Investors Decision Regarding Investment in MUTUAL FUND

Summer Training Project Report

Submitted to

Uttar Pradesh Technical University, Lucknow In partial fulfillment of the requirements of the degree of

Master of Business Administration

Prepared by Jagriti Rai M.B.A 3rd Semester Roll No. 0804070413 2009-10 Training Supervisor: Mr. Raghvendra Singh (Branch Manager)
Unicon Investment Solution

Department of Business Administration

Technical Education & Research Institute

Post-Graduate College, Ghazipur-233001 (U.P)

DECLARATION
I Jagriti Rai, here by declare that this summer training project report entitled Investors Decision Regarding Investment in MUTUAL FUND has been prepared by me on the basis of summer training done at Unicon investment solution Varanasi during the period of 1st July to 15th August under the supervision of Mr. Raghvendra Singh. (Branch manager) This summer training project report is my bona fide work and has not been submitted in any university or Institute for the award of any degree or diploma prior to the under mentioned date. I bear the entire responsibility of submission of this project report.

Jagriti Rai
M.B.A. 3rd Semester Department of Business Administration Technical Education & Research Institute P.G. College, Ghazipur

INDEX OF CONTENTS
Page No.

PREFACE ACKONWLEDGEMENT.

1 3

PART-I
CHAPTER -1
Introduction to the organization 4 7 9 10 12 27

Brief History Mission & Vision Organizational Structure Products & Services offered by the company SWOT Analysis CHAPTER-2 Introduction Overview Major Mutual Fund company in India
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29
36

PART-II
3

CHAPTER-3 MICRO RESEARCH PROBLEM OBJECTIVES SCOPE IMPORTANCE CHAPTER-4 RESEACH METHODOLOGY CHAPTER-5 DATA ANALYSIS & INTERPRETATION CHAPTER-6 FINDINGS AND RECOMMENDATIONS CHAPTER-7 CONCLUSION AND LIMITATION
BIBLIOGRAPHY ANNEXURE 110 112 114 107 88 78 73 75 76 77

PREFACE
It has been said that Finance is the life blood of business; without finance the heart and brain of business cannot function implying there by its natural death. In present scenario financial market, investment has became, complicated and is both art and a science. One make investments for a return higher than what he can get by keeping the money in commercial or cooperative Bank or even in an Investment Bank. In Finance field, it is common knowledge that money is scarce and investor try to maximize their return But the return is higher if the risk is also higher Return and risk go together and they have a trade off. The art of investment is to see that return is maximized with the minimum of risk if the investor keep his money in a Bank in saving account, he takes the least risk as the money is safe and he will get back when he want it but he runs the risk that the return in real terms, adjusted for inflation negative or small and even if positive it may net come up to his expectations or needs. To utilize the theoretical knowledge, I decided to choose my topic which may cover all and as result I selected Investors decision regarding investment in Mutual Fund I was placed for my summer training in Unicon investment solution varansi. Unicon is a financial service company which has emerged as a one-stop investment solution provided. After deciding the topic, I went to field and took survey of several mutual funds and customers. This project report has been divided into seven chapters, the

first chapter starts with organization history, its product profile, financial analysis marketing strategies and SWOT analysis of UNICON. The second chapter starts with introduction describing the history of mutual fund and different mutual funds industry. In chapter three described the micro research problem. Objectives Importance and scope of the study in chapter four. I focused the research methodology. In chapter five I discussed detail regarding survey analysis means DATA ANALAYSIS AND INTERPRETATION. Chapter six consists of findings and recommendation. In chapter seven consist of conclusions and limitations of the study and lastly bibliography and Questionnaire of the REPORT.

Jagriti Rai MBA 3rd Semester Department of Business Administration Technical Education & Research Institute P.G. College, Ghazipur

ACKNOWLEDGEMENT
A research project report is never the sole product of a person whose name has appeared on the cover. Even the best effort may not prove successful without proper guidance. For a good project one needs proper time, energy, efforts, patience and knowledge. But without any guidance it remains unsuccessful. I have done this research project report with the best of my ability and hope that it will serve its purpose. First of all I wish to express my indebtness to Mr. Raghvendera Singh (Branch Manager) It was really a great learning experience and I am really thankful to Mr. Rahul Anand Singh (HOD), master of business administration, who not only helped me in the successful completion of this report but also spread his precious and valuable time in expending on my knowledge base. I am very grateful to Dr. Neetu Singh, Lecturer MBA for her great is part while completing my survey report She not only guides me but also helped me to perform this research in the efficient and effective way. She support me not only physically but also morally and this is the result of his great effort towards me. After the completion of this research project report I feel myself as a well aware person about the research procedure and the complexities that can arose during the process. Also I get an insight of the training and development activities in an organization. Finally, I am also grateful to all those personalities who have helped me directly or indirectly in bringing up this project report.

Jagriti Rai

PART-I

CHAPTER-1

INTRODUCTION
ABOUT COMPANY

INTRODUCTION TO MUTUAL FUND

A mutual fund is a pool money, collected form investors, and is invested according to certain investment options. A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. A mutual fund is created when investors put their money together. It is therefore a pool of the investors founds. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. The most important characteristics of a fund are that the contributors and the beneficiaries of the fund are the same class of people, namely the investors; the term mutual fund means the investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors in the mutual fund. A mutual funds business is to invest the funds thus collected according to the wishes of the investors who created the pool. Usually, the investors appoint professional investment managers, to manage their funds. The same objective is achieved when professional investment managers create a product and offer it for investment to the investor. This product represents a share in the pool, and pre states investment objectives. Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Investors in the mutual fund industry today have a choice of 39 mutual funds, offering nearly 500 products. Though the categories of product offer can be classified under about a dozen generic heads, competition in the industry has led to innovative alterations to standard products. The most important benefit of product choice is that it enables investors to choose options that suit their return requirements and risk appetite. Investors can combine the options to arrive at their own mutual fund portfolios that fit with their financial planning objectives.

HISTORY OF MUTUAL FUNDS IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Reserve Bank and the Government of India. The objective then was to attract the small investors and introduce them to market investments. Since the, the history of mutual funds in India can be broadly divided into three distinct phases.

