A Study on

INVESTOR PERCEPTION AND PERFORMANCE

EVALUTION OF MUTUAL FUND
For

Submitting in Partial Fulfilment of the Requirements of Bangalore

University for the Award of the Degree of
MASTER OF BUSINESS ADMISSION
2003-2005
By

MUHAMMED IQUBAL
REG No. 03ACCM6024
Under the Guidance of
PROF. GHOUSIA KHATOON (M.Com)

Al-Ameen Institute of Management Studies

Hosur Road
Bangalore 560 027

LIST OF CHARTS
Sl.
No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Contents
Chart showing the Investors Status
Chart showing the Age Profile
Chart showing the Sex Ratio
Chart showing the Qualification
Chart showing the Annual Family Income
Chart showing the Income Profile
Chart showing the Saving Habits
Chart showing the Investment Objectives
Chart showing the Investment Avenues
Chart showing the Decision Affecting Factor
Chart showing the Tax Incentive Factor
Chart showing the Advertisement
Chart showing the Risk Profile
Chart showing the Investment Time Horizon
Chart showing the Monitoring Performance
Chart showing the Dividend Information
Chart showing the Iquity Funds
Chart showing the Income Funds
Chart showing the Balanced Funds
Chart showing the Monthly Income Plan
Chart showing the Tax Saving Plan
Chart showing the Index Funds

Page
No.
43
44
45
47
47
48
49
50
52
54
55
58
62
65
66
69
75
78
80
82
85
87

EXCUTIVE SUMMARY

EXECUTIVE SUMMARY
The Mutual Fund Industry has come a long way since the days of the
UTI. The numbers of mutual funds has also increased over the years. Mutual
funds are seen as an avenue for the retail investors to enter the stock market
and bonds. They provide the professional competence to the retail investor.

In India the retail investor is increasingly seeing mutual fund as an

alternative investment avenue to the low-yielding bank deposits.
This survey was conducted to know the retail investors perceptions
about mutual funds. Its objective was to measure the investors sensitivity to
mange the portfolio to achieve objectives like:
1. Tax incentives.

2. Capital gain.

3. Time horizon of investment.

4. Risk and return expectations.

The sample size was 150, and the total samples was divided between
two segments of current and potential mutual fund investors. The sampling
for the study was a convenient sampling.
The survey came out with some interesting findings that show that
some investors were willing to take the risk whereas others had the idea of
diversifying their investment portfolio. The groups having different levels of
education had different perception about investment. The level of education
had a direct bearing on the investment patterns. The higher the education, the
higher was the level of understanding of investment complexities. As such a
large number of graduates were found to have invested in mutual fund.
But surely there are signs that the investors inclination towards
mutual funds is increasing and as the financial market strengthens and
awareness of mutual funds increases, this investment instrument will become
popular.

INTRODUCTION
The entry of private players with their foreign partners into the mutual
fund business has revolutionized the industry. They brought professional
competence and their aggressive marketing has made mutual funds an
important part of any individual portfolios in India. As of the recent findings
there are about 1457 schemes offered 31 mutual funds.

The good performance of the economy and the stock markets in last
couple of years contributed to the growth of the mutual funds. Low interest
rates on bank deposits and tax concessions on some of the schemes also
contributed to the growth.
But the penetration of the mutual funds in the retail investor segment
is still low compared to the developed world. In India, the size of the
industry is just 6% of the GDP, while it is 70% in the US. World over it is
around 37%. The contribution from the retail investors to the funds is very
low compared to institutions and high net worth individuals. For the growth
of industry, active participation of the retail investors is necessary.
Need for the study:
Mutual fund is one of the most important types of financial products
in existence in the market today. The other major type of financial product
offering are insurance, various banks and institutional deposits etc.
When it comes to a financial product like a mutual fund, emphasis has
be paid not only on its financial aspects like investment outlay and the
resulting return cash flow stream but also on how the product is offered to
customers, who in this case present the investors. Thus we can say that the
investors response to a mutual fund is not determined only on the basis of
its financial aspects (which although are important) but also on how the
product is positioned and offered to the investor,
The starting point for any successful marketing is to know the
perceptions of the customers for the industry. This provides insights into the
customers behavior and his expectation from the industry players. A prper
understanding of the perceptions would definitely benefit the players.
This survey attempts to know the mutual fund investors better. It
examines some interesting choices of the retail investor including the reasons

behind investing in mutual fund and the risk tolerance levels of investors.
The investors knowledge about mutual funds and what according to him are
the best mutual funds is also analyzed. It is hoped that this survey in India
would go a long way in benefiting the mutual fund players.

MUTUAL FUNDS: CONCEPTS AND STRUCTURES

A mutual fund represents a collective investment vehicle. When you
participate in a scheme of a mutual fund, you become a part owner of the
investments held by that fund under that scheme to the extent of your unit
holding in that fund.
The pool of money collected from the individual investors by the
mutual fund unit is invested in financial assets such as shares, government
securities, debentures and money market instruments like commercial
papers certificate of deposits and treasury bills.
From these assets the mutual fund unit receives dividends, if it is a
share or an interest if it is a debenture or government securities. Therefore it
receives either dividends or interest and the same interest or the same interest

or dividends is given to the individual investors by the mutual fund unit.

Therefore it is known as a collective investment vehicle.
Some key features of mutual fund are as follows,
Reduce your risks
Mutual funds allow you to broaden your portfolio while at the same
time helping you reduce your overall investment risk by
diversification of investment.
Maximize your opportunities
The fund managers who take care of your mutual fund have access to
information and statistics from leading economists and analysts
around the world. Because of this, they are in a better position than
individual investors to identify opportunities for your investments to
flourish.

Liquidity: Quick access to your money

With mutual funds its not only possible but easy to have access to
your money at short notice. Why? Because mutual funds can be bought
and

sold on any dealing day (which normally means weekdays).

Affordability
Investors individually may lack sufficient funds to invest in highgrade stocks. A mutual fund because of its large corpus allows even a
small investor to take the benefit of its investment strategy.
Low cost
Mutual funds are relatively less expensive way to invest compared to
directly investing in the capital markets because the benefits of scale

in brokerage, custodial and other fees translate into lower costs for
investors. A large number of investors normally participate in a single
mutual fund, and operating costs and commissions are spread among
the whole group into different funds.
Transparency
The investor gets regular information on the value of his investment in
addition to disclosure on the specific investments made by the fund,
the proportion invested in each class of assets and the fund managers
investment strategy and outlook.

Regulated for investor protection

All mutual funds in India are registered with the regulator of the
Indian securities industry- the Securities and Exchange Board of India
(SEBI).

The funds function within the framework regulations

designed by SEBI and these regulations are intended to protect the

interests of investors. The operations of the mutual funds are also
regularly monitored by SEBI.
Do investors have to make a lump sum investment?
You dont need to make a large lump sum investment. Mutual fund
companies also offer a Varity of monthly investment plan where no
initial lump sum is required.
STRUCTURE OF A MUTUAL FUND
A typical mutual fund in India has the following constituents
FUND sponsors:

A sponsors is any person who, acting alone or in combination with

another body corporate, establishers a mutual fund. The sponsor of the fund
is similar to the promoter of the company.

In accordance with SEBI

regulations, the sponsor forms a trust and appoints a board of trustees, and
also generally appoints an AMC as fund manager. In addition, the sponsor
also appoints the custodian to hold the funds assets. The sponsor must
contribute at least 40% of the net worth of the AMC and possess a sound
financial track record over 5 years prior to registration.

Mutual fund:
A mutual fund in India is constituted in the form of a trust under the
Indian trusts act of 1882. the fund invites investors to contribute their money
in the common pool, by subscribing to units issued by various schemes
established by the trust. The assets of the trust are held by the trustee of the
benefits of unit holders, who are the beneficiaries of the trusts. Under the
Indian trust act, the trust of the fund has no independent legal capacity; it is
the trustee(s) who have the legal capacity.
Trustees:
The mutual fund or the trust can either be managed by the board of
trustees. Which is a body of individuals, or by a trust company, which is a
corporate body. The board of trustees manages most of the funds in India.
The trustee being the primary guardians of the unit holders funds and assets,
a trustee has to be a person of high repute and integrity. The trustees,
however, do not directly manage the portfolio of securities. The portfolio is
managed by the AMC as per the defined objectives, in accordance with trust
deed and SEBI (mutual fund) regulations.

Assets Management Company:

The AMC, which is appointed by the sponsor or the trustees and
approved by SEBI,act like the investment manager of the trust. The AMC
functions under the supervision of its own board of directors, and also under
the direction of the trustees and the SEBI. AMC, in the name of the trust,
floats and manages the different investment schemes as per the SEBI
regulations and as per the investment management agreement signed with
the trustees.
Apart from these, the mutual fund has some other fund constituents, such as
custodians and depositories, banks, transfer agents and distributors. The
custodian is appointed for a safe keeping of securities and participating in the
clearing system through approved depository.

The bankers handle the

financial dealing of fund. AMCs appoint distributors or brokers who sell

units on behalf of the fund, and also serve as investment advisors. Besides
broker, independent individuals are also appointed as agents for the
purpose of selling fund schemes to investors. The regulations arms length
relationship between the fund sponsors, trustees, custodians and AMC.

CLASSIFICATION OF MUTUAL FUNDS

TYPES OF MUTUAL FUND SCHEMES:
Open ended versus close ended schemes :
A mutual fund scheme may be a close ended scheme or an open ended
scheme. The key differences between the close end and the open end scheme
are as follows:
The subscription to close end scheme is kept open only for a limited
period (usually one month to three months), whereas an open end scheme
accepts funds from investors by offering its units or shares on a continuing
basis.
A close end scheme does not allow investors to withdraw funds as and
when they like, where as an open end scheme permits investors to withdraw
funds on continuing basis under a re purchase arrangement.
A close end scheme has a fixed maturity period (usually five to fifteen
years) whereas an open end scheme has no maturity period.
The close end schemes are listed on the secondary market, whereas
the open end scheme are ordinarily not listed.
There are different types of mutual fund schemes:
1.

Equity funds

2.

Debt fund/ income funds

3.

Balanced funds

4.

Monthly income plants

5.

Sectoral funds

6.

Money market schemes

7.

Index funds

8.

Floaters funds

1.

Equity funds:
Equity funds, as the name suggests have an investment portfolio

which is weighed in favor of equity. The equity holding may even be 100%.
Equity securities represent ownership capital. There exits no certainness
with regards to the returns resulting thereof, both in terms of dividends and
capital gains. Hence equity instruments by nature are volatile and prone to
price fluctuations on a daily basis due to both macro and micro factors.
Trading volumes, settlements periods and transfer procedures may restrict
the liquidity of these investments.
Equity fund is also known as growth fund. The aim of equity fund is
to provide capital appreciation over the medium to long term. Such funds
have comparatively high risks. These schemes provide different options to
the investors like dividend option, capital appreciation etc and the investors
may choose an option depending on their preferences. Growth schemes are
good for the investors having a long term outlook seeking appreciation over
a period of time.
The equity funds may be of two types:
Aggressive and
Conservative
Aggressive is that type of equity fund in which you have a higher risk
involved. These can be the shares of the companies who are not the blue

chip companies (generally mid cap companies) and their returns are also
very high. These are the shares of the companies that are not listed in the top
form.

