CHAPTER 1: INTRODUCTION

 Abstract

Investment goals vary from person to person. While somebody wants security, others might give more
weightage to returns alone. Somebody else might want to plan for his child’s education while somebody
might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range,
it is obvious that the products require will vary as well.

Indian Mutual Funds industry offers a plethora of schemes and serves broadly all types of investors. The
range of products includes equity funds, debt, liquid, gilt and balanced funds. There are also funds meant
exclusively for young and old, small and large investors. Moreover, the setup of a legal structure, which has
enough teeth to safeguard investor’s interest, ensures that the investors are not cheated out of their hard
earned money. All in all, benefits provided by them cut across the boundaries of investor category and thus
create for them, a universal appeal.

Investors of all categories could choose to invest on their own in multiple options but opt for Mutual Funds
for the sole reason that all benefits come in a package. The Mutual Fund industry is having its hands full to
cater to various needs of the industry by coming up with new plans, schemes and options with respect to rate
of returns, dividend frequency and liquidity.

In today’s competitive environment, different kinds of investment avenues are available to the investors. All
investment modes have advantages and disadvantages. An investor tries to balance these benefits and
shortcomings of different investment modes before investing in them. Among various investment modes,
Mutual Fund is the most suitable investment mode for the common man, as it offers an opportunity to invest
in a diversified and professionally managed portfolio at a relatively low cost.

In the current scenario of modernisation, people are becoming modern and more aware and literate day by
day in every aspects whether that is of shifting towards cashless, using smart phones for banking, shopping
etc, getting independent or if it is the case of selection of investment options. In terms of investment earlier
bank fixed deposits and savings account, PPF used to be favourites investment avenues among investors. But
investors are now understanding that to beat inflation investment in these traditional avenues is not enough
and one of has to adopt diversification to meet out different goals of their life. In the present scenario mutual
funds are the most vivacious investment avenue among all the various available options. One can explore
investment in mutual funds which in turn will offer them exposure to various asset classes according to their
selection on the basis of various parameters like their age, financial position, risk tolerance and return
expectations. Mutual funds provides liquidity, professional management, tax advantage and better returns
and having plethora of schemes according to need of investors to meet their financial goals. The objective of

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the research paper is to know the Investors’ awareness and preference towards Mutual Funds as an
investment option.

Mutual Funds provide various facilities that make savings and investing simple, accessible and affordable,
by using professional management, diversification, variety of products, liquidity, affordability, convenience
and ease of record keeping. Moreover, strict government regulation and full disclosure of information makes
the investments more secure in India. In Mutual fund market the key area of interest of marketing experts are
understanding the investors’ expectations and meeting those expectations. The mutual fund sector is one of
the fastest growing sectors in Indian Economy and has tremendous potential for sustained future growth. The
present era of exponential growth has seen changes, refinements, innovations etc. in products, practices and
distribution and channel development. The industry needs to identify the expectation of the investors and
meet their expectation in a better way by overcoming the challenges the Mutual fund Industry is facing.
Keeping in view the ever increasing competition of similar or alternative product, marketing has been
concerned the most vital area of operation of mutual funds industry. Mutual Fund Marketing is different
from marketing of other goods. The present study try to explore the marketing strategies adopted by mutual
funds, the different 7 Ps that are involved in the marketing of mutual fund and also the marketing strategies
that are involved by the various mutual funds houses for attracting the investors. For collection of
information to achieve the objectives of the paper a number of conceptual articles, views of marketing
experts, newspaper articles, fund manager views and their specific marketing strategies have been explored.

 Introduction

The financial institutions are essential for the better management of the social and economic system of any
society. The economic and social security can be enhanced by right investment to generate the money and
wealth to the economy. Mutual funds have evolved over the years keeping in view the changes in the
economic and financial systems, as well as the legal environment of the country. According to the
requirements and the changes in the investors’ perceptions and expectations, new products are launched.
Since its inception in the early 60s with the formation of UTI Mutual fund in India as an investment avenue
is growing, past studies revealed that mutual fund in India is growing but the industry is still struggling to
win the investors’ confidence. The industry needs to identify the expectation of the investors and meet their
expectation in a better way by overcoming the challenges the Mutual fund Industry is facing.

The Mutual Funds originated in UK and thereafter they crossed the borders to reach other destinations. Now,
booming stock markets and innovative marketing strategies of mutual fund companies in India are
influencing the retail investors to invest their surplus funds with different schemes of mutual fund
companies with or without complete understanding of Mutual Funds (MF). The Mutual Fund Industry in
India started in 1963 with the formation of Unit Trust of India (UTI), at the initiative of the Government of
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India and Reserve Bank of India. The year 1987 marked the entry of non-UTI, public sector Mutual Funds
set up by public sector banks and Life Insurance Corporation of India Limited (LIC) and General Insurance
Corporation of India (GIC). With the entry of private sector funds in the year 1993, a new era started in the
Indian Mutual Funds Industry, giving the Indian investors a wider choice of fund families.

The Mutual fund sector is one of the fastest growing sector in Indian Economy and has awesome potential
for sustained future growth. Mutual funds make savings and investing simple, accessible and affordable. The
advantages of mutual funds include professional management, diversification, variety, liquidity,
affordability, convenience and ease of record keeping. Moreover, strict government regulation and full
disclosure makes the investment more secure. Mutual funds are among the most preferred investment
instruments. The mutual fund is run by a fund manager who is responsible for the buying and selling of
investments in accord with the investment objectives of the fund. Funds registered with the Securities and
Exchange Commission, should distribute almost all of their net realized gains and net income from the sale
of securities and no less than once a year. Most of the funds are organised in the form of trusts and overseen
by trustees or boards of directors. These are charged with the management of the fund, as to serve in the best
interest of investors.

Mutual Fund Marketing is different from marketing of other goods. Mutual fund also work with the motive
like all the providers of goods and services work. They want to deliver good quality at a reasonable cost, but
the managers cannot make any promises about the future performances of the investment since a mutual
fund is not a consumer product with consistency of performances. The past performance of the mutual fund
and general expectation can be told, no performance guarantee can be given in case of Mutual fund.

In the light of this background, this study tries to achieve the following objectives:

1. To study the Elements of Mutual Fund Marketing Mix and the 7 Ps concept.
2. To study the preferred distribution channels of mutual fund industry.
3. To study methods adopted by mutual funds for the promotion and advertisement.
4. To study the challenges faced by the mutual fund industry related to Marketing strategy.

There are a number of studies which discuss the performance of mutual funds, behaviour of investors
towards mutual fund as an investment avenue and risk and return factors. Marketing is very important issue
now a days and service marketing is accepted and necessary for all the service industry participants. Mutual
funds are not away from this truth. So there is a need to study the marketing and promotional strategies
adopted by mutual funds to create awareness among the various investors to invest in mutual funds.

The mutual fund industry in about the past five years is apparently illusionary. Most of the growth in the
assets under management has come not due to the increased retail participation, but due to higher corporate
investments in liquid schemes of the industry. A strong mutual fund industry can contribute to macro

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stability of the Indian financial markets as well to achieve efficient micro distributions of capital markets
gain.

Out of the various traditional investment avenues like bank saving account, fixed deposit, PPF very few are
providing high return and also because of high inflation the real return from these avenues are very low.
However a retail investor do not have expert knowledge and sufficient time to directly invest in capital
markets. One get confuse in deciding that in which stock to invest, when to invest as they do not have price
sensitive information readily available all the time and also how much to invest in a particular security. As a
solution to the problem, Mutual funds are the best option available to a retail investors as it is having a
advantage of professional management with higher liquidity and better returns. Investors can explore
investment in mutual fund schemes according to their financial goals, needs and various other parameters
like their age, financial position, risk tolerance and return expectations which in turn will offer them
exposure to various asset classes according to their selection. Investment in mutual funds are also safe as
they are regulated by SEBI. In today’s time smart phones and internet has enabled investors to conduct all
sorts of transactions anywhere at any point which in turn also saves time and money. Nowadays one can
directly invest in mutual funds online by visiting websites of mutual funds companies. Many Mutual Fund
houses have launched e-KYC option on their websites whereby a non KYC complaint investor can visit the
website, get KYC complaint and start investing in mutual funds online immediately.

Investments in share markets are influenced by the analysis and reasoning which help in predicting the
market to some extent. Over the past years a number of technical and theories for analysis have evolved,
these combined with modern technology guides the investor. The big players in the market, like Foreign
Institutional Investors, Mutual Funds, etc. have the expertise for various analytical tools and make use of
them. The small investors are not in a position to benefit from the market the way Mutual Funds can do.
Generally a small investor’s investment are based on market sentiments, inside information, through
grapevine, tips and intuition. The small investor depend on brokers and brokerage house for his investments.
They can invest through the Mutual Funds who are more experienced and expert in this field than a small
investor himself.

 What is a Mutual Fund?

A Mutual Fund is a professionally managed investment fund that pools money from many investors to
purchase securities. These investors may be retail or institutional in nature. Mutual funds have advantages
and disadvantages compared to direct investing in individual securities. The primary advantages of mutual
funds are that they provide economies of scale, a higher level of diversification, they provide liquidity and
they are managed by professional investors. On the negative side, investors in a mutual fund must pay
various fees and expenses.
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A mutual fund is a professionally managed trust that pools the savings of many investors and invests them in
securities like stocks, bonds, short-term money market instruments and commodities such as precious
metals. Investors in a mutual fund have a common financial goal and their money is invested in different
asset classes in accordance with the fund’s investment objective. Investments in mutual funds entail
comparatively small amounts, giving retail investors the advantage of having finance professional control
their money even if it is a few thousand rupees.

Mutual Funds are pooled investment vehicles actively managed either by professional fund managers or
passively tracked by an index or industry. The funds are generally well diversified to offset potential losses.
They offer an attractive way for savings to be managed in a passive manner without paying high fees or
requiring constant attention from individual investors. Mutual funds present an option for investors who lack
the time or knowledge to make traditional and complex investment decisions. By putting your money in a
mutual fund, you permit the portfolio manager to make those essential decisions for you.

Primary structures of mutual funds include open end funds, unit investment trusts and close end funds.
Exchange traded funds are open end funds or unit investment trusts that trade on an exchange. Mutual funds
are also classified by their principal investments as money market funds, bond or fixed income funds, stock
or equity funds, hybrid funds or others. Funds may also be categorized as index funds, which are passively
managed funds that match the performance of an index, or actively managed funds.

 How is a Mutual Fund set up?

A mutual fund is set up in the form of a trust that has a Sponsor, Trustees, Asset Management Company
(AMC). The trust is established by a sponsor(s) who is like a promotor of a company and the said Trust is
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registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of the
mutual fund hold its property for the benefit of unit holders. An Asset Management Company (AMC)
approved by SEBI manages the fund by making investments in various types of securities.

The trustees are vested with the power of superintendence and direction over the AMC. They monitor the
performance and compliance of SEBI regulations by the mutual fund. The trustees are vested with the
general power of superintendence and direction over AMC. They manage the performance and compliance
of SEBI Regulations by the mutual fund.

 How does a mutual fund operate?

A mutual fund company collects money from several investors and invests it in various options like stocks,
bonds, etc. This fund is managed by professionals who understand the market well, and try to accomplish
growth by making strategic investments. Investors get units of the mutual fund according to the amount they
have invested. The Asset Management Company is responsible for managing the investments for the various
schemes operated by the mutual fund. It also undertakes activities such like advisory services, financial

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consulting, customer services, accounting, marketing and sales functions for the schemes of the mutual
funds.

 Mutual funds in India

The first introduction of a mutual fund in India occurred in 1863, when the Government of India launched
Unit Trust of India (UTI). UTI enjoyed a monopoly in the Indian mutual fund market until 1987, when a
host of other government controlled Indian financial companies established their own funds, including State
Bank of India, Canara Bank and by Punjab National Bank.

 Mutual Fund Industry

The mutual fund industry in India is one of the emerging industries in India. Today, the Indian mutual fund
industry has 40 players. The number of public sector players has reduced from 11 to 5. The public sector has
gradually receded into the background, passing on a large chunk of market share to private sector players.

The Association of Mutual Funds in India (AMFI) is the industry body set up to facilitate the growth of the
Indian mutual fund industry. It plays a pro-active role in identifying steps that need to be taken to protect
investors and promote the mutual fund sector. It is noteworthy that AMFI is not a Self-Regulatory
Organisation (SRO) and its recommendations are not binding on the industry participants. By its very nature,
AMFI has an advisor’s or a counsellor’s role in the mutual fund industry. Its recommendations become
mandatory if and only if the Securities and Exchange Board of India (SEBI) incorporates them into the
regulatory framework it stipulates for mutual funds.

The Indian mutual fund industry follows a 3-tier structure as shown below:

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 1. Sponsors:
They are the individuals who think of starting a mutual fund. The Sponsor approaches SEBI, the
market regulator and also the regulator for mutual funds. Not everyone can start mutual fund. SEBI
will grant a permission to start a mutual only to a person of integrity, with significant experience in
the financial sector and a certain minimum net worth. These are just some of the factors that come
into play.

2. Trust:
Once SEBI is satisfied with the credentials and eligibility of the proposed Sponsors, the Sponsors
then establish a Trust under the Indian Trust Act 1882. Trusts have no legal identity in India and thus
cannot enter into contracts. Hence the trustees are the individuals authorized to act on behalf of the
Trust. Contracts are entered into in the name of the trustees. Once the trust is created, it is registered
with SEBI, after which point, this Trust is known as the Mutual Fund.

3. Asset Management Company (AMC):

The Trustees appoint the AMC, which is established as a legal entity, to manage the investor’s (unit
holder’s) money. In return for this money management on behalf of the mutual fund, the AMC is
paid a fee for the services provided. This fee is to be borne by the investors and is deducted from the
money collected from them. The AMC has to be approved by SEBI and it functions under the
supervision of its Board of Directors, and also under the direction of the Trustees and the regulatory
framework established by SEBI. It is the AMC, which in the name of the Trust, that floats new
schemes and manages these schemes by buying and selling securities.

 History of Mutual fund industry

The mutual fund industry started in 1963with the formation of the Unit Trust of India which was the
initiative of the Government of India and the Reserve Bank of India.

The history of mutual funds in India can be broadly classified into four distinct phases:

First Phase: 1964 – 1987

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of
India and functioned under the Regulatory and administrative control of the RBI. In 1978, UTI was delinked
from RBI and IDBI took over the regulatory and administrative control in place of RBI. The first scheme
launched by UTI was Unit Scheme, 1964. At the end of 1988 UTI had Rs. 6700 crores of AUM.

Second Phase: 1987 – 1993 (Entry of Public Sector Funds)

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In 1987, it was the entry of non-UTI, public sector mutual funds setup by public sector banks and the 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.

Third Phase: 1993 – 2003 (Entry of Private Sector Funds)

With the entry of the private sector funds in 1993, a new era started in the Indian Mutual Fund Industry,
giving the investors a wider choice of fund families. Also, 1993 was the year in which first Mutual Fund
Regulations came into being, under which all mutual funds, except UTI were to be registered and governed.
The erstwhile Kothari Pioneer was the first private sector mutual fund registered in July, 1993. The industry
now functions under SEBI Regulations, 1996. At the end of January 2003, there were 33 mutual funds with
total assets of Rs.121805 crores. The UTI with Rs.44541 crores of AUM was way ahead of other mutual
funds. The industry evolved self-regulation to promote confidence among investors under the aegis of the
Association of Mutual Funds of India (AMFI) incorporated on August 22, 1995 as a non-profit organisation.
With the objective of ensuring healthy growth of mutual funds, the SEBI (Mutual Funds) Regulations, 1996
aimed at bringing out standards in Net Asset Value (NAV) calculations, accounting practices, exemption
from listing of schemes, remuneration to Asset Management Company’s (AMC), fixation of a band of 7%
between purchase and repurchase prices.

Fourth Phase: Since February 2003

In February 2003, following the repeal of the Unit Trust of India Act, 1963 UTI was bifurcated into two
separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management
of Rs.29835 crores as at the end of January 2003.

 Mutual fund structure

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund as a fund established in the form of a trust
by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more
schemes for investing in securities in accordance with these regulations. These regulations have since been
replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new regulations is
indicated as under. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC
and custodian. The sponsor establishes the mutual fund and gets it registered with SEBI.

The mutual fund needs to be constituted in the form of a trust and the instrument of the trust should be in the
form of a deed registered under the provisions of the Indian Registration Act, 1908.

The Custodian maintains the custody of the services in which the scheme invests. It also keeps a tab on
corporate actions such as rights, bonus and dividends declared by the companies in which the fund has
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invested. The Custodian also participates in a clearing and settlement system through approved depository
companies on behalf of mutual funds, in case of dematerialized securities.

The Sponsor is required to contribute at least 40% of the minimum net worth (Rs 10 crore) of the asset
management company. The board of trustees manages the Mutual Fund and the sponsor executes the trust
deeds in favour of the trustees. It is the job of the Mutual Fund trustees to see that schemes floated and
managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines.

 Types of Return

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

 Income is earned from dividends on stock and interest on bonds. A fund pays out nearly all income
it receives over the year to fund owners in the form of a distribution.
 If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also
pass on these gains to investors in a distribution.
 If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in
price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a
choice either to receive a check for distributions or to reinvest the earnings and get more shares.

 Indicators of investment risk

There are five main indicators of investment risk that apply to the analysis of stock, 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).

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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 risk reward parameters of their investments. In
this article, we’ll give a brief explanation of each of these commonly used indicators.

 Understanding and managing risk

All investments whether in shares, debentures or deposits involve risk : share value may go down depending
upon the performance of the company, the industry, state of capital markets and the economy; generally,
however, longer the term, lesser the risk; companies may default in payment of interest / principal on their
debentures / bonds / deposits; the rate of interest on an investments may fall short of the rate inflation
reducing the purchasing power.

While risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can
expect higher returns and vice versa if he pertains to lower risk instruments, which would be satisfied by
lower returns. For example, if an investor opts for bank fixed deposits, which provide moderate return with
minimal risk. But as he moves ahead to invest in capital protected funds and the profit bonds that give out

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more return which is slightly higher as compared to the bank deposits but the risk involved also increases in
the same proportion.