PHASE 1: 1964-87 (UNIT TRUST OF INDIA) In 1963, UTI was established by an Act of Parliament and given a monopoly. Operationally, UTI was set up by the Reserve Bank of India, but was later de-linked from the RBI. The first, and still one of the largest schemes, launched by UTI was Unit Scheme 1964. Over the years, US-64 attracted, and probably still has, the largest number of investors in any single investment scheme. It was also at least partially the first open-end scheme in the country, now moving towards becoming fully open-end. Later in 1970s and 80s, UTI started innovating and offering different schemes to suit the needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in 1971. Six new

schemes were introduced between 1981 and 1984. During 1984-87, new schemes like Childrens Gift Growth Fund (1986) and Mastershare (1987) were launched. Mastershare could be termed as the first diversified equity investment scheme in India. The first Indian offshore fund, India Fund, was launched in August 1986. During 1990s, UTI catered to the demand for income-oriented schemes by launching Monthly Income Schemes, a somewhat unusual mutual fund product offering assured returns. The mutual fund industry in India not only started with UTI, but still counts UTI as its largest player with the largest corpus of investible fnds among all mutual funds currently operating in India. Until 1980s, UTI operations in the stock market often determined the direction of marekt movements. The investible funds corpus of even UTI was still relatively small at about Rs. 600 crores in 1984. But, at the end of this Phase One, UTI had grown large as evidenced by the following statistics: 1987-88 Amount Mobilised UTI Total (Rs. Crores) 2175 2175 Assets Under Management (Rs. Crores) 6700 6700

PHASE 2: 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS) 1987 marked the entry of non-UTI, Public Sector mutual funds, bringing in competition. With the opening up of economy, many public sector banks and financial institutions were allowed to establish mutual funds. The State Bank of India established the first non-UTI mutual fund SBI Mutual Fund in November 1987. This was followed by Canbank Mutual Fund (launched in

December, 1987), LIC Mutual Fund (1989), and Indian Bank Mutual Fund (1990) followed by Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. These mutual funds helped enlarge the investor community and the investible funds. From 1987 to 1992-93, the fund industry expanded nearly seen times in terms of Assets Under Management, as seen in the following figures: 1992-93 Amount Mobilised UTI Public sector Total (Rs. Crores) 11057 1964 13021 Assets Under Management (Rs. Crores) 38247 8757 47004

During this period, investors were shifting away from bank deposits to mutual funds, as they started allocating larger part of their financial assets and savings (5.2% in 1992, 3.1% in 1998) to fund investments. UTI was still the largest segment of the industry, although with nearly 20% market share ceded to the Public Sector Funds.

PHASE 3: 1993-96 (EMERGENCE OF PRIVATE FUNDS) A new era in the mutual fund industry began with the permission granted for the entry of private sector funds in 1993, giving the Indian investors a broader choice of fund families and increasing competition for the existing public sector funds. During the year 1993-94, five private sector mutual funds launched their schemes followed by six others in 1994-95. Initially, the mobilization of funds by the private mutual funds was slow. But, this segment of the fund industry now has been witnessing much greater investor confidence in

them. One influencing factor has been the development of a SEBI driven regulatory framework for mutual funds. PHASE 4: 1996 (SEBI REGULATION FOR MUTUAL FUNDS) Deregulation and liberalization of the Indian economy has introduced competition and provided impetus to the growth of the industry. Finally, most investors small or large have started shifting towards mutual funds as opposed to banks or direct market investments. More investor friendly regulatory measures have been taken both by SEBI to protect the investor and by the Government to enhance investors return through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all funds and will eventually be applied in full to Unit Trust of India as well, even though UTI is governed by its own UTI Act. In fact, UTI has been voluntarily adopting SEBI guidelines for most of its schemes. Similarly, the 1999 Union Government Budget took a big step in exempting all mutual fund dividends from income tax in the hands of investors. Both the 1996 regulations and the 1999 Budget must be considered of historic importance, given their far-reaching impact on the fund industry and investors. 1999 marks the beginning of a new phase in the history of the mutual fund industry in India, a phase of significant growth in terms of both amounts mobilized from investors and assets under management. Consider the growth in assets as seen in the figures below:

Gross amount mobilized (Rs. Crore) UTI 1998-99 11679 1999-00 13536

Assets under management (Rs. Crores) 1998-99 1999-00 53320 76547

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Pubic sector Private sector Total

1732 7966 21377

4039 42173 59748

(77.87%) 8292 (12.11%) 6860 (10.02%) 68472

(67.75%) 11412 (10.09%) 25046 (22.16%) 113005

The size of the industry is growing rapidly, as seen the figure of assets under management which have gone from over Rs. 68000 crores to Rs. 113005 crores, a growth of nearly 60% in just one year. Within the growing industry, by March 2000, the relative market shares of different players in terms of amount mobilized and assets under management have undergone a change.

Phase 5: 2002 (BIFURCATION OF UTI) The year 2002 was a historic year for the mutual fund industry. The govt. passed legislation scrapping the UTI Act in the winter session. UTI was simmering in deep trouble for several years & the govt. had to give bail out packages. but , giving the last bailout package of 15000 crs , it divided the institution into 2 parts:

UTI I (includes all the assured return schemes & trouble d flagship of US- 64. An
administrator will monitor these schemes.)

UTI- II (all the NAV based, SEBI compliance schemes, which will function like any other
mutual fund.) The govt. will privatize the scheme in the next 3 5 years, separating itself from the fund.

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Gross amount mobilized (Rs. Crore)

UTI Private sector

Apr 2000-01 71905 23682

Oct 2001-02 44703 58023

The year also opened up new avenues for the mutual fund industry, like:

SECTOR-WISE MOBILISATION BY MFs (FY02)

(Rs Crores)

15000

13049.89

10000

5000
1409.31

0
-hPRIVAT -NhPUBLI 1-

-5000
-7284

-10000

Entry of Mutual funds in the real estate sector, Increasing of equity investments limits in foreign equities to $1bn, Entry into derivatives market.

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THE EMERGENCE OF MUTUAL FUND INDUSTRY Over the past 75 years there has been no better way to experience financial growth than to have been a long-term investor in the Indian stock market. Even though they have experienced some dramatic downturns, stocks, which are ownership shares in public corporations, have outperform all other types of investments including bonds, CDs and Government securities and have stayed ahead of inflation. Like the stock market, successful investing is never a sure thing, since one cant predict what the value of his investment or the rate of return, will be at any point in time. Yet, despite this uncertainty, the stock market remains among the best choices for long term investing.

75 YEARS OF INVESTMENT PERFORMANCE

Compound Annual percent Return (1925-1999) 13

Mutual funds now represent perhaps for most appropriate investment

opportunity for most investors. Since financial market has become more sophisticated and complex, investor need a financial intermediary who provides the required knowledge and professional expertise on successful investing. It is no wonder that in the birth place of mutual funds - the USA the fund industry has already overtaken the banking industry, more funds being order mutual fund management than deposited with banks.

The Indian Mutual Fund Industry has already started opening up many of the exciting investment opportunities to Indian Investors. We have started witnessing the phenomenon of more saving &

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now being entrusted to the mutual funds than to banks. Despite the expected continuing growth in the industry, mutual funds are still a new financial intermediary in India. Hence it is important that the investor acquires better knowledge of what mutual funds are, what they can do for investors and what they cannot, and how they function differently from other intermediaries such as the Banks.

SECURITY, GROWTH AND PROFESSIONAL MANAGEMENT

Suppose one has just started as an investor and have Rs. 20000 to invest and have three important goals you want to achieve.

First, dont want to lose the money in a risk venture so wants security, like that found in a
certificate of deposit or other fixed income investment.

Want to maximize the returns so one also wants the prospect for growth potential. Finally, since one doesnt have the time or knowledge to actively manage his money, he wants
professional money management occasionally diversifying his investment into promising new opportunities. That sounds like a very good plan, but where can you invest his money and have a chance to meet all three criteria? Certificates of deposit and other fixed income investments offer security, but often with low rates of interest and a fixed potential for growth. Individual stocks may carry greater potential for growth but Rs. 20000 isnt a lot to invest and if you put it all in one stock, one risk everything if it perform poorly. And, brokers and investment advisors can offer advice and money management, but at a price to be paid for their services, which reduces further the amount one has to invest.

