their fingers due to lack of
conceptual knowledge. Some investors who are risk averse go for Mutual
funds. So, it is very important to check whether mutual funds yield the
expected returns to the investors, it is obvious as this pint of that a question
strikes to our mind as to why only some Mutual funds give good returns
than other mutual fund companies. The point is what makes the successful
mutual fund companies to give comparatively. There may be many factors
which contribute for yielding returns.

In few years, Mutual fund has emerged as a tool for ensuring one’s
financial well being. Mutual funds have not only contributed to the India
growth story but have also helped families tap into the success of Indian
Industry. As information and awareness is rising more and more people
are enjoying the benefits of investing in mutual funds. The main
reason number of retail mutual fund investors remains small is that
nine in ten people with incomes in India do not know that mutual
funds exist. But once people are aware of mutual fund investment
opportunities, the number who decide to invest in mutual funds
increases to as many as one in five people.

The trick of converting a person with no knowledge of mutual funds

to a new mutual fund customer is to understand which of the
potential investors are more likely to buy mutual funds and to use
the right arguments in the sales process that customers will a ccept
as important and relevant to their decisions.

This project gave me a great learning experience and at the same

time it gave me enough scope to implement my analytical ability.
The analysis and advice presented in this project report is based
on market research on the saving and investment practices of the
investors and preferences of the investors for investment in mutual
funds.

The growth of mutual funds has been phenomenal. The mobilization of

funds by mutual funds has been on the rise since 1964. When mutual fund
market was thrown open to the private sector in 1993, the corpus of mutual
fund in India has swelled tremendously. The main objective of the study is
to find investors perception of mutual funds.

There are so many investment avenues. So that investors does not know
which avenues provides best returns. As per the financial rule of “Do not
pull all the eggs in one basket” investor’s portfolio are most diversified. So
that risk should be minimized. If the persons do not have knowledge of how
to get maximum return with minimum risk or vice versa then they should
invest in mutual fund. There are so many funds and schemes are available
in mutual fund market. Investors know that how much risk they can take
and based on that they have to choose schemes.

After the government policy of liberalization in the industrial and financial

sector, many new financial instruments came into existence. Among these
mutual fund products have proved to be the most catalytic instrument in the
Indian capital market. Mutual fund is designed to target small investors,
salaried people and others who are intimated by the mysteries of stock
market but, nevertheless like to reap the benefits of stock market investing.
The growing importance and interest of investors towards Indian mutual
fund may be noted, in terms of increased mobilization of funds and the
increasing number of schemes and investors in the industry. To fulfill the
expectations of millions of account holders, the mutual fund are required to
function as successful institutional investors. There is a substantial growth
in mutual fund market is due to a high level of precision in the design and
marketing of variety of mutual fund products.

Researchers have attempted to study the changing perception of investors

towards mutual fund investments, their needs and expectations from
different type of mutual funds available in Indian market and identify the risk
return perception with the purchase of mutual fund. Various techniques
applied to find the important characteristics being considered by the Indian
investors in investment decision.

Today investors are on the way of exploring the mutual fund investment
and willing to know how best it can serve as an investment tool. Indian
financial market presents multiple avenues to the investors. Though
certainly not the best or the deepest of markets it has ignited the growth
rate in mutual fund industry to provide reasonable options for an ordinary
person to invest their savings. With the progressive liberalization of
economic policies, there has been a rapid growth of captive markets and
financial services industry including merchant banking, leasing and venture
14 capitals. Consistent with this evolution of the financial sector, the mutual
fund industry has also come to occupy an important role.
ACKNOWLEDGEMENT
 TABLES OF CONTENTS

 Letter of Authorization
 Executive Summary
 Acknowledgement

1. Introduction
INTRODUCTION
 PROBLEM STATEMENT

Small investors face a lot of problems in the share market. These problems
may be related to limited resources; or lack of professional advice; or lack
of information, etc. Mutual funds have come forward as a much needed
help to these investors. It is a special type of institutional device or an
investment vehicle through which investors pool their savings which are to
be invested under the guidance of a team of experts in wide variety of
portfolios of corporate securities in such a way, so as to minimize risk,
while ensuring safety and steady return on investment.

It forms an important part of the capital market, providing the benefits of a

diversified portfolio and expert fund management to a large number,
particularly small investors. Thus, mutual funds are becoming a very
popular form of investment characterized by many advantages that they
share with other forms of investments and what they possess uniquely
themselves. The primary objectives of an investment proposal would fit into
one or combination of the two broad categories i.e. income and capital
gains. But mutual funds industry has to deal with the several problems too.
There are two types of the problems faced by Mutual funds Industry:

A. PROBLEMS IN OPERATION OF MUTUAL FUNDS

Mutual funds Industry has to face a number of problems while operating

its mutual funds. These problems are related to lack of interest and
confidence of investors, inefficiency in mutual funds management,
imbalanced investment of available funds, avoidance of small
companies, no distinction between trustees and fund managers,
existence of competition, no publication of accounts, speculators
activities, poor services to investors, lack of transparency, give rise the
fear of destabilizing, poor savings, government rules and regulations,
shortage of investment professionals, and heavy commission to agents
etc. The detailed study of these factors is given below:

 Lack of interest and confidence of investors

At present, the investors in India prefer to invest in mutual funds as a

substitute of fixed deposits in banks. About 75 per cent of the
investors are not willing to invest in mutual funds unless there was a
promise of a minimum return. They hesitate to invest in mutual funds
because there are many disadvantages of mutual funds to investors.

 Inefficiency in mutual fund management

Sponsorship of mutual funds has a bearing on the integrity and

efficiency of fund management which are the key to establishing
investor’s confidence. So far, only public sector sponsorship or
ownership of mutual funds organizations had taken care of this need.
Sometimes sponsors of the AMC forget the scheme objectives for
their profits resulting that the investors get losses. So investors do not
believe in mutual fund companies and avoid investing in mutual
funds.

 Avoidance of small companies

Many small companies are doing very well and earning adequate
profits but mutual funds cannot reap their benefits because they are
not allowed to invest in smaller companies. Not only this, a mutual
fund is allowed to hold only a fixed maximum percentage of shares in
a particular industry. Due to such policy of Mutual funds industry the
investors are deprived from the profits which can be earned by
investing the funds in these small scale companies.

 No distinction between trustees and fund managers

 The mutual fund in India is formed as trusts. As there is no distinction
made among sponsors, trustees, and fund managers, the trustees
play the role of fund managers. Whereby, fund managers are not in a
position to work independently. They have to work in pressure which
creates a big problem to protect the interest of the small investors. So
it becomes necessary to regulate framework for a clear demarcation
between the role of constituents, such as shelter, trustee and fund
manager to protect the interest of the small investors.

 Existence of Competition

The increase in the number of mutual funds and various schemes

has increased dire competition among them. Hence, it has been
remarked by Senior Brokers “mutual funds are too busy trying to race
against each other”. As a result they lose their stabilizing factor in the
market.

 No publication of accounts

AMC does not publish its Profit & Loss account and Balance Sheet; it
publishes only schemes Profit & Loss account and Balance Sheet.
Because of this, investor does not get knowledge of about AMCs
expenses and incomes. While schemes expenses are borne by
investor, so he has a right to know how much expenses AMC does
and how much incomes AMC earns.

 Lack of transparency

Transparency is another area in mutual funds which is generally

neglected by AMCs. Investors have right to know and asset
management companies have an obligation to inform where and how
his money has been deployed. But investors are deprived of getting
the information.
 Stricter Requirements

The mutual fund sector operates under stricter requirements

regarding KYC requirements, PAN requirements and Bank details
etc. Due to all above requirements investors face problems in
investing their money in mutual funds. So mutual funds industry is
affected by this problem.

 No Penal Provisions

The existing regulations lay down many measures to protect mutual

funds investors and to make the operations of the mutual funds more
transparent, however no penal provisions are provided against
officers, employees, key personnel or directors of an AMC or trustees
of a mutual fund who are found to be guilty of violating the provisions.
In the absence of initiation of action against such earning persons
who indulge in fraudulent and unfair practices create problems for the
investors because their interests cannot be said to be safeguard due
to their fraudulent and unfair activities

 Heavy commissions to agents

The mutual funds distributors get heavy commission for their

services. This commission cost is borne by the AMC and the
investors which increases the cost of investment. Due to this heavy
cost of commission, investors lose a handsome part of their invested
money.