While risk cannot be eliminated, skilful management can minimises risk. Mutual Funds help to reduce risk
through diversification and professional management. The experience and expertise of Mutual Fund
managers in selecting fundamentally sound securities and timing their purchases and sales help them to build
a diversified portfolio that minimise the risk and maximises returns.

Thus investors choose mutual funds as their primary means of investing, as Mutual Funds provide
professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund
investment are risk free. This is because the money that is pooled in are not invested only in debt funds
which are less riskier but are also invested in the stock markets which involves a higher risk but can expect
higher returns.

 Risk associated with mutual funds

At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the
potential reward. Remember that the value of all financial investments will fluctuate.

Individual tolerance for risk varies, creating a distinct “investment personality” for each investor. Some
investors can accept short-term volatility with ease, others with near panic. So whether you consider your
consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how
comfortable or uncomfortable you will be as the value of your investment moves up or down.

 Managing Risk:
Mutual funds offer incredible flexibility in managing investment risk. Diversification and Automatic
Investing are the two key techniques you can use to reduce your investment risk considerably and
reach your long-term financial goals.

 Diversification:
When you invest in one mutual fund, you instantly spread your risk over a number of different
companies. You can also diversify over several different kinds of securities by investing in different
mutual funds, further reducing your potential risk.
Diversification is a basic risk management tool that you will want to use throughout your lifetime as
you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to
maintain a mix of equity shares, bonds and money market securities have a greater chance of earning
significantly higher returns over time than those who invest in only the most conservative
investments.
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 Additionally, a diversified approach to investing – combining the growth potential of equities with
the higher income of bonds and the stability of money markets – helps to moderate your risk and
enhance your potential returns.

 Systematic Investment Plan (SIP):

The unitholders of the scheme can benefit by investing specific rupee amounts periodically, for a
continuous period. Mutual fund SIP allows the investors to invest a fixed amount of rupees every
month or quarter for purchasing additional units of the scheme at NAV based prices.

 Types of Risks

All investments involve some form of risk. Even an insured bank account is subject to the possibility that
inflation will rise faster than your earnings, leaving you with less real purchasing power than when you
started. There’s risk involved when investing too, and hence you ought to make prudent decisions after
you’ve recognised the risk involved, especially when you’re opting for mutual funds as an avenue for wealth
creation.

Mutual fund schemes invest in a variety of securities and the risk depends on the underlying assets and
securities it carries in its portfolio. As the market fluctuates, the value of stocks and bonds also move in a
direction. This movement is reflected in the Net Asset Value (NAV) of a respective mutual fund scheme.

Your investments might generate returns as per your expectations, or it might not. this connotes the ‘risk’
involved. There are various factors which result into any kind of risk. The different important types of risk
while investing in mutual funds that you should be aware of are as follows:

 Credit Risk:
Suppose you lend some money to your friend for a period of 1 month. And after a month he / she
fails to return your money. This is called as credit risk. Likewise, when you invest in a debt fund,
there is a risk that the bond issuer may default. Therefore, investing in debt funds is not safe. You
need to do thorough research, study the portfolio characteristics to assess the quality of debt
instrument held by a debt mutual fund scheme. Ensure that the debt mutual invests in highly graded/
rated securities, because a company may default on its debt obligations.

 Currency Risk:
When an instrument in the fund is pegged against an international currency, we have to keep tabs on
the foreign exchange market too.

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 Interest Rate Risk:
As a naïve investor, the interest rate fluctuations might have not bothered you. At the most, you
might have paid heed while investing in fixed deposits or if you have a home loan. But when you
invest in debt mutual fund schemes, remember interest rates and bond prices are inversely related.
Meaning, when interest rates fall, the value of bond prices rise (and so does the NAV of a debt
mutual fund scheme) and vice versa. Hence, the value of your debt fund will appreciate / depreciate
with the rise and fall in interest rates.
Hence, be cognisant of the interest rate cycle the economy is in before investing in debt mutual funds
and select the category of funds carefully.

 Liquidity Risk:
Liquidity risk arises when you are unable to sell your asset at a desired price at a given point. In other
words, it arises when it is difficult to liquidate your assets / holdings. In such scenarios, fund
managers are obliged to continue holding their position, and at times, it may even result in them
selling these at much lower price which results in a loss.

 Price Risk:
This is especially pertinent to equity investing. Equity markets in short term can be highly volatile.
Noted economist, John Maynard Keynes has aptly articulated: “The market can remain irrational
longer than you can remain solvent.”
Hence, it becomes vital to look at the price risk, because it can move in any direction. This price risk
can affect the NAV of your fund, while volatility is integral to equity and equity related securities.
But when you invest in equity mutual fund schemes, invest for long term and so short term volatility
or price changes will not deter you. Having said, that, you ought to prudently select mutual fund
schemes and past performance should not be the only parameter to consider as evaluation is
necessary to select winning mutual fund schemes after considering a variety of facets.

 Macroeconomic Risk:
Besides the risk we discussed above, mutual funds, in general, are also exposed to macroeconomic
risk. Macroeconomic factors such as growth, corporate earnings, inflation, interest rates, etc. do
affect the overall value of the securities of a mutual fund scheme. So, when the economy at large is in
good light, the positivity will also reflect upon the mutual fund schemes and when it is not in good
shape that will have a bearing on the NAV too.

 Market Risk:

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 It is the risk associated with the volatility of all your investments (stocks, commodities, currency,
debt, mutual funds etc.). A security is said to be more volatile if its price changes a lot over the day in
comparison to the others. Volatility can also indicate better returns since there are more chances for
us to make money based on these chances in price. A more passive fund like an index fund is not as
much volatile and generally considered a safer investment. The past performance of a fund can tell
you how volatile or stable it has been over time.

 Systematic Risk:
This is the risk that is involved with any investment security. It is the risk of the whole financial
system being hit. Say, a disaster (natural or man-made) or some other event which negatively
influences the public mind-set strikes and the economy goes for a tumble. Stocks crash, indices take
a roll and you lose more than what you have invested in the fund. There is little you can do to save
yourself against or mitigate such a risk.

 How do the funds raise money?

The asset management companies (AMCs) that manage the mutual funds define avenues where they think
profitable opportunities exist. For example, currently many AMCs believe that small and medium cap stocks
will yield significant return over the medium to long term. Hence, they launch a ‘fund’ (called a new fund
offer: NFO) which seeks to bring all those investors together who believe similarly.

The AMC releases a prospectus wherein it details the objective of the fund, the credentials of the company
and the fund manager and the avenues where the money will be invested. Based on this information, the
investor needs to decide whether this fund meets his objective or not. If the investor (or his advisor) believes
that the new fund fits his required risk return profile, the investor invests in the fund.

 Where do mutual funds invest?

Mutual funds, invest in the companies which take on business risk. Funds which invest in the shares of the
company are called ‘equity mutual funds’. Funds like Pru-ICICI Power or Reliance Growth are examples of
such funds.

Similarly, funds can invest in government securities (bonds issued by Central or State Governments, PSUs
or other government entities) or corporate debt (issued by companies and banks). These funds are called
‘debt funds’. Funds like Reliance Income Fund invest primarily in medium and long tenor debt. Again, there

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are funds that invest in very short term loans (typically overnight to up to three months) : these funds are
called money market mutual funds. Examples include HDFC Cash Management – savings plan.

While the above three are the basic avenues for the funds to invest many funds combine the three types in
various proportions and produce ‘hybrid or balanced funds’. HDFC Prudence and SBI Magnum Balanced
examples.

 What are the types of Mutual Funds?

1. Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending
on its maturity period.
Open ended fund:
An open ended mutual fund is one that is available for subscription and repurchase on a continuous
basis. These funds do not have a fixed maturity period. An open ended fund is a fund that is available
for subscription and can be redeemed on a continuous basis. It is available for subscription
throughout the year and investors can buy and sell units at NAV related prices. These funds do not
have a fixed maturity date. The key feature of an open ended fund is liquidity.

Close ended fund:

A close ended mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for
subscription only during a specified period at the time of launch of the scheme. these funds are listed
on a recognized stock exchange.

Interval Funds:
Interval funds combine the features of open ended and close ended funds. These funds may trade on
stock exchanges and are open for sale or redemption at predetermined intervals on the prevailing
NAV.

2. Fund according to Investment Objective:

A scheme can also be classified as growth fund, income fund or balanced fund considering its
investment objective. Such schemes may be open ended or close ended schemes as describes earlier.
Such schemes may be classified mainly as follows:
Growth / Equity Oriented Scheme:
The aim of the growth fund is to provide capital appreciation over the medium to long term. Such
schemes normally invest a major part of their corpus in equities. They invest majorly in stocks and
the investment objective of these funds is long term capital growth. Such funds have comparatively
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high risks. When you buy shares of an equity mutual fund, you effectively become a part owner of
each of the securities in your fund’s portfolio. Equity funds invest minimum 65% of its corpus in
equity and equity related securities. These schemes provide different option to the investors like
dividend option, capital appreciation, etc. and the investors may choose an option depending on their
preferences. These funds invest in a wide range of industries or focus on one or more industry
sectors. These types of funds are suitable for investors with a long term outlook and higher risk
appetite. The investors must indicate the option in the application form. The mutual funds also allow
the investors to change the options at a later date. Growth schemes are good for investors having a
long term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds invest minimum 65% of its corpus in fixed income securities. These funds are not
affected because of fluctuations in equity markets. By investing in debt instruments, these funds
provide low risk and stable income to investors with preservation of capital. However, opportunities
of capital appreciation are also limited in such funds. These funds tend to be less volatile than equity
funds and produce regular income. The NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the
short run and vice versa. These funds are suitable for investors whose main objective s safety of
capital with moderate growth. However, long term investors may not bother about these fluctuations.

Balanced Fund:
The aim of balanced funds is to provide both growth and regular income as such schemes invest both
in equities and fixed income securities in the proportion indicated in their offer documents. These are
appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and
debt instruments. These funds with equal allocation to equities and fixed income securities are ideal
for investors looking for a combination of income and moderate growth. These funds are also
affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds
are likely to be less volatile compared to pure equity funds.

Money market or liquid fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital
and moderate income. These schemes invest exclusively in safer short term instruments such as
Treasury Bills, Certificates of Deposit, Commercial Paper for a period of less than 91 days and Inter-
bank call money, Government Securities, etc. returns on these schemes fluctuate much less compared
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 to other funds. These funds are appropriate for corporate and individual investors as a means to park
their surplus funds for short periods.

Gilt fund:
These funds invest exclusively in government securities. Government securities have no default risk.
These funds carry no credit risk, they are associated with interest rate risk. NAVs of these schemes
also fluctuate due to change in interest rates and other economic factors as, is the case with income or
debt oriented schemes. These funds are safer as they invest in government securities.

Index funds:
Index funds replicate the portfolio of a particular index such as the BSE Sensitive Index, S&P NSE
50 Index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an
index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index,
though not exactly by the same percentage due to some factors known as “tracking error” in
technical terms. Necessary disclosure in this regard are made in the offer document of the mutual
fund scheme. There are also exchange traded index funds launched by the mutual funds that are
traded on the stock exchanges. Hence, the returns from these funds are more or less similar to those
generated by the Index.

Some of the common types of mutual funds and what they typically invest in :

Type of Fund Typical Investment

Equity or Growth Fund Equities like stocks

Fixed Income Fund Fixed income securities like government and corporate bonds

Money Market Fund Short term fixed income securities like Treasury Bills

Balanced Fund A mix of equities and fixed income securities

Sector Specific Fund Sectors like IT, Pharma, Auto etc.

Index Fund Equities or Fixed income securities chosen to replicate a specific a specific
Index for example S&P CNX Nifty

Fund of Funds Other mutual funds

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Other Schemes

1. Tax Saving (Equity linked Saving Schemes) Fund:

Tax saving schemes offer tax rebates to investors under specific provisions of the Income Tax Act,
1961. These are growth oriented schemes and invest primarily in equities. Like an equity scheme,
they largely suit investors having a higher risk appetite and aim to generate capital appreciation over
medium to long term.

2. Sector specific Funds:

Sector specific funds invest in the securities of only those sectors or industries as specified in the
Scheme Information Document. The returns in these funds are dependent on the performance of the
respective sector / industries for example FMCG, Pharma, IT, etc. The funds enable investors to
diversify holdings among many companies within an industry. Sector funds are riskier as their
performance is dependent on particular sectors although this also results in higher returns generated
by these funds.

 Avenues of Investment

Savings form an important part of the economy of any nation. With the savings invested in various options
available to the people, the money acts as the driver for growth of the country. Indian financial scene too
presents a plethora of avenues to the investors.

1. Banks:
Considered as the safest of all options, banks have been the roots of the financial system in India. For
an ordinary person though, they have acted as the safest investment avenue wherein a person deposits
money and earns interest on it. One and all have effectively used the main modes of investment in
banks, savings accounts and fixed deposits. However, today the interest rate structure in the country
is headed southwards, keeping in line with global trends. With the banks offering little above 7% in
their fixed deposits for one year, the yields have come down substantially in recent times. Add to
this, the inflationary pressures in economy and you have a position where the savings are not earning.
The inflation is creeping up, to almost 8% at times, and this means that the value of money saved
goes down instead of going up. This effectively marks any change gaining from the investments in
banks.

2. Post office Schemes:

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 Among all saving options, post office schemes have been offering the highest rates. Added to it is
that the investments are safe with the department being a government of India entity. So the two
basic and most sought for features, those of return safety and quantum of returns were being
handsomely taken care of Public Provident Funds act as options to save for the post retirement
period for most people and have been considered good option largely due to the fact that return were
higher than most other options and also helped people gain from tax benefits under various sections.

3. Monthly income scheme:

This scheme offers an interest of 8% p.a. payable monthly and a bonus of 10% payable at maturity
after 6 years. There is no tax deductible at source (TDS) applicable on investments made in this
scheme.

4. National savings scheme:

This scheme offers an interest of 8% p.a.; compounded half yearly and payable at maturity in 6 years.

5. Post office time deposits:

There are four options available to investors depending on the term of investment desired by the
investor. They are:
i) This gives an interest of 6.25% p.a.
ii) This gives an interest of 6.5% p.a.
iii) This gives an interest of 7.25% p.a.
iv) This gives an interest of 7.5% p.a.

6. Kisan Vikas patra:

An important feature of this scheme is that it assures that the money invested doubles in 8 years and
7 months.

7. Government of India bonds:

The GOI Bonds have the following investment options:
i) 6.5% tax free bonds:
There is no ceiling on the amount of investment in these bonds. The effective yields of these
bonds are 9.28% p.a. for the period of 5 years and premature encashment option available to
investors only after the completion of 3 years.
ii) 8% taxable bonds:
These bonds do not have any TDS charged on them. There is no maximum limit of
investment in these bonds but there should be a minimum investment of Rs.1000. The
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 maturity period is 6 years. The investor has the option of interest payable half yearly or
cumulative. The investors can also avail tax benefit under section 80L of Income Tax Act, up
to Rs.15000.

8. Company fixed deposits:

Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and
have paid interest on them. The safer a company is rated, the lesser the return offered has been the
thumb rule. However, there are several potential roadblocks in these.
The danger of financial position of the company not being understood by the investor lurks. The
liquidity is a major problem with the amount being received monthly after the due dates. The safety
of principal amount has been found lacking.

 How mutual funds work?

A mutual fund is a collection of investments, such as stocks, bonds and other funds owned by a group of
investors and managed by a professional money manager. The investment objective of the mutual fund
determines what types of securities it buys. A mutual fund can focus on specific types of investments. For
example, a fund may invest mainly in government bonds, stocks from large companies, or stocks from
certain countries. Or, it may invest in a variety of investment.

When you buy a mutual fund, you’re pooling your money along with other investors. You put money into a
mutual fund by buying units or shares of the fund. As more people invest, the fund issues new units or
shares. The investments in a mutual fund are managed by a portfolio manager. They manage the fund on a
day to day basis, deciding when to buy and sell investments according to the investment objectives of the
fund.

The four main things to know before investing:

Risk: The level of risk and return depends on what the fund invests in. Mutual funds are not guaranteed or
insured even if you buy through a bank and the fund carries the bank’s name. You can lose money in
investing in mutual funds.

Past performance: How a fund has performed in the past can’t tell you how it will perform in the future.
But past performance can help you determine how volatile or risky the fund’s return may be.

Price to buy and sell: You buy mutual funds at the fund’s net asset value (NAV) plus any sales charges.
Mutual funds are redeemable – you can sell your mutual funds at the current NAV less any fees and charges
for redemption.

Fees: All mutual funds have fees and expenses that reduce your investment return.
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  What is NAV? How it affects your MF investment?

The NAV (Net Asset Value) of a mutual fund has not been correctly understood by a large section of the
investing community. This is quite evident from the fact that mutual funds had been recently collecting huge
corpus in their New Fund Offers, or NFOs, whereas the collections in the existing schemes were negligible.
In fact, investors sold their existing investments invested in NFOs. This switch makes no sense unless the
new fund has something different and better to offer.

NAV reflects the composite prices of all securities held along with the liquid cash. it is calculated on a unit
basis after deducting all liabilities. If the prices of the majority of the securities held by the scheme goes up,
the NAV will also rise and vice versa. The NAV moves in tandem with the prices of the securities held by
the scheme. As per mandate, a scheme should calculate and publish its NAV on a daily basis.

In simple words, NAV is the price which you pay to buy a unit of mutual fund scheme when you invest. You
also sell it on NAV, but the sell price can be lower than NAV if there is an exit load. Exit load is always
chargeable as a percentage of the NAV.

Misconception about NAV

This situation arises from the perception that a fund at Rs 10 is cheaper than say Rs 15 or Rs 100. However,
this perception is totally wrong and investors would be much better off once they appreciate this fact. Two
funds with same portfolio are same, no matter what their NAV is. NAV is immaterial. Why people carry this
perception is because they assume that the NAV of a MF is similar to the market price of an equity share.
This, however, is not true.