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So where can one invest money? The answer for more and more Indians is to invest in mutual funds.

MUTUAL FUNDS - THE YEAR AHEAD

A after a difficult year for equity markets & equity funds alike, all the eyes are now on year 2007. Last year saw one of the lowest net flows ever into equity schemes, with debt schemes being the major gainers on account of continued decline in the interest rates. Hopes are high that the performance of equity schemes should be better this year, as the market history indicates such trends. It is only twice in the last 100 years that markets have remained under that controls of bears for three consecutive years. Therefore, chances are those both domestic & international markets will rebound sharply, which would result in much better performance by equity funds. Thus, if one is looking at investing in equity funds, INDEX FUND is the best choice. Though some sect oral funds have been able to give decent returns but overall they havent lived up to the expectation of the market. Every year one or the other sectors strongly outperform the market, but it would still be a better choice to go in for DIVERSIFIED FUNDS, that have features of dynamic plan. The MF industry is expecting tax break, which were withdrawn in the last budget, to be restored. And that is expecting to bring a section of investors back to the markets. Merger V& Acquisitions developments, which started in 2002, are likely to continue. In the few weeks time we will know the winner for ALLIANCE. Another important development in the current year is going to be a big- bang entry of MFs in DERIVATIVES ES market followed by their investments in FOREIGN markets

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Mutual Funds can be structured in the following ways:

Company in which investors hold shares of the mutual fund. In this structure management of the fund in the4 hands of on elected board. Which in turn appoints investment managers to manage the fund? Trust from, in which the investors are held by the trust, on behalf of the investors. They appoint investment managers and monitor their functioning in the interest of the investors. The company form of organization is very popular in the United States. In India mutual funds are organized as trusts. The trust is created by the sponsors who is actually the entity interested in creating the mutual fund business. The trust is either managed by a Board of trustees or by a trustee company formed for this purpose. The investors funds arte held by the trust. Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first functionary to be appointed, and is involved in the appointment of all the other functionaries. The AMC structures the mutual fund products, markets them and mobilizes the funds and services the investors. It seeks the services of the functionaries in carrying out these functions. All the functionaries are required to the trustees, who lay down the ground rules and monitor them, working.

TYPES OF MUTUAL FUNDS

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General Classification of Mutual Funds Open- end Funds/Closed-end Funds

Open-end Funds :-

Funds that can sell and purchase units at nay point in time are

classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not repurchasing, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day.

Closed end Funds :-Funds that can sell a fixed number of units only during the New
Fund (NFO) period are known as Closed- end Funds. The corpus of a closed end Funds. The corpus of end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly form the Funds is not allowed. However, to protect the interests of the investors, SEBL provides investors with two avenues to liquidate their positions. 1. Closed- end Funds are listed on the stock exchanges where investors can buy/sell units for/ to each other/ the trading is generally done at a discount to the NAV of the scheme. The NAV of a closed end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer buy-back of units to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.

Load Funds/ No-load Funds

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Load Funds
Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund managers salary etc; many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors. Entry Load-

Also known as front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investors contribution amount to the fund.

Exit Load-

Also known as Back-end load, these charges re imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor.

Deferred Load- Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSC)-I some schemes, the percentage
of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

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No-load Funds
All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

Tax- exempt Funds/ Non- Tax exempt Funds

Tax- exempts Funds Funds that invest in securities free tax are known as Tax-exempt Funds. All open- end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax free.

Non- Tax-exempt Funds Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are3 categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

EQUITY FUND:-

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a. Aggressive Growth Funds- In Aggressive Growth Funds, Funds, fund

managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become move volatile and thus, are prone to higher risk than other equity funds.

b. Growth Funds- Growth Funds also invest for capital appreciation (with time
horizon of 3 to 5 years) but they are different from aggressive Growth Funds in the sense that they invest in companies that are expected to out perform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that ate expected to post above average earnings in the future.

c. Specialty Funds- Specialty Funds have stated criteria for investments and their
portfolio comprised of only those companies that met their criteria. Criteria for some specialty funds could be to invest/not to invest in particular regions/ companies. Specialty funds are concentrated and thus, are comparatively riskier than diversified funds. There are following types of specialty funds.

i.

Sector Funds: Equity funds that invest in a particular sector/ industry of the
market are known as Sector Funds. The exposure of these funds is limited to a

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particular sector (say Information Technology, Auto, Banking, Pharmaceuticals of Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors.

ii.

Foreign Securities Funds: Foreign securities funds achieve international

diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk.

iii.

Mid-Cap or Small-Cap Funds: Funds that invest in companies having

lower market capitalization than large capitalization companies are called Med-Cap or Small-Cap funds. Market capitalization of mid-Cap companies is less than that of big, blue chip companies (less than Rs.2500 crores but more than Rs.500 crores ) and Small-Cap companies have market capitalization of les than Rs.500 crores Market Capitalization of a company can be calculated by multiplying the market price of the companys share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid ads of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.

iv.

Option Income Funds: While not yet available in India. Option Income Funds
write options on large fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds

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invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors.

d. Diversified Equity Funds-Except for a small portion of investment in liquid

money market, diversified equity funds invest mainly in equities without any concentration on a particular sector (s) these funds arte well diversified and reduce sector-specific or company-specific risk. However like all other funds diversified equity funds too are exposed to equity market risk .One prominent type of diversified equity fund in India is Equity Linked Saving Scheme (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lockin period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.

e. Equity Index Funds- Equity Index Funds have the objective to match the
performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is substituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty Sensex) are less risky than equity index funds that follow narrow sect oral indices (like BSEBANKEX or CNX Bank Index etc.) Narrow indices are less diversified and therefore, are more risky.

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f. Value Funds- Value Funds invest in those companies that have sound
fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share/Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or specialty funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long- term time horizon as risk in the long term to a large extent, is reduced. Equity Income or Dividend Yield FundsThe objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as power of Utility companies whose share price fluctuate comparatively lesser than other companies share price). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds. Debt/Income FundsFunds that invest in medium to long- term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc. ) are known as Debt/ Income Funds. Debt funds are low risk profile

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funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors Debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (Risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of Investment Grade. Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds:

a. Diversified Debt Funds Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments arte properly diversified into all sectors which result in risk reduction. Any loss incurred. On account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor.

b. Focused Debt Funds- Unlike diversified debt funds, focused debt funds are narrow
focus funds that arte confined to investment in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax free Infrastructure or Municipal Bonds. Because of their narrow orientation focused debt

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funds are more risky as compared to diversified debt funds, although not yet available in India; these funds are conceivable and may be offered to investors very soon.

c. High Yield Debt funds- As we now understand that risk of default is present in all
debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of investment grade But, high Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of investment grade. The motive behind adopting this sort of risky strategy is to earn higher interest returns form these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors.

d. Assured Return Funds- Although it is not necessary that a fund will meet its
objectives or provide assured returns to investors, but there can be funds that come with a lock in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns in suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name inn specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee

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returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTIs payment obligation on itself. Currently, no AMC in India offers assured return scheme to investors, though possible. Gilt Funds Also known as Government securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest risk, Interest rates and prices of debt securities are inversely related and any change in the interest results in a change in the NAV of debt/gilt funds in an opposite direction.

