Research report

On
“Study of mutual fund as an
Investment option”
Submitted in partial fulfillment of
MASTER OF BUSINESS ADMINISTRATION (MBA)

Conducted by
APJ AK TECHNICAL UNIVERSITY, LUCKNOW

Under the guidance of Submitted By

Dr. Ragini Johari JYOTI
Professor & Head, School of Management MBA IV Semester
Ansal Technical Campus, Lucknow Enrolment No.1674870013
SESSION- 2017-18

ANSAL TECHNICAL CAMPUS, LUCKNOW

SECTOR-C, POCKET-9, SUSHANT GOLF CITY, SHAHEED PATH, LUCKNOW
www.aitmlucknow.edu.in

1
 ACKNOWLEDGEMENT

The work done under the title " A RESEARCH REPORT ON A study of mutual Funds as an

investment option " represents not just my efforts to realize the goal of learning & training in fact

it reflects a combination of able guidance, recommendations & suggestions of a number of

people.

I am thankful to my HOD, Department of Management, AnsalTechnical Campus,Lucknow and

my mentor Dr. RaginiJoharifor giving me this golden opportunity to do this wonderful project.

It helped me in doing a lot of research and I came to know about so many new things I am really

thankful to them.

I am thankful to all the people who have shared their knowledge and cooperation towards my

project.

Jyoti
M.B.A. 4th semester
Roll No. 1674870013

2
 DECLARATION

I JYOTI hereby declare that this project report entitled “A study of mutual Funds as an
investment option”, submitted by me, under the guidance of Dr. RaginiJohari, HOD, of
ManagementDepartment, of AnsalTechnical Campus,Lucknow is my own and has not been
submitted to any other institute.

Jyoti
M.B.A. 4th semester
Roll No. 1674870013

3
 TABLE OF CONTENT

S.No. Content Page No.

Executive Summery
1 6-7

2 Introduction of Mutual Funds 8-9

3 Legal Structure of Mutual Funds in India 10-18

4 Return Risk Matrix 19

5 Advantages of Mutual Funds 20-22

6 Disadvantages of Mutual Fund 23-24

7 Types of Mutual Fund 25-31

8 Selection Parameters For Mutual Fund 35-36

9 Types of Return on Mutual Fund 37-41

10 Mutual Funds Distribution Channels 41-43

11 Working Model & Structure of Mutual Fund 44-50

12 Equity- Global 51-64

13 Riskometer 65-66

14 Research Methodology 67-75

15 Findings And Suggestions 76-78

16 Annexure 79-81

Conclusion
17 82-83

18 Bibliography 84

4
 EXECUTIVE SUMMERY
A mutual fund is a scheme in which several people invest their money for a common

financial cause. The collected money invests in the capital market and the money, which they

earned, is divided based on the number of units, which they hold.

The mutual fund industry started in India in a small way with the UTI Act creating what

was effectively a small savings division within the RBI. Over a period of 25 years this grew

fairly successfully and gave investors a good return, and therefore in 1989, as the next logical

step, public sector banks and financial institutions were allowed to float mutual funds and their

success emboldened the government to allow the private sector to foray into this area.

The advantages of mutual fund are professional management, diversification, economies

of scale, simplicity, and liquidity.

The disadvantages of mutual fund are high costs, over-diversification, possible tax

consequences, and the inability of management to guarantee a superior return.

The biggest problems with mutual funds are their costs and fees it include Purchase fee,

Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There are

some loads which add to the cost of mutual fund. Load is a type of commission depending on the

type of funds.

5
 Mutual funds are easy to buy and sell. You can either buy them directly from the fund

company or through a third party. Before investing in any funds one should consider some factor

like objective, risk, Fund Manager’s and scheme track record, Cost factor etc.

There are many, many types of mutual funds. You can classify funds based Structure

(open-ended& close-ended), Nature (equity, debt, balanced), Investment objective (growth,

income, money market) etc.

A code of conduct and registration structure for mutual fund intermediaries, which were

subsequently mandated by SEBI. In addition, this year AMFI was involved in a number of

developments and enhancements to the regulatory framework.

The most important trend in the mutual fund industry is the aggressiveexpansion of the foreign

owned mutual fund companies and the decline of the companies floated by nationalized banks

and smaller private sector players.

Reliance Mutual Fund, UTI Mutual Fund,ICICI Prudential Mutual Fund, HDFC Mutual

Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India.

6
 INTRODUCTION OF MUTUAL FUND

Mutual fund were introduced in Indiain year 1963, when the Government of

India launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian

mutual fund market. Then a host of other government-controlled Indian financial companies

came up with their own funds. These included State Bank of India, Canara Bank, and Punjab

National Bank. This market was made open to private players in 1993, as a result of the

historic constitutional amendments brought forward by the then Congress-led government under

the existing regime of Liberalization, Privatization and Globalization (LPG). The first private

sector fund to operate in India was Kothari Pioneer, which later merged with Franklin

Templeton.

CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their contributions

that are to be invested in accordance with a stated objective. The ownership of the fund is thus

joint or “mutual”; the fund belongs to all investors. A single investor’s ownership of the fund is

in the same proportion as the amount of the contribution made by him or her bears to the total

amount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same in

diversified financial instruments in terms of objectives set out in the trusts deed with the view to

reduce the risk and maximize the income and capital appreciation for distribution for the embers.

A Mutual Fund is a corporation and the fund manager’s interest is to professionally manage the

funds provided by the investors and provide a return on them after deducting reasonable

management fees.

7
DEFINITION:

“A mutual fund is an investment that pools your money with the money of an unlimited

number of other investors. In return, you and the other investors each own shares of the fund.

The fund's assets are invested according to an investment objective into the fund's portfolio of

investments. Aggressive growth funds seek long-term capital growth by investing primarily in

stocks of fast-growing smaller companies or market segments. Aggressive growth funds are also

called capital appreciation funds”.

Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vice versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investors opt for

bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in

capital protected funds and the profit-bonds that give out more return which is slightly higher as

compared to the bank deposits but the risk involved also increases in the same proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds

provide professional management, diversification, convenience and liquidity. That doesn’t mean

mutual fund investments risk free.

This is because the money that is pooled in are not invested only in debts funds which are

less riskier but are also invested in the stock markets which involves a higher risk but can expect

higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives

market which is considered very volatile.

8
 Legal Structure of Mutual Funds in India

 SEBI (Mutual Fund) Regulations, 1996 as amended till date define “mutual fund” as a

fund established in the form of a trust to raise moneys through the sale of units to the

public or a section of the public under one or more schemes for investing in securities

including money market instruments or gold or gold-related instruments or real estate

assets.

 Key features of a mutual fund that flows from the definition above are:

o It is established as a trust

o It raises moneys through sale of units to the public or a section of the public

o The units are sold under one or more schemes

o The schemes invest in securities (including money market instruments) or gold or

gold-related instruments or real estate assets.