B. PROBLEMS IN PORTFOLIO MANAGEMENT

To translate the conceptual portfolio management framework into reality,

the fund manager of a mutual fund has to deal with the problems
associated with the nature of the markets he is dealing in and the
characteristics of the securities he is in investing in. These problems
may be discussed below:

 Suitable Investment Avenues

One of the foremost problems faced by fund managers of mutual fund is

that of finding suitable financial instruments in which to invest so as to
meet the varied investment objectives of different classes of investors.
For example, it may be difficult to identify instruments with the preferred
maturity/ preferred degree of liquidity/ preferred risk return
characteristics/ preferred asset class or a desirable combination of
these.

 Liquidity

To maintain optimum portfolio, a fund manager should be able to both

invest and disinvest in the securities of his choice at the time that he
chooses to invest/disinvest. This is possible only if there are large
numbers of traders in the market who are willing to buy and sell. Entire
range of financial instruments should be available in the market. In other
words, liquidity can be ensured only if there are sufficient numbers of
market makers for each type/ class of financial instrument.

 Flexibility

To allocate investible resources at his command among various options

available to him, the fund manager may be constrained by the
guidelines/stipulations of various regulatory bodies overseeing the
functioning of the financial markets.

 Market Inefficiencies

Fund managers having professional outlook base their investment

decisions on analysis of reliable information. However, the quality of
their evaluation of securities may not be desirable due to lack of proper
and timely information, formation of cartels by a few big players, wrong
pricing of securities due to actions to ill informed investors, etc.
 INTRODUCTION

A mutual fund is an association or trust of public members who wish to

make investments in corporate securities for their mutual benefit. The fund
collects the savings of these members and invests the same in a diversified
portfolio of securities with a view to reduce risks and to maximize their
income and capital gains for distribution among the members on a pro rata
basis. Mutual fund is thus a concept of mutual help of subscribers for
portfolio investment and expert management of these investments. It is a
financial organization of investors who share a common financial goal. It is
a collective investment arrangement.

Mutual funds are the most popular investment types for the everyday
investor, because they are simple investments to understand and they are
easy to use in many ways, “it’s investing for dummies”. A mutual fund is an
investment security that enables investors to pool their money together into
one professionally managed investment. Mutual funds can invest in stocks,
bonds, cash or a combination of those assets. The underlying security
types, called holdings, combine to form one mutual fund, also called a
portfolio.

For example, an investor who buys a fund called XYZ International Stock is
buying one investment security — the basket — that holds dozens or
hundreds of stocks from all around the globe, hence the "international"
moniker.

It's also important to understand that the investor does not actually own the
underlying securities — the holdings — but rather a representation of those
securities; investors own shares of the mutual fund, not shares of the
holdings. For example, if a particular mutual fund includes shares of stock
in Apple, Inc. (AAPL) among other portfolio holdings, the mutual fund
investor does not directly own Apple stock.

Instead, the mutual fund investor owns shares of the mutual fund.
However, the investor can still benefit by the appreciation of shares in
AAPL.
Since mutual funds can hold hundreds or even thousands of stocks or
bonds, they are described as diversified investments. The concept of
diversification is similar to the idea of strength in numbers. Diversification
helps the investor because it can reduce market risk compared to buying
individual securities.

Mutual funds give small or individual investors access to professionally

managed portfolios of equities, bonds and other securities. Each
shareholder, therefore, participates proportionally in the gains or losses of
the fund. Mutual funds invest in a wide amount of securities, and
performance is usually tracked as the change in the total market cap of the
fund, derived by aggregating performance of the underlying investments.

Mutual fund units, or shares, can typically be purchased or redeemed as

needed at the fund’s current ‘Net Asset Value’ per share, which is
sometimes expressed as NAVPS. A fund’s NAV is derived by dividing the
total value of the securities in the portfolio by the total amount of shares
outstanding.

A mutual fund is both an investment and an actual company. This may

seem strange, but it is actually no different than how a share of AAPL is a
representation of Apple, Inc. When an investor buys an apple stock, he is
buying part ownership of the company and its assets. Similarly, a mutual
fund investor is buying part ownership of the mutual fund company and its
assets.

Mutual funds pool money from the investing public and use that money to
buy other securities, usually stocks and bonds. The value of the mutual
fund company depends on the performance of the securities it decides to
buy. So when you buy a share of a mutual fund, you are actually buying the
performance of its portfolio.

The average mutual fund holds hundreds of different securities, which

means mutual fund shareholders gain important diversification at a lower
price. Consider an investor who just buys Google stock before the
company has a bad quarter. They stand to lose a great deal of value
because all of their dollars are tied to one company. On the other hand, a
different investor may buy shares of a mutual fund that happens to own
some Google stock. When Google has a bad quarter, they only lose a
fraction as much because Google is just a small part of the fund's portfolio.

Mutual funds are in the form of Trust (usually called Asset Management
Company) that manages the pool of money collected from various
investors for investment in various classes of assets to achieve certain
financial goal. We can say that mutual funds is the trusts which pool the
savings of large number of investors and then reinvest those funds for
earning profits and then distribute the dividend among the investors. In
return for such services, Assets management companies charge small fee.
Every mutual fund launches different schemes, each with a specific
objective. Investors who share the same objective invests in that particular
scheme. Each mutual fund scheme is managed by a fund manager with the
help of his team of professionals.

The investments made by a mutual fund are marked to market on daily

basis. In other words, we can say that current market value of such
investments is calculated on daily basis. NAV is arrived at after deducting
all liabilities (except unit capital) of the fund from the realizable value of all
assets and dividing by number of units outstanding. Therefore, NAV on a
particular day reflects the realizable value that the investor will get for each
unit if the scheme is liquidated on that date. This NAV keeps on changing
with the changes in the market rates of equity and bond markets.
Therefore, the investments in Mutual Funds is not risk free, but a good
managed Fund can give you regular and higher returns than when you can
get from fixed deposits of a bank etc.

In other words, mutual funds refer to a pool of money accumulated by

several investors who aim at saving and making money through their
investment. The corpus of money so created and invested is various assets
classes , viz. debt funds, liquid assets and the like. Just like gains and
rewards earned over the period of investment, losses are also shared by all
the investors in equal proportion. Mutual funds are registered with SEBI
(Securities and Exchange Board of India) that regulates security markets
prior to the collection of the funds from the investors. Investing in mutual
funds can be as simple buying or selling stocks or bonds online.

Mutual fund is a trust that pools the savings of a number of investors who
share a common financial goal. This pool of money is invested in
accordance with a stated objective. The joint ownership of the fund is thus
“Mutual”, i.e. the fund belongs to all investors. The money thus collected is
invested in a 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
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.

A mutual fund is an investment tool that allows small investors access to a

well diversified portfolio of equities, bonds and other securities. Investments
in securities are spread across a wide cross- section of industries and
sectors and thus the risk is reduced. Diversification reduces the risk
because all stocks may not move in the same direction in the same
proportion at the same time. Mutual fund issues units to the investors in
accordance with quantum of money invested by them. Investors of mutual
funds are known as unit holders.

Hence, professional fund managers, acting on behalf of the Mutual Fund,

manage the investments (investor’s money) for their benefit in return
for a management fee. The organization that manages the investment is
called the Asset Management Company (AMC). Thus, a Mutual Fund is the
most suitable investment for the common person as it offers an
opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost. Anybody with an investible
surplus of as little as a few thousand rupees can invest in mutual fund.
PHASES OF MUTUAL FUNDS

A strong financial market with broad participation is essential for a

developed economy. With this broad objective India’s first mutual fund was
established in 1963, namely, Unit Trust of India, at the initiative of the
government of India and Reserve bank of India “with a view to encouraging
and investment and participation in the income, profits and gains arguing to
the corporation from the acquisition, holding, management and disposal of
securities”. In the last few years the Mutual Fund Industry has grown
significantly. The history of mutual fund in India can be broadly divided into
five distinct phases as follows:
First Phase (1964-1987)

The Mutual Fund Industry in India started in 1963 with formation of UTI in
1963 by an Act of Parliament and functioned under the Regulatory and
administrative control of the Reserve Bank of India (RBI). In 1978, UTI was
de-linked from the RBI and the Industrial Development Bank of India (IDBI)
took over the regulatory and administrative control in place of RBI. Unit
Scheme 1964 (US’64) was the first scheme launched by UTI. At the end of
1988, UTI had 6,700 crores of Assets Under Management.

