INVESTORS PERCEPTION ABOUT MUTUAL FUNDS

Presented by - Abhinav srivastava

Introduction of Mutual Funds

A Mutual Fund is a trust that pools the savings of a

number of investors who share a common financial goal. 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 are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

MUTUAL FUNDS OFFERS

Portfolio Diversification Professional Management Reduction/Diversification of Risk Reduction of Transaction costs Liquidity Convenience & Flexibility Safety

Concept of Mutual Fund

In a mutual fund many investors contribute to form

a common pool of money. This pool of money is invested in accordance with a stated objective. . The ownership of the fund is thus joint or mutual i.e. the fund belongs to all investors. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective.

 In India a mutual fund is constituted as a trust & the

investor subscribes to the unit of a scheme launched by the fund. In an open-ended mutual fund, investors can buy units from the fund & sell units to the fund continuously. Each share or unit that an investor holds needs to be assigned a value. Since the units held by an investor evidence the ownership of the funds 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 of one unit or one share.

OPERATIONS FLOW CHART

History of Mutual Fund in India

The formation of Unit Trust of India marked the

evolution of the Indian mutual fund industry in the year 1963.

The primary objective at that time was to attract the

small investors and it was made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases:

Growth and SEBI Regulation - 1996-2004

 Inventors interests were safeguarded by SEBI and the

Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India.
The Union Budget in 1999 exempted all dividend

incomes in the hands of investors from income tax. Various Investor Awareness Items were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about

MUTUAL FUND A GLOBALLY PROVEN INVESTMENT AVENUE

In India, the mutual fund industry started with the

setting up of the erstwhile Unit Trust of India in 1963. Public sector banks and financial institutions were allowed to establish mutual funds in 1987. Since 1993, private sector and foreign institutions were permitted to set up mutual funds.
Assets owned by mutual funds in India have crossed

the 100 billion dollar mark

 In may SBI Mutual fund saw a growth of 21% of its

assets and is currently the biggest mutual fund in India. It is followed by ICICI Prudential, UTI Mutual Fund. HDFC MF and Franklin Templeton in 2nd, 3rd, 4th and 5th positions respectively.

According to Association of Mutual Funds in India

(AMFI), the total AUM of Indian Mutual funds grew from 350279.39 crore to 402035.88 crore in May.

 The top five mutual funds in India have 50% of the

total AUM. SBI Mutual Fund Prudential ICICI UTI Mutual Funds HDFC Mutual Fund Franklin Templeton

59143 crore 50703 crore 40070.16 36146.66 26276.35

Types Of Mutual Funds

Schemes according to Maturity Period

Open-ended Fund/ Scheme

Close-ended Fund/ Scheme

2. Schemes according to Investment

Objective Growth / Equity Oriented Scheme

Income / Debt Oriented Scheme

 Balanced Fund

Money Market or Liquid Fund

Gilt Fund Index Funds 3. Sector Specific Funds/Schemes

4. Tax Saving Schemes

 5. Fund OF Funds (Fof) Scheme 6. Load Or No-Load Fund

ADVANTAGES OF MUTUAL FUND

S. No. Advantage 1.Portfolio Diversification

Particulars

Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).
2.Professional Management 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. 3.Less Risk Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. 4.Low Transaction Costs Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors. 5.Liquidity 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 far more liquid.

6. Choice of Schemes 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 7. Transparency Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.

8. Flexibility Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes. 9. Safety 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.

DISADVANTAGE

DISADVANTAGE

S. No. Disadvantage Particulars 1. Costs Control Not in the Hands of an Investor Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. 2. No Customized Portfolios The portfolio of securities in which a fund invests is a decision taken by the fund 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 objectives. 3. Difficulty in Selecting a Suitable Fund Scheme Many investors find it difficult to select one option from 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.

Mutual Fund Investment Strategies

Systematic Investment Plan (SIPs):

These are best suited for young people who have started their careers and need to build their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in mutual fund scheme the investor has chosen
Systematic Withdrawal Plan (SWPs):

These plans are best suited for people nearing retirement. In these plans an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at regular intervals to take care of expenses.