Definitions of NAV

Net Asset Value, or NAV, is the sum total of the market value of all the shares held in the portfolio
including cash, less the liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual
fund unit is nothing but the ‘book value’. When you purchase or redeem securities of a mutual fund, you pay
or receive what is known as the net asset value (NAV) of the security at the time of purchase, switch or
redemption. Most mutual funds report their NAV daily in the business section of many newspapers or on the
fund manager’s website. NAV represents the mutual fund’s assets less its liabilities. NAV will fluctuate with
changes in the market value of the mutual funds particular investments.

NAV vs Price of an equity share

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In case of companies, the price of its share is ‘as quoted on the stock exchange’, which apart from the
fundamentals, is also dependent on the perception of the company’s future performance and the demand-
supply scenario. And hence the market price is generally different from its book value.

There is no concept as market value for the MF unit. Therefore, when we buy MF units at NAV, we are
buying at book value. And since we are buying at book value, we are paying the right price of the assets
whether it be Rs.10 or Rs.100. There is no such thing as a higher or lower price.

NAV and its impact on the returns

We feel that a MF with lower NAV will give better returns. This again is due to the wrong perception about
NAV. An example will make it clear returns are independent of the NAV.

Say, you have Rs.10000 to invest. You have two options, wherein the funds are same as far as the portfolio
is concerned. But say one Fund X has a NAV of Rs.10 and another Fund Y has a NAV of Rs.50. You will
get 1000 units of Fund X or 200 units of Fund Y.

After one year, both funds would have grown equally as their portfolio is same, say by 25%. Then NAV
after one year would be Rs.12.50 for Fund X and Rs.62.50 for Fund Y. The value of your investment would
be 1000*12.50 = Rs.12500 for Fund X and 200*62.50 = Rs.12500 for Fund Y. Thus your returns would be
same irrespective of the NAV.

It is the quality of fund, which would make a difference to your returns. In fact for equity shares also broadly
this logic would apply. An IT company share at, say, RS 1000 may give a better return than say a jute
company share at Rs.50, since IT sector would show a much higher growth rate than jute industry.

Does NAV matter?

You may be buying and selling mutual fund units at NAV, but it shouldn’t be confused with the market price
of a stock. The stock price is decided by investors in the stock market, depending on the fundamentals of the
company, future prospects of the company, etc. That is why the market price can be different than the book
value of the stock. The NAV is not decided by investors. It is total value of the portfolio held by the scheme.

That is why it is not wise to base your investment decision on NAV of a scheme. Comparing the NAV of
two mutual fund schemes does not tell you anything about their future prospects. As you know now, NAV
reflects the total value of the schemes investments minus liabilities and expenses.

So, higher NAV simply means that the scheme’s investments have fared really well. Or the scheme has been
around for a long period of time.

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The NAV only impact the number of units you may get. You will receive fewer units if you select a scheme
with high NAV but the value of your investment will remain same. It is the performance and the returns
generated by the mutual fund scheme that matters.

Consider two schemes – Scheme A and Scheme B – with an NAV of Rs.100 and Rs.110 respectively.
Suppose you are investing Rs.11000. You will get 110 units (Rs.11000 / Rs.100) in Scheme A and you will
get 100 units (Rs.11000 / Rs.110) in Scheme B.

Now, suppose the NAVs have gone up by 10% that means Scheme A will have an NAV of Rs.110 and
Scheme B will have an NAV of Rs.121. The value of your investments would become Rs.12100 (110 units x
Rs.110 NAV) in Scheme A and Rs.12100 in Scheme B (100 units x Rs.121 NAV). Both schemes will give
the same return of 10 percent.

How is NAV calculated?

The mathematical formula for calculating NAV is:

Net Asset Value (NAV) = (Asset – Debts) / (Number of Outstanding units)

Assets of a mutual fund scheme are primarily divided into securities and liquid cash. securities include both,
equity and debt instruments, like equity shares, bonds, debentures, commercial papers, etc. Accrued interest
and dividends also form part of the assets.

Debts include money owed for outstanding liabilities and expenses. All accrued expenses are included in
this.

Number of units can be defined as the total number of units held by all the investors collectively.

Fund houses take into account the market value of all the assets on a daily basis to calculate NAV.

 Basics on investing in Mutual Fund

To start investing in a mutual fund you need to be KYC (Know Your Customer) complaint. One way of
doing this is using the physical e-KYC form. Investors can fill this form, attach photograph, PAN card copy
and a valid address proof such as Aadhaar, Passport copy, electricity bill or bank statements. This can be
submitted along with the first investment form to a registrar or a mutual fund office. Some mutual fund
websites or distributors platforms also allow e-KYC using which you can start investing in mutual funds.

How should an investor choose a mutual fund scheme?

First time investors should choose a mutual fund scheme keeping their goals, risk taking ability and time
horizon in mind. They could opt for goal based planning using websites or the service of a financial planner
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or distributor. Investors could work out an asset allocation plan for themselves which guides them on what
percentage they could allocate across asset classes like equities, debt and gold.

Typically if they wish to invest for a time horizon of one day to less than three years they could go with
debt oriented funds or arbitrage funds. For three to five years they could consider hybrid funds which are a
mix of debt or equity. If their goal is 5-7 years away, then they can consider higher risk products like equity
oriented mutual funds.

Investors should also read the scheme related documents and understand the investment objective of the
mutual fund scheme, know the securities in the scheme where money will be invested.

There are so many fund houses offering equity, debt and hybrid schemes. How do you choose one
amongst them?

As an investor one is entrusting the fund house to manage your hard earned money and hence it is important
to choose one with care. Decisions taken by the fund house and its fund manager could have a significant
impact on the investment performance of the scheme. Financial planners suggest investor consider the
pedigree of the fund house before choosing one. Check how the schemes have performed, history of the fund
house, management track record and performance of fund managers before zeroing down on a scheme.

Comparison of other avenues with mutual funds

The mutual fund sector operates under stricter regulations as compared to most other investment avenues.
Apart from offering investors tax efficiency and legal comfort, how do mutual funds compare with other
products?

1. Company Fixed Deposits versus Mutual Funds:

Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit rating of the
fixed deposit program is an indication of the inherent default risk in the investment. The money of
investors in the mutual fund scheme are invested by the AMC in specified investments under that
scheme. These investments are held and managed in-trust for the benefit of the scheme’s investors.
On the other hand, there is no such direct correlation between a company’s fixed deposit
mobilization, and the avenues where it deploys these resources.
There can be no certainty of yield, unless a named guarantor assured a return or to a lesser extent, if
the investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is certain,
subject only to the default risk of the borrower.
The basic value at which fixed deposits are encashable is not subject to market risk. However, the
value at which units of a scheme are redeemed entirely depends on the market. If securities have
gained value during the period, then the investor can even earn that is higher then what is anticipated
when the investor invests. Conversely, the investor could also end up with a loss.

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 Early encashment of fixed deposits is always subject to a penalty charged by the company that
accepted the fixed deposit. Mutual fund schemes also have the option of charging a penalty on ‘early’
redemption of units (by way of an ‘exit load’).

2. Bank Fixed Deposits versus Mutual Fund:

Bank fixed deposits are similar to company fixed deposits. The major difference is that banks are
more stringently regulated than are companies. They even operate under stricter requirements
regarding Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) mandated by RBI.
While the above are for comfort, bank deposits too are subject to default risk. However, given the
political and economic impact of bank defaults, the government as well as Reserve Bank of India
(RBI) tries to ensure that banks do not fail.
Further, the Deposits Insurance and Credit Guarantee Corporation (DICGC) protect bank deposits up
to Rs.100000. The monetary ceiling of Rs.100000 is for all the deposits in all the branches of a bank,
held by the depositor in the same capacity and right.

3. Bonds and Debentures versus Mutual Funds:

As in the case of fixed deposits, credit rating of a bond or debenture is an indication of the inherent
default risk in the investment. However, unlike fixed deposits, bonds and debentures are transferable
securities.
While an investor may have an early encashment option from the issuer (for instance through a ‘put’
option), liquidity is generally through a listing in the market, implications of this are: the value that
the investor would realize in an early exit is subject to market risk. The investor could have a capital
gain or loss. This aspect is similar to a mutual fund scheme.
A hypothecation or mortgage of identified fixed and / or current assets could back debt securities,
e.g. secured bonds or debentures. In such a case, if there is a default, the identified assets become
available for meeting redemption requirements.
A custodian for the benefit of investors in the scheme holds the investment of a mutual fund scheme.

4. Equity versus Mutual Funds:

Investment in both equity and mutual funds are subject to market risk. Investment in an open-end
mutual fund eliminates this direct risk of not being able to dell the investment in the market. An
indirect risk remains, because the scheme has to realize its investments to pay investors. The AMC is
however in a better position to handle the situation. Further, on account of various SEBI regulations,
such as illiquid securities are likely to be only a part of the scheme’s portfolio.
Another benefit of equity mutual fund scheme is that they give investors the benefit of portfolio
diversification through a small investment.
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  How are the Mutual Funds structured?

The Mutual Funds are structured in two forms: Company form and Trust form.

Company Form: These forms of mutual funds are more popular in US.

Trust Form: In India, mutual funds are organized as Trusts. The Trust is either managed by a Board of
Trustees or by a Trustee Company. There must be at least 4 members in the Board of Trustees and at least
2/3 of the members of the bboard must be independent.

Trustees of one mutual fund cannot be a trustee of another mutual fund.

Unit Trusts – Constituents:

A Mutual Fund is set up in the form of a Trust which has the following constituents:

1. Fund Sponsor:
What a promoter is to a company, a sponsor is to a mutual fund. The sponsor initiates the idea to set
up a mutual fund. It could be a financial service company, a bank or a financial institution. It could
be Indian or foreign. It could do it alone or through a joint venture. In order to run a mutual fund in
India, the sponsor has to obtain a license from SEBI. For this, it has to satisfy certain conditions, such
as on capital and profits, track record (at least five years in financial services), default-free dealing
and a general reputation for fairness. The sponsor must have been profit making in at least 3 years of
the above 5 years.
The Sponsor appoints the Trustees, the Custodian and the AMC with the prior approval of SEBI and
in accordance with SEBI regulations.
Like the company promoter, the sponsor takes big picture decisions related to the mutual fund,
leaving money management and other such nitty-gritty to the other constituents, whom it appoints.
The sponsor should inspire confidence in you as a money manager and, preferably, be profitable.
Financial muscle, so long as it is complemented by good fund management, helps, as money is then
not an impediment for the mutual fund – it can hire the best talent, invest in technology and
continuously offer high service standards to the investors.
In the days of assured return schemes, sponsors also had to fulfil return promises made to the unit
holders. This sometimes meant meeting shortfalls from their own pockets, as the government did for
UTI. Now that assured return schemes are passed, such bailouts won’t be required. All things
considered, choose sponsors who are good money managers, who have a reputation for fair business
practices and who have deep pockets.

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2. Trust:
The Mutual Fund is constituted as a Trust in accordance with the provisions of the Indian Trusts Act,
1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. The Trust
appoints the Trustees who are responsible to the investors of the fund.

3. Trustees:
Trustees are like internal regulators in a mutual fund, and their job is to protect the interests of the
unit holders. Trustees are appointed by the sponsors and can be either individuals or corporate
bodies. In order to ensure they are impartial and fair, SEBI rules mandate that at least two-thirds of
the trustees be independent i.e. not have any association with the sponsor.
Trustees appoint the AMC, which subsequently, seeks their approval for the work it does and reports
periodically to them on how the business being run. Trustees float and market schemes and secure
necessary approvals. They check if the AMCs investments are within defined limits and whether the
fund’s assets are protected. Trustees can be held accountable for financial irregularities in the mutual
fund.

Rights of the Trustees:

i. Trustees appoint the AMC in consultation with the sponsor and according to the SEBI
Regulation.
ii. All Mutual Fund Schemes floated by the AMC have to be approved by the Trustees.
iii. Trustees can seek information from the AMC regarding the operations and compliance of the
mutual fund.
iv. Trustees can seek remedial actions from AMC and in cases can dismiss the AMC.
v. Trustees review and ensure that the net worth of the AMC is according to the stipulated
norms, every quarter.

Obligations of the Trustees:

i. Trustees must ensure that the transactions of the mutual funds are in accordance with the trust
deed.
ii. Trustees must ensure that the AMC has systems and procedures in place.
iii. Trustees must ensure due diligence on the part of AMC in the appointment of constituents
and business associates.
iv. Trustees must furnish to the SEBI on half yearly basis a report on the activities of the AMC.
v. Trustees must ensure compliance with SEBI Regulations.

4. Asset Management Company (AMC):

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An AMC is the legal entity formed by the sponsor to run a mutual fund. The AMC is usually a
private limited company in which the sponsors and their associates or joint venture partners are he
shareholders. The trustees sign an investment agreement with the AMC which spells out the
functions of the AMC. It is the AMC that employs fund managers and analysts and other personnel.
It is the AMC that handles all operational matters of a mutual fund – from launching schemes to
managing them to interacting with investors.
The people in the AMC who should matter the most to you are those who take investment decisions.
There is the head of the fund house, generally referred to as the Chief Executive Officer (CEO).
Under him comes the Chief Investment Officer (CIO), who shapes the fund’s investment philosophy
and managers who manages its schemes. They are assisted by a team of analysts, who track markets,
sectors and companies.
Although these people are employed by the AMC, it’s you, the unit holders, who pay’s their salaries,
partly or wholly. Each scheme pays the AMC an annual ‘fund management fee’, which is linked to
the scheme size and results in a corresponding drop in your return. If a scheme’s corpus is up to Rs.
100 crores it pays 1.25% of its corpus a year; on over Rs.100 crores, the fee is 1% of the corpus. So,
if a fund house has two schemes with corpus of Rs.100 crores and Rs.200 crores respectively, the
AMC will earn Rs.3.25 crore (1.25+2) as fund management fee that year.
If an AMCs expenses for the year exceed what it earns as fund management fee from its schemes, the
balance has to be met by the sponsor. Again, financial strength comes into play: a cash-rich sponsor
can easily pump in money to meet short falls, while a sponsor with less financial clout might force
the AMC to trim costs, which could well turn into an exercise in cutting corners.

Regulatory requirements for the AMC:

i. Only SEBI registered AMC can be appointed as investment managers of mutual funds.
ii. AMC must have a minimum net worth of Rs.10 crores at all times.
iii. An AMC cannot be an AMC or Trustee of another Mutual Fund.
iv. AMCs cannot indulge in any other business, other than that of asset management.
v. At least half of the members of the Board of an AMC have to be independent.
vi. The 4th schedule of SEBI Regulations spells out rights and obligations of both trustees and
AMCs.

Obligations of the AMC:

i. Investments have to be according to the investment management agreement and SEBI

Regulations.
ii. The actions of its employees and associates have to be as mandated by the trustees.
iii. AMCs have to submit detailed quarterly reports on the working and performance of the
mutual fund.
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 iv. AMCs have to make the necessary statutory disclosures on portfolio, NAV and prices to the
investors.

Restrictions on the AMC:

i. AMCs cannot launch a scheme without the prior approval of the trustees.
ii. AMCs have to provide full details of the investments by employees and Board members in all
cases where the investment exceeds Rs.1 Lakh.
iii. AMCs cannot take up any activity that is in conflict with the activities of the mutual fund.

Conditions under which two AMCs can be merged:

SEBI Regulations require the following:

i. SEBI and Trustees of both the funds must approve of the merger.
ii. Unit holders should be notified of the merger and provided the option to exit at NAV without
load.
5. Custodian:
A custodian handles the investment back office of a mutual fund. Its responsibilities include receipt
and delivery of securities, collection of income, distribution of dividends and segregation of assets
between the schemes. It also track corporate actions like bonus issues, right offers, offer for sale, buy
back and open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian to the
fund. This condition, formulated in the interest of investors, ensures that the assets of a mutual fund
are not in the hands of its sponsor. For example, Deutsche Bank is a custodian, but it cannot serve
Deutsche Mutual Fund, its mutual fund arm.

6. Brokers:
Role of Brokers in a Mutual Fund:
i. They enable the investment managers to buy and sell securities.
ii. Brokers are the registered members of the stock exchange.
iii. They charge a commission for their services.
iv. In some cases, provide investment managers with research reports.
v. Act as an important source of market information.

7. Registrar or transfer agents:

Registrars, also known as the transfer agents, are responsible for the investor servicing functions.
This includes issuing and redeeming units, sending fact sheets and annual reports. Some fund houses
handle such functions in-house. Others outsource it to the Registrars; Karvy and CAMS are the most
popular ones. It doesn’t really matter which model your mutual fund opt for, as long as it is prompt

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 and efficient in servicing you. Most mutual funds, in addition to registrars, also have investor service
centers of their own in some cities.
Some of the investor – related services are:
 Processing investor applications.
 Recording details of the investors.
 Sending information to the investor.
 Processing dividend pay out
 Incorporating changes in the investor information.
 Keeping investor information up to date.

8. Distributors:
Role of Selling and Distribution Agents:
 Selling agents bring investor’s funds for a commission
 Distributors appoint agents and other mechanisms to mobilize funds from the investors.
 Banks and post offices also act as distributors
 The commission received by the distributors is split into initial commission which is paid on
mobilization of funds and trail commission which is paid depending on the time the investor
stays with the fund.

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CHAPTER 2: Research Methodology

 Mutual Fund investment Objectives

There are many ways to try to make money from investments. You might take on additional risk to try to
profit from potential growth in the value of stock shares. Or, you might be a retiree, who prefers an
investment whose chief benefit is the periodic income payments it offers. If your priority is to preserve the
value of your original investment, you might not be concerned about a limited increase in value.

Mutual funds and stocks are managed based on a specific investment objective. That objective will
determine the fund’s role in your investment portfolio and how it fits into your overall investing strategy.
Your objective can determine the types of stocks that your fund’s manager purchases. Funds can be broadly
based, investing in both large and small cap companies in many different industries. A fund may have a
much narrower focus, concentrating only on blue chips, for example stocks in a single industry.

Typically, a stock mutual fund’s objective will be either capital appreciation, income from equities or both.
For example, a stock fund might have both growth and income as objectives or its primary objective might
be capital appreciation with income as a secondary objective.