They offer very high returns subject to accompanying high risk

exposure.
Conservative equity funds, on the other hand are those equity funds
in which you can expect reasonable rate of returns subject to a very moderate
amount of risk. The companies which belong to these are the blue chip
companies. These are less volatile when compared to the aggressive type of
equity fund.

2. Debt fund:
Debt funds are those funds in which there is 100% debt and no equity
involved. This is also called as income funds. These funds provide regular
income to the investors. Such schemes generally invest in fixed income
securities such as bonds, corporate debentures, government securities and
money market instruments. Such funds are less risky compared to equity
schemes. These funds are not affected because of fluctuations in equity
markets. However, opportunities of capital appreciation are also limited in
such funds. The net asset values of such funds are affected because of
change in the interest rates in the country. If the interest rates fall. The NAVs
of such funds are likely to increase in the short run and vice versa. Hence
although the risk is les when compared to equity funds, the values of these
funds are influenced by interest rate risk.
The debt funds can also be differentiated as aggressive and
conservative debt funds. This differentiation is on the basis of the grading of
the securities that the fund holds. For e.g. aggressive funds invest in debt

securities of low rated companies or institutions like local authorities. Since

the risk associated with these debt instruments is higher than those of central
government and AAA rated companies, the return is also higher in the form
of higher coupon rates.
3. Balanced fund:
Balanced fund are those funds in which you have the mixture of both
equity and debt. A balanced scheme, as the name suggests, invests its corpus
across two broad asset classes, viz. equity and debt in a more or less
balanced manner. A commonly followed allocation is as follows:

Equity
Debt

Allocation of percentage (%) of corpus

Maximum
Minimum
60%
40%
60%
40%

The objective of the balanced scheme is to combine growth and

stability. These funds are also affected because of fluctuations in the share
prices in the stock markets. However NAVs of such funds are likely to be
less volatile compared to pure equity funds. These balanced funds also have
both aggressive and conservative funds.
4.

Monthly income plans:

The main objective of this plan is that it seeks to earn regular income

through investment in fixed income securities. It also seeks to provide

regular income through a portfolio of predominantly high quality fixed
income securities with a maximum exposure of 20% to equities and the rest
to the debt. Hence it involves the total debt-equity allocation mix of 20-80.
In the case of monthly income plans, the fund manager strives to earn
regular income with no assured returns in the fixed income market by

actively managing the funds portfolio on interest rate movements and credit
risks, while seeking to enhance the returns with a marginal equity allocation.
5.

Sectoral funds:
A sectoral fund invests its corpus in the equity stocks of a given sector

such as pharmaceuticals, information technology, telecommunication, and so

on. Sectoral schemes appeal to investors interested in taking a bet on those
sectors.
Let us take for example an IT Sector fund. In this fund, the entire
corpus would be invested only in securities issued by IT companies. The
portfolio theoretically includes both debt and equity. However in practice it
is usually restricted to equity investments only. The nature of companies are
both top end market leaders and mid cap, growing companies.
6. Money market schemes :
Debt instruments which have a maturity of less than one year at the
time of issue are called money market instruments. These instruments are
highly liquid and have negligible risk. The major money market instruments
are treasury bills, certificate of deposit, commercial papers and repots.
These funds are also known as liquid funds. These funds are also
income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. The investment objective of this scheme is to
provide investors with high safety, a high degree of liquidity and current
income through investment in high quality money market instruments.
These funds are appropriate for corporate and individual investors as a
means to park their surplus funds for short periods.

Money market

instruments have negligible interest risk exposure as well as credit risk

exposure. The principal value of unit in a liquid scheme remains stable

thought the periodic income may vary depending on the conditions in the
money market.
Liquid funds = money market fund + short term deposits with banks.
The rationale behind mutual funds investing in short term deposits with
banks is that they are usually able to obtain a higher interest rate due to their
huge investment size and also because they are better equipped to assess the
risk associated with the bank. The latter is especially relevant in the case of
private sector banks.
7.

Index funds:
An index scheme is and equity scheme that invests its corpus in a

basket of equity stocks that comprise a given stock market index such as S &
P CNX Nifty index, with each stock being assigned a weightage equal to
what is has in the index. Thus and index fund appreciates or depreciates
(subject to tracking error) the same way as the index.

The principal

objective of an index scheme is to give a return in line with the index

movement.
The investment objective of the index fund aims to provide returns
that, before expenses, closely correspond to the total return of common
stocks as represented by the S&P CNX Nifty index under the Nifty plans
and the BSE Sensex under the BSE Sensex plans.
In this type of mutual fund the fund manager follows a passive style of
equity investing. The portfolio of the fund is dependent upon the
composition of the stock market index which it follows. Any changes in the
index (additions or deletions of companies change in weightage) are
reflected in the portfolio. This is because 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 and index. NAVs of such schemes would rise or fall in

accordance with the rise or fall in the index, though not exactly by the same
percentage due to some factors known as tracking error in technical terms.
Necessary disclosures in this regard are made in the offer document of the
mutual fund scheme.
There are also exchange traded index funds launched by the mutual
funds which are traded on the stock exchanges.
8.

Floaters fund:

The concept behind a floater fund is explained as follows:

The Face Value of a debenture is the value which is stated on the face
of the debenture. The face value represents the money which the company
has actually borrowed from the investors and which it promises to repay at
the time of redemption of debentures.
Market value on the other hand is that value at which the debenture
can be sold or purchased in the market place.
There can be three scenarios when market value is compared with face
value, viz.
I.
II.
III.

Market value greater than the face value i.e. at premium

Market value is equal to the face value i.e. at par
Market value lesser than the face value i.e. at discount
Let us now consider a numerical example.
Face value of a debenture (X) is Rs 1000 and the interest on that

debenture is 8% per annum which is nothing but the coupon rate. Here the
interest amount which you get is Rs 80.

The current scenario was giving you 8% per annum.

Lets now

consider a future scenario wherein the market interest rate changers to 7%

instead of 8% per annum.
However, the interest rate for the debenture X which was already
issued in the past remains fixed at 8% and the interest amount continues to
be Rs 80.
Now a new debenture (Y) is issued with the same face value of Rs. 1000 but
due to a change in the interest rate from 8% to 7% the coupon amount will
be Rs. 70 instead of Rs. 80.

The market value of a security is directly related to the cash flows

resulting from its ownership. Hence the market value of a security whose
cash flow (coupon) is higher than that of another comparable security will be
higher than the market value of the lower coupon yielding security.
The question comes as to : what will happen if the investor of the
currents scenario sells his debenture to another investor. If he sells his
debenture of Rs 1000 as the same rate he bought it for, he is going to incur a
loss as the market interest rate has decreased from 8% to 7%. The investor
who is purchasing the current scenario debenture would benefit since he is
getting the debenture for Rs. 1000 and at a higher interest rate of 8% per
annum.
In order to determine the market value of the debenture X we will
hence capitalize its yearly cash flow which is simply its coupon of Rs. 80 at
the current market interest rate of 7%. Hence the market value is 80/.07 =
Rs. 1143.
Therefore the current scenario investor would sell his debenture for
Rs. 1143 instead of Rs 1000 at the same interest rate of 8% per annum. By

doing this he is going with the market value and also selling his debenture at
a premium.
To summarize, a debenture will trade at a premium when the coupon
rate of the debenture is greater than the current market interest rate.
A debenture will trade a par when the coupon rate of the debenture is
equal to current market interest rate.
A debenture will trade at a discount when the coupon rate of the
debenture is less than the current market interest rate.
As per the example above, suppose if the face value of the debenture
remain the same and the market interest rate on the debenture increases from
8% to 9% per annum.
In that case the interest received on a new debenture of Rs. 1000 will
be Rs. 90. now if the current investor has to sell the debenture he will have
to sell his debenture for a discount, since the market rate is at 9% per annum.
The market value of the previously issued debenture X is simply Rs.
80 coupon capitalized at increased market rate of 9%. This is 80 / 0.09 = Rs.
889.
Therefore the current investor would be selling his debenture for Rs
889 rather than for Rs. 1000. Therefore the debenture is sold at a discount.
This effect of changes in the market interest rate on the market value
of a debenture is called the interest rate risk.
A floating rate debenture is one whose coupon rate changes in
accordance with changes in the market interest rate. Thus coupon rate of a
debenture will always be equal to the market interest rate.
Therefore market value of the debenture will always be equal to the
face value i.e. at per. Hence the interest rate risk is eliminated.

A floater fund invests in debenture which has a floating rate of

interest. The floating interest rate is fixed on to a benchmark rate such as the
LONDON INTER BANK OFFER RATE which is known as LIBOR and
also the BANK RATE. These LIBOR or the BANK RATE is taken to
eliminate the interest rate risk.
The following interest rate is expressed as : Benchmark Rate + X basis
points.
E.g. LIBOR + 2% Or BANK RATE + 4%
2% is nothing but 200 basis points.
4% is nothing but 400 basis points.
Since the interest rate received on the debenture varies with the
changes in the market rate, interest rate risk is eliminated. This is because
the benchmark rate keeps changing to the changes in the market. If there is
an increase in the market interest rates, the benchmark rate also increases
and if the market interest rate decreases the benchmark rate also declines.
Hence interest rate risk is totally eliminated barring for the time lag between
changes two review periods of the floating rare security.
Interest rate risk is both beneficial as well as harmful. It is beneficial
in a situation of decreasing interest rates whereas it is harmful in a situation
of increasing interest rates.
The spectra of increasing the interest rates are presently there in India
today. Therefore floaters fund is launched in India as an innovation so as to
eliminate the interest rate risk.