Money Market/Liquid Funds Money market / liquid funds invest in short- term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market/liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical

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investment option for liquid funds includes Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).

Hybrid FundsAs the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion debt and equity in their portfolio. There are following types of hybrid funds in India.

a. Balanced Funds- The portfolio of balanced funds include assets like debt
securities, convertible securities, and equity and preference shares help in a relatively equal proportion, the objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon.

b.

Growth- and- Income Funds that combine features of funds are known as

Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for insuring high dividends. The level of risks involved in these funds in lower than growth funds and higher than income funds.

Asset Allocation Funds-

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Mutual may invest in financial assets like equity, debt money market or non-financial (physical) assets like real estate, commodities etc. Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at nay time depending upon their outlook for specific markets, in other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends.

Commodity FundsThose funds that focus on investing in different commodities (like metals, food grains, crude oil etc.0 or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and a bears less risk than a specialized commodity fund. Precious Metals Fund and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds.

Real Estate Funds

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Funds that invest directly in real estate or lend to real estate developers or invest in shares/ securitized assets of housing finance company are known as Specialized Real Estate Funds. The objective of the funds may be to generate regular income for investors or capital appreciation

Exchange Traded Funds (ETF) Exchange Traded Funds provide investor with combined benefits of a closed- end and an openend mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Funds of Funds, of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/ money market instrument or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund scheme with even a small amount of investment, which further helps in diversification of risks.

30

However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into Different mutual fund schemes.

ADVANTAGES OF MUTUAL FUND

S.NO.
1.

Advantage
Professional Management

Particulars
Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified

2.

Less Risk

3.

Low Transaction

portfolio is lesser than investing merely 2 or 3 securities. Due to the economies of scale (benefits of larger volumes),

31

costs 4. Liquidity

mutual funds pay lesser transaction costs. These benefits are passed on to the investors. An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are

5.

Choice of Schemes

far more liquid. Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options.

6.

Transparency

Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to

7.

Flexibility

investors as required by the regulator. Investors also benefit form the convenience and flexibility offered by Mutual Funds. Investors can switch their holding from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) Investment and withdrawal is also offered to

8.

Safety

the investors in most open-end schemes. Mutual Fund industry is part of a well- regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

32

DISADVANTAGES OF MUTUAL FUND

S.NO.
1.

Disadvantages
Hands of an Investor

Particulars
distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance

Costs Control Not in the Investor has to pay investment management fees and fund

2.

No Customized Portfolios

of the fund. The portfolio of securities in which a fund invests is a decision taken by the funds manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial

3.

Difficulty in Selecting a Suitable Fund scheme

objectives. Many investors find it difficult to select one option form the plethora of funds/ schemes/ plans available. For this, they may

33

have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

MUTUAL FUND: COST TO INVESTOR

The utility that mutual fund can offer to investors has been discussed and often eulogized in great detail. However there is another vital aspect to mutual funds that is rarely spoken about the costs. Investing in mutual funds entails bearing certain cost on the investors part. These costs in turn have an impact on the returns clocked by the investor. In this article, we take a closer look at the various costs and expenses borne by investors while investing in a mutual fund scheme.

One-time charges
Entry/exit loads and initial issue expenses qualify as one-time charges, as opposed to recurring expenses which have been dealt with later in the article. First, lets consider the case of new fund offers (NFOs). Over the last few years, investors have been faced with a deluge of NFOs. But in recent times a perceptible trend in NFOs has been a rise in the number of close-ended funds. This phenomenon can be traced to the rules governing initial issue expenses.

34

Close-ended funds are not permitted to charge any entry load; instead 6% of the sum mobilized during the NFO period can be utilized to meet the initial issue expenses The same can be amortized (charged to the fund ) over the funds close-ended tenure. For example, if a close-end fund were to mobilize Rs 5 billion (Rs 500 crores) during the NFO period, the asset management company (AMC) can utilize Rs 300 million (Rs 30crores) to meet the sales, marketing and distribution expenses. Furthermore, the stated sum will be charged to the fund. This will impact the returns clocked by the fund. Any amount over the stated 6% has to be borne by the AMC. Conversely in the case of open- ended NFOs, funds are required to meet all the sales, marketing and distribution expenses from the entry load. They are not permitted to charge any initial issue expenses. The rules governing entry/exit loads state that taken together, the two cannot account for more the 6% of the net asset value (NAV). Charging an entry load for the entire 6% upfront would adversely affect the funds performance in the initial period. Hence AMCs choose to have rater rational entry loads ion the range of 2.25%-2.20%. Like initial issue expenses, entry loads also eat the investors returns, since the investor has that much less money working for him. For example, Say an invests Rs 5,000 in an open- ended fund that charge s an entry load of 2.50%. Effectively, only Rs 4,875 is invested in the fund. If is not difficult to understand why AMCs have a newfound liking for close-ended funds. With the provision for charging 6% of amount mobilized towards initial issue expenses, AMCs are better equipped to compensate toe distributors and agents, who in turn help the fund houses in accumulating more assets. Higher assets translate into higher revenues for the AMCs of courses; close-ended funds do offer advantages as well. For example, the fund manager can make investments from a long-term perspective and investors are

35

given the opportunity to invest for a pre-defined investment horizon. However investors would do well to factor in the costs involved.

Recurring expensesInvestors also have to contend with recurring expenses, which are charged annually to the fund. These expenses are revealed in the form of an expense ratio that is declared twice a year. Recurring expenses (as is the case with amortized issue expenses) are silent in nature since they dont necessarily attract the investors attention. The reason being that the funds NAV is declared after the recurring expenses have been accounted for. The Securities and Exchange Board of India (SEBI) has laid out guidelines defining the manner in which recurring expenses can be charged: the same is a factor of the funds average weekly assets (however most AMCs choose to compute it as a percentage.

The expense ratio Average daily net assets

First Rs 1,000m Next Rs 3,000m Next Rs 3,000m On balance assets

%Limit
2.50% 2.50% 2.00% 1.75%

As can be seen form the table above, the grid for recurring expenses has been structured in a manner to ensure that the expenses charged to the fund reduce with an increase in the asset size. The recurring expenses include marketing and selling expenses (including agents commission),

36

brokerage and transaction cost, custodian fees and fund management expenses (paid to the AMC), among other expenses. A typical list of recurring expenses for an equity fund would look like the following:

Recurring expenses for an equity fund-

Expenses
Fund Management Marketing & Selling Custodian Fees Investor Communication Registrar Fees

% Of average daily net assets

1.25% 0.50% 0.25% 0.20% 0.15%

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Some Mutual Fund Industry in India

Sahara Mutual Fund
Sahara mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. As the sponsor. Sahara Asset Management Company Private Limited inculpated on August 31, 1995 Works as the AMC of Sahara Mutual Fund. The paid-up capital of The AMC stands at Rs.25.8 crore.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 er. Approximately, Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India mutual Fund has more than Rs, 5,500 Crores as AUM., Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund

Tata Mutual Fund (*TMF) is a Trust under the India Trust Act, 1882. The sponsor for Tata Mutual Fund is Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited is one of the fastest in the country with more than Rs, 7,703 crores (as on April30, 2005) of AUM.