 SEBI has stipulated the legal structure under which mutual funds in India need to be

constituted. The structure, which has inherent checks and balances to protect the interests

of the investors, can be briefly described as follows:

o Mutual funds are constituted as Trusts. Therefore, they are governed by the Indian

Trusts Act, 1882

o The mutual fund trust is created by one or more Sponsors, who are the main

persons behind the mutual fund business.

o Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust,

are the investors who invest in various schemes of the mutual fund.

9
o The operations of the mutual fund trust are governed by a Trust Deed, which is

executed between the sponsors and the trustees. SEBI has laid down various

clauses that need to be part of the Trust Deed.

o The Trust acts through its trustees. Therefore, the role of protecting the interests

of the beneficiaries (investors) is that of the Trustees. The first trustees are named

in the Trust Deed, which also prescribes the procedure for change in Trustees.

o In order to perform the trusteeship role, either individuals may be appointed as

trustees or a Trustee company may be appointed. When individuals are appointed

trustees, they are jointly referred to as ‘Board of Trustees’. A trustee company

functions through its Board of Directors.

o Day to day management of the schemes is handled by an Asset Management

Company (AMC). The AMC is appointed by the sponsor or the Trustees.

o The trustees execute an investment management agreement with the AMC, setting

out its responsibilities.

o Although the AMC manages the schemes, custody of the assets of the scheme

(securities, gold, gold-related instruments & real estate assets) is with a

Custodian, who is appointed by the Trustees.

o Investors invest in various schemes of the mutual fund. The record of investors

and their unit-holding may be maintained by the AMC itself, or it can appoint a

Registrar & Transfer Agent (RTA).

10
 Key Constituents of a Mutual Fund

1) Sponsors:-

The application to SEBI for registration of a mutual fund is made by the sponsor/s.

Thereafter, the sponsor invests in the capital of the AMC.

Since sponsors are the main people behind the mutual fund operation, eligibility criteria

has been specified as follows:

 The sponsor should have a sound track record and reputation of fairness and integrity in

all business transactions. The requirements are:

 Sponsor should be carrying on business in financial services for 5 years

 Sponsor should have positive net worth (share capital plus reserves minus accumulated

losses) for each of those 5 years

 Latest net worth should be more than the amount that the sponsor contributes to the

capital of the AMC

 The sponsor should have earned profits, after providing for depreciation and interest, in

three of the previous five years, including the latest year.

 The sponsor should be a fit and proper person for this kind of operation.

 The sponsor needs to have a minimum 40% share-holding in the capital of the AMC.

Further, anyone who has more than 40% share-holding in the AMC is considered to be a

sponsor, and should therefore fulfill the eligibility criteria mentioned above.

 In the example of SBI Mutual Fund cited above, the sponsor is State Bank of India, an

Indian public sector bank. Sponsorship may be institutional (LIC Nomura Mutual Fund),

entirely foreign (like Franklin Templeton Mutual Fund and Goldman Sachs Mutual

Fund), predominantly foreign joint venture (like JP Morgan Mutual Fund & HSBC

11
 Mutual Fund)or predominantly Indian joint venture (like Birla Sun Life Mutual Fund &

ICICI Prudential Mutual Fund).

2) Trustee:-

The trustees have a critical role in ensuring that the mutual fund complies with all the

regulations, and protects the interests of the unit-holders.

The SEBI Regulations stipulate that:

 Every trustee has to be a person of ability, integrity and standing

 A person who is guilty of moral turpitude cannot be appointed trustee

 A person convicted of any economic offence or violation of any securities laws cannot be

appointed as trustee

 Prior approval of SEBI needs to be taken, before a person is appointed as Trustee.

 The sponsor will have to appoint at least 4 trustees. If a trustee company has been

appointed, then that company would need to have at least 4 directors on the Board.

Further, at least two-thirds of the trustees / directors on the Board of the trustee company

would need to be independent trustees i.e. not associated with the sponsor in any way.

 SEBI expects Trustees to perform a key role in ensuring legal compliances and protecting

the interest of investors. Accordingly, various General Due Diligence and Special Due

Diligence responsibilities have been assigned to them.

 The strict provisions go a long way in promoting the independence of the role of

trusteeship in a mutual fund.

3) AMC:-

 Day to day operations of asset management is handled by the AMC. It therefore arranges

for the requisite offices and infrastructure, engages employees, provides for the requisite

12
 software, handles advertising and sales promotion, and interacts with regulators and

various service providers.

 The AMC has to take all reasonable steps and exercise due diligence to ensure that the

investment of funds pertaining to any scheme is not contrary to the provisions of the

SEBI regulations and the trust deed. Further, it has to exercise due diligence and care in

all its investment decisions.

As per SEBI regulations:

 The directors of the asset management company need to be persons having adequate

professional experience in finance and financial services related field

 The directors as well as key personnel of the AMC should not have been found guilty of

moral turpitude or convicted of any economic offence or violation of any securities laws

 Key personnel of the AMC should not have worked for any asset management company

or mutual fund or any intermediary during the period when its registration was suspended

or cancelled at any time by SEBI.

 Prior approval of the trustees is required, before a person is appointed as director on the

board of the AMC.

 Further, at least 50% of the directors should be independent directors i.e. not associate of

or associated with the sponsor or any of its subsidiaries or the trustees.

 The AMC needs to have a minimum net worth of Rs. 50 crore. This is immediately

applicable to new AMCs. AMCs in existence in May 2014 have been given 3 years to

raise their net worth to Rs. 50 crore. However, they cannot launch new schemes until they

comply with the Rs. 50 crore net worth requirement.

 An AMC cannot invest in its own schemes, unless the intention to invest is disclosed in

the Offer Document. Further, the AMC cannot charge any fees for its own investment in

any of the schemes managed by itself.

13
 The appointment of an AMC can be terminated by a majority of the trustees, or by 75%

of the Unit-holders. However, any change in the AMC is subject to prior approval of

SEBI and the Unit-holders.

 Operations of AMCs are headed by a Managing Director, Executive Director or Chief

Executive Officer. Some of the other business-heads are:

 Chief Investment Officer (CIO), who is responsible for overall investments of the fund.

Fund managers assist the CIO. As per SEBI regulations, every scheme requires a fund

manager, though the same fund manager may manage multiple schemes.

 Securities Analysts support the fund managers through their research inputs. As will be

discussed in Chapter8, these analysts come from two streams, Fundamental Analysis and

Technical Analysis. Some mutual funds also have an economist to analyse the economy.

 Securities Dealers help in putting the transactions through in the market. The mutual

fund schemes’ sale and purchase of investments are executed by the dealers in the

secondary market.

 Chief Marketing Officer (CMO), who is responsible for mobilizing money under the

various schemes. Direct Sales Team (who generally focus on large investors), Channel

Managers (who manage the distributors) and Advertising & Sales Promotion Team

support the CMO.

 Chief Operations Officer (COO) handles all operational issues.

 Compliance Officer needs to ensure all the legal compliances. In Offer Documents of

new issues, he signs a due-diligence certificate to the effect that all regulations have been

complied with, and that all the intermediaries mentioned in the offer document have the

requisite statutory registrations and approvals.