MUTUAL FUND INDUSTRY REVIEW

DEBT FUNDS:
Overall, the bond market remained volatile and yields firmed up on
concerns of rise in fiscals deficit and rise in inflation rates. The results of
general elections also surprised the market as a congress led coalition
government formed the government. The common minimum programmed
that outlines the economic vision of the new government also affected the
market sentiments as the CMP laid more emphasis on growth on social
sectors and also mentioned that there could not be any divestments of profit
making PSUs.
During the month, the RBI announced the credit policy which
maintained the status quo on interest rates and emphasized RBIs preferences
for flexibility in administrating the monetary policy. The yields particularly
at the longer end firmed up as the market participates their holding and
turned cautious.
Besides the domestic factors, the market also was concerned as the
international yields also firmed up on strong growth in economic factors.
The US Federal Reserve and ECB left the key rates unchanged, but bank of
England of any cut in small savings rates also affected the market
sentiments.
The yields on the benchmark 10 yrs security firmed up to touch a
high of 5,31% as the yield moved in the range of 5,20%-5.30%. for most part

of the month. The inflation rate showed an upward trend due to rise in prices
of primary articles. Volatility in the equity market, FLL outflows and firm
trend in oil prices pushed the rupee against the US dollar. The corporate
bond markets track the government sec market as the yield firmed up on low
buying interest.
The income find and the gift funds during the month generated
negative returns due to the rise in yields at the longer end. Though most of
the income funds have reduced the maturity of the portfolio, the funds have
maturity of 4-5 years. The income and the gift funds have seen net outflows
during the month as investors switched their investments to liquid and
floating rate funds.
Most of the funds have increased the exposure to cash as the market
was expected to remain volatile. The funds are expected to remain cautious
and would look forward to aggressively manage the portfolio. The short
term funds also have reduced their maturity profile and have shifted their
allocation to cash. Floating rate funds and liquid funds have witnessed good
inflows as the investors switched to low risk assets. Portfolio advisors hence
recommend investment in short term funds with an investment horizon of 36 onnths and for less than 3 months investments should be made in floating
rate funds as the interest rates are expected to firm up in the medium term.
It is also recommended that investors of debt funds to invest a portion
of their portfolio in monthly income funds (funds which invest 85% in debt
and 15% in equities) and short term funds. However, MIP funds would have
higher volatility compared to income funds as these funds invest 15%-20%
of the funds in equity market. Investors considering only debt funds should
invest in floating rate funds and short term funds.
Equity funds:

Overall, the equity market remained volatile as the market indices

declined after the general election results. The nifty index declined by 17%
during the month. The fall in the market was due to the uncertainty after the
elections as the ruling NDA government failed to get the required majority.
The confusion was worsened further as different constituents of the congress
led coalition spoke in different voices over the economic reform process.
The fall in the domestic equity market was also due to the general decline in
other merging markets. Higher oil prices, slowing down of the Chinese
economy, concerns of rise in global interest rates has led to risk aversion
among investors and the merging markets took most of the brunt with both
debt and equity markets under performing other markets.
Overall, select stocks belonging to cement, pharmaceuticals and
software out performed their peers. Most of the recommended funds have
been able to out perform the market indices in the long term, on account of
their investment strategy of using a bottom approach towards stock picking,
aggressive sectoral rotation and also due to a good allocation towards midcap and small cap stocks. Though most of the funds had increased the
exposure to cash, the sharp decline in the market had taken the funds by
surprised. At lower levels, the funds invested as the stocks had turned very
attractive considering the long-term fundamentals.
However, over 1-2 years investment horizon the market would do well
as the valuation of most of stocks are looking attractive.

The overall

economic fundamentals are strong with various drivers like infrastructure

spending, retail lending, positive demographics, out sourcing, retail lending,
positive demographics, out sourcing opportunities and strong possibility of
pick in capital expenditure as most of the companies are operating at close to
their full capacity levels.

The funds continue to remain fully invested and most of the funds
have a diversified portfolio inverted across various sectors.

The funds

continue to remain over weight on baking, automobiles, cement and capital

goods while the funds are under weight on FMCG and pharmaceuticals and
metal stocks. With the uncertainty over privatization, funds have generally
reduced the exposure towards PSU and oil stocks.
It is hence appropriate to recommend investment in diversified equity
funds for aggressive investors, with an investment horizon of 2-3 years.
However, investors need to stick to their asset allocation and should rebalance the allocation across equities depending on the risk- return profile.
Investors with moderate risk profile can consider balanced funds focusing
more on equities.

INDUSTRY PROFILE
The Indian mutual fund industry began with the formation of the Unit
Trust of India (UTI) in 1964 by the government. UTI was formed as a non-

profit organization governed under a special legislation, the Unit Trust of

India Act, 1963. It had a monopoly up to 1987 and during this period, UTI
launched a series of equity and debt schemes and established itself as a
household name with assets under management of Rs. 4563 crore and unit
holder accounts of slightly under 3 million by mid 1987. UTIs growth
continued up to 1996 when the strong entry of the private sectors players
saw its share of market reducing sharply although UTI continues to be a
dominant force in the Indian financial services industry with assets of over
Rs. 67,000 crore as of December 31st, 1999.
In 1987, the industry saw the entry of public sector mutual funds, i.e.
funds promoted by public sector banks and financial institutions, such as
SBI, Canara bank, LIC and IDBI. Predictably they were given the brand of
their promoters such as SBI mutual funds, Canara bank mutual funds, LIC
mutual funds, IDBI mutual fund. Other public sector mutual funds also
entered the market but UTI continued to remain the dominant player with a
share of 84% in 1991-92.
In 1993, private and foreign fund houses were allowed to operate in
India. Today, about 36 fund houses-private, state and foreign owned-operate
in the country, but the Indian mutual fund industrys pace of growth can
hardly be described as frenetic.
On June 30, 2003 in Indian mutual funds commanded assets of Rs.
1,04,762 crore, 8% of the retail deposits of schedule commercial banks.
The industry has over 550 schemes in equity, debt, gilt and balanced
funds, offered by 36 fund houses. They include prudential ICICI, HDFC,
Franklin Templeton, Birla Sunlife mutual funds, Sundaram mutual funds,
etc.

Prudential ICICI is the largest operating private sector in the mutual

fund industry followed by HDFC mutual fund after it took over Zurich India
mutual funds.
The share of private players in the mutual fund industry has gone up
steadily. Prudential ICICI is posed to overtake UTI asset management in
terms of assets under management (AUM). Prudential ICICI has assets of
Rs. 12,637 crore as against UTI, AMCs Rs. 16,015 crore at the end of June,
2003. Other private funds are also catching up with ICICI mutual fund and
Franklin Templeton at Rs. 11,961 and Rs. 11,152 crore respectively.

MUTUAL FUND COMPANY PROFILE

1. Franklin Templeton Investments
Franklin Templeton Investments is one of the largest financial services
groups in the world based at San Mateo, California USA. The group has US$
347.4 billion in assets under management globally (as of July 31, 2004) in

mutual funds and other investment vehicles for individuals, institutions,

pension plans, trusts, partnerships and other clients. Franklin Templeton
offers over 240 investment products, available under the Franklin, Templeton
and Mutual series brand names, serviced and supported by 6,400 employees
in more than 28 countries. With over 50 years of experience in international
investment management and offices in over 28 countries it services more
than 10 million unit holders. Franklin Templeton has achieved the Dalbar
Service Award in the US six times in the past ten years for superior
customer service and back office support.
Franklin Templeton in India:
As part of Franklin Templetons thrust in expanding business in key
international markets, Franklin Templeton has set up offices in 33 locations
nationwide and manages Rs. 17698.78 crores in assets and an investor base
of 9 lacks as of July 30, 2004.
2. Prudential ICICI Asset Management Company
Prudential ICICI Asset Management Company, (55%:45%) a joint
venture between Prudential Plc, UKs leading insurance company and ICICI
Bank Ltd, Indias premier financial institution.
The joint venture was formed with the key objective of providing the
Indian investor mutual fund products to suit a variety of investment needs.
The AMC has already launched a range of products to suit different risk and
maturity profiles.
Prudential ICICI Asset Management Company Limited has a net
worth of about Rs. 69.89 crore as of March 31, 2002. Both Prudential and
ICICI Bank Limited have a strategic long term commitment to the rapidly
expanding financial services sector in India. Assets under Management as on

July 31, 2004 are Rs. 15,945.29 crore with Number of Funds Managed being
217.
3. Tata Asset Management Limited
Tata Asset Management Limited, one of Indias fastest growing fund
management companies worth more than 5,500 crores (as on July 30, 2004)
of assets, from about 0.3 million investors, under management.
A Proud Pedigree: Tata Asset Management Limited is part of the Tata
group one of Indias largest and most respected industrial groups. The Tata
group is one of Indias best known conglomerate in the private sector with a
turnover of around US$ 11.2 billion (equivalent to 2.4% of Indias GDP).
Long known for its adherence to business ethics, it is Indias most respected
private group. With 210,433 employees across 93 companies, it is also
Indias largest employer in private sector.
The group has always believed in returning wealth to the society to
which it serves. Thus, nearly two-thirds of the equity of Tata Sons, the
Groups promoter company, is held by philanthropic trust which have
created a host of national institutions in natural sciences, medical care,
energy and arts, and which gives substantial grants and endowments to
deserving individuals and institutions in the areas of education, healthcare
and social upliftment.
By combining ethical values with business acumen, globalization with
national interests and core businesses with emerging ones, the Tata Group
aims to be the largest and most global brand from India.
4. UTI Mutual Fund
UTI Mutual Fund has come into existence with effect from 1 st
February 2003. UTI Asset Management Company presently manages 42

NAV based domestic SEBI complaint schemes and 4 off shores fund having
a corpus Rs. 15,243 crore from about 10 million investor accounts.
UTI Mutual Fund has a track record of managing a variety of schemes
catering to the needs of every class of citizenry over a period of 39 years. It
has a national wide network consisting of 54 branch offices, 3 UTI Financial
Centers (UFCs) and representative offices in Dubai and London. With a view
to reach the investors at district level, 18 satellite offices have also been
opened in select towns and districts. It has 2400 committed employees and
over 10,000 active agents and 266 chief representatives to sell and service its
schemes.
It has reset transparency standards for the mutual fund industry. All the
branches, UFCs and registrar offices are connected on a robust IT network to
ensure cost-effective quick and efficient service. All has evolved UTI Mutual
Fund to position as a dynamic, responsive, restructured, efficient, and
transparent and SEBI compliant entity.

5. Birla Sun Life Financial Services

Birla Sun Life Financial Services offers a range of financial services
for Resident Indians and Non Resident Indians. Brought together by two
large, powerful business houses, the Aditya Birla Group and Sun Life
Financial, it is their aim to offer diverse and top quality financial services to
customers. The Mutual Fund and Insurance Companies provide wealth
management and protection products to customers while the Distribution and
Securities companies provide brokerage and trading services for investment
in equities, debt securities, fixed deposits etc.
Birla Sun Life Financial Service follows a conservative long term
approach to investment, which is based on identifying companies that have

good credit-worthiness and are fundamentally strong. It places a lot of

emphasis on quality of management and risk control. This is done through
extensive analysis that influences factory visits and field research. It has one
of the largest team of research analysts in the industry. The company is one
of Indias leading private mutual funds with a large customer base. It has
been recognized nationally with coveted awards.
6. HDFC Mutual Fund
Sponsors of HDFC Mutual Fund are HDFC and Standard Life
Assurance Company.
HDFC was incorporated in 1977 as the first specialized housing
finance institution in India. HDFC provides financial assistance to
individuals, corporate and developers for the purchase or construction of
residential housing. It also provides property related services (e.g. property
identification, sales services and valuation) training and consultancy. Of
these activities. Housing finance remains the dominate activity.