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Kotak Mahindra Mutual Fund

Korak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBl. It is presently having more than 1,99,818 investors in it various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes fcatering to investor s with varying risk- return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Unit Trust of India Mutual Fund

UTI Asset Management Company private Limited, established in jan 14, 2003 manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual Fund are Bank of Baroda (BOB). Punjab National Bank (PNB), State Bank of India (SBI) , and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Turstee Co. Limited is the Trustee. It was registered on june 30 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004 Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investor the opportunities to make investments in diversified securities.

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TOP 5 MUTUAL FUNDS COMPANIES IN INDIA

Quiz question: what percentage of household savings is in mutual funds? Answer: 2 per cent. Thats a pittance. Which is why mutual fund houses are trying new ways to not only entice investor, but also entice investor, but also new way to add value and woo you, the customer? There are old scheme, new schemes, old schemes masquerading as new ones, innovative schemes, and value- added schemestheres no telling when this flood will end. And thats not a bad thing at all. This is one case where more is definitely merrier, because it simply enforces the fact that the customer is king. But enough of such clichs, and on to look at those fund houses that lead the rest in sheer innovative schemes, and value-added schemestheres no telling when this flood will end. And thats not a bad thing at all. This is one case where is definitely merrier, because it simply enforces the fact that the customer is king. But enough of such clichs, and on to look at those fund houses that lead the rest in sheer innovativeness. These MFs have done a lot to add value to your investing experience, whether in the form of unique schemes or innovative management or sheer professionalism. Leading our list of five is a fund that most people thought was a loser. Looks are not always what they seem. The MF was actually just sticking to its high ethical ground. This fund houses belief that its way would triumph put it on the top of the heap. Now, on to the list.

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1. Quantum Mutual Fund Rule1: keep launching new schemes. Size matters and bigger is better. Rule 2: Woo distributors to increase collections and to overtake competition. Rule3: Bargain about commission with the distributor but dont worry about it too much: at the end of the day, it is the customer who pays. Shocked? You may well be, but these are the rules almost every mutual fund follows religiously. And thats where Quantum MF part company with the crowd. Mutual funds should be bought, not sold, says Dayal, director, Quantum MF. And thats the foundation of the allow-new Quantum. Launched in February 2006, the fund house has deliberately chosen to avoid distributing its schemes through distributors, a first in this industry. The only way you can buy Quantum schemes is to download the forms from the company site or by asking them to courier the forms to you. Avoiding distributors in peak markets could prove costly. Because they can sell schemes aggressively and help the fund mop up huge collections. Which is possibly why Quantum Long Term Equity fund collected just? Rs 11 crore. Not that they are complaining, Well be very happy after five years when well be able to demonstrate the cost saving move obviously, says Dayal. Incidentally, the fund is also among the very few open-ended equity schemes to levy high exit loads on early withdrawals, yes, Quantum seeks to set an example of how mutual funds should be approached, but this means that it will take it several years before it can accomplish its mission. Well keep you posted. 2- Benchmark Mutual Fund

41

Not many funds have launched index funds in India, and those that did generally made a low-key entrance into that space. And then comes benchmark MF inn 2001, which made no bones about the fact that it was going to launch only index funds. To be precise, it planned to launch only ETFs (exchange- traded funds)- close cousins of index funds. The difference is that ETFs are listyed on the stock exchanges and you can buy and sell units throughout the day and not just at the end of the days price like an index fund or any other open-ended mutual fund. Highlights of Benchmarks portfolio include innovative schemes like its Arbitrage Fund, Split Capital Fund and Liquid BeEs. Benchmark is also the countrys first and only fund with solely passively managed schemes. The MF does not believe in active management: rather, it believes that indexing and quantitative fund management is the way to go. Set up by Rajan Mehta and Sanjiv Shah, the funds philosophy is to remain invested in the index and let it do its own thing. Says Mehta: Over the last three years, the gap of out-performance by actively managed funds over the indices is reducing. It does not mean that fund managers have run out of ideas, but there are some structural changes like better corporate disclosures and the increasing number of informed and professional investors in the market. Due to this, the ability to ad value becomes less, which is why indexing is a much more sustainable strategy over the longer term. As weve seen elsewhere in the world, the more the markets mature and become efficient, the more difficult it becomes to outperform the index.

42

3. Fidelity Mutual Fund

Its the big daddy of mutual funds, and when fidelity entered the Indian market last year, investors and analysts sat up and took notice. The first launch, Fidelity Equity Fund, collected Rs 1,460 crore (Rs14.6 billion), among the largest inflows till the. The fund is now one year old, and has passed its first test with flying colours, with returns of 78.9 percent. So, whats the difference between Fidelity and other MFs, save size? What caught our attention one year ago, and still does, is the fact that Fidelity does not encourage investors to wander in and out of its schemes. It claims to monitor all entries and exits, and if it feels that an investor is making frequent entries and exits into fund, it will disallow those flows. Frequent churning has a negative impact for existing, long-term investors, Says Ashu Suyash, head- Fidelity M.F. Fidelity claims that inception , it hasnt yet come across any instances of investors who churn excessively, but the policy still stands, perhaps as a deterrent. But what about investors who exit soon after the fund was listed? Or maybe even in the first year itself? Suyash says: We had- and still have- an exit load of 1 per cent investors exiting within six months. That may not be enough. If the market goes up phenomenally in a year and so does the fund, eager investors might still pay the load and get away. With SEBI following a maximum of 7 per cent load, theres room left for Fidelity to enforce its belief a bit more.

4. Franklin Templeton Mutual Fund.

43

In the 1990s, most equity funds launched were either closed-and or plain vanilla diversified equity schemes. Enter Franklin Templeton. They launched Indias first equity scheme. Templeton India Growth Fund, based on the concept of value investing. Indias liberalization process, which started in the early 1990s, had picked up momentum towards the middle of that decade and Indian companies that had grown till then in a controlled environment were now waking up to the realities of competition not just with in the country, but also from abroad. En masse, companies began restructuring, Says Chetan Sehgal, director-research, Franklin Templeton: In that sense, a value fund with a focus on long-term potential was seen as an ideal platform for capturing the advantages of this metamorphosis through investments in large companies. However, in its early days, TICF did not do well due to the impact of the South Asian crisis on companys in1997 and the increased interest in technology stocks. The fund stuck to large-cap stocks and stayed away form mid- caps. Though it lost out to its more aggressive peers during the technology boom of 1998-99, it came into its own during 2000-01, when markets crashed. In 2000, when markets lost 20 per cent and the diversified equity funds category lost 30 percent, TIGF lost just 2 per cent. In 2001` , the fund was in the top 10; it lost 10 percent , while Sensex lost 18 percent. Of late, TIGFs performance has slipped and other value funds, notably prudential ICICI Discovery fund, have taken the lead. Heavy exposure to the oil sector was also responsible for