A mutual fund’s investment objective is not necessarily the same thing as its investing style, although the
two may overlap. In addition to pursuing a fund’s investment objective, a fund manager may adhere to a
particular investing style. For example, a growth fund focuses on stocks that are growing quickly and that
seem to have greater than average potential for appreciation in share price. By contrast, a value-oriented
fund buys stocks that appear to be undervalued by the market relative to the company’s intrinsic worth. Each
may have growth as its investment objective, but they pursue growth in different ways. Some managers even
blend the two approaches.

Like most mutual funds, a stock fund may be either passively managed as an index fund is or actively
managed. It also may be an open end or close end.

The general objective of any mutual fund is maximizing the returns at a certain level of risk. There are
specific objectives as well and funds are usually classified as per their objectives and the investment style.
Here are some of the common forms of mutual fund objectives:

1. Growth Funds:
The most common objective of investment is growth. The primary objective of any growth fund is
capital appreciation over the medium to long term. Growth mutual funds are generally invested
primarily in small to large cap stocks.

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 2. Income Funds:
Here the objective is current income in certain intervals as opposed to capital appreciation. These
funds are suitable for investors, who are looking for cash flow to supplement their income. To ensure
steady income, major portion of the asset is invested in income instruments viz. fixed interest
debentures, bonds, preference stocks and dividend paying stocks etc.
3. Sector / Industry Funds:
These funds aims at investing only in specific sectors or industries, such as real estate or health care.
The main objective behind these funds is to maximizing the return by exploiting the growth of
booming sectors.
4. Value Funds:
This funds generally aims at investing in stocks that are deemed to be undervalued in price because
of some inherent inefficiencies of the market. It is expected that, once the market corrects these
inefficiencies, the stock price will rise thus benefitting the investor.

These funds are sometimes further classified with different level of risks. The investment objective of a
Mutual Fund is not to be confused with the investment style. The fund manager may practice a particular
investing style, to meet the objective of a fund. Two funds with growth objective might differ in terms of
investment style. One fund manager may choose to invest in Blue chip funds while the other can choose to
invest in undervalued securities or even a blend of both.

A mutual fund scheme’s goal and investing rationale are determined by its investment objective. It could
include the long term capital appreciation, regular monthly income or steady returns.

The fund invests according to the stated objective. So an equity fund will invest in equity share for long term
capital appreciation, whereas a debt fund will invest in government securities and corporate bonds to
generate returns.

The risk and return of the fund will depend on the investment objective since the portfolio of securities held
and its management will be driven by the objective.

Investors must use the objective to match the scheme’s risk and return profile with their own requirements.
They must also use it to identify similar schemes for comparing and evaluating performance.

A change in the scheme’s investment objectives has to be approved by the trustees. The investors have to be
informed of the change through individual communication and should be given the option to exit the scheme
without paying any exit load.

Generally, portfolio managers divide up their investment objectives into nine different approaches, which are
categorized by three company sizes and three investing styles. In the case of the former, size is determined
by a company’s market capitalization, commonly referred to as market cap. One would think that sales,

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assets or the number of employees would be more logical measurement of company size. Not so in the
investment business, where market capitalization is the measure of choice.

Fund Objective or Style Investment Consideration

Aggressive Growth Stock High risk return. High price volatility and very high market
valuations. No dividends.

Growth Stock Above average risk and price volatility. Fast paced price
appreciation. Above market valuations. Low or no dividends.

Equity Income Stock Moderate growth and modest dividends. Average market
valuations.

Value Stock Average to below average risk. Reliable, dividend paying

companies with relatively low valuations. Modest price
appreciation.

Blend A mix of growth and value stocks.

Sector or Specialty Stock Narrow focus on an industry sector.

Stock and Bond Index Broad market or market segments. Passive management.

International / Foreign Stock Foreign companies and world, regional and country markets.

Ultra-Short Term Bond Very short maturities. High credit quality.

Short, Intermediate and Long Term Bonds Government, corporate and foreign issues. Maturities from 1
to 30 years. Yields vary accordingly. Duration and credit
quality matter.

Municipal Bonds Long, Intermediate, and short term maturities. Tax exempt.
Generally of high credit quality.

High-Yield Corporate Bond High risk return (‘junk bonds’)

Hybrid A blend of stocks and bonds. Includes balanced, targeted and

life cycle type funds.

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Most people have neither the time nor the interest to research and select individual stocks and bonds for their
investment portfolios and that’s where mutual funds come in action. Mutual funds are composed of stocks,
bonds and other assets, giving you diversification, which means a decline in value in any one stock or bond
won’t significantly hurt your overall return. A handful of well-chosen mutual funds or index funds can offer
a diversified portfolio that allows the individual investor to spend his or her time on other pursuits.
Thousands of mutual funds are available that can satisfy the objectives of different types of investors.

1. Diversification:
Investors are often advised that they shouldn’t “put all their eggs in one basket”. Investors who have
too high of a percentage of their assets in one or two stocks can be severely affected if one of the
companies goes belly-up. Most financial experts say investors should have at least 15 stocks in their
portfolios. It takes a lot of time and effort to keep up with that many companies. Conversely, mutual
funds hold a number of stocks, which gives investors instant diversification and protects them from a
sharp decline in any one holding.

2. Growth:
Some mutual fund investors are looking for rapid growth in the value of their funds. Stocks have
historically offered the best long term returns of any asset class, though it can be an up and down
ride. Stock fund that are labelled “growth” typically invest in companies with bright prospects, while
“value” funds target stocks that seem inexpensive compared with the company’s earnings.

3. Income:
Other fund investors care more about receiving income from their investments. Numerous stock
funds invest in companies with high dividend pay outs. Bond funds also can provide steady income,
as can funds that invest in real estate investment trust, or REITs. All these income-focused funds pass
the yields along to their investors, usually on a monthly or quarterly basis. Yields of 3% to 7% are
often available with income-oriented mutual funds.

4. International Exposure:
Some large international firms offer their shares on U.S. markets, but others don’t. for example,
individual investors can have a hard time getting access to shares in the fast growing Chinese
markets. But international focused mutual funds have an easier time investing in these shares.
Because half the world’s corporate value is outside the U.S., it’s important to have some exposure to
overseas stocks and mutual funds are the easiest way to get this.

5. Low fees:
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 Stock picking can be expensive, thanks to broker commissions, but many “no-load” mutual funds are
available that don’t charge investor anything. Many other funds charge investors less than 1% a year
for operational fees. Investors looking for especially inexpensive funds might consider index funds,
which charge fees as low as 0.1% per year. These funds usually hold every stock or bond in a given
asset class, which offers tremendous diversification at a low cost.

 Scope of Mutual Funds

Scope of mutual funds has 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 there 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 enjoyed 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.

It’s a pleasant coincidence that in the Golden Jubilee Year of Mutual Fund Industry, Asset Under
Management (AUM) has crossed milestone of Rs.10 Lakh Crore. Indian Mutual Fund Industry completed 50
years and Private Sector Mutual Funds completed 20 years. UTI was first Mutual Fund to establish in 1964
and Kothari Pioneer was the first Private Sector Mutual Fund established in July 1993 (now merged into
Franklin Templeton Investments).

Today, there are 45 AMCs running Mutual Fund businesses and total AUM increased in last year by 20%
from Rs.8.25 Lakh Crores to Rs.10 Lakh Crores. Three AMCs viz. HDFC, ICICI and Reliance had crossed
mark of Rs.1 Lakh Crore AUM.

MF Industry had given spectacular average returns to its investors in past 1, 10 and 17 years viz. 35%, 17%
and 20% which is far more than any traditional investment avenue including real estate. What is creditable
is, 85% schemes had beaten their respective benchmark indices and this difference is more than 5% in
almost 50% schemes. For example, If the benchmark had generated 15% returns then, 50% MF Schemes
generated 20% (+) returns. This shows that those investors who have stayed patiently for long term have
gained. Those who were panic and redeemed at wrong time have actually converted their notional loss into
actual. This again proved that time in the market is more important than timing of the market.

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In spite of this impressive performance, majority of investors today invests their hard earned money only
into traditional avenues like Bank deposits, Post office, Gold and Real estate (All are taxable). Hardly, 2.5%
investors take advantage of MF Schemes. In this meagre total percentage also, participation of Retail
investor is only 21%. Big investors like Corporate, HNIs and Banks are taking more benefit of MF Schemes
then common individual investors.

Confederation of Indian Industries (CII) recently organized 10th Mutual Fund Summit. Mr U.K. Sinha,
Chairman, Securities Exchange Board of India (SEBI) congratulated MF Industry for handling well the July
2013 sudden rate hike crisis. However, he mentioned his concern and unhappiness that common investors
are not participating in MF industry.

 Significance of Mutual Fund Investment

Mutual funds pool money from individuals and organizations to invest in stocks, bonds and other assets in
different industry sectors and regions of the world. You can buy whole or fractional fund units directly from
fund companies or through your broker. The price of each mutual fund unit reflects the market prices of the
fund holdings, adjusted for management fees and expenses.

1. Selection:
You can choose from hundreds of mutual funds offered by dozens of mutual fund companies. This
wide selection gives you flexibility to pick mutual funds that suit your financial objectives and risk
tolerance. For example, equity and growth funds are suitable for aggressive investors who can
tolerate periods of extreme market volatility. Balanced funds could be suitable for a moderate
investor looking for both capital gains and income, while bond funds would suit conservative
investors who want preservation of capital and regular income.

2. Diversification:
Mutual funds are a cost effective way to diversify your portfolio across different asset categories and
industry sectors. Instead of buying and monitoring potentially dozens of stocks, you could buy a few
mutual funds to achieve broad diversification at a fraction of the cost. For example, equity funds
offer an indirect way to invest in dozens of companies in different industry sectors, while balanced
funds offer exposure to both stocks and bonds. Further diversification is possible within each asset
category. For example, you could buy mutual funds that specialize in certain industries within
equities, such as technology and energy. Similarly, international funds and emerging market funds
are convenient ways to diversify geographically.

3. Expertise:
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 Professional money management expertise at a reasonable cost is another important attribute of
mutual funds. Fund managers typically have postgraduate finance degrees and several years of stock
analysis and investment management experience. Mutual fund companies use a combination of in-
house research staff and the services of external research firms to determine the composition of fund
portfolios. Fund managers may use information technology and sophisticated trading strategies to
rebalance portfolios and hedge against market volatility.

4. Affordability:
Mutual funds have levelled the playing field by bringing the financial markets closer to small
investors. For about the price of an average stock, you can participate in the capital gains and
dividend distributions of potentially dozens of companies. You do not have to spend a sizable
amount of your savings to invest in each one of these companies separately. Mutual fund companies
are able to spread research, commissions and related expenses over a larger asset base, which reduces
the cost for individual fund investors. You can reduce the costs even further by holding index mutual
funds, which track major market and industry indexes. These funds have low management fees and
expenses because they do not have the research and trading costs of actively managed funds.

The Indian Mutual Fund Industry finds itself in an economic landscape which has undergone rapid changes
over the past years. There is strong reason to believe that the Indian mutual fund industry has not yet seen its
global peak and if proper measures are taken, the industry could get back on its former growth path.

The advantages of having an active participation by retail investors in mutual fund are not just limited to
financial inclusion. It has been shown in past studies that institutional investors (in the form of mutual funds)
‘herd’ towards small-cap and mid-cap stock which offer growth prospects thereby increasing the depth and
breadth of capital markets (Wermers, 1999). Institutional buying and selling of stocks also increases the
price adjustment process in capital markets and under right conditions institutional investors tend to decrease
stock price volatility. All these effects are desirable as far as financial markets are concerned.

Investors have a number of investment choices to choose from, which offer tax benefit u/s 80C of the
Income Tax Act with varying degrees of risk, of which ELSS apparently has the highest element of risk.
Investors would choose ELSS funds as an investment option only if the risk adjusted returns are better as
compared to other investment of similar category. As ELSS funds are a type of diversified equity funds, a
comparison is directly to be made with other regular diversified equity market benchmark indexes. So it
becomes pertinent to know whether ELSS funds provide a higher risk adjusted return as compared to the
benchmark indexes or not.

ELSS mutual funds play a crucial role in the economic development of the respective countries. The active
involvement of ELSS mutual funds in the economic development can be seen by their dominant presence in
the money and capital markets world-wide. Their presence is, however, comparatively stronger in the
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economically advanced countries. The role of the ELSS funds in the form of financial intermediation, by
way of resource mobilization, allocation of resources and development of capital markets and growth of
corporate sector is very conspicuous.

 7 P’s of Marketing Mix elements for Mutual fund

1. Product:
Customers invest in mutual funds with capital appreciation, liquidity and safety as their objectives.
So, marketers need to design the products keeping these objectives in mind. In addition, the marketer
has to take care of the government regulations that govern the industry. As a result, he needs to be
very judicious in designing the product and planning the investment portfolio of the customer. Only
then he can maximize the returns while minimizing the risk. In the case of Reliance Mutual Fund
they also have products based on the same segmentation.

2. Price:
Before we try to understand the pricing of mutual funds, let us first understand the concept of NAV
(Net Asset Value). The net asset value of the fund is the cumulative market value of the assets fund
net of its liabilities. In other words, if the funds is dissolved or liquidated by selling of all the assets
in the fund, this is the amount that the share-holders would collectively own. They give rise to the
concept of the net asset value per unit, which is the value, expressed by the ownership of one unit in
the fund. It is calculated simply by dividing the net asset value of the fund by the number of units.
However, most people refers usually to the NAV per unit as NAV, ignoring per unit.
Calculation of NAV:
NAV = Market / Fair Value of Scheme’s Investment + Receivables + Accrued Income +
Other Assets – Accrued Expenses – Payables – Other Liabilities
Number of Units Outstanding

3. Promotion:
With more and more private and global players entering the mutual fund market, the market has
become quite competitive in the recent past. Mutual funds, as an investment option, are now
competing with commercial banks and other financial institutions for the investor’s savings. Mutual
funds companies need to differentiate themselves from the other investment avenues in the market
and position their services exclusively in the customers mind. They need to adopt innovative
promotional strategies like strategic tie-ups. Reliance uses electronic media, print media and
hoardings for promotion.

4. Place:
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 The various distribution channels employed by mutual fund companies include their own employees
agents, third party distribution companies, banks and post offices. The third party distribution
companies started flourishing with the entry of private players into the industry in 1993. UTI and the
government players relied completely on their agents for distributing the funds. Reliance has more
than 500 distributors in the state. In addition to it 50 brokerage houses and 2 AMCs.

5. People:
The process of investment decision-making in a mutual fund company determines the importance of
the individuals. If the fund manager has a free hand to decide the fate of savings of thousands of unit
holders, he needs to be very competent and judicious in his decision-making. In such companies,
people become the most important element of the marketing mix. In fact companies publicize the
success of their fund manager who has delivered consistent results, to promote their services. If we
talk about Reliance AMC, it has not a big staff. The reason behind that is the expenses made on these
people is adjusted from the return which they earn from the investment of their customer. In reliance
AMC there is 1 Relationship manager, 2 Office Coordinator executives (customer), 1 coordinator
(Karvy), 1 Sales manager, 1 assistant sales manager and 1 coordinator.

6. Process:
The process of investment by one mutual fund company can be quite different from that of another.
In some companies, the fund manager given a free hand and he decides where to invest and how
much to invest. On the other hand, the investment decision in some companies is strictly governed by
the company itself. Any fund manager can operate within the defined parameters of the company.
Difference in investment processes defines the style of functioning of a fund and determines its
success.

7. Physical Evidence:
Providing physical evidence to the customer is one of the most difficult aspects of the mutual fund
business. As there are very few instances of the customer entering the company premises, buildings
and infrastructure can rarely be used as physical evidence. Therefore, companies use their channels
of distribution like banks and post offices to attach an element of credibility to their services. They
also try to use their service personnel to reduce the perceived risk of customers. One of the most
important ways is to promote the earlier successes of the company in a big way.

 SWOT Analysis
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Strengths:

 Professional Management:
The basic advantage of funds is that, they are professional managed, by well qualified professional.
Investors purchase funds because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their
investment.
 Diversification:
Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is
spread out and minimized up to certain extent. The idea behind diversification is to invest in a large
number of assets so that a loss in any particular investment is minimized by gains in others.
 Economies of Scale:
Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs
and help to bring down the average cost of the unit for their investors.
 Liquidity:
Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and
when they want.
 Simplicity:
Investments in mutual fund is considered to be easy, compare to other available instruments in the
market and the minimum investment is small. Most AMC also have automatic purchase plans
whereby as little as Rs.2000, where SIP start with just Rs.50 per month basis.

Weakness:

 Professional Management:
Some funds doesn’t perform in neither the market, as their management is not dynamic enough to
explore the available opportunity in the market, thus many investors debate over whether or not the
so-called professionals are any better than mutual fund or investor himself, for picking up stocks.
 Costs:
The biggest source of AMC income is generally from the entry and exit load which they charge from
investors at the time of purchase and sale of unis respectively. The mutual fund industries are thus
charging extra cost under layers of jargon.
 Dilution:
Because funds have small holdings across different companies, high returns from a few investments
often don’t make much difference on the overall return. Dilution is also the result of a successful
fund getting too big. When money pours into funds that have had strong success, the manager often
has trouble finding a good investment for all the new money.
 Taxes:
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 When making decisions about your money, fund managers don’t consider your personal tax situation.
For example, when a fund manager sells a security, a capital gain tax is triggered, which affects how
profitable the individual is from the sale. It might have been more advantageous for the individual to
defer the capital gains liability.