Second Phase (1987-1993) Entry of Public Sector Mutual Funds

The year 1987 marked the entry of public sector mutual funds set up by
Public Sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI mutual fund was the first
‘Non-UTI’ mutual fund established in June 1987, followed by Canbank
Mutual Fund (Dec.1987), Punjab national bank mutual fund (Aug 1989),
Indian bank Mutual Fund (Nov 1989), Bank of India (Jun 1990), Bank of
Baroda Mutual fund (Oct 1992). LIC established its mutual fund in June
1989, while GIC had set up its mutual fund in December 1990. At the end
of the 1993, the mutual fund industry had assets under management of
47,004 crores.

Third Phase (1993-2003) Entry of Private Sector Mutual Funds

The Indian securities market gained greater importance with the

establishment of SEBI in April 1992 to protect the interests of the investors
in securities market and to promote the development of, and to regulate,
the securities market.

In the year 1993, the first set of SEBI Mutual Fund Regulations came into
being for all mutual funds, except UTI. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton MF) was the first private sector mutual
fund registered in July 1993. With the entry of private sector funds in 1993,
a new era began in the Indian mutual Fund Industry, giving the Indian
investors a wider choice of mutual fund products. The initial SEBI mutual
fund regulations were revised and replace in 1996 with a comprehensive
set of regulations, viz., SEBI (mutual fund) Regulations, 1996 which is
currently applicable.

The number of Mutual Funds increased over the years, with many foreign
sponsors setting up mutual fund in India. Also, the mutual fund industry
witnessed several mergers and acquisitions during this phase. As at the
end of January 2003, there were 33 mutual funds with total AUM of
1,21,805 crores, out of which UTI alone had AUM of 44,541 crores.

Fourth Phase (Since February 2003- April 2014)

In February 2003, following the repeal of the Unit Trust of India Act 1963,
UTI was birfucated into two separate entities, viz., the Specified
Undertaking of the Unit Trust of India (SUUTI) and UTI mutual fund which
functions under the SEBI mutual fund regulations. With the birfucation of
the erstwhile UTI and several mergers taking place among different private
sector funds, the mutual fund industry entered its fourth phase of
consolidation.

Following the global melt down in the year 2009, securities markets all over
the world had tanked and so was the case in India. Most investors who had
entered the capital market during the peak, had lost money and their faith
in mutual fund products was shaken greatly. The abolition of Entry load by
SEBI, coupled with the after effects of the global financial crisis, deepened
the adverse impact of the Indian mutual fund industry, which struggled to
recover and remodel itself for over two years, in an attempt to maintain its
economic viability which is evident from the sluggish growth in mutual fund
industry AUM between 2010 to 2013.

Fifth (Current) Phase – Since May 2014

Taking cognisance of the lack of penetration of MFs, especially in tier II and
tier III cities, and the need for greater alignment of the interest of various
stakeholders, SEBI introduced several progressive measures in September
2012 to "re-energize" the Indian Mutual Fund industry and increase MFs’
penetration.

In due course, the measures did succeed in reversing the negative trend
that had set in after the global melt-down and improved significantly after
the new Government was formed at the Center. Since May 2014, the
Industry has witnessed steady inflows and increase in the AUM as well as
the number of investor folios (accounts).

 The Industry’s AUM crossed the milestone of 10trillion (10 lakh crore)
for the first time as on 31st may 2014 and in a short span of two years
the AUM size has crossed 15 lakh crore in July 2016.

 The overall size of the Indian Mutual Fund Industry has grown from
3.26 trillion as on 31st March 2007 to 15.63 trillion as on 31st August,
2016, the highest AUM ever and a five-fold increase in a span of less
than 10 years.

 In fact, the mutual fund industry has more doubled its AUM in the last
4 years from 5.87 trillion as on 31st March 2012 to 12.33 trillion as on
31st March, 2016 and further grown to 15.63 trillion as on 31st August
2016.

 The no of investor folios has gone up from 3.95 crore folios as on 31-
03-2014 to 4.98 crore as on 31-08-2016.

 On an average 3.38 lakh new folios are added every month in the last
2 years since June 2014.

The growth in the size of the Industry has been possible due to the twin
effects of the regulatory measures taken by SEBI in re-energising the
mutual fund industry in September 2012 and the support from mutual fund
distributors in expanding the retail base.
MF Distributors have been providing the much needed last mile connect
with investors, particularly in smaller towns and this is not limited to just
enabling investors to invest in appropriate schemes, but also in helping
investors stay on course through bouts of market volatility and thus
experience the benefit of investing in mutual funds.

In fact, even though FY 2015-16 was not a very good year for the Indian
securities market, the MF Industry witnessed steady positive net inflows
month after month, even when the FIIs were pulling out in a big way. This
was largely because of the ‘hand-holding’ of the investors by the MF
distributors and convincing them to stay invested and/or invest at lower
NAVs when the market had fallen.

MF distributors have also had a major role in popularizing Systematic

Investment Plans (SIP) over the years. In April 2016, the no. of SIP
accounts has crossed 1 crore mark and currently each month retail
investors contribute around ₹3,500 crore via SIPs.

The graph indicates the growth of assets over the last 10 years.
IMPORTANCE OF MUTUAL FUNDS

The demand for products facilitating investments has grown over time in
search of a better lifestyle. Adding to it the depreciation value of the
currency has forced investors to look at a diverse array of investment
solutions which can help them grow their wealth. A convenient way to
increase potential returns and gain access to financial markets is provided
by mutual funds. This is also a reason why the importance of mutual funds
is growing.

Mutual funds provide a host of benefits which make them important. Some
important points are as follows:

1. Convenience

For investors, one of the most prominent benefits that mutual funds
provide is convenience. By investing in a single fund, they can gain
access to a broad range of the financial market. A typical diversified
equity fund can spread out the money across tens of stocks with
some portion invested in fixed income securities as well.

2. Diversification

Further, if an investor wants to focus on one segment of the market,

for instance, large cap stocks, funds focused on this segment can
spread out the investment across multiple large cap stocks in just one
transaction of purchasing the fund. If the investor were to try to do
that themselves, it would take a lot of effort, transaction cost, and
time to create an individual large cap stock portfolio. The situation
with investing in bonds is even more difficult if one tries to do it
individually rather than taking the fund route.

3. Ease of Investment

Apart from this, mutual funds are easy to buy and sell. One can either
engage the service of a distributor or agent to transact in funds or do
it over the internet themselves. In the case of latter, the transaction
amount is debited from or comes directly to the bank account linked
 to the mutual fund account depending on whether a fund has been
bought or sold.

4. Spoilt for choice

This feature follows from the convenience aspect discussed above.

Investors have several choices when it comes to mutual funds. And
given their investment objectives, funds provide access to a wide
range of financial instruments, sectors and strategies.

5. Professional Management

This is one of the factors, which is a key highlight of the importance of

mutual funds. Due to lack of expertise several investors don’t have
the confidence in taking the financial market route to grow their
wealth. They feel they have limited or no capability to invest it stocks
and bonds on their own and do not have the time to keep tracking
their investments even if they manage to invest on their own.

6. Regulatory Protection

Mutual funds are subject to strict regulation and oversight by SEBI.

As part of this regulation all mutual funds provide full and complete
disclosures about the funds in a written offer document. This offer
document describes, among other things scheme’s investment
objectives, its investment policies, its investment methods, and
information about how to purchase and redeem units and information
about risks the portfolio of the scheme is exposed to.

7. Reduction in Cost of Investment

Average cost of managing a rupee will be much lower for a mutual

fund then for an investor managing a diversified port folio all on his
own. The low costs are due to standardization, and high economies
of scale. Further, SEBI has set ceiling with regard to expenses, which
can be charged to investors. Expenses above the set limits cannot be
charged to the unit holders.
 STRUCTURE OF MUTUAL FUNDS

A mutual fund is set up in the form of a trust, which has sponsor,

trustees, Asset Management Company and a custodian. The trust is
established by a sponsor or more than one sponsor who is like a
promoter of a company. The trustees of the mutual fund hold its
property for the benefit of unit-holders. The AMC, approved by SEBI,
manages the funds by making investments in various types of
securities. The custodian, who is registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees
are vested with the general power of superintendence and direction
over AMC. They monitor the performance and compliance of SEBI
regulations by the mutual fund.

Three key players namely sponsor, mutual fund trust, and Asset
Management Company (AMC) are involved in setting up a mutual
fund. They are assisted by other independent administrative entities
like banks, registrars, transfer agents, and custodian (depository
participants).