HDFC

currently has a client base of over 5,00,000 borrowers, 13,00,000 depositors,

1,00,000 shareholders and 52,000 deposit agents. HDFC raises funds from
international agencies such as the World Bank, IFC (Washington) ,USAID,
CDC, ADB, AND KIW, domestic term loans from banks and insurance
companies, bonds and deposits. HDFC has received the highest rating for its
bonds and deposits program for the eighth year in succession.

HDFC

Standard Life Insurance Company Limited, promoted by HDFC was the first
life insurance company in the private sector to be granted a Certificate of
Registration (on October 23, 2000)

by the insurance Regulatory and

Development Authority to transact life insurance businesses in India.

The Standard Life Assurance Company was established in 1825 and
has considerable experience in global financial markets. In 1998, Standard

Life Investments Limited became the dedicated investment management

company of Standard Life Group and is owned 100% by The Standard Life
Assurance Company.

With global assets under management of

approximately US$126 billion as at May 15, 2003, Standard Life

Investments Limited is one of the worlds major investment companies and
is responsible for investing money on behalf of five million rertail and
institutional clients worldwide.

With its headquarters in Edinbrugh,

Standard Life Investments Limited has an extensive and developing global

presence with operations in he United Kingdom, Ireland, Canada, USA and
Hong Kong. In order to meet the different needs and risk profiles of its
clients, Standard Life Investments Limited manages a diverse portfolio
covering all of the major markets world-wide, which includes a range a of
private and public equities, government and company bonds, property
inverstments and various derivative instruments. The companys current
holding in UK equities account for approximately 2% of the market
capitalization of the London Stock Exchange. The Standard Life Assurance
Company was therefore keen to re-enter the Indian market and in 1995,
signed an agreement with HDFC to launch an insurance joint venture.
HDFC and Standard Life Investment Limited are neither responsible nor
liable for any loss resulting from the operation of the Scheme(s) beyond their
contribution of an amount of Rs. 1 lakh each made by them towards the
corpus of the Mutual Fund.
7. Reliance Capital Asset Management LTD.
(RCAM) a company registered under the Compaines Act, 1956 was
appointed to act as the investment manager of Reliance Capital Mutual Fund,
it is a wholly owned subsidiary of Reliance Capital Ltd.

The networth of the asset Magnagement Company as on March 31,

2004 is Rs. 16.84 crores. The Mutual Fund has lauched eleven Schemes till
date, namely :Reliance Vision Fund (September 1995) Reliance Growth
Fund (September 1995) Reliance Income Fund (December 1997), Reliance
Liquid Fund (march 1998) and Reliance Medium Term Fund (August 2000),
Reliance Short Term Fund ( December 2002), Reliance Gilt Securiites Fund
(july 2003)., Reliance monthly income plan (December 2003) reliance
dieversified power sector fund (March 2004) and Reliance paharma fund
(april 2004).
Reliance Capital Asset Management Ltd, Has been registered as a
portfolio manager dated July, 25 2000 and as foreign i9nstititioal investor
effe3cive 1st august 2003. RCAM has not commenced these activates.
However, as and when the same are undertaken, it will ensure that the key
personnel of the AMC, the systems, back office, bank and securities accounts
are segregated activity wise and there exits systems to prohibit access to
inside information of various activities. As per SEBI Regulations, it will
further ensure that AMC meets the capital adequacy requirements, if any
separately for each such activity and obtain separate approval. If necessary
under the relevant regulations.

ICICI COMPANY PROFILE

ICICI BANK
ICICI Bank is Indias second largest bank with total assets about
a trillion and a network of about 540 branches and offices and over
1600 ATMs. ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety
of delivery channels and through its specialized subsidiaries and
affiliates in the areas of investment banking, life and non life
insurance,

venture

capital,

asset

management

and

information

technology. ICICI Banks equity shares are listed in India on stock

exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock
Exchange, Mumbai and the National Stock Exchange of India Limited
and its American Depository Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).
ICICI Bank was originally promoted in 1994 by ICICI Ltd., an
Indian financial institution, and was it wholly owned subsidiary.
ICICIs shareholding in ICICI bank was reduced to 46% through a
public offering of shares in India in fiscal 1998, an equity offering in
the form of ADRs listed in NYSE in fiscal 200, ICICI Banks

acquisition of Bank of Madura Limited in all stock amalgamation in

fiscal 2001, and secondary market sales by ICICI to institutional
investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at
the initiative of the World Bank, the Govt. of India and representatives
of the Indian industry.

The principal objective was to create a

developmental financial institution for providing medium term and

long term project financing to Indian businesses. In the 1990s ICICI
transformed its business from developmental financial institution
offering only project finance to a diversified financial services group
offering a wide variety of products and services, both directly and
through a number of subsidiaries and affiliates like ICICI Bank. In
1999 ICICI became the first Indian company and the first bank or
financial institution from non Japan Asia to be listed on the NYSE.
After consideration of various aspects corporate structuring
themselves in the context of the emerging competitive scenario in the
Indian banking industry, and the move towards universal banking, the
managements of ICICI and ICICI Bank formed a view that the merger
of the ICICI with optimal legal structure for the ICICI groups
universal banking strategy.

The merger would enhance value for

ICICI shareholders through the merged entitys access to low cost

deposits, greater opportunities for earning fee-based income and the
ability to participate in the payments system and provide transaction
banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations,
seamless access to ICICIs strong corporate relationships built up over
a five decades, entry into new business segments, higher market share
in various business segments, particularly fee based services and
access to the vast talent pool of ICICI and its subsidiaries. In October

2001, the Boards of Directors of ICICI and ICICI Bank approved the
merger of ICICI and two if its wholly owned retail finance
subsidiaries, ICICI Personal Financial Services Limited and ICICI
Capital Services Limited, with ICICI Bank. The merger was approved
by shareholders of ICICI and ICICI Bank in January 2002, by the High
Court of Gujarat at Ahmedabad in March 2002 and by the High Court
of Judicature at Bombay and the Reserve Bank of India in April 2002,
consequent to the merger, the ICICI Groups financing and banking
operations, both wholesale and retail have been integrated in a single
entity.
ICICI Bank pioneered internet banking in India and today has
over one million of its retail customers on the net. ICICI Bank has
been following a multi channel multi product retail strategy.

It

functions as a universal bank, through itself and its associate

companies in the areas of corporate finance, commercial banking,
personal banking, investment banking, asset management, investor
services, broking and insurance.
ICICI Bank is the only Indian financial services company to be
rated above the sovereign rating by Moodys reflecting the underlying
positive sentiment about the Banks fundamentals in the international
community. It is also the first Indian company and the second bank
from Asia to list on the New York Stock Exchange. It instituted global
benchmarks in India through its US GAAP audit processes, SEC
companies practice and corporate governance practices.
ICICI Bank (NYSE:IBN) is the largest private sector bank in the
country, providing

a broad spectrum of financial services to

individuals and companies.

ICICI Bank today services a growing

customer base of more than 5 million customer accounts and 5 million

bondholders accounts through a multi-channel access network.
Except

for

the

historical

information

contained

herein,

statements in this release, which contain words or phrases such as

will, would etc. and similar expressions or variations of such
expression may constitute forward looking statements.

These

forward looking statements involve a number of risks, uncertainties

and other factors that could cause actual results to differ materially
from those suggested by the forward looking statements.
These risks and uncertainties are not limited to our ability to
obtain statutory and regulatory approvals and to successfully
implement our strategy, future levels of non performing loans, our
growth and expansion in business, the adequacy of our allowance for
credit losses, technological implementation and changes, the actual
growth in demand for banking products and services, investment
income, cash flow projections, our exposure to market risks as well as
other risks detailed in the reports filed by us with the United States
Securities and Exchange Commission.
ICICI Bank undertakes no obligation to update forward looking
statements to reflect events or circumstances after the date thereof.
ICICI Bank is looking for improvements marketing efforts and
has invested on the customer relationships and increase the value of
each customer through cross-selling. The new system may ultimately
help the bank to significantly increase fee-based income growth.

INTERNATIONAL BANKING GROUP (IBG)

As global banks expand their presence in India and target local
customers it becomes important for ICICI Bank to offer a complete
value proposition to its customer base that is globally competitive.
IBG has the following business teams :
a.

Country Teams

Based on a detailed analysis of business potential in various

geographies, ICICI Bank has identified US, Canada, UK, Singapore,
Gulf Cooperation Countries (GCC) and China as key target markets in
the first phase of expansion for retail and corporate banking.
b.

NRI Services

This group focuses on increasing the NRI business for ICICI Bank
through

new

product

developments

and

innovation,

customer

acquisition strategy, marketing and promotions and ensuring worldclass service delivery standards.

ICICI BANK OVERVIEW

Setup by the erstwhile ICICI Limited and SCICI Limited in the

year 1994.

Largest private sector bank in India in terms of assets.

Second Indian company to get listed on NYSE (the erstwhile

ICICI Ltd. was the first company to be listed on NYSE).

Asset base of about Rs. 1,00,000 crore.

Govt. holding (through LIC, GIC, UTI etc.) 20%.

Foreign holding : 63%.

3/5 foreign stake denotes highly competitive management and

robust growth.

30% of the liability to be maintained in the form of SLR & CRR

additional safety cushion.

Stringent RBI regulations for better control.

The major parameter that distinguishes these private banks from the
nationalized banks in the industry is the level and the quality of
services that is offered to the customer.

The focus in these banks is

the customer satisfaction understanding the needs, and consequently

delighting the customer with various benefits and a wide range of
products and services which suit the needs of the individual or the
corporate. The popularity of these banks can be gauged by the fact
that in the short span of time, these banks have gained considerable
customer confidence and consequently shown impressive growth rates.
Today the private sector banks corner almost 4% share of the total
share of deposits. With efficiency being the major focus, these banks
have leveraged on their strengths and competencies viz. management
operational efficiency and flexibility, superior product positioning and
higher employee productivity skills.

ORGANIZATIONAL STRUCTURE

Chairman

Managing Director & CEO

Joint Managing Director

Joint Managing Director

(Domestic Banking)

(International Business)

Executive Director

Executive Director

Executive Director

Executive Director

(Corporate Center)

(Project Finance)

(Retail Banking)

(Wholesale Banking)

Sr. General Managers

General Managers

Research design
Title of the report:
Investor perception and performance evaluation of mutual funds.
Statement of the problem:
To determine the perception towards investing in mutual funds and to
review the performance of various mutual fund schemes across specific
study periods.

Research objectives:
The specific objectives with regard to investor perception survey are:
To identify the objective of the investor for investing in a mutual fund.
To identify the investment patterns of investors.
To find out the risk tolerance factors of the investors.
To study consumer perception about time horizon and tax sensitivity
aspect of investing in mutual funds.
Questions that have been addressed include:
1. The investors objective behind investing in a mutual fund.
2. The risk tolerance factor for investing in a mutual fund.
3. The underlying tax factor for investing in a mutual fund.
4. The time horizon preferred by the investors for investing in a mutual
fund.