Threats:

 Lack of Investor Awareness:

Retail investors had a wrong notion about mutual funds as an investment avenue. The benefits of risk
diversification, professional management and ease of administration involved while investing in
mutual funds are not clearly understood. Knowledge of financial products is ingrained in school and
college curriculum in countries like UK, US and France.
 Investor Risk Appetite:
Equity funds account for 30% of the total AUM in India. This figure is more than 50% in most
developed countries. Frequent stock market scams and the bust of tech sector specific mutual funds
have contributed to this apprehension. The growth in mutual funds has come through the growth in
Investments in short term instruments like Money Market Mutual Funds which account for 40% of
AUM.
 Higher Returns of Alternative Debt Instruments:
Government guaranteed schemes provide risk free returns at competitive rates of returns. This is why
mutual funds have difficulty competing retail business.
 Concentration of Corporate Investors:
Mutual funds have become overly attractive to corporate investors because of higher returns than
bank deposits and ability to distribute capital gains tax. Corporate investors account for 57% of the
AUM (by value). Though the turnover rates have increased the average fund in management has
grown by only 25% in the past 4 years. It is clear that the lack of growth in funds under management
in India is because of the absence of long term investors. Corporate investors take profits frequently
resulting in destruction in the compound growth in funds under management. Distributors are forced
to pass on more commissions to companies, while fund companies are compelled to offer funds with
wafer thin margins. Retail investors lose out in the sense that they continue to pay higher expenses.
 Distribution:
One of the major factors impacting the growth of mutual fund industry is the absence of any
regulation in distribution of mutual funds. Mutual fund investors need distributors who are able to
inform them about them about the efficacy of distribution product for a particular risk profile and
stage in life cycle. Lack of distributor awareness and the absence of any disclosures from distributors
make selling of Mutual Fund products commonplace. Also penetration in rural areas is a problem.

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 Only 3% of rural households own mutual funds. For mutual funds to set up a distribution network in
these centres can be very expensive.

Opportunities:

 AUM as a Percentage of GDP:

In most of the developed countries the total assets under management ranges from 30%-60% of the
GDP. Total assets under management are only 8% of the GDP in case of India.
 Penetration of Mutual funds:
In India it is estimated that 6.7% of the households hold mutual funds. This figure is close to 50% in
case of the US and 17% in case of UK. Mutual funds account for only 0.73% of total financial assets
in India. AUM for Mutual Funds had exceeded the bank deposits in US in as early as 1998.
 Opening up of sectors for investment:
In India service sector is also growing at a fast rate because government has opened up investment in
the sector.
 Promising consumer markets.
 Significant investment in infrastructure creation for industry.

 SEBI registered Mutual funds

1. FORTIS Mutual fund
2. Alliance Capital Mutual fund
3. AIG Global Investment Group Mutual fund
4. Benchmark Mutual fund
5. Baroda Pioneer Mutual fund
6. Birla Mutual fund
7. Bharti AXA Mutual fund
8. Canara Robeco Mutual fund
9. CRB Mutual fund
10. DBS Chola Mutual fund
11. Deutsche Mutual fund
12. DSP Blackrock Mutual fund
13. Edelweiss Mutual fund
14. Escorts Mutual fund
15. Franklin Templeton Mutual fund
16. Fidelity Mutual fund
17. Goldman Sachs Mutual fund

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 18. HDFC Mutual fund
19. HSBC Mutual fund
20. ICICI Securities Fund
21. IL & FS Mutual fund
22. ING Mutual fund
23. ICICI Prudential Mutual fund
24. IDFC Mutual fund
25. JM Financial Mutual fund
26. JP Morgan Mutual fund
27. Kotak Mahindra Mutual fund
28. LIC Mutual fund
29. Morgan Stanley Mutual fund
30. Mirae Asset Mutual fund
31. Principal Mutual fund
32. Quantum Mutual fund
33. Reliance Mutual fund
34. Religare AEGON Mutual fund
35. Sahara Mutual fund
36. SBI Mutual fund
37. Shriram Mutual fund
38. Sundaram BNP Paribas Mutual fund
39. Taurus Mutual fund
40. Tata Mutual fund
41. UTI Mutual fund

Pointers to measure mutual fund performance

Measures Description Ideal Range

Standard Deviation Standard Deviation allows to evaluate the Should be near to its mean return.
volatility of the fund. The standard deviation
of a fund measures this risk by measuring the
degree to which the fund fluctuates in
relation to its mean return.
BETA Beta is a fairly commonly used measure of Beta > 1 = High Risky
risk. It basically indicates the level of Beta = 1 = Average
volatility associated with the fund as Beta < 1 = Low Risky
compared to the compared.

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R-Square R-square measures the correlation of a fund’s R-squared values range between 0
movement to that of an index. R-squared and 1, where 0 represents no
describes the level of association between the correlation and 1 represents full
fund’s volatility and market risk. correlation.
Alpha Alpha is the difference between the returns Alpha is positive = returns of
one would expect from a fund, given its beta, stock are better then market
and the return it actually produces. It also returns.
measures the unsystematic risk. Alpha is negative = returns of
stock are worst then market.
Alpha is zero = returns are same
as market.
Sharpe Ratio Sharpe ratio = Fund return in excess of risk The higher the Sharpe ratio, the
free return / standard deviation of fund. better a funds returns relative to
Sharpe ratios are ideal for comparing funds the amount of risk taken.
that have a mixed asset classes.

 Tax Implications for Investing in Mutual Funds

Dividends

Income received from units of a mutual fund registered with the Securities and Exchange Board of India is
exempt in the hands of the unit holder. A debt oriented mutual fund is liable to pay income distribution tax
of 14.1625% and 22.66% on the distribution of income to individual / Hindu Undivided Fund and other
persons respectively. In the case of “Money Market Mutual Funds” and “Liquid Mutual Funds” (as defined
under SEBI regulations), the income distribution tax is 28.325% across all categories of investors.

Capital Gains

Long-term capital gains arising on the transfer of units of an ‘equity oriented’ mutual fund is exempt from
income tax, if the Securities Transaction Tax (STT) is paid on this transaction i.e., the transfer of such units
should be made through a recognized stock exchange in India (or such units should be repurchased by the
relevant mutual fund). ‘Equity Oriented’ mutual fund means a fund where the investible corpus is invested
by way of equity shares in Indian companies to the extent of more than 65% of the total proceeds of the
fund.

Short-term capital gains arising on such transactions are taxable at a base rate of 15% (increased by
surcharge as applicable, education cess of 2% and secondary and higher education cess of 1%). If a
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transaction is not covered by STT, the long-term capital gain tax rate would be 10% without indexation or
20% with indexation, depending on which the assesse opts for. Short-term capital gains on such transactions
are taxable at normal rates.

A taxable ‘capital loss’ (i.e. a transaction on which there is a liability to pay tax if the result were ‘gains’
instead of ‘loss’) can be set-off only against ‘capital gains’. An exempt capital loss (i.e. a transaction which
is exempt from tax if the result were ‘gains’ instead of ‘loss’) cannot be set-off against taxable capital gains.
A taxable long-term capital loss can be set-off only against long-term capital gains. However, a taxable
short-term capital loss can be set-off against both short-term and long-term capital gains.

(The Hong Kong and Shanghai Banking Corporation Limited in India has issued the note. This note is for
general information only and is not meant to constitute and therefore should not be construed as an advice on
tax matters. Prior professional tax advice analysing individual facts and circumstances should be sought
before any decision. As the tax laws keep changing by virtue of amendments in law, issue of administrative
circulars and notifications and court rulings, there can be no assurance about the validity of the tax
information contained in the publication. Whilst reasonable care has been taken in compiling the
information, HSBC makes no guarantee, representation or warranty and accepts no responsibility or liability
as to its accuracy or completeness.)

 How Mutual funds are taxed?

Whenever there will be income, there will be tax. Even though you can minimise the tax that you pay, there
is no escaping it. The gains that you earn from mutual fund investments are also a form of income (capital
gains) and they too are taxed (capital gains tax). The taxation on mutual fund gains vary as per the holding
period and depending on the type of mutual fund.

The holding period of mutual fund units can be short-term or long-term. The longer you hold a mutual fund,
the more tax-efficient your investments become. In case of debt mutual funds, long-term is defined as a
period of 36 months and more. In case of equity mutual funds and balanced mutual funds, long-term is a
period of 12 months and more. A period of less than 36 months for debt funds and less than 12 months for
equity and balanced funds is defined as short-term.

Type of Funds Short-term Long-term

Equity Funds Less than 12 months 12 months and more

Balanced Funds Less than 12 months 12 months and more

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Debt Funds Less than 36 months 36 months and more

Now that we understand how short-term and long-term is defined, let’s see how short-term gains and long-
term gains are taxed on different types of mutual funds.

Taxation on Debt Funds

Long-term gains, which is gains on debt fund units held for over 36 months, are subject to long-term capital
gains tax (LTCG) at the rate of 20% after indexation. Indexation is a method of factoring in the rise in
inflation between the year when the debt fund units were bought and the year when they are sold. Indexation
allows the tax on debt fund gains to come down significantly.

Short-term gains from debt funds are added to your income and are subject to short-term capital gains tax
(STCG) as per the income tax slab you fall under.

Taxation on Equity Funds

Gains on equity funds qualify as long-term gains after the units have been held for a period of 12 months.
Long-term gains from equity funds are completely tax free. This includes tax saving mutual funds – ELSS
funds. This means that if you hold your equity fund investments for over a year, you don’t have to pay any
long-term capital gains tax (LTCG) on the gains you earn.

Short-term gains from equity funds, if the units are redeemed before 12 months, are taxed at a flat short-term
capital gains tax (STCG) rate of 15% (No changes in the Budget 2018 in this regard).

Taxation on Balanced Funds

Balanced funds are equity-oriented hybrid funds that invest at least 65% of their assets in equities. This is
why their tax treatment is exactly the same as equity funds.

Types of Funds Short-term capital gains tax Long-term capital gains tax

Equity mutual funds 15% Zero

Balanced mutual funds 15% Zero

Debt mutual funds As per tax slab 20% after indexation

 How are SIPs taxed?

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An SIP or a Systematic Investment Plan is method of investing a fixed amount in a mutual fund in a periodic
manner. An SIP can be fortnightly, monthly, quarterly or yearly. Gains made from SIPs are also gains from
mutual funds and taxed as per the type of mutual fund and the holding period.

For the purpose of taxation, each individual SIP is treated as a fresh investment and gains on it are taxed
separately. For example, let’s suppose you begin an SIP of Rs.10000 per month in an equity fund for 12
months. Your each individual SIP is considered to be a fresh investment. Hence, after 12 months, if you
decide to redeem your entire accumulated corpus (investment plus gains), all your gains will not be tax free.
Only the gains earned on the first SIP would be tax free because only that investment would have completed
one year. The rest of the gains would be subject to short-term capital gains tax.

Apart from these, there is also something called Securities Transaction Tax (STT). An STT of 0.001% is
levied by the fund company itself when you sell units of an equity fund or balanced fund. There is no STT
on sale of debt fund units.

This is how gains from different types of mutual funds are taxed. As mentioned earlier, the longer you hold
onto your mutual fund units. The more tax efficient they become as tax on long-term gains is much lesser,
even zero, than tax on short-term gains.

 Just in: Budget 2018 Proposal

To tax Long-term Capital Gains on sale of Equity shares / units of Equity oriented fund, if more than Rs.1
Lakh at 10% without the benefit of indexation.

Relief to existing investors to exempt amount of capital gains up to 31st Jan 2018. The amount of gains made
thereafter this cut-off date will be taxed.

For example, Mr A purchased shares for Rs.100 on 30th September, 2017 and sold them on 31st December,
2018 at Rs.120. The value of Stock was Rs.110 as on 31st January, 2018. Out of the capital gains of Rs.20
(120-100), Rs.10 (110-100) is not taxable. Rest Rs.10 is taxable as capital gains at 10% without indexation.

What is the new long-term capital gains tax on equity oriented mutual funds and stocks?

This new 10% tax on long-term capital gains (LTCG) on equity mutual fund investment and stocks / shares
was proposed by the finance minister in Budget 2018. In this context, LTCG means gain or profit arising
from selling of stock or redemption of equity mutual funds held more than one year. Remember that a
mutual fund has at least 65% allocation to equities is termed an equity mutual fund for taxation purposes.

If the investor has incurred a loss, there is no LTCG tax to be paid.

When will the new LTCG tax become effective?

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The new tax will be levied on redemption of equity mutual fund units or sale of shares after April 1, 2018,
provided they have been held for more than one year. So if you sell before on or before March 31, 2018,
there will be no long-term capital gains tax. If the mutual fund units / stocks are sold before one year of
holding, short-term capital gains tax apply. The short-term capital gains tax has been kept unchanged at
15%.

What is the new LTCG tax rate on equity mutual funds / stock market investments?

The long-term capital gains exceeding Rs.1 Lakh arising from redemption of mutual fund units or equities
on or after April 1, 2018 will be taxed at 10% (plus cess). This includes long-term capital gains earned from
your equity or mutual fund investments put together in a financial year. Suppose you earn Rs.2 Lakh in
combined long-term capital gains from stocks or mutual fund investments in a financial year. The taxable
long-term capital gains will be Rs.1 Lakh (Rs.2 Lakh – Rs.1 Lakh) and tax liability will be Rs.10000 (10%
of Rs.1 Lakh).

Set off or carry forward benefits

Long-term capital loss arising from sale or redemption on or after April 1, 2018, will be allowed to be set-off
and carried forward. It can be set-off against any other long-term capital gains and unabsorbed loss can be
carried forward to subsequent eight years for set-off against long-term capital gains.

However, that since tax exemption is available on long-term capital gains on units sold till March 31, 2018,
the long-term capital loss arising during this period will not be allowed to be set-off or carried forward.

How to calculate long-term capital gains?

The long-term capital gain is calculated by reducing the cost of acquisition from the redemption value of
mutual funds or stocks.

How to calculate the cost of acquisition for assets acquired on or before January 31, 2018?

First, you need to know about Fair Market Value (FMV) of the particular equity investment as on January
31, 2018. In case of a listed equity share or unit, the FMV means the highest price of such share or unit
quoted on a recognized stock exchange on January 31, 2018. However, if there is no trading on 31st January
2018, the fair market value will be the highest price quoted on a date immediately preceding 31st January
2018 on which it has been traded.

According to the income tax department, the cost of acquisition for the long-term capital asset acquired on or
before 31st of January 2018 will be the actual cost. However, if the actual cost is less than the fair market
value of such asset as on 31st January 2018, the fair market value will be considered to be the cost of
acquisition.

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Further, if the full value of consideration on sale is less than the fair market value, then such full value of
consideration or the actual cost, whichever is higher, will be considered to be the cost of acquisition.

Scenario 1

Purchase price on January 1, 2017 is Rs.100

Price on January 31, 2018 is Rs.200

Sold on April 1, 2018 at Rs.250

As the investment is sold after March 31, it will attract long-term capital gains. Since, the actual cost of
acquisition is less than the fair market value as on 31st January, 2018 the fair market value of Rs.200 will be
taken as the cost of acquisition and the long-term capital gain will be Rs.50 (Rs.250 – Rs.200).

Scenario 2

Purchase price on January 1, 2017 is Rs.100

Price on January 31, 2018 is Rs.200

Sold on March 31, 2018 at Rs.250

Since, it is sold on or before March 31, 2018 there is no tax liability.

Scenario 3

Purchase price as on January 1, 2017 is Rs.100

Fair market value is Rs.200 on 1st January, 2018

Sold on 1st April, 2018 at Rs.150

The actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is
also less than the fair market value as on 31st January, 2018. So, the sale value of Rs.150 will be taken as the
cost of acquisition and the long-term capital gain will ne NIL (Rs.150 – Rs.150).

Scenario 4

Purchase price on 1st January, 2017 is Rs.100

Fair market value is Rs.50 on 31st January, 2018

Sold on 1st of April, 2018 at Rs.150

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In this case, the fair market value as on 31st January, 2018 is less than the actual cost of acquisition. So the
actual cost ofRs.100 will be taken as actual cost of acquisition and the long-term capital gain will be Rs.50
(Rs.150 – Rs.100).

Scenario 5

Purchase price on 1st of January, 2017 at Rs.100

Fair market value on 31st of January, 2018 is Rs.200

Sold on 1st April, 2018 at Rs.50

The actual cost of acquisition is less than the fair market value as on 31st January, 2018. The sale value is
less than the fair market value as on 31st of January, 2018 and also the actual cost of acquisition. Therefore,
the actual cost of Rs.100 will be taken as the cost of acquisition in this case. Hence, the long-term capital
loss will be Rs.50 (Rs.50 – Rs.100) in this case.

 Investment tips to improve your returns

1. Know your risk profile:
Before you take a decision to invest in equity funds, it is important to assess your risk tolerance. Risk
tolerance depends on certain factors like emotional temperament, attitude and investment experience.
Remember, while ascertaining the risk tolerance, it is crucial to consider one’s desire to assume risk
as the capacity to assume the risk. It helps to understand different categories of overall risk tolerance,
i.e. Conservative, moderate or aggressive. While a conservative investor will accept lower returns to
minimise price volatility, a moderate investor would be all right with greater price volatility than
conservative risk tolerances to pursue higher returns. An aggressive investor wouldn’t mind large
swings in the NAV’s to seek the highest returns. Though identifying the desire for risk is a tough job,
it can be made easy by defining one’s comfort zone.

2. Don’t have too many schemes in your portfolio:

While it is true that diversification helps in earning better returns with a lower level of fluctuations, it
becomes counterproductive when one has too many funds in the portfolio. For example, if you have
15 funds in your portfolio, it does not necessarily mean that your portfolio is adequately diversified.
To determine the right level of diversification, one has to consider factors like size of the portfolio,
type of funds and allocation to different asset classes. Therefore, it is possible that a portfolio having
5 schemes may be adequately diversified whereas another one with 10 schemes may have very little
diversification. Remember, to have a well-balanced equity portfolio, it is important to have the right
level of exposure to different segments of the equity market like large-cap, mid-cap and small-cap.
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 In addition, for a decent portfolio size, it is all right to have some exposure in the sector and specialty
funds.

3. Longer time horizon provides protection from volatility:

As an equity fund investor, you need to understand that volatility is an integral part of the stock
market. However, if you remain focused on the long-term objectives and follow a disciplined
approach to investing, you cannot only handle volatility properly but also turn it to your advantage.

4. Understand and analyse ‘Good Performance’:

‘Good Performance’ is a subjective thing. Ideally, to analyse performance, one should consider
returns as well as the risk taken to achieve those returns. Besides, consistency in terms of
performance as well as portfolio selection is another factor that should play an important part while
analysing the performance. Therefore, if an investment in a Mutual fund scheme takes you past your
risk tolerance while providing you decent returns; it cannot always be termed as good performance.
In fact, at times to ensure that your investment remains within the parameters defined in the
investment plan, you may be forced to exit from that scheme. In other words, you need to assess as to
how much risk did the fund manager subject to and did he give you an adequate reward for taking
that risk. Besides, you also need to consider whether own risk profile allows you to accept the
revised level of risk.