 SPONSOR

Sponsor means any person who acting alone or with another body
corporate establishes a mutual fund. The sponsor of a fund is skin to
the promoter of a company as he gets the fund registered with SEBI.
The sponsor forms a trust and appoints a Board of Trustees. He also
appoints an Asset Management Company as fund managers. The
sponsor, either directly or acting through the trustees, also appoints a
custodian to hold the fund assets. The sponsor is required to
contribute at least 40% of the minimum net worth of the asset
management company.

 MUTUAL FUNDS AS TRUSTS

A mutual fund in India is constituted in the form of a public trust

created under the Indian Trusts Act, 1882. The sponsor forms the
Trust and registers it with SEBI. The fund sponsor acts as the settler
of the trust, contributing to its initial capital and appoints a trustee to
 hold the assets of the trust for the benefit of the unit-holders, who are
the beneficiaries of the trust. The fund then invites investors to
contribute their money in common pool, by subscribing to units issued
by various schemes established by the trust as evidence of their
beneficial interest in the fund. Thus, a mutual fund is just a pass
through vehicle. Most of the funds in India are managed by the Board
of Trustees, which is an independent body and acts as protectors of
the unit holders interests.

 ASSET MANAGEMENT COMPANY

The trustees appoint Asset Management Company with the prior

approval of SEBI. The AMC is a company formed and registered
under the Companies Act, 1956, to manage the affairs of the mutual
funds and operate the schemes of such mutual funds. It charges a
fee for the services it renders to the mutual fund trust. It acts as the
investment manager to the trust under the supervision and direction
of the trustees. The AMC, in the name of the trust, floats and then
manages the investment schemes as per SEBI regulations and the
Trust Deed. The AMC of a mutual fund must have a net worth of at
least Rs.10 crore at all times and this net worth should be in the form
of cash. It cannot act as a trustee of any other mutual fund. It is
required to disclose the scheme particulars and base of calculation of
NAY. It can undertake specific activities such as advisory services
and financial consultancy. It must submit quarterly reports to the
mutual fund.

 CUSTODIAN

The mutual fund is required, under the mutual fund regulations, to

appoint a custodian to carry out the custodial services for the
schemes of the funds. Only institutions with substantial organizational
strength, service capability in terms of computerization, and other
infrastructure facilities are approved to act as custodian. The
custodian must be totally delinked from the AMC and must be
registered with SEBI.
  SCHEMES

Under the mutual fund regulations, a mutual fund is allowed to float

different schemes. Each scheme has to be approved by the trustees
and the offer document is required to be filled with the SEBI. The
offer document should contain disclosures which are adequate
enough to enable the investors to make informed investment
decision, including the disclosure on maximum investments proposed
to be made by the scheme in the listed securities of the group
companies of the sponsor. If the SEBI does not comment on the
contents of the offering documents within 21 days from the date of
filing, the AMC would be free to issue the offer documents to the
public.

 INVESTMENT CRITERIA

The mutual fund regulations lay down certain investment criteria that
the mutual funds need to observe. There are certain restrictions on
the investments made by a mutual fund. These restrictions are listed
down by SEBI. The money collected under any scheme of a mutual
fund shall be invested in only transferable securities in the money
market or the capital market or in privately placed debentures or
securitized debts. However, in the case of securitized debts, such
fund may invest in asset backed securities and mortgage backed
securities. Furthermore, the mutual fund having an aggregate of
securities which are worth Rs. 100 million or more shall be required to
settle their transaction through dematerialized securities.

ADVANTAGES OF MUTUAL FUNDS

 Smart Investment Options

When you invest in investment tool which invests in one specific

sector there is a risk of losing money in one go. If the industry where
you have invested fails, then you might lose all your money.
However, this is not the case with mutual fund investments. When
you invest in amutual fund the associated risk is relatively low as
most of the mutual fund schemes spread the investments in multiple
 assets and sectors for reducing the risk. Hence, if any one of the
sectors faces a loss then the gains from the other sectors will
compensate the amount that you have lost. This risk mitigation
benefit makes mutual fund investments a smart investment compared
to other investments.

 Well- regulated funds

Mutual fund investments are regulated by the Securities and

Exchange Board of India. SEBI has laid down certain rules and
regulations which all the mutual funds providers in the company have
to follow. All the investments made in the funds have to be according
to the SEBI guidelines. This ensures that the investment works in
favor of both investors and providers without any unfair treatment.
Being monitored and supervised by an authorized body like SEBI, the
investments under mutual funds are safe and well regulated.

 Professionally Managed

Investing in mutual funds is easy. These funds are professionally

managed by experts and experienced fund managers who have
extensive experience in managing funds. Hence, even beginners who
don’t have any knowledge about the market can invest in such funds
with the help of expert managers. Since experienced professionals
manage all activities related to these funds you can be assured that
your money will be invested in safe places. Not only that, an entire
team of experts will take care of your investment, design your
portfolio, strategies on your behalf and will guide you through every
step of investment.

 Diversification of risk

Though mutual funds investments are subject to market risks, the

advantage is that the associated risk can be diversified. It is
completely up to the risk appetite of the investor to decide how much
risk he or she is ready to take. While a high risk funds tends to offer
higher returns, the chances of loss in these are equally high. So, if
you are not willing to take a huge risk you have the option to choose
 low or medium risk funds. A medium risk fund tends to balance the
risk and give out a medium return and a low risk fund has lower risks
and gives the lowest returns. Thus, based on your risk taking ability
you can diversify the risk by choosing a suitable fund matching your
requirement.

 Growth oriented investment

Since most of the mutual funds invest in the growth oriented equity
market, the investors get a chance to benefit from the growing Indian
economy. Though investments in equity and equity related securities
of companies are prone to certain risk, the chances of generating
returns from such funds are considerably higher. Moreover, such a
fund invests in the stock and bonds of high grade companies the
investors can do their individual research and then invest in the
desired stocks on their own without any involvement of the
intermediaries.

 Flexibility of switching funds

Mutual funds come with an option of fund switching. This means that
the investor can switch between schemes or between funds to avail
better terms or better returns from their investment. However, in most
of the cases, the fund switching options is available only between
schemes of the same fund and not between the funds offered by a
particular company.

 Easy to track funds

It is not an easy task to regularly review the mutual fund investment

portfolio as the funds units are purchased and liquidated by the
subscribers on a regular basis. This is why the mutual fund
companies provide a clear statement of all investments thus making it
easy for investors to keep a track of their investment.
DISADVANTAGES OF MUTUAL FUNDS

 No Insurance

Mutual funds, although regulated by the government are not insured

against losses. The Federal Deposit Insurance Company only insures
against certain losses at banks, credit unions, and savings and loans,
and mutual funds. That means that despite the risk reducing
diversification benefits provided by mutual funds, losses can occur,
and it is possible 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 tends
to do neither exceptionally well nor exceptionally poor.

 Loss of control

The mangers 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
consequences of a decision by the manager to buy or sell an asset at
certain time might not be optimal for you. You should also remember
that you are trusting someone else with your money when a you are
investing in 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 have
calculated the current value of their holdings.
TYPES OF MUTUAL FUNDS

Mutual Funds may be classified in different categories:

1. On the Basis of Functions

 Open-Ended Mutual Fund

In this type of mutual fund units are purchased and sold perpetually.
The scheme is open for an indefinite period. An investor can buy and
sell units from time to time. This scheme provides high liquidity of the
investment. Investors can buy and sell units directly from the mutual
funds on the basis of Net Asset Value (NAV) which is declared daily.
As no unit certificates and transfer deeds are involved, the investors
are free from the risk of theft, loss in transit, bad in delivery, fake
certificates, etc. An open ended mutual fund offers tremendous
operational flexibility to investors. Value for money, lower costs,
hassle free operations and transparency are other benefits of open
mutual funds.

 Closed-Ended Mutual Fund

Here, the unit capital to invest is fixed beforehand, and hence they
cannot sell a more than a pre- agreed number of units. Some funds
also come with NFO period, wherein there is a deadline to buy units.
It has specific maturity tenure and fund managers are open to any
fund size, however large. SEBI mandates investors to be given either
repurchase option or listing on stock exchanges to exit the scheme.

 Interval Fund

This one traits of both open ended and close ended funds. Interval
funds can be purchased or exited only at specific intervals (decided
by the fund house) and are closed the rest of the time. No
transactions will be permitted for at least 2 years. This is suitable for
those who want to save a lump sum for immediate goal.
2. On the basis of Asset Class

 Equity Funds

Primarily investing in stocks, they also go by the name stock funds.

They invest the money amassed from investors from diverse
backgrounds into shares of different companies. The returns or
losses are determined by how these shares perform (price hikes or
price drops) in the stock market. As equity funds come with a quick
growth, the risk of losing money is comparatively higher.