44

pulling down its performance. Is this a temporary effect of will TIGF manage an encore? Only time will tell. 5. Reliance Mutual Fund

The now leader Reliance Mutual Fund has come into its own after years of trailing the likes of Franklin Templeton, HDFC and Prudential ICICI. According to AMFIs March-end figures, Reliance MF is the leading private MF player in terms of corpus and second only to UTI MF overall. Its latest NFO, Reliance Equity, had a lot to do with this, as the fund mopped up Rs, 5,750 crore (Rs 57.5 billion)- the highest inflows ever in a diversified equity fund. But it would be unfair to attribute all the gains to this one scheme. Reliances other funds had a lot to do with this significant growth. Launched in 1995, Reliance MF had a tough time in the early years. Its two flagship equity funds, Reliance Growth and Reliance Vision, showed uninspired performance till 2001. It was only in 2002 when, after a change in fund, management, the schemes started to turn around. And so did the fund houses fortunes. In 2002, both Growth and Vision topped the charts and still continue with their sterling performances. Reliance MF has developed the art of picking up unheard of companies that turn out to be multi-baggers. In recent years, the fund house has launched unconventional sector funds and has done well.

45

While Reliance Diversified Power Fund returned 106 percent, Reliance Media & Entertainment Fund returned 81 percent in the past one year. Reliance Banking Fund returned 48 percent since inception. Over the year, Reliance MF has built up its fixed income side as well. Two of its debt fund, Reliance Income Fund and Reliance FRF, are five- star rated. From a corpus size of Rs 589 crore (Rs 5.89 billion) at the end of 2000. The funds size has grown to Rs 24,670 crore (Rs, 246.7 billion), Theres on looking back now.

46

Performance of mutual funds in India

Let us start the discussion of the performance of mutual funds in India from the day the concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rather to those who believed in saving, to park their money in UTI Mutual Fund. For 30 years it goaled without a single second player. Thought the 1998 year saw some new mutual fund companies, but UTI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yea, some 24 million shareholders was accustomed with guaranteed high returns by the beginning of liberalization of the industry in1992. This good record of UTI became marketing took for new entrants. The expectations of investors touched the sky in profitabi9lity factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs.67bn. The Assets Under Management rose to Rs. 470 bn. In mach 19923 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,54 obn. The net asset values (NAV) of mutual funds in India declined when stock price started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There were rather no choices apart form holding the cash or to further continue

47

investing in shares, one more thing to be noted, since only closed-end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds In India suffered qualitatively. The 1992 stock market scandals, the losses by disinvestments and of course the lack of transparent rules in the where about rocked confidence among the investors. Partly owing to a relatively weak stock market performance. Mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value.

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CHAPTER -3 MICRO RESEARCH PROBLEM

OBJECTIVE SCOPE & IMPORTANCE

49

Micro Research problems

A research problem, in general, refers to some difficulty, which a researcher experiences in the context of either a theoretical or practical situation and wants to obtain solutions. For the same. 12There must be an individual or group, which has some difficulty or the problem. There must be some objective to be attained at. If one wants nothing, one cannot

have problem 3There must be alternative means or the course of action for obtaining the objective

one wish to attain. This means that there must be at least two means available to a researcher for if he has no choice of means, he cannot have a problem. 4Find out the performance of the mutual fund in past years.

5- There must remain some doubt in the mind of researcher with regard to the
selection of alternative. This means that research pro .

Objective of the study

50

The mutual fund industry is fast gaining popularity in todays unpredictable scenario. It is emerging as one of the most locative investment option. The objective of the project is to gain detailed insight into this industry. The objective is to analyze the Position of MF in Indian markets & outline the factors which make MF is the leading player in the mutual funds industry. Also there has been a focus on the rules regulation and general obligation which are pertaining to the mutual fund scheme offered in the industry. The prime objective of the research was to determine the decision of the Indian Investor towards MF and this demonstrated in this report. 1. To know about growth of mutual fund industry in india.

2. To know the objective behind investment.

3. To know how mutual funds are managed. 4. What is the structure of mutual fund. 5. To know the advantages as well as disadvantages of mutul fund. 6. To know about the various threats and oppertunities involved in the mutual fund industry.

51

Scope of the study

The purpose of the study is to obtain information about the mutual fund industry in india. Which helps us to determinevarious issues challenges involved in it. The scope of the study also provide information about the growth of mutual fund industry in india. The research has done to know the various disadvantages of mutual fund. The research also shows that how mutual fund can be most suitable investment for the common man as it offer an opportunity to invest in a diversified,proffesionally managed basket of securities at relatively low cost. Mutual fund help to reduce risk through diversification of proffesinal management. A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market. The study will help to know the preferences of the customers, which company, portfolio, mode of investment, option for getting return and so on they prefer. This project report may help the company to make further planning and strategy

52

Importance of the study

This research help to analyze the Position of MF in Indian markets & outline the factors which make MF is the leading player in the mutual funds industry. Also there has been a focus on the rules regulation and general obligation which are pertaining to the mutual fund scheme offered in the industry.

1- This research determines the decision of the Indian Investor towards MF and this
demonstrated in this report.

2- This research assists to know market growth rate for investment. 3- This research help to know the best option for the investor among different mutual
fund.

4- This research enhance the awareness of the consumer regarding mutual fund. 5- This research help to know the performance of the mutual fund in past years.

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CHAPTER -4
RESEARCH METHODOLOGY

54

RESEARCH METHODOLOGY
Methodology
Research is a common language refers to a search of knowledge. Research is scientific & systematic search for pertinent information on a pacific topic, infect research is an art of scientific investigation. Research methodology is a scientific way to solve research problem. It may be understood as a science of studying how research is doing scientifically. In it we study various steps that are generally adopted by research by research in studying their research problem it is necessary for researchers to know not only know research method techniques but also technology. The scope of Research Methodology is wider than of research methods. The research problem consists of series of closely related activities. At a times. The first step determines the native of the last step to be undertaken, why a research has been defined what data has been collected and what a particular methods have been adopted and a host of similar other questions are usually answered when we talk of research methodology concerning a research problem or study. The project is a study where focus is on the following points:

Research design
55

A research design is defined, as the specification of methods and procedures for acquiring the information needed. It is a plant or organizing framework for doing the study and collecting the data. Designing a research plan requires decision all the data sources, research approaches, Research instruments, sampling plan and contact methods. Research design is mainly of following types:Exploratory research Descriptive studies Casual studies EXPLORATORY RESEARCH The major purposes of exploratory studies are the identification of problems, the more precise formulation of problems and the formulation of new alternative courses of action. The design of exploratory studies us characterized by a great amount of flexibility and ad hoc veracity. DESCRIPTIVE RESEARCH Descriptive research in contrast to exploratory research is marked by the prior formulation of specific research Questions. The investigator already knows a substantial amount about the research problem, perhaps as a Result of an exploratory study, before the project is initiated; Descriptive research is also characterized by a preplanned and structured design. CASUAL OR EXERIMENTAL RESEARCH

56

A casual design investigates the cause and effect relationships between two or more variables. The hypothesis is tested and the experiment is done. There are following types of casual designs:

I. II. III. IV. V. VI.

After only design Before after design Before after with control group design Four groups, six studies design After only with control group design Consumer panel design

DATA COLLECTION METHOD

PRIMARY Direct personal Interview Indirect personal Interview Information from correspondents Mailed questionnaire Published Sources

SECONDARY

Unpublished Sources

Govt. publication Report Committees & Commissions

57

Question filled by enumerators.