 Systematic Transfer Plan (STPs) :

They allow the investors to transfer on a periodic basis a specified amount from one scheme to another within the same fund family meaning two schemes belonging to the same mutual fund. A transfer will be treated as redemption of units from the scheme from which the transfer is made

Performance Evaluation

PARAMETERS OF MUTUAL FUND EVALUATION Risk Returns Liquidity Expense Ratio Composition of Portfolio

Measurement of risk
Beta Coefficient Measure Of Risk :

Beta relates a funds return with a market index. It basically measures the sensitivity of funds return to changes in market index.

If Beta = 1

Fund moves with the market i.e. Passive fund

 If Beta < 1

Fund is less volatile than the market i. e Defensive Fund

If Beta > 1 Funds will give higher returns when market rises &

higher losses when market falls i.e. Aggressive Fund

If, for example, a fund has a beta of 1.03 in relation to the

BSE Sensex, the fund has been moving 3% more than the index. Therefore, if the BSE Sensex is increased 10%, the fund would be expected to increase 10.3%.

 Ex Marks or R-squared Measure Of Risk :

Ex Marks represents co relation with markets. Higher the Ex-marks lower the risk of the fund because a fund with higher Ex-marks is better diversified than a fund with lower Ex-marks. R-Squared values range between 0 and 1, where 0 represents no correlation and 1 represents full correlation.
On the other hand, an R-squared value that is less than 0.5 indicates that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark.

 Standard Deviation Measure Of Risk

It is a statistical concept, which measures volatility. It measures the fluctuations of funds returns around a mean level. Basically it gives you an idea of how volatile your earnings are. It is broader concept than BETA. It also helps in measuring total risk and not just the market risk of the portfolio.

How to Calculate the Value of a Mutual Fund

 The investors funds are deployed in a portfolio of securities by the

fund manager. The value of these investments keeps changing as the market price of the securities change. Since investors are free to enter and exit the fund at any time, it is essential that the market value of their investments is used to determine the price at which such entry and exit will take place. The net assets represent the market value of assets, which belong to the investors, on a given date. Net Asset Value or NAV of a mutual fund is the value of one unit of investment in the fund, in net asset terms. NAV = Net Assets of the scheme / Number of Units Outstanding Where Net Assets are calculated as:(Market value of investments + current assets and other assets + Accrued income current liabilities and other liabilities less accrued expenses) / No. of Units Outstanding as at the NAV date

 NAV of all schemes must be calculated and

published at least weekly for closed-end schemes and daily for open-end schemes. The major factors affecting the NAV of a fund are: Sale and purchase of securities Sale and repurchase of units Valuation of assets Accrual of income and expenses

RETURNS
Returns have to be studied along with the risk. A fund could have

earned higher return than the benchmark. But such higher return may be accompanied by high risk. Therefore, we have to compare funds with the benchmarks, on a risk adjusted basis. William Sharpe created a metric for fund performance, which enables the ranking of funds on a risk adjusted basis. and Risk free return on government security or treasury bill over a given period .

Risk Premium = Difference between the Funds Average return

TAX TREATMENT

 To The Unit Holders

(a.) Tax on Income

In accordance with the provisions of section

10(35)(a) of the Act, income received by all categories of unit holders in respect of units of the Fund will be exempt from income-tax in their hands. Exemption from income tax under section 10(35) of the Act would, however, not apply to any income arising from the transfer of these units.

MUTUAL FUND SET UP

HOW IS A MUTUAL FUND SET UP?

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

sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors

Association of Mutual Funds in India (AMFI)

 Association of Mutual Funds in India (AMFI) was

incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.
Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

Association of Mutual Funds India has brought down the

TIPS ON BUYING

Tips on buying mutual funds

1. Determine your financial objectives and how

much money you have to invest. Make sure the funds objectives coincide with your own. Dont change your objectives or exceed the amount set aside for investment unless you have good reason. 2. Always obtain all available information before you invest. Request the prospectus, the Statement of Additional Information and the latest shareholder report from each fund you are considering. 3. Never invest in periodic payment plans unless you are virtually certain that you will not have to redeem early. If you redeem early or do not complete the plan, you may have to pay sales charges of up to 51% of your investment.