 Performance Measures of Mutual Funds

Return alone should not be considered as the basis of measurement of the performance of a mutual fund
scheme, it should also include the risk taken by the fund manager because different funds will have different
levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or
fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given
period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are
resultant of two guiding forces. Firstly, general market fluctuations, which affect all the securities present in
the market, called market risk or systematic risk and second, fluctuations due to specific securities present in
the portfolio of the fund, called unsystematic risk.

The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns
of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in
the NAV of the fund vis-à-vis market. The more responsive the NAV of a mutual fund is to the changes in
the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns
in the market. While unsystematic risk can be diversified through investments in a number of instruments,

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systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the
mutual fund vis-à-vis one another in a better way.

In order to determine the risk adjusted returns of investment portfolios, several eminent authors have worked
since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative
portfolios within a particular risk class. The most important and widely used measures of performance are:

The Treynor Measure:

Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor’s Index. This
Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be
the return on securities backed by the government, as there is no credit risk associated), during a given
period and systematic risk associated with it (beta). Symbolically, it can be represented as

Treynor’s Index (Ti) = (Ri – Rf) / Bi

Where, Ri represents return on fund, Rf is risk free rate of return and Bi is Beta of the fund.

All risk averse investors would like to maximize this value. While a high and positive Treynor’s Index
shows a superior risk adjusted performance of a fund, a low and negative Treynor’s Index is an indication of
unfavourable performance.

The Sharpe Measure:

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns
generated by the fund over and above risk free rate of return and the total risk associate with it. According to
Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds
on the basis of reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri – Rf) / Si

Where, Si is Standard deviation of the fund.

While a high and positive Sharpe ratio shows a superior risk adjusted performance of a fund, a low and
negative Sharpe Ratio is an indication of unfavourable performance.

Comparison of Sharpe and Treynor:

Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical
risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-
diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are
evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total
risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor

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measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk.
Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that
is highly diversified, will rank lower on Sharpe measure.

Jensen Model:

Jensen’s model proposes another risk adjusted performance measure. This measure was developed by
Michael Jensen and is sometimes referred to as the Differential Return Method. This measure involves
evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given
the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the
performance of a fund compared with the actual returns over the period. Required return of a fund at a given
level of risk (Bi) can be calculated as

Ri = Rf + Bi (Rm – Rf)

Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by
subtracting required return from actual return of the fund. Higher alpha represents superior performance of
the fund and vice-versa. Limitation of this model is that it considers only systematic risk not the entire risk
associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of
market is primitive.

Fama Model:

The Eugene Fama Model is an extension of Jensen model. This model compares the performance, measured
in terms of returns, of a fund with the required return commensurate with the total risk associated with it.
The difference between these two is taken as a measure of the performance of the fund and is called net
selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and
above the return required to compensate for the total risk taken by the fund manager. Higher value of which
indicates that fund manager has earned returns well above the return commensurate with the level of risk
taken by him.

Required return can be calculated as : Ri = Rf + Si / Sm*(Rm – Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this
required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and Jensen model use
systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for
large investors like institutional investors with high risk taking capacities as they do not face paucity of

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funds and can invest in a nuber of options to dilute some risks. For them, a portfolio can be spread across a
number of stocks and sectors.

However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for
small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the
selection of the fund on the basis of superior stock selection ability of the fund manager will also help in
safeguarding the money invested to a great extent.

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CHAPTER 3: REVIEW OF LITERATURE

Vast number of studies have been conducted on the performance evaluation of mutual funds in India. Some
of them are: Treynor (1965) presents a new way of viewing performance results. He attempted to rate the
performance of mutual funds on the characteristics line graphically. The steeper the line, the more systematic
risk or volatility a fund possesses. By incorporating various concepts, he developed a single line index,
called Treynor Index. The systematic risk is risk which is common to all securities of the same class in the
market. His index measures the risk premium of the portfolio, where risk premium equals the difference
between the return of the portfolio and the risk free rate. The risk premium is related to the amount of
systematic risk assured in the portfolio, the higher the value of Treynor Index, the better the performance of
the fund. Sharpe (1966) explains in a modern portfolio theory context that the expected return on an efficient
portfolio and its associated risk (unsystematic risk) are linearly related. By incorporating various concepts he
developed a Sharpe index. In this paper he attempted to rate the performance on the basis of the optimal
portfolio with the risky portfolio and a risk free asset is the one with the greatest reward – to – variability.
The unsystematic risk is related to particular security due to inefficient management. Moreover he has
examined 34 open-end mutual funds and finds considerable variability in the Sharpe ratio, ranging from 0.78
to 0.43. He provides two potential explanations for the result that the cross-sectional variation is either
random or due to high fund expenses or the difference is due to management skills.

Rajeswari and Ramamoorthy (2001) have conducted the study titled “An Empirical Study On Factors
Influencing The Mutual Fund / Scheme Selection By Retail Investors”, to understand the factors influencing
the fund selection behaviour of 350 mutual fund investors in order to provide some meaningful inferences
for Asset Management Companies (AMC) to innovatively design the products. The analysis was done on the
basis of product qualities, fund sponsor qualities and investor services using questions framed on a five point
Likert scale. The evaluation was done by factor analysis and principal component analysis to arrive at the
findings of the study which were as follows: the most important product quality was the performance of the
fund followed by brand name of the scheme; sponsor related factor that given more importance by the
investor was the expertise of the sponsor in managing money and finally the investor service that was
considered important was the disclosure on investment objectives, methods and periodicity of valuation in
advertisements.

Singh and Vanita (2002) in the paper “ Mutual Fund Investors’ Perceptions and Preferences – A survey”
have examined the investors’ preferences and perception towards mutual fund investments by conducted a
survey of 150 respondents in the city of Delhi. The study has investigated in the following research issues:

1) The basic objectives from Vestments and average time horizon;

2) Investment experiences;
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 3) Risk, return, safety and diversification;
4) Preferences of financial assets and investment schemes of mutual funds.

The findings of the study were that the investors’ preferred to invest in public sector mutual funds with an
investment objective of getting tax exemptions and stayed invested for a period of 3-5 years and the
investors evaluated past performance. The study further concludes by stating that majority of the investors
were dissatisfied with the performance of their mutual fund and belonged to the category who held growth
schemes.

Acharya and Sidana (2007) attempted to classify hundred mutual funds employing cluster analysis and using
a host of criteria like the 1 year total return, 2 year annualized return, 3 year annualized return, 5 year
annualized return, alpha, beta, R-squared, Sharpe’s ratio, mean and standard deviation etc. The data is
obtained from Value research online. They do find evidences of inconsistencies between the investment style
/ objective classification and the return obtained by the fund.

Ms. Avani Shah and Dr. Narayan Baser (2012) carried out a survey in Ahemdabad with an objective to
study the investor’s preference in selection of mutual funds. They have taken two variables: Age and
occupation and tried to find the impact of these two variables on investors preference but age does not play
any important role.

Soumyasaha and Munmun Day (2011) in their article “Analysis of Factors affecting investors perception
of Mutual fund investment” published in the IUP Journal of Management Research, April 2011 concluded
that consumer behaviour is an important area of research studies. Investors expectation is a very important
factor in this regard that needs to be analysed by all alternative investment avenues. The success of any
mutual fund a popular means of investment depends on how efficiently it has been able to meet the
investor’s expectation. MF industry in India has a large untapped market. Electronic sale of financial
products is gaining volumes with the widespread acceptability of e-buying.

Singh J. and S. Chander (2006) in their article “Investors Preference for Investment in Mutual Funds: An
Empirical Evidence” Published in the ICFAI Journal of Behavioural Finance, 2006. Pointed out that since
interest rates on investments like public provident fund, national saving certificate, bank deposits, etc. are
falling, the question to be answered is: What investment alternative should a small investor adopt? Direct
investment in capital market is an expensive proposal and keeping money in saving schemes is not
advisable. One of the alternatives is to invest in capital market through mutual funds. This helps the investor
avoid the risks involved in direct investment. Considering the state of mind of the general investor, this
article figured out the preference attached to different investment avenues by the investors. The preference
of mutual funds schemes over for investment. The source from which the investor gets information about
mutual funds and the experience with regard to returns from mutual funds. The results showed that the
investors considered gold to be the most preferred form of investment, followed by NSC and post office

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schemes. Hence, the basic psyche of an Indian investor, who still prefers to keep his savings in the form of
yellow metal, is indicated. Investors belonging to the salaried category and in the age group of 20-35 years
showed inclination towards close-ended growth (equity oriented) schemes over the other scheme types. A
majority of the investors based their investment decision on the advice of brokers, professionals and
financial advisors. The findings also revealed the varied experience of respondents regarding returns
received from investments made in mutual funds.

Chalam G. V. (2003) in his article “Investors Behavioural Pattern of Investment and Their Preferences of
Mutual Funds” published in “Southern Economist”, Feb 1, 2003 concluded that off all the sections of the
society, the household group contributes much of the capital, forming the life blood for the economy.
According to his analysis, the mutual fund business in India is still in its embryonic form as they currently
account for only 15% of the market capitalisation. The success of mutual funds business largely depends on
the product innovation, marketing, customer service, fund management and committed manpower. The
investment pattern of the investors reveals that a majority of the investors prefer real estate investments
followed by mutual fund schemes, gold and other precious metals.

Shanmugham (2000) conducted a survey of 201 individual investors to study the information sourcing by
investors, their perceptions of various investment strategy dimensions and the factors motivating share
investment decisions and reports that among the various factors, psychological and sociological factors
dominated the economic factors in share investment decisions.

G. Prathap and Dr. A. Rajammohan have done study on status of awareness among Mutual Fund
Investors in Tamil Nadu and their satisfaction level relating to various issues like rate of return, liquidity,
safety, tax consideration, growth perspective, capital gain, maturity period etc. The study outlined that
mostly the investors have high level awareness and positive approach toward investing in Mutual Funds.

NCAER (1964) conducted a survey of households to know the attitude and motivation of individuals
towards saving.

Ippolito (1992) mentions that fund / scheme selection by investors is based on past performance of the
funds and money flows into winning funds more rapidly than they flow out of losing funds.

Gupta (1994) concluded a study to help the policy makers of mutual funds in designing the financial
products for the future.

Kulshreshta (1994) provides several guidelines to the investors while selecting different mutual fund
schemes.

Madhusudhan V Jambodekar (1996) did a study to find out the awareness about Mutual Funds among
investors and to identify the factors which influence the purchasing decision and the choice of a particular
fund. Newspaper and Magazines are the primary source of information through which investors get the
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information about Mutual Fund schemes and fund provider service is the important factor while choosing
Mutual fund schemes.

Sujit Sikidar and Amrit Pal Singh (1996) have done a survey understand the behavioural aspects of the
investors of the North Eastern region towards equity and mutual funds investment portfolio. The survey
states that the salaried and the self-employed were the major investors in mutual fund primarily due to tax
concessions. UTI and SBI schemes were popular in that part of the country then and other funds was not as
successful during the time when survey was done.

Shankar (1996) states that Mutual Funds viewed as commodity products by the Indian investors and to
capture the market one should follow the consumer product distribution model.

Goetzman (1997) point out that there is evidence that investor psychology affect fund / scheme selection
and switching.

Syama Sunder (1998) carried out a survey to get an insight into the mutual fund operations of private
institutions with reference to Kothari Pioneer. The survey point out that awareness about Mutual Fund was
poor during that time in small cities like Vishakapatnam. Agents play important role in spreading the Mutual
Fund culture; open-end schemes were much preferred then; age and income are the two important
determinants in the selection of the fund / scheme; brand image and return are the prime considerations
while investing in any Mutual Fund.

Rajeshwari. T.R, Moorthy Rama V.E., Srinivasan Ajay (1999) in their studies have conducted a survey
among Mutual Fund Investors in Urban and Semi-Urban centres to study the factors influencing the fund /
scheme selection behaviour of Retail Investors. They suggested that AMCs should design products
consciously to meet the investors’ needs and should be alert to capture the changing market moods and be
innovative. Continuous product development and introduction of innovative products is a must to attract and
retain this market segment selection.

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. This is a unique and comprehensive study of Indian Investors,
for which data was collected from 30 Lakh geographically dispersed rural and urban households. Some of
the relevant finding 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 (estimated) apparently lack awareness about stock markets; and compared with low
income groups, the higher income groups have higher share of investments in Mutual Funds (MFs)
signifying that MFs have still not become truly the investment vehicle for small investors.

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Kavitha Ranganathan (2008) has examined the related aspects of the fund selection behaviour of
individual investors towards mutual funds in the city of Mumbai.

Bodla B. S., Bishnoi Sunita (2008) has concluded in their study that the mutual fund investors in India at
present have as many as 609 schemes with variety of features such as dividend, growth, cumulative interest
income, monthly income plans, sectoral plans, equity linked schemes, money market schemes, etc. Though
both open-end and close-end schemes have registered excellent growth in fund mobilization, but currently
the former category of schemes is more popular among the investors. Portfolio-wise analysis has brought
that income schemes have an edge over growth schemes in terms of assets under management. Moreover
UTI’s share in total assets under management has come down to 11.8% in 2006 from 82.5% in 1998.

Das Bhagaban, Mohanty Sangeeta, Shil Chandra Nikhil (2008) has thrown light on the selection
behaviour of Indian retail investors towards mutual funds and life insurances particularly in post
liberalization period. With this background, their paper made an earnest attempt to study the behaviour of
the investors in the selection of these two investment vehicles in an Indian perspective by making a
comparative study.

Walia Nidhi & Kiran Ravi (2009) in their study have tried to identify critical gaps in the existing
framework for mutual funds and further extend it to understand the need of redesigning existing mutual fund
services but acknowledging Investor Oriented Service Quality Arrangements (IOSQA) in order to
comprehend investor’s behaviour while introducing any financial innovations.

Ippolito (1992) states that an investor is ready to invest in those fund or schemes which have resulted in
good rewards and most investors’ are attracted by those funds or schemes that are performing better over the
worst.

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CHAPTER 4: DATA ANALYSIS, INTERPRETATION AND PRESENTATION

 Primary Data for the Project

For the customized needs of the project, primary data was collected through a survey in the city of Mumbai.
A random sample survey was conducted. The survey was circulated to almost 150 respondents out of which
111 respondents responded to the survey. These 111 respondents are the ones who might be aware of the
topic of mutual funds or must have just heard about mutual funds or must be regular investors of mutual
funds. The possibility can be many for these. The rest respondents who didn’t respond to the survey are the
ones who might not be aware of the mutual funds. They were all asked to answer the questionnaire true to
their knowledge. The feedback obtained from the customer was instrumental, gauging the perception of the
investors towards mutual funds. It also throws light on the factors which influence them to make decisions
while investing. Further the interaction with few of the investors goes a long way in understanding the inlaid
reasons for their decisions.

 Data Analysis and Interpretation of the questionnaire

Question 1

Out of 150 respondents, 111 respondents replied to the survey. The question about knowing the age group
was replied by 110 respondents. One respondent may not be willing to share the age. In the above pie-chart,
44.5% of the respondents fall in the age group of 22-30 years. They may be the adult teens who have
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recently started to work and have started to plan their investment by investing in the mutual funds. The
career planning program taken by them will be beneficial to them. 30% of the respondents fall under the age
group of 30-40 years. They are the people who are qualified and want to increase their wealth by proper
management and thus they are willing to invest their money through mutual funds. These respondents are
well earning members of the society who maintain their wealth and wants to expand it through various
sources. 25.5% of the respondents are under the age group of more than 40 years. These people are or may
be on the verge of retirement. They are now concerned about knowing the returns that they would be getting
from the investments and they are also concerned about the tax benefits which they would receive by
receiving the investments dividends from them. This age group people might be regular investors who are
constantly and regularly investing their money in such funds.

Question 2

In this question the respondents were asked their occupations, so that their investment pattern would be more
clear and crisp. Depending on their occupation, we can judge that how much amount they are ready to put in
the investment of mutual funds. Fromm the above pie chart it is seen that 16.2% of the respondents i.e. 18
respondents belong to professional class. They are very well verse with the investment pattern in various
securities. They are well qualified and well educated persons so that they can invest themselves and guide
others also to invest. 7.2% i.e. 8 respondents belong to retired class. It means they must have been investing
already into these securities or they might want some funds for their retired life ahead and must have started
the investment recently with their retirement funds. 13.5% i.e. 15 respondents are from service category.
10.8% i.e. 12 respondents are doing government jobs and they are investing in securities of government.
18.9% i.e. 21 respondents are engaged in private jobs. These people are earning well enough from private

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jobs the earnings are invested in better securities to get better form of returns 17.1% i.e. 19 respondents
belong to the class of businessman. They are the one who earn handsome amount of money and generally
don’t have much budget issue for investing in the securities. 8.1% i.e. 9 respondents are housewives who
have filled up the survey and are also investing in these securities. They might be investing bits and papers
from what they save and / or earn from their job. They are more keen on the return that they should receive
from the securities. The other 8.2% i.e. 9 respondents are students category. They are the ones who do part
time job and then invest the amount into securities which they earn. They can either borrow money from
their friends and relatives or their parents for investing the amount in these securities.

Question 3

The above question is to know in general about the annual income of the clients. The basic category of
income distribution is based on the income tax slab rate. This slab of income is done for the purpose of
knowing which category of persons can invest how much amount into the securities.

Out of 111 respondents, 109 respondents responded to this income question. The remaining 2 may not be
keen to provide or share their income details. 14.7% i.e. 16 respondents fall under the category of income
slab of less than Rs.1.5 Lakh. These people may be the working class who may be earning lower salary. The
people may be less educated and they might be working in the clerical job. 22% i.e. 24 respondents fall
under the category of income slab between Rs.1.5 Lakh to Rs.2.5 Lakh. The people that fall under this
category may be slightly more educated than the other working class people. These people might even be a
trainee who get less apprentice. And therefore they too don’t fall under the taxable income slab. 14.7% i.e.
16 respondents fall under the category of income slab between Rs.2.5 Lakh to Rs.5 Lakh. These people are
those who earn mainly due to their educational qualification and their skills. This skills may be due to their
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experience at work. When a person gets more exposure and more experience, it is because of his hard work
and skills that lets him gain such prestigious position. 48.6% i.e. 53 respondents fall under the category of
income slab of more than Rs.5 Lakh. These people are the professionals who are highly educated or the
peoples who hold high positions in their offices. Even the high salaried class of people, businessman and
other high qualified persons fall under the category. They are the high tax paying class.