Private Publication

PRIMARY DATA
These data are collected first time as original data. The data is recorded as observed or encountered. Essentially they are raw materials. They may be combined, totaled but they have not extensively been statistically processed. For example, data obtained by the peoples. SECONDARY DATA Sources of Secondary Data Following are the main sources of secondary data:

Period of Study:
This study has been carried out for a maximum period of 8 weeks.

Area of study:
The study is exclusively done in the area of finance. It is a process requiring care, sophistication, experience, business judgment, and imagination for which there can be no mechanical substitutes.

Sampling Design:

58

The convenience sampling is done because any probability sampling procedure would require detailed information about the universe, which is not easily available further, it being an exploratory research.

Sample Procedure:
In this study judgmental sampling procedure is used. Judgmental sampling is preferred because of some limitation and the complexity of the random sampling. Area sampling is used in combination with convenience sampling so as to collect the data from different regions of the city and to increase reliability.

Sampling Size:
The sampling size of the study is 75 users.

Method of the Sampling: Probability Sampling

It is also known as random sampling. Here, every item of the universe has an equal chance or probability of being chosen for sample. Probability sampling may be taken inform of:

59

Simple Random Sampling

A simple random sample gives each member of the population an equal chance of being chosen. It is not a haphazard sample as some people think! One way of achieving a simple random sample is to number each element in the sampling frame (e.g. give everyone on the Electoral register a number) and then use random numbers to select the required sample. Random numbers can be obtained using your calculator, a spreadsheet, printed tables of random numbers, or by the more traditional methods of drawing slips of paper from a hat, tossing coins or rolling dice.

Systematic Random Sampling

This is random sampling with a system! From the sampling frame, a starting point is chosen at random, and thereafter at regular intervals.

Stratified Random Sampling

With stratified random sampling, the population is first divided into a number of parts or 'strata' according to some characteristic, chosen to be related to the major variables being studied. For this survey, the variable of interest is the citizen's attitude to the redevelopment scheme, and the stratification factor will be the values of the respondents' homes. This factor was chosen because it seems reasonable to suppose that it will be related to people's attitudes.

60

Cluster and area Sampling

Cluster sampling is a sampling technique used when "natural" groupings are evident in a statistical population. It is often used in marketing research. In this technique, the total population is divided into these groups (or clusters) and a sample of the groups is selected. Then the required information is collected from the elements within each selected group. This may be done for every element in these groups or a sub sample of elements may be selected within each of these groups.

Non Probability Sampling

It is also known as deliberate or purposive or judge mental sampling. In this type of sampling, every item in the universe does not have an equal, chance of being included in a sample.

It is of following type: Convenience Sampling

A convenience sample chooses the individuals that are easiest to reach or sampling that is done easy. Convenience sampling does not represent the entire population so it is considered bias.

Quota Sampling
In quota sampling the selection of the sample is made by the interviewer, who has been given quotas to fill from specified sub-groups of the population.

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Judgment Sampling
The sampling technique used here in probability > Random Sampling. The total sample size is 75 profiles.

Data Collection: Data is collected from various customers through personal interaction. Specific questionnaire is prepared for colleting data. Data is collected with mere interaction and formal discussion with different respondents and we collect data in Unicon Investment Solution and face to face contact with the persons from whom the information is to be obtained (known as informants). The interviewer asks them questions pertaining to the survey and collects the desired information. Thus, we collect data about the working conditions of the workers of Unicon Investment Solution; we worked at Unicon Investment Solution contact the workers and obtain the information. The information obtained is first hand or original in character.

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CHAPTER -5 DATA ANALYSIS & INTERPRETATION

63

QUE. 1 To know the growth of mutual fund industry in India.

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

64

QUE. 2 How mutual funds are managed or working of mutul fund ?

65

QUE. 3 To know the structure of mutual fund?

66

QUE. 4 To know the objective behind investment in mutual fund? Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual fund is categorized as follow:

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QUE. 4 What are the Advantages and Disadvantages of mutual fund?

ADVANTAGES OF MUTUAL FUND

S.NO.
1.

Advantage
Professional Management

Particulars
Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own. Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified

2.

Less Risk

3.

Low Transaction costs

portfolio is lesser than investing merely 2 or 3 securities. Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are

4.

Liquidity

5.

Choice of Schemes

far more liquid. Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further

68

have different plans/options.

6.

Transparency

Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to

7.

Flexibility

investors as required by the regulator. Investors also benefit form the convenience and flexibility offered by Mutual Funds. Investors can switch their holding from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) Investment and withdrawal is also offered to

8.

Safety

the investors in most open-end schemes. Mutual Fund industry is part of a well- regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

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DISADVANTAGES OF MUTUAL FUND

S.NO.
1.

Disadvantages
Hands of an Investor

Particulars
distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance

Costs Control Not in the Investor has to pay investment management fees and fund

2.

No Customized Portfolios

of the fund. The portfolio of securities in which a fund invests is a decision taken by the funds manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial

3.

Difficulty in Selecting a Suitable Fund scheme

objectives. Many investors find it difficult to select one option form the plethora of funds/ schemes/ plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

QUE. 5 To know what are the threats and opportunities involved in mutual fund industry.

OPPORTUNTIES

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Opportunities of Mutual Funds are tremendous specially when investment is concerned. For any individual who intends to allocate his assets into proper forms of investment and want to diversify his Investment Portfolio as well as the risks, Mutual Funds can be proved as the biggest opportunity. Investors gets a lot of advantages with the Mutual Fund Investment. Firstly, they are not required to carry on intensive research and detailed analysis on Stock Market and Bond Market. This work is done by the Fund Mangers of the Investment Management Company on behalf of the investors. In fact, the professional Fund Managers who handle the mutual funds of any particular company, are able to speculate the market trend more correctly than any common individual. Good Speculation about the trends of stock prices and bond prices leads to right allocation of funds in the right stocks and bonds resulting in good Rate of Returns. Investors also get the advantage of high Liquidity of the mutual funds. This means the investors can enjoy easy access to the funds invested in the mutual funds whenever they require the money. When the investors invest in any mutual fund, they are given some equity position in that fund. The investors can any time sell their mutual fund shares to get back the money invested in mutual funds. The only thing is that the Rate of Return that they will get may not be favorable as the return depends on the present market condition. The greatest opportunity that the mutual funds offer is the opportunity of diversifying their investments. Investment Diversification actually diversifies the Risk associated with investment. This is because, if at a time, if prices of some stocks are declining, deceasing the Value of Investment, prices of some other stocks and bonds may tend to rise and in this way the loss of the mutual fund is offset by the strength of the stocks whose prices are rising. As all the mutual funds diversify their investments in various common stocks, preferred stocks and different bonds, the risk to be borne by the investors are well diversified and in other terms lowered. THREATS\CHALLANGES There are many Challenges Facing Mutual Funds which is of prime concern to the people who have an investment spree.