4. Be on the alert for incorporation by reference. You will have "no excuse" for not knowing this information, if a problem arises. You may be legally presumed to know materials incorporated by reference in a prospectus or other documents. 5. Always determine all sales charges, fees and expenses before you invest. Fees such as 12b-1 fees can cost you dearly and charges for reinvestment of dividends and capital gains distributions can substantially add to your costs. Shop around among the many funds offered and compare the various fees and costs connected with funds that appeal to you.

6. Learn the costs of redemption. Sometimes investors are surprised to learn that they have to pay to get out of funds through back-end loads or redemption fees. Find out the redemption costs before you invest so you wont be unpleasantly surprised when you redeem your shares. 7. Never treat the risks of investment in a fund lightly. Weigh the risks of the funds you want to buy against your ability to tolerate the ups and downs of the market and your investment goals. Be extra cautious when considering investing in funds with high yield/high risk portfolios. Junk bond problems, for example, invariably affect the funds performance. 8. Dont be misled by the name of a fund. Some funds have been given names denoting safety, stability and low risk, despite the fact that the underlying investments in the portfolio are volatile and highly risky.

WORKING OF MUTUAL FUND- Purchase flow

WORKING OF MUTUAL FUND-Redemption

COMPANY PROFILE

SBI MUTUAL FUNDS

With over 24 years of rich experience in fund

management, we at SBI Funds Management Pvt. Ltd. bring forward our expertise by consistently delivering value to our investors. We have a strong and proud lineage that traces back to the State Bank of India (SBI) - India's largest bank. We are a Joint Venture between SBI and AMUNDI (France), one of the world's leading fund management companies, with approximately Euro 688 billion of assets under management.

 With our network of over 200 points of acceptance

across India, we deliver value and nurture the trust of our vast and varied family of investors. Excellence has no substitute. And to ensure excellence right from the first stage of product development to the post-investment stage, we are ably guided by our philosophy of growth through innovation and our stable investment policies. This dedication is what helps our customers achieve their financial objectives.

OUR SERVICES
Mutual Funds Investors are our priority. Our mission has been to establish Mutual Funds as a viable investment option to the masses in the country. Working towards it, we developed innovative, need-specific products and educated the investors about the added benefits of investing in capital markets via Mutual Funds. Today, we have been actively managing our investor's assets not only through our investment expertise in domestic mutual funds, but also offshore funds and portfolio management advisory services for institutional investors. This makes us one of the largest investment management firms in India, managing investment mandates of over 5.5 million investors.

Portfolio Management and Advisory Services SBI Funds Management has emerged as one of the largest player in India advising various financial institutions, pension funds, and local and international asset management companies. We have excelled by understanding our investor's requirements and terms of risk / return expectations, based on which we suggest customized asset portfolio recommendations. We also provide an integrated end-toend customized asset management solution for institutions in terms of advisory service, discretionary and non-discretionary portfolio management services.

Offshore Funds SBI Funds Management has been successfully managing and advising India's dedicated offshore funds since 1988. SBI Funds Management was the 1st bank sponsored asset management company fund to launch an offshore fund called 'SBI Resurgent India Opportunities Fund' with an objective to provide our investors with opportunities for long-term growth in capital, through wellresearched investments in a diversified basket of stocks of Indian Companies.

PRODUCTS
EQUITY SCHEMES The primary objective of the equity asset class is to provide capital growth / appreciation by investing in the equity and equity related instruments of companies over medium to long term. Equity/ Growth Funds Magnum Multicap Fund Magnum Equity Fund Magnum Multiplier Plus 1993 SBI Blue Chip Fund Magnum Global Fund SBI One India Fund Magnum Midcap Fund

DEBT / INCOME SCHEMES The schemes in this asset class generally invest in fixed income securities such as bonds, corporate debentures, government securities (gilts), money market instruments, etc. and provide regular and steady income to investors. Magnum Children's Benefit Plan Magnum Income Plus Fund - Saving Plan Magnum Income Fund Floating Rate Plan - Savings Plus Bond Plan Magnum Income Fund Floating Rate Plan - Long Term