 Debt Funds

Debt funds invest in fixed income securities like bonds, securities and
treasury bills- Fixed Maturity Plans (FMPs), Gilt Fund, Liquid Fund,
Short term Plans, Long-Term Bonds and Monthly Income Plans
among others- with fixed interest rate and maturity rate. Go for it, only
if you are a passive investor looking for a small but regular income
(interest and capital appreciation) with minimal risks.

 Money Market Funds

Just as some investors trade stocks in the stock market, some trade
money in the money market, also known as capital market or cash
market. It is usually run by the government, banks or corporations by
issuing money market securities like bonds, T-bills, dated securities
and certificate of deposits among others. The fund manager invests
your money and disburses regular dividends to you in return.

 Hybrid Funds

As the name implies, Hybrid funds is an optimum mix of bonds and

stocks, thereby bridging the gap between equity funds and debt
funds. The ratio can be variable or fixed. In short, it takes the best of
two mutual funds by disturbing, say, 60% of assets in stocks and the
rest in bonds or vice versa. This is suitable for investor willing to take
more risks for debt plus returns benefit rather than sticking to lower
but steady income schemes.
3. On the basis of Investment goals

 Growth Funds

Growth funds usually put a huge portion in shares or growth sectors,

suitable for investors who have a surplus of idle money to be
distributed in riskier plans or are positive about the scheme.

 Income Funds

This belongs to the family of debt mutual funds that distribute their
money in a mix of bonds, certificate of deposits and securities among
others. Helmed by skilled fund managers who keep the portfolio in
tandem with the rate fluctuations without comprising on the portfolio’s
creditworthiness, Income funds have historically earned investors
better returns than deposits and are best suited for risk – averse
individuals from a 2-3 years perspective.

 Liquid Funds

Like Income funds, this too belongs to the debt fund category as they
invest in debt instruments and money market with a tenure of up to
91 days. The maximum sum allowed to invest is Rs. 10 lakhs. One
feature that differentiates liquid funds from other debt fund is how the
Net Asset Value is calculated- NAV of liquid funds are calculated for
365 days while for others, not only business days are calculated.

 Tax Saving Funds

Equity Linked Saving Scheme is gaining popularity as it serves

investors the double benefit of building wealth as well as save on
taxes- all in the lowest lock-in period of only 3 years. Investing
predominantly in equity, it has been known to earn you, non-taxed
returns from 14-16%. This is the best suited for long-term.
4. On the basis of Risk

 Very low-risk Funds

Liquid funds and Ultra Short term funds are not risky at all, and
understandably their returns are low (6% at best). Investors choose
this to fulfill their short term financial goals and to keep their money
safe until then.

 Low Risk Funds

In the event of rupee depreciation or unexpected national crisis,

investors are unsure about investing in riskier funds. In such cases,
fund managers recommend putting money in either one or a
combination of liquid, ultra short term or arbitrage funds. Returns
could be 6-8% but the investors are free to switch when valuations
become more stable.

 High Risk Funds

Suitable for investors with no risk aversion and aiming for huge
returns in the form of interest and dividends, High risk mutual funds
need active fund management. Regular performance reviews are
mandatory as they are susceptible market volatility. You can expect
15% returns, though most high risk funds generally provide 20%
returns.

 Medium Risk Funds

Here, the risk factor is of medium level as the fund manager invests a
portion in debt and the rest in equity funds. The Net Asset Value is
not that volatile, and the average returns could be 9-12%.
HOW TO INVEST IN MUTUAL FUNDS ?

Making Mutual Fund investing is one of the most favored ways to create
wealth, especially for beginners who want to have exposure to financial
markets. Mutual funds are a collection of stocks and bonds managed by
investment professionals.

Mutual Fund Investments are in limelight these days for providing the best
investment options for the long term creation of wealth. It is one of the best
decisions to earn high returns while avoiding tax payments at the same
time.

Also, known as Equity Funds, mutual funds are more popular because
people of any and every walk of life can invest in it easily. Moreover, the
internet boom makes it easier for investors to take advantage of the ease of
access by investing in mutual funds and make extra earnings.

The availability of more than thousands of top mutual funds in the market
has made it a daunting task to select the best plan to suit your requirement,
budget and preferences. Remember, you’ll end up paying for a lifetime if
you select the wrong one. Therefore, investing in the best mutual fund
schemes, which have been performing well consistently, is advisable.

 Identify your purpose for investing

This is the first step towards investing in mutual fund. You need to
define your investment goals which can be- buying a house, child’s
education, wedding, retirement, etc. If you do not have a specific
goal, you should at least have clarity on how much wealth you wish to
accumulate and in how much time. Identifying an investment
objective helps the investor zero in on the investment options based
on level of risks, payment method, lock-in period, etc.

 Fulfill the Know Your Customer (KYC) requirements

In order to invest in a mutual fund, investors need to comply with the

KYC guidelines. For this, the investor needs to submit copies of
 Permanent Account Number (PAN) card, proof of residence, age
proof, etc. as specified by the fund house.

 Know about the schemes available

The mutual fund market is flooded with options. There are schemes
to suit almost every need of the investor. Before investing, make sure
you have done your homework by exploring the market to understand
the different types of schemes available. After you have done that,
align it with your investment objective, your risk appetite, your
affordability and see what suits you best. Seek the help of a financial
advisor if you are not sure about which scheme to invest in. In the
end, it is your money.

 Consider the Risk factors

Remember that investing in mutual funds comes with a set of risks.

Schemes that offer high returns is often accompanied with high risks.
If you have a high appetite for risk and wish to accomplish high
returns, you can invest in equity schemes. On the other hand, if you
do not want to risk your investment and are okay with moderate
returns, you can go for debt schemes.

After you have identified your investment objectives, fulfilled the KYC
requirements, and explored the various schemes, you can start
investing in mutual funds. A bank account is also a mandate while
making a mutual fund investment. Most mutual fund houses will ask
for a physical or an online copy of a cancelled cheque leaf bearing
the IFSC (Indian Financial System Code) or MICR (Magnetic Ink
Character Recognition) of the bank.

WAYS TO INVEST IN MUTUAL FUNDS

 Offline investment directly with the fund house

You can invest in schemes of a mutual fund by visiting the nearest

branch office of the fund house. Just ensure that you carry a copy of
the below documents:
  Proof of Address

 Proof of Identity

 Cancelled Cheque leaf

 Passport size photo graph

The fund house will provide you with an application from which you will
need to fill and submit, along with the necessary documents.

 Offline investment through a broker

A mutual fund broker or a distributor is someone who will help you

through the entire process of investment. He will provide you with all
the information you need to make your investment including the
features of various schemes, documents needed, etc. He will also
offer guidance on which schemes you should invest in. For this, he
will charge you a fee which will be deducted from the total investment
amount.

 Online through the official website

Most fund houses these days offer the online facility of investing in
mutual funds. All you need to do is to follow the instructions provided
on the official site of the fund house, fill the relevant information, and
submit it. The KYC process can also be completed online (e-KYC) for
which you will need to enter your Aadhar number and PAN. The
information will be verified at the backend and once the verification is
done, you can start investing. The online process of investing in
mutual funds is easy, quick and hassle free and hence, is preferred
by most investors.

 Through an app

Many fund houses allow investors to make investment through an

app which can be downloaded on your mobile device. The app will
allow investors to invest in mutual fund schemes, buy or sell units,
 view account statements, and check other details concerning your
folio. Some of the fund houses that allow investments through an app
are SBI mutual fund, Axis mutual fund, ICICI prudential mutual fund,
Aditya Birla Sun life mutual fund, and HDFC mutual fund. Some apps
like myCAMS and Karvy allow investors to invest as well as access
the details of all their investments from multiple fund houses, on one
platform.

KEY GROWTH DRIVERS FOR MUTUAL FUNDS

The mutual fund industry has been growing annually at the rate of 9% for
the past 5 years & is expected to double the current AUM by the end of
March 2010, according to AMFI. Further the annual composite growth rate
of the industry is expected to be around 13% in the next 10 years. The
industry, which in 1993 had less than 10 schemes, today has 460 schemes
offered by mutual funds. The schemes are more diverse and offer a wide
array of choices to investors.

 Buoyant stock market

If there is one major reason for the industry to grow at such levels it is
the booming stock market over the last three years. The buoyant
stock market, which has gained 18% in the last one year and 90% in
the last three years.