METHODOLOGY:
Objective1: To determine investor perception towards investing in mutual
funds.
In order to determine investor perception towards investing in mutual
funds, a survey was conducted for a sample of 150 respondents. The method
of sampling design adopted was simple random sampling. However to
ensure that the sample members were selected from visitors at various
leading banks and mutual fund offices. The specific individual were selected
at random.

The method of interviewing the respondents was personal interview.

The research instrument was a questionnaire. This was done to ensure
comprehensiveness, standardization and ease of the interviews.
The sample size of the 150 was selected to provide adequate coverage
to both groups namely current and potential investors. The analysis was done
using percentages, graphs and pie charts.
Objective 2: to review the performance of various mutual fund schemes
across specific study periods.
When it comes to comparing the performance of various mutual fund
schemes, such a comparisons would be meaningful only if the specific
schemes to be compared were of a similar nature to one another. We hence
grouped the various mutual fund schemes into six distinct categories, viz.
1. Equity funds.
2. Income funds.
3. Balanced funds.
4. Monthly income plans.
5. ELSS tax saving schemes.
6. Index funds.
The scheme of the various mutual fund players such as Reliance,
HDFC, Franklin Templeton, and Prudential ICICI etc were then compared
under each category.
The returns of each scheme were determined for the specific study
periods. The returns meant total returns, which included dividends declared
and changes in the Net Asset Value (NAV) of each unit of the fund under
consideration.
The returns were determined for the following study periods,
1. Last 3 months.

2.

Last 6 months.

3. Last 1 year

4.

Last 3 years (where possible).

The data with respect time returns of the individual schemes were
collected from the websites of the respective mutual fund companies. The
returns have been calculated till 31st May 2004.
Since the schemes that fall under each category have similar risk
dispositions (due to similarity in their debt equity asset allocations and
class of securities selected), we can straight away judge their performance on
the basis of the returns of that scheme relative to the returns of the other
schemes that fall under the same category. No adjustments are required in
respect of the risk premiums of the various schemes.
In a scenario of positive returns, the scheme that earns the highest
returns is judged as the best performer. In contrast under a scenario of all
negative returns, the scheme that earns the least negative returns id judged as
the best performer.

INVESTOR PERCEPTION ANALYSIS

1. Do you hold an investment in any kind of mutual fund scheme today?
Particulars
Current
Potential
Total

No. of Respondents
49
101
150

Percentage
33
67
100

current investors are individuals who are presently investing in mutual fund.

Potential investors are investors who intend to invest in mutual funds

sometime in he future, but currently do not hold any mutual fund investment.
In this survey, 33% of the respondents were current investors and 67%
were potential investors. This mix was intentional as the objective of this
study is to determine investor perceptions towards investing in mutual fund
and hence the potential investors should have a higher weight age in the
sample size when compared to current investors. The ratio of potential to
current investors in thus 2:1.
2. Please tick your sex
Particulars
Male
Female
Total

No of Respondents
145
5
150

Percentage
97
3
100

The sample group was heavily weighted towards thee male sex. This
because in a conservative country like India even thought the lady of the
house may be working., the investment decisions are considered as male
prerogative. It is the man of the house who generally takes investment
decisions for the entire family. Therefore around 97% of the respondents
were males and the rest 3% were females.

3. Please mark your age segment

Age Category
20 - 29
30 - 39
40 - 49
50 - 59
Above 60
Total

No. of Respondents
67
43
21
14
5
150

Percentage
45
29
14
9
3
100

AGE PROILE

9%

3%

14%

45%

29%

20 - 29
30 - 39
40 - 49
50 - 59
Above 60

The age group of the respondents is by and large spread across all the
age segments. However, around 70% of the respondents come under the
combined age groups of 20 to 39 years.
Our interaction with mutual fund sales executives has revealed that
individuals falling under these age profiles are typically the most lucrative
segment for mutual fund investments. This is more due to their willingness
to try out relatively new forms of investments like mutual fund which are not
that readily acceptable by older people.
Investors in higher age groups typically prefer old tried and tested
investment avenues like bank deposits , real estate etc.
4. Please tick the correct category for your education qualification
Particulars
Under Graduate
Graduate
Post Graduate
Others
Total

No of Respondents
18
58
61
13
150

Percentage
12
39
40
9
100

QUALIFICATION

9%

12%

Under Graduate
Graduate

40%

39%

Post Graduate
Others

The surveyed group was well educated with 39% being graduates and
40% being postgraduates. Around 12% o the samples collected were under
graduates.
This mix conforms to the overall composition of the high salary
earning burgeoning middle class, which is (when it comes to numbers), the
largest market segment or financial products like mutual fund.
5. Please tell us about your annual family income
Particulars
Less than 1,00,000
1,00,000 - 2,00,000
2,00,000 - 3,00,000
3,00,000 - 5,00,000
Above 5,00,000
Total

No of Respondants
21
57
42
23
7
150

Percentage
14
38
28
15
5
100

INCOME PROFILE

15%
28%

5%

14%

38%

Less than
1, 00,000
1, 00,000 2, 00,000
2, 00,000 3, 00,000
3,00,000 5, 00,000
Above 5,00,000

The above table shows the breakup of the income profile of the
respondents.
Majority of the respondents (66%) fall under the categories of annual
income 1.0-2.0
Lacks (38%) and 2.0 to 3.0 lacks (28%). A meager of only (5%) of the
respondents fall under the annual income of above 5lcks.Another (15%) of
the respondents fall between the annual incomes of 3-5 lacks
.
6. On an average you save in a month
Particulars
Upto 2000
2001 5000
5001 - 10,000
10,001 - 20,000
Above 20,001
Total

No of Respondants
43
60
33
11
3
150

Percentage
29
40
22
7
2
100

Around 40% of the respondents reported to have a saving in the range

of Rs. 2,000-5,000 per month. That with a monthly saving of above Rs.20,
000 was abysmally small at 2%. This is in conformity with the average
earning levels of developing economies like India.
7. Please tell us the main reason behind most of the investment decision
made by you till date. Tick as many as applicable.
Particulars
Safety of Investment
Generate Regular Income
Avail Tax benefits
Capital Gains
Have a secured future
Others
Total

No of Respondants
67
69
55
73
80
3
347

Percentage
19
20
16
21
23
1
100

INVESTMENT OBJECTIVES
25
20
15
10
5
0

Safety o
Investment

Avail Tax
benefits

Have a
secured
future

This section of the survey was aimed at understanding the main

reasons behind the investment decisions made by the individual. The
question permitted multiple responses by the same individual.
Amongst all the primary objectives, the desire for a secure future
(23%)was the most frequently selected category followed closely by capital
gains (21%) safety of investments and desire for regular income were other
important investment determinants. The desire for tax benefits was the least
influencing factor in investment decision-making.
8. Apart from the reason stated above which of the following would
influence your investment decision.
Particulars
Future Outlook
Brand Value
Risk factor involved
Return on Investment
Tax Incentives
Current / Political scenario
Total

No of Respondants
39
74
85
86
37
45
366

Percentage
11
20
23
24
10
12
100

TOP OF THE MIND

25
20
15
10
5
0
Future
Outlook

Risk factor
involved

Tax
Incentives

The risk factors involved and the returns on the investment have major
secondary influence on the investment decision. They are followed closely
by the brand value of the issuer. The current economic / political scenario,
future outlook and the tax incentives have a limited influence on investors.
If the above factors are to be grouped together on the basis of similar
characteristics; risk, return and brand value of the issuer can be classified as
internal factors whereas current scenario, future outlook and tax incentives
are factors external to the security.
We can hence conclude that it is the factors that are inherent in the
security itself which have a greater influence on the investment decision
rather than factors that are external to the specific security.
9. Which of the following investment avenues have you invested in or
intend to do so in the future?
Particulars
Mutual Fund
Banking Products
Insurance Products
Corporate Debentures
Govt. Securities
Real Estate

No of Respondants
63
89
71
26
30
15

Percentage
16
23
19
7
8
4

Gold
Equity Shares
Total

18
70
382

5
18
100

INVESTMENT AVENUES
25
20
15
10
5
0
M.F

B.P

I.P

CD GS

RE Gold

E.S

Amongst the various investments avenues, baking products are the

most common with 23% of the respondents having invested or intending to
do so in them. Equity shares and insurance products are 18% and 19%
respectively. A mutual fund comes next at 16%. Not many of the respondents
have invested / likely to do so in the case of G-Sec, corporate debentures.
Real estates and gold stand much lower in acceptance ratings.
It must be noted here that 67% of the respondents are potential
investors who have not made any mutual fund investment till date (see
question 1). We have now seen that only 16% of the respondents have
chosen mutual fund as an avenue for investment made / do so in the future.
Hence it can be said that there exists significant scope for increase in the
awareness and acceptance of mutual funds amongst the investor community.
10. When you are investing in a mutual fund or intend to do so which of
the following would you influence your investment decision.

Particulars
Economic Scenario
Fund performance in the past
Mutual Fund Company Image
Fund Manager Image
Tax Incentives
Total

No of Respondants
32
49
57
17
25
180

Percentage
18
27
32
9
14
100

The company image is by far the foremost factor which influences the
investment decision when evaluating investment in mutual fund with 32% of
the respondents selecting it. The fund performance is the second most
determining variable at 27%. Economic scenario tax incentives have limited
influence.
Fund manager image has the least influence thereby suggesting that
the mutual fund industry, at least as of date does not have any individuals
like Marc Phobius oh quantum funds who enjoy a large than life image
such that they are able to attract investors on the basis of their name alone.
Since company image plays such a determining role in mutual fund
investment decisions, it is available for all the mutual fund companies to
invest heavily in brand building. This exercise along with highlighting of
past performance of same scheme / other schemes by the same company will
go to a large extent in growth of the industry in general and the fund in
particular.

11. How important is the tax incentive factor to you when you are
making an investment in mutual fund.
Particulars

No of Respondents

Percentage

Very Important

54

36

Somewhat Important

59

39

Neutral

27

18

Somewhat unimportant

Not at all important

Total

150

100

In this question we seek to determine the influence that the tax

incentives factor has when evaluating mutual fund decision in particular. In
the earlier questions (q7 and q8) we have evaluated the impact of tax
incentives on investments in general.