Question 4

The answer to above question is extremely easy. The respondents just have to respond either yes, no or
maybe because it’s just a simple question. Out of 111 respondents only 108 respondents have responded to
this question. The reason for not responding to this question can’t be judged. 34.3% of the respondents have
replied to this question in affirmative form. These respondents have invested in mutual fund. They might be
the regular investors in mutual fund who are well aware of the investing pattern and the rules and regulations
of the mutual fund. They are either guided by their financial planner or they have sufficient knowledge to
make their decision on their own. 50% of the respondents don’t invest their money in mutual funds. They
might think that it is not safe to invest in mutual funds. The regular perception of the investors is that they
might make a loss if they are investing in mutual fund. 15.7% of the respondents who have responded to the
option ‘maybe’ might be those who must have once invested in the funds and might have incurred loss or
once invested and must have forgotten about it. These respondents are not sure about investing money in
these securities.

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Question 5

The above question is based depending on personal basis. There are four options where a mutual fund
investor can hold its position. Out of 111 respondents, only 97 respondents have responded to this question.
14.4% of the respondents are totally ignorant as an investor. He does not know the ABC of investing and
therefore he prefers to be ignorant. He never tries to gain knowledge about the investing pattern because he
feels that always the market would incur loss and his money will be lost. He does not even prefer to gain
knowledge from his financial advisor too. About 39.2% of the respondents have partial knowledge of mutual
funds. These investors might heard about mutual fund through various sources. They have half knowledge
about this topic because they do not have full knowledge of it. 19.6% of the investors are aware only of
specific scheme in which they have invested. There are many ongoing schemes by different companies
which offer the services of mutual funds. Some investors invest in a particular type of scheme like the
growth fund, blue-chip fund and they only have knowledge and are well aware of these particular schemes in
which they invest. They have no idea about the details of the remaining schemes. Next, 26.8% of the
respondents are fully aware as an investor. They know all kinds funds offered by the companies. They even
the asset management companies too.

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Question 6

In the above question, the investors are asked as to they invest their money in which kind of funds.

59.8% of the respondents invest their money in private sector funds. Mutual funds that are not sold to the
public are called private or non-publicly offered. These mutual funds are typically offered to a handful of
investors such as banks, venture capital firms and wealthy individuals who are classified as sophisticated
investors. Private mutual funds are an exclusive investment with a limited number of investors. The
minimum investment for a share of a private mutual fund is much higher than that of a mutual fund. A
private mutual fund can have as few as 15 shareholders. Depending upon the number of investors in a
private mutual fund, there is little or no government regulation. Private mutual funds tend to be more
leveraged than public mutual funds. Therefore the investors who are investing in private sector mutual funds
must having high income and net worth. 40.2% of the respondents invest their money public mutual funds.
Public mutual funds, as the name suggests, are open to the public to invest in. they are managed by
professional fund managers, who actively invest in various securities to achieve the mutual funds’ stated
objectives, which could be capital growth or income. These investors purchase shares of a public mutual
fund from either the investment company itself or one of its brokers. Mutual fund shares cannot be
purchased or sold on secondary markets. Most public mutual funds are open-end funds, which means that
they don’t have a set amount of capital; the number and cost of shares may fluctuate over time and the fund
managers can issue new shares every day.

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Question 7

In the above question the investors are asked from where did they come to know about the mutual funds.
The question was responded by 93 respondents out of 111 respondents. 41.9% i.e. 39 respondents have come
to know through the advertisements. Nowadays, the companies have gained popularity by displaying the
advertisement on TV or on billboards on the road. The viewers may come to know about the concept and
some viewers may want to know about this and they inquire about the stuff in the company. 20.4% i.e. 19
respondents have come to know about the mutual funds through peer groups i.e. their friends and relatives. It
so happens that if one relative have invested and benefitted from the mutual funds, they will tell others to
invest in the same and by this method all the persons come to know about the funds. This is called as word
of mouth. 25.8% i.e. 24 respondents have come to know about the mutual funds through banks. Banks are
also an AMC. Some banks offer their mutual funds like HDFC, ICICI, KOTAK, SBI etc. 30.1% i.e. 28
respondents come to know about mutual funds through their financial advisors. The investors seek help from
their advisors. The advisors help them by telling them which fund is more beneficial and more return
yielding.

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Question 8

The investors were asked in which schemes they invest their money.

30.6% i.e. 26 investors invest their money in open-end schemes.

15.3% i.e. 13 investors invest their money in close-end schemes.

21.2% i.e. 18 investors invest their money in mid-cap schemes.

9.4% i.e. 8 investors invest their money in liquid fund schemes.

25.9% i.e. 22 investors invest their money in growth fund schemes.

5.9% i.e. 5 investors invest their money in long-cap schemes.

4.7% i.e. 4 investors invest their money in regular income fund schemes.

5.9% i.e. 5 investors invest their money in sector fund schemes.

21.2% i.e. 18 investors invest their money in equity fund schemes.

15.3% i.e. 13 investors invest their money in debt fund schemes.

Many investors invest money in more than one scheme and hence the percentage differs from each other.

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Question 9

Out of 111 respondents only 96 responded to this question. This is about the alternate investment method
that the investors would prefer. 28.1% i.e. 27 investors prefer to invest their money savings account. They
feel that their money is safe and they would receive regular stream of income by way of interest on the
deposits. 36.5% i.e. 35 investors prefer to invest in fixed deposits. This is the safest option of all. The
investors feel that their money is safe there for a long term period and the interest is received in compounded
form. 15.6% i.e. 15 investors invest in insurance. 27.1% i.e. 26 investors invest their money in mutual funds.
They already know the idea and techniques of investing in mutual funds. 9.4% i.e. 9 investors invest their
money in government securities like post offices, national savings certificates etc. 18.8% i.e. 18 investors
invest their money in shares and debentures. These investors are the one who have technical knowledge
about investing in stock exchange. 15.6% i.e. 15 investors invest in gold, silver and other bullion things.
They feel that it is safe to invest in gold, silver rather than investing money in shares and debentures and
losing money. 12.5% i.e. 12 investors invest their money in real estate. In the real estate, only rich hotshot
can invest as they have abundant amount of money with them. An average people can invest repeatedly in
real estate due to lack of funds. 11.5% i.e. 11 investors invest money in PPF account.

This is a general view of investment pattern of the investor. The investor can invest their money in two or
more such schemes depending on the available funds with them.

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Question 10

For this question, out of 111 respondents, 93 respondents have answered the question.

29% of the investors, invests their money in mutual funds through lump-sum or one time investment. If an
investor have a big sum of money and is looking forward to invest the money in mutual funds, then he can
invest the amount through lump-sum method. If you have a large corpus of money to invest, you can invest
it in all in mutual funds. The Lump-sum method can be rewarding only if the long term trend of the economy
is positive. 60.2% of the investors prefer to invest their money through Systematic Investment Plan (SIP).
SIP can help you invest your money gradually every monthly or quarterly. Where you can instruct the
mutual fund to buy units of the scheme in your folio, by debiting the fixed amount from your bank account
every month or quarter. This scheme is suitable for persons who are from the salaried class and earn monthly
salary. They cannot invest a whole lot of money by lump-sum method. 10.8% of the investors invest their
money through Systematic Transfer Plan (STP). It is a mode of investing,, where you initially park your
entire amount in a less risky category of mutual fund such as a liquid scheme and then systematically
transfer money on a regular basis from the liquid fund to an equity fund or any other mutual fund scheme of
the same fund house. You are able to invest money on a regular basis, the liquid scheme provides you an
opportunity to earn returns better than your bank’s saving account.

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Question 11

For the above question, out of 111 respondents only 87 responded.

35.6% of the investors purchase mutual funds directly from the Asset Management Companies (AMC). You
can invest in a mutual fund scheme by investing directly through the AMC. The first time you invest in any
mutual fund, you may have to go to the AMCs office to make your investment. Subsequently, the future
investments in different schemes of the same AMC can be made online or offline, using the folio number in
your name. Some AMCs may extend the facility or sending an agent to help you fill the application form,
collect the cheque and send the acknowledgement. 20.7% of the investors purchase the units of mutual funds
directly from broker only. 31% of the investors purchase units of mutual funds through brokers / sub
brokers. They are the intermediaries available to sell the units of mutual funds to these investors. These
intermediaries have to be registered with the Association of Mutual Fund of India (AMFI), which also
maintains a searchable online directory at www.amfiindia.com. The intermediary normally brings the
required mutual fund application form, helps you fill the forms, submit the forms and other documents to
Mutual Fund office and even brings the account statement. But, all these services come to you for a fee.
12.6% of the investors purchase the units of mutual funds through other sources. The other sources include
purchase through Independent Financial Advisors (IFA), online portals, banks, DEMAT and online trading
account.

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Question 12

Out of 111 respondents 89 responded to the above question.

In India, there are almost 42 Asset Management Companies registered with the AMFI. Only few companies
have been mentioned in the above question. 20.2% of the investors prefer to invest in SBI Mutual fund.
23.6% of the investors invest through UTI Mutual fund. 15.7% of the investors invest through Reliance
Mutual fund. 23.6% of the investors invest through HDFC Mutual fund. 7.9% of the investors invest through
ICICI Mutual fund. 9% of the investors invest through Kotak Mutual fund.

It is individuals perception as to through which AMC they want to purchase their units of mutual fund.

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Question 13

Out of 111 respondents 89 respondents have responded to the question.

32.6% of the investors feel that diversification is the most alluring feature. The diversification reduces risk
associated with various schemes. Mutual funds offer a diversified investment portfolio even with a small
amount of investment that would otherwise require big capital. The funds reduced the risk of loss as the
portfolio is largely diversified and the purchases are backed by research and experience of the fund house.
This diversification of risk is one of the key benefits of a collective investment instrument like mutual funds.
Only sector funds invest across one industry making them less diversified and therefore more volatile. 41.6%
of the investors consider this as better source of returns and safety. The units that are purchased are safe and
give returns if they are kept for a longer period of time. 25.8% of the investors feel that this investment leads
to reduction in risk and transaction cost. Mutual funds help investors to benefit from economies of scale as
mutual funds pool money from vast number of people with common interest and invest their money in the
relevant asset class / classes. This helps the investors share the cost of management of their money. 20.2% of
the investors consider as their regular source of income. While investing in mutual funds they get their
regular stream of income as dividend if the units are invested in equity fund or something like that. The
person, if, has invested a great amount of money into it, then he may get a good sum of money. 31.5% of the
investor thinks that investing in mutual fund can lead to tax benefits. Some of the units are exempted from
the tax calculations. Units if held for less than one year is tax exempted and for more than one year is
calculated at a rate of 20%.

Question 14
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The important parameters considered while investing in mutual fund are as follows:

Returns: 52.7% of the investors consider returns as the most important parameter. Indians, generally, are
eager to know the returns the company gives rather than the investment amount. In case of long term holding
period, the investors expect a high rate of return from the units.

Lower risk factors: 32.3% thinks that investing in mutual funds leads to lower risk. This lower risk is due to
diversification. A well-diversified portfolio will lower the risk factor as the risk is also diversified.

Credit rating: 25.8% of the investors invest on the basis of credit rating of the companies. If the companies
have good credit rating, then the investor can invest in that companies hassle free.

Inflation: 11.8% of the investors feel that inflation is the parameter considered while investing.

Company: 17.2% of the investor consider that the company is the main parameter. No one will ever invest in
any ABC company. The investor will always invest in such companies which is reputed and also has the
ability to give adequate returns to its investor.

Lock-in-period: 25.8% of the investors feel that the units should be held for some time in order to gain
profit. The company is required to keep a lock-in-period so that the investor can hold its units for some time
and then if they want can sell them.

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Question 15

Some investors prefer to invest their money for short term. 44.6% of the investors prefer to invest in short
term securities. The holding period of these securities is less than 1 year. Therefore, on selling the investor
would not be applicable to pay tax on it as the duration was less than 365 days. 55.4% of the investor prefer
to hold their securities for more than 1 year i.e. more than 365 days. The tax treatment is in the previous
chapter.

Question 16

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16.3% of the investors are willing to take high risk. They are ready to invest huge amount of money and are
carefree about the returns that they would get. 55.4% of the investors are willing to take moderate risk. They
want to do take more risk but then something holds them back. It must be that they have insufficient funds or
the market fluctuations stop them.

Question 17

Out of 111 respondents 93 responded to this question. 20.4% of the investors invest their money in less than
6 months. The next 28% of the investors invest money within 6 to 12 months. 25.8% of the investors invest
the amount within 1 to 2 years. 25.8% of the investors invest their money after 2 years. This is the investors
decision about the time gap in which he wants to invest.

Question 18
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The important reasons for not investing in mutual funds are:

38.3% of the investors don’t have knowledge about the mutual fund. They still think it’s a gamble and all
will lose their money and the returns are also very low. They, actually, have not been guided by a proper
advisor who could tell them more about the mutual funds.

29.6% of the investors enjoy investing their money in other investment avenues like the shares, debentures,
gold, silver etc. They are happy with the returns that they receive from them and they are the people who
don’t want to try new options.

17.3% of the investors are not attracted by the benefits that mutual funds provide them. They are still happy
with the old investment pattern i.e. fixed deposits or the saving account. They are not ready to accept new
methods of investment which may provide them high returns.

14.8% of the investors do not have trust over the fund manager. They always think that the fund manager
may be a fraud might take away all their earnings.

12.3% of the investors think that it is riskier to invest in mutual funds rather the bank accounts. The investor
still prefers to keep their money in savings account or any other types of bank accounts.

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Question 19

Out of 111 respondents 94 respondents responded to the question. This is majorly a personal response. The
rate of return expected by the respondents is based on their personal calculation and assumptions. 16% of the
respondents expect returns less than 8%.

17% of the respondents expect rate of return in the range of 8% - 10%

31.9% of the respondents expect rate of return in the range of 10% - 12%. Such returns are expected only
when the investment is held for more than 3 – 4 years.

35.1% of the respondents expect rate of return in the range of 12% - 15%. For this the investor has to hold
up the securities for maximum time. The investor will get maximum returns when the units of mutual funds
are kept for a longer period of time.

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Question 20

Reasons for using financial advisors:

27.2% of the respondents want help from financial advisors for asset allocation. The person is not able to
manage its portfolio on its own. They need the help of advisors who guide them to invest and manage the
portfolios.

25.9% of the respondents don’t have enough time from their busy life to make their own investment
decision. Therefore, they need help from financial advisors. They give them proper guide as to where they
have to invest and in which securities they would earn enough returns.

35.8% of the investors need financial advisors to explain them various investment options available in the
market. Whether it is mutual funds or any other investment avenues. Financial advisors help them to meet
their needs and lead them in a proper path to earn good returns.

29.6% of the investors need advisors to make sure that they are meeting their financial goals. Any persons
who goes to financial advisors, goes to him so that they can guide him to make such type of investment so
that he can meet his financial goals.

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Question 21

The following is the most suitable stage to invest in mutual funds:

57.6% of the investors feel that the best age to invest in mutual fund or any other investment avenue is in the
Young Unmarried Stage. In this stage the person does not have any responsibilities on his shoulder. He just
has to make his dream come true and meet the financial goal. Therefore, during this age the person can take
care of his parents and even fulfil his dream. 21.7% of the investor feels that the best stage to invest is
Young Married with Children Stage. If you are married at an early stage and have a child, then also you can
invest money. The only difference between the above two stage is that at the end the financial goals of each
of the person will be different. In the later stage, the goal will be either of chid education or family planning.
9.8% of the investor feels that the best stage to invest is after marriage and having older children. The person
then has to think only of retirement planning since his children have grown big. 10.9% of the investor feels
that the right time to make an investment is before retirement i.e. pre-retirement stage. They have no other
responsibilities of their family so they think that pre-retirement stage is the best time to invest excess money
saved in these schemes. The schemes will have all the schemes due to which they can earn sufficient amount
to live their retirement life peacefully.

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Question 22

Out of 111 respondents 92 responded to this question. The factors which are given priority while investing
are as follows:

45.7% of the investors consider safety as the matter of importance. The investors need to know where their
money has been invested. Whether it’s in right securities or the wrong one’s.

48.9% of the investors consider high returns as their main priority. No matter how much money they invest
in the units, the investors are always interested in how much return will they get.

25% of the investor consider liquidity as the main factor. The investor should be satisfied that he can
withdraw his money anytime he wants.

21.7% of the investor considers that investment in mutual fund leads to less risk. Diversification is the main
reason for less risk. The total amount of risk gets diversified and therefore, the investor has bear less amount
of loss.

22.8% of the investors consider marketability as the main important reason for investment. The investor by
himself or through his financial advisor need to check on how the stock is performing in the market.

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CHAPTER 5: CONCLUSION

Mutual fund companies should promote investors to invest through online mode rather than offline mode as
it saves time and cost both. Those who can take risk at early stage should also take initiative to invest in
Equity schemes as return provided by them is much higher. Mutual funds companies should make provide
the investors details of the return given by them through various advertisements as they can be the better
option than bank deposits in terms of return and liquidity. Mutual fund companies should provide training or
take initiative to aware the investors about various benefits of investment in mutual funds. Past data shows
that mutual funds can be the best option for wealth creation and to beat inflation. Investors should be provide
awareness about the knowledge of mutual funds so that they can better portfolio of mutual fund investments
according to their investment objective.

Mutual funds are still and would continue to be the unique financial tool in the country. One has to
appreciate the fact that every aspect of life as its periods of high and lows. This has been the case with the
stock markets. Why not apply the same logic to mutual fund? Mutual funds have not failed in any country
where they worked with regulatory frame work. Their future is bright. The poor performance of many
mutual funds schemes may be mostly attributed to the quality of personal involved and their matter of fund
management.