 Product innovation

The innovative schemes launched by the mutual fund houses have

gain investors option to choose funds, which suits his investment
needs. Introduction of innovative schemes like hybrid funds, children
funds and fixed maturity plans and schemes such as exchange
traded funds and commodity based funds have helped galvanize the
industry growth.
 Increased competition

The entry of new players, both foreign as well as local, has helped
the industry to expand further. This has been ably supported by a
slew of new schemes from existing players as well. Further, the
consolidation in the industry has just started. Many big international
fund houses like Fidelity and Vanguard have entered the market.
These fund houses individual assets are more than the size of the
entire Indian mutual fund industry, this certainly will help improve the
growth levels of industry.

 Technology

The technology wave, which has transformed many industries in how

they operate and survive, has also come to the aid of the mutual fund
in dusty to widen its reach, offer flexibility and convenience to
investors. The advantages include lower distribution costs through
online transaction, more customized and personal advice to
customers, and reaching out to the growing young and net savvy
population of India.

 Deeper penetration into the country

Though India has a good savings rate, the savings are channelized
more into insurance and banking themes, which carry lesser risk,
mutual fund players are slowly realizing the potential of the B&C class
cities of India, many of which are seeing good growth in Income
levels as major plays from diversified industries such as services,
banking, retailing and petroleum are setting up their bases in these
cities. Increased penetration is helping the industry improve its asset
under management. The potential will huge for the Indian mutual fund
industry as the present markets are still dominated by corporate and
investors from A class cities.
KEY CHALLENGES TO GROWTH OF MUTUAL FUNDS

Though India enjoys a good savings rate, e-mutual fund industry gets very
little out of this. If this money gets channelized into mutual funds it will help
India match other well developed markets like the US, Canada, etc.
Another issue facing the industry is that, till now the Indian mutual funds
have focused on the ‘A’ cities and haven’t made impact on the ‘B’ & ‘C’
class cities and the rural areas, which we also seen a marked increase in
income levels and spending power.

 Poor reach

Lack of deeper distribution networks and channels is hurting e-growth

of the industry. This is an era of concern for the mutual fund industry,
which has not been able to penetrate deeper into the country and has
a limited to the metros and ‘A’ class cities. If the mutual fund industry
comes up with better distribution models and increases its reach it
could tap into a huge potential investor market of the rural and other
‘B’ and ‘C’ class cities, which are also witnessing good growth in
disposable incomes.

 Banks still dominate

The biggest hindrance to the growth of the industry lies in its inability
to attract the savings of the public, which constitute the major
investment sources in other developed mutual fund markets. A large
pool of money savings in India is still with the state run and private
banks.

 Lack of investment advisor

The lack of investment advisors, especially to give personalized

investment advice to the investors is creating roadblocks for the
growth in mutual funds. Further the awareness level in India about
the mutual fund industry are largely restricted to the high income
investors & A class cities. These rules out the potentially huge B, C
class cities and rural areas which has strong growth potential.
Company profile
 INDUSTRIAL CREDIT AND INVESTMENT
CORPORATION OF INDIA
(Now ICICI Bank)

The Industrial Credit and Investment Corporation of India (ICICI) was

established as a public limited company on January 5, 1955. It was
registered as a joint stock company under the Companies Act. ICICI is
international both in its ownership and operations. It was sponsored by
private industrialists in India, United Kingdom and the United States of
America. It is assisted by the World Bank and the Government of India. The
corporation is expected to meet the long term financial needs of the
industry particularly in the private sector.

The ICICI bank has played a vital role in the development of industries in
the private sector and in strengthening the capital market in the country. It
has become the largest supplier of foreign currency to private sector
industries. It has made significant efforts in promoting investments in
information technology, agro-based industries, energy conservation,
pollution control, export orientation and computerization. For this purpose it
has been carrying on leasing operations. The ICICI has established the
Housing Development and Finance Corporation (HDFC) Ltd. for financing
housing schemes. It has also sponsored the Institute of Financial
Management and Research for training and research in the field of financial
management.

ICICI has played a leading role in the areas of venture capital. It launched a
Programme for Acceleration of Commercial Energy Research (PACER). It
promoted Technology Development and Information Company of India
(TDICI) Ltd. to widen technology development in the country. ICICI assisted
in setting up the Credit Rating and Information Services of India ltd.
(CRISIL).
ICICI bank has established Indian Investment Centre (IIC) to encourage the
participation of foreign capital in Indian industries. It has emerged as the
pioneer in the field of underwriting by developing consortium underwriting in
cooperation with their institutions. The corporation has setup a Merchant
Banking Division to promote a healthy capital market. It has a Project
Promotion Department for developing backward regions. It is also providing
soft loans for the modernization and rehabilitation of sick industries.

ICICI bank provides financial assistance to private sector enterprises for

expansion and modernization. It offers deferred credit, leasing credit, asset
credit and venture capital. It provides technical consultancy and managerial
know how to industries in India. It encourages flow of private and foreign
investment in the country.

The management of the ICICI bank is vested in a Board of Directors

consisting of a full time chairman cum managing director and eleven
directors. One director is nominated by the Central Government, seven
directors are elected by the Indian Shareholders and three by the foreign
shareholders. There is also a general manager and a few committees to
assist the Board of Directors.

The main aim of the ICICI bank is to promote industrial development in the
private sector by providing financial, technical, administrative and other
services. The corporation has been established:-

 to assist in the promotion, expansion and modernization of industrial

enterprise in the private sector

 to encourage and promote the participation of private capital, both

Indiana and Foreign, in such enterprises

 to stimulate the growth of private ownership of industrial investments

and expansion of investment markets.

Functions of ICICI Bank

 Granting medium and long-term rupee loans to Industrial concerns

  Advancing loans in foreign currencies towards the cost of imported
capital equipment

 Providing guarantees to the loans raised by companies in the open

market

 Sponsoring and underwriting new issues of industrial securities

 Subscribing directly to shares and debentures of the companies

 Providing technical and managerial know how to industries

ICICI PRUDENTIAL MUTUAL FUND

ICICI Prudential Asset Management Company Limited is the second

largest AMCs in the country. They played an instrumental role in
acquainting Indian investors with mutual funds in the last 30 years. Many
investors have voted their products to be reliable and trusted, thanks to the
CRISIL credit rating of “AAAmfs”. They played a crucial role in setting up
CRISIL rating system.

There is a slew of products that caters to investors from diverse

socioeconomic backgrounds. For instance, you can start investing with an
SIP amount as small as Rs. 500 with no upper limit. Similarly, you can opt
for an investment horizon starting from 1 day. The large variety of mutual
funds gives people a chance to build investment portfolios that suit them
the best.

The popularity of ICICI Prudential Mutual Fund products is unsurprising as

it is one of the premiere AMCs in India. You can invest directly with the
fund house or go via a qualified mutual fund agent or distributor. If you are
new to investing or are not familiar with the market or investment trends,
you may invest with Clear Tax Save. They have done all the research
required and shortlisted the best performing funds from ICICI Prudential
AMC.
 HOUSING DEVELOPMENT FINANCE
CORPORATION
(NOW HDFC BANK)
The Housing Development Finance Corporation Limited, popularly
called HDFC Bank, was set up in India in the month of August in the
year with the name “HDFC Bank Limited”. This was the first
organization to be approved by RBI (Reserve Bank of India) to
establish a private sector bank. This happened as a part of the
liberalization of the banking industry in the country by RBI in the
same year.

However, this scheduled business bank started its operations mainly

January, 1995. headquartered in the city of Mumbai, this is one of the
main companies involved in housing finance. With an aim to be a
world class bank, this bank in India holds a good track record of
performance in both national as well as global markets. The bank had
India network of 684 branches in 316 cities in India and over 1633
ATMs.

HDFC bank has 88,253 permanent employees as of 31st March 2018

and has a presence in Bahrain, Hong Kong and Dubai. HDFC bank is
India’s largest private sector lender by assets. It is the largest bank in
India by market capitalization as of February 2016. It was ranked 69th
in 2016 BrandZ Top 100 most valuable global brand.

HDFC is India's premier housing finance company and enjoys

an impeccable track record in I n d i a a s we l l a s i n
i n t e r n a t i o n a l ma r k e t s . S i n c e i t s i n c e p t i o n i n 1 9 7 7 , t h e
C o r p o r a t i o n h a s maintained a consistent and healthy growth
in its operations to remain the market leader in mortgages. Its
outstanding loan portfolio covers well over a million dwelling
units. HDFC has developed significant expertise in retail mortgage
loans to different market segments and also has a large corporate
client base for its housing related credit facilities. With its
experience in the f i n a n c i a l m a r k e t s , a s t r o n g m a r k e t
reputation, large shareholder base and unique
c o n s u me r franchise, HDFC was ideally positioned to promote a
bank in the Indian environment.