14
  In order to ensure independence, the Compliance Officer reports directly to the head of

the AMC. Further, he works closely with the Trustees on various compliance and

regulatory issues.

Other Service Providers:-

1) Custodian:-

The custodian has custody of the assets of the fund. As part of this role, the custodian

needs to accept and give delivery of securities for the purchase and sale transactions of the

various schemes of the fund. Thus, the custodian settles all the transactions on behalf of the

mutual fund schemes.

All custodians need to register with SEBI. The Custodian is appointed by the trustees. A

custodial agreement is entered into between the trustees and the custodian.

The SEBI regulations provide that if the sponsor or its associates control 50% or more of

the shares of a custodian, or if 50% or more of the directors of a custodian represent the interest

of the sponsor or its associates, then, unless certain specific conditions are fulfilled, that

custodian cannot be appointed for the mutual fund operation of the sponsor or its associate or

subsidiary company.

An independent custodian ensures that the securities are indeed held in the scheme for the

benefit of investors – an important control aspect.

The custodian also tracks corporate actions such as dividends, bonus and rights in

companies where the fund has invested.

2) RTA:-

The RTA maintains investor records. Their offices in various centres serve as Investor

Service Centres (ISCs), which perform a useful role in handling the documentation of investors.

15
 The appointment of RTA is done by the AMC. It is not compulsory to appoint a RTA.

The AMC can choose to handle this activity in-house. All RTAs need to register with SEBI.

3) Auditors:-

Auditors are responsible for the audit of accounts.

Accounts of the schemes need to be maintained independent of the accounts of the AMC.

The auditor appointed to audit the scheme accounts needs to be different from the auditor

of the AMC.

While the scheme auditor is appointed by the Trustees, the AMC auditor is appointed by

the AMC.

4) Fund Accountants:-

The fund accountant performs the role of calculating the NAV, by collecting information

about the assets and liabilities of each scheme. The AMC can either handle this activity in-house,

or engage a service provider. There is no need for a registration with SEBI to perform this

function.

5) Distributors:-

Distributors have a key role in selling suitable types of units to their clients i.e. the

investors in the schemes.

Distributors need to pass the prescribed certification test, and register with AMFI.

Regulatory aspects of their role are discussed in Chapter3, while some of the distribution and

channel management practices are covered in Chapter5.

6) Collecting Bankers:-

The investors’ moneys go into the bank account of the scheme they have invested in.

These bank accounts are maintained with collection bankers who are appointed by the AMC.

16
 Leading collection bankers make it convenient to invest in the schemes by accepting

applications of investors in most of their branches. Payment instruments against applications

handed over to branches of the AMC or the RTA need to be banked with the collecting bankers,

so that the moneys are available for investment by the scheme. Thus, the banks enable collection

and payment of funds for the schemes.

Through this kind of a mix of constituents and specialized service providers, most mutual

funds maintain high standards of service and safety for investors.

7) KYC Registration Agencies:-

To do away with multiple KYC formalities with various intermediaries, SEBI has

mandated a unified KYC for the securities market through KYC Registration Agencies registered

with SEBI. Any new investor, Joint holders, Power of Attorney holders, Donors and Guardian

(in case of minors) have to comply with the KYC formalities. In-Person Verification (IPV) by a

SEBI-registered intermediary is compulsory for all investors. However, the investor needs to get

IPV done by only one SEBI-registered intermediary (broker, depository, mutual fund distributor

etc.). This IPV will be valid for transactions with other SEBI-registered intermediaries too.

Distributors who have a valid NISM-Series-V-A: Mutual Fund Distributors certificate

and a valid ARN can carry out the In-person verification if they have completed the KYD

process.

17
 RETURN RISK MATRIX

Higher Risk Higher Risk

Moderate Returns Higher Returns

Venture
Equity
capital

Bank FD, Mutual

Postal Saving Funds

Lower Risk Lower Risk

Lower Returns Higher Returns

18
 ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favorite investment vehicle, it is because of the many

advantages they have over other forms and the avenues of investing, particularly for the investor

who has limited resources available in terms of capital and the ability to carry out detailed

research and market monitoring. The following are the major advantages offered by mutual

funds to all investors:

1. Portfolio Diversification:

Each investor in the fund is a part owner of all the fund’s assets, thus enabling him to

hold a diversified investment portfolio even with a small amount of investment that would

otherwise require big capital.

2. Professional Management:

Even if an investor has a big amount of capital available to him, he benefits from the

professional management skills brought in by the fund in the management of the investor’s

portfolio. The investment management skills, along with the needed research into available

investment options, ensure a much better return than what an investor can manage on his own.

Few investors have the skill and resources of their own to succeed in today’s fast moving, global

and sophisticated markets.

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3. Reduction/Diversification Of Risk:

When an investor invests directly, all the risk of potential loss is his own, whether he

places a deposit with a company or a bank, or he buys a share or debenture on his own or in any

other from. While investing in the pool of funds with investors, the potential losses are also

shared with other investors. The risk reduction is one of the most important benefits of a

collective investment vehicle like the mutual fund.

4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all the costs of

investing such as brokerage or custody of securities. When going through a fund, he has the

benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit

passed on to its investors.

5. Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When

they invest in the units of a fund, they can generally cash their investments any time, by selling

their units to the fund if open-ended, or selling them in the market if the fund is close-end.

Liquidity of investment is clearly a big benefit.

6. Convenience And Flexibility:

Mutual fund management companies offer many investor services that a direct market

investor cannot get. Investors can easily transfer their holding from one scheme to the other; get

updated market information and so on.

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7. Tax Benefits:

Any income distributed after March 31, 2002 will be subject to tax in the assessment of

all Unit holders. However, as a measure of concession to Unit holders of open-ended equity-

oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a

concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the

Total Income will be admissible in respect of income from investments specified in Section 80L,

including income from Units of the Mutual Fund. Units of the schemes are not subject to

Wealth-Tax and Gift-Tax.

8. Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

9. Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of strict

regulations designed to protect the interests of investors. The operations of Mutual Funds are

regularly monitored by SEBI.

10. Transparency:

You get regular information on the value of your investment in addition to disclosure on the

specific investments made by your scheme, the proportion invested in each class of assets

and the fund manager's investment strategy and outlook.

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DISADVANTAGES OF INVESTING THROUGH
MUTUAL FUNDS

1. No Control Over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The investor

pays investment management fees as long as he remains with the fund, albeit in return for the

professional management and research. Fees are payable even if the value of his investments is

declining. A mutual fund investor also pays fund distribution costs, which he would not incur in

direct investing. However, this shortcoming only means that there is a cost to obtain the mutual

fund services.

2. No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of shares and bonds and

other securities. Investing through fund means he delegates this decision to the fund managers.

The very-high-net-worth individuals or large corporate investors may find this to be a constraint

in achieving their objectives. However, most mutual fund managers help investors overcome this

constraint by offering families of funds- a large number of different schemes- within their own

management company. An investor can choose from different investment plans and constructs a

portfolio to his choice.