The table reveals that 75% of the respondents consider tax incentives
as very important and some what important when making mutual fund
investments. The percentages o respondents who dont asscociate any
importance to tax incentives in mutual fund investments are very low at 7%.
This findings reveals that the mutual industry is still to growth out of
the image of being merely a haven for tax protection. The life insurance
players in India are also facing the same problem with bulk of the life
insurance polices being sold only for the purposse of tax rebates u/s 88 and
not has a means of saving and risk protection. The mutual fund industry
needs to grow out this image because if the future tax incentives on mutual
fund were to be removed then this industry would get very adversely hit. The
mutual fund companies need to promote the image of mutual fund as an
attractive returns avenue with low risks association.
12. How do you rate your understanding about the concept and working
of mutual fund?
Particulars
Very Good
Good
Average
Poor
Very Poor
Total

No of Respondants
11
48
67
18
6
150

Percentage
7
32
45
12
4
100

In this question we attempt to understand from the respondends their

knowledge about mutual funds. The highest frequency is for average
category (45%) with only 32% of the respondends rating their knowledge as
good. Only 7% rate themselves as were good.
In light of the above it is adviseable that the mutual fund companies
should undertake campaigns that are designed to increase the understanding
of the concept and working of mutual fund along with their unique
advantages. This ids important because until and unless an individuals
knows properly what the enire concept of mutual fund is all about, he will
not at all be convieniced to invests his hard earn money in them. This would
probably also is a resons for the low popularity of mutual fund in India
especially when compare to other countries like USA, UK etc.

13. in your opinion which of the following advertising media would have
the highest influence on the mutual fund investment decision of a

Particulars
Print Media
Electronic Media
Pamphlets]
Hoardings & Billboards
Total

No of Respondents
98
24
18
10
150

Percentage
65
16
12
7
100

ADVERTISEMENT

12%

7%

Print Media
Electronic Media

16%

Pamphlets
65%

Hoardings & Billboards

65% of the respondents fell that the print media would have the
highest influence on their mutual fund investment decision. The influence of
electronic media and pamphlets is limited at 16% and 12% respectively.
Hoarding and billboards have negligible influence at only 7%.
In light of the above finding, we can safely conclude that the
communication mix of a mutual fund company should be heavily weighted
in favor of the print media. What further needs to be ascertained is that
which category of the print media such as newspapers, magazines etc have a
higher impact and also specific media vehicle in these categories.
14.

When making and investment in mutual fund you would be

influenced by the advice of: (tick the option with highest influenced)
Particulars
Fund Manager
Your Friends & Relatives

No of Respondents
27
33

Percentage
18
32

Your Financial Advisor / CA 54

None but depend on your 36

36
24

personal analysis
Total

100

150

OTHER INFORMATION SOURCES

Fund Manager
22%

16%

Your Friends &

Relatives
29%

33%

Your Financial Advisor /

CA
None but depend on
your personal analysis

Amongst the personal sources that have a bearing on the mutual fund
investment decision of the respondents, the financial advisor/ CA of the
individual as the highest influence (36%). Friends and relatives also play a
determining role. One quarter of the respondents do not get influenced by the
advice of others but instead rely upon their own analysis. The low popularity
of fund managers at 18% suggests that majority of the investing community
view their advise as partisan to the company which they work for.
15. Please tick amongst those companies listed below for whose mutual
fund schemes you are aware of
Particulars

No of Respondents Percentage

ICICI
Franklin

80
92

20
24

Templeton
HDFC
UTI
Reliance Capital
HSBC
Others
Total

85
70
30
22
11
390

22
18
8
6
2
100

With regards to the awareness of mutual fund companies 92% of the

respondents were aware of Franklin Templeton. ICICI and HDFC came close
at 80% and 85% respectively. UTI despite being the oldest mutual fund in
the country is lagging behind the new private mutual fund companies with an

awareness score of 70%. Another surprising discovery is that RELIANCE

CAPITAL ranks low at 13% even though it is quite old and their can be a
possibility of lack of advertising or lack of awareness among the investors
regarding RELIANE CAPITAL.
Although Franklin Templeton as an institution is new entrants in the
Indian financial sector (December 1993) when compared to other establish
players the fact that it has achieved such high awareness is significant. The
possible reason could be its strategy of selling its schemes through other
private sector banks like ICICI Bank, HDFC Bank, UTI Bank and reliance
capital which has paid dividends and enable it to overcome its constrains of
not having its own infra structure in terms of sales offices etc.
16

An established fact in any investment exercise is that greater

returns come with greater risk. In light of this truism please identify
your risk return disposition
Particulars

No of Respondents Percentage

ICICI
Franklin Templeton
HDFC

80
92
85

a. You are willing to undertake risk

20
24
22

a. Your return expectations are:

Particulars
5% - 10%
11% - 19%
20% - 29%
Above 30%
Can't say
Total

No of Respondants
32
96
12
6
4
150

Percentage
21
64
8
4
3
100

By means of this question we are attempting to discern the risk return

profile of the respondents. Our findings clearly reveal that the bulk of the
respondents fall under the moderate returns category with 52% willing to
bear moderate risk and 64% expecting returns in the band of 11% - 19%.
The limitation of such questions is that the findings invariably tend to
confirm to a typical bell shaped curve. This is because it is generally seen
that majority of the respondents invariably choose to clarify themselves
under the middle score category and very few rate themselves as belonging
to any one of the extreme tail positions.
17.When comparing risk return characteristics of mutual fund Vs.
direct investment in stock markets, in your opinion:
Particulars
Same Relationship
Mutual Fund better
Direct Investment better

No of Respondants
41
81
28

Percentage
27
54
19

Total

150

100

The main USP i.e. unique selling proposition of the entire concept of
mutual funds is that their expert investment managers are better equipped
than individual investors in making investment decisions accurately. These
results in lower risk exposure for the same return when compared to
equivalent investment avenues like direct investment in stocks.
The belief seems to be well accepted by the respondents as a clear
majority (54%) believes that they provide a means to reduce risk for the
same return when compared to direct investment in stock markets. This is
vital because unless and until investors do not believe in the superiority of
the mutual funds when compared to direct investment on their own, they will
obviously not invest in them.
However, there exists considerable room for the expansion as 27%
believe that they offer same risk return relationship and 19% believe that
direct investment is more beneficial. The latter could be those who have
adequate expertise when it comes to investments in stocks.

18.

What is the time horizon for which you generally keep your
investment in case of mutual fund and stocks?

Particulars
Upto a Year
Between 1 - 3 Years
Between 3 - 5 Years
Greater than 5 Years
Total

No of Respondants
42
80
22
6
150

Percentage
28
53
15
4
100

The established belief is that any investment in equities requires a time

horizon of over a year to yield substantial returns.
Since 53% of the respondents have a time horizon of 1-3 years, mutual fund
companies are better equipped to convince such investors to participate in
mutual fund schemes that have an equity exposure will depend on the risk
profile of the investor.
There definitely exists good potential for short term mutual funds like money
market mutual funds etc. this is due to the fact that 28% of the respondents
keep their investments within one year and for such investors equity mutual
fund may not be advisable.
The market for long term oriented growth funds is limited as only 15% of
respondents have a time horizon of 3-5 years and a mere 4% of over 5 years.

19.

When it comes to your existing investments in mutual fund, you

monitor the performance of the mutual fund in terms of NAV, Dividend

declaration etc on a :
Particulars
Daily
Weekly
Fortnightly
Monthly
No specific review period
Total

No of Respondants
18
39
33
47
13
150

Percentage
12
26
22
31
9
100

By means of this question we attempt to ascertain how closely do

investors monitor the performance of their mutual fund, which in turn
reflects their zeal for investment management.
The highest frequency is for the monthly reviews (@ 31%) followed
closely by weekly (@ 26%) and fortnightly (@22%).
Mutual fund companies need to provide timely feedback to their
investors in a manner, which is expected by them. This is essential to
enhance the satisfaction the investor feels with respect to his investment.
It is hence suggested that mutual fund companies should send weekly
reviews by email to their investors. The cost of email are low and in this

manner 26% (weekly) + 22% (fortnightly) = 48% of the investors are bound
to be satisfied.
The preference of investors could be obtained at time of investment
monthly reviews by post could be sent to those investors who got for them
and do not wish to subscribe to the weekly e-review service.
20.

There are various micro and macro factor that affect the

performance of an investment. In your opinion, mutual fund

performance is influenced the most by
Particulars
Stock Market Movements
Interest rate movements
Fund Manager
Regulations in Mutual Fund
Total

No of Respondants
63
29
36
22
150

Percentage
42
19
24
15
100

In question number 10. We had seen that external factors had greater
influence vis a vis internal factors on mutual fund investment decisions. The
same also holds true when it comes to investors belief about mutual fund
performance.
Only 24% believe that a highly crucial internal factor namely the fund
manager has the highest influence on fund performance. This finding can be
attributed to the low emphasis that mutual fund companies invariably place
on the expertise personal profiles of their fund managers.

61% of respondents believe that fund performance is influenced by stock

market movements (42%) and interest rate movements (19%).
It is advisable for the mutual fund companies to make attempts to
change this perception. A possible way could be to highlight the occasions
when the mutual fund has out performed the stock markets. This in turn will
convince potential investors about the superiority of mutual funds.
21.

Please identify the source through which you receive dividend

information about your mutual fund investments (Tick any one)

Company Advertisement
Company Brochures
Company Websites
Investment Advisor
Friends and colleagues
Total

40
44
24
28
14
150

27
29
16
19
9
100

There are two types of returns on mutual fund investments a

continuing return during the holding period of the investment in form of
dividends and a terminal return in form of capital gains on sale of the units.
Since return in the primary variable influencing investor satisfaction, mutual

fund companies need to provide accurate information about dividends in a

timely and convenient manner.
A huge 72% of the respondents claim to receive dividend information
about their mutual fund investment from company sources such as
advertisements (27%), brochures (29%) and websites (16%).
This finding clearly shows that mutual fund companies should pay
attention to their communications with investors, which will go a long way
to enhance investors satisfaction.
Investment advisors also play a significant role (19%). Mutual fund
companies should hence provide them timely feedback about fund
performance, which in turn will also influence their recommendations to
potential investors.
22.Please tick the source(s) through which you receive information
about new mutual fund scheme and products, tick as many as
applicable
Particulars
Company Advertisement
Company Brochures
Company Websites
Investment Advisor
Friends and colleagues
Invst. Newspapers & Magazines
Total

No of Respondants
18
33
24
27
13
35
150

Percentage
12
22
16
18
9
23
100

Through this question we will attempt to identify the sources through

which investors receive information about new mutual fund schemes /
products. The findings will be particularly useful in identify the most
effective channel (s) to reach out to potential investors and thereby enhance
the overall effectiveness of the mutual fund companies marketing mix.
As in the case of channels for receiving dividend information, the
biggest source for information of new products remains companys own
avenue like advertisements, brochure and websites.
In addition, investment newspapers and magazines also play a
considerable role with 23% of respondents having selected this media.
Hence mutual fund companies need to have good relations with such
publications in order to get favorable coverage of their products.