HDFC banks mission is to a World Class Indian Bank. The objective

is to build sound customer franchises across distinct businesses so
as to be the preferred provider of banking services for target retail
and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the bank’s risk appetite. The bank is
committed to maintain the highest level of ethical standards,
professional integrity, corporate governance and regulatory
compliance. HDFC bank’s business philosophy is based on four core
values- operational excellence, customer focus, product leadership
and people.

The authorized capital of HDFC Bank is Rs550 crore (Rs5.5

billion). The paid-up capital is Rs424.6 crore (Rs.4.2 billion).
The HDFC Group holds 19.4% of the bank's equity and
about17.6% of the equity is held by the ADS Depository (in respect
of the bank's American Depository Shares (ADS) Issue). Roughly
28% of the equity is held by Foreign Institutional Investors (FIIs) and
t h e b a n k h a s a b o u t 5 7 0 , 0 0 0 s h a r e h o l d e r s . Th e s h a r e s
a r e l i s t e d o n t h e S t o c k E xc h a n g e , Mumbai and the National
Stock Exchange. The bank's American Depository Shares are listed
on the New York Stock Exchange (NYSE) under the symbol 'HDB'.

HDFC Bank Mutual Fund

 SCOPE OF THE STUDY

Many individuals own mutual funds today. Indeed mutual fund

industry which reached $3.64 trillion in assets by 2009, comprises the
bulk of many investors financial assets, whether for retirement or
taxable savings purposes. To a large extent, mutual funds are the
investment vehicle for the majority of households in the India.

The role of mutual fund in today’s investing environment, learn just

how popular mutual funds have become and consider why investors
have chosen to put so much money into funds. Clearly, mutual funds
are a major financial asset for numerous investors, and in many ways
they play the dominant role in today’s investing world of millions of
households.

As we know the scope of mutual funds have grown enormously over

the years. In the first age of mutual funds, when the investment
management companies started to offer mutual funds, choices were
few. Even though people invested their money in mutual funds as
these funds offered them diversified investment option for the first
time. By investing in these funds they were able to diversify their
investment in common stocks, preferred stocks, bonds and other
financial securities. At the same time, they also enjoy the advantage
of liquidity. With mutual funds, they got the scope of easy access to
their invested funds on requirement.

But, in today’s world, scope of mutual funds has become so wide,

that people sometimes take long time to decide the mutual fund type,
they are going to invest in. Several Investment Management
Companies have emerged over the years who offer various types of
mutual funds, each type carrying unique characteristics and different
beneficial features.

The purpose for doing such project report was to know about mutual
fund and its functioning. This helps to know in details about mutual
fund industry right from its inception stage, growth and future
prospects. It also helps in understanding different schemes of mutual
funds, because my study depends upon prominent funds in India and
their schemes like equity, income, balance as well as the returns
associated with those schemes. This project study is done to
ascertain the asset allocation, entry load, associated with mutual
funds.

The major scope of this project is limited to some prominent mutual

funds in the mutual fund industry. I analyzed the funds depending on
their schemes like equity, income, balance, etc.

The other scope of the project can be termed as to make people

aware about the concept of mutual fund, to provide information
regarding pros and cons of investing in a mutual fund, to get proper
idea about where to invest and where not, to provide information
regarding types of mutual funds provided by ICICI bank and HDFC
bank.
 OBJECTIVES OF THE STUDY

The project is carried with an intention to analyze that which country

provides better investment opportunities from HDFC and ICICI and
make the investors to be able to take better decisions. Of course, as
every study needs I have adopted an objective view of overall
situation that examines both sides of the issue situated in HDFC bank
and ICICI bank.

There are several objectives that had been carried down while
preparing this project report:-

 To analyze the concept and parameters of mutual fund

The main objective of preparing this project report is to make people

aware with the concept of mutual fund, what they are actually, their
working, schemes provided, which banks provides with the facility of
mutual funds, their structure, their types, pros and cons and
everything irrespective of mutual funds, because to know the further
report of a project one should first be familiar with the concept of
mutual fund.

 To analyze which provides better returns from HDFC bank and

ICICI bank

The second main objective for preparing this report was to make a
comparison between HDFC bank and ICICI bank that which bank
provides better schemes for funds, results in better risk and returns
and give a higher impact on customers regarding their policies. HDFC
bank and ICICI bank both are popular companies so the comparative
analysis is better at working.
 To know customer satisfaction

The another objective of the project report is to get the point of view
of people who are investing in mutual funds in both HDFC bank and
ICICI bank. The objective is to find out that whether people are
satisfied with their investment in any one the bank they are investing
in. What is the outcome they had received. What is the further criteria
of investing in these banks, whether they will again invest in these
banks or not.

 People’s behavior regarding risk factor

Another very important objective is that the risk factor in HDFC bank
and ICICI bank in mutual funds. People’s opinions regarding how
they feel about the risk factor of investing in mutual funds in these
banks, because risk factor is the most important part when investing
in mutual funds.

 To give an idea of the types of schemes available

Many people do not know much about mutual funds, so the another
objective of this project is to make people familiar with the schemes
provided by mutual funds with respect to both banks. Schemes of
mutual funds are the most important part of mutual fund, one cannot
invest further in mutual funds if he/she do not have any idea of
schemes of mutual fund.

 To discuss about the market trends of Mutual Fund Industry

Mutual fund Industry is expanding day by day in financial market.

Mutual fund industry is studied in this project report that how the
mutual fund industry is overtaking the market area with their schemes
and policies and attracting people to invest in their schemes.
 REVIEW OF LITERATURE
The project has reviewed on Mutual Funds in India are financial
instruments. A mutual fund is not an alternative investment option to
stocks and bonds rather it pools the money of several investors and
invests this in stocks, bonds, money market instruments and other
types of securities. The owner of a mutual fund unit gets a
proportional share of the fund’s gains, losses, incomes and
expenses. Mutual fund is vehicle for investment in stocks and bonds.
Each mutual fund has a specific stated objective. The fund’s objective
is laid out in the fund’s prospectus, which is the legal document that
contains information about the fund, its history, its officers and its
performances.

The share value of mutual funds in India is known as Net Asset Value
per share (NAV). The NAV is calculated on the total amount of mutual
funds in India, by dividing it with the number of share issued and
outstanding shares on daily basis. The company that puts together a
mutual fund is called an AMC. An AMC may have several mutual
fund schemes with similar or varied investment objectives. The AMC
hires a professional money manager, who buys and sells securities in
line with the fund’s stated objective. The Securities and Exchange
Board of India (SEBI) mutual fund regulations require that the fund’s
objectives are clearly spelt out in the prospectus. In addition, every
mutual fund has a board of directors that is supposed to represent the
shareholder’s interest, rather than the AMC’s.

There are several people who had reviewed since long the
performance of mutual funds has been receiving a great deal of
attention from both practitioners and academics. From an academic
perspective, the goal of identifying superior fund managers is
interesting as it encourages development and application of new
models theories. The idea behind performance evaluation is to find
the returns provided by the individual schemes especially growth
funds and the risk levels at which they are delivered in comparison
with the market and the risk free rates. It is also our aim to identify the
out performers for healthy investments. We have also ranked the
investment opportunities for better evaluation of these funds based
on various adjusted ratios like Sharpe ratio, Jensen Measure, Fama
Ratio, Sortino ratio, Treynor’s ratio and few others. Financial literature
has very little studies which concentrate on multiple measures of
mutual fund performance evaluation. Therefore, an attempt has been
made to capture the critical measures of performance evaluation of
mutual funds.

Today mutual funds represent the most appropriate opportunity for

most small investors. As financial markets become more
sophisticated and complex, investments need a financial intermediary
who provides the required knowledge and professional expertise on
successful investing. It is no wonder then that in the birth place of
mutual funds-the USA- the fund industry has already overtaken the
banking industry, with more money under mutual fund management
than deposited with banks.

The world of finance has witnessed an exponential growth in the post

information technology revolution of the 1990s. The present study
made an attempt to do a diagnostic analysis of past literature, though
a lot of research has been done on investor’s perception on mutual
funds. In the present, literature review on various dimensions with
respect to the measurement of performance, risk return trade off of
mutual funds, and investor’s awareness, education and interest
regarding mutual funds was examined to clear the gateway for the
upcoming researchers in the field of the mutual fund industry.