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3. Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for the

investor. He may again need advice on how to select a fund to achieve his objectives, quite

similar to the situation when he has individual shares or bonds to select.

4. The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better at

picking stocks than the average nonprofessional, but charges fees.

5. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat

of somebody else's car

6. Dilution:

Mutual funds generally have such small holdings of so many different stocks that

insanely great performance by a fund's top holdings still doesn't make much of a difference in a

mutual fund's total performance.

7. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who do not

make those costs clear to their clients.

23
 TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial

position, risk tolerance and return expectations etc. thus mutual funds has Assortment of flavors,

Being a collection of many stocks, an investors can go for picking a mutual fund might be easy.

There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual

funds in categories, mentioned below.

TYPES OF MUTUAL
FUNDS

BY INVESTMENT
BY STRUCTURE BY NATURE OTHER SCHEMES
OBJECTIVE

Open - Ended Tax Saving

Equity Fund Growth Schemes
Schemes Schemes

Close - Ended
Debt Funds Income Schemes Index Schemes
Schemes

Balanced Sector Specific

Interval Schemes Balanced Funds
Schemes Schemes

Money Market
Schemes

24
A). BY STRUCTURE

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These do

not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value

("NAV") related prices. The key feature of open-end schemes is liquidity.

2. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15

years. The fund is open for subscription only during a specified period. Investors can invest in

the scheme at the time of the initial public issue and thereafter they can buy or sell the units of

the scheme on the stock exchanges where they are listed. In order to provide an exit route to the

investors, some close-ended funds give an option of selling back the units to the Mutual Fund

through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one

of the two exit routes is provided to the investor.

3. Interval Schemes:

Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV related prices.

25
B). BY NATURE

1. Equity Fund:

These funds invest a maximum part of their corpus into equities holdings. The structure

of the fund may vary different for different schemes and the fund manager’s outlook on different

stocks. The Equity Funds are sub-classified depending upon their investment objective, as

follows:

 Diversified Equity Funds

 Mid-Cap Funds

 Sector Specific Funds

 Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on

the risk-return matrix.

2. Debt Funds:

The objective of these Funds is to invest in debt papers. Government authorities, private

companies, banks and financial institutions are some of the major issuers of debt papers. By

investing in debt instruments, these funds ensure low risk and provide stable income to the

investors. Debt funds are further classified as:

 Gilt Funds: Invest their corpus in securities issued by Government, popularly known as

Government of India debt papers. These Funds carry zero Default risk but are associated

with Interest Rate risk. These schemes are safer as they invest in papers backed by

Government.

26
  Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

 MIPs: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. These

scheme ranks slightly high on the risk-return matrix when compared with other debt

schemes.

 Short Term Plans (STPs): Meant for investment horizon for three to six months.

These funds primarily invest in short term papers like Certificate of Deposits (CDs) and

Commercial Papers (CPs). Some portion of the corpus is also invested in corporate

debentures.

 Liquid Funds: Also known as Money Market Schemes, These funds provides easy

liquidity and preservation of capital. These schemes invest in short-term instruments like

Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for

short-term cash management of corporate houses and are meant for an investment

horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are

considered to be the safest amongst all categories of mutual funds.

3. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in both

equities and fixed income securities, which are in line with pre-defined investment objective of

27
the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part

provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,

Each category of funds is backed by an investment philosophy, which is pre-defined in the

objectives of the fund. The investor can align his own investment needs with the funds objective

and invest accordingly.

C) BY INVESTMENT OBJECTIVE:

Growth Schemes:

Growth Schemes are also known as equity schemes. The aim of these schemes is to

provide capital appreciation over medium to long term. These schemes normally invest a major

part of their fund in equities and are willing to bear short-term decline in value for possible

future appreciation.

Income Schemes:

Income Schemes are also known as debt schemes. The aim of these schemes is to provide

regular and steady income to investors. These schemes generally invest in fixed income

securities such as bonds and corporate debentures. Capital appreciation in such schemes may be

limited.

28
Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically distributing a

part of the income and capital gains they earn. These schemes invest in both shares and fixed

income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes:

Money Market Schemes aim to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safer, short-term instruments, such as

treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time you

buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range

from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds:

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no load fund

is that the entire corpus is put to work.

29
OTHER SCHEMES

Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time

to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings

Scheme (ELSS) are eligible for rebate.

Index Schemes:

Index schemes attempt to replicate the performance of a particular index such as the BSE

Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that

constitute the index. The percentage of each stock to the total holding will be identical to the

stocks index weightage. And hence, the returns from such schemes would be more or less

equivalent to those of the Index.

Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or industries as

specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods

(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of

the respective sectors/industries. While these funds may give higher returns, they are more risky

compared to diversified funds. Investors need to keep a watch on the performance of those

sectors/industries and must exit at an appropriate time.

30
 Systematic Investment Planning (SIP)
SIP is similar to a Recurring Deposit. Every month on a specified date an amount you choose is

invested in a mutual fund scheme of your choice. The dates currently available for SIPs are the

5th, 10th, 15th, 20th and the 25th of a month. There are many benefits of investing through

SIP.

Advantages of SIP

•Encourages Regular and Disciplined Investments

•A Convenient way to invest regularly

•Long term perspective

•Rupee Cost Averaging Benefit to counter volatility

•Compounding Benefits

•SIMPLE & CONVENIENT

•A larger target segment due to lower initial investment

SIP – Easy Pay Facility

•Opt for the SIP EASY PAY Auto debit Facility

•Choose the Amount (minimum Rs 500/- p.m.)

•Choose one Day of the month (5th / 10th /15th / 20th / 25th/ 30th )

•Make First Investment by Cheque drawn in favor of the scheme. E.g. SBIMF -Magnum Tax

Gain Scheme

And Relax…….. Every month the said amount will be debited from your bank account and units

will allocate to you.

Register for Statement Of Account (SOA) by mail.

31
 NET ASSET VALUE (NAV):

Since each owner is a part owner of a mutual fund, it is necessary to establish the value of

his part. In other words, each share or unit that an investor holds needs to be assigned a value.

Since the units held by investor evidence the ownership of the fund’s assets, the value of the total

assets of the fund when divided by the total number of units issued by the mutual fund gives us

the value of one unit. This is generally called the Net Asset Value (NAV) of one unit or one

share. The value of an investor’s part ownership is thus determined by the NAV of the number of

units held.

Calculation of NAV:

Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10

investors who have bought 10 units each, the total numbers of units issued are 100, and the value

of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of his

ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the fund’s

investments will keep fluctuating with the market-price movements, causing the Net Asset Value

also to fluctuate. For example, if the value of our fund’s asset increased from Rs. 1000 to 1200,

the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The investment

value can go up or down, depending on the markets value of the fund’s assets.

32
 SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:

The first point to note before investing in a fund is to find out whether your objective

matches with the scheme. It is necessary, as any conflict would directly affect your prospective

returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension

plans, children’s plans, sector-specific schemes, etc.

Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt

schemes, as they are relatively safer. Aggressive investors can go for equity investments.