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People find mutual fund investment so much interesting because they think they can gain high rate of return by diversifying their investment and risk. But, in reality this scope of high rate of returns is just one side of the coin. On the other side, there is the harsh reality of highly Fluctuating Rate of Returns. Though there are other disadvantages also, this concern of fluctuating returns is most possibly the greatest challenge faced by the mutual fund. The Issue of Fluctuating Returns In spite of being a diversified investment solution, mutual funds investment in no way guarantees any return. If the market prices of major shares and bonds fall, then the value of mutual fund shares are sure to go down, no matter how diversified the mutual fund portfolio be. It can be said that mutual fund investment is somewhat lower risky than Direct Investment in stocks. But, every time a person invests in mutual fund, he unavoidably carries the risk of losing money. The Other Challenges Diworsification or Over Diversification- In order to diversify the investment, many times

the mutual fund companies get involved in Over Diversification. The risk of holding a single financial security is removed by diversification. But, in case of over diversification, investors diversify so much that many time they end up with investing in funds that are highly related and thus the benefit of risk diversification is ruled out. Taxes-Every year, most of the mutual funds sell substantial amount of their holdings. If

they earn profit by this sell, then the investors receive the Profit Income. For most of the mutual funds,the investors are bound to pay taxes on these incomes, even if they reinvest the income. Costs- Most of the mutual funds charge Shareholder Fees and Fund Operating Fees from

the investors. In the year, in which mutual fund fails to make profit and the investors get no return, these fees only blow up the losses.

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CHAPTER-6 FINDING
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RECOMMENDATIONS & LIMITATIONS OF THE STUDY

Findings
The researcher found that the Reliance mutual fund has more demand than other mutual fund. Pt shows that Reliance mutual fund is the most favorable amongst that people.

The researcher found that the rate of return provided by Reliance mutual fund are best,
cheaper and profitable as compare to other companies mutual fund. that is why most of respondents have invested in Reliance mutual fund. The researcher found that most of the respondents are satisfied with Reliance mutual fund this shows that Reliance has better rate of return.

Most of the respondents are satisfied by Reliance mutual fund because it has large
number of firm & insurance sector in Varanasi.

Most of respondents are influenced by brokers while doing investment it shows that
Brokers are best option for various mutual fund companies to attract more customers.

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 The researcher found that most of respondents would like to opt Reliance mutual fund
in future almost half of the total respondents. This shows that Reliance mutual fund is the most favorable mutual fund among the People.

Recommendations
The study reveals that competition is very stiff in mutual fund segment, yet these is need for continuous improve met of service provided by serviced provides, Consumers are pretty much satisfied with the services provided by Reliance mutual fund because it has better sate of Saturn compared other companys mutual fund. The mutual fund companies should launch new and attraction plans and scheme to elands it market so as to attract new customer The companies should concentrate on the customer who had no investment also so as to increase the number of customer.

Special feature regarding mutual fund may be published in local news paper to create
awareness among in vectors. Investors should be made well a ware about different changes 7 fees entreated from then by the fund houses in name of unit and entry load. After the study of whole concept of mutual fund and having done survey many facts come for the on the bases of observation made from the study following are the suggestion.

75

 After having selected a scheme & having invested in it, the investor must angularly study and follow up his investment after having clearly identified the investment objective.

CHAPTER-7 CONCLUSION AND LIMITATION

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CONCLUSION
The objective of study was to study the market segment of Reliance MF, Tata MF, Kotak
MF, ICICI MF and their industry structure of Unicon investment solution which provide these different mutual fund services to the customer.

The study reveals that competition is very much in existing mutual fund. Yet there is a need of improvement.

Brokers play an important role in creating awareness regarding mutual fund which are
important in helping a customer to make a purchase decision regarding mutual fund.

Consumer inclination towards Reliance mutual fund.

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 Majority of the customer like to opt Reliance mutual fund in the near future.

The study reveals that the investors like to do most of investment for 1 year.

Thus we can say that companies which want to make their mutual fund No. one should need change in trend. However for generalization of the results a study needs to be undertaken is based on large sample across different industries.

LIMITATIONS OF THE STUDY

The study had the following limitations, mainly in the survey work that was done. Time was one of the major constraints in the survey, so only 75 samples

were surveyed during the research and assumed to represent the whole class. The survey sample in only from a small geographic region, a few localities

in Varanasi. These may result in the sample not being a true representation of the entire market for mutual fund. The process of collection of data through questionnaire method is time

consuming and tough job.

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The sample size is too small to analyze the market coverage of various

brands offered by various companies. These days mutual fund industry is very large industry and the area covered

during surveys is too small to analyze the whole market trends, my study is area bounded. Since the results have been drawn on the basis of the information provided by the respondents, biasness during chance of responses might be there

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BIBLIOGRAPHY

BIBLIOGRAPHY
Pandey I.M.: Financial Management, Vikas Publishing house Pvt. Ltd. New Delhi, 9th
Edition.

Khan, M.Y. & Jain P.K.: Basic Financial Management. The Mac Graw-Hill Companies,
New Delhi, 2002, 2nd Edition.

Machiraju, H.R.; Indian Financial System, Vikas Pub. House, Pvt. Ltd. New Delhi, 2nd
edition.

Kotler Philip: Marketing Management: Analysis, Planning, implementation and Control,

Pearson Education, New Delhi, 2003, 11th edition. C.R. Kothari Research Methodology

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 Kothari C.R, Research Methodology, Second Edition, New Age International, 2004. Journals: Analyst magazine Business Standard Smart investors Business world Economics Times Business Today

Websites: www.uniconindia.com www.investments.com.ph www.mutualfundsindia.com www.mutualfund.com www.google.com 81

82

ANNEXURE

QUESTIONNAIRE
Name:- Age: Sex:. Occupation: Address:.

1- Have you any investment? 83

a. Yes b. No 2- Do you have D-mat A/c? a. Yes b. No 3- Would you like invest in mutual fund? a. Yes b. No 4- If customer says yes for the above answer? In which companies mutual fund would he like to invest? a. Reliance MF b. Tata MF c. Kotak MF d. ICICI MF 5- For how long would you like to invest? a. 6 Month b. 1 Year c. 2 Year d. Above 2 Year

6- Parameters considered by the investors at the time of investing in particular mutual fund scheme.

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a. Mutual fund house b. Portfolio c. Rate of return d. Market condition 7- Who influence your decision to invest in mutual fund? a. Broken b. Advertisement c. Friends d. Other 8- What is your satisfaction level regarding the mutual fund you are opting?

a. Satisfied
b. Somewhat satisfied

c. Not satisfied
9- If you would choose some other companies mutual fund in the near future which one you would opt. for? a. Reliance MF b. Tata MF c. Kotak MF d. ICICI MF

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