23.Which of the following companies would you select as the best mutual
fund?
Particulars
ICICI
Franklin Templeton
HDFC
UTI

No of Respondants
30
42
27
22

Percentage
20
28
18
15

Reliance Capital
HSBC
Others
Total

21
8
0
150

14
5
0
100

Amongst all the mutual fund companies, it is the Franklin Templeton

(@ 28%), which leads in the ranking of the best mutual fund. ICICI and
HDFC follow with approval ratings of 20% and 18% respectively.
UTI, the one time mutual fund behemoth has a low approval of 15%
thereby indicating those investors are still to forget the US-64 debacle.
Reliance capital is just next to UTI having a close competition of 14%
HSBC ranks atleast at 5%.
Although Franklin Templeton leads ICICI by 8%, the gap between the
next three ranks is very small in the range of 1% - 3%. We can hence say
that there exist on the whole close competition amongst the mutual fund
companies.
Further, by and large there does not appear to be much difference in the
respondents perception with respect to dividend information, ease in making
and withdrawing investment amongst the various players.

24.

In the future, you estimate that your investments in mutual fund

will
Particulars
Increased by upto 10%
Increased by 11% - 20%
Increased over 20%
No change
Decreased by upto 10%
Decreased by 11% - 20%
Decreased by over 20%
Total

No of Respondants
40
29
15
21
27
14
4
150

Percentage
27
19
10
14
18
9
3
100

All in the majority of the respondents (56%) are bullish that their
investment in the mutual fund will increase in the future. More than one
quarter of the total respondents estimate an increase of upto 10% from
current investment positions. We can hence say that the prospects for the
mutual fund industry appear bright.
However, the mutual fund companies should also make efforts to
understand why a total of 30% of respondents have a negative outlook
towards future mutual fund investments. Remedial measures in terms of
systems, process changes or new products to suit the need of investors can be
developed.

NAME

OF FUND NAME NAV Rs 3

SCHEME
BSE SENSEX
Aggressive

RETURN

4759.62

MONTHS MONTHS FOR 1YEAR

-16.02%
-5.65%
49.64%

68.95

-8.01%

5.04%

100.43%

Funds
Capital
Prima Fund
Franklin Inida
Opportunities DSP ML

68.17
17.62

-5.05%
-11.28%

4.93%
3.65%

82.50%
82.56%

Fund
Top 200 Fund
Power Fund

34.962
24.57

-11.55%
-16.06%

1.53%
-5.93%

66.66%
59.76%

45.315
22.244

-11.15%
-10.65%

-1.46%
10.49%

70.18%
77.28%

Funds
Growth

Reliance

HDFC
Prudential
ICICI

Conservative
Fund
Equity Fund
Kotak Fund

HDFC
Kotak
Mahindra

growth Funds
Equity Fund

Sundaram
DSP ML

23.5475
17.96

-10.05%
-13.83%

2.49%
-2.34%

65.60%
72.77%

EQUITY FUNDS
Recommended funds based on long term trends.

Equity Funds
All the equity funds across the board (aggressive and conservative)
have returned negative returns for the last three months. This is expected as
the Sensex has declined by 16% for the same period.
In such a negative returns scenario, the fund is expected to out
perform the sensex by posting losses lower than that of the sensex. The fund
which has lowest losses is judged the best fund. We can hence say that the
prima fund by Franklin Templeton has performed best in last three months.
When considering the six month returns, although the sensex has
declined by close to 6% only three out of the nine funds have given negative
returns. This clearly shows the superiority of the mutual fund in reducing
risk and their ability to out perform the market.

Kotak 30 by Kotak

Mahindra has performed impressively by giving a return of 10.49%.

Reliance capitals growth fund has done best for the last one year by
doubling the value of its investments in this period.

ANNULAZIE

ANNULAZIE

ANNULAZIE

D RETURNS

RETURNS
For 6 months
21.2%

For 1 year
-Nil-

FUND NAME

NAV Rs

RETURNS
For 3 months
10.4%

Standard

15.7003

-0.6%

10.1%

32.1%

Chartered
Reliance Capital
Templeton India
Kotak Mahindra
Birla Sun Lie
HDFC

20.5788
23.4428
17.2458
28.1055
15.7416

11.4%
-1.4%
1.1%
10.4%
5.1%

33.5%
9.3%
17.5%
26.3%
18.6%

78.8%
29.9%
34.4%
27.53%
42.9%

Principal
Templeton India
Sundaram

15.5446
23.7825
21.4841

3.1%
7.1%
8.5%

15.4%
28.4%
12.2%

43.89%
70.7%
22.3%

Income Funds
Similarities are observed with regards to the returns of all the income funds
viz.
a) They have all declared positive returns across all study periods (3
months, 6 months, 1 year perception).

b) The returns since inception (latest of which is October 2000) have

been in the range of 12% - 13% and have thereafter declined
considerably to 4%-5% levels. This has occurred due to the overall
decline in interest rates which has affected the returns adversely.
c) In the short term (3 months period) all the income funds have out
performed the equity funds (as equity funds gave negative returns in
this period).
d) The returns of equity funds and income funds are very close for the six
month period.
e) In the longer term (one year and above) the equity funds have
performed significantly better than the income funds. This supports
the wide spread belief that an investor with the long term investment
horizon should weigh his portfolio in favor of equity whereas an
investor who is constrained by a shorter investment period should
invest in debt securities.
The above table clearly reveals that the income fund retail by reliance
capital has outperformed all other competing funds by giving the highest
returns for the 3 month, 6 months and 1 year periods. Further the spread (the
difference between the return of reliance fund versus the second ranking
fund) is large. The difference is 71 basis points for 3 months, 81 basis points
for 6 month and 49 basis points for 1 year.
Thus, not only has income fund retail by reliance capital given the
highest returns for all study periods, the extent to which it has performed
better than other competing funds is also very large thereby signifying
superior fund management.

BALANCED FUND

NAME

OF FUND

NAV 3

SCHEME
NAME
Rs
Crisil balanced fund

6 MONTHS

MONTHS
-10.09%
-1%

RETURN FOR
1 YEAR
33.18%

index
Aggressive
funds
Prudence

HDFC

42.79 -5.08%

2%

42.9%

fund
Balanced

FT India

15.23 -7.25%

6.28%

70.7%

fund
Balanced

Kotak

12.53 -5.00%

2.50%

44.2%

fund
Balanced

Mahindra
Prudential 14.57 -8.19%

-1%

58.9%

fund

ICICI

Conservative
fund
Balanced

DSP ML

17.06 -5.22%

6.63%

32.2%

fund
Balanced

TATA

20.41 -10%

-2.82%

43.2%

fund
Recommended funds based on long term trends

Balanced Funds
For the last 3 months we have seen that the average return for equity
funds is negative 10.89%. the average return of income funds for the same
period is a positive 4.85%.
The average return of balanced funds for the last 3 months is -6.79%.
If we are to assume that the balanced funds equally represents the
characteristics of both equity fund and income funds, the average return of
balanced funds for the last 3 months should be -3.02%.
We can hence say that the performance of the balanced funds is not
really a balanced performance at all. Their returns appear to be influenced
more by the returns on equity rather than debt.
As far as best balanced fund is concerned. Franklin Templeton Indias
balanced fund has given the highest returns for the 6 month and 1 year
period. However, when the 3 month and the 3 year periods are considered,
Kotak Mahindras balanced funds and HDFC Prudence Fund is are
respectively the best performers.
MONTHLY INCOME PLAN

Annualized Annualized Annualized

Return for
3 Minths

Return for
6 Months

Return for
1 Year

Fund
Saving Plus DSP ML 11.6166

-1.92%

5.34%

13.26%

und
FT

-2018%

6.75%

15.36%

-1.94%

4.64%

11.09%

Name

of Fund

Schemes
Aggressive

NAV Rs

Name

India FT India 15.6729

MIP Plan-B
Monthly

Birla

15.2621

Income Plan Sunlife

Conservative
Funds
Monthly

Principal 12.59

-0.79%

4.11%

9.68%

Income Plan
Monthly

Tata

0.68%

3.41%

12.35%

Income
Fund-div

11.2627

Monthly Income Plans :

The last 3 months have seen a rise in government securities yields
which in turn has resulted in declining values of outstanding debt securities.
In this adverse scenario, all the monthly income plans with the exception of
the monthly income fund division of Tata have declared negative returns. In
case of Tatas, it is low positive of 0.68%.
Further, the best performing fund in the 6 month, 1 year and since
inception categories is Franklin Templeton India monthly income plans
plan B the spreads i.e. debt in the returns of this fund versus the second rank
(DSP MLs savings plus fund) is an impressive 141 and 210 basis points for
the six month and one year period respectively.
We can hence conclude that save for the last 3 months, Franklin
Templeton monthly income plan is the best performing MIP. However we
need to ascertain the precise reasons for which the fund has given the worst
performance, when compared to the other competing funds for the last 3
months.
The scenario is perhaps the best example of the ubiquitous declaration
past returns cannot be taken as an indicators of future performance which is
prominent in all mutual fund advertisement. The past best performing fund
has given the worst results for the latest study period.

TAX SAVING SCHEME (ELSS SCHEMES)

ABSOLUTE

ABSOLUTE ABSOLUTE

NAME OF FUND

RETURNS
RETURNS
RETURNS
NAV FOR
3 FOR
6 FOR 1 YEAR

SCHEME
NAME
Tax saving TATA

Rs
22.1

fund
34
Equity Plan Birla Sun 24.4
Tax Plan
Tax
2000

Life
6
Prudentia 24.3

l ICICI
Plan HDFC

6
29.7
88

MONTHS
-10.42%

MONTHS
-2.02%

89.42%

-15.77%

-0.32%

58.72%

-8.18%

-8.69%

68.23%

-4.74%

10.12%

80.20%

Tax Saving Schemes (ELSS SCHEMES)

In the tax saving ELSS schemes category, tax plan 2000 by HDFC is the
top ranked fund for the last 3 months, it has given the least negative return
of 4.74% which is significantly lower than the losses posted by the other
funds in the same category.

Even more impressive is tax plan 2000

performance for the last 6 months. When all the other funds have given
negative returns (which is as high as -8.69%), this fund is the only one to
have given a whopping positive return of 10.12% this signifies a very good
fund management.

Name
Scheme
NSE Nifty
Index Fund
Index Fund
Index Fund

of Fund Name

Franklin India
Birla Sunlie
Prudential ICICI

NAV Rs

3 Months

Return For Return For

6 Months 1 Year

1483.60
11.35
15.33
12.44

-17.59%
-17.24%
-18.07%
-19.82%

-8.15%
-8%
-8.67%
-10.85%

47.36%
47.14%
48.29%
44.75%

Index Funds:
Index funds are probably the easiest mutual funds to manage. The
initial composition of the portfolio is reflective of the constituents of the
index that the fund represents. Further, monitoring of the fund involves
tracking the changes in the index in terms of composition pf the index, the
weight age of its constituents scrips and making the same changes in the
funds portfolio.
Since the scope of fund management gets restricted, index funds give
similar returns when compared to one another and the index which they are
based upon.
The index funds by Franklin Templeton and Birla Sunlife have given
returns close to the Nifty for the respective grades (both positive and
negative return scenarios).
However, the index fund by Prudential ICICI has consistently been
under performing the Nifty. The difference in returns of these funds versus
the Nifty is considerable at 223, 270 and 261 basis points for the three

months, six months and one year periods respectively. This is a clear
indication of very poor fund management.