Investors that are even more aggressive can try schemes that invest in specific industry or

sectors.

Fund Manager’s and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is imperative

that he manages it well. It is also essential that the fund house you choose has excellent track

record. It also should be professional and maintain high transparency in operations. Look at the

performance of the scheme against relevant market benchmarks and its competitors. Look at the

performance of a longer period, as it will give you how the scheme fared in different market

conditions.

33
Cost factor:

Though the AMC fee is regulated, you should look at the expense ratio of the fund before

investing. This is because the money is deducted from your investments. A higher entry load or

exit load also will eat into your returns. A higher expense ratio can be justified only by

superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your

modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list the

year's best performing mutual funds. Naturally, very eager investors will rush out to purchase

shares of last year's top performers. That's a big mistake. Remember, changing market conditions

make it rare that last year's top performer repeats that ranking for the current year. Mutual fund

investors would be well advised to consider the fund prospectus, the fund manager, and the

current market conditions. Never rely on last year's top performers.

34
 Types of Returns on Mutual Fund:

Absolute Return:

Absolute return is the growth in your investment expressed in percentage terms. It can be

understood with the help of a simple example. Suppose you invested Rs 1 Lakh in a mutual fund

scheme. Three years later the value of your investment is Rs 1.4 Lakhs; you can know the value

of your investment from the account statement sent to you by the AMC or the registrar (e.g.

CAMS or Karvy). The total profit made by you is Rs 40,000. The absolute return earned by you

in percentage terms is 40%. Absolute return ignores the time over which the growth was

achieved; if your Rs 1 Lakh investment grew to Rs 1.4 Lakhs in 5 years (instead of 3), the

absolute return will still be 40%.

Annualized Return:

Annualized return, as the name suggests, measures how much your investment grew in value on

a yearly basis. An important thing to note in annualized returns is that, the effect of compounding

is included. Compounding is, very simply, profits made on profits. If you invested Rs 1 Lakh in a

mutual fund scheme and the value of your investment after 3 years is Rs 1.4 Lakhs, then

annualized returns will be 11.9%. Notice that annualized return of 11.9% is less than the absolute

return (40%) divided by the investment period (3 years); this is due to compounding effect. If

you invested Rs 1 Lakh in a mutual fund scheme and the value of your investment after 5 years

is Rs 1.4 Lakhs, then annualized returns will be 7%.

35
Total Return:

Total return is the actual rate of return earned from the investment and includes both capital

gains and dividends. Let us assume that, you invested Rs 1 Lakh in a mutual fund scheme at a

NAV of Rs 20. The number of units of the scheme purchased by you is 5,000 (1 Lakh divided by

20). The NAV of the scheme after 1 year is Rs 22. The value of your units after 1 year will,

therefore, be Rs 1.1 Lakhs (22 X 5,000). The capital gains made by you will be Rs 10,000. Let us

also assume that, during the year, the scheme declared Rs 2 per unit as dividend. Total dividend

paid to you by the AMC would be Rs 10,000 (2 X 5,000). The total return earned by you will be

Rs 10,000 capital gains + Rs 10,000 dividends = Rs 20,000. The total return in percentage terms

will be 20%.

Trailing Return:

Trailing return is the annualized return over a certain trailing period ending today. Let us

understand this with the help of an example. Suppose the NAV of a scheme today (March 10,

2017) is Rs 100. 3 years back (i.e. March 10, 2014), the NAV of the scheme was Rs 60. The 3

year trailing return of the fund is 18.6%. Suppose the NAV of the scheme 5 years back (i.e.

March 10, 2012) was Rs 50. The 5 year trailing return of the fund is 14.9%.

The formula for trailing return (in excel) is as follows:-

= (Today’s NAV / NAV at the start of the trailing period) ^ (1/Trailing Period) – 1

The trailing period can be 1 year, 2 years, 3 years, 5 years, 10 years etc; basically any period.

Trailing return is the most popular mutual performance measure. The returns that you see on

most mutual fund websites are actually trailing returns. If you go to our Mutual Fund Research
36
section, Top Performing Funds, the returns that you see are, in fact, trailing returns. Investors

should note that, trailing returns are biased by current market conditions relative to market

conditions prevailing at the start of the trailing period. Trailing returns are high in bull markets

and low in bear markets.

Point to Point Returns:

As the name suggests, point to point returns measures annualized returns between two points of

time. For example, if you are interested in how a mutual fund scheme performed during a

particular period, say 2012 to 2014, you will look at point to point returns. To calculate point to

point returns of a mutual fund scheme, you necessarily need to have a start date and end date.

You will look up the NAVs of the scheme on start and end dates, and then calculate the

annualized returns.

Annual Return:

Annual return of a mutual fund scheme is the return given by the scheme from January 1 (or the

earliest business day of the year) to December 31 (last business day of the year) of any calendar

year. For example, if the NAVs of a scheme on January 1 and December 31 are Rs 100 and 110

respectively, the annual return for that year will be 10%. Most mutual fund research portals,

including our portal, show annual returns of a scheme in the scheme details page. Annual returns

are shown on the scheme details page in moneycontrol.com and advisorkhoj.com. In

valueresearchonline.com and Morningstar.in, you will find annual returns in the performance

tabs within the scheme details page. Mutual funds are market linked investments and the market

conditions in a particular year will have a significant impact on annual returns. However,

37
comparing annual returns across years relative to benchmark or fund category, can give you a

sense of fund performance consistency.

Rolling Returns:

Rolling returns are the annualized returns of the scheme taken for a specified period (rolling

returns period) on every day/week/month and taken till the last day of the duration compared to

the scheme benchmark (e.g. Nifty, BSE – 100, BSE – 200, BSE – 500, CNX – 500, BSE –

Midcap, CNX – Midcap etc.) or fund category (e.g. large cap funds, diversified equity funds,

midcap funds, balanced funds etc.). Rolling returns are usually shown in a chart format. A rolling

returns chart shows the annualized returns of the scheme over the rolling returns period on every

day from the start date, compared to the benchmark or category.

Rolling returns is not widely used in India, but is widely accepted globally as the best measure of

a fund’s performance. Trailing returns have a regency bias (as explained earlier) and point to

point returns are specific to the period in consideration (and therefore, may not be relevant for

the present time). Rolling returns, on the other hand, measures the fund’s absolute and relative

performance across all timescales, without any bias. Rolling return is also the best tool to

understand, performance consistency and the fund manager’s performance.

Quartile Ranking:

Which is more important, absolute return or relative return? It differs from individual to

individual and we can debate this till the cows come home, but the reality is that, in this

competitive age, there is emphasis on relative performance, both in our work-place and also for

our kids in school. Quartile ranking is a measure of relative performance of mutual fund scheme.

38
Investors should note that, quartile ranking is not a measure of returns, but is actually a rank

versus against all other funds in its category.