LIQUID SCHEMES The strategy for liquid funds include investments in short investment horizon, which includes 'cash' assets such as treasury bills, certificates of deposit and commercial paper.
Magnum InstaCash Fund Magnum InstaCash Fund-Liquid Floater SBI Premier Liquid Fund

FIXED MATURITY PLANS These are closed ended debt schemes with a fixed maturity date and they invest in debt & money market instruments maturing on or before the date of the maturity of the scheme.
EXCHANGE TRADED SCHEMES ETFs are nothing but a basket of securities that are traded on

the stock exchange. SBI Mutual fund launched its first ETF product SBI Gold Exchange Traded Fund in March 2009
SBI Gold Exchange Traded Scheme

RESEARCH METHODOLOGY
REASONS FOR CHOOSING A PARTICULAR RESEARCH DESIGN
EXPLORATORY RESEARCH: Since this research helps to assist the

decision maker in determining, evaluating and selecting the factors which prompt dealers and consumers to buy paint in the decorative paint segment, from external sources and reports. questionnaire that had been filled by the dealers and consumers to find the main factors among the factors that had been spotted by exploratory research.

DESCRIPTIVE RESEARCH: This method is used by analyzing the

SINGLE CROSS SECTIONAL DESIGN: Since the data collected in

primary research through administration of questionnaire will be done for one sample of respondents drawn from the target population of consumers and Dealers and this survey will be conducted once.

 DATA PRIMARY DATA

The Primary Data was collected from the survey which involved meeting with the persons who regularly invest in various Mutual Fund & getting the Questionnaire filled.
SECONDARY DATA Secondary data was collected mainly through the

Internet, companys websites

SCOPE OF THE STUDY Area concept: Kanpur Time scope: 2 months SAMPLE DESIGN Defining the target population: Customers of Kanpur form the Target Population. SAMPLING FRAME Customers were selected on the basis of Convenient Judgmental sampling. SAMPLE SIZE The Sample Size for Dealers was 60

MEASUREMENT AND SCALING Mostly comparative scaling techniques will be used for the questionnaire. Rankorder rating scales have been used to determine the preferences of both dealer as well as customer

 DATA ANALYSIS & INTERPRETATION

1. On an average how much do you invest in a month

in Mutual Fund? Below Rs 5000 Rs 25000 Rs 50000 Rs 50000 Rs 75000 Above Rs 100000

Rs 5000 Rs 25000
Rs 75000 Rs 100000

 Result out of 60

Below Rs 5000
Rs 5000 Rs 25000 Rs 25000 Rs 50000

Rs 50000 Rs 75000
Rs 75000 Rs 100000 Above Rs 100000

46 14 0 0 0 0

 2. Rate various criteria (1 - 5) that makes you choose

a particular Mutual Fund (5 for most preferred & 1 for least preferred) Return Tax Company Name Growth and Income Current Income

25

23

22 20

20

18 14 16 16 15 13 1212 8 12 11 7 7 8 4 9 15 13 Return Tax Growth and Income Current Income Company Name 3

15 9

10

6 5

0 5 4 3 2 1

 Following pattern is observed:

Investors give more preference to return while

investing in Mutual Fund. Growth and income is 2nd most favorite among investors after return. Investors give least preference to tax..

 Which of the following best describes your view about

investing, with particular attention to inflation? I prefer very stable returns that avoid loss, realizing that I may only keep pace with or slightly exceed inflation. It shows in graph as option A. I prefer stable returns, but it is still important that I exceed inflation. It shows in graph as option B I prefer a rate of return that exceeds inflation by a substantial amount, but I am not comfortable with extreme fluctuations in value or chance of loss. It shows in graph as option C I want to maximize the rate of return on my investments and am willing to accept potentially large fluctuations in the value of my investments which are likely to experience periodic declines. It shows in graph as option D

Result out of 60

25%

18%

27% 30%

 Following pattern is observed: Investors prefer a rate of return that exceeds inflation by a

substantial amount, but they are not comfortable with extreme fluctuations in value or chance of loss. 4. Assume that over the past year the value of your well-diversified portfolio declined by 20%, despite 10 years of strong performance. How would you react? I would not change my portfolio. It shows in graph as option A I would wait at least a year longer before changing to more conservative options. It shows in graph as option B I would wait at least 3 months before changing to more conservative options. It shows in graph as option C I would immediately change to more conservative options. It shows in graph as option D