KEY FINDINGS:
The survey revealed the following broad findings:
Profile of an average investor
( The picture that emerges from the survey )
Age

: 25 - 35 Years

Education

: Graduate or Post-Graduate

Monthly savings

: Rs. 2000 - 10000

Investment objectives

: Generate regular income / secure future

Risk taking ability

: Moderate

Expected returns

: Medium to high (11% - 15%)

Major influencing agent

in making investment

: Friends and Relatives

Majority of the investors (45%) fall in the 25 34 age group.

Over 60% of the investors fall in the annual income of Rs. 1 Lakhs to
3 Lakhs per annum.
Over 60% of the investors have a monthly savings of Rs. 2000
10000 per month.
Almost 23% of the investors invest to have a secure future through
regular returns.
Over 50% of the investors invest to earn in the range of 11% 19%,
and they ready to take moderate risks in their investment portfolios.
Around 14% of the investors invest to gain tax benefits and they
belong to the upper income bracket of more than Rs. 5 lakhs per
annum.
Print media advertisements have the maximum impact on investors as
over 60% consider them as the influencing agents.
Financial Advisors and Chartered Accountants act as the major
influencers in formulating investment portfolios.
From the micro perspective the company image of AMC acts as a
major deciding factor for buying mutual funds.

 More than 50% of the investors attach importance to the fact that their
investment should grow in value over a period of time.
Majority of the investors like to take a morderate risk and mordrate
return on investment.
Banking product top the chats with 23% in investment preferences,
followed closely by insurance products with 19% and then comes
mutual funds with 16%.
Knowledge about mutual funds and their various schemes is average
among investors.
Franklin Templeton mutual fund scores highest on both brand recall
and customer satisfaction, followed by ICICI.
More than 50% are ready to park their money for a period of one to
three years.
Over 50% of the investors willing that mutual funds investments are
going to perform better than stocks.
Over 40% of the investors believe that their investment in mutual fund
in future will increase upto 20%.

SUGGESTIONS
1. 70% of the respondents come under the combined age group of 20
39 years. Our interaction with mutual fund sales executive has
revealed that individuals falling under this age profiles are typically
the most lucrative segment for mutual fund investment. This is more
due to their willingness to try out relatively new forms of investments
like mutual fund, which are not that readily acceptable by older
people. Therefore it is advisable to different communication channels
of advertising like personal communication channel (personal selling)

and non personal communication channel (telephone) so that it can

best reach this group and hence attract more people t invest in mutual
funds.
2. The risk factors involved and the returns n the investments have major
secondary influence n the investment decision. Therefore it is
advisable for the fund management to show how they take actions to
reduce the risk associated with different schemes by giving past
examples like referring to the regular customers and their opinion and
also the proof of the superior expertise.
3. The company image is by far the foremost factor which influences the
investment decision when evaluating investment in mutual fund with
2% of the respondents selecting it. There by suggesting that the mutual
fund industry, at least as of date does not have any individuals like
marc phobias of quantum funds who enjoy a larger then life image
such that they are able to attract investors on the basis of their name
alone. Since company image plays such a determining role in mutual
fund investment decision, it is advisable for all the mutual fund
companies to invest heavily on brand building. By doing this, it will
help in growth of the industry in general and fund in particular.
4. Since the highest frequency is for the average category with 45% of
the respondents rating their knowledge as average. It is advisable that
the mutual fund companies should undertake campaigns that are
design to increase the understanding of the concept and working of
mutual funds along with their unique advantages. They can also
publish material along with the brochures to educate investors. This is
important because until and unless an individual knows properly what
the entire concept of mutual fund is all about, he will not at all be
convinced to invest his hard earn money in them. This could probably

also is a reason for the low popularity of mutual fund in India

especially when compared to other countries like USA, UK, etc.
5. as we have already seen that 65% of the respondents feel that the print
media have the highest influence on their mutual fund investment
decision. We can safely conclude that the communication mix of a
mutual fund company should be heavily weighted in favor of the print
media. What further needs to be ascertained is that which category of
the print media such as news paper, magazines, pamphlets etc have a
higher impact and also the specific media in these categories.
6. Among the personal source that have a bearing on the mutual fund
investment decision of the respondents, the financial advisor/chartered
accountants of the individual has the highest influence (36%).
Therefore it is better to have chartered accountants or financial
advisors as a recommendation channel and hence attract the potential
investors to invest in mutual funds.
7. When comparing the risk-return characteristics of mutual fund vs.
direct investment in the stock markets, the belief seems to be well
accepted by the respondents as a clear majority (54%) believes that
mutual fund provide a means to reduce risk for the same return when
compared to direct investment in stock markets. This is vital because
unless and until investors do not believe in the superiority of the
mutual funds when compared to direct investment on their own, they
will obviously not invest in them. Therefore it is suggested that mutual
fund companies should reinforce this perception as a part of their
communication mix.
8. Mutual fund companies need to provide timely feedback to their
investors in a manner, which is expected by them. This is essential to

enhance the satisfaction the investor feels with respect to his

investment.
It is hence suggested that mutual fund companies should send weekly
reviews by email to their investors. The cost of email are low and in this
manner 26% (weekly) + 22% (fortnightly) = 48% of the investors are
bound to be satisfied. Mutual fund companies should hence provide their
investors with timely feedback about fund performance, which in turn
will also influence their recommendations to potential investors.
9. 42% of the respondents believe that stock market movements
influence mutual fund performance. In order to attract the investors it
is advisable for the mutual fund companies to make attempts to
change this perception. A possible way could be to highlight the
occasions when the mutual fund has out performed the stock markets.
This in turn will convince potential investors about the superiority of
mutual funds.

ANNEXURE
QUESTIONNAIRE:
1. Do you hold an investment in any kind of mutual fund scheme today?
Yes
No
2. Please tick your sex
Male
Female
3. Please mark your age segment
20-29
30-39
40-49
50-59
Above 60

4. Please tick the correct category of your education qualification

Under Graduate
Graduate
Post Graduate
Others

5. Please tell us about your annual family income

Less than 1,00,000
1,00,0002,00,000
2,00,0003,00,000
3,00,0005,00,000
Above 5,00,000
6. On an average you save in a month
Up to Rs. 2000
2001-5000
5001-10000
10001-20000
Above 20001
7. Please tell the main decision behind most of the investment decision
made by you till date. Tick as many applicable
Safety of investment
Generate regular income
Availing tax benefits
Capital gains
Have a secured future

Others, please specify

8. Apart form the reasons stated above which of the following would
influence your investment decision.
Future outlook
Brand value
Risk factors involved
Return on the investment
Tax incentives
Current economic or political scenario
9. Which of these following investment avenues have you invested in or
intend to do so in the future
Mutual funds

Government

securities
Banking products

Real estate

Insurance products

Gold

Corporate debentures

Equity shares

10.When you are investing in a mutual fund or intend to do so which of

the following would influence your investment decision?
Economic scenario
Mutual fund company image
Fund performance in the past
Fund managers image
Tax incentives

11 How important is the tax incentive factor to you when you are making
an investment in a mutual fund
Very important
Some what important
Neutral
Some what unimportant
Not at all important
12.How do you rate your understanding about the concept and working of
mutual fund?
Very good
Good
Average
Poor
Very poor
13.In your opinion which of the following advertising media would have
the highest influence on the mutual fund investment decision of an
individual
Print media
Electronic media
Pamphlets
Hoardings And billboards

14.When making an investment in mutual fund you would be influenced

by the advice of :( (tick the option with highest influence)

Fund manager
Your friends and relatives
Your financial advisors / chartered accountant
None but depends on your own personal analysis
15.Please tick amongst those companies listed below for whose mutual
fund scheme you are aware of
ICICI
Franklin Templeton
HDFC
UTI
Reliance Capital
HSBC
Others (please specify)
16.An established fact in any investment exercise is that greater returns
come with greater risk. In light of this truism please identify your risk
return disposition
b. You are willing to undertake
High risk
Moderate risk
Low risk
Nil
c. Your return expectations are:
5% - !0%
11% - 19%
20% - 29%
Greater than 30%.

Cant say
17.When comparing risk return characteristics of mutual fund Vs. direct
investment in stock markets, in your opinion:
a. Mutual fund and direct investment in stock market offer the
same risk return relationship.
b. Mutual funds provide a means to reduce risk for the same return
when compared to direct investment in stock market.
c. Direct investment in stock market will result in lower risk or
higher return than investing in mutual funds.
18.What is the time horizon for which you generally keep your
investment in case of mutual fund and stocks?
Up to a year
Between 1 3 years
Between 3 -5 years
Greater than 5 years
19.When it comes to your existing investments in mutual fund, you
monitor the performance of the mutual fund in terms of NAV, Dividend
declaration etc on a :
Daily
Weekly
Fortnightly
Monthly
No specific review period

20.There are various micro and macro factor that affect the performance
of an investment. In your opinion, mutual fund performance is
influenced the most by
Stock market movements
Interest rate movements
Fund manager
Regulations in mutual funds

21.Please identify the source through which you receive dividend

information about your mutual fund investments (Tick any one)
Company advertisements
Company brochures
Company websites
Investment advisors
Friends and colleagues
22.Please tick the source(s) through which you receive information about
new mutual fund scheme and products, tick as many as applicable
Company advertisements
Company brochures
Company websites
Investment advisors
Friends and colleagues
Investment news papers and magazines
23.(For potential customers)

Which of the following companies would you select as the best mutual
fund?
(For current customers)
Which of the following companies would you rate as best in terms
customer satisfaction (performance, dividend information, ease in
making and withdrawing investment, etc.)
ICICI
Franklin Templeton
HDFC
UTI
Reliance Capital
HSBC
Others (please specify)
24.In the future, you estimate that your investments in mutual fund will
Increase by up to 10%
Increase by 11% - 20%
Increase over 20%
No change
Decrease by up to 10%
Decrease by 11% - 20%
Decrease by over 20%

BIBLIOGRAPHY
The books which were used as reference material for this project are:
I.

Security Analysis and Portfolio Management by Prasanna Chandra.

II.

Financial Management by Prasanna Chandra.

III.

Investment Management by V. K. Bhalla.

IV.

Mutual Funds by Lalit K. Bhansal

V.

Marketing Management by Phillip Kotler.

VI.

Business Research Methods by Schindler and Cooper.

VII. Statistics for Management by Levin and Ruben.

VIII. Websites of Mutual Fund companies.