The rankings range from “Top Quartile” to “Bottom Quartile” for different time periods. Mutual

funds with the highest percent returns in the chosen time period are assigned to “Top Quartile”,

whereas those with the lowest returns are assigned to “Bottom Quartile”. Quartile rankings are

compiled by sorting the funds based on trailing returns over a period chosen by the user. Funds

in the top 25% are assigned the ranking of “Top Quartile”, the next 25% are assigned a ranking

of “Upper Middle Quartile”, the next 25% after that are assigned a ranking of “Lower Middle

Quartile” and the lowest 25% are assigned the ranking of “Bottom Quartile”. While, the current

quartile ranking of a mutual fund scheme is important, even more important is the consistency of

quartile ranking across several quarters.

SIP Returns / XIRR:

All the returns measures that we have discussed thus far, relate to lump sum or one-time

investments. Lump sum investment returns are relatively simpler to measure because, essentially

you are measuring growth in investment value between two points of time (in the case of total

returns, dividends, if any, also need to be factored). However, systematic investment plan (SIP)

represents a series of cash-flows and so computing SIP returns is more complicated. The

financial metric used to calculate the returns from a series of cash-flows (e.g. SIP, SWP, STP

etc.) is known as the Internal Rate of Return (IRR). The formula of IRR is outside the scope of

this post. If cashflows are not an exact regular time intervals, then a modification of IRR, known

as XIRR (in excel), is used to measure SIP returns.

39
 MUTUAL FUNDS DISTRIBUTION CHANNELS

Investors have varied investment objectives and can be classified as aggressive, moderate and

conservative, depending on their risk profile. For each of these categories, asset management

companies (AMCs) devise different types of fund schemes, and it is important for investors to

buy those that match their investment goals.

Funds are bought and sold through distribution channels, which play a significant role in

explaining to the investors the various schemes available, their investment style, costs and

expenses. There are two types of distribution channels-direct and indirect. In case of the former,

the investors buy units directly from the fund AMC, whereas indirect channels include the

involvement of agents. Let us consider these distribution channels in detail.

Direct channel

This is good for investors who do not need the advisory services of agents and are well-versed

with the fundamentals of the fund industry. The channel provides the benefit of low cost, which

significantly enhances the returns in the long run.

Indirect channel

This channel is widely prevalent in the fund industry. It involves the use of agents, who act as

intermediaries between the fund and the investor. These agents are not exclusive for mutual

funds and can deal in multiple financial instruments. They have an in-depth knowledge about the

functioning of financial instruments and are in a position to act as financial advisers. Here are

some of the players in the indirect distribution channels.

40
a) Independent financial advisers (IFA): These are individuals trained by AMCs for

selling their products. Some IFAs are professionally qualified CFPs (certified financial planners).

They help investors in choosing the right fund schemes and assist them in financial planning.

IFAs manage their costs through the commissions that they earn by selling funds.

b) Organized distributors: They are the backbone of the indirect distribution channel.

They have the infrastructure and resources for managing administrative paperwork, purchases

and redemptions. These distributors cater to the diverse nature of the investor community and the

vast geographic spread

of the country by establishing offices in rural and semi urban locations.

c) Banks: They use their network to sell mutual funds. Their existing customer base serves as a

captive prospective investor base for marketing funds. Banks also handle wealth management for

their clients and manage portfolios where mutual funds are one of the asset classes. The players

in the indirect channel assist investors in buying and redeeming fund units.

They try to understand the risk profile of investors and suggest fund schemes that best suits their

objectives. The indirect channel should be preferred over the direct channel when investors want

to seek expert advice on the risk-return mix or need help in understanding the features of the

financial securities in which the fund invests as well as other important attributes of mutual

funds, such as benchmarking and tax treatment.

41
 WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The money is

invested in various instruments depending on the objective of the scheme. The income generated

by selling securities or capital appreciation of these securities is passed on to the investors in

proportion to their investment in the scheme. The investments are divided into units and the

value of the units will be reflected in Net Asset Value or NAV of the unit. NAV is the market

value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of

the scheme divided by the number of units outstanding on the valuation date. Mutual fund

companies provide daily net asset value of their schemes to their investors. NAV is important, as

it will determine the price at which you buy or redeem the units of a scheme. Depending on the

load structure of the scheme, you have to pay entry or exit load.

42
 STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In India

open and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A

Mutual Fund in India is allowed to issue open-end and close-end schemes under a common legal

structure. The structure that is required to be followed by any Mutual Fund in India is laid down

under SEBI (Mutual Fund) Regulations, 1996.

43
The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in

combination of another corporate body establishes a Mutual Fund. The sponsor of the fund is

akin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms a

trust and appoints a Board of Trustees. The sponsor also appoints the Asset Management

Company as fund managers. The sponsor either directly or acting through the trustees will also

appoint a custodian to hold funds assets. All these are made in accordance with the regulation

and guidelines of SEBI.

As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at

least 40% of the net worth of the Asset Management Company and possesses a sound financial

track record over 5 years prior to registration.

Mutual Funds as Trusts:

A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund

sponsor acts as a settlor of the Trust, contributing to its initial capital and appoints a trustee to

hold the assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the

trust. The fund then invites investors to contribute their money in common pool, by scribing to

“units” issued by various schemes established by the Trusts as evidence of their beneficial

interest in the fund.

It should be understood that the fund should be just a “pass through” vehicle. Under the

Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the

Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts

are taken on its behalf by the Trustees. In legal parlance the investors or the unit-holders are the

44
beneficial owners of the investment held by the Trusts, even as these investments are held in the

name of the Trustees on a day-to-day basis. Being public trusts, Mutual Fund can invite any

number of investors as beneficial owners in their investment schemes.

Trustees:

A Trust is created through a document called the Trust Deed that is executed by the fund

sponsor in favour of the trustees. The Trust- the Mutual Fund – may be managed by a board of

trustees- a body of individuals, or a trust company- a corporate body. Most of the funds in India

are managed by Boards of Trustees. While the boards of trustees are governed by the Indian

Trusts Act, where the trusts are a corporate body, it would also require to comply with the

Companies Act, 1956. The Board or the Trust company as an independent body, acts as a

protector of the of the unit-holders interests. The Trustees do not directly manage the portfolio of

securities. For this specialist function, the appoint an Asset Management Company. They ensure

that the Fund is managed by ht AMC as per the defined objectives and in accordance with the

trusts deeds and SEBI regulations.

The Asset Management Companies:

The role of an Asset Management Company (AMC) is to act as the investment manager

of the Trust under the board supervision and the guidance of the Trustees. The AMC is required

to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have a

net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and non-

independent, should have adequate professional expertise in financial services and should be

individuals of high morale standing, a condition also applicable to other key personnel of the

45
AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund

manager, it may undertake specified activities such as advisory services and financial consulting,

provided these activities are run independent of one another and the AMC’s resources (such as

personnel, systems etc.) are properly segregated by the activity. The AMC must always act in the

interest of the unit-holders and reports to the trustees with respect to its activities.

Custodian and Depositories:

Mutual Fund is in the business of buying and selling of securities in large volumes.