Result Out Of 60

10%

13%

A B C 40% D 37%

 Following pattern is observed:

When fund performs below average in comparison to

its peers, then most of the investors are in the position to hold that particular fund for at least three months

. How you view following factors / source of information while investing in mutual fund? (Please tick appropriate column as per the degree of importance)

Highly Unimportant

Un important

Neutral

Important

Important Extremely

Ease of withdrawing Returns Earned

Tax Saving
Performance of past schemes Rating of mutual fund by rating agencies Cost Involved Portfolio Management (Diversification of Money) Risk Involved Percentage Allocation

35 30 25 20 15 10 5 0
Ne ut ra l Im po Ex rta tre nt m ely Im po r ta nt mp or ta nt po rta nt

Ease of withdrawing Returns Earned Tax Saving Performance of Past Schemes Rating of mutual fund By Rating Agencies Cost Invovled Portfolio Management Risk Involved

Un im Hi gh ly

Un i

 Following pattern is observed: Return earned on the fund is the most important aspect

for the investors. Cost involved in the fund is important for the investors. Investors are neutral on the past performance of the scheme. Investors dont take into consideration rating of the fund by the Mutual agencies. Investors dont consider the way their fund is being managed

 6. Which portfolio's behavior are you most

comfortable in accepting? Low potential return and low return fluctuations Moderate potential return and moderate return fluctuations High potential return and high return fluctuations

Result out of 60

13% 27% Low potential return and low return fluctuations Moderate potential return and moderate return fluctuations High potential return and high return fluctuations

60%

 Following pattern is observed: Investors prefer moderate return with moderate fluctuation in their

fund

7. Where would you like to Invest in? SBI Mutual Fund

Others

HDFC

Result out of 60 SBI Mutual Fund HDFC Others 27 11 22

 Following pattern is observed:

Most of the investors have invested their fund in SBI

mutual fund

LIMITATION
Though the study is based on the data collected from

various direct sources and direct personal interviews, still it is not free from limitations like: Limited information access because of lack of informed investors.. Unwillingness on the part of investors to spare time for the survey. Reluctance to share information regarding income, investments and future plans etc.

CONCLUSION AND RECOMMENDATION

After going through a two months summer training and

survey, I have come to know about different aspects of mutual funds and mutual funds industry. India is an emerging market. Consumption level is rising with rising earning level. Economic indicators micro and macro both show a sky facing arrows. Data shows that there will be more number of billionaires from India than any of other country We know that Indians are earning more therefore spending more, but how much they save/invest in order to secure future. There are numbers of traditional ways of saving. They give guaranteed return with low risk. High risk associated investment options was not considered a right decision. India is a young country having a considerably big part of young people. They are more risk taker. They need a right direction for investment options.

 This study and survey on mutual funds is a small eye hole

to see the picture of mutual funds industry in India. This provides almost clear view to the readers. Mutual funds industry is enlarging its size in India. JVs, foreign JVs and acquisitions are in trend. AUM has gone to 402035.88 crore , number of investors is rising, and number of AMCs is going up. Indian market potential is high investors are willing to pour money in mutual funds, despite some temporary restraints other economic factors are in favorable mode. Thus we need proper management of advisory services, more schemes, financial advisors and institutions to cater untouched markets.

BIBLIOGRAPHY
Investment Management- U.A. Avadhani, Himalaya

Publishing House, Second Edition, pg 567-591. Financial Institutions and Markets- Structure, Growth and Innovations- Second Edition, L.M. Bhole, Tata McGraw Hill, pg. 180-200. The Investment Game- How to Win, Prasanna Chandra, 7th edition, Tata McGraw Hill, pg. 121-145. Websites: http://www.sbimf.com/pruicicin/htdocs/index.html http://youtube.com/mf/index.php http://valueresearchonline.com http://www.sebi.gov.in/Index.jsp?contentDisp=Mutu alFunds

QUESTIONS