This paper documents the tendency of mutual fund managers to follow analyst recommendation revisions
when they trade stocks and the impact of these analyst revision motivated mutual fund “herds” on stock
prices. We find evidence that mutual fund herding impacts stock prices to a much greater degree during our
sample period (1995 to 2006) than during prior studied periods. Most importantly, we find that mutual fund
herds form most prominently following a consensus revision in analyst recommendations. Positive
consensus recommendation revision result, most frequently, in a herd of funds buying a stock, while
negative revisions result, most frequently, in a herd of funds selling. This relation remains robust after we
control for stock characteristics and investment signals that influence both fund trading and analyst revisions
after using alternative measures of analyst revisions. In addition, mutual funds react more strongly to analyst
information when it appears to be more credible.

Perhaps our most interesting result is that mutual funds appear to overreact when they follow analyst
revisions upgraded stocks heavily bought by herds tend to underperform their size, book-to-market, and
momentum cohorts during the following year, while downgraded stocks heavily sold outperform their
cohorts.

In Indian mutual fund industry, most of the mutual fund schemes have been performing inefficiently.
However, when analysed within their category as Growth, Income, Balanced and ELSS situation is much
better and approximately half of the scheme in each category have been performing efficiently. Load fee and
expense ratio have been found as the major cause of inefficiency in mutual fund. For all the inefficient

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schemes, there are respective peer efficient schemes in particular weights by following which these schemes
might attain efficiency level. Thus, for the entire set of inefficient schemes, target values or virtual inputs are
there for achieving the efficiency level. These target value shows that expense ratio and load fee should be
reduced to achieve efficiency.

There are some attributes of mutual fund schemes as their age, asset ratio and past performance that affect
their efficiency performance. Older schemes and schemes with high asset ratio are performing inefficiently.
However, mutual funds which had good performance in past are more likely to perform well in future.

The number of investors and the amount invested in mutual funds is quite low. Investors consider mutual
funds as low return and high risk investment avenue. Its liquidity is perceived as high but tax benefits and
procedural understanding are low for these. Also, investors judge mutual fund schemes for investment on the
basis of their size, performance, status and professional expertise. Further, investors expect good
regulations, expert advice and strong grievance mechanism from mutual fund companies. Most of the
investors have been investing in Growth, Income and Balanced mutual fund schemes.

Suggestions

Some suggestions or recommendation for mutual fund companies, policy makers and investors on the basis
of present study have been presented in this section.

In India first mutual fund was set up in 1964 and Indian mutual fund industry has completed 53 years till
2017. In spite of such a long experience and huge establishment of 1390 schemes with Rs.66,04,960 million
as asset under management, most of the mutual fund schemes have been performing inefficiently. Mutual
fund companies, AMFI and governing bodies as SEBI should take corrective measures so as to make mutual
fund schemes perform efficiently.

Mutual fund companies should not judge the performance of mutual funds just by comparing their return
from some benchmark but must also identify the schemes that are not performing efficiently. Then peer
efficient schemes might be followed with a set of target or virtual inputs by inefficient schemes so that
efficiency level might be achieved.

Apart from following target input values, major cause of inefficiencies in the performance of mutual funds
should be identified. As load fee and expense ratio have been found out as the major cause of inefficiency in
mutual fund schemes, mutual fund companies should focus on reducing their expenses and management fee.

Most of the mutual fund companies are not getting benefitted in performance efficiency from their
experience. That means older mutual fund schemes are not performing efficiently. The researcher is of the

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view that either these schemes must be wind up or a thorough review of strategy is needed i.e. these must be
restructured.

Large mutual fund schemes with high assets are not performing efficiently. Therefore, mutual fund
companies should either improve their management or such large schemes should not be run i.e. limited
funds must be occupied by any scheme.

Despite significant growth in the number of mutual fund schemes in recent years, very few individual
investors are investing in it as they consider that the Indian mutual fund industry as a whole is not
performing well. During April, 2006 to March, 2012 more than half of the mutual fund schemes have risk
adjusted performance (Sharpe ratio) below the average risk adjusted return of entire mutual fund industry.
However risk () of very few schemes is higher than the average beta of all mutual fund schemes (Annexure
H). Therefore, mutual fund companies should take corrective measures to improve their performance. Policy
makers and governing bodies might also discontinue mutual fund schemes that have been performing below
average since a long period of time.

Investors invest most of their money in real estate, gold / e-gold, FDs and shares and investment in mutual
funds is lower than these options. This shows that investors are not confident enough for this investment
avenues. In spite of the fact that most of the mutual fund schemes have risk adjusted return than the average
of BSE Sensex during the period of April, 2006 to March, 2012 and the average Sharpe Ratio being higher
than the average of BSE Sensex return during the same period, mutual funds possess an image of high risk,
low return investment avenue (Annexure I). Therefore, mutual fund companies might step towards this to
promote the success of mutual funds among the investors at large.

Mutual funds are considered as risky as shares. Therefore, companies may focus to introduce and innovate in
some schemes that give guaranteed return. Gilt schemes and money market schemes may also be boost up.
Also, steps from the government as Rajeev Gandhi Equity Saving Schemes with an objective to encourage
the savings of small investors in domestic capital market may be enhanced further.

Further, there is need to educate investors about the advantages of mutual fund schemes. The AMFI with the
help of SEBI should arrange more and more awareness programme to promote proper understanding of the
concept and working of mutual funds. SEBI has organised a comprehensive Securities Market Awareness
Campaign in order to educate the investors and the campaign includes workshops, audio-visual clippings,
distribution of educative materials, etc. Such type of campaigns should be arranged on regular basis for
spreading awareness about benefits from investing in mutual funds and mutual fund companies must also
participate in this campaign.

Investors judge mutual fund schemes on the basis of their characteristics as structure, size, performance,
status and professional expertise. Therefore, mutual fund companies should emphasize strong points of their
schemes regarding these characteristics. Also, most of the investors have been investing Growth, Income and
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Balanced mutual fund schemes. They must be made aware about the benefits of other types of schemes also
as ELSS, Index, Funds of funds, International funds, Lifestyle funds etc.

Investors before making investment in mutual fund must check their performance in terms of efficiency also
apart from current NAV and past performance. Also, they must make investment decision in mutual funds
on the basis of their various attributes as asset ratio, risk, age, load status and expense ratio.

Suggestions to Mutual Fund Companies:

Disclosure of risk: The funds should disclose the level of risk associated with investment in the fund return
in offer documents and in the annual reports for the sake of prospective and existing investors.

Educating the agents: While investing the agents / salesmen should clearly explain the investors all the
features both positive as well as negative associated with a fund. Primarily, the agent / salesmen should first
understand the purpose / need for the investment by the investor.

Simple Terminology: The details both facts and figures should be in plain English and the figures must be
explained, for example when Sharpe ratio is mentioned, they should clearly tell its significance and how it is
related with risk and how to assess (e.g. higher the ratio, higher the better instrument).

Regional Languages: The fact books may be printed also in regional languages so that penetration in rural
areas may be achieved.

Customer Care Divisions: Along with internet access the customers’ queries about any schemes should be
answerable and attract through well suitable counselling.

Understanding the Psychology of the Investors: AMCs should put extra effort in studying and understand
the psychology of investors in order to provide better schemes and better service.

Simple words in annual reports: The annual reports which are given to the respondents must be with very
clear and simple points which even a common investor may understand. The figures given alpha, Sharpe,
beta, standard deviation may not reach the ordinary investors with no finance knowledge. These figures may
be converted to simple points in plain English.

Lack of awareness and information: Mutual funds offer comprehensive life cycle financial planning and
not immediate returns. A recent report on Mutual Fund Investments in India published by research and
analytics firm, Boston Analytics, suggests investors are holding back from putting their money into mutual
funds due to their perceived high risk and a lack of information on how mutual funds work.

Suggestions to the Investors:

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Understand the purpose of investment: the first point to analyse before investing in a fund is to find out
whether the objective matches with the scheme. It is necessary, as any mismatch of the same would directly
affect the prospective probable returns. For example, a scheme that invests heavily in large-cap stocks is not
suited for a conservative equity investor. He should be better off in a scheme, which invests mainly in blue
chips. Similarly, one should pick up schemes that meet your specific needs. Examples: pension plans,
children’s plan, sector-specific schemes, etc. Mutual funds proved to be the most preferential financial
avenue provided it is put forth before investors in the desired form.

As per the survey it is found that most of the specific needs are own house, children’s education and
retirement plans. So one whose plan is to buy a new house may plan for such schemes which give good
returns in three years. On who is investing for children’s college education in 15 years or to plan retirement
in 30 years should choose the scheme accordingly. The length of time has much impact on the level of the
risk tolerance.

Low risk tolerance: Those investors with less risk tolerance should go for debt schemes, as they are
relatively safer, when compared to empowered schemes like equity. Aggressive investors can go for equity
investments. Investors that are even more aggressive can opt for schemes that invest in specific industry or
sector.

Track Record: Investors should go through the scheme’s track record, performance against relevant market
benchmarks and its competitors.

Period of Investment: One should look at covering the volatility exposure which can be done by holding
onto the investment for longer periods which also enables the scheme to gain.

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

Points to be considered while investing in NFOs: At the time of NFO, one can buy units at par. However,
it is not always advantageous to buy a mutual fund during NFO. One should always wait and see the
performance before investing in it. One can buy units of an open-end scheme anytime at NAV-related price.
The units can be either purchased directly or via internet.

Points to be considered while departing from the scheme: one should sell or redeem units or repurchase
proceeds within 10 days of the redemption or repurchase. Most funds charge an exit load when the period of
exit is less than six months. One may sell it when the target is achieved or when the personal needs and
objectives are changed due to some changes in one’s life. It is also prudential to sell when the fund is taken
over by other funds. One may also exit when the expense are increased.

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Suggestions to the Government:

Unclaimed mutual fund dividend: as per the survey conducted in the year 2011 by AMFI, total unclaimed
dividend and redemptions lying with mutual funds was Rs.496 crores. It has requested the government to
utilize income earned on unclaimed dividend funds for Investors education. Government accepted the
suggestion and the funds were made available. The number of Indian listed mutual funds may substantially
exceeds the number of Indian listed stocks, with more mutual funds being added every month. It has already
happened in United States of America. The investors are bewildered by the choice of funds that they have-it
has becoming a tough to fathom and analyse which fund one ought to invest in as it is difficult to figure out
which stock he wants to invest in.

Conclusion:

The critical gaps identified in the study also provide the key information input regarding the discrepancies in
existing framework of mutual funds which can be extremely beneficial to AMCs in designing more
lucrative solutions to suit investor’s expectations. CII – KPMG conducted a “Voice of customers” survey to
help understand the buying behaviour of existing and potential investors in mutual funds and to obtain
feedback on their wish list from various stakeholders including fund houses, distributors, service providers
and the regulation factors found for mutual fund investment are that the number of types of schemes
availability is very much with which investors are becoming confused and a complex decision. Also the
KYC norms are complicated which is restricting the potential customers and also lack of professional or
quality advice. Drivers of purchase of Mutual funds were found to be tax benefits, consistency in fund
performance and brand equity.

With majority of the countries in the grip of financial crisis and economic slowdowns, countries with largely
savings orientation have weathered these phenomena. This safe side stand by these countries however is
changing with the country’s own economic conditions as inflation and depreciating currency value forcing
radical measures and policies. In this scenario the investors with their traditional patterns of investments
and savings are forced to venture out for newer and better options in the market. A country like India, where
safer and riskless options are chosen and preferred for investments are slowly and steadily paving way to
new hybrid investment options with comparatively less riskier than the conventional Equity options, the
investors have shown interest towards the Mutual funds. This fact is certainly identified by the Mutual fund
companies as the number of schemes with various options and benefits they are tailoring it certainly seems
that the wave of Mutual fund investment is taking over. The rapid pace of engagement worldwide has helped
in serving to reinforce the mutual funds which made it as investors’ preferred option of investing with the
scope of higher returns and diversification.

The growing numbers of AMCs and with each AMC having numerous schemes the choice of investors in
selecting one has become an magnanimous task involving intricacies and judgements. With Indian investors
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looking at Mutual funds as a commodity product the AMCs are following consumer product distribution
model.

The Indian investors preference when it comes to investing still lies with riskless options and pre-dominantly
with Gold, is now venturing out and investing in Mutual funds. The need and objectives are matched with
schemes’ characteristics. Each scheme is chosen with a specific intent. Security and assurance with average
risk tolerance makes the Mutual funds a preferable option. The ability and scope for varying risk and returns
options based upon the investors’ preference and psychology the AMCs offer a varied variety of schemes
catering to this.

The growing number of AMCs and incalculable schemes flooding the markets and bombarding the investors
the need for a body to monitor this and also its functions rose tremendously. With investors’ protection and
proper channelling of investment the government from time to time is taking proactive measures, hence
installing and invigorating the investors’ belief and assurance.

The awareness of Mutual funds is certainly gaining its ground though still vast areas have to be covered. The
responsibilities of AMCs and other broking firms increasing more than what it was a decade ago brought
about radical changes in the investing patterns. The growing needs and wants, combined with future
uncertainties, need for assured periodical returns with lesser risks has given rise to a growing number of
young investors. Though the Mutual funds are prone to market conditions and require continuous monitoring
they are less volatile than their counterparts.

The uncertain future with global finance and economics crisis combined with growing needs of investors
with low risk seeking nature. Mutual funds certainly are making their way into the next generations’
preferred investment.

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Bibliography

 https://www.researchgate.net > publication

 www.scribd.com
 https://www.principalindia.com/knowledge_centre/mutual-fund-basics.aspx
 https://issuu.com/sanjaykumarguptaa/docs/a-report-on-descriptive-study-of-mutual-funds
 www.slideshare.net
 www.njwebnest.com>advisors-articles
 www.snowballwealth.in>advisors-articles
 https://www.investopedia.com/exam-guide/finra-series-6/investment-companies/mutual-fund-
marketing.aspx
 https://www.scribd.com/doc/36097230/Mutual-Funds-Complete-Project-Report#
 https://www.moneysimplified.in/transcript/Video15Transcript.aspx
 https://www.thebalance.com/top-benefits-of-mmutual-funds-2466564
 https://budgeting.thenest.com/difference-between-public-private-mutual-funds-31968.html
 Agapova, Anna, 2011, “The Role of Money Market Mutual Funds in Mutual Fund Families”,
Journal of Applied Finance, Vol.21, Issue. 1, pp. 87-102.2.
 IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925
 Satyajit, Dhar (1994), “Mutual Funds in India – a Close Look”, Finance India, Vol. VIII pp. 675-
679
 https://brandequity.economictimes.indiatimes.com/news/advertising/mutual-funds-sahi-hai-says-
amfi-in-their-new-ad-campaign/57701407
 https://advisor.moneylife.in/blog/mutual-fund-advertising-deceptions-galore/434.html

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QUESTIONNAIRE ON WHICH THE BASED RESEARCH IS BASED.

Question 1.

Age group

 22 – 30 years
 30 – 40 years
 More than 40 years

Question 2.

Occupation

 Private Job
 Government Job
 Service
 Businessman
 Professional
 Housewife
 Student
 Retired

Question 3.

Annual Income

 Less than 1.5 Lakh

 1.5 Lakh to 2.5 Lakh
 2.5 Lakh to 2.5 Lakh
 5 Lakh and above

Question 4.

Have you ever invested your money in mutual funds?

 Yes
 No

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  Maybe

Question 5.

Where do you find yourself as a mutual fund investor?

 Totally ignorant
 Partial knowledge of mutual fund
 Aware only of specific scheme in which you invested
 Fully aware

Question 6.

In which kind of mutual fund you would like to invest?

 Public sector
 Private sector

Question 7.

How did you come to know about mutual funds?

 Advertisement
 Peer Groups
 Banks
 Financial Advisors

Question 8.

Which mutual fund scheme have you invested?

 Open ended
 Close ended
 Mid cap
 Liquid fund
 Growth fund
 Long cap
 Regular income fund

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  Sector fund
 Equity fund
 Debt fund

Question 9.

What kind of investment you prefer most?

 Savings Account
 Fixed deposits
 Insurance
 Mutual funds
 Post office, NSC etc.
 Shares / Debentures
 Gold / Silver
 Real Estate
 PPF

Question 10.

Which mode of investment you prefer?

 Lump sum or One Time Investment

 Systematic Investment Plan (SIP)
 Systematic Transfer Plan (STP)

Question 11.

Where do you purchase mutual funds?

 Directly from the AMCs

 Brokers only
 Brokers / Sub Brokers
 Other sources

Question 12.

Which AMC will you prefer to invest?

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  SBI MF
 UTI
 Reliance
 HDFC
 ICICI
 Kotak

Question 13.

Which feature of the Mutual funds allure you the most?

 Diversification
 Better returns and safety
 Reduction in risk and transaction cost
 Regular income
 Tax benefit

Question 14.

What are the important parameters you consider while investing?

 Returns
 Lower risk factors
 Credit rating
 Inflation
 Company
 Lock in period

Question 15.

What time duration do you prefer to invest for?

 Long term
 Short term

Question 16.

How much risk are you willing to take?

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  Low
 Moderate
 High

Question 17.

How frequently do you invest?

 In less than 6 months

 6 months to 12 months
 12 months to 2 years
 More than 2 years

Question 18.

What is the most important reason for not investing in Mutual Funds?

 Lack of knowledge about Mutual funds

 Enjoys investing in other options
 Its benefits are not enough to drive you for investment
 No trust over the fund managers
 More risks while investing

Question 19.

How much return do you expect from your investment?

 Less than 8%
 8% - 10%
 10% - 12%
 12% - 15%

Question 20.

In which sector of mutual fund are you investing?

 Oil & Petroleum

 Debt fund

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  Diversified equity fund
 Power sector
 Gold fund
 Banking fund
 Real estate fund

Question 21.

What is the major reason for using financial advisors?

 Want help with asset allocation

 Don’t have time to make my own investment decision
 To explain various investment options
 Want to make sure I am investing enough to meet my financial goals

Question 22.

According to you which is the most suitable stage to invest in Mutual funds

 Young unmarried stage

 Young married with children stage
 Married withholder children stage
 Pre-retirement stage

Question 23.

What are the factors to which you give priority when you invest?

 Safety
 High return
 Liquidity
 Less risk
 Marketability

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