Handling these securities in terms of physical delivery and eventual safekeeping is a specialized

activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or

participating in any clearance system through approved depository companies on behalf of the

Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with the

Mutual Fund. The custodian should be an entity independent of the sponsors and is required to

be registered with SEBI. With the introduction of the concept of dematerialization of shares the

dematerialized shares are kept with the Depository participant while the custodian holds the

physical securities. Thus, deliveries of a fund’s securities are given or received by a custodian or

a depository participant, at the instructions of the AMC, although under the overall direction and

responsibilities of the Trustees.

Bankers:

A Fund’s activities involve dealing in money on a continuous basis primarily with respect

to buying and selling units, paying for investment made, receiving the proceeds from sale of the

46
investments and discharging its obligations towards operating expenses. Thus the Fund’s banker

plays an important role to determine quality of service that the fund gives in timely delivery of

remittances etc.

Transfer Agents:

Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and

provide other related services such as preparation of transfer documents and updating investor

records. A fund may choose to carry out its activity in-house and charge the scheme for the

service at a competitive market rate. Where an outside Transfer agent is used, the fund investor

will find the agent to be an important interface to deal with, since all of the investor services that

a fund provides are going to be dependent on the transfer agent.

47
 REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:

The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These

regulations make it mandatory for mutual fund to have three structures of sponsor trustee and

asset Management Company. The sponsor of the mutual fund and appoints the trustees. The

trustees are responsible to the investors in mutual fund and appoint the AMC for managing the

investment portfolio. The AMC is the business face of the mutual fund, as it manages all the

affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI.

48
 EQUITY – GLOBAL

Trump rhetoric sinks global equities

Global equity markets ended negative as investors continued to pare back risk positions,

walking away with their profits from a strong year as geopolitical tensions rise between US and

North Korea. On MoM basis, European markets (-3%), US markets (-1%) and Japanese markets

(-3%) were the majorlosers among the key global equity markets.

Seems global equity rally here to stay

Developed markets rallied to the tune of 12% in 2017 so far,supported by macro-economic

recovery and improvements in global trade. Despite of sustained rally in equities, valuations

appear to be at reasonable levels, with earnings yield of S&P 500 remains much higher than the

US 10-year Treasuries. Also,the risk premium of US equities appears to be higher than that of

US corporate bonds.These pointers suggest that still more steam left in global and US equity

markets.

49
EQUITY - INDIA

Nifty and Midcap100 Index ended negative1% and 2% respectively. Rising geo-political

tensions,elevated valuations and concerns about near-term earnings disruption due to GST

weighed on investors’ sentiment. RBI has announced a 25bps repo rate cut in its recent meeting,

acknowledging the muted inflation trends and normal monsoons. Politically, NDA got a major

boost in July, with Bihar Chief Minister, Mr. Nitish Kumar breaking alliance with RJD and

forming a new government in alliance with BJP. This augurs well from the RajyaSabha

arithmetic perspective, as it bolsters the government’s numbers in the Upper House to drive

further fiscal reforms in the reminder of the tenure.

Quarter1 earnings remain weak

Earnings continue to disappoint with Q1FY18 net profits of the Nifty 50 index declining

8.4% , and came in 2% lower than consensus estimates. Results suggest that the underlying

conditions in several sectors and the broader economy continue to remain weak. GST led

disruption in sectors such as automobiles, consumer staples, pharmaceuticals and continued

weak underlyingconditions in sectors such as Public sector undertakings, Corporate heavy

private banks and IT sector led to the weak Q1 earnings.

50
While rural consumption likely to be healthy, with monsoon has commenced on time, and is

5% below of long-period average. Overall consecutive normal year of monsoon combined

with farm loan waivers and multiyear high MSP price hikes bodes well from rural

consumption perspective.

Bottom’s up selection helps to outperform markets

51
Out of 50 Nifty stocks, 20 stocks have reported negative to flat earnings growth in FY16 and

FY17, these companies contribute to ~35% of Nifty Mcap weight age. While Nifty has

reported flat earnings growth in FY16 and 7% growth in FY17. However, there were more

than 20 companies which have reported earnings growth of +15% CAGR over FY15-17

contributing to ~45-50% of Nifty Mcap weight age. Fund managers have delivered

outperformance to indices over last 2 years, through constant focus on individual high growth

companies within Nifty. Currently the Nifty index might look expensive on valuations due to

compressed aggregate earnings of the index constituents; while individual high growth

companies within index will continue to outperform, basis through demand momentum in

consumer segments.

Maintain Positive Stance on Equities

While, we remain positive on the markets from a medium to long term perspective led by

structural growth drivers like favorable demographics and improving macro fundamentals.

Elevated valuations, potential near-term earnings disruption due to GST, potential state fiscal

slippages due to widespread farm loan waivers and bankruptcy proceedings against large

corporates could weigh on investors sentiment and market momentum in the short term.

Large caps continue to offer value and margin of safety compared to midcap peers. The key

sectorial players are autos, private banks, consumer focused NBFCs and materials. We re-

iterate our investment strategy of being stock specific and focus on high growth, well-

managed companies with strong cash flows and credible management teams.

52
RECOMMENDED FUNDS – EQUITY

53
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Performance as on August 14, 2017
Up/Down Caption ratio with respect to the category benchmark Index (3 Years)
Standard Deviation (%) is considered for Portfolio Volatility
Turnover ratio is considered for Risk Adjustment Return
Risk free rate: 6.38%

61
 RISKOMETER

62
63
 Research Methodology
Research Objective:-

Main objective-

To identify the level of risk/ security involved in investing in various equity diversified mutual

fund schemes.

Sub objectives-

a) To understand the value of mutual funds in India and their impact

b) To know various kinds of the mutual funds.

c) To get an in-depth knowledge about regulatory firm body of mutual funds in India.

d) To know the best mutual funds investment plan like Systematic investment plan.

e) To know the organizational structure of a mutual funds.

f) To know the steps of how to invest in mutual fund by investor.

64
ThisReport is based on primary as well assecondary data, however primary data collection was

given more importance since it is overbearing factor in attitude studies.

One of the most important uses of Research Methodology is that it helps in identifying the

problem, collecting, analyzing the required information or data and providing an alternative

solution to the problem. It also helps in collecting the vital information that is required by the

Top Management to assist them for the better decision making both day to day decisions and

critical ones.

a) Research Design:Descriptive Design

b) Data Collection Method:Survey Method

c) Universe: 200 (CA and Income Tax advocate)

d) Sampling Method: The sample was collected through personal visits, formal and informal talks

and through filling up the Questionnaire prepared. The data has been analyzed by using

mathematical or statistical tools.

e) Sample Size: 50 respondents

f) Sampling Unit: Businessmen, Government Employee, Retired Individuals

g) Data Source:

 Primary data is collected in the form of Structured Questionnaire.

 Secondary data is collected from various Web sites Like Just Dial.
h) Sample Design: Data has been presented with the help of Bar Graph, Pie Chart, and Line Graph

etc.