We had conducted a research on Comparative Performance Analysis

of Select Indian Mutual Fund Schemes. This study analyzes the
performance of Indian owned mutual funds and compares their
performance. The performance of these funds was analyzed using a
five year NAVs and portfolio allocation. Findings of the study reveals
that, mutual funds out perform naïve investment. Mutual funds as a
medium-to-long term investment option are preferred as a suitable
investment option by investors.

People had also studied Emerging Scenario of Mutual Funds in India:

An Analytical Study of Tax Funds. The present study is based on
selected equity funds of public sector and private sector mutual fund.
Corporate and Institutions who form only 1.16% of the total number of
investors accounts in the MFs industry, contribute a sizeable amount
of Rs. 2,87,108.01 crore which is 56.55% of the total net assets in the
Mutual fund industry. It is also found that Mutual funds did not prefer
debt segment.

We have done a Study on the Performance of select Private Sector

Balanced Category Mutual Fund Schemes in India. This study of
performance evaluation would help the investors to choose the best
schemes available and will also help the AUM’s in better portfolio
construction and can rectify the problems of underperforming
schemes. The objective of the study is to evaluate the performance of
select Private sector balanced schemes on the basis of returns and
comparison with their bench marks and also to appraise the
performance of different category of funds using risk adjusted
measures as suggested by Sharpe, Treynor and Jensen. We have
done Prediction of The Net Asset Values of Indian Mutual Funds
Using Auto- Regressive Integrated Moving Average (Arima). In this
paper, some of the mutual funds in India had been modeled using
Box-Jenkins autoregressive integrated moving average (ARIMA)
methodology. Validity of the models was tested using standard
statistical techniques and the future NAV values of the mutual funds
have been forecasted.
RESEARCH METHODOLOGY
 Research Methodology

Research is common refers to a search for knowledge. One can also

define research as a scientific and systematic search for pertinent
information on a specific topic. In fact, research is an art of scientific
investigation.

Some people consider research as a movement, a movement from

the known to the unknown. It is actually a voyage of discovery. We all
possess the vital instinct of inquisitiveness for, when the unknown
confronts us, we wonder and our inquisitiveness makes us probe and
attain full and fuller understanding of the unknown. The
inquisitiveness is the mother of all knowledge and the method, which
man employs for obtaining the knowledge of whatever the unknown,
can be termed as research.

Research is a structured enquiry that utilizes acceptable scientific

methodology to solve problems and create new knowledge that is
generally applicable. Scientific methods consist of systematic
observation, classification and interpretation of data.

Although we engage in such process in our daily life, the difference

between our casual day to day generalization and the conclusions
usually recognized as scientific method lies in the degree of formality,
rigorousness, verifiability and general validity of latter.

Research inculcates scientific and inductive thinking and it promotes

the development of logical habits of thinking and organization. The
role of research in several fields of applied economics, whether
related to business or to the economy as a whole, has greatly
increased in modern times.

The increasingly complex nature of business and government has

focused attention on the use of research in solving operational
problems. Research, as an aid to economic policy, has gained added
importance, both for government and business. Research provides
the basis for nearly all government policies in our economic system.
For instance, government’s budgets rest in part on an analysis of the
needs and desires of the people and on the availability of revenues to
meet these needs. The cost of needs has to be equated to probable
revenues and this is field where research is most needed. Through
research we can devise alternative policies and can as well examine
the consequences of each of these alternatives.

Research Design

Research design is a framework or blueprint for conducting the

marketing research project. It details the procedures necessary for
obtaining the information needed to structure or solve marketing
research problems. In simple words it is a general plan of how you
will go about your research.

Definitions of Research Design :

According to Kerlinger

Research design is the plan, structure and strategy of

investigation conceived so as to obtain answers to research
questions and to control variance.

According to Green and Tull

A research is the specification of methods and procedures for

acquiring the information needed. It is the overall operational
pattern or framework of the project that stipulates what
information is to be collected from which sources by what
procedures.

The function of a research design is to ensure that requisite data in

accordance with the problem at hand is collected accurately and
economically. Simply stated, it is the framework, a blueprint for the
research study which guides the collection and analysis of data.
 The research design, depending upon the needs of researcher may
be a very detailed statement or only furnish the minimum information
required for planning the research project. Research design is
significant simply because it allows for the smooth sailing of the
various research operations, thus making research as efficient as
possible producing maximum information with nominal expenses of
effort, time and money.

The preparation of research design, appropriate for a particular

research problem, involves the consideration of the following:

 Objective of the research study

In a competitive situation with multiple mutual funds operating in

Indian market, it s necessary to know about the performance of
different mutual funds as the performance of mutual funds decides
about the future of mutual fund company. The project is carried out
with an intention to analyze that which company provides better
investment opportunities from HDFC bank & ICICI bank and make
the investors to be able to take better decisions. Of course, as every
study needs, I have adopted an objective view of overall situation that
examines both sides of the issue situated in HDFC bank and ICICI
bank.

 Methods of Data collection

There are numerous possible sources of data this is a determination

that is special to each project. A step toward that determination is
having, first, general classification of sources, which we now offer in
several dimensions. Secondary sources should first be considered,
which refer to those for already gathered and available data. There
may be internal sources within the clients firm. Externally, these
sources may include books or periodicals, published reports, data
services, and computer data banks.

In my project report I have gone through collection of data both

“Primary” and “Secondary”.
  Primary Sources

In the project for primary data collection, I had made a use of

questionnaires which I made sure to get it fill by peoples a
through that I have further started with my research report.

 Secondary Sources

In this project I have also adopted secondary data collection

also such as Websites, Journals, Books.

 Sources of Information – Sample Design

Once the researches has formulated the problem and developed a

research design including the questionnaire, he has to decide
whether the information is to be collected from all the people
comprising the population. In case the data are collected from each
member of the population of interest, it is known as the census
survey. If, on the other hand, data are to be collected from some
members of the population, it is known as sample survey. Thus, the
researcher has to decide whether he will conduct a census or a
sample survey to collect the data needed for his study.

The researcher collects the data as per the guidelines laid down in
the research design. An essential component of the research design
is the sampling design which is concerned with the selection of a
sample. We encounter sampling in our day to day lives e.g. when we
purchase a carton of foods on the basis of inspection of a fruit pieces.
These few pieces are our sample, on the basis of which a decision
about the entire carton of fruits has been taken. Thus a general
statement about the entire population has been made on the basis of
sample results.

 Sampling Size

Sample size is a count of individual samples or observations in

any statistical setting, such as a scientific experiment or public
opinion survey. Though a relatively straightforward concept,
 choice of sample size is a critical determination for a project.
Too small a sample yields unreliable results, while an overly
large sample demands a good deal of time and resources.

Sample size measures the number of individual samples

measured or observations used in a survey or experiment. For
example, if you test 100 samples of soil for evidence of acid
rain, your sample size is 100. If an online survey returned 30,
500 completed questionnaire, your sample size is 30,500.

In my project it represents that how many candidates you have

chosen to be filled up your questionnaire or candidates upon
whom you can study. In my project report I have choose 100
candidates and worked upon their opinions.

 Sampling Techniques

In my project report I have used two sampling techniques such

as Deliberate Sampling. Deliberate sampling is also known as
purposive or non-profitability sampling. This sampling method
involves purposive or deliberate selection of particular units of
the universe for constituting a sample which represents the
universe. When population elements are selected for inclusion
in the sample based on the ease of access, it can be called
convenience sampling. If a researches wishes to secure data
from, say, gasoline buyers, he may select a fixed number of
petrol stations and may conduct interviews at these stations.
This would be an example of convenience sample of gasoline
buyers. At times such a procedure may give very biased results
particularly when the population is not homogeneous.

 Data Analysis

Data Analysis is the process of systematically applying statistical

and/or logical techniques to describe and illustrate, condense and
recap, and evaluate data. According to Shamoo and Resnik (2003)
various analytic procedures “provide a way of drawing inductive
inferences from data and distinguishing the signal (the phenomenon
of interest) from the noise (statistical fluctuations) present in the
data”. While data analysis in qualitative research can include
statistical procedures, many times analysis becomes an ongoing
iterative process where data is continuously collected and analyzed
almost simultaneously. An essential component of ensuring data
integrity is the accurate and appropriate analysis of research findings.
Improper statistical analyses distort scientific findings, mislead casual
readers (Shepard, 2002), and may negatively influence the public
perception of research. Integrity issues are just as relevant to
analysis of non-statistical data as well.