65
 Data Analysis & Interpretation

1. Analysison the basisof Qualification

16% 16%

Under Graduation
Graduation
18%
Post Graduation
Others

50%

Interpretation - Out of my survey of 50 people, 50% of the investors are Graduates and

18%Post Graduates and 16% are Under Graduates and others, around 16%, which may

include persons who have passed their 10th standard or 12th standard invests in Mutual

Funds.

66
2. Analysison the basisof Occupation

Investors' Profession

24%

Private Sector
46%
Businessmen
Government Sector

30%

Interpretation –Amazing fact come to light is that around 46% of the investment is been made

by people working in Private sectors, according to them investing in Mutual Funds is more safer

as well as more gainful.

This is followed by the businessmen of around 24%gives more preference in investing in mutual

funds, they think that investing in mutual fund is better than investing in shares as well as Post

office.

Next we see that the persons working in Government sectors of around 30% only invests in

Mutual Fund.

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3. Analysison the basisof Monthly Family Income

Income(%)

10%

40% <= 10000

20%
10001-20000
20001-30000
>30000

30%

Interpretation - Here, we find that investors of around 40% with the monthly income of Rs.

>30000 are the most likely to invest in Mutual fund, than any other income group.

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4. Analysison the basisof factors seen before investing

Risk

10%

Low Risk
20%
High Return
50%
Liquidity
Trust

20%

Interpretation - As it can be clearly Stated from the above Diagram that investors before

investing, the main criteria that they used to give more Preference is Low Risk. According to

them, if a scheme is low risk, it may or may not give a very good return , but still 50% of the

investors choose low risk as the option while investing in Mutual Funds.

Then we see that 20% of the investors take High return as one of their most important criteria.
According to them, if there is no high return then we should opt for Post office and not mutual
fund.
10% of the investors take trust as one of their important factors

Only 20% of the Investors think liquidity as their most preferable options.

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5. Analysison the basisof mode of investment

Modes of Mutual Fund

18%

SIP
LUM SUM

82%

Interpretation - It can be clearly stated from the above Figure that 82% of the investors like

to invest in SIP, as the investor feels that they are more comfortable to save via SIP than the

Long term.

While 18% of the investors find SIP as very burdensome, and they are more reluctant to save in

Long term investment.

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6. Analysison the basisof awarness about Mutual Fund

Awareness

10%

Aware
Unaware

90%

Interpretation -. From a total of 50 people, 45 people are actually aware of the fact of Mutual

fund and are regular investors of Mutual Funds.

5 People were there who have just heard the name or rather are just aware of the fact of existence

of the word called Mutual Fund, but doesn’t know anything else about Mutual Funds.

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7. Analysison the basisfrom where they came to know about Mutual
Fund.

8%

22% Financial Advisors

46%
Advertisement
Peers
Banks

24%

Interpretation -Here from the Line Graph it can be clearly stated that around 46% of the

investors came to know the benefits of Mutual Fund from Financial Advisors. According to the

suggestions given by the financial advisors, people use to choose Mutual Funds Scheme.

Then Secondly, 24% and 22% of the people used to know from Advertisement and Peer group

respectively.

Lastly 8% of the investors do invests after being intimated by the Banks about the benefits of

Mutual Funds.

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 Findings and Suggestions

Findings:-

 On an average 45% of the business people invest in bank deposits and

very less number of business people invest in mutual (both equity and
debt) funds and stock.
 People who lie under the age group of 36-40 have more experience and
are more interested in investing in Mutual Funds.
 People main objective of investment is their retirement plan.
 More number of people at LUCKNOW are having the income level
Above 20,000.
 On an average in Lucknow the people having their savings between
5000 to 10,000
 People invest in insurance for their tax savings
 People expectations from their advisors are monthly fund update,
research based advice, literature and handling quarries of A/c statement
 Up to 75% of the people are not aware of Mutual Funds.
 Most of people given neutral opinion about safe and growth parameters
and also think that mutual fund is having less formality.

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Suggestions:-

 Majority of people think investing in mutual fund is risk and a very

insignificant percentage of people consider this a safe investment. This
reflects lack of awareness about mutual funds in India, for which various
companies or govt. should run awareness programmes from time to time.
 Higher percentage of people invests in insurance for tax savings and very
few people prefer investments in ELSS for tax savings. So the company
should advertise more above the tax savings schemes.
 From the survey it is clear that there is lack of investment planning among
people. The mutual fund companiesshould help and educate the investors
about the investment plans.

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 CONCLUSION:-
Mutual Funds now represent perhaps most appropriate investment opportunity for most

investors. As financial markets become more sophisticated and complex, investors need a

financial intermediary who provides the required knowledge and professional expertise on

successful investing. As the investor always try to maximize the returns and minimize the risk.

Mutual fund satisfies these requirements by providing attractive returns with affordable risks.

The fund industry has already overtaken the banking industry, more funds being under mutual

fund management than deposited with banks. With the emergence of tough competition in this

sector mutual funds are launching a variety of schemes which caters to the requirement of the

particular class of investors. Risk takers for getting capital appreciation should invest in growth,

equity schemes. Investors who are in need of regular income should invest in income plans.

The stock market has been rising for over three years now. This in turn has not only

protected the money invested in funds but has also helped grow these investments.

This has also instilled greater confidence among fund investors who are investing more

into the market through the MF route than ever before.

Reliance India mutual funds, Franklin India Prime fund, indiabulls liquid fund, etc.

provide major benefits to a common man who wants to make his life better than previous.

The mutual fund industry as a whole gets less than 2 per cent of household savings against the 46

per cent that go into bank deposits. Some fund managers say this only indicates the sector's

potential. "If mutual funds succeed in chipping away at bank deposits, even a triple digit growth

is possible over the next few years.

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 Bibliography:-

Web sites:-
 www.mutualfundindia.com

www.amfi.com

Books:-

 Monthly magazines: Investime

76
 ANNEXURE

Sample Questionnaire
Name:................... Age: …………….. Mob. ……………

Ques.1 What is your Qualification?

(a) Under-graduation (b) Graduation (c) Post Graduation (d) Others

Ques.2 What is your Occupation?

(a) Government (b) Private (c) Business (d) Others

Ques.3What is your monthly family income?

(a) <=10000 (b) 10001-20000 (c) 20001-30000 (d) >30000

Ques.4 Do you have any idea about Mutual Fund?

(a) Yes (b) No

Ques.5 From where you came to know about Mutual Fund?

(a) Advertisement (b) Peer Group (c) Banks (d) Financial

Advisors

Ques.6 Where you will prefer to invest?

77
(a) Savings (b) FD (c) Insurance (d) Mutual Fund (e)PO (f) Shares (g) Gold (h) Real

Estate

Ques.7 Which is your preference while investing?

(a) Low Return (b) High Risk (c) Liquidity (d) Trust

Ques.8Which Mutual Fund Company you will prefer to invest?

(a) Reliance (b) SBI (c) UTI (d) HDFC (e) Others

Ques.9 Which mode of investment will you prefer?

(a) Long Term (b) Short Term

Ques.10 Objective of investment?

(a) Preservation (b) Current Income (c) Conservative Growth (d) Aggressive Growth

78